The Oxford Handbook of International Trade Law (2e) 9780192868381, 0192868381

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The Oxford Handbook of

I N T E R NAT IONA L T R A DE L AW

The Oxford Handbook of

INTERNATIONAL TRADE LAW SECOND EDITION

Edited by

DANIEL BETHLEHEM DONALD McRAE RODNEY NEUFELD ISABELLE VAN DAMME

Great Clarendon Street, Oxford, OX2 6DP, United Kingdom Oxford University Press is a department of the University of Oxford. It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide. Oxford is a registered trade mark of Oxford University Press in the UK and in certain other countries © Oxford University Press 2022 The moral rights of the authors have been asserted First Edition published in 2009 Second Edition published in 2022 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, by licence or under terms agreed with the appropriate reprographics rights organization. Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this work in any other form and you must impose this same condition on any acquirer Published in the United States of America by Oxford University Press 198 Madison Avenue, New York, NY 10016, United States of America British Library Cataloguing in Publication Data Data available Library of Congress Control Number: 2022937563 ISBN 978–0–19–286838–1 ​ 9780192868381.001.0001 ​ ​ ​ DOI: 10.1093/oxfordhb/ ​ Printed and​ bound by CPI Group (UK) Ltd, Croydon, CR0 4YY

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In memory of James R. Crawford

Foreword Valerie Hughes

International trade law has become a vast subject area comprising numerous topics once considered separate from the discipline. Not that long ago, proposals to include obligations to protect the environment or to ensure compliance with labour standards in an international trade agreement would have been roundly rebuffed. A dedicated chapter on trade and gender in an FTA would have been unthinkable. Cooperative provisions aimed at enhancing the trade capacity of small and medium-​sized businesses would have been out of place. And provisions governing digital trade and data protection would have been beyond many a trade negotiators’ vision. Today’s trade agreements often include all of these elements and the pressure to accommodate other interests—​ such as enhancing indigenous peoples’ access to trade and investment opportunities—​ continue to emerge. Not only has the subject of international trade law expanded in scope; it has also taken on a different character. Trade conflicts have increased in rancour, or at least they appear to be of a different order. There is renewed reliance on protectionist trade measures—​ be they imposed for national security reasons, to champion the rights of workers, or to repair damage considered to have been caused by ill-​conceived trade agreements. Unilateral as opposed to multilaterally sanctioned retaliation measures are more common and are perpetrated by more and more players. And ‘managed trade’ deals that likely fall foul of multilateral trade rules are concluded without protest from non-​ parties. The mantra has become ‘tools, not rules’. At the same time, the pandemic underscored the high level of economic interdependence among countries that are not otherwise linked. The wide-​spread imposition of trade barriers across the globe to restrict exports of personal protective equipment, pharmaceutical products, and health care devices have led some countries to call for onshoring and near-​shoring of manufacturing capability. But these are not viable solutions and the reality is that global supply chains are here to stay. Current work toward an instrument to facilitate trade in essential medical goods in critical times and to enhance the capacity of the trading system to deal with a future public health emergency appears to be a more realistic endeavour. Climate change poses a variety of new challenges, not least in the area of international trade law. Trade and environment, at one time considered strange bedfellows, are now

viii   Valerie Hughes often irrevocably linked because countries that chose to impose climate change mitigation policies (such as the imposition of a carbon tax on manufacturers) will need to complement these with trade measures (border carbon adjustment measures) to ensure that domestic firms operating under such a regime can remain competitive with foreign firms whose costs do not include payment of a carbon tax. The challenge of ensuring that climate-​focussed measures do not lead to carbon leakage is formidable. So too is the task of designing a border carbon adjustment measure that conforms with international trade rules and is not vulnerable to being struck down as discriminatory and protectionist. China’s accession to the WTO 20 years ago—​a pivotal moment in the multilateral trading system—​still reverberates. China’s induction into the WTO, hailed at the time as ushering in more predictable and mutually beneficial trading relations with a large and fast-​growing economy, is now much regretted and maligned in some US circles as a ruinous decision that led to the loss of millions of jobs in the United States. The United States, however, is not the only country voicing concerns about some of China’s practices. The European Union, Japan, Australia, and others have criticized China for not living up to expectations in terms of liberalizing its economy. These sentiments coincide with calls for new international trade rules that would bolster the regulation of industrial subsidies and that would curb actions by state-​owned companies that distort trade. China, for its part, responds to prodding for it to do more to level the playing field by recalling that it paid dearly at the time of its accession, taking on more obligations than any other WTO Member has had to do, and thus for China, it has already done its share. And, what of the WTO? Its relevance is once again being questioned. Although the demise of the WTO has been predicted before, including as early as 1998 at the time of the ‘banana wars’, in 2008 when the Doha Round negotiations collapsed, and in 2018 when the United States imposed tariffs on steel and aluminum on the basis of a need to protect national security, the current situation is different. This is because one of the main pillars of the WTO—​the dispute settlement system—​has been significantly weakened by the current paralysis of the Appellate Body. Indeed, the ability to guarantee binding dispute settlement for disputing parties is no longer available. Some predict that under these circumstances, WTO Members will be disinclined to negotiate much-​needed new rules to bring the WTO agreements into line with modern realities, including to address digital trade, data protection, labour issues, and climate change policies. Dispute settlement woes aside, the negotiating function of the WTO has long struggled due to its consensus-​based approach, and recent efforts by some WTO Members to move forward with initiatives on a plurilateral basis (called ‘Joint Statement Initiatives’) are meeting fierce resistance from those who depend on the consensus approach to secure space for their own agendas. These challenges are hampering the ability of the WTO to modernize its rules with the result that the WTO continues to risk waning influence, perhaps irreversibly. Finally, the invasion of Ukraine and the broad-​based economic responses through the imposition of sanctions, MFN-​flouting measures, and other actions, together with the

Foreword   ix consequent disruption of the work of multilateral organizations, including the WTO, add yet another complex dimension to the international trade law space, one that could not be taken into account by the contributors to the Handbook because they submitted their contributions prior to the Russian invasion. Given this current state of play in international trade law, designing and developing a handbook of international trade law today is an entirely different undertaking from what it would have been some 10 years ago. International trade law had a much narrower remit at that time. The retreat from multilateralism had not yet taken hold. And the WTO dispute settlement system, including the Appellate Body, was in high demand and very active. Terminology would have been different too: the handbook written just a few years ago would not have included the following words: Brexit, the Belt and Road Initiative, the US-​China trade war, paralysis of the WTO Appellate Body, inclusive trade, and trade and gender. The acronyms CPTPP, AfCFTA, DEPA, CUSMA, USMCA, and RCEP would not have appeared (nor needed explanation in the handbook’s helpful list of abbreviations). Nor would COVID-​19. Nor would we have seen several women heading their country’s trade ministries, or a woman serving as WTO Director-​General. Fortunately for those of us who try to understand international trade law in its many facets and to follow developments in this ever-​growing and fast-​changing field, the editors of this handbook—​Daniel Bethlehem, Donald McRae, Rodney Neufeld, and Isabelle Van Damme—​have pulled together a comprehensive, insightful, timely resource that manages to provide everything we need to know—​from the basics to the complexities, the traditional to the emerging, the history to future directions. The editors, themselves foremost authorities in international trade and investment law, have turned to many of the leading experts in the field to contribute chapters—​including government negotiators, leading scholars, current and former WTO Secretariat officials, former Appellate Body Members, former WTO panelists, and private practitioners. Each chapter concludes with a list of further reading that will be helpful to those wishing to explore a particular subject further, or to obtain another perspective on a particular subject. Put simply, the editors have created a treasure trove of information and a resource that none of us will wish to be without. Below is but a brief glimpse of what the reader will find in this thoughtfully curated volume. Part I of the Handbook is devoted to the role that international trade plays within international law. It includes three different perspectives on the regulation of international trade. Donald McRae reviews the way regulation of trade has developed since the advent of the WTO, noting the proliferation of preferential trade agreements at the bilateral, regional, and multilateral levels and the expansion of subjects being regulated in such agreements, and opines on the future of international trade regulation in the light of current economic and political conditions. Kamal Saggi and Simon Schropp offer an economic perspective on the regulation of international trade, focussing on the role of economic analysis in improving our understanding of trade agreements. Manfred Elsig adds to the analysis with an essay about the regulation of international trade and democratic legitimacy and asks whether the goal posts of legitimate governance are shifting or

x   Valerie Hughes are just relegated to the background as power politics make a revival in the international trading system. Matthew Kennedy surveys the different sources of international trade law, including the various elements of the WTO single undertaking as well as bilateral and regional rules, and points to the potential for divergence in interpretation going forward. James Flett and Mislav Mataija write of the importance of international trade law institutions in the WTO and under free trade agreements and argue that ensuring such institutions are effective is challenging, especially when consensus is the dominant decision-​making rule. Their deep dive on the consensus rule is unparalleled in the literature. Part I also includes James Crawford’s and Freya Baetens’ explanation of why international trade law has had limited influence in other areas of international law such as in disputes before the International Court of Justice and Investor-State tribunals, and sets out their views of the benefits international trade law could bring to other areas. Part II of the Handbook marks the biggest departure from the Handbook’s first edition. It focuses on bilateral and regional trade agreements in force in the various regions across the globe, its breadth and depth attesting to the proliferation of preferential agreements referred to in several contributions in the Handbook. Chapters typically begin with a geopolitical survey, before delving into the major treaty or treaties recently concluded in the region. Robert Brookfield and Lori Di Pierdomenico explore the renegotiation of the NAFTA, observing that although NAFTA 2.0 leaves much of the original NAFTA in place, there are some important improvements and innovations. Yuka Fukunaga and Pasha L. Hsieh explain the contours of Pacific trade. They trace the evolution of the ASEAN and explain the importance of RCEP and the CPTPP for Asia, which they argue is undergoing a wave of regionalism not unlike that which occurred in North America in the 1990s and Europe in the 1960s. Holger Hestermeyer provides a useful primer on the fundamentals of the EU legal order including its history, institutions, and the division of competencies, and follows with an explanation of the EU customs union, the treaty provisions and legislative actions governing the internal market, and the rules governing the negotiation of FTAs, closing with a discussion of the trade implications of Brexit. Colin Brown and Sylvie Tabet look at trade across the Atlantic, drilling down on Canada-​EU trade under the CETA. Jorge Luis Changanaquí Miranda and John Cusipuma write about the development of international trade policy in Latin America, including in the Pacific Alliance and MERCOSUR, and explain what is new in Latin American trade agreements (such as provisions on trade and gender and SMEs) and why provisions on labour and environment are often excluded from such agreements. Henry Gao’s is the only chapter in this part that does not focus on a region. However, given China’s emergence as one of the largest traders and its influence on world trade, particular attention to China is warranted. Gao traces China’s integration into the world economy following its accession to the WTO, examines its expanding influence in that organization and the world economy more generally, including through its far-​reaching Belt and Road Initiative, and explores the reasons for and solutions to the US-​China trade war. Maria Trunk-​Fedorova describes the history, workings, and international trade aspects of the Eurasian Economic Union (EAEU), including how the EAEU

Foreword   xi Customs Tariff includes exemptions to accommodate lower duty rates negotiated by individual EAEU States in their protocols of accession to the WTO, although she explains that EAEU Members States are seeking to renegotiate some of those concessions with WTO Members. The final chapter in Part II is about African efforts towards trade and investment liberalization. Kholofelo Kugler and Mulualem Getachew Adgeh discuss the challenges encountered in African regional economic integration and trace the history of such efforts under the Abuja Treaty, the Tripartite Free Trade Area, the Regional Economic Communities, and finally the African Continental Free Trade Area, the largest free trade area since the creation of the WTO. We also learn about the contrast in trade and investment dispute settlement involving African countries: while about ten percent of all Investor-State dispute settlement cases have been brought against African states, only a handful of African States have been involved in WTO disputes. Part III of the Handbook looks at substantive law, opening with an introduction to the core principles of international trade law penned by Nicolas Lockhart and Katherine Connolly. The authors discuss the range of obligations and exceptions that apply to international trade in goods and services under both the WTO and FTAs. More specifically, they explain market access obligations and how tariff barriers and quantitative restrictions are addressed, non-​discrimination among like products and services, and how ‘likeness’ is determined, and the provisions that seek to balance trade and non-​trade interests such as those addressing the protection of public health and the environment. Lockhart and Connolly also point out how good governance obligations such as transparency play a role in regulating trade. The chapter includes helpful explanations of how these various elements have been interpreted in dispute settlement. Ricardo Ramirez explains in his chapter on trade in goods that traditional trade regulation instruments such as tariffs and quantitative restrictions, once fading into disuse as tools of protection in favour of technical barriers and sanitary measures, have made a resurgence in recent years due primarily to the United States’ reliance on the imposition of tariffs to secure economic gains, as well as the widespread resort to import and export restrictions for personal protective equipment and other goods during the pandemic. Ramirez’s chapter includes instructive guidance, coupled with practical examples and references to WTO Appellate Body decisions, on classification of goods for trade purposes, types of duties and other charges, tariff bindings, and criteria used for determining the origin of products. He leaves us with some sobering thoughts about challenges ahead. Ramirez’s examination of trade in goods is complemented by Chantal Ononaiwu’s chapter on trade in services. Ononaiwu reviews the key features of the GATS and details how FTAs have surpassed the liberalization commitments and disciplines of that agreement, including in regulating subsidies that affect trade in services and domestic regulations as they apply to the supply of services within a country’s territory. Irene Calboli considers recent developments in the promotion and protection of intellectual property, including geographical indications. Fiona Smith addresses the ever-​ challenging topic of trade in agriculture. She reviews the rules in the WTO Agreement on Agriculture, discussing the three pillars of market access, domestic support, and export competition (subsidies) through the lens of the negotiators’ attempt to balance

xii   Valerie Hughes trade liberalization, non-​trade values (such as food security), and domestic policy autonomy. She maintains that States still disagree on the correct balance between these three competing objectives and wonders whether our faith in rules to deliver permanent solutions in this area may be misplaced. Part III closes with Hugo Perezcano’s discussion of trade remedies, namely, anti-​dumping duties, countervailing duties, and safeguards. Perezcano explains the history and purpose of these measures, how they work, and how they are disciplined in the WTO, observing that the vast majority of disputes brought under the WTO involve trade remedies. Perezcano also refers to recent developments with respect to trade remedies in regional trade agreements and elsewhere and concludes that calls to eliminate the use of trade remedies in the future will likely go unheeded. Part IV of the Handbook considers balancing trade and non-​trade objectives. It begins with Jan Yves Remy’s and Alicia Nicholls’ exploration of development—​both the traditional concept of Special & Differential Treatment (S&DT) as well as sustainable development issues as they relate to trade including environment, gender, and MSMEs. Remy and Nicholls review how development is addressed at the multilateral level and in FTAs, with the latter offering options for potential solutions to challenges at the multilateral level such as S&DT eligibility. Marcus Gustafsson and Amrita Bahri tackle the subject of progressive trade focusing on labour and gender, issues they consider ‘share a blind spot’ in WTO law. They argue that despite the WTO’s failure to address these issues, FTAs increasingly deal with them, albeit not in a uniform way. Jayashree Watal covers the highly topical subject of access to medicines, addressing both availability and affordability aspects. Her analysis includes insights into the negotiating history of the relevant TRIPS Agreement provisions and she offers recommendations for a possible way forward in reconciling incentives for pharmaceutical innovation with access to medicines for all. The theme of balancing trade and non-​trade objectives continues with a chapter by Dailola Olawuyi on the subject of environment. Olawuyi describes efforts from 1900 until today seeking to harmonize the trade and environment regimes, examines key issues in reconciling existing WTO rules with obligations in MEAs, and offers ideas on how to maximize coherence between the two regimes. The vexing challenges raised in balancing food safety concerns with trade obligations are addressed in a chapter by Marsha Echols. Isabelle Van Damme then reviews the relationship between trade and essential security interests, reviewing recent WTO disputes addressing the security exception in Article XXI of the GATT 1994. Van Damme’s chapter focuses on questions of jurisdiction and justiciability, standard of review, and burden of proof as they relate to the invocation of the security exception defence. Part IV closes with Mira Burri’s consideration of privacy and data protection and their relationship with international trade law. Noting the lack of progress in the WTO on developing rules for digital trade, Burri discusses how bilateral and regional agreements address digital trade and data governance, including privacy protection. Part V of the Handbook groups together five essays on ‘international trade law development beyond the WTO’, or what many authors and negotiators refer to as ‘WTO-​plus’

Foreword   xiii coverage, given its growing acceptance in FTAs as opposed to the WTO. It begins with a paper on digital trade in which Shin-​Ye Peng calls for updating the GATS classification and scheduling systems because market access commitments were made by WTO Members decades ago, before the data-​driven economy gave rise to numerous services not easily accommodated under existing sector and sub-​sector headings. She expresses concern about the uncertainty of market access for digital services and observes that dispute settlement is not the most appropriate method of clarifying whether a service is, or is not, covered in a Member’s schedule. Juliana Nam discusses international disciplines on State-​owned enterprises (SOEs), starting with WTO rules and their interpretation in WTO dispute settlement and then focussing on the SOE chapter of the TPP, the first stand-​alone SOE chapter. The chapter was replicated in the CPTPP and serves as a model for chapters in other free trade agreements. Margaret Young explores the interaction between two international law regimes—​ the law of the sea and international trade law—​in her discussion of efforts at the WTO and elsewhere to regulate subsides for illegal, unregulated and unreported fishing. Rodney Neufeld discusses investment law and Investor-State dispute settlement (ISDS), focussing on reform efforts seeking to address widely held criticisms such as inconsistent rulings and lack of predictability of the rules, skyrocketing damages awards, lengthy delays, and lack of diversity and independence of arbitrators. He illustrates that States differ in their approaches to reform, with some renegotiating investment treaties to bring more clarity to concepts such as ‘fair and equitable treatment’ as well as articulating the right of States to regulate, while others (smaller in number) have opted to terminate their bilateral investment treaties. Neufeld also discusses the intense engagement of States participating in the reform efforts being carried out under the auspices of ICSID and UNCITRAL, which he quips stands in marked contrast to the reform effort at the WTO that is ‘languishing in its indecision’. In the closing chapter of Part V on financial services law, Rosa Lastra and Marco Bodellini begin with an explanation of a number of key concepts involved in financial regulation as well as the rationale for financial regulation before explaining the conflicting goals of prudential supervision in the financial sector, on the one hand, and liberalization of financial services on the other. The authors also review the provisions of the GATS as well as various soft-​law instruments (standards, guidelines) administered by the IMF, the FSB, and other actors involved in financial regulation. Part VI covers settlement of trade disputes in the WTO and bilateral and regional trade agreements. In their chapter on ‘Institutions’, David Unterhalter and Erika Schneidereit describe the institutions, practices, and procedures of the WTO dispute settlement system at the panel and appellate levels, illustrating some of these with references to specific disputes (e.g., the role of general principles of international law). The authors include a review of the criticisms that led to the current paralysis of the Appellate Body (unusually dispassionate in tone compared to many writings on this issue) and conclude that the future of WTO dispute settlement is far from clear. Peter Van den Bossche and Parika Ganeriwal contribute a chapter on ‘Interpretation’ in which they write about interpretation of WTO agreements and RTAs. The authors review the

xiv   Valerie Hughes rules of interpretation codified in Articles 31 and 32 of the Vienna Convention on the Law of Treaties and illustrate the application of those rules by the WTO Appellate Body in several rulings. In a chapter entitled ‘Jurisdiction and Applicable Law in the WTO and Free Trade Agreements’, Lorand Bartels discusses issues related to a trade tribunal’s jurisdiction, including identification of the measure at issue and the applicable rules, making factual findings based on evidence, and the power to apply the applicable rules. Bartels opines that the Appellate Body has been rightly criticized for its determination that a WTO panel’s findings on domestic law are ‘legal characterizations’ and thus, unlike factual findings, are subject to appeal. On applicability, Bartels discusses whether and how a rule is to be applied to the measure at issue and refers to, among other things, WTO decisions about choice of forum and the inability of a WTO panel to decline to exercise validly established jurisdiction. Bartels also discusses overlapping jurisdiction between the WTO and FTAs. Geraldo Vidigal’s chapter on ‘Remedies and Compliance’ contrasts judicial remedies under international law with remedies under international trade law, the latter being compliance-​related and prospective while the former are often designed to provide reparation for injury caused by breach. Vidigal writes of the right under trade agreements to press for compliance without employing ‘the economically disruptive instrument’ of unilateral retaliation. He analyses the instances in which retaliation for non-​compliance has been authorized by the WTO and identifies patterns in how WTO Members use (or do not use) such authorization, concluding that the threat of retaliation is a powerful tool in forcing compliance with trade obligations. Andreas Sennekamp and Frederico Ortino discuss practices and procedures related to procedural and evidentiary issues in WTO and investment dispute settlement, including matters such as preliminary rulings, burden and standard of proof, transparency, including the ability of Members of the public to observe hearings, and the use of experts to assist adjudicators with science or technical matters raised in argument. The authors explain that although these matters are addressed differently in the two regimes, there are several common threads in how they are applied in practice. Katherine Connolly and Todd Friedbacher discuss the roles and contributions of different stakeholders involved in international trade dispute settlement, specifically Member States, adjudicators, Secretariat staff, experts, and those with commercial or industry interests in a particular dispute. They refer to and take issue with some of the criticisms that have arisen over time, such as the Appellate Body’s requirement that panels follow previous appellate rulings when addressing the same issue except when there are cogent reasons not to do so, as well as the view that the Secretariat has an outsized influence over the results of dispute settlement. However, they call for the establishment of clear procedures on the involvement of in-​house ‘ghost’ experts whose role is not made known to disputing parties nor disclosed in dispute settlement reports. Part VI closes with Amy Porges’ chapter on alternative dispute settlement in the GATT and the WTO. Following a brief explanation of the various forms of ADR (including negotiation, mediation, conciliation, arbitration, and enquiry) and their benefits (including saving time and costs, providing disputing parties with increased

Foreword   xv flexibility) and a quick review of the development of different channels for addressing trade conflicts in the GATT 1947 era, Porges focusses on the use of ADR mechanisms available under the WTO. She observes that the mechanisms provided for in Articles 5 and 25 of the DSU have been used rarely but they have inspired WTO Members to develop ad hoc procedures to deal with some of the most intractable trade irritants (such as the 50-​year banana saga and the more recent EU/​US settlement agreement on steel and aluminum tariffs). Porges also points to the establishment by 25 WTO Members of the Multi-​Party Interim Appeal Arbitration Arrangement (MPIA) that is rooted in Article 25 of the DSU, a mechanism that has yet to be tested. The Handbook concludes with ‘The International Trading System—​Looking to 2100’, a stunning essay by Sir Daniel Bethlehem and Donald McRae. Their chapter is stunning for its exquisite prose but also for its message, at once alarming and encouraging, that fundamental change is urgently required throughout the international trade law space because it no longer reflects the realities of global economic engagement, and that there is scope for real innovation in reconceptualizing the international trading system. In sum, this Handbook of International Trade Law is a comprehensive, highly topical, accessible reference book written and edited by the leading experts in the field. It will serve as an indispensable tool for the international trade expert and the novice alike. It is also timely: WTO Members seeking to embark on a broad-​based WTO reform agenda will do well to have this book at their fingertips.

Acknowledgements

The second edition of this Handbook is the result of a close collaboration between the editors and the contributors. The editors wish to thank the contributors for their cooperation, hard work, and patience. The editors are also grateful to Oxford University Press for its continuous support for this second edition, which is wider in scope, size, and ambition than the first edition. Special thanks go to Merel Alstein, Matthew Williams and Jack McNichol. The editors were assisted by Rownock Zamani, who diligently and patiently edited draft chapters. We are grateful for Rownock’s valuable assistance.

Table of Contents

Foreword List of contributors  List of abbreviations  List of cited WTO Panel and Appellate Body reports, initiated WTO disputes and their common abbreviations  List of cited GATT Panel reports  Table of Cases  1. Introduction  The Editors

vii xxv xxxix xlix lxxvii lxxix 1

PA RT I   T H E R E G U L AT ION OF I N T E R NAT IONA L T R A DE 2. The development of the regulation of international trade: the past and the future  Donald McRae

7

3. The regulation of international trade: an economic perspective  Kamal Saggi and Simon Schropp

29

4. The sources of international trade law  Matthew Kennedy

64

5. International trade law institutions  James Flett and Mislav Mataija

90

6. The influence of international trade law on international law  James Crawford and Freya Baetens

160

7. The regulation of international trade and (democratic) legitimacy  Manfred Elsig

192

xx   Table of contents

PA RT I I   B I L AT E R A L A N D R E G IONA L T R A DE AG R E E M E N T S 8. North American trade: NAFTA and US-​caused global trade tensions  211 Robert Brookfield and Lori Di Pierdomenico 9. Pacific trade  Yuka Fukunaga and Pasha L. Hsieh 10. Trans-​Atlantic trade: the Comprehensive Economic and Trade Agreement between Canada and the European Union and its Member States  Sylvie Tabet and Colin M. Brown 11. Trade law in Europe  Holger P. Hestermeyer 12. International trade policy in Latin America (Pacific Alliance—​ MERCOSUR)  Jorge Luis Changanaquí Miranda and John Ramiro Cusipuma Frisancho

239

262 293

319

13. Trade and Investment Liberalization: The Case of China  Henry Gao

341

14. Eurasian Economic Union and trade and investment liberalization  Marina Trunk-​Fedorova

374

15. Africa and trade and investment liberalization  Kholofelo Kugler and Mulualem Getachew Adgeh

395

PA RT I I I   SU B STA N T I V E L AW 16. An introduction to core principles of international trade law  Katherine Connolly and Nicolas Lockhart

433

17. Trade in goods  Ricardo Ramírez-​Hernández

475

18. Trade in services  Chantal Ononaiwu

504

Table of contents    xxi

19. The relationship between intellectual property and trade through the lens of geographical indications: the journey before, during, and after the TRIPS Agreement  Irene Calboli

532

20. Trade in agriculture  Fiona Smith

553

21. Trade remedies in international trade  Hugo Perezcano Díaz

574

PA RT I V   BA L A N C I N G T R A DE A N D N ON -​T R A DE OB J E C T I V E S 22. Development, aid, and preferential systems  Jan Yves Remy and Alicia Nicholls

603

23. Progressive trade: labour and gender  Marcus Gustafsson and Amrita Bahri

625

24. Balancing market and non-​market objectives: access to medicines  Jayashree Watal

651

25. Environment  Damilola S. Olawuyi

673

26. Food safety: balancing SPS scientific principles and Article XX(b) sovereignty  Marsha A. Echols

694

27. National security  Isabelle Van Damme

713

28. Privacy and data protection  Mira Burri

745

PA RT V   I N T E R NAT IONA L T R A DE L AW DE V E L OP M E N T B E YON D T H E W TO 29. Digital trade  Shin-​yi Peng

771

xxii   Table of contents

30. State-​owned enterprises (SOEs): a Trans-​Pacific Partnership (TPP) Agreement experience in developing new disciplines in the new world order  Juliana Nam

790

31. Fisheries  Margaret A. Young

817

32. Investment law’s monstrous reform  Rodney Neufeld

838

33. Financial services law  Rosa Lastra and Marco Bodellini

867

PA RT V I   T H E SE T T L E M E N T OF T R A DE DI SP U T E S I N T H E W TO A N D B I L AT E R A L /​ R E G IONA L T R A DE AG R E E M E N T S 34. Institutions  David Unterhalter and Erika Schneidereit

895

35. Interpretation  Peter Van den Bossche and Parika Ganeriwal

923

36. Jurisdiction and applicable law in the WTO and free trade agreements  Lorand Bartels

945

37. Remedies and compliance  Geraldo Vidigal

967

38. Procedural and evidentiary issues  Andreas Sennekamp and Federico Ortino

993

39. Stakeholders in international trade law dispute settlement  Katherine Connolly and Todd Friedbacher

1017

40. Alternative dispute settlement in the GATT and the WTO  Amy Porges

1042

Table of contents    xxiii

PA RT V I I   C ON C LU SION 41. The international trading system—​looking to 2100  Daniel Bethlehem and Donald McRae

1065

Index 

1073

List of Contributors

Mulualem Getachew Adgeh is a J.D. Student at the University of St. Thomas, Minnesota, USA. Previously, he was a legal counsel, and First Secretary at the International Organizations Directorate in the Ministry of Foreign Affairs, where his duties ranged from providing legal and policy advisory opinions to the Ministry in WTO Law, and humanitarian issues relating to migration and refugees. In this capacity, he has represented Ethiopia in several international fora, including the six rounds of negotiation on the Global Compact for Migration. He has also worked closely with the Steering and Technical Committee for Ethiopia’s WTO accession. He previously worked at the Advisory Center on WTO Law in Geneva, Switzerland, as part of a secondment program. Mulualem holds an LL.M. degree in US and International Law, a postgraduate diploma in International Relations, and an LL.B. degree. Freya Baetens, Cand. Jur./​Lic.Jur. (Ghent); LL.M. (Columbia); Ph.D. (Cambridge), is Professor of Public International Law (Faculty of Law, Oxford University), Head of Programmes at the Bonavero Institute of Human Rights and Fellow at Mansfield College. She is also affiliated with the PluriCourts Centre (Faculty of Law, Oslo University) and affiliated with the Europa Institute (Faculty of Law, Leiden University). As a Member of the Brussels Bar, she regularly acts as counsel or expert in international and European disputes. She is listed on the Panel of Arbitrators and Conciliators of the International Centre for the Settlement of Investment Disputes (ICSID), the South China International Economic and Trade Arbitration Commission (Shenzhen Court of International Arbitration) and the Hong Kong International Arbitration Centre (HKIAC). Amrita Bahri is Associate Professor of International Trade Law at ITAM and Co-​Chair Professor for the WTO Chair Program (Mexico). Amrita is the Founding Chair of the International Trade & Investment Law Research Group (Law Schools Global League, LSGL) and Founding Member of the South Asian International Economic Law Network (SAIELN). Amrita has published in the areas of international trade law, WTO dispute settlement, public private partnership for capacity-​building in emerging economies, regional trade and gender justice. She has authored the monograph Public Private Partnership for WTO Dispute Settlement: Enabling Developing Countries (Edward Elgar, 2018). Her academic articles are published in prestigious journals including Journal of International Economic Law, World Trade Review, Journal of World Trade, European Journal of International Law, and others. Amrita also serves on the Editorial Board of the Journal of International Economic Law (JIEL) and the Journal of Law, Market

xxvi   List of contributors & Innovation (JLMI). Working with ITC’s team, Amrita has designed the very first framework to measure gender-​responsiveness of free trade agreements. She explains this framework in ITC’s policy paper titled ‘Mainstreaming Gender in Free Trade Agreements’. Lorand Bartels is a Professor of International Law and a Fellow of Trinity Hall at the University of Cambridge. Sir Daniel Bethlehem QC is a barrister in private practice at Twenty Essex Chambers in London specializing in public international law. In this capacity, he divides his time between acting as counsel before English and international courts on issues of international law and sitting as arbitrator in Investor-State and other arbitrations. He is a member of the ICSID Panel of Arbitrators and a panellist on the WTO Indicative List of Panellists maintained by the WTO Secretariat, both designated by the United Kingdom, and a member of the Chairpersons Arbitration Panel designated jointly by the United Kingdom and the European Union under the EU-​UK Withdrawal Agreement. From May 2006 to May 2011, Daniel was the principal Legal Adviser of the UK Foreign & Commonwealth Office. Before his appointment to the Foreign Office, in parallel with his Bar practice, Daniel was the Director of the Lauterpacht Centre for International Law at the University of Cambridge, in which role he taught (inter alia) a post-​graduate LL.M. course on WTO and International Trade Law. Marco Bodellini is a Research Scientist in Sustainable Finance at the House for Sustainable Governance and Markets, University of Luxembourg and a Visiting Professor at Fordham University in New York. He has published a number of books and articles in US, UK and European peer-​reviewed journals concerning bank restructuring and resolution, corporate governance of financial institutions, investment funds regulation, central banking, sustainable finance and fintech. His main areas of research include bank crisis and resolution, corporate governance of financial institutions, systemic risk and financial stability, shadow banking and investment funds, fintech and sustainable finance. He is a qualified lawyer admitted to the Italian Bar and provides legal consultancy to public and private institutions. He is also a member of the expert group advising the European Parliament on bank crisis management matters, a member of the Advisory Panel of the International Association of Deposit Insurers and a Special Advisor to the Unidroit Secretariat on bank insolvency. Robert Brookfield is presently Deputy Assistant Deputy Minister in the Policy Sector of the Canadian Department of Justice. Previously, for twenty years he served at Global Affairs Canada, including as Director General of the Trade Law Bureau, Director of the Technical Barriers to Trade Division, and with a posting to the Canadian Embassy in Moscow. During that time he led the NAFTA 2.0 legal team and has acted as primary legal counsel or negotiator of elements of many free trade negotiations, including the Canada-​EU Comprehensive Trade Agreement, the Trans-​Pacific Partnership, and free trade agreements with Korea, Honduras, Ukraine, and Panama. He has served

List of contributors    xxvii as counsel for Canada on several WTO disputes, including US –​Country of Origin Labelling and China –​Auto Parts. Before joining the Canadian federal government he was in private practice in Vancouver, Canada. He is called to the Bar of British Columbia and has a LL.B. from the University of British Columbia (1995) and a B.Arts Sc. from McMaster University (1992). Colin Brown is an international trade and investment lawyer. Since November 2020 he has been Head of Unit Legal Aspects of Trade and Sustainable Development and Investment in the Directorate General for Trade of the European Commission. From 2013 to 2020 he was Deputy Head of Unit of Dispute Settlement and Legal Aspects of Trade Policy. He leads the team of lawyers working on Investor-State dispute settlement in the trade and investment policy of the European Union, in particular the Investment Court System and now the work on the Multilateral Investment Court project. He is the head of the EU Delegation to UNCITRAL Working group III on ISDS reform. He also leads the teams providing legal advice on EU FTAs and on Trade and Sustainable Development. He is a guest lecturer in EU External Economic Relations Law at the Law School of the University of Edinburgh and the Academy of Internal Economic Law and Policy (Athens). He has taught EU and WTO law at IELPO, the University of Barcelona and the Université catholique de Louvain. He holds an LL.B. (first class Honours) from the Faculty of Law of the University of Edinburgh, Scotland, a Diploma in International Relations from the Bologna Center of the School of Advanced International Studies (SAIS), Johns Hopkins University, Bologna, Italy, and an LL.M. in European Law from the College of Europe, Bruges. Mira Burri is Professor of International Economic and Internet Law at the Faculty of Law of the University of Lucerne, Switzerland. She teaches international intellectual property, media, internet, and trade law. Mira’s current research interests are in the areas of digital trade, culture, copyright, data protection, and data governance. Mira is the principal investigator of the project ‘Trade Law 4.0’ (ERC Consolidator Grant 2021–​2026). She consults the European Parliament, UNESCO, the WEF, and others on issues of digital innovation and cultural diversity. Mira has co-​edited the publications Trade Governance in the Digital Age (Cambridge University Press 2012) and Big Data and Global Trade Law (Cambridge University Press, 2021). She is the author of Public Service Broadcasting 3.0: Legal Design for the Digital Present (Routledge, 2015). Mira’s publications are available at: http://​ssrn.com/​aut​hor=​483​457. Jorge Changanaquí is currently regulatory executive at Philip Morris International. Previously he has been legal counsel and trade negotiator at the Vice Ministry of Foreign Trade of Peru. He has also served as legal counsel in the trade remedies authority in Peru. Katherine Connolly is an Associate at Sidley Austin LLP, where she counsels and represents clients on all aspects of international trade law, with a particular focus on WTO law and dispute settlement. Before joining Sidley, Katherine was a dispute settlement lawyer at the WTO Secretariat servicing panels on complex and novel compliance-​ related issues. Katherine holds a law degree from the University of Sydney, Australia,

xxviii   List of contributors and an LL.M. from the University of Amsterdam, Netherlands. Katherine recently completed a 1-​year secondment with the UK Department for International Trade, where she advised on international trade law issues. James Crawford BA, LL.B. (Adelaide), D.Phil. (Oxon.); LL.D. (Cantab); SC (NSW); FBA, was a Judge at the International Court of Justice and a former Whewell Professor of International Law at Cambridge University. He was the first Australian member of the UN International Law Commission and was responsible for its work on the International Criminal Court (1994) and the second reading of the ILC Articles on State Responsibility (2001). John Cusipuma is Director at the Vice Ministry of Foreign Trade of Peru and Professor at the Pontificia Universidad Católica del Perú and Universidad Peruana de Ciencias Aplicadas. He holds an LL.M. in International Economic Law and a master’s degree in Political Science with a major in International Relations from Pontificia Universidad Católica del Perú. He is also a Ph.D. external candidate from Maastricht University. Marsha Echols is a Professor of Law at Howard University in Washington DC, where she teaches trade law and development, international business transactions, and food law among other courses. She is the Founding Director of The World Food Law Institute, an NGO. Professor Echols was a panelist in a WTO dispute and a Member of the United Nations Administrative Tribunal. She frequently attends Codex Alimentarius Commission meetings. After graduate studies and work in Belgium, working for USDA in Geneva, and private practice in Washington with a food trade focus, issues related to international food policy and regulation have been her concentration, with books about food safety and the SPS Agreement and about geographical indications and the TRIPS Agreement. Manfred Elsig is full professor of International Relations and Deputy Managing Director of the World Trade Institute, University of Bern. He holds a Ph.D. from the University of Zurich in political science. His research focuses on international political economy, international organizations, international courts, preferential trade agreements, and European trade policy. He is a one of the initiators of the DESTA database on trade agreements (www.desi​gnof​t rad​eagr​eeme​nts.org) and EDIT on investment agreements (https://​edit.wti.org/​docum​ent/​ttt/​sea​rch). His research has been published in leading journals in political science and law. He is currently a managing editor of the interdisciplinary World Trade Review and has been editing various books published with Cambridge University Press on the WTO and on Preferential Trade Agreements. James Flett is Deputy to the Director of the Trade Policy and WTO Team of the European Commission Legal Service. He has more than thirty years’ experience practicing international law, particularly international trade law. He has represented the European Commission before the European Court of Justice and the European Union before the WTO in more than 300 proceedings. Mr. Flett graduated from the London

List of contributors    xxix School of Economics and Political Science, and has a Master’s degree in European law from the College of Europe, Bruges. He is a qualified solicitor. Before joining the Commission Legal Service on 1 April 1995 (when the WTO was founded) he spent several years working for two international law firms in London and Brussels. He is a frequent speaker at conferences and universities and has published widely on international trade law. He teaches WTO Law at Leuven University, WTO Dispute Settlement Law at the Academy of International Economic Law and Policy in Athens, and WTO Subsidies Law at the World Trade Institute in Bern. Todd Friedbacher co-​founded the Sidley Austin LLP Geneva office in 2000 and serves both as the Managing Partner of the office and as a member of the firm’s Executive Committee. He helps clients manage the risk of doing business across borders and address critical trade and regulatory barriers impacting their ability to move, sell, and protect goods, services, and intellectual property across borders by leveraging the powerful market access and enforcement tools provided by the WTO and other bilateral and regional trade agreements. In his nearly twenty-​five years of practice, he has represented clients in more than fifty-​five WTO disputes, involving ninety distinct WTO dispute settlement proceedings. Yuka Fukunaga is a Professor at Waseda University, where she teaches public international law and international economic law. She is a winner of the Waseda Research Award in 2017. She is also an Executive Council Member of the Society of International Economic Law, an Executive Council Member of the Japan Chapter of the Asian Society of International Law, and a Board Member of the Japan Association of International Economic Law. She currently serves as a Book Review Editor of the Journal of International Economic Law. She was an Assistant Legal Counsel at the Permanent Court of Arbitration and an Intern at the Appellate Body Secretariat, WTO. She holds an LL.D. (2013) and an LL.M. (1999) from the Graduate Schools for Law and Politics, University of Tokyo, and an LL.M. (2000) from the School of Law, University of California, Berkeley. Parika Ganeriwal is a Legal Officer at the Commonwealth Secretariat, London where she advises on institutional matters (concerning international administrative and commercial law) and rule of law matters. Prior to that, she worked as a Dispute Settlement Lawyer at the WTO where she advised WTO panels on international trade disputes. She has also worked as a Research Associate to Prof. Peter Van den Bossche and assisted in editing and updating the 4th and 5th editions of The Law and Policy of the World Trade Organization. Parika completed her LL.M. in International and European Labour Laws from the University of Amsterdam. She graduated with a B.Sc., LL.B. (Hons in Intellectual Property Rights) degree from the National Law University, Jodhpur, India, prior to working as a Senior Associate in the General Corporate and Mergers & Acquisitions practice at the law firm, Amarchand & Mangaldas in New Delhi, India from 2009–​2014.

xxx   List of contributors Henry Gao is a tenured law professor at Singapore Management University and Dongfang Scholar Chair Professor at Shanghai Institute of Foreign Trade. With law degrees from three continents, he started his career as the first Chinese lawyer at the WTO Secretariat. He has been an advisor on trade issues for many national governments as well as the WTO, UN, World Bank, ADB, APEC, ASEAN and the World Economic Forum. Widely published on issues relating to WTO and China, he has been cited in the World Trade Report by the WTO and the Digital Economy Report by UNCTAD. He sits on the Advisory Board of the WTO Chairs Program, which was established by the WTO Secretariat in 2009 to promote research and teaching on WTO issues in leading universities around the world. He is also a member of editorial boards of the Journal of International Economic Law and the Journal of Financial Regulation, both published by Oxford University Press. Marcus Gustafsson is a member of the European Commission’s Legal Service, representing the European Commission before the EU courts in trade defence matters. He previously worked at the law firm Van Bael & Bellis, where he was involved in EU, WTO and FTA litigation, and represented exporters in trade defence investigations and on customs matters. Marcus holds an LL.B. from the University of Edinburgh, an LL.M. from Georgetown University, and is a member of the New York Bar. He is a regular contributor to books, academic journals, and blogs on issues of international economic law. Ricardo Ramírez Hernández is a Partner at RRH Consultores in Mexico City and an international trade expert and adjudicator. With over 25 years of private and public practice, Mr. Ramirez has advised governments and companies on the negotiation, implementation, litigation, and interpretation of multiple international trade instruments. He has been appointed to several rosters of adjudicators, such as the Panel of Arbitrators of the International Centre for Settlement of Investment Disputes (ICSID), the Beijing Arbitration Commission, and the Shenzhen Court of International Arbitration, as well as to the roster of panelists for several FTAs, including the USMCA and MERCOSUR. He is the Vice-​Chair of the Global Committee on Trade and Investment Policy of the International Chamber of Commerce (ICC) and Chairs the Mexican chapter of the same Committee. He is a Professor at the Faculty of Law of the National Autonomous University of Mexico (UNAM) and Chairman of the International Trade Professors Association of UNAM. He holds a Law Degree from the Universidad Autónoma Metropolitana, Mexico, and an LL.M. on International Legal Studies from American University, Washington DC. Holger Hestermeyer is a professor of International and EU Law at King’s College London and a Fellow at CAPAS, Heidelberg. He was the Co-​Executive Vice President of the Society of International Economic Law, a Co-​Director of the Red Latinoamericana de Derecho Económico Internacional and has served as a specialist adviser to the EU Select Committee of the House of Lords. Holger is admitted to the German and the

List of contributors    xxxi New York bars and advises on international and EU law. Before joining King’s College London, he was a Référendaire at the Court of Justice of the European Union. Pasha L. Hsieh is an Associate Professor and the Associate Dean (Faculty Matters & Research) at the Singapore Management University Yong Pung How School of Law. He received J.D. and LL.M. degrees from the University of Pennsylvania Law School and a Ph.D. in Political Science from Free University of Brussels. Prior to academia, he was a Legal Affairs Officer at the WTO and an associate at Shearman & Sterling LLP. He has been invited by various institutions such as the European Parliament and the Singapore Judicial College to present on trade law issues. He served as the Co-​Chair of the American Society of International Law-​Asia-​Pacific Interest Group from 2017 to 2020 and is an Executive Council Member of the Society of International Economic Law. He was awarded the Sumitomo Foundation research grant in 2021. Valerie Hughes, is Senior Counsel with Bennett Jones LLP. She served as Director of the WTO Legal Affairs Division and of the WTO Appellate Body Secretariat. She also held senior positions in the Government of Canada at Justice, Finance, and Global Affairs. She is a member of the pool of arbitrators for the WTO Multi-​Party Interim Appeal Arbitration Arrangement. Peter Van den Bossche is Director of Studies of the World Trade Institute and Professor of International Economic Law at the University of Bern, Switzerland. Since 2018, he serves as President of the Society of International Economic Law. From 2009 to 2019, he was a Member of the Appellate Body of the WTO and served as chairman of the Appellate Body in 2015. Van den Bossche is the author (with Werner Zdouc) of The Law and Policy of the World Trade Organization, 5th edition (Cambridge University Press, 2021); and (with Denise Prévost) of Essentials of WTO Law, 2nd edition (Cambridge University Press, 2021). Isabelle Van Damme is a Partner at Van Bael & Bellis, a Member of the Brussels Bar and a Visiting Professor at the College of Europe. She also serves as the Executive Vice-​ President of the Society of International Economic Law. Her practice focuses on WTO law, EU law and public international law. Isabelle regularly advises governments and industry and represents States and individuals before international courts and tribunals, including WTO panels, the Appellate Body, and the Court of Justice of the European Union. Isabelle previously worked as a référendaire (legal clerk) in the chambers of Advocate General Sharpston, at the CJEU, worked at a Geneva-​based firm specialized in WTO law and was the Turpin-​Lipstein Fellow at Clare College, University of Cambridge. She holds degrees from the University of Ghent, Georgetown University Law Center and the University of Cambridge. Her main publications include a monograph on Treaty Interpretation by the WTO Appellate Body (Oxford University Press, 2009) and A Commentary on the WTO Anti-​Dumping Agreement (Cambridge University Press, 2021). She currently teaches, at the College of Europe, on EU trade law and policy.

xxxii   List of contributors Matthew Kennedy, an Australian national, is a Professor in the Faculty of Law of the University of International Business and Economics, Beijing. He holds a Ph.D. from the University of Bern, Switzerland and is a Fellow of the Chartered Institute of Arbitrators. He has served as a dispute settlement panellist at the WTO and as a domain name dispute resolution panellist at the World Intellectual Property Organization Arbitration and Mediation Center and the Hong Kong International Arbitration Centre. He has published widely and is the author of WTO Dispute Settlement and the TRIPS Agreement: Applying Intellectual Property Standards in a Trade Law Framework (Cambridge University Press, 2016). He was formerly a senior lawyer in the WTO Secretariat and Secretary of the WTO Council for TRIPS. Kholofelo Kugler is an international trade lawyer. She is on sabbatical leave from the Advisory Centre on WTO Law in Geneva to complete a Ph.D. at the University of Lucerne, Switzerland, under the supervision of Mira Burri. She is part of the project Trade Law 4.0. Kholofelo is also a Visiting Research Fellow at the law school of Wits University in South Africa. Kholofelo holds a Bachelor’s degree in Economics and International Politics, an LL.B. degree, and a Master’s degree in International Law and Economics (MILE). She is an admitted attorney in her native South Africa. Rosa María Lastra is the Sir John Lubbock Chair in Banking Law at the Centre for Commercial Law Studies, Queen Mary University of London. She is co-​director of the Sovereign Debt Forum https://​www.qmul.ac.uk/​ccls/​resea​rch/​sovere​ign-​debt-​ forum/)​, Vice-​Chair of the Monetary (Committee of the International Law Association, founding member of the European Shadow Financial Regulatory Committee, research associate of the Financial Markets Group of the London School of Economics and Political Science, member of the European Banking Institute, member of the European Law Institute and member of P.R.I.M.E. She has served as a consultant to the International Monetary Fund, the European Central Bank, the World Bank, the Asian Development Bank, United Nations (UNCTAD) and the Federal Reserve Bank of New York. In 2021 she acted as specialist adviser to the House of Lords (Economic Affairs Committee) in their inquiry into the QE program of the Bank of England. She has also acted as expert witness in international arbitration. She is a member of two expert panels of the European Parliament: the Monetary Panel since 2015 and the Banking Union (Resolution) Panel since 2016. Prior to coming to London, she was Assistant Professor of International Banking at Columbia University School of International and Public Affairs in New York and a consultant in the Legal Department of the International Monetary Fund in Washington DC. She is a renowned expert in the areas of central banking, banking supervision and resolution, financial regulation, EU monetary and financial law, financial crisis management, and international monetary law. Nic Lockhart is a partner at Sidley Austin LLP in Geneva and works with WTO Members as complainants, respondents, and third parties. He has advised a wide range of governments and commercial stakeholders in dozens of disputes and assisted clients

List of contributors    xxxiii with the negotiation of trade agreements. Before joining Sidley, he spent five years at the WTO Appellate Body, advising on sixteen appeals. He offers clients an in-​depth knowledge of WTO practice, procedures, and substantive law, covering all stages of WTO dispute settlement, as well as his extensive experience in oral advocacy at hearings. Mislav Mataija, LL.M. (Columbia), Ph.D. (EUI, Florence), is a member of the Legal Service of the European Commission. He represents the European Commission in litigation before the European Court of Justice in various areas of EU internal market law, advises on EU law matters, and litigates WTO disputes on behalf of the European Union. He has also been a visiting professor at Columbia Law School, Sciences Po School of Public Affairs, Paris, and at the Catholic University of Lyon. Previously, he was a lecturer at the Jean Monnet Department of European Public Law at the University of Zagreb, taught at the Catholic University of Lille, and worked as a researcher at the European University Institute Centre for Judicial Cooperation. He has published extensively in EU and international law, including a monograph entitled Private Regulation and the Internal Market: Sports, Legal Services, and Standard Setting in EU Economic Law, with Oxford University Press in 2016. Donald McRae is Professor Emeritus at the University of Ottawa, Canada. He is the former Editor-​in-​Chief of the Canadian Yearbook of International Law and has published widely on international law including the law of the sea and international trade law. He has been counsel in several international fisheries and boundary arbitrations and has appeared before the International Court of Justice. He has appeared as counsel before WTO panels and the WTO Appellate Body and has been a member of several WTO and NAFTA panels. He has also been a member and chair of several investment dispute tribunals under NAFTA, ICSID and UNCITRAL and a judge ad hoc in the International Court of Justice. Professor McRae was a member of the International Law Commission from 2007 to 2016. Juliana Nam is a senior officer of the Australian Government’s Department of Foreign Affairs and Trade. She was Australia’s lead for the State-​owned Enterprises chapter in the original Trans-​Pacific Partnership (TPP) negotiations and the deputy chief negotiator in the ‘TPP-​11/​CPTPP’ process. She has served overseas in Brussels and Kuala Lumpur. Ms Nam has a Master of Law (International Legal Studies) from New York University, and Bachelor of Commerce/​Bachelor of Law (First Class Honours) from the University of Sydney. She is admitted to the New York State Bar and the New South Wales Supreme Court. Rodney Neufeld is an international lawyer with the Government of Canada. He has represented Canada in various trade negotiations, including the TPP and NAFTA 2.0, as well as in various WTO and NAFTA Chapter Eleven disputes. He also participated in the redraft of Canada’s Model Foreign Investment Protection Agreement, which was released in 2021.

xxxiv   List of contributors Alicia Nicholls, B.Sc, M.Sc., LL.B. is Junior Research Fellow with the Shridath Ramphal Centre for International Trade Law, Policy and Services of The University of the West Indies, Cave Hill campus in Barbados. Her research focuses on investment law and policy, trade and sustainable development and global financial regulation. Damilola S. Olawuyi, SAN, FCIArb, is Professor of Law and holder of the UNESCO Chair in Environmental Law and Sustainable Development at Hamad Bin Khalifa University (HBKU) College of Law, Doha, Qatar. He is also Chancellor’s Fellow and Director of the Institute for Oil, Gas, Energy, Environment, and Sustainable Development (OGEES Institute), Afe Babalola University, Ado Ekiti, Nigeria. He is an Independent Expert of the Working Group on Extractive Industries, Environment, and Human Rights Violations in Africa, formed by the African Commission on Human and Peoples’ Rights. Professor Olawuyi has published close to a hundred articles, book chapters, and books on petroleum law, energy, and international environmental law. His most recent book publications include Environmental Law in Arab States (Oxford University Press, 2022), Local Content and Sustainable Development in Global Energy Markets (Cambridge University Press, 2021), Climate Change Law and Policy in the Middle East and North Africa Region (Routledge, 2021), The Human Rights-​ Based Approach to Carbon Finance (Cambridge University Press, 2016); and Extractives Industry Law in Africa (Springer, 2018). Chantal Ononaiwu is the Trade Policy and Legal Specialist in the Caribbean Community (CARICOM) Secretariat, based in Barbados, where she advises the Community and its Member States on external trade negotiations and other matters pertaining to international trade and investment. She has served as a Negotiator for CARICOM in its external trade negotiations and has represented the Community in cases before the Caribbean Court of Justice. Dr. Ononaiwu is also a lecturer in International Trade and Investment Law at the University of the West Indies. Prior to joining the CARICOM Secretariat, she was the Director, Value Proposition Development at Invest Barbados. She is admitted to practise law in Jamaica and Barbados. A Rhodes Scholar, Dr. Ononaiwu holds a DPhil in Law from the University of Oxford, an LL.M. from the University of Cambridge, and an LL.B. from the University of the West Indies. Federico Ortino is Professor of International Economic Law at King’s College London. He joined King’s in 2007. He is a member of the ILA Committee on the Rule of Law and International Investment Law; founding Committee Member (and former co-​ Treasurer) of the Society of International Economic Law; consultative member of the Investment Treaty Forum; editorial board member of the Journal of International Economic Law; Journal of International Dispute Settlement, Journal of World Investment and Trade. He is a Consultant to Clifford Chance. Shin-​yi Peng is Distinguished Professor of Law at National Tsing Hua University. She is a former commissioner of the National Communications Commission of Taiwan (2012–​2016). Professor Peng specializes in international trade law, with a focus on trade in services, digital trade and, increasingly, data governance. She is a member of the

List of contributors    xxxv Indicative List of governmental and nongovernmental panellists to hear WTO disputes. She has served on the Executive Council (2012–​2020) and as Executive Vice President (2016–​2020) of the Society of International Economic Law. She is currently an Editorial Board Member of the World Trade Review. Hugo Perezcano is an international arbitrator and consultant specialized on international trade and investment. He worked for the Mexican government’s Ministry of Economy for nearly 20 years, where he served as head of Mexico’s trade remedy authority, and formerly as general counsel for international trade negotiations. He was involved on behalf of Mexico in the negotiations of the North American Free Trade Agreement (NAFTA), the Uruguay Round of Multilateral Trade Negotiations and numerous other trade and investment agreements. He was lead counsel for Mexico in Investor-State dispute settlement cases under NAFTA and other international investment agreements as well as in dispute settlement cases between States conducted under trade agreements that include NAFTA and the WTO Agreement. Lori Di Pierdomenico is a Senior Counsel in the Trade Law Bureau at Global Affairs Canada. Lori has acted as legal counsel for the Government of Canada in many of Canada’s free trade and international investment agreement negotiations, including the NAFTA 2.0 and CPTPP. Lori is also responsible for leading the Government of Canada’s defence in international investment disputes involving foreign investors under Canada’s free trade and investment treaties, and advises regularly on Canada’s international trade obligations. Educated in both common law and civil law, Lori is a law graduate of McGill University (LL.B., B.C.L.) and the University of Arizona (LL.M.) and is admitted to the Law Society of Ontario and the New York State Bar. Amy Porges practices international trade law in Washington DC, advising governments, companies and trade associations on international trade agreements and negotiations, WTO matters, and US trade and customs law. Amy previously was a Senior Legal Officer in the GATT Secretariat during the Uruguay Round; guided USTR’s litigation programme as USTR’s Senior Counsel for Dispute Settlement and head of enforcement during the first five years of the WTO; and practiced WTO law at major international law firms from 2000–​2009. She was principal author of the Analytical Index of the GATT (Cambridge University Press, 1996). She also teaches global trade policy at the Johns Hopkins University School of Advanced International Studies in Washington, DC. She holds degrees from Cornell, Harvard Law School and the Kennedy School of Government. Jan Yves Rémy is Director of the Shridath Ramphal Centre for International Trade Law, Policy and Services (SRC) of University of the West Indies, Cave Hill Campus, Barbados. In addition to her outreach and research activities at the SRC, she teaches trade law and Caribbean regional integration in the SRC’s flagship Masters in International Trade Policy Programme. Her doctoral thesis focussed on the role of the Caribbean Court of Justice in promoting Caribbean regional integration. Jan-​Yves also serves as Chair for the University of the West Indies (Barbados) under the Chair Programme of the WTO.

xxxvi   List of contributors She has also served as a WTO panelist in a dispute between WTO Members. Jan-​Yves holds a Ph.D. in International Law (summa cum laude) from the Graduate Institute of International and Development Studies (Geneva, Switzerland), an LL.M. (Hons) in Commercial and International Law from the University of Cambridge (UK) and an LL.B. (Hons) from the University of the West Indies, Cave Hill Campus (Barbados). Prior to joining the SRC, Jan-​Yves worked for five years as a Senior Trade Associate at the offices of Sidley Austin LLP in Geneva and Washington D.C and as a Legal Officer at the Appellate Body Secretariat of the WTO, where she assisted Members of the Appellate Body in their disposition of appeals in trade disputes. Kamal Saggi is the Frances and John Downing Family Professor of Economics and the Dean of Faculty Affairs in the College of Arts and Science at Vanderbilt University. He has held visiting appointments at Stanford University, the University of New South Wales, and the World Bank. After receiving his Ph.D. in Economics in 1995 from the University of Pennsylvania, Dr. Saggi joined the faculty at Southern Methodist University where he was named the Dedman Distinguished Collegiate Professor of Economics in 2007. Dr. Saggi has published extensively in the fields of international trade and economic development. Much of his research is centered on two major themes: (i) the inter-​ relationships between trade, intellectual property rights, and foreign direct investment in the global economy and (ii) the legal and economic underpinnings of the multilateral trading system. Erika Schneidereit J.D. (University of Ottawa), MA International Affairs (Carleton University). Counsel with the Department of Justice, Government of Canada. Simon Schropp is Managing Economist in Sidley Austin, a leading law firm in the field of international trade law. He oversees the work of Sidley’s in-​house economists and manages the Economic Analysis team. Simon has gathered extensive experience in an array of disciplines and business sectors and has supported Sidley’s clients in a variety of fora, including before WTO panels and the Appellate Body, arbitral tribunals, and domestic regulatory agencies and courts. He also serves as adjunct professor at the Elliott School of International Affairs at The George Washington University. Simon holds a Ph.D. in International Economics from the Graduate Institute, Geneva, a Ph.D. in economics from St. Gallen University and a Master’s in International Affairs from Columbia University’s School of International and Public Affairs. Andreas Sennekamp heads the WTO’s Academic Outreach Section. He joined the WTO in 2006 and served as Counsellor in the Appellate Body Secretariat until 2019. Prior to joining the WTO, he was an Associate at Sidley Austin LLP, advising businesses and governments on international trade law and WTO dispute settlement. He also worked at the OECD Trade Directorate as well as at a charitable institution in La Paz. He has lectured at the World Trade Institute, King’s College London, LSE, Universidad Católica Boliviana among others.

