Restoring Trust in Trade: Liber Amicorum in Honour of Peter Van den Bossche 9781509924189, 9781509924219, 9781509924196

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RESTORING TRUST IN TRADE In the aftermath of the global financial crisis, the world has witnessed increasing manifestations of eroding trust in the international trade regime, including Brexit and the Trump administration’s unilateral trade policies. Restoring trust in the international trading system is essential to prevent the rise of economic nationalism and beggar-thy-neighbour policies, which as history has shown are a threat to global welfare and peace. As a scholar, counsellor of the WTO Appellate Body Secretariat, and, between 2009 and 2017, a member of the WTO Appellate Body, Peter Van den Bossche has addressed the challenges faced by the international trade regime and has tirelessly promoted trust in the multilateral governance model. This Liber Amicorum honours his contribution to the development of a ‘trustworthy’ rules-based multilateral trading system, which has left a lasting legacy. In this timely book, leading experts and friends of Peter Van den Bossche, including his mentors, colleagues and PhD candidates, come together to pay tribute to his work by exploring, from a legal perspective, what can be done to restore trust in trade, focusing on: (1) ensuring a robust institutional framework that promotes rule of law over power politics, (2) safeguarding the integrity and effectiveness of trade dispute settlement, and (3) ensuring that substantive international trade rules appropriately balance trade and nontrade interests.

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Restoring Trust in Trade Liber Amicorum in Honour of Peter Van den Bossche

Edited by

Denise Prévost Iveta Alexovičová and

Jens Hillebrand Pohl

HART PUBLISHING Bloomsbury Publishing Plc Kemp House, Chawley Park, Cumnor Hill, Oxford, OX2 9PH, UK HART PUBLISHING, the Hart/Stag logo, BLOOMSBURY and the Diana logo are trademarks of Bloomsbury Publishing Plc First published in Great Britain 2019 Copyright © The editors and contributors severally 2019 The editors and contributors have asserted their right under the Copyright, Designs and Patents Act 1988 to be identified as Authors of this work. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the publishers. While every care has been taken to ensure the accuracy of this work, no responsibility for loss or damage occasioned to any person acting or refraining from action as a result of any statement in it can be accepted by the authors, editors or publishers. All UK Government legislation and other public sector information used in the work is Crown Copyright ©. All House of Lords and House of Commons information used in the work is Parliamentary Copyright ©. This information is reused under the terms of the Open Government Licence v3.0 (http://www.nationalarchives.gov.uk/doc/ open-government-licence/version/3) except where otherwise stated. All Eur-lex material used in the work is © European Union, http://eur-lex.europa.eu/, 1998–2019. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication data Names: Bossche, Peter van den, honouree.  |  Prévost, Marie Denise, 1971- editor.  |  Alexovi ová, Iveta, editor.  |  Pohl, Jens Hillebrand, editor. Title: Restoring trust in trade : liber amicorum in honour of Peter van den Bossche / edited by Denise Prévost, Iveta Alexovi ová and Jens Hillebrand Pohl. Description: Oxford, UK ; Portland, Oregon : HART Publishing, 2019.  |  Includes index. Identifiers: LCCN 2018038308 (print)  |  LCCN 2018039149 (ebook)  |  ISBN 9781509924202 (Epub)  |  ISBN 9781509924189 (hardback : alk. paper) Subjects: LCSH: Foreign trade regulation.  |  Arbitration (International law)  |  World Trade Organization.  |  LCGFT: Festschriften. Classification: LCC K4600 (ebook)  |  LCC K4600 .R47 2019 (print)  |  DDC 382—dc23 LC record available at https://lccn.loc.gov/2018038308 ISBN: HB: 978-1-50992-418-9 ePDF: 978-1-50992-419-6 ePub: 978-1-50992-420-2 Typeset by Compuscript Ltd, Shannon

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FOREWORD At a time when the free trade system is seriously challenged in the international political arena, it is of utmost importance to plead strongly and constantly for the safeguarding of the proper functioning of the international trade governance system, both within and outside of academia. The editors of this volume entitled Restoring Trust in Trade: Liber Amicorum in Honour of Peter Van den Bossche should be congratulated for their initiative as the various contributions collected in this book will certainly provide valuable input to these ongoing discussions. This book is, however, specifically a sign of appreciation for Peter Van den Bossche, an eminent scholar, wonderful colleague and friend. It is therefore a great honour and pleasure for me to write the foreword to this Liber Amicorum in his honour. Peter is not only a great and renowned scholar in the field of WTO law, but he can also truly be considered as a guardian of this international trade order. This role is certainly not always an easy one but Peter has fulfilled it even in politically difficult times with enormous engagement and diligence and by using all his professional skills, evidencing his firm belief in a robust institutional governance structure in the framework of the WTO to guarantee the peaceful settlement of international trade disputes; a system which is now clearly under threat. This book entitled Restoring Trust in Trade, a book to honour Peter as a worldrenowned expert in WTO law, brings together his doctoral supervisor, many of his friends and colleagues and several of his former students. To some extent this book and the colloquium organised in honour of Peter on 17 December 2018 also mark the close of a period: the period in which Peter has been strongly connected to the Faculty of Law of Maastricht University but also to the Appellate Body of the WTO in Geneva. After having served as a référendaire in the Cabinet of Advocate General Walter Van Gerven at the European Court of Justice in Luxembourg from 1990 to 1992, Peter came to Maastricht for the first time in April 1992. In the early 1990s, as Associate Professor of European Law, he was involved in many of the initiatives which took place at the faculty. This period is sometimes called the ‘wonder years’ of our faculty of law as many very important initiatives that still shape the face of the faculty were taken in this period, eg the creation of the European Law School and the postgraduate ‘Magister Iuris Communis’ programme. As one of the founding fathers and the director of the Masters programme ‘Magister Iuris Communis’, Peter was actively involved from 1993 to 1997 and with his engagement he strongly contributed to the development of the international atmosphere and reputation our faculty now has. In this framework, he introduced and developed a totally new

vi  Foreword course, International Trade Law, which immediately became a great success and attracted an increasing number of students. This was especially the case after the establishment of the WTO in 1995. Many of Peter’s international colleagues rightly praise Peter for his clear analytical legal style and academic contribution to the development of international economic law but his students and colleagues, who have seen Peter as teacher in class, know that perhaps even more, or at least as, important for this area of law is his contribution as a teacher; they all praise his ability to engender in students great  enthusiasm for a legal field they might not have known anything about before they chose the course. Peter is so passionate when teaching that many of his former students, including, for instance, the three editors of this Liber Amicorum, have become rather addicted to this field of law as well. As Peter himself once pointed out, ‘teaching is in [his] genes’; both his parents and one of his grandfathers were teachers. Watching Peter teaching one can clearly see how much joy he has in ­sharing his knowledge with a younger generation of lawyers. For Maastricht University it was therefore a great loss when, in 1997, Peter decided to leave in order to join the WTO, first as Counsellor and later as Acting Director of the Appellate Body Secretariat. For Peter, however, this was certainly a great opportunity to combine academic work with the application of the law in practice and to be actively involved in the further development of this newly created institution. Combining academic work with the practical application of the law is precisely what suits Peter best. We still saw him rather regularly, coming back for sometimes long teaching sessions on Saturdays in the course International Trade Law, combining excellently his professional activities at the Appellate Body Secretariat with the teaching of a new generation of international trade law experts. The quality of Peter’s teaching can certainly also be measured by the fact that these long Saturday teaching periods did not reduce the popularity of the course – on the contrary! Subsequently, in 2002 Peter returned to the faculty of law of Maastricht University as Professor of International Economic Law, which had in the meantime become a fully developed field of international law. After his return, he established the Institute for Globalisation and International Regulation and created a strong and active research group around him at the faculty. It was, however, not surprising to colleagues and friends that Peter returned to the WTO when chosen as one of the seven members of the Appellate Body. We, his colleagues at Maastricht University, were all enormously proud when he received this appointment in 2009 and also when he was reappointed for a second term in 2013. Although we missed Peter’s daily presence at our faculty, his continued commitment to the new generation of trade lawyers was reflected in his dedicated supervision of a growing group of talented doctoral candidates, his efforts to organise an interesting programme for our students’ annual study trip to the WTO and, most recently, his teaching of a pilot condensed version of our new Advanced International Trade Law course, with great success.

Foreword  vii Meanwhile, Peter’s second term at the WTO has come to an end and he has been appointed as Director of Studies and Professor of International Economic Law at the World Trade Institute in Bern, which he combines with many other professional activities, including teaching at the law faculties of the University of Barcelona, the College of Europe and Maastricht University. Looking back on these years, his contribution to the development of WTO law has been enormous and for this he cannot be sufficiently praised. He truly can be considered a real champion in his field. However, Peter has also contributed in so many ways to the shaping of the faculty of law of Maastricht University in these past 25 years, which deserves our gratitude. Personally, I have enjoyed working with Peter very much during these many years and I sincerely hope that we will see him back in Maastricht as often as possible. With this Liber Amicorum, his colleagues and friends show their esteem and gratitude. Ad multos annos! Hildegard Schneider

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ACKNOWLEDGEMENTS This Liber Amicorum was conceived to honour Peter Van den Bossche on the occasion of his 25th anniversary as a member of the Faculty of Law of Maastricht University, and it is to him, in the first place, that our wholehearted thanks are due. As insightful doctoral supervisor, wise mentor and true friend, he has inspired and supported us, and many others, on the journey through the complex and challenging field of international trade law, with his profound questions, his readiness to consider differing opinions and engage in thoughtful debate and, most of all, his steadfast commitment to the multilateral rules-based system for trade. Like his former mentor, the late John H Jackson, widely acknowledged as the founding father of the multilateral trading system, Peter has passed on to a new generation of trade lawyers the firm belief that a rules-based rather than power-based international trading system is essential for global welfare, an understanding that cannot be taken for granted as recent events have shown. With this book we express our heartfelt gratitude and the high esteem and affection in which we, and many others, hold Peter. During the time it has taken for this book to become reality, not only has it been Peter’s 26th anniversary at our Faculty, but we have also realised that there are a great number of other good and timely reasons for this Liber, not only reasons for celebration but also for reflection and introspection. We celebrate a new chapter in Peter’s lifelong achievements as an academic, which has begun after his two terms at the WTO Appellate Body. Freed from the institutional constraints of the latter position, Peter is again presented with the opportunity to engage in critical discussion of the current system and thereby further contribute to strengthening an international economic order based on rules and reason. At the same time, we find reasons for serious reflection. To our dismay, we realise that despite the delay in finishing this book, its theme has not become outdated, but in fact even more timely. This is no reason for cheer, given the grave danger in which the global trading system finds itself today. We hope, however, that the voices, ideas and conclusions conveyed in these pages will spur further thinking about how the rules-based trading system can be saved. For their valuable contributions to this objective we warmly thank the authors of the chapters in this book, current and former mentors, colleagues and students of Peter’s, who have taken the time to reflect on this challenging topic and share their insights in these pages. For her immediately enthusiastic reception of our book proposal and her prompt and professional support throughout the publication process, we thank Roberta Bassi, commissioning editor at Hart Publishing. We are also grateful to Tom Adams, production manager, and Richard Cox, production editor, for their

x  Acknowledgements effective assistance and to Carolyn Fox for her careful copy-editing. In addition, we appreciate the kind help of Rebecca Gilgen of the World Trade Institute. Student assistants Phoebe Cox and Adriana Panait made our editorial work easier, for which we offer our thanks. Most of all, we are grateful to Peter’s beloved late wife Patricia without whom this project would not have materialised and to whose memory we dedicate this book. Denise Prévost Iveta Alexovičová Jens Hillebrand Pohl Maastricht, The Netherlands, 23 July 2018

CONTENTS Foreword������������������������������������������������������������������������������������������������������������������������v Acknowledgements������������������������������������������������������������������������������������������������������ ix List of Contributors��������������������������������������������������������������������������������������������������� xiii Biographical Note: Prof Dr Peter LH Van den Bossche������������������������������������������ xvii Restoring Trust in Trade: Introduction���������������������������������������������������������������������������1 Jens Hillebrand Pohl, Iveta Alexovičová and Denise Prévost PART I DIALOGUE OVER POWER: ENSURING A ROBUST INSTITUTIONAL FRAMEWORK 1. Effecting Global Economic Governance Through the WTO: One Step at a Time?���������������������������������������������������������������������������������������������17 Mary E Footer 2. Trade Policies in Support of Inclusive Growth to the Benefit of All�������������������35 Maarten Smeets and Mina Mashayekhi 3. Gx Dynamics in Global Trade Governance��������������������������������������������������������51 Jan Wouters and Tine Carmeliet 4. Governance Systems of Geographical Indications: An Example of Institutions Enabling Trust and Cooperation Among Producers�������������������67 Anke Moerland PART II INTEGRITY AND EFFECTIVENESS: SAFEGUARDING THE PROPER FUNCTIONING OF TRADE DISPUTE SETTLEMENT 5. The WTO Dispute Settlement System and the Challenges to Multilateralism: Consolidating a ‘Common Global Good’����������������������������87 Giorgio Sacerdoti 6. The ‘Crown Jewel’ of the WTO Has Been Stolen by US Trade Diplomats – And They Have No Intention of Giving It Back����������������105 Ernst-Ulrich Petersmann

xii  Contents 7. The Prospects of Equity in International Economic Law����������������������������������119 Thomas Cottier 8. Blueprint for a Plurilateral WTO Arbitration Agreement under Article 25 of the Dispute Settlement Understanding�����������������������������139 Jens Hillebrand Pohl 9. Improving the Enforcement of Labour Standards in the EU’s Free Trade Agreements����������������������������������������������������������������������������������������������157 Marco Bronckers and Giovanni Gruni PART III BALANCING TRADE AND NON-TRADE VALUES AND INTERESTS: THE FUTURE EVOLUTION OF SUBSTANTIVE INTERNATIONAL TRADE LAW 10. Do PPM Concerns Have A Future?�������������������������������������������������������������������175 Gabrielle Marceau 11. Incentives and Obstacles for Innovation�����������������������������������������������������������199 Anselm Kamperman Sanders 12. EU Food Law and the WTO: Trade, Science and Politics��������������������������������219 Ellen Vos and Sabrina Röttger-Wirtz 13. The General and Security Exceptions in the European Union’s Free Trade Agreements�������������������������������������������������������������������������235 Gian Franco Chianale Essai Typologique: Eternal Clauses – Human and Divine – A Reflection on Deuteronomy XIII:1–6, Matthew 28 and Galatians I����������������������������������������253 Joseph HH Weiler Index��������������������������������������������������������������������������������������������������������������������������263

LIST OF CONTRIBUTORS Iveta Alexovičová PhD is Assistant Professor of International Economic Law at the European and International Law Department of Maastricht University, focusing on international trade and investment law, and a fellow of the Institute for Globalisation and International Regulation (IGIR) at Maastricht University. Marco Bronckers is Professor of Law at Leiden University, where he holds the chair of WTO and EU law. He is also a member of the Brussels Bar. Up-to-date information on his publications, lectures and activities can be found at www.marcobronckers.net. Tine Carmeliet is a Junior Member of the Leuven Centre for Global Governance Studies and Institute for International Law and works as a lawyer at the Brussels Bar. Gian Franco Chianale is a PhD candidate at Maastricht University. Previously, he served as legal officer in DG Trade at the European Commission. He also worked at the European Parliament, at AmCham EU and as a trainee in the Cabinet of the EU Trade Commissioner Peter Mandelson. Thomas Cottier is emeritus Professor of European and International Economic Law, senior research fellow, formerly founding and managing director, World Trade Institute, University of Berne, Switzerland, and adjunct Professor of law, University of Ottawa. Mary E Footer is Professor of International Economic Law and co-Director of the Nottingham International Law and Security Centre at the University of Nottingham School of Law. Giovanni Gruni is Assistant Professor of International Economic Law at Leiden Law School. Up-to-date information on his publications, lectures and activities can be accessed via his Twitter account: https://twitter.com/giovannigruni. Jens Hillebrand Pohl LLM (Harvard) is a doctoral researcher and lecturer in international economic law at Maastricht University and a practising lawyer qualified in England, Ireland and New York. Anselm Kamperman Sanders is Professor of Intellectual Property Law, Director of the Advanced Masters Intellectual Property Law and Knowledge Management and Director of the Institute for Globalisation and International Regulation at Maastricht University.

xiv  List of Contributors Gabrielle Marceau PhD is Senior Counsellor at the Legal Affairs Division of the WTO Secretariat and Associate Professor at the Law Faculty of the University of Geneva. Mina Mashayekhi was the Head of the Trade Negotiations and Commercial Diplomacy Branch (2003–17) and led the Division on Trade in Goods, Services and Commodities (2009–11) at UNCTAD (Geneva). Currently she is a senior adviser on trade, the trading system and SDGs, as well as on finance, investment and ESG, working with the public and private sector. Anke Moerland PhD is Assistant Professor of Intellectual Property Law in the International and European Law Department of Maastricht University. Her research relates to the interface of intellectual property law and political science, such as the governance aspects of intellectual property regulation, in particular the protection of geographical indications. Ernst-Ulrich Petersmann is emeritus Professor of International and European Law and former head of the Law Department at the European University Institute in Florence, Italy. He was legal advisor in GATT and the WTO (1981–2018) and former secretary, member or chairman of GATT and WTO dispute settlement panels. He also served as secretary of the Uruguay Round Negotiating Group elaborating the WTO Dispute Settlement Understanding. Denise Prévost PhD is Associate Professor of International Economic Law and a fellow of the Institute for Globalisation and International Regulation (IGIR) at Maastricht University. She is also a member of the international faculty of the EU-China School of Law, Beijing. Sabrina Röttger-Wirtz PhD is Assistant Professor of EU Health Law at the Tilburg Institute for Law, Technology, and Society (TILT), Tilburg University. She is an associate scholar of the Maastricht Centre for European Law (MCEL). Giorgio Sacerdoti is emeritus Professor of International Law at Bocconi University in Milan, where he has taught since 1986, focusing on trade and investment law. He has held a Jean Monnet chair since 2004. He was a member of the WTO Appellate Body from 2001 to 2009 and its chairman in 2006–07. Hildegard Schneider is Professor of European Union Law, and former Dean (2011–17) of the Law Faculty of Maastricht University. Maarten Smeets PhD is head of the Technical Assistance Coordination, Partnerships and Internship Programmes at the Institute for Training and Technical Cooperation at the WTO. He works closely with universities around the world as part of his responsibilities with respect to the WTO Chairs Programme. He is also a senior visiting fellow at Clingendael. Ellen Vos is Professor of European Union Law and co-director of the Maastricht Centre for European Law (MCEL) at the Maastricht University Law Faculty.

List of Contributors  xv Joseph HH Weiler is University Professor as well as holder of the EU Jean Monnet  Chair at New York University School of Law and Co-Director of the Jean Monnet Center for International and Regional Economic Law & Justice. Jan Wouters is Jean Monnet Chair ad personam of EU and global governance, Full Professor of International Law and International Organizations, and Director of the Leuven Centre for Global Governance Studies and the Institute for International Law, KU Leuven.

Photograph courtesy of the World Trade Organization

BIOGRAPHICAL NOTE PROF DR PETER LH VAN DEN BOSSCHE Born in Belgium on 31 March 1959, Peter Van den Bossche was a member of the Appellate Body of the World Trade Organization from 2009 to 2017 and served as its chairman in 2015. Since 2016 he has been Director of Studies of the World Trade Institute and Professor of International Economic Law at the Faculty of Law of the University of Bern, Switzerland. In 2018 he was elected President of the Society of International Economic Law and became Honorary Professor at the Faculty of Law of Maastricht University, the Netherlands. From 1990 to 1992 he served as a référendaire of Advocate General Walter Van Gerven at the European Court of Justice in Luxembourg. In 1992 he was appointed Associate Professor at Maastricht University, the Netherlands. From 1997 to 2001 he was Counsellor and subsequently Acting Director of the WTO Appellate Body Secretariat. He returned to academia as Professor of International Economic Law at Maastricht University in 2002, where he served as Head of the Department of International and European Law from 2005 until his appointment to the Appellate Body of the World Trade Organization in 2009. Peter Van den Bossche is also a visiting professor of law at the LUISS Guido Carli University, Rome, Italy (since 2016), at the Universidad San Francisco de Quito, Ecuador (since 2016), at the College of Europe, Bruges, Belgium (since 2010), and at the University of Barcelona, Spain (since 2008). He is a member of the Advisory Board of the Journal of International Economic Law, the Journal of World Investment and Trade, the Revista Latinoamericana de Derecho Comercial Internacional and the WTO Chairs Programme of the World Trade Organization. Peter Van den Bossche holds a doctorate in law from the European University Institute, Florence (1990), an LLM from the University of Michigan Law School, Ann Arbor (1986), and a Licence en Droit magna cum laude from the University of Antwerp (1982). Peter Van den Bossche has published extensively in the field of international economic law. The fourth edition of his textbook (co-authored with Werner Zdouc) The Law and Policy of the World Trade Organization was published by Cambridge University Press in 2017. He is also the author (with Denise Prévost) of Essentials of WTO Law, published by Cambridge University Press in 2016.

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Restoring Trust in Trade: Introduction JENS HILLEBRAND POHL, IVETA ALEXOVIČOVÁ AND DENISE PRÉVOST Entre le fort et le faible, entre le riche et le pauvre … c’est la liberté qui opprime et la loi qui affranchit. Abbé Jean-Baptiste Lacordaire International trade is an unequalled factor for the welfare of every civilised State. Lassa Oppenheim [I]f humanity is to thrive, there is no alternative to international institutions and rules that manage and regulate international trade to the benefit of all. Peter Van den Bossche

In the 25 years that have passed since Professor Peter Van den Bossche began teaching at the Maastricht University Faculty of Law, the multilateral trading system has undergone a profound transformation. Belonging to the first post-GATT 1947 generation of international trade lawyers, he and his peers took over from the ‘founding generation’ of the likes of the late Professor John Jackson, which oversaw the process of ‘legalisation’ and ‘judicialisation’ of what was originally international trade diplomacy and its definitive transition into what may more properly be called international trade law, leading to the creation of the World Trade Organization (WTO) in 1995. Over the following decades, the multilateral trading system has witnessed a broad variety of challenges: from the teething troubles of the early days of the WTO, through the ‘Battle of Seattle’ confidence and public relations crisis at the turn of the century and the ‘Doha doldrums’ of the early 2000s, to the rise of mega-regional trade agreements in the 2010s and today’s resurgence of economic nationalism and neo-protectionist tendencies in the wake of the global financial crisis. As a scholar, counsellor of the WTO Appellate Body Secretariat, and, between 2009 and 2017, Member of the WTO Appellate Body, Professor Van den Bossche has in his different capacities addressed these and other challenges and tirelessly promoted trust in the multilateral governance model. Following in the tradition of Professor John Jackson, he has educated and sharpened the thinking of new generations of international trade lawyers. In his adjudicatory practice, his contribution to the development of a ‘trustworthy’ rules-based multilateral trading system has left a lasting legacy.

2  Jens Hillebrand Pohl, Iveta Alexovičová and Denise Prévost A recurring theme of both his scholarly and his practical interest has been the constant quest for an appropriate balance between trade and non-trade societal values and interests.1 The current globalisation crisis era has witnessed expressions of increasingly eroding trust in the ability of the global trading system not only to strike a fair balance between such values and interests, but also to deliver welfare to the benefit of all. Restoring that trust and the trust in an orderly international trading system is needed more than ever to prevent the rise of destructive economic nationalism in the area of trade and investment and of harmful protectionist policies generally. Reflecting on the challenges experienced by the multilateral trading system over these years, and in particular the recent anti-trade sentiment, it is useful to step back and consider the profound resilience and robustness of the overarching political commitment to trade multilateralism, which has managed to keep the WTO together as an organisation throughout these years and in spite of mounting criticism. In its nature and essence, that commitment appears, to an important extent, to be founded on an intellectual leap of faith – on trust in the very idea of international trade. This trust is, however, not to be taken for granted. Trust is connected to the notion of risk. Risk and trust both relate to the unknown, to future uncertainty, of the calculable kind (risk in a narrow sense) as well as the incalculable kind (unknown or unknowable uncertainty). As a linguistic device, the word trust is used to capture a sentiment; one that is essential for all risk-taking and thus for any type of venture, enterprise or undertaking, including trade. In short, trust is necessary to overcome the paralysing effect of the unknown and to be willing to accept risk. Trust therefore makes risk-taking possible, in trade as well as in life. For a long time, trade multilateralism was promoted by an increasingly general politico-economic acceptance of – or trust in – the (uncertain) fundamental utility of international trade. That trust in trade was in turn promoted by the compelling (but not indisputable) economic concept of comparative advantage and, more broadly, by the equally persuasive case for free trade in macro-economic theory and, by extension, by the liberal-capitalist economic order. At the same time, trust in globalisation, as a macro-societal and historical process, was reinforced by trust in multilateralism – in rules-based relations between states and, generally, in the rule of law at international level, multilateral diplomacy, international cooperation, and the primacy of consensus over conflict. Recognising and emphasising the importance of trust for maintaining the current international trading system serves not only to explain the resilience of that system so far, but also to understand existing and future challenges and to 1 See for example, PLH Van den Bossche, G Faber and NJ Schrijver, Unilateral Measures Addressing Non-Trade Concerns: A Study on WTO Consistency, Relevance of Other International Agreements, Economic Effectiveness, and Impact on Developing Countries of Measures Concerning Non-ProductRelated Processes and Product Methods (The Ministry of Foreign Affairs of The Netherlands, 2007); and PLH Van den Bossche, ‘The Appellate Body of the World Trade Organization’ in GD Baere and J Wouters (eds), The Contribution of International and Supranational Courts to the Rule of Law (Leuven Global Governance series, Edward Elgar Publishing, 2015) 176–202.

Restoring Trust in Trade: Introduction  3 identify the possibilities of strengthening that system by restoring the trust that has been challenged by recent crises and changes. This collection of essays, written by friends of Peter Van den Bossche, including his mentors, colleagues and students, pays tribute to his work and contribution to the evolution and understanding of WTO law as a rules-based system eliciting trust, in his capacities as educator, scholar and adjudicator, and celebrates his many years of dedication to the Maastricht University Faculty of Law. These essays address thematically the overarching question of how to restore trust in trade, and in particular in the rules-based international trading system, from a legal perspective, focusing on the following three sub-themes: (1) how to ensure a robust institutional framework that promotes rational dialogue over power politics, (2) how to safeguard the integrity, effectiveness, impartiality and fairness of trade dispute settlement, and (3) how to nurture the evolution of substantive international rules that appropriately balance trade and non-trade interests and ensure that the benefits of trade are truly inclusive. In this Introduction, the legal notion of trust in trade will be further explored as a preliminary matter, before turning to the explanatory relevance and legal implications of this notion by taking stock of the challenges to that trust currently facing the international trading system. In light of these challenges, this Introduction then outlines the thematic structure of the book and highlights the contributions of the following chapters to the core theme.

I.  A Legal Conception of Trust in Trade Trust is based on reputation, and reputation is acquired on the basis of observed behaviour over time. Reputation is an asset, so people invest in it, in that they forego immediate gains for the purpose of enjoying benefits later. But it is not only people who can acquire a reputation, good or bad; institutions and groups can also acquire it and maintain it. It is not easy to model the link between personal, group, and institutional reputation. However, the link needs to be studied ….2

Trust, as described above, is not a legal concept. Nor is it a legal principle. When used in a legal context, it is rather from neighbouring disciplines that the word ‘trust’ is increasingly finding its way into legal scholarship, particularly from fields such as sociology, psychology, ethics, corporate social responsibility, institutional economics, international relations studies and political science.3 In these contexts, trust is treated as a sentiment; one that encourages risk-taking and thus promotes human action. While trust itself is in essence a sentiment, the 2 P Dasgupta, ‘Economic Progress and the Idea of Social Capital’ in P Dasgupta and I Sarageldin (eds), Social Capital: A Multifaceted Perspective (World Bank, 1999) 333. 3 For further discussion of the legal aspect of the concept of trust in trade, see J Hillebrand Pohl, ‘Conceptualizing the complexity-reducing role of societal trust in transnational economic regulation: Towards an interdisciplinary research methodology’, International Journal of Public Law and Policy (forthcoming).

4  Jens Hillebrand Pohl, Iveta Alexovičová and Denise Prévost attainment of trust in society may be regarded as a desirable result of appropriate governance (taken here to mean the development, application and interpretation of legal norms). As such, societal trust can be seen both ex ante as an objective to be promoted and ex post as a consequence of ‘good’ governance. Recognising the link between trust and governance also indicates the link between trust and the legal system. The extent to which the creation, application and interpretation of legal norms are aligned with societal values and interests (ie political morality, in the form of, inter alia, fairness, balance and inclusiveness) is an important basis for trust in a legal system. However, it also follows – perhaps paradoxically – that legal interpretations and justifications, which directly appeal to societal values and interests without being anchored in argumentation on the basis of sources, concepts or principles of law, may actually be counterproductive. Such argumentum ad populum justifications are in fact prone to undermine the sense of security and predictability of – and hence the trust in – the orderly administration of the law and may also appear procedurally, if not substantively, unfair. A reason for this can be traced to the fact that norms (and norm-bound administration of norms) themselves promote trust in future dealings. In this sense, trustworthiness takes the form of security and predictability promoted by confidence in the future regularity of other agents’ conduct, or, in other words, reliance on the expectation that past patterns of behaviour may be extrapolated into the future. This sense of security and predictability may to an important extent – particularly in international trade – be promoted by legal certainty or the reassurance that agents’ conduct will be rules based and conform to transparent requirements of international regulation, and applied and interpreted fairly, openly and in a manner that accords with expectations. It follows then that trust is undermined when rules are not literally applied (flaws in linguistic argumentation), when legal concepts are incoherently applied vis-à-vis other rules and legal concepts (flaws in systemic argumentation), and when principles and policies are applied without concern for the integrity of the law in society (flaws in teleological argumentation). But perhaps even more apparently and more importantly, trust is undermined when the laws or the ­administration of laws are not perceived to safeguard the prevailing values and interests of society from which the law derives its legitimacy (politically immoral governance). This could be the case with governance that is self-serving, inefficient, inept or beholden to special interests. But it could also be because societal values and interests have evolved whereas the laws and the administration of justice are still rigidly safeguarding yesterday’s morality – yesterday’s values and interests. Stated differently, trust may be undermined either for reasons intrinsic to the administration of the law (flaws in various types of argumentation or lack of judicial propriety) or for extrinsic reasons (evolution of societal values and interests beyond those safeguarded by the law). When applied in the context of international trade, a legal conception of trust in trade as outlined above would be inextricably linked to the trust in the legal

Restoring Trust in Trade: Introduction  5 anchoring of trade, which is inherently global in nature. This means that trust in trade from the perspective of such legal conception could not be understood without consideration of trust in the procedural (institutional and adjudicatory) and substantive legal framework governing global trade. That framework is essentially multilateral and multilayered in nature. Trust in trade from a legal perspective therefore comprises trust in a multilayered global institutional framework, with the WTO institutional framework as its central hub and regional institutions as its spokes and trust in an effective trade dispute settlement system, centred around the WTO dispute settlement system, as well as trust in the substantive body of rules governing international trade, again with WTO law at its core. At this point, it is appropriate to consider whose trust in trade, or lack thereof, is involved. It is clear that the multilateral trading system is ‘multilateral’ as between the WTO Members and it is thus upon their trust that the WTO legal system essentially relies. Nonetheless, the WTO Members are accountable, in one way or another, to the expectations of their internal constituencies, whether local politicoeconomic elites and monied interests, organised interest groups and other ‘agenda setters’ and, in democracies, to the general public. Beyond internal interests, WTO Members are also dependent on external influences, notably in the form of other states and foreign economic agents, including lenders, investors and traders. It follows that the WTO Members’ trust in trade is not isolated from the trust in trade, in all its various aspects, of these diverse internal and external influences. This schematic outline of the notion of trust in trade from a legal perspective, for all its simplifications, will serve as a provisional reference point and conceptual framework in the following, but also as an accompanying reminder that international trade law is not and cannot be a (completely) autopoietic system, but that it will always exist more as a ‘filter’ of, than in clinical isolation from, the vagaries of prevailing political sentiment.

II.  Trust in Trade Challenged Can it be concluded that the global rules-based trading system is no longer trusted to protect societal values and interests and to balance them appropriately in case of conflict? If so, is it because that system has developed flaws or because those values and interests have evolved? First it must be emphasised that, even if an erosion of trust in trade cannot be established empirically, sufficient indications can readily be observed in current societal discourse, in the form of challenges to the prevailing paradigm of international trade, to suspect that an erosion of trust may be under way. Some of the most widely publicised examples of such challenges are provided by the Trump administration’s trade agenda and Brexit, as well as public opposition in continental Europe to new international trade deals, such as the EU–Canada Comprehensive Economic and Trade Agreement (CETA) and the Transatlantic

6  Jens Hillebrand Pohl, Iveta Alexovičová and Denise Prévost Trade and I­ nvestment Partnership (TTIP). Yet it is not immediately obvious that these various challenges have much in common intellectually. While the Trump trade agenda most radically advocates a form of anarchy on the international plane,4 signalling a future policy of selective and self-interested disregard for Appellate Body rulings,5 combined with a preference for bilateral power politics over broad-based multilateral initiatives,6 and national trade remedy enforcement over diplomatic engagement,7 by contrast the Brexit antitrade challenge is far more ambiguous and contradictory. In spite of warm words for free trade and an absence of criticism directed towards the WTO and the multilateral trading system,8 the essential thrust of Brexit is an abandoned commitment to the EU legal order and its defining freedoms,9 and a downgraded political priority given to international economic relations, including trade. A popular preference for having fewer foreigners in the country is allowed to take precedence over trade and other economic interests. That preference is unquestioned but is evidently not grounded on economic reasoning. Different again is the continental European opposition to CETA and TTIP. Perhaps reflecting different customs of societal discourse, this opposition has been more argumentation based and less obviously connected with broader grievances against immigration than its Anglo-American counterparts. Nonetheless, these arguments also reveal an eroding trust in the ability of international trade agreements to appropriately balance the competing interests of economic growth through trade and the protection of non-trade values and interests.

4 2017 Trade Policy Agenda and 2016 Annual Report of the President of the United States on the Trade Agreements Program, Office of the United States Trade Representative (2017) 2. 5 ibid 3: ‘The Uruguay Round Agreements Act states that, if a WTO dispute settlement report is “adverse to the United States, [the U.S. Trade Representative shall] consult with the appropriate congressional committees concerning whether to implement the report’s recommendation and, if so, the manner of such implementation and the period of time needed for such implementation,” confirming that these WTO reports are not binding or self-executing. … In other words, even if a WTO dispute settlement panel – or the WTO Appellate Body – rules against the United States, such a ruling does not automatically lead to a change in U.S. law or practice.’ 6 ibid 6: ‘Plainly, the time has come for a major review of how we approach trade agreements. … But, going forward, we will tend to focus on bilateral negotiations, we will hold our trading partners to higher standards of fairness, and we will not hesitate to use all possible legal measures in response to trading partners that continue to engage in unfair practices.’ 7 ibid 4: ‘The Trump Administration will not tolerate unfair trade practices that harm American workers, farmers, ranchers, service providers, and other businesses large and small. … And, when the WTO adopts interpretations of WTO agreements that undermine the ability of the United States and other WTO Members to respond effectively to these real-world unfair trade practices with remedies expressly allowed under WTO rules, these interpretations undermine confidence in the trading system.’ 8 See eg, Brexit: Trade in Goods, HL Paper 129, House of Lords, European Union Committee, 16th Report of Session 2016–17 (2017). 9 See eg, Brexit and the EU Budget, HL Paper 125, House of Lords, European Union Committee, 15th Report of Session 2016–17 (2017) para 136: ‘Individual EU Member States may seek to bring a case against the UK for the payments of outstanding liabilities under principles of public international law, but international law is slow to litigate, and hard to enforce. In addition, it is questionable whether an international court or tribunal could have jurisdiction.’

Restoring Trust in Trade: Introduction  7 However, in spite of these various challenges, merely discrediting or seeking to discredit the prevailing paradigm of international trade, and its attendant normative framework of international trade law, does not imply that the demise of that paradigm is imminent. In his 1962 seminal work The Structure of Scientific Revolutions, which came to have a profound influence on the subsequent and prevailing understanding of knowledge, Thomas Kuhn once famously observed that no matter how discredited a prevailing scientific paradigm becomes, it will not be rejected before the emergence of a new paradigm to replace it.10 With that parallel in mind, it is telling that the Trump-Brexit-CETA/TTIP challenges to the trading system have not been accompanied by any kind of proposed alternative system to replace it, nor by an intellectual framework of any kind to support such an alternative paradigm. What can be discerned so far is a mixture of scepticism about the wisdom of economic integration and about the possibility of mutually beneficial trading relationships, and scepticism about pluralism and harmonious cultural integration. There are also broader doubts beyond trade about the merits of multilateralism in international relations, in favour of power politics, disengagement from multilateral diplomacy and selective engagement on a bilateral basis. These inclinations have been mirrored domestically with a growing disregard for inclusive social dialogue and deliberative democracy, in favour of ‘strong-man’ politics (cf Hungary and Turkey), non-inclusive communication (facilitated by social media) and direct (referendum) democracy. Yet, in keeping with Kuhn’s original insight, it cannot be ruled out that the current efforts to discredit the prevailing paradigm may be the proverbial canary in the coalmine, signalling that trust in conventional wisdom regarding the benefits of liberalised trade is waning. It is in this last respect that the emphasis on trust in trade may usefully contribute to an understanding not only of the resilience of the multilateral trading system, but also of the potential causes of the threats to this system and of how to address them. Applying the conception of trust outlined earlier to today’s situation, it is submitted that if trust is being eroded for intrinsic reasons, because of poor governance, including a lack of balance in the interpretation of existing rules or systematic flaws in institutional decision-making, restoring trust in trade would require an overhaul of the operation of the WTO institutional bodies and organs. If, on the other hand, reasons extrinsic to good governance have prompted a loss of trust, the implication would be that at least some of the societal values and interests currently protected and considered by the multilateral trade regime have become outdated or that new societal values and interests are currently not sufficiently protected or considered. The implied solution to restore trust would then be to identify those ‘outdated’ or ‘new’ values and interests and seek to effectuate a rebalancing of substantive trade rules to reflect an updated set of societal values and interests.

10 T

Kuhn, The Structure of Scientific Revolutions (4th edn, University of Chicago Press, 2012) 77.

8  Jens Hillebrand Pohl, Iveta Alexovičová and Denise Prévost To what extent, then, are the current challenges to trust in trade intrinsic or extrinsic in nature? To begin with, is there much evidence of challenges of the former kind? The WTO – most notably the dispute settlement system – is arguably facing one of the most severe direct challenges in its little over 20-year history, viz by the United States, one of the founders of the multilateral trading system. Ironically, this challenge is principally aimed at the trust in the Appellate Body. However, although this new challenge is in the form of familiar critique of the Appellate Body’s procedural arrangements11 and the exercise of its mandate, echoing earlier complaints about judicial activism, it in fact appears aimed at achieving something hitherto unimaginable: to impair the judicial integrity and effectiveness of the Appellate Body and by extension the entire WTO dispute settlement system. By politicising and holding up the appointment process for Appellate Body Members, the integrity of those (eventually) appointed may be put in doubt, while the delay in appointments causes delays in judicial decision-making, both of which serve to severely undermine the trust in the proper functioning of the dispute settlement system.12 While these actions appear aimed at intrinsic aspects of the WTO’s dispute settlement system, by undermining the trust in the dispute settlement system they can be better understood as an extrinsic attempt to question the political morality (ie the balance of values and interests) currently underpinning the entire multilateral trading system and WTO law, which the Appellate Body is tasked with applying. These challenges to trust in trade thus appear to signal the need to reflect changes in political morality – a rebalancing of the various societal values and interests upon which the international trading system relies – in updated legal norms governing trade. This reflection of a new balance cannot only take place through the interpretation of existing rules. While the Appellate Body has made a valiant attempt to reflect the ‘contemporary concerns of the community of nations’13 in its interpretations of provisions allowing scope for measures pursuing societal objectives, this effort has its limits. Clearly what is also needed is to address constraints to political decision-making at the WTO, in particular the WTO’s function to provide a forum for negotiations on new trade rules. Here, the experience culminating in the failure of the Doha Round could credibly be interpreted to have undermined trust in the WTO’s ability to shape international trade law in a manner that reflects the changing interests of its membership and evolving societal concerns.

11 See eg, G Shaffer, M Elsig and M Pollack, ‘Trump is fighting an open war on trade, His stealth war on trade may be even more important’ Washington Post, 27 September 2017; cf Statements by the United States at the Meeting of the WTO Dispute Settlement Body as delivered in Geneva on 31 August 2017, Items 6 and 7. 12 Shaffer et al (above n 11). 13 Appellate Body Report, US–Shrimp (1998) para 129.

Restoring Trust in Trade: Introduction  9 It does not require much effort to identify potential reasons why the existing implicit political morality reflected in the multilateral trading system and regional trade agreements has become discredited, apart from the WTO’s ‘legislative’ paralysis. One obvious reason was the global financial crisis of 2008–09, which seriously undermined the authority of economic theoretical orthodoxy, without necessarily giving way to new theoretical approaches. As a follow-on effect, the macro-economic promises of trade liberalisation appear incapable of being trusted to produce benefits to all, whether because of more frequent and severe economic disruptions, pervasive structural unemployment, growing economic inequality or an increasing perception of venality and corruption of business and politics, leading to concerns that trade is not inclusive and the gains of trade, as a consequence, are unevenly spread. While it is clear that trust in the prevailing rules-based system for trade, with the WTO at its apex, has been severely challenged recently, there is no credible alternative. The rule of law in international trade operates as a bulwark against power politics, unilateralism and beggar-thy-neighbour policies in trade and ensures the security and predictability that is indispensable in international economic relations. It is therefore essential to examine carefully the intrinsic and extrinsic factors likely to undermine support for the rule of law in trade and take seriously the concerns underlying them in order to restore trust in trade.

III.  Restoring Trust in Trade The analysis so far has indicated that the resilience of the trading system depends crucially on trust. That trust depends in turn on the ability of the trading system to achieve a fair balance between often competing societal values and interests, both economic and non-economic. These values and interests are not static but are constantly evolving. It follows that, in order to maintain a universally acceptable balance of values and interests, it is not sufficient that the WTO legal order was well designed from the beginning and well administered thereafter, it must also be capable of intelligently adapting to the demands of societal change. Part I of this book addresses this requirement from the perspective of institutionalised trust and trust in institutions, by looking at governance structures in international trade, how the politico-economic context of global trade that the WTO regime seeks to institutionalise has evolved and how the working of global trade governance can be made more effective and inclusive so as to restore trust in the rule-making process. Chapter 1 (by Mary E Footer) critically reflects on four areas for institutional reform of the WTO, identified at a 2005 Maastricht conference as vital for effective global economic governance, namely consensus decision-making; transparency, democratic legitimacy and participation of civil society in WTO decision-making; secondary law-making by WTO bodies; and the role of the WTO Secretariat.

10  Jens Hillebrand Pohl, Iveta Alexovičová and Denise Prévost It reviews the progress, or lack thereof, in these areas against the background of the changed circumstances in which the WTO finds itself today, which call into question the continued relevance of the WTO and undermine the trust of Members, their citizens and civil society in this system. The chapter makes several proposals to move the reform agenda forward, if only ‘one step at a time’. Chapter 2 (by Maarten Smeets and Mina Mashayekhi) discusses the main features of globalisation and how it has affected patterns of trade and investment in order to identify what needs to be done to ensure the continued relevance of the rules of the multilateral trading system for twenty-first-century trade. It argues that the increased interdependencies between markets resulting from globalisation, new technologies and innovation necessitate more liberal and open policies, policy coordination and coherence and appropriate social safety nets. In addition, substantive international trade rules need to evolve in ways that balance trade and non-trade concerns. The chapter asserts that to restore trust in trade, the WTO needs to secure solid, relevant, up-to-date, workable and enforceable rules embedded in a strong multilateral trading system and that its Members should ensure that trade liberalisation generates inclusive and sustainable growth. Chapter 3 (by Jan Wouters and Tine Carmeliet) examines the recent rise of ‘Gx bodies’ (such as the G7, G20, etc), aggregate bodies that bring together only a limited number of countries and aim to coordinate efforts within and between different overlapping issue fields. It argues that Gx bodies are loci of power in the midst of the global economic governance architecture, well placed to perform coordination and steering and to thus complement the work of other players within global economic governance. However, in order to be able to provide solutions to global problems, it points to the need for Gx bodies to have both input and output legitimacy, in the form of inclusiveness and effectiveness, respectively, noting the trade-off between these two factors. The chapter makes concrete proposals to allow the Gx bodies to retain their relevance by providing world leaders with an appropriate forum and political impetus to achieve mutually advantageous deals, while ensuring decision-making that balances efficiency and inclusiveness in multilateral trade governance and, in that sense, restoring trust in trade. Chapter 4 (by Anke Moerland) explores how governance structures of different geographical indication (GI) systems can help to create trust among participating actors. Starting from an analysis of the concept and role of trust in GI systems, the chapter identifies and examines weaknesses persisting in the EU GI system that undermine producers’ ability to trust the system to fulfil its functions. It offers remedies that could enhance the trust of producer groups in the system of GI regulation. Its findings are not only relevant for GI-protected products, but may also be useful for the study of (global) value chain models in which trust plays an important role for the equal distribution of benefits among all stakeholders on an international scale. Part II of the book turns its attention to the interpretation and enforcement of trade rules by asking how trade dispute settlement can operate with efficiency and

Restoring Trust in Trade: Introduction  11 integrity in the face of institutional challenges and how it can balance trade and non-trade values and interests appropriately so as to restore trust in trade. Chapter 5 (by Giorgio Sacerdoti) argues that international trade regulation is the result not just of bilateral bargains, but also of the pursuit of a common interest of the participants in the uniformity, stability and predictability of the rules and the system. The WTO dispute settlement system is seen as epitomising this structure by providing a multilateral framework in which mainly bilateral disputes are resolved in a framework that involves all WTO Members and also allows the interests of the non-disputing parties to be taken into account. The chapter asserts that the smooth functioning of the WTO Appellate Body, which ultimately ensures respect for the rules, can be considered a common global good not just for the WTO Members, and that it is the duty of all WTO Members, in their individual and collective interest, to act in a way that supports its correct operation, opposing attempts by any individual Member to undermine the Appellate Body’s functioning. Chapter 6 (by Ernst-Ulrich Petersmann) turns the attention to the risks that power-oriented GATT/WTO traditions of ‘member-driven governance’ entail for the dispute settlement system of the WTO. Using the example of the US blockage of the WTO appellate review system, it argues that global public goods cannot legitimately be protected without judicial remedies, rule of law and democratic governance. It proposes that WTO Members use their competence of majority voting to adopt authoritative interpretations of WTO law in support of the judicial administration of justice in multilevel governance of the world trading system. It offers the view that multilevel judicial control of trade regulation legitimises ‘Member-driven governance’ by protecting the rule of law as approved by parliaments when they ratified the WTO Agreement. Chapter 7 (by Thomas Cottier) addresses the role of equity in international economic law, in particular trade law, in addressing issues of distributive justice and of procedural fairness. Examining the methodology developed by courts in the field of maritime boundary delimitation, strongly focusing on individualised justice, the chapter evaluates its potential suitability to address and guide generally factor-intensive issues in international trade law, for example trade remedies or customs valuations. It suggests that equity could play a role in rendering the legal methodology used in international trade law more transparent and conducive to achieving overall fair results, thereby enhancing trust in, and legitimacy of, international economic law and related disputed settlement. Chapter 8 (by Jens Hillebrand Pohl) explores, in the context of the threats to the proper functioning of the WTO dispute settlement system caused by the excessive caseload of WTO panels and the Appellate Body and the politicised delays in Appellate Body appointments, how to practically apply Article 25 of the Dispute Settlement Understanding as an alternative means of WTO dispute settlement if a prompt and effective legal remedy cannot be obtained through ordinary panel and Appellate Body proceedings. It argues that for Article 25 arbitration to be an

12  Jens Hillebrand Pohl, Iveta Alexovičová and Denise Prévost expeditious alternative to ordinary WTO judicial proceedings, a plurilateral arbitration agreement should be concluded rather than relying on ad hoc arbitration submission agreements. It provides a blueprint for such a plurilateral arbitration agreement. Chapter 9 (by Marco Bronckers and Giovanni Gruni) examines the inclusion of sustainable development chapters in recent EU free trade agreements (FTAs), focusing on the mechanisms for enforcement of their provisions. It argues that enforcement weaknesses have eroded the confidence of civil society and other stakeholders in the ability of the EU to promote sustainable development through its FTAs and have thus undermined support for these trade liberalisation initiatives. It provides a model of what a more effective enforcement mechanism incorporating a private complaints procedure might look like. Part III of the book looks at the future evolution of substantive trade law and asks how it can develop to reflect evolving societal concerns so as to restore trust in the ability of the trade regime to appropriately balance trade and non-trade values and interests. Chapter 10 (by Gabrielle Marceau) reviews whether concerns regarding regulatory distinctions based on process and production methods (PPMs) are still relevant, in particular in the context of the evolution of the scope of international trade from tangible goods to intangible services and intellectual property rights, where more nuanced PPM-based regulation is prevalent, and of growing consumer awareness and concerns regarding the way products or services are produced. In order to meet the demands of this new international trade reality, it argues that WTO Members have been given more leeway to regulate based on PPMs and that legitimate PPM regulatory distinctions are accepted as an inherent part of today’s trading system. Chapter 11 (by Anselm Kamperman Sanders) examines the challenges posed by the Fourth Industrial Revolution (4IR), which is characterised by the convergence of new technologies, such as bio-, nano- and material technologies, Artificial Intelligence, Big Data, the Internet of Things and 3D printing, into new applications, domains and business models. The chapter proposes a reappraisal and strengthening of legal rules that shape intellectual property protection in our economies in order to maintain the trust of society in the regulation and application of groundbreaking technologies and new economic realities in the 4IR. Chapter 12 (by Ellen Vos and Sabrina Röttger-Wirtz) discusses the international dimension of EU food law, in particular that provided by the WTO Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement). It argues that an important factor leading to the ever-increasing role of science in EU decision-making, referred to as the ‘scientification’ of EU food law, is the requirement of the SPS Agreement that WTO Members base their food safety measures on science. The chapter discusses this use of science in the WTO and EU regimes as the legitimating factor for food safety regulation and questions whether its implications for the possibility to take into account other legitimate

Restoring Trust in Trade: Introduction  13 concerns could be among the extrinsic reasons for the erosion of citizens’ trust in trade. Chapter 13 (by Gian Franco Chianale) examines the balance achieved between trade and non-trade societal values and interests in trade agreements by comparing the general and security exceptions provisions in the WTO Agreement with the general and security exceptions provisions in the new generation of FTAs that the EU has concluded or that it provisionally applies. In light of this comparison, the chapter argues that the EU has ensured that the enhanced trade liberalisation built into its trade agreements does not come at the expense of nontrade societal values and interests and has, in fact, strengthened their protection beyond that provided by WTO rules. Finally, this book concludes with an essai typologique (by Joseph HH Weiler) on constitutional entrenchment of ‘Eternal Clauses’ from a biblical perspective. It examines the prohibition on ‘adding to or diminishing’ such immutable and therefore ‘timeless’ clauses, and its implications, in light of two biblical attempts at entrenchment, in Deuteronomy 13 and Galatians 1, which make use of an ingenious and surprising methodology.

14

part i Dialogue Over Power: Ensuring a Robust Institutional Framework

16

1 Effecting Global Economic Governance Through the WTO: One Step at a Time? MARY E FOOTER

I. Introduction A decade after the World Trade Organization (WTO) was established, a group of distinguished scholars, WTO officials, government diplomats and practitioners from law firms, the business sector and civil society gathered in Maastricht. They met to discuss how effective the WTO had been in fulfilling its task as the principal international institution for the management and regulation of the process of economic globalisation.1 This chapter reflects on the four themes of the Maastricht Conference: consensus decision-making; issues of transparency, democratic legitimacy and participation of civil society in WTO decision-making; secondary law-making by WTO bodies; and the role of the WTO Secretariat. It pays tribute to Peter and his research team, who so ably devised the comprehensive research agenda for institutional reform of the WTO, which was set out at the Conference, and which he and others in the international trade community have pursued at various stages since then. Against the changed circumstances in which the international trade community finds itself, each of the foregoing themes reflects an issue that is intrinsic to the erosion of trust in trade at the WTO. The resulting analysis reveals the extent to which economic governance through the WTO is sub-optimal. Large-scale reform is missing. Progress has been slow or non-existent on several fronts. However, for some themes, such as transparency, and to some extent secondary law-making by

1 The Conference, organised by the Faculty of Law, Maastricht University, took place from 4 to 5 February 2005 at Vaals, near Maastricht. A report of the Conference can be found in P Van den Bossche and I Alexovičová, ‘Effective Global Economic Governance by the World Trade Organization’ (2005) 8 Journal of International Economic Law 667.

18  Mary E Footer WTO bodies, there have been small, incremental changes over time. They contrast strikingly with consensus decision-making where, in terms of progress, there has been a regressive step with potentially profound consequences for the future of the WTO. As for the role of the WTO Secretariat, there has been a virtual standstill with no discernible progress at all. Before evaluating each of the four themes sequentially, based on the order in which they were dealt with at the Maastricht Conference, in the next section I consider some of the fundamental changes that have taken place in the multilateral trading system and the international community since the establishment of the WTO in 1995.

II.  Change of Circumstances At the time of the Maastricht Conference, the WTO, and the multilateral trading system that it embodied, seemed unassailable. Continuity of the free trade regime, which had evolved under the former General Agreement on Tariffs and Trade (GATT) in the post-war era and rested on government intervention aimed at stability (‘embedded liberalism’),2 was assured. For some, the GATT/WTO regime simply harnessed the neoliberal project whereby the ‘free’ market extends to every part of our public and personal lives and the state was transformed from a provider of public welfare to a promoter of markets and competition.3 For others, the transformation of international economic law during the 1980s and 1990s was a wholesale remaking of the international trade regime.4 The WTO offered a normative basis for the pursuit of neoliberal economic globalisation,5 which manifested itself in the increasing interdependence of national economies and global value chains. The cross-border movement of goods, services, capital and technology, coupled with lowered tariffs and effective international standard-setting, made the free flow of trade in goods and services more efficient. Henceforth, the WTO – through the retention and extension of the former GATT legal system – exercised a degree of formal and practical autonomy. Together with its system of binding dispute settlement and effective enforcement, it set the boundaries for the pursuit of global economic governance. However, as the scope and power of the WTO expanded, the organisation became a flashpoint for criticism of neoliberal economic globalisation. The clamour for greater transparency, (democratic) participation and ­accountability

2 JG Ruggie, ‘International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order’ (1982) 36 International Organization 379, 393. 3 S Metcalf, ‘Neoliberalism: the idea that swallowed the world’, The Guardian, Friday 18 August 2017. 4 A Lang, World Trade Law after Neoliberalism: Re-imagining the Global Economic Order (OUP, 2011). 5 It has been claimed that neoliberal doctrine has the status of orthodoxy at the WTO, see M Eagleton-Pierce, Symbolic Power in the World Trade Organization (OUP, 2012).

Effecting Global Economic Governance Through the WTO  19 was already in train but reached an apex at the Third and Fifth Ministerial Conferences held at Seattle and Cancún, respectively.6 Democracy, justice and equity (fairness issues) were seen as central to the maintenance of a viable international economic order. The need to address issues of distributive and redistributive justice – often in the form of increased technical cooperation and capacity-­building for WTO developing country Members – became increasingly urgent.7 Since then, the multilateral trading system has faced several additional challenges. First, the proliferation of Preferential Trade Agreements or PTAs (customs unions, common markets, regional and bilateral free trade areas) has substantially reduced the significance of non-discrimination embodied in the most-favoured nation (MFN) principle.8 This development has only been hastened by the signing of so-called ‘mega-regional arrangements’, which are deep integration partnerships between countries or regions with a major share of world trade and foreign direct investment (FDI). Significantly, these mega-regional arrangements address issues such as regulatory coherence, competition policy, and labour, environmental and governance standards that the WTO does not. Examples of mega-regional arrangements include the Trans-Pacific Partnership Agreement or TPP (renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership or CPTPP9), and the Canada–EU Free Trade Agreement (Comprehensive Economic and Trade Agreement or CETA).10 Second, there has been a retrenchment from multilateralism towards an era of bilateralism, plurilateralism and unilateralism. While bilateral trading arrangements are nothing new for many WTO Members, including eg the US and the EU, often with ‘WTO+’-type obligations,11 they are usually elaborated on the basis of compatibility with the multilateral trading system.12 Nor are plurilateral approaches anything new in the multilateral trading system, witness the Agreement on Government Procurement (GPA) and the Civil Aircraft Agreement,13 6 WTO Ministerial Conference, Third Session, Seattle, 30 November–3 December 1999 and WTO, Ministerial Conference, Fifth Session, Cancún, Mexico, 10–14 September 2003. 7 See the WTO Ministerial Conference, Fourth Session, Doha, 9–14 November 2001, Ministerial Declaration, WT/MIN(01)/DEC/1, 20 November 2001 (Doha Ministerial Declaration) para 38. 8 The Future of the WTO – Addressing Institutional Challenges in the New Millennium, Report of the Consultative Board to the Director-General Supachai Panitchpakdi (WTO, 2004) (Sutherland Report) Chapter II. 9 Following US withdrawal from the Trans-Pacific Partnership (TTP) Agreement the remaining parties – Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam – in March 2018 signed but have not yet not ratified a revised agreement, known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). 10 The EU–Canada Comprehensive Economic and Trade Agreement or CETA provisionally entered into force on 21 September 2017. 11 H Horn, PC Mavroidis and A Sapir, Beyond the WTO? An Anatomy of EU and US Preferential Trade Agreements (Bruegel Blueprint Series, 2009). 12 See eg, the EU’s position in Trade for all: Towards a More Responsible Trade and Investment Policy (European Commission, 2015) 35. 13 See Annex 4 to the Marrakesh Agreement Establishing the World Trade Organization (WTO Agreement), reproduced in The WTO Agreements: The Marrakesh Agreement Establishing the World Trade Organization and its Annexes (CUP, 2017) 472 and 465.

20  Mary E Footer or efforts to get a critical mass of WTO Members to sign up to market access obligations in financial services, telecoms, information technology and, to a lesser extent, the movement of natural persons.14 What has changed is the move towards unilateral action, often in pursuit of exceptionalist, isolationist and populist trade policies, and renewed emphasis on power politics over the rule of law in trade. Both trends have manifested themselves in the Trump Administration’s approach to foreign trade and in the ongoing debate about the post-Brexit future of UK international trade relations.15 Indeed, from the trenches of populist warfare there has arisen a broader disengagement from multilateral trade diplomacy in favour of bilateral ‘deals’, as exemplified by the current US Administration.16 Such is its distrust of multilateral trade that the US has launched an onslaught on the paradigm of the WTO as a rules-based system, seeking to replace it with a power-based one. Fellow WTO Members have yet to respond effectively to this changing paradigm, bolstered in some instances by their own domestic constituencies, some of which are ambivalent about the benefits of liberalised trade. With this in mind, I turn to consider each of the Maastricht Conference topics and to analyse the extent, if any, to which there has been progress towards effective global economic governance through the WTO.

III.  Consensus Decision-making at the WTO At the Maastricht Conference in 2005, participants defended decision-making by consensus, enshrined in the WTO’s founding instrument17 because it provided a valuable means of ensuring widespread support for decisions taken by the membership, and for subsequent implementation of those decisions.18 Essentially, consensus decision-making provides all Members, irrespective of their political or economic influence, with the possibility to block a decision by means of a formal objection.19 But, due to its built-in ‘veto’ effect, whereby de facto economically more powerful Members in the global trading system can block consensus decisions more readily than small and medium-sized ones, and at very little political cost to themselves, this effectively implies ‘an informal system of weighted voting’.20 14 M Elsig, ‘WTO Decision-Making: Can We Get a Little Help from the Secretariat and the Critical Mass?’ in DP Steger (ed), Redesigning the World Trade Organization for the Twenty-first Century (CIGI/ Wilfrid Laurier University Press, 2010) 67, 77–78. 15 T Cottier, ‘Trade Policy in the Age of Populism: Why the New Bilateralism Will Not Work’ (CIGI/ BIICL, Brexit: The International Legal Implications, Paper No 12, 2018) in OE Fitzgerald and E Lein (eds), Complexity’s Embrace: The International Law Implications of Brexit (CIGI, 2018) 71–74. 16 G Rachman, ‘The New World Order: Donald Trump Goes it Alone’ Financial Times, 11 May 2018. 17 Art IX:1, WTO Agreement and footnote 1 thereto on the meaning of consensus. 18 Van den Bossche and Alexovičová (above n 1) 671. 19 ME Footer, ‘The WTO as a “Living Instrument”: The Contribution of Consensus Decision-making and Informality to Institutional Norms and Practices’ in T Cottier and M Elsig (eds), Governing the World Trade Organization: Past, Present and Beyond Doha (CUP, 2011) 217, 225. 20 T Cottier, ‘A Two-Tier Approach to WTO Decision-making’ in Steger (ed) (above n 14) 43, 57.

Effecting Global Economic Governance Through the WTO  21 Additionally, where an economically powerful Member views a decision as being incompatible with its vital economic interests but nevertheless forced upon it, this may give rise to implementation issues. This is not least because of the political difficulty the government of that Member would have in explaining to its domestic constituency why such a decision should be adhered to. Inevitably, it would result in a backlash against the WTO on grounds of national sovereignty and undermine the credibility of the WTO.21 Thus, while lamentable, the refusal of the US to join the consensus on the selection and appointment of new Appellate Body (AB) Members is hardly surprising. Moreover, participants at the Maastricht Conference defended consensus decision-making because they considered the alternative of decision-making by majority voting to be out of touch with economic and political reality.22 Others, however, pointed out that voting had its uses. When a decision cannot be reached by consensus the residual rule of voting by simple majority, found in Article IX:1 of the WTO Agreement,23 applies. There was broad support for using the majority voting option as a threat, or the so-called ‘shadow of voting’, to enhance the efficacy of WTO consensus decision-making. Potential use of this option, to address the current impasse in the Dispute Settlement Body (DSB) selection and nomination of AB Members, is discussed below. At the Maastricht Conference, it was suggested that possible improvements and alternatives to consensus decision-making should be based on a typology of WTO decisions. One view was that ‘housekeeping’-type decisions (internal WTO matters) should be put to the vote whereas ‘day-to-day’ decisions (application and interpretation of existing rules and decisions by which new rules are created) should remain subject to consensus. Another view was that substantive decisions affecting Members’ rights and obligations should always be adopted by consensus.24 Against these findings and recommendations, it should be recalled that the US has blocked consensus in the DSB for the selection and appointment of three new AB Members.25 It has done so on the grounds that a Member who has ‘retired’ cannot continue to serve and decide appeals upon expiry of his or her term.26 The US position has brought WTO practice on consensus decision-making into sharper relief because, in accordance with Article 2.4 DSU,27 consensus is the

21 Van den Bossche and Alexovičová (above n 1) 671–72. 22 ibid 672. 23 Art IX:1, second sentence, WTO Agreement. 24 Van den Bossche and Alexovičová (above n 1) 674. 25 Statement of the United States at the meeting of the Dispute Settlement Body (DSB) of 22 ­November 2017, WT/DSB/M/404 (6 March 2018) 18, para 7.6. 26 This is contrary to Rule 15 of the Appellate Body’s Working Procedures for Appellate Review, WT/ AB/WP/6 (16 August 2010) (AB Working Procedures), which allows for continuance of service on cases that AB Members have already commenced prior to their retirement. 27 Art 2.4, Dispute Settlement Understanding (DSU) in Annex 2 to the WTO Agreement. It should be noted that certain decisions concerning individual disputes (establishment of panels, adoption of

22  Mary E Footer means by which the DSB takes decisions, including those concerning the selection and appointment of AB Members. While this is the type of internal, housekeeping decision that calls for voting, the US tactic has the potential to paralyse the WTO dispute settlement system by allowing the overall number of serving AB Members to fall below the seven necessary for the AB to function optimally. This is the sort of extraordinary situation where the membership could resort to majority voting, based on Article IX:1 of the WTO Agreement,28 to address the US blocking of consensus. This is not without controversy, due to the question whether the wording of footnote 3 of that provision comes into play. It states that ‘Decisions by the General Council when convened as the [DSB] shall be taken only in accordance with the provisions of [Article 2.4 DSU]’ (emphasis added).29 However, as Pieter Jan Kuijper suggests, where consensus cannot be reached and a situation as grave as the malfunctioning of the DSB is at stake, the DSB can resort to majority voting and thus exercise the so-called ‘nuclear option’.30 Due to the systemic implications arising from the failure to have a properly functioning AB, the matter could be placed directly on the General Council’s agenda.31 There is a precedent for this – at the appellate stage of EC – Asbestos some Members sought to reproach the AB for its adoption of an additional procedure to receive or solicit amicus curiae briefs.32 With no consensus in the DSB, some WTO Members, such as China, have indeed taken to issuing statements in the General Council, calling for US concerns over certain aspects of the functioning of the dispute settlement system to be de-linked from the actual selection and appointment of AB Members on the matter.33 However, this does not detract from the collective failure of the membership – due largely to lack of political will – to apply the residual rule on majority voting where consensus cannot be reached. Instead, the situation marks a regressive step in terms of consensus decisionmaking and does not bode well for the effective governance of the WTO. It also challenges the trust that Members have hitherto placed in the dispute settlement system.

Panel and AB reports, and authorisation of retaliation) are adopted by reverse consensus, which means that the decision is adopted unless there is a consensus not to do so; see Arts 6.1, 16.4, 17.14 and 22.6 DSU. 28 Art IX:1, second sentence, WTO Agreement. 29 ibid fn 3. 30 PJ Kuijper, ‘Guest Post concerning the US Attack on the Appellate Body’, International Economic Law and Policy Blog, 15 November 2017, available at: http://worldtradelaw.typepad.com/ ielpblog/2017/11/guest-post-from-pieter-jan-kuiper-professor-of-the-law-of-international-economicorganizations-at-the-faculty-of-law-of-th.html#comments. 31 ibid. 32 Special Session of the General Council, 22 November 2000, WT/GC/M/60 (23 January 2001). 33 General Council Meeting of 8–9 May 2018, WT/GC/W/744, Agenda item 4: ‘Selection of new Appellate Body Members – Statement by China’.

Effecting Global Economic Governance Through the WTO  23

IV.  Transparency, Democratic Legitimacy and Civil Society Participation in WTO Decision-making Concerns about the legitimacy, accountability and lack of democratic controls on the WTO have been ongoing since its establishment in 1995. Attempts to set a research agenda at the Maastricht Conference took place in the wake of the failed Ministerial Conferences at Seattle (1999) and Cancún (2003), both of which highlighted the need to address the WTO’s institutional deficiencies and embrace reform.34 Conference participants acknowledged that the WTO had made significant efforts in recent years to become more transparent, democratic and open to civil society but there was still plenty to do. Unease was also expressed about the level of distrust and misunderstanding concerning the WTO and its activities, not just from the public but also among leaders and officials of WTO Members.35 A key factor in the discussion was that individual WTO Members viewed issues of transparency, democratic legitimacy and civil society in WTO decisionmaking through their own country’s lens. In fact, the WTO’s ‘culture’, customs and practice were thought to be very much rooted in the former GATT and there was little incentive among Members to embrace change, a predominant stance reinforced by the WTO Secretariat.36

A. Transparency The approach towards transparency in WTO decision-making has always been ambiguous. Its focus has been on both ‘internal transparency’, eg the nature of WTO decision-making processes, and ‘external transparency’, eg the relationship between the WTO and non-governmental institutions such as business, unions, farmers, academics and non-governmental organisations (NGOs).37 More narrowly, external transparency is often associated with access to documents and dealing with the demands of NGOs for greater participation in the WTO’s work. Those who took part in the discussion on transparency at the Maastricht Conference focused almost entirely on two aspects of external transparency, namely de-restriction of WTO documents and opening up the WTO dispute

34 See RM MacLean, ‘The Lessons of Seattle and the Need for WTO Institutional Reform: Opinion’ (2000) 1 International Trade Law & Regulation 1; S Evenett, ‘Systemic Research Questions Raised by the Failure of the WTO Ministerial Meeting in Cancún’ (2004) 31 Legal Issues of Economic Integration 1. 35 Van den Bossche and Alexovičová (above n 1) 677. 36 ibid. 37 S Ostry, ‘External Transparency: The Policy Process at the National Level of the Two-level Game’ in M Moore (ed), Doha and Beyond: The Future of the Multilateral Trading System (CUP, 2004) 94.

24  Mary E Footer settlement proceedings to the public.38 On the former issue, it was noted that the WTO has progressively improved its dissemination of key documents to the public, with the General Council setting out procedures for circulation and de-restriction of WTO documents in 1996,39 and introducing the principle of immediate, unrestricted circulation in 2002.40 In practice, however, many minutes of meetings and some WTO Secretariat background papers are only de-restricted and made available to the public after months of delays. Moreover, many important documents never attain the status of ‘official’ documents – some remain as ‘JOB’ documents and are inaccessible to the public – thereby giving the lie to the idea that external transparency has improved significantly. Furthermore, all meetings of WTO bodies remain closed to the public, a situation that persists to this day. On the matter of opening up WTO dispute settlement proceedings, of which the US and the EU have been the staunchest proponents, there are two aspects that deserve attention. First, the right of panels and the AB to accept and consider amicus curiae briefs from private parties was recognised as far back as 1998 in US – Shrimp. However, it was only in 2006, with the US/Canada – Continued Suspension41 disputes (where the EC challenged the continued retaliation in EC – Hormones) that panel and AB proceedings were opened to the public, at the request of the parties. Second, there remain a significant number of developing country Members that reject such public involvement in the work of the WTO,42 if only because there is a total lack of transparency about trade at the domestic level. It does little to achieve greater complementarity between WTO and national levels of transparency or to distil a sense of trust in trade. While the issue of internal transparency received little attention among participants at the Maastricht Conference, the issue has not escaped the attention of some WTO Members. Several from the global South have pushed for greater involvement in WTO decision-making where there are particular matters of interest to them. It has been suggested that internal transparency could be facilitated by more effective cooperation and continuous communication channels with other international organisations.43 This happened in the case of trade facilitation, due to the input of the United Nations Conference on Trade and Development (UNCTAD), based on the long-standing expertise that it derived from m ­ anaging

38 Van den Bossche and Alexovičová (above n 1) 678–79. 39 Procedures for the Circulation and Derestriction of WTO Documents – Decision adopted by the General Council on 18 July 1996 – Revision 26/07/1996, WT/L/160/Rev.1 (26 July 1996). 40 Procedures for the Circulation and Derestriction of WTO Documents – Decision adopted by the General Council on 14 May 2002, WT/L/452 (16 May 2002). 41 See Communication from the Chairman of the Panels, United States/Canada – Continued Suspension of Obligations in the EC – Hormones Dispute, WT/DS320/8, WT/DS321/8 (2 August 2005). 42 S Ostry, ‘World Trade Organization: Institutional Design for Better Governance’ in RB Porter, P Sauvé, A Subramanian and AB Zampetti, Efficiency, Equity, Legitimacy: The Multilateral Trading System at the Millennium (Brookings Institution Press, 2001) 362, 371. 43 P Delimatsis, ‘Transparency in the WTO’s Decision-making’ (2014) 27 Leiden Journal of International Law 701, 716.

Effecting Global Economic Governance Through the WTO  25 the UNCTAD System for Customs Data (ASYCUDA) programme, and its interactive trade portals.44 In terms of the WTO’s claim to legitimacy and even its relevance, the issue of transparency needs to be addressed more broadly. If governments, private parties and ordinary citizens are to continue to have trust in the multilateral trading system, the WTO needs to go beyond publishing and communicating formal rules and decisions to interested stakeholders. Thus, transparency should include public involvement in openly ‘deliberative processes leading to rules, decisions, and judgments’ (emphasis in the original) and it should give ‘a fair chance to those willing to participate in the development of trade rules’.45 In 2001 the Doha Ministerial Declaration was upfront about the internal and external transparency challenges the organisation faced, due to its expanding membership and the need to promote better public understanding of the WTO,46 but participation in multilateral trade negotiations (MTNs), while transparent, was restricted to WTO Members.47 Today, the Doha Round of MTN is dead; instead, trade negotiations are increasingly taking place in regional forums or on a bilateral level, eg the CPTPP and CETA. Besides, transparency in trade negotiations, like the proverbial genie, is ‘out of the bottle’, especially as some WTO Members, like the EU, are publishing their policies on transparency in trade negotiations.48 The question then is whether the WTO can remain relevant if it does not follow suit. Currently there are ongoing WTO negotiations on specific issues, such as fisheries subsidies, alongside the accessions process, even though there are none in the context of the Doha Round. There could, therefore, be merit in the membership examining the possibility of opening up some WTO forums to the public. They could include WTO bodies where multilateral trade policy is examined, eg the Trade Policy Review Body,49 or some Technical Barriers to Trade (TBT) or Sanitary and Phytosanitary (SPS) Committee meetings of broader public interest because of the non-trade values under discussion.50

B.  Democratic Legitimacy Participants at the Maastricht Conference held diverse views about the potential for democratic legitimacy in the WTO. In terms of governance and democracy, 44 The trade portals show all import, export and transit procedures pursuant to Art 1 of the Trade Facilitation Agreement, Annex to the Protocol Amending the Marrakesh Agreement Establishing the World Trade Organization, WT/L/940 (27 November 2014) (Trade Facilitation Agreement), reproduced in The WTO Agreements: The Marrakesh Agreement Establishing the World Trade Organization and its Annexes (above n 13) 321. 45 Delimatsis (above n 43) 707. 46 Doha Ministerial Declaration (above n 7) para 10. 47 ibid para 49. 48 See, eg, European Commission, ‘Fact Sheet on Transparency in EU Trade Negotiations’ (June 2013) available at: http://trade.ec.europa.eu/doclib/docs/2013/june/tradoc_151381.pdf. 49 Delimatsis (above n 43) 719; A Lang and J Scott ‘The Hidden World of WTO Governance’ (2009) 20 Journal of International Economic Law 575, 584. 50 Lang and Scott ibid 590.

26  Mary E Footer the WTO decision-making process raises problems over the (un)suitability/(in) compatibility of the traditional model of democratic legitimacy and the potential contribution, if any, that decisions of international organisations can make to effective global governance.51 It was also thought that the ‘legitimacy chain’, ie the chain between those making decisions and those affected by them, was too long and lacked transparency. Besides, in the case of almost all WTO Members there was little national parliamentary involvement in, or meaningful control of, the WTO rule-making process.52 WTO rules are legally binding and enforceable and each Member must ensure conformity of its laws, regulations and administrative procedures with those rules.53 And yet, there is very little or no accountability of WTO consensus decision-making to local constituencies, ie ordinary citizens, business operators and society at large, which could signal to those constituencies an individual WTO Member’s trust in trade. In other words, and typical of global economic governance, the WTO has a gap in democratic legitimacy that must be closed if trust in trade is to be restored. The overall sentiment in Maastricht was that there should be increased involvement of national parliaments. There were, however, differing views as to how this could be achieved. There were doubts about the extent to which government officials, either based at permanent delegations in Geneva or coming from capitals, were ‘representatives’ of their citizens. Some thought that there should be increased participation of civil society, particularly NGOs, in the WTO but others considered the latter to be neither ‘representative’ nor ‘accountable’.54 An earlier, comparative study of parliamentarians’ views of alternative mechanisms for ensuring parliamentary oversight of WTO rule-making reflected established power structures in parliamentary processes at (supra)national, regional and international levels. The study addressed the policy arguments for and against parliamentary oversight, as well as the institutional challenges, of having a parliamentary dimension at national/Member level, or alternatively adding an inter-parliamentary dimension to the WTO.55 In 2003 the Parliamentary Conference on the WTO, organised jointly by the Inter-Parliamentary Union (IPU)56 and the European Parliament, held its first meeting and issued a Declaration.57 It organised three further annual meetings and

51 Van den Bossche and Alexovičová (above n 1) 679. 52 ibid. 53 Art XVI:4 WTO Agreement. 54 Van den Bossche and Alexovičová (above n 1) 680. 55 G Shaffer, ‘Parliamentary Oversight of WTO Rule-making: The Political, Normative and Practical Contexts’ (2004) 7 Journal of International Economic Law 629, 640–45. 56 The Geneva-based IPU, founded in 1889, has been recognised by the UN General Assembly as the world organisation for national parliaments, viz ‘Co-operation between the United Nations and the Inter-Parliamentary Union’ 16 January 2003, GA Res 57/47, UN Doc A/RES/57/47 (2003). 57 Final Declaration, Parliamentary Conference on the WTO, 17–18 February 2003, available at: http://archive.ipu.org/Splz-e/Trade03/declaration.htm (PC WTO Declaration).

Effecting Global Economic Governance Through the WTO  27 two meetings at the Ministerial Conferences in Cancún (2003) and Hong Kong (2005), which were attended by delegates from some 70 national parliaments and/ or the European Parliament.58 Their meetings usually included a briefing from the WTO Director-General and dialogue with Geneva-based trade diplomats, including Chairs of the WTO negotiating groups in the Doha Round MTN. The objective of the Parliamentary Conference was ‘to enhance the transparency and accountability of WTO activities’.59 It aimed to strengthen democracy at the international level by bringing a parliamentary dimension to multilateral cooperation on trade issues. This would then provide legislators with the opportunity to examine WTO developments, to obtain first-hand information on the state of trade negotiations in the Doha Round and to consider a possible parliamentary contribution to these multilateral processes.60 The idea was not without its detractors, especially from the US and developing countries. In the case of the US, this is due, in part, to Congressional involvement in authorising and ratifying trade negotiations and being able to attend WTO ministerial meetings, as members of the US delegation. Thus, from its perspective, there would be no added value in the US Congress being part of a parliamentary assembly at the WTO.61 With the death of the Doha Round at the Nairobi Ministerial Conference,62 the Parliamentary Conference on the WTO appears to have all but disappeared from the scene. However, a joint meeting of the IPU and the European Parliament was held in June 2016,63 primarily to discuss post-Nairobi (2015) developments in the multilateral trading system. It will also be recalled that separately, and aside from the US, some other WTO Members actively encourage parliamentary participation in foreign trade. One example is the EU, where trade policy and legislative proposals are debated by the European Parliament, with the parliamentary process forming an integral part of EU trade governance. Furthermore, in EU external trade, Member States’ national parliaments see themselves as having an increasingly important role to play in approving some EU–third country free trade agreements (FTAs), or mega-regional arrangements, where there are areas of shared EU/Member State competence. An example was the refusal of Belgium’s regional Walloon parliament to sign the CETA, until its potential impact on social and environmental legislation had been addressed.64 58 Shaffer (above n 55) 641. 59 Recital 1, PC WTO Declaration. 60 Information about the Parliamentary Conference on the WTO can be found on the WTO website, available at: www.wto.org/english/forums_e/parliamentarians_e/parliamentarians_conf_e.htm; see also Shaffer (above n 55) 641. 61 Ch V, para 202, Sutherland Report. 62 WTO Ministerial Conference, Tenth Session, Nairobi, 15–19 December 2015. 63 Session annuelle 2016 de la Conférence parlementaire sur l’OMC, ‘Quel future pour l’OMC?’, Geneva, 13–14 June 2016, available at: www.wto.org/french/forums_f/parliamentarians_f/ipuconf2016_ f.htm. 64 Financial Times, 14 October 2016.

28  Mary E Footer

C.  Civil Society The issue of civil society participation in the WTO, which formed a significant part of the discussions in Maastricht, focused largely on the extent to which NGOs have demanded a greater role in WTO decision-making. The starting point for the discussion was Article V:2 of the WTO Agreement, which empowers the General Council to ‘make appropriate arrangements for consultations and cooperation with non-governmental organisations concerned with matters related to those of the WTO’.65 In 1996, the General Council issued a set of guidelines, clarifying the framework for the WTO’s relations with NGOs and civil society,66 which has remained the template for conducting this relationship. Several participants at the Maastricht Conference felt the WTO’s relationship with NGOs was outdated, with some highly critical of the Sutherland Report’s findings on civil society,67 which failed to address the governance issues behind the changing scope of the WTO and the role of NGOs in policy-making processes.68 Doubts were expressed in Maastricht as to whether the WTO–NGO relationship was sufficiently all-encompassing to include the broader notion of civil society, given its narrow focus on ‘typical’ NGOs. In this context too, doubts were expressed about issues such as ‘representativeness’, ‘accountability’ and the origins of individual NGOs’ funding as well as the process of NGO ­accreditation.69 A future research agenda should examine the scope of the concept of ‘civil ­society’, the extent of its participation in WTO decision-making, and whether it delivers expert knowledge to the WTO decision-making process. It was also thought worthwhile studying civil society participation in WTO activities to see whether it increases the legitimacy of the WTO and public confidence, or trust, in the organisation.70 A study published in 2017 criticises the WTO Secretariat’s civil society engagement for being a public relations strategy and makes suggestions for reform.71 Drawing on an observational study of participants at WTO Ministerial Conferences since 2003 and Public Forums since 2010, combined with data sets of those participants in terms of their organisational and country affiliations, the researchers argue that the dominant mode of WTO–civil society engagement is unfit for purpose. This is due to several factors. 65 Art V:2, WTO Agreement. 66 ‘Guidelines for arrangements on relations with Non-Governmental Organizations’, Decision adopted by the General Council on 1 July 1996, WT/L/162 (23 July 1996) (Guidelines on NGOs). 67 Ch V, para 207 and para 212 in extensor, Sutherland Report. 68 Van den Bossche and Alexovičová (above n 1) 680–81. 69 In this context, see M Halle, ‘Catching up with the Slowest: NGO Accreditation at the WTO’ (2007) 11 Bridges Monthly 20; P Van den Bossche, ‘Non-governmental Organizations and the WTO: Limits to NGO Involvement?’ in Steger (ed) (above n 14) 309, 334–47. 70 Van den Bossche and Alexovičová (above n 1) 681–82. 71 E Hannah, J Scott and R Wilkinson, ‘Reforming WTO-Civil Society Engagement’ (2017) 16 World Trade Review 427.

Effecting Global Economic Governance Through the WTO  29 One is the changing nature of civil society, whereas in the WTO context the focus still tends to be narrowly on NGOs.72 Another factor is the falling number of registrations by civil society organisations (CSOs) at Ministerial Conferences. Meanwhile CSO attendance at the Public Forums has remained constant. However, the character of its attendees has changed to the extent that there are now more non-profit business associations, which do not fit the common understanding of a CSO, but which are gaining ground in the WTO’s public space. There is also growing disengagement by civil society from the WTO, stemming principally from lack of progress on the Doha Development Agenda (DDA). It has resulted in a narrower range of voices in public discussions at WTO events such as the Public Forums. Additionally, few participants are concerned with challenging prevailing orthodoxies or critically discussing ‘the more iniquitous aspects of global trade governance’.73 At the same time, the way in which the WTO Secretariat involves civil society has scarcely changed; rather, it preserves the status quo and produces no new thinking about the multilateral trading system that might contribute to its more effective functioning.74 It maintains a unidirectional flow of information, aimed primarily at educating and celebrating the benefits of trade. The Secretariat’s efforts are reinforced by the WTO’s insistence that responsibility for civil society engagement lies firmly with the Members, as is clear from the 1996 Guidelines on NGOs.75 In a similar vein the first recommendation of the 2013 Panel of WTO Experts Report on the Imperative of a WTO Reform Agenda is that ‘Each WTO Member should strive to undertake a national trade dialogue with their own respective citizens’.76 The 2017 study suggests possible ways of reforming the WTO–civil society relationship.77 The WTO should abstain from defining the terrain on which engagement with civil society takes place. This could extend to allowing civil society to have an input into the agenda-setting process, which could be achieved through a consultative committee that brings together CSO representatives. Instead of constantly defending the benefits of trade, the WTO Secretariat could encourage greater debate. In the same vein, it could ask what trade might achieve if it were more effectively connected to the development agenda – and I would add, the Sustainable Development Goals. The Secretariat could also make stronger efforts to engage civil society from the global South in its Public Forums and Ministerial Conferences.

72 ibid 430. 73 ibid 435. 74 ibid 441. 75 Guideline 6, third sentence, Guidelines on NGOs. 76 T Abu-Ghazaleh, Member, Panel of WTO Experts, WTO at the Crossroads: A Report on the Imperative of a WTO Reform Agenda (WTO, 2013) 31. 77 Hannah et al (above n 71) 443–45.

30  Mary E Footer There is also a growing realisation that the nucleus of the debate on global trade governance among CSOs has dissipated. Many have simply disappeared from the scene. They have either lost interest in the WTO or have become more actively engaged in the outcomes and implementation of bilateral and plurilateral or mega-regional trade arrangements,78 such as the CPTPP or CETA. One way of re-engaging with civil society could be for the WTO to organise events around ‘crosscutting issues related to mega-regional trade agreements, poverty alleviation, debt, and finance, and sustainable development’.79 To this I would add that the EU’s post-Doha, new-generation FTAs contain an institutional framework, in their Trade and Sustainable Development (TSD) chapters, for consultation and dialogue with civil society,80 which may provide a more accessible and potentially dynamic forum for civil society engagement. Although the process of civil society dialogue arising in TSD chapters is still in its infancy,81 and subject to teething problems,82 there are lessons that the WTO could draw upon to inform its own dialogue with civil society.

V.  Secondary Law-making by WTO Bodies As for secondary law-making by WTO bodies, those who participated in the discussion in Maastricht agreed this was an under-explored area that called for substantive investigation. Some called for a clarification of the term ‘secondary law-making’, which I understand as acts of institutional bodies that generate legal norms.83 There was doubt about the amount of secondary law-making in the WTO compared with other international organisations although, as with any international organisation, it depends on the extent to which law-making authority has been granted, either expressly or implicitly, to institutional bodies. Arguably, secondary law-making includes ‘rule-referencing’, where rules or standards are sourced from other international organisations, although some doubted this.84 In terms of whether secondary law-making can contribute to effective global governance, there were different views in Maastricht. First, secondary law-making 78 ibid 428. 79 ibid 445. 80 See ME Footer, ‘The EU’s Engagement with Business’ in J Wouters, M Nowak, AL Chané and N Hachez (eds), The European Union and Human Rights: Law and Policy (OUP, forthcoming 2019) ch 13. 81 Commission Services Non-paper, ‘Trade and Sustainable Development (TSD) Chapters in EU Free Trade Agreements (FTAs)’ 11 July 2017, available at: http://trade.ec.europa.eu/doclib/docs/2017/ july/tradoc_155686.pdf. 82 M Westlake, Asymmetrical Institutional Responses to Civil Society Clauses in EU International Agreements: Pragmatic Flexibility or Inadvertent Inconsistency? Bruges Political Research Papers, No 66, December 2017, available at: www.coleurope.eu/system/files_force/research-paper/wp66_westlake.pdf. 83 ME Footer, ‘The Making of International Trade Law’ in C Brölmann and Y Radi (eds), Research Handbook on the Theory and Practice of International Law-Making (Edward Elgar, 2016) 395, 411. 84 Van den Bossche and Alexovičová (above n 1) 683.