List of contributors    xxxvii Fiona Smith is Professor of International Economic Law and N8 Chair of Agri-Food Regulation at the School of Law, University of Leeds. She is also Associate Director of the University of Leeds Global Institute for Food and the Environment, where she directs research into International AgriFood Supply Chains. In March 2021, she was appointed as Special Adviser to the UK House of Commons International Trade Committee for the Committee’s scrutiny of UK’s international trade agreements. Her published research focuses on international trade law in the WTO, and she has a specialist interest in international agricultural trade. Sylvie Tabet is an international lawyer specialized in trade and investment law. She is General Counsel at Canada’s Trade Law Bureau where she is responsible for providing trade law advice and litigating international trade and investment cases on behalf of the Government of Canada. She has extensive experience in negotiating international trade and investment agreements. She was lead counsel to the Government of Canada for the Canada-​EU Trade Agreement, the Canada-​China BIT and has advised on CUSMA and CPTPP. Sylvie represented Canada before the WTO, and in ICSID and UNCITRAL investment arbitrations under NAFTA and other FTAs and bilateral investment treaties. She is Canada’s representative for UNCITRAL Working Group III on investor state dispute settlement reform. Sylvie holds a Baccalauréat en droit from Université de Montréal (LL.B) and was called to the Quebec Bar in 1994. She teaches and guest lectures frequently on trade and investment law issues. Marina Trunk-​Fedorova is associate professor at the Law Faculty of St. Petersburg State University and at the Ural State Law University, where she teaches courses on International Law and International Economic Law. She holds a Ph.D. from St. Petersburg State University and a IELPO LL.M. degree from the University of Barcelona. Marina Trunk-​Fedorova has numerous publications on different issues of International Economic Law and she is also a member of the editorial board of the Russian law journal ‘International Justice’. David Unterhalter serves as a judge in South Africa and is currently an Acting Justice of the Constitutional Court. He was formerly a member and chairman of the Appellate Body. Jayashree Watal worked in the Intellectual Property, Government Procurement and Competition Division of the WTO and from February 2001–​2019, contributing to work on TRIPS and public health, TRIPS-​CBD, Patents, Undisclosed Information, Economics of TRIPS, IP and Transfer of Technology, IP and Climate Change, and IP and Competition Policy. She is currently a part-​time consultant and teacher on TRIPS matters and holds the position of Honorary Professor at the National Law University, Delhi. She has held an Adjunct Professor position at Georgetown University Law Centre since 2009. She was a member of the Governance Board of the Medicines Patent Pool, a non-​profit organization based in Geneva, from 2015 to 2021. Ms Watal represented India at a crucial stage in the Uruguay Round TRIPS negotiations from 1989–​.90. She has

xxxviii   List of contributors written extensively and continues to participate in conferences, training programmes and webinars on intellectual property matters. Margaret A. Young is Professor at Melbourne Law School, University of Melbourne, specializing in public international law, the law of the sea, international trade law, climate change, and environmental law. Her research has received various awards, including the Certificate of Merit in a Specialized Area of International Law from the American Society of International Law, the International Union for Conservation of Nature (IUCN) Academy of Environmental Law Junior Scholar Prize and the University of Melbourne Woodward Medal in Humanities and Social Sciences. Elected in 2021 as a Fellow of the Australian Academy of Law, Margaret is currently academic consultant to the World Bank’s Blue Economy Program and serves as a member of the international expert group for the proposed United Nations ‘Global Pact for the Environment’. Before joining Melbourne Law School, she was the inaugural Research Fellow in Public International Law at Pembroke College and the Lauterpacht Centre for International Law, University of Cambridge.

List of Abbreviations

1979 Understanding 1989 Improvements AANZFTA AB ABMs ACP Group ACWL ADR AEC AfCFTA AGOA AI AIIB ALADI ALALC ALBA ALOP ANDEAN Community Anti-​Dumping Agreement/​AD Agreement ANZCERTA AO APEC APTA ARSIWA ASEAN ATIGA ATISA

Understanding on Notification, Consultation, Dispute Settlement and Surveillance, 28 November 1979, GATT BISD 26S/​210 Decision on Improvements to the GATT Dispute Settlement Rules and Procedures, 12 April 1989, GATT BISD 36S/​61 ASEAN-​Australia-​New Zealand Free Trade Agreement Appellate Body Appellate Body Members African, Caribbean, and the Pacific Group of States Advisory Centre on WTO Law Alternative dispute resolution Atomic Energy Council African Continental Free Trade Area African Growth and Opportunity Act Artificial intelligence Asian Infrastructure Investment Bank Latin American Integration Association Latin American Free Trade Association Bolivarian Alliance for Latin America and the Caribbean Appropriate level of protection ANDEAN Community (Comunidad Andina) Agreement on Implementation of Article VI of the GATT 1994 Australia-​New Zealand Closer Economic Relations Trade Agreement Appellation of origin Asia-​Pacific Economic Cooperation Asia-​Pacific Trade Agreement Articles on Responsibility of States for Internationally Wrongful Acts 2001/​ILC Articles on State Responsibility Association of Southeast Asian Nations ASEAN Trade in Goods Agreement ASEAN Trade in Services Agreement

xl   List of abbreviations AU BCBS BCI BIAT BIS BIT BRI CAC CACM CAFTA CAFTA-​DR

African Union Basel Committee on Banking Supervision Business confidential information Action Plan for Boosting Intra-​African Trade Bank of International Settlements Bilateral investment treaty Belt and Road Initiative Codex Alimentarius Commission Central American Common Market Central America Free Trade Agreement Central America-​Dominican Republic-​United States Free Trade Agreement CAI EU—​China Comprehensive Agreement on Investment CAP Common agriculture policy CARIBCAN Caribbean-​Canada Agreement CARICOM Caribbean Community and Common Market CARIFORUM Caribbean Forum CBD Convention on Biological Diversity CBPR Cross-​border privacy rules CCIA Agreement Investment Agreement for the COMESA Common Investment Area CCM Mercosur Trade Commission CEFTA Central European Free Trade Agreement CEMA Central African Economic and Monetary Union CEN-​SAD Community of Sahel-​Sharan States CEPA European Union-​CARIFORUM Economic Partnership Agreement CEPEA Comprehensive Economic Partnership for East Asia CETA EU-​Canada Comprehensive Economic and Trade Agreement CITES Convention on the International Trade in Endangered Species Civil Aircraft Agreement Agreement on Trade in Civil Aircraft CJEU Court of Justice of the European Union CMC Council of the Common Market CN Competitive neutrality CoE Council of Europe COMESA Common Market for Eastern and Southern Africa CPC Central Product Classification CPC Communist Party of China

List of abbreviations    xli CPTPP CSME CTD CTE CTG CUSFTA CUSMA Customs Valuation Agreement CVD CWB DEPA DOALOS DSB DSMs DSU EAC EACJ EAEC EAEG EAEU ECCAS ECFA ECGLC ECHR ECOSOC ECOWAS ECSC ECT ECtHR EEA Agreement EEC EFTA EMIT Group Enabling Clause EPA EPPs

Comprehensive and Progressive Agreement for Trans-​ Pacific Partnership CARICOM Single Market & Economy Committee on Trade and Development Committee on Trade and Environment Council for Trade in Goods Canada-​United States Free Trade Agreement Canada-​United States-​Mexico Agreement/​T-​MEC/​ USMCA Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 Countervailing duties Canada Wheat Board Digital Economy Partnership Agreement UN Division of Ocean Affairs and Law of the Sea Dispute Settlement Body Dispute settlement mechanisms Understanding on Rules and Procedures Governing the Settlement of Disputes/​Dispute Settlement Understanding East Asia Community EAC Court of Justice East Asia Economic Caucus East Asia Economic Group Eurasian Economic Union Economic Community of Central African States Economic Cooperation Framework Agreement Economic Community of Great Lakes Countries European Convention on Human Rights Economic and Social Council Economic Community of West African States European Coal and Steel Community Energy Charter Treaty European Court of Human Rights Agreement on the European Economic Area European Economic Community European Free Trade Association Group on Environmental Measures and International Trade Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries Economic Partnership Agreement Environmentally preferable products

xlii   List of abbreviations ESA EU EU—​Japan EPA EU—​Korea FTA EU—​Singapore FTA EU-​Colombia-​Peru Trade Agreement Euratom EU-​UK TCA

FAO FATF FCN FIT FSAP FSB FSF FTAs FTC FTZs GATB GATS GATT GATT 1947 GATT 1994 GCC GDP GDPR Geneva Act

GIs GMC

Eastern and South Africa European Union Agreement between the European Union and Japan for an Economic Partnership Free Trade Agreement between the European Union and its Member States, of the one part, and the Republic of Korea, of the other part Free Trade Agreement between the European Union and the Republic of Singapore Trade Agreement between the European Union and its Member States, of the one part, and Colombia and Peru, of the other part European Atomic Energy Community Agreement between the European Union and the European Atomic Energy Community, of the one part, and the United Kingdom of Great Britain and Northern Ireland, of the other part/UK-EU TCA Food and Agriculture Organization Financial Action Task Force on Money Laundering Freedom Commerce and Navigation Feed-​in-​tariff Financial Sector Assessment Programme Financial Stability Board Financial Stability Forum Free trade agreements/​PTAs/​RTAs Federal Trade Commission Free trade zones Geneva Agreement on Trade in Bananas General Agreement on Trade in Services General Agreement on Tariffs and Trade General Agreement on Tariffs and Trade 1947 General Agreement on Tariffs and Trade 1994 Gulf Cooperation Council Gross Domestic Product General Data Protection Regulation Geneva Act of the Lisbon Agreement on Appellations of Origin and Geographical Indications and Regulations Under the Geneva Act of the Lisbon Agreement on Appellations of Origin and Geographical Indications, 20 May 2015 Geographical indications Common Market Group

List of abbreviations    xliii GPA GSP HS Convention HSBI IA IBRD ICCPR ICITO ICJ ICSID ICTY IFAD IIAs IISD ILC ILC Articles on State Responsibility ILO IMF Import Licensing Agreement IOC IOSCO IoT IP IPPC IPRs ISDA ISDS ITC ITO IUCN IUU (fishing) Japan—​ASEAN Agreement on Comprehensive Closer Economic Partnership JECFA

Agreement on Government Procurement Generalized System of Preferences International Convention on the Harmonized Commodity Description and Coding System Highly sensitive business information Investigating authority International Bank for Reconstruction and Development International Covenant on Civil and Political Rights Interim Committee for the International Trade Organization International Court of Justice International Centre for the Settlement of Investment Disputes International Criminal Tribunal for the former Yugoslavia International Fund for Agricultural Development International investment agreements International Institute for Sustainable Development International Law Commission Articles on Responsibility of States for Internationally Wrongful Acts 2001/​ARSIWA International Labour Organization International Monetary Fund Agreement on Import Licensing Procedures Indian Ocean Commission International Organization of Securities Commission Internet of things Intellectual propertys International Plant Protection Convention Intellectual property right International Swaps and Derivatives Association Investor-State dispute settlement. International Trade Centre International Trade Organisation International Union for Conservation of Nature Illegal, unreported and unregulated fishing Agreement on Comprehensive Economic Partnership among Japan and Member States of the Association of South-​East Asian Nations Joint FAO/​WHO Export Committee on Food Additives

xliv   List of abbreviations JEEPA KORUS (FTA) LAIA LCIA LCR LDC Lisbon Agreement LMICs Madrid Agreement Marrakesh Agreement MEAs MERCOSUR MFN MIP MOFCOM MPIA MRA MRU MSMEs NAAEC NAALC NAFTA NAFTA 2.0 NCDs NDC NEPAD NME NTE OAPI OAS OAU OCDs ODCs OECD OIE OMAs

Agreement between the European Union and Japan for an Economic Partnership US-​Korea Free Trade Agreement Latin American Integration Association London Court of International Arbitration Local content requirement Least developed country Lisbon Agreement for the Protection of Appellations of Origin and their International Registration, 31 October 1958 Low and middle-​income countries Madrid Agreement for the Repression of False and Deceptive Indications of Source, 14 April 1891 Agreement Establishing the World Trade Organization Multilateral environmental agreements Southern Common Market (El Mercado Común del Sur) Most-​favoured-​nation Minimum import prices Ministry of Commerce of the People’s Republic of China Multi-​Party Interim Appeal Arbitration Arrangement Mutual recognition agreement Mano River Union Micro, small and medium-​sized enterprises North American Agreement on Environmental Cooperation North American Agreement on Labour Cooperation North American Free Trade Agreement Canada-​United States-​Mexico Agreement/​CUSMA/​T-​ MEC/​USMCA Non-​communicable diseases National Determined Contributions New Partnership for Africa’s Development Non-​market economy National trade estimate OAPI -​African Intellectual Property Organization Organization of American States Organisation for African Unity Ordinary customs duties Other duties and charges imposed on or in connection with importation Organisation for Economic Cooperation and Development World Organization of Animal Health Orderly marketing arrangements

List of abbreviations    xlv PAAP PAFTA Paris Agreement PCA PCIJ POI PPMs PRC PSMA PTA R&D RCEP REC Revised Government Procurement Agreement RFMA RFMOs ROC RPT RTAA RTAs S&DT SAA SAA BiH SACU SADC SCM Agreement SDG SIDS SIECA SMEs SOEs SPA SPS Agreement SSDS STC SVEs

Pacific Alliance Additional Protocol Peru-​Australia FTA Paris Convention for the Protection of Industrial Property, 20 March 1883 Permanent Court of Arbitration Permanent Court of International Justice Period of investigation Process and production methods People’s Republic of China Agreement on Port State Measures to Prevent, Deter and Eliminate Illegal, Unreported and Unregulated Fishing Preferential trade agreement/​FTA/​RTAs Research and development Regional Comprehensive Economic Partnership Agreement Regional Economic Community Revised Agreement on Government Procurement Regional Fisheries Management Arrangements Regional Fisheries Management Organisations Republic of China Reasonable period of time 1934 Reciprocal Trade Agreement Act Regional trade agreements/​FTA/​PTAs Special and differential treatment US Statement of Administrative Action Stabilization and Association Agreement between the European Union and Bosnia and Herzegovina Southern African Customs Union Southern African Development Community Agreement on Subsidies and Countervailing Measures Sustainable development goal Small island developing States Central American Integration Secretariat Small and medium-​sized enterprises State-​owned enterprises Single electronic point of access Agreement on the Application of Sanitary and Phytosanitary Measures State-​to-​State dispute settlement Special trade concern Small vulnerable economies

xlvi   List of abbreviations TB TBT Agreement TED TEU TFA TFEU TFTA TiSA TISMOS TMB T-​MEC TNC Tokyo Round Anti-​ Dumping Code TOT TPA TPL TPP TPRB TPRM TRIMs Agreement TRIPS Agreement TRQs TSB TSD TTIP UHC UMA UN UN Charter UNCITRAL UNCLOS UNCTAD UNFCCC US USDOC USITC USMCA

Tuberculosis Technical Barriers to Trade Agreement Tenders Electronic Daily Treaty on European Union Trade Facilitation Agreement Treaty on the Functioning of the European Union Tripartite Free Trade Area and African Continent Free Trade Area Trade in Services Agreement Trade in services by mode of supply Textiles Monitoring Body Tratado entre Mexico, Estados Unidos y Canadá/​CUSMA/​ USMCA Trade Negotiations Committee Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade Terms-​of-​trade Trade Promotion Agreement Tariff preference level Trans-​Pacific Partnership Trade Policy Review Body Trade Policy Review Mechanism Agreement on Trade-​Related Investment Measures Agreement on Trade-​Related Aspects of Intellectual Property Rights Tariff rate quotas Textiles Surveillance Body Trade and sustainable development Transatlantic Trade and Investment Partnership Universal health coverage Arab Maghreb Union United Nations United Nations Charter United Nations Commission on International Trade Law United Nations Convention on the Law of the Sea United Nations Conference on Trade and Development United Nations Framework Convention on Climate Change United States United States Department of Commerce United States International Trade Commission United States-​Mexico-​Canada Agreement/​CUSMA/​ T-​MEC

List of abbreviations    xlvii USTR VCLT (1969) VERs VRAs W/​120 WA WAEMU WCO WHO WIPO WTO WTO Agreement

United States Trade Representative Vienna Convention on the Law of Treaties 1969 Voluntary export restrains Voluntary restraint agreements GATS Services Sectoral Classification List Wassenaar Arrangement West African Economic and Monetary Union World Customs Organization World Health Organization World Intellectual Property Organization World Trade Organization Marrakesh Agreement Establishing the World Trade Organization

List of Cited WTO Panel and Appellate B ody reports, Initiated WTO Disputes and their Common Abbreviations

Short title

Full title and citation

Argentina –​Ceramic Tiles

Panel Report, Argentina –​Definitive Anti Dumping Measures on Carton-Board Imports from Germany and Definitive Anti-Dumping Measures on Imports of Ceramic Floor Tiles from Italy, WT/​DS189/​R, adopted 5 November 2001, DSR 2001:XII, p. 6241 Appellate Body Report, Argentina –​Measures Relating to Trade in Goods and Services, WT/​ DS453/​AB, adopted 9 May 2016, DSR 2016:II Appellate Body Report, Argentina –​Safeguard Measures on Imports of Footwear, WT/​DS121/​AB/​ R, adopted 12 January 2000, DSR 2000: I, p. 515 Panel Report, Argentina –​Measures Affecting the Export of Bovine Hides and Import of Finished Leather, WT/​DS155/​R and Corr.1, adopted 16 February 2001, DSR 2001:V, p. 1779 Appellate Body Reports, Argentina –​Measures Affecting the Importation of Goods, WT/​DS438/​ AB/​R /​ WT/​DS444/​AB/​R /​ WT/​DS445/​AB/​R, adopted 26 January 2015, DSR 2015:II Panel Reports, Argentina –​Measures Affecting the Importation of Goods, WT/​DS438/​R /​ WT/​DS444/​ R /​WT/​DS445/​R /​and Add.1, adopted 26 January 2015, as modified (WT/​DS438/​R) and upheld (WT/​DS444/​R /​ WT/​DS445/​R) by Appellate Body Reports WT/​DS438/​AB/​R /​ WT/​DS444/​AB/​R /​ WT/​DS445/​AB/​R, DSR 2015:II

Argentina –​Financial Services

Argentina –​Footwear (EC)

Argentina –​Hides and Leather

Argentina –​Import Measures

l    List of cited WTO Panel and Appellate Body reports Short title

Full title and citation

Argentina –​Poultry Anti-​Dumping Panel Report, Argentina –​Definitive Anti-​Dumping Duties Duties on Poultry from Brazil, WT/​DS241/​R, adopted 19 May 2003, DSR 2003: V, p. 1727 Argentina –​Preserved Peaches Panel Report, Argentina –​Definitive Safeguard Measure on Imports of Preserved Peaches, WT/​ DS238/​R, adopted 15 April 2003, DSR 2003:III, p. 1037 Argentina –​Textiles and Apparel Appellate Body Report, Argentina –​Measures Affecting Imports of Footwear, Textiles, Apparel and other Items, WT/​DS56/​AB/​R and Corr.1, adopted 22 April 1998, DSR 1998:III, p. 1003 Australia –​ Anti-​Dumping Panel Report, Australia –​Anti-​Dumping Measures Measures on A4 Copy Paper on A4 Copy Paper, WT/​DS529/​R and Add.1, adopted 28 January 2020 Australia –​Apples Appellate Body Report, Australia –​Measures Affecting the Importation of Apples from New Zealand, WT/​DS367/​AB/​R, adopted 17 December 2010, DSR 2010:V, p. 2175 Australia –​Automotive Leather II Panel Report, Australia –​Subsidies Provided to Producers and Exporters of Automotive Leather, WT/​DS126/​R, adopted 16 June 1999, DSR 1999:III, p. 951

List of cited WTO Panel and Appellate Body reports    li Short title

Full title and citation

Australia –​Tobacco Plain Packaging

Appellate Body Reports, Australia-Certain Measures concerning Trademarks, Geographical Indications and other Plain Packaging Requirements Applicable to Tobacco Products and Packaging, WT/DS435/AB/R, WT/DS441/ AB/R, adopted 29 June 2020 Panel Report, Australia –​Certain Measures concerning Trademarks, Geographical Indications and other Plain Packaging Requirements Applicable to Tobacco Products and Packaging, WT/​DS435/​ R, Add.1 and Suppl.1, circulated 28 June 2018 [appealed by Honduras 19 July 2018] Panel Report, Australia –​Certain Measures concerning Trademarks, Geographical Indications and other Plain Packaging Requirements Applicable to Tobacco Products and Packaging, WT/​ DS441/​R, Add.1 and Suppl.1, circulated 28 June 2018 [appealed by the Dominican Republic 23 August 2018] Panel Report, Australia –​Certain Measures concerning Trademarks, Geographical Indications and other Plain Packaging Requirements Applicable to Tobacco Products and Packaging, WT/​DS458/​R, Add.1 and Suppl.1, adopted 27 August 2018 Panel Report, Australia –​Certain Measures concerning Trademarks, Geographical Indications and other Plain Packaging Requirements Applicable to Tobacco Products and Packaging, WT/​DS467/​R, Add.1 and Suppl.1, adopted 27 August 2018 Appellate Body Report, Brazil –​Export Financing Programme for Aircraft, WT/​DS46/​AB/​R, adopted 20 August 1999, DSR 1999:III, p. 1161 Panel Report, Brazil –​Export Financing Programme for Aircraft –​Recourse by Canada to Article 21.5 of the DSU, WT/​DS46/​RW, adopted 4 August 2000, as modified by Appellate Body Report WT/​DS46/​AB/​RW, DSR 2000:IX, p. 4093 Panel Report, Brazil –​Export Financing Programme for Aircraft –​Second Recourse by Canada to Article 21.5 of the DSU, WT/​DS46/​RW/​ 2, adopted 23 August 2001, DSR 2001:X, p. 5481

Brazil –​Aircraft

Brazil –​Aircraft (Article 21.5 –​ Canada I)

Brazil –​Aircraft (Article 21.5 –​ Canada II)

lii    List of cited WTO Panel and Appellate Body reports Short title

Full title and citation

Brazil –​Desiccated Coconut

Appellate Body Report, Brazil –​Measures Affecting Desiccated Coconut, WT/​DS22/​AB/​R, adopted 20 March 1997, DSR 1997: I, p. 167 Appellate Body Report, Brazil –​Measures Affecting Imports of Retreaded Tyres, WT/​DS332/​ AB/​R, adopted 17 December 2007, DSR 2007:IV, p. 1527 Panel Report, Brazil –​Measures Affecting Imports of Retreaded Tyres, WT/​DS332/​R, adopted 17 December 2007, as modified by Appellate Body Report WT/​DS332/​AB/​R, DSR 2007:V, p. 1649 Panel Report, Brazil –​Certain Measures Concerning Taxation and Charges, WT/​DS472/​R, adopted 11 January 2019, as modified by Appellate Body Report WT/​DS472/​AB/​R, DSR Panel Report, Canada –​Additional Duties on Certain Products from the United States, WT/​ DS557/​R, circulated 11 July 2019, mutually agreed solution notified 23 May 2019 Appellate Body Report, Canada –​Measures Affecting the Export of Civilian Aircraft, WT/​ DS70/​AB/​R, adopted 20 August 1999, DSR 1999:III, p. 1377 Panel Report, Canada –​Measures Affecting the Export of Civilian Aircraft, WT/​DS70/​R, adopted 20 August 1999, upheld by Appellate Body Report WT/​DS70/​AB/​R, DSR 1999:IV, p. 1443 Appellate Body Report, Canada –​Certain Measures Affecting the Automotive Industry, WT/​ DS139/​AB/​R, WT/​DS142/​AB/​R, adopted 19 June 2000, DSR 2000:VI, p. 2985 Panel Report, Canada –​Certain Measures Affecting the Automotive Industry, WT/​DS139/​R, WT/​DS142/​R, adopted 19 June 2000, as modified by Appellate Body Report WT/​DS139/​AB/​R, WT/​ DS142/​AB/​R, DSR 2000:VII, p. 3043 Canada –​Measures Concerning Trade in Commercial Aircraft, WT/​DS522, mutually agreed solution notified 18 February 2021

Brazil –​Retreaded Tyres

Brazil –​Taxation

Canada –​Additional Duties

Canada –​Aircraft

Canada –​Autos

Canada –​Commercial Aircraft

List of cited WTO Panel and Appellate Body reports    liii Short title

Full title and citation

Canada –​Continued Suspension

Panel Report, Canada –​Continued Suspension of Obligations in the EC –​Hormones Dispute, WT/​DS321/​R and Add.1 to Add.7, adopted 14 November 2008, as modified by Appellate Body Report WT/​DS321/​AB/​R, DSR 2008:XV, p. 5757 Appellate Body Report, Canada –​Measures Affecting the Importation of Milk and the Exportation of Dairy Products, WT/​DS103/​AB/​R, WT/​DS113/​AB/​R and Corr.1, adopted 27 October 1999, DSR 1999:V, p. 2057 Panel Report, Canada –​Measures Affecting the Importation of Milk and the Exportation of Dairy Products, WT/​DS103/​R, WT/​DS113/​R, adopted 27 October 1999, as modified by Appellate Body Report WT/​DS103/​AB/​R, WT/​DS113/​AB/​R, DSR 1999:VI, p. 2097 Panel Report, Canada –​Measures Affecting the Importation of Milk and the Exportation of Dairy Products –​Recourse to Article 21.5 of the DSU by New Zealand and the United States, WT/​DS103/​ RW, WT/​DS113/​RW, adopted 18 December 2001, as reversed by Appellate Body Report WT/​DS103/​ AB/​RW, WT/​DS113/​AB/​RW, DSR 2001:XIII, p. 6865 Appellate Body Report, Canada –​Term of Patent Protection, WT/​DS170/​AB/​R, adopted 12 October 2000, DSR 2000:X, p. 5093 Appellate Body Report, Canada –​Certain Measures Concerning Periodicals, WT/​DS31/​AB/​ R, adopted 30 July 1997, DSR 1997:I, p. 449 Panel Report, Canada –​Patent Protection of Pharmaceutical Products, WT/​DS114/​R, adopted 7 April 2000, DSR 2000:V, p. 2289 Appellate Body Reports, Canada –​Certain Measures Affecting the Renewable Energy Generation Sector/​Canada –​Measures Relating to the Feed-​in Tariff Program, WT/​DS412/​AB/​R /​ WT/​DS426/​AB/​R, adopted 24 May 2013 Panel Report, Canada –​Anti-​Dumping Measures on Imports of Certain Carbon Steel Welded Pipe from the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu, WT/​DS482/​R and Add.1, adopted 25 January 2017, DSR 2017: I, p. 7

Canada –​Dairy

Canada –​Dairy (Article 21.5 –​New Zealand and United States)

Canada –​Patent Term

Canada –​Periodicals

Canada –​Pharmaceutical Patents

Canada –​Renewable Energy/​ Canada –​Feed-​in Tariff Program

Canada –​Welded Pipe

liv    List of cited WTO Panel and Appellate Body reports Short title

Full title and citation

Canada –​Wheat Exports and Grain Appellate Body Report, Canada –​Measures Imports Relating to Exports of Wheat and Treatment of Imported Grain, WT/​DS276/​AB/​R, adopted 27 September 2004, DSR 2004:VI, p. 2739 Canada –​Wine (Australia) Panel Report, Canada –​Measures Governing the Sale of Wine, WT/​DS537, mutually agreed solution 12 May 2021 Chile –​Price Band System Appellate Body Report, Chile –​Price Band System and Safeguard Measures Relating to Certain Agricultural Products, WT/​DS207/​AB/​R, adopted 23 October 2002, DSR 2002:VIII, p. 3045 (Corr.1, DSR 2006:XII, p. 5473) Chile –​Swordfish Chile—​Measures affecting the Transit and Importing of Swordfish, WT/​DS193, withdrawn/​ terminated 28 May 2010 China –​Auto Parts Appellate Body Reports, China –​Measures Affecting Imports of Automobile Parts, WT/​DS339/​ AB/​R /​ WT/​DS340/​AB/​R /​ WT/​DS342/​AB/​R, adopted 12 January 2009, DSR 2009:I, p. 3 Panel Reports, China –​Measures Affecting Imports of Automobile Parts, WT/​DS339/​R /​ WT/​DS340/​ R /​WT/​DS342/​R /​Add.1 and Add.2, adopted 12 January 2009, upheld (WT/​DS339/​R) and as modified (WT/​DS340/​R /​ WT/​DS342/​R) by Appellate Body Reports WT/​DS339/​AB/​R /​WT/​ DS340/​AB/​R /​ WT/​DS342/​AB/​R, DSR 2009:I, p. 119 China –​AD/​CVD on Barley China –​Anti-​dumping and countervailing duty (Australia) measures on barley from Australia, WT/​DS598, ongoing China –​Electronic Payment Panel Report, China –​Certain Measures Affecting Services Electronic Payment Services, WT/​DS413/​R and Add.1, adopted 31 August 2012, DSR 2012:X, p. 5305 China –​GOES Appellate Body Report, China –​Countervailing and Anti-​Dumping Duties on Grain Oriented Flat-​ Rolled Electrical Steel from the United States, WT/​ DS414/​AB/​R, adopted 16 November 2012, DSR 2012: XII, p. 6251 Panel Report, China –​Countervailing and Anti-​ Dumping Duties on Grain Oriented Flat-​Rolled Electrical Steel from the United States, WT/​DS414/​ R and Add.1, adopted 16 November 2012, upheld by Appellate Body Report WT/​DS414/​AB/​R, DSR 2012:XII, p. 6369

List of cited WTO Panel and Appellate Body reports    lv Short title

Full title and citation

China –​Intellectual Property Rights Panel Report, China –​Measures Affecting the Protection and Enforcement of Intellectual Property Rights, WT/​DS362/​R, adopted 20 March 2009, DSR 2009:V, p. 2097 China –​Intellectual Property Rights Panel Report, China –​Certain Measures II Concerning the Protection of Intellectual Property Rights, WT/​DS542, authority lapsed 9 June 2021 China –​Publications and Appellate Body Report, China –​Measures Audiovisual Products Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products, WT/​DS363/​AB/​R, adopted 19 January 2010, DSR 2010:I, p. 3 Panel Report, China –​Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products, WT/​DS363/​R and Corr.1, adopted 19 January 2010, as modified by Appellate Body Report WT/​DS363/​AB/​R, DSR 2010:II, p. 261 China –​Rare Earths Appellate Body Reports, China –​Measures Related to the Exportation of Rare Earths, Tungsten, and Molybdenum, WT/​DS431/​AB/​R /​ WT/​DS432/​AB/​ R /​WT/​DS433/​AB/​R, adopted 29 August 2014, DSR 2014: III, p. 805 Panel Reports, China –​Measures Related to the Exportation of Rare Earths, Tungsten, and Molybdenum, WT/​DS431/​R and Add.1 /​WT/​ DS432/​R and Add.1 /​WT/​DS433/​R and Add.1, adopted 29 August 2014, upheld by Appellate Body Reports WT/​DS431/​AB/​R /​ WT/​DS432/​AB/​ R /​WT/​DS433/​AB/​R, DSR 2014:IV, p. 1127 China –​Raw Materials Appellate Body Reports, China –​Measures Related to the Exportation of Various Raw Materials, WT/​ DS394/​AB/​R /​ WT/​DS395/​AB/​R /​ WT/​DS398/​ AB/​R, adopted 22 February 2012, DSR 2012: VII, p. 3295 Panel Reports, China –​Measures Related to the Exportation of Various Raw Materials, WT/​ DS394/​R, Add.1 and Corr.1 /​WT/​DS395/​R, Add.1 and Corr.1 /​WT/​DS398/​R, Add.1 and Corr.1, adopted 22 February 2012, as modified by Appellate Body Reports WT/​DS394/​AB/​R /​WT/​ DS395/​AB/​R /​ WT/​DS398/​AB/​R, DSR 2012:VII, p. 3501

lvi    List of cited WTO Panel and Appellate Body reports Short title

Full title and citation

China –​TRQs

Panel Report, China –​Tariff Rate Quotas for Certain Agricultural Products, WT/​DS517/​R, adopted 28 May 2019 Panel Report, China –​Definitive Anti-​Dumping Duties on X-​Ray Security Inspection Equipment from the European Union, WT/​DS425/​R and Add.1, adopted 24 April 2013, DSR 2013: III, p. 659 Colombia –​Anti-​Dumping Duties on Frozen Fries from Belgium, Germany and the Netherlands, WT/​ DS591, ongoing Panel Report, Colombia –​Indicative Prices and Restrictions on Ports of Entry, WT/​DS366/​R and Corr.1, adopted 20 May 2009, DSR 2009:VI, p. 2535 Appellate Body Report, Colombia –​Measures Relating to the Importation of Textiles, Apparel and Footwear, WT/​DS461/​AB/​R, adopted 22 June 2016 Costa Rica –​Measures Concerning the Importation of Fresh Avocados from Mexico, WT/​DS524, adopted 31 May 2022 Appellate Body Report, Dominican Republic –​ Measures Affecting the Importation and Internal Sale of Cigarettes, WT/​DS302/​AB/​R, adopted 19 May 2005, DSR 2005: XV, p. 7367 Panel Report, Dominican Republic –​Measures Affecting the Importation and Internal Sale of Cigarettes, WT/​DS302/​R, adopted 19 May 2005, as modified by Appellate Body Report WT/​DS302/​ AB/​R, DSR 2005: XV, p. 7425 Panel Report, Dominican Republic –​Safeguard Measures on Imports of Polypropylene Bags and Tubular Fabric, WT/​DS417/​R, adopted 22 February 2012 Panel Report, Dominican Republic –​Safeguard Measures on Imports of Polypropylene Bags and Tubular Fabric, WT/​DS415/​R, WT/​DS416/​R, WT/​ DS417/​R, WT/​DS418/​R, and Add.1, adopted 22 February 2012, DSR 2012:XIII, p. 6775 Panel Reports, European Communities –​Measures Affecting the Approval and Marketing of Biotech Products, WT/​DS291/​R /​ WT/​DS292/​R /​ WT/​ DS293/​R /​Add.1 to Add.9 and Corr.1, adopted 21 November 2006, DSR 2006:III, p. 847

China –​X-​Ray Equipment

Colombia –​Frozen Fries

Colombia –​Ports of Entry

Colombia –​Textiles

Costa Rica –​Fresh Avocados

Dominican Republic –​Import and Sale of Cigarettes

Dominican Republic –​Plastic Bags

Dominican Republic –​Safeguard Measures

EC –​Approval and Marketing of Biotech Products

List of cited WTO Panel and Appellate Body reports    lvii Short title EC –​Asbestos

Full title and citation

Appellate Body Report, European Communities –​Measures Affecting Asbestos and Asbestos-​Containing Products, WT/​DS135/​AB/​R, adopted 5 April 2001, DSR 2001:VII, p. 3243 Panel Report, European Communities –​Measures Affecting Asbestos and Asbestos-​Containing Products, WT/​DS135/​R and Add.1, adopted 5 April 2001, as modified by Appellate Body Report WT/​ DS135/​AB/​R, DSR 2001:VIII, p. 3305 EC –​Bananas III Appellate Body Report, European Communities –​ Regime for the Importation, Sale and Distribution of Bananas, WT/​DS27/​AB/​R, adopted 25 September 1997, DSR 1997:II, p. 591 Panel Report, European Communities –​Regime for the Importation, Sale and Distribution of Bananas, Complaint by Ecuador, WT/​DS27/​R/​ ECU, adopted 25 September 1997, as modified by Appellate Body Report WT/​DS27/​AB/​R, DSR 1997:III, p. 1085 EC –​Bananas III (Article 21.5 –​EC) Panel Report, European Communities –​Regime for the Importation, Sale and Distribution of Bananas –​Recourse to Article 21.5 of the DSU by the European Communities, WT/​DS27/​RW/​EEC, 12 April 1999, and Corr.1, unadopted, DSR 1999:II, p. 783 EC –​Bananas III (Article 21.5 –​ Panel Report, European Communities –​Regime Ecuador II)/​(Article 21.5 –​US) for the Importation, Sale and Distribution of Bananas –​Second Recourse to Article 21.5 of the DSU by Ecuador, WT/​DS27/​RW2/​ECU, adopted 11 December 2008, as modified by Appellate Body Report WT/​DS27/​AB/​RW2/​ECU, DSR 2008:XVIII, p. 7329 Panel Report, European Communities –​Regime for the Importation, Sale and Distribution of Bananas –​Recourse to Article 21.5 of the DSU by the United States, WT/​DS27/​RW/​USA and Corr.1, adopted 22 December 2008, upheld by Appellate Body Report WT/​DS27/​AB/​RW/​USA, DSR 2008:XIX, p. 7761

lviii    List of cited WTO Panel and Appellate Body reports Short title EC –​Bananas III (Ecuador)

Full title and citation

Panel Report, European Communities –​Regime for the Importation, Sale and Distribution of Bananas, Complaint by Ecuador, WT/​DS27/​R/​ ECU, adopted 25 September 1997, as modified by Appellate Body Report WT/​DS27/​AB/​R, DSR 1997: III, p. 1085 EC –​Bananas III (Ecuador) (Article Decision by the Arbitrators, European 22.6 –​EC) Communities –​Regime for the Importation, Sale and Distribution of Bananas –​Recourse to Arbitration by the European Communities under Article 22.6 of the DSU, WT/​DS27/​ARB, 9 April 1999, DSR 1999:II, p. 725 EC –​Bananas III (US) (Article Decision by the Arbitrators, European 22.6 –​EC) Communities –​Regime for the Importation, Sale and Distribution of Bananas –​Recourse to Arbitration by the European Communities under Article 22.6 of the DSU, WT/​DS27/​ARB/​ECU, 24 March 2000, DSR 2000:V, p. 2237 EC –​Bed Linen Appellate Body Report, European Communities –​ Anti-​Dumping Duties on Imports of Cotton-​Type Bed Linen from India, WT/​DS141/​AB/​R, adopted 12 March 2001, DSR 2001: V, p. 2049 Panel Report, European Communities –​Anti-​ Dumping Duties on Imports of Cotton-​Type Bed Linen from India, WT/​DS141/​R, adopted 12 March 2001, as modified by Appellate Body Report WT/​ DS141/​AB/​R, DSR 2001:VI, p. 2077 EC –​Bed Linen (Article 21.5 –​India) Appellate Body Report, European Communities –​ Anti-​Dumping Duties on Imports of Cotton-​Type Bed Linen from India –​Recourse to Article 21.5 of the DSU by India, WT/​DS141/​AB/​RW, adopted 24 April 2003, DSR 2003: III, p. 965 Panel Report, European Communities –​Anti-​ Dumping Duties on Imports of Cotton-​Type Bed Linen from India –​Recourse to Article 21.5 of the DSU by India, WT/​DS141/​RW, adopted 24 April 2003, as modified by Appellate Body Report WT/​ DS141/​AB/​RW, DSR 2003:IV, p. 1269 EC –​Butter Panel Report, European Communities –​Measures Affecting Butter Products, WT/​DS72/​R, 24 November 1999, unadopted

List of cited WTO Panel and Appellate Body reports    lix Short title

Full title and citation

EC –​Chicken Cuts

Appellate Body Report, European Communities –​ Customs Classification of Frozen Boneless Chicken Cuts, WT/​DS269/​AB/​R, WT/​DS286/​AB/​ R, adopted 27 September 2005, and Corr.1, DSR 2005:XIX, p. 9157 Panel Report, European Communities –​Customs Classification of Frozen Boneless Chicken Cuts, Complaint by Brazil, WT/​DS269/​R, adopted 27 September 2005, as modified by Appellate Body Report WT/​DS269/​AB/​R, WT/​DS286/​AB/​R, DSR 2005:XIX, p. 9295 Panel Report, European Communities –​Customs Classification of Frozen Boneless Chicken Cuts, Complaint by Thailand, WT/​DS286/​R, adopted 27 September 2005, as modified by Appellate Body Report WT/​DS269/​AB/​R, WT/​DS286/​AB/​R, DSR 2005:XX, p. 9721 Appellate Body Report, European Communities –​ Customs Classification of Certain Computer Equipment, WT/​DS62/​AB/​R, WT/​DS67/​AB/​ R, WT/​DS68/​AB/​R, adopted 22 June 1998, DSR 1998:V, p. 1851 Appellate Body Report, European Communities –​ Export Subsidies on Sugar, WT/​DS265/​AB/​R, WT/​ DS266/​AB/​R, WT/​DS283/​AB/​R, adopted 19 May 2005, DSR 2005:XIII, p. 6365 Appellate Body Report, European Communities –​ Definitive Anti-​Dumping Measures on Certain Iron or Steel Fasteners from China, WT/​DS397/​AB/​R, adopted 28 July 2011, DSR 2011: VII, p. 3995 Panel Report, European Communities –​Definitive Anti-​Dumping Measures on Certain Iron or Steel Fasteners from China, WT/​DS397/​R and Corr.1, adopted 28 July 2011, as modified by Appellate Body Report WT/​DS397/​AB/​R, DSR 2011: VIII, p. 4289

EC –​Computer Equipment

EC –​Export Subsidies on Sugar

EC –​Fasteners (China)

lx    List of cited WTO Panel and Appellate Body reports Short title

Full title and citation

EC –​Fasteners (China) (Article 21.5 –​China)

Appellate Body Report, European Communities –​ Definitive Anti-​Dumping Measures on Certain Iron or Steel Fasteners from China –​Recourse to Article 21.5 of the DSU by China, WT/​DS397/​AB/​RW and Add.1, adopted 12 February 2016, DSR 2016:I, p. 7 Panel Report, European Communities –​Definitive Anti-​Dumping Measures on Certain Iron or Steel Fasteners from China –​Recourse to Article 21.5 of the DSU by China, WT/​DS397/​RW and Add.1, adopted 12 February 2016, as modified by Appellate Body Report WT/​DS397/​AB/​RW, DSR 2016:I, p. 195 Panel Report, European Union –​Anti-​Dumping Measures on Certain Footwear from China, WT/​ DS405/​R, adopted 22 February 2012, DSR 2012: IX, p. 4585 Appellate Body Report, EC Measures Concerning Meat and Meat Products (Hormones), WT/​DS26/​ AB/​R, WT/​DS48/​AB/​R, adopted 13 February 1998, DSR 1998:I, p. 135 Panel Report, EC Measures Concerning Meat and Meat Products (Hormones), Complaint by Canada, WT/​DS48/​R/​CAN, adopted 13 February 1998, as modified by Appellate Body Report WT/​DS26/​ AB/​R, WT/​DS48/​AB/​R, DSR 1998:II, p. 235 Panel Report, EC Measures Concerning Meat and Meat Products (Hormones), Complaint by the United States, WT/​DS26/​R/​USA, adopted 13 February 1998, as modified by Appellate Body Report WT/​DS26/​AB/​R, WT/​DS48/​AB/​R, DSR 1998:III, p. 699 Decision by the Arbitrators, European Communities –​Measures Concerning Meat and Meat Products (Hormones), Original Complaint by the United States –​Recourse to Arbitration by the European Communities under Article 22.6 of the DSU, WT/​DS26/​ARB, 12 July 1999, DSR 1999:III, p. 1105

EC –​Footwear (China)

EC –​Hormones

EC –​Hormones (Canada)/​EC –​ Hormones (US)

EC –​Hormones (US) (Article 22.6 –​EC)

List of cited WTO Panel and Appellate Body reports    lxi Short title

Full title and citation

EC –​Price Comparison Methodologies

European Union—​Measures Related to Price Comparison Methodologies, WT/​DS516, authority lapsed 15 June 2020 Panel Report, European Communities –​Anti-​ Dumping Measure on Farmed Salmon from Norway, WT/​DS337/​R, adopted 15 January 2008, and Corr.1, DSR 2008: I, p. 3 Appellate Body Report, European Communities –​ Trade Description of Sardines, WT/​DS231/​AB/​R, adopted 23 October 2002, DSR 2002:VIII, p. 3359 Panel Report, European Communities –​Trade Description of Scallops –​Request by Canada, WT/​ DS7/​R, 5 August 1996, unadopted, DSR 1996:I, p. 89 Panel Report, European Communities –​Trade Description of Scallops –​Requests by Peru and Chile, WT/​DS12/​R, WT/​DS14/​R, 5 August 1996, unadopted, DSR 1996:I, p. 93 Appellate Body Reports, European Communities –​Measures Prohibiting the Importation and Marketing of Seal Products, WT/​DS400/​AB/​R /​ WT/​DS401/​AB/​R, adopted 18 June 2014 Appellate Body Report, European Communities –​ Selected Customs Matters, WT/​DS315/​AB/​R, adopted 11 December 2006, DSR 2006:IX, p. 3791 Panel Report, European Communities –​Selected Customs Matters, WT/​DS315/​R, adopted 11 December 2006, as modified by Appellate Body Report WT/​DS315/​AB/​R, DSR 2006:IX, p. 3915 Appellate Body Report, European Communities –​ Conditions for the Granting of Tariff Preferences to Developing Countries, WT/​DS246/​AB/​R, adopted 20 April 2004, DSR 2004:III, p. 925 Panel Report, European Communities –​Conditions for the Granting of Tariff Preferences to Developing Countries, WT/​DS246/​R, adopted 20 April 2004, as modified by Appellate Body Report WT/​ DS246/​AB/​R, DSR 2004:III, p. 1009

EC –​Salmon (Norway)

EC –​Sardines

EC –​Scallops (Canada)

EC –​Scallops (Peru and Chile)

EC –​Seal Products

EC –​Selected Customs Matters

EC –​Tariff Preferences

lxii    List of cited WTO Panel and Appellate Body reports Short title

Full title and citation

EC –​Trademarks and Geographical Panel Report, European Communities –​Protection Indications (US) of Trademarks and Geographical Indications for Agricultural Products and Foodstuffs, Complaint by the United States, WT/​DS174/​R, adopted 20 April 2005, DSR 2005:VIII, p. 3499 EC –​Tube or Pipe Fittings Appellate Body Report, European Communities –​ Anti-​Dumping-​ Duties on Malleable Cast Iron Tube or Pipe Fittings from Brazil, WT/​DS219/​AB/​R, adopted 18 August 2003, DSR 2003:VI, p. 2613 EC and certain member States –​ Appellate Body Report, European Communities Large Civil Aircraft and Certain Member States –​Measures Affecting Trade in Large Civil Aircraft, WT/​DS316/​AB/​R, adopted 1 June 2011, DSR 2011:I, p. 7 Panel Report, European Communities and Certain Member States –​Measures Affecting Trade in Large Civil Aircraft, WT/​DS316/​R, adopted 1 June 2011, as modified by Appellate Body Report, WT/​ DS316/​AB/​R, DSR 2011:II, p. 685 Egypt –​Steel Rebar Panel Report, Egypt –​Definitive Anti-​Dumping Measures on Steel Rebar from Turkey, WT/​DS211/​ R, adopted 1 October 2002, DSR 2002: VII, p. 2667 EU –​Biodiesel Appellate Body Report, European Union –​Anti-​ Dumping Measures on Biodiesel from Argentina, WT/​DS473/​AB/​R and Add.1, adopted 26 October 2016, DSR 2016:VI, p. 2871 Panel Report, European Union –​Anti-​Dumping Measures on Biodiesel from Argentina, WT/​ DS473/​R and Add.1, adopted 26 October 2016, as modified by Appellate Body Report WT/​DS473/​ AB/​R, DSR 2016:VI, p. 3077 EU –​Cost Adjustment European Union –​Cost Adjustment Methodologies Methodologies (Russia) and Certain Anti-​Dumping Measures on Imports from Russia, WT/​DS474, ongoing EU –​Cost Adjustment Panel Report, European Union –​Cost Adjustment Methodologies II (Russia) Methodologies and Certain Anti-​Dumping Measures on Imports from Russia –​(Second complaint), WT/​DS494/​R, circulated 24 July 2020 (appealed) EU –​Energy Package Panel Report, European Union and its Member States –​Certain Measures Relating to the Energy Sector, WT/​DS476, circulated 10 August 2018 (appealed)

List of cited WTO Panel and Appellate Body reports    lxiii Short title

Full title and citation

EU –​Fatty Alcohols (Indonesia)

Appellate Body Report, European Union –​Anti-​ Dumping Measures on Imports of Certain Fatty Alcohols from Indonesia, WT/​DS442/​AB/​R and Add.1, adopted 29 September 2017, DSR 2017:VI, p. 2613 Panel Report, European Union –​Anti-​Dumping Measures on Imports of Certain Fatty Alcohols from Indonesia, WT/​DS442/​R and Add.1, adopted 29 September 2017, as modified by Appellate Body Report WT/​DS442/​AB/​R, DSR 2017:VI, p. 2765 Panel Report, European Union –​Anti-​Dumping Measures on Certain Footwear from China, WT/​ DS405/​R, adopted 22 February 2012, DSR 2012:IX, p. 4585 China –​Certain Measures on the Transfer of Technology, WT/​DS549, ongoing Appellate Body Report, European Union –​ Countervailing Measures on Certain Polyethylene Terephthalate from Pakistan, WT/​DS486/​AB, adopted 25 May 2018, DSR Panel Report, European Union –​Measures Affecting Tariff Concessions on Certain Poultry Meat Products, WT/​DS492/​R, circulated 19 April 2017, mutually agreed solution notified 30 May 2019 European Union –​Measures Related to Price Comparison Methodologies, WT/​DS516, authority lapsed 15 June 2017 Appellate Body Report, Guatemala –​Anti-​ Dumping Investigation Regarding Portland Cement from Mexico, WT/​DS60/​AB/​R, adopted 25 November 1998, DSR 1998: IX, p. 3767 Appellate Body Report, India –​Additional and Extra-​Additional Duties on Imports from the United States, WT/​DS360/​AB/​R, adopted 17 November 2008, DSR 2008:XX, p. 8223 Panel Report, India –​Measures Affecting the Automotive Sector, WT/​DS146/​R, WT/​DS175/​ R and Corr.1, adopted 5 April 2002, DSR 2002:V, p. 1827

EU –​Fatty Alcohols (Indonesia)

EU –​Footwear (China)

China –​Transfer of Technology EU –​PET (Pakistan)

EU –​Poultry Meat (China)