Effecting Global Economic Governance Through the WTO  31 in the WTO calls for a proper analysis, including the topic of rule-referencing, and an assessment of the contribution (or otherwise) of such law-making to the normative development of the organisation.85 Second, if the WTO is to become an instrument of effective global governance it needs to overcome its ‘Memberdriven’ mentality and become more independent in exercising rule-making authority through its institutional bodies. A comparative analysis of secondary rule-making processes in (other) international organisations should be undertaken to see which ‘models’ had been successful and to determine whether they could be applied to the WTO.86 From a brief perusal of the field almost no subsequent research on secondary law-making in the WTO has taken place, which builds on the two strands of the proposed research agenda. Even so, there has been some secondary law-making by WTO bodies, notably in the Services Council and its subsidiary bodies, in the early years of the WTO but not more recently. One example is the Working Party on Professional Services (now the Working Party on Domestic Regulation or WPDR),87 which developed the General Agreement on Trade in Services (GATS) Accountancy Disciplines, which have a mandatory ‘necessity test’ for all applicable regulatory measures.88 Another is the SPS Committee, which has elaborated on open-ended provisions of the SPS Agreement.89 This includes the SPS Committee Decision on the Implementation of Article 4 of the Agreement on the Application of Sanitary and Phytosanitary Measures or the SPS Equivalence Decision.90 From a substantive and doctrinal point of view, the SPS Equivalence Decision is somewhat equivocal in terms of its authority, given that it does not go much beyond the scope of Article 4 SPS Agreement.91 It is not binding on WTO Members but its adoption by the SPS Committee stands out as an instance of secondary law-making. It has been cited by the panel in US – Poultry (China) as persuasive evidence of Members’ own understanding as to how Article 4 SPS Agreement operates.92 While there is scope for secondary law-making by WTO bodies, its occurrences are sporadic and out of step with what is happening elsewhere in the regulatory domain. Increasingly, ‘hybrid governance’ is becoming the norm. It calls for a

85 ibid 684. 86 ibid 685. 87 The Working Party on Domestic Regulation (WPDR) was established by the Decision on Domestic Regulation adopted by the Council for Trade in Services on 26 April 1999, S/L/70 (28 April 1999). 88 Council for Trade in Services, Disciplines on Domestic Regulation in the Accountancy Sector (14 December 1998) S/L/64 (17 December 1998) para 2. 89 Van den Bossche and Alexovičová (above n 1) 598. 90 Decision on the Implementation of Art 4 of the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Equivalence Decision), adopted by the Committee on Sanitary and Phytosanitary Measures, G/SPS/19 (26 October 2001). It has subsequently been clarified and revised on several occasions, the latest being G/SPS/19/Rev.2 (23 July 2004). 91 Footer (above n 83) 415–16; Lang and Scott (above n 49) 600. 92 United Stated – Certain Measures Affecting Imports of Poultry from China, Panel Report (25 October 2010) WT/DS392R (US – Poultry (China)) para 7.136.

32  Mary E Footer combination of ‘hard law’, ie the rights and obligations of the Members set out in the multilateral trade agreements, and ‘soft law’, ie the non-binding norms, which are characterised by codes of conduct that provide norms for guidance and emulation by WTO bodies. However, the practice of the WTO demonstrates otherwise. In the past decade secondary law-making has again been overtaken by the MTN process, which seeks wherever possible to rally the membership around primary law-making by treaty. A recent example is the Agreement on Trade Facilitation,93 which arose out of the ‘Bali package’ at the Ninth Ministerial Conference.94 There is also a growing distrust among some Members about the secondary law-making process in the WTO. An example is a meeting of the WPDR, held in November 2017, which broke up acrimoniously without any commitment to take forward work on domestic regulation in services.95 Developing country and least-developed country (LDC) Members claimed that such disciplines threaten their ‘regulatory sovereignty’, and remaining domestic policy space. Far from contributing to effective global governance through the WTO, it is clear that some secondary law-making has become so divisive as to endanger the GATS’ in-built agenda to develop common standards for the governance of domestic services trade. This does not mean that the domestic regulatory agenda has been abandoned. On the contrary, as developments outside the WTO demonstrate. There is an attempt by a group of like-minded Members to forge a new Trade in Services Agreement (TiSA),96 which some argue could become a future Annex 4 agreement. A similar but different spin on the domestic regulatory agenda is offered by mega-regional agreements, such as the CPTPP, which seek to replicate and build upon WTO disciplines, such as SPS rules, for application by the parties.97

VI.  The Role of the WTO Secretariat On the matter of the WTO Secretariat and its contribution to effective global economic governance, there was plenty of criticism at the Maastricht Conference concerning its role and functioning within the organisation, coupled with

93 Trade Facilitation Agreement (above n 44). 94 WTO Ministerial Conference, Ninth Session, Bali, 3–7 December 2013. 95 Working Party on Domestic Regulation, Report of the Meeting held on 7 and 8 November 2017, S/WPDR/M/73 (9 March 2018). 96 The Trade in Services Agreement (TiSA) is a proposed treaty between 23 parties, including the EU and the US, which account for 70% of world trade in services. One of its aims is to improve rules in areas such as licensing, financial services, telecoms, e-commerce, maritime transport, and professionals moving abroad temporarily to provide services. 97 M Wagner, ‘The Future of SPS Governance: SPS Plus or SPS Minus’ (2017) 51 Journal of World Trade 445.

Effecting Global Economic Governance Through the WTO  33 s­uggestions for reform.98 Most participants perceived an enhanced role for the Secretariat although they rejected the suggestion in the Sutherland Report that it should become ‘a guardian of treaties’.99 An enhanced role for the WTO­ Secretariat could extend to such issues as boosting its capacity to conduct independent research and make policy proposals to the Members or having the Director-General act as an ‘honest broker’ in trade negotiations.100 However, there were concerns that any changes to the current status quo should continue to guarantee the Secretariat’s independence and impartiality. Overall, it was felt that the Secretariat should be equipped neither to ‘drive’ nor be dominated by the Members, but to facilitate the functioning of the WTO.101 Former Secretariat staff member Richard Blackhurst has noted the changed circumstances in the WTO, with its greatly expanded membership and agenda and its operation of a strengthened dispute settlement system, all of which are a drain on the Secretariat’s tightly stretched resources. When combined with the increased number of behind-the-border rules, which bite deep into the domestic regulation and values of Members, coupled with the rise of developing countries, it is not surprising that the role of the Secretariat has diminished.102 While various proposals have been made for reform,103 Blackhurst questions the idea of giving the Secretariat more authority and independence. In particular, he is concerned as to what activities it might pursue and whether they would be compatible with its current responsibilities, namely to assist Members with administering the rules, settling disputes and negotiating reductions in trade barriers rather than acting as ‘a guardian of the system’.104

VII. Conclusions The Maastricht Conference on Effective Global Economic Governance set an ambitious agenda for WTO reform. And yet, the change of circumstances, described in Section II, is beginning to call into question not only the continued relevance of the WTO, but also the trust that has been placed in the multilateral trading system by Members, their citizens and civil society. Against this background, the WTO is faced with some stark realities in steering the reform agenda forward, if only one step at a time. 98 Van den Bossche and Alexovičová (above n 1) 689. 99 Ch IX and recommendations 33–37, Sutherland Report. 100 See further D Steger and N Shpilkovskaya, ‘Internal Management of the WTO: Room for Improvement’ in Steger (ed) (above n 14) 129, 145–46. 101 Van den Bossche and Alexovičová (above n 1) 690. 102 R Blackhurst, ‘The Role of the Director-General and the Secretariat’ in A Narlikar, M Daunton and RM Stern (eds), The Oxford Handbook of the WTO (OUP, 2012) 141. 103 See eg, M Elsig, ‘Principal-Agent Theory and the World Trade Organization: Complex Agency and “Missing Delegation”’ (2010) European Journal of International Relations 1. 104 Blackhurst (above n 102) 154.

34  Mary E Footer Without doubt the most pressing issue is the break-down of the consensus decision-making process in the selection and appointment of AB Members, which threatens to undermine the effective functioning of the WTO dispute settlement. There have been some small, incremental improvements in the WTO’s approach to transparency, democratic legitimacy and engagement with civil society. However, WTO Members should draw on practices in their own domestic constituencies and learn from their participation in bilateral, plurilateral and regional trade arrangements to boost efforts at the multilateral level. Furthermore, while secondary law-making by WTO bodies is not off the table, this particular normative development is becoming increasingly divisive and has taken on a political character of hitherto unknown proportions. For secondary law-making to be fit for purpose and remain within the parameters of the WTO’s governance structure, Members must re-double their efforts to engage in the work of the organisation’s institutional bodies, and to do so in a meaningful way. Finally, the WTO Secretariat still maintains many of the trappings of the former GATT, and this suits the membership. However, allowing the Secretariat a more independent role, especially in research and policy advice, and having a DirectorGeneral who could assume leadership and take a position where Members are divided, could benefit the WTO in the long term by restoring trust in trade. The integration of the Director-General and the Secretariat into the organisation’s governance structure is long overdue but it could make a serious contribution to effective global governance through the WTO.

2 Trade Policies in Support of Inclusive Growth to the Benefit of All MAARTEN SMEETS AND MINA MASHAYEKHI

I. Introduction With the creation of the World Trade Organization (WTO) in 1994, the rules of the multilateral trading system (MTS) that found their origin in the General Agreement on Tariffs and Trade (GATT) were updated and expanded to capture the changing patterns in international trade, largely driven by globalisation. A new basis for conducting international trade was created with strengthened and expanded rules as well as a more robust dispute settlement mechanism. The adequacy of the WTO multilateral trade rules as a basis for conducting trade and advancing the trade liberalisation agenda is now being questioned by key WTO Members. Globalisation is held responsible for the gradual erosion of the trust in international trade and trade policies as a means to achieve inclusive and sustainable growth and development to the benefit of all. The challenges to the MTS became particularly apparent before and during the last two Ministerial Conferences held in Nairobi (MC-10) in December 2015 and Buenos Aires (MC-11) in December 2017. At MC-11 Ministers did not confirm the validity of multilateralism and did not specifically agree on the ways forward, including in many areas that shape today’s world trade flows. There is a leadership as well as a trust gap. The calls for revisiting the MTS are becoming more persistent. In May 2018 President Macron of France called for a complete update of the WTO. Some argue that the WTO is going through an existential crisis and call for a reflection on its core functions: how can the rules best contribute to raising overall levels of welfare and ensuring inclusive growth to the benefit of all? The recent anti-globalisation sentiments have already triggered counterproductive policy responses in some countries, including calls for protectionism in order to prevent job losses and trade deficits, pursuit of mega-regionals and plurilaterals, and stricter controls on migration, heightening tensions between the main trading nations. Some of these policies run counter to the principles that the WTO stands for, including non-discrimination and trade liberalisation, which have been proven to generate economic growth and higher levels of welfare.

36  Maarten Smeets and Mina Mashayekhi This chapter provides insights into globalisation and its interaction with trade policies in order to better understand what needs to be done to ensure that the rules of the MTS continue to remain relevant for conducting trade in the twentyfirst century. It is argued that globalisation has contributed to economic and inclusive growth to the benefit of all. It will then be argued that the increased interdependencies between markets resulting from globalisation, new technologies and innovation call for more liberal and open policies, policy coordination and coherence, and appropriate social safety nets, trade adjustment mechanisms, reskilling and other ways of ensuring inclusiveness. The substantive international trade rules need to evolve in ways that balance trade and non-trade concerns and ensure that the benefits of trade and the fourth industrial revolution are truly inclusive and sustainable, thus contributing to restoring trust in trade and the MTS.

II.  Globalisation, Global Value Chains and Their Contribution to Inclusive Growth A.  Understanding Globalisation There is a growing misperception of globalisation, the contribution it can make to raising overall levels of economic welfare and the benefits it can yield to consumers and producers alike. An incorrect understanding of the concept can lead to the wrong policy prescriptions and result in a race to the bottom, affecting producers and consumers. A trend towards nationalistic policies, favouring domestic production over international trade can be observed, including in the largest economy in the world, the United States, signalling a process of­ de-globalisation. Trade tensions between the United States, China and other main trading partners have risen considerably following the United States’ determination to address its trade imbalance. These tensions have resulted in the imposition of tariffs on aluminium and steel, affecting all key exporters, and the risk of a trade war increased sharply. In July of 2018, the United States imposed new tariffs on USD 34bn of imports from China and threatened to increase these to USD 500bn. China reacted immediately with measures in kind, targeting specific exports of the United States, including soybeans, to an equivalent amount. China also made clear that it would not stop there should the United States decide to increase its trade-restrictive measures. Separately and in addition, the United States decided to target specific European products, including German cars, which could face a 25 per cent tariff in the United States. The United States and the European Union have committed to pursuing their efforts to resolve their trade issues bilaterally and in a mutually satisfactory manner in order to avoid a further escalation of the trade tensions. The evolution of the world economy and society is characterised by a deepening of the integration of economies and markets, thus leading to a stronger

Trade Policies in Support of Inclusive Growth to the Benefit of All  37 connection between markets and interdependence, and reducing the scope for independent and autonomous policies of trading nations. Many of the world’s challenges are increasingly global, not only in the field of trade, but also in other fields such as climate change, and cannot be tackled at the national level alone. The policy responses to globalisation logically require more coordination and coherence in policies, not less; and the MTS needs a further strengthening, rather than weakening, expanded and deepened rules and more trade liberalisation, while ensuring that all countries benefit. Until the 1990s, globalisation was mainly associated with the rapid changes in business structures and enterprises moving their business operations around the globe in order to take advantage of the shifting comparative advantage. More recently, attention has focused on Global Value Chains (GVCs) as a way of organising economic and production activities. The analysis that has been undertaken by academics and international institutions offers different perspectives on the contribution GVCs can make to trade. Huwart and Verdier note that few subjects are as controversial as globalisation, particularly when it comes to its economic and financial impact.1 Those who take a positive view on globalisation point to the vast array of new products, greater choice and cheaper goods for consumers, owing to intense international competition – not to mention technological advances, greater comfort and ease of everyday life, expanded leisure time and so on. Those who oppose globalisation often advance the argument that it leads to loss of jobs, increased inequality and poverty. Based on evidence presented in the literature, it will be argued that the overall benefits are far more positive than the costs if the right policies, regulations, institutions and adjustment mechanisms are in place. Initially, the economic rationale and a driving force of globalisation was the need for companies to be closer to the customer in order to adapt their products to local tastes and the particular conditions of the local market, often referred to as ‘customisation’.2 The choice was no longer between trade and foreign direct investment (FDI) as alternative ways to penetrate markets; instead FDI became a vehicle to enhance productivity and complement trade. Trade and investment became two sides of the same coin, reinforcing each other rather than acting as substitutes for each other. FDI is only the initial vehicle through which firms are established in their target market, but which at the same time triggers new trade

1 JY Huwart and L Verdier, Economic Globalization, Origin and Consequences (OECD, 2013). 2 M Smeets, The WTO Multilateral Trading System in a Globalizing World: Challenges and Opportunities (PhD thesis, Maastricht University, 2017) 109–60. See also M Smeets, ‘Globalisation and the Trade Policy Response’ (1990) 24 Journal of World Trade 57; M Smeets, ‘Globalisation of International Trade and Investment’, in F Buelens (ed), Globalisation and the Nation State (Edward Elgar, 2000) 7; M Smeets, ‘Aspects of Multinational Corporations’ in CJ Jepma and A Rhoen (eds), International Trade: A Business Perspective (Open University, Netherlands, 1996); M Smeets, ‘Changing Patterns in International Trade’ (2015) 5 Journal of the WTO and China 3.

38  Maarten Smeets and Mina Mashayekhi flows and related economic activities. These trade flows are mostly in intermediate goods and increasingly in services, including in travel, transport and logistics, information and communication technology (ICT), and business and professional services. Many services activities in health, education, finance, energy, transport and telecommunication relate to important social and economic functions with key roles in building infrastructure, improving competitiveness and facilitating trade. This development, with a growing significance of services in international trade, triggered the need to complement the trade rules of the GATT, mostly covering goods, with provisions on services, leading to the inclusion of the General Agreement on Trade in Services (GATS) in the WTO.3 Unlike for trade in goods, mostly covered by border measures, including tariffs, restrictions to trade in services are much more complex to address as they are in the domain of domestic regulation. In the services sector the importance of regulation is widely recognised. While acknowledging the positive benefits that trade liberalisation brings to countries, there is a need for flanking policies and appropriate regulatory and institutional frameworks to correct some of the negative externalities, information asymmetries and impacts that occur.4 Regulation is essential for a variety of public policy objectives in services, ranging from protecting consumers, ensuring competition, developing domestic supply capacity, ensuring quality standards, and controlling the movement of people, capital and data, to maintaining cultural diversity, protecting the environment or ensuring universal access to essential services. This perhaps explains why today little progress is made in the services negotiations in the WTO, both on market access rules and disciplines on domestic regulation.5 The key role of services, particularly infrastructural services, has been clearly recognised in the UN Sustainable Development Goals (SDGs), with specific goals and targets.6 Porter was one of the first authors to explain how the notion of comparative advantage has gradually moved to a more dynamic process, which he refers to as the ‘competitive advantage’: the production process became increasingly flexible and shifted in accordance with a variety of factors.7 This was followed some 10 years later by Friedman, who underscored that the inexorable integration of markets, nation states and technologies to a degree never witnessed before enables individuals, corporations and nation states to reach around the world farther, faster, deeper and more cheaply than ever before.8

3 M Mashayekhi, GATS 2000 Negotiations, South Centre Working Papers 9, 2000. 4 M Mashayekhi, M Olarreaga and G Pinto, Services, Trade and Development (United Nations, 2012). 5 M Mashayekhi and E Tuerk, ‘GATS Negotiations on Domestic Regulation: A Developing Country Perspective’ in K Alexander and M Adenas (eds), The World Trade Organization and Trade in Services (Martinus Nijhoff Publishers, 2008) 265. 6 M Mashayekhi, ‘Services Trade, Structural Transformation and SDGs 2030 Agenda’, in A Klasen (ed), Handbook of Global Trade Policy (Offenburg University, forthcoming 2018). 7 M Porter, The Competitive Advantage of Nations (Free Press, 1990). 8 T Friedman, The Lexus and the Olive Tree: Understanding Globalisation (2nd edn, First Anchor Books, 2000).

Trade Policies in Support of Inclusive Growth to the Benefit of All  39 Similarly, Stiglitz emphasised as the key elements of globalisation the reduction of costs of transportation and communication and the breaking down of artificial barriers to the flows of goods, services, capital, knowledge and (to a lesser extent) people across borders.9 Van den Bossche and Zdouc note that [e]conomic globalization is a multifaceted phenomenon. In essence, however, economic globalization is the gradual integration of national economies into one borderless economy. It encompasses both (free) international trade and (unrestricted) foreign direct investment. Economic globalization affects people everywhere in many aspects of their daily lives.10

Baldwin offers a long-term view of what has driven globalisation over several centuries and argues that it can basically be divided into two distinct periods.11 According to the author, the first drive towards globalisation was triggered by the industrial revolution in the developed world and the second one by the revolution in information and communication technologies, which also drove the industrialisation process in the emerging economies. The second wave led to a reduction in income disparities.12 Since 1980, the ICT revolution radically lowered transmission costs and the nature of globalisation has changed. The WTO’s World Trade Report of 2008 provides a detailed analytical discussion of the trade theories and more specifically of specialisation based on the relative factor endowment of countries in a globalising world.13 It is argued that the main forces that have driven global integration were technological innovations, broader political changes and economic policies. In the case of technological innovations, chief among these driving forces of globalisation were inventions that improved the speed of transportation and communications and lowered their costs. The other dramatic change was the revolution in ICT. The WTO notes that a key driver of globalisation has been economic policy, which resulted in deregulation and the reduction or elimination of restrictions on international trade and financial transactions, thus underscoring the role of services as a vehicle for globalisation. The positive relationship between trade and growth and economic development is underscored on the ground that trade liberalisation has been a catalyst of globalisation, leading to a wider consumer choice of better-quality products, available at

9 JE Stiglitz, Globalisation and its Discontents (WW Norton and Co, 2000); JE Stiglitz, Making Globalisation Work (WW Norton and Co, 2006). 10 P van den Bossche and W Zdouc, The Law and Policy of the WTO: Text, Cases and Materials (4th edn, CUP, 2017) 4. 11 R Baldwin, The Great Convergence, Information Technology and the New Globalization (The Belknap Press of Harvard University Press, 2016). See also R Baldwin, ‘Global Supply Chains: Why They Emerged, Why They Matter, and Where They Are Going’ in DE Elms and P Low (eds), Global Value Chains in a Changing World (WTO, 2013) 13; R Baldwin and P Martin, ‘Two Waves of Globalization: Superficial Similarities, Fundamental Differences’ in H Siebert (ed), Globalisation and Labour (JCB Mohr for Kiel Institute of World Economics, 1999) 3. 12 Baldwin and Martin (above n 11) 2–6. 13 World Trade Report 2008: Globalisation and Trade (WTO, 2008) 15ff.

40  Maarten Smeets and Mina Mashayekhi affordable prices. A more recent WTO Report of 2015 argues that globalisation is increasingly embraced today for the development perspectives it offers.14 In the same vein, according to Wolf, [t]he era of globalization has seen a first fall in global inequality of household incomes since the early nineteenth century. Between 1890 and 2015, average global real income rose by 120 percent. Our future cannot lie in closing ourselves off from one another.15

Finally, China’s President Xi Jinping made a strong pitch in support of globalisation at the meeting of the World Economic Forum held at Davos in January 2017, where he pleaded with countries to remain committed to developing global free trade and investment, promote trade and investment liberalization and facilitation through opening-up and say no to protectionism. Pursuing protectionism is like locking oneself in a dark room. While wind and rain may be kept outside, the dark room will also block light and air. No one will emerge as a winner in a trade war.16

China’s support for globalisation has strengthened further. Despite the proven benefits generated by globalisation, there has been a growing resistance against it. The opponents of globalisation not only consider that it leads to the destruction of jobs, a rise in inequality, and to economic imbalances, but also that it has a negative impact on the environment from the increasing trade flows.17 Rodrik considers globalisation to be disruptive by its very nature. He argues that open markets succeed when embedded within social, legal and political institutions that give them legitimacy.18 The richest and most developed countries can afford such institutions and have benefited the most from free trade, but this is not the case with poorer developing countries. In the latter, global governance structures required for managing globalisation do not yet exist. Goldberg and Pavcnik suggest a contemporaneous increase in globalisation and inequality in most developing countries. Establishing a causal link between these two trends, however, has proven challenging, among other things because of lack of appropriate data. Despite the ambiguities involved in identifying the relationship between openness and distributional changes, Goldberg and Pavcnik consider that the evidence has

14 It is increasingly acknowledged that trade is essentially a development tool, a means to enhance growth and economic development, as is explained and analysed in the WTO’s World Trade Report 2015: Speeding up Trade: Benefits and Challenges of Implementing the WTO Trade Facilitation Agreement (WTO, 2015). 15 M Wolf, ‘The Tide of Globalization is Turning’ Opinion Financial Times, 6 September 2016. 16 President Xi’s speech to Davos is available in full at: www.weforum.org/agenda/2017/01/full-textof-xi-jinping-keynote-at-the-world-economic-forum. 17 Analytical work undertaken at the WTO on the relation between trade and environment suggests that specialisation generates more trade, which is not necessarily incompatible with environmental objectives and can be mutually supportive. See the World Trade Report 2010: Trade in Natural Resources (WTO, 2010). 18 D Rodrik, The Globalization Paradox (OUP, 2011).

Trade Policies in Support of Inclusive Growth to the Benefit of All  41 provided little support for the conventional wisdom and approach to globalisation that trade openness in developing countries favours the less fortunate.19 It is well known among economists that it is much easier to identify sectors that are affected by competition which leads to job losses than the jobs created as a result of efficiency gains and the lower cost of inputs. The benefits of trade liberalisation are generally spread over the economy. However, as observed by Bhagwati as early as in 1988, there are losers as well as winners from market opening and it is important to give support to those who are likely to lose.20 Heydon argues that more should be done to communicate the potential gains from market opening.21 Indeed, there seems to be a fundamental gap in communication on the global benefits of trade liberalisation for the world economy as a whole and the consumers and producers specifically, but such benefits are not well understood. The Economist underscores that [t]rade creates many losers, and rapid immigration can disrupt communities. But the best way to address these problems is not to throw up barriers. It is to devise bold policies that preserve the benefits of openness while alleviating its side-effects … but don’t equate managing globalization with abandoning it.22

This highlights the need for effective, comprehensive and coherent policies and measures and joint cooperative thinking to help establish robust supply and human capacity, social safety nets, trade adjustment mechanisms, and appropriate regulations and institutions.

B.  Global Value Chains Closely linked to globalisation are the GVCs, which can be seen as a way for producers in different countries to better connect to markets and become part of the international production and supply process. If they manage doing so this will be beneficial for the country as a whole. The essence of GVCs is that producers from various countries are increasingly fused together by joint production arrangements, facilitating an incremental specialisation through the production and trading of tasks and components rather than entire products. Trade liberalisation has facilitated this process and led to unprecedented specialisation around the globe. Interestingly, it is observed that some companies that previously outsourced the production of parts and components abroad through FDI are now ‘re-shoring’ parts of their production processes to the home country. This means that some

19 P Goldberg and N Pavcnik, ‘Distributional Effects of Globalization in Developing Countries’ (2007) 45 Journal of Economic Literature 39. 20 J Bhagwati, Protectionism (MIT Press, 1988). 21 K Heydon, ‘The Political Economy of International Trade’ in K Heydon and S Woolcock (eds), The Ashgate Research Companion to International Trade Policy (Ashgate, 2012). 22 ‘The New Political Divide’, The Economist, 30 July 2016, 7.

42  Maarten Smeets and Mina Mashayekhi of the jobs once considered as lost are coming back. This can be seen in the automobile industry as well as many technologically intensive products and confirms the dynamics of trade and investment.23 The wider availability of technology and access to technology are themselves drivers of economic growth and creation of wealth. There is extensive literature on GVCs, with Gereffi being one of the initial researchers analysing this area and publishing on the meaning and implications of GVCs on trade, overall levels of welfare and policies in the early 1990s.24 This research led to various follow-up texts by the same author on this topic. Gereffi and Fernandez-Stark explain that ‘Global value chains highlight how new patterns of international trade, production, and employment shape the prospects for development and competitiveness, using core concepts like “governance” and “upgrading”’.25 According to the same authors, by focusing on the sequence of tangible and intangible value-adding activities, from conception and production to end use, GVC analysis provides a holistic view of global industries – both from the top down (for example, examining how lead firms ‘govern’ their global-scale affiliate and supplier networks) and from the bottom up (eg asking how these business decisions affect the trajectory of economic and social ‘upgrading’ and ‘downgrading’ in specific countries and regions).26 Daudin et al,27 Escaith28 and Koopman et al (2010)29 focus on a measurement of the added-value trade with empirical data based on an international input-output framework. Saito et al look primarily at the evolution of the GVCs since the mid-1990s and what these developments mean for the work of the International Monetary Fund (IMF).30 In examining the implications of GVCs for jobs and growth, competitiveness, and protectionism and trade-related policies, they observe that ‘Existing evidence suggests that GVCs have contributed 23 Cf Smeets, The WTO Multilateral Trading System in a Globalizing World (above n 2) 141–46. 24 G Gereffi, ‘The Organization of Buyer-Driven Global Commodity Chains: How US Retailers Shape Overseas Production Networks’ in G Gereffi and M Korzeniewicz (eds), Commodity Chains and Global Capitalism (Praeger, 1994) 95–122; G Gereffi, J Humphrey and T Sturgeon, ‘The Governance of Global Value Chains’ (2005) 12 Review of International Political Economy 78. 25 G Gereffi and K Fernandez-Stark, Global Value Chain Analysis: A Primer (Center on Globalization, Governance & Competitiveness, Duke University, 2011) 4. 26 ibid. 27 G Daudin, C Riffart and D Schweisguth, ‘Le commerce extérieur en valeur ajouté’ (2006) 98 Revue de l’OFCE: Observatoire et diagnostiques économiques 129; G Daudin, C Riffart and D Schweisguth, ‘Who Produces for Whom in the World Economy?’ (2009) Observatoire Français des Conjonctures Economiques (OFCE), Document de travail de l’OFCE No 2009–18. 28 H Escaith, ‘Measuring Trade in Value Added in the New Industrial Economy: Statistical Implications’ (2008) Munich Personal RePEc Archive MPRA Paper No 14454; H Escaith and H Gaudin, ‘Clustering Value-Added Trade Profiles: Structural and Policy Dimensions’ (2004) WTO Working Paper. 29 R Koopman, W Powers, Z Wang and S-J Wei, Give Credit Where Credit is Due: Tracing Value Added in Global Production Chains, National Bureau of Economic Research, (2010) NBER Working Paper No 16428. 30 M Saito, M Ruta and J Turunen, Trade Interconnectedness: The World with Global Value Chains (International Monetary Fund, 2013) 6.

Trade Policies in Support of Inclusive Growth to the Benefit of All  43 to ­productivity gains and growth’.31 The IMF also observes that based on official data GVCs are creating more and more world income, including labour income. Data at the individual country level indicate that being part of GVCs is associated with a higher growth rate since the mid-1990s.32 Dedrick et al conducted specific research on GVCs and presented a case study with regard to iPods, notebook PCs and iPhones, which reveal more of the economic realities with regard to who gains what and how in the GVCs.33 The authors show that the Chinese contribution to the value of the final product represents only some 5 per cent of the total value.34 Equally, the United States provides the high-skilled engineering and professional jobs. The WTO’s World Trade Report of 2014 underscores the contribution that GVCs can make to the development perspectives of developing countries and notes that developing countries are increasingly involved in international production networks, and South–South GVCs are becoming more important.35 Services have a key role in job creation, structural transformation and the GVCs as they coordinate interaction of productive activities, provide intermediate inputs to all economic activities and can be bundled with goods. This ‘servicification’ implies that there is services value added included in the output of all sectors. The advantage for developing countries of focusing more on services is that it requires less setting-up of infrastructure for production, thus lowering transaction costs. In 2011, services value added represented 44 per cent of total exports in developed economies and 32 per cent in developing economies. It is observed that developing countries’ participation in GVCs through services exports has increased more than their services direct exports, which is 14 per cent. Recent data indicates that the contribution of services to overall exports was close to two-thirds. Between 2005 and 2016, services exports grew faster in developing countries, with their share in global services exports growing from 23 to 29 per cent. The analysis with regard to value added in gross exports and in-house services in manufacturing firms reveals that the importance of services for trade corresponds to their importance for output, jobs and investment. In developing countries, services accounted for 55 per cent of output in 2015, 44 per cent of employment in 2016 and 53 per cent of investment inflows in 2015.36 Hence, GVCs offer an opportunity 31 ibid. 32 ibid 1. 33 J Dedrick, K Kraemer and G Linden, ‘Who Profits from Innovation in Global Value Chains? A Study of the iPod and Notebook PCs’ (Alfred P Sloan Foundation Annual Conference, 1–2 May 2008, Boston, MA). See also J Dedrick, K Kraemer and G Linden, ‘Capturing Value in Global Networks: Apple’s iPad and iPhone’ (University of California, Irvine, University of California, Berkeley and ­Syracuse University, 2011) available at: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.46 6.3897&rep=rep1&type=pdf. 34 ibid 7. Also see M Mashayekhi et al, Tracing the Value Chains: Product-Level Case Studies in China (United Nations, 2015). 35 World Trade Report 2014: Trade and Development: Recent Trends and the Role of the WTO (WTO, 2014) 78. 36 M Mashayekhi and B Antunes (eds), Services and Structural Transformation for Development (United Nations, 2018).

44  Maarten Smeets and Mina Mashayekhi for developing countries to integrate into the world economy at lower costs, but gains from GVC participation are not automatic. Governments are particularly interested in securing a profitable place in global supply chains by moving up the value chain and deriving as much as possible of the total added value. In order to do so developing countries, particularly least-developed countries (LDCs), need strengthened and coherent structural transformation strategies, including comprehensive services policies, as well as aid for trade support and effective preferential treatment in services.37 These examples and explanations illustrate the complexity of the issues and the challenges emanating from the recent developments, which require balanced and well-thought-out approaches and responses, rather than over-simplifying the realities and providing quick fixes by way of protectionist measures. Such measures risk being costly to consumers and producers alike and providing the wrong economic signals.

III.  The Trade Policy Response to Globalisation A.  How Has the Trade Policy Response to Globalisation Evolved? The policy response to globalisation has fundamentally altered since the 1990s although some old-style ‘déjà vu’ measures and policies seem to be gaining ground again. The responses provided in the early years of globalisation consisted of a mix of defensive and offensive strategies. The defensive strategies were mostly geared towards protecting domestic industries, domestic employment and hence the national market. The offensive policies consisted of defining strategies of targeting industry ‘winners’ and designing policies in support of domestic leading industries. The question is what policies should be pursued in order to best take advantage of the opportunities that globalisation provides. The policy approaches followed in recent years focus more on facilitating economic adjustments, reducing transaction costs, further market opening, reducing barriers to trade and (de)regulation. These new approaches take better account of the complexities of trade and investment, the role of services in the production process of goods and the GVCs, which are characteristic of the way international transactions occur. The policies are increasingly geared towards enhancing the connection to the market and for countries to make a contribution into the valueadding process.

37 M Mashayekhi, ‘Preferential Treatment in Services for Developing Countries’ in Trade in Services and Economic Transformation (Overseas Development Institute, 2017).

Trade Policies in Support of Inclusive Growth to the Benefit of All  45 The thinking and more importantly the trade policies thus evolved from strategies that were initially geared towards defending domestic industries and providing support to create winners to policies built on the notion of coherence. A specific feature of the 1980s and early 1990s was the frequent resort to GATT-inconsistent measures taken outside the rules of the MTS, which ultimately undermined the GATT per se. This included Voluntary Export Restraints (VERs) and Orderly Marketing Arrangements (OMAs), often referred to as ‘grey area measures’, which were in fact not so ‘voluntary’ and contributed to the gradual erosion of the MTS. They were meant to govern imports and exports between countries on a voluntary basis but the reality was different as exporters often had no choice but to accept the voluntary restrictions set by the importing country. The alternative consisted of harder and more direct import restrictions, with the risk of being excluded from the market. Contrary to safeguard measures, VERs and OMAs effectively undermine the trade rules and discriminate between suppliers.38 They explicitly target those suppliers that affect the competitiveness of the domestic industry. They lead to uncertainty in trade and generate economic inefficiencies and costs to consumers and producers alike. They undercut the free functioning of the market, were in conflict with the rules-based system and hollowed out the GATT. Grey-area measures thus are not an adequate trade policy response to globalisation. To the contrary, and as a result, these policies were banned in the WTO and are no longer applied. The notion of ‘industrial targeting’ refers to governmental policies, initiatives and strategies to attract FDI for what could be considered as strategic industries. Such policies were mostly associated with the 1990s, with governments much inclined to support industries that were perceived as ‘winners’ and significant contributors to creating economic value to the domestic economy. Industries that were considered of strategic value included sectors with a considerable technology input, including aerospace, computers, semi-conductors, automobiles etc. Ways of creating an economic advantage consisted of providing special incentives in the form of fiscal advantages, including direct or indirect subsidies, tax breaks, often directly linked to performance requirements imposed on, or negotiated with, the foreign investor. It was assumed that ‘winners’ could be identified and that a comparative advantage could be created, which seems highly questionable.39

38 Safeguard measures are covered by Art XIX of the GATT and the Agreement on Safeguards, Marrakesh Agreement Establishing the World Trade Organization, 15 April 1994, Annex 1A, 1869 UNTS 154. Such measures can be taken in a situation provided for in Article 2 that ‘such product is being imported into its territory in such increased quantities, absolute or relative to domestic production, and under such conditions as to cause or threaten to cause serious injury to the domestic industry that produces like or directly competitive products’. The provisions thus refer to increases in legitimate trade flows that the domestic producer cannot cope with and to contrary grey-area measures taken outside the rules of the MTS. 39 W Michalski, ‘Support Policies for Strategic Industries: An Introduction to the Main Issues’ in Strategic Industries in a Global Economy: Policy Issues for the 1990s (OECD International Futures Programme, 1991) 8–9.

46  Maarten Smeets and Mina Mashayekhi While today governments continue to be concerned with the quality of FDI and the creation of jobs in the domestic economy, the recognition of the interdependency of markets resulting from globalisation and GVCs has further reduced the room for manoeuvre for individual governments to intervene in a discriminatory manner in the market and to grant an advantage to the domestic industry. The subsidy rules and disciplines were strengthened at the OECD and in the WTO in order to reduce the abusive scope of such distortive policies.40

B.  The ‘Newer’ Trade Policy Responses to Globalisation The policy challenges emanating from globalisation and GVCs mainly relate to the concerns of governments on how best to address issues and concerns nationally that by their very nature require coordinated international responses, given growing interdependency of world trade. The two challenges are closely interrelated as the scope for conducting independent policies by national governments has been reduced as a result of the increased interdependency between economies. The thinking has evolved in the WTO with a specific focus on policy coherence, policy coordination, regulation, deregulation and a strengthening and deepening of the rules of the MTS. With regard to the latter, reinforcing the MTS, Members’ efforts are mainly geared towards advancing trade liberalisation and reducing transaction costs without fundamentally altering the principles of the WTO system per se. The multilateral trade negotiations conducted under the aegis of the Doha Development Agenda (DDA) have been stuck for over a decade, with results achieved only in a limited number of specific areas, including the Trade Facilitation Agreement (TFA).41 There is an urgent need to update the rules, taking into account the recent developments with regard to concerns with globalisation, GVCs, interlinkages between goods and services rather than silo approaches, new technologies, artificial intelligence and the Internet of Things. The reduction of transaction costs is important both for countries’ external trade as well as for facilitating trade transactions within their borders. Teh et al show that the economic literature is unanimous on the contribution that the TFA can make to economic growth and development,

40 The Agreement on Subsidies and Countervailing Measures, Marrakesh Agreement Establishing the World Trade Organization, 15 April 1994, Annex 1A, 1869 UNTS 14, was further strengthened with a view to tightening the conditions under which governments would be allowed to provide support to their industries, including through tax breaks and subsidy schemes. 41 The Doha Development Agenda (DDA) was launched by WTO Ministers at Doha in November 2001 and was initially meant to be concluded in four years. Despite setting new deadlines, efforts to bring the round to a successful conclusion have failed. The negotiations of the Trade Facilitation Agreement pre-dated the DDA and were concluded at the Ninth Ministerial Conference held in Bali in December 2013. The Agreement entered into force following ratification by two-thirds of the membership in spring 2018.

Trade Policies in Support of Inclusive Growth to the Benefit of All  47 increasing trade and GDP, export diversification and linking to GVCs.42 Their contribution builds the argument around specific case studies at the country and regional level, showing how the reduction of transaction costs will be beneficial to enhancing economic revenue, growth and development. In the same way, the IMF underscores the need to go beyond merely addressing border issues in the classical sense, the importance of considering trade in a holistic manner, arguing that the internationalization of production processes implies that cross-border flows of goods, investment, services, know-how, and people often complement each other. This fact opens … new policy coordination problems that go well beyond the negotiation of reciprocal market access concessions through the reduction of traditional border measures such as tariffs. Behind-the-border measures and domestic policies have become a more important barrier to supply-chain trade.43

Thus, given the prominence of services in international trade and structural ­transformation as well as for the digital economy and the achievement of SDGs, there is a need to focus more on the issues regarding strengthening services policies as well as examining the impact of regulation and deregulation of services. As services are often covered by domestic regulations, trade rules gradually entered into behind-the-border domestic policy spheres. Regrettably, services are one of the areas where the least progress has been made in the negotiations on market access, rules and disciplines on domestic regulations. The efforts made by a select group of countries to advance liberalisation in services outside the WTO framework, through the Trade in Services Agreement (TiSA),44 have also not been successful, partly because of US reluctance to go forward with TiSA. If the outcomes of the TiSA negotiations were to be adopted in their present format, the benefits would risk being limited and confined only to the parties to the agreement that may result from the discussions, thus undermining the most favoured nation (MFN) principle and leading to a fragmentation of the MTS.45 Little has been done, however, to update the WTO rules in the face of the current forces of the real economy and globalisation. The latest two WTO ­Ministerial

42 For a thorough review of the literature, see R Teh, M Smeets, M Sadni Jallab and F Chaudhri, ‘Introduction’ in R Teh, M Smeets, M Sadni Jallab and F Chaudri (eds), Trade Costs and Inclusive Growth, Case Studies Presented by WTO Chair-Holders (WTO, 2016) 1. 43 Cf Saito, Ruta and Turunen (above n 30) 5. 44 A group of countries gathered to launch negotiations in trade in services to establish a Trade in Services Agreement (TiSA). These negotiations were conducted outside the framework of the WTO and in spite of the fact that the GATS explicitly foresees that Members pursue negotiations as part of the ‘built-in’ agenda. It would seem that this initiative is mostly driven by the lack of progress in discussions within the WTO framework. The question has been raised whether the eventual outcome may have multilateral application. There is no indication at present that the benefits will be extended by virtue of the most favoured nation (MFN) principle, given that domestic regulations remain a sensitive area for governments. 45 M Mashayekhi, ‘Services Economy and Trade and Structural Transformation’, paper presented at the REDLAS Conference, San Jose, Costa Rica, September 2017.

48  Maarten Smeets and Mina Mashayekhi Conferences have made increasingly apparent the different strands of thought between Members with regard to the future of the MTS. There is also more discussion of coalitions of the willing and critical mass plurilaterals. While the support for concluding the DDA per se is waning, some Members hold the view that the DDA needs to be concluded before any discussion on the inclusion of the ‘new’ trade issues can be considered. Other Members consider that the DDA negotiations have been going on for too long without a conclusion and that it is time to address the more recent issues that have shaped world trade.46 It would seem that Members’ positions are gradually evolving, though, showing some interest in engaging in discussions on investment facilitation, e-commerce and MSMEs. This is evident in the joint statements of some 70 countries on these three issues.47 The door has thus narrowly opened to investment facilitation, initiated by the so-called Friends of Investment Facilitation, and to e-commerce, but it is unknown what the discussions could possibly lead to. There is a long way to go before substantive progress can be expected. Interestingly, the latest Ministerial Conference (MC-11 held in Buenos Aires in December 2017) was concluded without a Ministerial Declaration. The challenge for policy makers thus is to design policies that reflect the realities of international trade and stay in tune with current developments. The scholarly and policy debates are mainly centred on the question of how countries can better connect to markets through the GVCs in order to reap the benefits of higher levels of specialisation, revenue growth, technology transfer, innovation, FDI and employment. The policy responses move in the direction of encouraging R&D, skills upgrading, training and education, creating an enabling environment for trade and investment, trade facilitation and reduction of transaction costs, improvement of domestic infrastructures, and access to capital and skills. With regard to the need to move towards more policy convergence, the reality is often different, with some countries inclined to seek more autonomy in their policy space, sealing off their markets and/or seeking a balance in their bilateral trade relations. It is argued that such nationalistic and/or bilateral approaches rather than cooperative approaches are short-sighted and provide the wrong signals. Steger states that ‘issues cannot be solved by nation states acting alone. Strong and effective institutions are needed to manage global interdependence … Nation states cannot, by themselves, regulate effectively to deal with global problems – they need a strong multilateral institution to do this’.48 Hoekman and 46 This is particularly apparent in para 30 of the Nairobi Ministerial Declaration, adopted on 19 December 2015, as contained in WT/MIN(15)/DEC, 21 December 2015 and which puts forward two opposing views. 47 Joint Statement on Electronic Commerce (WT/MIN(17)/60) 13 December 2017; Joint Ministerial Statement on Investment Facilitation for Development (WT/MIN(17)/59) 13 December 2017; and Joint Ministerial Statement – Declaration on the Establishment of a WTO Informal Work Programme for MSMEs, 13 December 2017. 48 D Steger, ‘The Culture of the WTO: Why It Needs to Change’ (2007) 10 Journal of International Economic Law 493.

Trade Policies in Support of Inclusive Growth to the Benefit of All  49 Kostecki observe that as many parts of government are involved in trade policy, ‘in both the process of formulating and implementing policy there is a need for coordination and a common understanding of the overall objectives of the government and the implications of trade agreements for national policy’.49 In short, the world has changed and border measures are no longer the main obstacle to trade. There is a need to take a fresh look at the adequacy of the multilateral trade rules, taking into account the new patterns of trade, the relationship between goods and services, and more specifically the nexus between the various policy fields and their coherence. In formulating the trade policy responses and the economic opportunities generated through technology and innovation, the digital economy and globalisation should not be taken for granted. Of critical importance are the social implications of liberalisation and globalisation, which require both general and specific policies to assist those that are negatively affected by trade. Examples include social protection systems, active labour market policies, education policies including human intelligence building along with artificial intelligence strengthening, redistribution policies, and specific trade adjustment programmes for workers.50 These issues cannot be ignored: they are too important in the context of global governance and require a collective approach as they are part of a collective responsibility and fundamentally contribute to restoring trust in trade.

IV. Conclusions The developments in international trade and, more specifically, the ways in which globalisation has evolved, require a further review of the rules of the MTS. Trade is more integrated and interconnected with other policy spheres, including development, macroeconomic policies, investment and competition policy. Government policies focus more on the question of how the economy can best take advantage of the competitive forces at play. There is a growing sense among WTO Members that the rules do not pay enough attention to the changing patterns in international trade and continue to give undue priority to traditional trade issues. The understanding of the need for regulation and deregulation should be deepened. The debates also need to reflect better the growing anti-globalisation sentiments in order to secure the future of the WTO MTS. In order to restore trust in trade, the policy response today should be more directed towards policy coherence, policy coordination, deregulation, reducing transactions costs, building and improving domestic infrastructures, stimulating R&D and developing new technologies. Protectionism and national and bilateral approaches to balancing

49 B Hoekman and M Kostecki, The Political Economy of the World Trading System: The WTO and Beyond (3rd edn, OUP, 2009) 660. 50 WTO, World Trade Report 2008 (above n 13).

50  Maarten Smeets and Mina Mashayekhi trade will generate trade wars, lead to more protectionism and propel a vicious circle of retaliatory measures, which are detrimental to international trade and affect overall levels of welfare. Given that globalisation can also lead to losers it is the duty of the WTO and other international institutions to better explain how the benefits of trade liberalisation and globalisation trickle down to the consumer and producer. In order to limit the negative consequences of globalisation and resist protectionism creeping in, it is not only the responsibility of governments to provide the right conditions for globalisation to generate jobs, welfare and employment, but also to provide for social safety nets for those who lose out in the process.

3 Gx Dynamics in Global Trade Governance JAN WOUTERS AND TINE CARMELIET*

I. Introduction This chapter is dedicated to Peter Van den Bossche, a friend for many years of the first author: while we have our origins in the same city region (Antwerp: Peter is from Mortsel, Jan is from Wilrijk), and attended the same Antwerp high school (Sint-Lievens), because of the age difference we only met in 1991, when we both worked as référendaires for Advocate General Walter van Gerven at the European Court of Justice in Luxembourg. Fate had it that, a little later in the 1990s, we became neighbours again at Maastricht University, with adjacent offices in the lovely (former) METRO building in the Lenculenstraat. Our chapter pays ­tribute to Peter’s great international trade law scholarship, in which he always paid ­attention to issues of accountability, effectiveness, legitimacy and inclusiveness (in particular for developing countries) in the multilateral trading system. In the aftermath of the Second World War, newly founded international organisations were established to support the development of a global economy. Today, the traditional triumvirate, consisting of the International Monetary Fund (IMF), the World Bank and the GATT – since 1995 integrated into the World Trade Organization (WTO) – continues to play a crucial role in the international regulation of the global economy. Following an ever-growing interdependence and a rising awareness of transnational issues, the triumvirate was joined by a wide variety of organisations in the decades following its establishment. Among them, global international institutions, (cross-)regional organisations, and public

* The present contribution builds and expands upon previous research on this topic. See, inter alia: J Wouters and S Van Kerckhoven, ‘The Gx Contribution to Multilateral Governance: Balancing ­Efficiency and Inclusiveness’ Studia Diplomatica 2017, 45; J Wouters and I Willemyns, ‘The Interplay between the G20 and the World Trade Organization: Informal Law-making in Action’ in J Chaisse and TY Lin (eds), International Economic Law and Governance: Essays in Honour of Mitsoa Mitsushita (OUP, 2016) 183.

52  Jan Wouters and Tine Carmeliet and private standard-setting bodies have gained a significant foothold within the architecture of global economic governance. While each of these bodies has a specific mandate to fulfil, their issue fields often overlap. In this respect, an overarching, more aggregate entity could ensure that the bodies within and across different issue fields work in concert. For that reason, recent history has witnessed the rise of informal international bodies looking to coordinate efforts within and between areas: the G7 (initially G6) in 1975, the G20 in 1999 and the BRICS in 2009. These bodies are rather loose and bring together only a limited number of countries in a club-like atmosphere, with the ambition to coordinate international (economic) policies. They have taken up the ‘Gx’ format, whereby the ‘G’ refers to their group-like dynamics. In the course of the years, these Gx bodies have gained a focal position in global economic governance by performing two distinct but related roles. First, they have been called upon to provide swift guidance when crises erupt. This has clearly been shown by the involvement of Gx bodies in combating the global financial crises over the last two decades, and of the G7 in the face of new security threats. Second, the Gx bodies allow for medium- to long-term policy coordination, responding to some extent to the aforementioned need for a more overarching policy coherence across issue fields and international organisations. The present chapter looks at the role of these Gx bodies as loci of power in global trade governance. Particular attention is paid to the input (ie the inclusiveness) as well as the output (ie the effectiveness) legitimacy of such steering bodies. It is argued that while such bodies face a trade-off between effectiveness and inclusiveness, the presence of certain coordination bodies, which have been set up particularly to coordinate in a single-issue field, within such Gx steering bodies could increase their inclusiveness without hampering their effectiveness. In that manner, such Gx bodies could more effectively contribute to ‘restoring trust in trade’, the overall theme of this volume.

II.  Composition and Functioning of the Gx Bodies Before assessing their legitimacy, we first review the composition and workings of the different Gx bodies. We limit the focus to bodies that carry out a coordination function with regard to the policies of their members with respect to the global economy.

A.  From the G5 to the G7/8 The G5 was established in the mid-1970s to coordinate the economic policies of France, West Germany, Japan, the United Kingdom and the United States and was the main policy coordination group among the major industrial countries until

Gx Dynamics in Global Trade Governance  53 the Plaza Agreement of September 1985.1 However, even before 1985, another Gx body had come into existence. In 1975 the finance ministers and central bank governors of six major industrialised economies (France, West Germany, Italy, Japan, United Kingdom, and United States) informally met at the chateau of Rambouillet, close to Paris. The intent was to discuss current world issues (dominated by the oil crisis) in a frank and informal manner. A year later, Canada joined the second meeting of the G6, de facto transforming it into the G7. Two decades later, Russia joined, making it the G8. The 2005 Gleneagles Summit, hosted by Tony Blair, led to the establishment of the G8+5 meeting, which included Brazil, China, India, Mexico and South Africa, referred to as the ‘outreach countries’. This was made official at the 2007 Heiligendamm Summit, hence the so-called ­‘Heiligendamm process’, which is still in place today.2 After the Russian annexation of Crimea in March 2014, the G8 downsized back to a G7, and the next summit was held in Brussels rather than in the originally planned location of Sochi, Russia. Over its 40-year existence, the G7/8 members have managed to find agreement on a wide variety of issues. When the G20 leaders met for the first time in 2008, it was expected that the G7/8 would lose its relevance. However, the G7 regained importance. This was partly due to a rising number of security threats: Russia’s illegal annexation of territory from a sovereign neighbour, the rise of Islamic State and recent terrorist attacks. The G7 is the body most fit to cooperate on these issues, as its limited membership of ideologically aligned and militarily powerful members allows for quick responses to security threats. This was exemplified by the 43rd summit held in Taormina, Italy in May 2017, where the G7 emphasised their common security endeavours with respect to the Syrian war, the situation in Libya and North Korea’s nuclear tests.3 Back in 1997, an extended version of the G7 emerged – the G224 which consisted of the finance ministers and central bank governors of the G7 members and 15 other countries. The G22 convened to draft proposals in order to reform the global financial system but was quickly superseded by the equally short-lived G33, which only met a few times in 1999.5 After these short-lived initiatives, the G20 met for the first time in 1999 and provided a more long-lasting initiative.

1 The Plaza Agreement was the agreement between the governments of the G5 to depreciate the value of the US Dollar vis-à-vis the Japanese Yen and the German Deutschmark by intervening in the currency markets. 2 C Oldani, J Wouters and A Andrione-Moylan, ‘The G7, Anti-Globalism and the Governance of Globalization: Setting the Scene’ in C Oldani and J Wouters (eds), The G7, Anti-Globalism and the Governance of Globalization (Routledge, 2018), 1, 5. 3 G7 Taormina Leaders’ Communiqué, available at: www.consilium.europa.eu/media/23559/ g7-taormina-leaders-communique.pdf. 4 Members of the G7 and Argentina, Australia, Brazil, China, Hong Kong SAR, India, Indonesia, Malaysia, Mexico, Poland, Russia, Singapore, South Korea, South Africa and Thailand. 5 Members were the G22 and Belgium, Chile, Côte d’Ivoire, Egypt, Morocco, the Netherlands, Saudi Arabia, Spain, Sweden, Switzerland and Turkey.

54  Jan Wouters and Tine Carmeliet

B.  The G20 The Asian financial crisis of the late 1990s proved that the G7 structure was not adequate to respond to the needs of a global economy. In light of this, the G7 finance ministers and central bank governors proposed at their meeting in 1999 to establish a new mechanism for informal dialogue in the framework of the Bretton Woods institutional system, to broaden the dialogue on key economic and financial policy issues among systematically [sic] significant economies and promote cooperation to achieve stable and sustainable world economic growth that benefits all.6

With this broad agenda, the G20 was created, bringing around the table ‘­systemically significant’ industrialised and emerging economies.7 For years, the G20 kept meeting in this constellation, despite repeated calls that there should be meetings at leaders’ level.8 Again, spurred by a moment of crisis in late 2008, the United States convened ‘the Group of 20 Summit on Financial Markets and the World Economy’ in Washington DC at leaders’ level. Since the third G20 summit in Pittsburgh in September 2009, the leaders have designated the G20 as ‘the premier forum for the international economic cooperation between the largest world economies’.9 Starting from a crisis committee, the G20 has evolved into a ‘permanent steering committee’ with an ever-expanding agenda of global issues. In contrast to the G7, the composition of the G20 arguably endeavours to be balanced in terms of geographic and population representation.10 It consists of 19 countries and the EU, and comprises roughly 85 per cent of global GDP.11 Other states are regularly invited to G20 meetings.12 The group’s chair, selected from different regional groupings, is to ensure continuity in the G20’s work and management and rotates annually among the members. Like the G7, the G20

6 Statement of G7 Ministers and Central Bank Governors, Washington DC, 25 September 1999, para 19. 7 Communiqué of the Meeting of G20 Finance Ministers and Central Bank Governors (Berlin, 15–16 December 1999) para 2. For an overview of the early functioning of the G20, see J Kirton, ‘The G-20: Representativeness, Effectiveness and Leadership in Global Governance’ in J Kirton, J  Daniels and A Freytag (eds), Guiding Global Order. G8 Governance in the 21st Century (Ashgate, 2001) 143. 8 P Martin, Hell or High Water: My Life in and Out of Politics (McClelland & Stewart, 2008). 9 G20 Summit Declaration (24–25 September 2009) paras 19, 50. 10 G20, ‘What is the G20 and FAQ’, published on the website of the G20, available at www.g20.org/en/ g20/what-is-the g20. 11 These countries are Argentina, Australia, Brazil, Canada, China, France, Germany, India, ­Indonesia, Italy, Japan, the Republic of Korea, Mexico, Russia, Saud Arabia, South Africa, Turkey, the UK and the US. 12 For instance, Equatorial Guinea, Ethiopia, Singapore, Spain and the United Arab Emirates were invited to the G20 Summit Declaration in Cannes in 2011. International financial institutions are also represented. For example, the Managing Director of the IMF and the President of the World Bank take part in G20 meetings ‘on an ex officio basis’. However, in practice these actors influence the G20 decision-making only to the extent their views are asked for by the members of the G20. J Wouters and T Ramopoulos, ‘The G20 and Global Economic Governance: Lessons from Multi-Level European Governance?’ (2012) 15 Journal of International Economic Law 751.

Gx Dynamics in Global Trade Governance  55 is a particular gathering of political leaders compared with the more formal ­international ­organisations. It is appropriate to call it a ‘club’ or a ‘network’.13 It does not have the formal decision-making procedures and rules of procedure that characterise traditional international organisations, and its output takes the form of communiqués and declarations, generating interesting forms of ­‘informal law-making’.14 On several occasions, the G20 Heads of State or ­Government have reiterated their determination to avoid any further institutionalisation. Based solely on political consensus, the G20 enjoys the freedom and flexibility to engage in agenda-setting, coordinating policies and distributing tasks across existing institutions and building consensus around norms and knowledge. The downside, however, is that in order to be effective, the G20 depends exclusively on the political will of its members. Indeed, the purely political government-driven agenda-setting reveals an absence of domestic institutions and civil society from the process.

C.  The BRICS The third steering group, and the only one established by non-Western countries, is the BRICS, which is the acronym for Brazil, Russia, India, China and South Africa.15 In 2009 the leaders of four major emerging economies came together in Yekaterinburg and held the first BRIC Summit. The goal was to discuss proposals to improve the global economic situation, reform the international financial institutions and further cooperation and coordination in the future. In 2010, after the entry of South Africa, the grouping was renamed BRICS. As the BRICS gathers together the most important emerging economies and represents more than 50 per cent of global GDP, its summits carry a certain weight. This is amplified by the fact that all BRICS members are members of the G20. While the BRICS is still in its infancy compared with the G7 and the G20, over 13 L Martinez-Diaz and N Woords, ‘The G20 – the Perils and Opportunities of Network Governance for Developing Countries’ (Global Economic Programme briefing paper, University of Oxford, 2009) 1, available at: www.globaleconomicgovernance.org/sites/geg/files/Woods%20Martinez%20Diaz%20 Networks/20PB.pdf. 14 In our earlier research projects, the term ‘informal international law-making’ has been defined as follows: ‘Cross-border cooperation between public authorities, with or without the participation of private actors and/or international organisations, in a forum other than a traditional international organisation (process informality), and/or as between actors other than traditional diplomatic actors (such as regulators or agencies) (actor informality), and/or which does not result in a formal treaty or other traditional source of international law (output informality)’. See J Pauwelyn, ‘Informal ­International Lawmaking: Framing the Concept and Research Questions’ in J Pauwelyn, R Wessel and J Wouters (eds), Informal International Lawmaking (OUP, 2012) 22. 15 Unlike the G7/8 and the G20, the members of this diverse group were not brought together by shared history, geographical proximity or ideology, but rather around their commonality of being regarded as ‘emerging markets’ by foreign investors. Indeed, the term ‘BRIC’ was coined in 2001 by then-chairman of Goldman Sachs Asset Management Jim O’Neill in an attempt to promote emerging market fund investments to its clients in the West. The countries involved chose the term BRICS only much later as name for their Gx gathering.

56  Jan Wouters and Tine Carmeliet the years, BRICS members have demonstrated that they are capable of not only reaching consensus on pressing topics, but also delivering on certain key action points. This can also be seen from the incremental policy agenda increase: while it initially focused on financial regulation, in recent years it has been extended to also include international trade. This places the BRICS in a position of global economic leadership, enabling the group to reach consensus and craft decisions across a broad range of policy issues. The BRICS has discussed a variety of topics, but most importantly founded the New Development Bank as an alternative to the World Bank and the IMF. So far, there have been nine annual summits, the last one taking place in China in September 2017.

D.  Constellations of the Gx Steering Bodies The wide variety of Gx coordination bodies, which, as will be shown below, bring together countries which focus on coordination in a single-issue field such as the WTO or the United Nations (UN), has resulted in a patchwork of club-like ­steering groupings. Figure 3.1 shows the location of the different Gx members in the current Gx bodies. This circle diagram presents the constellation of all G20 members within the steering groupings of both the industrialised and the emerging economies, the G7 and the BRICS, respectively. Figure 3.1  Constellations of the steering Gx bodies G20 G7 France Germany Italy UK US Canada Japan

Former G8 Russia

BRICS Brazil India China South Africa

Argentina Australia Indonesia South Korea Mexico Saudi Arabia Turkey European Union

Figure 3.1 indicates that without Russia around the G7 table, there is no i­ mmediate link between the BRICS and the G7. Indeed, during the G8 years, Russia was the link between the G7 and the BRICS, which could have led to deeper cooperation and more inclusive decision-making, with Russia bringing the BRICS position to the G8 table. The rise of the G20 as the premier economic forum ensures

Gx Dynamics in Global Trade Governance  57 nevertheless that the BRICS members and the G7 members still meet regularly. So far, research has fallen short in exploring the links between these bodies. Kirton nonetheless argues that the G7/8 and BRICS will cooperate more closely, ­comprehensively and effectively across all governance functions and subjects.16 However, in order to carry out such a task, the return of Russia to the G7/8 might be beneficial.

III.  The Gx Bodies and Problems of Legitimacy While Gx bodies have risen in importance over the last few years, they have at the same time been criticised for being both illegitimate and ineffective.17 As will be demonstrated below, the extent to which the Gx bodies can provide solutions to global problems – including, to refer to the theme of this volume, ‘restoring trust in trade’ – depends on two different but related dimensions, ie input and output legitimacy.18 In this chapter the input dimension of legitimacy refers to the inclusiveness (ie the decision-making mode, transparency and number of members and outreach countries involved) as well as the acceptability of the body, its rules, decisions and activities to members, non-members and international institutions. The output dimension of legitimacy includes the commitments and results following the ­decisions made (ie concrete and publicly agreed decisions), compliance performance and policy changes at (inter)national level. This dimension thus relates to the aspect of effectiveness, ie the extent to which the Gx bodies are able to realise the ambitions they set out to achieve. We will indicate that most Gx bodies today are struggling to combine both a high rate of inclusiveness and effectiveness.

A.  The Effectiveness Dimension: The G7/8, G20 and BRICS Commitments Dynamics Building on the analytical studies developed by Kirton, Larionova and Shelepov, we first compare the effectiveness level of the G7/8, the G20 and the BRICS. Of particular importance is their ability to (i) make credible, precise and ­collective commitments; (ii) comply with such commitments; and (iii) develop global governance and use other international institutions. 16 J Kirton, ‘Governing Together: the Gx Future’ [2017] Studia Diplomatica 7. 17 B Hoekman, ‘Revitalizing the Global Trading System: What Could the G20 Do?’ (2016) 24 China & World Economy 34–54; E Kokotsis, ‘Explaining G8 Effectiveness: The Democratic Institutionalist Model of Compliance with G8 Commitments’ (2004), available at: http://tspace.library.utoronto.ca/ handle/1807/4889. 18 P Subacchi and S Pickford, Legitimacy vs Effectiveness for the G20: A Dynamic Approach to Global Economic Governance (IE BP 2011/01 International Economics Chatham House Briefing Paper) ­available at: www.chathamhouse.org/publications/papers/view/178671.

58  Jan Wouters and Tine Carmeliet

i.  The G7/8’s Track Record Kirton’s analysis reveals that of the three main Gx bodies, the G7/8’s compliance performance is generally higher than that of the G20 and BRICS.19 First, as concerns decision-making through publicly producing precise, future-orientated, politically binding collective commitments, G7 performance soared in 2002, briefly dipped in 2010 and 2012, but soared to an all-time high in 2015. Its delivery on decisions through compliance with commitments in the following year has been ­consistently high since 2003, with a spike in 2014. Its institutionalised development of global governance inside and outside the G7/8 has continued consistently and has been challenged only briefly and intermittently. Its performance and institutional expansion is also outward looking, G20 supportive and BRICS compatible. For example, in 2013 the G8 leaders’ communiqués provided explicit support for the G20, the summit endorsed the Trans-Pacific Partnership, and it gave a major boost to the work of the G20 and the Organisation for Economic Co-operation and Development (OECD) on tax and supported the fight against against t­errorism. While compliance records vary by country and issue, the G7/8 has shown a noticeable increasing compliance pattern over time.

ii.  The G20 Although Kirton observes an upward trend in G20 effectiveness scores, its delivery on commitments is still considerably weaker than that of the G7/8.20 Indeed, its decision-making increased regularly to reach 281 commitments in 2013. In terms of delivery on decisions made, the G20 members’ overall compliance started strongly, dropped, but then rose again to the initially strong level, which was close to that of the G7/8. In its development of global governance, the G20’s support for its own organisation as well as the governance of other international institutions also rose. It cooperates closely with the IMF, WTO and OECD ‘as the potential to develop common positions on complex issues among G20 members can add political momentum to decision-making in other bodies’.21 It is indeed the major task of the G20 to complement existing institutions by pushing for necessary reforms and generating political support for swift decision-making in international organisations, thereby pressuring them to accelerate their initiatives. The G20’s so-called ‘complementary influence’ should nonetheless not be overstated. Experts point out that the key players who could not reach agreement on the Doha Development Agenda are all G20 members, which played a critical

19 Kirton (above n 7) 7. 20 ibid. 21 ‘What is the G20: Interaction with other International Organizations’ China Daily, 10 June 2010, available at: www.chinadaily.com.cn/china/2010g20canada/2010-06/10/content_9962169.htm.

Gx Dynamics in Global Trade Governance  59 role in the failure of the Agenda due to their own lack of political will.22 The credibility of the G20’s stated objective of supporting multilateral cooperation on trade matters was further eroded in 2009 after many G20 members revealed their preference for the pursuit of preferential trade agreements, leading in 2015 to twice as many new trade-distorting measures as were observed in 2009. It has therefore been argued that by committing to concrete actions that can be implemented by individual governments on a concerted basis, the G20 should pursue a more ambitious trade agenda to reinvigorate the trading system.23

iii.  The BRICS The BRICS has, since its foundation in 2008, produced a solid, strengthening performance in many ways. Decision-making has been stable and substantial, if lower than that of the G7/8 or G20 at a similar stage. During this time, BRICS members have generated 446 distinct, measurable, future-orientated commitments spanning 33 specific issue areas.24 In delivery, its compliance record was the same as that of the G7 during its first 14 years, but has been well below that of the G7/8 and G20 in recent years. Its highest compliance commitments reflect issues that lie at the core of its institutional agenda whereas its lowest are with respect to matters of regional security and trade (such as the ability to coordinate policies on trade protectionism and exchange rate management).25 Delivery on the core priorities has tended to increase over time, while accountability has proven challenging for new commitments, as well as for those that tend to align with each member’s national interests, such as on matters of trade. Like the G20, the BRICS lacks accountability mechanisms to track the effectiveness of its commitments. Finally, the BRICS’ development of global governance, both inside and outside the organisation, has grown but has remained much below that of the G20.26 While so far the track record for the three main steering groups has been fairly good,27 the above overview indicates that, as one would expect, the number of members as well as their shared ideology might strongly influence the possibility of reaching and implementing agreements. Having more members around the table might render it more cumbersome to reach agreements (although, as demonstrated below, inclusiveness increases). A more diversified membership has a similar effect. Effectiveness is thus generally higher when a Gx body has fewer members and when these members share a common ideology, as well as some basic characteristics and interests. 22 Hoekman (above n 17); L Martinez-Diaz and N Woods, ‘The G20 – the Perils and Opportunities of Network Governance for Developing Countries’ (Global Economic Governance Programme Briefing Paper, 2009). 23 Hoekman (above n 17). 24 While at its first meeting it generated only 16 commitments, it increased over the years to 47 in 2013, a record of 130 in 2015 and 46 in 2016. 25 Kirton (above n 7) 7. 26 ibid. 27 ibid.

60  Jan Wouters and Tine Carmeliet

iv.  Placing the Effectiveness of the Gx Bodies into Perspective Two caveats should be placed on the above findings. First, a high compliance with these bodies’ commitments does not necessarily ease concerns as to whether these bodies indeed achieve results in terms of better global decision-making. To that end, one would need to study the commitments themselves and assess whether these are tailored and suitable to achieve such ends, and, importantly, whether they are ambitious enough. Second, while compliance may be higher with respect to the G7/8, this should be balanced with the Gxs’ collective economic power and representative legitimacy. As Larionova and Shelepov rightly indicate, the share of the global economy the Gx bodies affect through their actions and the number of people they create public goods for should be taken into consideration as factors directly impacting their effectiveness and output legitimacy.28 A delivery legitimacy indicator adjusted for purchasing power parity-based GDP (indicating that the exchange rate between two countries is equal to the ratio of the currencies’ respective purchasing power) and population indicates that despite the relatively low level of compliance, the G20’s delivery legitimacy is the highest among the three bodies due to its substantial economic potential and representativeness.29 The effectiveness of the implementation of G7/8 decisions for addressing key global governance issues declines as a result of its decreasing share in the global economy and world population. It is likely that also the BRICS’ delivery legitimacy will only increase in the future given the BRICS’ everincreasing collective economic and demographic power. With 45 per cent of the world’s population spanning 30 per cent of the earth’s surface and production of more than 50 per cent of the world’s GDP, these five countries have collectively contributed more than 50 per cent of the world’s economic growth over the past decade. Based on this trend, it is expected that by 2030 the cumulative GDP of the BRICS will exceed that of the G7/8 major industrialised countries.

B.  Inclusiveness: Problems of Input Legitimacy While the main Gx bodies such as the G7 and G20 are rather effective, it should come as no surprise that most of them have problems with inclusiveness as they all largely correspond to each other, both ideologically and geographically. Small steering clubs like the G7 and the BRICS have the advantage of bringing together a limited number of members with similar interests. In the case of the G7, its members have similar ideological backgrounds and have been cooperating for the larger part of recent history. In the case of the BRICS, its members are all a­ spiring

28 M Larionova and A Shelepov, ‘Gx Delivery Legitimacy: Compliance by Members’ (2017) Studia Diplomatica 123. 29 ibid 124.

Gx Dynamics in Global Trade Governance  61 emerging economies, looking to play an increasingly significant role in global affairs. The small size of these Gx bodies allows for swift negotiations and fast, strategic decision-making, helping their output legitimacy. However, their small size can be deemed problematic in terms of input legitimacy. Indeed, while the G7 groups seven powerful economies, in showing Russia the door it was widely criticised for losing input legitimacy as a global decision-making body. Since the G7 members cast out the only member that is noticeably different, both ideologically and geographically, this hurts their input legitimacy. Russia, as a central government-oriented and emerging economy located within both Europe and Asia, and with a large circle of influence, provided the G7 members with a slightly better track record in terms of inclusiveness. The BRICS groups five major emerging powers. There are larger differences between these economies than between the G7 members. These differences between the members, and their location in different continents, might provide for a slightly better record with regard to the BRICS’ input legitimacy. In their domestic political management, the BRICS leaders’ perfect attendance at summits has surpassed that of the G7/8 and G20. Moreover, BRICS’ public deliberation has increased. More importantly, Indonesia and Turkey have expressed a strong interest in full membership of the BRICS, while Egypt, Argentina, Iran, Bangladesh and even Greece have also expressed interest in joining BRICS.30 Inclusion of one of these aspiring members might increase its input legitimacy and lead to an even greater diversity but might hamper the effectiveness of the body. Despite its limited composition, the G20 is considered a rather inclusive club compared with the G7, the latter reflecting an older power balance as well as a global divide between the West and the rest. Indeed, G20 members account for roughly 85 per cent of global GDP, 80 per cent of world trade and two-thirds of global population. Muslim countries have also been included. The only continent which is only represented by one country (South Africa) is Africa. Still, it is justified to say that the G20 membership mirrors current international power balances and politico-economic realities. However, more than 140 countries have never played a role in G20 summits; non-members have frequently voiced their ­disappointment with regard to who is included in this self-appointed group that takes decisions with a direct impact on non-member states. Developing countries claim that the G20 is not genuinely inclusive but rather constitutes an effort of relatively declining Western powers to maintain their global role by adding some members to an exclusive club.31 30 G Bacik, ‘Turkey and the BRICS: Can Turkey join the BRICS?’ (2013) Turkish ­Studies 758; K  Brooks, ‘Is Indonesia Bound for the BRICS?’ (2011) Foreign Affairs, available at: http://­ foreignpolicy.com/2013/03/21/so-egypt-you-want-to-be-a-brics-country/; www.clarin.com/politica/indiaquiere-Argentina-BRICS-emergentes_0_1131486910.html; www.ibtimes.co.uk/iran-santioncs-brics-oiltehran-nuclear-programma-513640; www.ibtimes.co.uk/russia-invites-greece-join-brics-newdevelopment-bank-1500901. 31 A Cooper, ‘The G20 as an Improvised Crisis Committee and/or a Contested “Steering ­Committee” for the World’, (2010) International Affairs 742; M Khor, ‘Reality Behind the Hype of the G20 Summit’

62  Jan Wouters and Tine Carmeliet The above overview shows that none of the Gx bodies scores well with respect to the inclusiveness dimension and input legitimacy. This is problematic: if a larger or more diverse Gx body in the end manages to reach consensus, the impact of the decision might not only be much more articulate and efficient, but might also be accepted by both members and non-members. It is therefore important to find ways to increase inclusiveness without decreasing effectiveness.

IV.  The Role of Coordination Bodies in Contributing to More Inclusiveness Complementary to the aforementioned informal ‘steering bodies’, several ­initiatives have been launched to bring together countries in what we term ­‘coordination bodies’. The latter often focus on coordination in a single-issue field and have been set up in the context of the UN or other international organisations, such as the WTO. The OECD is probably the most systematic and institutionalised of such coordination bodies. It provides its 35 member countries – in general advanced economies – with a forum where they can work together and seek solutions to common problems. The OECD is also involved in the work of the G20.32 Developing countries have also formed Gx bodies. The G77 is the largest coordination grouping.33 It was founded in 1964 as a loose coalition of developing countries aimed at promoting its members’ interests and increasing their negotiating capabilities in the UN. Over the years, the G77 members have increasingly been exchanging best practices among themselves and have been found to coordinate their policies.34 The G77 has expanded and currently groups 134 ­developing UN Member States. The supreme decision-making body of the G77 is the South Summit. So far, only two South Summits have taken place.35 However, an Annual Meeting of the Ministers of Foreign Affairs has been convened at the start of the regular sessions of the UN General Assembly.36 Furthermore, Special and Sectorial Ministerial Meetings have taken place to foster South–South Cooperation in various fields of interest.37 While the group has mainly focused on proposals

(2009) Third World Resurgence 6; B Mucchala, ‘Development-blind G20 Outcome Empowers an­ UN reformed IMF’ (2009) Third World Resurgence 5. 32 J Wouters and S Van Kerckhoven, ‘The OECD and the G20: An Ever Closer Relationship?’ (2011) 43 George Washington International Law Review 345. 33 Provisions 7 and 8 of the Joint Declaration of the 77 developing countries made at the conclusion of the United Nations Conference on Trade and Development, 15 June 1964, Geneva, available at: www.g77.org/doc/Joint%20Declaration.html. 34 See, for example, initiatives such as COSTIS, available at: www.g77.org/costis/objectives. 35 The First and Second Summit were held in Havana, Cuba on 10–14 April 2000 and in Doha, Qatar on 12–16 June 2005, respectively. 36 These documents are available at: www.g77.org/doc.docs.html#declare. 37 Available at: www.g77.org/doc.

Gx Dynamics in Global Trade Governance  63 for the reform of the workings of the UN, it also aims to encourage South–South coordination and cooperation. In 1971 the G77 established a chapter, the Intergovernmental Group of Twenty-Four on International Monetary Affairs and Development (G24), which is focused on coordinating the positions of developing countries on international monetary and development finance issues. Moreover, the G24 aims to ensure the representation of the interests of developing countries in international monetary negotiations. Its members mostly coordinate with regard to monetary and development issues on the agendas of the IMF and the Development Committee.38 Another Gx coordination body created by developing countries is the G33,39 which works within the realm of the WTO. The G33 brings together the ‘Friends of Special Products’ in agriculture. They have been rather active in suggesting proposals to alter the workings and the commitments made at the WTO. More specifically, they have been pressing for flexibility for developing countries to undertake limited market openings in agriculture. A similar grouping is the G20 developing nations.40 This grouping was established in 2003 when 20 countries proposed an alternative framework on agriculture to that of the EU and US at the Cancún Ministerial Conference. The G20 developing nations noted that the major industrialised economies still make ample use of protectionist measures when it comes to their less competitive sectors, mainly with regard to the agricultural sector. For that reason, they called upon the WTO membership to include these protectionist measures in the negotiations at the Cancún Ministerial. Lastly, the G15 was established at the Ninth Non-Alignment Movement Summit Meeting in Belgrade in 1989. It is an informal forum that aims to foster cooperation among developing countries in the areas of investment, trade and technology. As such, it has a broader focus than the foregoing coordination Gx bodies. Moreover, its aim is to provide input to steering groupings such as the G7/G8 and the G20. It was presumed that inviting several G15 members to the G20 meetings would help realise such an ambition.41 The 15th summit in 2012 was the latest G15 summit to have been organised. It seems that the membership of several G15 members in the G20 has hollowed out the former’s functioning. Figure 3.2 focuses on the location of countries within the Gx coordination bodies.42 The G20 members are shown in bold, the BRICS members in italics.

38 Available at: http://g24.org/about/. 39 The G33 consisting of developing countries is not to be mistaken for the G33 that consisted of industrialised countries and was superseded by the G20 in 1999, see also above. 40 We refer to this body as the G20 developing nations so as to distinguish this body from the other G20. Its membership has been fluctuating, but the last membership included: Argentina, Bolivia, Brazil, Chile, China, Cuba, Ecuador, Egypt, Guatemala, India, Indonesia, Mexico, Nigeria, Pakistan, Paraguay, Peru, Philippines, South Africa, Tanzania, Thailand, Uruguay, Venezuela and Zimbabwe. 41 T Prematillake, ‘Lanka heads powerful G-15 serving collective interests’, available at: www.nation. lk/2010/05/23/newsfe5.htm. 42 We have not included the G20 developing nations in Figure 3.2 as it does not really coordinate across issues. Its main aim is to put agriculture more firmly on the agenda of WTO negotiations.

64  Jan Wouters and Tine Carmeliet Moreover, all countries included in this figure are members of the G77 except for Turkey (denoted by *). Chile, Mexico and Turkey are also members of the OECD. Figure 3.2  Constellation of coordination Gx bodies G15

Malaysia chile

Indonesia Jamaica Kenya Senegal Zimbabwe

Antigua and Barbuda Barbados Belize Benin Botswana Cuba China Dominican republic El salvador Grenada

G24 Argentina Brazil Mexico Algeria Egypt Iran

Nigeria Venezuela Sri Lanka

Guyana Haiti Honduras Laos Mauritania Madagascar Mongolia Mozambique Nicaragua Panama St. Kitts and Nevis St. Lucia St. Vincent

Ethiopia Gabon Ghana South Africa Lebanon Syria

India Cote d’lvoire DR Congo Guatemala Peru Trinidad and Tobago Pakistan Philippines Suriname Tanzania Turkey* Uganda Zambia

G33

Figure 3.2 illustrates that no member of the G20 steering body is a member of all coordination bodies. The developing countries Nigeria, Sri Lanka and Venezuela are located at the nexus of the three bodies. Moreover, they are also members of the G77. The G20 and BRICS members are distributed rather evenly among the three main other developing country coordination bodies. Moreover, all of them are also part of the G77. The G20 members Indonesia, Argentina, Brazil, Mexico, South Africa, China, India and Turkey should hence represent the coordination Gx bodies during the G20 meetings. One notable feature is that neither Russia nor any

Gx Dynamics in Global Trade Governance  65 of its allies from the Commonwealth of Independent States (CIS) are members of the Gx bodies. As such, it is up to the G20 and BRICS members to coordinate with Russia and its former allies. Several steering body members are represented in the different coordination bodies. These countries are generally emerging economies. Their presence in the mostly developing countries-dominated coordination bodies can help greatly. In a way they can form a bridge between the steering groups and the coordination bodies. This would help to increase inclusiveness without hampering their efficiency. As such, the interplay between the coordination bodies and steering groupings can be very valuable.

V.  Concluding Observations Traditional global governance responses have increasingly been unable to meet the challenges of a rapidly globalising world. Confronting this groundswell of global challenges indeed requires a process of global governance in which leaders can meet, forge consensus, reach commitments and ultimately deliver on the promises they make. In this respect, the Gx bodies have gained a strong foothold as loci of power in the global economic governance architecture. Their unique position means they are well placed to perform coordination and steering. In doing so, they can complement and enrich the workings of the other players within global economic governance. However, in order to be able to provide solutions to global problems, the Gx bodies need to have both input and output legitimacy. This chapter has indicated that Gx bodies often face a trade-off between effectiveness and inclusiveness: while most of them are relatively effective, they are, generally speaking, not inclusive. In this chapter we have distinguished between the smaller-sized steering bodies and the larger coordination bodies. We argue that both the steering and coordination bodies could play a more ambitious role in supporting a more inclusive multilateral trade governance and, in that sense, in ‘restoring trust in trade’. First, the steering groups should try to strengthen the coordination bodies. Indeed, the presence of several steering group member countries in the coordination groupings can help them to work in a more inclusive manner. The presence of these countries in the mostly developing countries-dominated coordination bodies (with the exception of the OECD, where several of the advanced G20 members are also represented) can help greatly as they can form a bridge between the steering groups and the coordination bodies. This would help to increase inclusiveness of the steering groups’ decisions without hampering their efficiency. It remains to be seen, however, whether more inclusiveness would also lead to more democratic representation and thus legitimacy. Indeed, while the G7 groups only democratic countries, other Gx bodies’ members have more doubtful democratic credentials. For the G20 steering group, while the members of the G7 are included due to their systemic significance, some non-democratic countries

66  Jan Wouters and Tine Carmeliet have also been invited to join. For the developing countries’ bodies, there does not seem to be much consideration of the democratic nature of the members. The implication is that when the representatives of government are not elected democratically, a higher inclusiveness is not directly linked to more democratic representation and thus legitimacy. Second, it is also essential that the Gx coordination bodies work more closely and more comprehensively, not only with each other, but also with other key regional, multilateral and intergovernmental organisations, as well as nongovernmental organisations, civil society, the business community and thought leaders. Indeed, since none of these bodies is likely by itself to meet the variety of governance needs for an increasingly globalised world, their relationship should be strengthened. In addition, although the G7, the G20 and the BRICS may serve as fora where political impetus can be created, their success ultimately depends on cooperation with other institutions of global governance, such as the IMF, the WTO and the OECD, and more broadly the fabric of the UN system. In this respect, it is also necessary for the coordination bodies to generate specific commitments against which they can be effectively evaluated and assessed. However, striving for more specific commitments does not necessarily require such bodies to transform into formal organisations with voting procedures and the like. Rather, they should opt for just that degree of institutionalisation that will improve their effectiveness. In doing so, they will retain their relevance in global economic governance by offering world leaders the appropriate forum and political impetus to strike mutually advantageous deals. The future will show how the coordination and steering bodies interact with regard to the ever-increasing global agenda. One thing is certain: there will be no shortage of challenges and only decision-making that balances efficiency and inclusiveness will be able to provide the global economy with adequate answers and help to ‘restore trust in trade’.

4 Governance Systems of Geographical Indications: An Example of Institutions Enabling Trust and Cooperation Among Producers ANKE MOERLAND

I. Introduction Geographical indications (GI) offer protection for products that are typical of a specific region: their quality, reputation or other characteristics are ‘essentially attributable’ to that region. In other words, if producers can substantiate a causal link between a product’s characteristics or reputation and the geographical origin, they are entitled to protection against misappropriation and misleading use under GI law. A GI allows consumers to easily identify products as coming from a particular region, as compared to other products in the same product category that do not stem from the indicated place. Consumers will relate certain qualities of the product to the GI; such labelling is therefore useful in terms of reducing consumers’ search costs. In this respect, GIs are similar to trade marks. Where GIs differ from other intellectual property rights is regarding their collective nature: all producers who are located in the defined area and comply with the product specifications own the right.1 The GI system thereby enables all those contributing to the making of a product along the entire supply chain to benefit from a premium that the GI label may earn.

1 The product specifications reflect the set of rules with which all producers need to comply in order to legitimately use the GI label. They describe the product characteristics, the ingredients and raw materials, the production process, the specific link with the territory, the production area, the labelling rules and a control plan. In the EU, these requirements are set out in detail in Art 7 of Regulation (EU) No 1151/2012 of the European Parliament and of the Council of 21 November 2012 on quality schemes for agricultural products and foodstuffs (OJ L343 of 14.12.2012).

68  Anke Moerland This chapter focuses on the conditions under which the EU system of protecting GIs enables the establishment and fostering of trust among producer groups covered by GI regulations. Such trust is indispensable for producers to join the GI system, which has the potential to involve all actors in the value chain and reward their efforts in producing origin-based products. The scope of this ­chapter is therefore limited to the question of how trust can be fostered in a regional2 and producer-led environment, rather than on the multilateral inter-state level. The link with the international level, however, is made in Section V, where the rules on GI protection in EU free trade agreements (FTAs) are examined to determine whether they may help in establishing (and restoring) trust among producer groups in partner countries. It is mostly the latter aspect that relates this chapter to Peter Van den Bossche’s work as it explores trade relationships between countries, in particular developed and developing countries, which often raise important questions of balancing different values enshrined in the multilateral trading system. Peter’s concern with the multilateral trading system has guided my work considerably, in particular my PhD thesis on TRIPS-plus provisions in EU FTAs. Their relationship with the rules of the multilateral trading system and the difficulties caused by their proliferation outside the WTO framework are of great importance to Peter’s academic work. I am also highly grateful for the years we have spent working closely together in Maastricht, having learnt enormously from Peter’s teaching, writing, analytical and cooperation skills. But most importantly, I cherish our shared view on dedication to a cause: that of a fair trading system for all. The focus on producers’ trust in the GI system to regulate the quality and other characteristics of their products is highly relevant for the bigger question of how consumers gain trust in the products’ quality protected under the GI regime. Consumers’ trust is under pressure, also for GI-protected products: Food safety pressures (e.g., ‘Mad Cow’ disease, salmonella, and Escherichia coli outbreaks in fresh vegetables) and mistrust of the standardized foods produced by industrial agriculture have led to consumer reflexivity and given added salience to transparency and quality in agricultural production practices.3

The protection of GIs, in particular in relation to the agricultural sector,4 have hence received prominent attention as to whether such quality schemes are able to (1) control the quality of products, and (2) convey reliable information to the

2 Protection for origin-labelled products is limited to a particular territory, mostly within one jurisdiction, but sometimes also to a region that encompasses several countries. 3 S Bowen and A Valenzuela Zapata, ‘Geographical Indications, Terroir, and Socioeconomic and Ecological Sustainability: The Case of Tequila’ (2009) 25 Journal of Rural Studies 108, 109. 4 Note that currently the EU does not have an EU-wide system of GI protection for non-agricultural products. See European Commission, Geographical indications for non-agricultural GIs (2018) available at: http://ec.europa.eu/growth/industry/intellectual-property/geographical-indications/non-agricultural-products_en.

Governance Systems of Geographical Indications  69 consumer. In order for consumers to trust a system of labelling, which aims to convey information about origin (and production methods), it is of importance that producers join and stay in the system and produce products of the claimed quality. For that, producers need to trust the system to fulfil its functions, being (1) the protection of local resources, (2) the reduction of search costs for consumers and (3) the reward of communities who have built up and passed on knowledge for generations about the production of a product that is typical for the region.5 This chapter first aims at identifying current weaknesses of the GI system that are particularly relevant for building trust among producer groups. Secondly, the GI procedures, in particular the application, examination and objection procedure for registering a GI, will be analysed to assess how they could be improved in order to increase producer groups’ trust in the system of GI regulation to fulfil its functions, and thereby reward all legitimate producers of a GI-protected product and avoid consumer confusion. This part of the analysis will be limited to the European Union, whereas the final section will identify whether provisions in EU FTAs require similar or different institutional structures in relation to the EU’s trading partners. Before turning to the identification of current weaknesses in the EU GI system and the analysis of GI procedures, both in the EU (Section IV) and in EU FTAs (Section V), the concepts of GIs and trust will be introduced briefly (Section I), and the role of trust in GI systems, in particular the effects of GI networks and their ability to foster cooperation and trust in trade generally will be discussed (Section II). The rationale for protecting GIs provides the benchmark for assessing whether the weaknesses persisting in the EU GI system put producers’ ability to trust the GI system to fulfil its functions under pressure and is presented in Section III.