EU –​Price Comparison Methodologies Guatemala –​Cement I

India –​Additional Import Duties

India –​Autos

lxiv    List of cited WTO Panel and Appellate Body reports Short title

Full title and citation

India –​Iron and Steel Products

Panel Report, India –​Certain Measures on Imports of Iron and Steel Products, WT/​DS518/​R and Add.1, circulated 6 November 2018 [on appeal] Panel Report, India –​Patent Protection for Pharmaceutical and Agricultural Chemical Products, Complaint by the European Communities and their Member States, WT/​DS79/​R, adopted 22 September 1998, DSR 1998:VI, p. 2661 Appellate Body Report, India –​Patent Protection for Pharmaceutical and Agricultural Chemical Products, WT/​DS50/​AB/​R, adopted 16 January 1998, DSR 1998:I, p. 9 Panel Report, India –​Patent Protection for Pharmaceutical and Agricultural Chemical Products, Complaint by the United States, WT/​ DS50/​R, adopted 16 January 1998, as modified by Appellate Body Report WT/​DS50/​AB/​R, DSR 1998:I, p. 41 Panel Report, India –​Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products, WT/​DS90/​R, adopted 22 September 1999, upheld by Appellate Body Report WT/​ DS90/​AB/​R, DSR 1999:V, p. 1799 Appellate Body Report, India –​Certain Measures Relating to Solar Cells and Solar Modules, WT/​ DS456/​AB, adopted 14 October 2016 Panel Report, Indonesia –​Measures Concerning the Importation of Chicken Meat and Chicken Products, WT/​DS484/​R, adopted 22 November 2017 Appellate Body Report, Indonesia –​Importation of Horticultural Products, Animals and Animal Products, WT/​DS477/​AB, adopted 22 November 2017 Panel Report, Indonesia –​Safeguard on Certain Iron or Steel Products, WT/​DS490/​R, WT/​DS496/​ R, and Add.1, adopted 27 August 2018, as modified by Appellate Body Report WT/​DS490/​AB/​R, WT/​DS496/​AB/​R DSR 2018:VII, p. 3707

India –​Patents (EC)

India –​Patents (US)

India –​Quantitative Restrictions

India –​Solar Cells

Indonesia –​Chicken

Indonesia –​Import Licensing Regimes

Indonesia –​Iron and Steel Products

List of cited WTO Panel and Appellate Body reports    lxv Short title

Full title and citation

Japan –​Alcoholic Beverages II

Appellate Body Report, Japan –​Taxes on Alcoholic Beverages, WT/​DS8/​AB/​R, WT/​DS10/​AB/​R, WT/​DS11/​AB/​R, adopted 1 November 1996, DSR 1996: I, p. 97 Japan –​Measures Related to the Exportation of Products and Technology to Korea, WT/​DS590, ongoing Panel Report, Japan –​Measures Affecting Consumer Photographic Film and Paper, WT/​ DS44/​R, adopted 22 April 1998, DSR 1998:IV, p. 1179 Panel Report, Japan –​Import Quotas on Dried Laver and Seasoned Laver, WT/​DS323/​R, 1 February 2006, unadopted Appellate Body Report, Korea –​Taxes on Alcoholic Beverages, WT/​DS75/​AB/​R, WT/​DS84/​AB/​R, adopted 17 February 1999, DSR 1999:I, p. 3 Panel Report, Korea –​Taxes on Alcoholic Beverages, WT/​DS75/​R, WT/​DS84/​R, adopted 17 February 1999, as modified by Appellate Body Report WT/​DS75/​AB/​R, WT/​DS84/​AB/​R, DSR 1999:I, p. 44 Panel Report, Korea –​Measures Affecting the Importation of Bovine Meat and Meat Products from Canada, WT/​DS391/​R, 3 July 2012, unadopted Panel Report, Korea –​Anti-​Dumping Duties on Imports of Certain Paper from Indonesia, WT/​ DS312/​R, adopted 28 November 2005, DSR 2005: XXII, p. 10637 Panel Report, Korea –​Anti-​Dumping Duties on Imports of Certain Paper from Indonesia –​ Recourse to Article 21.5 of the DSU by Indonesia, WT/​DS312/​RW, adopted 22 October 2007, DSR 2007: VIII, p. 3369 Panel Report, Korea –​Measures Affecting Trade in Commercial Vessels, WT/​DS273/​R, adopted 11 April 2005, DSR 2005: VII, p. 2749

Japan –​Exportation of Products and Technology to Korea Japan –​Film

Japan –​Quotas on Laver

Korea –​Alcoholic Beverages

Korea –​Bovine Meat (Canada)

Korea –​Certain Paper

Korea –​Certain Paper (Article 21.5 –​Indonesia)

Korea –​Commercial Vessels

lxvi    List of cited WTO Panel and Appellate Body reports Short title

Full title and citation

Korea –​Dairy

Appellate Body Report, Korea –​Definitive Safeguard Measure on Imports of Certain Dairy Products, WT/​DS98/​AB/​R, adopted 12 January 2000, DSR 2000: I, p. 3 Appellate Body Report, Korea –​ Anti-​Dumping Duties on Pneumatic Valves from Japan, WT/​ DS504/​AB/​R and Add.1, adopted 30 September 2019 Appellate Body Report, Korea –​Measures Affecting Imports of Fresh, Chilled and Frozen Beef, WT/​DS161/​AB/​R, WT/​DS169/​AB/​R, adopted 10 January 2001, DSR 2001:I, p. 5 Panel Report, Mexico –​Additional Duties on Certain Products from the United States, WT/​ DS560/​R, circulated 11 July 2019, mutually agreed solution notified 28 May 2019 Appellate Body Report, Mexico –​Definitive Anti-​ Dumping Measures on Beef and Rice, Complaint with Respect to Rice, WT/​DS295/​AB/​R, adopted 20 December 2005, DSR 2005: XXII, p. 10853 Panel Report, Mexico –​ Anti-​Dumping Investigation of High Fructose Corn Syrup (HFCS) from the United States, WT/​DS132/​R, adopted 24 February 2000, and Corr.1, DSR 2000: III, p. 1345 Appellate Body Report, Mexico –​ Anti-​Dumping Investigation of High Fructose Corn Syrup (HFCS) from the United States –​Recourse to Article 21.5 of the DSU by the United States, WT/​DS132/​AB/​ RW, adopted 21 November 2001, DSR 2001: XIII, p. 6675 Panel Report, Mexico –​ Anti-​Dumping Investigation of High Fructose Corn Syrup (HFCS) from the United States –​Recourse to Article 21.5 of the DSU by the United States, WT/​DS132/​RW, adopted 21 November 2001, upheld by Appellate Body Report WT/​DS132/​AB/​RW, DSR 2001:XIII, p. 6717 Panel Report, Mexico –​Definitive Countervailing Measures on Olive Oil from the European Communities, WT/​DS341/​R, adopted 21 October 2008, DSR 2008:IX, p. 3179

Korea –​Pneumatic Valves (Japan)

Korea –​Various Measures on Beef

Mexico –​Additional Duties (US)

Mexico –​Anti-​Dumping Measures on Rice

Mexico –​Corn Syrup

Mexico –​Corn Syrup (Article 21.5 –​US)

Mexico –​Olive Oil

List of cited WTO Panel and Appellate Body reports    lxvii Short title

Full title and citation

Mexico –​Steel Pipes and Tubes

Panel Report, Mexico –​Anti-​Dumping Duties on Steel Pipes and Tubes from Guatemala, WT/​DS331/​ R, adopted 24 July 2007, DSR 2007: IV, p. 1207 Appellate Body Report, Mexico –​Tax Measures on Soft Drinks and other Beverages, WT/​DS308/​AB/​ R, adopted 24 March 2006, DSR 2006:I, p. 3 Appellate Body Report, Morocco –​ Anti-​dumping Measures on Certain Hot-​Rolled Steel from Turkey, WT/​DS513/​AB/​R and Add.1, adopted 8 January 2020 Panel Report, Morocco –​Anti-​dumping Measures on Certain Hot-​Rolled Steel from Turkey, WT/​ DS513/​R and Add.1, adopted 8 January 2020; appeal withdrawn by Morocco as reflected in Appellate Body Report WT/​DS513/​AB/​R Appellate Body Report, Peru –​Additional Duty on Imports of Certain Agricultural Products, WT/​ DS457/​AB/​R, adopted 31 July 2017, DSR Appellate Body Reports, Philippines –​Taxes on Distilled Spirits, WT/​DS396/​AB/​R /​ WT/​DS403/​ AB/​R, adopted 20 January 2012, DSR 2012:VIII, p. 4163 Appellate Body Report, Russia –​Measures affecting the importation of railway equipment and parts thereof, WT/​DS499/​AB, adopted 5 March 2020 Panel Report, Russia –​Measures Concerning Traffic in Transit, WT/​DS512/​R, adopted 26 April 2019 Panel Report, Saudi Arabia –​Measures concerning the Protection of Intellectual Property Rights, WT/​ DS567/​R, circulated 16 June 2020, terminated 25 April 2022 Appellate Body Report, Thailand –​Customs and Fiscal Measures on Cigarettes from the Philippines, WT/​DS371/​AB/​R, adopted 15 July 2011, DSR 2011: IV, p. 2203 Panel Report, Thailand –​Customs and Fiscal Measures on Cigarettes from the Philippines, WT/​ DS371/​R, adopted 15 July 2011, as modified by Appellate Body Report WT/​DS371/​AB/​R, DSR 2011: IV, p. 2299

Mexico –​Taxes on Soft Drinks

Morocco –​Hot-​Rolled Steel (Turkey)

Peru –​Agricultural Products

Philippines –​Distilled Spirits

Russia –​Railway Equipment

Russia –​Traffic in Transit

Saudi Arabia –​IPRs

Thailand –​Cigarettes (Philippines)

Thailand –​Cigarettes (Philippines)

lxviii    List of cited WTO Panel and Appellate Body reports Short title

Full title and citation

Thailand –​Cigarettes (Philippines) (Article 21.5 –​Philippines)

Panel Report, Thailand –​Customs and Fiscal Measures on Cigarettes from the Philippines, Recourse to Article 21.5 of the DSU, WT/​DS371/​ RW, circulated 12 November 2018 Appellate Body Report, Turkey –​Restrictions on Imports of Textile and Clothing Products, WT/​DS34/​AB/​R, adopted 19 November 1999, DSR 1999:VI, p. 2345 Panel Report, Turkey –​Restrictions on Imports of Textile and Clothing Products, WT/​DS34/​ R, adopted 19 November 1999, as modified by Appellate Body Report WT/​DS34/​AB/​R, DSR 1999:VI, p. 2363 Appellate Body Report, Ukraine –​ Anti-​Dumping Measures on Ammonium Nitrate, WT/​DS493/​AB/​ R and Add.1, adopted 30 September 2019 Panel Report, Ukraine –​Definitive Safeguard Measures on Certain Passenger Cars, WT/​DS468/​ R and Add.1, adopted 20 July 2015, DSR 2015:VI, p. 3117 Appellate Body Report, United States –​Anti-​ Dumping Act of 1916, WT/​DS136/​AB/​R, WT/​ DS162/​AB/​R, adopted 26 September 2000, DSR 2000:X, p. 4793 Appellate Body Report, United States –​Definitive Anti-​Dumping and Countervailing Duties on Certain Products from China, WT/​DS379/​AB/​R, adopted 25 March 2011, DSR 2011: V, p. 2869 United States –​Anti-​Dumping Measures on Cement from Mexico, WT/​DS281, authority lapsed 14 January 2007, mutually agreed solution notified 16 May 2007 Appellate Body Report, United States –​Anti-​ Dumping Measures on Oil Country Tubular Goods (OCTG) from Mexico, WT/​DS282/​AB/​R, adopted 28 November 2005, DSR 2005: XX, p. 10127 Appellate Body Report, United States –​ Countervailing Duties on Certain Corrosion-​ Resistant Carbon Steel Flat Products from Germany, WT/​DS213/​AB/​R and Corr.1, adopted 19 December 2002, DSR 2002: IX, p. 3779

Turkey –​Textiles

Ukraine –​Ammonium Nitrate (Russia) Ukraine –​Passenger Cars

US –​1916 Act

US –​Anti-​Dumping and Countervailing Duties (China)

US –​Anti-​Dumping Measures on Cement

US –​Anti-​Dumping Measures on Oil Country Tubular Goods

US –​Carbon Steel

List of cited WTO Panel and Appellate Body reports    lxix Short title

Full title and citation

US –​Carbon Steel (India)

Appellate Body Report, United States –​ Countervailing Measures on Certain Hot-​Rolled Carbon Steel Flat Products from India, WT/​DS436/​ AB/​R, adopted 19 December 2014, DSR 2014: V, p. 1727 Panel Report, United States –​Import Measures on Certain Products from the European Communities, WT/​DS165/​R and Add.1, adopted 10 January 2001, as modified by Appellate Body Report WT/​DS165/​ AB/​R, DSR 2001:II, p. 413 Appellate Body Report, United States –​Measures Affecting the Production and Sale of Clove Cigarettes, WT/​DS406/​AB/​R, adopted 24 April 2012, DSR 2012:XI, p. 5751 Panel Report, United States –​Anti-​Dumping and Countervailing Measures on Certain Coated Paper from Indonesia, WT/​DS491/​R and Add.1, adopted 22 January 2018 Panel Report, United States –​Continued Suspension of Obligations in the EC –​Hormones Dispute, WT/​DS320/​R and Add.1 to Add.7, adopted 14 November 2008, as modified by Appellate Body Report WT/​DS320/​AB/​R,DSR 2008:XI, p. 3891 Appellate Body Report, United States –​Continued Suspension of Obligations in the EC –​Hormones Dispute, WT/​DS320/​AB/​R, adopted 14 November 2008, DSR 2008:X, p. 3507 Appellate Body Report, United States –​Continued Existence and Application of Zeroing Methodology, WT/​DS350/​AB/​R, adopted 19 February 2009, DSR 2009: III, p. 1291 Panel Report, United States –​Continued Existence and Application of Zeroing Methodology, WT/​ DS350/​R, adopted 19 February 2009, as modified as Appellate Body Report WT/​DS350/​AB/​R, DSR 2009: III, p. 1481

US –​Certain EC Products

US –​Clove Cigarettes

US –​Coated Paper (Indonesia)

US –​Continued Suspension

US –​Continued Suspension/​ Canada –​Continued Suspension

US –​Continued Zeroing

lxx    List of cited WTO Panel and Appellate Body reports Short title

Full title and citation

US –​COOL

Appellate Body Reports, United States –​Certain Country of Origin Labelling (COOL) Requirements, WT/​DS384/​AB/​R /​ WT/​DS386/​AB/​R, adopted 23 July 2012, DSR 2012:V, p. 2449 Panel Reports, United States –​Certain Country of Origin Labelling (COOL) Requirements, WT/​ DS384/​R /​WT/​DS386/​R, adopted 23 July 2012, as modified by Appellate Body Reports WT/​DS384/​ AB/​R /​WT/​DS386/​AB/​R, DSR 2012:VI, p. 2745 Appellate Body Reports, United States –​Certain Country of Origin Labelling (COOL) Requirements, Recourse to Article 21.5 of the DSU, WT/​DS384/​ AB/​RW /​ WT/​DS386/​AB/​RW, adopted 29 May 2015 Appellate Body Report, United States –​Sunset Review of Anti-​Dumping Duties on Corrosion-​ Resistant Carbon Steel Flat Products from Japan, WT/​DS244/​AB/​R, adopted 9 January 2004, DSR 2004: I, p. 3 Appellate Body Report, United States –​ Transitional Safeguard Measure on Combed Cotton Yarn from Pakistan, WT/​DS192/​AB/​R, adopted 5 November 2001, DSR 2001: XII, p. 6027 Panel Report, United States –​Countervailing and Anti-​Dumping Measures on Certain Products from China, WT/​DS449/​R and Add.1, adopted 22 July 2014, as modified by Appellate Body Report WT/​ DS449/​AB/​R Appellate Body Report, United States –​ Countervailing Measures on Certain Hot-​Rolled Carbon Steel Flat Products from India, WT/​ DS436/​AB, adopted 19 December 2014 Appellate Body Report, United States –​ Countervailing Duty Investigation on Dynamic Random Access Memory Semiconductors (DRAMS) from Korea, WT/​DS296/​AB/​R, adopted 20 July 2005, DSR 2005:XVI, p. 8131 Appellate Body Report, United States –​ Countervailing Duty Measures on Certain Products from China, Recourse to Article 21.5 of the DSU, WT/​DS437, adopted 15 August 2019

US –​COOL (Article 21.5 –​Canada and Mexico)

US –​Corrosion-​Resistant Steel Sunset Review

US –​Cotton Yarn

US –​Countervailing and Anti-​ Dumping Methodologies (China)

US –​Countervailing Duties (India)

US –​Countervailing Duty Investigation on DRAMS

US –​Countervailing Measures (China) (Article 21.5 –​China)°

List of cited WTO Panel and Appellate Body reports    lxxi Short title US –​Countervailing Measures (China)

Full title and citation

Appellate Body Report, United States –​ Countervailing Duty Measures on Certain Products from China, WT/​DS437/​AB/​R, adopted 16 January 2015 US –​Customs Bond Directive Appellate Body Report, United States –​Customs Bond Directive for Merchandise Subject to Anti-​ Dumping/​Countervailing Duties, WT/​DS345/​AB, adopted 1 August 2008 US –​Differential Pricing Panel Report, United States –​Anti-​Dumping Methodology Measures Applying Differential Pricing Methodology to Softwood Lumber from Canada, WT/​DS534/​R and Add.1, circulated 9 April 2019, appealed on 4 June 2019 US –​DRAMS (Article 21.5 –​Korea) Panel Report, United States –​Anti-​Dumping Duty on Dynamic Random Access Memory Semiconductors (DRAMS) of One Megabit or Above from Korea –​Recourse to Article 21.5 of the DSU by Korea, WT/​DS99/​RW, 7 November 2000, unadopted US –​Export Restraints Panel Report, United States –​Measures Treating Exports Restraints as Subsidies, WT/​DS194/​R and Corr.2, adopted 23 August 2001, DSR 2001:XI, p. 5767 US –​FSC Appellate Body Report, United States –​Tax Treatment for “Foreign Sales Corporations”, WT/​ DS108/​AB/​R, adopted 20 March 2000, DSR 2000: III, p. 1619 US –​FSC (Article 21.5 –​EC) Appellate Body Report, United States –​Tax Treatment for “Foreign Sales Corporations” –​ Recourse to Article 21.5 of the DSU by the European Communities, WT/​DS108/​AB/​RW, adopted 29 January 2002, DSR 2002:I, p. 55 Panel Report, United States –​Tax Treatment for “Foreign Sales Corporations” –​Recourse to Article 21.5 of the DSU by the European Communities, WT/​DS108/​RW, adopted 29 January 2002, as modified by Appellate Body Report WT/​DS108/​AB/​RW, DSR 2002:I, p. 119

lxxii    List of cited WTO Panel and Appellate Body reports Short title

Full title and citation

US –​Gambling

Appellate Body Report, United States –​Measures Affecting the Cross-​Border Supply of Gambling and Betting Services, WT/​DS285/​AB/​R, adopted 20 April 2005, DSR 2005:XII, p. 5663 (Corr.1, DSR 2006:XII, p. 5475) Panel Report, United States –​Measures Affecting the Cross-​Border Supply of Gambling and Betting Services, WT/​DS285/​R, adopted 20 April 2005, as modified by Appellate Body Report WT/​DS285/​ AB/​R, DSR 2005:XII, p. 5797 Panel Report, United States –​Measures Affecting the Cross-​Border Supply of Gambling and Betting-​ Services –​Recourse-​ to Article 21.5 of the DSU by Antigua and Barbuda, WT/​DS285/​RW, adopted 22 May 2007, DSR 2007:VIII, p. 3105 Appellate Body Report, United States –​Standards for Reformulated and Conventional Gasoline, WT/​ DS2/​AB/​R, adopted 20 May 1996, DSR 1996:I, p. 3 Appellate Body Report, United States –​Anti-​ Dumping Measures on Certain Hot-​Rolled Steel Products from Japan, WT/​DS184/​AB/​R, adopted 23 August 2001, DSR 2001:X, p. 4697 Panel Report, United States –​Anti-​Dumping Measures on Certain Hot-​Rolled Steel Products from Japan, WT/​DS184/​R, adopted 23 August 2001 modified by Appellate Body Report WT/​DS184/​ AB/​R, DSR 2001:X, p. 4769 Award of the Arbitrator, United States –​Anti-​ Dumping Measures on Certain Hot-​Rolled Steel Products from Japan –​Arbitration under Article 21.3(c) of the DSU, WT/​DS184/​13, 19 February 2002, DSR 2002: IV, p. 1389 Appellate Body Report, United States –​Safeguard Measures on Imports of Fresh, Chilled or Frozen Lamb Meat from New Zealand and Australia, WT/​ DS177/​AB/​R, WT/​DS178/​AB/​R, adopted 16 May 2001, DSR 2001: IX, p. 4051 Appellate Body Report, United States –​Measures Affecting Trade in Large Civil Aircraft (Second Complaint), WT/​DS353/​AB/​R, adopted 23 March 2012, DSR 2012:I, p. 7

US –​Gambling (Article 21.5 –​ Antigua and Barbuda)

US –​Gasoline

US –​Hot-​Rolled Steel

US –​Hot-​Rolled Steel (Article 21.3(c))

US –​Lamb

US –​Large Civil Aircraft (2nd complaint)

List of cited WTO Panel and Appellate Body reports    lxxiii Short title

Full title and citation

US –​Lead and Bismuth II

Appellate Body Report, United States –​Imposition of Countervailing Duties on Certain Hot-​Rolled Lead and Bismuth Carbon Steel Products Originating in the United Kingdom, WT/​DS138/​ AB/​R, adopted 7 June 2000, DSR 2000: V, p. 2595 Appellate Body Report, United States –​Definitive Safeguard Measures on Imports of Circular Welded Carbon Quality Line Pipe from Korea, WT/​DS202/​ AB/​R, adopted 8 March 2002, DSR 2002:IV, p. 1403 Panel Report, United States –​Definitive Safeguard Measures on Imports of Circular Welded Carbon Quality Line Pipe from Korea, WT/​DS202/​R, adopted 8 March 2002, as modified by Appellate Body Report WT/​DS202/​AB/​, DSR 2002:IV, p. 1473 Panel Report, United States –​Anti-​Dumping Measures on Certain Oil Country Tubular Goods from Korea, WT/​DS488/​R and Add.1, adopted 12 January 2018 Appellate Body Report, United States –​Continued Dumping and Subsidy Offset Act of 2000, WT/​ DS217/​AB/​R, WT/​DS234/​AB/​R, adopted 27 January 2003, DSR 2003: I, p. 375 Panel Report, United States –​Continued Dumping and Subsidy Offset Act of 2000, WT/​DS217/​R, WT/​ DS234/​R, adopted 27 January 2003, as modified by Appellate Body Report WT/​DS217/​AB/​R, WT/​ DS234/​AB/​R, DSR 2003:II, p. 489 Appellate Body Report, United States –​Sunset Reviews of Anti-​Dumping Measures on Oil Country Tubular Goods from Argentina, WT/​DS268/​AB/​R, adopted 17 December 2004, DSR 2004: VII, p. 3257 Panel Report, United States –​Countervailing Measures on Certain Pipe and Tube Products (Turkey), WT/​DS523, circulated 18 December 2018 Panel Report, United States –​Certain Measures Affecting Imports of Poultry from China, WT/​ DS392/​R, adopted 25 October 2010, DSR 2010:V, p. 1909

US –​Line Pipe

US –​OCTG (Korea)

US –​Offset Act (Byrd Amendment)

US –​Oil Country Tubular Goods Sunset Reviews

US –​Pipes and Tubes (Turkey)

US –​Poultry (China)

lxxiv    List of cited WTO Panel and Appellate Body reports Short title

Full title and citation

US –​Steel Safeguards

Appellate Body Report, United States –​Definitive Safeguard Measures on Imports of Certain Steel Products, WT/​DS248/​AB/​R, WT/​DS249/​AB/​R, WT/​DS251/​AB/​R, WT/​DS252/​AB/​R, WT/​DS253/​ AB/​R, WT/​DS254/​AB/​R, WT/​DS258/​AB/​R, WT/​ DS259/​AB/​R, adopted 10 December 2003, DSR 2003:VII, p. 3117 Panel Report, United States –​Section 110(5) of the US Copyright Act, WT/​DS160/​R, adopted 27 July 2000, DSR 2000:VIII, p. 3769 Award of the Arbitrators, United States –​Section 110(5) of the US Copyright Act –​Recourse to Arbitration under Article 25 of the DSU, WT/​ DS160/​ARB25/​1, 9 November 2001, DSR 2001:II, p. 667 Panel Report, United States –​Section 129(c)(1) of the Uruguay Round Agreements Act, WT/​DS221/​R, adopted 30 August 2002, DSR 2002:VII, p. 2581 Panel Report, United States –​Sections 301-​310 of the Trade Act of 1974, WT/​DS152/​R, adopted 27 January 2000, DSR 2000:II, p. 815 Appellate Body Report, United States –​Import Prohibition of Certain Shrimp and Shrimp Products, WT/​DS58/​AB/​R, adopted 6 November 1998, DSR 1998:VII, p. 2755 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, adopted 21 November 2001, DSR 2001:XIII, p. 6481 Appellate Body Report, United States –​Measures Relating to Shrimp from Thailand/​United States –​ Customs Bond Directive for Merchandise Subject to Anti-​Dumping/​Countervailing Duties, WT/​DS343/​ AB/​R /​WT/​DS345/​AB/​R, adopted 1 August 2008, DSR 2008:VII, p. 2385 /​DSR 2008:VIII, p. 2773 Panel Report, United States –​Preliminary Determinations with Respect to Certain Softwood Lumber from Canada, WT/​DS236/​R, adopted 1 November 2002, DSR 2002: IX, p. 3597

US –​Section 110(5) Copyright Act

US –​Section 110(5) Copyright Act (Article 25)

US –​Section 129(c)(i) URAA

US –​Section 301 Trade Act

US –​Shrimp

US –​Shrimp (Article 21.5 –​Malaysia)

US –​Shrimp (Thailand)/​US –​ Customs Bond Directive

US –​Softwood Lumber III

List of cited WTO Panel and Appellate Body reports    lxxv Short title US –​Softwood Lumber IV

Full title and citation

Appellate Body Report, United States –​Final Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada, WT/​ DS257/​AB/​R, adopted 17 February 2004, DSR 2004: II, p. 571 US –​Softwood Lumber V Appellate Body Report, United States –​Final Dumping Determination on Softwood Lumber from Canada, WT/​DS264/​AB/​R, adopted 31 August 2004, DSR 2004:V, p. 1875 US –​Stainless Steel (Mexico) Appellate Body Report, United States –​Final Anti-​ Dumping Measures on Stainless Steel from Mexico, WT/​DS344/​AB/​R, adopted 20 May 2008, DSR 2008: II, p. 513 US –​Stainless Steel (Mexico) Panel Report, United States –​Final Anti-​Dumping Measures on Stainless Steel from Mexico, WT/​ DS344/​R, adopted 20 May 2008, as modified by Appellate Body Report WT/​DS344/​AB/​R, DSR 2008:II, p. 599 US –​Steel and Aluminum Products United States –​Certain Measures on Steel and (China/​EU/​India/​Norway/​Turkey) Aluminium Products, WT/​DS548, WT/​DS544, WT/​DS547, WT/​DS550, WT/​DS551, WT/​DS552, WT/​DS554, WT/​DS556, WT/​DS564 US –​Supercalendered Paper Panel Report, United States –​Countervailing Measures on Supercalendered Paper from Canada, WT/​DS505/​R, adopted 5 March 2020, as modified by Appellate Body Report, WT/​DS505/​AB US –​Tariff Measures Panel Report, United States –​Tariff Measures on Certain Goods from China, WT/​DS543/​R, circulated 15 September 2020 US –​Tariff Measures II United States –​Tariff Measures on Certain Goods from China II, WT/​DS565, ongoing US –​Textiles Rules of Origin Panel Report, United States –​Rules of Origin for Textiles and Apparel Products, WT/​DS243/​R and Corr.1, adopted 23 July 2003, DSR 2003:VI, p. 2309 US –​Tuna II (Mexico) Appellate Body Report, United States –​Measures Concerning the Importation, Marketing and Sale of Tuna and Tuna Products, WT/​DS381/​AB/​R, adopted 13 June 2012, DSR 2012:IV, p. 1837 US –​Upland Cotton Appellate Body Report, United States –​Subsidies on Upland Cotton, WT/​DS267/​AB/​R, adopted 21 March 2005, DSR 2005:I, p. 3

lxxvi    List of cited WTO Panel and Appellate Body reports Short title

Full title and citation

US –​Upland Cotton (Article 21.5 –​Brazil)

Appellate Body Report, United States –​Subsidies on Upland Cotton –​Recourse to Article 21.5 of the DSU by Brazil, WT/​DS267/​AB/​RW, adopted 20 June 2008, DSR 2008: III, p. 809 Panel Report, United States –​Subsidies on Upland Cotton –​Recourse to Article 21.5 of the DSU by Brazil, WT/​DS267/​RW and Corr.1, adopted 20 June 2008, as modified by Appellate Body Report WT/​DS267/​AB/​RW, DSR 2008:III, p. 997 Appellate Body Report, United States –​Anti-​ Dumping and Countervailing Measures on Large Residential Washers from Korea, WT/​DS464/​AB/​ R and Add.1, adopted 26 September 2016, DSR 2016:V, p. 2275 Appellate Body Report, United States –​Definitive Safeguard Measures on Imports of Wheat Gluten from the European Communities, WT/​DS166/​AB/​ R, adopted 19 January 2001, DSR 2001: II, p. 717 Appellate Body Report, United States –​Measure Affecting Imports of Woven Wool Shirts and Blouses from India, WT/​DS33/​AB/​R, adopted 23 May 1997, and Corr.1, DSR 1997:I, p. 323 Appellate Body Report, United States –​Laws, Regulations and Methodology for Calculating Dumping Margins (“Zeroing”), WT/​DS294/​AB/​ R, adopted 9 May 2006, and Corr.1, DSR 2006: II, p. 417 Appellate Body Report, United States –​Measures Relating to Zeroing and Sunset Reviews, WT/​ DS322/​AB/​R, adopted 23 January 2007, DSR 2007: I, p. 3 Appellate Body Report, United States –​Section 211 Omnibus Appropriations Act of 1998, WT/​DS176/​ AB/​R, adopted 1 February 2002, DSR 2002:II, p. 589

US –​Washing Machines

US –​Wheat Gluten

US –​Wool Shirts and Blouses

US –​Zeroing (EC)

US –​Zeroing (Japan)

US –​Section 211 Appropriation Acts

List of Cited GAT T Panel Reports

Short title Canada –​Herring and Salmon

Full case title and citation

GATT Panel Report, Canada –​Measures Affecting Exports of Unprocessed Herring and Salmon, L/​6268, adopted 22 March 1988, BISD 35S/​98 Canada –​Provincial Liquor Boards GATT Panel Report, Canada –​Import, (US) Distribution and Sale of Certain Alcoholic Drinks by Provincial Marketing Agencies, DS17/​ R, adopted 18 February 1992, BISD 39S/​27 EU –​Faroes Herring European Union—​Measures on Atlanto-​ Scandian Herring, WT/​DS469, withdrawn/​ terminated 21 August 2014 Japan –​Agricultural Products I GATT Panel Report, Japan –​Customs Duties, Taxes and Labelling Practices on Imported Wines and Alcoholic Beverages, L/​6216, adopted 10 November 1987, BISD 34S/​83 Nicaragua –​Measures Affecting Nicaragua –​Measures Affecting Imports Imports from Honduras and Colombia from Honduras and Colombia, WT/​DS201, consultations Nicaragua –​Measures Affecting Nicaragua –​Measures Affecting Imports from Imports from Honduras and Colombia Honduras and Colombia, WT/​DS188, panel established 18 May 2000 US –​Cuban Liberty and Democratic US –​Cuban Liberty and Democratic Solidarity Solidarity Act DS38 Act, WT/​DS38, authority lapsed 22 April 1998 US –​Nicaraguan Trade GATT Panel Report, United States –​Trade Measures Affecting Nicaragua, L/​6053, 13 October 1986, unadopted US –​Sugar Quota GATT Panel Report, United States –​Imports of Sugar from Nicaragua, L/​5607, adopted 13 March 1984, BISD 31S/​67 US –​Section 337 Tariff Act GATT Panel Report, United States Section 337 of the Tariff Act of 1930, L/​6439, adopted 7 November 1989, BISD 36S/​345

lxxviii    List of cited GATT Panel reports Short title

Full case title and citation

US –​Tuna (EEC)

GATT Panel Report, United States –​Restrictions on Imports of Tuna, DS29/​R, 16 June 1994, unadopted GATT Panel Report, United States –​Restrictions on Imports of Tuna, DS21/​R, DS21/​R, 3 September 1991, unadopted, BISD 39S/​155

US –​Tuna (Mexico)

Table of Cases

GATT 1947 DISPUTE SETTLEMENT Canada –​Herring and Salmon (Panel) ��������������������������������������������������������������������������������497n.67 Canada –​Provincial Liquor Boards (US) (Panel Report)��������������������������������������������������444n.50 EEC –​Oilseeds (retaliation)��������������������������������������������������������������������������������������������������� 976–​77 French Assistance to Exports of Wheat and Wheat Flour (Panel Report)������������������������� 976–​77 Japan –​Agricultural Products I (Panel)�����������������������������������������������������������497–​98n.68, 498–​99 Uruguayan Recourse to Article XXIII (Panel Report)��������������������������������������������������������� 976–​77 US Import Restrictions on Dairy Products (resolved)��������������������������������������������������������� 976–​77 US –​Nicaraguan Trade (Panel Report)�������������������������������������������������������� 721n.23, 725n.47, 727 US –​Restrictions on Imports of Tuna (Panel Report)���������������������������������������� 677n.23, 678n.27 US –​Section 337 Tariff Act (Panel Report)��������������������������������������������������������������������������444n.49 US –​Sugar Quota (Panel Report)��������������������������������������������������������������������������������������������������721 US –​Superfund (retaliation not authorized) ����������������������������������������������������������������������� 976–​77 US –​Tuna (EEC) (Panel Report) �������������������������������������������������������������������������������������������� 819n.8 US –​Tuna (Mexico) (Panel Report)���������������������������������������������������������������������������������������� 819n.8 WTO DISPUTE SETTLEMENT Argentina –​Financial Services (Appellate Body Report) ����������������� 442n.39, 442n.40, 445n.55, 507n.20, 508n.24, 508n.29, 508n.30, 513n.55, 756–​57, 880–​81 Argentina –​Financial Services (Panel Report)��������������������������������������������������������������������� 880–​81 Argentina –​Footwear (EC) (Appellate Body Report)����������������������� 79n.116, 88n.170, 100n.49, 464n.142, 464n.143, 596n.86, 598n.92, 938n.79 Argentina –​Hides and Leather (Panel Report)���������������������������������������������������� 450n.87, 493n.41 Argentina –​Import Measures (Appellate Body Report)�������������������� 438–​39, 444n.47, 484n.24, 493n.38, 493n.40, 496 Argentina –​Import Measures (Panel Report)����������������������99n.37, 484n.24, 1026–​27, 1030n.52 Argentina –​Preserved Peaches (Panel Report)��������������������������������������������������������������������79n.116 Argentina –​Textiles and Apparel (Appellate Body Report) ���������������� 100n.47, 435n.5, 480n.10 Armenia –​Anti-​Dumping Measures on Steel Pipes (request for consultations)��������������������������������������������������������������������������������������382n.45, 388 Australia –​Anti-​Dumping Measures on A4 Copy Paper (agreement to arbitrate)����������������������������������������������������������������������������������������� 1058–​59n.83 Australia –​Anti-​Dumping Measures on A4 Copy Paper (Panel Report) ������ 462n.137, 584n.31 Australia –​Apples (Appellate Body Report)�������������������������������� 436n.8, 472n.179, 702n.50, 705 Australia –​Apples (Panel Report) ����������������������������������������������������������������������������������������705n.80 Australia –​Automotive Leather II (Panel Report)������������������������������������������110n.140, 1002n.48 Australia –​Salmon (Appellate Body Report)������������������������������������������������������� 705n.79, 818–​19 Australia –​Salmon (Panel Report)��������������������������������������������������������������������������������699n.27, 705 Australia –​Tobacco Plain Packaging (Appellate Body Report) ��������������������������������������467n.157

lxxx   TABLE OF CASES Australia –​Tobacco Plain Packaging (Panel Report)��������������������������������������467n.156, 1022n.29 Brazil –​Aircraft (Appellate Body Report)��������������������������������������������������588n.48, 982t, 1002–​03 Brazil –​Aircraft (Article 21.5 –​Canada) (authorization to retaliate) (request for consultations)���������������������������������������������������������������������������������������������������� 982t Brazil –​Aircraft (Article 21.5 –​Canada) (Panel Report)�������������������������������������� 99n.37, 1019n.1 Brazil –​Desiccated Coconut (Appellate Body Report)���������������������65n.3, 99n.37, 100n.49, 387 Brazil –​Measures on Import Licensing and Minimum Import Prices (request for consultations)����������������������������������������������������������������������������������������������496n.59 Brazil –​Retreaded Tyres (Appellate Body Report)���������������22n.36, 467–​68, 468n.159, 755n.80, 989–​90, 1029n.46, 1030n.50 Brazil –​Retreaded Tyres (Panel Report)����������������������������������������������������������������������������1020n.11 Brazil –​Taxation (agreement to arbitrate)������������������������������������������������������������������� 1058–​59n.83 Brazil –​Taxation (Appellate Body Report)������������������������������������������������������������������������641n.118 Brazil –​Taxation (Panel Report)��������������������������������������������������������������������������������������������� 786–​88 Canada –​Additional Duties (Panel Report)����������������������������������������������������������������������134n.285 Canada –​Aircraft (Appellate Body Report) ������������������������������������������������������ 589n.52, 740n.127 Canada –​Aircraft (Brazil) (informal settlement)��������������������������������������������������������������1053n.51 Canada –​Aircraft (Panel Report)������������������������������������������������������������������������������������������999n.27 Canada –​Autos (Appellate Body Report)���������������������������������������������������������� 221n.64, 1030n.47 Canada –​Commercial Aircraft (authorization to retaliate) ���������������������������������������������������� 982t Canada –​Commercial Aircraft (MPIA) ������������������������������������������������������995n.12, 1058–​59n.83 Canada –​Dairy (Article 21.5 –​New Zealand and the United States) (Panel Report)������������������������������������������������������������������������������������������������������������������567n.94 Canada –​Dairy (Panel Report)������������������������������������������������������������������������������ 225n.88, 559n.38 Canada –​Patent Term (Appellate Body Report)�����������������������������������������������65n.3, 79–​80n.118 Canada –​Periodicals (Appellate Body Report) ������������������������������������������������������������������441n.36 Canada –​Pharmaceutical Patents (Panel Report) ��������������������������������������������������������������664n.46 Canada –​Renewable Energy/​Canada –​Feed-​in Tariff Program (Appellate Body Report) ���������������������������������������������������113–​14, 457–​58, 615n.63, 679n.41 Canada –​Welded Pipe (Panel Report)��������������������������������������������������������������������������������1032n.58 Canada –​Wheat Exports and Grain Imports (Appellate Body Report) ����������� 795–​96, 949n.15 Canada –​Wheat Exports and Grain Imports (Panel Report)��������������������������������������������� 795–​96 Canada –​Wine (Australia) (informal settlement)������������������������������������������������������������1053n.51 Canada –​Wine (Australia) (MPIA)��������������������������������������������������������������995n.12, 1058–​59n.83 Canada –​Wine (Australia) (Panel Report)����������������������������������������������������������������� 1058–​59n.83 Chile –​Price Band System (Appellate Body Report)���������������������������������� 559n.36, 560, 934n.56 Chile –​Swordfish (Panel requested)��������������������������������������������������� 178n.141, 178n.143, 818–​19 China –​AD/​CVD on Barley (Australia) (MPIA)����������������������������������������995n.12, 1058–​59n.83 China –​Auto Parts (Appellate Body Report) ������������ 79–​80n.118, 436n.9, 436n.12, 479n.7, 930 China –​Canola Seed (Canada) (MPIA) ������������������������������������������������������995n.12, 1058–​59n.83 China –​Certain Measures on the Transfer of Technology (request for consultations)��������������������������������������������������������������������������361n.113, 363n.123 China –​GOES (Panel Report) ����������������������������������������������������������������������������������������������588n.51 China –​Intellectual Property Rights II (informal settlement)����������������������������������������1053n.51 China –​Intellectual Property Rights II (request for consultations)���������������� 349n.51, 363n.123 China –​Publications and Audiovisual Products (Appellate Body Report)���������������������80n.119, 363n.123, 440n.29, 508n.30, 756–​57, 775–​76, 776n.36, 778–​79, 929, 936, 939, 940 China –​Publications and Audiovisual Products (Panel Report)��������221–​22, 775n.28, 775n.29 China –​Rare Earths (Appellate Body Report) ������������������������������������ 97n.25, 100n.49, 132n.270

TABLE OF CASES    lxxxi China –​Rare Earths (Panel Report)������������������������������������������������������������������������� 99n.37, 998–​99 China –​Raw Materials (Appellate Body Report)���������������������������������99n.37, 438, 444n.47, 451, 485n.26, 493n.38, 494n.46, 496n.60, 497n.63, 497n.64, 497n.65, 726n.52, 973n.38, 1010n.81 China –​Raw Materials (Panel Report)������������������������������������������������������������������������132n.269, 496 China –​TRQs (Panel Report)������������������������������������������������������������������������������������������������494n.48 Colombia –​Frozen Fries (MPIA)������������������������������������������������������������������995n.12, 1058–​59n.83 Colombia –​Ports of Entry (Appellate Body Report)����������������������������������������������������������496n.62 Colombia –​Ports of Entry (Panel Report)���������������� 80–​81, 442n.39, 493n.42, 496n.57, 496n.62 Colombia –​Textiles (Appellate Body Report) ������������������������������������������������������������������737n.114 Colombia –​Textiles (Panel Report)������������������������������������������������������������������������������������641n.116 Costa Rica –​Avocados (MPIA) ��������������������������������������������������������������������������������������������995n.12 Costa Rica –​Avocados (Panel Report)������������������������������������������������������������������������� 1058–​59n.83 Dominican Republic –​Import and Sale of Cigarettes (Appellate Body Report)�������������446n.63 Dominican Republic –​Import and Sale of Cigarettes (Panel Report)����������������������438, 483n.17 Dominican Republic –​Safeguard Measures (Panel Report)������������������������������� 328n.37, 435n.6, 464n.144, 464n.148 EC and Certain Member States –​Large Civil Aircraft (Appellate Body Report) �������������������������������������� 80n.119, 114n.192, 906, 934–​35, 934n.59, 959n.67, 982t, 1001n.45, 1002n.50, 1022n.32, 1027n.41, 1030n.48, 1030n.50, 1030n.51 EC and Certain Member States –​Large Civil Aircraft (Article 21.5) (Appellate Body Report) ����������������������������������������������������������������������������������������������1026n.36 EC and Certain Member States –​Large Civil Aircraft (authorization to retaliate)���������������� 982t EC and Certain Member States –​Large Civil Aircraft (Panel Report)������������������������������999n.27 EC –​Approval and Marketing of Biotech Products (informal settlement)��������������������1053n.53 EC –​Approval and Marketing of Biotech Products (Panel Report)���������������� 471n.178, 709n.97 EC –​Asbestos (Appellate Body Report)���������������������������������������80n.120, 114n.190, 436n.8, 441n.35, 905n.54, 930 EC –​Asbestos (Panel Report)��������������������������������������������������������������������������������������������������������437 EC –​Bananas III (Appellate Body Report)������������������� 113n.181, 130n.257, 134n.283, 163n.23, 413n.125, 444n.52, 495n.51, 496n.56, 507n.18, 961, 961n.75, 964n.89, 1019n.1, 1022n.27 EC –​Bananas III (Article 21.5 –​EC) (Panel Report)��������������������������������������������������������134n.285 EC –​Bananas III (Article 21.5 –​Ecuador II) (Appellate Body Report)��������� 131n.265, 494n.49, 926n.11, 932n.47, 933, 933n.51, 936n.70 EC –​Bananas III (Article 21.5 –​US) (Appellate Body Report)����������������������� 131n.265, 494n.49, 926n.11, 932n.47, 933, 933n.51, 936n.70 EC –​Bananas III (authorization to retaliate) ���������������������������������������������������������� 982t, 986n.106 EC –​Bananas III (Ecuador) (Article 22.6 –​EC) (decision by arbitrators)������������������������729n.66 EC –​Bananas III (good offices)����������������������������������������������������������������������������������������������901n.21 EC –​Bananas III (Panel Report)������������������������������������������������������������������������������������������1022n.31 EC –​Bed Linen (Article 21.5 –​India) (Appellate Body Report)������������������������������������������������937 EC –​Butter (informal settlement) ��������������������������������������������������������������������������������������1053n.52 EC –​Butter (Panel Report)��������������������������������������������������������������������������������������������������134n.285 EC –​Chicken Cuts (Appellate Body Report) ������������������������������� 65n.5, 73n.64, 479n.7, 929–​30, 931n.41, 931n.45, 934, 936–​37 EC –​Chicken Cuts (Panel Report)������������������������������������������������������������������������������������������ 478n.5 EC –​Commercial Vessels (Panel Report)����������������������������������������������������������� 962–​63, 987n.109 EC –​Computer Equipment (Appellate Body Report)�������������99n.37, 479n.7, 560n.45, 936n.70

lxxxii   TABLE OF CASES EC –​Export Subsidies on Sugar (Appellate Body Report)�������557n.22, 559n.37, 906n.63, 956–​57 EC –​Fasteners (China) (Appellate Body Report)������������������������������������������������������������������������936 EC –​Hormones (Appellate Body Report)���������������������������������� 80n.119, 168, 169–​70, 459n.127, 471n.176, 471n.177, 471n.178, 687n, 696–​97, 697n.5, 699n.28, 701, 703n.60, 704n.69, 704n.70, 715n.7, 913n.82, 928n.24, 940, 951n.31, 956–​57, 981–​83, 1009n.80 EC –​Hormones (Canada) (authorization to retaliate) ������������������������������������������������������������ 982t EC –​Hormones (Canada) (informal settlement)��������������������������������������������������������������1053n.55 EC –​Hormones (US) (Article 22.6 –​EC) (Decision of the Arbitrators)���������������������������� 697n.5 EC –​Hormones (US) (Panel Report)������������������������������������������������������������������������������������956n.50 EC –​Sardines (Appellate Body Report)��������������������������������������������������������������������������������� 818–​19 EC –​Scallops (Canada) (informal settlement)������������������������������������������������������������������1053n.52 EC –​Scallops (Canada) (Panel Report)������������������������������������������������������������������������������134n.285 EC –​Scallops (Peru and Chile) (Panel Report)������������������������������������������������������������������134n.285 EC –​Scallops (Peru and Chile) (informal settlement)������������������������������������������������������1053n.52 EC –​Seal Products (Appellate Body Report) ����������������������436n.8, 446n.60, 446n.64, 736n.102, 739n.122, 833n.116, 989–​90 EC –​Selected Customs Matters (Appellate Body Report)�������������������������� 450, 450n.85, 450n.86 EC –​Tariff Preferences (Appellate Body Report)��������������������������� 454n.105, 455n.107, 937n.76, 959n.65, 1009n.80 EC –​Tariff Preferences (Panel Report) ��������������������������������������������������������������������������������721n.24 EC –​Trademarks and Geographical Indications (US) (Panel Report) ��������������������� 79–​80n.118 EC –​Tube or Pipe Fittings (Appellate Body Report)��������������������������������������������������������461n.134 EU –​Biodiesel (Argentina) (Appellate Body Report)������������������������������������462n.136, 462n.137 EU –​Biodiesel (Argentina) (Panel Report)������������������������������������������������������������������������462n.136 EU –​Biodiesel (Indonesia) (Panel Report)������������������������������������������������������������������������1032n.58 EU –​Cost Adjustment Methodologies II (Russia) (arbitration offer) ��������������������������������������������������������������������������������������������������� 1058–​59n.83 EU –​Cost Adjustment Methodologies II (Russia) (Panel Report)��������� 462n.137, 1058–​59n.83 EU –​Energy Package (Panel Report)����������������������������������������������������438, 445n.55, 508n.23, 615 EU –​Fatty Alcohols (Indonesia) (Appellate Body Report)������������ 135n.287, 950n.27, 1003n.53 EU –​Fatty Alcohols (Indonesia) (Panel Report) ��������������������������������������������������������������135n.287 EU –​Footwear (China) (Panel Report)������������������������������������������������������������������������������1032n.58 EU –​Herring (Panel established)����������������������������������������������������������������������178n.144, 178n.145 EU –​Herring (request for consultations) ����������������������������������������������������������������������������819n.13 EU –​PET (Pakistan) (Appellate Body Report)���������������������������������������������������� 484n.19, 950n.28 EU –​Poultry Meat (China) (informal settlement)������������������������������������������������������������1053n.53 EU –​Price Comparison Methodologies (informal settlement)��������������������������������������1053n.52 Guatemala –​Cement I (Appellate Body Report)������������������������������������������������������������������ 899n.4 India –​Additional Import Duties (Appellate Body Report)��������������������434n.2, 435n.6, 435n.7, 436n.13, 479n.8, 493n.39 India –​Agricultural Products (Appellate Body Report)������������������������������������705, 729n.67, 938 India –​Agricultural Products (Panel Report)������������������������������������������������������ 699n.27, 708n.90 India –​Autos (Appellate Body Report)��������������������������������������������������������������������������������496n.61 India –​Autos (Panel Report)����������������������������������������������������������������������������������� 437–​38, 496n.61 India –​Export Related Measures (Panel Report)����������������������������������������������������������������980n.88 India –​Patents (US) (Appellate Body Report) ����������������������������79–​80n.118, 929n.25, 1031n.54 India –​Patents (US) (Panel Report)������������������������������������������������������������������������������������1032n.57 India –​Quantitative Restrictions (Appellate Body Report) ��������������������������������������110, 726n.56

TABLE OF CASES    lxxxiii India –​Quantitative Restrictions (Panel Report)�������������������������� 99n.37, 437n.14, 438, 560n.40 India –​Solar Cells (Appellate Body Report)�������������������������������������������������� 99n.37, 615, 679n.42 India –​Solar Cells (Panel Report)�������������������������������������������������������������������������������������������������679 Indonesia –​Autos (Panel Report)����������������������������������������������������������������������������������������1002n.48 Indonesia –​Chicken (Panel Report) ������������������������������������������������������������������������������������562n.58 Indonesia –​Import Licensing Regimes (Appellate Body Report)������������������� 557n.22, 559n.36, 560n.41, 562, 739n.118 Indonesia –​Import Restrictions (Appellate Body Report)������������������������������������������������955n.46 Indonesia –​Iron or Steel Products (Appellate Body Report) �������� 464n.144, 464n.145, 959n.65 Indonesia –​Iron or Steel Products (Panel Report)������������������������������������������������������������1032n.58 Japan –​Agricultural Products II (Appellate Body Report)�������������������702–​3, 702n.52, 705n.73, 707n.89, 740n.126, 740n.127, 741n.129 Japan –​Alcoholic Beverages II (Appellate Body Report) ����������������������71n.50, 72n.57, 79n.114, 112–​13n.179, 163n.23, 170, 172n.93, 441n.36, 442n.38, 924, 928n.22, 929n.27, 933, 933n.51, 938, 942n.111, 1032n.57 Japan –​DRAMS (Korea) (informal settlement)����������������������������������������������������������������1053n.54 Japan –​Exportation of Products and Technology to Korea (Panel established)��������������731n.76 Japan –​Film (Panel Report) ��������������������������������������������������������������������������������� 951n.30, 1020–​21 Japan –​Quotas on Laver (informal settlement)����������������������������������������������������������������1053n.51 Japan –​Quotas on Laver (Panel Report)����������������������������������������������������������������������������134n.285 Kazakhstan –​Anti-​Dumping Measures on Steel Pipes (request for consultations)��������������������������������������������������������������������������������������382n.45, 388 Korea –​Alcoholic Beverages (Appellate Body Report)������������������������������������������������������441n.36 Korea –​Alcoholic Beverages (Panel Report)����������������������������������������������������������������������1002n.48 Korea –​Bovine Meat (Canada) (Panel Report)�����������������������������������������������134n.285, 1053n.51 Korea –​Certain Paper (Panel Report)����������������������������������������������������������������������������������1019n.1 Korea –​Commercial Vessels (Panel Report)����������������������������������������������������������������������460n.128 Korea –​Dairy (Appellate Body Report)���������������������������������������������� 88n.170, 464n.142, 938n.80 Korea –​Pneumatic Valves (Appellate Body Report)��������������������������������������������������������113n.183 Korea –​Radionuclides (Appellate Body Report)������������������������������������������� 443n.41, 705, 707–​8 Korea –​Radionuclides (Panel Report)������������������������������������������������������������������������������������������708 Korea –​Various Measures on Beef (Appellate Body Report)��������������������������� 444n.46, 444n.48, 444n.53, 756–​57 Kyrgyz Republic –​Anti-​Dumping Measures on Steel Pipes (request for consultations)��������������������������������������������������������������������������������������382n.45, 388 Mexico –​Additional Duties (US) (Panel Report)��������������������������������������������������������������134n.285 Mexico –​Corn Syrup (Article 21.5 –​US) (Appellate Body Report) ���������������������������������������������������������������� 726n.58, 958n.58, 1019n.3 Mexico –​Olive Oil (Panel Report)��������������������������������������������������������������������������������� 79–​80n.118 Mexico –​Taxes on Soft Drinks (Appellate Body Report) ��������������������������������� 22n.36, 112n.178, 726n.58, 906–​7, 956–​57, 961–​62, 964n.89 Morocco –​Definitive AD Measures on School Exercise Books (Tunisia) (notification of appeal)��������������������������������������������������������������������������������������������������427n.216 Morocco –​Definitive AD Measures on School Exercise Books (Tunisia) (request for consultations)��������������������������������������������������������������������������������������������427n.215 Morocco –​Hot-​Rolled Steel (Turkey) (notification of appeal)��������������������������������������������������427 Nicaragua –​Measures Affecting Imports from Honduras and Colombia (consultations)�������� 714n.2 Nicaragua –​Measures Affecting Imports from Honduras and Colombia (Panel not composed)�������������������������������������������������������������������������������������������������������� 714n.2

lxxxiv   TABLE OF CASES Peru –​Agricultural Products (Appellate Body Report)������������� 80n.123, 559n.36, 906n.64, 932, 934n.61, 956–​57, 964, 966 Peru –​Agricultural Products (Panel Report)���������������������119n.219, 435n.7, 1020n.6, 1032n.58 Philippines –​Distilled Spirits (Appellate Body Report) ����������������������������������������������������441n.35 Russia –​Commercial Vehicles (Appellate Body Report)��������������������������������������������������� 382, 388 Russia –​Commercial Vehicles (Panel Report)������������������������������������������������������������387, 388n.82 Russia –​Pigs (Article 21.5) (informal settlement)������������������������������������������������������������1053n.54 Russia –​Railway Equipment (Appellate Body Report)������������ 384n.55, 388, 950n.27, 1011n.89 Russia –​Railway Equipment (Panel Report)����������������������������������������������������������������384, 388n.81 Russia –​Tariff Treatment (Panel Report)�������������������������������������������������������������� 382n.41, 387–​88 Russia –​Traffic in Transit (Panel Report) ��������������27n.47, 95n.9, 105n.93, 180n.155, 468n.163, 469n.165, 715, 719n.17, 721, 723, 725n.48, 726n.57, 728n.63, 732n.79, 733n.87, 733n.90, 734n.92, 735–​36, 736n.105, 737n.110, 739n.120, 741n.131, 742, 955n.45, 955n.46, 1002n.47 Saudi Arabia –​IPRs (Panel Report)������������������27n.48, 220n.56, 466n.153, 466n.155, 469n.165, 715, 723, 725n.51, 727n.60, 732n.83, 733n.90, 735n.100, 736n.101, 736n.107, 740n.124, 994n.4, 1059–​60 Thailand –​Cigarettes (Article 21.5 –​Philippines) (Panel Report)������������������� 449n.79, 449n.82, 449n.83, 449n.84, 451, 1020n.10, 1022n.29 Thailand –​Cigarettes (Article 21.5 –​Philippines II) (Panel Report)������������������������������1032n.58 Thailand –​Cigarettes (Philippines) (Appellate Body Report) ���������������721n.24, 739n.123, 931, 951n.32, 1003n.52, 1010n.85, 1030n.53 Thailand –​Cigarettes (Philippines) (Panel Report)����������������������������������������1022n.30, 1023n.33 Turkey –​Pharmaceutical Products (EU) (arbitration agreement)������������������������������������995n.12 Turkey –​Pharmaceutical Products (EU) (Panel Report)�������������������������������������������������1059n.85 Turkey –​Textiles (Appellate Body Report)�������������������������������������������������������� 453n.96, 453n.100 Turkey –​Textiles (Panel Report)������������������������������������������������������������������������������������492, 1020n.9 Ukraine –​Ammonium Nitrate (Russia) (Appellate Body Report)����������������������������������462n.137 Ukraine –​Passenger Cars (Panel Report)��������������������������������������������������������������������������464n.143 US –​1916 Act (authorization to retaliate)���������������������������������������������������������������������������������� 982t US –​Anti-​Dumping Methodologies (China) (authorization to retaliate) ���������������������������� 982t US –​Anti-​Dumping and Countervailing Duties (China) (Appellate Body Report) ������������������������������������������� 88n.170, 180n.155, 256n.96, 456n.113, 460n.129, 589n.55, 797, 797n.35, 797n.37, 798, 934, 935, 959n.68, 1019n.4, 1020n.9, 1021n.19 US –​Anti-​Dumping Measures on Cement (informal settlement)����������������������������������1053n.51 US –​Carbon Steel (Appellate Body Report)������������������������������������������ 924n.1, 928n.23, 951n.32 US –​Carbon Steel (Appellate Body Report)�������������������������������������������������������� 797–​98, 797n.33, 1021n.15, 1021n.16, 1031n.54 US –​Certain EC Products (Panel Report)����������������������������������������������������������������������������493n.43 US –​Clove Cigarettes (Appellate Body Report)�����������������78n.101, 125n.241, 127–​28, 443n.42, 443n.45, 445n.56, 446n.63, 926, 932–​33, 932n.46, 933n.51 US –​Clove Cigarettes (informal settlement)����������������������������������������������������������������������1053n.53 US/​Canada –​Continued Suspension (Appellate Body Report)��������� 80n.120, 95n.8, 115n.193, 134n.281, 470n.174, 471n.178, 702n.49, 703n.60, 703n.61, 705n.77, 913, 962n.81, 975n.54, 988, 1006n.66, 1038n.74 US/​Canada –​Continued Suspension (Panel Report) ����������������������� 95n.8, 115n.193, 134n.281, 471n.178, 1005, 1038