A.  The Concept of GIs GIs identify goods as coming from a specific geographical area. In the EU, two types of indications of origin can be distinguished: a protected designation of origin (PDO) and a protected geographical origin (PGI). While products covered by both indications must be ‘essentially attributable’ to the territory,6 the intensity of the link is weaker for PGIs. Products only classify for protection as a PDO if all production steps are located in the defined geographical area.7 For PGIs, it is enough that at least one of the stages of production, processing or preparation 5 See below Section III. 6 See Art 22.1, Agreement on Trade-Related Aspects of Intellectual Property Rights, Annex 1C to the Marrakesh Agreement Establishing the World Trade Organization, signed on 15 April 1994, 33 ILM 1197 (1994) (TRIPS Agreement). 7 Art 5.1, EU Reg 1151/2012.

70  Anke Moerland occurs in the demarcated area.8 This product–quality–territory nexus distinguishes GIs from trade marks, where no such link with the territory is legally required. Different from trade marks, the owners of this IP right are the collectivity of producers (whether established or newcomers), whose products comply with the product specifications of a GI, including their production within the boundaries of the demarcated area.9 Stakeholders within the value-creation process encompass farmers, producers and processors: they benefit from the entitlement to the GI (once certified) but at the same time must comply with the product specifications in all phases. For the management of such a collective process, specific institutional arrangements are required in order to safeguard the rights and obligations of all actors who have a stake in the product protected by GIs.

B.  The Concept of Trust Trust plays a role in all relations,10 between individuals11 and organisations.12 One of the classical definitions of trust is ‘the process that enables actors to deal with irreducible uncertainty and vulnerability’.13 In the light of uncertainties and risks that exist in all relations, trust can help to overcome those in order to foster cooperation.14 In cooperative relations, trust entails the willingness of a party to be vulnerable to the actions of another party based on the expectation that the other will perform a particular action important to the trustor, irrespective of the ability to monitor or control that other party.15

This form of personal trust is perceived as a conviction that the other party will live up to its responsibility.16 While uncertainties in relationships are the reason for resorting to trust as a remedy, by trusting another party, one is willing to take a risk as to whether or not the trustee will properly fulfil his task. In this sense, trust

8 Art 5.2, EU Reg 1151/2012. 9 See AF Ribeiro de Almeida, ‘The Legal Nature of Geographical Indications and Designations of Origin’ (2014) 36 European Intellectual Property Review 640, 646. 10 See M Deutsch, ‘Trust and Suspicion’ (1958) 2 Journal of Conflict Resolution 265. 11 See M Granovetter, ‘Economic Action and Social Structure: The Problem of Embeddedness’ (1985) 91 American Journal of Sociology 481; T Tyler, Why People Obey the Law (Yale University Press, 1990). 12 See SP Shapiro, ‘The Social Control of Impersonal Trust’ (1987) 93 American Journal of Sociology 623. 13 See G Möllering, Trust: Reason, Routine, Reflexivity (Elsevier, 2006) 110. 14 See generally D Gambetta, Trust: Making and Breaking Cooperative Relations (Basil Blackwell, 1988). 15 RC Mayer, JH Davis and FD Schoorman, ‘An Integrative Model of Organizational Trust’ (1995) 20 The Academy of Management Review 709, 712. Later, similar definitions were adopted by, among others, DM Rousseau, SB Sitkin, RS Burt and C Camerer, ‘Not So Different After All: A Cross-Discipline View Of Trust’ (1998) 23 Academy of Management Review 393, 395. 16 See AM Hoffman, ‘A Conceptualization of Trust in International Relations’ (2002) 8 European Journal of International Relations 375, 379.

Governance Systems of Geographical Indications  71 is an alternative to control: rather than employing legalistic means like contracts or internal processes, trust arguably has the potential to (better) regulate (working) relationships.17 Each relationship is different – whether it is between individuals, companies or nations – but all are characterised by interdependence. The nature and depth of the interdependence varies and therefore gives rise to varying levels of risks.18 Overall, there are generally two conditions that are attached to trust-based relations: (1) a (perceived) presence of risk and uncertainty, and (2) a relationship of interdependence, where the goals of one party cannot be achieved without relying on another. A specific form of trust exists where people trust an institution. This institutional trust (as compared to interpersonal trust) follows more the psychological approach to defining trust: it entails an emotional disposition to believe in the goodwill and competence of others.19 Here, the belief that an institution can achieve something that is also in one’s own best interest is central: then one is willing to follow the directions of the institution.20 Shapiro elaborates on the role of trust in such principal–agent relationships, where principals (eg producers) entrust their property to an agent (eg a management body) because the aggregation of their assets with those of others enables them to ‘enjoy economies of scale and to spread risk’.21 In GI systems, both interpersonal as well as institutional trust are relevant, as the remainder of this chapter elaborates.

II.  Trust in GI Systems The concept of trust has been prominently mentioned in the literature in relation to the creation and consolidation of GI networks in which individual producers trust each other. Usually, GI networks are characterised by the following factors: (1) a common goal of organising business activities jointly, (2) reciprocal interdependence and (3) geographical proximity of their members.22 In such situations, trust among the different members of the network is the necessary connecting link.23 Only where personal ties exist between constituting members is there a 17 See Granovetter (above n 11) 488ff. 18 See BH Sheppard and DM Sherman, ‘The Grammars of Trust: A Model and General Implications’ (1998) 23 Academy of Management Review 422, 422. 19 See EM Uslaner, The Moral Foundations of Trust (CUP, 2002) 9ff; BC Rathbun, ‘Before Hegemony: Generalized Trust and the Creation and Design of International Security Organizations’ (2011) 65 International Organization 243. 20 See T Tyler, ‘Trust and Democratic Governance’ in V Braithwaite and M Levi (eds), Trust and Governance (Russell Sage Foundation, 1998). 21 See Shapiro (above n 12) 628. 22 See S Reilly, M Haines and F Arfini, ‘Food SME Networks: Process and Governance – The Case of Parma Ham’ (2003) 3 Journal on Chain and Network Science 21, 23. 23 See MA Conejero and A da Silva Cesar, ‘The Governance of Local Productive Arrangements (LPA) for the Strategic Management of Geographical Indications (GIS)’ (2017) 20 Ambiente e Sociedade 293, 294.

72  Anke Moerland basis for creating and submitting themselves to the network. As Granovetter notes, ‘economic activity is often stymied by lack of the interpersonal trust required to delegate authority or resources to others’.24 In order to garner the necessary trust, particularly at the beginning of cooperation processes when members do not know each other too well yet, ‘norms of behaviour or shared codes of conduct’ can function as a promise to each other that ‘the relationship will develop in a way that is beneficial to all involved and that disputes are settled internally’.25 So interpersonal trust alone does not always seem to be enough for networks and principal–agent relationships to function. While ‘personal ties have a positive impact on reciprocity’,26 certain forms of control may be necessary to build and maintain trust among actors. Shapiro termed this ‘the trustees or guardians of trust, a supporting social-control framework of procedural norms, organisational forms, and social-control specialists, which institutionalize distrust’.27 From a case study on Parma ham and the network of Parma ham producers, O’Reilly deduced that members of the consortium themselves identified inspections of producers’ compliance with the rules as essential.28 While this network was generally characterised as one based on widespread trust, social control was underpinned by control procedures. These controls enabled the network to detect non-compliant producers who were consequently excluded from the network. The proper functioning of the control mechanism eventually contributed to reinforced trust in the network.29 While these scholars have addressed the importance of trust for the formation of collective management, there is little knowledge on how the processes and in particular the institutional mechanisms in GI systems can secure trust among producers both in the GI system itself and that the system performs its functions. This focus is relevant because only with such trust in the system will the producers (principals) delegate powers to a collective body, which can only perform its tasks in a properly functioning GI system (registration process, procedural rules, governance of different actors). The next section will set out its main functions.

III.  Rationale Behind GI Protection A dominant public policy goal of the GI system is to protect local resources, which may be environmental, agricultural, cultural or human. ‘GI labels are tied to a code of practices designed to protect the local environmental resources, farmer 24 M Granovetter, ‘Economic Institutions as Social Constructions: A Framework for Analysis’ (1992) 35 Acta Sociologica 3, 7. 25 B Enengel, M Penker and A Muhar, ‘Landscape Co-management in Austria: The Stakeholder’s Perspective on Efforts, Benefits and Risks’ (2014) 34 Journal of Rural Studies 223, 232. 26 Reilly et al (above n 22) 22. 27 Shapiro (above n 12) 635ff. 28 See Reilly et al (above n 22) 28. 29 See ibid 29.

Governance Systems of Geographical Indications  73 k­ nowledge, and cultural practices that have interacted in the evolution of particular products’.30 Legally, the resources become part of a GI when the product specifications are stipulated: production techniques, varieties and species, the landscape and environment of the region as well as cultural and historical resources and local know-how are described in detail and will have to be complied with by all producers of the origin-labelled product. GIs therefore stimulate all components of the rural economy.31 Hence, when a GI is successful in the national and international marketplace, cultural heritage is preserved, agricultural and biodiversity systems are conserved, and rural development is fostered. While these public policy goals are significant and plainly explain the origins of the system of GI protection, there are other functions of the GI system that are more targeted at the economic market of a GI product. A key function of GIs is to reduce search costs for consumers and thereby prevent their deception as to the geographic origin and the quality of the product. Agro-food products do not convey information as to their quality prior to purchase. They are often classified as experience goods: consumers prefer to ascertain their quality after purchase through using and experiencing them by themselves.32 Because consumers tend to rely on the quality of products purchased in the past as indicators of future levels of quality,33 firms will use signalling devices to indicate to the consumer the origin of the product and its qualities.34 GIs perform exactly this function of conveying useful information about the geographical origin as well as other characteristics, as the Court of Justice of the European Union has confirmed in its case law.35 As a consequence of the origin function, producers have an incentive to maintain the quality of the product as much as possible in order not to disappoint consumers. The GI system hence ‘makes a credible promise to the consumer’36 about the quality and characteristics of the origin-labelled product. GIs also protect producers against misappropriation of the GI. Producers have created a reputation that deserves protection against improper use by persons that are not entitled to use them,37 also known as free-riding. The contribution of the 30 Bowen and Valenzuela Zapata (above n 3) 117. 31 See C Bramley, E Biénabe and J Kirsten, ‘The Economics of Geographical Indications: Towards a Conceptual Framework for Gegraphical Indication Research in Developing Countries’ in WIPO (ed), The Economics of Intellectual Property: Suggestions For Further Research in Developing Countries and Countries With Economies in Transition (WIPO, 2009) 118. 32 See OECD, Appellations of Orign and Geographical Indications in OECD Member Countries: Economic and Legal Implications (OECD, 2000) 32. 33 See Bramley et al (above n 31) 115. 34 See D Rangnekar, The Socio-Economics of Geogprahical Indications: A Review of Empirical Evidence from Europe (Geneva, UNCTAD-ICTSD Project on IPRs and Sustainable Development, 2004) 13. 35 Case C-12/74 Commission v Germany [1975], ECR 181, para 7; Case C-47/90 Delhaize v Promalvin [1992], ECR I-3669, para 17. 36 S Réviron, J-M Chappuis and D Barjolle, ‘Vertical Alliances for Origin Labelled Products: What is the Most Relevant Economic Model of Analysis?’ in G Van Huylenbroeck, W Verbeke and L Lauwers (eds), Role of Institutions in Rural Policies and Agricultural Markets (Elsevier, 2004) 239. 37 See S Ladas, Patents, Trademarks, and Related Rights: National and International Protection (Harvard University Press, 1975) 1575.

74  Anke Moerland producers to the production of origin-labelled products is significant: they play a crucial role in developing, maintaining and producing the GI-labelled product. As a consequence, they deserve some advantages in order to promote and protect their investments in producing distinctly authentic products.38 Important in this context is that it is the group of producers who have built up the know-how from generation to generation that deserve some sort of reward. This is not always safeguarded in cases where a group of heterogeneous producers compete for the inclusion of different production methods or geographical areas in the product specifications. The next section will discuss in more detail under what conditions certain producers may be excluded and how to remedy this.

IV.  Institutional Structures to Address Weak Features of the GI System While the EU has the longest tradition of a system of GI protection, there are a number of blind spots in the system that may inhibit producers from trusting the system in fulfilling the above-stated functions. This section suggests procedural adjustments to mitigate some of the effects of this lack of trust. In Subsections A and B two risks relating to the fulfilment of the reward function of GI protection are presented, which endanger trust in the GI system. In Subsections C and D, two problems with the information presented to consumers are discussed.

A.  Risk of Excluding Legitimate Producers Where product specifications are determined in the application procedure, problems can arise when the producer group is not in agreement on what exact production methods or boundaries of the geographical area should be included in the application file. These standards are crucial for all producers of that GI-protected product since they establish the norm applicable to all in the future. For example, certain origin-labelled products are produced both in a traditional and in an industrial manner. Depending on which (traditional or industrial) production standards are included in the GI product specifications during the application phase, the reward of the GI label may only return to some of the legitimate producers, or completely exclude the traditional producers from the benefits of the GI if the GI merely applies to industrial production methods.39

38 Ribeiro de Almeida (above n 9) 645. 39 Gangjee identifies a blind spot of the EU system in this regard: EU Reg 1151/2012 does not provide for a mechanism of mandatory state oversight. See DS Gangjee, ‘Proving Provenance? Geographical Indications Certification and its Ambiguities’ (2017) 98 World Development 12, 19.

Governance Systems of Geographical Indications  75 As interest group theory40 suggests, not necessarily the best and the most authentic variations will be dominant in the application process but rather those preferred by the most influential actors involved. Competition for a specific variation in production method or geographical area is likely to arise where individual producers are heterogeneous and come from different sectors.41 Depending on which actor is most influential in this process, the product specifications may reflect a more industrial approach as opposed to more artisanal, labour-intensive production methods.42 An example is the Piadina Romagnola flat bread produced on the Italian Adriatic coast, which has led to disagreements between its industrial producers and handcrafters (usually based in small kiosks). The latter did not want to be associated with the industrial version of the bread. Since the PGI application did not distinguish between the traditional and industrial versions of the bread, the handcrafters raised objections during the application process for the PGI: they did not want the different types of bread to be marketed under the same label. However, their objections were rejected, even though their efforts arguably gave rise to the reputation of the bread in the first place.43 This raises concerns as to whether the GI system is able to indeed reward those producers that have built up the reputation. These questions also arise in cases where industrial producers aim at including a larger area of production than the area which traditionally was known for the particular product.44 In the case of Culatello di Zibello, a traditional cured ham from the Parma region in Italy, artisanal and industrial producers did not agree on the production cycles. Ultimately, a compromise was reached whereby two designations, with different product specifications, were granted, one for ‘Culatello di Zibello’ for year-round production, and one for ‘Culatello di Zibello of the Consorzio del Culatello’ which reflects traditional, artisanal methods with only seasonal production.45 Such an outcome, however, raises questions with regard to the information provided to consumers, who may not be able to recognise the difference between the two indications.

40 See A Dür and D De Bièvre, ‘The Question of Interest Group Influence’ (2007) 27 Journal of Public Policy, 1. 41 See A Tregear, WP4, Link Between Origin Labelled Products and Consumers and Citizens (Final Report Concerted Action DOLPHINS, 2002). 42 See London Economics, Evaluation of The CAP Policy on Protected Designations of Origin (PDO) and Protected Geographical Indications (PGI): Final Report (European Commission, 2008) 81. 43 See DS Gangjee, ‘From Geography to History: Geographical Indications and the Reputational Link’ in I Calboli and WL Ng-Loy (eds), Geographical Indications at the Crossroads of Trade, Development, and Culture: Focus on Asia-Pacific (CUP, 2017) 60. 44 Note that the area defined for the PGI Melton Mowbray Pork Pie was contained to the traditional area, leading to the fact that the objecting enterprise relocated to within that area in order to benefit from the PGI. See London Economics (above n 42) 81. 45 ibid 82.

76  Anke Moerland In order to address these problems as inclusively as possible, the application procedure would need to fulfil certain conditions. First, the applicant group should represent producers from the entire supply chain. Since the applicant establishes the product specifications, which serve as the benchmark for the certification of producers as legitimate users, it is of great importance that all levels of the production chain, as well as producers from the entire region, are included in the applicant group. Unfortunately, such requirement is not clearly set out in­ Articles 3.2 and 49.1 of EU Regulation 1151/2012. While it has been argued that the process after GI registration has inclusivity in mind, the Regulation fails to reflect this at the level of the GI application.46 It is recommended that all national authorities in charge of GI applications in the EU (usually the Ministries of Agriculture) require the applicant to produce an affidavit or another declaration that the group represents the interests of all producers of the GI. In France, for example, the French Code Rural foresees that applications for GIs must be made by the respective Defence and the Management Organisations of the specific GI, organisations that represent all operators equally.47 Second, while the applicant group is in the driving seat for the determination of the product specifications, they are not the only actors who influence the precise standards. In many EU Member States, the authority in charge of GI registrations offers guidance and advice to applicants in relation to various aspects in the application file. According to a study carried out in 2008 by London Economics,48 the support in eight Member States is high, with advice on best chances of success and face-to-face meetings available. Seventeen Member States offer moderate advice, with more general information being available in the form of brochures and mail correspondence.49 Where direct advice is granted by the same authority that will also examine the application file later on, there are risks for biases towards the interests of certain producers who may have had extensive contact with the authority before the examination takes place. It is hence recommended that separate bodies are installed for the handling of and guidance on applications at the application stage on the one hand, and the examination thereof on the other hand. This would safeguard an independent examination of the application according to the relevant standards. Some Member States have already charged distinct entities with these different tasks.50 Third, it is crucial for producers to have the option of raising their concerns during the national objection procedure. For that, the national authorities should make sure that (1) the publication of the objection procedure is widely available, (2) the time limit is reasonable and (3) the information necessary to complete

46 Gangjee (above n 39) 15–16. 47 Art L. 642-17 and 642-18 of the French Code Rural. Note that all operators of the GI must be a member of such organisation. Art L. 642-21 of the French Code Rural. 48 London Economics (above n 42) 68. 49 See ibid. 50 See ibid 68–69.

Governance Systems of Geographical Indications  77 the procedure is transparent, inclusive and available for a reasonable period of time. Currently, while the publication of the objection procedure does not raise concerns, the period for objections differs greatly among Member States, with most of them granting a period of one or two months.51 Regarding the level of guidance, the picture looks very different in EU Member States, with overall rather vague guidelines relating to the objection procedure. For producers to feel that they have a say in the registration of the GI, in particular in situations where they are in disagreement with the original application, authorities should pay particular attention that the way objecting parties are approached, heard and informed about decisions reflects that overarching interest of inclusivity in the GI system. The objection procedure followed in the case of the GI application for Morbier cheese illustrates that even for a highly contested GI application (more than 70 objections were filed), the national authority managed the process in such a way that the objectors felt fairly treated.52 The village of Morbier is based in the Jura region of France. Dairy producers outside the area raised concerns that they would not fall within the defined area. The wide-scale discussions held as part of the objection procedure as well as a transitional period of five years for producers to move inside the demarcated area or to develop alternative trade marks made the process inclusive and transparent. In conclusion, in order to mitigate the risk of excluding legitimate producers from the benefits of the GI label, the inclusivity of the applicant group should be scrutinised, the body carrying out the examination of GI applications should be independent from that providing guidance during the application procedure, and the objection procedure should be reasonable in terms of its publication, time limits and the availability of information.

B.  Transparent and Democratic Decision-making Within Producer Groups Another concern among producers relates to the internal decision-making process within producer groups. Where producers perceive the collective organisation as mainly following the interests of the producer with most economic power or that a small group of producers takes decisions before the entire group is consulted, mistrust instead of trust is generated. In order to avoid such problems, transparent and democratic decision-making within producer groups must be adhered to. This involves transparency of information distributed among the organisation’s members, the voting procedure (eg secret votes by a majority), etc.53

51 See ibid 71. While one month seems to be very short, two months can be considered sufficient. 52 See ibid 79. 53 See E Vandecandelaere and others, Linking People, Places and Products. A Guide for Promoting Quality Linked to Geographical Origin and Sustainable Geographical Indications (FAO, 2009) 48, 91.

78  Anke Moerland The EU GI system does not require any procedural and governance norms at the internal level of the producer organisation. It is up to each individual collective organisation to govern itself in the way it considers best fits its particularities, be they size, composition, sector or historic evolution. The process a producer group needs to go through in order to compile an application file may be an adequate moment to discuss such issues. As noted by Vandecandelaere, the application procedure ‘is also a learning process, useful to build and share a common vision that strengthens the coalition among the group of people which should assume future responsibilities for the GI’.54 While the registry should not be involved in this process of discussions or in their outcome, it would be useful if it provided producers with information regarding principles of decision-making in the preparation for a GI application.

C.  Origin of Raw Materials from Outside the GI Area GI systems are ‘ostensibly designed to guarantee geographical origin’.55 Consumers rely on the information provided by the label, namely that the GI-protected product originates from the indicated area. However, the GI rules in the EU allow for a certain flexibility regarding the origin of ingredients, of which consumers may be largely unaware. As a consequence, consumers may wrongly believe that a product is entirely produced in the indicated area. This confusion is particularly relevant when it comes to the provenance of raw materials. For PGIs, at least one production step needs to take place in the defined geographical area.56 If consumers are aware of this rule, they can infer that raw materials may come from outside the region. But would they think that GI rules allow eg 50 per cent of the raw material to come from elsewhere? P ­ robably not. For PDOs, the situation is even more misleading. According to Article 5.1.c of EU Regulation 1151/2012, all production steps of PDO-protected products have to take place in the specified area. Naturally, consumers will believe that this would include raw materials. But the opposite is true: according to Article 5.3 of EU Regulation 1151/2012, where raw materials constitute live animals, meat and milk, they can come from a geographical area larger than or different from the defined area.57 This possibility is subject to a number of safeguards, which require

54 ibid. 55 Gangjee (above n 39) 19. 56 Art 5.2.c EU Regulation 1151/2012. 57 ‘3. Notwithstanding paragraph 1, certain names shall be treated as designations of origin even though the raw materials for the products concerned come from a geographical area larger than, or different from, the defined geographical area, provided that: (a) the production area of the raw materials is defined; (b) special conditions for the production of the raw materials exist; and (c) there are control arrangements to ensure that the conditions referred to in point (b) are adhered to. Only live animals, meat and milk may be considered as raw materials for the purposes of this paragraph’ [emphasis added].

Governance Systems of Geographical Indications  79 producers to clearly define, in the product specifications, the area from where the raw materials may come, special production requirements applicable to raw materials, and special control arrangements. But again, there is no limitation as to the percentage of raw material that can be derived from outside the region. There are well-known examples of PDOs and PGIs that rely on this flexibility. The PDO Stilton cheese relies on milk from outside the specified counties in periods when demand is particularly high, such as around Christmas.58 Pigs for the PDO Prosciutto di Parma generally come from a larger geographical area than the production area, which is the Province of Parma.59 The PGI application for the pickled gherkins ‘Spreewälder Gurken’ sets out that only 70 per cent of the gherkins must come from the defined area.60 Confusion among consumers may arise because there are no labelling requirements under GI law that would inform the consumer duly about the provenance of raw materials. Where other legislation such as consumer protection laws or safety and technical standards do not require the label to contain clear information about the provenance of its ingredients, consumers are likely to wrongly believe that the products originate entirely from the region. So far, consumers do not appear to perceive this incomplete labelling as a problem.61 However, arguably, this is only due to the general lack of awareness of consumers regarding GI labels in the first place.62 Where consumers know about the different labels and requirements, it is counterintuitive to exclude raw materials from strict origin requirements. This may hence present a reason for producers and consumers to mistrust the system in its ability to convey information about origin. In conclusion, two propositions are made on how to address this inconsistency. First, raw materials should also adhere to the origin requirement, by introducing a maximum percentage of eg 15–20 per cent for raw materials allowed to come from outside the demarcated area. Second, the origin of ingredients, including raw materials, should be included on the label prominently.

D.  The Typicality or Quality of the Product and Its Link with the Territory Are Not Always Properly Safeguarded Another aspect that may give rise to consumers’ mistrust is the way the link between the typicality of the product and the territory is established and examined. The link is the essence of what the geographical indication guarantees to the

58 See European Commission, Door database, Dossier No UK/PDO/0017/0277. 59 See European Commission, Door database, Dossier No IT/PDO/0117/0067. The larger area includes the regions of Emilia-Romagna, Veneto, Lombardy, Piedmont, Molise, Umbria, Tuscany, Marche, Abruzzi, Lazio. 60 See European Commission, Door database, Dossier No DE/PGI/0017/0561. 61 See London Economics (above n 42) 86. 62 See Gangjee (above n 39) 19.

80  Anke Moerland consumer: only where the natural and/or human factors of the area or its reputation continue to influence the typical features of the product does a true link exist which merits protection. Under the heading ‘link with the geographical area’, the EU Guide to Applicants requires the following: Show how the features of the product are produced by the factors present in the area. Give an objective reasoning that links the specificities of the area and of the product. In the case of PGI applications based on reputation, state here the reasons why the specific product is associated with the geographical area.63

In essence, what is required from the applicant is (1) to identify the typical features of the product that gained the reputation, (2) to specify the production techniques that give rise to the typical features, and (3) to explain which conditions of the region (environmental, socio-economic or cultural) were instrumental for the specific production techniques to historically develop within that region.64 Only where applicants can show through written (administrative or technical reports, press, archives, travel logs and food guides, awards) or oral testimony (elderly people, local experts, different members of the community) how the specificities of the geographical area influence those of the product should a GI label be granted.65 Clearly, in order to establish such a link, producers have to rely on historical data to retrieve information on why the production techniques that give the product its typical features developed in the area. An example is the Melton Mowbray Pork Pie, which gained a reputation in the town of Melton Mowbray in the eighteenth century as a solid enough snack for those participating in fox h ­ unting to carry them in their pockets while horse riding. In the application file for the PGI, it is explained that fox hunting developed in the region as an answer to an increased fox population that arose because of Quickthorn being used as hedging for pigs.66 Such historical records, similar to tradition, authenticity and heritage more generally, are, however, inherently malleable concepts, which are open to different interpretations and hence the result of social construction processes.67 Determining the exact boundaries of the area that has gained a reputation for producing a

63 European Commission, EU Guide to Applicants available at: http://ec.europa.eu/agriculture/sites/ agriculture/files/quality/schemes/guides/guide-for-applicants_en.pdf. 64 See Gangjee (above n 43) 55–56. 65 See L Bérard and P Marchenay, From Localized Products to Geographical Indications: Awareness and Action (Paris, CNRS, 2008) 24–25, available at: www.ethno-terroirs.cnrs.fr/IMG/pdf/ Localized_ Products_to_GI.pdf. 66 See Single Document ‘Melton Mowbray Pork Pie’ UK/PGI/005/0335/13.02.2004 (OJ C85/17 of 4.4.2008) 19. 67 See Bowen and Valenzuela Zapata (above n 3) 110; A Tregear, F Arfini, G Belletti and A Marescotti, ‘Regional Foods and Rural Development: The Role of Product Qualification’ (2007) 23 Journal of Rural Studies 12, 14.

Governance Systems of Geographical Indications  81 particular product may hence become particularly difficult, and sometimes arbitrary. In the example of the Melton Mowbray Pork Pie, the area that benefited from the GI status was subject to objection by a producer outside the area claiming that the boundaries would not be justified in view of the large number of pork pies produced outside that area.68 Another difficulty relates to the establishment of the causal link between the reputation of the product and the area. In several reputation-based PGI applications, the explanations of how the specificities of the area influence the product are not fully developed. For example, the producers of ‘Schwäbische Spätzle’ (eggbased pasta product made from fresh eggs in a home-made style) from the region of Swabia in South Germany consulted literature, press articles, regional cookery books and exhibition records to trace back the tradition of making Spätzle to 1725.69 This tradition, according to the application file, arose in the SwabianAlemannic area because the quality of the soil was poor, which led many farmers to grow cereals as one of the few crops that would flourish in the soil. While such a tradition of making Spätzle may have gained a reputation in the area, it is debatable whether the explanation of the poor soil sufficiently supports the link with the area. As Gangjee notes for another case: Mere long-standing production in a region is not sufficient; it is the human skills and techniques which give the product its distinctive features over time, and there is often a place-based explanation for how and why these skills and techniques arose and have adapted.70

In order to address these weaknesses in the process, the relevant authorities examining the application document should verify that the demarcation of the area and the description of the link between the area and the product are supported with the relevant historical data, be that written or oral sources. The demarcation of the boundaries should include or be limited to the area from which the reputation originally developed. Situations where traditional producers are excluded must be avoided. Regarding the verification of the link, the registry should check whether the application indeed explains why the product developed in the region, which physical, climatic or human conditions it aims to address, and how these conditions have influenced the quality or characteristics of the product. So, in order to take the causal link requirement seriously, the applicants in respect of ‘Schwäbische Spätzle’ should also have explained how the human skills and techniques by the local population have given the pasta its distinctive features.

68 See DS Gangjee, ‘Melton Mowbray and the GI Pie in the Sky: Exploring Cartographies of Protection’ (2006) 3 Intellectual Property Quarterly 291, 295. 69 See Single Document ‘Schwäbische Spätzle’, DE-PGI-0005-0738-02.02.2009 (OJ C 191/20 of 1.7.2011) 22. 70 Gangjee (above n 43) 59.

82  Anke Moerland While the verification of the link is not an easy task, it would be useful to clarify in the Guide to Applicants the following two additions. On page 7 under ‘How the specificities of the geographical area influence those of the product (causal link)’, the first clarification (in italics) should be included after the following sentence: Show how the features of the product are produced by the factors present in the area. Give an objective reasoning that links the specificities of the area and of the product. In particular, an explanation is needed how the specific physical, climatic or human conditions of the area affect the distinctive product characteristics.

The second clarification should be amended after the following sentence with the part in italics: In the case of PGI applications based on reputation, state here the reasons why the specific product is associated with the geographical area. In particular, it is necessary to explain how the human skills and techniques in the region have led to the distinctive features of the product, on which the reputation of the specific product is based.

In conclusion, if applicants are guided by specific instructions and examined on the basis of the same criteria consistently, GI applications are likely to better define and prove the link to the region and thereby avoid mistrust on the part of consumers as to whether the GI label is a true indication of origin.

V.  Provisions in FTAs Enabling Stronger Governance Structures Having analysed current loopholes of the EU system and possible improvements thereto, this section addresses the possibilities for third countries to take up the suggestions made above in their own GI systems. In particular, the FTAs that the European Union has concluded with third countries will be analysed to ascertain whether their provisions (1) require or (2) leave discretion to third countries to take the recommendations into account and build GI governance systems that foster trust among producer groups, and ultimately consumers. Overall, recent EU FTAs do not contain specific requirements regarding the application, examination or objection procedure. The only common procedural provision in recent EU FTAs relates to the obligation to maintain a system for the registration and protection of GIs, which needs to include, among other things: (a) an administrative process verifying that GIs to be entered on the register fulfil the definition of a GI (including the link between the product characteristic and the territory) and (b) an objection procedure that allows the legitimate interests of any natural or legal person to be taken into account.71 This provision leaves

71 Art 6.2.1 EU-Vietnam FTA; Art 11.17.2 EU-Singapore FTA; Art 244.2 EU-Central America AA; Art 10.18.6 EU-South Korea FTA. Note that Art 170.2 jo Annex XVII-B EU-Georgia AA, Art 31.3 and

Governance Systems of Geographical Indications  83 ample room for each country to design its procedures regarding the requirements for applicants, the independence of the examination body, the criteria that need to be verified when examining the causal link and the features of an objection procedure. The FTAs do not set out any requirements as to the decision-making procedure within producer groups; also within the EU, there are no such requirements. That again leaves partner countries room to regulate in the way they see fit how the applicant group is made aware of the need to set up democratic and transparent decision-making structures. Finally, no rule similar to Article 5.3 of EU Regulation 1151/2012 is contained in the GI chapters. This means that partner countries are under no obligation to adopt a similar system to the EU system regarding raw materials. It is hence an option to introduce a maximum percentage of raw materials that can come from outside the specified region. In conclusion, the rules specified in the FTAs do not pose any restrictions to the improvement of the GI system in order to better perform its functions and thereby stimulate trust among producers in the system.

VI. Recommendations The governance structures in GI systems are based on trust and cooperation. Without trust among producers as well as by producers and consumers in the proper functioning of the GI system, the GI system would not work. With GIs being used to promote rural development, preserve local traditions, thereby reducing consumers’ search costs and rewarding the producers for their continuous efforts in producing typical products, it is relevant to analyse carefully how producers’ trust in the GI system can be preserved. The focus of this chapter therefore was two-fold. First, after analysing the concept of trust in GI systems more generally, current weaknesses in the EU GI system were identified that challenge important functions of the GI system. Second, the application, examination and objection procedure for registering a GI were analysed in order to suggest adaptations that would increase the fulfilment of the system’s functions and hence enhance the trust of producer groups in the system of GI regulation.

31.4 jo. Annex [XX]-B draft EU-Philippines FTA and draft EU-Indonesia FTA, and Art 9.2 jo. Annex II draft EU-India BTIA (as proposed by the EU) set out specific criteria for the opposition procedure but do not specify the verification of the causal link. The EU-SADC EPA does not refer to objection procedures at all. The EU-Colombia-Peru FTA only refers to an objection procedure regarding the GIs agreed by the parties to be protected, not to an internal objection procedure that must be applied to all other GIs. The EU-Canada CETA agreement does not contain such a provision because CETA does not require the establishment of a GI system but only the protection of the GIs contained in Annex 20A according to the specified level. See Art 20.19.1 EU-Canada CETA.

84  Anke Moerland The recommendations that derive from that analysis target the different procedures, as well as one substantive law change. In order to mitigate the risk of excluding legitimate producers from the beneficiaries of the GI label, the application procedure would need to be adapted. First, with the aim of guaranteeing that the applicant group represents producers from the entire supply chain, all national authorities in charge of GI applications in the EU should require the applicant to produce an affidavit or declaration that the group represents the interests of all producers of the GI. Second, it is recommended to that separate bodies be installed for handling applications and guidance thereon on the one hand, and the examinations of GI application according to the relevant standards on the other hand so that bias during the examination procedure is avoided. Third, the time limits and guidance regarding objection procedures should be handled in a way that has inclusivity of producers in mind. Transparent and democratic decision-making structures within producer groups should not be included in the GI procedures. However, it would be helpful if registries informed producers that they should agree to common principles of decision-making as part of the preparation process of the GI application. A substantive law change is recommended in order to increase the quality of information provided to consumers. Regarding raw materials, a maximum of eg 15–20 per cent raw of materials coming from outside the demarcated area should be introduced. This, combined with the introduction of a requirement to clearly label the origin of ingredients, including raw materials, would mean that consumers would not be confused about the origin of the vast majority of the raw materials. Finally, in order to safeguard the link with the territory, the registry should verify that the demarcation of the area and the description of the link between the area and the product are supported by relevant historical data. The registry should check whether the application explains why the product developed in the region, as an answer to specific physical, climatic or human conditions, and how these conditions have influenced the quality or characteristics of the product. Some more scrutiny on these aspects is in order in order to avoid weak GIs. The current FTA provisions the EU concludes with its partner countries leave ample room for all parties to adapt their GI governance structures in the ways suggested in this chapter. These recommendations should contribute to a stronger GI system that is trusted by producers.

part ii Integrity and Effectiveness: Safeguarding the Proper Functioning of Trade Dispute Settlement

86

5 The WTO Dispute Settlement System and the Challenges to Multilateralism: Consolidating a ‘Common Global Good’ GIORGIO SACERDOTI

I.  Results Achieved by the Dispute Settlement System On reaching its 20th anniversary in 2016, the Dispute Settlement System (DSS) of the World Trade Organization (WTO) continues to be considered a success story, and rightly so. The mechanism has been defined by a former Director-General as the ‘jewel in the crown’ of the WTO, a statement which is even more justified in the light of the failure of the WTO Members to conclude the Doha Development Round (started in 2001), notwithstanding the limited success of the Bali (2013) and Nairobi (2015) Ministerial Conferences, and to reinforce other non-judicial mechanisms within the WTO. It is interesting to note that the DSS, specifically the Appellate Body (AB), is now taken as a model for ‘judicialising’ other fields, an example being the recent EU initiative to replace arbitration as the means to settle investment disputes (ISDS) with a two-level international tribunal in the EU–Canada Comprehensive Economic and Trade Agreement (CETA) and the Free Trade Agreements (FTAs) with Vietnam and Singapore.1 At its beginning, however, the DSS was criticised both by some WTO Members2 and by NGOs for allegedly devolving to unrepresentative international ‘faceless judges’ – accused moreover of indulging in ‘judicial activism’ – disputes also affecting non-trade interests and individual governments’ regulatory powers.



1 See

the final CETA text available at: www.international.gc.ca. by members of the US Congress.

2 Notably

88  Giorgio Sacerdoti Nevertheless, this overall positive evaluation is based on: –– the high number of cases initiated (the 500 mark was reached in November 2015, increasing to 535 by the end of 2017) and almost always (90 per cent of those brought to adjudication) resolved effectively by the removal of the restrictive measures of an importing country found in breach of WTO obligations by independent and impartial rule-based adjudication; –– the effective functioning of its multi-stage procedure (from consultations to implementation, through a double-stage adjudication phase), which is meant to solve specific, mostly bilateral disputes, but at the same time to give guidance to all the interested Members and to take into account the multilateral dimension of the trading system; –– the participation in it of both major trading powers and small developing countries (signalling the importance of the DSS also for small players and developing economies to ensure access for their products to the larger economies’ markets); –– the development of a balanced and consistent case law, sensitive to non-trade concerns such as environmental protection and health, which recognises on the one hand the need to uphold market access obligations, and on the other hand the existence of evolving non-trade values and policies – domestic and international – that need to be safeguarded as part of the domestic policy space of WTO Members. This has afforded ‘stability and predictability’ to the system (as set forth in Article 3.2 of the Dispute Settlement Understanding (DSU)), also in the recent times of financial crisis and economic slowdown. According to official documentation, opportunistic resort to protectionist measures (anti-dumping, subsidies, safeguards) has been contained, although independent research tends to challenge this claim and has a more pessimistic view.3 Apparently, the DSS is functioning well if one looks at the number of disputes initiated as an indicator, on the one hand, of the existence of trade conflicts and, on the other hand, of the confidence of Members that the system may resolve them satisfactorily. Seventeen new disputes had been introduced through requests for consultations in 2017, bringing the total number to 535 from the establishment of the system. That year, the AB issued five reports, while 11 panel reports were issued (two of which were in compliance proceedings under Article 21.5 DSU), six of which were not appealed. In addition, one arbitration award under ­Article 21.3(c) DSU was issued that year for the determination of the ‘reasonable period of time’ to comply.

3 The latest WTO report on trade restrictions (25 July 2018) not surprisingly shows an increase of trade restrictions by WTO Members, see www.wto.org/english/news_e/news18_e/trdev_ 25jul18_e.htm. See also S Evenett and J Fritz, ‘The WTO’s Next Work Program – As if the Global Economic Crisis Really Mattered’ in CA Braga and B Hoekman (eds), Future of the Global Trade Order (2nd edn, EUI, 2017) 175.

The WTO Dispute Settlement System and the Challenges to Multilateralism  89 The time frame for panels to complete their work from the time they are composed to the issuance of their reports to the parties and thereafter the reports’ circulation has somewhat declined, compared to recent years, due to the increase in their staffing undertaken by the Director-General in response to previous complaints by Members. As reported by the Chairman of the Dispute Settlement Body (DSB) at the meeting of 22 November 2017, at that date there were 16 active panels (including four panels under Article 21.5 DSU) that had not yet issued a final report to the parties. Five panel reports had been issued to the parties and were being translated with a view to circulating them. A further four panels were at the composition stage. At the same date the AB was dealing with six appeals. Two matters were pending in arbitration under Article 22.6 DSU and one to determine the reasonable period of time under Article 21.3(c) DSU.

II.  The Current Problems of the Dispute Settlement System: An Overview There are two kinds of issues currently challenging the functioning of the DSS: the first one could be labelled as ‘normal’, the system showing signs of stress as a victim of its own success, mainly due to the increase in the number of disputes and their complexity. ‘Ordinary’ remedies are called for to tackle these issues, which I review in Section III. The second challenge comes from the US Trump Administration, is more worrying and pervasive, and is directed at the very idea of a rule-based multilateral trading system, which is the key feature of the WTO. It puts in question the viability of the WTO in general as a symbol of multilateralism in the governance of a key element of international economic intercourse. The US challenge to the functioning of the DSS, and especially to the AB, is in my view just the tip of the iceberg of the Trump Administration’s threat to multilateral disciplines, though the most evident from a legal point of view, together with the imposition of import duties in disregard of WTO rules. I will deal with this challenge in Section V.

III.  Efficiency Problems at the Dispute Settlement System As to the first aspect, the following major issues have emerged which threaten the effectiveness of the DSS and may thus diminish the trust in, and recourse to, the system: 1. The increasing number of cases brought to panels, and the increasing complexity of disputes and sophistication of arguments made, is extending the length of proceedings unreasonably, especially at the panel stage, and is putting strain on the limited resources of the Secretariat.

90  Giorgio Sacerdoti 2.

The willingness of losing respondents to promptly comply with the decisions appears to be decreasing, in that effective implementation, while usually performed, requires on average more time. Alternatives to compliance (such as compensation), which appear to be on the rise, may tilt the system towards the protection of the interests of major trading nations, which may be able to pay off weaker Members while maintaining their import restrictions. 3. WTO Members appear to be unable to agree on further liberalisation (notably in services) and on adding new rules to the multilateral system to face new issues (such as the green economy, environmental subsidies or electronic commerce). This leads to a possibly problematic role of ‘gap-filling’ and ‘lawmaking’ for the DSS, which was not intended. 4. The parallel massive increase of regional trade agreements (RTAs), to which WTO Members are increasingly turning (including ‘mega-RTAs’ such as the CPTPP4) risks reducing the relevance of the WTO and therefore possibly of its DSS, which, moreover, might find competitors in the dispute settlement mechanisms of RTAs.5 As a result, panel proceedings that should in theory take no more than six months (Article 12.9 DSU), but which until recently in practice took around one-and-ahalf years in ‘normal’ cases, may well now take between two and three years from the formal establishment of the panel by the DSB to the circulation of its report.6 Panel reports are thereafter subject to appeal, where the AB faces increasing difficulties in respecting the short 90-day period prescribed for issuing its own reports, not to mention the further possible proceedings before full implementation by the losing party.7 This time lag undermines the value of any favourable decision for 4 Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), also known as TPP11, agreed in principle by 11 countries of the Pacific basin in January 2018 after the US pulled out of the TPP in 2017. 5 It has been noted that RTAs have rarely been challenged in the WTO DSS. This could be due to the fact that they are considered by and large to be compliant with WTO obligations. Alternatively, it is possible that participants in RTAs refrain from challenging other RTAs in order to avoid provoking challenges to their own (the compliance of any RTA with all WTO requirements being doubtful). For the most recent case see WTO Appellate Body Report, Peru – Additional Duty on Imports of Certain Agricultural Products (Guatemala), WT/DS457/AB/R, adopted on 31 July 2015. 6 For example, at a DSB meeting in 2015, Canada complained that four-and-a-half years after the establishment of the panel, the COOL dispute with the US was still far from being settled: after the panel proceedings, the appeal, the fixing by an arbitrator of the reasonable period of time for compliance (not respected by the US), and the compliance proceedings under Art 21.5 DSU (where both the panel and the AB found that the measures taken by the US had not led to compliance, but possibly even worsened the breach), the arbitration panel (under Art 22.6 DSU) was just starting its work to establish whether the countermeasures announced by Canada and Mexico (the other complainant) were excessive in comparison to the trade loss caused to them by the COOL measure, as submitted by the US. On 18 December 2015, just a few days after the arbitration had been concluded, then-US President Obama announced the repeal of the relevant US provisions. 7 For a realistic view, see ‘Torture by Tariff – Retaliating against Unfair Trade Practices is a Calculation in Cruelty’ The Economist, 20 June 2015. As to the current situation, in DS495 the panel informed the parties on 29 September 2017 that the panel, established by the DSB on 28 September 2015 and composed on 8 February 2016, would issue its report to the parties in October 2017, WT/DS495/7 (it was circulated on 22 February 2018).

The WTO Dispute Settlement System and the Challenges to Multilateralism  91 obtaining effective redress against domestic measures in breach of WTO commitments, which is especially damaging in respect of temporary measures such as anti-dumping duties. More broadly, this dysfunctional operation of the DSS, in disregard of one of its basic tenets and praised features, namely its speed, may undermine the whole operation of the system and recourse to it as the key instrument for ensuring respect for trade-opening commitments. Korea stated at the DSB meeting of 31 August 2015 that WTO disputes were not about abstract disagreements. Real world economic interests underlay every dispute. There were real people who suffered real losses while a dispute was pending … The problem would get worse if left unaddressed. Long delays created perverse incentives by lowering the cost of adopting and maintaining WTOinconsistent measures. Interest groups seeking protection would pressure Members to adopt those measures, insisting, rightly, that they would not be subject to review by the WTO for years. Members could therefore expect more protectionist measures and more, not less disputes being brought to the WTO. These in turn, would cause further delays, prompting a vicious, never-ending cycle. It was in the interest of everyone, the parties, the wider Membership and the Secretariat not to let this happen.8

The problems of delay, especially at the panel level, could be resolved by an increase of resources within the Secretariat, exactly what the Director-General implemented in recent years, bringing the problem under control.9 The constitution

8 Doc WT/DSB/M/367, 22–29. The concerns of Korea were shared at the meeting by a number of countries, starting with Guatemala (whose delegate stated aptly, ‘The WTO dispute settlement system was one of the most effective and prompt international systems of adjudication. Victim of its own success, the system faces the risk of becoming slower. If no effective action were taken to address this unfortunate situation, the principle of “prompt settlement of disputes” in article 3.3 of the DSU would become a mere “best effort” provision, not more than an illusionary aspiration. … long delays in the DSS mechanism may create perverse incentives for adopting political motivated WTO-inconsistent measures’). Other interventions came from (in order) Chile, China (‘this unprecedented situation would seriously undermine the effectiveness and credibility of the WTO DSS’), Australia (‘willing to consider any option that might help alleviate the current situation and improve the system over the long term. This included ensuring that the Secretariat had the resources needed to service disputes in a timely manner and also exploring ways for the Membership to reduce the burden on the system in terms of the length and complexity of disputes’), Russia, Mexico, Pakistan, Japan, Brazil, Canada, India (‘the credibility of the system was at stake’), the EU (‘manage the situation at hand’; and ‘find solutions to the mid and long-term situation against the background of ever increasing pressures in the WTO DSS’), Argentina, Chinese Taipei and Norway. In contrast with the serious concerns voiced by most other countries, the US was more restrained, stating briefly that ‘Korea had raised an important systemic issue … This raised some significant concerns, particularly in light of the fact that the WTO DSS had, for many years, operated with admirable efficiency. The United States shared the view that Members needed a better understanding of the causes behind delays so that they could develop and consider appropriate solutions’. 9 His first intervention on the subject was at a DSB meeting in September 2014, when he announced the creation of 15 new lawyer posts in the three dispute settlement divisions: Legal Affairs, Rules, and the AB Secretariat. However, the organisation had difficulties in filling these. In his address to the DSB on 28 October 2015 the DG explained in detail the further steps he had taken and was taking to mitigate delays, consisting mostly of reallocating personnel; hiring new legal staff; adjusting the grades and salaries to the competence of the lawyers, taking into account the competition by law firms; increasing

92  Giorgio Sacerdoti of panels should be accelerated by a more decisive engagement by the DirectorGeneral.10 Far-reaching reforms of the DSU, not just of practice and organisation, would be required to tackle the problem more radically, but the current mood at the WTO is certainly not in that direction.

IV.  Possible Improvements From an academic point of view, possible solutions covering the whole of the proceedings from consultations to implementation must in any case be considered even if not presently on the table of a political agenda. Those more substantial reforms to resolve this issue at the panel level would require considering more far-reaching options, such as: 1. discouraging the bringing of complaints to the panel stage by making the initial phase (consultations) less of a mere formality, possibly with the engagement of the Director-General and resort to mediation and conciliation; 2. putting more financial resources to the service of the legal Secretariat, overcoming the zero-growth budgetary constraint that tilts in favour of first shifting resources within the WTO Secretariat without the possibility of adding new resources from the legal market place; 3. reorganising the legal Secretariat by merging the Legal Affairs Division with the Rules Division, a distinction which reflects a division of work from General Agreement on Tariffs and Trade (GATT) times and which is not justified any more; 4. enlarging the available pool of panellists and the spread of nationalities (resorting also to non-governmental panellists from third parties in dispute); using more systematically available competent panellists (leading to the de facto creation of a pool of recurrent, semi-permanent panellists); and reducing procedural delays due to the ‘interim report’ and translation (the availability of a greater number of more devoted and competent panellists could in turn make it possible to rely more on them also for drafting, as is the practice in both international courts and investment or commercial arbitration);11 5. making the disputing parties pay a share of the costs of the proceedings, which are currently charged to the whole membership. internal mobility; and pooling junior lawyers of both divisions assisting panels. This should result in more efficiency and has already nearly doubled the relevant positions – from 30 to 57 – since 2013. 10 See R Malacrida, ‘WTO Panel Composition: Searching Far and Wide for Administrators of World Trade Justice’ in G Marceau (ed), A History of Law and Lawyers in the GATT/WTO (CUP, 2015) 311. 11 See J Pauwelyn, ‘The Rule of Law Without the Rule of Lawyers? Why Investment Arbitrators Are from Mars, Trade Adjudicators Are from Venus’ (2015) 109 American Journal of International Law 761; Commented by G Sacerdoti ‘Panelists, Arbitrators, Judges: A Response to Joost Pauwelyn’ (2015) 109 AJIL Unbound 283, available at: http://doi:10.1017/S2398772300001604.

The WTO Dispute Settlement System and the Challenges to Multilateralism  93 Other phases and aspects of the DSS also need interventions to make them more efficient. As to the AB, in view of the fact that the number of disputes brought to the panels is increasing so that this is likely to affect also the appellate stage, possible remedial solutions are:12 6. 7. 8.

staffing the AB Secretariat more adequately; increasing the number of AB Members from seven to nine; making their position permanent, a status that would also better ensure in the future the selection of competent, diverse and truly independent judges; 9. replacing their four-year term, renewable once, with one non-renewable seven-year term, so as to avoid any possible improper interference with their independence and impartiality by the WTO Members through the renewal process. As to the implementation phase: 10. the monitoring role of the DSB should be made more effective in order to induce compliance more promptly. The procedure should be tightened so that the prospective nature of WTO remedies (the obligation to comply not being retroactive from the date of the breach but to be implemented only after a ‘reasonable period of time’ from the adoption of a panel or AB report) does not reward the dragging of feet by the losing party with regard to compliance with adverse decisions. Maintaining the efficiency of the DSS and its effectiveness in ensuring compliance with the WTO multilateral trade rules entails broader benefits beyond ensuring the effectiveness of expected trade openings from the commitments that WTO Members have undertaken, as important as these are. It ensures at the same time the role of the WTO as the guardian of the multilateral trading system and the position of its multilateral rules as the accepted global framework within which interested countries may engage in RTAs. RTAs should be the basis for extending international cooperation and trade liberalisation (‘WTO-plus’) without endangering the WTO acquis. They should represent building blocks, and not stumbling blocks, by establishing supplemental frameworks to further facilitate trade through coordinated regional action, which should be supportive of the multilateral rules. It must be recognised that the possible solutions to the current problems set forth above are not a quick fix that may be implemented without WTO Members

12 See CD Ehlermann, ‘The Work Load of the WTO Appellate Body: Problems and Remedies’ (2017) 20 Journal of International Economic Law 405. The many disputes brought in 2018 against the additional duties on imports introduced by the US, and those brought by the US against the ‘counter-duties’ of the targeted countries are exacerbating the problem. They may never be finally decided if the AB ceases to be operative at the end of 2019 for lack of appointment of AB members by the DSB!

94  Giorgio Sacerdoti engaging in the issues, evaluating the most appropriate remedies and being open to looking for shared improvements. That said, this is not an out-of-reach ambitious programme or an exhaustive shopping list. Rather, it is a realistic and modest agenda for fixing, within the existing framework, the current problems and enabling the DSS to go on serving the WTO Membership and complying with its objectives and purpose in the years to come. I do not propose that the panels should be transformed into a first instance tribunal, or that the adoption of panel and AB reports should be abolished, or other similarly radical overhauls. Moreover, there is a specific instrument for Members to discuss and elaborate the necessary amendments to the dispute settlement rules. This is the DSU review negotiation framework agreed by a Ministerial Declaration in 1994 and extended by the Doha Ministerial Declaration in 2001, under which amendments to the DSU may be agreed without having to activate the cumbersome WTO amendment process. This exercise should have been completed first by 1997/1999, and then by 2003, but it is still going on indefinitely at an almost standing pace.

V.  The Current Challenge to the WTO and Its Dispute Settlement System from the US Administration As to the second most crucial and disquieting aspect mentioned above, let us recall that the most important event in the operation of the WTO in 2017 was, or rather was supposed to be, the Ministerial Conference in Buenos Aires, which took place in the first half of December. The expectations at the opening of the meeting were already low, since a preliminary meeting (‘Mini-ministerial’) held in Marrakesh in October had shown that Members were not engaged in negotiating in a way to be able to reach agreements on open issues to be finalised in Buenos Aires. The Ministerial was even more disappointing – to the point that the Members were unable even to issue a final declaration. Procedural agreements were reached just on continuing to deal in Geneva on the main open issues where in theory an agreement could be reached, notably on regulating (curbing) fishing subsidies. This negative outcome was due not only to the ‘disengagement’ of the US, but also to the unwillingness of most major economies to make efforts to reinforce and expand the multilateral rules. The WTO system risks being undermined by the direct challenge to its rules initiated by the Trump Administration at the beginning of 2018 with the introduction of substantial anti-dumping duties on washers from Korea and solar panels from India; thereafter with the announcement of selectively applied safeguards on steel and aluminium imports based on the security exception of Article XXI GATT; and finally with the restrictive measures on a variety of exports from China to the US. The attitude of the US towards regional agreements (US withdrawal from the not-yet-in force Trans-Pacific Partnership (TPP)), the renegotiation of the North American Free Trade Agreement (NAFTA) accompanied by threats of

The WTO Dispute Settlement System and the Challenges to Multilateralism  95 withdrawing from it, and the renegotiation of the FTA with Korea with the aim of rebalancing the trade deficit (also through WTO-inconsistent ‘voluntary’ export restraints by Korea) shows a ‘mercantilist’ posture which is at odds with the principles underpinning the multilateral trading system. Specifically, as to dispute settlement, the most worrying challenge has been the Trump Administration’s blocking of the appointment process for AB members, leading to a situation since the end of 2017 where the AB is operating with only four instead of seven members.

VI.  The US Challenge: From the Refusal to Reappoint an Appellate Body Member in 2016 to Paralysing the Selection Process in 2017–2018 This attitude by the US has had a ‘precedent’ in 2016 when, at the DSB meeting of 23 May 2016, it blocked the reappointment for a second term of Seung Wha Chang, from Korea, based on his participation in appeals issuing reports to which the US objected. Until recently renewal was ‘semi-automatic’, and appropriately so, with the DSB extending any mandate as a matter of course if the AB member concerned had expressed his willingness to be reappointed. More recently, in 2015, under the impulse of the US, the DSB has asked that the AB members coming up for renewal meet the WTO Members and be available for questioning. The issue became sensitive because one could foresee a situation in which countries would thereby interfere with pending cases and try to influence the judges, making the renewal of AB members dependent upon their answers.13 The solution was finally found by holding an informal DSB meeting on 12 November 2015, with this encounter taking place on the understanding that questions by delegations would be of a general and systemic nature only. In the subsequent, formal DSB meeting of 25 November 2015, Singh Bhatia from India and Thomas Graham from the US were reappointed by consensus. With the position taken by the US at the DSB meeting of 23 May 2016, after Mr Chang had been questioned by 26 delegations at an informal meeting, a further big leap on this slippery road has been taken, notwithstanding the unanimous criticism of the US position expressed at the meeting by the 31 Members who took

13 This process is reminiscent of the hearings by the US Congress of candidates to the US Supreme Court proposed by the president, but the setting, the position of the US Supreme Court and the individual role of its judges is quite different. One should not forget, however, that the AB, however modest its name and institutional setting, is the only international court with compulsory jurisdiction (moreover in respect of broad sensitive matters) over states such as the US, China and Russia, which usually agree to participate in international adjudication, if at all, only on an ad hoc, mostly ex post facto basis. Hence the keen interest of large economies in the selection of their future judges.

96  Giorgio Sacerdoti the floor, including all major users of the DSS and other parties whose voice is rarely heard. The US stated that it had been ‘troubled … about the disregard for the proper role of the Appellate Body’ by the Body itself, because in certain reports the ‘report engaged in a lengthy abstract discussion’ on non-appealed issues, as well as in obiter dicta.14 The US raised its ‘concern with the Appellate Body’s adjudicative approach in a number of appellate proceedings in which Mr. Chang was involved’ and in addition criticised ‘the manner in which he had conducted oral hearings’. The US further took issue with a support letter circulated by all the other members of the AB, defining it as ‘unfortunate’, noting that the decision on reappointment must be made by the DSB and not the AB, and considering this ‘to be another instance of Appellate Body members acting outside of the role assigned to them by the WTO members’.15 In an unprecedented letter signed by all the former 13 members of the AB on this issue (including the present writer) these former members raised their concern on the threat that this attitude by any WTO Member would pose for the integrity of the DSS. [I]f, now, the fact that a Member of the Appellate Body joined in the consensus on the outcome on a particular legal issue or on a particular dispute becomes for the first time a factor in a decision on that Member’s reappointment, all of the accomplishments of the past generation in establishing the credibility of the WTO dispute settlement system can be put in jeopardy. This raises the prospect of inappropriate pressures by participants in the WTO trading system. There must be no opening whatsoever to the prospect of political interference in what must remain impartial legal judgments in the WTO’s rule-based system of adjudication.16

Already the current practice of active engagement of key WTO Members in the initial appointment process appears excessive; it gives the impression that they try to form an AB composed of members who are responsive to their wishes with

14 To this criticism an obvious reply, which has been given by more than one commentator in the International Economic Law and Policy Blog of 23 May 2016, is that, since obiter dicta are by definition irrelevant to decide a case and as guidelines for the future, no WTO Member should be concerned by them. On this issue see H Gao, ‘Dictum on Dicta: Obiter Dicta in WTO Disputes’ (2018) 17 World Trade Review 509 and ‘A Comment’ by the present author, ibid 535. 15 In this cautious letter, framed in general terms, the six AB members recalled that ‘our mandate states in Art 3.2, 17 and 19.2 of the DSU that we are to adjudicate appeals and clarify existing provisions of the covered agreements without adding to or diminishing the rights and obligations provided in those agreements’. The letter adds, ‘With regard to risks for the trust that WTO Members place in the independence and impartiality of Appellate Body Members, we are concerned about the tying of an Appellate Body Member’s reappointment to interpretations in specific cases, and even doing so publicly. The dispute settlement system depends upon the WTO Members trusting the independence and impartiality of Appellate Body Members. Linking the reappointment of a Member to specific cases could affect that trust’. 16 The letter also points out that if WTO Members should ever conclude that the AB has erred when clarifying a WTO obligation in dispute settlement, the appropriate remedial action lies in applying Art IX:2 of the Marrakesh Agreement, which provides the Ministerial Conference and the General Council with ‘the exclusive authority to adopt [binding] interpretations of this Agreement and of the Multilateral Trade Agreements’ by a three-quarters majority of the Members.

The WTO Dispute Settlement System and the Challenges to Multilateralism  97 regard to their approach to interpretation and similar issues. The process has recently even entailed interviews in Washington and Brussels (a kind of roadshow to which candidates have had to submit lately) and the close scrutiny of their academic CVs and publications.17 This resulted in a notable instance in 2014 when a qualified candidate who had been accepted by all the membership was then vetoed by the US, leading to the repetition of the selection process. What happened in the failed reappointment of Mr Chang risks undermining the impartiality and independence of the AB, not just threatening the integrity of the AB and the DSS, thereby putting the functioning of the entire WTO trading system at risk.18 Until this turn of events, one could be confident that the independence of the AB would be assured by two factors. First, the collegial attitude of its members makes it impossible to single out an individual member’s position on any specific issue from the outside. Second, the different, even opposing positions of WTO Members on these issues, as on many others, while paralysing even modest reforms, has the advantage of making it unlikely that initiatives to reduce the authority of the AB will succeed. In light of the most recent unfortunate developments of 2016–17 this cannot be taken for granted any more. The increased tendency for AB members to be chosen from trade diplomacy and national administration, at the expense of academics and national judges (usually also endowed with practical international experience as negotiators, arbitrators or administrators) is also worrying. The AB is not a committee of (former) ambassadors nor an updated version of the GATT’s panels. This composition risks diminishing the ability of the AB to reason and decide with full independence, impartiality and objectivity. This is irrespective of the personal integrity of all AB members, who have never been criticised from this point of view.19 An appropriate mix of competences within the AB is key for it to operate at the highest qualitative level, irrespective of the ability of its dedicated legal staff. It is important that the AB be able to issue well-reasoned reports, based on a full knowledge of international law, so as to receive not only the approval of WTO Members, but also praise from the community of academics and other experts in the field.20 As suggested by many commentators, by some WTO Members at the DSB meeting just mentioned, and in the letter quoted above, the most ­reasonable 17 See M Elsig and MA Pollack, ‘Agents, Trustees, and International Courts: The Politics of Judicial Appointment at the World Trade Organization’ (2014) 20 European Journal of International Relations 391. 18 A first effect of this risk of politicisation manifested itself at the very same DSB meeting where none of the names suggested by the Selection Committee to replace Yeujiao Zhang of China enjoyed the consensus of the entire membership, Korea blocking the consensus. See J Bacchus, ‘Might Unmakes Right: The Americal Assault on the Rule of Law in World Trade’ (CIGI Paper No. 173, May 2018) 1–20, available at: www.cigionline.org/publications/might-unmakes-right. 19 On these issues see G Shaffer, M Elsig and S Puig, ‘The Extensive (but Fragile) Authority of the WTO Appellate Body’ (2016) 79 Law and Contemporary Problems 237. 20 See D Unterhalter, ‘The Authority of an Institution: The Appellate Body under Review’ in G Marceau (ed) (above n 10) 466.

98  Giorgio Sacerdoti s­olution to help ensure the impartiality and independence of the AB is that the current system of reappointment be replaced by a single, longer term. It is, however, questionable whether those who are inclined to use the reappointment process to control the AB share this objective. In fact, such a suggestion made by several delegations at a special session of the DSB held on 26 October 2016 was rejected by the US, which reiterated ‘that it opposes the single term because reappointment provides a mechanism for accountability’. Shortly thereafter, following the recommendations of the Selection Committee, the DSB appointed Ms Zhao Hong and Mr Hyun Ching Kim, not unexpectedly nationals of China and Korea respectively, to fill the two vacancies, thus concluding at least for the time being the ‘saga’ of AB members’ (re-)appointment. The attitude of the US took a further negative turn in 2017 with the intentional paralysis of the selection process to fill vacancies in the AB by the US. This unprecedented situation is exclusively due to the US not joining the consensus necessary, in principle, to launch the selection and appointment process because of various grounds of dissatisfaction voiced by the US (but not specified in detail) with the functioning of the AB.21 Until these issues are resolved, as US representatives have repeatedly stated at DSB meetings starting in August 2017, the US will continue to block the process. Notwithstanding the isolation of the US in this attitude and the widespread criticism from other Members to this linking by the US of possible proposals for reforming the DSU with the normal functioning of the DSS, the US has not budged. This has prompted several commentators and the press to speculate that the US – having found a weak point in the rules that is not subject to the reverse consensus principle, which in other respects prevents vetoes as to the functioning of the system – is using it to pursue its real aim of undermining the multilateral trading system by blocking and debilitating its dispute settlement mechanism.22 A desire to go back to the weak, power-based system of the GATT, away from the rule-based structure of the WTO, looms in the background.

21 The US has referred to various reasons, from the alleged judicial activism of the AB in ‘overreaching’, such as by improperly filling gaps in the law and its lack of accountability to the membership, as well as the introduction by the DSS in its decisions of obligations on the US which the US had not agreed to in the Uruguay Round negotiations. This position has apparently not taken into account the fact that in 2017 the US had a series of victories before panels and the AB in high-profile disputes, both as claimant and as respondent, notably against China, India, Mexico and Indonesia. Subsequently, the US has relied principally for its criticism on the fact that the AB has allowed Messrs Ramirez and Van den Bossche to go on serving in divisions whose work had not been concluded when they had finished their mandate (respectively in June and December 2017). This is, however, explicitly provided for in Rule 15 of the Working Procedures for Appellate Review. This practice, which has been resorted to in a number of cases in previous years, has never before raised any criticism from WTO Members. See Minutes of the Meeting of the DSB of 22 November 2017, WT/DSB/M/404, 18. On this issue see also former AB member Jennifer Hillman, ‘Independence at the Top of the Triangle: Best Resolution of the Judicial Trilemma’, (2017) 111 AJIL Unbound, 364–68, available at: www.cambridge.org/core, doi:10.2017/aju.2017.83. 22 At the end of 2017 the AB was operating with four of seven members, due to the nonreplacement of Ricardo Ramirez, Peter Van den Bossche and Hyun Chon Kim. The latter, who had replaced Seung Wha Chang (also of Korea) when the US had blocked his reappointment for a second

The WTO Dispute Settlement System and the Challenges to Multilateralism  99

VII.  The WTO Members at Large Still Maintain Their Trust in the WTO Dispute Settlement System Let us go back to 10 November 2015, when the WTO website featured within its news items the statement of DG Roberto Azevêdo celebrating the WTO DSS having reached the 500 mark. The receipt of the 500th trade dispute for settlement, said DG Azevêdo at the time, ‘shows that the WTO’s dispute settlement system enjoys tremendous confidence among the membership, who value it as fair, effective and efficient mechanism to solve trade problems’. The 500th dispute was submitted by Pakistan filing a request for consultations with South Africa regarding the latter’s provisional anti-dumping duty on cement from Pakistan. The parties involved and the subject matter of the dispute are significant, because they show that developing countries use the system both as complainants and respondents in South-South relations, and that trade remedy measures feature importantly in matters brought to the WTO. The news item included comments and data that can be the starting point of our analysis, taking stock of the achievements of the DSS as an introduction to addressing the current issues in a system that has been, and is, successful in offering an orderly rule-based solution to trade frictions, but that shows signs of stress (in part due to its own success). The success is evidenced by the fact that resort to the DSS has become a normal feature in the operating of the multilateral trading system, displacing resort to unilateral measures. Practice has confirmed what had been set forth in Article 3.10 DSU, namely that ‘requests for conciliation and the use of the dispute settlement procedures should not be intended or considered as contentious acts’. This setting distinguishes the WTO from other international fora, where respondents often raise lack of jurisdiction as a preliminary objection to escape the process. It makes it more business-like, as is the case in the national context. At the time the 500th dispute was notified to the WTO, only 282 of them had been brought to litigation. Resolution through bilateral negotiations, including formal withdrawal of the request, had been notified to the WTO in 110 of the cases, while the parties had not informed the WTO of the status of the other 108 (which must be considered dormant or de facto settled).23

term in 2016, resigned abruptly, effective 31 July 2017, having been appointed foreign trade minister of Korea. Currently the work of the AB has obviously slowed down, but it could cease to be operational altogether before the end of 2019, when only two members would remain in office, should the paralysis go on until then. At the DSB meeting of 27 August 2018, the US has blocked the reappointment of AB member Shree Baboo Chekitan Servansing who finishes his term at the end of September 2018, leaving the AB with just three members (the minimum to form a division under Article 17.1 DSU). 23 This lack of information signals the need to strengthen the obligation of Members to notify the WTO in a timely manner of the status and outcome of all disputes that have been formally filed.

100  Giorgio Sacerdoti A measure of success is also the broad participation of WTO Members in the process. By the end of 2017 more than two-thirds of the Members had participated in dispute settlement proceedings, either as parties (claimants and/or respondents) or as third parties. Looking at the consultation requests, developing and developed countries are equally represented as complainants, while complaints are mostly directed towards developed countries. As can be expected, the largest economies are both the most frequent initiators of cases (with the US leading, followed by the EU, Canada, Brazil, Mexico, India, Japan and Argentina all above the 20 mark) and the most frequent repondents (with the US again leading, followed by the EU, China, India, Argentina). Finally, the compliance rate is said to be about 90 per cent. Countermeasures in the form of withdrawal of benefits, ie imposition of selective additional duties, have been imposed only in a handful of cases, while no Member has ever denied responsibility to comply with an unfavourable final decision. Of course, the number of disputes is not by itself a sign of a healthy system; the ability to process them in a timely manner and according to the rules is.24 Notwithstanding some delays in full compliance, there is no sentiment that WTO Members have become less inclined to respect the rules. However, a certain surge of national anti-dumping (AD) measures, as monitored by the AD Committee, could be a sign of increased pressure on export markets at a time of economic slowdown, to the point of being a sign of resort to unfair c­ ompetition.25 This is possibly a cyclical phenomenon, rather than a structural disregard for the rules. In fact, Article 3.7 of the DSU would discourage Members from bringing disputes which might be resolved amicably without even resorting to the system, stating that ‘[b]efore bringing a case a Member shall exercise its judgment as to whether action under these procedures would be fruitful’ and that ‘[a] solution mutually acceptable to the parties to the dispute and consistent with the covered agreement is clearly to be preferred’. In the same spirit of not considering the starting of a case to be an unfriendly act and at the same time encouraging parties to exercise some self-restraint when considering bringing a case, Article 3.10 states in its final sentence that ‘It is also understood that complaints and counter-complaints in regard to distinct matters should not be linked’. This notwithstanding, on several recent occasions the initiation of a case by a country against another country has been followed immediately by the initiation of a separate case by the respondent in the previous case against the first country (notably between the US and China and between Argentina and

24 According to the AB Annual Report 2014, at 3, ‘In its first 16 years the DSB has handled disputes spanning over USD 1 trillion in trade flows.’ For updated statistics see the AB Annual Report for 2017, WT/AB/28, available at: www.wto.org/english/tratop_e/dispu_e/ab_an_rep_e.htm. 25 This could be the situation in the steel market, where sources indicate overproduction in the face of a decrease in demand (see: www.steelorbis.com/steel-news/latest-news/oecd-steel-committee-callsfor-immediate-action-to-address-excess-capacity-909449.htm).

The WTO Dispute Settlement System and the Challenges to Multilateralism  101 the US and the EU). Although there is no evidence that the second case was a kind of tit-for-tat response to the first one, this belief has been informally expressed as a sign of an abuse or political strategic use of the DSS, contrary to its purpose.

VIII.  The Role of the Implementation Phase The DSS ultimately pursues a practical objective: maintaining the balance of rights and obligations, market access and liberalisation commitments agreed upon by the Members in the various WTO agreements, discouraging breaches and redressing them as promptly as possible. The monitoring role of the DSB on implementation is one of the features that makes the WTO DSS stand out in comparison to other international dispute settlement mechanisms, where implementation is ultimately left to the goodwill of the party concerned, under threat of diplomatic pressure or unilateral countermeasures. Surveillance by the DSB should be made more effective, as advocated by the Canadian Ambassador Jonathan Fried when he was Chairman of the DSB in 2013. It should not be just a formal exercise of registering statements or automatically authorising countermeasures in the form of suspension of concessions when an adjudicative body has confirmed non-compliance. Ways and means should be devised, based on 20 years of experience, to exercise collective pressure on a recalcitrant Member in order to induce and facilitate prompter compliance. One avenue might be to suggest ways to effect implementation, which is currently left completely to the party found in breach. This option is currently in the hands of panels and of the AB under Article 19.1 DSU, but they have generally refrained from using it. The reason is that these suggestions risk not being followed (they are not binding), thus indirectly diminishing the authority of the underlying findings contained in the panel and AB report. A commitment to the DSB by a party obliged to comply might stimulate more active domestic engagement by the competent national authorities to effect timely and complete implementation. The implementation procedure should also be tightened to induce compliance by avoiding the prospective nature of (future) WTO remedies, which already favours non-compliant respondents, rewarding even more dragging of feet by the losing party in implementing adverse decisions. One possible way to reinforce the compliance process might involve rethinking the relationship between the imposition of countermeasures and arbitration ex Article 22.6 DSU when there is a dispute on the proportionality of the level of concessions that the winning party intends to put in place. Currently, the principle stated therein is that ‘[c]oncessions or other obligations shall not be suspended during the course of the arbitration’. As currently framed, this provision favours the party in breach, in that the application of trade sanctions against it is ­postponed.

102  Giorgio Sacerdoti At the same time, it protects that party from being subject to unilaterally determined excessive sanctions by prohibiting their application altogether. A more efficient compliance-inducing mechanism should be devised (eg providing for authorisation to apply trade sanctions at the initiation of the Article 22.6 arbitration, subject to restitution with interest and possibly a penalty for sanctions applied in excess of the determination of the arbitrators).

IX.  Concluding Remarks: How to Preserve the WTO and Its Dispute Settlement System as a ‘Common Global Good’ Some concluding remarks should address how best to preserve the system in face of current challenges. First of all, let us posit that common global goods comprise not only natural assets the preservation of which is in the hands of the whole of humanity (such as the environment). They comprise also man-made institutions to govern intercourse between national societies and jurisdictions, such as trade relations, and to adjudicate disputes.26 The fact that it is basically only the US under the current administration that challenges, though in subtle rather than open and direct ways, the effective functioning of the WTO system – while still making use of it – is not ­reassuring. Economic and political power is still decisive also in trade matters. In today’s multi-polar world, unlike in the past, the US may not be strong enough to decisively influence the world to follow it into new directions – as was the case for the last time with the establishment of the WTO – but it can still effectively block the system. The importance of the US market for the exports of most other countries (also in view of their considerable trade surplus vis-à-vis the US, which annoys the Trump Administration) makes other major trade partners vulnerable to US protectionism and wary of challenging US initiatives. Resort to dispute settlement proceedings on a case-by-case basis is pursued by countries affected, but this cannot lead to tangible results when the issue is systemic. Of course, rules can be changed when they do not serve new, shared objectives or the perceived collective good.27 However, other countries do not share

26 On the issues discussed here see: J Dunoff and MA Pollack, ‘The Judicial Trilemma’ (2017) 111 American Journal of International Law 225, commented by J Hillman (above n 21); C Tietje and A Lang, ‘Community Interests in World Trade Law’ in E Benvenisti and G Nolte (eds), Community Interests Across International Law (OUP, 2018); N Grossmann, HG Cohen, A Follesdal and G Ulfstein (eds), Legitimacy and International Courts (CUP, 2018). 27 See B Hoekman and P Mavroidis, ‘WTO “à la carte” or “menu du jour”? Assessing the Case for More Plurilateral Agreements’ (2015) 26 European Journal of International Law 319; T Bollycky and P Mavroidis, ‘Trade, Social Preferences and Regulatory Cooperation. The New WTO-Think’ (2017) 20 Journal of International Economic Law 1.

The WTO Dispute Settlement System and the Challenges to Multilateralism  103 directions towards which the US would steer trade relations (bilateral deals, power-based agreements at variance with the rules without formal proposals to amend the latter, such as voluntary export restrictions). Especially the EU has until now been adamant that WTO principles must be respected in any negotiation – for instance in respect of the US aluminium and steel safeguards, which the US bases on the security exception of Article XXI GATT so as to shield them from WTO proceedings.28 WTO Members should stay firm not only in protecting their individual trade interests in bilateral negotiations, but also in upholding the rules of the game, starting with the functioning of an efficient AB to ultimately resolve trade disputes based on law and justice.29 This ‘saga’, the outcome of which is still to be seen, shows, however, the weakness of even well-structured international institutions, which are generally considered to be responsive to the interest of their constituency at large, when they are being challenged by powerful Members. Judicial and adjudicatory bodies are especially vulnerable to such challenges. It takes more than collective statements to defend their role.

28 The European Commission has circulated to the EU Member States a proposal ‘on WTO ­modernisation’ on 5 July 2018 (WK 8329/2018 INIT) including proposals on dispute settlement. In an op-ed in the Financial Times of 26 July 2018 ‘The EU will stand up for rules-based trade’ the EU Commissioner Cecilia Malmström has restated the EU commitment to an efficient multilateral trading system. However, overcoming the US-provoked looming paralysis of the AB is mentioned neither there nor in the press release of the Trump–Junker meeting of 24 July 2018. 29 In fact, at the General Council meeting of 8 May 2018, a Communication by 41 WTO Members (both developing and developed) was introduced stating that they ‘consider a well-functioning, rulesbased multilateral trading system embodied in the WTO to be of key importance for our economies as well as for global economic stability, prosperity and development’. The document goes on, stating ‘With respect to the WTO’s dispute settlement mechanism, we emphasize the importance of filling all current and future vacancies on the Appellate Body without delay’, available at: www.wto.org/english/news_e/ news18_e/gc_07may18_e.htm.

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6 The ‘Crown Jewel’ of the WTO Has Been Stolen by US Trade Diplomats – And They Have No Intention of Giving It Back ERNST-ULRICH PETERSMANN

Peter Van den Bossche combined his service as a judge on the Appellate Body (AB) of the World Trade Organization (WTO) with updating his textbook on WTO law and transforming it into the world’s leading treatise on The Law and Policy of the World Trade Organization.1 Yet, in view of his judicial obligations to avoid conflicts of interests and maintain his impartiality vis-à-vis controversial interpretations of WTO law, Peter expressed regret that his textbook had to focus on what he called the ‘black letter law’ of the WTO; he would feel free to comment on controversial, legal policy problems only after the expiry of his judicial duties. This contribution in honour of Peter’s exceptional, academic and professional achievements discusses ‘Member-driven’ WTO practices undermining the WTO legal and dispute settlement system, notably the US blockage of the appointment of AB judges since 2016. In contrast to previous US Presidents, who defined ‘American interests’ in conformity with multilateral agreements that had often been initiated by the US in cooperation with its Western allies, US President Trump’s insistence on ‘­bilateral deals’ and ‘America first’ disrupts legal multilateralism; it also challenges the basic insight of ‘constitutional economics’ underlying the WTO Agreement – ie that economic welfare can be enhanced not only by private contracts in economic markets, but even more so by constitutional contracts in political markets. Can illegal ‘populist protectionism’ by the US administration be limited by WTO law and policies if the Republican majority in the US Congress no longer controls its President, and US trade policy is determined by domestic interest groups without regard to international law?2 1 P Van den Bossche and W Zdouc, The Law and Policy of the World Trade Organization: Text, Cases and Materials (4th edn, CUP, 2017). 2 This disregard (eg for the customary rules of treaty interpretation) was also illustrated by the false US claims in the WTO General Council meeting on 9 May 2018 that ‘the Appellate Body not only has

106  Ernst-Ulrich Petersmann By democratically approving and domestically implementing the WTO Agreement, parliaments gave WTO diplomats the mandate to implement also the WTO dispute settlement system for the benefit of citizens. Yet, the collective failure to maintain an AB ‘composed of seven persons’, and to fill vacancies ‘as they arise’ (Article 17 Dispute Settlement Understanding (DSU)), illustrates that WTO diplomats prefer interpreting the WTO Agreement as a ‘Hobbesian bargain’ for ‘Member-driven governance’ (see Section I below) rather than as a multilevel, legal and ‘dispute settlement system … providing security and predictability to the multilateral trading system’ (Article 3 DSU) protecting rights and judicial remedies also of non-governmental economic actors. Inside democracies, politicians obstructing judicial administration of justice (eg by manipulating election of judges) risk being sent to prison. In the WTO, US trade diplomats use their blockage of appointment of AB judges as an illegal strategy for manipulating the AB and renegotiating their ‘WTO bargain’ (see Section II below). Such power politics raises classical problems of ‘constitutional contract theories’ as discussed in Sections  III–IV below: how can ‘constitutional agreements’ limiting governance powers (eg through compulsory third-party adjudication of WTO disputes) – and ‘justice in social contracts’ for collective protection of public goods (PGs) – be protected against ‘utilitarian bargaining’ among the rulers (following the Hobbesian contract tradition) prioritising ‘tribal political self-interests’ (eg in limiting democratic and judicial accountability and rule of law)? WTO law has been universally recognised as being of existential importance for promoting social welfare (eg as defined in the 2030 ‘Sustainable Development Goals’) through a mutually beneficial, global division of labour among citizens. Can the ‘principles of justice’ underlying WTO law be protected for the benefit of citizens?

I.  ‘Member-Driven Governance’ and its ‘Constitutional Limits’ in the WTO Legal System In the WTO Preamble, all Members commit themselves ‘to preserve the basic principles and to further the objectives underlying this multilateral trading system’. WTO diplomats tend to emphasise that the WTO – like the General Agreement on Tariffs and Trade (GATT) since 1948 – must remain ‘Member-driven’ in the sense of ‘consensus-based, inter-governmental bargaining’, as was practised in: –– the elaboration of the GATT and the WTO agreements; –– the GATT and WTO ‘Rounds’ of multilateral trade negotiations; –– the discussion and adoption of dispute settlement reports in GATT and WTO institutions; rewritten our agreements to impose new substantive rules we Members never negotiated or agreed but has also been ignoring or rewriting the rules governing the dispute settlement system, expanding its own capacity to write and impose new rules’.

The ‘Crown Jewel’ of the WTO Has Been Stolen by US Trade Diplomats  107 –– the agreed composition of WTO dispute settlement panels and the AB; and –– the ongoing negotiations on the review and improvement of the DSU. These traditions of ‘Member-driven’ GATT/WTO governance are related to the GATT/WTO traditions of insisting on: –– ‘reciprocal bargaining’ on ‘trade concessions’ (subject to ‘special and differential treatment’ of less-developed WTO Members); –– protection of ‘agreed balances of concessions’ through ‘violation complaints’ and ‘non-violation complaints’ (eg based on Article XXIII GATT); –– sovereign rights to modify or unilaterally suspend certain concessions subject to rights of adversely affected countries to suspend equivalent concessions (eg based on Articles XIX and XXVIII GATT); and –– sovereign rights to conclude free trade agreements (FTAs) among some GATT/WTO Members (eg pursuant to Article XXIV GATT), for instance as a ‘second-best policy’ if GATT/WTO Rounds on more comprehensive multilateral trade agreements fail to reach consensus. Under GATT, ‘Member-driven governance’ also led to the conclusion of ­thousands of ‘voluntary export restraints’ (VERs, eg on cotton, textiles, steel and automobiles) undermining the GATT prohibitions of discrimination and quantitative restrictions. The WTO prohibition of such power politics through VERs, the transformation of the fragmented GATT legal system into an integrated WTO law based on a ‘single undertaking’, the compulsory WTO dispute settlement jurisdiction, the WTO limitation of consensus practices, and the parliamentary approval and implementation of WTO law were widely celebrated as ‘constitutional reforms’, with the AB jurisprudence as the ‘crown jewel’ of the WTO system. Yet, as illustrated by the US blockage of the appointment of AB judges since 2016, the introduction of illegal US import tariffs on steel and aluminium in March 2018, and subsequent US negotiation of ‘bilateral deals’ prioritising ‘America first’ (eg the VER imposed by the US on steel exports from Korea to the US), ‘Member-driven governance’ is, once again, undermining the multilateral trading system.

II.  Democratic and Republican Failures to Protect the WTO Dispute Settlement System Inside constitutional democracies, the republican duties to maintain ‘just institutions’ are protected by constitutional rights of citizens and other ‘checks and balances’ limiting abuses of powers. Hence, it tends to be only in dictatorships that national Presidents dare to disempower supreme courts by preventing the appointment of judges. Why have the legal and judicial remedies in the WTO legal system not been used so far to resist the illegal disempowerment of the AB?

108  Ernst-Ulrich Petersmann At the end of 2017, three of the seven positions of AB judges had become vacant due to US blockage of the procedures for meeting the legal obligations under Article 17 DSU, according to which the AB ‘shall be composed of seven persons’ (para 1) and the Dispute Settlement Body (DSB) shall fill vacancies ‘as they arise’ (para 2). As a consequence, the AB membership was no longer ‘broadly representative of membership in the WTO’ in violation of Article 17.3 DSU. Also, the ‘prompt settlement’ of disputes ‘essential to the effective functioning of the WTO’ (Article 3.3 DSU) in compliance with the time periods prescribed in Article 17.5 DSU for completing AB procedures became impossible, inter alia, due to the workload and potential conflicts of interests of the remaining AB members from China, India, the US and Mauritius and their complaints that the AB was not ‘provided with appropriate administrative and legal support as it requires’ (Article 17.7 DSU). The US blockage of AB appointments risks undermining also dispute resolution by WTO panels, for instance because panel reports ‘shall not be considered for adoption by the DSB until after completion of the appeal’ (Article 16.4 DSU). When the US vetoed the reappointment of the Korean AB member Seung Wha Chang in 2016 on the grounds that his alleged obiter dicta in AB proceedings revealed ‘judicial activism’ beyond what was necessary for deciding the WTO dispute concerned, the US objections were not supported by other Members in the DSB; they were criticised also in a letter published by former AB members referring, inter alia, to the absence in WTO law of a prohibition of obiter dicta, and to the legal duties and discretion of WTO AB members to justify their legal reasoning.3 In 2017, the US justified its blockage of the appointment of WTO AB members, inter alia, on the grounds that application of Rule 15 of the AB Working ­Procedures4 – notwithstanding its elaboration by the AB pursuant to Article 17.9 DSU ‘in consultation with the Chairman of the DSB and the Director-General’ and its application by the AB without any complaints by WTO Members for 20 years – should be limited by political DSB decisions authorising an AB member to continue serving on an appeal after the expiry of his or her term. Other WTO Members took the view that – even if this working procedure, which had been lawfully adopted and practised similarly to the practices in many other international courts, could be improved – unilateral US obstruction of due process of law violated Articles 3, 17 and 23.1 DSU (eg to comply with the DSU procedures). As the US did not submit a proposal for amending ‘Rule 15’, many WTO Members

3 For a legal analysis see H Gao, ‘Dictum on Dicta: Obiter Dicta in WTO Disputes’ (2018) 17 World Trade Review 509, available at: https://doi.org/10.1017/S1474745618000162. 4 Rule 15 on ‘Transition’ provides: ‘A person who ceases to be a Member of the Appellate Body may, with the authorization of the Appellate Body and upon notification to the DSB, complete the disposition of any appeal to which that person was assigned while a Member, and that person shall, for that purpose only, be deemed to be a Member of the Appellate Body’. This rule authorises the AB – not the DSB (whose decision-making by consensus could be abused for blocking and politicising a pending AB proceeding) – to permit ‘completing a pending AB proceeding’.

The ‘Crown Jewel’ of the WTO Has Been Stolen by US Trade Diplomats  109 suspected that the true US motive for undermining the WTO AB was the lobbying of US interest groups for changing the AB jurisprudence limiting protectionist abuses of the WTO Anti-Dumping Agreement. The WTO General Council could have protected the proper functioning of the AB system, for instance by using its powers under Article IX:2 of the WTO Agreement to adopt – by majority – authoritative interpretations clarifying that (1) Rule 15 of the AB Working Procedures and (2) the consistent AB jurisprudence as approved by the DSB are integral parts of WTO law that cannot justify US blockage of AB nominations; and (3) the General Council has the majoritarian power (eg under Articles IV:3, IX:1 and XVI:3 WTO Agreement) to circumvent illegal blockage of WTO AB nominations in the DSB by filling AB vacancies so as to meet the collective WTO obligation under Article 17 DSU to maintain a representative AB ‘composed of seven persons’.5 As the WTO dispute settlement system applies also to procedural violations of the DSU (see Article 1.1 DSU), WTO Members – rather than using such majority interpretations for filling the vacant AB member positions – could also have challenged the illegal US blockage through individual or collective invocations of the WTO dispute settlement procedures in order to protect compliance with the DSU obligations by the US. Why did WTO institutions and domestic parliaments ignore their republican and democratic duties to protect the WTO legal and dispute settlement system for the benefit of citizens as ‘democratic principals’ conferring only limited powers on WTO diplomats? Also, the WTO Secretariat did not dare to take public initiatives to defend the rule of law, perhaps influenced by the fact that the legal mandate of the WTO Director-General remains inadequately defined.

III.  ‘Constitutional Justice’ as Limitation of Intergovernmental Power Politics in the WTO? As the most frequent user of the WTO dispute settlement system, the US has initiated and ‘won’ more WTO dispute settlement proceedings than any other WTO Member. Many of the successful US complaints (eg in Mexico-Telecoms 2004) and US legal defences (eg in US-Shrimp 1998) were based on US proposals for ‘evolutionary interpretations’ of WTO rules (eg of a GATS prohibition of ‘anti-competitive practices’ and of the term ‘exhaustible natural resources’ in Article XX(g) GATT), which – even though they seemed to increase or diminish other WTO obligations (eg of examining the disputed US measure pursuant to the stricter ‘necessity’ requirement in Article XX(b) GATT) – were accepted by the

5 See EU Petersmann, ‘Between “Member-Driven” WTO Governance and “Constitutional Justice”: Judicial Dilemmas in GATT/WTO Dispute Settlement’ (2018) 21 Journal of International Economic Law 103.

110  Ernst-Ulrich Petersmann WTO dispute settlement bodies in accordance with the WTO jurisprudence that correct interpretations, justified by the customary rules of treaty interpretation, cannot infringe the WTO prohibition of ‘add(ing) to the rights and obligations of a Member of the WTO’.6 The complaint by United States Trade Representative (USTR) Lighthizer at the WTO Ministerial Conference in December 2017 – that ‘[t]oo often members seem to believe they can gain concessions through lawsuits that they could never get at the negotiating table’7 – ignores this successful US dispute settlement practice; it reflects the belief of US President Trump that the US should use its political and economic power for negotiating ‘bilateral deals’ prioritising ‘America first’ rather than respect multilateral treaty disciplines and third-party adjudication limiting such deals. Yet, the legitimacy of thirdparty adjudication – also in the WTO – derives more from ‘constitutional justice’ (eg as defined by constitutional law, human rights and courts of justice) than only from consent by governments and their ‘Member-driven governance’, just as ‘inalienable human rights’ and democratic legitimacy of law derive from consent by citizens rather than by rulers.

A.  WTO Law Requires Adjudication ‘In Conformity With Principles of Justice’ The customary rules of treaty interpretation, as codified in the Vienna Convention on the Law of Treaties (VCLT) (eg Article 31), require treaties to be interpreted ‘in conformity with the principles of justice and international law’, including universally recognised state-, people- and person-centred principles as listed in the Preamble of the VCLT (eg ‘human rights and fundamental freedoms for all’). ‘Principles of justice’ refer to different ‘contexts of justice’8 requiring diverse legal justifications.9 The DSU clarifies, albeit in incomplete ways, basic principles of procedural justice (like due process of law and the application of the customary rules of treaty interpretation), constitutional and distributive justice (eg compulsory jurisdiction of WTO panels and the AB, equal rights of complainants and defendants and special procedures for less-developed WTO Members), corrective justice (eg regarding ‘violation complaints’), commutative justice (eg regarding ‘non-violation complaints’) and equity (eg regarding ‘situation complaints’ pursuant to Article XXIII:1 GATT). Due to the universal recognition of human rights, including ‘access to justice’,10 consent by governments has become an

6 See Van den Bossche and Zdouc (above n 1) 192. 7 Quoted from the statement by USTR Lighthizer available on the USTR and WTO websites. 8 See R Forst, Contexts of Justice: Political Philosophy beyond Liberalism and Communitarianism (University of California Press, 2002). 9 See R Forst, The Right to Justification. Elements of a Constructivist Theory of Justice (Columbia University Press, 2012). 10 See F Francioni (ed), Access to Justice as a Human Right (OUP, 2007).

The ‘Crown Jewel’ of the WTO Has Been Stolen by US Trade Diplomats  111 i­nsufficient justification for international adjudication affecting producers, investors, workers, traders, consumers, taxpayers and other citizens all over the world. Institutional, legal, personal and ‘sociological legitimacy’ (eg in the sense of voluntary rule compliance by citizens) of courts of justice require additional source-, process- and result-oriented justifications like democratic consent, inclusive participation, due process of law, protection of human rights and other ‘principles of justice’ and PGs.11 As required by constitutional and human rights guarantees of ‘access to justice’, international commercial, trade, investment, and other agreements (eg on international criminal and human rights law) increasingly protect judicial remedies of adversely affected individuals and non-governmental actors in national and international jurisdictions. Yet, in spite of the recognition of individual judicial remedies in WTO law, trade diplomats use their ‘Member-driven governance’ to exclude citizens and non-governmental economic actors from WTO law and from effective judicial remedies.12 The mutually beneficial, global division of labour among citizens is thereby subjected to intergovernmental power politics prioritising the self-interest of politicians (eg to use trade policy for taxing and redistributing domestic income without effective remedies for citizens). The republican and democratic requirements that citizens, as ‘constituent powers’ and ‘democratic principals’, must remain legal subjects of democratic self-legislation and of republican protection of PGs, remain insufficiently protected in international economic law (IEL). Human rights are not mentioned in WTO law and, usually, also not in the deliberations of WTO institutions. As ‘states’ continue to be defined in UN/WTO practices by power-orientated criteria (eg effective control of a government over the population in a limited territory), UN/WTO membership is granted regard­less of the constitutional and democratic legitimacy of the governments concerned, for instance if corrupt rulers exploit their citizens by abusing the ‘resource privilege’, ‘borrowing privilege’ and ‘immunity privilege’ of governments and appropriate large sums of money for the private benefit of rulers (eg through selling natural resources, borrowing money in the name of the state and avoiding accountability due to legal and diplomatic immunities). Most WTO Member governments do not effectively implement the WTO legal guarantees of individual access to domestic judicial remedies; they prevent citizens from invoking and enforcing WTO rules so as to hold governments legally and democratically accountable in domestic jurisdictions, and from requesting damages for injury caused by violations of WTO rules.13 As democratic parliaments approved the WTO Agreement 11 See A von Bogdandy and I Venzke, In Whose Name? A Public Law Theory of International Adjudication (OUP, 2014). 12 On the recognition of individual judicial remedies in GATT/WTO law and, at the request of trade diplomats, the prevention of individuals to invoke WTO rules in domestic courts, see EU Petersmann, The GATT/WTO Dispute Settlement System (Kluwer, 1997) 20ff, 194ff, 233ff. 13 On the neglect of GATT/WTO law and adjudication in trade disputes in European courts, and the denial of ‘annulment actions’ and ‘actions for damages’ based on EU law even if EU institutions violate

112  Ernst-Ulrich Petersmann and its judicial mandates for the benefit of citizens, judicial protection of ‘­security and predictability to the multilateral trading system’ (Article 3 DSU) – and ­judicial rule clarification as required by WTO law – serve also democratic functions. From such citizen perspectives, intergovernmental violations of WTO rules without a democratic mandate and without legal and judicial remedies for citizens – including the illegal disempowerment of the AB  – lack democratic legitimacy. Human rights, rule of law and democratic governance have become universally recognised ‘principles’ of UN law that are not grounded in state consent. Hence, there are increasing calls for ‘constitutionalising’ and ‘civilising’ IEL and multilevel governance of PGs.14 For instance, human rights and the customary rules of treaty interpretation require not only integrating the five competing conceptions of IEL as (1) international private and commercial law; (2) public international law among states; and (3) multilevel economic, (4)  constitutional and (5) ‘global administrative law’ regulating PGs.15 The universal recognition of human rights also requires ‘socialising’ and embedding ‘the international community of States’ (Article 53 VCLT) into person-centred conceptions of a global community of peoples, citizens and human beings endowed with human rights and entitled to protection of their individual and democratic rights in the global division of labour.

B.  ‘Constitutional Justice’ as the Foundation of Multilevel Trade Adjudication Impartial third-party adjudication based on ‘social contracts’ and ‘compromissory clauses’ in treaties is a much older paradigm of ‘constitutional justice’ than democratic conventions elaborating ‘constitutional contracts’ granting limited mandates to governments to protect PGs for the benefit of citizens, including through adjudication and international treaties subject to approval by democratic institutions. Comparative studies reveal how the design, authority, case load, autonomy, decision-making, constituencies and performance of UN courts and other international trade law, criminal law, administrative law, human rights courts and dispute settlement bodies (like WTO panels, investment arbitration) often differ, for instance due to diverse normative goals, jurisdictions, treaty regimes, audiences, institutional competition, cooperation with other courts, diverse procedures and legal remedies (eg prospective declaratory WTO remedies and retrospective

WTO rules and dispute settlement rulings persistently for many years, see A Steinbach, EU Liability and International Economic Law (Hart, 2017) 62ff. 14 See A Bianchi, International Law Theories. An Inquiry into the Different Ways of Thinking (OUP, 2016) 44ff; EU Petersmann, Multilevel Constitutionalism for Multilevel Governance of Public Goods – Methodology Problems in International Law (Hart, 2017). 15 See Petersmann (above n 14) ch 1.

The ‘Crown Jewel’ of the WTO Has Been Stolen by US Trade Diplomats  113 reparation of injury by the International Court of Justice, investment courts and regional economic courts).16 As rulers often resist multilevel adjudication, the design of multilevel judicial governance and the relationships between legislative, executive and judicial powers remain contested. Yet, there is a core of ‘constitutional justice principles’ (like independence and impartiality of judges, due process of law and respect for human rights) defining the ‘minimum standards’ for courts of justice and for the recognition of their judgments, as emphasised in human rights guarantees of ‘access to justice’ and in the recognition of rights-based judicial review as an essential feature of democratic constitutionalism. The WTO guarantees of international and domestic judicial remedies were designed to limit power politics by rule of law (eg defined as all public legal power being subject to the law as interpreted and enforced by international and domestic courts). The DSU protects rights to compulsory adjudication also in the event of violations of procedural obligations to have recourse to, and abide by the DSU before making unilateral determinations of alleged WTO violations. Yet, even though US blockage of reappointment of AB members undermines the whole WTO dispute settlement system, WTO Members have not prevented the US violations of DSU procedures by using the legal and judicial remedies offered by WTO law;17 nor have they challenged unfounded US claims that the AB jurisprudence has exceeded the customary rules of treaty interpretation and created ‘new obligations’ that were not consented to by WTO Members (eg in the DSB). WTO jurisprudence has clarified many indeterminate WTO rules with due regard to general principles of law and to public interests affected by the dispute concerned.18 Even if WTO panel and AB reports become legally binding upon adoption by WTO Members in the DSB, their legal legitimacy vis-à-vis affected citizens derives more from compliance with ‘constitutional justice principles’ than only from diplomatic consent. Member-driven WTO governance suspending the proper functioning of the AB without parliamentary and democratic approval disregards the democratic mandates of WTO diplomats. Similarly, treating citizens as mere legal objects of multilevel trade governance – rather than as ‘democratic principals’ and main economic agents – undermines the democratic legitimacy of WTO law. As law exists only in the minds and practices of legal actors, can

16 See J Jemielniak, L Nielsen and H Olsen (eds), Establishing Judicial Authority in International Economic Law (CUP, 2016); T Squatrito, O Young, A Follesdal and G Ulfstein (eds), The Performance of International Courts and Tribunals (CUP, 2018). 17 For detailed analyses see Petersmann (above n 5); PJ Kuiper, ‘From the Board: The US Attack on the WTO Appellate Body’ (2018) 45 Legal Issues of Economic Integration 1. 18 See Van den Bossche and Zdouc (above n 1) 248ff (illustrating this judicial clarification, inter alia, by the WTO jurisprudence on ‘reasonable’ time frames for implementing dispute settlement rulings, confidentiality and transparency of dispute settlement procedures, burden of proof, participation of private legal counsel, amicus curiae briefs, good faith, due process of law, and ‘balancing’ of economic and non-economic interests). All these judicial clarifications were also approved by the US in WTO institutions.

114  Ernst-Ulrich Petersmann the ‘exclusive diplomatic WTO governance’ be transformed into democratically legitimate, ‘inclusive governance’ respecting the trading rights, property rights and judicial remedies of citizens protected in WTO law? The history of republican and democratic constitutionalism suggests that citizens can limit utilitarian power politics most effectively by invoking their constitutional rights and holding rulers accountable through democratic and judicial institutions protecting ‘democratic public reason’ and the agreed ‘principles of justice’.19

IV.  The Need to Strengthen Democratic and Judicial Accountability of WTO Governance Since the ancient jus gentium in Roman law and the medieval system of lex mercatoria, IEL was perceived as part of domestic legal systems during most periods of legal history. Sections II and III explained why the globalisation of the division of labour and of human rights renders ‘Westphalian conceptions’ of IEL as a legal system of states – rather than also of peoples, citizens and humanity – economically, politically and legally outdated. Section III illustrated how – similar to ‘constitutional checks and balances’ inside constitutional democracies – also WTO law protects the ‘dispute settlement system of the WTO’ against intergovernmental power politics, for instance by committing WTO legal interpretations and WTO adjudication to ‘constitutional justice principles’ in multilevel governance of transnational PGs. Most democratic parliaments approving multilateral ‘PGs treaties’ and implementing them in domestic legal systems did not grant discretionary foreign policy powers to arbitrarily violate such treaties (like the WTO Agreement) to the detriment of domestic citizens. Yet, both WTO diplomats and parliaments have failed to protect the WTO dispute settlement system against illegal power politics. The more globalisation transforms national into transnational ‘aggregate PGs’ (like the global monetary, trading, environmental, communications and legal systems) that neither states nor private actors can provide and protect without international law and multilevel governance institutions, the stronger becomes the need for inclusive, multilevel governance of PGs protecting rights of citizens as ‘constituent powers’ and ‘democratic principals’ of all governance agents. The adoption of national Constitutions (written or unwritten) and the universal recognition of human rights by UN member states promote ‘internationalisation’ of ‘constitutional’ and ‘global administrative law’ principles and their incorporation into multilevel governance (eg of the WTO dispute settlement system). Yet, most UN/WTO diplomats continue to perceive UN/WTO g­overnance



19 See

Petersmann (above n 14) and S Freeman, Justice and the Social Contract (OUP, 2007).

The ‘Crown Jewel’ of the WTO Has Been Stolen by US Trade Diplomats  115 as intergovernmental bargaining rather than as democratic ‘principal–agent relationships’ committed to protecting also rights of citizens in multilevel governance of PGs. Likewise, most WTO lawyers focus on serving the legal, political and economic self-interests of governments and economic interest groups without regard to human rights and general consumer welfare, which are nowhere mentioned in WTO law.

A.  The Need to Strengthen Judicial Accountability of Governments for Violations of ‘Public Goods Treaties’ Adversely Affecting Citizens ‘No taxation without representation’ was invoked by citizens in the eighteenth century to justify democratic revolutions. Inside federal democracies and in the common market law of the European Union (EU) and European Economic Area (EEA), illegal trade restrictions by local or state governments taxing domestic consumers and redistributing domestic income (eg through ‘protection rents’ to import-competing producers) can be challenged by citizens in domestic jurisdictions. Also in external trade relations, democratic institutions and the EU conclude IEL agreements so as to protect citizens and non-governmental actors in their transnational economic cooperation, for instance by providing ‘security and predictability to the multilateral trading system’ (Article 3 DSU), reducing private transaction costs, and protecting ‘global supply chains’ and market access through rule of law. The dispute settlement system of the WTO prescribes and protects judicial remedies also for individuals and non-governmental actors in domestic legal systems, for instance in the field of GATT (Article X), the WTO Anti-Dumping Agreement (Article 13), Agreement on Customs Valuation (­Article  11), Agreement on Pre-shipment Inspection (Article 4), Agreement on Subsidies and Countervailing Measures (Article 23), Agreement on Trade Facilitation (­Article 4), General Agreement on Trade in Services (Article VI), Agreement on Trade-Related Intellectual Property Rights (Articles 41–50 and 59) and Agreement on Government Procurement (Article XVIII). A large proportion of the more than 700 GATT/WTO complaints submitted since 1948 continue to be triggered by requests from private industries, as reflected in the unofficial names of many GATT/WTO disputes (like ‘Kodak/Fuji’, ‘Havana Club’, ‘EU bananas’, ‘Boeing/Airbus aircraft’ and ‘GMO’ disputes). Inside federal states, the EU, the EEA and other FTAs, the decentralised enforcement of free trade rules in domestic courts has prevented and de-politicised international trade disputes among states. Judicial enforcement of WTO rules in domestic legal systems (eg as required by Article XVIII:1(a) of the WTO Agreement on Government Procurement) and ‘consistent interpretation’ of multilevel trade regulations – as, arguably, required by the WTO guarantees of judicial remedies and by Article XIV:4 of the WTO Agreement on good-faith implementation of WTO obligations – could, likewise,

116  Ernst-Ulrich Petersmann promote decentralised implementation of WTO rules by self-interested economic actors and domestic institutions. As in many other fields of international law (like commercial, investment, criminal and human rights law), cooperation between national and international courts can contribute to preventing and de-politicising power-oriented dispute settlements, promote ‘public reason’ supporting ‘PGs treaties’20 and limit trade politicians prioritising their self-interests in avoiding judicial and democratic accountability (eg by requesting ‘freedom of manoeuvre’21 to violate GATT/WTO obligations and related dispute settlement rulings during the 20 years of the EU’s ‘banana disputes’). Domestic parliaments and ordinary citizens have few incentives to challenge illegal power politics in worldwide institutions like the WTO. Empowering producers, investors, traders and consumers offers the most democratic method of decentralised enforcement of ‘PGs treaties’ by self-interested, private actors. The more UN law and multilevel IEL recognise human, constitutional, administrative and increasingly also international rights of citizens to judicial remedies, the more multilevel cooperation among domestic and international courts of justice can contribute to transnational rule of law for the benefit of citizens. Multilevel governance of transnational PGs cannot remain effective and legitimate if intergovernmental power politics is not more effectively restrained by multilevel judicial protection of ‘consistent interpretations’ of multilevel regulations, as required by the customary methods of treaty interpretation and the limited, democratic mandates of government executives.

B.  The EU’s ‘Cosmopolitan Foreign Policy Constitution’ Requires Protection of EU Citizens Against Illegal Trade Protectionism The more globalisation transforms national into transnational PGs, the more democratic and republican constitutionalism requires PGs treaties to be designed and implemented as ‘democratic law’ empowering citizens to invoke and enforce precise and unconditional, multilevel market regulations and protection of PGs

20 See EU Petersmann, ‘International Dispute Settlement and the Position of Individuals under EU and International Law’ in M Cremona, A Thies and R Wessels (eds), The European Union and International Dispute Settlement (Hart, 2017) 213. 21 The term ‘freedom of manoeuvre’ continues to be used by both the political EU institutions and the CJEU (eg in Joined Cases C-120 and C-121/06 P, FIAMM, ECR 2008 I-6513, para 119) as the main justification for their disregard of legally binding UN conventions, WTO rules and WTO dispute settlement rulings. The CJEU (eg in Case C-21/14 P Rusal, judgment of 16 July 2015) justifies ‘the settled case-law of the Court that, given their nature and purpose, those [WTO] agreements are not in principle among the rules in the light of which the Court is to review the legality of measures adopted by the EU institutions’, also by the ‘lack of reciprocity’ by the EU’s most important trading partners (paras 38–39).

The ‘Crown Jewel’ of the WTO Has Been Stolen by US Trade Diplomats  117 vis-à-vis multilevel governance institutions. EU law (eg Articles 2, 9–12 Treaty on European Union (TEU)) requires EU institutions and member states to protect constitutional, representative, participatory and deliberative democracy; it limits also external EU powers by fundamental rights and protection of PGs.22 EU citizens rightly challenge EU trade, investment and other treaties that privilege interest groups and undermine the ‘constitutional contract’ of citizens as codified in the EU Charter of Fundamental Rights. Common market and competition law inside the EU protects citizen-driven ‘network governance’ and rights-based ‘vigilance’ of EU citizens embedded into comprehensive protection of fundamental rights and a ‘social market economy’ (Article 3 TEU). Also, in external trade relations, EU institutions should respond to the legitimacy and rule-of-law crises by ‘reconnecting’ EU law with EU citizens as ‘democratic principals’ of multilevel governance agents. EU FTA provisions (like Article 30.6 of the EU–Canada Comprehensive Economic and Trade Agreement (CETA)) preventing EU citizens from invoking FTA rules and offering discriminatory ‘arbitration privileges’ to foreign investors illustrate the ‘authoritarian disconnect’ of EU bureaucrats from EU citizens; they risk undermining rule of law, constitutional democracy, and the ‘social market economy’ inside the EU.23 National legal Constitutions regulate PGs in incomplete ways; they mandate legislation, administration and adjudication to progressively transform the real Constitution into a more ideal Constitution. Similarly, international treaties regulate specific PGs (like WTO law) with due respect for the need to ‘complete’ incomplete PGs treaties by additional, multilevel regulations and judicial clarifications. Most WTO rules are more precise and unconditional than the often vague EU Treaty rules on the commercial policy powers of the EU. As international treaties concluded by the EU become an integral part of the ‘monist’ EU legal system, it is regrettable that the Court of Justice of the European Union (CJEU) denies the rights and judicial remedies of EU citizens and of EU Member States to invoke UN and WTO treaty obligations of the EU in domestic courts in order to hold the EU legally accountable for harmful treaty violations. EU lawyers increasingly criticise this ‘judicial self-restraint’ by the CJEU vis-à-vis PGs treaties concluded by the EU. For instance, Steinbach convincingly explained that – even if the EU institutions prevent citizens from invoking PGs treaties in domestic jurisdictions – the case law of the CJEU on the non-contractual liability of the EU under ­Article 340 TFEU justifies adequate compensation of EU citizens adversely affected by non-compliance of EU institutions with their EU legal obligations to comply with international treaty obligations, including WTO dispute settlement rulings

22 See EU Petersmann, ‘The EU’s Cosmopolitan Foreign Policy Constitution and its Disregard in Transatlantic Free Trade Agreements’ (2016) 21 European Foreign Affairs Review 449. 23 See EU Petersmann, ‘EU Citizenship as a Constitutional Restraint on the EU’s Multilevel Governance of Public Goods’ (2018) 43 European Law Review 89.

118  Ernst-Ulrich Petersmann after the expiry of their ‘reasonable implementation periods’.24 Hence, claims for damages by individuals against the EU for violations of WTO law may be justifiable on the basis of EU law (Article 340 TFEU) as interpreted by the CJEU ruling in the case of Francovich even if the CJEU maintains its jurisprudence on the lack of ‘direct effect’ of WTO legal obligations and of WTO dispute settlement rulings inside the EU. As Peter Van den Bossche worked as a référendaire at the CJEU before joining the WTO, his retirement from the AB offers him an opportunity to join those EU lawyers advocating multilevel cooperation among WTO, EU and national judges in protecting transnational rule of law in international trade for the benefit of citizens. Judicial independence, impartiality and ‘principled reasoning’ tend to protect more inclusive decision-making than ‘Member-driven WTO governance’ and ‘populist interest group politics’, for instance by the Trump Administration, intent on limiting its judicial accountability in the AB for illegal US trade restrictions. From the perspective of democratic institutions approving the WTO Agreement, WTO dispute settlement bodies have a rules-based, ‘democratic mandate’ to protect the rule of law – even if some WTO Members lack democratic institutions approving and implementing WTO agreements, or if democratic institutions in some WTO Members (eg due to ‘republican tribal politics’ in the current US Congress) do not effectively control opportunist WTO violations by their own government.

24 See Steinbach (above n 13). Art 22 DSU provides only for some flexibility as to ‘when’ and ‘how’ to comply – but not as to ‘whether to comply’ – with WTO dispute settlement rulings as unconditionally prescribed by Art 3.5 DSU. Even if the WTO decision lacks ‘direct effect’ and does not enable ‘actions for annulment’ of illegal EU restrictions, its unconditionality regarding the EU’s legal obligation to comply can serve as the legal basis for justifying an action for damages without interfering with the EU’s freedom to decide on ‘how and when’ to comply with DSB rulings. In ‘actions for damages’ based on Art 340 TFEU, an EU liability for WTO violations can be justified without requiring ‘direct effect’ of WTO legal obligations on the basis of the three judicial justifications in the Francovich judgment: (1) the principle of effet utile justifies increasing the effectiveness of EU law (eg Art 216.2 TFEU on the legal duties of EU institutions and EU Member States to implement agreements concluded by the EU and avoid breaching treaty obligations) through private actions for damages; (2) the welfare-enhancing effects of EU compliance with treaty obligations; and (3) the fundamental right to effective judicial remedies, and the EU duty of loyal cooperation (Art 4.3 TEU) are likewise promoted by admitting private actions for EU liability for damages caused by WTO infringements.

7 The Prospects of Equity in International Economic Law THOMAS COTTIER The way is equity, the end is justice. Aroa Mines Case, Frank Plumley, Umpire, Venezuelan Arbitration of 1903, Ralston’s Report, 385–87.

Hardly could a more suitable aphorism be found in honour of Peter Van den ­Bossche to whom this brief chapter is dedicated. An ardent defender and proponent of the rule of law, in all walks of his professional life, he has strived for betterment and justice as a professor of European and international economic law and as a member of the Appellate Body of the World Trade Organization (WTO). We share a long friendship with our mentor, the late Professor John H Jackson. He taught us trade regulation at the University of Michigan, United States, long before it became a core subject of international law, anchoring the rules-based system in capitals and universities around the world. Today, we share work at the World Trade Institute at the University of Berne, defending the merits of a rules-based system and seeking to adjust it in response to old and new challenges in a period of growing populism in aging, industrialised countries. Again, grand questions of equity, fairness and distributive justice arise. Ever since I dealt as a young lawyer with the secession of the Canton Jura and the division of the Canton of Berne in Switzerland, applying in analogy international law of state succession, equity has been a constant companion of my professional life and research. It is a pleasure to share some thoughts with Peter and to explore to what extent equity as a principle and legal methodology does and could play a role in the quest for justice in contemporary and future international economic law.

I. Introduction Article 28 of the 1948 Universal Declaration of Human Rights proclaims that ‘Everyone is entitled to a social and international order in which the rights and

120  Thomas Cottier freedoms set forth in this Declaration can be fully realized’.1 Social and economic rights in the Declaration provide a normative foundation based upon which the international economic order should be shaped. It reflects very high standards of international justice and an ambitious programme, to which the international legal order and thus international economic law broadly defined is bound to aspire. The institutions of Bretton Woods, the WTO, regional institutions, bilateral agreements, national Constitutions and economic policies and law are subject to this ideal and to be measured by this benchmark and elusive yardstick of international justice. Needless to say, reality is far from achieving the aspirations of Article 28 of the Universal Declaration of Human Rights. Many benefitted enormously from an open trading and economic system. Many still have been left behind. While levels of poverty and degradation have been successfully reduced by means of an open international trading system, ever-growing trade flows, education and efforts at development, inequality of opportunities remains paramount among nations and within nations. The distribution of wealth and income remains highly uneven, both domestically and internationally. It calls for reflection.2 Today, the debate on distributive justice between Organisation for Economic Co-operation and Development (OECD) countries and the developing world is further complicated by issues of income inequality within countries, challenging the existing system. The quest for justice and global equity has been a constant theme and companion of the debate long before Article 28 of the Universal Declaration was proclaimed. It builds upon the traditional function of equity to allow the law to respond to the particular circumstances in Aristotelean ethics. Summa jus summa injuria – hard law makes bad law and calls for institutions that allow deviation from strict and pre-existing rules.3 Roman and civil law developed the doctrines of equity infra, praetor and contra legem. Judges should apply equity in interpreting the law, in completing the law and if need be act against the law in the pursuit of justice.4 English law developed new institutions based upon equity, such as the legal institution of trusts, in responding to new societal needs.5 Procedural principles emerged in equity, and the maxims of equity equally apply in international law.6 General principles of law related to human psychology and 1 Available at: www.un.org/en/universal-declaration-human-rights/. 2 See O Suttle, Distributive Justice and World Trade Law: A Political Theory of International Trade Regulation (CUP, 2018). 3 The following is based upon T Cottier, ‘Equity Revisited: An Introduction’ in Equitable Principles of Maritime Boundary Delimitation: The Quest for Distributive Justice in International Law (CUP, 2015) 1–41. See also F Francioni, ‘Equity in International Law’ (2012) III Max Planck Encyclopedia of Public International Law 632; CR Rossi, Equity and International Law: A Legal Realist Approach to International Decisionmaking (Transnational Publishers, 1993). 4 See RA Newman (ed), Equity in the World’s Legal Systems: A Comparative Study (Brylant, 1972). 5 See JE Martin (ed), Hanbury & Martin: Modern Equity (15th edn, Sweet and Maxwell, 1997). 6 See the seminal work of CW Jenks, The Prospects of International Adjudication (Stevens & Son and Dobbs Ferry Oceana Publications, 1964) ch 7, entitled ‘Equity in International Adjudication’, 316.

The Prospects of Equity in International Economic Law  121 conduct, in particular good faith, the protection of legitimate expectations, estoppel and acquiescence, and due process of law are rooted in equity but developed a life of their own and equally apply to the realm of international economic law. With the renaissance of human rights after World War II, the need to rely upon classical functions of equity for the purpose of corrective justice declined and was largely forgotten in domestic law. Instead, attention mainly turned to issues of distributive justice in international law and relations. Recourse to equity can be found in post-World War II developments in the law of the sea and the aborted Havana Charter, which triggered only limited recourse to equity in the General Agreement on Tariffs and Trade (GATT). However, it provided the foundation for the practically important requirement of fair and equitable treatment (FET) in investment law, subsequently adopted in Navigation and Friendship Agreements and a multitude of bilateral investment treaties (BITs).7 In the wake of decolonisation, and having in mind Article 28 of the Universal Declaration of Human Rights, efforts for a New International Economic Order (NIEO) and the Charter of Economic Rights and Duties of States, in the 1970s, were informed by the idea and ideals of equity.8 The project did not materialise. Equity did not play an important role in shaping the multilateral trading system in subsequent trade rounds and other components of the international economic order. The explicit role of equity has remained unimportant and is hardly referred to in the process of making and interpreting international economic law so far. Ideas of redistribution did not succeed. Rather, the emphasis was placed upon principles of non-discrimination and transparency as prime principles of justice and a detailed set of rules seeking to guarantee equal opportunities for economic operators and creating welfare for humans, as so ably set out by Peter Van den Bossche in his work.9 Even human rights – to which Article 28 of the Universal Declaration refers – so far have failed to become operative yardsticks in the system ever since the debate was launched at the beginning of this century.10 The linkages of equity to international economic law still are embryonic.

The maxims of equity comprise: (i) Equity will not suffer a wrong to be without a remedy; (ii) Equity follows the law; (iii) He who seeks equity must do equity; (iv) He who comes to equity must come with clean hands; (v) Where the equities are equal, the law prevails; (vi) Where the equities are equal, the first in time prevails; (vii) Equity imputes an intention to fulfil an obligation; (viii) Equity regards as done that which ought to be done; (ix) Equity is equality; (x) Equity looks to the intent rather than the form; (xi) Delay defeats equities; (xii) Equity acts in personam, see Martin (above n 5) 25–32. 7 R Dolzer and C Schreuer, Principles of International Investment Law (OUP, 2008) 120. 8 See P van Dijk, ‘Nature and Function of Equity in International Economic Law’ (1986) 7 Grotiana New Series 4; P Buirette-Maurau, La Participation du tiers-mode à l’élaboration du droit international public (Pichond et Durand-Auzias, 1983). 9 P Van den Bossche and W Zdouc, The Law and Policy of the World Trade Organization: Text, Cases and Materials (4th edn, CUP, 2017). 10 T Cottier, ‘Trade and Human Rights: A Relationship to Discover’ (2002) 5 Journal of International Economic Law 111.

122  Thomas Cottier This chapter seeks to further explore the potential of equity in international economic law. It is inspired by the twentieth-century renaissance of this age-old principle of law in the law of natural resources among nations, in particular the law of the sea. While broad aspirations of global equity are bound to remain limited within the Westphalian system of nation states, the chapter argues that the methodology developed by the International Court of Justice and courts of arbitration in the field of maritime boundary delimitation and natural resources, including the allocation of water and waterways, can be useful for international economic law. What emerged in a particular field of international law can travel to other areas and help negotiations and adjudication to bring about fairness and justice in the context of a particular case and to make a small contribution in realising the goals expressed in Article 28 of the Universal Declaration. It is on this level that equity can be truly operational, rather than expressing aspirations of global justice which a single legal principle is unable to bring about.

II.  The Law of the Sea and Natural Resources When offshore exploitation of oil and gas became technologically feasible in the first part of the twentieth century, the 1945 Truman Proclamation claimed national sovereignty over the continental shelf and stated that lateral delimitation of boundaries of the shelf should be defined in accordance with equitable principles.11 The proclamation, which eventually became the foundation for claims by coastal states in customary international law, did not specify any particular rules on delimitation. It was a matter to be dealt with on a case-by-case basis. Subsequent instruments on the continental shelf expounded the competing legal rule and principle of equidistance, subject to exceptions.12 Yet, the International Court of Justice held in the landmark 1969 Continental Shelf case that delimitation is to be effected in accordance with equitable principles; equidistance was denied the status of customary international law.13 The Courts developed what may be called the rule of equity in a series of some 20 major international cases between 1969 and 2014 in delimitating continental shelves and exclusive economic zones.14 The field amounts not only to one of the main areas of international litigation next to trade and investment protection, it also amounts to the foremost area addressing fundamental problems of

11 Proclamation No 2667, Policy of the United States with Respect to the Natural Resources of the Subsoil and the Sea Bed of the Continental Shelf, 28 October 1945, reprinted in Whitman (1965) 4 Digest of International Law 740, 765. For subsequent state practice see Cottier (above n 3) 236–70. 12 Art 6 Convention on the Continental Shelf, Geneva, 29 April 1958, in force 10 June 1964, 499 UNTS 311. 13 North Sea Continental Shelf (Federal Republic of Germany v Denmark; Federal Republic of Germany v Netherlands) Judgment, ICJ Reports 1969, 3. 14 For a detailed discussion of the case law see Cottier (above n 3) 271–340.

The Prospects of Equity in International Economic Law  123 distributive justice in the framework of the international law of co-existence and delimitation of national jurisdiction. The case law developed a series of equitable standards which comprise normative equitable principles on the one hand and relevant circumstances on the other hand, the latter being primarily of a factual nature and applied with a view to achieving an overall equitable solution. In practice, courts of law often do not yet clearly distinguish principles and relevant circumstances in a clear manner; the process is characterised by trial and error and gradually evolving patterns in the rulings.15 Yet the analysis of case law allows one to identify the following equitable standards (comprising both principles and relevant circumstances): equitable principles identified, and subsequently applied also to the delimitation of the exclusive economic zone (EEZ) relate to geography, but importantly, also to human conduct.16 These normative standards comprise the principle that the coast dominates the sea (CDS), the principle of non-encroachment and non-cutting-off (NEP, NCP), the principle of equal division of marine space (EDS) and the principle of fair and reasonable proportionality (FRP). Relevant circumstances relating to geography consistently considered in the case law comprise the location of resources and unity of deposits and eco-geographical criteria. They are of great importance in the treatment of islands, giving full or partial effect to them. Equitable principles relating to conduct and human geography increased in importance over time. While rejecting conduct in terms of legal title, based upon historical rights or estoppel, conduct is taken into account on the basis of a principle of recent and contemporary conduct (RCCP) and specifically related economic interests, in particular the principle of viability (VP) and circumstances of cultural and ethnological interests. National security interests are essentially covered by the principles relating to geography but may play a role as a special circumstance and in the future may protect the interests of future generations and form a principle of third-generational rights under the doctrine of sustainability. Importantly, courts refused to accept general economic interests in the extraction of resources but remain open to other and additional factors and considerations which may come in future configurations. The rule of equity is principled, but not a closed principle. It remains open to further development and new considerations. Next to equitable principles and relevant circumstances, the case law developed an appropriate methodology in applying these standards.17 Courts often have to deal at the outset with matters relating to treaty interpretation, historical rights and estoppel, legally being outside the realm of equitable standards. In addressing boundary delimitation on the basis of the rule of equity, they identify the appropriate window of delimitation, taking into account the interests of third parties, and subsequently engage in discussing and applying equitable standards. As indicated,



15 ibid

621–22. a detailed analysis and discussion see ibid, 525–601. 17 ibid 602–44. 16 For

124  Thomas Cottier a clear distinction of equitable principles and relevant circumstances is often missing in the case law, balancing different interests at stake in a process of trial and error. Jurisprudence moved away from initial consideration of tectonic features. Also in assessing boundary lines, proportionality of the lengths of coastal configuration was replaced by a test limited to avoiding disproportionate allocations of marine space in relation to coastal lengths of the states concerned.18 More recently, courts have adopted the methodology of using equidistance as a starting point, and discuss equitable principles and relevant circumstances in defining exceptions and deviations, in particular in assessing the status and impact of islands.19 Whether or not the rule of equity is applied at the outset or as a matter of modifying equidistance as a rule does not alter the nature of the operation, which may best be described in terms of topical, highly fact-intensive jurisprudence.20 It is a matter of balancing and weighing all the pertinent considerations with a view to finding an overall equitable solution. It is often assumed that the courts would simply split the difference between parties in practical terms, seeking politically acceptable and feasible results. Close examination reveals that this is not the case. Boundary delimitation effected by courts amounts to a careful and reasoned construction of lines in applying the principles and relevant circumstances discussed. They do not pertain to decision-making ex aequo et bono. Equity, in maritime boundary law, emerged at the outset as the guiding legal principle, based upon which courts creatively developed pertinent principles and relevant circumstances. There was nothing else to rely upon at the outset. The approach was eventually adopted in treaty law. Articles 74 and 83 of the United Nations Convention on the Law of the Sea affirm the approach developed in judgemade law essentially based upon the rule of equity.21 The provisions do not offer guidance beyond the case law. The approach was equally adopted in other areas of distributive justice relating to natural resources. The 1997 UN Convention on the Law of Non-navigational Uses of International Waterways sets out in Article 5 the principles of equitable and reasonable utilisation and participation.22 ­Typical

18 ibid 541–59. 19 In particular Case Concerning Maritime Delimitation in the Black Sea (Romania v Ukraine), Judgment 3 February 2009, ICJ Reports 2009, 61; Cottier (above n 3) 327–32, 620–22. 20 Cottier (above n 3) 602–14. Theoretical foundations of topical jurisprudence were laid in domestic law by T Viehweg, Topik und Jurisprudenz (CH Beck, 1974); J Esser, Vorverständnis und Methodenwahl (Athenäum-Fischer Taschenbuch Verlag, 1972) in response to positivist and strictly rules-based jurisprudence dominating previous periods of German law. More moderate approaches operate within the bounds of existing legal principles and statutory provisions, J Esser, Grundsatz und Norm in der richterlichen Fortbildung des Privatrechts (Mohr, 1990), more closely reflecting topism as applied in international law and the quest to identify underlying equitable principles and relevant circumstances. 21 Available at: www.un.org/depts/los/convention_agreements/texts/unclos/unclos_e.pdf; for the negotiating history of these texts see Cottier (above n 3) 213–33. 22 Available at: http://legal.un.org/ilc/texts/instruments/english/conventions/8_3_1997.pdf.

The Prospects of Equity in International Economic Law  125 of the approach, originally developed by the 1966 Helsinki Declaration of the International Law Association,23 Article 6 sets out a number of non-exclusive factors which need to be taken into account and balanced.24 The question is: what can we learn from this experience for international economic law? The law of the sea and natural resources, while separately dealt with in doctrine, of course is closely related to international economic law in terms of the underlying interests involved. It is submitted that the topical jurisprudence, based upon principles and relevant circumstances, in the law of the sea and the methodology that can be derived and developed therefrom are of equal usefulness in trade regulation and investment protection.25

III.  Trade Regulation Unlike maritime boundary delimitation, international trade is a densely regulated system and set of rules, based upon principles of non-discrimination and transparency. It was not a matter of developing rules from scratch in case law and judicial law making. Accordingly, equity as a legal principle is rarely referred to in WTO law. A search of documents on the WTO website reveals that the term is often used in reference to equity capital mentioned in the Agreement on Subsidies and Countervailing Duties (SCM Agreement) and equity interest in the General Agreement on Trade in Services (GATS) or equity infusion in the revised Government Procurement Agreement (GPA).26 It is referred to and used in speeches

23 ILA (International Law Association), Report of the Fifty-Second Conference, Helsinki, 447–533 (ILA, 1966), see SMA Salman, ‘The Helsinki Rules, the UN Convention on Waterways and the Berlin Rules: Perspectives in International Water Law’ (2007) 23 Water Resources Development 625; see also generally L del Castillo-Laborde, ‘Equitable Utilization of Shared Resources’ (2012) III Max Planck Encyclopedia of Public International Law 622. 24 1. Utilization of an international watercourse in an equitable and reasonable manner within the meaning of article 5 requires taking into account all relevant factors and circumstances, including: geographic, hydrographic, hydrological, climatic, ecological and other factors of a natural character; the social and economic needs of the watercourse States concerned; the population dependent on the watercourse in each watercourse State; the effects of the use or uses of the watercourses in one watercourse State on other watercourse States; existing and potential uses of the watercourse; conservation, protection, development and economy of use of the water resources of the watercourse and the costs of measures taken to that effect; and the availability of alternatives, of comparable value, to a particular planned or existing use. 2. In the application of article 5 or paragraph 1 of this article, watercourse States concerned shall, when the need arises, enter into consultations in a spirit of cooperation. 3. The weight to be given to each factor is to be determined by its importance in comparison with that of other relevant factors. In determining what is a reasonable and equitable use, all relevant factors are to be considered together and a conclusion reached on the basis of the whole. Available at: http://legal. un.org/ilc/texts/instruments/english/conventions/8_3_1997.pdf. 25 Cottier (above n 3) xxiii–xxv, 614–44, 607. 26 Art 1.1(a)(1)(i) and Art 14(a) SCM, Art XXVIII(n) GATS and Art II(3)(b) rev GPA.

126  Thomas Cottier supporting trade rounds in the quest for global equity in the multilateral trading system.27 Otherwise, the term is not prominent. More recent agreements, in particular the Trade Facilitation Agreement, do not explicitly refer to equity at all. The same holds true for trade theory. It is interesting to observe that Oisin Suttle, in his work on distributive justice and trade regulation, does not refer at all to the legal principle and broad tradition of equity in international law.28

A.  Explicit References to Equity in WTO Law The legal texts of the WTO agreements explicitly refer to equity in Article XVI:3 of the GATT relating to subsidies to primary products. Subsidies granted in support of primary products (farm, forest or fishery and mineral, both natural and transformed) shall not be applied in a manner which results in that contracting party having more than an equitable share of world export trade in that product, account being taken of the shares of the contracting parties in such trade in the produce during a previous representative period, and any special factor which may have affected or may be affecting such trade in the product.

A note to paragraph 3 clarifies that the absence of any export of the product does not preclude a party from establishing its right to obtain a share of the trade in the product concerned. Moreover, the note excludes the existence of an export subsidy within domestic price stabilisation programmes if the price for exports charged is higher than for domestic products or the system operating does not unduly stimulate exports or does not otherwise unduly prejudice the interests of other contracting parties. GATT working parties and panels refrained from addressing the underlying issues of distributive justice in market shares and from defining a ‘more than equitable share’ of world trade in exports.29 While allowing for fluctuations in markets, the term was construed to prevent and remedy the displacement of exports of other parties, comparable to the effects of predatory dumping. In European ­Communities–Refunds on Exports of Sugar (Complaint by Australia), the panel stated: The Panel was of the opinion that the term ‘more than equitable share of world export trade’ should include situations in which the effect of an export subsidy granted by a 27 eg, ‘It would be difficult to exaggerate the importance of this Round. With its huge potential for global growth. Open economies like Canada have much to gain from an equitable, rules-based world trading system. The WTO is the best forum for building such a system as it underpins our commercial relations with other economies, including our most important trading partners’, Pascal Lamy, allocation at the International Economic Forum of the Americas, Montreal, 5 June 2006, available at: www. wto.org/english/news_e/sppl_e/sppl29_e.htm. 28 O Suttle, Distributive Justice and World Trade Law: A Political Theory of International Trade Regulation (CUP, 2018). 29 See GATT, Guide to GATT Law and Practice, Vol 1 (GATT, 1995) 453–57.

The Prospects of Equity in International Economic Law  127 signatory was to displace the export of another signatory, bearing in mind the developments in world markets.30

In European Communities–Refunds on Exports of Sugar (Complaint by Brazil), the panel focused on the particular circumstances and the examination of the causal linkages: The Panel noted that no complete definition of the concept ‘equitable share’ has been provided, and neither had it in the past been considered absolutely necessary to have an agreed precise definition of the concept. The Panel felt that it was appropriate and sufficient in this case to try to analyse main reasons for developments in individual market shares, and in light of the circumstances related to the present complaint try to determine any causal relationship between the increasing in community exports of sugar, the development of Brazilian sugar exports and other developments in the world sugar market, and then draw a conclusion on that basis.31

Displacement as a leading factor was eventually taken up in Article 6.3(a) and (b) of the SCM Agreement, next to price undercutting, in assessing serious prejudice and the increase of market shares for non-agricultural products. From a historical and methodological point of view, however, it is interesting to note that Article 28 of the aborted Havana Charter listed a number of factors which the Organization should take into account in making a determination of a more than equitable share of world exports, failing agreement among the parties. These non-exhaustive factors (‘shall have particular regard to’) include the share of world exports during a representative previous period, the size of the share and subsidy, the degree of importance of the trade for importing and exporting economies, the existence of prize stabilisation systems and the desirability of facilitation of gradual expansion of non-subsidised production.32 It is interesting to observe that the reference to equity in Article XVI:3 of the GATT – drafted in the same period as the Truman Proclamation – refers to a variety of different factors and considerations to be taken into account. While Article 28 of the Havana Charter never entered into force, it offers evidence of what negotiators meant by introducing references to equity in treaty texts in terms of methodology. Equity, it is submitted, amounts here to recourse to a number of defined factors as well as undefined factors in assessing the particular meaning of a norm, taking into account all the pertinent circumstances. It amounts to what we found is topical jurisprudence, similar to the methodology developed in maritime boundary delimitations discussed above. Today, Article XVI:3 GATT is largely redundant due to more restrictive disciplines on subsidies in the SCM Agreement, Article 9 of the Agreement on

30 Doc L 4833 adopted on 6 November 1979, 26S/310, 307 para 4.17, Guide to GATT Law and Practice, Vol I (GATT, 1995) 455. 31 Doc L 5011, adopted on 10 November 1980, 27/S69, 88 para 4.6; Guide to GATT Law and Practice, Vol I (GATT, 1995) 445. 32 Guide to GATT Law and Practice, Vol I (GATT, 1995) 446.

128  Thomas Cottier Agriculture and the 2015 Ministerial Decision to phase out export subsidies in agriculture.33 But recourse to circumstances and factors informs the interpretation of other provisions of the GATT explicitly referring to equity, in particular the ‘equitable relationship between imported and domestic products’ in the Note ad Article III:5 GATT and the requirement of ‘fair and equitable treatment’ of contracting parties in government procurement in state trading in Article XVII:2 GATT. It assists in interpreting Article XX(j) GATT, which allows trade restrictions imposed due to general or local shortages of supplies ‘Provided that that any such measures shall be consistent with the principle that all contracting parties are entitled to an equitable share of the international supply of such products’, a standard held to be below non-discriminatory treatment.34 Finally, it may assist in interpreting recourse to ‘equitable and remunerable prices’ in Article XXXVI:4 GATT, to ‘maintain trade margins at equitable levels’ in Article XXXVII:3(a) GATT, and to ‘equitable and remunerative prices for exports’ in Article XXXVIII:2(a) GATT, all provisions supporting developing countries within Part IV of the General Agreement and thus related to issues of distributive justice. Finally, an additional reference to equity can be found in the preamble of the Customs Valuation Agreement (CVA): Recognizing that customs valuation should be based on simple and equitable criteria consistent with commercial practices and that valuation procedures should be of general application without distinction between sources of supply …

The CVA, deploying a cascade of methods of valuation, defines rules and such criteria which authorities are bound to take into account in determining the value of goods. They are detailed in Articles 1 to 6 of the Agreement. Article 1, setting out the main methodology of transaction value, speaks of tests to be used in para 2(b) in fine. Article 7 lists a number of criteria which must not be used, including arbitrary and fictitious values. Article 8 lists additional costs which need to be taken into account in the calculations. Recourse to what the preamble calls simple and equitable criteria thus amounts to a net of complex rules and commercial factors and indicators be taken into account, or excluded from being taken into account. National authorities enjoy a certain amount of discretion in applying these rules. Yet, it would seem that there is much less room for balancing different factors and criteria in this densely regulated area compared to the approach found in the law of the sea and other provisions having recourse to equity within the GATT. The margins to take equity into account are essentially defined by the relevant framework of rules applicable. They vary between references made to equity within the WTO rules and need to be assessed individually.

33 Export Competition: Ministerial Decision of 19 December 2015, WTI/MIN(15)/45 WT/L/980; available at: www.wto.org/english/thewto_e/minist_e/mc10_e/l980_e.htm. 34 Guide to GATT Law and Practice, Vol I (GATT, 1995) 594.

The Prospects of Equity in International Economic Law  129

B.  Implicit References to Equity While explicit references to equity in GATT and the GPA have not given rise to extensive methodological discussions, other provisions deploy fact-intensive operations without explicitly having recourse to equity, but operate on the basis of a multitude of economic factors and indicators defined in law. Injury determinations in trade remedies are at the forefront and are of utmost practical importance. These agreements authorise Members to take measures but also set out disciplines and constraints in doing do. It is interesting to raise the question whether the methodology of equity outlined above plays any implied role here or whether the subject matter of injury determination is not suitable for assessing and balancing different factors and circumstances within the legal framework of trade remedy agreements. Recourse to trade remedies against subsidies, dumping and increased imports (safeguards) depends upon showing material or, in the case of safeguards, serious injury to domestic industries, by assessing a number of factors. The agreements call for a number of factors to be considered in assessing causation or nonattribution of such factors to injury. The factors applied are similar for all trade remedies in Article 3.4 of the AntiDumping Agreement, Article 4.2(a) of the Safeguards Agreement and Article 15.4 of the SCM Agreement. The latter provision lists the following factors to be taken into account in the injury determination: The examination of the impact of the subsidized imports on the domestic industry shall include an evaluation of all relevant economic factors and indices having a bearing on the state of the industry, including actual and potential decline in output, sales, market share, profits, productivity, return on investments, or utilization of capacity; factors affecting domestic prices; actual and potential negative effects on cash flow, inventories, employment, wages, growth, ability to raise capital or investments and, in the case of agriculture, whether there has been an increased burden on government support programmes. This list is not exhaustive, nor can one or several of these factors necessarily give decisive guidance.

Determination of causation and of non-attribution of dumped or subsidised imports depends upon the assessment of an open-ended list of factors. Again, the standards set out in Article 3.5 of the Anti-Dumping Agreement and Article 15.5 of the SCM Agreement are very similar: the latter reads: It must be demonstrated that the subsidized imports are, through the effects of subsidies, causing injury within the meaning of this Agreement. The demonstration of a causal relationship between the subsidized imports and the injury to the domestic industry shall be based on an examination of all relevant evidence before the authorities. The authorities shall also examine any known factors other than the subsidized imports which at the same time are injuring the domestic industry, and the injuries caused by these other factors must not be attributed to the subsidized imports. Factors which may be relevant in this respect include, inter alia, the volumes and prices of nonsubsidized imports of the product in question, contraction in demand or changes in

130  Thomas Cottier the patterns of consumption, trade restrictive practices of and competition between the foreign and domestic producers, developments in technology and the export performance and productivity of the domestic industry.

A similar approach can be found in Article 4(2)(b) of the Safeguards Agreement. The law of trade remedies is detailed but does not prescribe a particular method as to how authorities have to make an objective assessment in the determination of injury. The panel in EU – Footwear (China) held: [W]e recall that there is nothing in Article 3.1 of the AD Agreement that prescribes a methodology for the determination of injury. In our view, there is certainly nothing in that provision, or in Article 3.4 of the AD Agreement, that prescribes how the investigating authority is to obtain information for the purposes of its injury determination, and still less is there any limitation, express or implied, on the sources from which information in that regard may be obtained. Clearly, the investigating authority must ‘evaluate’ all relevant economic factors, and to do so, it must have information pertaining to those factors. However, we cannot see in this obligation anything that would limit the investigating authority’s actions in seeking necessary information.35

The law, however, is stricter in assessing the relevant factors in a particular case. The Appellate Body held in US – Hot-Rolled Steel that while the listed factors need to be taken into account in anti-dumping assessment, additional factors not listed may be relevant and need to be taken into account in the examination. Article 3.4 lists certain factors which are deemed to be relevant in every investigation and which must always be evaluated by the investigating authorities. However, the obligation of evaluation imposed on investigating authorities, by Article 3.4, is not confined to the listed factors, but extends to ‘all relevant economic factors’. We see nothing in the Anti-Dumping Agreement which prevents a Member from requiring that its investigating authorities examine, in every investigation, the potential relevance of a particular ‘other factor’, not listed in Article 3.4, as part of its overall ‘examination’ of the state of the domestic industry.36

Similarly, the factors to be taken into account in assessing safeguard measures under Article 4.2(a) are open ended, requiring all factors to be taken in account in order to make an objective injury determination. The Appellate Body held in Argentina – Footwear: [I]t is only when the overall position of the domestic industry is evaluated, in light of all the relevant factors having a bearing on a situation of that industry, that it can be determined whether there is ‘a significant overall impairment’ in the position of that industry. Although Article 4.2(a) technically requires that certain listed factors must be evaluated, and that all other relevant factors must be evaluated, that provision does not specify what such an evaluation must demonstrate. Obviously, any such evaluation

35 Panel Report, European Union – Anti-dumping Measures on Certain Footwear from China, WT/DS405/R (28 October 2011) para 7.427. 36 Appellate Body Report, United States – Anti-dumping Measures on Certain Hot-Rolled Steel ­Products from Japan, WT/DS184/AB/R (24 July 2001) para 195.

The Prospects of Equity in International Economic Law  131 will be different for different industries in different cases, depending on the facts of the particular case and the situation of the industry concerned. An evaluation of each listed factor will not necessarily have to show that each such factor is ‘declining’. In one case, for example, there may be significant declines in sales, employment and productivity that will show ‘significant overall impairment’ in the position of the industry, and therefore will justify a finding of serious injury. In another case, a certain factor may not be declining, but the overall picture may nevertheless demonstrate ‘significant overall impairment’ of the industry. Thus, in addition to a technical examination of whether the competent authorities in a particular case have evaluated all the listed factors and any other relevant factors, we believe that it is essential for a panel to take the definition of ‘serious injury’ in Article 4.1(a) of the Agreement on Safeguards into account in its review of any determination of ‘serious injury’.37

These and accompanying provisions are at the heart of WTO jurisprudence and fine-tuning of trade remedy law in panel and Appellate Body reports. Without mentioning equity and equitable principles, the law obliges national authorities to engage in a detailed and fact-intensive analysis. Findings do not rely upon simple application of existing rules but constitute reasoned and rational compositions, with different outcomes possible. It is a key task of judicial review to examine whether these factors are taken into account and decisions are sufficiently reasoned. Importantly, the factors to be taken into account are not exhaustive; national authorities are entitled to take into account additional factors appropriate to the case. New facts and developments in economic life and international trade can be taken into account as they evolve. New problems, not reflected before, can be taken into account in the overall framework set out by the agreements. The analysis employing a number of mandatory factors and additional ones, as the case requires, is a typical feature of equity jurisprudence. However, injury determination stops short of the typical balancing of different factors and interests. Determinations first examine mandatory factors supporting causation of material injury, establishing a presumption. Such a presumption exists if a correlation between the increase of dumped or subsidised imports and the decline of sales and prices of domestic products can be found. Other factors may rebut the presumption and establish non-attribution.38 Factors of non-attribution typically serve the functions of corrective equity. Yet, since injury is a mere threshold and a prerequisite to the imposition of duties, it is either established or not and does not vary depending on the impact of different factors which are balanced. In practice, the establishment of non-attribution is most difficult. Most factors do not rebut and trump causation found. While such factors influence the state of the industry, it would appear that they are not normally taken into account by national authorities in setting the rate of duties, which must not exceed the margin of dumping or level of subsidisation in accordance with Article VI:2 and 3 GATT. 37 Appellate Body Report, Argentina – Safeguard Measures on Imports from Footwear, WT/DS121/ AB/R (14 December 1999) para 139. 38 For a detailed analysis see J Miranda, ‘Causal Link and Non-attribution as Interpreted in WTO Trade Remedy Disputes’ (2010) 44 Journal of World Trade 729.

132  Thomas Cottier From the point of view of equity and the method of equitable principles and relevant circumstances, it would be interesting to explore the possibility of balancing factors of causation and non-attribution more evenly. To the extent that difficulties and injury are caused by factors other than the importation of dumped or subsidised like products, countervailing duties should be reduced accordingly below the full margins of dumping and subsidisation. It would be a matter of linking levels of countervailing duties more strongly to the level and degree of injury caused by dumped or subsidised imports, rather than treating material injury as a mere threshold.

C.  General Principles of Law In the process of interpreting WTO law, panels and the Appellate Body refer to general principles of law, the root of which can be found in equity. Procedural principles govern the conduct of work with parties, in particular the right to be heard and the principle et audita altera parte. Nothing prevents a party to a dispute from invoking the maxims of equity as a matter of general principles of law.39 Parties may invoke the principles of estoppel and acquiescence, both rooted in equity.40 In terms of substantive standards, WTO law protects legitimate expectations as to conditions of competition and thus the principle of good faith.41 The test of necessity in Article XX GATT in justifying exceptions entails the application of proportionality, and the weighing of interests, as do concepts of calibration within the Technical Barriers to Trade (TBT) Agreement. Special and differential treatment of developing countries, Part IV GATT and the Enabling Clause can be explained in terms of equity. The principles on unfair competition, enshrined in Article 10bis of the Paris Convention for the Protection of Industrial Property, incorporated in the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), are an emanation of the equitable doctrine rooted in fairness.42 Finally, the doctrine of nullification and impairment of benefits and

39 Jenks (above n 6). 40 T Cottier and JP Müller, ‘Estoppel’ (2012) III Max Planck Encyclopedia of Public International Law 671–77; NS Marques Antunes, ‘Acquiescence’ (2012) I Max Planck Encyclopedia of Public International Law 53. 41 M Panizzon, Good Faith in the Jurisprudence of the WTO: The Protection of Legitimate Expectations, Good Faith Interpretation and Fair Dispute Settlement (Hart, 2006); T Cottier and K Nadakavukaren Schefer, ‘Good Faith and the Protection of Legitimate Expectations in the WTO’ in M Bronckers and R Quick (eds), New Directions in International Economic Law: Essays in Honour of John H. Jackson (Kluwer, 2000) 47–68. 42 T Cottier and A Jevtic, ‘The Protection Against Unfair Competition in WTO Law: Status, Potential and Prospects’ in J Drexl, RM Hilty, L Boy, C Godt and B Remiche (eds), Technology and Competition. Contributions in Honour of Hanns Ullrich (Brylant, 2009) 669; T Cottier and G Wermelinger, ‘Implementing and Enforcing Corporate Social Responsibility: The Potential of Unfair Competition Rules in International Law’ in RM Hilty and F Henning-Bodewig (eds), Corporate Social Responsibility. Verbindliche Standards des Wettbewerbsrechts? (Springer, 2014) 81.

The Prospects of Equity in International Economic Law  133 the possibility of non-violation complaints under Article XXIII GATT and the Dispute Settlement Understanding can be conceived as an equitable principle: beyond the law, the system makes available a remedy allowing the frustration of legitimate expectations by formally lawful acts following the grant of improved market access conditions to be taken into account.43 None of these principles is formally assigned to equity in the WTO system, while they insert the necessary flexibility that allows justice to be achieved in the circumstances of individual cases.

IV.  The Law of Investment Protection Other than in trade regulation, equity explicitly plays a central role in international investment protection, expressed in terms of the standard term ‘Fair and Equitable Treatment’, where the two terms are not given a separate and distinct meaning. FET amounts to a cornerstone of investment protection. It has been widely applied in arbitration, albeit without developing yet into a set of well-defined equitable standards, comparable to those in boundary delimitation in the law of the sea or trade remedies in international trade regulation. This is partly due to differences in the respective agreements, but primarily due to the fact that a central and uniform court system has been lacking in the field. FET runs the risk of deploying chilling effects; the mere threat of seeking investor–state arbitration, with high financial and political costs, may lead governments to refrain from using their regulatory powers in the public interest. A 2004 OECD Report summarises the then development of case law:44 There is diversity in the way the ‘fair and equitable treatment’ standard is formulated in investment agreements. Certain agreements, in particular some BITs, expressly define the standard by reference to international law while others do not make such reference to international law. • Because of the differences in its formulation, the proper interpretation of the ‘fair and equitable treatment’ standard depends on the specific wording of the particular treaty, its context, the object and purpose of the treaty, as well as on negotiating history or other indications of the parties’ intent. For example, some treaties include explicit language linking or, in some cases limiting, fair and equitable treatment to the minimum standard of international customary law. Other treaties which either link the standard to international law without specifying custom, or lack any reference to international law, could, depending on the context of the parties’ intent, for

43 T Cottier and K Nadakavukaren Schefer, ‘Non-Violation Complaints in WTO/GATT Dispute Settlement: Past, Present and Future’ in EU Petersmann (ed), International Trade Law and the GATT/ WTO Dispute Settlement System (Kluwer, 1997) 145–83. 44 OECD, ‘Fair and Equitable Treatment Standard in International Investment Law’ OECD Working Papers on International Investment, 2004/03, OECD Publishing, 40, available at: http://dx.doi. org/10.1787/675702255435.

134  Thomas Cottier

•

•

•

•

example, be read as giving the standard a scope of application that is broader than the minimum standard as defined by international customary law. Independently of the way governments interpret the ‘fair and equitable treatment’ standard, it is understood that the minimum standard refers to an evolving international customary law which is not ‘frozen’ in time, but may evolve over time depending on the general and consistent practice of states and opinio juris, as may be reflected in jurisprudence related to the interpretation and application of these treaties. An analysis of the opinions of the arbitral tribunals which have attempted to interpret and apply the ‘fair and equitable treatment’ standard identified a number of elements which, singly or in combination, have been treated as encompassed in the standard of treatment. Most of the arbitral opinions in the present survey mention two elements, due diligence and due process (including non-denial of justice and lack of arbitrariness), while only a few mention transparency and good faith. Due diligence and due process including non-denial of justice and lack of arbitrariness are elements well-grounded in international customary law while transparency is an element which is often defined in international agreements as an obligation under a separate provision. Good faith seems to be considered more a basic principle underlying an obligation rather than a distinct obligation owed to investors pursuant to the ‘fair and equitable treatment’ standard. The identified elements appear to have sufficient legal content to allow cases to be judged on the basis of law in accordance with the Vienna Convention on the Law of Treaties, and decisions are not made by a process approaching ex aequo et bono. It would be inappropriate at this stage to establish a definitive interpretation of the ‘fair and equitable treatment’ standard. The jurisprudence which has applied it and identified elements of its normative content is relatively recent and is not uniform, and therefore does not allow for a firm and conclusive list.

FET has obtained much attention in research. Angelet groups FET violations in standards relating to adjudication, government acts and legislation, and groups principles accordingly: denial of justice, including clear and malicious misapplication of the law; coercion by government officials and harassment; lack of participation in administrative proceedings; unstable legal and business environment; frustration of expectations; and arguably breach of contractual obligations.45 Paparinskis identifies a number of standards developed by what he calls jurisprudence constante: non-arbitrariness, legitimate expectations, due process, transparency, non-discrimination and good faith.46 Schill, noting inconsistencies in the case law of arbitral tribunals, analyses and expounds a number

45 N Angelet, ‘Fair and Equitable Treatment’ (2012) III Max Planck Encyclopedia of Public International Law 1094 with further references; see also I Tudor, The Fair and Equitable Treatment Standard in the International Law of Foreign Investment (OUP, 2008). 46 M Paparinskis, ‘Fair and Equitable Treatment’ in T Cottier and K Nadakavukaren (eds), Encyclopedia of International Economic Law (Edward Elgar, 2017) 208–12; M Paparinskis, The International Minimum Standard and Fair and Equitable Treatment (OUP, 2013).

The Prospects of Equity in International Economic Law  135 of principles embodied in FET: stability, predictability, consistency, legality, protection of confidence and legitimate expectations, administrative due process and denial of justice, protection against arbitrariness and discrimination, transparency, reasonableness and proportionality.47 These principles, according to him, are founded in the rule of law. It is interesting to observe that the relationship to the traditions of equity and its function and role in the legal order have remained largely unexplored, despite explicit references to it in the term ‘fair and equitable treatment’. It will be interesting to assess to what extent the principles overlap with the maxims of equity as a matter of general principles of law. Moreover, the doctrine of equitable principles and relevant circumstances, and the balancing of interests implied offer an interesting prospect to relate FET to other areas and their respective methodologies in squaring diverging interests in a fact-intensive environment. Significant controversies on FET in investor–state arbitration more recently induced the inclusion of an explicit right of states to regulate, allowing for better balancing of the interests of investors and host states. The European Union, facing strong domestic criticism, introduced the concept of a standing court of law, modelled on the two-tier system of WTO dispute settlement.48 Arbitration awards henceforth can be appealed and reviewed by a Standing Body. The Comprehensive Economic and Trade Agreement with Canada (CETA) and the Association Agreements with Vietnam and Singapore spearheaded the approach, which still awaits practical implementation. At the same time, an effort was made to codify the case law and to further develop equitable principles and relevant circumstances which tribunals need to take into account under these agreements. Again, we can observe the process of moving from ad hoc applications of equity towards a more principled approach, preventing regulatory chill and enhancing predictability. Article 8.10 of the CETA provides the following definitions of fair and equitable treatment:49 2. A Party breaches the obligation of fair and equitable treatment referenced in ­paragraph 1 if a measure or series of measures constitutes: (a) denial of justice in criminal, civil or administrative proceedings; (b) fundamental breach of due process, including a fundamental breach of transparency, in judicial and administrative proceedings; (c) manifest arbitrariness;

47 S Schill, Fair and Equitable Treatment under Investment Treaties as an Embodiment of the Rule of Law, IILJ Working Paper 2006/6 (Global Administrative Law Series), available at: www.iilj.org/ publications/fair-and-equitable-treatment-under-investment-treaties-as-an-embodiment-of-the-ruleof-law/. 48 See M Krajewsi and RT Hoffmann, The European Commission’s Proposal for Investment Protection in TTIP (Friedrich Ebert Stiftung, 2017) available at: www.fes-europe.eu/fileadmin/public/editorfiles/ events/Juni_2016/ FES_2017plus_Krajewski_ENGL.pdf. 49 Comprehensive Economic and Trade Agreement between Canada and the European Union, available at: http://ec.europa.eu/trade/policy/in-focus/ceta/ceta-chapter-by-chapter/.

136  Thomas Cottier (d) targeted discrimination on manifestly wrongful grounds, such as gender, race or religious belief; (e) abusive treatment of investors, such as coercion, duress and harassment; or (f) a breach of any further elements of the fair and equitable treatment obligation adopted by the Parties in accordance with paragraph 3 of this Article. 3.

The Parties shall regularly, or upon request of a Party, review the content of the obligation to provide fair and equitable treatment. The Committee on Services and Investment, established under Article 26.2.1(b) (Specialised committees), may develop recommendations in this regard and submit them to the CETA Joint Committee for decision.

The CETA standards set out fundamental misconduct by government and hold them liable to basic standards, reflecting the right and powers of government to regulate. With such codification, courts of law are no longer entitled to engage in excessive and extensive protection of investors’ interests to maintain existing regulatory conditions for business operations. It is unclear to what extent the listing is exclusive or continues to allow new factors and circumstances not contemplated in the Agreement to be taken into account. The treaty provides for periodical review. The nature and methodology of equity, however, suggest that the listing of offences and violations should be considered not exclusive but open ended and should allow additional circumstances and factors of comparable importance to be taken into account. FET greatly benefits from treaty-based principles, factors and circumstances while remaining open ended with a view to serving justice in individual cases in a more coherent manner. This is certainly what the experience of equity suggests. It remains to be seen whether the process of codification and the creation of a separate two-tier system will be implemented. Another avenue to be taken is the integration of FET and investment protection in the multilateral trading system of the WTO. A comprehensive multilateral investment agreement (MIGA II) would in my view be modelled on the TRIPS Agreement, expounding minimum and maximum standards, both substantive and procedural, which national courts need to respect. Failing compliance, similar to the trade remedies discussed, the matter could be brought before WTO panels and the Appellate Body for review. It is important to assign the task to an institution with judicial expertise, experienced judges, capable staff and a reasonable turnover of case load, which give rise to such experience and expertise. This is yet another prospect of integrating equity in international economic law. Common roots in equity may help to bring different areas of law together.

V. Conclusions A brief survey of equity in international economic law suggests that the principle of equity has not only experienced a renaissance in the law of natural resources,

The Prospects of Equity in International Economic Law  137 but is also part of international economic law, albeit often indirectly and in hidden and unexplored ways. All the areas share in common that the process of law is not limited to applying and interpreting specific words and text but engages in a creative process of identifying factors and circumstances and applies them in a given framework of equitable principles or more specific rules. Importantly, the number of factors to be taken into account is not exclusive and is open to new and hence unknown facts, which the law thus can take up and into account. The process of law in equity is characterised by what is called topical jurisprudence, always allowing pertinent considerations and factors not necessarily limited to those listed in treaty law to be taken into account. The normative openness within a well-defined framework allows authorities and adjudicators to do justice in single cases and to avoid the rigidity of the law. Summum jus summa injuria, the Roman law adage remains of importance, in particular in times of rapid technological and societal change. Hard law may produce unfair results. Equity, as in previous centuries, allows the legitimacy of the law to be kept in line with such novel developments and changing perceptions, in addition to human rights and standards of sustainable development. It allows moral values, psychology and human conduct, economic factors, geography and ecology to be taken into account in an open-ended, but disciplined, manner which differs from decision-making ex aequo et bono and unlimited discretion in rendering decisions and judgments. It is a motor of progress and adaptation to social change, which is of particular importance in areas where legal reform by means of treaty-making is difficult to achieve. In doing so, it incrementally contributes to the goals of global equity, case by case. At the same time, the process of equity described also works towards greater coherence. Over time shared principles emerge which eventually will leave the realm of equity and adopt a life of their own. We witness the emergence of standards in the case law and constant jurisprudence, which eventually may find codification and recognition in treaty law, as the law of the sea and FET show, or which are introduced in treaty law and inform the case law, as WTO law shows. The different fields discussed may also cross-pollinate. It will be interesting to see to what extent the emerging principle of FET will migrate from investment protection law into the realm of general principles broadly applicable across the board of international economic law and beyond in a common and coherent judicial framework. Principles of denial of justice, due process and reasonableness may be able to support and simplify current protection in the field of trade remedies, essentially and exclusively based upon the application of economic indicators today. In future treaty-making in trade and beyond, negotiators should seek recourse to the term ‘equity’ whenever the importation of various societal and economic factors is contemplated with a view to achieving fair and just results and to oblige implementing agencies and judges to proceed in accordance with a topical approach in the legal process of interpretation and application within the given legal framework.

138  Thomas Cottier Equity, in other words, makes an important contribution to maintaining and restoring trust in law and thus also in international economic law. In the field of WTO law, it is just a matter of making this function more transparent and bringing equity to light in treaty-making and adjudication, reflecting its important functions in the operation of the multilateral trading system, mainly in addressing issues of distributive justice and procedural fairness.

8 Blueprint for a Plurilateral WTO Arbitration Agreement under Article 25 of the Dispute Settlement Understanding JENS HILLEBRAND POHL*

I. Introduction There have long been concerns about the growing workload of the WTO Appellate Body. Dispute settlement activity has steadily increased over the years, both in terms of the number of appealed cases and the length of submissions, and as regards the complexity of issues raised and the number and sophistication of participants.1 At the same time, the time frames provided for completing Appellate Body proceedings have remained unchanged, as has the number of Appellate Body members that may be appointed. These structural fixtures reflect caseload projections from the early 1990s, before the WTO was created, which have never been updated. More recently, another – more fundamental – concern has emerged, which risks exacerbating the Appellate Body’s capacity constraints, and goes further to imperil the independence of its members and the legitimacy of its rulings. An inherent weakness of the WTO Dispute Settlement Understanding (DSU)2 has been laid bare, which if exploited is capable of undermining the trust in the WTO

* The author wishes to especially thank his colleagues Dr Denise Prévost and Dr Iveta Alexovičová for constructive suggestions and comments on previous drafts. The views expressed in this chapter, and any remaining errors, are to be solely attributed to the author. To the extent this chapter provides an overview of the law, it is not intended to be legal advice. 1 See CD Ehlermann, ‘The Workload of the WTO Appellate Body: Problems and Remedies’ (2017) 20 Journal of International Economic Law 705, 706. 2 Marrakesh Agreement establishing the World Trade Organization, opened for signature 15 April 1994, 1867 UNTS 3 (entered into force 1 January 1995) Annex 2 (‘Understanding on Rules and Procedures Governing the Settlement of Disputes’).

140  Jens Hillebrand Pohl dispute settlement system: viz the consensus requirement for Appellate Body appointments, allowing a single WTO Member to block an appointment, without recourse to voting.3 Although the consensus requirement for Appellate Body member appointments has existed for more than 20 years, it has only recently emerged as a powerful political lever.4 Beginning in 2017, the US has consistently refused to give its consent to initiating procedures to replace retiring Appellate Body members.5 The unfilled vacancies on the Appellate Body have profoundly increased its ‘systemic and structural’ workload problems,6 adding strain on its remaining members, which – although so far avoided – may undermine the quality of its decisions or lead to delays. It also puts the proper functioning of the dispute settlement system as a whole at risk.7 One way to avoid the harmful effects of blockage or long delays in appointing Appellate Body members and generally to overcome the decades-old workload problems could be to make use of arbitration.8 The possibility of resorting to arbitration within the WTO as an alternative means of dispute settlement is provided for in Article 25 DSU. Although this arbitration alternative has barely been used,

3 Cf Arts 2.4 and 17.2 DSU, and footnote 3 to Art IX.1 of the Marrakesh Agreement. 4 The increased politicisation of Appellate Body appointments can be traced back (at least) to the refusal to renew Jennifer Hillman’s appointment (2011) and the blocked appointment of James Gathii of Kenya (2013). It took a more explicit turn in 2016 when the US hindered the reappointment of Seung Wha Chang. See R Howse, ‘The World Trade Organization 20 Years On: Global Governance by Judiciary’ (2016) 27 European Journal of International Law 9, 72. 5 See eg Statements by the United States at the Meeting of the WTO Dispute Settlement Body, Geneva, 31 August 2017, at 8, notably: ‘As Members are aware, the United States has a number of long-standing concerns frequently expressed in the DSB regarding the critical necessity of the DSB asserting the authority assigned to it under the DSU. The issue the United States raised earlier concerning the continued service of former Appellate Body members is an important example of these concerns that we have been raising for some time. In our view, simply moving forward with filling vacancies risks perpetuating and leaving unaddressed the concerns we believe require the urgent attention of the DSB’ available at: http://geneva.usmission.gov/wp-content/uploads/2017/08/Aug31.DSB_.Stmt_.as-delivered.fin_. public.pdf. See further M Elsig, M Pollack and G Shaffer, Op-Ed, ‘Trump is fighting an open war on trade. His stealth war on trade may be even more important’ Washington Post, 28 September 2017, available at: www.washingtonpost.com/news/monkey-cage/wp/2017/09/27/trump-is-fighting-an-open-war-ontrade-his-stealth-war-on-trade-may-be-even-more-important/?utm_term=.08f0dc29df82. 6 Ehlermann (above n 1) at 734. 7 See Elsig et al (above n 5). If the number of Appellate Body members falls below three, appeals can no longer be heard. See Art 17.1 DSU. Long or indefinite delays at the appeal stage would also prevent the conclusion of panel proceedings because Art 16.4 DSU provides that panel reports cannot be adopted while an appeal is pending. 8 See J Hillebrand Pohl, ‘How to break the impasse over Appellate Body nominations’, IGIR Reporter, 29 September 2017, available at: www.maastrichtuniversity.nl/blog/2017/09/how-break-impasse-overappellate-body-nominations. For a similar proposal, see S Andersen et al, Using Arbitration Under Article 25 of the DSU to Ensure the Availability of Appeals (Graduate Institute Geneva, Working Paper No CTEI-2017-17, 2017). See also T Payosova, GC Hufbauer and J Schott, The Dispute Settlement Crisis in the World Trade Organization: Causes and Cures (Peterson Institute for International Economics, Policy Brief No 18-5, 2018); A Raina, Mediations in an Emergency: The Appellate Body Deadlock – What It Is, Why It Is a Problem, and What to Do About It (Leuven Centre for Global Governance Studies, Working Paper No 199, 2018).

Blueprint for a Plurilateral Arbitration Agreement under Article 25 DSU  141 it could potentially be valuable, particularly if prompt and effective legal remedy cannot be obtained through ordinary panel and Appellate Body proceedings. This chapter examines the legal and practical impediments, which may prevent arbitration under Article 25 DSU from operating as an effective alternative means of dispute settlement and explores possible solutions. It suggests that arbitration could be made operational by means of a plurilateral arbitration agreement, ie an agreement that sets forth a framework for future arbitration and to which any WTO Member who so wishes may accede. The chapter will not speculate as to why arbitration has not been much used over the last 20 years of the DSU’s existence.9 Nor is the aim here to assess the potential advantages and disadvantages of arbitration versus judicial adjudication in general, since these will inevitably vary depending on the priorities, preferences and perspectives of the disputing parties at particular times in relation to particular disputes. Instead, the chapter focuses solely on how best to make Article 25 arbitration operational on a plurilateral basis, so as to address the constraints on, or blockage of, the ordinary panel and Appellate Body proceedings. To this end, the chapter will begin by surveying the conceptual and historical context of Article 25 DSU as an interpretive premise for the subsequent analysis (Section II), looking in turn at the envisioned use of arbitration in the application of the General Agreement on Tariffs and Trade (GATT) 1947 and how arbitration re-emerged in the Uruguay Round negotiations as an alternative means of dispute settlement. Next, the relevant text of the DSU will be examined to identify a number of possible design features, which would have to be developed before such arbitration can become operational, as well as certain other features that may be elaborated on, depending on the preferences of the parties to the arbitration (Section III). These features will be further discussed in the form of essential elements of a plurilateral arbitration agreement in respect of Article 25 arbitration (Section IV). Finally, the conclusions will be summarised (Section V).

II.  Arbitration Within the Multilateral Trading System Arbitration has a long history and has been applied to widely varying types of disputes among states.10 The core idea of disputants agreeing to seek the opinion of 9 It suffices to observe that the practice of WTO Members over these years must be interpreted as confirming their consistent preference for using the panel system with the possibility of appeal. See further BH Malkawi, ‘Arbitration and World Trade Organization – The Forgotten Provision of Article 25 of the Dispute Settlement Understanding’ (2007) 24 Journal of International Arbitration 173, 183–88; see also H Nottage and J Bohanes, ‘Arbitration as an Alternative to Litigation in the WTO: Observations in the Light of the 2005 Banana Tariff Arbitrations’ in Y Taniguchi, A Yanovich and J Bohanes (eds), The WTO in the Twenty-first Century: Dispute Settlement, Negotiations, and Regionalism in Asia (CUP, 2007) 212, 246–47; D Jacyk, ‘The Integration of Article 25 Arbitration in WTO Dispute Settlement: The Past, Present and Future’ (2008) 15 Australian International Law Journal 235, 259. 10 For an excellent survey, see MCW Pinto, ‘The Prospects for International Arbitration: Inter-State Disputes’ in AHA Soons (ed), International Arbitration: Past and Prospects (Nijhoff, 1990) 63.

142  Jens Hillebrand Pohl a neutral third party of their own choosing about how to settle their dispute can be traced back to antiquity.11 A flexible concept, arbitration ranges from informal to formal procedures, which may result in non-binding advisory opinions or binding awards, and may comprise ad hoc proceedings as well as adjudication before what are effectively permanent ‘courts of arbitration’.12 In the area of commercial relations between States, arbitration rose to prominence in the nineteenth century, alongside the proliferation of friendship, commerce and navigation (FCN) treaties, which sometimes included arbitration clauses.13 Often arbitration was agreed ad hoc once a dispute had arisen to avoid destructive deterioration of relationships and escalation of retaliation and counter-retaliation. The arbitration practice that developed during this period was codified and elaborated in the Hague Conventions for the Pacific Settlement of International Disputes of 1899 and 1907 (Hague I). These Conventions continue to serve an important purpose among States that have ratified them, by providing procedural rules to be followed by the arbitral tribunal, unless the disputants have specifically agreed otherwise.14 Also, the GATT 1947 was originally intended to be subject to the Havana ­Charter’s dispute settlement system, based on arbitration.15 Since the Havana Charter never entered into force, the GATT panel procedure instead emerged as a unique form of multilateral dispute settlement, which much like arbitration involved submitting a dispute to neutral third-party adjudicators (the panel). However, unlike arbitration, panel proceedings were not strictly bilateral as between the disputants. Rather, all Contracting Parties to the GATT, disputants and non-disputants alike, were involved in the process, from the consensus decision whether to establish a panel to the consensus decision whether to adopt the panel’s report.16 Arbitration in a more conventional sense was not used to settle disputes under the GATT 1947, although at least once the disputing parties agreed beforehand to be bound by the panel’s ruling.17

11 ibid 65; see also JH Ralston, International Arbitration from Athens to Locarno (Stanford University Press, 1929) 153. 12 Examples of the latter include the Permanent Court of Arbitration, the International Court of Arbitration and the London Court of International Arbitration. 13 LB Sohn, ‘International Arbitration in Historical Perspective: Past and Present’ in AHA Soons (ed), International Arbitration: Past and Prospects (Nijhoff, 1990) 2; B Descamp, ‘General Survey of the Clauses of Mediation and Arbitration Affecting the Powers Represented at the Conference’ in JB Scott (ed), The Proceedings of the Hague Peace Conferences (Nijhoff, 1920) 191. 14 See Art 51 of the Hague I Convention of 1907 (Art 30 of the Hague I Convention of 1899). 15 See Arts 93.2 and 94.2 of the Havana Charter for an International Trade Organization, United Nations Conference on Trade and Employment, Final Act and Related Documents, E/CONF.2/78, United Nations publication, Sales No 1948.II.D.4. 16 See ME Footer, ‘The Role of Consensus in GATT/WTO Decision-making’ (1997) 17 Northwestern Journal of International Law & Business 653, 671. 17 This was in the context of the notorious ‘Chicken War’, US/EEC Negotiation on Poultry (BISD 12S/65). See GATT Doc No MTN.GNG/NGl3/W/2O, para 19. See also AF Lowenfeld, ‘“Doing unto Others …” – The Chicken War Ten Years After’ (1973) 4 Journal of Maritime Law and Commerce 599.

Blueprint for a Plurilateral Arbitration Agreement under Article 25 DSU  143 During the Uruguay Round of trade negotiations, the possibility of using arbitration to settle GATT disputes was brought up in 1987 in the Negotiating Group on Dispute Settlement. Binding arbitration was proposed as a way to address the requirement – then seen as a critical failure of the old GATT dispute settlement system – that panel reports be adopted (and become binding) by a consensus decision in the GATT Council, which allowed a dissatisfied disputant itself to block the report’s adoption and thus avoid having to comply with the panel’s recommendations or rulings. Although the proposals to institutionalise arbitration contemplated that disputants would have to consent to submit a dispute to arbitration, they envisaged that the arbitral award would be binding without further need for adoption. Several proposals were tabled.18 A joint proposed text on arbitration as an alternative means of dispute settlement was presented at the Ministerial meeting in Montreal in December 1988 and included in the Negotiating Group’s Improvements Decision of April 1989.19 With minor additional amendments, this text found its way into the DSU.20 The negotiating record provides no evidence that the GATT Contracting Parties shared any common understanding of the procedure that would be applicable to the arbitration contemplated by Article 25 DSU beyond the few limitations apparent from the text of that Article. On the contrary, the record shows that the negotiating parties deliberately opted for not providing further detail regarding permissible types of arbitration procedure,21 but that they instead chose to defer to disputants’ mutual agreement, which might include, where applicable, the procedure set out in the Hague I Conventions, of which they took cognisance.22 The arbitral case law – or more precisely, the one and only arbitration case decided under Article 25 DSU – confirms a deference to the contractual freedom of WTO Members under that Article to mutually agree on alternative dispute settlement mechanisms. The arbitrators in US – Section 110(5) of the Copyright Act (Article 25) (2001) concluded that neither the language of Article 25 nor the object 18 GATT Doc Nos MTN.GNG/NG13/W/6 (US), MTN.GNG/NG13/W/8 (Switzerland), MTN.GNG/ NG13/W/10 (Nordic Countries), MTN.GNG/NG13/W/12 (EEC), MTN.GNG/NG13/W/13 (Canada), MTN.GNG/NG13/W/19 (Korea). 19 See Trade Negotiations Committee Meeting at Ministerial Level, Montreal, December 1988, GATT Doc No MTN.TNC/7(MIN); Improvements to the GATT Dispute Settlement Rules and Procedures, Decision of 12 April 1989, L/6489; see also ‘Chairman’s Text’ of October 1990, GATT Doc No MTN. GNG/NG5/WGSP/W/26/Rev.1/Corr.1; ‘Dunkel Draft’ of December 1991, GATT Doc No MTN. TNC/W/FA. 20 In addition to optional arbitration as a ‘general purpose’ alternative to panel proceedings, the DSU also introduced special arbitration procedures relating to the determination of the ‘reasonable period of time’ for compliance with an adopted panel or Appellate Body ruling (Art 21.3(c)) and the appropriate level of retaliation or claims that the principles and procedures set forth in Art 22.3 have not been followed in connection with a request for authorisation to retaliate pursuant to Art 22.3(b) or (c) (Art 22.6). Arbitration provisions have also been included in some other covered agreements (eg Arts XXI.3 and 4 and XXII.3 GATS) and instruments (eg the Doha Waiver Decision). 21 GATT Doc No MTN.GNG/NG13/16, paras 25–26. 22 GATT Doc No MTN.GNG/NGl3/W/20, paras 8–11.

144  Jens Hillebrand Pohl and purpose of the DSU prevented arbitration from being considered as a means of reaching a mutually acceptable solution; viz a solution that the disputing parties have (in advance) mutually agreed to accept.23 In summary, the history and practice of Article 25 arbitration confirm that WTO Members have broad contractual freedom to design their own alternative means of dispute settlement within the WTO.