TABLE OF CASES    lxxxv US –​Continued Zeroing (Appellate Body Report) ���������������������� 905n.52, 925n.5, 929, 938n.79 US –​COOL (Appellate Body Report)�������������������������������������445n.57, 450–​51, 981–​83, 981n.92 US –​COOL (Art 21 .5 –​Canada) (Appellate Body Report)����������������������������������������������958n.57 US –​COOL (authorization to retaliate)�������������������������������������������������������������������������������������� 982t US –​COOL (Panel Report)����������������������������������������������������������������������������������������������������449n.84 US –​Corrosion-​Resistant Steel Sunset Review (Appellate Body Report) ������������������������������������������������������������������335n.72, 950–​51, 1020n.8 US –​Cotton Yarn (Appellate Body Report) ������������������������������������������������������������������������907n.66 US –​Cotton Yarn (authorization to retaliate)���������������������������������������������������������� 982t, 986n.106 US –​Countervailing and Anti-​Dumping Measures (China) (Appellate Body Report) ������������������������������������������������������������������������������ 956n.48, 1032n.58 US –​Countervailing Duties (India) (Appellate Body Report)�����������������������������������������798 [???] US –​Countervailing Duty Investigation on DRAMS (Appellate Body Report) ������������������������������������������������������������������������������ 456n.114, 937n.76 US –​Countervailing Measures (China) (Appellate Body Report)�����������������������������������589n.57, 797n.32, 1021n.15 US –​Countervailing Measures (China) (Article 21.5) (Appellate Body Report) ������������������������������������������������������������������������������ 79n.115, 135n.288 US –​Countervailing Measures (China) (Article 21.5) (Panel Report) ��������������������������135n.288 US –​Cuban Liberty and Democratic Solidarity Act (Panel -​authority lapsed)���������������� 714n.2 US –​Customs Bond Directive (Appellate Body Report)����������������������������������������������������80n.119 US –​DRAMS (Article 21.5 –​Korea) (Panel Report)��������������������������������������������������������134n.285 US –​Export Restraints (Panel Report) ����������������������������������������������������������������������456n.111, 588 US –​FSC (Appellate Body Report)��������������������������������������������������� 73n.66, 103, 981–​83, 981n.92 US –​FSC (Article 21.5 –​EC) (Appellate Body Report)����������������������������������������������������1022n.28 US –​FSC (authorization to retaliate)������������������������������������������������������������������������������������������ 982t US –​Gambling (Appellate Body Report) ������������������������������������������� 79n.116, 440n.26, 513n.55, 641n.117, 740n.126, 741n.128, 755, 774n.19, 775n.27, 778–​79, 929n.26, 931, 934, 936n.70, 957–​58, 981–​83, 986n.106, 988n.111, 1009n.79, 1011n.88, 1030n.53 US –​Gambling (Article 21.5) (Panel Report)����������������������������������������������������������������������79n.116 US –​Gambling (authorization to retaliate)�������������������������������������������������������������������������������� 982t US –​Gambling (Panel Report)������������������������������515n.70, 755n.75, 774–​75, 997n.20, 1020n.13 US –​Gasoline (Appellate Body Report) ������������17n.21, 72n.57, 88n.169, 99n.37, 112–​13n.179, 161–​62, 173n.106, 369–​70, 678–​79, 730n.74, 739n.117, 756–​57, 924n.1, 938n.79, 942n.111 US –​Gasoline (Panel Report)������������������������������������������������������������������������������������������������444n.51 US –​Hot-​Rolled Steel (Appellate Body Report)��������������������������������������17n.24, 583–​84, 907n.65 US –​Lamb (Appellate Body Report)����������������������������������������������������������������459n.127, 464n.143 US –​Large Civil Aircraft (2nd Complaint) (Appellate Body Report) ���������������������������������������������103n.76, 110, 134n.281, 588n.49, 982t US –​Large Civil Aircraft (Article 21.5 –​EU) (Appellate Body Report) ����������������������������������������������������������������������������������������������1026n.36 US –​Large Civil Aircraft (authorization to retaliate)���������������������������������������������������������������� 982t US –​Lead and Bismuth II (Appellate Body Report)������� 80n.120, 114n.189, 187n.213, 912n.80 US –​Line Pipe (Appellate Body Report)�������������������������� 453n.101, 455n.106, 598n.92, 929n.30 US –​Line Pipe (Panel Report)���������������������������������������������������������������������������453n.101, 463n.140 US –​Offset Act (Byrd Amendment) (authorization to retaliate)��������������������������������������� 981–​82 US –​Oil Country Tubular Goods (Korea) (sequencing agreement)����������������������� 1058–​59n.83

lxxxvi   TABLE OF CASES US –​Oil Country Tubular Goods Sunset Reviews (Korea) (Appellate Body Report) ������������������������������������������������������������������������������������������������79n.115 US –​Pipes and Tubes (Turkey) (Panel Report)������������������������������������������������������������������1021n.17 US –​Poultry (China) (Panel Report)����������������������������������������������������������������������� 106–​7, 708n.96 US –​Section 110(5) Copyright Act (Article 25) (Panel Report)����������������������������111n.148, 1052 US –​Section 110(5) Copyright Act (Panel Report)����������������������������������73n.66, 111n.148, 1052 US –​Section 129(c)(1) URAA (Panel Report)������������������������������������������������������������� 79–​80n.118 US –​Section 211 Appropriations Act (Appellate Body Report)������������������79–​80n.118, 952n.33 US –​Section 301 Trade Act (Panel Report)��������������������������������������������������������������������������951n.32 US –​Shrimp (Appellate Body Report)�������������������������� 17n.23, 17n.25, 72n.59, 79n.114, 99n.37, 114n.189, 170n.78, 449n.79, 449n.82, 450n.88, 678–​79, 721n.23, 726n.53, 726n.54, 730n.74, 736n.102, 736n.104, 756–​57, 818–​19, 820n.19, 832–​33, 906, 939, 989–​90, 1019n.5, 1020n.7, 1037n.73 US –​Shrimp (Article 21.5 –​Malaysia) (Appellate Body Report) ������� 79n.114, 756–​57, 1032n.57 US –​Shrimp (Thailand)/​US –​Customs Bond Directive (Appellate Body Report) ������741n.129 US –​Shrimp II (Vietnam) (informal settlement)��������������������������������������������������������������1053n.53 US –​Softwood Lumber III (Panel Report) ������������������������������������������������������������������������456n.112 US –​Softwood Lumber IV (Appellate Body Report)�������������������������������72n.57, 221–​22, 436n.9, 587n.41, 590n.59, 924n.3, 929n.26, 937n.75, 942n.111 US –​Softwood Lumber V (Appellate Body Report)���������������������������������������������������������1032n.59 US –​Stainless Steel (Mexico) (Appellate Body Report)����������������������������������� 79n.115, 113n.182, 462n.135, 915n.84 US –​Stainless Steel (Mexico) (Article 21.5 –​Mexico) (Panel Report)����������������������������134n.285 US –​Stainless Steel (Mexico) (Panel Report) ����������������������������������������������������������������������79n.117 US –​Steel and Aluminium Products (Canada) (Panel Report) ��������������������������������������134n.285 US –​Steel and Aluminium Products (China)��������������������������������������������������������������������468n.164 US –​Steel and Aluminium Products (EU) ������������������������������������������������������������������������468n.164 US –​Steel and Aluminium Products (India)����������������������������������������������������������������������468n.164 US –​Steel and Aluminium Products (Mexico) (Panel Report) ��������������������������������������134n.285 US –​Steel and Aluminium Products (Norway)����������������������������������������������������������������468n.164 US –​Steel and Aluminium Products (Russia)��������������������������������������������������������������������468n.164 US –​Steel and Aluminium Products (Turkey)������������������������������������������������������������������468n.164 US –​Steel Safeguards (Appellate Body Report) ����������������������������������������������������������������459n.126 US –​Tariff Measures (Panel Report) ������������������������������ 369n.167, 442n.39, 466n.154, 466n.155 US –​Tariff Measures II (proceedings initiated) ����������������������������������������������������������������369n.167 US –​Textiles Rules of Origin (Panel Report) ����������������������������������������������������������������������488n.30 US –​Tuna II (Article 21 .5 –​Mexico) (Appellate Body Report) ����������������������������������������445n.57 US –​Tuna II (Mexico) (Appellate Body Report) �������������������78n.102, 88n.170, 106–​7, 443n.44, 445n.57, 678–​79, 933, 933n.51, 981–​83, 1003n.52, 1006n.68 US –​Tuna II (Mexico) (Article 21.5 –​Mexico II) (Appellate Body Report)������������������1006n.68 US –​Tuna II (Mexico) (Article 21.5 –​United States) (Panel Report) ������������������������������679n.38 US –​Tuna II (Mexico) (authorization to retaliate)�������������������������������������������������������������������� 982t US –​Tuna II (Mexico) (Panel Report)���������������������������������������������������������������� 963n.84, 1020n.12 US –​Upland Cotton (Appellate Body Report)�����������������������������������79n.116, 428, 936, 937n.78, 938n.79, 942n.111 US –​Upland Cotton (Article 21.5) (Panel Report)����������������������������������79n.116, 428n.222, 1010 US –​Upland Cotton (Article 21.5 –​Brazil) (Appellate Body Report)���������������������������1010n.86, 1014n.103, 1030n.51, 1030n.52, 1031n.55, 1039n.80 US –​Upland Cotton (informal settlement)������������������������������������������������������������������������1053n.55

TABLE OF CASES    lxxxvii US –​Upland Cotton (Panel Report)������������������������������������������������������������������������������428, 589n.56 US –​Washing Machines (Appellate Body Report)��������������������������������������������������������������79n.117 US –​Washing Machines (authorization to retaliate)���������������������������������������������������������������� 982t US –​Wheat Gluten (Appellate Body Report)��������������������������������������������������1030n.48, 1030n.49 US –​Wheat Gluten (Panel Report) ������������������������������������������������������������������������������������464n.143 US –​Wool Shirts and Blouses (Appellate Body Report)�������������������������������������������������113n.180, 497n.63, 738–​39, 1009–​12 US –​Zeroing (EC) (Appellate Body Report)�������������������������������������������������������� 79n.117, 910n.75 US –​Zeroing (Japan) (Appellate Body Report) ������������������������������������������������������������������79n.117 US –​Zeroing (Japan) (Panel Report)�������������������������������������������������������������������� 79n.117, 910n.75 OTHER JURISDICTIONS INTERNATIONAL COURTS/​A RBITRAL BODIES Permanent Court of International Justice Brazilian Loans (France v. Brazil) (1929) PCIJ Rep Ser A, Nos 20/​21 ������������������������������951n.32 Chorzów Factory (Germany v. Poland) (Jurisdiction) (1927) PCIJ Ser A, No 9����������������������������188n.225, 947n.8, 956n.52, 970, 971–​72, 983n.94 Competence of the ILO to Regulate Agricultural Labour (1922) PCIJ Ser B, Nos 2 and 3 ��������������������������������������������������������������������������������������930n.33 Customs Régime between Germany and Austria (Protocol of March 19th, 1931), Advisory Opinion (1931) PCIJ Ser A/​B No 41 ��������������������������������������164n.25, 298–​99n.36 Oscar Chinn (United Kingdom v. Belgium) (1934) PCIJ Ser A/​B, No 63���������� 162n.8, 163n.13 S.S. Lotus France v. Turkey (1927) PCIJ Ser A����������������������������������������������������������������������698n.16 International Court of Justice Aerial Herbicide Spraying (Ecuador v. Colombia), Memorial of Ecuador ����������������������168n.66 Anglo–​Norwegian Fisheries Case (United Kingdom v. Norway) (Judgment) [1951] ICJ Rep 116�������������������������������������������������������������������������������������������������������������������������������� 819n.6 Arbitral Award of 31 July 1989 (Judgment) [1991] ICJ Rep 53����������������������������������������181n.163 Barcelona Traction, Light and Power Company, Ltd. (Belgium v. Spain) (Judgment) [1970] ICJ Rep 40��������������������������������������������������������������������������������������181n.162 Certain Iranian Assets, (Islamic Republic of Iran v. United States of America), Preliminary Objections (Judgment) (13 February 2019)��������������������������� 167n.53, 167n.56, 722n.27, 722n.29 Complaint Filed against the International Fund for Agricultural Development (Advisory Opinion) [2012] ICJ Rep 10.64��������������������������������������������������������������������168n.63 Continental Shelf (Tunisia/​Libyan Arab Jamahiriya) (Judgment) [1982] ICJ Rep 18 ������������������������������������������������������������������������������������������� 181–​82, 189n.229 Fisheries Jurisdiction (Spain v. Canada) [1998] ICJ Rep 432 ��������������������������������������������949n.16 Frontier Dispute (Burkina Faso/​Mali) (Judgment) [1986] ICJ Rep 577 ������������������������189n.230 Kasikili/​Sedudu Island (Botswana/​Namibia) (Judgment) [1999] ICJ Rep 1059������������942n.110 LaGrand [2001] ICJ Rep 466����������������������������������������������������������������������������������������������������������970 Land, Island and Maritime Frontier Dispute (El Salvador/​Honduras: Nicaragua intervening) (Judgment) [1992] ICJ Rep 351 ������������������������������������������������������������181n.165 Land and Maritime Boundary between Cameroon and Nigeria (Cameroon v. Nigeria: Equatorial Guinea intervening) (Judgment) [2002] ICJ Rep 303��������������181n.165 Maritime Delimitation and Territorial Questions between Qatar and Bahrain, Jurisdiction and Admissibility (Judgment) [1995] ICJ Rep 6 ������������������ 928n.23, 942n.110

lxxxviii   TABLE OF CASES Maritime Delimitation and Territorial Questions between Qatar and Bahrain (Merits) (Judgment) [2001] ICJ Rep 40��������������������������������������������������������181n.165 Maritime Dispute (Peru v. Chile) Peru, CR 2012/​33, 11 December 2012 ��������������������������������170 Marshall Islands, Preliminary Objections, CR 2016/​3, 9 March 2016��������������������������������������170 Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America) ��������������������������������������������������������������������������� 180n.156, 722n.25, (Judgment), jurisdiction and admissibility [1984] ICJ Rep 392 (Judgment), merits [1986] ICJ Rep 14 ��������������������������������������������166–​67, 722n.26, 722n.29 Navigational and Related Rights (Costa Rica v. Nicaragua), Rejoinder of Nicaragua������������170 North Sea Continental Shelf (Judgment) [1969] ICJ Rep 6����������������������������������������������189n.229 Nottebohm Case (Preliminary Objection) (Judgment) [1953] ICJ Rep 111��������������������� 181–​82 Nuclear Weapons, Advisory Opinion [1996] ICJ Rep 226���������������������������������������������������� 947n.6 Oil Platforms (Islamic Republic of Iran v. United States of America) (Judgment) [2003] ICJ Rep 161������������������������������������������������������������������������� 165–​67, 722n.29, 942n.110 Passage through the Great Belt (Finland v. Denmark) (Provisional Measures Order) [1991] ICJ Rep 20������������������������������������������������������189n.230 Pulp Mills on the River Uruguay (Argentina v. Uruguay) Joint Dissenting Opinion of Judges Al-​Khasawneh and Simma [2010] ICJ Rep 98 ������������������������������������������������������������������������������1013n.101, 1040n.81 Judgment [2010] ICJ Rep 14 ������������������������������������������������������������������������������������������168n.59 South West Africa, Second Phase (Judgment) [1966] ICJ Rep 6��������������������������������������180n.156 Sovereignty over Pulau Ligitan and Pulau Sipadan (Indonesia/​Malaysia) (Judgment) [2002] ICJ Rep 625������������������������������������������������������������������181n.165, 942n.110 Territorial Dispute (Libyan Arab Jamahiriya/​Chad) (Judgment) [1994] ICJ Rep 6 �������������������������������������������������������������������������������������������� 928n.23, 942n.110 Whaling in the Antarctic (Australia v. Japan: New Zealand intervening) (Judgment) [2014] ICJ Rep 226����������������������������������������������������� 169n.67, 169n.72, 169n.76, 169n.77, 170n.78, 819n.6, 970n.21 International Centre for Settlement of Investment Disputes Abaclat and Others v. Argentine Republic, ICSID Case No. ARB/​07/​5��������������������������1003n.56 Procedural Order No. 15, 20 November 2012����������������������������������������������������������1014n.108 ADF Group Inc. v. United States, ICSID Case No. ARB/​AF/​00/​1, Award, 9 January 2003��������������������������������������������������������������������������������������������������228n.108 AES Corporation and Tau Power BV v. Republic of Kazakhstan, ICSID Case No. ARB/​10/​16, Award, 1 November 2013��������������������������������������������393n.111 Aktau Petrol Ticaret AS v. Republic of Kazakhstan, ICSID Case No. ARB/​15/​8, Award, 13 November 2017��������������������������������������������������������������������������������������������393n.111 Alexander Nelin v. Republic of Cyprus, ICSID Case No. ARB/​18/​41, Tribunal Constituted, 18 March 2019��������������������������������������������������������������������������393n.112 Azurix Corp. v. Argentine Republic, ICSID Case No. ARB/​01/​12, Decision on Annulment, 1 September 2009 ������������������������������������������������������������������������������1011n.93 Bear Creek Mining Corp. v. Peru, Award, ICSID Case No. ARB/​14/​21, 30 November 2017 ����������������������������������������������������������������������������������������������������������844n.29 Belenergia SA v. Italy, ICSID Case No. ARB/​15/​40, Award, 6 August 2019����������������������171n.87 Biwater Gauff v. Tanzania, ICSID Case No. ARB/​05/​22, Procedural Order No. 3, 29 September 2006��������������������������������������������������������������������������������������������������������1004n.57 Brandes Investment Partners, LP v. Venezuela, ICSID Case No. ARB/​08/​03, Decision on the Respondent’s Objection under Rule 41(5) of the ICSID Arbitration Rules, 2 February 2009�������������������������������������������������������������������������������1000–​01

TABLE OF CASES    lxxxix BSG Resources Ltd. (In Administration), BSG Resources (Guinea) Ltd. and BSG Resources (Guinea) SARL v. Republic of Guinea, ICSID Case No. ARB/​14/​22, Procedural Order No. 2, 17 September 2015��������������������������������������������������������������1008n.75 Procedural Order No. 19 Objections to Publication, 15 August 2018 ��������������������1005n.61 Caratube International Oil Company LLP and Devincci Salah Hourani v. Republic of Kazakhstan (II), ICSID Case No. ARB/​13/​13, Decision on the Claimants’ Request for Provisional Measures, 4 December 2014����������������������������1001n.42 Cargill Inc. v. Mexico, ICSID Case No. ARB(AF)/​05/​2, Award, 18 September 2009������������������������������������������������������������������������������������������������������������������172 Churchill Mining and Planet Mining Pty Ltd. v. Republic of Indonesia, ICSID Case No. ARB/​12/​40 and 12/​14, Decision on Annulment, 18 March 2019����������������������������������������������������������������������������������������������������������������1011n.93 Consolidated Exploration Holdings Ltd. and others v. Kyrgyz Republic, ICSID Case No. ARB(AF)/​13/​1����������������������������������������������������������������������������������������������393 Continental Casualty v. Argentina, ICSID Case No. ARB/​03/​9 Award, 5 September 2008����������������������������������������������������������������������������������������������������������174n.111 Decision on Annulment, 16 September 2011��������������������������������������������������������������������1011n.91 Corn Products International Inc. v. Mexico, ICSID Case No. ARB(AF)/​04/​1, Decision on Responsibility, 15 January 2008����������������������������������������������������������������171n.89 Gemplus SA v. Mexico, ICSID Cases No. Arb(AF)/​04/​3, Award, 16 June 2010 ����������1013n.100 Gerald International Ltd. v. Republic of Sierra Leone, ICSID Case No. ARB/​19/​31, Procedural Order No. 2, Decision on the Claimant’s Request for Provisional Measures, 28 July 2020��������������������������������������������������������������������������������������������������1001n.43 Gold Reserve Inc. v. Venezuela, Award, ICSID Case No. ARB(AF)/​09/​1, Award 22 September 2014����������������������������������������������������������������������������������������������844n.26 GRAND EXPRESS Non-​Public Joint Stock Company v. Republic of Belarus, ICSID Case No. ARB(AF)/​18/​1 Constitution of the Tribunal, 31 January 2018��������������������������������������������������������������������������������������������392n.105, 393n.114 Ioannis Kardassopoulos v. The Republic of Georgia, ICSID Case No. ARB/​05/​18, Award, 3 March 2010����������������������������������������������������������������������������������������������������1012n.96 Lao Holdings N.V. v. Lao People’s Democratic Republic (I), ICSID Case No. ARB(AF)/​12/​6, Award, 6 August 2019��������������������������������������������1012n.98 Libananco Holdings Co. Ltd. v. Republic of Turkey, ICSID Case No. ARB/​06/​8 Award, 2 September 2011������������������������������������������ 999n.31, 1012n.99 Decision on Preliminary Issues, 23 June 2008������������������������������������������������������������1000n.40 Liman Caspian Oil BV and NCL Dutch Investment BV v. Republic of Kazakhstan, ICSID Case No. ARB/​07/​14, Award, 22 June 2010����������������������������������������������������393n.111 Maffezini v. Spain, ICSID Case No. ARB/​97/​7, Decision of the Tribunal on Objections to Jurisdiction, 25 January 2000 ����������������������������������������������������������������845n.33 Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/​99/​1, Award, 16 December 2002������������������1011n.92, 1011n.93 Mercer v. Canada, ICSID Case No. ARB(AF)/​12/​3, Award, 18 March 2018������������������228n.108 Merrill & Ring Forestry LP v. Canada, ICSID Case UNCT/​07/​1, Award, 31 March 2010,)����������������������������������������������������������������������������������������������������������������172n.99 Nova Group Investments, BV v. Romania, ICSID Case No. ARB/​16/​19, Procedural Order No. 7, 29 March 2017����������������������������������������������������������������������1001n.43 Occidental Petroleum Corporation and Occidental Exploration and Production Company v. Ecuador, ICSID Case No. ARB/​06/​11, Award, 5 October 2012����������174n.112 Pawlowski AG and Project Sever s.r.o. v. Czech Republic, ICSID Case No. ARB/​17/​11, Award, 1 November 2001��������������������������������������� 971–​72n.30

xc   TABLE OF CASES Plama Consortium Ltd. v. Republic of Bulgaria, ICSID Case No. ARB/​03/​24, Decision on Jurisdiction, 8 February 2005��������������������������������������������������������������������845n.33 Reinhard Hans Unglaube v. Republic of Costa Rica, ICSID Case No. ARB/​09/​20, Award, 11 November 2009��������������������������������������������������������������������������������������������1012n.97 Saba Fakes v. Turkey, ICSID Case No. ARB/​07/​20, Award, 14 July 2010�������������������������1000–​01 Salini v. Jordan, ICSID Case No. ARB/​02/​13, Decision on Jurisdiction, 29 November 2004 ����������������������������������������������������������������������������������������������������������845n.33 Sempra Energy International v. Argentina, ICSID Case No. ARB/​02/​16, Award, 28 September 2007��������������������������������������������������������������������������������������������������������174n.111 Türkiye Petrolleri Anonim Ortaklığı v. Republic of Kazakhstan, ICSID Case No. ARB/​11/​2��������������������������������������������������������������������������������������������393n.111 United Parcel Service of America Inc v. Canada, ICSID Case No. UNCT/​02/​1, Award on the Merits, 24 May 2007���������������������������������������������������������������� 171n.90, 225n.85 Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No. ARB/​12/​12, Public Hearing���������������������������������������1008–​09n.76, 1009–​10 Watkins Holdings SARL and others v. Kingdom of Spain, ICSID Case No. ARB/​15/​44, Award, 21 January 2020 ��������������������������������������������1013n.100 International Law of the Sea Tribunal Case concerning the Conversation and Sustainable Exploitation of Swordfish stock in the South-​Eastern Pacific Ocean (Chile/​European Community), Order of 20 December 2000������������������������������������������������������������������������������������������178n.142 Request for Advisory Opinion Submitted by the Sub-​Regional Fisheries Commission, Advisory Opinion, 2 April 2015, ITLOS Reports 2015, 4 ����������������835n.131 Southern Bluefin Tuna (New Zealand v. Japan, Australia v. Japan) (Jurisdiction and Admissibility) (2000) 119 ILR 508������������������������������������������������������������������������834n.129 Permanent Court of Arbitration Arctic Sunrise Arbitration (Netherlands v. Russia), PCA Case No. 2014-​02, Award on the Merits, 14 August 2015������������������������������������������������������������ 971n.28, 971n.29 Atlanto-​Scandian Herring Arbitration (The Kingdom of Denmark in respect of the Faroe Islands vs. the European Union), PCA Case No. 2013-​30������������������������178n.145 Award between the United States and the United Kingdom Relating to the Rights of Jurisdiction of United States in the Bering’s Sea and the Preservation of Fur Seals (US v. UK) XXVIII RIAA 263 (Perm Ct Arb 1893) �������������������������������������� 819n.6 Carthage (France v. Italy) (1913) 11 RIAA 449������������������������������������������������������������� 971–​72n.30 Hulley Enterprises Ltd. v. Russian Federation, PCA Case No. AA 226 ��������������������������392n.103 Iberdrola, SA and Iberdrola Energia SAU v. Bolivia, PCA Case No. 2015 -​05, Procedural Order, 7 August 2015��������������������������������������������������������������������������������1008n.74 KazTransGas JSC v. Georgia, PCA Case No. 2017-​22 ������������������������������������������������������393n.112 Manouba (France v. Italy) (1913) 11 RIAA 463������������������������������������������������������������� 971–​72n.30 Mesa Power Group, LLC v. Canada, PCA Case No. 2012-​17, Award, 24 March 2016������������173 National Center on Complex Processing of Mineral Raw Materials of the Republic of Kazakhstan v. Kyrgyz Republic, PCA Case No. 2019-​01������������������������������������������������393 OOO Manolium Processing v. The Republic of Belarus, PCA Case No. 2018-​06����������392n.104 PJSC RusHydro v. Kyrgyz Republic, PCA Case No. 2018-​21, PCA Case No. 2018-​21������� 393n.107 Swissbourgh Diamond Mines (Pty) Ltd., Josias Van Zyl, The Josias Van Zyl Family Trust and others v. The Kingdom of Lesotho, PCA Case No. 2013-​29���������424n.199 Veteran Petroleum Ltd. v. The Russian Federation, PCA Case No. 2005-​05/​AA228������� 392n.103 Windstream Energy LLC v. Canada, PCA Case No 2013–​22, Procedural Order No 1, 16 November 2013 ������������������������������������������������������������1014n.106

TABLE OF CASES    xci Yukos Universal Ltd. (Isle of Man) v. The Russian Federation, PCA Case No. 2005-​04/​AA227������������������������������������������������������������������������������������392n.103 Other Air Service Agreement Arbitration (1978) Arbitral Award,18 RIAA 417����������������������988n.112 Ascom Group SA, Anatolie Stati, Gabriel Stati and Terra Raf Trans Traiding Ltd. v. Republic of Kazakhstan, SCC Case No. 116/​2010������������������������������������������������������393n.111 Canfor Corporation v. United States of America and Tembec v. United States of America and Terminal Forest Products Ltd. v. United States of America Decision on Preliminary Question, 6 June 2006��������������������������������������������������������1011n.93 Order of the Consolidation Tribunal, 7 September 2005������������������������������������������1011n.92 Case Concerning the Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and Herzegovina v. Serbia and Montenegro) (Judgment) 26 February 2007, ICTY ������������������������������������������182n.166 Chemtura Corporation v. Canada, UNCITRAL, Award, 2 August 201������������������� 1012–13n.98 In the Matter of the South China Sea Arbitration before an Arbitral Tribunal Constituted under Annex VII to the 1982 United Nations Convention on the Law of the Sea (Philippines v. China) (Award) (Perm Ct Arb, Case No 2013-​19, 12 July 2016)������������819n.6 International Labour Organization, Judgment No. 2867 of the Administrative Tribunal������ 168 Methanex Corporation v. USA Final Award of the Tribunal on Jurisdiction and Merits, 3 August 2005�����������������������������������������������171n.86, 172, 173–​74, 177–​78n.137 Hearing Open to Public����������������������������������������������������������������������������������������� 1007–​08n.71 Partial Award, 7 August 2002����������������������������������������������������������������������������������������173n.107 Occidental Exploration and Production Company v. Ecuador (LCIA Case No. UN3467), Final Award, 1 July 2004 ������������������������������������������172n.98, 173 Panel of Experts Proceeding Constituted under Article 13.15 of the EU-​Korea FTA (‘EU-​Korea Panel Report’), 20 January 2021�����������������636n.81, 636n.84, 637n.87, 638n.94 Petrobart Ltd. v. The Kyrgyz Republic, SCC Case No. 126/​2003��������������������������������������393n.111 Pope & Talbot Inc. v. Canada, Award in relation to preliminary motion by Canada 26 January 2000����������������������������������������������������������������������������������������������������������������� 173–​74 Republic of Korea –​compliance with obligations under Chapter 13 of the EU-​Korea Free Trade Agreement (Panel requested) ��������������������������������������������������980n.86 Restrictions applied by Ukraine on exports of certain wood products to the European Union—​Final Report of the Arbitration Panel established pursuant to Article 307 of the EU-​Ukraine Association Agreement, 11 December 2020 ������������������������������������������������������������������������������������������949, 949n.17, 960 SD Myers Inc. v. Canada, Partial Award (12 November 2000) �����������������������������������172, 173–​74 Yaung Chi Oo Trading Pte Ltd. v. Government of the Union of Myanmar (2003) 42 I.L.M. 404��������������������������������������������������������������������������������������������������������244n.23 REGIONAL COURTS/​T RIBUNALS: AFRICA EAC Court of Justice British American Tobacco (U) Ltd. v. The Attorney General of Uganda (Reference No 7 of 2017)������������������������������������������������������������������������������������������������� 422–​23 SADC Campbell and Another v. Republic of Zimbabwe (SADC (T) 03/​2009) [2009] SADCT 1 (5 June 2009)������������������������������������������������������������������������������������424n.199 Fick and Another v. Republic of Zimbabwe (SADC (T) 01/​2010) [2010] SADCT 8 (16 July 2010)������������������������������������������������������������������������������������424n.199

xcii   TABLE OF CASES Mike Campbell (Pvt) Ltd. and Others v. Republic of Zimbabwe (2/​2007) [2008] SADCT 2 (28 November 2008)������������������������������������������������������������������������424n.199 SACU –​Safeguard Measure imposed on Frozen Chicken from the European Union (arbitration panel)������������������������������������������������������������ 416n.140, 980n.85 REGIONAL COURTS/​T RIBUNALS: AMERICAS CAFTA Guatemala –​Issues Relating the Obligations Under Article 16.2.1(a) of the CAFTA-​DR (Arbitration Panel report)���������������� 332n.61, 632n.45, 960, 979n.79, 996n.14 Caribbean Court of Justice Original Jurisdiction CCJ Application No. AOOJ2019/​001 In the matter of a request for an Advisory Opinion by the Caribbean Community������������������������������617n.72 Inter-​American Court of Human Rights Mack Chang v. Guatemala (Merits, Reparation and Costs), 25 November 2003, Ser C No 101 ��������������������������������������������������������������������������������������������������������������������� 972–​73 Mercosur Award No IX, 4 April 2003����������������������������������������������������������������������������������������������������988n.112 Award No 1/​2007, 8 June 2007 ����������������������������������������������������������������������������������������������978n.71 Award No 1/​2008 , 25 April 2008 ������������������������������������������������������������������������������������������978n.72 NAFTA Tariffs Applied by Canada to Certain US-​Origin Agricultural Products (Panel Report)�������������������������������������������������������������� 219n.48, 225n.87, 943n.112, 943n.113 US –​Cross-​Border Trucking Services (Panel Report)�������������������������������������� 943n.112, 958n.61 US –​Cross-​Border Trucking Services and Investment (USA-​98 -​2008-​01)������������������������������������������������������������������������������������������ 219n.48, 224n.80 US Safeguard Action Taken on Broomcorn Brooms from Mexico (USA-​97-​2008-​01) ����������������������������������������������������������������������������������������������������������219n.48 REGIONAL COURTS/​T RIBUNALS: EURASIA EAEU Court Decision of the Court of the EAEU of 21 December 2018 and Decision of the Appeal Chamber of 7 March 2019 on challenging of the Decision of the Board of the Eurasian Economic Commission of 3 October 2017����������������������������382n.40 Judgment of the EAEU Court of 27 April 2017 on the application of the PJSC ArselorMittal Krivoy Rog���������������������������������������������������������������������� 387n.71, 387n.74 Judgment of the EAEU Court of 28 December 2015 on the application of K.P. Tarasik���������� 387n.78 EurAsEC Court Judgment of the Appeal Chamber of the EurAsEC Court of 21 October 2013 on the application of Novokromatorsky Machine-​Building Plant����������������������������������386n.67 Judgment of the EurAsEC Court of 24 June 2013 on the application of Novokromatorsky Machine-​Building Plant������������386n.67, 386n.68, 386n.69, 386n.70, 387n.72

TABLE OF CASES    xciii REGIONAL COURTS: EUROPE Court of Justice of the European Union Cassis de Dijon, Case 120/​78, EU:C:1979:42������������������������������������������������������������������������304n.85 CETA, Opinion 1/​17, EU:C:2019:341 �������������������������������������������������� 290n.73, 953n.38, 953n.40 Commission v. Hungary, Case C-​66/​18, EU:C:2020:792����������������������������������������������������962n.82 Commission v. Italy, Case 7/​68, EU:C:1968:51��������������������������������������������������������������������300n.47 Commission v. Luxemburg and Belgium, Joined Cases 90/​63 and 91/​63, ECR [1964] 625��������������������������������������������������������������������������������������������������988n.112 Commodity Agreement on Natural Rubber, Opinion 1/​78, EU:C:1979:224 ����������������308n.114 Costa v. ENEL, Case 6/​64, EU:C:1964:66������������������������������������������������������������������������������298n.34 Council v. Commission (Swiss MoU), Case C-​660/​13, EU:C:2016:616����������������������������284n.53 Daiichi Sankyo, Case C-​414/​11, EU:C:2013 :520��������������������������������������������������������������308n.116 Dassonville, Case 8/​74, EU:C:1974:82����������������������������������������������������������������������������������304n.82 Data Protection Commissioner v. Facebook Ireland Ltd., Maximillian Schrems (Schrems II), Case C-​311/​18, EU:C:2020 :559����������������������������������������������������������������������754 ECHR, Opinion 2/​13, EU:C:2014:2454������������������������������������������������������������������������� 952–​53n.36 EU-​Singapore FTA, Opinion 2/​15, EU:C:2017:376����������������������������������������308n.117, 309n.118 European Parliament v. Council of the European Communities, Case 302/​87, EU:C:1988:461 ����������������������������������������������������������������������������������������������������������������387n.77 France and Orange v. Commission, Case C-​486/​15 P, EU:C:2016:912 ��������������������������1031n.56 Google Spain, Case C-​131/​12, EU:C:2014:317��������������������������������������������������������������������751n.39 Istanbul Convention, Opinion 1/​19, EU:C:2021:198����������������������������������������������������������289n.70 Keck and Mithouard, Case C-​267/​91, EU:C:1993:905��������������������������������������������������������304n.83 Luisi and Carbone, Joined Cases 286/​82 and 26/​83, EU:C:1984 :35����������������������������������305n.87 OECD Understanding on a Local Cost Standard, Opinion 1/​75, EU:C:1975:145 ��������������������������������������������������������������������������������������������308n.111, 308n.114 Portuguese Republic v. Council, Case C-​149/​96, EU:C:1999:574�������������������������������������285n.55 Richardt, Case C-​367/​89, EU:C:1991:376����������������������������������������������������������������������������722n.28 Schiebel Aircraft, Case C-​474/​12, EU:C:2014:2139������������������������������������������������������������722n.29 Schrems (Schrems I), Case C-​362/​14, EU:C:2015 :650 ������������������������ 750–​51, 752, 753, 756–​57 Slovak Republic v. Achmea BV, Case C-​284/​16, EU:C:2018:158 ���������������������� 390n.95, 847n.48 Van Gend en Loos, Case 26/​62, EU:C:1963:1������������������������������������������������������ 298n.32, 299n.41 Werner v. Germany, Case C-​70/​94, EU:C:1995:328������������������������������������������������������������722n.28 Wightman, Case C-​621/​18, EU:C:2018:999����������������������������������������������������312n.139, 312n.147 WTO Agreements, Opinion 1/​94, EU:C:1994:384������������������������������������������������������������308n.115 European Court of Human Rights Albert and others v. Hungary (App No 5294/​14), Judgment of 29 January 2019����������176n.131 Anheuser-​Busch v. Portugal (App No 73049/​01) [GC], Judgement of 11 January 2007��������175 British-​American Tobacco Company Ltd. v. The Netherlands (App No 19589/​92), Judgment of 20 November 1995��������������������������������������������������������������������������������������������175 Catan and others v. Moldova and Russia (App Nos 43370/​04, 8252/​05, and 18454/​06) [GC], Judgment of 19 October 2012��������������������������������������������������������������������������������������176 De Luca v. France (App No 8112/​02), Judgment of 2 May 2006����������������������������������������� 174–​75 Herrmann v. Germany (App No 9300/​07) [GC], Judgment of 26 June 2012������������������176n.131 Hertel v. Switzerland (App No 25181/​94), Judgment 25 August 1998��������������������������������������176 Ilaşcu and others v. Moldova and Russia (App No 48787/​99) [GC], Judgment of 8 July 2004������������������������������������������������������������������������������������������176, 971n.28

xciv   TABLE OF CASES Ivanţoc and others v. Moldova and Russia (App No 23687/​05), Judgment of 15 November 2011 ������������������������������������������������������������������������������������������������������������������176 Kamoy Radyo Televizyon Yayıncılık ve Organizasyon AŞ v. Turkey (App No 19965/​06), Judgment of 16 April 2019������������������������������������������������������������������175 Khamtokhu and Aksenchik (App No 60367/​08 and 961/​11) [GC], Judgment of 24 January 2017����������������������������������������������������������������������������������������������������������176n.131 La société Etablissements Biret Cie SA et la société Biret international v. 15 States (App No 13762/​04), Decision on Admissibility of 9 December 2008����������������������175n.117 Mozer v. Moldova and Russia (App No 11138/​10) [GC], Judgment of 23 February 2016����������������������������������������������������������������������������������������������������������������������176 Refah Partisi (The Welfare Party) and others v. Turkey, App Nos. 41340/​98, 41342/​98, 41343/​98 and 41344/​98, Judgment of 13 February 2003��������������������������750n.37 Smith & Grady v. United Kingdom, Applications nos. 33985/​96 and 33986/​96, Judgment of 27 September 1999������������������������������������������������������������������������������������722n.29 NATIONAL COURTS United Kingdom Associated Provincial Picture Houses, Ltd. v. Wednesbury Corporation [1948] 1 KB 223��������������������������������������������������������������������������������������������������������������1031n.56 R (on the application of Miller and another) v. Secretary of State for Exiting the European Union [2017] 1 All ER 593��������������������������������������������������������������������������312n.141 United States Pennoyer v. Neff, 95 U.S. 714 (1878)��������������������������������������������������������������������������������������698n.16

Chapter 1

Introdu c t i on The Editors

In 2009, when OUP published the first edition of the Handbook on International Trade Law, the financial crisis and recession was nearing its end, and international trade was chugging back, resuming its seemingly unstoppable pre-​recession pace. By 2009, 25 additional States had acceded to the WTO, including China, Saudi Arabia and Vietnam. Russia was also well along its path to accession. A sophisticated jurisprudence had been developed by WTO panels and the Appellate Body, which added clarity to the WTO agreements and to a growing number of preferential trade agreements borrowing from them. The prospects were for greater liberalization and acceptance of multilateral disciplines regulating trade. In this context, 32 authors provided analysis across 26 chapters, one of which was devoted to regional trade agreements (RTAs). The introduction of that edition concluded that the growth of international trade law, and particularly the Uruguay Round agreements, were ‘one of the most important developments in international law over the past decade’. Two decades later, as drafts of the present edition were being prepared and finalized, the optimists believed that global trade was in a similar state of recovery, this time from its COVID-​19 pandemic lows. However, the world has also witnessed the breakdown of supply chains, increased protectionism, and trade wars. Tensions within the WTO membership are palpable, evidenced by stalled or stilted negotiations, but also by the disabling of the Appellate Body. The organization remains vulnerable, even with the consensus-based decisions of the 12th Ministerial Conference in June 2022, which breathed some life back into the negotiating body. At the same time, there has been an explosion of bilateral and regional free trade agreements (FTAs). As the edition was being prepared for printing and after the submission of all chapters to the editors, a more striking and visceral threat to the world trading system also emerged, in the form of the Russian invasion of Ukraine, which, as the manuscript proofs were being finalized, was entering its fourth month. This conflict presents at least four stark challenges to the global trading system. The first of these takes the form of the sanctions and other economic measures of constraint taken by many States against

2   The Editors Russia following the invasion and their intentionally trade—​financial—​and economic-​ disruptive effects. These measures, it may be expected, will be time-​limited—​whatever the time-​period might be—​and will in due course be unwound. The second challenge, no doubt also time-​limited, but also uncertain in duration, concerns the trade, financial and economic effects on Ukraine arising from the invasion, and the knock-​on consequences for the global supply chain and economy. Global shortages of basic foodstuffs and other supplies, heavily sourced from Ukraine, were apparent from the early days of the conflict. This has already caused certain WTO Members to impose export restrictions. The third challenge, of longer duration, but still finite, is likely to come with action consequential on the sanctions and related measures that have been imposed, as these play out in trade and investment disputes the resolution of which, having regard to the example of the 2014 Russian annexation of Crimea, is likely to be protracted beyond the events and measures from which they emerged. The last challenge, however, is likely to pose a more enduring and systemic test for the global trading system. While the preceding challenges operate in the near-​to-​medium term, and are unlikely to survive much beyond the tenure in office of the current global leadership and perhaps their immediate successors, the events in Ukraine, coupled with other global trends, raise the more fundamental question of whether true multilateralism, notably in the field of trade, but also more widely, is at all likely to be a realizable long-​term goal. The challenge to the world trading system is that it should provide and plan for the longer term. This was the vision of the drafters of the Havana Charter and the architects of Bretton Woods—​stability through multilateral rules. However, the exceptionalism of Russia, the rise and muscularity of China, the fraying of democracy and leadership of the United States, the bureaucracy of decision-​making in Europe, and wider growing alienation from the global trading system, suggest that multilateralism is increasingly less likely to be an achievable goal, driving cooperation and engagement, and more likely to become simply a point on the far horizon that is used by few only to calibrate their compass to their perceived true bearing. These issues, and wider themes, are addressed in the concluding Chapter 41 of this edition. While the picture that emerges from the preceding is bleak, it is also speculative. And in a contested and multipolar world, in which there is everything to play for, there is a plausible countervailing scenario in which resilient global rules, coupled with a clear and creative impetus to change, which is moved forward by benign and visionary leadership, could form the bedrock of an affirmed and sturdier multilateralism. It is in this space that the contribution of the chapters that follow is to be found. The authors of this edition, individually and collectively have analysed the current state of international trade law, placing it within the wider context of international law. This new edition stands on its own, 54 authors, across 41 chapters, offering their analysis on a widening body of trade law focused on developments occurring largely over the past decade. The collective analysis in the contributions that follow points to two key processes of development in international trade since 2009. First, trade law has grown and deepened

Introduction   3 through FTAs. While the WTO remains the most important multilateral body governing international trade, Members have mostly pursued negotiations outside its walls. Today, every WTO Member is party to at least one FTA. Successful negotiations involving either the United States, the European Union, or China have resulted in an agreement based on that trader’s preferred model. Where the models of two large trading partners have clashed, for example in the negotiations of a Transatlantic Trade and Investment Partnership (TTIP), negotiations have failed. As a result, no FTA exists between any of the world’s three largest traders, whose mutual trade relations remain generally governed by multilateral rules. Numerous authors point to an increasing trade divisiveness between the large traders to explain why the WTO is unlikely to generate new obligations in the short term, given its unbroken practice of consensus decision-​making. The same trade divisiveness has not hampered the negotiation of FTAs, but when an FTA results out of a threat of sanctions, as was pursued by the Trump Administration, it may contribute to a lowering of expectations around the democratic legitimacy of international trade law. In this regard, it is interesting that the Transpacific Partnership (TPP), now the Comprehensive and Progressive TPP (CPTPP), was not negotiated under the threat of sanctions. Rather, it was the threat of US withdrawal that challenged the very existence of the agreement. Yet, despite the United States’ decision to abandon it, growth in membership is on the horizon, with applications to join from Taiwan, China and the United Kingdom, and interest expressed by Indonesia, Korea, Thailand and Ecuador. Having a foothold in the Pacific region appears to be no prerequisite to joining. Second, trade law has been clarified through dispute settlement, particularly WTO dispute settlement, which remains the leading source. It is clear from a number of authors that, like it or not, dispute settlement’s regulatory role seems unlikely to abate, even with the demise of the Appellate Body. In contrast to the WTO, dispute settlement is rare under FTAs, while at the same time, the guidance of WTO panels and the Appellate Body influences the positions taken by Members in their bilateral and regional negotiation. At times, the clarifications provided by panel and Appellate Body decisions form the basis of new rules; other times, they highlight where the treaty language is deficient to address a trade issue. Whichever the case, its effects are lasting, even if, as Freya Baetens and the late James Crawford point out, its influence in non-​trade areas has been unfortunately restricted due to its jurisdictional separateness and the ‘sui generis’ character of trade law. It is appropriate here to repeat their call for all international legal practitioners to learn from international trade law, and in particular the WTO as an institution. There are lessons to be learned from this analysis. The trend towards multilateral rule-​ fragmentation, through the proliferation of differently conceived and dominant actor-​ driven FTAs, poses a considerable challenge to global rules, even as they liberalize trade amongst their participants. The separateness of trade law is an impediment to its influence and its openness to be influenced by developments from outside the system. Both

4   The Editors elements contribute to a stalling in the widening and deepening of trade rules, and of systemic innovation. But what is unarguable, as the chapters that follow show, is that, over the past decade, international trade law has again emerged as one of the most important developments in international law. We hope that this second edition of the Handbook of International Trade Law will contribute both to the accessibility and understanding of international trade law and to its evolution into a stronger driver of a rules-​based international system.

PA RT I

T H E R E G U L AT ION OF I N T E R NAT IONA L T R A DE

Chapter 2

T he Devel opme nt of t he Regul at i on of International T ra de : T h e Past and th e Fu t u re Donald McRae

I. Introduction II. The origins and content of international trade regulation III. The contribution of the GATT 1947 IV. The advent of the World Trade Organization V. The role of dispute settlement in the new regulatory regime VI. The return to bilateral international trade regulation VII. The move to mega-​regionals V   III. The future of international trade regulation

7 9 10 14 15 18 23 25

I. Introduction In the first edition of this handbook, the international trading system’s evolution was dealt with by Gil Winham, who provided the economic and political context,1 and John

1 

G.R. Winham, ‘The Evolution of the World Trading System—​The Economic and Policy Context’ in D. Bethlehem, D. McRae, R. Neufeld, and I. Van Damme (eds), The Oxford Handbook of International Trade Law, 1st edition (Oxford: Oxford University Press, 2009), at 5–​29.

8   Donald McRae Jackson, who provided the legal and institutional context.2 Professor Winham traced the development of international trade law from the early economic analyses of Adam Smith and David Ricardo to, bilateral treaties of the nineteenth century, the negotiation of GATT 1947 and then the Uruguay Round and the WTO. Professor Jackson focused more specifically on the Uruguay Round and the institutional and legal innovations that emerged with the WTO. The present chapter will not go over the ground covered in the two earlier contributions of the first edition, although it will come back to some of the essential material and issues dealt with by Winham and Jackson. Instead, it will focus less on the institutional development of an international trading regime and more on the phenomenon of regulation in international trade. In doing so, it will go beyond the WTO and look at the way the regulation of trade has developed since the advent of the WTO. If the period before the GATT 1947 and the WTO can be seen as a period of bilateralism and the GATT 1947, and the WTO, as the apogee of multilateralism, the period since the WTO has been characterized by a return to bilateralism but at the same time a new form of plurilateralism, sometimes described as ‘mega-​regionalism’. A description of the history of international trade regulation cannot focus solely on the form in which trade regulation is embodied. The full picture is much more complex. There are other questions about trade regulation that have to be canvassed in order to gain a proper understanding of the development of international trade regulation. This includes looking at how regulation is put in place, what is being regulated, and the reasons for regulation. All of these matters together enable a full appreciation of the history of the regulation of international trade and where the regulation of international trade stands today. The Cambridge English Dictionary defines regulation as the ‘act of controlling something’.3 While the idea of control reflects one aspect of the legal regulation of international trade, there is much more in trade regulation than control. The regulation of international trade encompasses a myriad of mechanisms and institutions designed to facilitate trade, to enhance opportunities for exchange, to resolve disputes that arise between States or claims against States, and to protect the interests of participants in the activity of exchange—​all under the rubric of the regulation of international trade. In short, to understand how the regulation of international trade began and has continued and to consider prospects for the future, these many aspects of trade regulation have to be considered. The history of international trade regulation is a history of managing the cross-​ border movement of goods and products—​things that a person in one State seeks to sell in another State—​even if trade has expanded into manifestations that go well beyond the movement of goods. Cross-​border movements, however, are the essence of 2 J.H. Jackson, ‘The Evolution of the International Trading System—​ The Legal and Institutional Context’ in Bethlehem, McRae, Neufeld, and Van Damme (eds), above fn 1, at 30-​53. 3  Cambridge English Dictionary, sub verbo ‘act of controlling something’, at < https://​dic​tion​ary. cambri​dge.org/​dic​tion​ary/​engl​ish/​reg​ulat​ion > (last visited 7 October 2020).

The development of the regulation of international trade    9 international trade. In the absence of any arrangement to the contrary, the goods that are moved across borders would be governed completely by separate legal regimes. This includes the laws of the place of origin and the laws of the place of destination and, if they transit a third State, the laws of that State as well.

II.  The origins and content of international trade regulation Before the development of the modern State, trade was regulated by empires: ancient Persia, and China. The historian Peter Frankopan4 provides a picture of trade within the Persian empire and the trade between China and Persia. There were revenue implications—​trade was important for ancient Persia to finance military expeditions. And there were regulatory implications—​China had a strict regime for controlling foreign merchants and their goods. However, this meant that foreigners trading in China were at the whim of China. But national control in this way was not attractive to States that wished to protect the interests of their trading nationals. This led to a move beyond national regulation to the international regulation of trade. The fundamental mechanism for trade regulation was agreement. By the seventeenth century, States were seeking commitments from other States regarding the treatment of their nationals engaged in commerce.5 The 1654 Treaty of Peace and Commerce between Great Britain and Sweden6 provided: The people, subjects, and inhabitants of both confederates shall have, and enjoy in each other’s kingdoms, countries, lands, and dominions, as large and ample privileges, relations, liberties and immunities, as any other foreigner at present doth and hereafter shall enjoy.

This was essentially a guarantee of non-​discrimination, which became known as the MFN clause, and was a staple of treaties of friendship, commerce and navigation (FCN) throughout the eighteenth and nineteenth centuries. While the basic instrument of trade regulation was agreement, non-​discrimination was the core principle of regulation. Under the MFN principle, States agreed to grant to the nationals of their trading partner treatment as favourable as that granted to the nationals of other States.7 In part, non-​discrimination was an effort by States to ensure 4 

P. Frankopan, The Silk Roads: A New History of the World (New York: Vintage Books, 2017) 4, at 13. Hudec points out that the Italian city-​state of Mantua claimed MFN treatment from the Holy Roman Emperor. R.E. Hudec, ‘Tiger, Tiger in the House: A Critical Evaluation of the Case against Discriminatory Trade Measures’ in R.E. Hudec (ed), Essays on the Nature of International Trade Law (London: Cameron, 1999), at 281. 6  Treaty of Peace and Commerce Between Great Britain and Sweden, 17 July 1656, 64 BFSP 691. 7  For further information on MFN, see Chapter 16 of this handbook. 5  Robert

10   Donald McRae a level playing field for their nationals engaged in trade, but it also served an economic function. Non-​discrimination was the vehicle for giving effect to the comparative advantage principle according to which countries would benefit if they exported their least cost products (those in which they had a comparative advantage) and imported their higher cost products (those in which they had no comparative advantage). Non-​ discrimination through the MFN principle served such a goal, and thus its inclusion in FCN agreements had an economic objective as well.8 The move from conditional MFN—​ MFN treatment granted in exchange for some other concession—​to unconditional MFN—​where MFN was granted without restriction—​laid the basis for a common acceptance of MFN in international trade relations and opened the way for MFN to be the organizing principle for a multilateral system regulating international trade. Non-​discriminatory trade liberalization was the common goal of the United States and the United Kingdom in discussions both during and after the War. Those two States played the principal role in the negotiation of the GATT 1947.9

III.  The contribution of the GATT 1947 The GATT 1947, which was drafted as the first portion of the planned International Trade Organization (ITO), was primarily concerned with trade in goods and included provisions, often hortatory, on subsidies, antidumping and countervailing duties, quotas, and balance of payments. But perhaps the greatest achievement of the GATT 1947 was the reduction of tariffs and the commitment to continue with tariff reduction over time. The key to this agreement was concessions made by the United Kingdom regarding imperial preferences and concessions made by the United States regarding their high tariffs and the ‘grandfathering’ of inconsistent domestic legislation. But this was to be just the beginning. The imperial preferences and the high US tariffs were to be further negotiated down over time through successive negotiating rounds. In the negotiating rounds, tariffs that were to be applied on an MFN basis were granted in exchange for reductions of tariffs on other products. MFN treatment was not unconditional like under many FCN agreements but granted in return for ‘payment’ obtained through tariff negotiations. In a sense, conditional MFN had gone, but conditionality was extracted by negotiating tariff reductions. Reciprocity still existed, just in another form. Moreover, the GATT 1947 went explicitly much further than earlier trade treaties. It articulated the terms of a national treatment obligation and provided for general 8  For a detailed discussion on the economic rationale of the MFN principle and of trade agreements more generally, see Chapter 3 of this handbook. 9  P.C. Mavroidis, The Regulation of International Trade (Cambridge: The MIT Press, 2015) Vol I, 7, Section 1.1.4.

The development of the regulation of international trade    11 exceptions, permitting Contracting Parties to deviate from their obligations when justified by such matters as public morals, the protection of human or animal plant life or health, the conservation of exhaustible natural resources, or national security.10 All of these were to resonate when trade regulation became more encompassing, and trade disputes abounded. Agreement continued to be the basic instrument for the regulation of international trade, but in the form of a multilateral agreement, not just through bilateral treaties. The ambition had been much greater than what had emerged with the GATT 1947. The GATT 1947 was only part of what should have been a fully-​fledged international organization, the ITO, to regulate trade going well beyond trade in goods. However, the ITO never came into existence, so the GATT 1947 remained a provisional agreement and not an organization. It was not seen as a formal treaty; it was an agreement operating under a Protocol of Provisional Application. In common parlance, the GATT 1947 was viewed as a ‘contract’. Nonetheless, the GATT 1947 included specific obligations on its contracting parties, including obligations of a general character. The GATT 1947 was a treaty, although perhaps unusual in its origins and in the method by which it came into effect.11 The GATT 1947 suffered, as a regulatory instrument, from the lack of organs or any real institutional element that would exercise a monitoring function in respect of the implementation of the agreement. In accordance with Article XXV of the GATT 1947, ‘joint action’ of the Contracting Parties was the mechanism for ‘facilitating the operation of and furthering the objectives’ of the agreement. The GATT 1947 was never intended to be an international organization in its own right, and no provision had been made for a secretariat. This defect was overcome pragmatically. The Interim Committee for the International Trade Organization (ICITO) became de facto the secretariat for the GATT 1947,12 and the Contracting Parties informally established a Council that became the permanent body to direct the GATT 1947.13 However, the GATT 1947 did provide for a rudimentary form of oversight of the obligations under that agreement, and in particular for the preservation of tariff concessions. Apart from a fairly routine obligation of the contracting parties to consult on any matter regarding the agreement’s operation,14 there was also a potential formal dispute settlement process with an enforcement mechanism. Article XXIII, entitled ‘Nullification or Impairment’, provided that matters which could not be resolved by the parties could be referred to the contracting parties. The Contracting Parties were then to investigate the matter and make recommendations to the parties or make a ruling. They

10 

Articles XX and XXI of the GATT 1947. above fn 2, at 35: ‘Although subsequent attempts were made to obtain the “definitive” application of the GATT 1947, none succeeded’. 12  The Executive Secretary for ICITO, Sir Eric Wyndham-​White, became the Executive Secretary of GATT and later, when the post was created, Director-​General. 13  Jackson, above fn 2, at 35–​36. 14  Article XXII of the GATT 1947. 11  Jackson,

12   Donald McRae could authorize the suspension of concessions against a Contracting Party if it were appropriate to do so. A Contracting Party against which the suspension of concessions had been ordered could, if it wished, give notice of withdrawal from the agreement. The GATT 1947 had thus moved beyond the traditional model of international trade regulation in significant ways. Although the mechanism for trade regulation was still an agreement, in the case of the GATT 1947, it was a multilateral agreement under which obligations and benefits were provided for across the board based on the non-​ discrimination principle, MFN. Moreover, the GATT 1947 was the framework for further negotiating rounds in which tariff reduction could be continued. The GATT 1947 also provided for oversight of the performance by parties of their obligations under the agreement, which became the basis for a future, sophisticated third-​party dispute settlement system. Trade regulation under the GATT 1947 was moving toward a system with obligations that were seen to be binding and not just political obligations. The process for the resolution of disputes was more than traditional diplomatic representation. The Contracting Parties’ involvement in dispute settlement, including the power to make rulings and order the suspension of concessions in respect of a Contracting Party, was a move toward independent third-​party adjudication. With hindsight, it can be seen that international trade regulation was on a trajectory of formalizing, creating more stringent obligations with much stronger methods of adjudication and enforcement. But it was not necessarily seen that way at the time. In many respects, the GATT 1947 was a temporary measure that secured tariff concessions but, in large part, would be subsumed within the ITO. Reciprocity governed tariff concessions, although more of the larger economies were primarily responsible for negotiating tariff concessions. MFN allowed the smaller economies to free ride on those benefits. Moreover, although the economic benefits of liberalization and MFN were an underlying factor that led to the GATT 1947, the agreement was negotiated in the post-​ War context of building institutions to promote peace. A multilateral trade agreement was seen as a major contributor to world peace.15 The tariff negotiating rounds were an important achievement of the GATT process. Originally seen as the mechanism for achieving trade liberalization through tariff reductions, by the end of the Kennedy Round, which lasted through 1963–​1967, tariffs had been reduced by 35 per cent on top of the lesser reductions of the earlier negotiating rounds. However, tariff reduction was only part of what occurred in the negotiating rounds. The Tokyo Round, in the following decade, turned attention to non-​tariff barriers and resulted in the extension of GATT disciplines into areas not previously seen as subject to international trade regulation or had been dealt with in only a rudimentary way. Six ‘codes’ emerged from the Tokyo Round dealing with antidumping measures, government procurement, technical barriers to trade, customs valuation, import licensing, and subsidies. These codes were agreements in their own right, either

15 

Mavroidis, above fn 9, at 7, who points out that Cordell Hull, the US Secretary of State, who was instrumental in the negotiation of the GATT, was convinced that trade ‘dovetailed with peace’.

The development of the regulation of international trade    13 elaborating on provisions of the GATT 1947 or developing disciplines for matters not yet regulated by the GATT 1947. While tariff reductions resulting from each negotiating round were simply incorporated into the schedules of the GATT 1947, and the Contracting Parties were committed to them under Article II, the ‘codes’ were not part of the GATT 1947. They were separate agreements to which GATT Contracting Parties could become a party. Thus, not all of the codes were accepted by all of the GATT Contracting Parties. This was later to create problems interpreting provisions of the GATT 1947 where a code relevant to the interpretation of that provision was in force for one GATT Contracting Party but not for another. The agreement that constituted the GATT 1947 was unusual in that, in addition to the substantive provisions, it included an Annex of Notes and Supplementary Provisions, which included interpretative notes for each provision and understandings of the parties at the time of the negotiation of GATT. These provisions were said to be an ‘integral part’ of the GATT 1947.16 The Codes, however, were separately negotiated and agreed upon instruments and were not part of the GATT 1947, even though they were deposited with the GATT Director-​General and ‘serviced by the GATT secretariat’.17 In addition to the Codes, the Tokyo Round also resulted in several Declarations, Decisions, and Understandings. The Declaration on Trade Measures taken for Balance-​of-​Payments Purposes uses the language that the Contracting Parties ‘agree as follows’. The Decision on Safeguard Action for Development Purposes does not use the language of ‘agree’, but states that the parties ‘recognize’. However, the Understanding regarding Notification, Consultation, Dispute Settlement, and Surveillance, while using the language of ‘understanding’, also reverts to the language that the Contracting Parties ‘agree’. The precise legal status of these instruments was unclear. Article XXV of the GATT 1947 provides for joint action by the Contracting Parties. Still, such action contemplates the existence of ‘exceptional circumstances’, which does not appear to be the basis on which the Tokyo Round instruments were prepared. However, regardless of strict legal status, these instruments represented how the GATT Contracting Parties wanted to conduct their relationship under the GATT 1947. Some were carried out as if they involved legal commitments. Thus, the understanding on dispute settlement guided the way the panel dispute settlement process developed under the GATT 1947. Moreover, notwithstanding the uncertainty of the legal status of some of the Tokyo Round instruments, they were to have an important influence on the development of the regime that emerged from the Uruguay Round. The practice under the GATT 1947, in particular through the tariff negotiating rounds, was an important step forward in international trade regulation. Not only did it clarify and extend the scope of GATT disciplines, but it also caused the mechanism

16  17 

Article XXXIV of the GATT 1947. Article 9 of the WTO Agreement on Import Licensing Procedures.

14   Donald McRae for trade regulation to evolve. Agreement was still the basic instrument for embodying the substance of trade regulation, but the GATT 1947 agreement was both less and more than what a treaty normally comprised. It was less because it was seen as a contract that was provisionally applied. It was more in that it had its own provisions incorporated in the agreement to guide in the interpretation and application of the treaty’s substantive obligations. Moreover, the Tokyo Round complicated this further with its conclusion of separate agreements, declarations, decisions, and understandings. The regulation of international trade had become a complex of legal commitments and related clarifications of those commitments and expressions of willingness to move ahead in common without the overall cover of a legally binding agreement. It was a practical, albeit piecemeal, approach.

IV.  The advent of the World Trade Organization The Uruguay Round of Multilateral Trade Negotiations brought into being the WTO and, in many respects, a new international order for international trade regulation. It was fundamentally based on the GATT 1947, which was incorporated and brought into the new WTO. But it was a more comprehensive regime expanding the regulation of trade in goods to regulate trade in services and trade-​related aspects of intellectual property. In addition to broader coverage in the WTO, the regime for trade in goods, the staple of the GATT 1947, was enhanced with obligations being specified and what may have been implicit or hortatory under the GATT regime was made subject to more precise obligations. Also, a highly sophisticated dispute settlement system was elaborated. The mechanism for international trade regulation under the WTO was once again an agreement, but it was agreement in a much more comprehensive way. The Tokyo Round approach of concluding additional agreements (codes), declarations, decisions, and understandings was continued. Still, the result was wrapped together in a comprehensive package under which all was binding as if it were a single instrument. The GATT approach of separate codes, or declarations or understandings whose legal status was obscure, was abandoned in favour of a ‘single undertaking’ under which everything was binding regardless of whether it was called an agreement, a declaration, a decision, or an understanding. The mechanism to implement the WTO obligations was the WTO Agreement to which was annexed all of the other agreements entered into as a result of the Uruguay Round (covered agreements). Thus, the WTO Agreement was a framework agreement, and three of the annexes were, as in the GATT 1947, designated as ‘integral parts’ of the WTO Agreement. The fourth annex consisted of ‘plurilateral’ agreements that applied only to the WTO Members that had become a party to them. The model of the Tokyo

The development of the regulation of international trade    15 Round codes was thus continued for these agreements. In addition, during the Uruguay Round, in December 1993 and April 1994, States adopted, within the framework of the Trade Negotiations Committee, a number of decisions and declarations regarding the operation of the WTO and the covered agreements. Those decisions are listed by the WTO with the legal texts and, if not formally binding, operate in the same way as the Tokyo Round decisions and declarations. The regulation of international trade under the WTO is based on a complex constitutional system founded on the WTO Agreement, which incorporates the substantive covered agreements and includes as Annex 2 the Dispute Settlement Understanding. Notwithstanding the use of the term ‘Understanding’, the DSU is simply another agreement that is an integral part of the WTO constitutional system. And that system includes the ministerial decisions and declarations adopted during the Uruguay Round. Moreover, Article XVI of the WTO Agreement provides that ‘the WTO shall be guided by the decisions, procedures and customary practices followed by the CONTRACTING PARTIES to GATT 1947 and the bodies established in the framework of GATT 1947’.18 Thus, the WTO brought together under a single treaty regime the disparate parts of the GATT 1947 that had previously enjoyed a degree of independence. That independence was no longer possible under the WTO regime. However, despite its characterization as a single undertaking, the WTO is not a single unitary arrangement. The plurilateral agreements are not part of the single undertaking. The potential variation in the normativity of the various ministerial decisions and declarations adopted separately from the WTO agreement itself indicates a more complicated regulatory system than the notion of a single undertaking might imply. This highlights the importance of the new WTO dispute settlement system in interpreting the WTO agreements and the related undertakings.

V.  The role of dispute settlement in the new regulatory regime Under the GATT 1947, dispute settlement had an important focus, encouraging the disputing parties to resolve their dispute through an amicable resolution if possible. The original purpose of a panel having two meetings with the parties was that one meeting would be devoted to ascertaining the facts and alleged violation and the other to seeking a resolution of the dispute. Indeed, violation of the GATT 1947 was only one basis for bringing a matter to the Contracting Parties. Complaints could also be brought where a Contracting Party could show that the benefits it expected to get under the Agreement had been nullified or impaired by the actions of another Contracting Party even though those actions did not constitute a violation of the GATT 1947. 18 

See also Chapter 4 of this handbook.

16   Donald McRae WTO dispute settlement maintained the form of GATT dispute settlement, including two panel hearings with the parties and the possibility of a non-​violation complaint. But the fundamental orientation of dispute settlement changed. The panel process’s objective was less to encourage the parties to find a solution to their differences but more to resolve disputes that were fundamentally about the interpretation and application of the WTO agreements. Provisions for consultation remained as well as encouragement to parties to resolve their disputes through mutual agreement. A ‘mutually agreed’ solution is still preferred. More importantly, the DSU characterizes the dispute settlement system as ‘a central element in providing security and predictability to the multilateral trading system’19 and provides that its functions include, ‘to clarify the existing provisions of those (covered) agreements in accordance with customary rules of interpretation of public international law’. In other words, the WTO negotiators saw the dispute settlement system in terms of resolving disputes between WTO Members and as being the guardian of the interpretation of the WTO agreements and thereby maintaining security and predictability in the multilateral trading system. The WTO was clearly now a system based on rules with a mechanism for interpreting those rules and ensuring they would be applied to ensure that the rules of the international trade regime were stable and predictable. The effect of these provisions was to create the potential for dispute settlement to have a key role in the constitutional system of the WTO. The Members negotiated the text of the WTO agreements. After that, the scope and ambit of international trade regulation, through the power of interpretation, was assigned to the dispute settlement process. Two other elements of the Uruguay Round regime served to bolster the centrality of the dispute settlement process. First, the reverse consensus procedure took away from States the power to block both the bringing of disputes and the implementation of decisions of the dispute settlement organs. Article 6.1 of the DSU provides for the establishment of panels unless there is a consensus in the DSB not to do so. Article 16.4 of the DSU states that panel reports placed before the DSB are to be adopted unless there is a consensus not to adopt them. Under Article 17.14 of the DSU, the same result is achieved for reports of the Appellate Body. These provisions essentially made WTO dispute settlement compulsory and the decisions of WTO dispute settlement organs binding. Second, the WTO covered agreements also created an Appellate Body, an organ whose function was to consider appeals from panel reports on ‘issues of law covered in the panel report and legal interpretations developed by the panel’.20 Since the dispute settlement process’ function was ‘to clarify the existing provisions of those [covered] agreements’, that role inevitably would fall to the Appellate Body. This is because the Appellate Body had the power to review interpretations of law formulated by panels. The ultimate arbiter on the interpretation of the WTO agreements’ provisions was to be the Appellate Body. 19 

20 

Article 3.2 of the DSU. Article 17.6 of the DSU.

The development of the regulation of international trade    17 The first members of the Appellate Body clearly saw their role in constitutional terms. They set about establishing a framework for interpretation. Since a treaty established the WTO, the interpretation of the WTO agreements was to be in accordance with the principles of interpretation of public international law. Indeed, that was required by Article 3.2 of the DSU: ‘to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law’. Thus, Articles 31 and 32 of the VCLT became boilerplate for the interpretation of the WTO agreements.21 The Appellate Body had established the WTO firmly in the mainstream of public international law: ‘the General Agreement is not to be read in clinical isolation from public international law’.22 The Appellate Body then went about filling in gaps that had become apparent because there was no provision made in the WTO agreements. In large respect, these were procedural or administrative. WTO dispute settlement had no rules on the burden of proof. The Appellate Body, aligning itself with other international courts and tribunals, adopted the rule that a party that asserts must prove. But the Appellate Body went further and made substantive additions. The DSU makes no provisions for amicus briefs. However, relying on a panel’s power to seek information (Article 13 of the DSU), the Appellate Body concluded that a panel could consider information provided to it by a third party (an amicus) that had been submitted voluntarily and not sought by the panel.23 It then went further and concluded that the Appellate Body itself had the power to consider amicus briefs, notwithstanding that there is no equivalent to Article 13 of the DSU relating to the Appellate Body.24 Moreover, the Appellate Body asserted its primacy in interpretation. When panels have failed to follow a decision of the Appellate Body’s decision in an earlier case, the Appellate Body has simply reversed them.25 Since, in practice, the Appellate Body’s decision could not be overturned by the DSB, the Appellate Body stands alone as the authentic interpreter of the WTO agreements. In principle, the WTO Members can amend the relevant agreement to overturn an interpretation of it by the Appellate Body. But amendment is complicated and politically unlikely, so the decisions of the Appellate Body remain. The WTO regime changed the nature of international trade regulation in two critical ways. It put trade regulation into a comprehensive treaty framework, which moved beyond the uncertainty of the GATT era. It created a dispute settlement process that

21 In US –​Gasoline, adopted 20 May 1996, the Appellate Body pointed out that the provisions of Articles 31 had attained the status of customary international law. 22 Ibid. 23  Appellate Body Report, US –​Shrimp, adopted 6 November 1998, paras 99–​110. 24  Appellate Body Report, US –​ Hot-​Rolled Steel, adopted 7 June 2000, para 39. 25  See, e.g., the Appellate Body’s treatment of the Panel’s approach to the application of Article XX of the GATT 1994, which the Panel had disregarded the approach taken by the Appellate Body in previous applications of Article XX. Appellate Body Report, US –​Shrimp, adopted 6 November 1998, paras 118–​119.

18   Donald McRae granted the dispute settlement organs a major role in determining the scope and extent of international trade regulation. The full potential for this role of dispute settlement was perhaps not appreciated at the time of the Uruguay Round negotiations. And there were several safeguards in the WTO agreements that could have suggested the opposite result. Article 3.2 of the DSU provides that dispute settlement is meant to ‘preserve the rights and obligations of Members’ and ‘[r]‌ecommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements’. The Members have the power to amend the agreements. There were still to be negotiating rounds (Ministerial Conferences) where the consequences of dispute settlement interpretations of the covered agreements could be negotiated away. But the reality is different from the text. Ministerial Conferences, by and large, have not resulted in significant amendments to the WTO covered agreements. Although some major new agreements have been concluded under the auspices of the WTO, membership oversight and control of the function of interpretation and thus the application of WTO agreements have not materialized. The consequences of this, culminating in the lack of a functioning Appellate Body today, are dealt with elsewhere in this book.26

VI.  The return to bilateral international trade regulation Multilateral trade regulation under the GATT 1947 did not replace bilateral trade agreements. It was recognized in the GATT 1947 itself that bilateral trade agreements existed, and it provided a mechanism in Article XXIV for reconciling such bilateral agreements with the multilateral regime. The fundamental problem was that a bilateral agreement provided preference to the Contracting Parties to that agreement that was not being provided to other GATT Contracting Parties and thus was contrary to the general requirement for MFN in Article I of the GATT 1947. The objective of Article XXIV was to permit the continuance of customs unions and free trade areas outside the GATT framework, provided they were structured and operated in a way that minimized trade diversion. This resulted in a diminution of the basic principle of non-​discrimination, but it also recognized a reality that States had entered into customs unions and free trade agreements notwithstanding their commitment to the GATT 1947 and were likely to continue to do so. The WTO, through incorporating the GATT 1947, accepted Article XXIV and its framework for accepting customs unions and free trade areas, notwithstanding their incompatibility with the non-​discrimination principle. It also included a similar provision in respect of services—​Article V of the GATS. The Uruguay Round agreements also 26 

See Chapters 5, 34, 38, 39 and 40 of this handbook.

The development of the regulation of international trade    19 included an Understanding on the Interpretation of Article XXIV of GATT 1994, setting out clarifications and factors to be taken into account in Article XXIV’s interpretation. In February 1996, the General Council set up a Committee on RTAs27 to examine notifications by WTO Members of their creation or intent to create a customs union or free trade area and consider its compatibility with the provisions of Article XXIV and make recommendations to the General Council. However, the formulae in Article XXIV for the creation of WTO-​compatible customs unions or free trade areas are not models of clarity or easy to apply in a straightforward manner. While over 500 notifications have been made to the WTO,28 few have been endorsed as compatible with Article XXIV of the GATT 1994. But, the Committee has also been reluctant to conclude that customs unions or free trade areas are not compatible with Article XXIV of the GATT 1994. Thus, although there are procedural hurdles under the WTO to the conclusion of preferential trade agreements, there is no effective regulation by the WTO over the creation of such agreements. Preferential or free trade agreements (PTAs or FTAs) existed during the era of the GATT 1947. A major development in this regard was the European Economic Community (EEC) in 1958 and the subsequent enlargements of the Community. There was the European Free Trade Association (EFTA) in 1960 of countries that were not part of the EEC. Both the EEC and EFTA also entered into bilateral agreements with neighbouring states. The Central American Common Market (CACM) was established in 1960, and some 13 years later, the Caribbean Community and Common Market (CARICOM) came into existence. Bilateral free trade agreements (FTAs) were entered into among countries of Eastern Europe which were not part of the GATT 1947. And there were isolated bilateral FTAs elsewhere in the world. The United States had not in the early GATT days entered into bilateral free trade agreements, but in 1985 it entered into a free trade agreement with Israel and three years later into an agreement with Canada. In the years immediately prior to the Uruguay Round, changes in the landscape of PTAs began to occur. Argentina, Brazil, Paraguay, and Uruguay negotiated their own customs union (MERCOSUR, 1991). The United States began to negotiate a much deeper and more comprehensive free trade agreement that would be an enlargement of the Canada-​US Free Trade Agreement and would include Mexico (NAFTA, 1994). NAFTA, which came into force prior to the WTO, was in many respects a precursor of the type of trade agreement negotiated in the Uruguay Round and a model for later, broader FTAs. NAFTA covered services as well as goods and included provisions relating to intellectual property and an investment regime. It contained a comprehensive dispute settlement system for State-​to-​State disputes, which built on and went beyond GATT dispute settlement. It also included a novel dispute settlement process of bilateral review of domestic decisions on antidumping and countervailing duty matters. Moreover, it included side agreements relating to the environment and labour standards. Thus, even 27 

The terms of reference for the Committee are found in WT/​L/​127. World Trade Organization, ‘Regional trade agreements’, at < https://​www.wto.org/​engl​ish/​trato​p_​ e/​regio​n_​e/​regio​n_​e.htm#facts > (last visited 7 October 2020). 28 

20   Donald McRae by the time that the WTO came into existence, a competing model of trade regulation had emerged. And in addressing investment within the context of a trade agreement and including institutions that would focus on the environmental and labour standards, NAFTA went beyond anything included in the WTO agreements. However, in practice, there was little challenge to the trade regulation model developed in the WTO. The mechanism for dispute settlement adopted in the WTO went beyond what had been provided for in NAFTA, and the combination of the institutional support for dispute settlement that the WTO provided, the compulsory and binding nature of WTO dispute settlement, and the presence of an appellate jurisdiction all made WTO dispute settlement a much more viable and attractive option for the parties. As a result, apart from matters that involved the interpretation of NAFTA regarding provisions for which there is no counterpart in the WTO, NAFTA dispute settlement gained no real traction. Even in respect of matters for which there were no parallel WTO obligations, the parties were to find that the process was deficient, and a NAFTA party was able to block dispute settlement by refusing to agree to the appointment of a panel member necessary for the dispute to proceed. In two respects, NAFTA dispute settlement functioned well. Dispute settlement regarding antidumping and countervailing duties operated without problems, and Investor-State dispute settlement was active and effective. However, as between Canada and the United States, following a three-​year legacy period, Investor-State dispute settlement terminated on 1 July 2020, the date on which NAFTA’s successor came into force.29 MERCOSUR also has its own provisions for dispute settlement, with a panel process similar to the GATT and NAFTA but, as with NAFTA, there is no indication that dispute settlement under that agreement has challenged or supplanted WTO dispute settlement. However, the conflict between WTO decisions and MERCOSUR dispute settlement has arisen and is discussed elsewhere in this volume.30 In its early years, then, WTO dispute settlement occupied the field and dispute settlement through the interpretation and application of trade agreements as a form of trade regulation was essentially a WTO-​phenomenon. Therefore, it might have been assumed that the comprehensive scope of the WTO agreements, with a sophisticated dispute settlement process, together with a process for amendment of the WTO agreements and the negotiation of new agreements, would have meant that the negotiation of FTAs outside of the WTO would, at least in respect of WTO members, have been unnecessary. A few FTAs entered into force in the years immediately following the WTO’s establishment, but in the 2000’s the number increased dramatically. In 1990 there were 70 FTAs in the world. By 2020, 303 were in force.31 While many of these FTAs were bilateral, 29 

Annex 14-​C to the CUSMA. See Chapter 12 of this handbook. 31  WTO, World Trade Report, 2011, ‘The WTO and Preferential Trade Agreements’, at < https://​www. wto.org/​engl​ish/​res_​e/​books​p_​e/​anre​p_​e/​wor​ld_​t​rade​_​rep​ort1​1_​e.pdf > (last visited 7 October 2020). 30 

The development of the regulation of international trade    21 there was an increasing tendency to conclude agreements with more than two parties. While these multi-​party agreements were designated as ‘regional’ there has been an increasing tendency to conclude trade agreements that are plurilateral but not based on a specific region. Trade regulation, therefore, was functioning at multilateral, bilateral, regional, and other plurilateral levels. The nature of FTAs could be measured not only in terms of who was subject to them (bilateral, regional, plurilateral) but also in terms of the subject-​matter or scope of regulation. Early FTAs were concerned largely with tariff reduction, but with the substantial gains made in tariff reduction under the GATT, the scope for tariff reduction lessened. FTAs started to be characterized in terms of the depth of regulation that they encompassed. This has led to the scholarship on FTAs being categorized into ‘WTO plus’ agreements, that is to say, agreements that include obligations that exist under the WTO but take them further, and ‘WTO extra’ agreements, that is to say, agreements that include obligations not found in the WTO. WTO plus agreements might relate to tariffs and particular provisions on safeguards; WTO extra agreements might cover investment, a matter not dealt with under the WTO. The rationale for the conclusion of FTAs outside the WTO framework is debated, with a division between those who see FTAs as trade-​distorting and those who see them as potentially trade enhancing. FTAs are seen as a means of negotiating on issues on which no movement can be seen in the WTO since the organization has been unable to advance a negotiating agenda after the failure of the Doha Round. This is coupled with paralysis over the Appellate Body. FTAs are also seen as a way of providing better market access into larger economies. A WTO study identifies market access and investment as the primary factors put forward by States in government reports for entering into FTAs,32 encompassing both of the above rationales. FTAs can be mechanisms whereby trade regulation is deepened and covering matters not included in the WTO.33 This can be illustrated by FTAs that cover matters like investment, labour rights, environment, digital commerce, and corporate social responsibility. However, depth regarding coverage does not always mean depth in terms of the stringency of obligations. A study comparing FTAs entered into by the European Union with FTAs entered into by the United States concluded that while the EU FTAs were broader in coverage of new areas, US FTAs included more obligatory language in the areas covered.34 As has always been the case with trade agreements, there is also a political element. FTAs are entered into with States to further political objectives, either because of who

32 

WTO, World Trade Report, 2011, The WTO and preferential trade agreements: From coexistence to coherence, at 98, at < https://​www.wto.org/​engl​ish/​res_​e/​books​p_​e/​anre​p_​e/​wor​ld_​t​rade​_​rep​ort1​1_​e.pdf > (last visited 7 November 2020). 33  C. Hofmann, A. Osnago and M. Ruta, ‘The Content of Preferential Trade Agreements’ 18 World Trade Review (2019) 365, at 366. 34  H. Horn, P.C. Mavroidis and A. Sapir, ‘Beyond the WTO: An Anatomy of EU and US Preferential Trade Agreements’ The World Economy (2010) 1565, at 1585.

22   Donald McRae they include or who they do not include. This is a phenomenon that has increasing salience in recent years, as will be mentioned later. There is, however, a further emerging economic reason for such FTAs. Changes in manufacturing have changed how trade occurs and hence how trade has to be regulated. The simple model, which underlay the GATT 1947 and to some extent the WTO, was that of a good produced or manufactured in State A that was shipped to State B for sale. But trade patterns are more complex than that. Production may be completed in one country, but it can result from the production of components and assembly in other countries. There is in effect a chain throughout the production process culminating in the sale of the product to a consumer in a final country. In this broader perspective, trade is concerned not just with the crossing of a final product across a border but with the whole ‘global value chain’ that integrates what has been traditionally understood as trade with investment and services. A focus on global value chains provides an incentive for FTAs between countries that are part of such a chain and seek to provide a comprehensive and more integrated approach to trade. As will be mentioned later, this factor has had more influence in developing large FTAs rather than bilateral agreements, resulting in mega-​regionals and mega-​regulation. What, then, are the trade regulation implications of FTAs? The 2004 Sutherland Report35 stated, ‘what has been termed the “spaghetti bowl” of customs unions, common markets, regional and bilateral free trade areas, preferences and a miscellaneous assortment of free trade deals has almost reached the point where MFN treatment is exceptional treatment’. The Sutherland Report perceived the erosion of MFN to be a fundamental failing diminishing the authority of the WTO, undermining the economic rationale on which the MFN principle is based, and resulting in incoherence in international trade regulation. The hope expressed in the Sutherland Report was that States would think again before entering into FTAs. That hope, however, did nothing to stop the continued conclusion of FTAs. Nor can the claim of incoherence be seriously substantiated. It is true that States entering into FTAs will be regulated by the terms of both the WTO and their FTAs but conflicts between the multilateral regime and bilateral or regional agreements have arisen infrequently. In part, this is because the parties have been able to manage those conflicts and in part because FTAs generally do not have active and effective dispute settlement regimes that can adjudicate authoritatively on conflicts between a FTA and another international trade agreement. By contrast, the WTO dispute settlement regime is authoritative and widely used. On each occasion when the issue of priority between the WTO agreements and a FTA has arisen, the Appellate Body has ruled conclusively in favour of the priority of the WTO.36 Thus, while in, principle, there 35 WTO,

The Future of the WTO: Assessing Institutional Challenges in the New Millennium, Report to the WTO Director-​General by the Consultative Board on the Future of the WTO (Geneva: WTO, 2004), para 60. 36  Appellate Body Report, Brazil –​Retreaded Tyres, adopted 17 December 2007, para 228; Appellate Body Report, Mexico –​Taxes on Soft Drinks, adopted 24 March 2006, para 56.

The development of the regulation of international trade    23 could be incoherence in international trade regulation through the proliferation of FTAs, in practice, the few issues that have arisen have been managed within the WTO framework. Yet, the situation is not entirely satisfactory. In a global economic order with an active resort to creating FTAs, does it make sense that the WTO regime always has priority? The reality of FTAs was recognized in the GATT 1947. Does Article XXIV of the GATT 1994 mandate a system of supremacy for the WTO over customs unions and free trade areas, or a system of complementarity? And, in fact, is WTO supremacy the best policy choice? If supremacy is what WTO Members want, why have they been engaged in a frenzy of concluding preferential trade agreements? This matter requires more reflection, particularly in the context of WTO reform.

VII.  The move to mega-​regionals In recent years a new phenomenon has emerged in international trade regulation, the concept of mega-​regulation. The concept evolved out of analyzing the Trans-​Pacific Partnership (TPP), which in its negotiated form involved 12 States across a wide area of the Americas and the Pacific, from Chile and New Zealand in the south to Japan and Canada in the north.37 To the extent that this represented a region, it is a mega-​region. TPP was characterized by the number of States, the total size of the economies included, the breadth and coverage of the economic disciplines included, regulatory alignment within national legal systems, and the provision of a space where economic enterprises could function within global value or supply chains across national markets.38 To a certain extent, TPP was a framework for a new form of transnational economic regulatory arrangement that went beyond the scope of existing FTAs and in many ways beyond what the WTO offered. The withdrawal of the United States from the TPP reduced the number of parties, and the extent of the economic market included within it. But, with a few exceptions, the agreement continued the comprehensive mega-​regulation of the original draft that included the United States.39 The same kind of mega-​regulation can be seen in the negotiation of the TTIP, between the United States and the European Union (although negotiations appear to have been suspended), involving two large markets, and the agreement between the European Union and Canada, CETA, although the combined

37  The

12 States were Canada, United States, Mexico, Peru, Chile, Australia, New Zealand, Brunei, Singapore, Malaysia, Viet Nam and Japan. The United States subsequently withdrew and the treaty as ratified, in essentially its original form, covered only 11 States. 38 B. Kingsbury et al. (eds), Megaregulation Contested: Global Economic Ordering After TPP (Oxford: Oxford University Press, 2019), at 27–​28. 39  It became the Comprehensive and Progressive Trans-​Pacific Partnership (CPTPP), in force on 31 December 2018 for those States that ratified it. The current parties are Canada, Australia, Japan, Mexico, New Zealand, Singapore, and Vietnam.

24   Donald McRae market size is not in the same category. However, the breadth of coverage and the integration of supply chains is similar. Mega-​regulation provides a new orientation to international trade regulation. It integrates not only the expansion of trade regulation under the WTO, encompassing goods, services, and trade-​related aspects of intellectual property, but incorporates non-​WTO areas, such as investment, labour, environment, telecommunications, digital commerce, competition, regulatory coherence, transparency, and anti-​corruption. Of course, some of these areas are related to WTO obligations through the operation of the exceptions under Article XX of the GATT 1994 or through WTO committees looking ahead to future issues. However, the mega-​regulation agreements deal with these matters directly and make them the subject of specific obligations. Moreover, unless specifically excluded, these new areas are also subject to the dispute settlement provisions of the TPP. However, dispute settlement is not granted the role that it has in the WTO. Dispute settlement under the TPP was to be by ad hoc panel proceedings. The role of the panel was to resolve a dispute. Dispute settlement was not granted the systemic and almost constitutional role of WTO dispute settlement in clarifying the provisions of the agreement or providing stability and certainty in the operation of the TPP regime. Moreover, no appellate system was created. Thus, the de facto regulatory function of dispute settlement organs developed under the WTO was not contemplated in the TPP, in the subsequent CPTTP, or in other international agreements that share mega-​regulation characteristics. Although the TPP has not yet been fully replicated through the development of other mega-​regional agreements, apart from CPTPP, it has an imitator to some degree in Regional Comprehensive Economic Partnership (RCEP), which was signed on 20 November 2020,40 and it has become a model for other agreements of lesser geographical scope. CETA has already been mentioned as well as the TTIP. However, its influence has extended to bilateral FTAs, which are now reflecting TPP coverage, particularly in Latin America.41 Thus, TPP has been seen as having an impact beyond the agreement between the parties and as shaping the new rules of global trade.42 The other side of the mega-​regional development is the question of whether there are limits to the linking of trade and other matters—​the ‘trade and . . .’ agenda. While the linkages are intellectually viable and make economic sense, whether they are politically sustainable in the longer term is questionable. The agenda delves more deeply into matters of domestic regulation. For example, digital commerce, transparency, anti-​corruption, and regulatory coherence all encroach on matters of traditional domestic jurisdiction 40  RCEP

is megaregional in terms of markets covered, encompassing the 10 ASEAN States and the ASEAN trade partners China, Japan, Korea, Australia and New Zealand. Although it is focused more on market access, it does include provisions on matters such as investment, competition and economic commerce. See also Chapter 9 of this handbook. 41  R. Polanco Lazo, ‘Regional and Preferential Agreements: The ‘Pacific’ and ‘Atlantic’ Styles in Latin America’ in Kingsbury et al. (eds), above fn 38, at 644. 42  A. Rodiles, ‘After TPP Is Before TPP: Mexican Politics for Economic Globalization and the Lost Chance for Reflection’ in Kingsbury et al. (eds), above fn 38, at 619.

The development of the regulation of international trade    25 and enhance the claims about a lack of democratic legitimacy in international trade policymaking. The question is whether the reaction to the breadth of mega-​regulation will foster a retrenchment in the coverage of trade regulation under future FTAs.

VIII.  The future of international trade regulation In the current era of fundamental uncertainty about world health and economic ordering, disenchantment with the WTO, the lack of political leadership in the major economic powers, and destructive approaches on the part of some, and the re-​emergence of military conflict in Europe, it is difficult to make any reliable assessment of the future of international trade regulation. The current circumstances may be transitory, dependent on the development of new vaccines and changes in governments and leadership. Alternatively, they may be deep-​seated, reflecting fundamental changes to the world order that will not be altered simply through political change. This means that any discussion of the future on international trade regulation has to be seen as contingent and speculative. Yet some tentative indication of trends can be offered. The WTO’s inability to foster and sponsor change and development in international trading relations means that it is unlikely that the WTO will be the driver for new international trade regulation. This does not mean that the WTO has become irrelevant. It still retains the monopoly of international trade dispute settlement, and that is unlikely to change. Current concerns over the demise of the WTO Appellate Body seem to suggest that this important function of the WTO is also in crisis, but the continual resort by WTO Members to WTO dispute settlement suggests that WTO Members in practice see a continuing need to have some sort of body to resolve their disputes. One of the main contributions of the WTO may have been to make dispute settlement an accepted and necessary part of international trade regulation. Of course, the lack of an Appellate Body might suggest that a critical function of dispute settlement in the WTO of clarifying the obligations under the WTO agreements, and providing security and predictability under the WTO regime, will be lost. However, while this function might have been seen as the preserve of the Appellate Body, largely because it seemed to arrogate that role to itself, there is no reason why a panel system alone cannot equally fulfill that role. Moreover, it is clear that over time panel reports have become more like Appellate Body reports regarding their approach to legal issues, their concern with the systemic implications of their decisions, and their attempts to ensure that the law applied is consistent over the range of panel decision-​making. This is more difficult to do in a system based on ad hoc panels, but the prominent, albeit discreet, role played by the WTO Secretariat in panel decision-​making and writing panel reports ensures that that certainty and consistency, as well as security and predictability, are maintained.

26   Donald McRae In any event, at least in the short term, the matter may be somewhat alleviated through an interim arbitral arrangement which is to act as the Appellate Body has done until it is reinstated or reformed and brought back.43 With a WTO largely maintaining the status quo, developments in international trade regulation are occurring elsewhere, bilaterally through PTAs, but more broadly with plurilateral agreements that broaden and deepen the scope of international trade regulation. In part, this corresponds to the practical consequence of globalization. Money and goods have moved more freely, and patterns of investment and production have changed. The development of an understanding of global value chains where multiple jurisdictions may be involved in the investment in and production of goods has forced a rethinking about both who should be involved in regulating and how and what the subject matter of regulation has to be. The movements of services or products across borders today can implicate investment, financial regulation, competition policies, and the environment. This, in turn, broadens into digital commerce, labour rights, corporate social responsibility, transparency, and anti-​corruption regulation. In BITs, these were seen as ‘WTO-​extra’ matters; in the context of mega-​regulation, these matters became part of a central core. This was becoming a new shaping for global trade rules, seen in a much broader context, and a shaping that was taking place via plurilateral, regional, and bilateral agreements that were in effect providing the basis for a multilateralization of a new trade order. Will these developments be the forerunner of international trade regulation of the future? They are not without their critics. Megaregulation is seen as the triumph of experts who do not have legitimacy in society generally. The TPP has been characterized as an ‘exercise in expert power and authority’44 from the negotiations’ secrecy to the encroachment on national regulatory regulation. And the loss of policy space, it is argued, will have particularly negative consequences for the developing world.45 Thus, the legitimacy of trade negotiations continues to be questioned, and mega-​regulation is a contested development.46 Whether the mega-​regulation model is sustainable has yet to be seen. The refusal of the United States to participate in the TPP can probably be seen more as a matter of domestic politics since the broader approach to trade regulation reflected in mega-​regulation is pursued by the United States in its other trade agreement negotiations. A further trend in trade regulation is the linking of security with economics and hence trade. This has manifested itself in the increasing invocation of the national

43 

For a discussion of the Multi-​Party Interim Appeal Arrangement (MPIA), see Chapters 34 and 40 of this handbook 44  A. Riles, ‘The Politics of Expertise in Transnational Economic Governance: Breaking the Cycle’ in Kingsbury et al. (eds), above fn 38, at 105. 45  B.S. Chimni, ‘Power and Inequality in Megaregulation: The TPP Model’ in Kingsbury et al. (eds), above fn 38, at 139. 46  E. Benvenisti, ‘Democracy Captured: The Megaregional Agreements and The Future of Global Public Law’ 23(1) Constellations (2016) 58, at 59.

The development of the regulation of international trade    27 security exception, Article XXI of the GATT 1994, in WTO trade disputes47 and its equivalent in Article 73 of the TRIPS Agreement.48 But it has broader application in the unilateral actions of the United States and China in their retaliations and counter retaliations over trade issues in recent years outside of the WTO context. This trend has been characterized as developing a ‘geoeconomic world order’ under which economics are invoked to achieve national security goals.49 In the short term, at least, this will inhibit the development of modes of international trade regulation. The future of international trade regulation will depend in large part upon the way global trade develops. The existing regimes have been a response to globalization and a consequent need to develop a trading regime that reflects the reality of how the movement of goods and services occurs around the world. This has led to a need to move beyond border measures to deal with internal regulation and to move from goods alone to services and the related aspects of integrating markets, including intellectual property, investment, labour, and the environment. As the net expands it also brings in competition policies, telecommunications, digital commerce and to move on to regulatory coherence and transparency. The expansion to mega-​regulation was a response to the increasing complexity of economic management in a globalizing world. The continuation of this deepening of international trade regulation is not inevitable and different models narrowing the scope of such regulation may develop. The increasing divisiveness among large economic powers makes it unlikely that in the short term at least there will be much of a role for the WTO in generating new regulation. However, the regulatory role through dispute settlement seems unlikely to abate. It also means that PTAs are likely to continue either on a bilateral basis or involving a larger group of States regionally and perhaps on a mega-​regional basis. Whichever form is used, it would seem that the reality of cross-​border economic activity will dictate that the substantive new areas of regulation that have emerged in recent years, and particularly as embodied in the TPP, with variations and different emphases will be included in these agreements. But there is an important qualification whose impact cannot be assessed adequately at present. This concerns the consequences of the current COVID-​19 pandemic. The enforced restrictions and quarantining requirements within States have had not only an impact on the volume of international trade, they also have implications for the way international trade regulation can develop. There are two levels at which this can operate. The first relates to dispute settlement. WTO dispute settlement is characterized by panels meeting in person on two occasions. The challenge for international courts and tribunals is to find a way to conduct hearings remotely through videoconferencing or other means. Arbitral bodies established under the PCA and 47 Panel

Report, Russia –​Traffic in Transit, adopted 26 April 2019. See also Chapter 27 of this handbook. 48  Panel Report, Saudi Arabia –​IPRs terminated. 49  A. Roberts et al., ‘The Geoeconomic World Order’ (19 November 2028), online (blog): < https://​ www.lawf​areb​log.com/​geoe​cono​mic-​world-​order > (last visited 7 November 2020.

28   Donald McRae ICSID are responding to this, as is the International Court of Justice. The challenge for the WTO is to adapt its dispute settlement process to accommodate this as well. The WTO’s inability to adapt in respect of trade liberalization has been a reason for the development of PTAs, so the question arises whether the WTO can adapt in respect of dispute settlement. The second consequence of the pandemic is that multilateralism that depends on large meetings of States cannot go ahead in its traditional form. Will this mean a further push towards bilateralism? It may be easier for States to revert to bilateral agreements rather than manage a multilateral negotiation by videoconference. But, at present, it is impossible to predict whether this will be a transitory trend or one of longer, far-​reaching implications. Finally, as this edition goes to press, the conflict in Ukraine raises questions about the multilateral order and its economic regulation that could have far-​ reaching consequences for both the international legal order generally and the international trading regime. The progression of international trade regulation from the GATT 1947 and on has been to widen and deepen the ambit and scope of that regulation. This has led to greater obligations on States, limitations on traditional policy space, and greater use of mechanisms to enforce these disciplines. This progression has not been universally welcomed, nor has it been a continuous trajectory. But the genie is out of the bottle and short of a fundamental restructuring of the world economy and a return to the pre-​ GATT era (a possibility that cannot be completely ruled out at the time of writing), this trajectory is likely to continue.

Further reading Acharya, R. (ed), Regional Trade Agreements and the Multilateral System (Cambridge: Cambridge University Press, 2016) Bethlehem. D., D. McRae, R. Neufeld and I. Van Damme (eds), The Oxford Handbook of International Trade Law, 1st edition (Oxford: Oxford University Press, 2009), Chapters 2 and 3 Jackson, J. H., The World Trading System: Law and Policy of International Economic Relations, 2nd edition (Cambridge: The MIT Press, 1997) Kingsbury, B. et al. (eds), Megaregulation Contested: Global Economic Ordering After TPP (Oxford: Oxford University Press, 2019) Mavroidis P.C., The Regulation of International Trade (Cambridge: The MIT Press, 2015) Vol I

Chapter 3

T he Regul at i on of Internationa l T ra de : An Ec onom ic Pe rspe c t i v e Kamal Saggi and Simon Schropp *

I. II.

Introduction 30 Why do countries sign trade agreements? 31 A. Overcoming international externalities caused by unilateral beggar-​thy-​neighbour policies 32 B. Trade agreements as commitment devices vis-​à-​vis powerful domestic constituents 42 C. Trade agreements as devices to achieve coordination and transparency 44 III. The economics underlying the design of trade agreements 45 A. Why is universal free trade not observed in the global trading system? 45 B. Why do the WTO agreements regulate border instruments more than behind-​the-​border policies? 46 C. Why does the WTO mandate the ‘tariffication’ of quotas? 47 D. Why are export duties regulated less than import tariffs? 49 E. Why subsidies are heavily regulated 50 F. Reciprocity in the WTO 53 G. Rules on non-​discrimination: MFN and national treatment 56 H. Exceptions to non-​discrimination rules 59 I. Why are Members allowed to escape market access commitments? 61 I V. Conclusion 63 *  All opinions expressed in this paper are the authors’ and reflect neither the views of their employers nor the clients they represent. The authors wish to thank the editors for extremely helpful comments and valuable suggestions. All errors remain those of the authors alone.

30    Kamal Saggi and Simon Schropp

I. Introduction This chapter examines the various economic rationales that underlie international trade agreements and analyses how the principal rules and design features of such agreements help achieve their key objectives. We make two contributions. First, we provide an intuitive discussion of the economics of international trade agreements in general, and the GATT 1947/​WTO Agreement in particular. Second, we shed light on the economic underpinnings of some of the key rules of the international trading system while also addressing some important regulatory developments since the early GATT years. These tasks require us to summarize a vast and rapidly evolving literature. Due to space limitations, we offer neither a comprehensive survey nor an exhaustive evaluation of the relevant literature.1 Instead, we focus on the overall role that economic analysis has played in improving our understanding of trade agreements, while also summarizing the leading analytical approaches to the study of trade agreements. In so doing, we focus on conceptual ideas underlying the literature, as opposed to the latest empirical findings; description, rather than prescription; multilateral trade agreements, rather than bilateral or plurilateral trade agreements; and on trade in goods, rather than trade in services, or issues related to intellectual property or investment. Lastly, this chapter deals with the economics of international trade law (that is, the economic foundations of international trade regulation), rather than on the use of economic analysis in international trade law (that is, the application of economic tools in international trade regulations, such as trade disputes or negotiations).2 1 The

interested reader is referred to a number of excellent literature reviews on the economic rationales for trade agreements and on the economics of their design, including R. Baldwin and A. Venables, ‘Regional Economic Integration’ in G.M. Grossman and K. Rogoff (eds), Handbook of International Economics (Amsterdam: North Holland, 1995), vol. 3, 1597–​1644, R.W. Staiger, ‘A Theory of Gradual Trade Liberalization’ in A.V. Deardorff, J.A. Levinsohn and R.M. Stern (eds), New Directions in Trade Theory (Ann Arbor: Michigan University of Michigan Press, 1995); G.M. Grossman, ‘The Purpose of Trade Agreements’ in K. Bagwell and R.W. Staiger (eds), Handbook of Commercial Policy (Amsterdam: North Holland, 2016), vol. 1, part A, 379–​434; G. Maggi, ‘International Trade Agreements’ in G. Gopinath, E. Helpman, and K. Rogoff (eds), Handbook of International Economics (Amsterdam: North Holland, 2014), vol. 4, 317–​390; G.M. Grossman and H. Horn, ‘Why the WTO? An Introduction to the Economics of Trade Agreements’ in H. Horn and P.C. Mavroidis (eds), Legal and Economic Principles of World Trade Law (Philadelphia, PA: The American Law Institute, 2012), 9–​67; K. Bagwell and R.W. Staiger, ‘The World Trade Organization: Theory and Practice’ 2 Annual Review of Economics (2010), 223–​256; K. Bagwell and R.W. Staiger, ‘The Design of Trade Agreements’ in K. Bagwell and R.W. Staiger (eds), Handbook of Commercial Policy (Amsterdam: North Holland, 2016), vol. 1, part A, 435–​529. 2  While the application of economic concepts, principles, models, and methods to international trade law, in particular to WTO dispute settlement, can be useful for interpreting legal concepts, establishing causal relationships, or quantifying damages, we abstract from these topics, and refer the interested reader to ‘Quantitative Economics in WTO Dispute Settlement’ in World Trade Report: Exploring the Links Between Trade, Standards and the WTO (Geneva: World Trade Organization, 2005), Chapter III.A; R. Teh and A. Yanovich, ‘Integrating Economic Analysis into WTO Dispute Settlement Practice’ in T. Carpenter, M. Jansen and J. Pauwelyn (eds), The Use of Economics in International Trade and Investment

The Regulation of International Trade: an economic perspective    31 Section II introduces the leading economic theories for why countries find it mutually beneficial to enter into international trade agreements. Section III examines the economics of trade agreement design, i.e., the economic foundations of important rules of trade agreements, including features commonly viewed as the fundamental pillars of the WTO, such as the MFN and the national treatment obligations, the principle of reciprocity, as well as various exceptions to the non-​discrimination obligation found in the GATT 1947/​WTO system. Section IV concludes.