III.  Arbitration as an Alternative Means of Dispute Settlement The opening paragraph of Article 25 DSU describes ‘arbitration within the WTO as an alternative means of dispute settlement’ and declares that such arbitration, if it is expeditious, can facilitate the solution of ‘certain disputes that concern issues that are clearly defined by both parties’. As such, arbitration is a means of dispute settlement that exists within the WTO dispute settlement system and that is subject to the exclusive jurisdiction of that system.24 It is thus an integral part of, and not an (autonomous) alternative to, the WTO dispute settlement system.25 Rather, it is an alternative to panel and Appellate Body proceedings within the broader dispute settlement system. Article 25.1 DSU declares that expeditious Article 25 arbitration can facilitate dispute resolution. No direct legal consequences are attached to this declaration but it does provide important interpretive guidance, particularly when understood in the context of Articles 3.3, 3.4 and 3.7, third sentence, DSU. Expeditious arbitration serving to promote the prompt settlement of disputes, as described in Article 3.3, is ‘essential to the effective functioning of the WTO and the maintenance of a proper balance between the rights and obligations of Members’. The emphasis on the role of arbitration to ‘facilitate the solution’ of disputes is readily compatible with the aim, stated in Article 3.4, to achieve a ‘satisfactory settlement

23 Award of the Arbitrators, US – Section 110(5) of the US Copyright Act – Recourse to Arbitration under Article 25 of the DSU, WT/DS160, paras 2.4 and 2.5. The measure at issue, Section 110(5)(B) of the US Copyright Act, provided for limitations on exclusive rights granted to copyright holders in the form of exceptions for broadcasts by non-right holders of certain performances. A panel report had already been adopted, finding for the European Communities (EC) that the measure at issue did not meet the requirements of Art 13 of the TRIPS Agreement and was therefore inconsistent with Arts 11bis(1)(iii) and 11(1)(ii) of the Berne Convention (1971) as incorporated into the TRIPS Agreement by Art 9.1 of that Agreement. As a next step, the disputants mutually agreed to submit to Art 25 arbitration the determination of the level of nullification or impairment of benefits to the EC resulting from the measure at issue for purposes of developing mutually acceptable compensation pursuant to Art 22.2 DSU. The tribunal confirmed that Art 25 arbitration is not prevented from being considered as a ‘means of reaching a mutually acceptable compensation’ (ibid). 24 In the latter respect, see also Art 23.2(a) DSU. 25 See further L Boisson de Chazournes, ‘Arbitration at the WTO: A Terra Incognita to be Further Explored’ in S Charnovitz, D Steger and P Van den Bossche (eds), Law in the Service of Human Dignity: Essays in Honour of Florentino Feliciano 181, 199 (CUP, 2005).

Blueprint for a Plurilateral Arbitration Agreement under Article 25 DSU  145 of the matter’, as well as the preference expressed in Article 3.7, third sentence, for ‘solution[s] [that are] mutually acceptable to the parties’. Arbitration is, in other words, introduced as an alternative to panel and Appellate Body proceedings to enable disputants to expeditiously settle their dispute through a mutually agreed process, which results in a solution that the disputants have mutually agreed to accept. The following analysis of Article 25 and other relevant provisions of the DSU focuses on the scope of arbitration (Article 25.1), the agreement to arbitrate (­Article 25.2 and 25.3), the arbitral award (Article 25.3 and 25.4, as well as ­Articles  21 and 22), and the supervision of, and supervisory jurisdiction over, the arbitral process (Article 3.5). The purpose of this analysis is to identify variable design features that must or should be addressed within the framework of an ­Article 25 arbitration agreement.

A.  Scope of Arbitration In its descriptive function, Article 25.1 DSU refers to arbitration of ‘certain disputes that concern issues that are clearly defined by both parties’. The Uruguay Round negotiating record indicates an understanding that it would be for the disputants to decide and mutually agree on exactly what ‘certain’ types of disputes would be appropriate to bring to arbitration. This particular reference was aimed at ‘certain disputes basically of a factual nature’,26 but also recognised the multifarious nature of trade disputes by providing the disputants with a ‘choice between alternative and/or complementary [dispute settlement] techniques and ­mechanisms’.27 The negotiating record also mentioned arbitration as a ‘legal’ means of dispute settlement that tend[s] to be employed when the parties want to obtain ‘rule-oriented’, binding decisions in conformity with their mutually agreed long-term obligations and interests (as defined in multilaterally agreed legal rules of a permanent nature) and prefer to avoid the risks involved in ‘diplomatic’ means of dispute settlement (such as dependence on the consent and good will of the defendant, bilateral ad hoc solutions possibly reflecting the relative power of the parties rather than the merits of the case, a weakening effect on the legal rules and on their uniform, multilateral interpretation).28

Article 25.1 DSU also emphasises another aspect that would have to be addressed in an arbitration agreement, namely the ‘clear’ definition of the dispute. This would normally be set forth in the terms of reference that define the jurisdiction of the arbitral body and limit it to the questions referred to it. In principle, the terms of



26 GATT

Doc No MTN.GNG/NG13/W/19, 3. Doc No MTN.GNG/NG13/W/10, 1. 28 GATT Doc No MTN.GNG/NGl3/W/20, para 3. 27 GATT

146  Jens Hillebrand Pohl reference may comprise any kind of WTO dispute and may also limit the jurisdiction to finding of facts or to certain legal questions.29

B.  The Agreement to Arbitrate Article 25.2 DSU sets forth the requirement that disputing parties wishing to resort to arbitration enter into a mutual agreement to arbitrate, ‘[e]xcept as otherwise provided in the DSU’. This latter reference undoubtedly refers to mandatory arbitration pursuant to Articles 21.3(c) and 22.6 DSU, with the implication that Article 25 DSU, in principle and in pertinent parts, applies even to these types of arbitration. The arbitration agreement can relate to an already existing dispute (submission agreement) or to disputes arising in the future (general arbitration agreement).30 In the latter case, the agreement must provide for compulsory arbitral jurisdiction, which either party may invoke unilaterally by notification (accepting the other party’s standing offer to arbitrate) or else each disputant would have to agree separately (submission protocol) to implement the arbitration agreement before the tribunal could be constituted. Article 25.2 DSU provides that the parties ‘shall agree on the procedures to be followed’. Therefore, the arbitration agreement must set forth the arbitration procedures, which would include the number of arbitrators and the method of their selection, but also the applicable basis of the arbitral award, which may refer to the applicable law or authorise the arbitrators to render a ruling on equitable grounds (ex aequo et bono).31 As between WTO Members who have ratified the Hague I Conventions,32 if the arbitration agreement has not specifically determined the procedures to be followed by the arbitral tribunal, supplemental procedural provisions are laid down in Title IV, Chapter III in each Convention. To the extent that the arbitration procedures are otherwise left open, the arbitral tribunal will often itself determine the procedures necessary to dispose of the case. The parties to an arbitration agreement must notify such agreement to all WTO Members (Article 25.2 DSU). This must be done ‘sufficiently in advance 29 For example, the disputing parties in US – Section 110(5) Copyright Act (Article 25) (2001) agreed to limit the arbitral jurisdiction to the determination of a quantum of nullification or impairment of benefits, thus allowing the parties to use the arbitration award as a basis for a negotiated settlement. For a further example, arbitration could be used only to establish disputed facts, while subsequent panel proceedings were used to settle any disagreements on questions of law. 30 Art 39 of the Hague I Convention of 1907 (Art 17 of the Hague I Convention of 1899). 31 However, as will be further discussed under Subsection D below, Art 3.5 DSU provides that arbitration awards ‘shall be consistent with [the covered] agreements and shall not nullify or impair benefits accruing to any Member under those agreements, nor impede the attainment of any objective of those agreements’. 32 As of February 2018, 108 of the 164 WTO Members had acceded to either one or both of the Hague I Conventions. See list available at: http://pca-cpa.org/en/about/introduction/contractingparties/.

Blueprint for a Plurilateral Arbitration Agreement under Article 25 DSU  147 of the actual commencement of the arbitration process’. By what standard the sufficiency of the pre-notification is to be judged is not entirely clear, however. It might be that the notification serves to enable WTO Members other than the disputants to request an opportunity to participate as a third party in the arbitration proceedings, in which case the pre-notification period would have to be reasonable from that perspective. Indeed, Article 25.3 DSU provides that thirdparty participation is possible, albeit subject to the agreement of the disputants.33 However, a right for third parties to participate exists under Article 84.2 of the Hague I Convention of 1907 (Article 56.2 of the Hague I Convention of 1899), which provides that when a case concerns the interpretation of a multilateral treaty to which signatories to the Hague I Conventions, in addition to the disputants, are also parties, such signatories shall be entitled to intervene in the case.34 For that purpose, all signatories shall be informed in ‘good time’.

C.  The Arbitration Award The arbitration award is final and binding on the disputing parties (Article 25.3 DSU) and does not depend on the Dispute Settlement Body (DSB) adopting the award or taking any other action. Unlike recommendations and rulings of the DSB in the form of panel and Appellate Body reports, an arbitration award need not be published and does not necessarily contribute to the acquis of the WTO dispute settlement system.35 However, where the disputants are signatories to the Hague I Conventions, the ‘interpretation’ in an award of any of the WTO covered agreements would become ‘equally binding’ on other WTO Members who are also signatories to those Conventions and who have exercised their right pursuant to Article 84.2 of the Hague I Convention of 1907 (Article 56.2 of the Hague I Convention of 1899) to intervene as third parties in the arbitration proceedings.36 33 In the case of general arbitration agreements providing for compulsory arbitral jurisdiction, a party’s notification of a dispute serves as an acceptance of a standing offer to arbitrate, resulting in the conclusion of an implementing arbitration agreement (‘implementing compromis’), which, being an arbitration agreement, prima facie would have to be notified under Art 25.2 DSU. 34 It could be questioned if there is a norm conflict between Art 25.3 DSU and Art 84.2 of the Hague I Convention of 1907 in this respect, such that Art 30(3) of the Vienna Convention on the Law of Treaties, 1155 UNTS 331, (VCLT) would be applicable. However, it should be noted that, in contrast to the prevailing definition of norm conflict, the two provisions are fully capable of being applied at the same time (cf. Art 59(1)(b) VCLT) and are thus not mutually exclusive; and the disputants can comply with their obligations under the Hague Convention to permit a third participant to intervene by agreeing under the DSU to such participant becoming a party to the arbitration proceeding. For a proposed broader concept of norm conflict, see J Pauwelyn, Conflict of Norms in Public International Law (CUP, 2004) 170, 180ff. See also E Vranes, ‘The Definition of “Norm Conflict” in International Law and Legal Theory’ (2006) 17 European Journal of International Law 395. 35 Cf Appellate Body Report, US – Stainless Steel (Mexico) (2008) para 160. 36 Art 84.2 of the Hague I Convention of 1907 states: ‘When [the Award] concerns the interpretation of a Convention to which Powers other than those in dispute are parties, they shall inform all the

148  Jens Hillebrand Pohl While there is no requirement that arbitration awards be published,37 lack of publication effectively prevents the award from serving to clarify WTO law and exerting precedential influence beyond the parties in dispute (and any intervening third parties). Nevertheless, Article 25.3 DSU does provide that arbitration awards shall be notified to the DSB and the Council or Committee of any relevant agreement, which in practice is likely to ensure that the award will come into the public domain. In that context, Article 25.3 also provides that ‘any WTO Member may raise any point’ relating to the arbitration award, which implies that the award must be disclosed in full to the entire WTO membership. In practice, it might therefore be difficult to prevent an award from being made public. An arbitration award rendered under Article 25 DSU is subject to the same implementation surveillance and enforcement regime as panel reports and Appellate Body reports. Article 25.4 DSU provides that Articles 21 and 22 DSU shall apply mutatis mutandis to arbitration awards. In other words, such awards have the same standing as recommendations or rulings of the DSB, as reflected in panel reports or Appellate Body reports, when applying Articles 21 and 22 DSU. The references to such reports in those articles would then be interpreted mutatis mutandis to instead refer to the arbitral award. References to ‘recommendations and rulings of the DSB’ (see eg Article 21.1, 21.3, 21.5 and 21.6 and Article 22.1, 22.2 and 22.8 DSU) and the ‘establishment of the panel by the DSB’ (see Article 21.4 DSU) also evidently would refer to the arbitral award and the establishment of the arbitral tribunal, respectively. However, the same would not apply to other references to the DSB – where ‘DSB’ would continue to refer to the DSB – particularly with respect to the surveillance of the implementation of awards (see eg the role of the DSB in Articles 21.6, 22.2, 22.6 and 22.9 DSU).

D.  Supervision of the Arbitral Process In general, an arbitral award constitutes a final settlement of a dispute once it has been notified to the parties and entered into effect. The parties must then submit to the award in good faith unless the arbitration agreement foresees the possibility of further proceedings being brought (eg appeal, revision or interpretation). Where available, such further proceedings might then be based on substantive or procedural irregularities, lack of clarity, or the discovery of new evidence. By way of generally recognised exception, an award may not become effective where it is vitiated by irregularities so severe that it constitutes a nullity, such as if the award is not based on a valid arbitration agreement, a party has been denied Signatory Powers in good time. Each of these Powers is entitled to intervene in the case. If one or more avail themselves of this right, the interpretation contained in the Award is equally binding on them.’ 37 Indeed, confidentiality may be an important reason why parties in dispute choose to arbitrate rather than litigate. However, nothing prevents awards to be published if the parties to the proceedings so agree.

Blueprint for a Plurilateral Arbitration Agreement under Article 25 DSU  149 justice, or the arbitral proceedings failed fundamentally to observe due process or other essential procedural requirements.38 Nevertheless, although Articles 21 and 22 DSU ensure that – once an arbitral award has been handed down – the award is in effect automatically liable to implementation and enforcement, these articles do not provide for a procedure whereby a declaration of nullity by a party could be reviewed, confirmed, formalised and publicised. Nor does the DSU provide for any other procedure whereby an arbitral award could be annulled or set aside or be refused recognition or enforcement or otherwise declared ineffective. A respondent declaring a nullity might, in such situation, refuse to comply with the award and instead initiate new dispute settlement proceedings directed against the complainant’s measures to enforce the award (ie suspension of concessions), thus subjecting the award to indirect panel and, where available, Appellate Body review.39 In so seeking to challenge the enforcement of an arbitral award before a panel, the original respondent (and now complainant in the new panel proceedings) might claim that the award infringed Article 3.5 DSU, which provides that arbitral awards must be consistent with the covered agreements and must not nullify or impair benefits accruing to any Member under those agreements, nor impede the attainment of any objective of those agreements. On such basis, it could be argued that it would be inconsistent with Article 25 DSU for the WTO dispute settlement system to implement and enforce an arbitral award rendered on the basis of an invalid arbitration agreement.40 It would arguably have to be assumed that the resort to arbitration pursuant to Article 25.2 naturally refers to mutual agreements that are valid. Likewise, it would arguably be inconsistent with Article 25 to implement and enforce arbitral awards rendered as a result of an excess of jurisdiction, denial of justice, corruption of the arbitrators or an infringement of due process rights or of other essential procedural requirements.41 In the context of

38 See generally WM Reisman, Nullity and Revision: The Review and Enforcement of International Judgments and Awards (Yale University Press, 1971). See also DD Caron, ‘The Nature of the Iran–United States Claims Tribunal and the Evolving Structure of International Dispute Resolution’ (1990) 84 American Journal of International Law 104, 112 fn 31, noting that a problem with the customary right to declare an award a nullity is that ‘often no international court has jurisdiction to review the merits of a state’s declaration of nullity; thus, the declaration in effect becomes a justification for that state’s refusal to comply with the award’. 39 Similarly, a complainant claiming that an arbitration award is a nullity would be inclined to initiate subsequent panel proceedings on the basis of its original claim; ie a clear case of res judicata. 40 See eg Art 46 of the VCLT, which allows, by way of exception, a state to assert the invalidity of its consent on the basis of a violation of a rule of its internal laws, which relates to competence to conclude treaties, provided that the violation was manifest, and the violated rule was one of ‘fundamental importance’. For further examples of situations that might result in invalidity of an arbitration agreement, see Arts 47–53 of the VCLT. 41 Similarly, Art 3.5 DSU might be invoked by a WTO Member who, contrary to the arbitration agreement, has been denied the right to intervene as a third party in the arbitration. This could be construed as an excess of jurisdiction, denial of justice or an infringement of an essential procedural requirement, viz the third party’s due process rights.

150  Jens Hillebrand Pohl international arbitration under domestic law, these would be normal grounds for a setting-aside of an arbitral award or a refusal to implement or enforce an award by a domestic court. However, the substantive scope of Article 3.5 DSU is by no means limited to what would normally be considered grounds for setting aside an arbitral award in a domestic law context. Rather, Article 3.5 might equally be invoked against the enforcement of any arbitral award that is substantively inconsistent with any provision of any of the covered agreements. In other words, a challenge against the enforcement of an arbitral award would not have to be limited to inconsistencies with Article 25, but might address the substantive issues at dispute, ie the merits of the award. For example, the enforcement of an award, by which arbitrators manifestly misapplied a provision of a covered agreement or disregarded Appellate Body case law, might also be actionable under Article 3.5. If arbitration cases could thus be reopened and disputes heard de novo – and not restricted to annulment grounds – then the finality and binding nature of arbitral awards would be effectively eroded. The question then is how and on what basis the original complainant (the respondent in the new proceedings) could avoid re-litigation before a panel and Appellate Body and insist that the matter is res judicata. Since a panel would be established by negative consensus, ie quasi-automatically, it is apparent that, unless the arbitration agreement expressly addresses the possibility of subsequent arbitral proceedings (eg appellate arbitration), such re-litigation might not be possible to block, and it would thus be for the panel to assess not only the new complainant’s claim under Article 3.5 DSU, but also the new respondent’s potential jurisdictional objections. Even though panels might be able to decline to exercise jurisdiction that has not been ‘validly established’, there is a risk that the question of jurisdiction could end up being addressed by the panel together with the merits of the Article 3.5 claim.42 It is therefore advisable to address this contingency in the arbitration agreement.

IV.  Essential Elements of an Article 25 Arbitration Agreement To render Article 25 arbitration operational as an expeditious alternative to ordinary WTO judicial proceedings, it is practical to sign a general arbitration

42 See Appellate Body Report, Mexico – Taxes on Soft Drinks (2006), para 53, where the Appellate Body concluded that ‘a decision by a panel to decline to exercise validly established jurisdiction would seem to “diminish” the right of the complaining Member to “seek the redress of a violation of obligations” within the meaning of Article 23 of the DSU, and to bring a dispute pursuant to Article 3.3 of the DSU’.

Blueprint for a Plurilateral Arbitration Agreement under Article 25 DSU  151 agreement and not rely on an ad hoc arbitration submission agreement. Only by ensuring that a mutually acceptable arbitration framework is available before a dispute has arisen can the legal certainty and predictability of the arbitral process be guaranteed. To ensure the availability of arbitration among as many WTO Members as possible on uniform terms, the arbitration agreement would ideally constitute a multilateral agreement, or, failing that, a plurilateral agreement, within the WTO architecture, ie be open to signature by WTO Members on a voluntary basis. Such a ‘pre-negotiated’ and broad-based (multilateral or plurilateral) arbitration framework would also ensure uniform procedural rules and a level-playing field among potential disputants – unaffected by the disputants’ bargaining power or likelihood of appearing as complainant or respondent. The essential elements of such plurilateral WTO arbitration agreement are discussed below: (1) Commencement of proceedings. The agreement should address the prerequisites and formal requirements for bringing a dispute to arbitration. This might involve requiring the exhaustion of certain other remedies, such as consultation or mediation, before resorting to arbitration. The arbitration agreement could provide for optional or mandatory arbitration. Where arbitration is optional for the complainant, the agreement may require a choice between remedies (‘fork in the road’), such as between initiating panel proceedings and resorting to arbitration, in order to avoid parallel or subsequent panel proceedings. The arbitration might also be optional for the respondent, who then would be entitled to invoke the arbitration agreement and refer the dispute to arbitration in the event of a complainant choosing to initiate panel proceedings. Alternatively, the arbitration agreement might be mandatory and require a dispute to be submitted to arbitration and thus preclude panel proceedings. If the arbitration framework should effectively serve the purpose of bypassing gridlock in the WTO judicial dispute settlement, both parties should have the option to invoke arbitration, which is equivalent to mandatory arbitration, which could be waived if both parties agree. (2) Parallel and subsequent proceedings. To enforce an arbitration agreement against a complainant, where the arbitration is mandatory or optional for the respondent, and thus to avoid parallel proceedings, it is practical to include in the arbitration agreement a provision, pursuant to Article 7.1 DSU, relating to special panel terms of reference.43 Such special terms of reference would minimise or effectively eliminate the jurisdiction of the panel to hear the dispute and thus avoid having to raise jurisdictional objections before a parallel panel and rely on the panel’s narrow grounds for declining jurisdiction under Mexico – Taxes on

43 Such agreements on terms of reference would be concluded before the establishment of the relevant panel and thus within the 20-day period set forth in Art 7.1 DSU.

152  Jens Hillebrand Pohl Soft Drinks (2006).44 Similarly, special terms of reference could be used to prevent subsequent panel proceedings relating to the same dispute. (3) Appointment of arbitrators and secretarial support. It is essential that the arbitration agreement describe how arbitrators should be appointed, including, among other things, their qualifications,45 the time frame within which selection of arbitrators should take place, the resort to an appointing authority, how arbitrators can be replaced and vacancies be filled, and any supplemental rules of conduct that should apply to them in addition to the Rules of Conduct for the DSU.46 Another important practical aspect is the secretarial support function. Although it does not follow clearly from Article 27 DSU that the WTO Secretariat shall have responsibility for servicing arbitrations, such support is regularly provided in the context of Article 21.3(c) and 22.6 arbitrations and was extended in the past to the Article 25 arbitration in US – Section 110(5) of the US Copyright Act (Article 25) (2001).47 Another possibility might be to rely on the support of the respective secretariats of the Permanent Court of Arbitration, the International Chamber of Commerce or UNCITRAL. (4) Arbitration terms of reference. It is very important to carefully consider the scope of the jurisdiction of the arbitral tribunal, which is delimited in the terms of reference. The jurisdiction may extend broadly to any dispute relating to any of the covered agreements. Alternatively, the arbitration terms of reference may provide a general framework description of eligible disputes, beyond which disputes may not be submitted to arbitration. In any event, the complainant would unilaterally notify supplemental terms of reference once a dispute has arisen, by which the complainant clearly defines its claim. The complainant may also choose to arbitrate a particular factual or legal question – for purposes of further negotiation with the respondent – in which case the supplemental terms of reference may also further delimit the arbitral tribunal’s jurisdiction to such clearly defined factual or legal questions. In that case, the special panel terms of reference (see point 2 above) would have to accommodate subsequent proceedings on the remaining issues in dispute.

44 Mexico – Taxes on Soft Drinks, (above n 42). Such terms of reference might still not preclude the complainant from objecting that the arbitration agreement is null and void, inoperative or incapable of being performed. See by analogy Art II.3 of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958. 45 Given that the Appellate Body might be called upon to exercise indirect supervisory jurisdiction over the arbitral proceedings (see Section III.D above), currently serving Appellate Body members would have to be disqualified from serving in the capacity of arbitrators. 46 Pursuant to Sections II.1 and IV.1 of the Rules of Conduct of the Understanding on Rules and Procedures Governing the Settlement of Disputes, WT/DSB/RC/1, arbitrators are ‘covered persons’ and thus subject to those rules of conduct. 47 It was also extended to the Banana Tariff Arbitrations under the Doha Waiver. See Nottage and Bohanes (above n 9) 244.

Blueprint for a Plurilateral Arbitration Agreement under Article 25 DSU  153 (5) Procedural rules. The body of rules governing the arbitral procedure should be specified in the arbitration agreement (Article 25.3 DSU). It is advisable to provide sufficient detail in the agreement (beyond what may follow from the procedural rules of the Hague I Conventions), which may be achieved by referring to standard arbitration rules, such as the UNCITRAL or ICC arbitration rules, supplemented or adapted as necessary. Another possibility is to draw up procedures that seek to replicate the panel or Appellate Body procedures. The main elements that would normally be addressed include the time frame of the proceedings, exchange of written pleadings, oral hearings, the seat of arbitration, confidentiality, and the cost of the proceedings. (6) Third-party participation. Of particular importance in the context of arbitration within the WTO is to make provision for the intervention of WTO Members other than the original parties in dispute. The arbitration agreement should specify third-party participation rights, including rights to submit pleadings, attend hearings and obtain information. Where applicable, it may be desirable to expressly contract out of Article 84.2 of the Hague I Convention of 1907 (Article 56.2 of the Hague I Convention of 1899) to avoid interpretations that are binding on intervening third parties. (7) Interpretation, correction, revision, annulment and appeal. The arbitration agreement should provide that, if the meaning or scope of an award is ambiguous or if there is a clerical error in the award, the arbitral tribunal shall construe it or correct it upon a party’s request.48 The agreement should also provide for a right to request revision of an arbitral award, such as upon discovery of new facts or evidence.49 To reduce the risk that a disputant asserts its own determination of nullity or seeks to institute panel proceedings against enforcement measures,50 it is advisable to expressly address the possibility of annulment of an award. The agreement should then provide for annulment review by a separate ad hoc arbitral body.51 This would normally involve transgressions of essential procedural requirements or an excess of jurisdiction.52 Finally, the arbitration agreement might instead provide for full appellate review of awards, also by a separate arbitral body specified in the agreement, particularly in order to replicate the benefits of Appellate Body proceedings.53

48 See eg Arts 37 and 38, respectively, of the UNCITRAL Arbitration Rules. 49 Cf Art 51 of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). 50 See above Section III.D. 51 Cf Art 52 ICSID Convention. 52 ibid. See also Art 34 UNCITRAL Model Law on International Commercial Arbitration. 53 An example of arbitration rules that provide for appellate arbitral proceedings are the Arbitration Rules of the European Court of Arbitration (Art 28). It has been suggested that arbitration could be used only for purposes of appellate review of panel reports. Cf Andersen et al (above n 8). For this purpose, the panel proceedings would be suspended once the panel report is issued to the parties, but

154  Jens Hillebrand Pohl

V. Conclusion The promise of ‘expeditious arbitration’ to ‘facilitate the solution of … disputes’ could offer a practical workaround for the systemic rigidities and frailties of the WTO dispute settlement system. It could alleviate the caseload of panels and the Appellate Body and ensure that politicised delays in Appellate Body appointments are not allowed to put the proper functioning of the dispute settlement system at risk. Realising that promise requires a carefully designed arbitration agreement, something time will not permit after a dispute has arisen. Only a well-designed and predictable procedural framework in respect of future disputes, among as many WTO Members as possible, can ensure that Article 25 DSU can operate as an effective alternative to panel and Appellate Body proceedings. Such a framework would realistically be a plurilateral initiative within the WTO architecture. Such a plurilateral arbitration framework would have to provide sufficient detail on the arbitral procedure to serve as an effective alternative to the existing means of dispute settlement. It would have to address formal requirements to initiate arbitral proceedings, including the appointment of arbitrators and servicing of the proceedings, as well as the terms of reference for the arbitration, and the procedural rules to be followed, including with respect to third-party participation. Importantly, it would need to address the prospect of parallel and subsequent WTO panel proceedings with respect to the same dispute. To serve as a true alternative to panel proceedings, however, the arbitration agreement would need to provide an appellate mechanism replicating that of the Appellate Body or at least an annulment facility that would insulate the arbitral process from arbitral awards being declared nullities by the disputants, such as in the case of manifest excess of jurisdiction or denial of justice. Given the flexibility of the concept of arbitration, Article 25 DSU essentially gives WTO Members the freedom to devise their own adjudicatory dispute settlement mechanisms, to define the scope of their jurisdiction and to design their procedural architecture. This freedom is subject to the overarching duty of consistency with the covered agreements and may not result in the nullification or impairment of benefits accruing to other Members under those agreements, nor in impeding the attainment of any objective of those agreements. As outlined above, the DSU was designed to make available the possibility to settle disputes arising under the covered agreements by means of arbitration. To realise that possibility, it is not sufficient that WTO Members conclude an arbitration agreement once a dispute has arisen. To be effective, such an agreement

before it is circulated to all WTO Members. While this might prevent the report from being adopted (cf EC – Butter (1999)), it might not prevent an appeal before the circulation of the report to the Members, in which case it is doubtful whether the Appellate Body would consider the appeal inadmissible. Moreover, the respondent would be unable to resort to appellate arbitration since only a complainant may suspend panel proceedings.

Blueprint for a Plurilateral Arbitration Agreement under Article 25 DSU  155 must be carefully negotiated under conditions conducive to producing a balanced outcome. It is argued here that an arbitration framework should be agreed on a broad-based, plurilateral basis and should be designed with a view to providing a permanent mechanism that is well integrated with the existing judicial dispute settlement of the WTO. The availability of arbitration as a true alternative to panel and Appellate Body proceedings would be one way to address the Appellate Body’s endemic resource constraints as well as the risks associated with an inability to reach consensus on Appellate Body vacancies.

156

9 Improving the Enforcement of Labour Standards in the EU’s Free Trade Agreements MARCO BRONCKERS AND GIOVANNI GRUNI*

I. Introduction For several years now, the European Parliament has been calling for better enforcement of environmental and labour provisions in the EU’s free trade agreements (FTAs).1 Recently, the topic entered the political limelight within Member States. For instance, during his election campaign, French President Macron called for the creation of an ‘EU prosecutor’ to police sustainability obligations.2 More recently, the new German coalition agreement between the CDU/CSU and SPD has insisted on ‘binding social, human rights and environmental standards in EU trade, investment and economic partnership agreements’.3 Private stakeholders4 and academic observers5 have pointed out weaknesses in the EU’s enforcement

* We have benefited from exchanges with the editors of this volume, Adelle Blackett (McGill ­University) and Paul van der Heijden (Leiden University). The usual disclaimer applies. 1 See para 22(a) Resolution on human rights and social and environmental standards in international trade agreements of 25 November 2010 (2009/2219(INI)) and paras 22(c) and (d) Resolution on implementation of the 2010 recommendations of Parliament on social and environmental standards, human rights and corporate responsibility of 5 July 2016 (2015/2038(INI)). 2 En Marche, Official Programme on Industry, available at: http://en-marche.fr/emmanuel-macron/ le-programme/industrie. 3 Borderlex, ‘Trade: German coalitions deal’, 7 February 2018, available at: http://borderlex.eu/bloggerman-coalition-deal-chablis-vs-beef/. 4 See submission of the European Trade Union Confederation (ETUC) on the Non-paper of the European Commission services on Trade and Sustainable Development (TSD) Chapters in EU Free Trade Agreements (FTAs), 11 October 2017, available at: www.etuc.org/documents/etuc-submissionnon-paper-commission-services-trade-and-sustainable-development-tsd#.WtRdzdNuaik. 5 For an analysis of existing labour standard clauses in EU FTAs see L Bartels, ‘Human Rights and Sustainable Development Obligations in EU Free Trade Agreements’ (2013) 40 Legal Issues of Economic Integration 297; L Bartels, ‘Human Rights, Labour Standards and Environmental Standards in CETA’ in E Vranes, A Orator and D Fuhrer (eds), Mega-Regional Agreements: TTIP, CETA, TiSA: New Orientations for EU External Economic Relations (OUP, 2017); L Bartels, ‘Social Issues: Labour, ­Environment

158  Marco Bronckers and Giovanni Gruni record as well. These enforcement weaknesses have undermined the confidence of civil society and other stakeholders in the ability of the EU to promote sustainable development through its FTAs and have thus weakened support for these trade liberalisation initiatives. In response to this societal pressure, the European Commission issued two non-papers, in 2017 and 2018.6 The Commission envisages several improvements in the implementation of FTA sustainability chapters. Some of its proposals are worthwhile indeed. For example, the Commission emphasises the need for more transparency of its enforcement actions. Most attention, though, has been devoted to the question of whether infringements of the sustainability chapters in the FTAs should be subject to (trade) sanctions. Ultimately, the Commission maintains its view that this is not desirable. No attention is given in these Commission papers to the rather more pressing issue, in our view, of an effective private complaints procedure. This is the focus of our chapter. Rather than an absence of trade action at the end of an investigation, the main problem in the enforcement of the EU’s sustainability chapters seems to us to be a lack of timely opening and pursuit of investigations following well-documented complaints of private stakeholders. In developing our proposal, we will refer in particular to the enforcement of labour standards included in the FTAs.

II.  Modelling a Private Complaint Procedure To date, academic observers have made various suggestions as to how a private complaint procedure might look. Here is a brief overview that can help to situate our proposal. Some observers have reflected that the model of Investor–State Dispute Settlement (ISDS) might be extended to cover trade and sustainability obligations.7

and Human Rights’ in S Lester, B Mercurio and L Bartels (eds), Bilateral and Regional Trade Agreements: Commentary, Analysis and Case Studies (CUP, 2015); G Gruni, ‘Law or Aspiration? The European Union Proposal for a Labour Standard Clause in the Transatlantic Trade and Investment Partnership’ (2016) 43 Legal Issues of Economic Integration 399; G Gruni, ‘Labour Standards in the EU-South Korea Free Trade Agreement’ (2017) 5 Korean Journal of International and Comparative Law 100. 6 See the two non-papers of the European Commission services, ‘Trade and sustainable development chapters in EU free trade agreements’, 11 July 2017, available at: http://trade.ec.europa.eu/doclib/ docs/2017/july/tradoc_155686.pdf; and ‘Feedback and way forward on improving the implementation and enforcement of trade and sustainable development chapters in EU free trade agreements’, 26 February 2018, available at: http://trade.ec.europa.eu/doclib/docs/2018/february/tradoc_156618.pdf. 7 On the ‘enforcement disparity’ between investors’ rights and labour standards in FTAs see H Gött, ‘An Individual Labour Complaint Procedure for Workers, Trade Unions, Employers and NGOs in Future Free Trade Agreements’ in H Gött (ed), Labour Standards in International Economic Law (Springer, 2018) 185.

Enforcing Labour Standards in EU FTAs  159 We concluded that this was not particularly helpful. For one thing, that model has been criticised on various grounds, for instance in that it gives individual foreign complainants the power to select arbitrators in a dispute with a foreign government.8 That debate need not cloud our proposal. More practical problems with the expansion of ISDS to cover sustainability obligations have been raised as well, such as the high cost of these proceedings for private c­omplainants.9 Fundamentally, one also has to recognise that investors in ISDS pursue their own economic interests. That is not necessarily the case when a private complaint is raised in the EU about the violation by a third country of a labour standard included in an FTA. Such a complaint is not only, or perhaps even primarily, about preserving an economic interest of the EU-based complainant. According to the Court of Justice of the European Union, an important consideration for the inclusion of sustainability provisions in trade agreements has been the ‘reduction of major disparities’ between the costs of producing goods and services in each of the signatories.10 But that cannot be the only goal, as a difference of production costs is to be expected between developing and developed countries, and can also play a perfectly legitimate role in the competition between sectors amongst developed countries.11 Sustainability provisions, like labour standards, have other goals too. Notably they reflect shared aspirations between trading partners on the organisation of their societies, which make deeper economic integration acceptable on both sides. This was recognised by the European Commission in its first non-paper of 2017.12 Even if we agree with some of its premises, we also distance ourselves from the collective action procedure the think tank Friedrich-Ebert-Stiftung proposed in 2017.13 It would give social partners (rather than individual private parties) the right to bring complaints directly to an international tribunal the members of which would be selected up front by governments (without the involvement of the

8 JD Fry and JI Stampalija, ‘Forged Independence and Impartiality: Conflicts of Interest of International Arbitrators in Investment Disputes’ (2014) 30 Arbitration International 189; M Waibel, ‘ICSID Arbitrators: The Ultimate Social Network?’ EJIL Talk, 25 September 2014, available at: www.ejiltalk. org/icsid-arbitrators-the-ultimate-social-network/; M Langford, D Behn and RH Lie, ‘The Revolving Door in International Investment Arbitration’ (2017) 20 Journal of International Economic Law 301. 9 See A Marx, F Ebert, N Hachez and J Wouters, Dispute Settlement in the Trade and Sustainable Development Chapters of EU Trade Agreements (Leuven Centre for Global Governance Studies, 2017) 81–82. 10 See Opinion 2/15 [2017] ECLI:EU:C:2016:992, para 159. The Court probably emphasised these trade effects because it was considering divisions of competence between the EU and its Member States. Linking sustainability provisions to trade helped to construe exclusive competence for the EU regarding these provisions under Art 207 TFEU. 11 See, for instance, Art 13.2(2) EU–South Korea FTA: ‘The Parties note that their comparative advantage should in no way be called into question [by environmental and labour standards]’. 12 See European Commission services, ‘Trade and sustainable development chapters in EU free trade agreements’, 11 July 2017, 8. 13 PT Stoll, H Gött and P Abel, ‘Model Labour Chapter for EU Trade Agreements’, 28 June 2017, 39, available at: www.fes-asia.org/fileadmin/user_upload/documents/2017-06-Model_Labour_Chapter_DRAFT.pdf.

160  Marco Bronckers and Giovanni Gruni social partners) after local remedies had been tried unsuccessfully.14 This seems to us to be a bridge too far, given the fledgling state of the sustainability chapters in the EU’s FTAs. Instead of proposing such far-reaching access of private parties in the FTA itself, we opt for a different solution. Social partners can trigger an investigation at EU level, where the European Commission remains in charge of any further dispute settlement proceedings brought under the FTA. Against this background, we side with those15 who have taken inspiration from the EU’s Trade Barriers Regulation (TBR).16 This mechanism allows for private complaints from EU industries about violations by the EU’s trading partners of multilateral or bilateral trade agreements.17 The TBR preserves the state-to-state character of dispute settlement between governments. However, it does entitle certain complainants with a serious case about a trade agreement violation to an in-depth investigation by the European Commission, if necessary, followed by government-to-government consultations. Should consultations fail, international dispute settlement and perhaps sanctions by the EU might follow, even though the point of a TBR case for private complainants is to obtain a positive solution, notably a settlement of their grievances once they have been thoroughly investigated, rather than obtaining trade sanctions from the EU against the third country. What we propose is a modification of the TBR so that it can be used as well for private complaints brought against violations of sustainability provisions in the EU’s FTA. While following the TBR model, we are cognisant of the characteristics of labour rights in the FTAs. Compliance is not only of interest to EU industries, but also to labour unions. As indicated above, their violation is not only, or even primarily, a trade concern. And to date, even if the EU has accepted adjudication by independent expert panels of labour rule violations in some recent FTAs, this is always without sanctions and older FTAs do not have third-party adjudication. In addition, resort to international dispute settlement is more burdensome, costly and time consuming than domestic procedures to enforce international obligations such as the TBR. Accordingly, procedural rules and, ultimately, the remedies currently found in the TBR ought to be adapted. Therefore, in our model for a private complaint procedure, we will also propose a change to the international dispute settlement mechanisms regarding labour rules in the EU’s FTAs.

14 See Art X.37 of the proposal. 15 L Bartels, ‘A Model Human Rights Clause for the EU’s International Trade Agreements’, February 2014, available at: www.institut-fuer-menschenrechte.de/uploads/tx_commerce/Studie_A_Model_ Human_Rights_Clause.pdf; L Ankersmit, ‘A Formal Complaint Procedure for a More Assertive Approach Towards TSD Commitments’, ClientEarth, 27 October 2017 (Version 1.1). 16 Regulation (EU) 2015/1843 of the European Parliament and of the Council of 6 October 2015, OJ L272/1 (TBR). 17 Art 1 TBR.

Enforcing Labour Standards in EU FTAs  161

A.  Admissibility of a Private Complaint It is important to design appropriate admissibility thresholds since the Commission has limited resources and cannot be expected to investigate thoroughly and in a time-limited fashion each and every complaint it receives. Furthermore, engaging with a third country on the grounds that it may have violated its international obligations towards the EU also taxes diplomatic relations. Thus, complaints ­without sufficient merit should be filtered out.

i. Representativeness The TBR has been used in the EU since 1994,18 when it replaced the New Commercial Policy Instrument, but presently only industrial stakeholders are allowed to bring a private complaint.19 We propose including an additional category of private complainants with regard to the enforcement of labour standards: representative EU social partners (trade unions and employers’ organisations). When a social partner filed the request, the European Commission would first check if the social partner was an interested party. It is of interest that labour unions are now beginning to find their place in the EU’s trade instruments. Thus, with the new reform of the Trade Defence Instrument (TDI),20 trade unions will be given the right to lodge an application for the initiation of an anti-dumping or anti-subsidy investigation even if only jointly with a Union industry.21 With regard to TDI proceedings there is in fact case law requiring that a potential party to the investigation should demonstrate an objective link between the product concerned and its activities.22 This is because the intervening organisation (Union industry or trade union) should be able to show that the outcome of the TDI investigation affects them. Accordingly, in the TDI interested trade unions would be trade unions representing employees of companies producing the product subject to investigation or that are suppliers of producers of the product subject to investigation.23

18 For an introduction to the TBR see M Bronckers and N McNelis, ‘The EU Trade Barriers Regulation Comes of Age’ (2001) 35 Journal of World Trade 427. 19 Arts 3 and 4 TBR. 20 Regulation (EU) 2016/1036 of 8 June 2016 on protection against dumped imports from countries not members of the European Union, OJ L176/21; Regulation (EU) 2016/1037 of 8 June 2016 on protection against subsidised imports from countries not members of the European Union, OJ L176/55. 21 Regulation 2016/1036 Art 5 and Regulation 2016/1037 Art 10; European Parliament, Committee on International Trade, Provisional agreement resulting from interinstitutional negotiations, 22 January 2018, available at: www.emeeting.europarl.europa.eu/committees/agenda/201801/INTA/ INTA(2018)0122_1P/sitt-7666743. 22 Case T-256/97 Bureau Européen des Unions de Consommateurs (BEUC) [2000] ECLI:EU:T:2000:21. 23 See W Muller, ‘The EU’s New Trade Defence Laws – A Two Steps Approach’ (forthcoming 2018) European Yearbook of International Economic Law.

162  Marco Bronckers and Giovanni Gruni The difference between our proposal and the model being introduced in the TDI is that in our proposal trade unions would have a right to file a complaint independently, without other social or industrial partners. In our view, trade unions have their own interests in bringing a complaint with regard to labour standards violations and are in a position to autonomously provide sufficient evidence of the violation. Another reason to allow trade unions to act independently is that in a modified TBR procedure, accommodating labour standards, the interests justifying the complaint of a labour union differ from the interests of labour unions in TDI proceedings. In TDI proceedings trade unions would intervene mainly to protect employment and avoid job losses. In contrast, with regard to labour standards included in the EU’s FTAs they have a broader interest, also in the protection of shared values and fundamental rights. In view of these broader interests, one need not necessarily limit the admissibility of a labour union complaint to situations where its members manufacture the same products as the ones involved in the alleged violation of the labour right in the third country. We propose that the European Commission would accept complaints from social partners that are considered representative on the basis of the recognition procedure of Article 154 of the Treaty on the Functioning of the European Union (TFEU). This Article provides that whenever the Commission is proposing EU legislation in the social policy field, management and labour unions shall be consulted. Such consultation can also lead to the conclusion of agreements between social partners and EU institutions.24 To put this procedure into operation the European Commission had to identify the social partners to be consulted whenever required by EU law. This led to the creation of a list25 on the basis of studies that the EU Foundation for the Improvement of Living and Working Conditions (Eurofund)26 conducts on social partners to identify social partners that are organised at EU level and capable of being consulted and negotiating agreements. We submit that the same employer organisations and trade unions that are selected to take part in such procedures and have extensive institutional experience in dealing with labour issues at EU level are also in a position to have the legal right to take action for the violation of one of the labour standards protected under EU FTAs. There is in fact already an institutional infrastructure in place allowing the European Commission to interact with these social partners.27 The use of this list of social partners would reduce drastically the number of persons allowed to

24 Art 155 TFEU. See C Barnard, EU Employment Law (OUP, 2012) 47. 25 List of European social partners’ organisations consulted under Art 154, available at: http:// ec.europa.eu/social/BlobServlet?docId=2154&langId=en. 26 Eurofund, ‘Representativeness of the Social Partners in the European Cross-Industry Social Dialogue’ (2013), available at: www.eurofound.europa.eu/sites/default/files/ef_files/docs/eiro/tn1302018s/ tn1302018s.pdf. 27 European Union, ‘Consulting European Social Partners: Understanding How it Works’, available at: http://ec.europa.eu/social/BlobServlet?docId=7208&langId=en.

Enforcing Labour Standards in EU FTAs  163 bring an action under the proposed procedure. The list includes umbrella organisations such as Business Europe and the European Trade Union Confederation as well as sectoral social partners. Under our proposal, umbrella organisations would have legal standing to trigger an investigation for violations occurring in any economic area. Sectoral organisations would have legal standing for violations perpetrated in their sector of competence. Each organisation would be allowed to file a complaint independently. However, the European Commission could merge different complaints in the same procedure at a later stage. We would not be in favour, at least not at this stage, of the EU Parliament’s proposal to grant civil society the right to complain about labour standards violations by third countries.28 Social partners participate in various fora at domestic level, in the EU and in the International Labour Organization (ILO) for the creation and implementation of labour standards. If they see a reason for the EU not to pursue a complaint against the labour practices in a third country, their reticence should be given due weight. However, we would welcome civil society intervention in any proceedings that would be undertaken against the third country. Their perspectives could indeed contribute to more informed decision-making by EU authorities.

ii. Merits When the European Commission receives a complaint from a representative social partner it needs to conduct another check to filter out frivolous complaints by assessing whether the complaint appears to have sufficient merit. In order to decide on admissibility, it is sufficient for the Commission to conduct a preliminary analysis, which in the present TBR is based on sufficient evidence to initiate a procedure. The TBR requires a petitioner to show that the FTA obligation establishes a right of action for the EU; a requirement that would not need to be adapted. In fact, according to the TBR, such a right of action exists when the relevant international rules ‘either prohibit a practice outright, or give another party affected by the practice a right to seek elimination of the effect of the practice in question’.29 This flexible formula captures violations of various types of labour standards currently found in FTAs: not just ‘hard’ obligations, but also ‘softer’ yet still meaningful standards. In fact, in the area of labour rights various types of provisions can be distinguished in the EU’s FTAs: hard and self-standing obligations, obligations that refer

28 See Resolution on implementation of the 2010 recommendations of Parliament on social and environmental standards, human rights and corporate responsibility of 5 July 2016 (2015/2038(INI)), para 22(c). 29 See Art 2(1)(a) TBR.

164  Marco Bronckers and Giovanni Gruni to other international agreements, qualified obligations that require an impact on trade or investment, and softer obligations or affirmations. The EU–Canada Comprehensive Economic and Trade Agreement (CETA), for instance, includes ‘hard obligations’ to ‘embody and provide protection’30 under listed labour standards and to ‘implement’31 ILO Conventions the parties ratified, but also vaguer obligations to ‘promote awareness’ of labour obligations.32 Other agreements, such as the EU–South Korea FTA, include mere declarations of intent where the parties, for instance, ‘reconfirm that trade should promote sustainable development’.33 Such declarations barely have any legal significance. Accordingly, it would be useful for the EU to reassess in its existing FTAs, and in the FTAs to come, whether the softer standards it may want to include are meaningful enough to create a right to seek an elimination of non-complying practices. If an international standard would not even allow that, we would submit that there is good reason to renegotiate or scrap such standard rather than to ‘pollute’ an international treaty with something unlikely to produce any meaningful legal consequence. A crucial point, however, is that the private complaint procedure should not require the demonstration of any effects on, or links with, trade, global trade patterns or social dumping.34 Presently, petitioners under the TBR have to demonstrate some sort of trade effect.35 Already in respect of violations of trade agreements within third-country markets, this requirement is not to be interpreted stringently.36 Yet, this requirement would be entirely misplaced in respect of complaints concerning labour rights violations. In fact, experience has shown that it is very difficult to demonstrate the trade impact of labour right violations.37 Furthermore, as the Commission itself recognised in its non-paper of July 2017, labour standards in FTAs are not only, or even primarily, driven by economic concerns.38 Again, private complaints should not only be admitted in order to challenge undue cost disparities or trade distortions. Such trade distortions are difficult to prove, and they are not the only or primary concern. Labour standards are fundamentally included in FTAs to reflect shared values amongst trading p ­ artners which have decided to establish closer relations; or standards 30 Art 23.3 CETA. 31 ibid. 32 Art 23.6 CETA. 33 Art 13.6 EU–South Korea FTA. 34 Dominican Republic–Central America–United States Free Trade Agreement, Arbitral Panel established pursuant to chapter twenty in the matter of Guatemala – Issues Relating to the Obligations Under Art 16.2.1(a) of the CAFTA-DR, 14 July 2017, available at: http://bit.ly/2tiQos4. 35 See Art 3 TBR. 36 Bronckers and McNelis (above n 18) 441–42. 37 See Guatemala – Issues Relating to the Obligations Under Art 16.2.1(a) of the CAFTA-DR (above n  34); S Polaski, ‘Twenty Years of Progress at Risk. Labor and Environmental Protections in Trade Agreements’ (GEGI Policy Brief 004, 2017). 38 See above text at n 12.

Enforcing Labour Standards in EU FTAs  165 to which at least the EU is particularly attached and views as a prerequisite to establishing closer relations. Either way, the investigation of a private complaint would be underpinned by the objectives and values that the EU should promote under Article 21 of the Treaty on European Union (TEU) and in its social policy objectives of Articles 153, 154 and 155 TFEU.39 Accordingly, sufficient evidence of the existence of the violation should be enough to trigger an in-depth internal investigation without the need to prove its trade impact. It is of interest that the soft dispute settlement procedures included in recent EU FTAs such as CETA40 or EU–Japan41 do not impose trade impact as a threshold condition. The EU should maintain this approach when reforming the TBR to accommodate complaints about labour standards.

iii.  The Union Interest There is no need to modify the additional requirement present in the TBR that the investigation should be ‘in the interest’ of the European Union. This leaves some discretion to the European Commission in deciding whether to open an in-depth investigation. Yet, the impact of this discretionary element in the Commission’s assessment should not be overstated, as experience in the trade area has shown.42 Indeed, once a private petitioner has shown it is entitled to bring a complaint (ie  it is duly representative), and has brought sufficient evidence that a third ­country is likely to violate its FTA labour standards obligations, it would be politically very difficult for the Commission to decide that it would not be in the interest of the Union to even investigate such a complaint and to make inquiries with the third country. It should be recalled here that the Commission is obliged to publish a reasoned decision in the Official Journal, and that such a decision is subject to judicial review.43

B.  Internal Investigation by the Commission The present TBR defines the procedural steps to be taken by the European Commission when investigating the violations alleged in a private complaint it has declared admissible.44 Most of these provisions can be utilised in an investigation of labour standards violations.

39 ACL Davies, EU Labour Law (Edward Elgar, 2012); S Sciarra, ‘Notions of Solidarity in Times of Economic Uncertainty’ (2010) 39 Industrial Law Journal 223. 40 Art 23.10 Comprehensive Economic and Trade Agreement (CETA). 41 Art 17 Ch 16 EU–Japan Economic Partnership Agreement. 42 Bronckers and McNelis (above n 18) 449–51. See ECJ, Case 70/87 Fediol IV [1989] ECLI:EU:C:1989:254. 43 Art 13.4 TBR. 44 See notably Art 9 TBR.

166  Marco Bronckers and Giovanni Gruni The European Commission has the duty to inform the third country involved of the complaint. It also has the power, when necessary, to perform an investigation in the third country unless the country concerned objects.45 Furthermore, the European Commission has an obligation to hear the parties concerned if they have made a written request for a hearing.46 In principle, this system allows the European Commission to hear social partners in the EU and in the third country so that they can contribute to the evidence collected in the case. The nature of labour rights obligations might require slight adaptations to ensure that the petitioners are heard by the Commission and to support the participation of the social partners and private persons affected by the violation in the third country. Thus, we could imagine an obligation on the European Commission to reach out and collect evidence from these interested parties, even if they did not register their intention to take part in the investigation after the publication of the notice in the Official Journal. There are experiences in other countries where this advanced model of fact-finding concerning labour standards violations is already a reality. For example, in the context of the enforcement of the Canada–Colombia Agreement on Labour Cooperation (CCOALC), a side-agreement to the Canada–Colombia FTA, Canadian authorities performed extensive investigations within Colombia.47 It also seems appropriate to stipulate explicitly that the Commission is to examine whether the ILO has made any relevant findings regarding the alleged labour standard violations. The ILO has shied away from third-party adjudication on the compliance of Members with its norms.48 But the ILO does have supervisory mechanisms, though in most cases these are ultimately consensus driven – and consensus has become more difficult to find amongst social partners, especially after the 2012 stalemate on the right to strike.49 Still, it would be useful for the Commission in its investigation to take on board any fact-finding or reflections in ILO reports that could help to shed light on the alleged violations. Regarding the type of evidence to be collected, the TBR would require some adaptations as well. Presently, the Commission is supposed to consider only traderelated factors (eg, volume of imports or exports, prices, impact on the Union industry, effects on trade) to establish whether the complaining industry has shown that it is injured by the third country’s violation of its international obligations.50 These factors are not particularly relevant for an investigation into violations of

45 Art 9.2 TBR. 46 Art 9.5 TBR. 47 Review of public communication CAN 2016-1 Report issued pursuant to the Canada–Colombia Agreement on Labour Cooperation, 2017, available at: www.canada.ca/en/employment-social-development/ services/labour-relations/international/agreements/2016-1-review.html. 48 See generally A Koroma and P van der Heijden, ‘Review of ILO Supervisory Mechanism’ (ILO, 2015). 49 P van der Heijden, ‘De ILO: Struikelend op Weg Naar de 100’ (2017) 36 Tijdschrift Recht en Arbeid 3, 6. 50 Art 11 TBR.

Enforcing Labour Standards in EU FTAs  167 labour standards. As explained above, such violations may not, or not primarily, cause economic injury within the EU, but rather disrupt shared values that underlie the FTA with the third country. Establishing the violation itself, as well as such factors as its gravity and/or frequency, should be sufficient for a finding that the EU has a right of action against the third country concerned. After an investigation of five or seven months,51 there are several possible outcomes under the TBR. First, the Commission can conclude that there was no violation of the labour standard included in the FTA and that no further action should be taken.52 Second, without necessarily admitting to a violation, the third country might propose to take measures that would remove the need for the EU to take further action.53 Third, the EU and the third country might find that the best way to resolve the dispute is to conclude a new agreement between them.54 Finally, the Commission might find there is a violation, even though this is not accepted by the third country. In that case, the Commission would normally want to initiate international dispute settlement proceedings under the FTA before taking any further action.55

C.  International Dispute Settlement In the event the third country does not remedy the violation of the FTA’s labour standards found by the Commission, the proposed procedure would move on to dispute settlement. To begin with, formal consultations are to be held, involving the FTA’s trade and sustainable development committee.56 If within a short period (say three months)57 the consultations do not resolve the issue, the new FTAs envisage dispute settlement in the form of independent third-party adjudication.58 CETA, for instance, provides that the Panel should submit a ‘final report setting out the findings of fact, its determinations on the matter including as to whether the responding Party has conformed with its obligations under this Chapter’.59

51 Art 9.8 TBR. 52 Art 12.1 TBR. 53 Art 12.2 TBR. 54 Art 12.3 TBR. 55 Art 13.2 TBR. Ankersmit (above, n 15) ch 5, points out that where the agreement does not make provision for a dispute settlement procedure, the Commission might immediately propose to the Council to (partially) suspend or terminate the agreement in accordance with Art 218(9) TFEU and Arts 60(1) and 65 Vienna Convention on the Law of Treaties. 56 See for instance, Art 23.9 CETA. 57 See for instance, Art 23.10 CETA. 58 There is no longer reason to think that the Panel of Experts is not there to determine whether there is a violation and it is only expected to find a ‘shared solution’. Compare L Puccio and K Binder, ‘Trade and Sustainable Development in CETA’ (European Parliament Research Service Briefing PE 595894, January 2017) 8. 59 Art 23.10(11) CETA.

168  Marco Bronckers and Giovanni Gruni Compared with the general dispute settlement system of the FTA, the only things missing are sanctions, as discussed below. Taking enforcement of FTA labour standards more seriously is not just a matter of shoring up dispute settlement procedures though. As discussed above, it also requires taking a second look at the patchwork of labour standards that have so far been included in the EU’s FTAs, ranging from hard obligations to statements of intent that are as soft as butter.60 Finally, in the event an FTA refers explicitly to an ILO norm this should not stop adjudication by an international tribunal established under the FTA. This is similar to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which incorporates parts of the World Intellectual Property Organization (WIPO) Conventions, such as the Paris Convention on Industrial Property61 and the Berne Convention on Copyright.62 Compliance with these conventions can therefore be sought in World Trade Organization (WTO) dispute settlement proceedings.63 However, when dealing with ILO-based norms, FTA supervisory bodies or FTA panels should be encouraged to seek relevant information from the ILO,64 while keeping in mind the limitations inherent in its consensus-based supervisory mechanisms.65

D. Sanctions As the Court of Justice recalled, should an EU treaty partner breach the sustainability provisions in an FTA, the EU would be entitled under general public international law to suspend other commitments in the FTA or even terminate the agreement.66 Yet the EU’s political institutions do not seem to consider this to be a viable threat to induce the EU’s treaty partners to comply with their sustainability obligations. There is no public record of this ever having been seriously considered. In fact, rather than relying on principles of general international law, the debate in the EU has been whether to include any specific sanctions in its FTAs. For many years it was an article of faith for the EU to reject this. It was therefore noteworthy for the Commission to raise the possibility that the EU might change this policy in its first non-paper of 2017. However, in its second non-paper of 2018 the Commission ultimately dismissed this idea.67 In our view the Commission’s reasons are not convincing.



60 See

above text at nn 30–33. 2.1 TRIPS. 62 Art 9.1 TRIPS. 63 Art 64 TRIPS. 64 See Art 23.10(9) CETA. 65 See text above at nn 48–49. 66 See Opinion 2/15 (above n 10) para. 161. See also above n 55. 67 See text above at n 6. 61 Art

Enforcing Labour Standards in EU FTAs  169 For one thing, the Commission notes that when other countries coupled sustainability obligations with sanctions in their FTAs, these obligations were narrower in scope than the norms that the EU managed to include in its FTAs.68 Yet the Commission makes no attempt to analyse whether its broader-based provisions on environmental protection or labour rights have actually been able to achieve more. As discussed above, some of these provisions are so weak that they would seem to be virtually meaningless. The other thing noted by the Commission is that trade sanctions do not guarantee that the non-complying country will change its offending practices.69 Of course, the absence of sanctions does not guarantee this either. In fact, sanctions would only come into play if other means to induce compliance have failed. But then, the Commission argues, it is difficult to calculate the level of trade sanctions, or economic compensation, in response to a breach of social or environmental standards.70 This is the nub of the problem. As the Commission itself recognised in its first non-paper, these sustainability standards have not, or not primarily, been included for economic reasons.71 Accordingly, it is indeed problematic to design compensatory sanctions. In fact, trade sanctions are in many ways counterproductive, even if the economic damage resulting from violations of trade-related obligations can be estimated more accurately.72 Yet in its reassessment in 2018 the Commission should not have confined itself to trade measures when considering sanctions. We endorse the proposal of the European Parliament that an FTA panel should have the means to oblige a non-complying country to make financial payments as a temporary inducement until the date it brings itself into compliance with the labour standard it has been found to violate.73 This is not unprecedented. As the Commission itself noted, albeit only in its first non-paper of 2017,74 Canada, for example, envisages fines in the event of infringements of the sustainability ­chapters in its FTAs (other than CETA, notably because of resistance by the EU!). Furthermore, the EU itself has useful experiences too with financial penalties in the event of EU law infringements by Member States. These can be demanded by the Commission and imposed by the European Court. The amount of the penalties

68 See European Commission services, ‘Feedback and way forward on improving the implementation and enforcement of trade and sustainable development chapters in EU free trade agreements’ 26 February 2018, 3. 69 ibid. 70 ibid. 71 See above text at nn 37–38. 72 For an extensive analysis of the downsides of using trade retaliatory measures see M Bronckers and F Baetens, ‘Financial Payments as a Remedy in WTO Dispute Settlement Proceedings. An Update’ in J Bourgeois, M Bronckers and R Quick (eds), WTO Dispute Settlement: Time to Take Stock (College of Europe Studies, Peter Lang, 2017) 67–98. An earlier version of this analysis was published in (2013) 16 Journal of International Economic Law 281. 73 See Resolution (above n 1) para 22(d). 74 European Commission services, ‘Trade and sustainable development chapters in EU free trade agreements’, 11 July 2017, 3.

170  Marco Bronckers and Giovanni Gruni depends on factors such as the severity of the infringement, its duration, and the ability to pay of the offending country (ie its GDP).75 These experiences could be a source of inspiration when conceiving a penalty scheme in relation to violations of FTA labour standards. The penalties that the offending country would pay could go into a fund which could be controlled by an independent body (eg the ILO), which helps, for instance, to finance the development of international labour standards. Finally, there are good reasons why the FTA should still include the option of imposing trade sanctions, including the suspension of trade preferences or of the entire agreement, if the country violating the labour standard does not bring itself into compliance and refuses to make financial payments. In our proposal, trade sanctions are in principle not to be used to enforce labour standards. However, the remedies in the general state-to-state dispute settlement mechanism could be extended to the sustainability chapter as extrema ratio. The EU’s FTA with Canada, for instance, includes several provisions to ensure compliance with the final panel report concerning trade obligations. These include, after the expiration of a reasonable period for compliance, the right of the offended party to suspend obligations.76 In the WTO system, retaliation must be equivalent to the level of nullification or impairment of benefits, which means that the retaliatory response may not go beyond the level of harm caused by the other party.77 This idea of economic injury to calculate the amount of the retaliation can be adapted to sustainability obligations, so that the value of the retaliation could approximate the financial penalties that the offending country is refusing to pay. For instance, a financial penalty of €10 million could be replaced by tariff increases on imports from the offending country amounting to €10 million. So as to avoid any misunderstanding: sanctions are the final part, but not the main element, of the reform we are proposing here. We are also not suggesting that private complaint procedures, coupled with sanctions, can or should replace dialogue between governmental and social partners in the implementation of international labour standards in the EU’s FTAs. We do submit that more effective enforcement can be a useful complement to improve the implementation of these standards.

III.  Managing Expectations Having made these proposals for including private complaints about labour standard violations in the TBR, as well as adaptations to the dispute settlement 75 For the Commission Communications on this topic see documents available at: http://ec.europa.eu/ atwork/applying-eu-law/infringements-proceedings/financial-sanctions/index_en.htm. The Commission published an update of its calculations of lump sums and penalty payments in Communication [C(2017) 8720], available at: http://ec.europa.eu/atwork/applying-eu-law/docs/c_2017_8720_en.pdf. 76 Art 29 CETA. 77 WTO, Countermeasures by the prevailing Member, available at: www.wto.org/english/tratop_e/ dispu_e/disp_settlement_cbt_e/c6s10p1_e.htm.

Enforcing Labour Standards in EU FTAs  171 mechanism applicable to such labour standards in the EU’s FTAs, we should caution against exaggerated expectations. Even if the regular dispute settlement system in the EU’s FTAs, involving third-party adjudication, were to come to apply to the FTA’s labour standards, this does not mean that we can expect to see a flurry of cases soon – let alone multiple sanctions against FTA partners not properly upholding labour standards. Generally speaking, there is very little litigation under FTAs, even under their trade provisions. One recent study found only one example over the period 2006–17;78 and no dispute settlement case has ever been brought under an FTA concluded by the EU. Furthermore, the one case brought under an FTA’s labour standards, by the United States against Guatemala,79 was unsuccessful. One plausible hypothesis for this dearth of activity is that, in a bilateral context, successful claimants lack the support of (many) other countries to press the losing country for compliance, support that they do have in a multilateral forum like the WTO.80 This may be an important explanation for why smaller or less powerful countries are reluctant to take on big FTA partners like the EU. But it does not explain why the EU itself seems loath to initiate dispute settlement proceedings under its many FTAs. One conjecture has been that when it is in an asymmetrical power relation with smaller FTA partners, the EU might feel that it has other ways to express its displeasure and obtain relief.81 Others have pointed out that enforcement of its rights, either in the WTO or under FTAs, does not seem to have been a priority for the EU in recent years.82 It would seem that the EU has become averse to litigation and has built up a preference for negotiation (with the risk of having to pay twice or more for the same concession, as critics like to point out). Whatever the reasons for this shifting attitude, a probable side-effect has been that the TBR has fallen into disuse as well over recent years.83 Having said all this, we do believe it is worthwhile for the EU to endow wellsupported private complaints about third-country violations of labour standards with procedural safeguards. In part this requires an adaptation of an already existing legal instrument, the TBR. This will also require a different mindset amongst EU authorities, and notably the Commission, that more effective enforcement of international treaty obligations can make a difference.

78 See G Vidigal, ‘Why Is There So Little Litigation under Free Trade Agreements? Retaliation and Adjudication in International Dispute Settlement’ (2017) 20 Journal of International Economic Law 927 (citing Costa Rica v El Salvador, decided in 2014 under CAFTA). 79 Guatemala – Issues Relating to the Obligations Under Art 16.2.1(a) of the CAFTA-DR (above n 34) 23. 80 ibid. 81 For an early, revealing analysis see T Broude, From Pax Mercatoria to Pax Europea: How Trade Dispute Procedures Serve the EC’s Regional Hegemony (October 2004) available at: http://dx.doi. org/10.2139/ssrn.724641. 82 See M Cremona, ‘A Quiet Revolution: The Common Commercial Policy Six Years after the Treaty of Lisbon’, Swedish Institute for European Policy Studies 56 (Report No 2, 2017); SJ Evenett, Paper Tiger? EU Trade Enforcement as if Binding Pacts Mattered (New Direction, 2016). 83 The summer of 2017 saw the opening of a rare, new investigation by the Commission into a complaint brought by the European paper industry against a Turkish import licensing scheme. OJ 2017, C218/20.

172  Marco Bronckers and Giovanni Gruni

IV. Conclusions With this proposal we suggest that better enforcement of the labour standards included in the EU’s FTAs can be achieved by adapting an existing private complaint procedure (the TBR) at EU level in the trade area, and by adjusting the dispute settlement provisions attached to the labour rights chapters in the EU’s FTAs. To start with, we recommend using the categories of Article 154 TFEU to identify representative social partners having legal standing to trigger a TBR investigation. Coupled with the other existing admissibility requirements in the TBR, this would assure the avoidance of frivolous claims and reduce petitions to a number that remains manageable for the European Commission in terms of its resources and the diplomatic cost. Whenever the Commission’s investigation is not able to persuade the third country to comply with its labour standards obligations, the Commission would have to consider starting a legal action under the international dispute settlement procedure available in the FTAs. In this regard, we propose a shift away from the enforcement model in the trade and sustainable development chapters of the EU’s present FTAs and a move towards fully fledged third-party adjudication and remedies. This would include proper dispute settlement in front of a panel of independent experts as well as economic sanctions and the possibility of retaliation in the event of non-compliance with the final ruling of the panel. On remedies, we take the position that trade retaliation, which is currently envisaged in the standard FTA dispute settlement, should be avoided as much as possible. Instead, inducing the other FTA party to comply with a panel ruling should be achieved through the recurring payment of a financial penalty to a fund overseen by an independent body (such as the ILO). Only in the event that the offending country refuses to pay the financial penalties should traditional retaliation become available as extrema ratio. Finally, those who favour more rigorous enforcement by the EU of labour standards included in the EU’s FTAs will have to engage more broadly with the EU’s lacklustre enforcement of its rights under international agreements generally. Perhaps the growing interest from civil society and domestic politicians in more robust implementation of the labour rights obligations in the EU’s FTAs could help to reinvigorate the enforcement of other parts of these agreements as well. Labour standards, which are based on (shared) values rather than levelling the playing field, are the perfect example of an area of treaty-making which, if effectively enforced, would contribute to restoring trust in international trade agreements and in EU external action in this field.

part iii Balancing Trade and Non-trade Values and Interests: The Future Evolution of Substantive International Trade Law

174

10 Do PPM Concerns Have A Future? GABRIELLE MARCEAU*

I. Introduction International trade agreements have always included the regulation and often the prohibition of discrimination between products originating from different partners or groups of partners, leading to the idea of a ‘club’ where club partners receive preferential treatment while treating all members of the club without discrimination. The issue of non-discrimination raises complex questions: what type of discrimination are we talking about, and between what and what? Traditionally in trade in goods, at least in the General Agreement on Tariffs and Trade (GATT) setting, it was argued that the most-favoured nation (MFN) principle and the national treatment (NT) obligations prohibited (tax and regulatory) discrimination between ‘like products’, originating from GATT contracting parties/World Trade Organization (WTO) Members.1 The issue of ‘process and production methods’ (PPMs) first arose in the context of whether discrimination between two or more physically similar, ie like, products could be considered contrary to the WTO’s disciplines on non-discrimination solely based on the existence of PPM distinctions. In other words, can two products with similar physical characteristics be considered ‘unlike’ because of their different PPMs, such that their different regulatory treatment would not necessarily be inconsistent with the MFN and NT rules and disciplines? Can WTO Members formulate policies and regulations that treat and regulate differently products that are otherwise physically similar, or even identical, on the basis of the PPMs of such products, for example in order to promote societal values and interests such as environmental protection?

* The author thanks Carlo Gamberele, Hoe Lim, Lauro Locks, Daniel Ramos and Ioana-Virginia Motoc for their useful comments. Mistakes are those of the author only. 1 Under the WTO Agreement, the GATS regulates and prohibits discrimination between like services and service suppliers. The TRIPS Agreement regulates discrimination differently: while it similarly uses the ‘no less favourable treatment’ standard from the GATT, it regulates discrimination between intellectual property right holders, not products, and crucially it does not contain a ‘likeness’ requirement.

176  Gabrielle Marceau The debate over regulatory distinctions based on the PPMs of the products traded can be traced back to the end of the nineteenth and the beginning of the twentieth century,2 and for many years the legitimacy and legality of such governmental distinctions have been challenged, in particular for trade and environment and trade and labour matters. The initial refusal of the GATT case law to integrate concerns about the ability of contracting parties to protect societal values, including environment and labour standards, by applying PPM-based distinctions, is among those issues that have contributed to distrust in the multilateral trade regime. Addressing these concerns and clarifying the role of the WTO in these matters in the context of trade liberalisation could, arguably, help restore trust in the WTO.

II.  The Origin and Basis of Concerns over PPMs in International Trade A.  The Interaction Between Trade and Environmental PPMs The first measures regulating PPMs for environmental protection were implemented at the beginning of the twentieth century when pollution, environmental degradation and depletion of non-renewable natural resources were recognised as negative production externalities.3 The expansion of the world economy post World War II, and the simultaneous realisation that certain natural resources were exhaustible, raised further concerns about the environmental costs of economic progress. With rapid industrialisation and a sharp hike in trade flows, these environmental concerns gave impetus to pro-environment movements and the formation of lobby groups, which pressurised governments to take active measures to halt environmental degradation. At the beginning of the 1960s, the focus of the environmental movements shifted from conserving exhaustible natural resources to assessing the impact of environmental damage on human life.4 Governments around the world were prompted to become members of conservation organisations that dealt primarily with the conservation of various ecosystems and,

2 See S Charnovitz, ‘The Law of Environmental “PPMs” in the WTO: Debunking the Myth of ­Illegality’ (2002) 27 Yale Journal of International Law 59; and S Charnovitz, ‘The Influence of International Labour Standards on the World Trading Regime – A Historical Overview’ (1987) 126 International Labour Review 565. 3 For example, in 1906 the US passed a law – An Act to Regulate the Landing, Delivery, Cure and Sale of Sponges, ch 3442, 34 Stat 313 (1906) (repealed 1914) – banning the landing of sponges taken by means of a diving apparatus from the waters of the Gulf of Mexico, since the diving techniques were considered more destructive of the sponge bed compared to using simple hooks. For a detailed discussion on measures aimed at protecting the environment see Charnovitz, ‘The Law of Environmental “PPMs”’ (above n 2) 70. 4 See, for example, R Carson, Silent Spring, 1962 (Penguin Modern Classics, 2000).

Do PPM Concerns Have A Future?  177 accordingly, started passing laws to control environmental pollution and preserve exhaustible natural resources.5 These domestic environmental laws and regulations started to be seen as direct or indirect trade restrictions. It was against this backdrop that the UN Secretary-General requested the GATT’s participation in the preparatory work for the 1972 Stockholm Conference on Human Environment.6 The GATT Secretariat prepared a study entitled ‘Industrial Pollution Control and International Trade’, which reflected the ‘latest’ trade concerns of that time: ‘green protectionism’.7 The objective of this GATT study was to assess the impact of various types of pollution control measures taken by the industrialised societies on international trade, thereby exploring the extent to which GATT contracting parties were free to act in this area. In the area of PPMs, the study stressed that the biggest disadvantage of these measures would be the restrictions on international trade between the GATT contracting parties.8 During the Tokyo Round (1971–79), particularly, in the negotiations on technical barriers to trade, the contracting parties made reference to issues that might arise due to the adoption of regulations to achieve environmental objectives. PPMs were part of the discussion because participants agreed that the plurilateral Code on technical barriers to trade (also known as the ‘Standards Code’) was to be applicable not only to industrial, but also to agricultural products where PPMs were to play an essential role in food safety and quality.9 It is worth mentioning that certain delegations had reservations regarding the introduction of ‘PPMs’ into the Standards Code as they believed that this could have overarching effects on its operation, the most significant being the determination of whether a PPM impacts or affects the final characteristics of a product. Eventually, after multiple discussions,10 the definitions of ‘standard’, ‘technical specification’ and ‘technical regulation’ that were contained in the final text of the Standards Code did not include any reference to PPMs, but PPMs were cited in at least two other parts of the Standards Code: in the first sentence of Article 12.4, where it was recognised by the parties that

5 Earth Day Network, ‘The History of Earth Day’, available at: www.earthday.org/about/the-historyof-earth-day/. 6 GATT Secretariat, Industrial Pollution Control and International Trade L/3538 (1971). 7 ibid 2; for a more comprehensive summary see WTO, ‘Early years: emerging environment debate in GATT/WTO’ available at: www.wto.org/english/tratop_e/envir_e/hist1_e.htm. 8 ibid 10, 11. The study stated that ‘all import-competing industries would vigorously demand protection against imports not manufactured in accordance with local pollution control standards’. Later on, these concerns about disguised protectionism found their way into the official recommendations of the UN parties adopted at the 1972 Conference (United Nations, ‘Report of the United Nations Conference on the Human Environment’, 1972 A/CONF.48/14/Rev.1). Recommendation 103, for example, stated that ‘all States participating in the Conference agree not to invoke environmental concerns as a pretext for discriminatory trade policies or for reduced access to markets and recognise further that the burdens of the environmental policies of the industrialised countries should not be transferred … to the developing countries’. 9 GATT Secretariat, Major Observations Made on the Applicability of the Draft Standards Code to Agriculture, MTN/AG/W/21 (26 May 1977). 10 ibid.

178  Gabrielle Marceau although international standards exist, developing countries adopt technical regulations or standards aimed at preserving indigenous technology and production methods and processes compatible with their development needs, toning down, for these countries, the general obligation to base their measures on relevant international standards; and in Article 14.25, one of the provisions dealing with dispute settlement, which provided for certain dispute settlement procedures that could be invoked when the obligations of the Standards Code were circumvented by the ‘drafting of requirements in terms of processes and production methods rather than in terms of characteristics of products’ (emphasis added). Article 14.25 was identified as the main area of weakness in an otherwise successful agreement, as it caused a divergence of views among the contracting parties regarding to what extent PPMs were subject to the basic requirements and procedural objectives of the Standards Code. On the one hand, for the European Communities it was clear that the Code did not apply to PPMs except if these were used to circumvent its obligations.11 On the other hand, the United States (US) was of the view that whenever technical specifications were drafted as PPMs in order to circumvent the obligations of the Standards Code, by virtue of Article 14.25 it was not only possible to invoke the dispute settlement procedures, but also the measure was subject to the basic requirements and some, but not all, the procedural requirements of the Standards Code.12 In that context, during the Uruguay Round negotiations, new debates on PPMs arose once again.13 At the very first meeting of the Negotiating Group on Multilateral Trade Negotiations (MTN) Agreements and Arrangements held in March 1987, the US proposed negotiations aimed at clarifying the coverage of the WTO Agreement on Technical Barriers to Trade (TBT Agreement) in relation to PPMs.14 The US advocated for consensus on the interpretation of the Agreement’s coverage of PPMs and that the Agreement cover (international and domestic) standards that describe a product’s characteristics.15 The US seems to have had a clear stance on the issue of PPMs since 1988 when it first suggested that the TBT Agreement’s coverage be extended to include a wider range of PPMs; this would be more responsive to commercial and regulatory realities and useful in

11 TBT Committee, Minutes of the Meeting Held on 22 July 1980 (GATT, 1980) TBT/M/4, para 22. 12 TBT Committee, Minutes of the Meeting Held on 18 June 1980 (GATT, 1980) TBT/M/3, para 39. 13 For a detailed discussion on the positions of Members regarding non-product-related PPMs see the note by the WTO Secretariat, Negotiating History of the Coverage of the Agreement on Technical Barriers to Trade with regard to Labelling Requirements, Voluntary Standards, and Processes and Production Methods Unrelated to Product Characteristics WT/CTE/W/10, G/TBT/W/11 (29 August 1995). 14 GATT Multilateral Trade Negotiations, The Uruguay Round, Communication from the United States MTN.GNG/NG8/W/1 (5 March 1987) 2. 15 ibid.

Do PPM Concerns Have A Future?  179 r­ educing technical trade barriers.16 The TBT Agreement, a revised and ‘multilateralised’ version of the 1979 Tokyo Round ‘Standards Code’, entered into force as part of the ‘WTO Single Undertaking’ and the issue of PPMs was clarified in part. It is undisputed that the TBT Agreement covers product-related PPMs that are included in the definition of a technical regulation.17 A technical regulation is defined as a ‘Document which lays down product characteristics or their related processes and production methods’ (emphasis added).18 The question of what qualifies as a ­product-related or non-product-related PPM and to what extent measures addressing those ­different types of PPMs fall under the scope of the TBT Agreement was not answered then.19 According to the Uruguay Round Report by the Chairman to the Negotiating Group on Agriculture (the second meeting of the working group on sanitary and phytosanitary regulations and barriers), it was agreed that the Tokyo Round Standards Code had not proven effective in dealing with agricultural trade problems, specifically with respect to sanitary and phytosanitary regulations, but further study was necessary in order to identify the reasons.20 The Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement) was thus negotiated to deal with more specific problems of health risks in some agricultural traded goods, and interestingly, it explicitly included the term ‘PPMs’. For example, Annex A of the SPS Agreement states that ‘Sanitary or phytosanitary measures include all relevant laws, decrees, regulations, requirements and procedures including, inter alia, end product criteria; processes and production methods …’ (emphasis added).21 The term ‘process and production methods’ was defined neither in the SPS Agreement22 nor in the TBT Agreement.

16 GATT Multilateral Trade Negotiations, The Uruguay Round, Communication from the United States MTN.GNG/NG8/W/24 (18 February 1988) 2. 17 ‘[R]elated process and production methods’ are also to be found in the definition of a standard in Annex 1.2 Agreement on Technical Barriers to Trade (TBT Agreement), 1868 UNTS 120 (1994). The Explanatory Note to Annex 1.2 also, inter alia, provides: ‘The terms as defined in ISO/IEC Guide 2 cover products, processes and services. This Agreement deals only with technical regulations, standards and conformity assessment procedures related to products or processes and production methods.’ References to PPMs, or similar terms, are also found in Arts 2.12, 5.9 and 12.4 of the TBT Agreement. Also, Art 2.2 TBT states, with regard to the risks of non-fulfilment of the legitimate objective of a technical regulation: ‘In assessing such risks, relevant elements of consideration are, inter alia: available scientific and technical information, related processing technology or intended end-uses of products.’ 18 Annex 1.1 TBT Agreement (above n 17). 19 See the GATT and WTO Secretariat notes (above n 9 and n 13). 20 Working Group on Sanitary and Phytosanitary Regulations and Barriers, Report by the Chairman to the Negotiating Group on Agriculture: Second Meeting of the Working Group on Sanitary and Phytosanitary Regulations and Barriers MTN.GNG/NG5/WGSP/1 (9 November 1988) 1. 21 Annex A Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement) 1867 UNTS (1994) 493. 22 PPMs are also mentioned in Art 5.2 of the SPS Agreement (Risk Assessment), which states: ‘In the assessment of risks, Members shall take into account available scientific evidence; relevant processes and production methods’ (emphasis added).

180  Gabrielle Marceau

B.  Trade and Labour-related PPMs: The Other Side of the Coin? Measures adopted by governments involving PPMs for labour welfare, labour standards and labour conditions (which, by definition, do not impact the physical characteristics of the end product but essentially deal with methods of production) seem to have been in place prior to environmental or health and safety concerns becoming the focal point of the PPM debate.23 The first international trade measures implemented to deal with unfair labour standards beyond a country’s territorial jurisdiction can be traced back to the end of the nineteenth century when the US argued that it was unfair for domestic producers to compete with imports from countries with very low wage rates and poor labour standards.24 Charnovitz reports that the earliest reference to labour standards in trade concerned unfair competition resulting from goods made by prison labour. In 1890 the US was the first country to ban imports of all foreign goods produced by prison labour.25 The law was further expanded to prohibit or limit imports made by forced labour, with an exemption for imported products that were necessary to meet US needs and demands. The US example was closely followed by the United Kingdom (UK), Australia, Canada, New Zealand and South Africa, all of which issued legislation banning prisonmade imports. Other pertinent examples are Argentina and Spain, which included forced or prison labour in the definition of laws on anti-dumping passed between 1890 and 1920.26 In 1925 the UK passed an anti-dumping regulation to combat unfair competition stemming from inferior conditions of employment in other jurisdictions. In 1922 the US Congress adopted the Tariff Act, allowing the President to adjust tariffs to equalise the costs of production between a domestic and a similar foreign product.27 The legislation aimed to solve the issue of low-wage foreign production.28 23 See Charnovitz, ‘The Influence of International Labour Standards’ (above n 2). 24 Furthermore, the link between labour conditions and trade at the international level had been recognised as early as 1919 in the Covenant of the League of Nations where the Member States agreed to pursue steps to ensure fair and humane conditions of labour, both at home and ‘in all countries to which their commercial and industrial relations extend’ – Treaty of Versailles, Part 1, Art 23(a); see Charnovitz, ‘The Influence of International Labour Standards’ (above n 2). 25 ibid 569. 26 ibid. 27 ibid 568. 28 In 1933 the US Congress passed the National Industrial Recovery Act giving the President authority to impose codes of fair competition on domestic industries, resulting in the implementation of parallel import duties, quotas and bans on imports so as to not have the codes rendered ineffective by imports. Although the legislation was eventually declared unconstitutional, it had the side-effect of persuading Canada to increase the wages of workers employed in red-cedar shingles production. Finally, a particularly thorny issue debated in the 1930s was the minimum wage. The views were divided between having a minimal universally applicable living wage and a fair wage that was not below the accepted standards in the exporting country. Since views were divided, International Labour Organization (ILO) standards started to be used as a benchmark in determining whether a particular country followed minimum labour standards. Even today the ILO-related standards surface in many free trade agreements (FTAs) between developed Members such as the European Union (EU) or the

Do PPM Concerns Have A Future?  181 Whether governments can regulate similar products differently, depending on if the PPMs involved in the manufacturing of a product meet the ILO-related standard, is a part of the PPM debate. The 1948 Havana Charter of the International Trade Organization (ITO) included labour standards, and therefore regulatory distinctions based on labour-related standards would not have been a priori inconsistent with the ITO.29 The WTO Agreements, in contrast, do not contain any reference to labour standards. However, provisions of Article XX(a) GATT and Article XIV(a) General Agreement on Trade in Services (GATS) concerning public morals and public order, or Article XX(e) GATT on prison labour, could be invoked and argued to permit Members to restrict imports from markets where conditions are considered to be contrary to fundamental human rights or fundamental labour standards or public morals, or equivalent to prison labour. Some academics have argued that although international labour standards (and thus, labour-related PPMs) have had a significant influence on the development of national legislation, they have played a limited role in the international trade discussions.30 In fact, a measure based on a labour-related PPM has yet to be challenged in the WTO and none was disputed under the GATT regime.31

III.  The Evolution of the PPM Debate from the GATT to the WTO A.  PPMs in the Context of GATT Disputes The legal issue that arose initially during the GATT era and continued under the WTO was whether Members could discriminate between products on the basis

US on the one side and developing countries on the other (see Charnovitz, ‘The Influence of International Labour Standards’ (above n 2) 573); for example, the partnership agreements between the EU and groups of African, Caribbean and Pacific states, the US–Oman FTA and the US–Peru FTA, among others. The issue of whether such international standards are covered by the rights and obligations and presumption of Arts 2.4 and 2.5 of the TBT Agreement respectively is not discussed in this chapter. 29 S Gstöhl, ‘Blurring Regime Boundaries: Uneven Legalization of Non-trade Concerns in the WTO’ (2010) 9 Journal of International Trade and Policy 275, 282. 30 Charnovitz, ‘The Influence of International Labour Standards’ (above n 2) 580. 31 At the 1996 Singapore Ministerial Conference, Members defined the WTO’s role in this issue, identifying the ILO and not the WTO as the competent body to negotiate labour standards. See T Cottier and A Caplazi, ‘Labour Standards and World Trade Law: Interfacing Legitimate Concerns’ in T Cottier, The Challenge of WTO Law: Collected Essays (Cameron May, 2007) 551. Furthermore, note that in EC – Asbestos, Canada claimed that the measure at issue was not based on certain ILO standards and was thus inconsistent with Art 2.4 TBT Agreement. The panel, however, did not review this claim since it considered the measure as falling outside the TBT Agreement. While the AB reversed the panel’s decision on this issue, it did not complete the analysis with respect to any of the original TBT claims. See the Panel Report Section III.1(d) for the full description of the long exchanges the parties had on this issue. Interestingly, among the third parties, Brazil supported Canada’s Art 2.4 TBT claim, and the US rejected it. See WTO, Panel Report, European Communities – Measures Affecting Asbestos and Asbestos-Containing Products, WT/DS135/R and Add.1 (5 April 2001), as modified by Appellate Body Report WT/DS135/AB/R, paras 4.35–4.37 and 4.73–4.74, respectively.

182  Gabrielle Marceau of PPMs without violating their WTO obligations. As noted, the term PPMs is not mentioned in Articles I and III or elsewhere in the GATT 1994. Traditionally, it was argued by some experts that when a country conditions imports of products on their PPMs, it is engaging in inappropriate or illegitimate ‘unilateral’ and ‘extraterritorial’ behaviour in areas where international cooperation and negotiation should be the norm.32 The idea that PPM-based regulatory distinctions are a priori inconsistent with the GATT stems from the unadopted Tuna – Dolphin GATT panel reports.33 The GATT panel in the first Tuna – Dolphin dispute held that the US regulation that specified acceptable and non-acceptable fishing methods for tuna to be imported into the US was not a domestic regulation that applied to products. Given that the regulatory criteria were about fishing methods and not about product characteristics, such a requirement could not fall within the scope of Article III GATT on NT that dealt with the regulation of trade in goods or products within the territory of a contracting party. Instead it was deemed to be an import ban under A ­ rticle XI GATT, which regulates trade in goods at the contracting party’s borders.34 The decision to address regulations concerning fishing methods under Article XI supported a strictly territorial view, ie that a GATT contracting party could not regulate PPMs (methods of fishing) beyond its territory.35 The panel subsequently assessed the potential justification of the measure under Article XX(b) GATT. It found that the measures addressing concerns outside the territorial jurisdiction of a GATT contracting party could not be justified under this provision and noted that the US requirement was ‘unilateral’ since there were no international treaties prescribing methods of fishing tuna. In the second Tuna – Dolphin GATT case, the panel decided that a GATT Article III comparison of treatment should be made between products and not according to the manner in which they were processed or produced.36 Once again, 32 R Howse and D Regan, ‘The Product/Process Distinction – An Illusory Basis for Disciplining “Unilateralism” in Trade Policy’ (2000) 11 European Journal of International Law 249. 33 GATT Panel Report, United States – Restrictions on Imports of Tuna (Mexico) unadopted BISD 39S/155 (3 September 1991); GATT Panel Report, United States – Restrictions on Imports of Tuna (EEC) unadopted DS29/R (16 June 1994). 34 GATT Panel Report, United States – Restrictions on Imports of Tuna (EEC) unadopted (16 June 1994) para 5.14; this preliminary decision was peculiar since the prohibition on the method of fishing was applicable both to domestic and imported like products. It did act against imports but Ad Note to Art III GATT allows for the imposition of domestic regulation at the border. See discussion in P Low, G Marceau and J Reinaud, ‘The Interface between the Trade and Climate Change Regimes: Scoping the Issues’ (2012) 46 Journal of World Trade 485, 500. 35 G Marceau and J Trachtman, ‘The Technical Barriers to Trade Agreement, the Sanitary and Phytosanitary Measures Agreement, and the General Agreement on Tariffs and Trade. A Map of the World Trade Organization Law of Domestic Regulation of Goods’ (2002) 36 Journal of World Trade 811, 858; G Marceau, ‘A Comment on the Appellate Body Report in “EC–Seal Products” in the Context of the Trade and Environment Debate’ (2014) 23 Review of European, Comparative & International Environmental Law 318, 326. 36 GATT Panel Report, United States – Restrictions on Imports of Tuna (EEC) unadopted (16 June 1994) para 5.8.