II.  Why do countries sign trade agreements? By their very nature, trade agreements are shaped by the economic incentives of the involved parties. After all, trade agreements are contracts that govern international commerce between sovereign countries. Given that design usually follows purpose, understanding the rationale behind trade agreements is a crucial first step to (i) advance our understanding of the purpose and design of commonly observed trade rules, (ii) improve interpretation of the text, and (iii) ultimately contribute to an informed discussion of institutional reform. A satisfying theory of trade agreements must explain why countries would be tempted to impose trade restrictions in the absence of an international agreement precluding such behaviour. A trade agreement would evidently be unnecessary if all parties agreed that free trade is in everyone’s best interest. Economists generally endorse free trade. Perhaps the most widely accepted proposition in classical economics is that international trade generates welfare gains for participating economies by leading to a more efficient allocation of resources worldwide.3 However, no country in the world practices free trade, despite the fact that trade improves allocative efficiency worldwide and generates gains in consumer welfare. For Disputes. (Cambridge: Cambridge University Press, 2017), and the various contributions in C.P. Bown and J. Pauwelyn (eds), The Law, Economics and Politics of Retaliation in WTO Dispute Settlement (Cambridge: Cambridge University Press, 2010). See also Chapter 39 of this handbook. 3 

The international division of labour follows naturally from the principle of ‘comparative advantage’, which holds that countries should produce and export those goods and services for which their opportunity costs of production are lower than those of their trading partners. International trade can also help satisfy consumers’ penchant for variety, as different countries specialize in varieties of the same product or service (e.g., cars, computers, or banking services), and subsequently engage in intra-​ industry exchange with one another, thereby expanding the variety of products available to all (see, e.g., P.R. Krugman, ‘Increasing Returns, Monopolistic Competition, and International Trade’ 9(4) Journal of International Economics (1979) 469–​479; P.R. Krugman, ‘Scale Economies, Product Differentiation, and the Pattern of Trade’ 70(5) American Economic Review (1980) 950–​959). Openness to international trade can also generate welfare gains by subjecting domestic firms with substantial market power to foreign competition, which benefits using industries and end-​consumers (for example, a domestic monopolist can be forced to lower prices when faced with international competition. See, e.g., J.A. Brander and B. Spencer, ‘Tariffs and the Extraction of Foreign Monopoly Rents under Potential Entry’ 14(3) The

32    Kamal Saggi and Simon Schropp the various political and economic reasons we discuss below, most countries impose at least some trade restrictions in the form of tariffs, quantitative restrictions, import bans, production subsidies, regulatory discrimination vis-​à-​vis competing domestic products, and bureaucratic red tape. The presence of such restrictions creates a role for international cooperation in the form of trade agreements. Below, we sketch some of the leading analytical approaches economists have developed to study trade agreements.

A. Overcoming international externalities caused by unilateral beggar-​thy-​neighbour policies The most influential class of economic models posits that trade agreements help overcome countries’ incentives to use their respective market power in world markets to tilt the terms at which international trade occurs in their favour and at the expense of their trading partners. More specifically, unilateral decision-​making—​a government taking its decisions without coordinating with other governments—​in the form of higher trade barriers gives rise to international externalities since the imposing government ignores the negative effects its choices have on its trading partners and world markets overall. Such ‘beggar-​thy-​ neighbor’ behaviour on the part of all large countries can result in global inefficiencies—​a suboptimal outcome that the conclusion of trade agreements helps overcome.4 Trade agreements are a means of ‘internalizing’ externalities flowing from the pursuit of nationally rational, yet opportunistic, policies. A trade agreement forces involved decision-​makers to behave as if they genuinely Took the external effects of their policies into consideration (a strategy that a hypothetical ‘global’ government would pursue), which ultimately benefits every party participating in the agreement. Below, we first introduce a simple ‘terms-​of-​trade’ model of trade agreements. Next, we demonstrate that the basic rationale for trade agreements highlighted by this model—​i.e., overcoming international externalities caused by opportunistic unilateral trade policies—​holds under more complex settings.

1. The baseline model: a simple terms-​of-​trade model of trade agreements In its most basic form,5 the canonical terms-​of-​trade (TOT) model describes the interaction between two large economies that trade two commodities in accordance with Canadian Journal of Economics (1981) 371–​389; J.A. Brander and B. Spencer, ‘Trade Warfare: Tariffs and Cartels’ 16 The Economic Record (1984a) 227–​242. 4 

This theory dates back at least to H. G. Johnson, ‘Optimum Tariffs and Retaliation’ 21(2) The Review of Economic Studies (1953–​4) 142–​153. 5 See generally, K. Bagwell and R.W. Staiger, ‘An Economic Theory of GATT’ 89(1) American Economic Review (1999) 215–​248; K. Bagwell and R.W. Staiger, The Economics of the World Trading System (Cambridge, MA: The MIT Press, 2002); Bagwell and Staiger (2010), above fn 1.

The Regulation of International Trade: an economic perspective    33 p Supply

X ptar pft pt

A

B

F

E

D

J

C

K

Domestic price World price

Sft Dom. prod.ft

Dom. prod.tar

G

H

Star

Dtar

Demand

Dft

q

Imports (Ift)

Importstar (Itar)

Figure 1:  The terms-​of-​trade effects of an import tariff

the principle of comparative advantage:6 Country A imports good b from Country B while exporting good a to Country B in return. Markets for both goods are assumed to be perfectly competitive,7 and governments are assumed to set trade policies with the objective of maximizing their national welfare. Under these stylized conditions, each country can be shown to have a unilateral incentive to erect trade barriers with the objective of improving its TOT, i.e., lowering the relative price of its imports (a policy that increases national welfare by allowing a country to import a larger number of imports per units of its exports). Figure 1 , above, provides a diagrammatic analysis of the incentives Country A has to impose a tariff on imports of good b from Country B.8 The figure is constructed in the typical price-​quantity plane. The vertical axis plots the price at which good b is sold in Country A’s market, and the horizontal axis plots trade volumes (quantities). Domestic demand for good b in Country A is downward-​sloping (representing the standard assumption that the quantity demanded by consumers decreases with price). Domestic supply is upward-​sloping: Local producers are willing to provide higher quantities if the 6 

The assumption of ‘large’ countries means that each country is capable of affecting its terms of trade, i.e., the relative world price at which the two goods are exchanged. A large country is a ‘price-​maker’, rather than a ‘price-​taker’ in international markets for a given product or service. 7  ‘Perfect competition’ means that there is a very large number of buyers and sellers (none of which has market power) and that there exist no barriers to entry or asymmetric market information. As a consequence, sellers are unable to generate any ‘excess’ profits. 8  To understand the key insights behind the TOT model, it is sufficient to focus on the market for a single product. The mirror-​image analysis applies to Country B for the other good a.

34    Kamal Saggi and Simon Schropp price of good b increases. The horizontal line pft represents the world price for good b under free trade.9 Point X denotes the equilibrium in the absence of international trade (i.e., where domestic supply and demand intersect). The fact that the world price is lower than the domestic market-​clearing price indicates that Country A is a net-​importer of good b. Quantities Dft and Sft represent the free-​trade levels of consumption and production, respectively. The horizontal distance between the two (Ift) measures Country A’s imports from Country B under free trade. Based on Figure 1, we can now examine the key implications of a tariff on imports of good b in Country A. Let the government of Country A impose an import tariff of t per unit of imports of good b. By design, such a policy drives a wedge between the price received by foreign suppliers and the price paid by domestic consumers. The new domestic price shifts upwards from pft to ptar, and since Country A is assumed to be large (i.e., it has market power), its import tariff t depresses the world price for good b, thus making per-​unit imports cheaper for consumers in Country A.10 In Figure 1, the reduction in the world price of good b from pft to pt captures country A’s TOT gain resulting from the imposition of its tariff on good b. Domestic producers, protected by the import tariff, can sell at the higher domestic price, ptar, and thus are willing to provide higher quantities of good b.11 This increase in domestic production of good b results in a reduction of imports from Ift to Itar. With the tariff in place, Country A pays less for those import quantities that it still purchases since pt is smaller than pft. This is the terms‐of‐trade improvement first identified by economists Robert Torrens and John Stuart Mill in the nineteenth century. It has come to occupy a central role in the TOT theory of trade agreements.12 It is worth emphasizing that the imposition of tariff t affects Country A’s welfare through three channels. First, consumers lose from the rise in the domestic price from pft to ptar. This loss comprises the increased amount they pay for the quantities that they continue to consume at the higher domestic price ptar, plus the loss of consumer surplus that results from reduced consumption (from Dft to Dtar).13 9  In

this simple two-​country, two goods set-​up, the world price for good b is simply the (untaxed) relative price of good b over good a, or formulaically: pw =​ pb/​pa. 10  This is so, because, faced with higher import prices, consumers in Country A demand less of good b. This, in turn, results in a glut (over-​supply) for good b in the rest of the world, thus suppressing world prices. 11  This is so, since less competitive domestic producers, whose production costs were too high under free trade, are willing and able to sell domestically at the higher price ptar. 12  See R. Torrens, The Budget: On Commercial and Colonial Policy (London: Smith, Elder & Co., 1844); J. Stuart Mill, Essays on Some Unsettled Questions of Political Economy (London: John W. Parker, 1844). The benefits that Country A derives from unilaterally restricting its imports are analogous to those that a firm with market power derives from restricting its output in a domestic setting. For example, a monopolist typically maximizes profits by selling less than the competitive level of output: It does so in order to set a price at which the marginal revenue of sales equals its marginal cost of production. Similarly, a large country can improve its TOT by buying less than the free trade level of imports, thereby driving the world price of its imports. 13  The total loss to consumers is measured by the area ABCD in Figure 1.

The Regulation of International Trade: an economic perspective    35 Second, domestic producers benefit from tariff protection. They receive higher revenues for the output that they originally produced (point Sft). In addition, the price wedge created by the tariff results in an expansion in domestic production (from point Sft to Star).14 Finally, the government collects tariff revenues on imported quantities. This revenue equals the volume of imports, Dft minus Star (the distance between points D–​F in Figure 1), times the gap between internal and foreign prices, ptar–​pt.15 Tariff revenue can be decomposed into two parts, reflecting the distribution of the tariff burden between (i) domestic consumers and (ii) foreign producers. More specifically, rectangle FDKJ represents the tariff revenue Country A effectively collects from its own consumers, who end up paying a higher price on imports due to the tariff (although this price increase is lower than the level of the tariff because of the TOT gain bestowed on Country A). In contrast, rectangle JKHG captures the reduction in the short-​run profits of foreign suppliers of good b caused by the tariff‐induced decline in its price. The net welfare benefit for the importing Country A is the sum of the effects on consumers, producers, and the government. In Figure 1, this net gain is represented by the difference between the area of the rectangle JKHG and the area of the two triangles, EFJ and DKC. Rectangle JKHG represents the terms‐of‐trade gain accruing to Country A—​the volume of imports with the tariff in place, multiplied by the amount by which the tariff causes the world price to fall. It is worth noting that Country A’s gains from rectangle JKHG is a net wealth transfer from Country B to Country A. The two triangles measure the so-​called ‘deadweight loss’—​the economic costs resulting from an inefficient resource allocation in Country A (over-​production and under-​consumption of good a, respectively) resulting from Country A’s tariff.16 Under normal economic conditions, and as long as the tariff hike is not prohibitively large, the TOT gains (rectangle JKHG) will outweigh the efficiency losses to Country A (triangles EFJ and DKC), such that the imposition of an appropriately calculated tariff generates a net welfare gain for the importing Country A.17 Four corollary observations directly flow from the above. First, Country A has a unilateral incentive to impose an import tariff to improve its terms of trade. Acting in isolation, a national income-​maximizing government of a 14 

Area ABEF in Figure 1 measures the net increase in domestic producer surplus in Country A.  In Figure 1, the tariff revenue equals the rectangle FGHD. Higher revenues enable a welfare-​ maximizing government to provide public goods, transfer wealth to certain constituents, or reduce taxes. 16 More specifically, the deadweight loss reflects the inefficiency resulting from a reduction of consumption below the point where consumers’ willingness to pay exactly equals the opportunity cost in terms of the payment to foreigners (triangle DKC), and by increasing domestic production beyond the point where the marginal cost of the resources used by the domestic industry equals the opportunity cost of importing the goods from the foreign industry (triangle EFJ). 17  Rational cost-​benefit considerations on the part of Country A call for it to balance the marginal gain from improving its TOT against the marginal cost of exacerbating the deadweight loss of the tariff. The result is called the ‘optimum tariff ’—​the non-​cooperative tariff level at which the marginal reduction of consumer welfare is just balanced by the marginal increase in the surplus for import-​competing industry and in tariff revenue. 15

36    Kamal Saggi and Simon Schropp country that has market power on world markets perceives a benefit from implementing restrictive trade policies regardless of whether its trading partners are doing the same or not. Second, though it is not immediately apparent from Figure 1, exporting Country B suffers economic losses from Country A’s unilateral imposition of a tariff on good b. Specifically, Country B faces two types of costs: (i) the reduction in the price of those units of good b that continue to be traded after the imposition of the tariff (rectangle JKHG);18 and (ii) and the net loss suffered by its domestic participants in the market for good b because of the reduction in exports of good b caused by the tariff.19 Third, in a two-country, two-goods setting the same opportunistic zeal that drives Country A’s treatment of good b applies in mirror image from the perspective of Country B for good a, Country A’s export good. Using its TOT advantage with respect to imports of good a, country B also has a unilateral incentive to impose an optimum tariff for imports of good a. The roles in the market for good a are reversed: Country B gains at the expense of Country A. Fourth, a situation in which both Countries A and B impose tariffs on their respective imports, and each country disregards the negative effect of its tariff on its trading partner, is inefficient from a global welfare perspective.20 In sum, each country has a unilateral incentive to exploit its national market power and impose trade barriers (in this example, tariffs) in an effort to improve its TOT. The resulting outcome is globally inefficient, not only because each country’s TOT gains cancel each other out, but also because trade volumes are inefficiently low. This situation has been likened to a prisoners’ dilemma in which each party takes rational decisions in anticipation of the other party’s non-​cooperative actions, but the overall outcome makes both parties worse off. The above analysis suggests the contours of an agreement that increases trade volumes and improves aggregate welfare for both governments. Countries have an incentive to negotiate reductions in barriers to avoid negative effects on their welfare caused by their partner’s trade policies. The currency of the deal is market access concessions achieved by mutually lowering trade barriers.21 By granting each other better market access, each 18 

This is the mirror image of Country A’s gain, so in the calculus of global efficiency, these two effects cancel each other out. 19  While consumers in Country B benefit from cheaper prices for good b, Country B’s economy as a whole suffers because, as a net exporter of good b, producer losses outweigh consumer benefits. 20  Global inefficiencies occur, because, while TOT gains to one country (rectangle JKHG, above) simply reflect a net wealth transfer from one country to the other, the allocative inefficiencies (the two triangles, EFJ and DKC, above) always constitute net losses (hence the name ‘deadweight losses’). 21 Some commentators have questioned whether overcoming TOT-​ related externalities really is a rationale for trade agreements, arguing that, in practice, trade-policy negotiators care little about the effect of their actions on relative world prices of traded goods (which is what the concept of TOT is about; see above fn 6). Instead, so the argument continues, trade policymakers seem intensely focused on securing ‘market access’ for domestic export industries in other countries through trade agreements. Yet, as Bagwell and Staiger (1999), above fn 5, and Bagwell and Staiger (2002), above fn 5, have shown, market access and TOT are two sides of the same coin: THe TOT concept is concerned with the price of imports for any imported quantity, while market access is concerned with quantities traded at a given price.

The Regulation of International Trade: an economic perspective    37 country foregoes the opportunistic TOT gains reaped from unilateral action in the import sector in exchange for mirror-​image TOT losses suffered in the export sector—​an effect that cancels out in the simple two-​country set-​up discussed here. However, in addition, a trade agreement allows each country to enjoy greater allocative efficiency by allowing it to focus on its comparative advantage. In that sense, a trade agreement overcomes the TOT induced prisoners’ dilemma by internalizing the externalities that result from the imposition of unilaterally optimal tariffs by each country.

2. Extensions of the baseline model confirm the basic rationale for trade agreements The basic TOT model of trade agreements discussed above was first described by John Stuart Mill in the nineteenth century and subsequently formalized by Harry Johnson in the 1950s.22 It has withstood the test of time despite its rather restrictive assumptions. Its basic insights—​namely that (i) unilateral trade policies will be excessively restrictive due to the temptation for governments to exercise their national market power, and (ii) trade agreements help overcome the prisoners’ dilemma caused by countries’ incentives to engage in unilaterally optimal policies that have beggar-​thy-​neighbor effects—​are robust to a number of refinements and extensions subsequently explored by trade economists. We summarize important modifications and extensions to the basic TOT model aimed at capturing alternative economic conditions, new trends in international trade, and/​or more realistic government objectives. As we demonstrate, the key intuition spelt out in the basic TOT model proves to be robust.

a. Alternative types of trade barriers The basic TOT model assumes that, in the absence of cooperation, countries restrict trade by imposing import tariffs on one another. Various contributions have extended this set-​up to include other types of trade barriers, including different border measures (quantitative restrictions and export taxes23), as well as behind-​the-​border policies, such as export subsidies, domestic taxes, local content rules, and technical barriers to trade (including product standards).24 Inclusion of these non-​tariff policies does not However, any tariff imposed by a large country necessarily affects both world prices and quantities at the same time. Because of this intrinsic interrelationship (or ‘duality’) between prices and quantities, market access and TOT are effectively interchangeable concepts. See K. Bagwell and R.W. Staiger, ‘Domestic Policies, National Sovereignty and International Economic Institutions’ 116(2) Quarterly Journal of Economics (2001b) 519–​562; Bagwell and Staiger (2002), above fn 5, Chapter 8. 22 

See Mill, above fn 12; Johnson, above fn 4. taxing exports, a large country reduces the supply of its export goods to the world market, thereby driving up world prices, thus generating a TOT improvement in the export sector. 24  See, e.g., Bagwell and Staiger (2001b), above fn 21; Bagwell and Staiger (2002), above fn 5; K. Bagwell and R.W. Staiger, ‘Will International Rules on Subsidies Disrupt the World Trading System?’ 96(3) American Economic Review (2006) 877–​895; K. Bagwell and A.O. Sykes, ‘India –​Measures Affecting the Automotive Sector’ in H. Horn and P.C. Mavroidis (eds), The WTO Case Law of 2002, The American Law Institute Reporters Studies (New York: Cambridge University Press for the American Law Institute, 2005) 158–​178; G. Maggi and A. Rodriguez-​Clare, ‘A Political-​Economy Theory of 23  By

38    Kamal Saggi and Simon Schropp materially change the basic rationale of trade agreements, which remains to curb unilateral incentives for TOT manipulation on the part of countries. The regulation of export subsidies presents a special challenge to the TOT theory. According to the basic TOT theory, a policymaker negotiating a trade agreement should encourage export subsidies on the part of trading partners, not seek to have them prohibited. This is because the use of export subsidies by one country worsens its TOT (which is the same as improving its partner’s TOT).25 In other words, the use of export subsidies by a country’s trading partners is a gift from its perspective, as opposed to something that calls for retaliation. The fact that export subsidies are banned in the WTO has been termed the ‘export subsidy puzzle’ of the TOT theory.26 As discussed below, possible ways of resolving this puzzle include certain extensions of the basic TOT model, as well as alternative motives for trade agreements.

b. Politically motivated policymakers The basic TOT model described above assumes that trade policymakers seek to maximize national welfare. This is evidently an oversimplification since most policymakers are probably motivated by a number of political objectives, not least that of being re-​ elected or re-​appointed. Trade-​policymakers thus often cater to concerns of organized special interest groups—​be they import-​competing (and therefore likely protectionist) or export-​promoting. Trade policies that emerge from domestic political processes are hence best described as the result of a weighted average of domestic aggregate welfare and the welfare of organized special interest groups in politically influential industries or factor markets (such as labour or capital). Various academic contributions have added richer descriptions of the political motivations driving trade policymakers.27 While these contributions generally yield more realistic predictions concerning the level of trade liberalization resulting from a trade agreement, they rely on similar explanations as to the motivation for international

Trade Agreements’ 97(4) American Economic Review (2007) 1374–​1406; N. Limão and P. Tovar, ‘Policy Choice: Theory and Evidence from Commitment via International Trade Agreements’ 85(2) Journal of International Economics (2011) 186–​205; D.R. DeRemer, ‘The Evolution of International Subsidy Rules’, ECARES Working Paper, 2013, 2013-​45; R.W. Staiger and A.O. Sykes, (International Trade, National Treatment, and Domestic Regulation’ 40(1) The Journal of Legal Studies (2011) 149–​203. 25   Export subsidies lower world prices for export products, thus improving the TOT of the subsidizing country’s trade partners. In other words, export subsidies impose a positive externality on importing countries. But since export subsidies are also costly, countries tend to ‘under-​subsidize’ exports in a non-​ cooperative setting without a trade agreement in place. A trade agreement should thus encourage, rather that discourage, more export subsidies. 26  Maggi (2014), above fn 1, at 326. 27 See, e.g., A.L. Hillman and P. Moser, ‘Trade Liberalization as Politically Optimal Exchange of Market Access’ in M. Canzoneri, W.J. Ethier and V. Grilli (eds), The New Transatlantic Economy (Cambridge: Cambridge University Press, 1996) 295–​312; G.M. Grossman and E. Helpman, ‘Trade Wars and Trade Talks’ 103(4) Journal of Political Economy (1995) 675–​708; Bagwell and Staiger (2002), above fn 5; K. Bagwell and R.W. Staiger, ‘Delocation and Trade Agreements in Imperfectly Competitive Markets’ 69(2) Research in Economics (2015) 132–​156.

The Regulation of International Trade: an economic perspective    39 cooperation: overcoming international externalities that arise from the unilateral pursuit of nationally optimal trade policies.28

c. Imperfectly competitive markets and heterogeneous goods Looking beyond the set-​up of the basic TOT model, the literature also considers international externalities that arise in imperfectly competitive environments, including situations involving trade in differentiated goods. One strand of literature assesses trade policies for an imported good supplied by a foreign monopolist.29 In such a setting, a small tariff on the imported goods reduces the price charged by the foreign monopolist, which corresponds to a TOT improvement for the home country. In other words, under fairly general conditions, the foreign monopolist can be shown to absorb part of the tariff imposed by the domestic country, as opposed to passing all of its costs on to domestic consumers. In a symmetrical setting of trade between two countries trading two goods produced by a monopolist in each country, the motivation for a trade agreement to internalize such a TOT externality emerges once again. Another strand of literature considers a market in which two firms with different national origins compete as duopolists, each offering a differentiated version of the same product (e.g., aircraft offered by Boeing, a US company, and Airbus, an EU-​based company).30 In this global duopoly setting, a unilateral tariff or subsidy by one country has the potential to not only transfer rents from the foreign firm to the domestic treasury but can also alter the nature of competition between the two firms, resulting in higher global market shares for the domestic producer.31 Again, we recognize an international externality, this time in the form of the unilateral pursuit of ‘profit-​shifting’, i.e., a loss of market share by the foreign firm that results in profit gains for the domestic champion. 28 

See Bagwell and Staiger (1999), above fn 5; Bagwell and Staiger (2002), above fn 5. Katrak, ‘Multi-​National Monopolies and Commercial Policy’ 29(2) Oxford Economic Papers (1977) 283–​291; P. Svedberg, ‘Optimal Tariff Policy on Imports from Multinationals’ 55(1) The Economic Record (1979) 64–​67; Brander and Spencer (1984a), above fn 3. 30  See J.A. Brander and B. Spencer, ‘Tariff Protection and Imperfect Competition’ in H. Kierzkowski (ed), Monopolistic Competition and International Trade (Oxford: Clarendon Press, 1984b); J.A. Brander and B. Spencer, ‘Export Subsidies and Market Share Rivalry’ 18 Journal of International Economics (1979) 83–​100; J. Eaton and G.M. Grossman, ‘Optimal Trade and Industrial Policy Under Oligopoly’ 101(2) Quarterly Journal of Economics (1986) 383–​406; K. Bagwell and R.W. Staiger, ‘Profit Shifting and Trade Agreements in Imperfectly Competitive Markets’ 53(4) Journal of International Economics (2012a) 1067–​ 1104, Section 5. Subsequent contributions have generalized this setting to include multiple firms offering differentiated products. See M. Mrazova, ‘Trade Agreements when Profits Matter’ Mimeo (2013), revised February 2013; R. Ossa, ‘Profits in the New Trade Approach to Trade Negotiations’ 102(3) American Economic Review (2012) 466–​469; K. Bagwell and R. W. Staiger, ‘Delocation and Trade Agreements in Imperfectly Competitive Markets’ NBER Working Paper No. 15444 (2009); K. Bagwell and R.W. Staiger, ‘The Economics of Trade Agreements in the Linear Cournot Delocation Model’ 88(1) Journal of International Economics (2012b) 32–​46; A. Constinot, A. Rodriguez-​Clare and I. Werning, ‘Micro to Macro: Optimal Trade Policy with Firm Heterogeneity’ 88(6) Econometrica (2020) 2739–​2776. 31  The same goes for an export subsidy to the domestic firm, which again changes the nature of competition in world markets, resulting in higher market shares for the domestic firm, and thus extra profits captured by the domestic firm at the expense of its foreign rival. Such market-​share gains typically outweigh the costs to the domestic government of subsidizing its national champion. 29  H.

40    Kamal Saggi and Simon Schropp Importantly, if both governments were to pursue their unilateral incentives to subsidize their firms, the resulting pair of subsidies would roughly neutralize one another, leaving market shares about where they would have been without the costly interventions while causing market price to drop due to the expansion in their output levels—​something that makes industries in both countries worse off. Therefore, governments of the two exporting countries have a shared incentive to negotiate a trade agreement that limits the use of trade policies aimed at globally inefficient profit-​shifting behaviour.

d. Entry and exit of firms The basic TOT model, as described above, is agnostic over the entry and exit of firms, since in competitive markets (where price equals marginal cost and no firm makes excess profits) the number of firms participating in commerce is largely irrelevant. However, whenever price exceeds marginal cost (i.e., firms reap excess profits) and transportation costs create price differences across markets, entry and exit of firms matter. In a setting with flexible entry and exit, a government may have an incentive to pursue trade policies that encourage entry at home and/​or force exit abroad. Various contributions have shown that trade barriers can raise the profitability of home production, thus stimulating additional entry in the longer term. With tariffs or shipping costs, home products are cheaper than imports, thus raising real income and lowering consumer prices. Foreign firms lose directly from the trade barrier and indirectly from fiercer competition from home firms. As a result, some foreign firms are forced to exit.32 Governments may achieve such ‘delocation’ of firms by using import tariffs and export subsidies. By acting unilaterally, each government neglects the harm that delocation causes to producers and consumers elsewhere and the deadweight losses that result from its policy intervention. As before, the specter of this mutually inefficient behavior may motivate the negotiation of a trade agreement aimed at overcoming the delocation externality.33

e. Global value chains, intermediate inputs, and bilateral bargaining A more recent strand of trade literature examines the cross-​border inefficiencies that result when governments make unilateral policy choices in situations with international 32 

The US policy of ‘bringing back’ manufacturing jobs in the steel, coal, and automotive industries through the imposition of tariff barriers pursued by the Trump Administration may serve as an example. According to former President Trump’s economic advisor Peter Navarro, the Administration’s objective was one of ‘unwinding and repatriating the international supply chains on which many US multinational companies rely’; S. Donnan, ‘Trump’s Top Trade Advisor Accuses Germany of Currency Exploitation’ Financial Times (31 January 2017). This strategy was pursued by a mix of domestic incentives (favorable tax and environmental regulation), as well as trade barriers (mainly tariffs and trade remedies). Ibid. 33  The delocation motivation for trade agreements was first pioneered by A. Venables, ‘Trade and Trade Policy with Imperfect Competition: the Case of Identical Products and Free Entry’ 19 Journal of International Economics (1985) 1–​20; A. Venables, ‘Trade and Trade Policy with Differentiated Products: a Chamberlinian-​Ricardian Model’ 97 Economic Journal (1987) 700–​7 17, and subsequently developed further by R. Ossa, ‘A New Trade Theory of GATT/​WTO Negotiations’ 119(1) Journal of Political Economy (2011) 122–​152; Bagwell and Staiger (2009), above fn 30; Bagwell and Staiger (2012b), above fn 30; Bagwell and Staiger (2015), above fn 27.

The Regulation of International Trade: an economic perspective    41 outsourcing involving global value chains.34 This literature captures the changing nature of trade (from trade in final goods to trade in intermediate goods) and uncovers an even more pronounced role for trade agreements. Models of this literature feature an economic environment in which a producer located in the home country sources customized intermediate inputs from an international supplier (e.g., auto parts from Mexico for a Ford production facility in the United States). While the exact setting is complicated, the gist is that each government has a unilateral incentive to influence the bilateral bargaining of the outsourcing arrangement to tilt the division of ex post surplus between firms in favor of the domestic player. Specifically, by imposing trade barriers, each government attempts to engineer a bargaining outcome that is favorable to its local firms—​at the expense of the foreign firms. This two-​sided international externality, as before, is globally inefficient.35 The requisite trade agreement helps internalize the mutual value-​chain externalities and achieve a globally efficient outcome.

f. Negative non-​pecuniary externalities In most of the models described so far, the international externality that gives rise to global inefficiencies travels through prices—​either domestic prices or world prices. Various authors have extended this set-​up to include non-​pecuniary externalities, for example, cross-​border pollution, which can equally serve as a motivation to conclude trade agreements.36

g. Extensions to include services, investment, intellectual property The trade economic literature has also developed formal models of trade agreements focused on services,37 intellectual property,38 and foreign direct investment.39 34  See

P. Antras and R.W. Staiger, ‘Offshoring and the Role of Trade Agreements’ 102(7) American Economic Review (2012a) 3140–​3183; P. Antras and R.W. Staiger, ‘Offshoring Trade agreements and the Nature of International Price Determination’ 102(3) American Economic Review Papers and Proceedings (2012b) 470–​476. 35  The externality described in international outsourcing models is no longer related to TOT (world prices) but related to local price externalities whose effects influence resource allocation and welfare abroad. This, however, does not change the basic rationale for contracting, which is to internalize international externalities resulting from bilateral opportunism. 36 See N. Limão, ‘Trade Policy, Cross-​ Border Externalities and Lobbies: do linked Agreements Enforce more Cooperative Outcomes?’ 67(1) Journal of International Economics (2005) 175–​179; G. Spagnola, ‘On Interdependent Supergames: Multimarket Contact, Concavity and Collusion’ 89(1) Journal of Economic Theory (1999a) 127–​139; G. Spagnola, ‘Issue Linkage, Delegation, and International Policy Cooperation’ 16 March 1999, 1999 FEEM Working Paper No. 49/​96. 37  J. Francois and B. Hoekman, ‘Services Trade and Policy’ 48(3) Journal of Economic Literature (2010) 642–​692. 38  G.M. Grossman and E.L.-​C. Lai, ‘International Protection of Intellectual Property’ 94(5) American Economic Revue (2004) 1635–​1653; S. Scotchmer, ‘The Political Economy of Intellectual Property Treaties’ 20(2) Journal of Law, Economics and Organization (2004) 415–​437. 39 W.J. Ethier, ‘Regionalism in a Multilateral World’ 106(6) Journal of Political Economy (1998) 1214–​1245; E.J. Blanchard, ‘Foreign Direct Investment, Endogenous Tariffs, and Preferential Trade Agreements’ The BE Journal of Economic Analysis & Policy (2007) 7; E.J. Blanchard, ‘Reevaluating the

42    Kamal Saggi and Simon Schropp For example, Grossman and Lai develop a model in which countries determine the degree to which they choose to protect intellectual property, such as patents.40 The authors show that both governments, when acting unilaterally, ignore externalities on foreign consumers and producers and consequently provide inadequate patent protection. These externalities create the opportunity for an international patent agreement that is mutually welfare-​improving in that it strengthens patent protection in each country and thus provides greater incentives for innovation worldwide.

B. Trade agreements as commitment devices vis-​à-​vis powerful domestic constituents Thus far, we have focused on governments that are tempted to impose harmful cross-​ border externalities on one another. A smaller, but complementary, economic literature highlights an alternative view that trade agreements provide a mechanism for governments to credibly commit to liberal trade policies and to resist pressures from influential domestic interests seeking import protection. This is typically referred to as the ‘domestic commitment theory’ of trade agreements.41 Proponents of this theory argue that policymakers leverage external pressure generated by an international contract to overcome the threat of inefficiencies by domestic stakeholders. Such domestic inefficiencies arise from the strategic interaction between policymakers and the private sector: By engaging in irreversible (or costly-​ to-​reverse) actions, such as investment decisions, private-​sector interests can force policymakers to backtrack on previously made trade liberalization commitments, thus rendering such commitments non-​credible ab initio. In such a situation, a binding obligation to a trade agreement is valuable, because it restricts the future discretion of governments over trade policy. Domestic policymakers credibly ‘lock in’ their trade liberalization commitments by exposing themselves to sanctioned retaliation in case of protectionist backtracking. Such commitment to an international agreement then serves as a signal to domestic political actors that the government cannot, and will not, renege on its initial contractual commitment to lower trade barriers. The external Role of Trade Agreements, Does Investment Globalization Make the WTO Obsolete?’ 82(1) Journal of International Economics (2010) 63–​72. 40 

Grossman and Lai (2004), above fn 38. While the domestic commitment theory can be found in a variety of early papers (e.g., R.W. Staiger and G. Tabellini, ‘Discretionary Trade Policy and Excessive Protection’ 77(5) American Economic Review (1987) 823–​837; R.W. Staiger and G. Tabellini, ‘Do GATT Rules Help Governments Make Domestic Commitments?’ 11(2) Economics and Politics (1999) 109–​144; see Staiger (1995), above fn 1, for an overview), G. Maggi and A. Rodriguez-​Clare, ‘The Value of Trade Agreements in the Presence of Political Pressures’ 106(3) Journal of Political Economy (1998) 574–​601 is particularly elegant and has become the workhorse model of this idea. Their model is one of a small, open economy for which the TOT argument for trade agreements is completely absent by design. Maggi and Rodriguez-​Clare, above fn 24, provide a unified model that incorporates both the TOT and commitment motives for trade agreements. 41 

The Regulation of International Trade: an economic perspective    43 commitment makes the policy announcement ex ante credible vis-​à-​vis influential domestic interest groups, thereby changing their incentives for exerting lobbying pressure to implement protectionist measures in the first place. This, in turn, eliminates socially wasteful protectionist lobbying and enables the government to take actions that are beneficial to the country’s long-​term interests.42 The domestic commitment theory offers attractive justifications for important real-​ life features of the GATT 1947/​WTO Agreement that appear puzzling when viewed through the lens of the TOT theory. In particular, it can explain (i) the export subsidy puzzle described above;43 (ii) the transition from a shallow-​integration agreement (the GATT 1947), with relatively few rules and issues areas, to a deep-​integration agreement (the WTO Agreement); and (iii) why small countries may want to join trade agreements at all. On the last point, it is worth recalling that the TOT model can only explain the behaviour of ‘large’ countries with the necessary power to affect world market prices for the products they trade. Since the domestic commitment approach addresses a domestic struggle of policymakers against local special interest groups, the signatory country may well be ‘small’ in the sense that it lacks any market power to influence world prices. However, even the domestic commitment theory cannot fully explain why large countries would find small countries to be attractive partners for a trade agreement because, by definition, the trade policies of small countries have no impact on their trading partners. Furthermore, it is not immediately clear what exact problem a commitment contract solves to justify the conclusion of an elaborate international agreement.44 In the same vein, many design features found in actual trade agreements, including the GATT 1947/​WTO Agreement, are not consistent with those predicted by the domestic commitment rationale.45 42  The 1998 model by Maggi and Rodriguez-​Clare, above fn 41, delivers some interesting predictions regarding the effect that a government’s bargaining ability vis-​à-​vis domestic lobby groups has on its incentive to enter into a trade agreement. For example, a stronger bargaining position vis-​à-​vis domestic lobby groups makes the government less likely to enter into a trade agreement. This is because a stronger bargaining position allows the government to derive large rents from the political process, thereby raising its cost of entering into a trade agreement. 43  Unlike the TOT model, which predicts that trade agreements encourage export subsidies (see above fn 25), the domestic commitment approach predicts that a government may want to commit to the elimination of export subsidies if export interests are heavily organized in a world without trade agreements (and thus may succeed lobbying for excessive export subsidies). See Maggi and Rodriguez-​ Clare, above fn 41, and T. Potipiti, ‘Import Tariffs and Export Subsidies in the WTO: A Small-​Country Approach’, Chulalongkorn University’ Mimeo (2012). See also Section III.G, below. 44  Policymakers wishing to tie their hands could outsource policymaking to an independent domestic agency akin to a central bank, rather than to undergo extensive (and costly) international negotiations. See S.A.B. Schropp, Trade Policy Flexibility and Enforcement in the WTO: A Law & Economics Analysis (Cambridge: Cambridge University Press, 2009), Chapter 4; Grossman, above fn 1, at 415. 45  Examples here include the existence of safeguards or tariff renegotiation clauses, or of exceptions to non-​discrimination rules (such as for preferential trade agreements). From the position of a government wanting to tie its hands against future protectionist backsliding, these real-​life institutional features of the GATT 1947/​WTO Agreement are unnecessary, and perhaps even harmful.

44    Kamal Saggi and Simon Schropp Overall, the domestic commitment approach to trade agreements is probably best seen as complementing some form of externality-​driven motivation for trade agreements described in Section II.A, above. It also offers a good explanation of why economically small countries may find it useful to join an existing trade agreement initially conceived between large countries.46

C. Trade agreements as devices to achieve coordination and transparency The models described thus far largely assume a stable economic environment and rule out (i) any sources of uncertainty pertaining to real-​life economic shocks emanating from changes in technology, natural resources, tastes, weather, politics, etc., as well as (ii) any informational constraints regarding the actions and intentions of the economic actors involved. In recent years, trade economists have attempted to add more realism to their models. In addition, in so doing, they have found new, complementary rationales for trade agreements. First, since real-​ world trade agreements typically involve many countries and millions of goods and services in a dynamic environment where policymakers can select among a large number of policy instruments, a trade agreement may be a means for coordinating trade-​related interests and determining a specific distribution of gains from trade among parties to the agreement.47 Second, certain publication, transparency, and dispute settlement provisions in trade agreements with more than two parties can serve an informational role for the purposes of verifying violations of the agreement and informing third countries when such violations have occurred. In that sense, multilateral trade agreements can increase transparency in international trade.48 This is especially the case when violations take the form of non-​tariff barriers and other behind-​the-​border measures, which are otherwise hard to detect. Third, various authors examine an uncertainty-​managing motive for trade agreements. For example, Limão and Maggi consider a model in which trade policymakers from different countries have idiosyncratic levels of risk aversion for dealing with political

46 

See Grossman and Horn, above fn 1, at 60; Grossman, above fn 1, at 415. After all, many different combinations of trade concessions can be consistent with a given level of negotiated market access. A formal agreement can be used to record a mutual understanding of what is to be expected, such that misunderstandings do not invoke a return to a protectionist past that existed prior to the agreement. On the potential coordination benefits of regulatory harmonization, see Schropp, above fn 44, Sec. 4.1.2.5; Grossman, above fn 1, at 387. 48  See, e.g., G. Maggi, ‘The Role of Multilateral Institutions in International Trade Cooperation’ 89(1) American Economic Review (1999) 190–​214; J.-​H. Park, ‘Enforcing International Trade Agreements with Imperfect Private Monitoring’ 78(3) The Review of Economic Studies (2011) 1102–​1134. 47 

The Regulation of International Trade: an economic perspective    45 and economic uncertainties.49 Governments can achieve mutual gains from changing (reducing) the degree of uncertainty in each other’s trade policies, relative to a non-​ cooperative situation without a trade agreement in place. Importantly, the uncertainty-​ reducing motive may be relatively more important for lower-​income countries.

III.  The economics underlying the design of trade agreements A minimal requirement for any economic theory of trade agreements is that it identifies a plausible rationale for the existence of such agreements. However, since design follows purpose, it is arguably equally important that such a theory be compatible with the salient features of actual trade agreements. Any theory of trade agreements should explain how the agreement’s fundamental principles and rules contribute to solving the problem(s) it has identified as the key rationale(s) for the agreement. Otherwise, the theory is not a helpful contribution to improving the interpretation of the text of the agreement or to reforming the agreement itself. The rest of this section discusses a number of international trade rules and features that are particularly important from an economic perspective. It examines how the theories discussed in the previous section can help shed light on these rules.50

A. Why is universal free trade not observed in the global trading system? A common question posed to trade economists is why trade agreements rarely, if ever, codify free trade and instead primarily aim at lowering trade barriers. The economics literature has ready responses to this key question. Policymakers, even those uniquely motivated by national welfare concerns, may find it beneficial to temporarily impose trade restrictions for the benefit of the domestic economy.51 For example, the sudden demise of an important industry can inflict considerable harm on a 49 N. Limão and G. Maggi, ‘Uncertainty and Trade Agreements’ 7(4) American Economic Journal: Microeconomics (2015) 1–​42. 50  For deeper analysis than is permitted here, the reader is referred to the sources mentioned that follow and to the excellent survey articles mentioned in above fn 1. 51  The erection of trade barriers as part of a welfare-​maximizing strategy may result in the context of the TOT, delocation, profit-​shifting, and international outsourcing rationales for trade agreements discussed in Section II.A.2, above. Moreover, for many countries, particularly developing countries with underdeveloped tax regimes, trade barriers, such as import tariffs can be an expedient policy tool for raising tax revenues necessary for funding government spending. Next, temporary trade barriers may counteract domestic market failures that prevent a nascent or ‘infant’ industry that is otherwise viable from becoming internationally competitive. Similarly, trade barriers may help counter international

46    Kamal Saggi and Simon Schropp small group of domestic citizens. The need to diffuse such harm helps explain why categorically ruling out trade barriers under all circumstances is not in the interest of policymakers. Indeed, a trade agreement that eliminates the ability to use temporary trade barriers to protect local firms from import competition would be attractive to very few countries. Equally important, it is widely understood in modern economics that policymakers are motivated not just by national welfare concerns but also their own self-​interest. This can lead them to favor certain domestic special interest groups over others.52 As a result, policymakers may champion trade protection for preferred industries for reasons of political expediency and personal gain. This explains why trade agreements typically codify a ‘political’ optimum with higher trade barriers relative to a purely economic optimum (which would be obtained if policymakers were to maximize national welfare).53

B. Why do the WTO agreements regulate border instruments more than behind-​the-​border policies? The WTO agreements regulate border instruments (such as import tariffs and quotas) fairly strictly. However, they leave governments with significant discretion to set their own internal (behind-​the-​border) policies, only subjecting them to a set of general constraints such as the national treatment obligation. While any border measure can essentially be replicated by a combination of behind-​the-​border measures,54 there are valid economic reasons that help explain why behind-​the-​border policies are regulated more leniently than border measures. First, Bagwell and Staiger have extended the basic TOT model to include domestic policies (taxes, standards, subsidies, etc.) along with border measures (tariffs).55 The authors find that, once governments have committed to a certain level of market access, they should be free to determine their own mix of domestic policies—​as long as these domestic policies are not aimed at undoing any agreed-​upon market access concessions. If a government were to use behind-​the-​border policies for protectionist means, a successful non-​violation claim under GATT Article XXIII:1 could help reinstate the previous balance of concessions. Second, Bagwell and Staiger have argued that since behind-​the-​border measures are an efficient way of addressing domestic market failures and meeting redistributive goals, market failures (e.g., cross-​border pollution, insufficient labor or environmental standards abroad, or health and safety risks of imported goods). Finally, trade barriers serve as retaliation for protectionist behaviour by other countries, such as dumping, subsidization of exports, a boycott, an embargo, or a violation of a prior trade commitment. 52 

Recall Section II.A.2.b, above. See, e.g., Bagwell and Staiger (2002), above fn 5; Grossman and Helpman, above fn 27. 54 For example, any import tariff can be replicated by a combination of a product subsidy and consumption tax (see Bagwell and Staiger (2016), above fn 1, at 62). 55  Bagwell and Staiger, above fn 21; Bagwell and Staiger (2002), above fn 5, Chapter 8; Bagwell and Staiger, above fn 24. 53 

The Regulation of International Trade: an economic perspective    47 restrictions on them can have a ‘chilling effect’ on tariff negotiations. Therefore, those policies can reduce the degree of market access that countries are willing to grant each other ex ante.56 Third, Limão and Tovar, in a model based on the domestic-​commitment rationale for trade agreements, show that governments have an interest in tying their hands with respect to more efficient redistributive instruments (such as a tariff) while leaving the less efficient instrument (non-​tariff barriers) unconstrained.57 However, while border measures remain paramount, trade liberalization in the contemporary world economy is shifting from a system largely focused on border measures in the GATT 1947 to one that includes multiple behind-​the-​border regulations with the advent of the WTO Agreement. Substantive literature has sought to explain why the international trading order has gradually moved from ‘shallow’ integration during the GATT years (1947–​1993) to ‘deeper’ integration with the advent of the WTO in 1994.58 For example, Bagwell and Staiger use a model featuring a profit-​shifting rationale for trade agreements59 to show that trade liberalization negotiations may initially only comprise import tariffs (shallow agreement). However, in a subsequent phase, once tariffs are sufficiently close to zero, there is scope for imposing restrictions on behind-​the-​border measures, in that case on export subsidies (deep agreement).60 Based on a model of trade agreements that features international outsourcing externalities, Antras and Staiger conclude that governments typically find it optimal to utilize many of their policy choices—​border as well as behind-​the-​border policies—​to manipulate international prices and shift costs onto trading partners.61 In that sense, the steady rise of global value chains and international outsourcing over the last few decades may have partly eroded the effectiveness of the old tariff-​centric GATT shallow-​integration approach and necessitated deeper integration to guide efficient policy choices.62

C. Why does the WTO mandate the ‘tariffication’ of quotas? As just discussed, the economics literature can explain why behind-​ the-​ border policies are generally regulated more leniently than border measures. However, not all

56 

Bagwell and Staiger, above fn 24. Limão and Tovar, above fn 24. 58  See K. Bagwell, C.P. Bown and R.W. Staiger, ‘Is the WTO Passé’, World Bank Policy Research, 2015 Working Paper No. 7304, for an overview of that literature. The terms ‘shallow’ and ‘deep’ refer to (i) the level of trade liberalization (e.g., tariff cuts), as well as (ii) the number of product categories and issue areas covered (e.g., services trade, intellectual property, investment measures, etc.). 59  See Section II.A.2.c, above. 60  See Bagwell and Staiger, above fn 31. For a similar argument, see DeRemer, above fn 24. 61  Antras and Staiger (2012a), above fn 34; Antras and Staiger (2012b), above fn 34. 62  See N. Rocha and G. Orefice, ‘Deep Integration and Production Networks: An Empirical Analysis’ 37(1) World Economy (2011) 106–​136 for an empirical analysis of the increasing ‘deepening’ of trade integration in trade agreements. 57 

48    Kamal Saggi and Simon Schropp border measures are treated equally under the GATT 1947 and the WTO agreements. Quantitative restrictions and voluntary export restraints (VERs) are generally prohibited by Article XI of the GATT 1994 and Article 11 of the Safeguards Agreement. While certain exceptions are granted in the agricultural sector, the Agreement on Agriculture mandates a gradual ‘tariffication’ of quotas. On the one hand, to an economist it is unclear why the WTO system adopts a more hostile attitude towards quantitative restrictions relative to tariffs. After all, any quota can exactly replicate the import effect of a tariff and vice versa.63 Economists are puzzled as to why governments may wish to impose quantitative restrictions and VERs at all because the bulk of distortionary costs resulting from quantitative restrictions is borne by the country imposing them. Indeed, in contrast to tariffs, which generate tariff revenue for the imposing government, quantitative restrictions result in so-​called ‘quota rents’ that can accrue to foreign exporters, depending on how quota rights are allocated.64 From an international relations perspective, such rent transfers to trading partners may limit the damage they suffer from trade restrictions. Therefore, in the context of the international political economy, quantitative restrictions such as VERs can sometimes be more appealing than tariffs. On the other hand, trade literature has shown that, relative to tariffs, quantitative restrictions suffer from several disadvantages. Among other things, quantitative restrictions can (i) entail higher administrative costs; (ii) be less transparent;65 (iii) incentivize otherwise non-​competitive suppliers to export; (iv) create more monopoly power than an equivalent tariff when the domestic market is imperfectly competitive;66 and (v) create incentives for exporters competing for quota rents to engage in socially wasteful activities (such as bribery).67

63  In perfectly competitive markets, an import tariff and a quota are equivalent instruments in the sense that a country can replace a tariff that results in a given level of imports by a quota resulting in the same level of imports, without affecting its own welfare or that of its trading partners. 64  See, e.g., D.W. Skully, ‘US Tariff-​Rate Quotas: Historical Allocation and Non-​discrimination’ 29(1) Agricultural and Resource Economics Review (2000) 81–​90; D.W. Skully, ‘Economics of Tariff-​Rate Quota Administration’, Economic Research Service, US Department of Agriculture, 2001, Technical Bulletin No. 1893; S.A.B. Schropp and D. Palmeter, ‘Commentary on the Appellate Body Report in EC–​Bananas III (Article 21.5): Waiver-​Thin, or Lock, Stock, and Metric Ton?’ 9(1) World Trade Review (2010) 7–​57. 65  Some types of quantitative restrictions (such as VERs) transfer quota rents to foreign exporters. This might make it less likely that the exporter’s government challenges the quantitative restriction before the WTO and keeps an active trade restriction unsanctioned. 66  The foreign supply response under the quantitative restrictions and tariffs is not the same. Since the quantitative restriction directly limits the level of imports, it grants an import-​competing domestic monopolist greater freedom to charge higher prices: THe sales of foreign suppliers cannot exceed the quota level, no matter what the domestic price. Compare that with a tariff: It directly links the domestic price to the foreign price (and does not limit imports in the same rigid manner as a quota), so that it constrains the market power of the domestic monopolist more effectively than a quota. Indeed, an important result in the economics literature is that the domestic price is higher under a quota that allows the same level of imports as a tariff. 67  See Skully (2000) and (2001), above fn 64; Schropp and Palmeter, above fn 64.

The Regulation of International Trade: an economic perspective    49 Moreover, Bagwell and Sykes argue that, by ‘tariffying’ quantitative restrictions, governments may facilitate mutually beneficial and reciprocal trade liberalization. In other words, by imposing tariffs rather than allocating quotas across foreign exporters, governments make market-​access gains easier to assess. Thus, tariffs reduce the transaction costs of trade liberalization as well as the uncertainty facing risk-​averse exporters. As a result, tariffication can enhance the value of market-​access concessions, and increase the transparency of trade-​policy conduct, such that cheating on the agreement becomes less tempting. An additional advantage of tariffs over quantitative restrictions is that they are easier to apply and enforce on a non-​discriminatory basis.68 In sum, while the strict regulation of quantitative restrictions and VERs, compared to import tariffs, may not be fully compelling, there are good arguments in favor of tariffs relative to quantitative restrictions. Tariffs are easier to manage, more transparent, less discriminatory, and less damaging when the market environment is imperfectly competitive.

D. Why are export duties regulated less than import tariffs? While WTO Members have spent multiple negotiation rounds, reducing import tariffs, export taxes have remained unbound. Most WTO Members are free to use export duties, provided those duties are consistent with Articles II and XXVIIIbis of the GATT 1994.69 From the perspective of a two-​country, two-​goods externality model (like the basic TOT model described in Section II.A.1), failure to regulate export duties is puzzling since an export tax has analogous effects on resource allocation and welfare as an import tariff of equal magnitude.70 WTO Members may have come to understand this equivalence because the accession protocols of new WTO Members (most notably China) typically contain a full or partial prohibition of export tariffs.71 68  K. Bagwell and A.O. Sykes ‘Chile—​Price Band System and Safeguard Measures Relating to Certain Agriculture Products’ 3(3) World Trade Review (2004) 507–​528. 69  G.Z. Marceau, ‘The World Trade Organization and Export Restrictions’ in M. Matsushita and T.J. Schoenbaum (eds), Emerging Issues in Sustainable Development: International Trade Law and Policy Relating to Natural Resources, Energy, and the Environment (Tokyo: Springer, 2016) 99–​137. While the majority of Members have not bound their export duties, some WTO Members have unilaterally done so. 70  According to the ‘Lerner symmetry’ the direct effect of an import tariff on the domestic economy is to increase domestic prices in an import-​competing sector. This will attract productive resources from the export sector into the import-​competing sector. The direct effect of an export duty for the domestic economy is to reduce domestic prices in the export sector, thus stimulating resources to move out of the export sector and into the import-​competing sector. This, in turn, encourages domestic consumption of the export good. Both measures have the same influence on the relative price of imports, resource allocation, and consumer incentives. While this symmetry is most obvious in a simplified two-​good, two-country, two-goods framework, its basic intuition holds in models with multiple goods. 71  Sixteen new WTO Members have made commitments to limit export duties in their accession protocols. See Marceau, above fn 69, at 577. See also Chapter 4 of this handbook.

50    Kamal Saggi and Simon Schropp However, from the perspective of policymakers, the use of export duties has historically been low. This may be due to politically unattractive features of export taxes, such as their tendency to push export-​sector workers into unemployment and depress rents to the factor owners specific to the sector (land or capital).72 Going forward, WTO Members remain free to limit the use of export duties through negotiating bindings (just like tariffs) in case countries were to start using export duties as an alternative to bound tariffs.

E. Why subsidies are heavily regulated The treatment of subsidies in the multilateral trading system has evolved from relative permissiveness during the GATT 1947 years to an outright prohibition of export subsidies,73 coupled with serious limitations on the use of production (‘actionable’) subsidies, under the 1994 WTO SCM Agreement.74 From an economic point of view, the treatment of subsidies in the WTO is a complex issue and arguments can be made in both directions. Some models indicate that the restrictive treatment of subsidies in the WTO constitutes major progress.75 Others suggest that WTO rules on export/​production subsidies are a step backward compared to the GATT 1947.76 Superficially, constraints on the use of subsidies are difficult to square with economic theory. For example, a fundamental aspect of export subsidies is that they worsen (rather than improve) the TOT of the subsidizing country77 and therefore impose positive externalities on its trading partners. This suggests that export subsidies should be encouraged rather than prohibited. Similarly, to the extent that production 72 While

productive factors will gradually move to other sectors as the rewards in the affected industries fall (see above fn 70), such process may take time, possibly longer than an electoral cycle. As W.J. Ethier, ‘Political Externalities, Non-​discrimination, and a Multilateral World’ 12(3) Review of International Economics (2004) 303–​320 argues, the political process seems to disproportionately reward direct effects of policymaking, and the direct effects of export duties are likely to adversely affect the popularity of incumbent policymakers. 73  See Article 3 of the SCM Agreement. This prohibition includes local content subsidies. 74  Domestic production subsidies are considered legal (‘non-​actionable’), unless they cause ‘adverse effects’ to the interest of another Member (Article 5 of the SCM Agreement). One of the adverse effects listed is ‘serious prejudice to the interests of another Member’ (Articles 5(c) and 6). Interesting from an economic perspective is that a domestic production subsidy can be deemed actionable under the WTO independently of whether it actually nullifies or impairs the market-​access expectations associated with earlier trade liberalization. 75 Bagwell and Staiger, above fn 24; H. Horn, G. Maggi, and R.W. Staiger, ‘The GATT as an Endogenously Incomplete Contract’ 100(1) American Economic Review (2010) 394–​419; Maggi and Rodriguez-​Clare, above fn 41; D. Brou and M. Ruta, ‘A Commitment Theory of Subsidy Agreements’ 13(1) The B.E. Journal of Economic Analysis & Policy (2013) 239–​270; DeRemer, above fn 24. 76  Bagwell, Bown, and Staiger (2015), above fn 58, at 53. 77  In a two-​country, two-goods setting, the Lerner symmetry (see above fn 70) implies that a domestic country’s export subsidy has the same effect on prices (and thus on government welfare) as a decrease in import tariff.