Do PPM Concerns Have A Future?  183 the US regulation was deemed to be an import ban (covered by Article XI GATT) rather than an internal regulation. In contrast to the first Tuna – Dolphin case, however, the panel did not find that conservation policies mentioned in Article XX(g) should be limited to the conservation of resources within the territory of a contracting party. This second Tuna – Dolphin panel found that there was nothing in the GATT that bans measures with extraterritorial reach.37 The panel held that the US conservation policies were covered by paragraphs (g) and (b) of Article XX GATT but that the measures were not able to further the US objectives under ­Article XX(g)38 and were not ‘necessary’ under Article XX(b) because, inter alia, there were no multilateral treaties confirming the legitimacy of the US concerns about dolphin safety and tuna fishing methods.39 The panel also considered that measures taken in order to coerce other countries into changing their policies were not allowed.40 There are other GATT rulings worth mentioning in the context of PPMs, such as US – Malt Beverages, where the panel considered beer produced by large breweries not unlike beer produced by small breweries.41 Later on, the WTO panel in US – Gasoline held that it was not admissible to differentiate between otherwise similar products on the basis of the producer’s characteristics.42 These decisions suggested that a regulatory distinction based on PPMs would be a priori discriminatory under Articles I and III GATT and could not by themselves make like products ‘unlike’ on the basis of such PPMs.43 But at the same time, in US – Malt Beverages, the GATT 1947 panel accepted policy objectives in determining likeness. The ‘likeness’ inquiry focused on the ‘aims and effects’ of the regulatory distinctions between imported and domestic products.44 The panel reasoned that the ‘likeness’ test required consideration of whether the product differentiation was made so as to afford protection to domestic production (recalling that the main goal of the NT obligation is to avoid protectionism). But, as discussed later on, this approach was not followed in the WTO.

37 ibid para 5.15. 38 ibid para 5.24. 39 ibid para 5.33. 40 ibid para 5.27. 41 GATT Panel Report, United States – Measures Affecting Alcoholic and Malt Beverages, BISD 39S/206 (19 June 1992). 42 WTO, Appellate Body Report, United States – Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R (20 May 1996) 30. 43 C Glinski, ‘CSR and the Law of the WTO – The Impact of Tuna Dolphin II and EC – Seal Products’ (2007) 1 Nordic Journal of Commercial Law 120, 127. 44 US – Malt Beverages (above n 41) paras 5.24–5.26. The report examined the excise tax exemption accorded by the state of Mississippi to wine made from a particular type of grapes. The panel stated that the US did not claim any public policy purpose for the Mississippi tax provision other than the subsidisation of local producers and thus concluded that the two wines, the one to which the tax applied and the exempted one, were like products.

184  Gabrielle Marceau

B.  PPMs in WTO Disputes i.  Disputes under GATT 1994 a.  PPM Considerations in the Determination of Likeness? In Japan – Alcoholic Beverages and later in Korea – Alcoholic Beverages, the Appellate Body (AB) identified the objectives of Article III GATT (on NT) as requiring equality of competitive conditions and protecting expectations of equal competitive relationships with a view to avoiding protectionism.45 As a result, the determination of ‘like products’ under Article III:4 GATT was centred on the competitive relationship of two products in a given market, in light of their end uses, consumer preferences, physical characteristics and tariff lines.46 Therefore, physically identical products may nevertheless not be ‘like’ when consumer preferences evidence the contrary.47 The AB in EC – Asbestos emphasised that in determining likeness, all relevant evidence needed to be taken into account, including the health risk posed by asbestos as being a defining aspect of the physical properties.48 It is conceivable that a PPM not physically traceable to the final product could nonetheless have an impact on consumer preference, one of the criteria for determining likeness. If the relevant non-physical PPM criteria disrupts the competitive relationship, then perhaps the two products can be called ‘unlike’. At the time of writing, no case has yet been decided where products with the same physical characteristics were found to be ‘unlike’ because of consumer preferences. Physically similar products are usually in a competitive relationship because they are seen as substitutable by consumers. Only if consumers are willing to pay a higher price for a product that has been produced in a different way, and where the other products are not considered a viable alternative, can the competitive relationship between identical products be ruled out.49 Therefore, in the WTO, the analysis of likeness does not take into account the regulatory objectives and the focus is limited to the conditions of competition

45 WTO, Appellate Body Report, Japan – Taxes on Alcoholic Beverages, WT/DS11/AB/R (1 N ­ ovember 1996), para 111; WTO, Appellate Body Report, Korea – Taxes on Alcoholic Beverages, WT/DS84/AB/R (17 February 1999) para 120. 46 Working Party Report, Border Tax Adjustments, BISD 18S/97 (2 December 1970) 100–01. 47 R Quick and C Lau, ‘Environmentally Motivated Tax Distinctions and WTO Law: The European Commission’s Green Paper on Integrated Product Policy in Light of the “Like Product-” and “PPM-” Debates’ (2003) 6 Journal of International Economic Law 419, 431; see also the more recent development of these views by the AB in WTO, Appellate Body Report, Philippines – Taxes on Distilled Spirits, WT/DS396/AB (20 January 2012) paras 112–83, where the AB compiled to some extent all its previous likeness interpretations and added more. 48 WTO, Appellate Body Report, European Communities – Measures Affecting Asbestos and AsbestosContaining Products, WT/DS135/AB/R (5 April 2001) para 115. 49 C Conrad, Processes and Production Methods (PPMs) in WTO Law: Interfacing Trade and Social Goals (CUP, 2011) 227.

Do PPM Concerns Have A Future?  185 imposed on imported and domestic like products.50 Considering the regulatory purpose of a measure when assessing likeness has been tried and subsequently rejected several times. The AB in Japan – Alcoholic Beverages II rejected the aims and effects test by stressing that a legislator’s or regulator’s intent or policy objective was irrelevant when determining likeness.51 b.  PPM Considerations in the Determination of Less Favourable Treatment? The AB seemed to suggest in EC – Asbestos that a PPM analysis could take place under the ‘treatment no less favourable’ (LFT) requirement of Article III GATT, which provides for effective equality of opportunities for imported products to compete with like domestic products.52 In this regard the AB stated that ‘a Member may draw distinctions between products which have been found to be “like”, without, for this reason alone, according to the group of “like” imported products “less favourable treatment” than that accorded to the group of “like” domestic products’ (emphasis in the original).53 But this statement was not clear as to its implications for PPM considerations. Later on, the AB alluded to the possibility of assessing the legitimacy of PPM distinctions under the LFT requirement in Dominican Republic – Cigarettes.54 However, this approach was rejected in US – Clove Cigarettes, where the AB dismissed the US claim that ‘further inquiry into the rationale for the detrimental impact is necessary’55 and in US – Clove Cigarettes,56 US – Tuna II57 and US – COOL58 has made clear that the LFT requirement of Article III GATT calls for an enquiry into whether the challenged regulation modifies the conditions of competition. In this regard the AB

50 T Broude and P Levy, ‘Do You Mind If I Don’t Smoke? Products, Purpose and Indeterminacy in US-Measures Affecting the Production and Sale of Clove Cigarettes’ (2014) 13 World Trade Review 357, 359. 51 Japan – Alcoholic Beverages II (above n 45) para 6.17. See also WTO, Appellate Body Report, ­European Communities – Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/ AB/R (25 September 1997) para 241, where the AB rejected the aims-and-effects test in the GATS context. Note that in the recent Argentina – Financial Services GATS case, the panel relied on the TBT case law to include regulatory distinctions in the determination of likeness under Art II:1 GATS. However, that approach was rejected by the AB (WTO, Appellate Body Report, Argentina – Measures Relating to Trade in Goods and Services, WT/DS453/AB/R (9 May 2016) para 6.127). 52 EC – Asbestos (above n 48) para 100. 53 ibid. 54 WTO, Appellate Body Report, Dominican Republic – Measures Affecting the Importation and Internal Sale of Cigarettes, WT/DS302/AB/R (19 May 2005) para 96. 55 WTO, Appellate Body Report, United States – Measures Affecting the Production and Sale of Clove Cigarettes, WT/DS406/AB/R (24 April 2012) para 179 and footnote 372. 56 ibid, paras 118–19, 120, 166–82. 57 WTO, Appellate Body Report, United States – Measures Concerning the Importation, Marketing and Sale of Tuna and Tuna Products, WT/DS381/AB/R (13 June 2012) paras 225–40. 58 WTO, Appellate Body Report, United States – Certain Country of Origin Labelling (COOL) Requirements, WT/DS384/AB/R (23 July 2012) paras 291–92.

186  Gabrielle Marceau rejected the US arguments that the LFT test requires further enquiry into whether ‘the detrimental effect is explained by factors or circumstances unrelated to the foreign origin of the products’.59 c.  PPM Considerations Under the Article XX Exceptions It is in the context of the invocation of Article XX GATT exceptions that the right of WTO Member governments to justify measures that discriminate between like products on the basis of PPMs or non-physical attributes of such products was recognised. In US – Shrimp,60 because of its concern for turtles, the US imported shrimp only from certified exporters that demonstrated that they fished for shrimp by using a particular US fishing technique that avoids killing turtles. Clearly such ‘fishing methods for shrimps’ were not reflected in the product characteristics of the imported shrimp: shrimp fished while killing turtles were physically similar to shrimp fished while not killing turtles. Both the panel and the AB focused their reasoning on the policy justifications invoked by the US under Article XX GATT and its related requirements. The AB held that the methods of fishing shrimp that avoided killing turtles – the PPM-based regulations challenged by five other WTO Members – were indeed ‘conservation’ measures within the scope of Article XX(g). In doing so, the AB opened the door to the idea that in principle PPM-based regulatory distinctions (whether product or non-product based) can be justified under Article XX and thus be WTO consistent. In the first US – Shrimp dispute, the US measure was WTO inconsistent because it did not meet the requisites of the chapeau of Article XX as shrimp exporters could be considered ‘certified’ under the US guidelines only if they employed the specific method of fishing prescribed by the US and if they used US-made fishing nets.61 The US measure was consequently considered ‘coercive’ in nature and lacking any necessary flexibility, transparency and procedural fairness in its application.62 In the second US – Shrimp (compliance) dispute, the US modified its import regulation63 to allow imports of shrimp from countries that 59 US – Clove Cigarettes (above n 55) para 166. 60 WTO, Appellate Body Report, United States – Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R (6 November 1998). 61 ibid para 165. 62 ibid para 177. 63 The US also made serious, good-faith efforts to negotiate an international agreement with ­Malaysia, and the AB noted that the US only had an obligation to make efforts to negotiate an international agreement regarding the protection of sea turtles, not an obligation to actually conclude such an agreement because all that was required for the US to avoid ‘arbitrary or unjustifiable discrimination’ under the chapeau was to provide all exporting countries ‘similar opportunities to negotiate’ an international agreement. The AB also noted that ‘so long as such comparable efforts are made, it is more likely that “arbitrary or unjustifiable discrimination” will be avoided between countries where an importing Member concludes an agreement with one group of countries but fails to do so with another group of countries’, ibid para 122.

Do PPM Concerns Have A Future?  187 could demonstrate that their methods of fishing, albeit different from those of the US, were of a ‘comparative effectiveness’ in protecting turtles.64 On this basis, the AB found the US PPM regulations to be justified pursuant to Article XX GATT and rejected Malaysia’s claim that since there was no bilateral agreement between the two countries, the US restrictive regulation could not have been justified and enacted in good faith. d.  PPMs and Extraterritorial Jurisdiction Some authors have argued that PPMs would have extraterritorial impact and therefore interfere with the sovereignty of exporting Members, particularly when based on unilaterally determined criteria by the importing Members. Thus, they could be regarded as a new form of imperialism, be it environmental or moral.65 This position is prominent among developing countries, which often oppose the linking of trade and environment or labour standards, arguing that they are intrinsically linked to disguised protectionist practices.66 In US – Shrimp, the challenges against the extraterritoriality of the measure were set aside when it was concluded that some US turtles were swimming in Asian waters since they are migratory animals. Fifteen years later in the EC – Seal Products dispute,67 the AB noted that the then EC seal regime was designed to address both seal hunting activities occurring within and outside the European Union and the seal welfare concerns of citizens and consumers in EU Member States. While recognising the systemic importance of the question of whether there is an implied jurisdictional limitation in Article XX(a) GATT and if so, the nature or extent of that limitation, the AB did not examine this question as the participants had not addressed it in their submissions on appeal.68

ii.  PPM Concerns and Disputes Under the WTO TBT Agreement Although the terms ‘product related’ (pr) and ‘non-product related’ (npr) PPMs do not exist in the GATT, ‘product related’ PPMs are explicitly referred to in the

64 WTO, Appellate Body Report, United States – Import Prohibition of Certain Shrimp and Shrimp Products – Recourse to Article 21.5 of the DSU by Malaysia, WT/DS58/AB/RW (21 November 2001) para 144. 65 Charnovitz, ‘The Law of Environmental “PPMs”’ (above n 2) 70; M Du, ‘Permitting Moral Imperialism? The Public Moral Exception to Free Trade at the Bar of the World Trade Organization’ (2016) 50 Journal of World Trade 675, 676. 66 Glinski (above n 43) 125. 67 WTO, Appellate Body Report, European Communities – Measures Prohibiting the Importation and Marketing of Seal Products, WT/DS401/AB/R (18 June 2014). 68 ibid para 5.173.

188  Gabrielle Marceau WTO TBT and SPS Agreements.69 The full definition of a technical regulation in Annex 1.1 of the TBT Agreement,70 referred to above, reads as follows: Document which lays down product characteristics or their related processes and production methods, including the applicable administrative provisions, with which compliance is mandatory. It may also include or deal exclusively with terminology, symbols, packaging, marking or labelling requirements as they apply to a product, process or production method (emphasis added).

It is not clear whether ‘product characteristics … related processes and production methods’ refers to PPMs that would leave a physical trace in the products or whether the terms refer more simply to PPMs that relate to or are specific to a product (regardless of whether they leave a physical trace or not).71 One could argue72 that a pr-PPM includes processes and production methods that are ‘linked’ to or ‘related’ to the product in question. In this regard the word ‘related’ hints to an interpretation that includes PPMs that relate to the product concerned and not only PPMs that physically affect products.73 Thus, a regulation based on the PPM that has a nexus, connection or sufficient link with the regulated imported product could be considered a pr-PPM. On the other hand, npr-PPMs could be defined as including processes and production methods designed to achieve a social or environmental purpose through trade measures applicable to products that may not have direct links with the concerned product itself. For example, this would be the case when a regulation restricts imports on the basis of criteria or conditions that do not directly relate to the restricted products or their

69 Note that, as well as in the TBT and SPS Agreements, PPMs are now also mentioned in both versions of the plurilateral Agreement on Government Procurement (GPA), specifically in Art VI(1) and fns 3 and 4 to Art VI(2)(b) of the GPA of 1994; and Arts I(s) and I(u)(i) of the Revised GPA. Additionally, the Agreement on Agriculture refers to ‘production methods’ in Annex 2 (‘domestic support: the basis for exemption from the reduction commitments’), and more specifically in Annex 2.12(a), which concerns ‘payments under environmental programmes’. 70 Also note that PPM or similar terms, such as ‘processing’ etc, are contained in various TBT provisions such as Art 2.2 (fourth sentence), Art 12.4 (first sentence) and Annex 1.2 of the TBT Agreement (above n 17). 71 Another interesting provision is Art 2.8 (and its ‘standards equivalent’ in Annex 3.I), which refers to technical regulations being based on ‘product requirements in terms of performance rather than design or descriptive characteristics’. So, is ‘performance’ per se a physical characteristic? Arguably, performance cannot be seen in the final product as it refers rather to how the product behaves. This might be an intermediary state between a classic physical trace and an ‘intangible’ characteristic such as a product’s reputation. Furthermore, if the Agreement itself differentiates between a product’s performance on the one hand and a product’s design or descriptive characteristics on the other (indicating that they all fall under ‘product requirements’ that a technical regulation or standard lays down), this means that the concept of product characteristic under Annexes 1.1 and 1.2 may be more elastic than one may expect. Finally, note that the principle of ‘performance’ is present in the TBT Committee’s Decision on the six principles for international standards under Principle 4, see WTO, Committee on Technical Barriers to Trade, Second Triennial Review of the Operation and Implementation of the Agreement on Technical Barriers to Trade G/TBT/9 (13 November 2000). 72 Marceau (above n 35) 327. 73 This interpretation seems to be consistent with the text of the Explanatory Note to Annex 1.2 to the TBT Agreement, where what matters is that the technical regulation ‘relates’ to a PPM.

Do PPM Concerns Have A Future?  189 characteristics, such as a ban on all imports from Member X where industries are claimed to maintain slavery and forced labour. An npr-PPM would therefore have no relationship to the restricted products. Article 2.1 of the TBT Agreement repeats the provisions found in Articles I and III GATT, setting out the MFN and NT principles with regard to technical regulations. Since the TBT Agreement does not include an explicit reference to a provision similar to Article XX GATT, except in its preamble, and because the AB had specifically stated that Article XX GATT cannot be invoked to justify a breach of TBT obligations,74 it interpreted the requirement of ‘treatment no less favourable’ in Article 2.1 TBT as a two-stage assessment. In order to prove a violation of Article 2.1 TBT a Member must first demonstrate that the challenged regulation has a detrimental impact on imported products compared to like domestic products and, second, that the detrimental impact does not stem (exclusively) from a legitimate regulatory distinction.75 Therefore, policy distinctions based on PPMs could be consistent with the TBT Agreement if based exclusively on legitimate regulatory distinctions. Since ‘sustainable development’ is a legitimate WTO objective,76 legitimate regulatory distinctions would include PPMs used to protect sustainable development. But PPMs present a further contentious issue when it comes to their analysis under Annex 1.1 TBT and Annex 1.2 TBT, which is similarly worded. The AB decision in US – Tuna II77 authorises Members to regulate ‘labelling requirements as they apply to a product, process or production method’ even if a product’s manufacture or production takes place outside the Member’s territory.78 Indeed, the decision implies that labelling requirements, even if applied to the manufacture of a product in an exporting Member, coercing their compliance with human rights norms, international labour agreements, or other norms derived from public international law, are within the scope of the TBT Agreement. The implication of this AB finding seems to be that all labelling requirements that refer to a product are, by definition, covered by the TBT Agreement, regardless of whether their PPMs leave a physical trace in the products or whether they are considered to be product related or not. Therefore, the issue whether the first and second sentences of Annex 1.1 have the same scope remains. It can be argued that whether a PPM leaves a trace is not

74 WTO, Appellate Body Report, China – Measures Related to the Exportation of Various Raw ­Materials, WT/DS398/AB/R (22 February 2012), paras 293, 307; WTO, Appellate Body Report, China – Measures Related to the Exportation of Rare Earths, Tungsten, and Molybdenum, WT/DS433/ AB/R (29 August 2014) para 5.56. 75 US – Clove Cigarettes (above n 55) para 174. 76 Marrakesh Agreement Establishing the World Trade Organization (15 April 1994), 1867 UNTS 154, 33 ILM 1144 (1994), Preamble, First Recital. 77 US – Tuna II (Mexico) (above n 57). 78 J Pauwelyn, ‘Tuna: The End of the PPM Distinction? The Rise of International Standards?’ in J Trachtman and S Lester (eds), International Economic Law and Policy Blog (May 2012) available at: http://worldtradelaw.typepad.com/ielpblog/2012/05/tuna-the-end-of-the-ppm-distinction-the-riseof-international-standards.html.

190  Gabrielle Marceau determinative of whether it is product related. In addition, the second sentence of Annex 1.1 simply extends to labels, terminology or symbols the same basic rules on PPMs that are expressed in the first sentence (whether they leave physical traces or not).79 The AB in US – Tuna II set aside the old suggestion that PPMs would always be GATT inconsistent because of their extraterritorial application when instructing the US to ensure that the regulatory distinctions based on tuna fishing methods were applied in an even-handed manner to all tuna imports so as to ensure that other similarly dangerous tuna fishing methods are also safe for dolphins in all areas of the ocean.80 The US – Tuna II decision seems to be limited, however, to measures that deal with labelling requirements. Later on, the AB in EC – Seal Products seems to have left open the extent to which PPMs that do not leave physical traces are covered by the TBT Agreement by allowing a technical regulation to include policy-based distinctions that have a ‘sufficient nexus’ between production methods and the end product, without clarifying whether such nexus could only consist of a physical impact.81 In EC – Seal Products none of the criteria in the EU Regulation were clear-cut PPMs: the AB characterised the main feature of the EU Seal Regime as ‘establishing conditions for placing seal products on the EU market based on criteria relating to the identity of the hunter or the type or purpose of the hunt from which the product is derived’,82 not based on criteria relating to the manner in which the seals were killed.83 So the regulatory distinctions were not really PPMs. Some would argue that it is still not clear whether and to what extent PPMs are covered by the TBT Agreement.84 Arguably it would be more coherent if all types

79 In EC – Asbestos (above n 48) para 67, the AB stated that ‘the examples in the second sentence of Annex 1.1 indicate that “product characteristics” include, not only features and qualities intrinsic to the product itself, but also related “characteristics”, such as the means of identification, the presentation and the appearance of a product’. The AB confirmed that product characteristics include means of identification in WTO, Appellate Body Report, European Communities – Trade Description of Sardines, WT/DS231/AB/R (23 October 2002) para 189. Furthermore, in EC – Trademarks and Geographical Indications (Australia) (WTO Panel Report, European Communities – Protection of Trademarks and Geographical Indications for Agricultural Products and Foodstuffs, Complaint by Australia, WT/ DS290/R (20 April 2005)) the panel considered whether a measure requiring that the country of origin be shown on a product’s label laid down ‘product characteristics’ within the meaning of Annex 1.1 TBT. It concluded in para 7.451 that ‘a document that lays down a requirement that a product label must contain a particular detail, in fact, lays down a product characteristic’. The latter panel found support for this interpretation in a TBT Committee Decision (see G/TBT/1/Rev.8 (23 May 2003)), whereby Members seem to agree that Annex 1.1 covers technical regulations laying down labelling requirements irrespective of ‘the kind of information which is provided on the label, whether it is in the nature of a technical specification or not’. 80 US – Tuna II (Mexico) (above n 57) para 298. 81 EC – Seal Products (above n 67) para 5.12. 82 ibid para 5.58. 83 Marceau (above n 35). 84 For a detailed discussion on the implications of the judgment in EC – Seal Products, see M Du, ‘What is a “Technical Regulation” in the TBT Agreement?’ (2015) 6 European Journal of Risk Regulation 396.

Do PPM Concerns Have A Future?  191 of PPMs were covered by the TBT Agreement as otherwise the same PPMs could be justified under Article XX GATT while not being covered by the disciplines of the TBT Agreement.85 It would be even more unfortunate if a PPM that does not leave physical traces in products could be justified under Article XX GATT but not covered and unexaminable under the TBT Agreement, if it is referred to in measures other than labelling requirements.

C.  PPMs in International Standards Standards are agreed criteria by which a product or a service provider’s performance, its technical and physical characteristics and/or the process and the conditions under which it has been produced or delivered can be assessed.86 Many standardising bodies produce (multilaterally negotiated) PPM-based standards, and many international standards are designed to regulate PPMs. For example, a new ISO standard – ISO 13065:2015 – has been developed that helps assess the sustainability of products and processes for bioenergy, and the Terrestrial Animal Health Code, section 7, developed by the World Organisation for Animal Health, concerns, inter alia, the transport and slaughter of animals produced for consumption.87 Many of these standards are covered by the TBT and the SPS Agreements.88 The TBT Agreement recognises that WTO Members may formulate national standards that they consider appropriate for the protection of human, animal or plant life or health, the environment or consumers etc. The TBT and SPS Agreements acknowledge the importance of harmonising standards internationally so as to minimise the risk of standards acting as barriers to trade. In order to harmonise regulatory requirements and prevent too many differences between them, the TBT Agreement requires WTO Members to base their domestic standards on relevant international standards, except in situations where these would be ineffective or inappropriate in fulfilling the legitimate objective pursued. The value given by the WTO to international standards regulating PPMs seems to confirm that PPMs are not necessarily detrimental and restrictive. It is rather the fact that the preferred PPMs were unilaterally determined that was considered problematic, together with the conviction that imposing methods of production

85 Arts 2.1, 2.2, and the transparency disciplines such as Art 2.9, of the TBT Agreement. 86 Gstöhl (above n 29) 275. 87 ISO 13065:2015, International Organization for Standardization, www.iso.org/standard/52528. html; Animal Welfare, World Organisation for Animal Health, www.oie.int/en/animal-welfare/ oie-standards-and-international-trade/. Another relevant example would be the ISO 1400 series on environmental management, which includes standards on eco-labelling, International Organization for Standardization, www.iso.org/committee/54808.html. The ISO halal standard is another example of an international standard which includes PPMs that do not leave any physical traces. 88 For a discussion on the relationship between the WTO and the standard-setting process see P Delimatsis, ‘Global Standard-Setting 2.0: How the WTO Spotlights ISO and Impacts the Transnational Standard-Setting Process’ (2018) 28 Duke Journal of Comparative & International Law 273.

192  Gabrielle Marceau abroad was unilateral and GATT/WTO inconsistent. The provisions of Article XX GATT have been interpreted and applied to allow Members to justify PPM-based regulatory distinctions. What still needs to be clarified is whether and how PPMs are covered by other WTO agreements. However, it is important to bear in mind that there is often a thin line between the safeguarding of the interests of consumers, workers or the environment  – generally achieved by regulating PPMs – and the unlawful protection of the domestic market against foreign competition.89 In this regard, the TBT Agreement aims at ensuring that PPMs and international standards regulating PPMs remain legitimate and do not create unnecessary obstacles to international trade.90 The definition of standards in the TBT Agreement refers to voluntary standards approved by a ‘recognised’ body91 and the AB has added that a body should have its membership open to the relevant bodies of at least all WTO Members. This means that ‘not all transnational standardising bodies are “international” for the purposes of the TBT Agreement’.92 Once an international body is established as a recognised standardising body, it is still necessary to show that the standard is relevant. The AB clarified that a standard is relevant for the purpose of the obligation in Article 2.4 TBT as well as for the rebuttable presumption of consistency with Article 2.2 TBT in Article 2.5 (second sentence) TBT if it bears upon, relates to or is pertinent to the situation.93 It would seem thus that standards regulating PPMs (of any type) should be considered as within the scope of the TBT Agreement if they contain specifications and otherwise comply with the other element of the definition in Annex 1.2 and if they are documents that have been issued by a recognised international standardising body (ie a body that has recognised activities in standardisation and whose membership is open to the relevant bodies of at least all WTO Members)94 and when the document is ‘relevant’ to a specific technical regulation.95 When standards regulating PPMs are internationally agreed in the context of international

89 ibid. 90 EC – Sardines (above n 79). 91 Annex 1.2 TBT Agreement (above n 17). In Annex 1.4, the TBT Agreement sets out the definition of an international standardising body as a ‘body or system whose membership is open to the relevant bodies of at least all Members’. The AB in US – Tuna II analysed in detail what this means. It explained that both Annexes 1.2 and 1.4 refer to ‘bodies’ and not to ‘organisations’ (US – Tuna II (Mexico) (above n 57) para 356). In comparing the two and drawing on the definition of a body in the ISO/IEC Guide 2:1991, the AB stated that a body is a legal or administrative entity that has specific tasks and compositions whereas an organisation also has an established constitution and its own administration (ibid para 355). Furthermore, the AB added that a body must be recognised with respect to its activities in standardisation. 92 ibid para 365. 93 EC – Sardines (above n 79) para 229. 94 US – Tuna II (above n 57) para 359. 95 The question remains, however, whether it is necessary for an international standardisation body to be composed of national bodies or whether purely private stakeholder-driven systems which adhere to fair and inclusive procedures could also be regarded as international bodies. See Glinski (above n 43) 145.

Do PPM Concerns Have A Future?  193 standards96 they would not be considered to be ‘extraterritorial’ and infringing on the sovereignty of another Member. The SPS Agreement is lex specialis to the TBT Agreement and functions on the same principle. The SPS Agreement is mainly aimed at the activities of government regulators and accepts that the marketplace is free to develop its own international standards in response to consumer demands.97 The standards referred to in the SPS Agreement have been clearly identified – those of the Codex Alimentarius Commission, the International Office of Epizootics and the International Plant Protection Convention98 – and are thus always relevant. Article 3.2 SPS provides a presumption of WTO consistency for domestic standards that conform to existing SPS international standards, many of which include PPMs. Another relevant WTO agreement for standard harmonisation and the use of PPM-type distinctions is the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) establishing minimum standards of intellectual property (IP) protection binding on WTO Members. This Agreement incorporates existing IP standards set forth in previously existing multilateral agreements, including the Paris and Berne Conventions administered by the World Intellectual Property Organization; those existing IP treaties are based on whether IP rights have been respected in the production of goods and services. IP rights do not have a physical impact on the products they concern. Arguably the TRIPS Agreement has legitimised a long list of IP-related PPMs. However, similar to the TBT and SPS Agreements, under the TRIPS Agreement the PPMs at issue have been multilaterally negotiated and cannot be considered as unilateral or extraterritorial.99

IV.  The Relevance (or Not) of PPM Considerations in Trade in Services Whether and how PPM considerations can be relevant to trade in services and to the GATS has proven to be a more complex question than initially foreseen. 96 Note that the Explanatory Note to Annex 1.2 clarifies that the TBT Agreement covers documents that are not based on consensus. The AB in EC – Sardines (above n 79) para 227 clarified that standards adopted by a ‘recognised body’ of the international standardisations community need not be adopted by consensus. The TBT Committee 2000 decision (above n 71), however, lists consensus among the six principles for international standards. Nonetheless consensus does not mean unanimity. So international standards can reflect ‘internationally agreed’ issues even when they were not unanimously approved. See further US – Tuna II (above n 57) para 390. 97 Annex A, Art 3.1 SPS Agreement (above n 21). 98 See ibid, Annex A.3. 99 For an overview on the difficulty panels face in assessing discrimination when Members distinguish other than on physical differences see M Kennedy, WTO Dispute Settlement and the TRIPS Agreement: Applying Intellectual Property Standards in a Trade Law Framework (CUP, 2016) 208 (stating, inter alia, that the panel ‘had to devise its own comparator in order for the TRIPS national treatment obligation to operate in an analogous manner to likeness under GATT’ in the context of TRIPS).

194  Gabrielle Marceau The GATS covers both services and service suppliers (therefore four modes of supply), where services are by definition intangible. The GATT only covers goods (and one mode of supply). Interestingly, while GATS itself does not expressly refer to PPMs, the relation between ‘PPMs and services’ is expressly foreseen in footnote 3 to Article VI(2)(b) of the 1994 GPA. For the purposes of this plurilateral agreement, a ‘technical regulation’ is defined, inter alia, as ‘a document which lays down characteristics of a product or a service or their related processes and production methods’.100 In trade in services, the services are generally not physically reflected in the products they deliver (distribution of goods) and often what is delivered is not physical (such as internet banking services). So the traditional distinction between PPMs that leave physical traces and those that do not is not appropriate. But under the GATS, the PPMs equivalent would be the way in which a particular service is supplied, by whom it is supplied or, put differently, the method of service supply. The GATS covers ‘services’ and ‘service providers’. Likeness under the GATS has been defined to correspond to the competitive relationship between services and service suppliers. In Canada – Autos, the AB emphasised that panels must analyse the effect of the measure on the conditions of competition among the service suppliers ‘in their capacity as service suppliers’.101 Furthermore, in ­Argentina – Financial Services, the AB concluded as follows: ‘Thus, we consider that the concept of “likeness” of services and service suppliers under GATS ­Articles II:1 and XVII:1 is concerned with the competitive relationship of services and service suppliers.’102 The AB held that since likeness is a proxy for determining the competitive ­relationship of both services and service suppliers, the weight given to considerations relating to the service and service supplier (which are to be evaluated holistically) were to be assessed on a case-by-case basis.103 The AB noted an important difference in the likeness assessments between the GATT and the GATS NT obligations: Articles II:1 and XVII:1 of the GATS refer to ‘like services and service suppliers’. In contrast, Articles I:1, III:2, and III:4 of the GATT 1994, for instance, refer to ‘like products’, but they do not include a reference to ‘like producers’ (emphasis added).104

Distinguishing between producers and service providers and methods of supply of service is relevant in a likeness assessment under the GATS. In addition, ­distinctions between PPMs would also appear to be relevant and acceptable 100 See Secretariat Note on Technical Standards in Trade in Services S/WPDR/W/49 (13 September 2012). 101 WTO, Appellate Body Report, Canada – Certain Measures Affecting the Automotive Industry WT/DS142/AB/R (19 June 2000) para 181. 102 WTO, Appellate Body Report, Argentina – Measures Relating to Trade in Goods and Services WT/DS453/AB/R (9 May 2016) paras 6.25–6.26. 103 ibid paras 6.29, 6.31–6.32. 104 ibid paras 6.25–6.26.

Do PPM Concerns Have A Future?  195 ‘conditions’ under the GATS NT obligation, which expressly authorises WTO Members to subject their NT obligation to any conditions and qualifications set out therein, if inscribed in their GATS Schedule. A review of the limitations in Members’ schedules shows that these ‘conditions’ include PPMs such as ‘sustainability practices of the service provider’, or process and production services with any desired characteristics. These conditions are registered in GATS Schedules and are therefore multilateralised. If they comply with the prescriptions of Article XVII GATS on NT, it seems that such services-related PPMs can be used to distinguish different services and services providers and be fully WTO consistent. This serves to confirm the idea that the main reason for prohibiting PPM distinctions was not so much based on whether they relate directly or not to a product (or under the GATS to a service) but rather the fact that PPMs are considered as reflecting unilateral actions (with a protectionist goal). The same cannot be said so easily of services-related market access limitations. Contrary to Article XVII GATS on NT, Article XVI GATS provides an exhaustive list of the types of market access conditions/limitations that that are prohibited unless scheduled. This exhaustive list of prohibited limitations includes those which prescribe the type of service supplier or ‘specific types of legal entity’ through which a service supplier may provide a service, limitations on participation of foreign capital and restrictions of a quantitative nature (for example, on the number of service suppliers, the total value of service transactions or assets, the total number of service operations or the total quantity of service output). Other types of PPM conditions and requirements do not appear to fit easily within that list’s categories. Finally, Articles VI:4 and XVIII GATS on additional commitments could also include certain types of PPMs. The former mandates the development of multilateral disciplines on the type of measures that can be the object of additional commitments under Article XVIII GATS, while the latter prescribes that ‘Members may negotiate commitments with respect to measures affecting trade in services not subject to scheduling under Article XVI or XVII, including those regarding qualifications, standards or licensing requirements. Such commitments shall be inscribed in a Member’s Schedule’ (emphasis added). Professional qualifications such as those of an accountant or an architect could be akin to a PPM, where there is a requirement that the service be supplied by a supplier that possesses certain qualifications. A similar argument can be made for licensing requirements and technical standards in services. Nonetheless, qualification and licensing requirements could also be construed as being concerned with the supplier’s ability to provide a service or how the service is to be provided. A further example of additional commitments that would not be akin to PPMs under Article XVII GATS are those used in Mexico – Telecommunications to undertake commitments regarding the competitive behaviour of major suppliers and monopolies.105 The Telecoms 105 WTO, Panel Report, Mexico – Measures Affecting Telecommunications Services WT/DS204/R (2 April 2004).

196  Gabrielle Marceau Reference paper is all about how to regulate the telecoms market, not about the telecoms service itself. It deals with regulatory distinctions and how services suppliers should behave. It would thus all boil down to how the commitments are framed and how the restrictions are implemented and interpreted in the context of the GATS in order to determine whether PPMs, as we understand them, are relevant for the purposes of this Agreement. Although trade in services and the GATS provisions can be discussed with reference to PPM regulatory distinctions, this discussion does not appear to bring to the forefront any useful information. The GATS classifications are based on distinctions between the service suppliers and the manner in which a service is delivered. The fundamental concern relating to the unilateral and extraterritorial nature of such regulatory distinctions is best handled through transparent scheduling, multilateral monitoring and surveillance in committees’ work and negotiations.

V. Conclusion Initially PPM-based distinctions were considered to be a barrier to trade inconsistent with Article XI GATT, and which could not be justified under Article XX GATT, unless supported by a multilateral treaty. The situation changed with the WTO. The AB interpreted Article XX GATT as including the fundamental right of WTO Members to give priority to non-trade concerns, including those expressed in the form of PPMs, as long as the challenged governmental measure respected the requirements of the paragraphs and chapeau of Article XX. PPMs are also expressly covered by the SPS Agreement, the TBT Agreement, the Agreement on Agriculture and the GPA, and their consistency depends on compliance with the requirements of these agreements. The same can be said for the TRIPS Agreement, which includes a long list of IP-related PPM standards. The original concern over PPM-based distinctions was a fear of protectionism and unilateralism and the initial reaction was to make them ipso facto illegal. The WTO jurisprudence has maintained the view that PPMs are generally not enough to distinguish like products if PPM-compliant and PPM non-compliant products compete for the same consumers, but nonetheless it has also conferred on governments the right to treat like products differently on the basis of policies, including PPM-related policies, if such regulatory distinctions are consistent with the relevant WTO provision. In the context of trade in services the same concerns regarding unilateralism and protectionism exist. However, due to the applicability of the GATS NT provision (Article XVII) to both services and service suppliers and the possibility to undertake additional commitments under Article  XVIII GATS and the mandate to negotiate multilateral disciplines under Article VI GATS on domestic regulations such as qualification requirements (reinforcing the idea that it is unilateral distinctions that were undesirable and not PPMs as such),

Do PPM Concerns Have A Future?  197 PPM-based distinctions that do not leave physical traces seem to be almost inherent within the GATS regime. International trade has evolved from merely trading goods, to services and IP rights. Departure from trade in tangible objects has given rise to the need for more nuanced conditions or measures imposed on cross-border trade. Furthermore, given that there is more information available to consumers about how products are produced, services are rendered, and IP rights are determined – essentially about the processes behind the object of the trade – more leeway has been given to WTO Members to regulate based on these processes in order to meet the demands of a new international trade reality. PPMs are relevant in the context of trade today and in the future. This will confirm that legitimate PPM regulatory distinctions are accepted as an inherent part of today’s trading system.

198

11 Incentives and Obstacles for Innovation ANSELM KAMPERMAN SANDERS

I. Introduction The fourth industrial revolution (4IR) is upon us1 and it can be characterised as various technologies that are currently being developed, such as bio-, nano- and material technologies, Artificial Intelligence (AI), Big Data, the Internet of Things and 3D printing, being about to converge into new applications and domains. The 4IR raises major economic and social issues,2 most notably in relation to effects on labour markets.3 Due to its convergence, the 4IR will also raise the share of intellectual property (IP) in products and services offered across technological fields and in global value chains.4 There is not enough space to dwell on the structural and macro-economic effects of intellectual property rights (IPRs) but suffice it to say that IPRs are aimed at solving a unique market failure that can slow down, at times even significantly, the rate of innovation. In their more basic forms, IPRs fulfil three basic functions: the ‘creation of competitive markets’ for human, industrial and intellectual creativity that is novel

1 K Schwab, The Fourth Industrial Revolution (Crowne Business, 2017), originally published in 2016 (World Economic Forum, 2016) available at: www.weforum.org/about/the-fourth-industrial-revolution-by-klaus-schwab. 2 OECD, Key issues for digital transformation in the G20, Report prepared for a joint G20 German Presidency/OECD conference (OECD, 2017) available at: www.oecd.org/g20/key-issues-for-digitaltransformation-in-the-g20.pdf; see also European Commission, Definition of a Research and Innovation Policy Leveraging Cloud Computing and IoT Combination (European Commission, 2014) available at: http://ec.europa.eu/digital-single-market/en/news/definition-research-and-innovation-policy-leveraging-cloud-computing-and-iot-combination. 3 E Brynjolfsson and A McAfee, The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies (Norton, 2014). 4 WIPO, World Intellectual Property Report 2017: Intangible Capital in Global Value Chains (WIPO, 2017).

200  Anselm Kamperman Sanders or original, where consumers can make rational choices about which goods or services to buy; ‘insurance’ for innovators, safeguarding the fruits of their labour from abuse by free-riders; and a ‘commercial gateway’ through which innovators can exploit and benefit from their creations. Naturally, IPRs also have limitations and boundaries, not least due to the problems that may arise due to the considerable market power that IPRs provide to their owners. At the same time, IPRs may create obstacles to legitimate trade. The World Trade Organization (WTO) Trade Related Aspects of Intellectual Property (TRIPS) Agreement for the first time put IPRs in the context of trade rules. The reasoning was that only a harmonised level of IP protection would ensure a level playing field in international trade, while on the other hand lacunae in the scope of IP protection and enforcement would lead to trade distortions. It must be realised that territorial monopolies are already per se obstacles to trade. The TRIPS Agreement tries to strike a balance by ensuring ‘that measures and procedures to enforce intellectual property rights do not themselves become barriers to legitimate trade’, which also extends to the transfer and dissemination of technology.5 Although Article 7 TRIPS Agreement clarifies that IP protection and enforcement is not a goal6 in itself, this has not had a meaningful impact on the reasoning of the dispute settlement bodies of the WTO. Yet Article 7 TRIPS contains an important leading principle, namely that of national regulatory autonomy.7 This is most prominently expressed in the context of the principles contained in ­Article 8 TRIPS and the Doha Declaration on TRIPS and Public Health.8 In tandem, ­Articles 7 and 8 TRIPS provide a strong basis for the shaping of IP policy in a manner conducive to social and economic welfare. In framing innovation policy to effectuate the intricate link between sustainable development and technological progress, one has to approach IP as a complex adaptive system that is seen in light of other international obligations, inter alia: • the Universal Declaration of Human Rights (UDHR);9 • the UNESCO Convention for the Safeguarding of the Intangible Cultural Heritage (ICH);10

5 Arts 7 and 8 TRIPS Agreement. 6 Art 7 TRIPS Agreement [Objectives]: ‘The protection and enforcement of intellectual property rights should contribute to promotion of technological innovation and the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations.’ 7 D Gervais, The TRIPS Agreement: Drafting History and Analysis (Sweet & Maxwell, 2012); see also A Slade, ‘The Objectives and Principles of the WTO TRIPS Agreement: A Detailed Anatomy’ (2016) 53 Osgoode Hall Law Journal 948–98; and J Malbon, C Lawson and M Davison, The WTO Agreement on Trade-related Aspects of Intellectual Property Rights: A Commentary (Edward Elgar, 2014). 8 See WTO, The Doha Round Texts and Related Documents (WTO, 2009). 9 See in this respect WIPO/OHCHR, Intellectual Property and Human Rights (WIPO, 1998). 10 See M Torsten and J Anderson, Intellectual Property and the Safeguarding of Traditional Cultures: Legal Issues and Practical Options for Museums, Libraries and Archives (WIPO, 2010) available at: www. wipo.int/edocs/pubdocs/en/tk/1023/wipo_pub_1023.pdf.

Incentives and Obstacles for Innovation  201 • the United Nations Framework Convention on Climate Change (UNFCCC);11 and • the United Nations Convention on Biological Diversity (CBD). IP law does not exist in a legal vacuum. It is dependent on the existence of the rule of law, most notably where enforcement of IPRs is concerned, and also interacts closely with other branches of public and private law: with public law, most notably where, inter alia, the acquisition and registration of IPRs, administrative and criminal enforcement, taxation, and investment treaty protection are concerned; and with private law, where, inter alia, contracts, labour agreements, incorporation of undertakings, and torts are concerned. As a property right, IP is a possession subject to the protective regime against interference by the state, meaning that it is considered to be an investment that can be subject to investor–state dispute settlement,12 or subject to domestic or even international protection as a human right to property entitlement.13 In short, IPRs not only stimulate creative and industrial effort but can also lead to over-enforcement and concentration of economic power. A reappraisal and strengthening of a more holistic view on the legal rules that shape IP in our economies will be important to maintain the trust of the society in the regulation and application of ground-breaking technologies and new economic realities in the 4IR.

II.  New Technologies, New Challenges, New Opportunities As stated above, the 4IR entails the convergence of various technologies that are currently being developed, into new applications, domains and business models. At present the 4IR is visible in the way in which new business models, start-ups and concentrations are forming for, inter alia: (1) transportation and self-­ driving vehicles (Uber, Google Maps); (2) travel and accommodation (Airbnb);

11 A Taubman and J Watal, The WTO TRIPS Agreement: A Practical Overview for Climate Change Policymakers (WTO, 2010) available at: www.wto.org/english/tratop_e/trips_e/ta_docs_e/8_3_ overviewclimatechange_e.pdf. See also D Shabalala, Climate Change, Technology Transfer and Intellectual Property: Options for Action at the UNFCCC (Doctoral Dissertation, Maastricht University, 2014) available at: http://dalishabalala.files.wordpress.com/2014/10/shabalala-climate-change-techtransfer-and-ip.pdf. 12 See the cases Philip Morris Asia Limited v the Commonwealth of Australia (UNCITRAL PCA Case No 2012-12); Philip Morris v Uruguay (ICSID Case No ARB/10/7); and Ely Lily v Canada NAFTA (ICSID Case No UNCT/14/2). See also C Heath and A Kamperman Sanders (eds), Intellectual Property and International Dispute Resolution (Kluwer Law International, forthcoming). 13 See, for example, Anheuser-Busch Inc v Portugal, no 73049/01, European Court of Human Rights (Grand Chamber), Judgment (Merits and Just Satisfaction) of 11.01.2007, Reports of Judgments and Decisions 2007-I.

202  Anselm Kamperman Sanders (3) information services and ICT platforms (Google Books, Google Android); (4) content delivery and production (Netflix, Amazon, Google, Apple); (5) social media (Facebook, LinkedIn, Messenger, Instagram, etc); (6) finance, crowd funding and peer-to-peer lending and payments (Apple Wallet, Crowdcube, ­LendingClub, Digicash); and (7) new labour platforms and e-freelancing marketplaces (Upwork, Axiom, etc). The European Patent Office (EPO) and the Handelsblatt Research Institute have recently charted the ‘inventions behind the digital transformation’.14 With a growth of 54 per cent in terms of patent applications in the last three years, the scientific progress in 4IR technologies is growing rapidly. However, since patent applications do not yet lead to a massive uptake of technology in the market, the effects of patenting activity on actual innovation will become visible only in the years to come. What is striking about the data is that only 25 companies were responsible for 50 per cent of the 4IR applications at the EPO between 2011 and 2016, with the US, Europe and Japan leading, and with the Republic of Korea and China rapidly catching up. Among the biggest patent filing firms, traditional ICT corporations like Samsung, Apple, Sony and Philips are still present, but Google and Huawei are among of the biggest climbers. What now follows is an overview of the various technological fields in the context of the 4IR.

A. Biotechnology IPRs over self-propagating entities (life) has been a controversial issue for years. Issues of morality, informed consent of patients and the integrity of humans, animals and plants make this field of technology a minefield of sensitivities. Yet, it is clear that if the human race is to feed itself, reduce its carbon footprint, make better use of natural resources without depleting the planet and make advances in medical science, biotechnology is crucial. Public debate on morality is very much linked to culture and moral beliefs. While the EU imports and utilises substantial amounts of genetically modified (GM) maize and soybeans, the marketing and cultivation of GM seeds in Europe is very limited, mainly due to regulation and public perception and not for reasons of patentability.15 The issue of bioethics and patent law came to the fore in the ‘Oncomouse’ cases involving a transgenic mouse whose germline was artificially altered by the introduction of an oncogene so that it would develop cancer. The validity of the patent

14 European Patents Office, Patents and the Fourth Industrial Revolution: The Inventions Behind the Digital Transformation, December 2017 (EPO, 2017) available at: www.epo.org/4IR. 15 See in this respect the EU report of the Expert Group on the development and implications of patent law in the field of biotechnology and genetic engineering (E02973) 17 May 2016 (European Commission DG GROW 2016) available at: http://ec.europa.eu/growth/industry/intellectual-property/patents/biotechnological-inventions_en.

Incentives and Obstacles for Innovation  203 was unsuccessfully challenged in Canada16 and Europe, where it was argued that the invention would be contrary to public order or morality.17 It was ultimately decided that in the case at hand the medical benefit for mankind outweighs the suffering of the animal. In the EU, the issue of morality of biotechnological invention is regulated by the Biotechnology Directive, which contains a provision that supports this point of view.18 Although few would support human cloning, use of embryonic stem cell material for the purpose of finding cures for genetic diseases is also controversial. First, the meaning of the term ‘human embryo’ and second the meaning of the term ‘use’ in relation to human embryo can mean: (a) a process or substance which itself requires the use of a human embryo; (b) a process or substance which depends on a prior, ‘upstream’ destruction of a human embryo; and (c) a process or substance which depends on a prior, ‘upstream’ non-destructive use of a human embryo. In the Brüstle decision, the Court of Justice of the European Union (CJEU) held that the use of human embryos for scientific research purposes cannot lead to patentable inventions. Only uses for therapeutic or diagnostic purposes which are applied to the human embryo and are useful to it are patentable. A ‘human embryo’ within the meaning of Union law is any human ovum after fertilisation or any human ovum not fertilised but which, through the effect of the technique used to obtain it, is capable of commencing the process of development of a human being. It is for national courts to ascertain whether stem cells obtained from a human embryo at the blastocyst stage fall within the scope of this definition, although it is clear from the judgment that the patentability of a product whose production necessitates the prior destruction of human embryos or their use as a base material is excluded.19 US patent law does not contain provisions on non-patentable or excluded subject matter. The US Supreme Court in Association for Molecular Pathology v Myriad Genetics20 held that merely isolating genes that are found in nature does not make them patentable. The case involved Myriad’s patent over a diagnostic test based on the sequencing of the BRCA1 and BRCA2 genes, which are indicative of breast cancer.

16 Harvard College v Canada (Commissioner of Patent) 2002 SCC 76. 17 Board of Appeal of the European Patent Office, Decision of 6 July 2004, T 315/03. See also WIPO, Bioethics and Patent Law: The Case of the Oncomouse, available at: www.wipo.int/wipo_magazine/ en/2006/03/article_0006.html. 18 Art 6 of Directive 98/44/EC of the European Parliament and of the Council of 6 July 1998 on the legal protection of biotechnological inventions provides that ‘Inventions shall be considered unpatentable where their commercial exploitation would be contrary to ordre public or morality’ and specifies on this basis, inter alia, that ‘processes for modifying the genetic identity of animals which are likely to cause them suffering without any substantial medical benefit to man or animal, and also animals resulting from such processes’ and ‘uses of human embryos for industrial or commercial purposes’ shall be considered unpatentable. 19 CJEU, Case C-34/10 Brüstle v Greenpeace ECLI:EU:C:2011:669; and CJEU, Case C-364/13 International Stem Cell Cooperation Corporation v Comptroller General ECLI:EU:C:2014:2451. 20 No 12-398 (569 US 576 (2013)).

204  Anselm Kamperman Sanders The delimitation between plant breeders’ rights (PBR) and patents for biotechnological inventions also raises a number of issues,21 as essentially biological processes are not patentable, but plant-related inventions are. At the same time, many jurisdictions offer protection for plant varieties. This system is commonly based on the International Convention for the Protection of New Varieties of Plants (UPOV Convention),22 a tailor-made system of protection of plant varieties and a sui generis system according to the TRIPS Agreement.23 The aim of a plant breeder is, through selection and cross-breeding, to create new genetic combinations that are Distinct, Uniform and Stable (DUS).24 The value of the new variety will be determined by the new traits that it possesses, such as resistance to disease, shape, colour, winter hardiness, water management, etc. Interspecific crossing, but also mutagenesis (spontaneous, or humanly induced) may generate new traits of interest that can be selected and bred further until a desirable outcome is achieved. The art of plant breeding therefore lies in the combination of existing genotypes and the ‘discovery’ of mutations. In order to do so the plant breeder needs to have access to germplasm that contains the existing genotypes. The UPOV-based PBR systems therefore recognise a so-called breeder’s exemption, which allows the breeder to make use of protected varieties with the purpose of creating new varieties. To do so the breeder does not require the consent of the holder of the PBR, nor is any form of compensation required. The unrestricted access to the germplasm lies at the heart of the PBR innovation system. In the US’ non-UPOV-based PBR, which is, perhaps confusingly,25 called a ‘Plant Patent’, the breeder’s exemption is also present. The combination of PBR with patents on plant-genetic inventions may lead to a double protection in relation to plant-genetic material. In patent law, the use of patented material for the development and the exploitation of a new plant variety is, in principle, not possible without the permission of the patent holder. In order not to frustrate the innovation model underlying the PBR system, some jurisdictions26 have implemented a ‘limited breeder’s exemption’ in

21 C Heath, ‘Plant Varieties, Biodiversity and Access Rights’ in C Heath and A Kamperman Sanders (eds), Industrial Property in the Bio-Medical Age (Kluwer Law International, 2003). 22 L’Union internationale pour la Protection des Obtentions Végétales (UPOV), or in English, the International Union for the Protection of New Varieties of Plants; the 1991 Act is the most current version of this treaty, available at: www.upov.int. 23 Arts 27–30 TRIPS Agreement. 24 Distinct (D) from any other variety whose existence is a matter of common knowledge, it should be sufficiently uniform (U), meaning that the plant variety has individual plants which have similar or genetically identical important characteristics, with very few aberrations and stable (S), meaning that the plant variety has important characteristics which remain true to their original description after successive propagations or multiplications. This DUS test is based mainly on growing the plants in approved centres, typically over a two-year period. 25 The US distinguishes between a ‘plant patent’ and a ‘utility patent’, whereas the rest of the world only recognises a patent for invention (eg technical utility), as opposed to a patent for plant breeding. 26 Switzerland, France, Germany and the Netherlands. Furthermore, a limited breeder’s exemption is foreseen in the European Patent with Unitary Effect.

Incentives and Obstacles for Innovation  205 patent law. The limitation lies in the fact that the consent of the patent holder of the patented biotechnological invention is required for the commercialisation of any new variety that still contains the patented nucleic acid (DNA). In order to delimitate the fields of PBR and patents for biotechnological inventions further, the European Commission has adopted a notice27 clarifying certain articles of Directive 98/44 on the protection of biotechnological inventions, excluding from patentability products obtained by essentially biological processes, covering both plants and animals. This has resulted in the EPO changing its guidelines (Rule 28), also excluding products obtained by essentially biological processes from patentability. The next step in guaranteeing access appears to be industry-led initiatives to establish patent platforms28 for traits and technologies based on ‘fair, reasonable and non-discriminatory’ (FRAND) terms. This is crucial for the openness of innovation, as holding oneself out as a willing licensor or licensee means that restricting access is no longer a legal option. The only matter left for negotiation is the establishment of the royalty fee, also on FRAND terms.29 Another aspect of patent protection in relation to self-propagating biotechnological invention is the issue of passive (non-intentional) infringement,30 which makes public acceptance of biotechnological patents problematic. In a number of high-profile court decisions31 the patent monopoly was upheld, although in the Canadian case of Monsanto v Schmeiser the defendant was ordered to pay the symbolic sum of one Canadian Dollar. In the EU, Monsanto objected to the importation of soy meal that contained a patented gene. The court held that European patent law does not accord protection to a patented DNA sequence which is not able to perform its function, and national law cannot grant absolute protection to a patented DNA sequence as such, regardless of whether it performs its function in the material containing it.32 Industry has also developed so-called ‘genetic use restriction technology’ (GURTS), which causes the second generation of seeds to be sterile and effectively deprives farmers of their privilege to use farm-saved seeds.33 In the context of

27 Commission Notice on certain articles of Directive 98/44/EC of the European Parliament and of the Council on the legal protection of biotechnological inventions [2016] OJ C411/03, available at: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52016XC1108%2801%29. 28 See the ‘International Licensing Platform Vegetable’, available at: www.ilp-vegetable.org. 29 The ILP Vegetable foresees a so-called ‘baseball’ arbitration procedure. 30 B Sherman, ‘Biological Inventions and the Problem of Passive Infringement’ in C Heath and A Kamperman Sanders (eds), Industrial Property in the Bio-Medical Age (Kluwer Law International, 2003). 31 See Canada Supreme Court, Monsanto v Percy Schmeiser [2004] 1 SCR 902, 2004 SCC 34, and US Supreme Court, Bowman v Monsanto Co., 569 US (2013). 32 CJEU, Case C‑428/08 Monsanto v Cefetra ECLI:EU:C:2010:402. 33 S Hubicki and B Sherman, ‘Terminator Genes as “Technical” Protection Measures for Patents?’ in C Heath and A Kamperman Sanders (eds), New Frontiers of Intellectual Property Law (Hart Publishing, 2005).

206  Anselm Kamperman Sanders the 8th Conference of the Parties to the United Nations Convention on Biological Diversity,34 there is a de facto moratorium on the use of this technology, with some jurisdictions even passing legislation to prohibit the use of the technology.35

B. Nanotechnology In the case of nanotechnology, sensitivities are not so pronounced. The miniaturisation of technology holds great promise, especially in combination with biotechnological inventions. Life sciences have been faced with the ‘chemical ­ceiling’ in the development of new drugs for some time now, and the combination of biotechnology and nanotechnology appears to be the pipeline for new drug development in the future. Nanotechnology is also crucial for developments in materials sciences as new properties can be given to materials due to (sub)atomic use of nanotechnological particles. Nanotechnology is difficult to classify due to its multidisciplinary nature covering engineering, biology, chemistry and materials science. This complexity has resulted in a situation where relatively few entities hold the majority of the patents in this field. To a certain extent this is normal for a new field of technology. The first patents in a new field of technology tend to be broad in scope as well36 but the interdisciplinary nature of nanotechnology raises barriers for new market entrants immensely. This is not only due to the complex assessment of the freedom to operate across various domains, but also because patenting requires the filing of a nanotechnology patent to be handled by a team of scientists and patent attorneys capable of collaborating on a wide array of technologies, each of which may require licensing-in IP. This is a common feature for 4IR technologies.

C.  Internet of Things The Internet of Things (IoT) pertains to the intimate merger of physical objects and devices embedded with online connectivity. Mobile phones, wearables, cars, fridges, thermostats – all these devices are fitted with receptors that constantly communicate information to and from (Big Data) cloud services. The technology makes devices ‘smart’ and adaptive but also presents an interesting conundrum in that the devices become subject to services, without which they would lose their

34 Curitiba, Brazil, 20–31 March 2006. 35 Vide India and Brazil. 36 Whether economically justified or not, throughout patent history courts have systematically favoured ‘pioneer’ inventions. See J Thomas, ‘The Question Concerning Patent Law and Pioneer Inventions’ (1995) 10 Berkeley Technology Law Journal 35–103, who argues that ultimately economic theories are unsuited to form patent law.

Incentives and Obstacles for Innovation  207 utility. This also means that IP rightholders can exercise and will retain control over the physical object after the first commercialisation. This is also reflected in the way in which the law deals with copyright in an online environment. In the IoT environment this is especially relevant in relation to software and data. Following the 1996 World Intellectual Property Organization (WIPO) Copyright Treaty, the rights of copyright holders have been bolstered in the sense that in an online environment the control over access to copyright content has superseded the right to control reproduction of works. In a digital environment copying is after all necessary for the functioning of the Internet itself. Digital copies are furthermore identical to any original source, which means that the business model for the exploitation of works online has fundamentally shifted to providing a service based on a subscription-based access model. The contract of sale for IoT devices therefore encapsulates not only the sale of a physical good, but also the supply of a service. It is a well-established principle that after the first commercial marketing (sale) of an item, the IP rightholder can no longer object to onward commercialisation of that same item; the IPRs have been exhausted. This can be justified by the principle that the IP rightholder, in setting the price for this first sale, has been sufficiently compensated for his efforts in marketing an innovative product. In relation to the offering of services involving access, however, this paradigm does not hold, as the continued supply of access and service at a given price may not necessarily provide sufficient economic return. In the EU this has led to the question whether an IP rightholder, Oracle, can object to the further commercialisation of ‘second-hand’ software licences.37 UsedSoft sold these licences on to third parties, who could download the software from the Oracle website and then activate it. In this case the CJEU decided that the right of distribution is exhausted upon the first sale.38 However, there are several conditions that need to be met. First, the seller must make his one copy unusable at the time of resale39 and the license can only be transferred as is, meaning that

37 CJEU, Case C-128/11 Oracle v UsedSoft ECLI:EU:C:2012:407. 38 ibid. The court observed that ‘It makes no difference, in a situation such as that at issue in the main proceedings, whether the copy of the computer program was made available to the customer by the rightholder concerned by means of a download from the rightholder’s website or by means of a material medium such as a CD-ROM or DVD. Even if, in the latter case too, the rightholder formally separates the customer’s right to use the copy of the program supplied from the operation of transferring the copy of the program to the customer on a material medium, the operation of downloading from that medium a copy of the computer program and that of concluding a licence agreement remain inseparable from the point of view of the acquirer’. 39 ibid: ‘An original acquirer who resells a tangible or intangible copy of a computer program for which the copyright holder’s right of distribution is exhausted in accordance with Article 4(2) of Directive 2009/24 must, in order to avoid infringing the exclusive right of reproduction of a computer program which belongs to its author, laid down in Article 4(1)(a) of Directive 2009/24, make his own copy unusable at the time of its resale … Moreover, even if an acquirer of additional user rights for the computer program concerned did not carry out a new installation – and hence a new reproduction – of the program on a server belonging to him, the effect of the exhaustion of the distribution right under Article 4(2) of Directive 2009/24 would in any event not extend to such user rights. In such a case the acquisition of additional user rights does not relate to the copy for which the distribution right was

208  Anselm Kamperman Sanders it is not permitted to divide the licence and resell the user right in such a way that the reseller determines the number of users until the total number of user licences is depleted. It has to be noted that exhaustion is at present only possible in the case of software, and that some manufacturers are already anticipating the resulting loss of control over an IoT device by altering the way in which they make products available. Volvo electrical vehicles will, for example, be available on a lease-based subscription model only.40 As a result, rights of ownership will never be transferred, and rights of rental or lease are not subject to exhaustion. Outside the realm of software, meaning in the area of media content such as music41 or e-books,42 there is no exhaustion at present.43 This means that copyright holders and platform operators (Apple, Google, Spotify) are automatically placed in a position to control the market for resale of digital contents.

D.  Big Data, Connectomics and Artificial Intelligence The IoT works in conjunction with ‘Big Data’. Big Data analysis is an extremely promising field for scientific research and is crucial for advances in meteorology, genomics, connectomics (applied neuroscience), complex physics simulations, biology and environmental research. Information on citizens, or ‘data subjects’ is also collected and shared by governments and industry alike. Information is the currency of the new economy, which is freely handed over (social media), but is also collected without express consent (cookies, tags, beacons, web-crawlers, web-spiders, deep packet inspection, ISP snooping, etc). This information can be used for predictive analytics and user behaviour analytics. Use of behavioural analytics, facial recognition technology and AI can furthermore be used for active monitoring of citizens and

exhausted at the time of that transaction. On the contrary, it is intended solely to make it possible to extend the number of users of the copy which the acquirer of additional rights has himself already installed on his server’. 40 See: http://money.cnn.com/2017/10/17/technology/volvo-polestar-electric/index.html. 41 United States District Court for the Southern District of New York, Capitol Records, LLC v ReDigi Inc. 934 F.Supp.2d 640 (SDNY 2013). 42 See German Court of Appeal Hamm, 22 U 60/13, denying the application of UsedSoft to audio books made available online. See also the reference of the e-book reseller ‘Tom Kabinet’ case to the CEJU. See also the opinion of the Advocate General in Case C-419/13 Art & Allposters International BV v Stichting Pictoright, involving the transfer process from a paper poster to canvas, suggesting that the EU’s InfoSoc Directive only covers exhaustion in tangible media carriers, which the CJEU ECLI:EU:C:2015:27 appears to confirm. 43 The CJEU has been requested to rule on the legality of the ‘Tom Kabinet’ e-book resale service, which the Court of Appeal of Amsterdam, NUV v Tom Kabinet ECLI:NL:GHAMS:2015:66, 20 January 2015 has permitted to continue by analogy to UsedSoft, although the court agreed with NUV that, as an Internet intermediary, Tom Kabinet facilitates the resale of illegal content due to the absence of sufficient and effective measures to prevent the illegal sale of e-books.

Incentives and Obstacles for Innovation  209 consumers. For example, China’s Social Credit System,44 a behavioural profile of each Chinese citizen, charting not only economic factors, but also ‘socialist core values’ such as patriotism, respecting the elderly, working hard and avoiding extravagant consumption, should be in place from 2020 onwards. Big Data analysis requires a combination of raw computing power and the collection, verification and presentation of data. Data as such is, however, neither patentable nor an original work of copyright. In most instances trade secrecy may be the best method of protecting databases that make Big Data analysis possible. Some jurisdictions, most notably the European Union, have sui generis legislation for the protection of databases. This legislation protects the investment in the obtaining, verification and presentation of data, and provides the rightholder with the possibility to object to unauthorised extraction and reutilisation of data. This also means that the linking up of datasets also falls within the ambit of this sui generis database right. Nothing, however, prevents third parties from gathering, verifying and presenting their own data. In view of the fact that many databases will in future be filled through IoT devices, however, the practical ability to gather information will be firmly in the hands of platform providers (Google, Facebook, Apple, etc), as well as IoT device manufacturers and service providers. In the world of Big Data, information is the currency that is required to have access to services. The charting of the neurological connections (neural imaging) within an organism’s nervous system is set to result in breakthrough science in future. Using a combination of Big Data and AI, scientists are attempting to replicate a human brain, with all its neurological connections in a computer. Like the human genome project before it, connectomics45 is a long-term project and a fast-developing field. The perspective that a human brain can be mapped in a connectome and ‘run’ in a simulated environment to connect it to function and behaviour may raise a number of interesting issues in relation to privacy, but also of (intellectual) property over one’s connectome.46 Furthermore, the technology has some characteristics in common with nanotechnology, in that technologies converge, namely neural imaging, computing, software and data, and clinical or medical studies. Patents in AI technology are growing fast, especially in the biological, knowledge and mathematical sciences.47 Due to the enormous amount of human work

44 R Botsman, ‘Big Data Meets Big Brother as China Moves to Rate its Citizens’, Wired (21 October 2017) available at: www.wired.co.uk/article/chinese-government-social-credit-score-privacy-invasion; and M Hvistendahl, ‘Inside China’s Vast New Experiment in Social Ranking’, Wired (14 December 2017) available at: www.wired.com/story/age-of-social-credit/. 45 For Human Connectome projects see, for example, www.humanconnectome.org or www.neuroscienceblueprint.nih.gov/connectome/. 46 See in this respect also J Boyle, Shamans, Software and Spleens: Law and the Construction of the Information Society (Harvard University Press, 1996). 47 H Fujii and S Managi, ‘Trends and Priority Shifts in Artificial Intelligence Technology Invention: A Global Patent Analysis’, VOX CEPR’s Policy Portal (16 June 2017) available at: http://voxeu.org/article/ trends-artificial-intelligence-technology-invention.

210  Anselm Kamperman Sanders and effort AI can replace, and the need for governance structures on AI in relation to liability and risk, the Committee on Legal Affairs of the European Parliament adopted a Motion for a European Parliament Resolution.48 It encompasses a number of recommendations to the Commission on civil law rules on robotics and AI to support a ‘horizontal and technologically neutral approach’ to IP applicable to the various sectors in which robotics could be employed, as well as a ‘balanced approach to IPR’s when applied to hardware and software standards and codes that protect innovation and at the same time foster innovation’. Of course, IPRs are merely a small issue in the wider context of the regulation of AI.49 Copyright is the most relevant branch of IP that is applicable to AI.50 It primarily raises questions of ownership, most notably in relation to independently created works by the AI. Authorship has always been intrinsically connected with a natural person, as authors’ rights address the fundamental right of man to the creations of the mind, as well as the moral right to authorship and integrity of the work. Still, in some jurisdictions’ corporations (eg in the US, the Disney Corporation) can be considered as authors. For AI-generated works, the question arises whether the owner of the AI, or the programmer responsible for coding the software that the AI is based on, may claim ownership over the work. Also, the AI can only function properly if it is network connected and has access to enormous amounts of (big) data. This led the Committee of Legal Affairs to conclude that ‘The current insufficient legal framework on data protection and ownership51 is of great concern due to the (expected massive) flow of data arising from the use of robotics and AI’.52 In the context of copyright law, however, access to information and educational materials is crucial for the development of an open and inclusive society. Whereas the 3IR (ICT) and the proliferation of Internet access greatly improved global connectivity, it also resulted in rampant online piracy. The effective lobby of the publishing industry has meanwhile resulted in a coherent framework for increased copyright protection, whereas limitations and exceptions to copyright addressing the freedoms for competitors, public and institutional users (libraries, educational and research institutions) and rights of private citizens are addressed in a piecemeal fashion only. As a result, copyright law has been transformed from a right to control copying to a right to control access to information. Also, the liability of intermediaries for infringing acts committed by private individuals has greatly

48 A8-0005/2017 (of 27 January 2017) available at: www.europarl.europa.eu/sides/getDoc.do?pub Ref=-//EP//NONSGML+REPORT+A8-2017-0005+0+DOC+PDF+V0//EN. 49 Wider issues include liability, corporate and civic responsibility, etc. See R Brooks et al, ‘Artificial Intelligence and Life in 2030’. One Hundred Year Study on Artificial Intelligence: Report of the 2015–2016 Study Panel, (Stanford University, 2016) available at: http://ai100.stanford.edu/2016-report. 50 See B Schafer, D Komuves, JN Zatarain and L Diver, ‘A Fourth Law of Robotics? Copyright and the Law and Ethics of Machine Co-production’ (2015) 23 Artificial Intelligence and Law 217–40. 51 T Hoeren and P Bitter, ‘Data Ownership Is Dead: Long Live Data Ownership’ (2018) 40 European Intellectual Property Review 347–48. 52 Report by the Committee on Legal Affairs with Recommendations to the Commission on Civil Law Rules on Robotics (EP) 27 January 2017, 2015/2103(INL) 28.

Incentives and Obstacles for Innovation  211 increased, leading to fundamental discussions on ‘notice and takedown’ obligations, duties to monitor Internet traffic, net neutrality and the human right of access to information and the freedom of speech. Furthermore, the ‘new’ right of communication to the public is a non-exhaustible right, meaning that the further commercialisation of a legitimately purchased copy is not permitted without the authorisation of the rightholder.53 Unlike in copyright, where authorship is fundamental to the question of originality,54 in patent law this is not an issue.55 The criteria of novelty and inventive step can be assessed without any reference to an inventor, and subsequent attribution of the right is usually made on the basis of utilitarian considerations linked to the risk of making investments in research and development (R&D). In employer– employee relationships, the employer is therefore commonly deemed to be the owner of the patent. In such situations of corporate patenting, the employer– employee relations model can also work for AI, in which, after all, corporate investments have been made. Should AI infringe a patent, the owner of the AI may similarly be held liable, as knowing infringement, but also inducement and contributory or indirect infringement, are all actionable.56 Also, use of AI in inventive activity does not present problems for the assessment of inventive step. As historical development shows, use of technology (including computing power) has never presented a problem before. The question becomes whether a person skilled in the art would or could use AI in making a contribution to the state of the art. The Japanese Patent Office plans to deploy AI for the automated process of screening patent, trade mark and design applications, and is also the first patent office to adopt comprehensive examination guidelines covering the IoT and AI.57

E.  3D Printing The 3D printed skull implant,58 3D printed food and the 3D printed gun,59 all have made headlines. Yet this initial excitement over 3D printing has subsided 53 CJEU, Case C-128/11 UsedSoft ECLI:EU:C:2012:407; and United States District Court for the Southern District of New York, Capitol Records, LLC v ReDigi Inc. 934 F.Supp.2d 640 (SDNY 2013). 54 The UK Copyright, Designs and Patents Act 1988 (UK) c 48, 33 deems the author of a computergenerated work to be ‘the person by whom the arrangements necessary for the creation of the work are undertaken’. 55 R Abbott, ‘I Think, Therefore I Invent: Creative Computers and the Future of Patent Law’ (2016) 57 Boston College Law Review 1079, available at: http://lawdigitalcommons.bc.edu/bclr/vol57/iss4/2. 56 J Lohr, ‘Artificial intelligence drives new thinking on patent rights’, LimeGreen IP News (15 July 2016), available at: www.limegreenipnews.com/2016/07/artificial-intelligence-drives-new-thinkingon-patent-rights/. 57 Japanese Examination Guidelines pertinent to IoT-related technologies of March 2017, available at: www.jpo.go.jp/tetuzuki_e/t_tokkyo_e/iot_examination_e.htm. 58 See N Tufnell, ‘Neurosurgeons successfully implant 3D printed skull’, Wired (Wednesday, 26 March 2014) available at: www.wired.co.uk/article/3d-printed-skull. 59 R Morelle, ‘World’s first 3D-printed gun fired in US’, BBC (6 May 2013), available at: www.bbc. com/news/av/technology-22423883/world-s-first-3d-printed-gun-fired-in-us.

212  Anselm Kamperman Sanders somewhat due to the fact that home printers do not yet produce usable quality. The technology has made big inroads in production processes, resulting in a real impact on logistics by shortening supply chains. Costs of warehousing and transportation can be heavily reduced. The advantages are manifold and range from reduction in CO2 emissions and individualised and customised production, to the elimination of customs duties. The sharing of blueprints online, however, raises serious issues of copyright,60 and industrial property rights involving patent or trade mark law are inadequate to deal with the potentially disruptive effect of large-scale proliferation of good 3D consumer printers and scanners when they become commonplace.

III.  Regulating Cooperation and Concentration In the 4IR it will be of even greater importance than before to ensure that a more effective and tangible bridge between early-stage innovators (including from universities and research bodies) and industry players is created – with the intention of translating these innovations into marketable products, to the benefit of citizens. The concept of ‘bridging the valley of death’ was identified as a key theme for the EU’s Horizon 2020 Framework Programme for Research and Innovation.

A.  4IR and the Valley of Death The term ‘valley of death’ is used to describe the instance where progress in science fails to provide the basis of a commercially successful business or product. R&D, while resulting in a working prototype for a product or service, does not translate into a marketable product or business because funding or earnings through commercial sales are inadequate to continue. While technologies that do not make it out of the ‘valley of death’ can be said to lack commercial potential, many promising technologies fall by the wayside, or are commercialised later by parties that have not and will not contribute to sustaining the research base responsible for developing them. In fact, a report by the UK House of Commons Science and Technology Committee expressed concern about the fact that the UK, while producing excellent science, is incapable of retaining that technology for domestic business and entrepreneurs.61 Several efforts have already been made to identify the platforms and mechanisms for solving this challenge, such as the different pillars (from research to

60 E Malaty and G Rostama, ‘3D Printing and IP Law’ (2017) 1 WIPO Magazine. 61 House of Commons Science and Technology Committee, Bridging the Valley of Death: Improving the Commercialisation of Research (HC 348, Stationary Office, 2013).

Incentives and Obstacles for Innovation  213 development to manufacturing)62 covering ‘triple helix’ models of innovation involving public and private parties acting in cooperation with governmental institutions and agencies.63 These cooperative models serve to bridge what is known as the ‘valley of death’. Governments are ill-equipped to decide which technologies deserve to make it out of the ‘valley of death’ when market pull appears to be insufficient. Publicprivate partnerships (PPPs) therefore remain indispensable in order to ensure that the bridge is firmly anchored on both sides of the valley. Globalisation may have enabled efficient allocation of production and even R&D across continents; but it has not yet resulted in a transparent global market for the transfer of technology. It is important to realise in this context that incremental product innovation is the main driver for growth in companies. Moving beyond incremental product innovation is much riskier although business model innovation is an area of growth.64 Bringing new technologies to market not only requires venture capital investments to bridge the gap between the early-stage proof-of-concept nature of technology, up-scaling production and the subsequent generation of revenues. Innovation is a dynamic, rather than a linear65 process where interdependencies between government, universities and research institutes, venture capitalists, banks and public markets, and large and small businesses create a web of regulatory and fiscal measures, standards, finance, education, information and knowledge exchange, and intellectual property. In the interdependent technological fields that define the 4IR, an immense amount of planning has to take place to obtain IPRs and utilise them in a strategic fashion. Start-ups and SMEs, however, lack the means and capacity to do this properly. When it comes to actual enforcement of IPRs the picture is even bleaker. Enforcement through the courts is often incredibly expensive. This is why in a number of jurisdictions courts specialised in IP disputes are set up. Mediation services, such as those offered by the WIPO Dispute Resolution Center in respect of domain names, have already proven their worth as low-cost alternatives to court action.

B.  4IR and Standards It is evident that government, through legislation and norm setting, is in a position to provide a stable environment in technological markets, which minimises

62 European Commission, High-Level Expert Group Report on Key Enabling Technologies, June 2011, 24–27, available at: http://ec.europa.eu/enterprise/sectors/ict/files/kets/hlg_report_final_en.pdf. 63 UK House of Commons Science and Technology Committee (above n 61). 64 See GE Global Innovation Barometer, available at: www.ge.com/reports/innovation-barometer-2016/. 65 For a linear representation see C Greenhalgh and M Rogers, Innovation, Intellectual Property, and Economic Growth (Princeton University Press, 2010) 7.

214  Anselm Kamperman Sanders the risk burden of entrepreneurs. When it comes to innovation policy, government can be a driving force through public procurement of new technologies and through standard setting. Government-backed standards or private standards can play a vital role in kick-starting the penetration of new technologies in the marketplace. Prime examples here are telecommunications standards or other standards in the ICT sector. Government can drive policy, or through prudent monitoring by competition authorities allow private parties to formulate standards involving IP on the basis of FRAND licensing terms. Patent offices as agencies of the administration have a positive duty, ensuring that technical information contained in patent documents is publicly accessible. It is increasingly clear that classification schemes enabling users to find specific technologies have to be continuously updated. In the field of sustainable technologies, for example, the UNFCCC and the intergovernmental panel on climate change produced technological guidelines in cooperation with the EPO to facilitate this access.66 The new classification system, the so-called ‘Y-tag’, makes it possible to identify a number of climate change mitigation technologies, most notably in buildings including the residential sector; greenhouse gases capture and storage; energy generation, transmission and distribution; the transportation of goods and persons; and smart grid technologies. International organisations such as WIPO have also launched an initiative coinciding with the UNFCCC entitled ‘WIPO Green’.67 It is a networking effort to match owners of IPRs with providers of consultancy, training and financial support. Government can do more to ensure that such publicly accessible information can be used in spin-off or incubator facilities for the purpose of testing their practical and commercial viability. Incubators providing large-scale test and experimental production facilities are places where PPPs can truly flourish. Another area for government intervention lies in the option to open up terms of licences when these are registered at a patent office. This facilitates standard setting through public or private initiatives.

C.  Standard Setting – Private and Public Bodies Standard setting can serve as a means to speed up innovation in complex technology markets.68 The purpose is to reduce or even eliminate competition between technical alternatives by choosing a standard that will be implemented across a sector of industry that can then focus on bringing improved and competing products onto the market. The most successful example of standard setting can be found in the European market for cellular and digital communication ­standards.69 66 See: www.epo.org/clean-energy. 67 See: www.wipo.int/green. 68 C Correa, Intellectual Property and Competition Law: Exploration of Some Issues of Relevance to Developing Countries (ICTSD, 2007). 69 See: www.etsi.org.

Incentives and Obstacles for Innovation  215 Since the setting of a standard implies a limitation of competition, the setting of standards is subject to oversight by competition authorities. In order to arrive at a standard, it is important that all parties with technology relevant to the standard declare their technology70 and agree to abandon or license the technology on FRAND terms. Holding oneself out as a willing licensor or licensee then also implies that the only point of discussion remaining is the setting of a price for the use of the technology. In this context, there is no more room for (automatic) injunctive relief granted on the basis of patent infringement.71 Much of the standard setting has been done by industry itself in standard-setting organisations (SSOs), where participating firms choose the most effective technology and can switch to superior alternatives as technology develops. This allows firms to cooperate in the setting of standards for the purpose of reducing risks in investment, while allowing for multiple innovators who adopt the standard to compete in the implementation of the standard. The benefits of standardisation lie primarily in interoperability and the ability of the patent holders to receive royalties for their contribution to the standard. Innovators holding IPRs wish to secure royalty flows while reaping the benefits of an increase in demand for the use of their technology arising from participation in a standard.72 It is for this reason that holders of IP rights are moving away from formal standardisation bodies as they are often subject to public procurement regulations that set restrictive mandatory caps on royalty payments.73 They therefore feel more comfortable using SSOs, where terms of use, the essential character of patents and royalty rates can be freely negotiated. In the 4IR, however, the need for crosssectoral negotiations across various scientific fields where parties bring different technologies to the table is likely to make negotiations more complex. Integrated solutions across, for example, biotechnology, ICT and IoT are likely to exacerbate known problems such as excessive rent seeking, and refusals to license or supply essential components necessary for the creation and marketing of new and innovative products. 4IR participants in standard setting may try to include their IP and then charge royalties in excess of their true value because the value has not yet been tested for 4IR applications. When multiple players are rent seeking, this amounts to rent stacking. 4IR participants may not disclose fully their IP during

70 Courts have ruled against so-called patent-ambush tactics of undertakings not declaring patents relevant to a standard. See US Court of Appeals for the Third Circuit in Broadcom Corp v Qualcomm Inc, 501 F.3d 297, 311 (3d Cir 2007); Qualcomm Inc v Broadcom Corp., 548 F.3d 1004, 1026 (Fed Cir 2008); or Rambus Inc v FTC, 522 F.3d 456, 466–67 (DC Cir 2008), cert denied, 129 S Ct 1318 (2009). 71 See US Supreme Court in eBay Inc v MercExchange LLC 547 US 388 (2006), and the related discussions on non-producing entities. 72 M Patterson, ‘Inventions, Industry Standards, and Intellectual Property’ (1992) 17 Berkeley Technology Law Journal 104. 73 K Blind, ‘The Influence of Companies’ Patenting Motives on their Standardisation Strategies’ in K Jakobs and E Söderström (eds), Aachener Beiträge zur Informatik, vol 40 (Wissenschafsverlag Mainz, 2008).

216  Anselm Kamperman Sanders the setting of a standard,74 springing a surprise on unsuspecting users of the standard in a so-called patent ambush. 4IR participants may try to include too much IP in a standard, amounting to a tsunami of disclosures, otherwise known as patent thickets,75 that obscure the true extent of essential IP comprised in the standard. Several dominant 4IR participants holding key IP in a standard may engage in cross-licensing to the detriment of others, thus effectively imposing high(er) royalties on others, or even excluding them from the standard.76 All the practices described above are detrimental to innovation and they may also be subject to sanctions by SSOs, the application of competition law,77 or court interference.78 Much has been made in this regard of the granting of licences79 on FRAND80 terms, which try to bring about an ex ante disclosure of licence terms and royalties.81 In addition, ex ante disclosure places a burden on innovators that have to bear the cost of negotiation at a point when revenues are unquantifiable, and the details required for a licence are not yet clear. The policies of SSOs are therefore usually limited to a requirement of ‘reasonable disclosure’.82 Royalty schemes modelled on the principle of numeric proportionality, meaning that each participant bringing his IP to the standard receives an equal share of the royalties, lead to strategic behaviour, prompting participants to bring non-essential patents to the standard83 74 In re Dell Computer Corp. (FTC Docket No C-3658); Stambler v Diebold, 11 USPQ 2d (BNA) 1709 (EDNY 1988); Potter Instrument Co v Storage Tech. Corp, 207 USPQ (BNA) 763 (ED Va 1980); and Wang Laboratories v Mitsubishi Elec Am Inc, 860 F Supp 1448, 30 USPQ 2d (BNA) 1241 (CD Cal 1993). Conversely see Wang Laboratories v Mitsubishi, 103 F.3d 1571 (Fed Cir 1997). 75 C Shapiro, ‘Navigating the Patent Thicket: Cross Licensing, Patent Pools, and Standard Setting’ in AB Jaffe, J Lerner and S Stern (eds), Innovation Policy and the Economy (National Bureau of Economics, 2001). 76 T Simcoe, ‘Open Standards and Intellectual Property Rights’ in H Chesbrough, W Vanhaverbeke and J West (eds), Open Innovation: Researching a New Paradigm (OUP, 2006) 161–83, argues that SSOs should play a more active role in resolving conflicts over IPRs. 77 See Federal Trade Commission, In the Matter of Rambus, Inc., Docket No 9302, Opinion of the Commission (2006). 78 See the US cases Qualcomm Inc. v Broadcom Corp., 2008 US Dist Lexis 911 (SD Calif 2008); and (CAFC, 1 December 2008) in which the Court of Appeals for the Federal Circuit held that patents relevant to the use of a standard may be unenforceable if the patent holder withheld information during the standards development process. 79 For an economic analysis on the effect of the use of RAND terms see B Chiao, J Lerner and J Tirole, ‘The Rules of Standard Setting Organizations: An Empirical Analysis’ (2007) 38 The RAND Journal of Economics 905–30. 80 M Dewatripont and P Legros, ‘Essential Patents, FRAND Royalties and Technological Standards’ (Ecore Discussion Paper, 2008) available at: www.ecore.be/. 81 For the US, the generally accepted framework for calculating royalties can be found in the case of Georgia-Pacific Corp. v U.S. Plywood Corp., 318 F Supp 1116 (SDNY 1970). For the EC, all patents which are ‘essential’ to a standard should be regarded as equally valuable and should be treated numerically proportionally, since they all afford patent holders the same market power. 82 M Lemley, ‘Intellectual Property Rights and Standard Setting Organizations’ (2002) 90 California Law Review 1889, available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=310122. 83 A Jaffe and J Lerner, Innovation and Its Discontents (Princeton University Press, 2004) arguing that the quality of patents needs to be increased in order to remedy this problem.

Incentives and Obstacles for Innovation  217 so as to ensure a stake in the royalty flow.84 The limitations of contractual licensing rules, such as FRAND, and the need for interpretation of these rules ex post, means that there remains a role for competition authorities to monitor SSOs and contract terms, and for competition and IP law to provide a coherent framework for standard setting.85 The cross-sectoral and multidisciplinary scientific nature of the 4IR is only going to complicate these matters further.

D.  Technology Transfer and Receptive Capacity Building Covering the difficult issue of reception and implementation of technology in a developing economy, three points stand out: affordability, adoptability and adaptability.86 From the perspective of affordability, the prices of technological goods may already be too high for many developing economies. Placing hi-tech products in the hands of the population of developing economies may have a positive impact on health, life and livelihood. Prices for new technological alternatives must be set so that innovations can overtake the historically present technologies. This is especially relevant in case of climate-change mitigating technologies.87 In relation to adaptability, it means that the costs, information and knowledge transfer allow for local adoption, adaptation and replication to take place. For this, local88 capacity building, and development and innovation policies89 have to be put in place. Developing and least developing economies are, however, very much left behind. The promise that the WTO TRIPS Agreement held out, namely that technology transfer would follow free trade in goods and services, has not been met. New initiatives, such as the UN Technology Bank,90 should assist least developed countries in catching up with 4IR economies. However, the ‘bank’ is only in its infancy.

84 For an effort to make sense of ex ante pricing and a critique of numeric proportionality, see A Layne-Farrar, AJ Padilla and R Schmalensee, Pricing Patents for Licensing in Standard Setting Organizations: Making Sense of FRAND Commitments (CEMFI Working Paper, 2007) available at: http://ftp://ftp.cemfi.es/wp/07/0702.pdf. 85 See the European Telecommunications Standards Institute (ETSI), available at: www.etsi.org. 86 UK Commission on Intellectual Property Rights, Integrating Intellectual Property Rights and Development Policy (CIPR, 2002). 87 Shabalala (above n 11). 88 WIPO, Guidance for the Development of an Intellectual Property (IP) Strategy in Countries in Transition, available at: www.wipo.int/edocs/pubdocs/en/wipo_pub_transition_1.pdf. 89 WIPO, Methodology for the Development of National Intellectual Property Strategies (WIPO, 2016) pub No 958.1-3E. 90 See the first three-year strategic plan of the Technology Bank for LDCs, available at: http:// unohrlls.org/custom-content/uploads/2016/08/Strategic-Plan-of-the-Technology-Bank-for-theLDCs-8-August-2016.pdf.

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IV. Conclusion The 4IR is likely to have a significant impact on societies and on global value chains. AI and data science will be at the heart of multidisciplinary applications that are likely to affect labour, production, the environment, and human and animal life. The governance of ethical dimensions of biotechnology and AI will be important for societal acceptance of the applications of new technologies, where re-shoring of production to developed economies is already challenging the current rulesbased trading system. Inclusive innovation policies should address concentrations of ownership of IPRs and cooperation in PPPs for research and standard setting. The 4IR has the potential to address global problems such as climate change and sustainable development, but for the 4IR to live up to its potential, technology transfer to developing economies will be necessary to maintain trust in trade.

12 EU Food Law and the WTO: Trade, Science and Politics ELLEN VOS AND SABRINA RÖTTGER-WIRTZ

I.  Peter Van den Bossche, EU Law and WTO Law This chapter is to honour Peter Van den Bossche’s long career and profound expertise in World Trade Organization (WTO) law. It is also to celebrate a good friend and colleague with whom we had many discussions, shared directorship of the Maastricht Law Faculty’s former LLM programme (Ellen) and many lunches and dinners. This chapter will discuss WTO law and EU law. Peter is a proficient WTO expert, but what perhaps not many people know is that his academic roots actually lie in EU law, more in particular EU food aid law. In 1991 Peter defended his hefty PhD thesis entitled European Community food aid as an instrument for economic and social development and humanitarian relief? Prospects for and constraints on further changes in European Community food aid law at the European University Institute in Florence. After his référendariat at the European Court of Justice, Peter developed his expertise in WTO law at Maastricht University, where he was appointed, after his stay at the WTO Secretariat, as a professor of International Economic Law. With his leading handbook on WTO law,1 Peter has brought not only an invaluable contribution to the academic debate on WTO law, but has also developed an excellent guide for practitioners. Linking EU food law and WTO law therefore seems a perfect topic for our chapter in this Liber Amicorum for Peter. As a Belgian ‘Burgundian’, Peter has always appreciated good food while as an academic, and a member of the WTO Appellate Body (AB), he has witnessed various conflicts amongst WTO Members as regards food laws. This chapter will discuss these conflicts and the impact of WTO law on EU food law, herewith linking and honouring Peter’s past2 and present work. 1 P Van den Bossche and W Zdouc, The Law and Policy of the World Trade Organization – Text, Cases and Materials (4th edn, CUP, 2017). 2 Albeit that Peter did not deal with food law but food aid law.

220  Ellen Vos and Sabrina Röttger-Wirtz

II.  EU Food Law, Science and the WTO Food law gives rise to a number of controversies, which is not surprising as food is, by its very nature, politically sensitive and so its regulation is prone to controversies. It therefore comes as no surprise that the relationship between the obligations under WTO law and the EU’s regulatory approach to food law has often been one of contention.3 The firm emphasis the WTO places on trade has on various occasions clashed with the EU goals of the protection of health and the environment. Moreover, the key role of science as a decisive factor for the justification of trade-restrictive measures under a deliberately technocratic WTO regime arguably leaves little room for the application of the precautionary principle in the EU.4 Especially in cases of scientific uncertainty and high political sensitivity, such as the regulation of genetically modified organisms (GMOs), the resort to science, while simultaneously disregarding broader societal values, can erode the trust of citizens in the capacity of the EU to regulate these matters effectively and, thereby, also erode the trust in the WTO trade regime. This chapter will examine this tenuous relationship between trade and non-trade societal values and interests in relation to food. To this end, the chapter will look at two issues. First, it will examine the effects of the WTO’s Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement) on EU food law, in particular the requirement that Members of the WTO may only issue measures that are ‘science based’ (Section III). Within the history of the WTO, the introduction of the SPS Agreement was born out of  the need to deal more effectively with health-based trade restrictions. At the time the SPS Agreement negotiations began, no SPS-type measure had been successfully challenged in the General Agreement on Tariffs and Trade (GATT) dispute settlement proceedings.5 The SPS Agreement introduces, as Van den Bossche and Zdouc state, ‘science as the touchstone against which SPS measures will be judged’.6 In an EU context, too, we can observe a ‘meta-legal authority of science’7 due to the tendency by regulators to perceive and/or use science as an objective and neutral source to validate their decisions.8 Yet, at the same time, there is much 3 A Young and P Holmes, ‘Protection or Protectionism? EU Food Safety and the WTO’ in C Ansell and D Vogel (eds), What’s the Beef? The Contested Governance of European Food Safety (MIT Press, 2006) 28. 4 M Everson, E Vos and M van Asselt, ‘The European Union Put to the Test: The Quest for Politics’ in M van Asselt, M Everson and E Vos (eds), Trade, Health and the Environment: The European Union Put to the Test (Routledge, 2013) 9. 5 L Gruszczynski, Regulating Health and Environmental Risks under WTO Law: A Critical Analysis of the SPS Agreement (OUP, 2010) 36. 6 Van den Bossche and Zdouc (above n 1) 946. 7 C Joerges, ‘Scientific Expertise in Social Regulation and the European Court of Justice: Legal Framework for Denationalized Governance Structures’ in C Joerges, KH Ladeur and E Vos (eds), Integrating Scientific Expertise into Regulatory Decision-Making: National Experiences and European Innovations (Nomos, 1997) 320. 8 E Vos, ‘European Risk Regulation Reviewed by the European Courts’ in M van Asselt, M Everson and E Vos (eds), Trade, Health and the Environment: The European Union Put to the Test (Routledge, 2013) 213–32.

EU Food Law and the WTO  221 pressure on the EU legislature and executive to take account of non-economic concerns in food regulation. An important illustration of this is the discussion around the authorisation of GMOs and the revision of the EU’s GMO Directive.9 This chapter will therefore discuss the tension between science as the only legitimating factor for regulatory measures and other legitimate concerns, which could address the extrinsic reasons for the erosion of trust in trade. Second, it will address the strong emphasis that the SPS Agreement puts on Codex Alimentarius standards and the effect that this has on EU food law (Section IV). In view of the major differences in sanitary and phytosanitary measures in various countries, which negatively impact on market access for producers, the SPS Agreement encourages WTO Members to harmonise their measures around international standards.10 Members may do so by basing or conforming their national measures on or to international standards. The SPS Agreement specifies that these international standards are, for food safety, the standards set by the Codex Alimentarius Commission.11 This chapter will discuss what impact the latter have on EU food law, and their possible effect on restoring trust in trade. This discussion will be followed by concluding remarks (Section V).

III.  The Impact of the SPS Agreement on EU Food Law: Science-based Measures A.  The SPS Agreement and Science The EU is the largest importer and exporter of foodstuffs in the world.12 As food production is very much a global pursuit and it is quite common for foodstuffs to be produced on the other side of the planet from where they will eventually be consumed, it is not surprising that also EU food law does not function in isolation. Undoubtedly, the requirements that the Union and its Member States have to fulfil under the WTO system have had a great impact on EU food regulation. As argued above, the SPS Agreement relies on science as the core benchmark for the justification of trade restrictions. Science has become the objective yardstick to identify whether national measures are based on economic and political reasons that the WTO system deems illegitimate. As Lawrence argues, ‘in the context of the WTO, expert knowledge is more than just an assurance

9 Directive 2001/18/EC of the European Parliament and of the Council of 12 March 2001 on the deliberate release into the environment of genetically modified organisms [2001] OJ L106/1 (GMO Directive). 10 Van den Bossche and Zdouc (above n 1) 951. 11 Annex A, Agreement on the Application of Sanitary and Phytosanitary Measures, 1867 UNTS 493 (SPS Agreement). 12 European Commission, Strategic Plan 2016–2020 – DG Health and Food Safety [2017], Ref Ares(2017)626097, 10.

222  Ellen Vos and Sabrina Röttger-Wirtz of legitimacy – it is the definition of legitimate’.13 Thus, within the SPS Agreement ‘science is inevitable, uncontestable and hence unquestionable’.14 The GATT does not mention the term ‘science’ where it allows states to adopt measures to protect human, animal or plant health (Article XX(b)) or to conserve exhaustible natural resources (Article XX(g)). The use of science as a benchmark in the SPS Agreement, indeed, marks a ‘radical departure from the predominantly discrimination based approach of the GATT’.15 The overall aim of the SPS Agreement is ‘to improve the human health, animal health and phytosanitary situation in all Members’.16 In principle the SPS Agreement grants the Members the right to adopt measures which are necessary to protect human, animal or plant life and health, however, subject to the condition that these measures accord with its provisions.17 Core obligations in this regard are that the measure has to be necessary,18 based on scientific principles, and not maintained without sufficient evidence, subject to the exceptions provided in Article 5.7.19 Moreover, the measure has to be non-discriminatory in nature: it may not unjustifiably discriminate between Members and may not be a disguised trade restriction.20 Article 5 furthermore requires a risk assessment, based on internationally recognised methods and the available scientific evidence.21 The measures taken may not be ‘more trade-restrictive than required to achieve their appropriate level of sanitary or phytosanitary protection, taking into account technical and economic feasibility’.22 Cases such as EC – Hormones23 and EC – Biotech Products24 all confirm the science-based constraints of the SPS Agreement. Members have ‘little discretion to stray too far from a scientific assessment of risk’.25 However, various authors

13 J Lawrence, ‘The Structural Logic of Expert Participation in WTO Decision-Making Processes’ in M Ambrus, K Arts, E Hey and H Raulus (eds), The Role of ‘Experts’ in International and European Decision-Making Processes: Advisors, Decision Makers or Irrelevant Actors? (CUP, 2014) 181. 14 Everson, Vos and van Asselt (above n 4) 9. 15 J Scott, The WTO Agreement on Sanitary and Phytosanitary Measures: A Commentary (OUP, 2007) 77. 16 Preamble to the SPS Agreement (above n 11). Furthermore, the Appellate Body recognised in EC – Hormones that the SPS Agreement aims to achieve a ‘delicate and carefully negotiated balance … between the shared, but sometimes competing, interests of promoting international trade and of protecting the life and health of human beings’. WTO, Appellate Body Report, EC – Measures concerning Meat and Meat Products (EC – Hormones), 16 January 1998, WT/DS26/AB/R, WT/DS48/AB/R, para 177. 17 Art 2.1 SPS Agreement (above n 11). 18 ibid Art 2.2. 19 ibid Arts 2.2, 3.3 and 5.1–5.3. 20 ibid Arts 2.3 and 5.5. 21 ibid Arts 5.1 and 5.2. 22 ibid Art 5.6. 23 Appellate Body Report, EC – Hormones (above n 16). 24 WTO, Panel Report, EC – Measures Affecting the Approval and Marketing of Biotech Products (EC – Biotech Products) 29 September 2006, WT/DS29l/R, WT/DS292/R, WT/DS293/R. 25 J Peel, Risk Regulation Under the WTO SPS Agreement: Science as an International Normative Yardstick?, Jean Monnet Working Paper 02/04, 67.

EU Food Law and the WTO  223 have observed an opening up by the WTO judicial bodies to taking into account differences in the approach to risk assessment in various cases, for example in the US/Canada – Continued Suspension cases.26 This would mean that the chosen level of protection might leave room to take into account non-scientific factors.27 It is recognised, however, that in case of theoretical risk and unspecific risks the remit of the risk management is limited by the requirement to scientifically substantiate the level of protection chosen.28 From the various cases it follows that although the AB has stressed that states are free to determine the appropriate level of protection, it has proven problematic for WTO Members to show that – based on ‘sufficient scientific evidence’ as required by Article 2.2 of the SPS Agreement – the relevant national measure is necessary in order to achieve a given aim.29 Where Members cannot prove the existence of ‘sufficient scientific evidence’, Article 5.7 of the SPS Agreement offers a helping hand. This Article allows Members to provisionally adopt SPS measures on the ‘basis of available pertinent information, including that from the relevant international organisations as well as from the sanitary and phytosanitary measures applied by other Members’.30 In these cases, Members will ‘seek to obtain additional information necessary for a more objective assessment of risk and review the sanitary and phytosanitary measures accordingly within a reasonable period of time’.31 Hence, four cumulative conditions are to be met for a measure to be adopted and accepted under Article 5.7 of the SPS Agreement: (i) relevant scientific information is insufficient; (ii) the measure is adopted on the basis of available pertinent information; (iii) the Member must seek to obtain additional information necessary for a more objective risk assessment; and (iv) the Member must review the measure within a reasonable period of time. The AB has recognised that the precautionary principle finds expression in ­Article 5.7 of the SPS Agreement.32 In this manner, it is recognised that Members may need to act to protect against harm in situations of scientific uncertainty. ‘Precaution thus tempers the reliance on science as the final arbiter of the legitimacy of SPS regulation’.33 However, as the AB stated in EC – Biotech Products, even a precautionary approach ‘needs to be applied in a manner consistent with 26 WTO, Appellate Body Report, United States/Canada – Continued Suspension of Obligations in the EC – Hormones Dispute (US/Canada – Continued Suspension) 31 March 2008, WT/DS320/R, WT/ DS321/R. 27 A Acuri, ‘Global Food Safety Standards – The Evolving Regulatory Epistemology at the Intersection of the SPS Agreement and the Codex Alimentarius Commission’ in P Delimatsis (ed), The Law, Economics and Politics of International Standardisation (CUP, 2015) 96; C Downes, The Impact of WTO SPS Law on EU Food Regulations (Springer, 2014) 91. 28 Downes (above n 27) 103. 29 Young and Holmes (above n 3) 296. 30 Art 5.7 SPS Agreement (above n 11). 31 ibid. 32 Appellate Body Report, EC – Hormones, paras 123–24; Panel Report, EC – Biotech Products, para 7.3060. 33 D Prévost, ‘The Role of Science in Mediating the Conflict Between Free Trade and Health Regulation at the WTO: The EC – Biotech Products Dispute’ in M van Asselt, M Everson and E Vos (eds), Trade, Health and the Environment: The European Union Put to the Test (Routledge, 2013) 166.

224  Ellen Vos and Sabrina Röttger-Wirtz the requirements of Article 5.1’34 and thus based on a risk assessment. For an SPS measure to be ‘based on’ a risk assessment35 there must be a certain ‘rational relationship’ between the risk assessment and the SPS measure.36

B.  EU Food Law and Science The emphasis of the SPS Agreement on science as the objective authority underlying trade measures and conflicts has reinvigorated, at EU level, a trend of what has been called a ‘scientification of politics’ with technical and scientific reasoning dominating the legitimacy of decision-making processes.37 The importance of science as a justification requirement for national measures hindering the free movement of goods has not only been the result of the SPS Agreement. It has gradually materialised in the case law of the Court of Justice of the European Union on the free movement of goods since the 1970s to identify disguised trade restrictions.38 The BSE (commonly known as ‘mad cow disease’) crisis of 1996 rigorously brought the scientific quality of EU measures to the fore, as many flaws had appeared to be present before the outbreak of this crisis. These flaws were due, among other things, to the political pressure on scientific advice given to the European Commission and the ambiguous division of responsibilities between scientific advice and political decisions.39 This led the Amsterdam Treaty to insert the requirement for the Commission to base its proposals for internal market harmonisation measures on a high protection of health and the environment, ‘taking account in particular of any development based on scientific facts’.40 It led also to a complete overhaul of EU food legislation, making 1996 ‘year zero’ of the EU food regime.41 Hence, in 2002 the EU legislature adopted the so-called General Food Law (GFL), which introduced general principles of EU food law and strengthened the scientific underpinning of EU food measures by means of the creation of the European Food Safety Authority (EFSA). This agency, governed by the principles of excellence, transparency and independence, is to provide the Commission, the Parliament and the Member States with scientific advice on a great variety of

34 Panel Report, EC – Biotech Products, para 7.3065. See Scott (above n 15) 127. 35 Art 5.1 SPS Agreement (above n 11). 36 Scott (above n 15) 105. 37 M Everson and E Vos, ‘The Scientification of Politics and the Politicisation of Science’ in M Everson and E Vos (eds), Uncertain Risks Regulated (Routledge-Cavendish, 2009) 1–18. 38 A Alemanno, Trade in Food – Regulatory and Judicial Approaches in the EC and the WTO (Cameron May, 2007) 299. 39 E Vos, ‘EU Food Safety Regulation in the Aftermath of the BSE Crisis’ (2000) 23 Journal of Consumer Policy 227–55. 40 Now Art 114(3) Treaty on the Functioning of the European Union. 41 D Chalmers, ‘“Food for Thought”: Reconciling European Risks and Traditional Ways of Life’ (2003) 66 Modern Law Review 534.

EU Food Law and the WTO  225 food issues.42 In particular the creation of EFSA, and its strong influence on the Commission, has strengthened the ‘scientification’ of EU food law.43 Although the legislative requirements in relation to scientific advice underlying EU measures resonate with the requirements of science-based measures laid down in the SPS Agreement, EU food law is not only a ‘product’ of the obligations of the SPS Agreement. It has also been the result of various crises within the EU, including the BSE crisis, that affected trust in the EU and the credibility of EU food regulation.44 Nonetheless, compliance with the SPS Agreement was45 and is46 an important concern in the adoption of EU food law. EU food law also showcases seemingly fundamental differences between the WTO and the EU approaches to food safety.47 It foresees a place for ‘other legitimate factors’ in developing EU measures on food and provides a strong legal basis for the use of the precautionary principle.48 The controversies regarding the approval of GMOs are of importance to illustrate the delicate balance between scientific factors and other concerns. The approval procedure of the EU regime on GM food and feed enables the Commission to consider ‘other legitimate factors relevant to the matter under consideration’ in addition to the opinion of EFSA.49 Where the Commission’s draft decision (to be subjected to comitology) deviates from the opinion of EFSA, the GM Food and Feed Regulation requires the Commission to explain the differences.50 In practice, however, the Commission has never made use of such considerations and has always followed EFSA. The approval procedure for deliberate release into the environment of GMOs does not provide for the possibility for the Commission to resort to other legitimate concerns.51 Until 2015 Member States were not allowed to derogate from Commission decisions approving GMOs on the EU market. This led to vicious regulatory circles whereby the

42 Regulation (EC) No 178/2002 of the European Parliament and of the Council of 28 January 2002 laying down the general principles and requirements of food law, establishing the European Food Safety Authority and laying down procedures in matters of food safety [2002] OJ L31/1 (General Food Law); S Gabbi, ‘The Scientific Governance of the European Food Safety Authority: Status Quo and Perspectives’ in A Alemanno and S Gabbi, Foundations of EU Food Law and Policy: Ten Years of the European Food Safety Authority (Ashgate, 2014) 47–72. 43 Everson and Vos (above n 37) 1–18. 44 Young and Holmes (above n 3) 303. 45 ibid. 46 European Commission, Strategic Plan 2016–2020 – DG Health and Food Safety [2017], Ref Ares(2017)6260978. 47 Downes (above n 27) 17. 48 Art 7 General Food Law (above n 42). 49 Art 7(1) Regulation (EC) No 1829/2003 of the European Parliament and of the Council of 22 September 2003 on genetically modified food and feed [2003] OJ L268/1 (GMO Regulation). 50 ibid. The term ‘comitology’ refers to procedures in which the so-called comitology committees, consisting of representatives of Member States, either examine or advise on the adoption of implementing acts by the European Commission. 51 Directive 2001/18/EC of the European Parliament and of the Council of 12 March 2001 on the deliberate release into the environment of genetically modified organisms [2001] OJ L106/1 (GMO Directive), as last amended in 2015.

226  Ellen Vos and Sabrina Röttger-Wirtz EU institutions and Member States resorted to science (in safeguard clauses and comitology) and whereby science was not able to overcome the resulting regulatory deadlocks, as seemingly other issues such as agricultural policy concerns were key in the conflict. For the Commission, EFSA’s epistemic authority seemed to be the only legitimate basis for the authorisation decision, which reinforced the ‘scientification’ of the authorisation process and ultimately contributed to the loss of political responsibility for GMO authorisations in the EU.52 Hence, even where the EU food legislation has explicitly allowed the Commission to take into account other legitimate concerns, this has hardly been put into practice. Therefore, in this regard, the difference between the SPS Agreement and EU food law has in practice vanished. In relation to a related non-food area, and of high interest for the discussion between the relation between trade and non-trade concerns, viz the cultivation of GMOs, the GMO Directive brought important amendments in 2015. Following the WTO ruling in EC – Biotech Products, the Commission proposed in 2010 to allow Member States to derogate from authorisations and restrict the geographical scope of authorised GMOs for cultivation on their territory. After five years of quarrelling about the precise procedures, in 2015 the EU legislature eventually amended the GMO Directive. Under this amended Directive, a Member State may demand that all or part of the territory of that Member State be excluded from cultivation of the authorised GMO. In the absence of such a demand, a Member State may adopt measures restricting or prohibiting the cultivation in all or part of its territory of a GMO, which are based on compelling grounds, such as those related to: environmental policy objectives; town and country planning; land use; socioeconomic impacts; avoidance of GMO presence in other products; agricultural policy objectives; and public policy. These measures must all be in conformity with Union law, reasoned, proportionate and non-discriminatory.53 In this manner, the EU legislature attempts to accommodate non-scientific concerns on the cultivation of GM crops while at the same time preserving the credibility of EU risk regulation and its scientific underpinnings.54 Whether this would be truly WTO compatible remains to be seen. Of interest is to observe that the Commission’s proposal to introduce a similar derogation scheme under the GM Food and Feed Regulation55 was rejected by the European Parliament.56 52 M Weimer, ‘Risk Regulation and Deliberation in EU Administrative Governance – GMO Regulation and Its Reform’ (2015) 21 European Law Journal 630. In this manner, the Commission and national authorities were trying to justify decisions pro and contra the cultivation of GMOs by means of scientific opinions, while national authorities were perhaps more concerned with specific traditional farming techniques that would get lost because of GMO cultivation. 53 Directive 2001/18/EC (above n 51) Article 26b(3) as amended. 54 L Salvi, ‘The EU Regulatory Framework on GMOs and the Shift of Power towards Member States: An Easy Way Out of the Regulatory Impasse?’ (2016) 11 European Food and Feed Law Review 210. 55 European Commission, Proposal for a Regulation of The European Parliament and of The Council amending Regulation (EC) No 1829/2003 as regards the possibility for the Member States to restrict or prohibit the use of genetically modified food and feed on their territory, 22 April 2015, COM (2015) 177 final. 56 2015/0093 (COD), adopted on 28 October 2015. The ENVI Committee adopted its draft report on 13 October 2015 (rapporteur: Giovanni La Via, EPP, Italy), rejecting the Commission proposal

EU Food Law and the WTO  227 As regards the precautionary principle, the influence of the SPS Agreement on EU food law is felt significantly. The Commission’s Communication on the precautionary principle was strongly inspired by the requirements of Article 5.7 of the SPS Agreement.57 The definition of the precautionary principle laid down in the GFL as a general principle of EU food law corresponds to the four requirements of Article 5.7 of the SPS Agreement set forth above, requiring thus in its Article 7: (i) scientific uncertainty; (ii) the identification of the possibility of harmful effects on health on the basis of an assessment of available information; (iii) that more information be sought for a more comprehensive risk assessment; and (iv) that the measure be reviewed within a reasonable period of time. Whereas the EU is often seen as the principal advocate for the precautionary principle, a close look at the case law of the European Courts may very well reveal that the EU and WTO converge more on this issue than they diverge.58 The language of the European Courts is very similar to the language of the AB in EC – Hormones.59 Scott even argues that, should the EC – Hormones case be dealt with by the European Courts today, the measure would in all likelihood be annulled.60 It may therefore be concluded that the SPS Agreement has a great impact on EU food law whereas the seemingly fundamental differences are less divergent in practice.

IV.  The Impact of the SPS Agreement on EU Food Law: Codex Standards A.  The SPS Agreement and Codex Standards As the previous section has already alluded to, international standards play an important role in the ‘scientification’ of food law in the WTO. Where a WTO Member wants to adopt SPS measures, the Agreement promotes the use of international standards as the basis for these measures,61 and even grants measures in conformity with international standards a presumption of consistency with WTO law.62 In this manner, the SPS Agreement promotes harmonisation and and calling on the Commission to withdraw it. In the explanatory statement, the rapporteur refers to concerns expressed by members of the ENVI Committee in the exchange of views with Commissioner Vytenis Andriukaitis, including the lack of an impact assessment, the compatibility of measures taken by Member States with internal market and WTO rules, the practicability of the proposal as well as discontent that the decision-making process itself (ie the authorisation procedure for GMOs) was not to be reviewed. 57 European Commission, Communication on the Precautionary Principle, 2 February 2000, COM (2000) 1 final. 58 Scott (above n 15) 128. 59 See J Scott, ‘The Precautionary Principle Before the European Courts’ in R Macrory (ed), Principles of European Environmental Law (Europa Law Publishing, 2004) 50–74. 60 Scott (above n 15) 128. 61 Art 3.1 SPS Agreement (above n 11). See below Section IV.B. 62 ibid Art 3.2.

228  Ellen Vos and Sabrina Röttger-Wirtz rationalisation of national measures. The SPS Agreement has led to an increase in the significance of international standards, from expert-based voluntary norms set by bodies with technical and scientific expertise, to essential features of the WTO trade law regime. This has also had consequences for the standardsetting bodies themselves. This section will discuss how the SPS Agreement has influenced the role of Codex standards in international food law and how this, in turn, has changed the standard-setting process in the Codex. Furthermore, how the Codex standards affect EU food law will be analysed. International standards are used as harmonisation tools under the SPS Agreement. In essence, in order to prevent disputes about the scientific basis of SPS measures, international standards are meant to establish a harmonised benchmark of ‘sound science’ for the adoption of SPS measures. However, the standards are not developed under the umbrella of the WTO. Rather, the standards resorted to are those developed by three international organisations: the Codex Alimentarius Commission (Codex) for food safety standards, which is the most relevant standard-setting body for the purposes of this chapter, as well as the International Plant Protection Convention (IPPC) and the World Organisation for Animal Health (OIE).63 The SPS Committee could also identify other relevant international organisations, which has not occurred so far.64 WTO Members are obliged to ‘base’ their measures on international ­standards.65 However, ‘based on’ does not require complete transposition of the international standard but grants WTO Members some leeway in the sense that the SPS measure in question has to rely on some elements of the international standard but can deviate from others.66 Furthermore, as an incentive for full transposition of international standards in the spirit of harmonisation, food safety measures in conformity with international standards recognised by the WTO are presumed to be in accordance with the obligations under WTO law.67 Article 3.3 of the SPS Agreement grants Members the possibility to introduce or maintain a higher level of protection through a national measure in deviation from international standards, although it limits this right to situations where either the deviation is scientifically justified or the higher level of protection is supported by

63 See also T Stewart and D Johanson, ‘The SPS Agreement of the World Trade Organization and International Organizations: The Roles of the Codex Alimentarius Commission, the International Plant Protection Convention, and the International Office of Epizootics’ (1998) 26 Syracuse Journal of International Law and Commerce 27. 64 Annex A3(d) SPS Agreement. 65 ibid Art 3.1. 66 Appellate Body Report, EC – Hormones, para 163. See further, M Masson-Matthee, The Codex Alimentarius Commission and Its Standards (Asser Press, 2007) 142ff. 67 Art 3.2 SPS Agreement. The AB defined conformity as follows: ‘embody an international standard completely and, for practical purposes, converts it into a municipal standard’. Appellate Body Report, EC – Hormones, para 170. See also J Scott, ‘International Trade and Environmental Governance: Relating Rules (and Standards) in the EU and WTO’ (2004) 15 European Journal of International Law 307–54, 324; and Masson-Matthee (above n 66) 153.

EU Food Law and the WTO  229 risk assessment and redetermination of the standard of protection in accordance with Article 5 of the SPS Agreement. It has been argued that Article 3 of the SPS Agreement makes standards set by the Codex Alimentarius de facto binding, due to the fact that a diversion from these standards is extremely difficult to scientifically substantiate.68 Acuri points out in this regard that the fact that ‘virtually no measure disputed at the WTO and diverging from Codex standards has been found to be WTO-compatible may be indicative of the new role played by the post-SPS Codex standards’.69

B.  Codex Standards and Standard Setting The most important international standard-setting body in the food area is certainly the Codex Alimentarius Commission, established in 1962 as a subsidiary body of the Food and Agriculture Organization (FAO) and the World Health Organization (WHO).70 All EU Member States are members of the Codex Alimentarius Commission and, since 2003, the EU is also a Codex member in its own right.71 The SPS Agreement has certainly amplified the importance of Codex Alimentarius standards for WTO Members. This also had consequences for the standard-setting process within the Codex, as the presumably quite technical and scientific process of setting food safety standards was increasingly subjected to political and public attention. This, it has been argued by various authors, has opened up the Codex Alimentarius standard-setting procedure to politicisation.72 Before the SPS Agreement reinforced the Codex standards, the standards set by this body remained entirely voluntary for its members until the moment that a member expressed its acceptance of the standard through the acceptance procedure.73 However, the SPS Agreement has elevated their status from mere recommendations to benchmarks of compliance with WTO law. This elevation of the status of the standards affected the standard-setting procedure in the Codex. 68 J Wouters and S Verhoeven, ‘Regulation and Globalization: Interaction between International Standard-setting Agencies and the European Union’ in D Geradin, R Muñoz and N Petit (eds), Regulation Through Agencies in the EU: A New Paradigm of European Governance (Edward Elgar, 2006) 246, 256–73, 250; and Masson-Matthee (above n 66) 159ff. 69 Acuri (above n 27) 85. 70 Statutes of the Codex Alimentarius Commission, adopted in 1961 by the 11th Session of the FAO Conference and in 1963 by the 16th Session of the World Health Assembly, Revised in 1966 and 2006. See further, Masson-Matthee (above n 66) 13ff. 71 Council Decision 2003/822/EC of 17 November 2003 on the accession of the European Community to the Codex Alimentarius Commission, 26 November 2003, OJ L309/14. 72 See, eg, C Lin, ‘Scientification of Politics or Politicization of Science: Reassessing the Limits of International Food Safety Lawmaking’ (2013) 15 Columbia Science and Technology Law Review 1; A Alemanno and G Capodieci, ‘Testing the Limits of Global Food Governance: The Case of Ractopamine’ (2012) 3 European Journal of Risk Regulation 400. 73 See M Matthee, ‘The Codex Alimentarius Commission and its Food Safety Measures in the Light of Their New Status’ in M Everson and E Vos (eds), Uncertain Risks Regulated (Routledge-Cavendish, 2009) 331.

230  Ellen Vos and Sabrina Röttger-Wirtz Before the SPS Agreement, countries were less likely to block the adoption of a standard in the standard-setting process. Countries which desired a different standard did not oppose the adoption but resorted to simply not applying the standard that was not acceptable to them.74 However, the reinforcement of the Codex standards through the SPS Agreement now means that deviation from Codex standards needs to be scientifically substantiated. As a consequence, the outcome of the Codex standard-setting process is far more important for states and their interest in influencing the standards has heightened significantly (see below in relation to the Ractopamine case.)75 In this regard, it should also be pointed out that not only food importing and exporting countries have a lot to win or lose in the Codex standard-setting procedure. Also the food producing industry has noticed the importance of the Codex standards, leading to industry representatives now forming the majority of NGOs granted observer status in the Codex and even participating as government delegates in Codex meetings, such as the meetings of the Codex Committee on General Principles.76 It seems counterintuitive to claim that a technocratic process of science-based standard setting can be subject to politicisation. In fact, the presumption that science is neutral and that international standards based on science do not lend themselves to being directed by political concerns was exactly the reason why they were chosen to form the benchmark for SPS measures in the WTO system in the first place. However, this presumption is based on a rather naïve understanding of science, as scientific research might lead to different but equally valid results depending on certain choices made with regard to scope and design of a study.77 Jasanoff stresses in this regard that ‘regulatory standard-setting involves significant measures of political choice and judgment’.78 Therefore, especially in situations where there is disagreement about the scientific basis of a certain standard, the Codex standard-setting process can present similar dispute patterns to the disputes argued in WTO dispute settlement. This is exemplified by the struggle to adopt a Maximum Residue Level (MRL) for Ractopamine, a beta-agonist which is used to increase growth and the production of lean meat in food-producing animals. While the product is used in countries such as the US, Canada and Brazil, it is not allowed in the EU and other countries.79 The EU (and other countries) argued against the setting of an MRL,

74 Lin (above n 72) 1–40; and Alemanno and Capodieci (above n 72) 400–07. 75 Stewart and Johanson (above n 63) 27–54. 76 F Veggeland and S Borgen, ‘Negotiating International Food Standards: The World Trade Organization’s Impact on the Codex Alimentarius Commission’ (2005) 18 Governance 675–708; and Matthee (above n 73) 338. 77 Acuri (above n 27) 93ff. 78 S Jasanoff, ‘Epistemic Subsidiarity – Coexistence, Cosmopolitanism, Constitutionalism’ (2013) 4 European Journal of Risk Regulation 133, 133. 79 Council Directive 96/22/EC concerning the prohibition on the use in stockfarming of certain substances having a hormonal or thyrostatic action and of ß-agonists, 29 April 1996, OJ L125/3.

EU Food Law and the WTO  231 pointing to safety concerns due to a lack of sufficient data to establish an acceptable daily intake, but also animal health and welfare considerations.80 The Codex Alimentarius Commission had for years tried to agree on an MRL, but failed to do so until 2012, when the ongoing controversy led to the adoption of an MRL by an extremely close vote of 69 in favour and 67 against, while customarily the Codex standards are adopted by consensus.81 The dispute within the Codex in the Ractopamine case bears significant resemblance to the EC – Hormones dispute, with some parties pointing to available safety studies positively evaluating the safety of the substance, and opponents pointing to insufficient data and scientific uncertainty with regard to the safety of the same substance.82 The criticism has been raised that in such cases of disagreement the adoption of a Codex standard by vote could harm the legitimacy of the standard and ultimately of the Codex.83 Moreover, adoption of the MRL for Ractopamine was received as a victory for the technocratic paradigm of science-based standard setting over consideration of other factors such as animal welfare.84 Although the large majority of the Codex standards are adopted by consensus, the Ractopamine case shows that, similar to the disputes at WTO level, the Codex Alimentarius Commission also has to balance different approaches to dealing with scientific uncertainty and diverging views about the factors to be taken into account in the risk assessment. While the SPS Agreement turns to the Codex as an expert body presumed to represent ‘sound science’, the increasing political and economic importance of the Codex standards has led to a politicisation of the Codex standard-setting procedure as the incentives for Codex members to push for the adoption of a standard corresponding to their interests has led to more pronounced conflicts at the Codex level. In a study of the impact of the WTO on the Codex from 2005, Veggeland and Borgen concluded that ‘countries argue in favor of norms that to a large extent are compatible with their national interests as manifested in WTO negotiations. This development may conflict with the mandate of the Codex’.85

C.  Codex Standards and EU Food Law The standards the Codex adopts, either by consensus or – in more contentious cases such as Ractopamine – by vote, are of considerable influence in the EU food law framework. As the Commission states in DG SANTE’s Strategic Plan

80 EFSA’s FEEDAP Panel published a very critical opinion on the safety of ractopamine ([2009] The EFSA Journal 1041, 1–52). For a detailed discussion see Alemanno and Capodieci (above n 72) 400. 81 Lin (above n 72) 21ff; Acuri (above n 27) 89ff. 82 Lin (above n 72) 21ff; Acuri (above n 27) 91. 83 Alemanno and Capodieci (above n 72) 407. 84 Acuri (above n 27) 90; Alemanno and Capodieci (above n 72) 400. 85 Veggeland and Borgen (above n 76) 701.

232  Ellen Vos and Sabrina Röttger-Wirtz 2016–2020, ‘the EU must ensure that its food safety standards are aligned with the relevant international standards e.g. notably those set in the … Codex Alimentarius, OIE and IPPC to ensure its competitive position is not compromised’.86 The Strategic Plan also points out in this regard that with growing implementation of international standards into EU legislation and policies, challenges before the WTO dispute settlement bodies will decrease.87 The implementation of global standards in the EU dates back as far as 1984, when in the Beer Purity case the Court obliged Member States to take into account the global foodstuffs standards of the Codex Alimentarius Commission.88 MassonMatthee observed in her study of the Codex Alimentarius that, especially since the coming into force of Regulation (EC) No 178/2002, the Union’s GFL, and the full membership of the EU in the Codex, EU secondary legislation ‘frequently take[s] Codex measures or their scientific basis into consideration, which has led to the adjustment of several [EU] measures’.89 The GFL contains an obligation to take international standards into account whenever new food legislation is drafted and adopted in the EU.90 According to this requirement, a derogation from this general obligation is only possible in cases where such standards … would constitute an ineffective or inappropriate means for the fulfilment of the legitimate objectives of food law, where there is a scientific justification for such a derogation, or where the application of international standards would result in a different level of protection from the one determined as appropriate.91

Therefore, the establishment of legal acts that are not in full compliance with either existing or imminent international standards would require a strong scientific justification and would need to be firmly grounded on the general principles and standards of food law set out in the GFL. In addition to Article 5, Article 13 of the GFL encourages the participation of Member States and the EU in international standard-setting bodies. It contains the obligation to ‘promote consistency between international technical standards and food law while ensuring that the high level of protection adopted in the Community is not reduced’.92 An interesting aspect in this regard is that the WTO, through reinforcing international standards as the basis of food safety measures, significantly circumscribes the capacity of the EU to disseminate its standards to third countries. As the largest food importer and exporter, one could easily see how EU standards would become an influential benchmark for food safety worldwide if this were

86 European Commission, Strategic Plan 2016–2020 – DG Health and Food Safety [2017], Ref Ares(2017)626097, 23. 87 ibid. 88 Case 178/84 Commission v Germany ECLI:EU:C:1987:126, para 52. 89 Masson-Matthee (above n 66) 133. 90 Art 5(3) General Food Law (above n 42). 91 ibid. 92 ibid Art 13(e).

EU Food Law and the WTO  233 not counterbalanced by WTO law.93 This would imply that the EU, in the context of the politicisation of the Codex standard-setting procedure, could attempt to ensure its influence over the standards adopted. However, as has been shown with regard to the setting of MRLs for veterinary drugs, the EU’s influence in the Codex is not as significant as its regulatory capacity might suggest. The EU does not seem to be willing or able to successfully export its norms or to prevent the adoption of competing standards.94 In the words of Young, ‘the EU punches below its weight’.95 He attributes this lack of influence to the Union being a ‘preference outlier’,96 arguing that the Union’s rigorous food safety standards do not find support with the other Codex members. Indeed, the EU prides itself on its very high food safety standards, which ‘constitute an internationally recognized and respected “trademark” representing safety and quality’.97 However, while the food safety standards of the Union might be recognised by other countries, and in fact producers wanting to export their products to the EU have to abide by them, the EU apparently has difficulty convincing the other Codex members to adopt a similar approach to balancing trade and health.

V.  Concluding Remarks In this chapter we observed that scientific reasoning dominates the determination of the legitimacy of national regulatory decision making within the WTO system. As set forth above, Van den Bossche and Zdouc view ‘science as the touchstone against which SPS measures will be judged’.98 The requirement in the SPS Agreement that SPS measures be science based has resulted in a ‘scientification’ of EU food law, although this has also taken place due to the creation of EFSA and the strong reliance on this agency by the European Commission in the aftermath of the BSE crisis. Moreover, the importance that the SPS Agreement has placed on international food standards has led to a politicisation of the standard-setting process in the

93 M Weimer and E Vos, ‘The Role of the EU in Transnational Regulation of Food Safety: Extending Experimentalist Governance?’ in J Zeitlin (ed), The Role of the EU in Transnational Regulation: Extending Experimentalist Governance? (OUP, 2015) 57ff. See also D Vogel, The Politics of P ­ recaution – Regulating Health, Safety and Environmental Risks in Europe and the United States (Princeton University Press, 2012). 94 A Young, ‘Europe as a Global Regulator? The Limits of EU Influence in International Food Safety Standards’ (2014) 21 Journal of European Public Policy 904. 95 ibid 917. 96 ibid 905. 97 European Commission, Strategic Plan 2016–2020 – DG Health and Food Safety [2017], Ref. Ares(2017)626097, 10. 98 Van den Bossche and Zdouc (above n 1) 946.

234  Ellen Vos and Sabrina Röttger-Wirtz Codex Alimentarius Commission, the most important international standardsetting body in the area of food regulation. By making science-based international standards key for the justification of trade-restrictive food safety measures, the standard-setting process, which was previously largely technocratic, seems to have come under political pressure. While it is recognised that science is not the objective arbiter it at times seems to be, in cases where the stakes for the Codex members are high, standard setting becomes even more political. This fundamentally challenges the technocratic logic of the SPS Agreement. For the EU, this means that the battles between trade and health and between science and precaution are fought not only at WTO level, but also at the level of the Codex. However, here the EU does not seem as influential as it could be. These two interlocked tendencies are characteristic of the ‘scientification of politics and politicisation of science’.99 Although these tendencies can also be observed in the EU, their occurrence at the WTO and Codex level entail significant challenges for EU food law. In principle, the resort to science as a yardstick for legitimate regulatory measures – exactly to prevent a hidden political or economic agenda – aims to increase the trust in trade (law) both at the WTO and the EU level, subjecting the adoption of these measures to a certain rigour. However, this fails to acknowledge that in circumstances of scientific uncertainty and high political sensitivity, (public) trust in the system is generated by reflecting broader societal concerns and other legitimate factors, such as consumer preferences or ethical considerations. The analysis in this chapter has shown that divergent views about the role of these concerns are difficult to ignore and where they are restrained at the WTO level, they may trickle down to the technocratic standard-setting process in the Codex, which is meant to be characterised by its ‘sound science’. This does not benefit the legitimacy of and trust in the Codex and, consequently, the WTO. In any case it is clear that conflicts between trade interests and other concerns do have an enormous impact on the EU structures. Even if the EU aspired to prefer other concerns above trade concerns, it would be strongly deterred from doing so in light of the SPS Agreement’s requirements. Ultimately, this probably means that the SPS international trade regime needs to change before the EU will be able to move away from the scientification process.



99 Everson

and Vos (above n 37).

13 The General and Security Exceptions in the European Union’s Free Trade Agreements GIAN FRANCO CHIANALE*

I. Introduction Even before the recent global financial and economic crisis, when the political and academic consensus backing international trade liberalisation looked strong and broad, it was not uncommon to hear certain warnings against the risk that citizens may lose trust in trade. Two of these warnings echo loudly still today. One of them pointed to the fact that the removal of obstacles to cross-border trade would bring many gains but also some pain – the former taking time to become apparent and dispersing uniformly across the population, the latter materialising instantly and hitting certain groups of people or regions.1 The other one shed light on the risk that the removal of obstacles to cross-border trade may be perceived as coming at the expense of non-trade societal values and interests like public health, consumer safety, the environment and national security.2

* This chapter expresses only personal views, which should not be attributed to the European Parliament or to the European Commission. 1 In 2007 Pascal Lamy, then Director General of the WTO, stressed the importance of recognising that ‘the politics of trade opening suffers from an inbuilt asymmetry: those who benefit from gains in purchasing power stemming from trade opening are millions, but they are little aware of the source of their gains. Those who suffer from trade opening are thousands who can easily identify the source of their pain’, in P Lamy, Completing the Doha Round Is a Political Must: Trends and Issues Facing Global Trade (Kuala Lumpur, Malaysia, 17 August 2007) available at: www.wto.org/english/news_e/sppl_ e/ sppl65_e.htm. 2 Almost two decades ago, Pascal Lamy, then EU Trade Commissioner, warned that ‘Globalisation has changed the nature of trade and trade policy. We must update and strengthen the WTO rulebook to manage the interface between trade and other policy areas such as health, consumer safety and environment. If not, we risk conflict between trade and other policies. Trade rules must not override the other concerns of society’, in Pascal Lamy, Opening remarks of European Trade Commissioner (WTO NGO Symposium, Geneva, 6 July 2001) available at: www.europa.eu/rapid/press-release_SPEECH-01333_en.htm.

236  Gian Franco Chianale Yet, as the advanced economies went through prolonged periods of economic growth, politicians and scholars became complacent and took for granted the trust of the citizens in the ability of international trade liberalisation to deliver welfare to the benefit of all without sacrificing the protection and promotion of important non-trade societal values and interests. True, initiatives like the US Trade Adjustment Assistance Program and the European Globalisation Adjustment Fund,3 and other important initiatives taken to appease the concerns on certain societal side-effects of market opening,4 prove that the necessity to nurture the trust of the citizens in international trade was not overlooked. But the mainstream public discourse, seemingly focused on presenting the emergence of global value chains as the final argument for market opening,5 arguably moved further away from the issues affecting the citizens’ trust in international trade liberalisation. The tide has turned. The recent financial and economic crisis that has battered Western countries, and the emergence of a captivating political rhetoric blaming international trade for most of the economic and societal difficulties that these countries experience, ended up denting the trust of the citizens in international trade liberalisation and in the multilateral and regional institutions that aim at disciplining it. In light of these developments, Professor Peter Van den Bossche has steered his scholarly and practical interests towards a theme that could not be more relevant today. This is because his quest for a correct balance between trade and nontrade societal values and interests addresses head-on one of the above-mentioned warnings, namely the one related to the necessity to make sure that international trade liberalisation leaves the states enough leeway not only to protect, but also to promote certain societal values and interests. From an international trade law perspective, the exception clauses enshrined in various international trade agreements – which allow, on certain grounds and under specific conditions, measures otherwise inconsistent with certain

3 A description of the Trade Adjustment Assistance (TAA) programme is available at: www.doleta. gov/tradeact/. The rules for the management of the European Globalisation Adjustment Fund are set out in Regulation (EU) No 1309/2013. 4 At WTO level, for instance, the 2001 Doha Ministerial Declaration instructed Members to negotiate the reduction or elimination of trade barriers on environmental goods and services, and at the time of writing 46 WTO Members are negotiating an Environmental Goods Agreement. At EU level, for instance, its recent FTAs systematically include a trade and sustainable development chapter in which the Parties reaffirm their commitment to certain multilateral environmental agreements and conventions of the International Labour Organization. 5 Focusing on the link between imported inputs and export competitiveness may have inflated the perception that policy makers and analysts lowered their guard on the effects of import competition. While still pleading for complementary policies, an OECD/WTO/UNCTAD joint report argued that: ‘With the emergence of GVCs, the mercantilist approach that views exports as good and imports as bad … is … counterproductive. Domestic firms depend on reliable access to imports of world class goods and services inputs …. Responses to this reality can be undertaken [through] unilateral liberalisation’, in OECD, WTO, UNCTAD, Implications of Global Value Chains for Trade, Investment, Development and Jobs, 6 August 2013, available at: http://unctad.org/en/PublicationsLibrary/unctad_ oecd_wto _2013d1_en.pdf.

The General and Security Exceptions in EU FTAs  237 s­ubstantive rules of those agreements to be adopted or maintained – constitute a pivotal mechanism to ensure the respect for an appropriate balance between trade and non-trade societal values and interests. The work of Professor Peter Van den Bossche includes an endeavour to raise the awareness and explain the operation of the exceptions clauses under the law of the World Trade Organization (WTO). In tribute to his contribution to the understanding and evolution of this field of WTO law, this chapter has the ambition to follow in the footsteps of the work of Professor Van den Bossche, enlarging his analysis to some exceptions clauses under the law of other international trade agreements. More precisely, this chapter engages in a comparison between the general and security exceptions provisions in the WTO agreements and the same type of provisions contained in certain free trade agreements (FTAs) in force or provisionally applied between the European Union (EU) and third countries.6 On the basis of this comparison, it attempts to assess whether the balance between trade and nontrade societal values and interests ensured by these exceptions under WTO law is replicated or tilted in any direction under the examined EU FTAs. This chapter consists of the following sections. Section II selects certain EU FTAs for the purpose of the analysis. Section III compares the scope of application of the general and security exceptions under WTO law and the law of these EU FTAs. Section IV compares the grounds for justification listed in the general and security exceptions of the WTO agreements and of these EU FTAs. Section V attempts some conclusions.

II.  Identification of Relevant EU FTAs The term ‘EU FTAs’ conventionally refers both to self-standing FTAs and to broader agreements embodying free trade provisions between the EU and third countries. The almost 40 EU FTAs in force or provisional application may be grouped in four categories:7 ‘new generation’ FTAs; Deep and Comprehensive Free Trade Areas (DCFTAs) with Eastern Partners; Economic Partnership Agreements (EPAs) with African, Caribbean and Pacific countries or regions; and ‘first generation’ FTAs.8 This chapter focuses on the ‘new generation’ EU FTAs that are in force or provisional application, leaving the three remaining categories of EU FTAs aside.

6 The choice of focusing on EU FTAs stems from my professional expertise, gained while negotiating and providing legal advice on certain provisions of these agreements while at the European ­Commission. 7 European Commission, Report on Implementation of Free Trade Agreements, COM(2017) 654 final. 8 This includes the Euro-Mediterranean Association Agreements with certain Southern Mediterranean countries; the Stabilisation and Association Agreements (SAAs) with certain Western Balkan countries; the Partnership and Cooperation Agreements with certain Eurasian countries; and the agreements with a number of individual countries.

238  Gian Franco Chianale This is because the ‘new generation’ EU FTAs lend themselves particularly well to a comparison with the WTO agreements. This is due in particular to two ­considerations. First, the WTO agreements and the ‘new generation’ EU FTAs feature a comparable substantive coverage. Both sets of agreements contain disciplines on trade in goods, trade in services, intellectual property and public procurement. And in respect of trade in goods, both sets of agreements contain disciplines applicable to ‘general aspects’ of trade in goods9 and to ‘specific aspects’ of trade in goods.10 Other EU FTAs such as the Euro-Mediterranean Associations Agreements or certain EPAs are limited to trade in goods. So the content of these other EU FTAs would not allow for an equally coherent comparison with the WTO agreements. Second, the WTO agreements and the ‘new generation’ EU FTAs pursue comparable goals. Both sets of agreements aim at ensuring sustainable economic development, without concurrently pursuing ulterior objectives concerning the broader relationship amongst the parties. This is instead arguably the case for other EU FTAs such as the DCFTAs (which also aim at approximating the traderelated legislation of certain Eastern Partners to EU law) and the SAAs (which also aim at achieving a gradual rapprochement of the Western Balkans with the EU). The interpretation or application of exceptions such as those related to national security under these other EU FTAs may be specific to them and not allow for an equally coherent comparison with the WTO agreements. Thus, the following comparative analysis covers four ‘new generation’ EU FTAs in force or provisional application: the FTA with South Korea (the EU–Korea FTA);11 the Trade Agreement with Colombia, Peru and Ecuador (the EU–Colombia/Peru/Ecuador Trade Agreement);12 the Association Agreement with Central America (the EU–Central America Association Agreement);13 and the Comprehensive Economic and Trade Agreement with Canada (CETA).14

9 These disciplines are located in the General Agreement on Tariffs and Trade (GATT 1994) and in those FTA chapters dealing with national treatment and market access for goods, respectively. 10 Some of these disciplines are located in the Agreement on Trade Facilitation (TFA), in the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement), in the Agreement on Technical Barriers to Trade (TBT Agreement) and in those FTAs titles or chapters dealing with customs and trade facilitation, sanitary and phytosanitary measures and technical barriers to trade, respectively. 11 Free Trade Agreement between the European Union and its Member States, of the one part, and the Republic of Korea, of the other part, in OJ L127/6, 14 May 2011. 12 Trade Agreement between the European Union and its Member States, of the one part, and Colombia and Peru, of the other part, in OJ L354, 21 December 2012. On 11 November 2016 the EU, Colombia, Peru and Ecuador signed the Protocol of Accession of Ecuador to the Trade Agreement. On 1 January 2017 Ecuador joined the Agreement. 13 Agreement establishing an Association between the European Union and its Member States, on the one hand, and Central America on the other, in OJ L346, 15 December 2012. The Parties to this Agreement referred to as ‘Central America’ are the Republics of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama. 14 Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part, in OJ L11/23, 14 January 2017.

The General and Security Exceptions in EU FTAs  239

III.  Scope of Application of General and Security Exceptions A.  General and Security Exceptions Under WTO Law The WTO Agreement contains no umbrella provisions embodying general or security exceptions that may justify the breach of its provisions and of the provisions of the individual agreements annexed to it. Yet, certain agreements annexed to the WTO Agreement contain provisions embodying general and/or security exceptions. With respect to the WTO disciplines concerning trade in goods, the GATT 1994 contains general and security exceptions in Articles XX and XXI respectively. Article XX provides that ‘nothing in this Agreement shall be construed’ to prevent WTO Members from adopting or enforcing certain measures. Likewise, ­Article XXI provides that ‘Nothing in this Agreement shall be construed’ to require them to furnish certain information or to prevent them from taking certain actions. The references to ‘nothing in this Agreement’ (emphasis added) indicate that both Articles XX and XXI may excuse the breach of any obligation contained in the GATT, while the references to ‘nothing in this Agreement’ (emphasis added) suggest that these provisions may only be invoked to justify breaches of the GATT, and not breaches of other WTO agreements.15 Certain other agreements listed in Annex 1A to the WTO Agreement contain general and/or security exceptions that may justify the breach of their provisions as ­Articles XX and/or XXI of the GATT 1994 are incorporated by reference into those agreements. This is the case for the Agreement on Trade-Related Investment Measures (TRIMs Agreement),16 the TFA,17 and the Agreement on Import ­Licensing Procedures (Import Licensing Agreement).18

15 WTO, Panel Reports, China – Measures Related to the Exportation of Various Raw Materials (adopted 22 February 2012), WT/DS394/R/WT/DS395/R/WT/DS398/R/and Corr.1, as modified by Appellate Body Reports WT/DS394/AB/R/WT/DS395/AB/R/WT/DS398/AB/R, para 7.153. Yet, the Appellate Body (AB) warned that the specific relationship between provisions of different WTO agreements ‘must be ascertained through a thorough analysis of the relevant provisions, on the basis of the customary rules of treaty interpretation and the circumstances of each dispute’, in WTO, Appellate Body Reports, China – Measures Related to the Exportation of Rare Earths, Tungsten, and Molybdenum (adopted 29 August 2014) WT/DS431/AB/R, WT/DS432/AB/R, WT/DS433/AB/R, para 5.68. 16 The TRIMs Agreement contains general and security exceptions because Article 3 provides that ‘All exceptions under GATT 1994 shall apply, as appropriate, to the provisions of this Agreement’. 17 The TFA contains general and security exceptions by virtue of Article 24.7, which provides that ‘All exceptions and exemptions under the GATT 1994 shall apply to the provisions of this Agreement.’ 18 The Import Licensing Agreement contains only security exceptions by virtue of Art 1.10, which provides: ‘With regard to security exceptions, the provisions of Article XXI of GATT 1994 apply.’

240  Gian Franco Chianale A priori, no other agreement listed in Annex 1A to the WTO Agreement contains general and/or security exceptions available as a defence to justify the breach of its provisions.19 This statement should, however, be qualified in at least two respects. The first qualification operates in respect of those agreements that contain references to the WTO Agreement, to a covered agreement or to a provision thereof that may be relied upon to invoke general and/or security exceptions in Articles XX and/or XXI of the GATT 1994 to excuse the breach of certain provisions of those agreements. Three examples are particularly illustrative. The first example relates to the Agreement on Agriculture (AoA). Article 4.2 of the AoA prohibits agriculture-specific non-tariff measures. Yet, pursuant to footnote 1, if ‘maintained under … general, non-agriculture-specific provisions of GATT 1994’, such measures are permitted. In Indonesia – Import Licensing Regimes, the Appellate Body (AB) stated that ‘footnote 1 to Article 4.2 incorporates Article XX by reference’.20 Such incorporation must also extend to Article XXI of the GATT 1994, which also constitutes a general, non-agriculture-specific GATT provision under Article 4.2. The second example relates to other Annex 1A agreements such as the Agreement on Textiles and Clothing (Articles 2.4, 3.2 and 7); the Agreement on Preshipment Inspection (Article 2.6); and the Agreement on Safeguards (­Article 11.1.c). The third example relates to specific obligations in Accession Protocols. In China – Publications and Audiovisual Products, in light of the introductory clause of paragraph 5.1 of its Accession Protocol (‘Without prejudice to China’s right to regulate trade in a manner consistent with the WTO Agreement’ (emphasis added)), the AB found that China had the right to invoke Article XX of the GATT 1994 in justification of a measure inconsistent with that paragraph.21 Conversely, in China – Raw Materials, in light of the lack of any textual reference to Article XX of the GATT 1994 in paragraph 11.3 of its Accession Protocol, the AB found that China had no right to invoke the former to justify a measure inconsistent with the latter.22 The second qualification operates in respect of certain agreements listed in Annex 1A to the WTO Agreement, which contain textual footholds that may engender legal interactions between (some of) their provisions and the general

19 The agreements listed in Annex 1A to the WTO Agreement may, however, contain their own specific exceptions or flexibilities. 20 WTO, Appellate Body Reports, Indonesia – Importation of Horticultural Products, Animals and Animal Products (adopted 22 November 2017) WT/DS477/AB/R/WT/DS478/AB/R, para 5.46. 21 WTO, Appellate Body Report, China – Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products (adopted 19 January 2010) WT/DS363/AB/R, paras 205–33. 22 WTO, Appellate Body Reports, China – Measures Related to the Exportation of Various Raw Materials (adopted 22 February 2012) WT/DS394/AB/R/WT/DS395/AB/R/WT/DS398/AB/R, paras 278–306.

The General and Security Exceptions in EU FTAs  241 and/or security exceptions in Articles XX and/or XXI of the GATT 1994. Three examples are particularly illustrative. The first example relates to the TBT Agreement. The AB found ‘Article  XX of the GATT 1994 … not to be available to justify a breach of the … TBT ­Agreement’.23 But both Article 2.2 of the TBT Agreement and the sixth recital of its Preamble contain language featuring certain commonalities with the relevant language of Article XX of the GATT 1994. The AB used these provisions as context supporting a two-step analysis of the ‘treatment no less favourable’ requirement under ­Article 2.1 of the TBT Agreement, acknowledging that ‘the jurisprudence under the chapeau of Article XX is not irrelevant to understanding the content of the second step [of this analysis]’.24 The second example relates to the Anti-Dumping Agreement (ADA). In US  – 1916 Act and in US – Offset Act (Byrd Amendment), the AB clarified that Article 18.1 and footnote 24 prohibit Members from taking specific actions against dumping that are not in accordance with the provisions of Article VI of the GATT 1994 concerning dumping, but do not prohibit them from taking other nonspecific actions relating to dumping under other relevant GATT provisions.25 An interesting question is whether a measure that constitutes ‘specific action against dumping’ but that is not in accordance with Article VI of the GATT 1994 and with Article 18.1 of the ADA may be justified under Article XX(d) of the GATT 1994. In US – Shrimp (Thailand)/US – Customs Bond Directive, the AB did not express a view on this question.26 The same question may be asked in the context of Article 32.1 and footnote 56 of the Agreement on Subsidies and Countervailing Measures (SCM Agreement). The third example relates to the SPS Agreement. In US – Poultry (China), the panel relied on certain provisions of the SPS Agreement, including the first and last recitals of its Preamble and Article 2.4, to conclude that this agreement ‘­elaborates and thus explains the provisions of Article XX(b) in further detail when dealing with SPS measures’.27 On this basis, it found that an SPS measure that is inconsistent with certain provisions of the SPS Agreement and with certain provisions of the GATT ‘cannot be justified under Article XX(b) of the GATT 1994’.28

23 WTO, Appellate Body Reports, China – Rare Earths (above n 15) para 5.56. 24 WTO, Appellate Body Report, United States – Measures Concerning the Importation, Marketing and Sale of Tuna and Tuna Products – Recourse to Article 21.5 of the DSU by Mexico (adopted 3 D ­ ecember 2015) WT/DS381/AB/RW, para 7.88. 25 WTO, Appellate Body Report, United States – Anti-Dumping Act of 1916 (adopted 26 ­September 2000) WT/DS136/AB/R, WT/DS162/AB/R, paras 124–25. WTO Appellate Body Report, United States – Continued Dumping and Subsidy Offset Act of 2000 (adopted 27 January 2003) WT/DS217/ AB/R, WT/DS234/AB/R, para 262. 26 WTO, Appellate Body Report, United States – Measures Relating to Shrimp from Thailand, United States  – Customs Bond Directive for Merchandise Subject to Anti-Dumping/Countervailing Duties (adopted 1 August 2008), WT/DS343/AB/R, WT/DS345/AB/R, para 319. 27 WTO, Panel Report, United States – Certain Measures Affecting Imports of Poultry from China (adopted 25 October 2010) WT/DS392/R, para 7.479. 28 ibid para 7.481.

242  Gian Franco Chianale To summarise, in respect of the WTO disciplines applying to trade in goods, the breach of the provisions of the GATT 1994, the TRIMs Agreement and the TFA may be justified under the general and security exceptions of Articles XX and XXI respectively of the GATT 1994, with the latter also being available for violations of the Import Licensing Agreement. No other agreement dealing with trade in goods contains general and/or security exceptions, although some of them contain textual footholds that arguably allow justification of the breach of some of their obligations under Articles XX and/or XXI GATT 1994, or open the door to a legal interaction between some of their provisions and Articles XX and/or XXI GATT 1994. Moving on to the WTO disciplines applying to trade in services, intellectual property rights, and public procurement, the General Agreement on Trade in Services (GATS) has general and security exceptions in Articles XIV and XIV bis respectively; the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) contains only security exceptions in Article 73; and the Agreement on Government Procurement (GPA) includes both general and security exceptions in Article XXIII. All these provisions may justify the breach of the obligations found in the relevant agreement but not the breach of obligations in other WTO agreements.

B.  General and Security Exceptions Under the New Generation of EU FTAs None of the EU FTAs examined contains umbrella provisions embodying general exceptions that may justify the breach of the provisions in those agreements. Yet, these exceptions may be found in individual chapters or titles of those FTAs and may justify breaches of the obligations set out in those or other chapters or titles, depending on their wording. With respect to the disciplines concerning trade in goods, all four ‘new generation’ EU FTAs under consideration contain general exceptions clauses. The disciplines of the EU–Korea FTA that apply to trade in goods arguably include those contained in Chapter 2 (National Treatment and Market Access for Goods), but also in Chapter 4 (Technical Barriers to Trade), Chapter 5 (Sanitary and Phytosanitary Measures), and Chapter 6 (Customs and Trade Facilitation). Amongst these chapters, only Chapter 2 contains a general exceptions clause in Article 2.15. However, the scope of application of Article 2.15 is not limited to Chapter 2. Article 2.15.1 provides: ‘The Parties affirm that their existing rights and obligations under Article XX of GATT 1994 and its interpretative notes, which are incorporated into and made part of this Agreement, shall apply to trade in goods covered by this Agreement, mutatis mutandis’ (emphasis added). The general exceptions in Article 2.15.1 may thus be invoked to justify the breach of the provisions on national treatment and market access for goods of Chapter 2, but arguably

The General and Security Exceptions in EU FTAs  243 also the breach of provisions such as those on technical barriers to trade, sanitary and phytosanitary measures, and customs and trade facilitation of Chapters 4, 5 and 6, respectively, insofar as these provisions cover trade in goods. The disciplines of the EU–Colombia/Peru/Ecuador Trade Agreement that apply to trade in goods are contained in its Title III (Trade in Goods), which include Chapter 1 (Market Access for Goods), but also Chapter 3 (Customs and Trade Facilitation), Chapter 4 (Technical Barriers to Trade), and Chapter 5 (Sanitary and Phytosanitary Measures). Amongst these chapters, only Chapter 1 contains a general exceptions clause in Article 106. However, the scope of application of Article 106 is not limited to Chapter 1. Article 106.1 provides that, subject to the requirements of its introductory clause, ‘nothing in this Agreement shall be construed to prevent the adoption or enforcement by any Party of [certain] measures’ (emphasis added). The general exceptions in Article 106.1 may thus be invoked to justify the breach of the provisions concerning market access for goods of Chapter 2, but also the breach of provisions such as those concerning customs and trade facilitation, technical barriers to trade and sanitary and phytosanitary measures of Chapters 3, 4 and 5, respectively. The disciplines of the EU–Central America Association Agreement that apply to trade in goods are contained in its Title II (Trade in Goods), which includes Chapter 1 (National Treatment and Market Access for Goods), but also Chapter 3 (Customs and Trade Facilitation), Chapter 4 (Technical Barriers to Trade), and Chapter 5 (Sanitary and Phytosanitary Measures). None of these chapters contains a general exceptions clause. However, in Chapter 6 (Exceptions Related to Trade in Goods), Article 158 contains general exceptions and at paragraph 1 provides: ‘Article XX of GATT 1994, including its interpretative notes, is incorporated into and made an integral part of this Agreement’. The scope of application of Article 158.1 extends to the provisions of ‘this Agreement’ that pertain to trade in goods. The general exceptions in Article 158.1 may thus be invoked to justify the breach of the provisions on national treatment and market access for goods of Chapter 1, but arguably also the breach of provisions such as those on customs and trade facilitation, technical barriers to trade, and sanitary and phytosanitary measures of Chapters 3, 4 and 5, respectively. The disciplines of CETA that apply to trade in goods arguably include those contained in Chapter 2 (National Treatment and Market Access for Goods), but also in Chapter 4 (Technical Barriers to Trade), Chapter 5 (Sanitary and Phytosanitary Measures), and Chapter 6 (Customs and Trade Facilitation). None of these chapters contains a general exceptions clause. However, in Chapter 28 (Exceptions), Article 28.3 of CETA contains general exceptions and at paragraph 1 provides: ‘For the purposes of Article 30.8.5 (Termination, suspension or incorporation of other existing agreements), Chapters Two …, Five …, and Six …, Article XX of the GATT 1994 is incorporated into and made part of this Agreement.’ The general exceptions in Article 28.3.1 may thus be invoked to justify the breach of provisions such as those on national treatment and market access for goods, sanitary and phytosanitary measures, and customs and trade facilitation of Chapter 2, 5 and 6

244  Gian Franco Chianale respectively, but not the breach of those provisions on technical barriers to trade of Chapter 4. Moving on to the disciplines applying to trade in services, all four ‘new generation’ EU FTAs contain general exceptions clauses that may be invoked to justify the breach of the provisions of their title(s) or chapter(s) dealing with trade in services.29 Concerning the disciplines applying to trade in intellectual property, the four ‘new generation’ EU FTAs mirror the approach followed under WTO law and contain no general exceptions clause available to justify the breach of the provisions of the titles or chapters of these EU FTAs dealing with intellectual property. Lastly, regarding the disciplines on public procurement, all four ‘new generation’ EU FTAs contain general exceptions clauses that may be invoked to justify the breach of the provisions of their title(s) or chapter(s) dealing with public procurement.30 So far, this subsection has focused on the scope of application of the general exceptions clause in the ‘new generation’ EU FTAs. But it is in regard to the scope of application of their security exceptions clauses that something strikes the eye: each of these FTAs contains an umbrella provision embodying security exceptions that may be invoked to justify the breach not of some but of all provisions of such agreements.31

C.  A Preliminary Comparative Assessment The scope of application of the general exceptions in all ‘new generation’ EU FTAs is as wide as the scope of application of the general exceptions in the WTO agreements in the fields of trade in services, intellectual property and government procurement, but it is wider in the field of trade in goods.

29 Art 7.50 EU–Korea FTA states ‘nothing in this Chapter’, that is, Chapter 7 (Trade in Services, Establishment and Electronic Commerce). Art 167 EU–Colombia/Peru/Ecuador Trade Agreement states ‘nothing in this Title and Title V’, that is, Titles IV (Trade in Services, Establishment and Electronic Commerce) and V (Current Payments and Capital Movements). Art 203 EU–Central America Association Agreement states ‘nothing in this Title’, that is, Title IV (Trade in Services, Establishment and Electronic Commerce). Art 28.3.2 CETA states ‘For the purposes of [certain services-related ­chapters]’. 30 Art 9.1.3 EU–South Korea FTA states ‘Nothing in this Chapter’, that is, in Chapter 9 (Government Procurement). Art 174 EU–Colombia/Peru/Ecuador Trade Agreement states ‘nothing in this Title’, that is, Title VI (Government Procurement). Art 210.6 EU–Central America Association Agreement states ‘Nothing in this Title’, that is, Title V (Government Procurement). Art 19.3.2 CETA states ‘nothing in this Chapter’, that is, Chapter 19 (Government Procurement). 31 Art 15.9 EU–South Korea FTA, Art 295 EU–Colombia/Peru/Ecuador Trade Agreement, Art 357 EU–Central America Association Agreement, and Art 28.6 CETA contain security exceptions and feature identical language insofar as they provide that ‘Nothing in this Agreement shall be construed’ to require any Party to furnish certain information or to prevent them from taking certain actions.

The General and Security Exceptions in EU FTAs  245 Regarding trade in services, intellectual property and government procurement, the general exceptions have the same scope of application under both sets of agreements. Under WTO law they may be invoked to justify a breach of the provisions of the GATS and of the GPA, but not a breach of the provisions of the TRIPS Agreement. Likewise, under the law of the ‘new generation’ EU FTAs, these exceptions may be invoked to justify breaches of the provisions in the titles or chapters applying to trade in services and government procurement, but not breaches of the provisions in the titles or chapters applying to intellectual property. Yet, when it comes to trade in goods, the general exceptions in the ‘new generation’ EU FTAs have a wider scope of application than the WTO general exceptions. Under WTO law, they may justify breaches of the GATT and of the TFA but not of the SPS or the TBT Agreements. Under the law of the ‘new generation’ EU FTAs, general exceptions may excuse inconsistencies with the provisions included in their chapters on national treatment and market access for trade in goods, on customs and trade facilitation, and on sanitary and phytosanitary measures and, in three instances, also breaches of the provisions of their chapters on technical barriers to trade. The scope of application of the security exceptions in all ‘new generation’ EU FTAs is wider than the scope of application of the security exceptions in the WTO Agreement. Under WTO law, they may be invoked to justify breach of the trade in goods provisions of the GATT 1994, the TRIMs Agreement, the TFA and the Import Licensing Agreement – but not, for instance, those of the TBT Agreement or the SPS Agreement – and breach of the provisions of the GATS, the TRIPS Agreement and the GPA. Under the law of the ‘new generation’ EU FTAs, they may be invoked to justify the breach of all provisions of those agreements, including, for instance, the provisions of their chapters on sanitary and phytosanitary measures and on technical barriers to trade.

IV.  Grounds for Justifications Under General and Security Exceptions A.  General and Security Exceptions Under WTO Law Starting with general exceptions, the relevant WTO provisions allow, subject to the requirements of their chapeaux, WTO Members to adopt or enforce measures connected to various degrees to similar though not identical societal values and interests. Regarding trade in goods, Article XX of the GATT 1994 lists 10 specific grounds for justification: the protection of public morals; the protection of human, animal or plant life or health; the trade in gold or silver; the compliance with certain laws or regulations; the products of prison labour; the protection of national treasures of artistic, historic or archaeological value; the conservation of

246  Gian Franco Chianale exhaustible natural resources; the obligations under certain intergovernmental commodity agreements; the assurance of essential quantities of certain materials to a domestic processing industry; and the acquisition or distribution of products in general or local short supply. When looked at through modern lenses, some of these specific grounds appear obsolete.32 Overall, however, they have aged well, displaying enough flexibility to address many modern concerns.33 It is telling in this regard that Article XX of the GATT 1994 inspired the wording of the exceptions clauses in Article 30 of the Treaty establishing the European Economic Community, signed in Rome in 1957, and that none of the successive revisions of the EU treaties changed that wording. Regarding trade in services, Article XIV of the GATS lists five specific grounds for justification: the protection of public morals or the maintenance of public order; the protection of human, animal or plant life or health; the compliance with certain laws or regulations; the equitable or effective imposition or collection of direct taxes; and the avoidance of double taxation. In US – Gambling, the AB recognised that the two general exceptions clauses under the GATT and the GATS use similar language.34 But there are also differences, such as the addition in ­Article XIV of the GATS of the grounds for justification related to the maintenance of public order35 and to taxation, and the lack of a ground for justification related to the conservation of exhaustible natural resources. Regarding public procurement, Article XXIII:2 of the GPA lists two specific grounds for justification: the protection of public morals, order or safety, human, animal or plant life or health or intellectual property; or the products or services of handicapped persons, of philanthropic institutions or of prison labour. Moving to the security exceptions, the relevant WTO provisions allow them to withhold certain information or take certain actions for quasi-identical securityrelated reasons. Regarding trade in goods, Article XXI of the GATT 1994 lists three specific grounds for justification. First, no Member may be required to furnish any information the disclosure of which it considers contrary to its essential security interests. Second, no Member may be prevented from taking any action that it considers necessary for the protection of its essential security interests relating to fissionable materials; relating to traffic in arms or other materials carried on directly or indirectly for the purpose of supplying a military establishment; taken in time of war or other emergency in international relations. Third, no Member may be prevented from taking any action in pursuance of its obligations under 32 For instance, the specific ground for justification related to trade in gold and silver makes little sense after the end of the gold standard, as gold and silver are no different from other precious metals. 33 For instance, the WTO adjudicative bodies have arguably read paragraphs (b) and (g) in light of the concern of modern societies about environmental protection. 34 WTO, Appellate Body Report, United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services (adopted 20 April 2005) WT/DS285/AB/R, DSR 2005:XII, 5663 (Corr.1, DSR 2006:XII, 5475), para 291. 35 ibid, fn 349.

The General and Security Exceptions in EU FTAs  247 the United Nations (UN) Charter for the maintenance of international peace and security. Regarding trade in services, Article XIV bis of the GATS lists largely the same specific grounds for justification as those listed in Article XXI of the GATT 1994. The only meaningful difference is that Article XIVbis:1(b)(ii) of the GATS extends the reference to ‘fissionable materials’ in Article XXI(b)(i) of the GATT 1994 to cover ‘fissionable and fusionable materials’.36 Regarding intellectual property rights, Article 73 of the TRIPS Agreement lists the same specific grounds for justification as those listed in Article XXI of the GATT 1994. Regarding public procurement, Article XXIII:1 of the GPA provides that no WTO Member may be prevented from taking any action, or from not disclosing any information, which it considers necessary for the protection of its essential security interests relating to the procurement of arms, ammunition or war materials, or relating to the procurement indispensable for national security or for national defence purposes.

B.  General and Security Exceptions in the ‘New Generation’ EU FTAs’ Starting with general exceptions, the relevant provisions of the examined EU FTAs relating to trade in goods, trade in services and public procurement list grounds that are very similar though not identical to those listed in the corresponding WTO provisions. Regarding trade in goods, the general exceptions provisions of the ‘new generation’ EU FTAs are modelled on Article XX of the GATT 1994.37 All grounds for justification available under Article XX of the GATT 1994 remain available under all general exceptions provisions applicable to trade in goods of the examined EU FTAs.38 Some of them even contain additional grounds for justification and clarifications, including the following. First, compared with Article XX(a) of the GATT 1994, the corresponding provision of the EU–Colombia/Peru/Ecuador Trade Agreement displays an additional ground for justification: the maintenance of public order.39 36 This appears to reflect the existence as of 1952 of nuclear bombs relying on thermonuclear fission. 37 Art 2.15 EU–South Korea FTA, Art 158 EU–Central America Association Agreement, and Art 28.3 CETA incorporate by reference Art XX GATT 1994. Art 106 EU–Colombia/Peru/Ecuador Trade Agreement is quasi-identical to Art XX GATT 1994. 38 Art 2.15.2 EU–South Korea FTA, Art 158.3 EU–Central America Association Agreement and Art 106.2 EU–Colombia/Peru/Ecuador Trade Agreement require that, before invoking the justifications related to local shortage based on Art XX(i) or (j) GATT 1994, the parties enter into consultations. However, those two grounds for justification remain available. 39 Art 106.1(a) EU–Colombia/Peru/Ecuador Trade Agreement refers to the necessity ‘to protect public morals or to maintain public order’ (emphasis added), and contains a footnote identical to fn 5 GATS.

248  Gian Franco Chianale Second, the EU–Central America Association Agreement, the EU–Colombia/ Peru/Ecuador Trade Agreement and CETA set forth two clarifications on environmental protection. They clarify that the ground for justification related to the protection of human, animal or plant life or health includes the environmental measures necessary to this effect, and that the ground for justification related to the conservation of exhaustible natural resources operates in respect of both living and non-living natural resources.40 On the one hand, these clarifications seem to reflect the evolution of WTO case law. On the other hand, locking this evolution in to the very text of the agreement annuls the risk that the dispute settlement panels under these FTAs will take a more restrictive reading. Regarding trade in services, the general exceptions provisions of the ‘new generation’ EU FTAs are modelled on Article XIV GATS.41 All grounds for justification available under Article XIV GATS remain available under all general exceptions provisions applicable to trade in services of the examined EU FTAs.42 Some of them even contain additional grounds for justification, including the following. First, compared to Article XIV(a) of the GATS, the corresponding provisions of the examined EU FTAs display an additional ground for justification: the maintenance of public security.43 This addition appears to reflect the wording of Article 52 of the Treaty on the Functioning of the European Union (TFEU) (‘public policy, public security or public health’), available as a defence to breaches of TFEU rules on free movement of services, and may provide the parties with flexibility in dealing with oft-discussed issues such as the investment screening mechanisms. Second, compared to Article XIV of the GATS, the corresponding provisions of the EU–Korea FTA, the EU–Colombia/Peru/Ecuador Trade Agreement and the EU–Central America Association Agreement44 display two additional grounds for justification: the conservation of exhaustible natural resources, and the protection of national treasures of artistic, historic or archaeological value.45

40 See Art 158.2 EU–Central America Association Agreement; Art 106.1(b) and (g) EU–Colombia/ Peru/Ecuador Trade Agreement; and Art 28.3.1 CETA. 41 Art 7.50 EU–South Korea FTA, Art 167 EU–Colombia/Peru/Ecuador Trade Agreement, Art 203 EU–Central America Association Agreement and Art 28.3 CETA are quasi-identical to Art XIV GATS, featuring certain modifications. 42 Either or both tax-related grounds for exception based on Art XIV(d) and (e) may not be located in the general exceptions provisions applicable to services of the ‘new generation’ EU FTAs. If they are not located in those provisions, they are located under the FTAs’ chapters/titles dealing with taxation. 43 Art 7.50(a) EU–South Korea FTA, Art 167(a) EU–Colombia/Peru/Ecuador Trade Agreement, Art 203.1(a) EU–Central America Association Agreement and Art 28.3.2(a) CETA refer to the necessity ‘to protect public security or public morals or to maintain public order’ (emphasis added). 44 Art 7.50(c) and (d) EU–South Korea FTA, Art 203.1(c) and (d) EU–Central America Association Agreement, Art 167(c) and (d) EU–Colombia/Peru/ Ecuador Trade Agreement. 45 Art 167(c) EU–Colombia/Peru/Ecuador Trade Agreement clarifies that it applies to ‘living and non-living exhaustible natural resources’ (emphasis added).

The General and Security Exceptions in EU FTAs  249 Regarding public procurement, the general exceptions provisions of the ‘new generation’ EU FTAs are also modelled on Article XXIII:2 of the GPA.46 All grounds for justification listed in Article XXIII:2 of the GPA remain available under all general exceptions provisions applicable to public procurement of the examined EU FTAs. Moving to the security exceptions, here too relevant provisions in the relevant FTAs are modelled on and are quasi-identical to the WTO security exceptions provisions.47 All grounds for justification available under the WTO security exceptions provisions remain available under all security exceptions provisions of the ‘new generation’ EU FTAs. Some of them even expand or contain additional grounds for justification, including the following. First, compared with Article XXI(a) of the GATT and Article XIVbis:1(a) of the GATS, the corresponding provisions the EU–Colombia/Peru/Ecuador Trade Agreement, the EU–Central America Association Agreement and CETA provide that nothing in the respective agreements shall be construed to require any Party to furnish ‘or allow access’ to certain information (emphasis added).48 Second, compared to Article XXI(b)(i) of the GATT 1994, the corresponding provisions of the four EU FTAs refer to ‘fissionable and fusionable materials’ (emphasis added).49 Third, compared to Article XXI(b)(ii) of the GATT 1994, some of the security exceptions provisions of the ‘new generation’ EU FTAs have expanded the concept of traffic in arms or other materials carried out for supplying a military establishment so as to encompass the economic activities carried out for supplying military establishments (such as the production and government procurement of these goods, and the supply of services) or other security establishments.50 Fourth, compared to Article XXI(c) of the GATT 1994 and Article XIVbis:1(c) of the GATS, all security exceptions provisions of the ‘new generation’ EU FTAs refer to the (international) obligations the parties have accepted for the purpose of maintaining (or restoring) international peace and security, and not only to those accepted under the UN Charter.

46 Art 9.1 EU–South Korea FTA incorporates by reference Art XXIII:2 GPA. Art 174 EU–Colombia/ Peru/Ecuador Trade Agreement, Art 210 EU–Central America Association Agreement and Art 19.3 CETA are quasi-identical to Art XXIII:2 GPA. 47 Art 15.9 EU–South Korea FTA, Art 295 EU–Colombia/Peru/Ecuador Trade Agreement, Art 357 EU–Central America Association Agreement and Art 28.6 CETA are quasi-identical to the WTO security exceptions provisions. 48 See Art 295.1(a) EU–Colombia/Peru/Ecuador Trade Agreement; Art 357.1(a) EU–Central ­America Association Agreement; and Art 28.6 CETA. 49 Art 15.9(b)(i) EU–South Korea FTA, Art 295.1(b)(i) EU–Colombia/Peru/Ecuador Trade Agreement, Art 357.1(b)(i) EU–Central America Association Agreement and Art 28.6(iii) CETA. 50 The precise extent of the expansion depends on the wording used in the security exceptions provisions of each ‘new generation’ EU FTA.

250  Gian Franco Chianale Fifth, compared to the WTO security exceptions, Article 357 of the EU–Central America Association Agreement provides, additionally, that nothing in the Agreement shall be construed to interfere with certain budgetary decisions of the parties.

C.  A Preliminary Comparative Assessment All grounds for justifications available under the general and security exceptions in the relevant WTO agreements remain available under the general and security exceptions contained in the ‘new generation’ EU FTAs, with some of these agreements even extending the grounds to additional non-trade societal values and interests.

V. Conclusion This chapter has compared the general and security exceptions of the WTO agreements with those of the ‘new generation’ EU FTAs. It has carried out such comparison from two vantage points: the scope of application of these exceptions; and the grounds for justification available thereunder. The comparison leads to a conclusion: the general and security exceptions clauses under the ‘new generation’ EU FTAs have a wider scope of application and embody extra grounds for justification than those under WTO law. True, this comparison rests on certain considerations or assumptions, but arguably still leads to a valid conclusion. First, the comparison has focused on some though not all of the ‘specific aspects’ of trade in goods, excluding, for instance, trade remedies and rules of origin. This said, customs and trade facilitation, sanitary and phytosanitary measures, and technical barriers to trade are highly relevant ‘specific aspects’ of trade in goods. Second, it has assumed that the dispute settlement panels established under these FTAs would interpret these exceptions just as the WTO adjudicative bodies did under WTO law. That said, most EU FTAs mandate the panels to adopt or take into account the relevant interpretations in adopted reports of WTO panels and the AB. On these bases, this chapter asserts that, by equipping its ‘new generation’ FTAs with state-of-the-art general and security exceptions, the EU has not only ensured that the trade liberalisation achieved through its FTAs does not come at the expense of fundamental non-trade societal values and interests, but that it has in fact strengthened their promotion and protection by going above WTO standards. In other words, the EU has not only respected the balance between trade and non-trade societal values and interests ensured by these exceptions under WTO law, but it has even tilted it in favour of the latter set of values and interests.

The General and Security Exceptions in EU FTAs  251 True, this assertion must consider that the analysis has not looked at the entire universe of EU FTAs or at all available exceptions, but it is arguably still significant, since the examined agreements are the most ambitious EU FTAs, and the general and security exceptions are best suited to address non-economic societal values and interests. The focus of Professor Van den Bossche on the need to explain that trade liberalisation under the aegis of the WTO is not all about rules forcing market opening, but also about rules allowing the protection and promotion of values and interests dear to our societies, shows us where to start in restoring the trust of citizens in the role of international trade. As the share of international trade that takes place under preferential trade agreements is large and growing,51 it is pivotal to ensure that such agreements, too, feature appropriate mechanisms allowing the parties enough room for manoeuvre to answer their citizens’ requests for the protection and promotion of certain values and interests. The EU has arguably managed to do just that.

51 ‘Since 2015, almost half of world trade has occurred under preferential tariff schemes, with one third regulated by rules and norms beyond tariff concessions’. United Nations Conference on Trade and Development, Evolution of the international trading system and its trends from a development perspective, Sixty-fourth session, Geneva, 11–22 September 2017, available at: http://unctad.org/meetings/en/ SessionalDocuments/tdb64d5_en.pdf.

252

Essai Typologique: Eternal Clauses – Human and Divine – A Reflection on Deuteronomy XIII:1–6, Matthew 28 and Galatians I JOSEPH HH WEILER

The modern German Constitution – its basic law – to give but one example, famously tries to ‘entrench’ some key provisions such as the inviolability of human dignity. The Constitution lays down that this provision is ‘unamendable’, eternal. The intention is clear – the provision is so fundamental we somehow want to entrench it against all possible human tampering. Human nature being what it is, painfully present in the minds of the drafters of the modern German Constitution, they wanted to put that provision beyond the hands of shifting majorities, even constitutional majorities. However, the authority of the constitutional norm on the inviolability of human dignity is the same as the authority of the constitutional norm making a provision ‘unamendable’. They both derive from the author of the Constitution – some process and form (such as a constitutional assembly) representing the sovereignty of the German people. The problem of trying to entrench in this manner a constitutional provision is obvious enough: why would one give a constitutional assembly convened in, say, 1949 the power to tie the hands of a subsequent assembly, similarly constituted and reflecting in the same manner the sovereignty of the German people? It is a tricky question which may be asked regarding all constitutional amendment provisions. I do not intend to replicate here the extensive learning on this topic. But ultimately, even our common legal sense dictates that, at least procedurally, if we were to reconstitute the power that made and gave authority to the original Constitution, it would be hard to explain and justify why a subsequent authority similarly constituted would not be able to change the provisions of the Constitution, including the provisions on amendability. The authority of the most basic norm of our legal system is found outside that legal system. If that authority is invoked, the basic norm may be altered. Thus, even the so-called Eternal Clause will not withstand a determined demos intent on changing it. Throw out the old Constitution and start afresh!