The Regulation of International Trade: an economic perspective    51 subsidies help overcome domestic market failures and achieve domestic redistribution objectives,78 their use should remain unencumbered.79 Yet, this does not fit with the obligations assumed under the SCM Agreement. In that sense, the basic TOT model does not seem well equipped to provide a rationale for the prohibition of export subsidies and the restriction of production subsidies.80 However, some of the extensions of the basic TOT model81 can help explain the WTO’s restrictive stance on subsidies. Starting with the prohibition of export subsidies, consider a two-​country, two-goods TOT model in which policymakers are politically motivated (rather than motivated uniquely by national welfare). More specifically, assume that policymakers in both countries have strong import-​competing preferences but also find it beneficial to subsidize exports (e.g., because export-​oriented special interest groups are particularly influential). In such a setting, each country may have a unilateral incentive to subsidize its exports, which creates negative externalities for its trading partner since each country sets its subsidy without considering the harm it does to foreign import-​competing interests. This leaves scope for an international agreement that helps internalize mutual externalities.82 A prohibition of export subsidies can also be rationalized in an environment in which governments maximize national welfare but where markets are imperfectly competitive. As explained in Section II.A.2.d above, such a setting may lead each government to deliberately subsidize its exports to shift profits from foreign to domestic producers. However, all subsidizing countries lose as a result of such subsidies (through a worsening of their TOT). This opens the room for a mutual agreement banning export subsidies.83 Applying a model based on profit-​shifting as a rationale for trade agreements, Mrazova finds that in the presence of fixed costs of administrating and policing trade policy instruments, a tariff-​only agreement is more easily self-​enforced than a 78 

As explained in fn 51, above, governments may wish to enact temporary trade barriers, including subsidies, to protect infant industries. However, the economic literature has shown that while trade barriers can partly address such market failures, they are rarely the first-​best policy response from an economic perspective. H. Pack and K. Saggi, ‘Is There a Case for Industrial Policy? A Critical Survey’ 21(2) The World Bank Research Observer (2006) 267–​297. 79  Bagwell and Staiger (2006), above fn 24. 80 See, e.g., W.J. Ethier, ‘The Political Economy of Protection’ in D. Bernhofen, R. Falvey, D. Greenaway and U. Kreickemeier (eds), Palgrave Handbook of International Trade (London: Palgrave Macmillan, 2013). 81  See Section II.A.2, above. 82  See Grossman and Helpman, above fn 27. Also, export subsidies generate distortions in production and may encourage rent-​seeking behaviour. See K. Bagwell, R.W. Staiger and A.O. Sykes, ‘Border Instruments’ in H. Horn and P.C. Mavroidis (eds), Legal and Economic Principles of World Trade Law (New York: Cambridge University Press for the American Law Institute, 2013), vol. 68-​204, at 186–​189. 83 However, such a prohibition on export subsidies will adversely affect importing countries which benefit from the export subsidies (and the low world prices they entail). Thus, a prohibition of export subsidies may not result from a multilateral agreement if all governments (importers as well as exporters) have equal negotiation power.

52    Kamal Saggi and Simon Schropp subsidy-​only agreement. This provides another reason for why an export subsidy ban may be desirable.84 Bagwell and Staiger consider a model in which delocation (enabling entry of domestic firms at home and forcing exit of firms abroad) is the source of mutual externalities and thus the key motivation for a trade agreement.85 They find that, once tariffs have been reduced to low levels, parties have an incentive to overuse export subsidies to encourage delocation. Thus, their model provides a compelling explanation for why subsidies were regulated less stringently during GATT years (when average tariffs were still high) but have been regulated more restrictively in the WTO since tariffs in most industrialized countries are now sufficiently low.86 Finally, the domestic commitment theory of trade agreements also sheds useful light on the WTO ban on the use of export subsidies. Where export interests are highly organized, export subsidies would prevail in the absence of a trade agreement, even though such subsidies are expensive to maintain and distort the local economy. As Maggi and Rodriguez-​Clare demonstrate, governments will want to commit to eliminating or reducing export subsidies, relative to a non-​cooperative situation without an agreement. This is so since with a trade agreement in place, export-​focused special interest groups recognize that future lobbying for export subsidies will be futile. They thus make their long-​term resource allocation decisions accordingly, which benefits the national economy and the long-​term interests of policymakers alike.87 We may conclude that there are good economic reasons for prohibiting export subsidies. However, why are production subsidies permitted subject to the conditions under Articles 5 and 6 of the SCM Agreement? Bagwell and Staiger argue that, in the presence of market failures and redistributive goals by policymakers, it can be inefficient to impose tight restrictions on domestic production subsidies. Such restrictions can have a ‘chilling effect’ on negotiations and reduce the level of market access (e.g., the size of tariff cuts) that countries are willing to grant to each other. Hence, production subsidies should be permitted but regulated.88

84 

Mrazova, above fn 30, see also Section II.A.2.c, above. Bagwell and Staiger (2012b), above fn 30, see also Section II.A.2.d, above. 86  Bagwell, Bown, and Staiger, above fn 58, at 52. However, the model does not deliver a compelling interpretation for why subsidies are treated more severely in the WTO than import tariffs. 87  Maggi and Rodriguez-​Clare, above fn 41. 88 Bagwell and Staiger, above fn 24. This points to an inherent trade-​ off between the risk that production subsidies (through their potential to cause international externalities) may partially undo previous market access commitments, on the one hand, and the necessity to maintain flexibility over domestic policymaking, on the other. A government should enjoy flexibility over its domestic policies, provided they do not erode negotiated market-​access commitments (and therewith the agreed-​upon TOT). After tariffs are negotiated, a government may enact production subsidies, as long as the overall effect does not result in a TOT loss for its trading partner. If the subsidizing country fails to withdraw the offending measures or to remove the adverse effects, and in the absence of an agreement on compensation, the complaining Member may impose countermeasures that are ‘commensurate’ with the adverse effects attributable to the subsidy. In that sense, Article 7 of the SCM Agreement enables a rebalancing of market access commitments. 85 

The Regulation of International Trade: an economic perspective    53 Brou and Ruta argue that the domestic commitment theory of trade agreements provides another rationale for the WTO’s restrictions on using actionable production subsidies. They show a distortion associated with the subsidy level that a tariff-​only agreement with a non-​violation rule cannot address. Hence, disciplines on domestic production subsidies are necessary to avoid economic distortions.89 Next, based on a TOT model that acknowledges the presence of contractual incompleteness and transaction costs of negotiating and drafting an agreement, Horn et al. find that a restriction of domestic subsidies is more likely (i) the higher trade volumes are between countries; (ii) the larger the monopoly power in trade that countries exert (such that they have the capacity to manipulate TOT); and (iii) the stronger the financial ability of countries to substitute subsidies for tariffs.90

F. Reciprocity in the WTO Reciprocity, along with rules of non-​discrimination (discussed below), is a key pillar of the WTO system. From an economic perspective, reciprocity calls for a balanced exchange of trade concessions between parties negotiating mutual trade liberalization. Reciprocity arises in at least three forms in the WTO, each of which can be readily explained by leading economic models of trade agreements. First, reciprocity is a fundamental norm guiding trade liberalization negotiations between WTO Members. While reciprocity in negotiations is an informal bargaining norm, trade liberalization negotiations are often seen as a quid pro quo.91 The reciprocity principle fits well into the narrative of leading economic models on trade agreements.92 In a basic two-​country, two-​goods TOT model, Bagwell and Staiger show that the exchange of reciprocal tariff concessions leaves the world relative price unchanged, relative to a situation without an agreement. Therefore, trade liberalization, in accordance with reciprocity helps achieve efficiency. In other words, reciprocal trade liberalization 89 

Brou and Ruta, above fn 75. Maggi, and Staiger, above fn 75. According to the authors, point (i)—​an increase in trade volume—​may help explain why domestic production subsidies were largely left to Contracting Parties’ discretion under the GATT 1947 but have been constrained with the advent of the WTO. Moreover, points (ii) and (iii)—​economic power and ability to subsidize—​together may explain why developing countries have largely been exempted from constraints on subsidies through special and differential treatment clauses in the WTO Agreement. 91  See, e.g., the preamble to the WTO Agreement, which states that Members are ‘. . . desirous of contributing to these objectives by entering into reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international commerce . . .’ (emphasis added). This is also reflected in Article XXVIIIbis of the GATT 1994, of which paragraph 1 states: ‘The contracting parties recognise that . . . negotiations on a reciprocal and mutually advantageous basis, directed to the substantial reduction of the general level of tariffs and other charges on imports and exports and in particular to the reduction of such high tariffs as discourage the importation even of minimum quantities . . . are of great importance to the expansion of international trade’ (emphasis added). 92  See Bagwell and Staiger (2016), above fn 1, at ­Chapter 3, for an overview. 90  Horn,

54    Kamal Saggi and Simon Schropp eliminates any TOT effects between countries, and increases in trade volumes that result from a reduction in trade barriers benefit both sides.93 Moreover, in the context of different ‘rounds’ of negotiation, Bagwell and Staiger show that reciprocity helps overcome the ‘Achilles heel of the MFN principle’,94 namely the ‘free-​rider problem’, whereby a country holds back offers of market access concessions in the hope of obtaining tariff cuts from other trading partners through MFN.95 Second, reciprocity is critical in renegotiations of tariff bindings under Article XXVIII of the GATT 1994. Article XXVIII:2 stipulates that such renegotiations must maintain the reciprocal balance of concessions initially agreed upon by the parties.96 Article XXVIII:4 provides for the ‘withdrawal of substantially equivalent concessions’ in response to a breakdown of tariff renegotiations. The economic literature can readily explain the usefulness of the reciprocity principle in tariff renegotiations. Reciprocity establishes a ‘balance of concessions’, whereby each government makes the ‘concession’ of lowering its import barriers in exchange for receiving a similar concession from a trading partner.97 93 

Bagwell and Staiger (1999), above fn 5; Bagwell and Staiger (2002), above fn 5. Bagwell and Staiger (2016), above fn 1, at 511. 95 Bagwell and Staiger (1999), above fn 5; K. Bagwell and R.W. Staiger, ‘Multilateral Trade Negotiations, Bilateral Opportunism and the Rules of GATT/​WTO’ 67(2) Journal of International Economics (2005) 268–​294. The reason is as follows: Suppose Country A engages in reciprocal market concessions with Country B under the MFN obligation. This stimulates consumption of the import good and the production of the export good in each country. According to the Lerner symmetry (see above fn 70), reciprocal import tariff cuts by Countries A and B have the same effect as would an increase in export subsidies. Thus, while exporters in a third Country C enjoy lower tariff barriers in Countries A and B, they also face, in effect, subsidized competing exports from Countries A and B. From the perspective of Country C, the countervailing effects of lower foreign tariff barriers and quasi-​export subsidies by Countries A and B balance out, with the increase in Country A’s import demand exactly fulfilled by expanded exports by Country B—​leaving Country C in the exact same position as prior to the other two countries’ market access negotiations. Country C’s position is no worse than before, but also not better, thus obviating any incentive on Country C’s part to free-​ride on the other countries’ MFN commitments. 96 Specifically, Article XXVIII:2 reads: ‘In such negotiations and agreement, which may include provision for compensatory adjustment with respect to other products, the contracting parties concerned shall endeavour to maintain a general level of reciprocal and mutually advantageous concessions not less favourable to trade than that provided for in this Agreement prior to such negotiations’ (emphasis added). 97  Using the TOT model as an example, recall that countries do not gain from unilateral tariff cuts, because doing so worsens their TOT (even though lowering tariffs implies greater import volumes). Governments may enjoy mutual gains, however, if they jointly reduce trade barriers. According to K. Bagwell and R.W. Staiger, ‘An Economic Theory of GATT’ 89(1) American Economic Review (1999) 215–​248; Bagwell and Staiger (2002), above fn 5), reciprocity mandates that the balance of concessions leave the pre-​agreement world prices (TOT) unchanged. In other words, reciprocity fixes the terms of exchange of market access at a common level for all members. This allows all countries to enjoy greater trade volumes, without suffering TOT losses, and so creates a bargaining forum within which TOT manipulation is effectively removed from policymakers’ calculus (meaning that countries can focus on the optimal degree of trade liberalization). Reciprocity extends beyond the TOT rationale for trade agreements. See Ossa, above fn 33, for a model based on delocation externalities, and Antras and Staiger (2012b), above fn 34, for a model based on offshoring externalities, both of which confirm the salience of the reciprocity principle. 94 

The Regulation of International Trade: an economic perspective    55 Furthermore, tariff renegotiations can act as a safety valve in situations where uncertainty over future contingencies exist and where the affected Member privately observes protectionist shocks. Renegotiations can provide Members an ‘escape’ route when facing internal pressures to increase tariffs. Renegotiations consistent with reciprocity ensure that world prices (and thus the TOT) remain stable.98 Moreover, Bagwell and Staiger find that the reciprocity rule induces a rebalancing of power across countries. This is because it incentivizes large countries to commit to not exploiting their bargaining power by renegotiating the agreement ex post in future renegotiations. This, in turn, encourages smaller, less powerful countries to participate in the WTO.99 Finally, the concept of reciprocity plays an important role in the context of dispute resolution and enforcement. The objective of remedies is to re-​ establish a balance of concessions between parties.100 This is in line with the ‘efficient breach’ hypothesis101 under which Members are provided a safety valve to react to unforeseen circumstances, as long as trading partners are left in as good a position as they would

98 

G. Maggi and R.W. Staiger, ‘Optimal Design of Trade Agreements in the Presence of Renegotiation’ 7(1) American Economic Journal: Microeconomics (2015) 109–​143; M. Beshkar, ‘Optimal Remedies in International Trade Agreements’ 54(3) European Economic Review (2010a) 455–​466; M. Beshkar, ‘Trade Skirmishes and Safeguards: a Theory of the WTO Dispute Settlement Process’ 82(1) Journal of International Economics (2010b) 35–​48. 99  Bagwell and Staiger (1999), above fn 5. See also J. McLaren, ‘Size, Sunk Costs, and Judge Bowker’s Objection to Free Trade’ 87(3) American Economic Review (1997) 400–​420. 100 See Article 22(4) of the DSU. Some commentators reject the view that WTO enforcement rebalances Members’ concessions and have countered that ‘inducing compliance’ is the only objective of WTO enforcement. The compliance-​rebalancing controversy has essentially been led by J.H. Bello, ‘The WTO Dispute Settlement Understanding: Less is More’ 90(3) American Journal of International Law (1996) 416–​418; A.O. Sykes, ‘The Remedy for Breach of Obligations under the WTO Dispute Settlement Understanding: Damages or Specific Performance?’ in M. Bronckers and R. Quick (eds), New Directions in International Economic Law (Boston: Kluwer Law International, 2000) 347–​357; C.P. Bown, ‘The Economics of Trade Disputes, The GATT’s Article XXIII, and the WTO’s Dispute Settlement Understanding’ 14(3) Economics and Politics (2002) 283–​ 322; W.F. Schwartz and A.O. Sykes, ‘The Economic Structure of Renegotiation and Dispute Resolution in the WTO/​GATT System’ 31(1) Journal of Legal Studies (2002) 170–​204 on the rebalancing side, and by J.H. Jackson, ‘The WTO Dispute Settlement Understanding –​Misunderstandings on the Nature of Legal Obligation’ 91(1) American Journal of International Law (1997) 60–​64; J.H. Jackson, ‘International Law Status of WTO Dispute Settlement Reports: Obligation to Comply or Option to ‘Buy Out’?’ 98(1) American Journal of International Law (2004) 109–​125; J. Pauwelyn, ‘Enforcement and Countermeasures in the WTO: Rules are Rules—​Toward a More Collective Approach’ 94(2) American Journal of International Law (2000) 335–​347; S. Charnovitz, ‘Rethinking WTO Trade Sanctions’ 95(4) American Journal of International Law (2001) 792–​832; S. Charnovitz, ‘Should the Teeth Be Pulled? An Analysis of WTO Sanctions’ in D.L.M. Kennedy and J.D. Southwick (eds), Political Economy of International Trade Law: Essays in Honor of Robert E. Hudec (Cambridge: Cambridge University Press, 2002) 602–​635 on the compliance side of the debate. S.A.B. Schropp, ‘Revisiting the ‘Compliance-​vs.-​Rebalancing’ Debate in WTO Scholarship: Towards a Unified Research Agenda’, HEI Working Paper 29-​2007 constitutes an attempt to integrate both views into one theory. See further Chapter 37 of this handbook. 101  See Sykes, above fn 100; Schwartz and Sykes, above fn 100; K. Mahlstein and S.A.B. Schropp, ‘The Optimal Design of Trade Policy Flexibility in the WTO’ HEI Working Paper 27-​2007.

56    Kamal Saggi and Simon Schropp have been had the other side respected its obligations throughout.102 This is done by either offering compensation or allowing affected trading partners to re-​impose equivalent tariff barriers.103

G. Rules on non-​discrimination: MFN and national treatment The GATT 1994 leaves ample discretion for Members to set policies unilaterally—​as long as they do not discriminate in favor of (i) domestic goods in violation of Article III of the GATT 1994 (‘national treatment’), or (ii) goods from third countries contrary to the Most-​Favoured Nations (‘MFN’) obligation under Article I of the GATT 1994.104 Economic literature helps explain why these two non-​discrimination obligations are widely considered to be the cornerstones of the multilateral trading order.105 102  According

to the ‘efficient breach’ theory, the severity of retaliation available to a complainant should be such that it re-​establishes the balance of concessions to where it was prior to the breach. In contrast to ‘punitive’ retaliation, this type of remedy induces a government to increase protection when, and only when, the gains from opting out of the agreement are high enough. In other words, it avoids ‘over-​breach’ but does not discourage breach in general. What makes that interpretation appealing is that the severity of retaliation is in line with the reciprocity rule. Article 22.4 of the DSU seems to mandate just that, when it states: ‘The level of suspension of concessions or other obligations authorized by the DSB shall be equivalent to the level of nullification or impairment’—​in other words, the appropriate remedies (‘suspension of concessions’) must be equivalent to the economic damage (‘nullification of impairment’) suffered by the complainant. See M. Herzing, Essays on Uncertainty and Escape in Trade Agreements (Stockholm: Institute for International Economic Studies, 2005), Monograph No. 50; Mahlstein and Schropp, above fn 101, Schropp, above fn 44, Chapter 6. 103  Various authors have argued that remedies in the WTO fall short of the ‘efficient breach’ ideal, because Members affected by another Member’s use of ‘safety valves’ are not put in as good a position as they would have been had the other side continued to perform its contractual duties. This, in turn, may lead to excessive (opportunistic) breach and inefficiently low trade liberalization commitments by all Members. See Herzing, above fn 102; Schropp, above fn 44, ­Chapter 6; Mahlstein and Schropp, above fn 101; Beshkar (2010a), above fn 98. 104 The MFN principle applies to any type of border measures and ensures non-​ discrimination between trading partners. National treatment regulates behind-​ the-​ border measures; it prohibits discriminatory treatment against foreign-​produced goods, once they have cleared customs. On the non-​ discrimination principle, see also Chapter 16 of this handbook. 105   The MFN obligation has received substantial attention from economists; see, e.g., Bagwell and Staiger (1999), above fn 5, Bagwell and Staiger (2002), above fn 5, and Bagwell and Staiger, above fn 95. H. Horn and P.C. Mavroidis, ‘Legal and Economic Aspects of MFN’ 17 European Journal of Political Economy (2001) 233–​279 provide a comprehensive survey of the literature on MFN treatment. The national treatment obligation has only recently begun to receive formal scrutiny. H. Horn, ‘National treatment in the GATT’ 96(1) American Economic Review (2006) 394–​404 constitutes the first formal analysis of national treatment in the context of bilateral trade agreements. G.M. Grossman, H. Horn and P.C. Mavroidis, ‘National Treatment’ in H. Horn and P.C. Mavroidis (eds), Legal and Economic Principles of World Trade Law (Cambridge: Cambridge University Press, 2013) 205–​345 provide an extensive study of Article III of the GATT 1994 and argue that case law, economic theory, and negotiation history all suggest that the purpose of Article III is to outlaw protectionist use of domestic policies. H. Horn and P.C. Mavroidis, ‘Still Hazy After All These Years: The Interpretation of National Treatment in the GATT/​

The Regulation of International Trade: an economic perspective    57 Beginning with MFN, it is relatively straightforward to see that the MFN obligation saves transaction costs (i.e., the costs of negotiating with multiple Members). In addition, the economic literature shows that if countries are free to discriminate between their import sources, then each country levies higher tariffs on low-​cost exporters, relative to high-​cost exporters.106 Thus, the MFN obligation, which imposes the same tariff on all exporters can improve welfare by eliminating socially harmful discrimination against efficient sources of supply. Using a TOT model with multiple countries, Bagwell and Staiger have shown that the MFN obligation, if used in tandem with the reciprocity rule, converts a complex multilateral bargaining problem between WTO Members into a comparatively simple set of bilateral bargains that extend to the entire Membership. More importantly, MFN, working in concert with reciprocity, induces countries to disclose privately held information, thus guiding countries towards the most efficient trade agreement that locks in world prices (i.e., the multilateral TOT). The key point here is that, in a multi-​country setting, the combination of the MFN obligation and reciprocity has a similar effect as reciprocity does in a stylized two-​country world.107 Finally, the MFN obligation also solves the problem of ‘bilateral opportunism’, which implies an incentive for a pair of countries to liberalize trade bilaterally with the objective of exploiting their joint market power in world markets vis-​à-​vis third parties. The absence of MFN thereby risks eroding the value of concessions that the excluded third countries obtained in the initial multilateral negotiations, an outcome referred to as ‘concession erosion’ in the literature. MFN prevents concession erosion and the resulting ‘trade diversion’ (i.e., the reduction of imports from third countries), therefore strengthening the original multilateral trade concessions and thus the stability of the multilateral trading order.108 WTO Case Law on Tax Discrimination’ 15 European Journal of International Law (2004) 39–​69 discuss lessons that can be learned from WTO disputes regarding violations of the national treatment obligation. 106  See,

e.g., K. Gatsios, ‘Preferential Tariffs and the Most Favoured Nation Principle: A Note’ 28 Journal of International Economics (1990) 365–​373; H. Hwang and C.-​C. Mai, ‘Optimum Discriminatory Tariffs under Oligopolistic Competition’ 24 The Canadian Journal of Economics (1991) 693–​702; J.P. Choi, ‘Optimal Tariffs and the Choice of Technology: Discriminatory Tariffs vs. the Most Favored Nation Clause’ 38(1-​2) Journal of International Economics (1995) 143–​160; K. Saggi, ‘Tariffs and the Most Favored Nation Clause’ 63(2) Journal of International Economics (2004) 341–​368, P. McCalman, ‘Multi-​lateral Trade Negotiations and the Most-​Favored Nation Clause’ 57(1) Journal of International Economics (2002) 151–​176. 107  Bagwell and Staiger (1999), above fn 5. See also Ossa, above fn 33, who shows that reciprocity and the MFN obligation working in tandem can help countries internalize the production-​delocation externalities generated by opportunistic trade policies. 108 The concept of ‘trade diversion’ dates back to J. Viner, The Customs Union Issue (New York: Carnegie Endowment for International Peace, 1950). See A. Panagariya and P. Krishna, ‘On Necessarily Welfare-​Enhancing Free Trade Areas’ 57 Journal of International Economics (2002) 353–​ 367; C. Freund, ‘Different Paths to Free Trade: The Gains from Regionalism’ 115 Quarterly Journal of Economics (2000) 1317–​1341; D. Trefler, ‘The Long and Short of the Canada-​US Free Trade Agreement’ 94 American Economic Review (2004) 870–​895; J. Romalis, ‘NAFTA’s and CUSFTA’s Impact on International Trade’ 89 Review of Economics and Statistics (2007) 416–​435; C. Magee, ‘New Measures of Trade Creation

58    Kamal Saggi and Simon Schropp Notwithstanding these advantages of the MFN obligation in the GATT 1994, there is growing concern that the recent proliferation of preferential trade liberalization has led to a situation where discrimination has become widespread in the WTO.109 Despite those developments, in our view, MFN treatment remains the single most important principle behind the multilateral trading system. Without it, discriminatory policies would likely be even more pervasive and the multilateral system that much weaker. Regarding national treatment, Horn notes that absent some discipline on internal taxes, international trade agreements may be meaningless since countries can undo such agreements by imposing different internal taxes on imported and domestic goods.110 However, specifying constraints on all internal measures is virtually impossible. In light of the inevitable incompleteness of trade agreements, Horn and co-​authors show that a national treatment obligation reduces the transaction costs of drafting a contract that predicts a multitude of contractual contingencies. At the same time, it leaves enough discretion for countries to enact non-​discriminatory policies that allow them to be responsive to all manners of unforeseen contingencies.111 In this respect, the national treatment obligation constitutes an indirect (and cheap) way to make the trade agreement state-​contingent.112 Saggi and Sara build on Horn’s two-​country partial equilibrium framework by introducing heterogeneity along two important dimensions: product quality and market size.113 These two types of heterogeneity are likely to be important determinants of how WTO non-​discrimination obligations affect its Members. The authors find that when market size differs between countries that produce the same good in different qualities, a trade agreement with national treatment can make both countries better off, relative to a scenario where both countries tax-​discriminate against foreign firms.114 This result and Trade Diversion’ 75 Journal of International Economics (2008) 340–​362; K.A. Clausing, ‘Trade Creation and Trade Diversion in the Canada–​United States Free Trade Agreement’ 34 The Canadian Journal of Economics (2001) 678–​696 for more recent literature on the topic. 109 

Apart from Article XXIV of the GATT 1994, Articles XX, VI, and XIX of the GATT 1994, and the notion of Special and Differential Treatment for developing Members have all played a role in weakening the influence of MFN treatment. See also Chapter 16 of this handbook. 110  Horn, above fn 105. Any border measure can be replicated with the right combination of behind-​ the-​border measures (see Bagwell and Staiger (2016), above fn 1, at 62). 111  Horn, Maggi, and Staiger, above fn 75. 112 See also Maggi, above fn 1, at 350. However, as H. Horn, ‘The Burden of Proof in National Treatment Disputes and the Environment’ 2009 Research Institute of Industrial Economics, Working Paper Series 791 shows, the national treatment obligation is a blunt tool that may prevent countries from reacting in the most efficient manner to contingencies (for example, in situations where a discriminatory treatment of domestic and international goods would be efficient from a global welfare perspective). Consequently, common tax levels respecting the national treatment obligation may not always be efficient. See also Horn, above fn 105. 113 K. Saggi and S. Nese, ‘National Treatment at the WTO: The Roles of Product and Country Heterogeneity’ 49(4) International Economic Review (2008) 1365–​1394. 114  Intuitively, asymmetry in market size helps counterbalance the quality asymmetry between goods, thereby making national treatment acceptable to both parties. Even so, a trade agreement with national treatment arises only when the quality gap between goods is not excessive.

The Regulation of International Trade: an economic perspective    59 corresponds well with the emphasis placed on product ‘likeness’ in the context of Article III of the GATT 1994.

H. Exceptions to non-​discrimination rules There are multiple exceptions to the non-​discrimination principle in WTO law. Such exceptions include Articles XX and XXI of the GATT 1994 (on general and security exceptions), Article XIX of the GATT 1994 (on safeguards), and rules on antidumping and countervailing duties. However, the most important exception is Article XXIV of the GATT 1994, which allows for the formation of preferential trade agreements. This term encompasses bilateral and regional trade agreements, as well as customs unions. Preferential trade agreements are by default discriminatory. They allow subsets of WTO Members to drastically reduce (ideally, eliminate) trade barriers on each other while simultaneously maintaining positive tariffs vis-​à-​vis the rest of the WTO Membership not party to the preferential trade agreement. Thus, by their very nature, preferential trade agreements discriminate against non-​member countries, thereby setting up a potential clash with the MFN principle. Economists have addressed what the net effects of preferential trade agreements are on global welfare (i.e., whether they are ‘building blocks’ or ‘stumbling blocks’ of global trade liberalization), and whether the GATT rules (such as the requirements that parties liberalize ‘substantially all trade’ and refrain from increasing tariffs vis-​à-​vis non-​ parties) make sense from an economic perspective. The economic literature offers a cautionary outlook on whether preferential trade agreements are ‘building blocks’ of global trade. As Bagwell and Staiger show, discriminatory tariffs between parties and non-​parties of preferential trade agreements vitiate the attractive features of reciprocity and the MFN obligation, as described above.115 Furthermore, various authors conclude that countries, in the formation of preferential trade agreements, may be motivated by ‘bilateral opportunism’—​the incentive for a pair (or group) of countries to enter into preferential trade arrangements with the objective of exploiting their joint market power in world markets vis-​à-​vis non-​parties, thus eroding the value of concessions that the excluded countries had obtained in the initial multilateral negotiations.116 Bilateral opportunism is a form of ‘concession erosion’, and results in what is referred to as ‘trade diversion’ in the literature.117 Lastly, 115 

Bagwell and Staiger (1999), above fn 5. e.g., Bagwell and Staiger, above fn 95; N. Limão, ‘Are Preferential Trade Agreements with Non-​Trade Objectives a Stumbling Block for Multilateral Liberalization?’ 74 Review of Economic Studies (2007) 821–​855; A. Stoyanov, ‘Trade Policy of a Free Trade Agreement in the Presence of Foreign Lobbying’ 77(1) Journal of International Economics (2009) 37–​49; J. Kennan and R. Riezman, ‘Optimal Tariff Equilibria with Customs Unions’ 23 The Canadian Journal of Economics (1990) 70–​83; E. Ornelas, ‘Rent Destruction and the Political Viability of Free Trade Agreements’ 120 Quarterly Journal of Economics (2005) 1475–​1506. 117  See above fn 108. 116  See,

60    Kamal Saggi and Simon Schropp Levy and Krishna argue that parties to preferential trade agreements may lose the zeal to engage further in multilateral agreements after having concluded preferential trade agreements.118 In short, a significant portion of the literature finds that there is a substantial risk that preferential trade agreements could permit third-​party externalities to re-​enter the calculus of trade policymaking and takes a cautious position on the proposition that preferential trade agreements complement WTO agreements.119 This sobering assessment raises important follow-​up questions, including whether the WTO system would serve the cause of global free trade more effectively if it did not include Article XXIV of the GATT 1994, and what purpose the WTO’s guardrails regarding the formation of preferential trade agreements (substantially all trade; prohibition against raising external tariffs; etc.) play in mitigating those agreements’ negative effects. Economic research cautions against a rush to judgment and argues that to properly evaluate the role of bilateral trade agreements in a world of multilateral trade liberalization, it is necessary to determine the answer to an important counterfactual question: what multilateral liberalization would look like if preferential trade agreements were not permissible. Saggi and Yildiz address this key counterfactual question by developing a theory of trade agreements in a three-​country model in which they compare the advantages and disadvantages of bilateral and multilateral approaches to trade liberalization. One of their key results is that there exist circumstances where global free trade results only if countries are free to form bilateral trade agreements.120 In this way, the freedom to pursue bilateral preferential trade agreements can act as a driving force for multilateral trade liberalization. 118  P.I. Levy, ‘A Political-​ Economic Analysis of Free-​Trade Agreements’ 87(4) American Economic Review (1997) 506–​ 519 and P. Krishna, ‘Regionalism and Multilateralism: a Political Economy Approach’ 113(1) Quarterly Journal of Economics (1998) 227–​251. But see K. Saggi and H. Murat Yildiz, ‘Bilateralism, Multilateralism, and the Quest for Global Free Trade’ 81(1) Journal of International Economics (2010) 26–​37; K. Saggi, A. Woodland and H. Murat Yildiz, ‘On the Relationship Between Preferential and Multilateral Trade Liberalization: the Case of Customs Unions’ 5(1) American Economic Journal: Microeconomics (2013) 63–​99; E. Ornelas, ‘Feasible Multilateralism and the Effects of Regionalism’ 74(1) Journal of International Economics (2008) 202–​224 for more optimistic takes on preferential trade agreement in situations in which governments are self-​interested (and not only welfare-​maximizing). 119  Bagwell, Bown, and Staiger, above fn 58, section 6, convincingly argue that alternative approaches to trade agreements (profit-​shifting, delocation, outsourcing, and commitment approaches to trade agreements) do not suggest specific global welfare benefits of preferential trade agreements, when compared to the multilateral trading system. 120  Saggi and Yildiz, above fn 118. The logic for this surprising result is as follows. When considering whether or not to participate in multilateral trade liberalization, each country has to take into account its welfare under the trade regime that emerges in the absence of its participation. A non-​participating country is made worse off if the other two countries choose to enter into a bilateral trade agreement with each other that discriminates against it. Therefore, each country’s ex ante incentive to participate in multilateral trade liberalization is stronger when its non-​participation is coupled with a discriminatory bilateral preferential trade agreement between the other two countries, as opposed to a non-​ discriminatory (MFN) preferential trade agreement between the other two countries.

The Regulation of International Trade: an economic perspective    61 Economic literature has also detected incentives by parties to engage in à-​la-​carte liberalization, that is, selective liberalization of trade between the parties to a preferential trade agreement, which harms global welfare, and decreases the probability of further multilateral liberalization.121 To avoid this, the strictures of Article XXIV of the GATT 1994 appear appropriate and globally geared towards achieving welfare-​enhancing outcomes for the WTO Membership as a whole.

I. Why are Members allowed to escape market access commitments? From the inception of the GATT 1947, it was accepted that governments might need to ‘escape’ their negotiated market access commitments in situations of intense domestic import-​competing pressure. Such flexibility is expressly envisaged by Article XXVIIIbis of the GATT 1994 on tariff renegotiation (discussed above) or Article XIX of the GATT 1994 on ‘safeguards’. Building on GATT 1947 rules, the Safeguards Agreement represents an attempt to strengthen the mechanisms via which WTO Members can unilaterally (and temporarily withdraw) trade concessions.122 The economics literature agrees that, in light of the inevitable emergence of unforeseen contingencies, flexibility is efficient in that it leads to higher degrees of mutual market access and lower trade barriers. Intuitively, countries are more likely to make market access concessions if they know that in times of great domestic political pressure they will have the option of temporarily limiting market access of foreign firms. Most of the literature dealing with contractual escape is centered on the TOT family of models.123 Horn et al. find that escape clauses allowing governments to increase tariffs in times of high import activity are important tools for counteracting contractual incompleteness and prevent policymakers from overusing their policymaking discretion.124

121  B.M.

Hoekman and P.C. Mavroidis, ‘WTO “à la carte” or WTO “menu du jour”? Assessing the Case for Plurilateral Agreements’ 2013 EUI Working Paper No. RSCAS, 2013/​58; B.M. Hoekman and P.C. Mavroidis, ‘Embracing Diversity: Plurilateral Agreements and the Trading System’ 2014 CEPR, Discussion Paper No. 10204. 122  Such safeguard actions can only be undertaken under specific legal prerequisites and if affected Members are properly compensated for their loss of market access (Article XIX:1(a) of the GATT 1994). Article 8 of the Safeguards Agreement lays down the appropriate remedies for Members affected by any safeguard action, namely compensation (para 1), or suspension of equivalent concessions (para 2), i.e., unilateral trade sanctions on the imposing Member. See also Chapters 16 and 21 of this handbook. 123  In a typical model, countries enter into trade agreements in anticipation of preference shocks that are usually privately observed by the affected country. Such shocks may provoke contractual ‘regret’ in the afflicted country in a way that affects the efficient degree of trade liberalization. In other words, the Member impacted by a preference shock may need to temporarily increase trade protection for reasons of national welfare (or political expediency by trade policymakers). 124  Horn, Maggi, and Staiger, above fn 75.

62    Kamal Saggi and Simon Schropp The literature acknowledges a balance between countries’ need to escape from otherwise rigid bindings for global efficiency reasons, on the one hand, and the need to check Members’ incentives to cheat, i.e., pretend injury from random shocks for purely protectionist purposes, on the other.125 This requires governments affected by preference shocks to be ‘truthful’, i.e., to only exercise escape clauses in situations of true ‘regret’. According to economists, the WTO system for contractual escape has some appealing features that entice such truth-​telling by governments affected by ‘regret’ contingencies resulting from protectionist shocks. Some authors argue that the ‘dynamic-​use constraint’ enshrined in the Safeguards Agreement may facilitate truth-​telling. If a government imposes safeguard protection for up to 180 days, then it is not allowed to re-​impose escape-​clause protection for the same product for the next year (Article 7.6(a)), and no more than twice in a five-​ year period (Article 7.6(b)). According to Bagwell and Staiger, this dynamic constraint introduces an opportunity cost to a government, so that it will impose an escape-​clause tariff only after careful consideration.126 Bond and Beshkar consider a model with costly ‘state verification’, that is, costs that the importing government must incur to publicly prove that its preference shock is real.127 These costs, again, induce the importing Member to tell the truth.128 Most contributions dealing with contractual escape in the WTO e­ mphasize the nature and degree of WTO remedies through which trading partners are compensated following the invocation of an escape clause. As long as the level of compensation to trading partners is at least commensurate with their loss of market access, Members affected by preference shocks will only trigger escape mechanisms in times of crises, and not for opportunistic (protectionist) reasons. (This is a restatement of the ‘efficient breach’ theory introduced above.129) Some authors have expressed concern that the current design and level of remedies granted in the WTO are insufficient to elicit ‘efficient’ breach, resulting in excessive use of available escape mechanisms and under-​compensation of those WTO Members affected by opportunistic use of escape.130

125  Horn,

Maggi, and Staiger, above fn 75; Mahlstein and Schropp, above fn 101; Schropp, above fn 44; H.V. Milner and P. Rosendorff, ‘The Optimal Design of International Institutions: Uncertainty and Escape’ 55(4) International Organization (2001) 829–​857; M. Beshkar and E.W. Bond, ‘Cap and Escape in Trade Agreements’ 9(4) American Economic Journal: Microeconomics (2017) 171–​202; Schwartz and Sykes, above fn 100; P. Rosendorff, ‘Stability and Rigidity: Politics and Design of the WTO’s Dispute Settlement Procedures’ 99(3) American Political Science Review (2005), 389–​400; Herzing, above fn 102. 126  Kyle Bagwell and Robert W. Staiger, ‘Enforcement, Private Political Pressure and the GATT/​WTO Escape Clause’ 34(2) Journal of Legal Studies (2005b) 471–​513. 127  See above fn 122 for verification costs laid out by the WTO’s rules on safeguards. 128  Beshkar and Bond, above fn 125. 129  See above fn 103. 130  Mahlstein and Schropp, above fn 102; Schropp, above fn 44; Beshkar and Bond, above fn 125; Herzing, above fn 102.

The Regulation of International Trade: an economic perspective    63

IV. Conclusion In this chapter, we have reviewed leading theories for why sovereign countries conclude trade agreements and the extent to which these theoretical rationales can explain key rules and pillars of the international trading order, as laid down in the WTO agreements. We conclude with a few observations. First, since the WTO, at its core, is an economic treaty, it is of paramount importance to understand the political-​economic determinants of trade agreements and the international trade rules they set out. Second, while the various rationales for trade agreements are potentially complementary, there has not yet emerged a fully satisfactory unified theory of trade agreements that integrates all leading rationales for such agreements. Third, and as a corollary to the previous point, although the TOT theory has proven to be a powerful conceptual tool, no single theory of trade agreements can explain all the most important design features of the GATT 1994 and the WTO agreements as a whole. Finally, empirical research that can confirm or disconfirm the accuracy of theoretical models has been slow to catch up with the theory primarily due to data limitations. Fourth, the economic literature on trade agreements puts a significant emphasis on description while oftentimes shying away from prescription. Given the intense pressures facing the multilateral trading system today, economic analyses proposing reforms aimed at improving the system’s performance seem to be the need of the hour.

Further reading K. Bagwell, C.P. Bown, and R.W. Staiger, ‘Is the WTO Passé’, World Bank Policy Research, 2015 Working Paper No. 7304 C.P. Bown and M.A. Crowley, ‘The Empirical Landscape of Trade Policy’ in K. Bagwell and R.W. Staiger (eds), Handbook of Commercial Policy (Amsterdam: North Holland, 2016), vol. 1, part A, 3-​108 G.M. Grossman, ‘The Purpose of Trade Agreements’ in K. Bagwell and R.W. Staiger (eds), Handbook of Commercial Policy (Amsterdam: North Holland, 2016), vol. 1, part A, 379–​434 G.M. Grossman and H. Horn, ‘Why the WTO? An Introduction to the Economics of Trade Agreements’ in H. Horn and P.C. Mavroidis (eds), Legal and Economic Principles of World Trade Law (Philadelphia, PA: The American Law Institute, 2012), 9–​67 G.M. Grossman, P. McCalman, and R.W. Staiger, ‘The ‘New’ Economics of Trade Agreements: From Trade Liberalization to Regulatory Convergence?’ NBER 2019 Working Paper No. 26132 G. Maggi, ‘International Trade Agreements’ in G. Gopinath, E. Helpman, and K. Rogoff (eds), Handbook of International Economics (Amsterdam: North Holland, 2014), vol. 4, 317–​390

Chapter 4

The Sou rc e s of In ternationa l T ra de L aw Matthew Kennedy

I. II.

Introduction Multilateral rules A. WTO agreements B. WTO decisions and other actions III. Bilateral and regional rules A. Bilateral and regional trade agreements B. Other agreements I V. Preferential trade arrangements . Concluding remarks V

64 65 65 74 80 80 86 87 87

I. Introduction International trade law springs from multiple sources. Multilateral trade rules administered by the WTO overlap with bilateral and regional arrangements, producing a so-​ called ‘spaghetti bowl’ of rules and commitments. Some incorporate rules developed in other fora. At each level, treaty rules are supplemented by decisions and by procedures, such as dispute settlement, that can clarify the primary rules. Rule-​ making is often more organic than systematic: old rules developed in the framework of the GATT were not codified at the establishment of the WTO and new instruments continue to be adopted up to the present day without always clarifying their normative value. International trade law relies on customary rules of public international law regarding certain fundamental issues. These include customary rules on the conclusion

The Sources of International Trade Law    65 and entry into force of treaties1 and the temporal and territorial application of treaties.2 International trade law also leaves issues of Statehood and the delimitation of national territory to be determined outside trade fora. National law is not a source of international trade law. National law is the subject of international trade law and therefore expected to conform to its rules.3 However, on certain issues, international trade law rules may incorporate national law rules4 or take them into account.5 National laws addressing foreign trade practices lie outside the field of international law and are beyond the scope of this chapter.

II.  Multilateral rules The multilateral rules of international trade are administered by the WTO. Most primary WTO rules are located in the WTO agreements, which may be substantive or procedural. Certain agreements include schedules of individual concessions or commitments applicable to each Member. The primary rules include some developed in the framework of the WTO’s predecessor (the GATT), and some developed in other international organizations. Subsequent developments within the WTO framework, such as Ministerial Declarations and decisions by WTO bodies, are another potential source of rules. Many clarifications of the rules have been provided by the WTO dispute settlement system.

A. WTO agreements The primary rules of the WTO are set out in the Marrakesh Agreement Establishing the World Trade Organization (WTO Agreement6) and its annexes, as amended.7 1  See Vienna Convention the Law of Treaties (1969). See further A. Aust, Modern Treaty Law and Practice, 3rd edition (Cambridge: Cambridge University Press, 2013). 2  See Articles 28 and 29 of the VCLT. See Appellate Body Report, Brazil –​Dessicated Coconut, adopted 20 March 1997, 15; Appellate Body Report, Canada –​Patent Term, adopted 12 October 2000, para 71. See further M. Kennedy, ‘Overseas Territories in the WTO’ 65 International and Comparative Law Quarterly (2016) 741. 3  See, e.g., Article XVI:4 of the WTO Agreement. 4  For example, as regards the nationality of persons: Article XXVIII(k), (m) and (n) of the GATS, Article 3.1 of the TRIPS Agreement; and waivers for preferential trade arrangements based on the terms of national preference schemes (see Section IV below). 5  National law can constitute a supplementary means of interpretation if it sheds light on the common intention of the parties to an agreement. See, e.g., Appellate Body Report, EC –​Chicken Cuts, adopted 27 September 2005, paras 302–​9. 6  1867 U.N.T.S. 154, 33 I.L.M. 1144. This Agreement is not referred to as the ‘Marrakesh Agreement’ in any of the annexed agreements or in the Final Act of the Uruguay Round. 7  The WTO Agreements, The Marrakesh Agreement Establishing the World Trade Organization and its Annexes, 2nd edition (Cambridge: Cambridge University Press, 2017).

66   Matthew Kennedy

1. Constitutive agreement The WTO Agreement is the constitutive agreement of the organization. Three of its important features affect the development of trade rules. These are: a. the WTO is a Member-​driven organization. The agreement provides that the organization’s governing body (the Ministerial Conference), as well as the General Council and its major subsidiary bodies, are composed of, or open to, representatives of the whole membership.8 It does not create any non-​plenary organ such as an executive board9 nor does it confer on the WTO Secretariat or its head, the WTO Director-​General, any power of initiative besides presenting the WTO budget estimate;10 b. the WTO operates by consensus. The agreement provides that decisions are taken by consensus.11 Although it also contains provisions for voting in the Ministerial Conference and General Council12, these are not used in practice;13 and c. the WTO was established according to the single undertaking approach. The constitutive agreement and the trade agreements are fused into a single treaty that Members must accept as a whole.14 That approach was adopted during the Uruguay Round that led to the establishment of the WTO15 but it is not a rule 8 

Article IV:1, 2, 5 and 7 of the WTO Agreement. the Chair or the Director-​General often convenes so-​called Green Room meetings among selected Members during ministerial conferences and negotiations. The Director-​ General decides who to invite to these meetings based on his or her own assessment of whose participation might be useful. Other Members tolerate this process but it has no formal status. Developments in these meetings are reported to the relevant WTO body. See P.J. Kuijper, ‘WTO Institutional Aspects’ in D. Bethlehem, D. McRae, R. Neufeld, and I. Van Damme (eds), The Oxford Handbook of International Trade Law, 1st edition (Oxford: Oxford University Press, 2009), Chapter 5, 112–​115. 10  Articles VI and VII:1 of the WTO Agreement. Nevertheless, the Director-​General was appointed, in an ex officio capacity, Chair of the Trade Negotiations Committee for the Doha Round: TN/​C/​1 (4 February 2002). 11  Article IX:1, first sentence, of the WTO Agreement. A matter submitted for consideration is deemed to have been decided by ‘consensus’ if no Member present at the meeting when the decision is taken formally objects to the proposed decision. 12  Articles IX:1, IX:2; IX:3, X:1, X:3, X:5, and XII:2 of the WTO Agreement. The voting provisions do not apply to subsidiary bodies, which can only make decisions by consensus. See, for example, Rules of Procedure for meetings of the Council for Trade in Goods, WT/​L/​79 (7 August 1995), Rule 33. 13  Regarding waivers and accessions, see ‘Decision-​Making Procedures under Articles IX and XII of the WTO Agreement’, Statement of the Chairman as agreed by the General Council on 15 November 1995, WT/​L/​93 (24 November 1995). 14  Articles II:2, XII:1, and XIV:1 of the WTO Agreement. Original Members are not required to accept amendments agreed after the establishment of the WTO or the plurilateral agreements: see Article XI:1 of the WTO Agreement. In their accession protocols, acceding Members do commit to accept the later amendments and they often agree to sign or initiate negotiations for membership of one or both of the plurilateral agreements. 15  Ministerial Declaration on the Uruguay Round, MIN/​DEC, para B(ii) (20 September 1986). 9 Informally,

The Sources of International Trade Law    67 applicable to the conduct, conclusion or entry into force of future negotiations, unless agreed.16

2. Substantive multilateral agreements The annexes to the WTO Agreement contain agreements that address the conduct of trade relations among the organization’s Members.17 There are currently 19 such trade agreements, of which 17 contain substantive rules and two are procedural. All agreements are multilateral except for two of the substantive agreements, which are plurilateral (that is, they are binding on some Members only). All 15 multilateral substantive agreements are set out in Annex 1. Many of them elaborate on GATT 1947, or revise Codes concluded within the GATT framework. These agreements can be grouped as follows: a. a broad agreement on trade in goods: • GATT 1994, comprising: • GATT 1947 and certain instruments developed in its framework;18 • six Understandings on the interpretation or application of GATT provisions;19 and • the Marrakesh Protocol.20 b. one sectoral agreement: • the Agreement on Agriculture; c. two agreements on particular types of non-​tariff barriers: • the SPS Agreement; and • the TBT Agreement; d. three agreements on contingent trade remedies: • the Anti-​Dumping Agreement; • the SCM Agreement; and • the Safeguards Agreement; e. five agreements on customs formalities and procedures: • the Customs Valuation Agreement; • the Agreement on Preshipment Inspection; • the Agreement on Rules of Origin; • the Agreement on Import Licensing Procedures; and

16 

For example, this approach was originally agreed for the results of the negotiations launched in the Doha Ministerial Declaration, WT/​MIN(01)/​DEC/​1 (20 November 2001), para 47. 17  Article II:2 of the WTO Agreement. 18  Discussed in Section II.A.6 below. 19  GATT 1994 incorporating text para 1(c). 20  GATT 1994 incorporating text para 1(d).

68   Matthew Kennedy • the Trade Facilitation Agreement;21 f. the TRIMS Agreement; g. the GATS; and h. the TRIPS Agreement, as amended.22 These substantive agreements apply cumulatively and frequently overlap. Most of them appear in Annex 1A on trade in goods. In the event of a conflict among those agreements, the Agreement on Agriculture ranks first23 while GATT 1994 ranks last.24 Two agreements appear in separate annexes: these are the GATS (Annex 1B) and the TRIPS Agreement (Annex 1C). The organization of the annexes provides a parameter for the principles of retaliation in disputes25 and it also separates discussion of the latter two agreements into different subsidiary bodies of the General Council.26 There is no express order of precedence among the substantive agreements vis-​à-​vis the GATS or the TRIPS Agreement.27

3. Procedural agreements There are two procedural agreements in Annexes 2 and 3. Both are multilateral. These are: a. the DSU: this is the procedural law applicable in WTO disputes. It provides an integrated mechanism that covers almost all WTO agreements. It applies together with special or additional rules and procedures found in certain covered agreements; and b. the TPRM, as amended:28 this agreement creates a transparency mechanism that periodically reviews the trade policies and practices of each WTO Member. It is not covered by the DSU.29

21 Protocol

Amending the Marrakesh Agreement Establishing the World Trade Organization, annexed to General Council Decision of 27 November 2014, WT/​L/​940 (28 November 2014). The amendment entered into force on 22 February 2017 for those Members that had accepted it. 22  Protocol Amending the TRIPS Agreement, annexed to General Council Decision of 6 December 2005, WT/​L/​641 (8 December 2005). The amendment entered into force on 23 January 2017 for those Members that had accepted it. 23  Article 21.1 of the Agreement on Agriculture. 24  General interpretative note to Annex 1A. In addition, the scope of the TBT Agreement is partly defined by reference to the scope of the SPS Agreement: see Article 1.5 of the TBT Agreement. 25  Article 22.3(g) of the DSU. 26  Article IV:5 of the WTO Agreement. 27 The WTO Agreement prevails over all the multilateral trade agreements to the extent of any conflict between it and them: see Article XVI:3 of the WTO Agreement. 28  General Council Decision, Amendment of the Trade Policy Review Mechanism, WT/​L/​1014 (27 July 2017). The amendment took effect on 1 January 2019. 29  Article 1.1 of, and Appendix 1 to, the DSU; para A(ii) of the TPRM.

The Sources of International Trade Law    69

4. Plurilateral agreements There are two remaining plurilateral agreements in Annex 4, both of them substantive.30 They are ‘plurilateral’ because only some WTO Members are party to them. These are: a. the Civil Aircraft Agreement: this agreement was concluded in 1979, entered into force in 1980 and was annexed to the WTO Agreement in 1994. Its product coverage has been updated, most recently in 2015.31 It is not covered by the DSU;32 and b. the GPA: a prior version of this agreement was concluded in 1994 at the establishment of the WTO. The current version was concluded as an amendment in 2012.33 It is covered by the DSU but participation in DSB decisions or actions in this respect is limited to parties to that agreement.34 Plurilateral agreements do not create obligations or rights for WTO Members that have not accepted them, in accordance with Article II:3 of the WTO Agreement and consistent with the general rule of public international law regarding third States.35 This does not mean that parties to plurilateral agreements can infringe the rights of WTO Members that have not accepted them; rather, such WTO Members retain their rights under other WTO agreements, including their rights to most-​favoured-​nation treatment.

5. Schedules Schedules are annexed to three WTO agreements.36 Each one is an integral part of its respective agreement37 but sets out concessions or commitments that relate to an individual Member or Members only.38 The schedules are as follows:

30 

Article II:3 of the WTO Agreement. (2015) Amending the Annex to the Agreement on Trade in Civil Aircraft, TCA/​9 (5 November 2015). 32  No decision has been adopted by the parties to the Civil Aircraft Agreement to apply the DSU to that agreement in accordance with Appendix 1 to the DSU. 33   2012 Protocol Amending the Agreement on Government Procurement (1994), GPA/​113 (2 April 2012). This version of the GPA entered into force for those parties that had accepted it on 6 April 2014 and had replaced the 1994 version in relation to all parties by 1 January 2021. 34  Article 2.1 of the DSU. 35  See Article 34 of the VCLT. See generally J. Crawford, Brownlie’s Principles of Public International Law, 8th edition (Oxford: Oxford University Press, 2012), pp. 384–​386. 36  The Trade Facilitation Agreement also incorporates developing countries’ and LDCs’ respective notifications of category A, B and C commitments, regarding the timing of implementation of each: see Articles 15:1, 15:2, 16:5, 24:10, and 24:11 of the Trade Facilitation Agreement. 37  Article II:7 of the GATT 1994; Article XX:3 of the GATS; Article XXII:15 of the GPA. 38  See generally WTO, A Handbook on Reading WTO Goods and Services Schedules (Cambridge: Cambridge University Press, 2009). 31 Protocol

70   Matthew Kennedy a. goods schedules annexed to GATT 1994. These contain concessions on tariffs in Part I, concessions on non-​tariff measures in Part III, and specific commitments on domestic support and export subsidies on agricultural products under the Agreement on Agriculture in Part IV; b. services schedules annexed to the GATS. These contain market access, national treatment and additional commitments. Lists of exemptions from most-​favoured-​ nation treatment are also annexed to the GATS; and c. coverage schedules annexed to the GPA. These set out the procuring entities, goods and services covered by the agreement, the threshold values above which procurement activities are covered, and exceptions to coverage. ‘Critical mass’ and certain other sectoral agreements are compilations of improvements to concessions or commitments in the schedules of a given group of Members. The improvements are offered only by participating Members but the benefits are applied on an MFN basis to all WTO Members. Entry into force of these agreements may be linked to implementation by Members whose combined trade coverage represents a ‘critical mass’, i.e. a specified proportion of trade in the relevant sector that creates sufficient incentive for an agreement among those Members to outweigh the disincentive of free-​riding by other Members. The Information Technology Agreement is a ‘critical mass’ agreement.39 Similar agreements also compile improvements in the schedules of a group of Members but their entry into force is not based on a specified proportion of trade in the relevant sector. Examples include the so-​called ‘Pharma Agreement’40 and the four GATS Protocols.41 Other instruments set out model commitments which take effect only to the extent that Members choose to incorporate those commitments in their respective schedules. Examples are the Understanding on Commitments in Financial Services and the Reference Paper on the regulatory framework for basic telecommunications services.