254  Joseph HH Weiler There is no such thing as an unexplored text of the Bible. But Deuteronomy XIII:1–6 has received less juridical analysis than it might merit. I will attempt to show that, although seemingly straightforward, it raises one of the most challenging and profound moral and theological questions as well as intricate constructs of law and jurisprudence which echo through the centuries and millennia of juridical praxis and theory. The Chapter opens with the following canonical phrase integral to the re-elaboration (Deutero-nomos Mishneh Torah) of the Mosaic Codex. What thing soever I command you, observe to do it: thou shalt not add thereto, nor diminish from it. Deut. XIII:1 (in some traditions these are the closing words of Ch XII).

This would seem in many ways to be part of the Grundnorm of Mosaic law. We are instructed with that same divine authority that set out the material content of the long list of Mosaic commandments, that the list is finite and immutable. We may neither add nor delete. Deuteronomy XIII:1 seeks to entrench the Mosaic law. And endlessly in Deuteronomy we read that this law is to last for ever, Chukat Olam. Since a legal mind might begin to ask ‘how long is “for ever”?’ the text helps by saying at least a thousand generations. Sounds pretty eternal – both immutable and for ever and ever. In the case of God’s law and the entrenchment in Deuteronomy XIII – at first blush the problem seems easier. Man should not be able to add to or diminish from the commandments of God. One should not even understand the issue as one of entrenchment, but simply one of higher law. Deuteronomy XVIII:18–22 lays down the general provisions concerning prophets with the instruction that they must be obeyed and followed, whereas a false prophet must die. The test of the prophet is the veracity of his prophecy over time. Interestingly and significantly, the question of entrenchment does not arise. The issue of such a prophet advocating straying from the law is not even discussed. It is self-evident that a prophet, whose authority is explicitly derived from the law, would have no authority if he himself undermined that very law. You cannot ask to be followed in the name of the law and at the same time claim to be above that law. The authority of the ‘normal’ prophet is found within the legal system itself. It is subject to the Grundnorm of neither adding nor diminishing. But what if we appeal to the authority on which that very norm is predicated? That same common legal sense tells us that, if the alteration were to come with the authority of God himself and authentically in his name, of course, one could legitimately add to or diminish from the law. God, the author of the law, could of course change it. So, if God were to reveal himself to a new Moses – after all, the transmission of God’s will and word was through the human agency of the prophet Moses – and through such new revelation add or diminish, that mutation would have to be considered authentic and overriding the norm of thou shalt neither add nor diminish. God himself, the author of the norm of neither adding nor diminishing, could not be bound by that very same norm. Is there any way one

Essai Typologique  255 could entrench the law in these circumstances? In other words, could God himself (the pouvoir constituant), the Almighty, be entrenched? It would be possible to seek to entrench in these circumstances by a procedural device: to make, say, the procedure of public revelation in Sinai part of the requirements for authentic expression of divine will. But that does not really entrench: for if that procedure is replicated, if God were to reveal himself again in public and authenticate a new Moses, the immutable law could legitimately be changed. Now let us consider the startling wisdom of Deuteronomy XIII. 1  If there arise among you a prophet, or a dreamer of dreams, and giveth thee a sign or a wonder, 2  And the sign or the wonder come to pass, whereof he spake unto thee, saying, Let us go after other gods, which thou hast not known, and let us serve them; 3  Thou shalt not hearken unto the words of that prophet, or that dreamer of dreams: for the LORD your God proveth [tests] you, to know whether ye love the LORD your God with all your heart and with all your soul. 4  Ye shall walk after the LORD your God, and fear him, and keep his commandments, and obey his voice, and ye shall serve him, and cleave unto him. 5  And that prophet, or that dreamer of dreams, shall be put to death; because he hath spoken to turn you away from the LORD your God, which brought you out of the land of Egypt, and redeemed you out of the house of bondage, to thrust thee out of the way which the LORD thy God commanded thee to walk in. So shalt thou put the evil away from the midst of thee.

Nota bene: the prophet who giveth a Sign (Ot) or a Wonder (Mofet) is not a magician, a sorcerer or any one of the operators of supernaturalism which the Biblical world and word acknowledges. When God sends Moses and Aaron to Pharaoh they give Signs and Wonders (Otot u Moftim) to verify their provenance and authenticity (Ex.IV:1–9). When some of these are precisely replicated by Pharaoh’s underlings, that does not make these underlings prophets: they are called magicians and sorcerers. And the very same acts or Signs or Wonders – the terminology for a divine signal – are renamed ‘enchantments’ (Lahatutim). An Ot or a Mofet – a Sign or a Wonder – is the common terminology to indicate authentic divine authority. The people were told that they were not to add to or diminish from the commandments of God re-elaborated in the Deuteronomic Codex. But surely if a prophet added or diminished, with the authenticating authority of Signs and Wonders from God, these changes would be valid? He who maketh taketh? Apparently not. The commandments are entrenched even in this eventuality. For even if the messenger were to enjoy an unmistakable Sign and Wonder, which in all respects replicated the signs that authenticated Moses (Ex. XIX:9), at the moment the prophet so authenticated inveighed a breach of the Mosaic law, that content would be taken as sign of a divine test the real meaning of which is that it should not be followed since we are instructed that the messenger in question, with the authenticating Signs and Wonders, is sent by God to ‘proveth’

256  Joseph HH Weiler (Menaseh ani Otchem) – to test the love, loyalty and fidelity of the people to God’s revealed word to Moses at Sinai – to no one else. This is legally ingenious: should a mere human come along, a brother, a son, a mother, as explicated immediately afterwards in Deuteronomy XIII, and entice one (mesit) to stray from God’s commandments, that very fact of enticement would condemn him as violating the law of God, since clearly humans with their own agency may neither add nor diminish. But even if a prophet comes, with Signs and Wonders authenticating his divinely sanctioned authority, you may still not follow him, because the real purpose of exercising that divinely sanctioned authority is in testing you, of proving your loyalty to the Sinaitic event. Heads you lose, tails I win. It is not only legally ingenious but of unique theological import. It is through the seemingly legalistic device of entrenchment that we come to understand the profundity of the revolution of Covenantal Monotheism. Typically, in the discourse of entrenchment one is concerned with the ability of the constituent power, the subject, to bind its successors, the object, through some entrenching device to specific legal provisions. The subject attempts to tie the hands of the object. In our normal legal and constitutional landscape, in which the authority of one sovereign is hard to stipulate as greater than that of a successor sovereign, the ultimate answer seems to be that this cannot be achieved since at the moment the object can replicate the authoritative conditions of subjecthood and become subject himself, by virtue of that authority what was entrenched can be ‘unentrenched’. What is special about the entrenchment in Deuteronomy XIII is the stunning realisation that in binding the community for ever to his eternal law, God has at one and the same time tied his own hands. For, even if God were to replicate the conditions which, as in Exodus XIX:9, And the LORD said unto Moses, Lo, I come unto thee in a thick cloud, that the people may hear when I speak with thee, and believe thee for ever

authenticating Moses as the giver of the law, it could, would and should be construed as coming under the Deuteronomic test. God binds the community, but at the same time he binds himself. When He covenants Chukat Olam, a law for ever, it is covenantal, like a marriage. In human affairs, ‘Till death do us part’, means just that; and in this divine scheme, forever, ad olam, means just that: in the words of Hosea: 19  And I will betroth thee unto me for ever; yea, I will betroth thee unto me in righteousness, and in judgment, and in loving kindness, and in mercies.

To bring this to life lets imagine the following conversation between the Almighty and his people to whom he is giving the law. Act 1: God (speaking through his Prophet): Hear O’ Israel. I give you this law and it is a law for ever – you will not add or detract and you shall obey it for ever! People: Yes God, of course God, you are the King of Kings, you are the Almighty it is immutable and for ever until you change your mind.

Essai Typologique  257 God: What’s wrong with you? I tell you it’s immutable and it’s for ever! People: Of course, of course, but after all, you are the Almighty, and as the Almighty you have the power to change your mind, no? God: Maybe I chose the wrong people – they are so stubborn. [God thinks a bit and then delivers the verses we just read.] Act 2: [God has actually changed his mind. His law, eternal and immutable, that pork is not to be eaten by his people, seems harsh, in the face of such delicacies as Jamon Iberico – pata negra.] God: Hear O’ Israel. I am the Lord. I am changing my law: From now onwards you may eat pig meat. People: But this was forbidden expressis verbis and we were told by you that we may neither add nor detract, for ever. God: Yes, but I am God the Almighty and I have changed my mind! People: (smirking) Oh God, King of Kings, we know what you are doing: You are testing us (as you told us you would do). God: (first exasperated, then angry) Hey, I am God, King of Kings – and you do what I tell you to do! People: Lord of Lord, King of King, that is exactly what we are doing – doing what you told us to do, namely if one day one tries to change the law, it is a Test. So, (sigh) no Jamon Iberico. God: It is true. I said it was immutable, I said it was for ever, and that binds me too. OK, go back to your boring kosher bloodless beef burgers.

To the philosophical question: would not God’s omnipotence be compromised by his inability to change his mind, the answer is that his omnipotence would be even more seriously compromised if he could not create a mutually binding covenant, ie binding on him too. The Mosaic Codex is not only immutable, but eternal. It is termed a Chukat Olam, a law forever. This raises a second inextricable issue of equal intricacy. Veritable immutability of this kind is inconsistent with a living and functional legal system, especially one with the capacious reach of the Mosaic Codex – a law for life. There are two classical problems: first, what if you have in the Codex, say, laws regarding divorce, but not laws regarding marriage? Divorce implies marriage but the Codex is silent. Does the prohibition on ‘adding’ mean that you are prohibited from enacting and regulating marriage? If so, you would effectively be diminishing divorce since if no one can marry, no one can divorce. So, there must be a mechanism of deducing from that which is given, expressis verbis, that which is implied. Second, the express provisions of the Codex cannot envision all situations, especially as time goes by. The Codex prohibits all vehicles in the park at a time when all vehicles were, say, heavy chariots pulled by noisy and dirtproducing animals. Would the prohibition apply to the latest technological innovation, a self-propelled contraption called a bicycle, which is both silent and clean?

258  Joseph HH Weiler Maybe it does, maybe it does not, but only some system of interpretation can give an answer. Interpretation is part of the ontology of any legal codex, more so when the codex itself is a higher law and even more so if it is designed to be immutable and eternal – where one cannot say: let’s leave that to the legislator; or that will require a constitutional amendment. One cannot overstate the importance of this point, but one can restate it in slightly different terms. If an immutable codex is to remain also a timeless codex – an eternal covenant, or at least one till the end of days – and not dead letter writ on stone, interpretation becomes its living breath, an essential component. To say that interpretation is part of the ontology of a codex – be it the Deuteronomic Codex or the Constitution of the United States – is not to minimise the delicacy of that proposition and certainly not to suggest what would be the appropriate norms of interpretation. The boundary between legitimate judicial interpretation and illegitimate judicial legislative or constitutional usurpation masquerading as interpretation is notorious and I am thankful that I do not have to address that issue. But most of us will agree that there is a category difference between an act of interpretation which, for example, reached the result that roller skates are not to be considered as a vehicle and hence the prohibition does not apply to them and, by contrast, a decision that the prohibition simply is null and void. In the first case, we give huge respect to the codex prohibition on vehicles in the park. We consider it normative and binding. We seek, through interpretation, to determine its scope and boundaries. In the second, we either disrespect the norm and its author or regard ourselves as enjoying an authority of at least equal value which gives us the freedom to mutate the norm. To add, or to diminish. The practical effect might be exactly the same. The line may sometimes be so difficult to draw that the distinction might seem academic. Still, if, say, in today’s world we were rid of all vehicles except, say, skateboards and roller skates, though the end result is the same, there would be a difference between holding on to the prohibition but simply interpreting its scope as not applying to skateboards and roller skates or abolishing the prohibition itself. Let us consider the emotions that overreaching decisions, of, say, the Supreme Court of the United States in interpreting the American Constitution evoke, decisions in which the line between interpretation and judicial legislation is transgressed by whatever standard the observer considers appropriate. For some, the concern is mostly the material content of the decision: if the substantive result serves my interest, I do not care much how they reached it. But to others, many, perhaps most, the process is as important. It is of course in part an issue of institutional power – power that should, say, vest in the legislature or the Presidency and is seen to be arrogated by the judicial branch. But the matter goes deeper. The rage is not based on just a calculus of interests. The vocabulary one finds in the heat of these debates is telling: presumption, arrogance, usurpation, disrespect of the Constitution, disrespect of the people. And the rage is shared by Left and Right: when, in the eyes of its beholders, the Court transgresses the line and strays from

Essai Typologique  259 its interpretative role, it seems to be tampering, subverting, yes, a sacred document. How much more so if one were dealing with a truly sacred document. This line, too, has significant and obvious consequences – a privileging of the interpreter, a power accruing to the learned and other obvious social effects. But it has, too, profound theological and spiritual consequences. For it gives a whole different meaning to ‘original intent’. Original intent in this type of system is not about a hermeneutic rule in case of indeterminacy. It is a rule of closeness, of communion and of fealty, since through the ontology and inevitably of interpretation, two things happen simultaneously. The law giver is forever present, alive, renewed and fresh, and at the same time close. It is in reality the opposite of the typical and common antinomian critique. Let us now turn from the legal aspects of Deuteronomy XIII to some moral and theological concerns. The first is to underline a point made previously in passing. The messenger here is termed a prophet. He is not an observer of times, or an enchanter, or a witch. Or a charmer, or a consulter with familiar spirits, or a wizard, or a necromancer (Deut. XIIX:10, 11).

Likewise, he is not authenticated by ‘enchantments’ – but by Signs and Wonders, terms typically reserved to those acting on behalf of God. It is commonplace that the actions of evil people can serve the ends of God. But this does not seem at all to be the case here. The appellation, the authentication and the purpose all indicate agency. This is someone sent by God to test the people. It is not at all self-evident, and thus also the subject of considerable speculation, why God would want to test or prove the people in the manner suggested by these verses. Let us consider. If they are transgressing, as they seemed regularly to do throughout the Biblical narrative, from Joshua through Chronicles, there is nothing to test or prove. And if they are actually following the ways of the Almighty and observing his commandments, why seek to entrap them? And yet, Deuteronomy clearly envisages that God contemplates such a test. We may receive some illumination from the most conspicuous antecedent: Now it came to pass after these things that God tested Abraham, and said to him, ‘Abraham!’

That test, which uses the same verb we find in Deuteronomy, is too replete with deep theological issues and we must resist the temptation to digress too much. In contemplating the Binding, we are inclined to reject the simple notion of test – to see whether or not Abraham would obey his Creator and construe the Hebrew verb NSH as NISAYON, an experience, a trial – as in trial and error. This trial of Abraham is meant to give Abraham the experience, to put him through a test of fire and water. It is a trial so that he would emerge transformed. Likewise, we are inclined to construe the phrase uttered by the Angel ‘For now I know that you fear God’ not in the simple meaning of knowledge acquired as a result of the test which

260  Joseph HH Weiler would jar with an omniscient God, but as a different type of knowledge. You are different after the trial, after the Nisayon, and I know you in different way. Understandably, the trial achieved its aim, of redefining the relationship between God and Man. Under this perspective (and I am aware, of course, that there are as many interpretations of the Akeyda as there are readers) the ‘test’ makes sense. It comes at a very unique moment and is formative and transformative in the relationship between God and the father of his nation, the father of all nations. Could it be that such a testing, such a trial, is necessary and desirable precisely at those moments when ‘prophets’ of all manner and shape come with tantalising Signs and Wonders, which appeal to hearts and minds and where the humdrum of normal fealty and closeness are not sufficient – when even the law of God, immutable and eternal, needs to be reconsidered, justified and followed through conviction and introspection, autonomously – and not merely though habit, and obedience to human agents of the law? We are faced with the same stunning realisation about the audacity of the text. Just as we saw that the binding of man was at one and the same time the binding of God himself, we see here that the test and the trial of man, is an invitation to a test and trial of God – God has created us free, has given us choice. The ultimate freedom being the freedom to say No to our Creator. By testing us, He invites us to test Him. He wants our fealty through conviction and internalisation, not through coercion and habit. Covenantal monotheism at its most glorious. In conclusion I want to point out that this phenomenology is not limited to Judaism. Let us consider the closing words of Matthew: 18  And Jesus came and spake unto them, saying, All power is given unto me in heaven and on earth. 19  Go ye therefore, and teach all nations, baptizing them in the name of the Father, and of the Son, and of the Holy Ghost: 20  Teaching them to observe all things whatsoever I have commanded you: and, lo, I am with you always, even unto the end of the world. Amen.

It seems a pretty similar structure: observe all things whatsoever I have commanded you. And I and what I teach you are for ever, unto the end of the world. What then if some new prophet comes along, claiming revelation of God, and teaches something different? Or, more dramatically, claims that he or she supersedes Jesus? Paul, who was hitherto Saul, knew his Bible quite well. He understood the dilemma. How can one entrench the word and the being of Jesus for eternity? The answer, very similar to Deuteronomy XIII is given in Galatians I: 1  Paul, an apostle, (not of men, neither by man, but by Jesus Christ, and God the Father, who raised him from the dead;) 2  And all the brethren which are with me, unto the churches of Galatia: 3  Grace be to you and peace from God the Father, and from our Lord Jesus Christ,

Essai Typologique  261 4  Who gave himself for our sins, that he might deliver us from this present evil world, according to the will of God and our Father: 5  To whom be glory for ever and ever. Amen. 6  I marvel that ye are so soon removed from him that called you into the grace of Christ unto another gospel: 7  Which is not another; but there be some that trouble you, and would pervert the gospel of Christ. 8  But though we, or an angel from heaven, preach any other gospel unto you than that which we have preached unto you, let him be accursed. 9  As we said before, so say I now again, if any man preach any other gospel unto you than that ye have received, let him be accursed.

Paul uses the same technique found in Deuteronomy XIII. Even if an Angel from Heaven (an Angel in scripture is a messenger of God) is to come and try to preach any gospel other than Christ’s, he is to be accursed. Without this, the proclamation of Christ at the end of Matthew that ‘I and what I teach you are for ever’ would be contingent, susceptible to a new divine voice. The ‘for ever’ of the Monotheistic Revolution is meant to be for ever.

262

INDEX AB see WTO Appellate Body (AB) abuse of power  107 accountability  18–19, 23, 51 civil society participation  28 democracy  26–7, 111, 114–16 Dispute Settlement System (DSS) (WTO)  114–16, 118 EU  116–18 governments  111–12 institutions  5 judicial accountability  106, 114–16, 118 accreditation  28 acquiescence  121, 132 added-value trade, measurement of  42–3 African, Caribbean and Pacific countries or regions, Economic Partnership Agreements (EPAs) with  237 agriculture Agreement on Agriculture (AoA)  127–8, 196, 240 BSE crisis  224–5, 233 farm-saved seeds  205–6 Friends of Special Products in agriculture  63 geographical indications (GIs)  68–9 Tokyo Round  179 AI see Artificial Intelligence (AI) amicus curiae  22, 24 Appellate Body see WTO Appellate Body (AB) arbitration see also arbitration under Article 25 DSU ad hoc proceedings  142 advisory opinions  142 Appellate Body (WTO)  87, 89 binding awards  142 countermeasures  101–2 Dispute Settlement System (DSS) (WTO)  87, 88–9, 101–2 judicialisation  87 permanent courts  142 arbitration under Article 25 DSU  139–55 ad hoc arbitration  151 advantages and disadvantages  141–2

alternative means of dispute settlement, as  140–1, 143–51 annulment  153 appeals  153 Appellate Body (WTO)  11–12, 139–41, 144–7, 150, 153–5 appointment of arbitrators  152, 153 awards  147–50, 153 enforcement  148–50, 153 finality  150 interpretation  147–8 nullity, as  148–50, 153 publication  148 setting-aside  150 surveillance  148 blueprint  12 commencement of proceedings  151 compulsory arbitration  151–2 correction  153 Dispute Settlement Body (DSB)  147–8 due process  149 essential elements  150–3 essential procedural requirements  149, 153 excessive caseload  11–12, 139–41 exhaustion of remedies  151 freedom of contract  143–4 GATT  141–3 general arbitration agreements  146, 150–1 good faith  148 Hague I Conventions  143, 145–7, 153 interpretation  144–5, 153 jurisdiction  150, 151–3, 154 multilateral trading system (MTS)  141–4 notification of agreements  146–7 parallel proceedings  151–2 predictability  151 procedural rules  153 revision  153 Rules of Conduct  152 scope of arbitration  145–6 secretarial support  152 standard rules  153 submission agreements  146

264  Index subsequent proceedings  151–2 supervision  148–9 terms of reference  152, 154 third party participation  153, 154 Uruguay Round  141–3, 145 validity  148–9 Argentina  61, 64, 100, 180 Artificial Intelligence (AI)  12, 199, 208–11, 218 Big Data  208–9 biology  209 copyright  210–11 intellectual property rights (IPRs)  210 knowledge  209 mathematical science  209 ownership  210 patents  209–10, 211 policies  46 robotics  210 artistic, historic or archaeological value, protection of national treasures of  245, 248 Asian financial crisis  54 association agreements  135, 238, 243, 248–50 Australia  180 automobile industry, job creation in  42 autonomy  18, 37, 48, 112, 200 Azevêdo, Roberto  99 balancing trade and non-trade interests see also societal values and interests evolution of rules  3 free trade agreements (FTAs)  13, 235–6, 245–6, 250–1 globalisation  2 governance  9 outdated values and interests  7 policies  10, 36, 49–50 rebalancing  7–8 Bali Ministerial Conference  32, 87 Bangladesh  61 barriers to trade  39, 44, 206, 235 beggar-thy-neighbour policies  9 Belgium  27 Berne Convention on Copyright 1971 (WIPO)  168, 193, 207, 213–14 Bhatia, Singh  95 Big Data  12, 199, 208–11 connectomics  208–9 database right  209

neural imaging  209 trade secrets  209 bilateralism BITs  121 civil society participation  30 convergence  48 Dispute Settlement System (DSS) (WTO)  107, 110 multilateral trading system, compatibility with  19, 34 populism  20 Biodiversity Convention  201, 202, 205–6 biotechnology  12, 199, 202–6, 218 bioethics  202 Biotechnology Directive  203 IPRs  202–6 nanotechnology  206 Oncomouse cases  202–3 passive infringement  205 patentability  202–5 plant breeder’s rights (PBRs)  204–5 public order or morality  203 stem cell material for finding cures for genetic diseases  203 boundaries see maritime boundary delimitation Brazil  53, 55, 64, 230 see also BRICS Bretton Woods institutions  54, 120 see also International Monetary Fund (IMF) Brexit  5–7, 20 BRICS  52, 55–61, 66 accountability  59 commitments  57–60 consensus  56 coordination bodies, role of  63–4 effectiveness  57–61 G7  56–7 G20, as members of  55 legitimacy  57–61 New Development Bank, creation of  56 summits  55–6 Yekaterinburg Summit  55 BSE crisis  224–5, 233 Buenos Aires Ministerial Conference  35, 48, 94 Business Europe  163 Canada see also Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU Canada-Colombia Agreement on Labour Cooperation (CCOALC)  166

Index  265 G6  53 prison labour  180 Cancún Fourth Ministerial Conference (WTO)  19, 23, 27, 63 capacity-building  19, 217 Caribbean, African and Pacific countries or regions, Economic Partnership Agreements (EPAs) with  237 causal links geographical indications (GIs)  67, 81–4 regulation  127, 131–2 Central America, EU Association Agreement with  238, 248–50 access to security information  249 budgetary decisions  250 fissionable and fusionable materials  249 goods, trade in  243 human, animal or plant life or health, protection of  248 maintenance or restoration of international peace and security  249 national treasures of artistic, historic or archaeological value, protection of  248 natural resources, conservation of exhaustible  248 services, trade in  244 CETA see Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU Chang, Seung Wha  95–7, 108 Charter of Economic Rights and Duties of States  121 Charter of Fundamental Rights of the EU  117 Chile  64 China  22, 36, 40, 53, 55, 56, 64, 94, 98, 100, 108, 202, 209 see also BRICS Civil Aircraft Agreement  19 civil society participation  28–30 accountability  28 bilateral trade arrangements  30 changing nature of civil society  29 disengagement  29 fitness for purpose  28–9 governance  9–10, 23, 26, 28–30, 33, 34 labour standards in EU’s FTAs, enforcement of  12, 158, 163, 172 mega-regional trade arrangements  30 Ministerial Conferences, number of registrations at  29 NGOs  23, 28–9, 230 non-profit business organisations  29

Panel of WTO Experts  29 Public Forums  29 Secretariat  28–9 Trade and Sustainable Development (TSD)  30 climate change  37, 201, 214, 217 coast dominates the sea (CDS) principle  123 Codex Alimentarius Commission (CAC) Committee on General Principles  230 food law  221, 227–34 NGOs  230 standards  227–34 WHO and FAO, as subsidiary body of  229 collective action procedure  159–60 Colombia, Peru and Ecuador, Trade Agreement with  238, 243–4, 247–9 access to security information  249 fissionable and fusionable materials  249 maintenance or restoration of international peace and security  249 national treasures of artistic, historic or archaeological value, protection of  248 natural resources, conservation of exhaustible  248 public order  247 commodity agreements  246 commutative justice  110 comparative advantage  2, 37–8, 45 competition see also dumping competitive advantage  41 intellectual property rights (IPRs)  199–200 mega-regional trade agreements  19 regulation  132 standards  215–17 unfair competition  100, 132 Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU access to security information  249 arbitration  87 civil society participation  30 Dispute Settlement System (DSS) (WTO)  117 fair and equitable treatment (FET)  135–6 fines  169 fissionable and fusionable materials  249 general and security exceptions  238, 243–4, 248–9 governance  19 human, animal or plant life or health, protection of  248

266  Index judicialisation  87 labour standards in EU’s FTAs, enforcement of  164–6, 169 maintenance or restoration of international peace and security  249 national parliaments, involvement of  27 opposition  5–7 services, trade in  244 Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)  19, 25, 30, 32, 90 compromissory clauses  112 compulsory dispute settlement  106–7, 110, 113, 146–7, 151–2 concentrations, of ownership of IPRs  212–15 concessions  101, 107, 110, 149, 171 conciliation  92, 99 connectomics  208–9 consensus decision-making in WTO  9, 17–18, 20–2 accountability  26 alternatives  21 day-to-day decisions  21 economically powerful members  21 formal objections  20 governance  9, 17–18, 20–2, 26, 34 housekeeping-type decisions (internal matters)  21–2 implementation  20–1 majority voting as an alternative to  21–2 national sovereignty  21 selection and appointment of AB Members  21–2, 34, 140 substantive decisions  21 typology of decisions  21 undermining WTO  20, 34 veto effect  20 weighted voting  20 constitutions amendability  253 constitutional contract theories  106 cosmopolitan foreign policy constitution  116–18 economics underlying WTO Agreement  105 Germany  253 governance  106–7 interpretation  259–60 justice as limitation of intergovernmental power politics  109–14 public goods  117–18 United States  258–9

consumers  12, 39–40 continental shelf  122 convergence of trade policies  48–9 coordination bodies, role of  62–6 policies  10, 36–7, 46 copyright  210–11, 212 Berne Convention on Copyright 1971 (WIPO)  168, 193 corporations as authors  210 intermediaries, liability of  210–11 originality  211 ownership  210 piracy  210–11 public, right of communication to the  211 3D printing  212 WIPO Copyright Treaty  207 corrective justice  110, 121, 131 corruption  9 cosmopolitan foreign policy constitution  116–18 countermeasures  100, 101–2 countervailing duties  132 Crimea, Russian annexation of  53 crises Asian financial crisis  54 BSE crisis  224–5, 233 food law  224–5, 233 global financial crisis  1, 9, 236 crowd funding  202 culture GATT  23 geographical indications (GIs)  73, 80–2 integration  7 UNESCO Convention for Safeguarding of Intangible Cultural Heritage (ICH)  200 WTO custom and practice  23 customary law  110, 112–13, 122, 134 customisation  37 customs Customs Valuation Agreement (CVA)  128 customs valuations  11, 128 UNCTAD System for Customs Data (ASYCUDA)  24–5 damages  118 database right  209 decision-making see consensus decisionmaking in WTO decolonisation  121 Deep and Comprehensive FTAs (DCFTAs) with Eastern Partners  237–8

Index  267 democracy see also democratic legitimacy of WTO accountability  26–7, 111, 114–16 constitutional democracy  117 deliberative democracy  7, 117 direct (referendum) democracy  7 Dispute Settlement System (DSS) (WTO)  107–9 governance  11, 19, 65–6, 77–8, 83–4, 112 Gx dynamics in global trade governance  65–6 institutions  118 judiciary  112, 115–16 democratic legitimacy of WTO  25–7 accountability  26–7 civil society participation  26 consensus decision-making  26 Dispute Settlement System (DSS) (WTO)  113–14, 118 gap-filling  26 GATT, culture, customs and practice as rooted in  23 governance  9, 17, 23, 25–7, 34 international organizations  26 legitimacy chain  26 national parliaments, involvement of  26–7 Parliamentary Conference on the WTO (IPU/EP)  26–7 transparency  25, 26–7 WTO Appellate Body Members, challenges by US to selection and appointment of  112 deregulation  39, 44, 46, 49 developing countries civil society participation  29 Dispute Settlement System (DSS) (WTO)  88, 99 equity  120, 128 extraterritoriality  187 geographical indications (GIs)  68 Global South  24, 29 global value chains (GVCs)  43–4 Gx dynamics in global trade governance  61–6 globalisation  40–1 indigenous technology  178 innovation  217–18 least-developed countries (LDCs)  32, 44 Parliamentary Conference on the WTO  27 process and production methods (PPMs)  178, 187 re-shoring  218 secondary law-making by WTO bodies  32 Secretariat  33

servicification  43–4 South-South Cooperation  62 technical cooperation  19 technology transfer  217–18 transparency  24 UN Technology Bank  217 diplomacy  1–2, 6, 97 direct effect  118 Director-General (WTO)  33, 34, 89, 92, 108 disclosures endangering national security  246–7 discrimination see non-discrimination and equality dispute settlement see also WTO Dispute Settlement System (DSS) arbitration  142 compulsory dispute settlement  95, 106–7, 110, 113, 146–7, 151–2 efficiency and integrity  10–11 enforcement  10–11 EU FTAs  250 Hague I Conventions  142 Investor-State Dispute Settlement model  158–9 labour standards  167–8 mediation  213 WIPO Dispute Resolution Center  213 distributive justice Dispute Settlement System (DSS) (WTO)  110 equity  11, 120–4, 126, 128, 138 technical cooperation  19 DNA  205 documents, de-restriction of  23–4, 25 Doha Development Round (DDR) Bali Ministerial Conference  87 civil society participation  29 Doha Development Agenda (DDA)  46, 48 Doha Ministerial Declaration  25, 94 doldrums  1 failure  8 G20  58–9 Nairobi Ministerial Conference  27, 87 Parliamentary Conference on the WTO  27 TRIPS Agreement  200 domain names  213 drug development  206 DSS see WTO Dispute Settlement System (DSS) due process  108–11, 134–5, 137, 149 dumping Anti-Dumping Agreement (ADA)  109, 129–31, 180, 241

268  Index duties  94 GATT  241 labour standards  180 national measures, increase in  100 economic growth  6 see also trade policies in pursuit of growth economic nationalism  1–2, 36, 48 Economic Partnership Agreements (EPAs) with African, Caribbean and Pacific countries or regions  237 economics see equity in international economic law; macro-economics Ecuador see Colombia, Peru and Ecuador, Trade Agreement with effectiveness Appellate Body (WTO)  8 BRICS  57–61 Dispute Settlement System (DSS) (WTO)  8, 89–91 governance  20 Gx dynamics in global trade governance  10, 52, 57–61, 65 inclusiveness, trade-off with  10, 52, 61, 65 legitimacy  57–60 safeguarding  3 efficiency Appellate Body (WTO)  103 consensus decision-making in WTO  21 dispute settlement  10–11, 89–92 free flow of goods and services  18 Egypt  61 embedded liberalism  18 emerging economies see BRICS employment see also labour standards in EU FTAs, enforcement of forced labour  180–1, 189, 245–6 GATT  176 human rights  181 ILO standards  181 income inequality  39–40, 120 innovation  199–201, 202, 218 job creation  41–2, 43, 46, 50 labour platforms and e-freelancing platforms  202 labour standards  19, 176, 180–1, 187 mega-regional trade agreements  9 patents, ownership of  211 prison labour  180–1, 245–6 process and production methods (PPMs)  180–1, 187, 189 territorial jurisdiction  180 unemployment  9, 35, 37, 40–2, 162

enforcement see also labour standards in EU FTAs, enforcement of arbitration awards  148–50, 153 dispute settlement  10–11, 100–1 FTAs  157–8 intellectual property rights (IPRs)  213 national remedy enforcement over diplomatic engagement, preference for  6 entrenchment  253–5 environment Biodiversity Convention  201, 202 climate change  37, 201, 214, 217 conservation  176–7, 183, 186–7, 190 democratic legitimacy  27 EU  157–8, 169, 187 globalisation  40 green protectionism  177 natural resources  176–7 process and production methods (PPMs)  175–80, 183, 186–7, 190–2 standards  9, 157 Stockholm Conference 1972  177 technical barriers to trade (TBT)  177 equal division of marine space, principle of (EDS)  123 equality see non-discrimination and equality equidistance  122, 124 equity in international economic law  119–38 acquiescence  121, 132 civil law  120 corrective justice  121, 131 customs valuations  11, 128 developing countries  120, 128 Dispute Settlement System (DSS) (WTO)  88–9, 94, 99, 110, 133 distributive justice  11, 120–4, 126, 128, 138 due process  137 estoppel  121, 123 general principles of law  120–1 ICJ  122–3 interpretation  137 investment protection  133–6 law of the sea  11, 122–5, 127 legitimate expectations  121, 132–5 maritime boundary delimitation  11, 122–4, 127 multilateral trading system (MTS)  121, 125–6, 138 natural resources, law of  122–4, 136–7 non-discrimination  121, 125 procedural fairness  11, 138 reasonableness  137

Index  269 redistribution  121 regulation of trade  125–33 remedies  11, 129–31 topical jurisprudence  137 transparency  11, 121, 138 essential procedural requirements  149, 153 estoppel  121, 123, 132 eternal causes  253–61 authentication  255–6, 259 Bible  13, 253–61 Deuteronomy 13  13, 253–61 enticement  255–6 entrenchment  253–5 Galatians I  13, 253–61 Grundnorm of Mosaic law  254 immutability and timelessness  13, 253–61 interpretation  258–9 Signs and Wonders  255–6, 259–60 tests  259–60 EU food law and SPS Agreement  219–34 Amsterdam Treaty  224 BSE crisis  224–5, 233 Codex Alimentarius Commission  221, 227–34 crises  224–5, 233 European Commission  224–7, 231–2, 233 European Food Safety Authority (EFSA)  224–5, 233 experts  221–2, 228, 231 free movement of goods  224 GATT  220, 222 General Food Law (GFL)  224–5, 227, 232 GM Food and Feed Regulation  225–6 GMO Directive  226 harmonisation  224, 227–8 health-based trade restrictions  220, 222 health, harmful effects on  227, 233–4 International Plant Protection Convention (IPPC)  228, 232 legitimacy  221–2, 224 Maximum Residue Level (MRLs)  230–1, 233 necessity  222–3 non-discrimination  222, 226 non-economic concerns  221 non-scientific reasons  226 precautionary principle  220, 223–6, 234 proportionality  226 provisional measures  223 regulation  220–1, 225–6, 230, 233–4 review of measures  227 risk assessment  222–4, 227–9 science  220–8, 232–4 scientific uncertainty  227

scientification  12–13, 220–1, 224–8, 233–4 standards  227–34 third countries  232–3 World Organisation for Animal Health (OIE)  228, 232 Eurofund  162 European Commission BSE  224, 233 environment  169 fines  169–70 food law  224–7, 231–2, 233 labour standards  158–72 precautionary principle  227 Euro-Mediterranean Association Agreements  238 European Economic Area (EEA)  115 European Food Safety Authority (EFSA)  224–5, 233 European Globalisation Adjustment Fund  236 European Trade Union Confederation (ETUC)  163 European Union see also Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU; EU food law and SPS Agreement; general and security exceptions in EU FTAs compared with WTO agreements; labour standards in EU FTAs, enforcement of accountability  116–18 association agreements  135 Biotechnology Directive  203 Brexit  5–7, 20 Charter of Fundamental Rights of the EU  117 damages  118 direct effect  118 Dispute Settlement System (DSS) (WTO)  103, 115–18 environment  157–8, 169, 187 European Parliament  26–7, 163, 169–70, 210, 226 FTAs  13, 68, 82–4, 87, 157–8, 235–6, 250–1 G20  54 geographical indications (GIs)  67–84 GMOs Directive  221 Horizon 2020 Framework Programme for Research and Innovation  212 Internet of Things (IoT)  207–8 judicial self-restraint  117 monism  117

270  Index exceptionalism  20 exclusive economic zones (EEZs)  122 exhaustion of rights  151, 207–8 experts food law  221–2, 228, 231 Panel of WTO Experts  29 extraterritoriality  183, 187, 190, 193, 196 fair and equitable treatment (FET)  128, 133–7 BITs  121 chilling effects  133 multilateral investment agreement (MIGA II)  136 Navigation and Friendship Agreements  121 fairness see also fair and equitable treatment (FET) competition  132 fair and reasonable proportionality, principle of (FRP)  123 FRAND terms  205, 214–17 procedural fairness  11, 138 regulation  132–3 safeguarding  3 farm-saved seeds  205–6 fines  169–70, 172 fisheries  25, 94, 126, 182–3, 186–7, 190 fissionable and fusionable materials  247, 249 food  177 see also EU food law and SPS Agreement forced labour  180–1, 189, 245–6 Fourth Industrial Revolution (4IR)  12, 201–2, 212–18 commercial potential  212–13 content delivery and production  202 finance, crowd funding and peer-to-peer lending and payments  202 globalisation  213 Horizon 2020 Framework Programme for Research and Innovation (EU)  212 inclusiveness  36 information services and ICT platforms  202 intellectual property rights (IPRs), enforcement of  213 labour platforms and e-freelancing platforms  202 policies  46 public-private partnerships (PPPs)  213, 218 social issues  199 social media  202 standards  213–16

sustainability  36 transport and self-driving vehicles  201 travel and accommodation  201 ‘valley of death’  212–13 France  52–3, 77 FRAND (fair, reasonable and non-discriminatory) terms  205, 214–17 free movement of goods  18, 224, 248 free movement of persons  20 free riders  73–4 free trade agreements (FTAs) see also Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU; general and security exceptions in EU FTAs compared with WTO agreements; labour standards in EU FTAs, enforcement of civil society participation  30 enforcement  157–8 EU  13, 68, 82–4, 87, 157–8, 235–6, 250–1 NAFTA  94–5 national parliaments, involvement of  27 national sovereignty  107 freedom of contract  143–4 Fried, Jonathan  101 Friedrich-Ebert-Stiftung think tank  159 friendship, commerce and navigation (FCN) treaties  121, 142 future generations  123 G5 (Group of 5)  52–3, 57 Brussels Summit  53 composition and functioning  52–3 Gleneagles Summit  53 Heiligendamm process  53 Plaza Agreement of 1985  53 Rambouillet meeting  53 Taormina Summit  53 terrorism  53 G7 (Group of 7) BRICS  56–7 Brussels Summit  53 commitments  57–60 compliance  57–8, 60 composition and functioning  52–3 effectiveness  57–60 Gleneagles Summit  53 governance  52–5, 56–60, 65–6 Heiligendamm process  53 legitimacy  57–60

Index  271 Plaza Agreement of 1985  53 Rambouillet meeting  53 Taormina Summit  53 terrorism  53 track record  58–60 G8 (Group of 8) Brussels Summit  53 commitments  57–60 compliance  57–8, 60 composition and functioning  52–3 effectiveness  57–60 G8+5  53 Gleneagles Summit  53 governance  52–3, 57–8, 60 Heiligendamm process  53 legitimacy  57–60 Plaza Agreement of 1985  53 Rambouillet meeting  53 Taormina Summit  53 terrorism  53 Trans-Pacific Partnership  58 G15 (Group of 15)  53 G20 (Group of 20) Asian financial crisis  54 BRICS  55 club or network, as  55 commitments  57–60 complementary influence  58 compliance  57–8 composition and functioning  54–5, 61 cooperation with other institutions  58 developing countries  61 Doha Development Agenda  58–9 effectiveness  57–60 governance  52, 53, 54–5, 56–61, 65–6 Muslim countries  61 OECD  58, 62 power balance  61 preferential trade agreements  59 tax  58 terrorism  58 West  61 G20 (Group of 20) developing nations  63–4 agriculture  63 Cancún Ministerial Conferences  63 protectionism  63 G22 (Group of 22)  53 G24 (Group of 24)  63 G33 (Group of 33)  53, 63 G77 (Group of 77) Foreign Affairs Ministers, Annual Meeting of  62

governance  62–3, 64 monetary and finance issues  63 South Summits  62 Special and Sectoral Ministerial Meetings  62 GATS Accountancy disciplines  31 EU FTAs  242, 245–9 GPA  194 labour standards  181 likeness  194 national treatment (NT) obligations  195 process and production methods (PPMs)  193–6 regulation  125, 126 schedules  195 secondary law-making by WTO bodies  32 service providers  194–5 telecoms  195–6 GATT Accession Protocols  240 Agreement on Agriculture (AoA)  240 Anti-Dumping Agreement (ADA)  241 arbitration agreements  141–3 civil society participation  23 culture, customs and practice  23 dispute settlement  11, 94, 98, 103, 106–7, 115–16, 222 EU FTAs  239–42, 245–7, 249 extraterritoriality  183 fair and equitable treatment (FET)  128 food law  220, 222 globalisation  45 Havana Charter  121, 142 IMF  51 Import Licensing Agreement  242 interpretation  128, 196 labour standards  181 neoliberalism  18 non-discrimination  128, 181–2, 222 policies  35 post-GATT international trade lawyers  1 process and production methods (PPMs)  175–7, 181–94, 196 regulation  126–33 science  222 Secretariat  34, 92 SPS Agreement  241 Tokyo Round  177–9 transparency  23 Uruguay Round  141–3, 145, 178 World Bank  51

272  Index General Agreement on Tariffs and Trade see GATT General Agreement on Trade in Services see GATS general and security exceptions in EU FTAs compared with WTO agreements  235–51 Accession Protocols  240 Agriculture, Agreement on (AoA)  240 Annexes to WTO Agreement  240–1 Anti-Dumping Agreement (ADA)  241 balancing trade and non-trade interests  13, 235–6, 245–6, 250–1 barriers to trade  235 Central America, Association Agreement with  238, 243, 248–50 CETA  238, 243–4, 248–9 Colombia, Peru and Ecuador, Trade Agreement with  238, 243–4, 247–9 commodity agreements  246 compliance with laws or regulations  245 Deep and Comprehensive FTAs (DCFTAs) with Eastern Partners  237–8 disclosures endangering national security  246–7 dispute settlement panels  250 Economic Partnership Agreements with ACP countries or regions  237 Euro-Mediterranean Association Agreements  238 European Globalisation Adjustment Fund  236 first generation FTAs  237 fissionable and fusionable materials  247, 249 GATS  242, 245–9 GATT  239–42, 245–7, 249 goals  238 gold or silver, trade in  245 goods, trade in  238, 239, 242–4, 246–7, 250 GPA  242, 245, 249 grounds for justification  245–50 human, animal or plant life or health, protection of  245–6 identification of relevant EU FTAs  237–8 Import Licensing Agreement  239, 242 intellectual property rights  238, 242, 244–7 interpretation  238, 239 liberalisation of trade  13, 236, 250–1 maintenance or restoration of international peace and security  247, 249 national treasures of artistic, historic or archaeological value, protection of  245, 248

natural resources, conservation of exhaustible  245–6, 248 new generation FTAs  236–51 preliminary comparative assessment  244–5, 250 Preshipment Inspection, Agreement on  240 prison labour, products of  245–6 public morals, protection of  245–6 public order, maintenance of  246–7 public procurement  238, 244–5, 247, 249 public security, maintenance of  248 Safeguards, Agreement on  240 SCM Agreement  241 scope  238, 239–45, 250 services, trade in  238, 242, 244–8, 250 societal values and interests  13, 235–6, 245–6, 250–1 South Korea, FTA with  238, 242–4, 248–9 SPS Agreement  241, 245 Stabilisation and Association Agreements (SAAs)  238 sustainable development  238 taxation  246 TBT Agreement  241, 245 Textiles and Clothing, Agreement on  240 third countries  237 Trade Adjustment Assistance Program (US)  236 Trade Facilitation Agreement (TFA)  239, 245 TRIMs Agreement  239, 245 TRIPS Agreement  242, 245, 247 umbrella provisions  242–4 UN Charter, obligations under  246–7, 249 General Council (WTO)  24, 28, 109 general principles of law  120–1, 132–3, 135 genetic use restriction technology (GURTS)  205–6 genetically-modified organisms (GMOs)  202, 220–1 Directive  221, 226 GM Food and Feed Regulation  225–6 geographical indications (GIs), governance systems of  67–84 agricultural sector  68–9 causal links  67, 81–4 characterisation of networks  71–2 codes of conduct  72–3 concept and role of trust  10, 70–1 concept of GIs  69–70 cultural heritage  73, 80–2

Index  273 democratic decision-making  77–8, 83–4 developing countries and developed countries, relationship between  68 equal distribution of benefits  10 EU  67–84 exclusion of legitimate producers, risk of  74–7, 81, 84 experience goods  73 function of GIs  10, 69–73, 83 geographical proximity of members  71 GIs, definition of  67 inclusivity  76–7 institutions  70–1, 74–82 interest group theory  75 interdependence  71 interpersonal trust  71–2 joint organisation of business activities  71 local resources, protection of  69, 72–3, 83 misappropriation  67, 73–4 misleading use  67 national objection procedure  76–7, 82–3 principal-agent relationships  71–2 protected designation of origin (PDOs)  69–70, 78–9 protected geographical origin (PGIs)  69–70, 79, 81–2 procedures  69, 74–8, 82–4 product-quality-territory nexus  69–70 public policy  72–3 quality  67–70, 73, 79–82, 84 rationale behind GI protection  72–4 raw materials from outside GI area  78–9, 83–4 reputation  67, 73, 75, 80–2 reward of communities  69, 73–5 risk  71 safeguarding link with territory  79–82 search costs of consumers, reduction in  69, 73 social control  72 third countries, FTAs with  68, 82–3 trade marks  67, 70, 77 transparency  76–8, 83–4 typicality  79–82 Germany cars, tariffs with  36 Constitution, human dignity in  253 environment  157 G5  52–3 geographical indications (GIs)  79, 81 GIs see geographical indications (GIs), governance systems of

global economic governance through the WTO, effecting  17–34 change of circumstances  18–20, 33 civil society participation  9–10, 23, 26, 28–30, 33, 34 consensus decision-making  9, 17–18, 20–2, 26, 34 democratic legitimacy  9, 17, 23, 25–7, 34 effectiveness  20 globalisation  17 Maastricht Conference on Effective Global Economic Governance 2005  9, 17, 18, 20, 23, 33 reform  10, 17–18, 33 relevance of WTO  10, 33 secondary law-making by WTO bodies  9, 17–18, 30–2, 34 Secretariat, role of WTO  9, 18, 23, 32–3, 34 transparency  9, 17, 23–5, 34 global financial crisis  1, 9, 236 global value chains (GVCs) added-value trade, measurement of  42–3 definition  41 developing countries  43–4 EU FTAs  236 Fourth Industrial Revolution (4IR)  218 geographical indications (GIs)  10, 68 innovation  199 job creation  41–2, 43, 46 joint production arrangements  41 policies  37, 41–4 protectionism  44 servicification  43–4 specialisation  41, 48 Trade Facilitation Agreement (TFA)  46–7 globalisation anti-globalisation  1, 35, 40 balancing trade and non-trade interests  2 benefits  36, 37 competition  41 consumer choice  39–40 customisation  37 defensive strategies  44 de-globalisation  36 deregulation  39, 44 developing countries  40–1 Dispute Settlement System (DSS) (WTO)  116–17 economic adjustments  44 European Globalisation Adjustment Fund  236 Fourth Industrial Revolution (4IR)  213 global value chains (GVCs)  37, 41, 46

274  Index governance  17 ICT revolution  39 industrial revolution  39 industrial targeting  45 inequality  37, 39–40 innovation  39 institutions  40 interdependence  10, 37, 46 intermediate goods  38 investment  37–8, 45–6 multilateral trading system (MTS)  2, 35–6, 45 neoliberalism  18–19 offensive strategies  44 policies  10, 35–41, 44–50 protectionism  35, 44–5 public goods  114–15 race to the bottom  36 regulation  38–9 services  38–9, 44 specialisation  39 transaction costs, reducing  44, 46–9 transport costs, reduction in  39 unemployment  37, 40–1 updating WTO rules  47–8 Voluntary Export Restraints (VERs)  45 winners, creating  44–5 GMOs see genetically-modified organisms (GMOs) gold or silver, trade in  245 good faith  115–16, 121, 132, 134, 148 goods see goods, trade in; public goods goods, trade in see also GATT EU FTAs  238–9, 242–4, 246–7, 250 free flow of goods and services  18, 248 free movement of goods  224 national security, disclosures endangering  246 governance see also geographical indications (GIs), governance systems of; global economic governance through the WTO, effecting; Gx dynamics in global trade governance Artificial Intelligence (AI)  210 autonomy  18 concessions, agreed balance of  107 consensus-based, inter-governmental bargaining  106–7 FTAs, sovereign right to conclude  107 G20  52, 53, 54–5, 56–61, 65–6 GATT  106–7 good governance, trust as consequence of  4

hybrid governance  31–2 institutions  9 mega-regional trade agreements  9 member-driven governance  11, 105–7, 113 multilateral trading system (MTS)  106–7 politically immoral governance  4 poor governance  7 reciprocal bargaining  107 suspend concessions, sovereign right to  107 transparency  9, 17, 18–19, 23–5, 34 WTO Appellate Body Members, challenges by US to selection and appointment of  105–7,  113 Government Procurement Agreement (GPA)  19, 125, 129, 194, 196, 242, 245, 249 Graham, Thomas  95 Greece  61 grey area measures  45 GURTS (genetic use restriction technology)  205–6 Gx dynamics in global trade governance  51–66 BRICS  52, 55–61, 66 coherence  52 commitments  57–60 composition of bodies  52–7 coordination  10, 52–3, 56–7, 60–6 coordination bodies, role of  62–6 developing countries  62–6 effectiveness  10, 52, 57–61, 65 functioning of bodies  52–7 G5 to the G7/8, from  52–3, 57 G7  52–5, 56–61, 65–6 G8  57–60 G8+5  53 G20  52, 53, 54–5, 56–61, 65–6 G22  53 G33  53 inclusiveness  10, 52, 57, 60–5 legitimacy  57–62, 66 Ninth Non-Alignment Movement Summit Meeting  63 power  10, 52 relevance  10 steering bodies  10, 52, 65–6 UN  66 Hague Conventions for the Pacific Settlement of International Disputes of 1899 and 1907 (Hague I)  142–3, 145–7, 153 harmonisation  200, 224, 227–8

Index  275 Havana Charter (ITO)  121, 127, 142, 181 health food law  220, 222, 227, 233–4 harmful effects  227, 233–4 human, animal or plant life or health, protection of  245–6, 248 trade restrictions  220, 222 Heiligendamm process  53 Hong Kong Ministerial Conference  27 Horizon 2020 Framework Programme for Research and Innovation (EU)  212 human, animal or plant life or health, protection of  245–6, 248 human dignity  253 human rights Charter of Fundamental Rights of the EU  117 Dispute Settlement System (DSS) (WTO)  110–13, 115, 117 interpretation  110–12 labour standards  181 social and economic rights  119–20 socialisation  112 Universal Declaration of Human Rights  119–21, 200 Hyun Ching Kim  98 immigration, opposition to  6 immutability and timelessness  13, 253–61 impairment of benefits, doctrine of  132–3 impartiality see independence and impartiality Import Licensing Agreement  239, 242 inclusiveness  10, 36, 52, 57, 60–5 independence and impartiality Appellate Body (WTO)  93, 95, 97–8, 105, 139 Dispute Settlement System (DSS) (WTO)  88, 118 geographical indications (GIs)  76–7, 83 safeguarding  3 Secretariat  33–4 third-party adjudication  112–13 WTO Appellate Body Members, challenges by US to selection and appointment of  95, 97 India  53 see also BRICS indigenous technology  178 Indonesia  61 industrial revolution  39 see also Fourth Industrial Revolution (4IR)

industrial targeting  45 inequality see non-discrimination and equality information and communications technology (ICT)  39, 202 see also innovation, incentives and obstacles for innovation, incentives and obstacles for  199–218 applications  12 Artificial Intelligence (AI)  12, 46, 199, 208–11, 218 Big Data  12, 199, 208–11 bio-technology  12, 199, 202–6, 218 concentrations  212–15 connectomics  208–9 cooperation  212–15 developing countries  217–18 domains  12 employment  199–201, 202, 218 Fourth Industrial Revolution (4IR)  12, 199, 201–2, 212–18 globalisation  39 intellectual property rights (IPRs)  12, 199–206, 218 Internet of Things (IoT)  12, 199, 206–9 material technology  12, 199 nanotechnology  12, 199, 206, 209 policies  10, 36 receptive capacity building  217–18 regulation  212–17 rules, strengthening and reappraisal of  12 standards  213–17 technology transfer  217–18 3D printing  12, 199, 211–12 TRIPS Agreement  200 UN Framework Convention on Climate Change (UNFCCC)  201, 214 UNESCO Convention for Safeguarding of Intangible Cultural Heritage (ICH)  200 Universal Declaration of Human Rights  200 institutions see also particular institutions accountability  5 Dispute Settlement System (DSS) (WTO)  117 G8  58 geographical indications (GIs)  70–1, 74–82 globalisation  40 governance  9 legal conception of trust in trade  5

276  Index Ministerial Conferences  23 policies  41 rational dialogue over power politics, promoting  3 WTO framework  5 integration  7, 19, 36–8, 49, 150 integrity  3, 4, 8, 10–11, 96–7, 202, 210 intellectual property rights (IPRs) see also geographical indications (GIs), governance systems of; TRIPs (Trade-Related Aspects of Intellectual Property Rights) Agreement; WIPO (World Intellectual Property Organisation) Artificial Intelligence (AI)  210 bio-technology  202–6 competitive markets  199–200 copyright  168, 193, 207, 210–11 domain names  213 enforcement  213 EU FTAs  238, 242, 244–7 innovation  12, 199–206, 218 Internet of Things (IoT)  207–8 limitations  200 market failure  199 mediation  213 ownership  218 process and production methods (PPMs)  12 public law  201 reform  12 rule of law  201 standards  215–16 trade marks  67, 70, 77, 212 WIPO Dispute Resolution Center  213 interest groups  75, 109, 117–18 International Chamber of Commerce (ICC)  152 International Convention for the Protection of New Varieties of Plants see UPOV Convention International Court of Justice (ICJ)  122–3 international economic law see also equity in international economic law Dispute Settlement System (DSS) (WTO)  111–12, 114–16 interpretation  111–12 jus gentium in Roman law  114 lex mercatoria  114 International Labour Organisation (ILO) conventions, implementation of  164 FTAs  168, 172 Havana Charter  181

labour standards  163–4 process and production methods (PPMs)  181 supervisory mechanisms  166 International Law Association (ILA), Helsinki Declaration of  125 International Monetary Fund (IMF) G20  58 GATT  51 global value chains (GVCs)  42–3 governance  66 World Bank  51 international organisations  24–6 see also particular organisations International Plant Protection Convention (IPPC)  228, 232 international waterways  124–5 Internet of Things (IoT)  12, 199, 206–9 Big Data  208–9 EU  207–8 exhaustion of rights  207–8 policies  46 sale contracts  207 secondhand software licences  207–8 Inter-Parliamentary Union (IPU)  26–7 interpretation  258–9 arbitration  144–5, 147–8, 153 customary rules  110, 112–13 dispute settlement, efficiency and integrity of  10–11 equity  137 EU FTAs  238, 239 evolutionary interpretation  109–10 GATT  196 good faith  115–16 human rights  110–12 Vienna Convention on the Law of Treaties  110–12, 134 WTO Agreement  11, 109–12 investment protection BITs  121 equity  133–6, 137 fair and equitable treatment (FET)  133–6, 137 general principles of law  135 globalisation  37–8, 45–6 good faith  134 industrial targeting  45 Investor-State Dispute Settlement model  158–9 legitimate expectations  134–5 mega-regional trade agreements  19

Index  277 multilateral investment agreement (MIGA II)  136 non-arbitrariness  134–5 non-discrimination  134–5 proportionality  135 transparency  134 TRIMs Agreement  239, 245 iPods, notebook PCs and iPhones, case study on  43 Iran  61 isolationism  20 Italy  53, 75–6, 79 Japan  52–3, 165, 211 job creation  41–2, 43, 46, 50 JOB documents, status of  24 joint production arrangements (JPAs)  41 judges/members accountability  106, 114–16, 118 activism  8, 87, 108 Appellate Body (WTO)  8, 93–8, 105 democracy  112, 115–16 diplomacy  1 Dispute Settlement System (DSS) (WTO)  87, 92 integrity  8 judicialisation  1, 87 nationalities  92 permanent positions  93 remedies  11, 113–15, 117 representativeness  87 self-restraint  117 term of office  93 jus gentium in Roman law  114 justice administration of justice  4 commutative justice  110 constitutional justice as limitation of intergovernmental power politics  109–14 corrective justice  121, 131 denial of justice, principle of  137, 154 distributive justice  11, 19, 110, 120–4, 126, 128, 138 individualised justice  11 redistributive justice  19, 121 social contracts  106, 112 labelling see geographical indications (GIs), governance systems of labour see employment; labour standards in EU FTAs, enforcement of

labour standards in EU FTAs, enforcement of  157–72 admissibility of a private complaint  161–5, 172 civil society  12, 158, 163, 172 collective action procedure  159–60 employers’ organisations  162–3 European Commission  158–72 European Parliament  163, 169–70 expectations, managing  170–1 fines  169–70, 172 ILO  163–4, 168, 172 initiation of proceedings  171 integration  150 internal investigations by Commission  165–7 international dispute settlement  167–8 investigations  161–2, 165–7 Investor-State Dispute Settlement model  158–9 labour unions  160–3 liberalisation of trade  12 merits  163–5 private complaint procedure, modelling a  158–70 production costs  159 representativeness  161–3 sanctions  168–72 social partners  161–3, 166, 170, 172 social policy objectives  165 stakeholders  12 sustainability  12, 157–60, 168–72 third countries, violations by  163, 167, 171–2 Trade Barriers Regulation (TBR)  160, 161–3, 165, 167, 170–2 Trade Defence Instrument (TDI) investigations  161–2 transparency  158 umbrella organisations  163 weaknesses  158–9 law-making by WTO bodies see secondary law-making by WTO bodies law of the sea see also maritime boundary delimitation continental shelf  122 equity  122–5 future generations  123 national security  123 proportionality  123–4 UN Convention on the Law of the Sea  124 viability, principle of (VP)  123

278  Index least-developed countries (LDCs)  32, 44 legal certainty  4, 151 legislative paralysis of WTO  9 legitimacy see also democratic legitimacy of WTO BRICS  57–61 effectiveness  57–60 food law  221–2, 224 governance  4, 57–62, 66 input  10, 57, 60–2 output  10, 57–61 scientification  12–13 legitimate expectations  121, 132–5 less favourable treatment (LFT)  185–6 lex mercatoria  114 liberalisation of trade benefits  7, 9, 20, 41 Dispute Settlement System (DSS) (WTO)  90, 93, 101 EU FTAs  13, 158, 235–6, 250–1 globalisation  39–40, 46 macro-economics  9 policies  10, 35, 37–41, 46–7, 49–50 process and production methods (PPMs)  176 liberalism  10, 18 Libya  53 licensing Import Licensing Agreement  239, 242 secondhand software licences  207–8 standards  216–17 Lighthizer, Robert  110 likeness  175, 183, 184–5, 194 Maastricht Conference on Effective Global Economic Governance 2005  9, 17, 18, 20–1 civil society participation  23, 29 consensus decision-making in WTO  20–1 democratic legitimacy  23, 25–6 research agenda  23 secondary law-making by WTO bodies  30–1 Secretariat  32–3 transparency  23–4 macro-economics  2, 9, 49, 199 Macron, Emmanuel  35, 157 majority voting  11, 21–2 mandatory dispute settlement  106–7, 110, 113, 146–7, 151–2 maritime boundary delimitation coast dominates the sea (CDS) principle  123

EEZs  122 equal division of marine space, principle of (EDS)  123 equidistance  122, 124 equity  11, 122–4, 127 fair and reasonable proportionality, principle of (FRP)  123 ICJ  122–3 individualised justice  11 islands  123, 124 non-encroachment and non-cutting off, principle of (NEP, NCP)  123 recent and contemporary conduct, principle of (RCCP)  123 market access obligation  20, 88, 101 material technology  12, 199 mathematical science  209 mediation  92, 99, 213 mega-regional trade agreements  1, 27, 35 see also Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU; Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) civil society  30 competition policy  19 deep integration  19 Dispute Settlement System (DSS) (WTO)  90 environmental standards  9 governance  9 regulation  32 relevance of WTO  90 secondary law-making by WTO bodies  32 mercantilism  95 Mexico  53 Ministerial Conferences of the WTO Bali  87 Buenos Aires  48, 94 Cancún  19, 23, 27, 63 Hong Kong  27 institutional deficiencies  23 Nairobi  87 policies  35 reform  23 Seattle  1 updating WTO rules  47–8 monism  117 Montreal Ministerial Conference  143 most-favoured nation (MFN) principle  19, 32, 47, 175

Index  279 multilateral investment agreement (MIGA II)  136 multilateral trading system (MTS) arbitration agreements  141–4 bilateralism  19, 34 Dispute Settlement System (DSS) (WTO)  88–90, 99, 106–8, 112–17 equity  121, 125–6, 138 globalisation  2, 35–6, 45 governance  106–7 institutions  5 Multilateral Trade Negotiations (MTN) Agreements and Arrangements  25, 178 plurilateralism  19, 34 rules-based multilateral trading system (MTS)  89 unilateralism  34 Nairobi Ministerial Conference  27, 35, 87 nanotechnology  12, 199, 206, 209 national parliaments, involvement of  26–7 national security  4, 9, 106, 115, 123 see also general and security exceptions in EU FTAs compared with WTO agreements national sovereignty  21, 107, 187, 193 national treasures of artistic, historic or archaeological value, protection of  245, 248 national treatment (NT) obligations  195 nationalism  1–2, 36, 48 natural resources conservation  245–6, 248 environment  176–7 equity  122–4, 136–7 EU FTAs  245–6, 248 oil and gas, exploitation of  122–3 sustainability  123 UN Convention on the Law of Non-navigational Uses of International Waterways  124–5 necessity  31, 222–3 neoliberalism  18–19 neural imaging  209 New Commercial Policy Instrument  161 New Development Bank, creation of  56 New International Economic Order (NIEO)  120 New Zealand  180 Nigeria  64 Non-Alignment Movement (NAM)  63 non-attribution, factors of  131–2

non-discrimination and equality food law  222, 226 FRAND terms  205, 214–17 GATT  181–2 global value chains (GVCs)  46 globalisation  37, 39–40 income inequality  39–40, 120 investment protection  134–5 liberalisation of trade  9 MFN principle  19 policies  35 process and production methods (PPMs)  175, 181–2, 186 regulation  125 Voluntary Export Restraints (VERs)  107 non-encroachment and non-cutting off, principle of (NEP, NCP)  123 non-governmental organisations (NGOs)  23, 28–9, 230 non-inclusive communication  7 non-profit business organisations  29 non-trade interests see balancing trade and non-trade interests; societal values and interests norms, creation, application and interpretation of legal  4 North American Free Trade Agreement (NAFTA)  94–5 North Korea’s nuclear tests  53 nullification, doctrine of  132–3 OECD  46, 58, 62, 64, 120, 133–4 oil and gas, exploitation of  122–3 Oncomouse cases  202–3 opposition to international trade deals  5–6 Orderly Marketing Arrangements (OMAs)  45 Pacific, African and Caribbean countries or regions, Economic Partnership Agreements (EPAs) with  237 Pakistan  99 Panel of WTO Experts  29 Paris Convention for the Protection of Industrial Property 1883 (WIPO)  132, 168, 193 Parliamentary Conference on the WTO (IPU/EP)  26–7 participation  18–19 civil society  9–10, 23, 26, 28–30, 33, 34 Dispute Settlement System (DSS) (WTO)  100 national parliaments, involvement of  26–7 public participation  25

280  Index patents Artificial Intelligence (AI)  209–10, 211 bio-technology  202–5 employees as owners  211 European Patent Office (EPO)  202 inventive step  211 nanotechnology  206 novelty  211 patentability  202–5 plant breeder’s rights (PBRs)  204–5 reasonable disclosure  216 research and development  211 standards  214–16 thickets  216 3D printing  212 utilitarianism  211 peace and security, maintenance or restoration of international  247, 249 peer-to-peer lending  202 Permanent Court of Arbitration (PCA)  152 Peru see Colombia, Peru and Ecuador, Trade Agreement with piracy  210–11 plant breeder’s rights (PBRs)  204–5 Distinct, Uniform and Stable (DUS)  204 exemptions  204–5 patentability  204–5 Plant Patent  204 UPOV Convention  204 plurilateralism  19–20, 30, 34 policy see trade policies in pursuit of growth populism  20, 105, 118–19 poverty  30, 37, 120 PPMs see process and production methods (PPMs) precautionary principle  220, 223–6, 234 predictability  4, 9, 11, 88, 106, 115, 151 Preferential Trade Agreements (PTAs)  19, 59 Preshipment Inspection, Agreement on  240 principal-agent relationships  71–2, 115 prison labour  180–1, 245–6 procedural fairness  11, 138 process and production methods (PPMs)  175–97 Agreement on Agriculture  196 anti-dumping regulation  180 consumer awareness  12 developing countries  178, 187 employment  176, 180–1, 187, 189 environment  175–80, 183, 186–7, 190–2

evolution of debate  181–93 exceptions  186–7 extraterritoriality  183, 187, 190, 193, 196 fisheries  182–3, 186–7, 190 food safety  177 GATS  193–6 GATT  175–7, 181–94, 196 intangible goods  12 intellectual property rights  12 international standards  191–2 labour standards  176, 180–1, 187 less favourable treatment (LFT)  185–6 liberalisation of trade  176 likeness  175, 183, 184–5, 194 MFN principle  175 national sovereignty  187, 193 non-discrimination  175, 181–2, 186 non-product-related PPMs  187–8 NT obligations  175, 182–4, 195 origin and basis of concerns  176–81 product-related PPMs  187–8 protectionism  184, 196 regulation  12, 175–6, 179, 183–5, 188–92 societal values and interests  175–6 SPS Agreement  179, 188, 191, 193, 196 Standards Code  177–9 sustainable development  189, 191, 195 tangible goods  12 TBT Agreement  178–9, 187–93, 196 trade PPMs  180–1 unilateralism  196 proportionality  123–4, 132, 135 protected designation of origin (PDOs)  69–70, 78–9 protected geographical origin (PGIs)  69–70, 79, 81–2 protectionism Anti-Dumping Agreement, abuses of  109 Dispute Settlement System (DSS) (WTO)  88, 116–18 G20  63 global financial crisis  1 global value chains (GVCs)  44 globalisation  35, 44–5 policies  49–50 populism  105 process and production methods (PPMs)  184, 196 public goods  116–17 retaliation  50 provisional measures  223 Public Forums  29

Index  281 public goods Dispute Settlement System (DSS) (WTO)  106, 112, 114–18 judicial accountability for violation of public goods treaties  115–16 public morals, protection of  245–6 public order  203, 246–7 public-private partnerships (PPPs)  213, 218 public procurement EU FTAs  238, 244–5, 247, 249 GPA Agreement  19, 125, 129, 194, 196, 242, 245, 249 standards  214 quantitative restrictions  107 race to the bottom  36 reasonableness  137, 205, 214–17 recent and contemporary conduct, principle of (RCCP)  123 receptive capacity building  217–18 reciprocal bargaining  107 redistributive justice  19, 121 regional trade agreements see also megaregional trade agreements Dispute Settlement System (DSS) (WTO)  90, 94–5 increase  90 relevance of WTO, reducing the  90 regulation Artificial Intelligence (AI)  210 causal links  127, 131–2 deregulation  39, 44, 46, 49 Dispute Settlement System (DSS) (WTO)  11, 117–18 distributive justice  126, 128 equity  125–33 explicit references in WTO law  126–8 fairness  132–3 food law  220–1, 225–6, 230, 233–4 general principles of law  132–3 globalisation  38–9 impairment of benefits, doctrine of  132–3 implicit references  129–32 information asymmetries  38 innovation  212–17 legitimate expectations  132–3 mega-regional trade agreements  19 non-attribution, factors of  131–2 non-discrimination  125 nullification, doctrine of  132–3 policies  41, 46, 49

process and production methods (PPMs)  12, 175–6, 179, 183–5, 188–92 public goods  117–18 remedies  129–31 secondary law-making by WTO bodies  32 transparency  125 unfair competition  132 Working Party on Domestic Regulation (WPDR)  31, 32 remedies equity  11, 129–31 geographical indications (GIs)  10 judicial remedies  11, 113–15, 117 legal remedies  112–13 regulation  129–31 workload  89 rent seeking  215–16 reputation  3, 67, 73–5, 80–2 res judicata  150 research and development (R&D)  211 re-shoring  41–2 risk Artificial Intelligence (AI)  210 assessment  222–4, 227–9 food law  222–4, 227–9 geographical indications (GIs)  71 sentiment, trust as a  3–4 unknowable uncertainty  2 robotics  210 Roman law  114, 120, 137 rule of law  2, 9 Dispute Settlement System (DSS) (WTO)  11, 112–13, 117–18 intellectual property rights (IPRs)  201 power politics  9, 20 predictability  9 unilateralism  9, 20 rule-referencing  30–1 rules-based systems  1–3, 5, 9, 20, 45, 89, 118–19 Russia see also BRICS Crimea, annexation of  53 G7  61 governance  64–5 Safeguards Agreement  129–31, 240 sanctions  168–72 Sanitary and Phytosanitary Measures (SPS) Agreement see also EU food law and SPS Agreement Committee  25, 31 Equivalence Decision  31

282  Index EU FTAs  241, 245 GATT  241 lex specialis  193 process and production methods (PPMs)  179, 188, 191, 193, 196 secondary law-making by WTO bodies  31–2 standards  193 TBT Agreement  193 transparency  25 science food law  220–8, 232–4 scientification  12–13, 220–1, 224–8, 233–4 uncertainty  227 sea, law of the see law of the sea Seattle Third Ministerial Conference (WTO)  1, 19, 23 secondary law-making by WTO bodies  9, 17–18, 30–2 comparative analysis  31 definition  30 developing countries  32 fitness for purpose  34 governance  9, 17–18, 30–2, 34 hard law and soft law combination  32 hybrid governance  31–2 independence  31 Maastricht Conference 2005  30–1 mega-regional agreements  32 necessity test  31 political character  34 regulation  32 research agenda  31 rule-referencing  30–1 Services Council and subsidiary bodies  31 SPS Committee  31 Trade in Services Agreement (TiSA)  32 Working Party on Professional Services  31 Working Party on Domestic Regulation (WPDR)  31, 32 secondhand software licences  207–8 Secretariat (WTO)  9, 18, 32–3, 34 change, embracing  23 civil society participation  28–9 developing countries  33 Director-General, leadership role of  33, 34 Dispute Settlement System (DSS) (WTO)  33, 88, 91–2 documents, de-restriction of  24 enhanced role, proposal for  32–3 governance  9, 18, 32–3, 34

guardian of the system, as  33 independence and impartiality  33–4 integration of Director-General and Secretariat  34 Legal Affairs Division with Rules Division, merger of  92 policy advice  33, 34 reorganisation  92 research  33, 34 resources  89, 91–2 staff  93 workload  89 security  4, 9, 106, 115, 123 see also general and security exceptions in EU FTAs compared with WTO agreements security exceptions see general and security exceptions in EU FTAs compared with WTO agreements selection and appointment of WTO Appellate Body Members, challenges by US to  8, 94–8, 105–6 activism, allegations of  108 consensus decision-making  21–2, 34, 140 constitutional contract theories  106 delays  11, 140–1, 154 democratic legitimacy, lack of  112 diplomacy and national administration, chosen from  97 Director-General  108 Dispute Settlement Body (DSB)  21–2, 108–9 Dispute Settlement Understanding (DSU)  108, 113 due process, obstruction of  108–9 General Council  22, 109 independence and impartiality  95, 97 interest groups, lobbying by  109 member-driven governance  105–7, 113 number of members to fall below seven, allowing the  22, 95, 108–9 paralysis of selection process  98 protectionism abuses of WTO AntiDumping Agreement  109 refusal to re-appoint  94–8 representative, membership as  108 undermining of WTO  20, 34 vetoes  97–8 Working Procedures  108 workload  108, 140 WTO Agreement, interpretation of  109 WTO bargain, renegotiation of  106

Index  283 sentiment, trust as a  2, 3–4 Services Council (WTO)  31 services, trade in see also GATS EU FTAs  238, 242, 244–8, 250 free flow of goods and services  18, 248 globalisation  38–9, 44 liberalisation of trade  38 market access rules  38 production processes, role in  44 regulation  38 Trade in Services Agreement (TiSA)  32 servicification  43–4 Sierra Leone  64 Singapore  87, 135 social and economic rights  119–20 social contract  106, 112 social media  7, 202 social partners  161–3, 166, 170, 172 social safety nets  10, 36, 41, 50 social welfare  106 socialisation  112 societal values and interests economic growth  6 EU FTAs  13, 235–6, 245–6, 250–1 food law  221, 226 globalisation  2 governance  9 inclusive social dialogue, disregard for  7 labour standards  165 process and production methods (PPMs)  175–6 software licences  207–8 South Africa  53, 99, 180 see also BRICS South Korea, FTAs with EU  238, 242–3, 248–9 fissionable and fusionable materials  249 labour standards  164 maintenance or restoration of international peace and security  249 national treasures of artistic, historic or archaeological value, protection of  248 natural resources, conservation of exhaustible  248 services, trade in  244 United States  94–5 Spain  180 specialisation  39, 41, 48 Stabilisation and Association Agreements (SAAs)  238 stability  18

standards see also labour standards in EU FTAs, enforcement of arbitration agreements  153 binding standards  229 climate change  214 Codex Alimentarius Commission (CAC)  227–34 competition  215–17 consensus, adoption by  231 cooperation  215 deviation  228–30 environment  9, 157 food law  227–34 Fourth Industrial Revolution (4IR)  213–16 FRAND terms  214–17 innovation  213–17 intellectual property rights (IPRs)  215–16 interoperability  215 labour standards  19, 176, 180–1, 187 licence terms  216–17 mega-regional trade agreements  9 patents  214–16 politicisation  230 private bodies  214–15 procedure for standard-setting  229–30 process and production methods (PPMs)  177–9, 191–3 public bodies  214–15 public procurement  214 rent seeking  215–16 SPS Agreement  193 standard-setting organisations (SSOs)  215–16 third countries  232–3 voluntary standards  229–30 steering bodies  10, 52, 56–7, 65–6 stem cell material for finding cures for genetic diseases  203 Stockholm Conference 1972  177 Subsidies and Countervailing Measures (SCM) Agreement  125, 127–9, 241 subsidisation  131–2 sustainability environment  157 EU FTAs  239 Fourth Industrial Revolution (4IR)  36 innovation  200 labour standards  12, 157–60, 168–72 natural resources  123 process and production methods (PPMs)  189, 191, 195

284  Index Sustainable Development Goals (SDGs)  29, 47 Trade and Sustainable Development (TSD)  30 Sutherland Report  29, 33 Syrian war  53 tariffs see also GATT financial penalties  170 globalisation  36 nationalism  36 neoliberalism  18 United States  36, 107, 180 taxation  58, 246 Technical Barriers to Trade (TBT) Agreement environment  177 EU FTAs  241, 245 process and production methods (PPMs)  178–9, 187–93, 196 regulation  132 SPS Agreement as lex specialis  193 transparency  25 technology transfer  217–18 adaptability, adoptability and affordability  217 climate change mitigation  217 receptive capacity building  217–18 UN Technology Bank  217 telecoms  195–6 teleological argumentation, flaws in  4 terrorism  63 Textiles and Clothing, Agreement on  240 third countries EU FTAs  237 food law  232–3 geographical indications (GIs)  68, 82–3 labour standards  163, 167, 171–2 standards  232–3 3D printing  12, 199, 211–12 Tokyo Round  177–9 Trade Adjustment Assistance Program (US)  236 Trade Barriers Regulation (TBR)  160, 161–3, 165, 167, 170–2 Trade Defence Instrument (TDI) investigations  161–2 Trade Facilitation Agreement (TFA)  32, 46–7, 126, 239, 245 Trade in Services Agreement (TiSA)  32, 47 trade marks  67, 70, 77, 212 trade policies in pursuit of growth  35–50 anti-globalisation  35

artificial intelligence  46 balancing trade and non-trade interests  10, 36, 49–50 coherence  10, 36–7, 46, 49 convergence  48–9 coordination of policies  10, 36–7, 46 deregulation  46, 49 dispute settlement proceedings  35 Fourth Industrial Revolution (4IR)  36 Global Value Chains (GVCs)  37, 41–4, 46–8 globalisation  10, 35–41, 44–50 holistic approach  42, 47 inclusiveness  36 innovation  10, 36 Internet of Things (IoT)  46 liberalisation of trade  10, 35–41, 46–7, 49–50 Ministerial Conferences  35 multilateral trading system (MTS)  35–7, 46–9 new technologies  10, 36 non-discrimination  35 protectionism  49–50 reform of WTO  35 regulation  41, 46, 49 reskilling  36 rules, reform of  10 social safety nets  10, 36, 41, 50 trade adjustment mechanisms  36–7, 41 Trade Facilitation Agreement (TFA)  46–7 transaction costs, reducing  44, 46–9 updating WTO rules  47–8 Trade-Related Aspects of Intellectual Property Rights see TRIPS (TradeRelated Aspects of Intellectual Property Rights) Agreement Trade-Related Investment Measures (TRIMs) Agreement  239, 245 trade secrets  209 Transatlantic Trade and Investment Partnership (TTIP)  5–7 Trans-Pacific Partnership (TPP)  58, 94–5 transparency  23–5 Appellate Body (AB)  24 democratic legitimacy  25, 26–7 developing countries  24 dispute settlement proceedings  24 documents, de-restriction of  23–4, 25 equity  11, 121, 138 external transparency  23–4, 25 geographical indications (GIs)  76–8, 83–4

Index  285 governance  9, 17, 18–19, 23–5, 34 immediate, unrestricted circulation, principle of  24 internal transparency  23, 24–5 investment protection  134 labour standards  158 meetings to public, closure of  24 multilateral trade negotiations (MTNs)  25 Parliamentary Conference on the WTO  27 public, opening of dispute settlement proceedings to  23–4 public participation  25 regulation  125 Trade Policy Review Body  25 transport costs  39 self-driving vehicles  201 travel and accommodation  201 treasures of artistic, historic or archaeological value, protection of  245, 248 TRIPS (Trade-Related Aspects of Intellectual Property Rights) Agreement EU FTAs  242, 245, 247 harmonisation  200 innovation  200 labour standards  168 plant breeder’s rights (PBRs)  204 process and production methods (PPMs)  193, 196 regulation  132–3 technology transfer  217 WIPO conventions  168 Truman Proclamation in the Continental Shelf  122 Trump, Donald  5–7, 20, 89, 94–5, 102, 110 trust, definition of  2–3, 70–1 trust in trade, legal conception of  3–5 attainment of trust  3–4 ex ante as objective to be promoted, societal trust as  4 ex post as consequence of good governance, societal trust as  4 extrinsic reasons undermining trust  4 institutions, trust in  5 intrinsic reasons undermining trust  4 norms, creation, application and interpretation of legal  4 procedural and substantive legal framework governing global trade  5 reputation  3 sentiment, trust as a  2, 3–4 Turkey  61, 64

UN Charter, obligations under  246–7, 249 UN Convention on the Law of Non-navigational Uses of International Waterways  124–5 UN Framework Convention on Climate Change (UNFCCC)  201, 214 UN Technology Bank  217 UNCITRAL  152 UNCTAD System for Customs Data (ASYCUDA)  24–5 unemployment  9, 35, 37, 40–2, 162 UNESCO Convention for Safeguarding of Intangible Cultural Heritage (ICH)  200 unilateralism  20, 34, 40–1, 196 United Kingdom anti-dumping regulation  180 Brexit  5–7, 20 Fourth Industrial Revolution (4IR)  212 G5  52–3 geographical indications (GIs)  79, 80–1 prison-made products  180 United States  5–6 see also selection and appointment of WTO Appellate Body Members, challenges by US to anti-dumping duties  94 bilateralism  6, 20 China, trade war with  36 Congress, control of President by  105 Constitution, interpretation of  258–9 de-globalisation  36 Dispute Settlement System (DSS) (WTO)  24, 89, 94–8, 102–3, 105–17 EU  36, 103 G5  52–3 G20  54 GATT  94, 103, 182–3 global value chains (GVCs)  43 labour standards  180 mercantilism  95 NAFTA, withdrawal from  94–5 national remedy enforcement over diplomatic engagement, preference for  6 Parliamentary Conference on the WTO  27 patentability  203 power politics  6 process and production methods (PPMs)  178–9, 182–7, 190 regional trade agreements (RTAs), attitude to  94–5

286  Index rules-based system, WTO as  20, 89 South Korea, FTA with  94–5 Standards Code  177–9 Supreme Court  258–9 tariffs  36, 107, 180 TBT Agreement  178–9 TPP, withdrawal from  94–5 Trade Adjustment Assistance Program (US)  236 Trade in Services Agreement (TiSA)  47 unilateralism  20 Universal Declaration of Human Rights (UDHR)  119–21, 200 updating WTO rules  47–8 UPOV Convention  204 Uruguay Round  141–3, 145, 178 utilitarianism  106, 114, 211 value chains see global value chains (GVCs) values see societal values and interests Van den Bossche, Peter Appellate Body (AB) (WTO), as member of  1, 105, 119 balancing trade and non-trade interests  236–7, 251 developing countries  68 food law  219, 220, 233 globalization  39 rule of law  119 SPS Agreement  220, 233 welfare  121 Venezuela  64 vetoes  20, 97–8 viability, principle of (VP)  123 Vienna Convention on the Law of Treaties (VLCT)  110–12, 134 Vietnam  87, 135 Voluntary Export Restraints (VERs)  45, 107 voting majority voting  21–2 shadow of voting  21 vetoes  20, 97–8 weighted voting  20 wealth, distribution of  120 welfare animal health  231 constitutional contracts  105 consumer welfare  115 Dispute Settlement System (DSS) (WTO)  115

equity  121 global value chains (GVCs)  42 globalisation  36 liberalisation of trade  235 multilateral trading system (MTS)  2, 18, 35 process and production methods (PPMs)  180, 187 protectionism  50 social welfare  106 TRIPs  200 Westphalian system  114, 122 WIPO (World Intellectual Property Organisation) Berne Convention on Copyright 1971  168, 193 Copyright Treaty 1996  207 Dispute Resolution Center  213 Paris Convention for the Protection of Industrial Property 1883  132, 168, 193 WIPO Green  214 Working Party on Domestic Regulation (WPDR)  31, 32 Working Party on Professional Services  31 World Bank  51 World Economic Forum (WEF)  40 World Intellectual Property Organisation see WIPO (World Intellectual Property Organisation) World Organisation for Animal Health (OIE)  228, 232 World Trade Reports (WTO)  39, 43 WTO Agreement Annexes  240–1 implementation  105–6 interpretation  109 WTO Appellate Body (AB)  87–103 see also selection and appointment of WTO Appellate Body Members, challenges by US to amicus curiae briefs  24 arbitration  11–12, 87, 89, 139–41, 144–7, 150, 153–5 capacity constraints  139–40 collegial attitude  97 common global good  11 Dispute Settlement Body (DSB)  95–8 efficiency  103 independence and impartiality  93, 95, 97–8, 105, 139 length of submissions  139

Index  287 members/judges activism  8 increase in  93 permanent, making positions  93 selection and appointment of AB Members  94–8, 105 term of office  93 model for judicialisation, as  87 number of appeals  89, 93 predictability  11 public, opening hearings to the  24 procedure  8 reforms  93 reports  88–9, 94, 95–6, 148 Secretariat  93 staff  89, 93 support  11 uniformity  11 workload  139–41 WTO Dispute Settlement System (DSS) see also WTO Appellate Body (AB); WTO Dispute Settlement Understanding (DSU) abuse or political strategic use of DSS  100–1 access to justice  110–11, 113 accountability  114–16, 118 amendment to rules  94 amicus curiae  22 anti-dumping measures, increase in national  100 arbitration  87, 88, 101–2 bilateralism  107, 110 case law, development of a balanced and consistent  88 checks and balances  107 citizens, violations of public goods treaties adversely affecting  115–16 common global good, DSS as  102–3 compliance  100–1 conciliation and mediation  92, 99 constitution of panels  92 current problems  89–94 delays  90–2, 100 democratic legitimacy  113–14, 118 developing countries  88, 99 Director-General, role of  92 Dispute Settlement Body (DSB)  89, 95–8, 101, 108–9, 147–8 effectiveness  89–91 efficiency  89–92 EU  103, 115–18

gap-filling  90 GATT  11, 106–7, 115–16 globalisation  116–17 goodwill  101 governance  11, 105–7 human rights  110–13, 115, 117 implementation phase  93, 101–2 import restrictions  89–90 improvements  92–4, 102–3 independence and impartiality  88, 118 initiators of cases  100–1 interest groups  105, 117–18 international economic law  111–12, 114–16 interpretation of WTO Agreement  11, 109–112 judges accountability  114–16, 118 activism  87 nationalities  92 remedies  11, 113–15, 117 representativeness  87 legal remedies  112–13 length of proceedings  89 liberalisation of trade  90, 93, 101 mandatory settlement  106–7, 110, 113, 146, 151 member-driven governance  11, 105–7 multilateral trading system (MTS)  88–90, 99, 106–8, 112–17 nationalities  92 new issues, dealing with  90 non-trade values and practices, safeguarding  88 participation  100 policies  35 pool of panellists, enlarging  92 positive evaluation  87–8 power politics  109–16 predictability  88, 106, 115 protectionism  88, 116–18 public goods  106, 112, 114–18 reforms  92–4, 102–3 regulation  11, 117–18 reports  90 respondents, most frequent  100 results achieved  87–9 RTAs  90, 94–5 rule of law  11, 112–13, 117–18 rules-based multilateral trading system (MTS)  89 Secretariat  33, 89, 91–2 stability  88

288  Index success of DSS  99–101 time frames  88–91 transparency  24 trust of members  99–101 United States, challenges from  89, 94–8, 102–3 workload  89 WTO-plus  93 WTO Dispute Settlement Understanding (DSU) see also arbitration under Article 25 DSU contentious acts, requests as not being  99 equity  88–9, 94, 99, 110, 133

justice  110 public goods treaties  115 regulation  133 review negotiation framework  94 stability and predictability  88, 106 WTO Appellate Body Members, challenges by US to selection and appointment of  108, 113 WTO-plus  93 Xi Jinping  40 Zhao Hong  98