6. Instruments from the prior GATT framework The GATT 1947 and certain rules previously agreed within its framework are incorporated in the GATT 1994. As part of the latter agreement, they have the status of primary rules in the WTO regardless of whether they were primary or secondary rules in the prior GATT framework. The GATT 1994 incorporating text42 describes these instruments by type without an itemized list. They can be summarized as follows: 39 Ministerial Declaration on Trade in Information Technology Products, WT/​ MIN(96)/​ 16 (13 December 1996), expanded in the Ministerial Declaration on the Expansion of Trade in Information Technology Products, WT/​MIN(15)/​25 (16 December 2015). 40  Originally noted in a Record of discussion, L/​7430 (25 March 1994). Several reviews to its product coverage have taken place and been circulated in G/​MA/​W/​10 (11 October 1996), G/​MA/​W/​18 (13 November 1998), G/​MA/​W/​85 (19 March 2007), and G/​MA/​W/​102 (2 August 2010). 41  S/​L/​11 (24 July 1995), S/​L/​12 (24 July 1995), S/​L/​20 (30 April 1996), and S/​L/​45 (3 December 1997). 42  The incorporating text is titled ‘General Agreement on Tariffs and Trade 1994’ and appears at the beginning of Annex 1A to the WTO Agreement.

The Sources of International Trade Law    71 a. the text of the GATT as signed in 1947 and subsequently rectified, amended or modified prior to 1 January 1995, including the interpretative notes and supplementary provisions listed in Annex I, and other annexes.43 Certain provisions of GATT 1947 are nonetheless superseded by provisions of the WTO Agreement;44 b. GATT 1947 tariff protocols and certifications of goods concessions.45 These set out the results of successive tariff negotiations and renegotiations; c. GATT 1947 accession protocols of original WTO Members, except that these now apply on a definitive basis and do not ‘grandfather’ prior inconsistent measures;46 d. GATT 1947 waivers still in force on 1 January 1995;47 and e. other decisions of the CONTRACTING PARTIES to GATT 1947.48 These include the 1979 Enabling Clause49 but they do not include adopted GATT panel reports.50 It can also be noted that the decisions, procedures and customary practices followed by the GATT CONTRACTING PARTIES and bodies established in the framework of GATT 1947 continue to provide guidance to the WTO.51

7. Instruments developed in other international fora Certain WTO agreements incorporate substantive rules agreed in other international organizations. As part of those agreements, these rules now have the status of primary rules in the WTO and are enforceable under the DSU. This is a major feature of the TRIPS Agreement, which incorporates scores of provisions in Conventions administered by the World Intellectual Property Organization (WIPO).52 The TBT Agreement also incorporates definitions from the sixth edition of the ISO/​IEC Guide 2: 1991, General 43 

GATT 1994 incorporating text para1 (a). For example, the provisions on decision-​making and on acceptance, entry into force, and deposit in Articles IX and XIV of the WTO Agreement prevail to the extent of any conflict with Articles XXV and XXVI of the GATT 1994, by virtue of the precedence clause in Article XVI:3 of the WTO Agreement. 45  GATT 1994 incorporating text para 1(b)(i). 46  GATT 1994 incorporating text para 1(b)(ii). However, paragraph 3 maintains an exemption for Section 27 of the US Merchant Marine Act (the ‘Jones Act’). 47  GATT 1994 incorporating text para 1(b)(iii). See the list in WT/​L/​3 (27 January 1995) and Corr.1 (23 March 1995). Most have since expired. 48  GATT 1994 incorporating text para 1(b)(iv). Whenever reference was made to the contracting parties to GATT 1947 acting jointly, they were referred to in all capitals: see Article XXV:1 of the GATT 1947. 49  Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries, L/​4903 (28 November 1979). 50  See Appellate Body Report, Japan –​Alcoholic Beverages II, adopted 1 November 1996, 14. 51  Article XVI:1 of the WTO Agreement. 52  These include most substantive provisions of the Paris Convention for the Protection of Industrial Property (1967) and the Berne Convention for the Protection of Literary and Artistic Works (1971), as well as many provisions of the Treaty on Intellectual Property in Respect of Integrated Circuits (which never entered into force) plus certain provisions of the International Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations (administered by WIPO and UNESCO). See Articles 1.3, 2.1, 3.1, 9.1, and 35 of the TRIPS Agreement. See further Chapter 19 of this handbook. 44 

72   Matthew Kennedy Terms and Their Definitions Concerning Standardization and Related Activities. The SCM Agreement cross-​references certain provisions of the OECD Arrangement on Officially Supported Export Credits.53 Two WTO agreements make reference to the work of standardizing organizations, including public/​private bodies. The SPS Agreement creates a presumption that SPS measures that comply with international standards, guidelines and recommendations developed by relevant international organizations also comply with that agreement and GATT 1994.54 Similarly, the TBT Agreement creates a rebuttable presumption that a technical regulation with a legitimate objective that is in accordance with relevant international standards complies with the obligation not to create unnecessary obstacles to international trade.55 The DSU incorporates by reference the customary rules of interpretation of public international law.56 These customary rules of interpretation have been identified principally as those codified in Articles 31 to 33 of the VCLT, drafted by the International Law Commission.57 This is not a reference to rules of public international law in general. WTO panels and the Appellate Body have at times referred to certain public international law principles and concepts as well.58 Other treaties and instruments from international fora outside the WTO have also been referred to in the interpretation of provisions of WTO agreements, but not always with an explanation of the legal basis for doing so.59 Decisions on least-​developed country (LDC) status are taken by the United Nations General Assembly.

8. Instruments contemporaneous with the establishment of the WTO A series of 27 Declarations and Decisions of the Uruguay Round Trade Negotiations Committee was made in connection with the conclusion of the WTO Agreement and annexed to the Final Act of the Uruguay Round. One such Decision is incorporated by reference in the Agreement on Agriculture.60 Several others set out draft decisions that 53 

Annex 1, Item (k) to the SCM Agreement. Article 3.2 of the SPS Agreement; see further Chapter 26 of this handbook. 55  Article 2.5 of the TBT Agreement. 56  Article 3.2 of the DSU. 57  Appellate Body Report, US –​Gasoline, adopted 20 May 1996, p. 17; Appellate Body Report, Japan –​ Alcoholic Beverages II, adopted 1 November 1996, 10; Appellate Body Report, US—​Softwood Lumber IV, adopted 17 February 2004, para 59 and fn 50. In turn, Article 31 of the VCLT lists among the authentic elements of treaty interpretation ‘any relevant rules of international law applicable in the relations between the parties’. See further Chapters 35 and 36 of this handbook. 58  See further Chapter 6 of this handbook and G. Cook, A Digest of WTO Jurisprudence on Public International Law Concepts and Principles (Cambridge: Cambridge University Press, 2015). 59  See, for example, Appellate Body Report, US –​Shrimp, adopted 21 November 2001, paras 130-​4. See generally J. Pauwelyn, Conflict of Norms in Public International Law, How WTO Law Relates to other Rules of International Law (Cambridge: Cambridge University Press, 2003), Chapter 3. 60  Article 16 of the Agreement on Agriculture, referring to the Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-​Developed and Net Food-​Importing Developing Countries. 54 

The Sources of International Trade Law    73 were later adopted by WTO bodies.61 One provided for measures in favour of LDCs.62 Others concerned organizational matters, transitional arrangements, incomplete negotiations and work programme items.63 The Harmonized System (HS) product nomenclature developed by the WCO has been deemed an agreement made in connection with the conclusion of the WTO Agreement.64 Given the age and origin of the HS, this is a surprising approach but one that leads to a convenient result. The HS, including its chapter notes and explanatory notes, can be taken into account in interpreting tariff commitments in WTO Members’ goods schedules. The Customs Valuation Agreement and the Agreement on Rules of Origin also established two technical committees under the auspices of the WCO.65 Statements by Chairpersons that evidence an agreement between the Members, in certain circumstances, must also be taken into account as context in interpreting the terms of a WTO agreement. Contemporaneous statements at the time of adoption of an instrument that is later incorporated in a WTO agreement may also constitute an agreement made in connection with the conclusion of that WTO agreement.66

9. Terminated and expired rules Certain agreements and provisions that were annexed to the WTO Agreement in 1994 are no longer in effect either by their own terms or due to subsequent decisions. The Agreement on Textiles and Clothing terminated.67 Articles 6.1, 8 and 9 of the SCM Agreement68 and Article 13 of the Agreement on Agriculture (the ‘peace clause’)69 have expired. The International Dairy Agreement and the International Bovine Meat Agreement, both plurilateral agreements, were terminated and deleted from the WTO Agreement.70 61 For example, the Marrakesh Ministerial Decision on Notification Procedures (adopted by the General Council), WT/​GC/​M/​1 (28 February 1995), item 9; Decision Regarding Cases Where Customs Administrations Have Reasons to Doubt the Truth or Accuracy of the Declared Value, G/​VAL/​1 (27 April 1995); Decision on Certain Dispute Settlement Procedures for the General Agreement on Trade in Services, S/​L/​2 (4 April 1995) (now superseded). 62  Decision on Measures in Favour of Least-​Developed Countries. 63 Certain decisions purported to create derogations from WTO obligations on a transitional basis but they have now expired: see Decision on the Acceptance of and Accession to the Agreement Establishing the WTO, cf. Article XIV of the WTO Agreement; Decision on Financial Services, cf. Articles II and XXI of GATS. 64   Article 31(2)(a) of the VCLT. See Appellate Body Report, EC –​Chicken Cuts, adopted 27 September 2005, para 199. The HS is governed by the International Convention on the Harmonized Commodity Description and Coding System of 1983, as amended. 65  Article 18.2 of and Annex II to the Customs Valuation Agreement; Article 4.2 of and Annex I to the Agreement on Rules of Origin. The WCO was formerly the Customs Co-​operation Council. 66  See Panel Report, US –​Section 110(5) Copyright Act, adopted 27 July 2000, para 6.53; Appellate Body Report, US –​FSC, adopted 20 March 2000, para 112. 67  Terminated on 1 January 2005: see Article 9 of the Agreement on Textiles and Clothing. 68  Expired on 31 December 1999: see Article 31 of the SCM Agreement. 69  Expired on 31 December 2000: see Articles 1(f) and 13 of the Agreement on Agriculture. 70 Both terminated from the end of 1997: see IDA/​ 8 (30 September 1997) and IMA/​ 8 (30 September 1997).

74   Matthew Kennedy

B. WTO decisions and other actions The WTO agreements grant powers to the Ministerial Conference, the General Council and its subsidiary bodies to adopt decisions. The Ministerial Conference also continues the GATT practice of adopting Ministerial Declarations. All decisions and declarations are taken by consensus. Decisions specifically provided for in the WTO agreements can affect the operation of primary rules laid down in those agreements, while others may purport to create secondary rules. However, actions taken by the DSB cannot add to or diminish Members’ rights and obligations under the covered agreements.

1. Special decisions and actions The WTO agreements specifically provide for certain types of decision and action that can alter the operation of their own rules. The decisions and actions variously take effect upon adoption or notification or after an acceptance procedure.71 The WTO Agreement specifically provides for the following four types of decision that can be taken by the Ministerial Conference or the General Council:72 a. Authoritative interpretations adopted under Article IX:2 of the WTO Agreement. No interpretation has been adopted according to this procedure;73 b. Waivers from obligations granted under Article IX:3 and 4 of the WTO Agreement. Over 200 waivers have been granted;74 c. Approval of amendments under Article X of the WTO Agreement which, in most circumstances, take effect only upon acceptance by a qualified majority of Members.75 Three such amendments have been agreed;76 and d. Approval of Protocols of Accession under Article XII:2 of the WTO Agreement. An accession protocol requires acceptance by the acceding Member and takes effect according to its own terms. Each protocol, which incorporates specific commitment paragraphs of a working party report, includes commitments that are considered enforceable under the DSU.77 To date, 36 protocols of accession have been approved.78 71 See W.J. Davey, ‘Institutional Framework’ in P.F.J. Macrory et al. (eds), The World Trade Organization, Legal, Economic and Political Analysis, Vol. 1 (Berlin: Springer, 2005), 51–​87, at 67–​7 1, 81–​85. 72   Article IV:2 of the WTO Agreement. 73  Interpretations of provisions have been adopted pursuant to general powers (discussed below). 74 By far the most common reason for a waiver is to allow a Member to update the customs classification in its goods schedule. Many waivers are also granted to authorize preferential trade treatment. See, e.g., the Decision on Preferential Tariff Treatment for Least-​Developed Countries, WT/​L/​ 304 (17 June 1999), extended by WT/​L/​759 (29 May 2009) and WT/​L/​1069 (17 October 2019). 75  Amendments of the DSU, the TPRM and certain amendments of the TRIPS Agreement can take effect upon approval by the Ministerial Conference: see Articles X:6 and X:8 of the WTO Agreement. 76  Above fn 21, fn 22, and fn 28. 77  Accession commitments are searchable online at < http://​acdb.wto.org/​ >. 78 The list of completed accessions is available at .

The Sources of International Trade Law    75 The WTO Agreement also provides for two types of action that take effect upon notification by a Member: e. Non-​application of the WTO Agreement vis-​à-​vis an acceding Member may be invoked by an existing Member under Article XIII:1 upon notice to the Ministerial Conference prior to approval of the terms of that Member’s accession. Non-​ application has been invoked on multiple occasions, usually temporarily;79 and f. Withdrawal from the WTO Agreement may be effected by a Member under Article XV upon written notice to the Director-​ General. No Member has withdrawn from the organization. The substantive multilateral agreements, on rare occasions, specifically attribute powers to subsidiary bodies of the General Council to take decisions that alter the operation of primary rules. These powers are limited in scope. The major examples are: g. Decisions to extend transition periods under Article 27.4 of the SCM Agreement80; Article 5.3 of TRIMS81; and Article 66.1 of the TRIPS Agreement;82 and h. Decisions to adopt procedures to certify rectifications or improvements to services schedules under Article XXI:5 of GATS.83 Not all specifically attributed powers are intended to create binding rules. One example is the responsibility to develop a procedure to monitor the process of international harmonization under Article 12.4 of the SPS Agreement.84 Nor do provisions of the WTO agreements that mandate negotiations on specific issues necessarily prejudge the

79 See,

e.g., the United States’ invocation as regards Mongolia, WT/​L/​159 (17 July 1996), later withdrawn in WT/​L/​306 (8 July 1999); and Turkey’s invocation as regards Armenia, WT/​L/​501 (3 December 2012). 80  See minutes of the SCM Committee regular meeting of 23 October 2012, G/​SCM/​M/​83 (10 January 2003), para 28. 81  See, e.g., G/​L/​499-​504 (9 November 2001). 82  IP/​C/​25 (1 July 2002); IP/​C/​35 (17 June 2005); IP/​C/​40 (30 November 2005); IP/​C/​64 (12 June 2013); IP/​C/​73 (6 November 2015). In addition, Article 64.3 of the TRIPS Agreement specifically attributes powers to the Ministerial Conference to take decisions regarding non-​violation and situation complaints under that agreement. The Ministerial Conference and the General Council have instead issued a series of decisions on a moratorium for such complaints under the TRIPS Agreement, for example, WT/​L/​1033 (18 December 2017). 83  Decision on Procedures for the Implementation of Article XXI of GATS adopted by the Council for Trade in Services on 19 July 1999, S/​L/​79 (20 October 1999); Decision on Procedures for the Certification of Rectifications or Improvements to Schedules of Specific Commitments adopted by the Council for Trade in Services on 14 April 2000, S/​L/​83 (18 April 2000). Although the Council for Trade in Services has adopted disciplines under Article VI:4 of GATS, these have not been formally integrated into the GATS, see S/​L/​63 (15 December 1998), para 3. In addition, Article XII:5(b) and XII:6 of the GATS specifically attributes powers to the Ministerial Conference to adopt procedures regarding review of balance-​of-​payments restrictions on trade in services. No such decision has been taken. 84  G/​SPS/​40 (5 July 2006).

76   Matthew Kennedy procedures required to give legal effect to the results. One example is the negotiation on a multilateral register of geographical indications for wines under Article 23.4 of the TRIPS Agreement. Analogous provisions in the plurilateral agreements also establish procedures to modify primary rules. There have been accessions85 and amendments86 to both remaining plurilateral agreements. Schedules can be rectified or modified according to certification procedures established in the text of the relevant agreement or special decisions provided for in the text.87 Certifications of changes to schedules are usually made by the WTO treaty depositary (i.e. the Director-​General) after circulation of proposed changes without any objection from any another Member within the prescribed period of time.88 Protocols have also been used to introduce commitments into services schedules.89 Procès-​verbaux of rectification are also issued by the WTO treaty depositary (i.e. the Director-​General) to rectify errors in WTO treaty texts, in particular, in the schedules.90

2. Other decisions Most WTO decisions discharge the general responsibilities of the Ministerial Conference, the General Council or a subsidiary body rather than any specifically attributed power. The scope of decisions is limited only by the responsibilities granted to the bodies that adopt them.91 These decisions are made according to the ordinary decision-​making procedure set out in Article IX:1, first sentence, of the WTO Agreement.92 The ordinary decision-​making procedure does not state whether these decisions create legal rights and obligations for Members. It implies that these decisions cannot

85 See Status of WTO Legal Instruments (2021).

86 Protocol (2001) Amending the Annex to the Agreement on Trade in Civil Aircraft, TCA/​ 4 (23 November 2001) and Protocol (2015) Amending the Annex to the Agreement on Trade in Civil Aircraft, TCA/​9 (5 November 2015); and the 2012 Protocol Amending the Agreement on Government Procurement (1994), GPA/​113 (2 April 2012). See further Status of WTO Legal Instruments (2021). 87 See Decision on Procedures for the Modification and Rectification of Schedules of Tariff Concessions, L/​4962 (28 March 1980); Decision on Procedures for the Implementation of Article XXI of GATS adopted by the Council for Trade in Services on 19 July 1999, S/​L/​79 (20 October 1999); Decision on Procedures for the Certification of Rectifications or Improvements to Schedules of Specific Commitments adopted by the Council for Trade in Services on 14 April 2000, S/​L/​83 (18 April 2000); Article XIX of the GPA. 88  A notable exception is the GPA, under which Parties notify modifications to the information contained in three particular appendices to that agreement: see Article VI:3 of the GPA. 89  Above fn 41. 90  These are circulated in the WT/​Let/​document series. 91  Articles III and IV of the WTO Agreement; Article XXIV:1 of GATS; Article 68 of the TRIPS Agreement; committee provisions of other agreements, such as Article 12.1 of the SPS Agreement; and decisions establishing subsidiary bodies, such as General Council Decision on Committee on Regional Trade Agreements, WT/​L/​127 (7 February 1996). 92  See also the Rules of Procedure of the Ministerial Conference, the General Council and each subsidiary body.

The Sources of International Trade Law    77 prevail over the WTO agreements because they neither waive obligations nor amend agreements. The fact that these decisions are not part of the covered agreements does not imply that they are not binding; even one multilateral WTO agreement (the TPRM) is not covered by the DSU. On the other hand, the procedure does not subject decision-​ making to the administrative law principles of participation, transparency, reasoned decision and review.93 Many WTO Ministerial declarations and decisions, by their own terms, indicate that they are not intended to create rights or obligations. They often address the organization and progress of negotiations and work programs. Their substantive provisions are often expressed in hortatory terms, as guidelines or as a statement of future objectives. Others set out negotiating results but mandate compliance with other procedures to give them legal effect.94 The terms of certain other WTO decisions indicate that some or all of their provisions are indeed intended to be binding. The more recent of these decisions have been taken while wider WTO negotiations, which would lead to a package of amendments to the WTO agreements, are at an impasse. These decisions may be procedural, such as the 2006 and 2010 General Council decisions that established transparency mechanisms for regional trade agreements and preferential trade arrangements.95 They may also be substantive, such as the SPS Committee Decision on the Implementation of Article 4 of the SPS Agreement,96 the 2013 Understanding on Tariff Rate Quota Administration Provisions of Agricultural Products, as defined in Article 2 of the Agreement on Agriculture97 and the 2015 Ministerial Decision on Export Competition.98 In any event, particular provisions of certain Ministerial Declarations and WTO decisions have been taken into account in dispute settlement. These provisions have been regarded as expressing a subsequent agreement between Members bearing specifically upon the interpretation or application of a provision of WTO law as foreseen by the general rule of treaty interpretation.99 Examples include the Doha Declaration on the TRIPS Agreement and Public Health, paragraph 5,100 the 2001 Doha Ministerial

93 

See generally B. Kingsbury, N. Krisch, and R.B. Stewart, ‘The Emergence of Global Administrative Law’ 68 Law and Contemporary Problems (2005) 15. See also Chapter 7 of this handbook. 94  See, e.g., ITA (above fn 39). See also the Doha Declaration on the TRIPS Agreement and Public Health, WT/​MIN(01)/​DEC/​2 (20 November 2001), para 7, and the Doha Ministerial Decision on Implementation-​Related Issues and Concerns, WT/​MIN(01)/​17 (20 November 2001), para 10.6, which both directed subsidiary bodies to extend transitional periods. 95  WT/​L/​671 (18 December 2006); WT/​L/​806 (16 December 2010). 96  G/​SPS/​19/​Rev.2 (23 July 2004). 97 WT/​ L/​914 (11 December 2014). This Understanding is expressed in the form of a Ministerial Decision. 98  WT/​L/​980 (21 December 2015), paras 6 and 7. 99  Article 31(3)(a) of the VCLT. See further Chapter 35 of this handbook. 100 WT/​ MIN(01)/​ DEC/​ 2 (20 November 2001). See Panel Reports, Australia –​Tobacco Plain Packaging, adopted 29 June 2020, para 7.2409. The legal status of the Declaration was left open in the Appellate Body Reports, adopted 29 June 2020, para 6.657.

78   Matthew Kennedy Decision on Implementation-​Related Issues and Concerns, paragraph 5.2,101 and a 2000 TBT Committee Decision on Principles for the Development of International Standards, Guides and Recommendations.102 This approach has the merit that it values rare instances of consensus in the WTO. However, the WTO Agreement grants the Ministerial Conference the ‘exclusive’ authority to adopt authoritative interpretations of the WTO agreements pursuant to a procedure that has not been observed103 and it grants no such authority to subsidiary organs such as WTO committees.

3. Clarifications provided by the dispute settlement system The WTO dispute settlement system serves not only to preserve Members’ rights and obligations under the covered agreements but also to clarify the existing provisions of those agreements.104 Given that Ministerial Declarations and WTO decisions expressing agreement on the interpretation of WTO agreements are relatively rare, dispute settlement is in practice the main source of clarification of the WTO agreements due to the sheer volume of cases. Every dispute addresses the conformity of the respondent Member’s measures with one or more covered agreements. Panels develop, inter alia, legal interpretations of provisions of the covered agreements in order to reach their conclusions and those legal interpretations may be reviewed on appeal by the Appellate Body, if requested by a party.105 Panel and Appellate Body reports take effect upon adoption by the DSB.106 The DSB is composed of representatives of all WTO Members.107 Dispute settlement reports have been adopted in over 200 distinct matters.108 Legal interpretations developed in dispute settlement reports lack normative status. Reports are binding, but only on the parties to the dispute.109 Dispute settlement reports cannot add to or diminish the rights and obligations provided in the covered agreements.110 The power to issue authoritative interpretations of the WTO agreements is reserved exclusively to the Ministerial Conference.111 The dispute settlement system 101 

WT/​MIN(01)/​17 (20 November 2001). See Appellate Body Report, US –​Clove Cigarettes, adopted 24 April 2012, paras 261-​8. 102  G/​TBT/​1/​Rev.14 (24 September 2019), at 62-​64. See Appellate Body Report, US –​Tuna II (Mexico), adopted 13 June 2012, paras 371–​8. 103  Article IX:2 of the WTO Agreement, also referred to in Article 3.9 of the DSU. 104  Article 3.2 of the DSU. See further Chapter 35 of this handbook. 105   Decisions or awards on certain issues are also issued by arbitrators and notified to the DSB. See Articles 21.3(c), 22.7, and 25 of the DSU. 106  Articles 16.4, 21.5, and 17.14 of the DSU. After an appeal, adoption is virtually automatic due to the reverse consensus rule, according to which a report will be adopted unless there is consensus not to adopt it. 107  Article IV:2 and 3 of the WTO Agreement. 108  See Dispute Settlement Body, ‘Overview of the State of Play in WTO Disputes’, WT/​DSB/​64/​Add.1 (26 November 2014), Section III, and subsequent annual reports of the Dispute Settlement Body. 109  Article 17.14 of the DSU provides that an adopted Appellate Body shall be unconditionally accepted ‘by the parties to the dispute’. 110  Articles 3.2 and 19.2 of the DSU. 111  Article IX:2 of the WTO Agreement; Article 3.9 of the DSU.

The Sources of International Trade Law    79 is a central element in providing security and predictability to the multilateral trading system112 because the dispute settlement system makes the rules enforceable. For a large number of delegations in the Uruguay Round, the key objective of the creation of the Appellate Body was to prevent losing parties from blocking the adoption and implementation of panel reports in individual disputes.113 Nevertheless, a system of precedent operates in practice. Panels and the Appellate Body cite prior GATT/​WTO dispute settlement reports, which may create legitimate expectations among WTO Members.114 Appellate Body reports are cited most often, because that body is the only instance of appeal and it considers that panels should follow its precedents, absent cogent reasons to do otherwise.115 However, panels have not always felt bound to agree with Appellate Body reports where they contain errors,116 avoid addressing all relevant context,117 or are otherwise unpersuasive.118 The Appellate

112 

Article 3.2 of the DSU. See ‘Profile on the Status of the Work in the Group—​Report by the Chairman’, MTN.GNG/​NG13/​ W/​43 (18 July 1990), para 6; and final text as adopted, Article 17.14 of the DSU. 114 See Appellate Body Reports, Japan –​Alcoholic Beverages II, adopted 1 November 1996, 13-​ 14 (regarding adopted GATT panel reports), US –​Shrimp (Article 21.5 –​Malaysia), adopted 21 November 2001, para 109 (regarding adopted Appellate Body reports). 115 Appellate Body Report, US –​Oil Country Tubular Goods Sunset Reviews, adopted 17 December 2004, para 188; Appellate Body Report, US –​Stainless Steel (Mexico), adopted 20 May 2008, paras 158–​61; cf. a separate opinion that encourages panels not to regard past Appellate Body Reports as necessarily determinative: Appellate Body Report, US –​Countervailing Measures (China) (Article 21.5), adopted 15 August 2019, para 5.281. See further P. Van den Bossche and W. Zdouc, The Law and Policy of the World Trade Organization Text, Cases and Materials, 4th edition (Cambridge: Cambridge University Press, 2017), 55–​58. 116  For example, Appellate Body Report, Argentina –​Footwear (EC), adopted 12 January 2000, para 131 (misstating the findings at paras 91–​98 of the same report), not followed in Panel Report, Argentina –​ Preserved Peaches, adopted 15 April 2003 (without appeal), para 7.24; Appellate Body Report, US –​ Gambling, adopted 20 April 2005, para 354 (misreading ‘interstate and foreign’ at paras 258 and 260 of the same report as ‘domestic and foreign’), not followed in Panel Report, US –​Gambling (Article 21.5), adopted 22 May 2007 (without appeal), para 6.121; Appellate Body Report, US –​Upland Cotton, adopted 21 March 2005, para 764 (making the wrong recommendation under the SCM Agreement regarding prohibited and actionable subsidies), not followed in Panel Report, US –​Upland Cotton (Article 21.5), adopted 20 June 2008, paras 2.8–​2.13, 9.76–​9.77, and 14.11–​14.12 (referring to the recommendations in the original panel report instead). 117  Appellate Body Report, US –​Zeroing (EC), adopted 9 May 2006, paras 126–​7 and 132, not followed in Panel Report, US –​Zeroing (Japan), adopted 23 January 2007, paras 7.100–​7.101, 7.158, and 7.195 (reversed on appeal); Appellate Body Report, US –​Zeroing (Japan), adopted 23 January 2007, paras 108–​ 116, and 155–​6, not followed in Panel Report, US –​Stainless Steel (Mexico), adopted as modified by the Appellate Body Report, 20 May 2008, paras 7.115–​7.128 (reversed on appeal); Appellate Body Report, US –​ Washing Machines, adopted 26 September 2016, para 5.171 (majority view), not followed in Panel Report, US –​Differential Pricing Methodology, circulated 9 April 2019, para 7.107 (under appeal). 118  For example, Appellate Body Report, Canada –​Patent Term, adopted 12 October 2000, para 56, not followed in Panel Report, EC –​Trademarks and Geographical Indications (US), adopted 20 April 2005, para 7.744, fn 634; Appellate Body Reports, India –​Patents (US), adopted 16 January 1998, para 68, US –​Section 211 Appropriations Act, adopted 1 February 2002, para 105, China –​Auto Parts, adopted 12 January 2009, para 225, and others (all asserting that the meaning of municipal law is reviewable on appeal), not followed in Panel Reports, US –​Section 129(c)(1) URAA, adopted 30 August 2002, para 6.28, 113 

80   Matthew Kennedy Body’s own approach to certain issues can vary119 and it has evidently heeded certain criticism.120

III.  Bilateral and regional rules International trade rules are also established outside the WTO in bilateral and regional trade agreements (‘RTAs’).121 Although these agreements and arrangements deviate from the multilateral principle of non-​discrimination in international trade relations, WTO rules create certain exceptions that may shield them, on certain conditions, and they all share the objective of reducing barriers to trade. Nonetheless, RTAs and other bilateral trade agreements are independent sources of law.

A. Bilateral and regional trade agreements The proliferation of RTAs, particularly since the end of the Uruguay Round, means they are now a widespread source of international trade rules.122 RTAs reflect the willingness of certain trade partners to integrate faster and more deeply than multilateral rules require, particularly to facilitate international production networks and when multilateral negotiations are at a stalemate. RTA chapters may cover a wider or narrower range of topics than the WTO agreements but they do not modify the WTO agreements, even as between their parties.123 RTA and WTO rules coexist and can complement each Mexico –​Olive Oil, adopted 21 October 2008, paras 7.29–​7.30, Colombia –​Ports of Entry, adopted 20 May 2009, para 7.93, and others (maintaining that the meaning of municipal law is an issue of fact). 119  For example, contrast the strict standard of review under Article 11 of the DSU in Appellate Body Report, EC –​Hormones, adopted 13 February 1998, para 133, with the standard in later reports, such as Appellate Body Report, EC –​Large Civil Aircraft, adopted 1 June 2011, para 881. Further, contrast the arguendo approach in Appellate Body Report, US –​Customs Bond Directive, adopted 1 August 2008, paras 310–​319, with the disapproval of such an approach in similar circumstances in Appellate Body Report, China –​Publications and Audiovisual Products, adopted 19 January 2010, paras 214–​215. 120  The Appellate Body espoused an authority to accept and consider unsolicited amicus curiae briefs from individuals and organizations not Members of the WTO in Appellate Body Report, US –​Lead and Bismuth II, adopted 7 June 2000, para 36–​42, and a communication from the Appellate Body in EC –​Asbestos, WT/​DS135/​9, 8 November 2000. After receiving a warning from the Chair of the General Council on 24 November 2000, WT/​GC/​M/​61, (7 February 2001), para 403), the Appellate Body denied all applications for leave to file such briefs, while insisting on its authority to accept them: Appellate Body Reports, EC –​Asbestos, adopted 5 April 2001, paras 55–​57. Subsequent appellate divisions repeatedly found it unnecessary to consider such briefs in rendering their decisions. The Appellate Body is also unlikely to make another so-​called ‘recommendation’ like those in Appellate Body Reports, US –​ Continued Suspension/​Canada –​Continued Suspension, adopted 14 October 2008, para 737, which the respondents dismissed as misconceived (WT/​DSB/​M/​258, 4 (February 2009), paras 12, 37, and 43). 121  Information regarding many of these negotiations and agreements is available at < bilaterals.org >. 122  See Chapters 8 to 15 of this handbook. 123  See Appellate Body Report, Peru –​Agricultural Products, adopted 31 July 2015, para 5.116.

The Sources of International Trade Law    81 other124 although different RTAs may promote different, and potentially conflicting, regulatory models. RTAs can be grouped into the following basic types of agreement: a. free trade agreements125 and customs unions within the meaning of Article XXIV of GATT 1994 (in respect of trade in goods); b. partial scope trade liberalization agreements between developing countries or LDCs, or both, under the Enabling Clause (in respect of trade in goods)126; and c. economic integration agreements under Article V of GATS (in respect of trade in services), that, up until now, have been incorporated in free trade agreements and customs unions. There are currently over 300 RTAs in force and every WTO Member is party to at least one.127 Free trade agreements are the most common type. Most RTAs are bilateral and the parties are not necessarily located in the same region. RTAs concluded by a large trading partner tend to be based on its own model, which develops over time in successive generations of agreements. There is no RTA applicable between any of the world’s three largest traders, i.e. the European Union, the United States and China, whose mutual trade relations are generally governed by multilateral rules.128 Due to the limited number of parties to each RTA, the procedures for amendment and, especially, decision-​making are less cumbersome than in a multilateral forum. Amendments of RTAs, and joint decisions, are therefore more common than in the WTO. While some amendments may upgrade an agreement, many decisions concern the establishment of institutions and dispute settlement procedures or implementation of issues left over from the negotiations that led to the conclusion of the RTA. Larger trading partners do not necessarily exercise the same leverage after an RTA enters into force, as both parties can continue to enjoy market access without further agreement, and proposals at that stage often relate to a single issue rather than to a broader negotiation. Conversely, dispute settlement proceedings in RTAs are much rarer than in the WTO. WTO dispute settlement procedures have long been operational within an existing institutional structure, at least up until the time of writing.129 Although RTAs are not 124   The 2011 World Trade Report, The WTO and Preferential Trade Agreements: From Co-​Existence to Coherence (Geneva: WTO, 2011), 128–​145. 125 Free trade agreements can form part of larger agreements, including association agreements, stabilization agreements and economic partnership agreements. However, EU partnership and cooperation agreements and US trade and investment framework agreements are not intended to be RTAs. 126  See above fn 49, para 2(c). 127  Source: WTO Regional Trade Agreements database (below fn 130), as of 31 August 2021. 128  However, China and the United States signed a bilateral economic and trade agreement on 15 January 2020. 129  The Appellate Body has ceased to hear appeals, which creates the opportunity to block adoption of panel reports indefinitely: see Chapter 36 of this Handbook.

82   Matthew Kennedy covered by the DSU, the frequent overlap in multilateral and regional rules means that some disputes between parties to an RTA can be resolved in the WTO.

1. RTA chapters Bilateral and regional rules overlap substantially with multilateral rules. RTA chapters cover at least some of the topics covered by WTO agreements.130 RTAs may specifically reaffirm the parties’ rights and obligations under WTO agreements, while some RTA chapters substantially or fully reproduce the text of WTO agreements. Although RTAs tend to diverge from multilateral rules in certain areas, such as market access, they do so less in others, such as trade remedies. Even divergent RTA rules may be applied on an MFN basis, either because there is no applicable RTA exception from MFN obligations, as in the case of the TRIPS Agreement, or for practical reasons, as in the case of competition policy.131 All RTAs cover trade in goods.132 They provide for more extensive concessions on import tariffs than does GATT 1994, with rules of origin that determine which products are eligible for preferential access, and they may prohibit export duties and charges. Many RTAs also cover non-​tariff measures including quantitative restrictions, SPS measures, technical regulations, balance-​of-​payments measures, safeguard mechanisms, anti-​ dumping measures, countervailing measures, designated monopolies or state-​owned enterprises, and intellectual property rights. They may include chapters dedicated to specific goods sectors. On the other hand, they do not usually address subsidies, other than a prohibition of agricultural export subsidies. Approximately half the RTAs in force cover trade in services as well. They provide for more extensive commitments to liberalization of services trade than does the GATS, either according to a positive list, negative list, or hybrid approach. Some provide for a standstill obligation on existing regulation of services trade and some negative list agreements contain a ‘ratchet clause’ that incorporates any subsequent unilateral liberalization. Some cover domestic regulation, mutual recognition and movement of natural persons. They may also include chapters dedicated to specific service sectors. RTAs usually include general exceptions and security exceptions, as do GATT 1994 and the GATS. These may be identical to the respective WTO exceptions or they may

130  The WTO Regional Trade Agreements database can be consulted online at < http://​rtais.wto.org/​ UI/​Public​Main​tain​RTAH​ome.aspx > (last visited 31 August 2021). The number of notifications is higher than the number of agreements due to the dual notification requirements for agreements covering both goods and services and the separate notification of accessions to existing RTAs. 131  R. Acharya, ‘Regional Trade Agreements: Recent Developments’ in R. Acharya (ed) Regional Trade Agreements and the Multilateral Trading System (Cambridge: Cambridge University Press, 2016), 10–​14. 132  The EEA Agreement was notified under GATS only but it incorporates a free-​trade area covering trade in goods based on existing agreements between the parties.

The Sources of International Trade Law    83 clarify or depart from those exceptions.133 RTAs also provide for dispute settlement procedures but in a variety of ways (discussed below). Later generations of RTAs often contain chapters covering a range of topics on which there is no dedicated multilateral agreement. These include investment,134 competition policy, environment, labour standards, electronic commerce and governance. Some of these topics may be covered in separate agreements. Schedules or annexes are attached to RTAs variously setting out concessions on tariffs, rules of origin, commitments on trade in services and coverage for government procurement, as relevant, and many other matters. These are integral parts of the respective RTA but they relate to an individual party or parties only rather than to both or all parties. Other instruments are very often made contemporaneously with the conclusion of an RTA and may also have to be taken into account when interpreting the RTA. These take a range of forms, including joint declarations, side letters, understandings, and side agreements on particular subjects, such as labour standards and the environment.135 Instruments developed in other international fora may be incorporated in RTAs by reference. For example, more recent US and EU free trade agreements create obligations to protect labour rights in accordance with certain ILO instruments and to comply with a list of multilateral environmental agreements.136 Some RTAs contain an MFN clause that incorporates preferences or concessions granted by either party to a third party. Amendments of RTAs are not uncommon. The parties may conclude protocols to amend specific provisions137 or to add or delete whole chapters.138 Accession protocols also amend RTAs. However, modifications of schedules and annexes are often given effect by means of a decision (discussed below). The original treaty text must be read together with these amendments, additions and modifications but there is frequently no consolidated version. Parties also reach side agreements regarding the conclusion of an amending protocol and subsequent agreements regarding the interpretation and application of an RTA. In Latin America, many sub-​regional partial scope agreements are concluded pursuant to the 1980 Treaty of

133  For example, Article 17.12 of the Regional Comprehensive Economic Partnership (RCEP) (which has not entered into force) clarifies the scope of general exceptions for health measures, while Article 17.13 includes a security exception to protect critical public infrastructure. 134  To the extent that investment provisions go beyond GATS commitments on services supplied through commercial presence. 135  For example, the CPTPP has over 150 side letters. 136  See further Chapter 23 of this handbook. 137 For example, the 2018 Protocol Amending KORUS as regards the US tariff schedule, trade remedies and investment. 138  For example, the 2008 and 2012 Supplementary Agreements on trade in services and investment and the 2017 upgrading Protocol to the Chile-​China Free Trade Agreement, which added commitments, revised and supplemented rules, and added new topics including e-​ commerce, competition and environment, and numerous Mercosur protocols and agreements at < https://​www.mre.gov.py/​trata​dos/​ pub​lic_​web/​Consu​ltaM​erco​sur.aspx > (last visited 31 August 2021).

84   Matthew Kennedy Montevideo and registered with the Latin American Integration Association (ALADI) Secretariat.139 Many RTAs are no longer in force, usually because they have been superseded by another RTA.

2. Decisions of RTA bodies RTAs typically create a supervisory body that oversees implementation of the RTA and may also serve as a forum to discuss disputes. Each supervisory body, whether it be a joint committee, commission or council has a decision-​making procedure. Some RTAs establish one or more specialized committees that oversee the implementation of specific chapters (such as SPS matters) and these may also have decision-​making power. These committees do not always meet. Some RTAs establish a more elaborate institutional structure that produces a range of instruments, such as decisions, resolutions, and directives.140 The degree of transparency in the work of these committees may vary. The supervisory bodies established under free trade agreements concluded with the European Union, EFTA or the United States, in particular, take decisions regarding the operation and implementation of their respective agreements.141 These decisions are not only procedural but also substantive. Many such agreements grant the supervisory body an express power to issue interpretations, which has been exercised in some cases.142 Certain EU free trade agreements specifically provide that these decisions are binding on the parties and that interpretations are binding on arbitral tribunals.143 Many of these free trade agreements grant the supervisory body or a subsidiary committee the power to modify schedules and annexes, in particular on tariff concessions,144 rules of origin145

139 

The 1980 Treaty of Montevideo is the constitutive treaty of ALADI and was notified to the GATT under the Enabling Clause. 140  See Andean Community norms at < http://​www.comu​nida​dand​ina.org/​Normat​iva.aspx > (last visited 31 August 2021); and MERCOSUR norms at < https://​www.merco​sur.int/​doc​umen​tos-​y-​normat​ iva/​normat​iva/​ > (last visited 31 August 2021). 141  EU free trade agreements may establish the supervisory body in the overarching agreement of which the free trade agreement is a part, or the trade committee may report to that body. 142  Notes of Interpretation of Certain Chapter Eleven Provisions of the North American Free Trade Commission (31 July 2001); Decisions Nos. 1, 3 and 4 of the Colombia-​US TPA Free Trade Commission, regarding particular product classifications (September 2012, November 2017 and December 2017, respectively). See also an interpretation issued by the KORUS Free Trade Commission on an exchange of letters regarding its TBT Chapter (24 September 2018). See further G. Kaufman-​Kohler, ‘Interpretive Powers of the Free Trade Commission and the Rule of Law’ in Fifteen Years of NAFTA Chapter 11 Arbitrations (JurisNet, 2011), 175–​194. 143  See, e.g., Articles 16.1.4(d) and 16.4.1 of the EU-​Singapore FTA. 144  See, e.g., Decision No. 1/​2006 of the EU-​Chile Association Council; Decision No. 5 of the Panama-​ US TPA Free Trade Commission to amend Annex 4.1 (HS2007 & HS2012 update). 145 See, e.g., CAFTA-​ DR-​US Free Trade Commission Decision regarding the rules of origin for textiles and apparel products (23 November 2011).

The Sources of International Trade Law    85 and government procurement coverage.146 The supervisory body may also have the power to amend the agreement in other specific instances147 and to consider and adopt amendments that require ratification. A decision of the supervisory body to approve an accession protocol may be required before a new party may accede.148 Copies of decisions are published on certain official websites (listed in the WTO Regional Trade Agreement database).149 Most RTAs establish some form of dispute settlement mechanism.150 This may be (i) a diplomatic process, consisting of a consultation procedure or referral to a political body, such as the governing council, commission or joint committee; (ii) an ad hoc adjudicative process modelled on parts of the DSU; or, less frequently, (iii) a judicial process in which disputes are referred to a permanent court or other standing tribunal.151 Most of the ad hoc adjudicative and judicial processes contain a forum clause that regulates recourse to RTA and WTO mechanisms. Rulings emanating from these judicial and ad hoc adjudicative processes are usually considered binding but they are more common in RTAs that have established permanent courts (such as EFTA), where private parties and RTA bodies have standing. There is also a docket of binational panel reviews of anti-​dumping and countervailing duty determinations under NAFTA (now available under the USMCA), tribunal decisions in the Andean Community, arbitral awards in MERCOSUR and arbitral awards in Investor-State dispute settlement (ISDS) under various free trade agreements. Dispute settlement decisions in other ad hoc adjudicative processes provided for in RTAs have been relatively rare to date, although several such proceedings have been commenced in recent years.152

146  See,

e.g., Decision of the Colombia-​US TPA Free Trade Commission modifying Annex 9.1 with regard to ECOPETROL (19 November 2012). 147  This may be pursuant to an evolutionary clause to take account of developments in multilateral rules. For example, Decision No. 1/​2005 of the Joint EFTA-​Turkey Committee on State Aid, that took account of the conclusion of the SCM Agreement. 148  See, e.g., Article 329 of the 2012 EU-​Colombia-​Peru Trade Agreement and the 2016 Protocol of Accession of Ecuador; CPTPP Commission Decision No. 2/​2019 on the accession process, and Annex, para 4.1. 149  See above fn 130. 150   Each mechanism does not necessarily cover every topic addressed by the RTA. 151  See C. Chase et al., ‘Mapping of Dispute Settlement Mechanisms in Regional Trade Agreements—​ Innovative or Variations on a Theme?’ in R. Acharya (ed) Regional Trade Agreements and the Multilateral Trading System (Cambridge: Cambridge University Press, 2016), 608–​702; R. McDougall, ‘Regional Trade Agreement Dispute Settlement Mechanisms: Modes, Challenges and Options for Effective Dispute Resolution’, RTA Exchange (Geneva: ICTSD/​ Inter-​ American Development Bank, 2018). 152  See USTR Annual Reports of the President of the United States on the Trade Agreements Program (2017) 45–​46, (2019) 107, (2020) 50–​51; Report from the European Commission on the Implementation of EU Trade Agreements (2020) 47–​49; and Integrated Database of Trade Disputes for Latin America and the Caribbean at < badicc.cepal.org >. See generally Chase et al., above fn 151, at 681–​5.

86   Matthew Kennedy

B. Other agreements Other agreements are concluded outside the framework of an RTA covering areas such as agriculture, aviation, customs procedures and regulatory cooperation. These may be bilateral or plurilateral and they may be entered into by parties with no RTA between them. These agreements may supplement WTO rules or they may cover topics on which there is no dedicated multilateral agreement. Bilateral agreements on non-​tariff measures often address the conditions of trade in specific products or sectors, or they may address a particular theme.153 SPS protocols and agreements address the requirements for import or export of particular animal and plant products. Mutual recognition agreements allow each party to rely on conformity assessments conducted by the other party while agreements on conformity assessment and acceptance of industrial products provide for common rules.154 Wine agreements provide for the protection of individual geographical indications (and other terms) and may recognize certain oenological practices and processes.155 The TBT Agreement authorizes mutual recognition agreements on conformity assessment.156 The TRIPS Agreement authorizes bilateral and multilateral negotiations on increased protection of individual geographical indications.157 International investment agreements establish standards of treatment that each party will grant to investments made by individuals or companies from the other party.158 Most are bilateral investment treaties (BITs),159 of which over 2300 are in force, while over 300 more have been concluded as part of a free trade agreement, or concluded between the parties to an RTA and a third party.160 International investment agreements

153 See, e.g., the 2019 Agreement between the United States of America and Japan concerning Digital Trade. 154  See, e.g., the 1998 Agreement on Mutual Recognition between the European Community and the United States of America. Agreements notified under Article 10.7 of the TBT Agreement are available in the TBT information management system here: < http://​tbt​ims.wto.org/​en/​Agr​eeme​ntNo​tifi​cati​ons/​Sea​ rch > (last visited 4 August 2021). 155  See, e.g., the 2008 Agreement between the European Community and Australia on trade in wine. 156   Article 6.3 of the TBT Agreement. In this context, MFN treatment might only be required in comparable situations. See generally J. Zell, ‘Just Between You and Me: Mutual Recognition Agreements and the Most-​Favoured Nation Principle’ 15 World Trade Review (2016) 3–​23. For all agreements notified under Article 10.7 of the TBT Agreement, see < http://​tbt​ims.wto.org/​en/​Agr​eeme​ntNo​tifi​cati​ons/​Sea​ rch > (last visited 4 August 2021). 157  Article 24.1 of the TRIPS Agreement. 158  For the content of IIAs, see < https://​inve​stme​ntpo​licy​hub.unc​tad.org/​IIA/​mapped​Cont​ent#iiaIn​ nerM​enu > (last visited 4 August 2021); see further Chapter 32 of this handbook. 159 For a database of BITs, see < https://​icsid.worldb​ank.org/​en/​Pages/​resour​ces/​Bilate​ral-​Inv​estm​ ent-​Treat​ies-​Datab​ase.aspx > (last visited 4 August 2021). 160  For a database of other IIAs, see < https://​icsid.worldb​ank.org/​en/​Pages/​resour​ces/​Other-​Treat​ies. aspx > (last visited 4 August 2021).

The Sources of International Trade Law    87 provide for dispute settlement through recourse to international arbitral tribunals, not only in State-​State disputes but often also Investor-State disputes.161 Plurilateral treaties can also set out international trade rules. Examples include the Energy Charter Treaty162 and the World Wine Trade Group Agreement on Mutual Acceptance of Oenological Practices.163

IV.  Preferential trade arrangements Non-​reciprocal preferential trade arrangements (‘PTAs’) are also a source of trade rules. These deviations from the multilateral principle of non-​discrimination are authorized by the Enabling Clause164 or WTO waivers165, on certain conditions.166 Given that these arrangements are unilateral preference schemes, they are established in the national law of the preference-​granting Member rather than in an international agreement. Therefore, the eligibility requirements and benefits are found in national laws.167 PTAs apply to a substantial volume of trade from certain developing countries and LDCs. There are currently 31 preferential trade arrangements in force, operated by 23 WTO Members. These comprise (i) Generalized System of Preference schemes operated by developed countries in favour of developing countries and LDCs; (ii) preference schemes operated by developing countries in favour of LDCs, and (iii) other preference schemes operated by certain Members, usually for beneficiaries in particular regions.168

V.  Concluding remarks In the WTO’s Member-​driven system, Member governments are both the makers and the addressees of the rules. International trade law is not interpreted in ‘clinical 161  For

a database of known ISDS cases, see < https://​inves​tmen​tpol​icy.unc​tad.org/​inv​estm​ent-​disp​ ute-​set​tlem​ent > (last visited 4 August 2021). See generally N. Blackaby et al., Redfern and Hunter on International Arbitration, 6th edition (Oxford: Oxford University Press, 2015), 441–​499. 162   Signed on 17 December 1994, amended as regards its trade-​related provisions by an amendment signed on 24 April 1998. 163  Signed on 18 December 2001. 164  See Enabling Clause, above fn 49, paras 2(a) and 2(d) authorizing GSP scheme preferences. 165  WT/​L/​958 (30 July 2015), WT/​L/​970 (2 December 2015), WT/​L/​1000 (12 December 2016), WT/​ L/​1001 (12 December 2016), WT/​L/​1002 (12 December 2016), WT/​L/​1069 (17 October 2019) and WT/​L/​ 1070 (17 October 2019). 166  See Chapter 22 of this handbook. 167  For example, Regulation (EU) No 978/​2012 of the European Parliament and of the Council; Trade Act of 1974 (19 USC 2461-​2467); Trade Preferences Extension Act of 2015 (U.S. Public Law 114-​27). 168  The WTO database of preferential trade arrangements can be consulted online at < http://​ptadb. wto.org/​?lang=​1 > (last visited 31 August 2021).

88   Matthew Kennedy isolation’169 because the WTO agreements rely on public international law regarding certain fundamental issues and Members incorporated rules of interpretation and instruments developed in other international fora where they saw fit. This does not imply that those same governments incautiously agreed to the more general application of other rules of international law in the WTO’s system of compulsory jurisdiction, independent adjudication and trade sanctions. The single undertaking approach to multilateral trade rules, as it was implemented in the results of the Uruguay Round, encompasses a variety of instruments and origins quite unlike the ordered results of a diplomatic conference with an official negotiating record. Disparate agreements, understandings and decisions, general rules and individual commitments, some newly agreed in 1994, some from the old GATT framework, some contemporaneous with the establishment of the WTO, were merged in a single agreement fused at the head and they must somehow all be read together. Different agreements were negotiated in separate rooms by different people without offering a systematic explanation of how these agreements relate to each other or whether they provide rules or exceptions, beyond rudimentary precedence clauses that only apply in some cases of conflict. The system has relied heavily, until now, on its dispute settlement mechanism to provide coherence; the outcomes that benefitted some Members at the expense of others have inevitably led to controversy.170 The unbroken practice of consensus in WTO decision-​making creates a formidable lock on further multilateral rule-​making. Although the alternative of voting is envisaged by the WTO procedures and could lead to swifter decisions, it would not necessarily lead to compliance if Members in an eventual minority did not consider such decisions binding upon them. Most multilateral trade rules were agreed over 25 years ago and, while the fundamental rules retain their practical relevance, the agreements cannot always keep pace with economic and technological developments in world trade. Nothing requires future rules to be concluded as part of a new single undertaking. The new Trade Facilitation Agreement is a multilateral example. More plurilateral and critical mass agreements can be added to the WTO framework, with the consent of the membership, provided free-​riding can be reduced to an acceptable level. A hybrid category of plurilateral rules, implemented on a multilateral basis, may yet emerge. Meanwhile, bilateral and regional rule-​ making proceeds apace. Like multilateral rules, these processes aim to reduce trade barriers, but they often cover a wider range of topics. Although bilateral and regional agreements operate, in some respects, within exceptions to non-​discrimination, there is already a considerable amount of

169 

Appellate Body Report, US –​Gasoline, adopted 20 May 1996, p. 17. e.g., Appellate Body Reports, Korea –​Dairy and Argentina –​Footwear (EC) (regarding the Safeguards Agreement and the GATT 1994); Appellate Body Report, US –​Anti-​Dumping and Countervailing Duties (China) (regarding the concurrent imposition of duties under the Anti-​Dumping Agreement and the SCM Agreement); and Appellate Body Report, US –​Tuna II (Mexico) (regarding the TBT Agreement and the GATT 1994). 170 See,

The Sources of International Trade Law    89 discrimination at the multilateral level itself, due to special and differential treatment, individualized schedules, and terms of accession that do not apply to original Members. Diverse rules can be tailored to different circumstances and facilitate international production networks but there is a potential for different regulatory models to end up competing with each other. The potential for divergence between different sources of international trade law is partly mitigated by the fact that bilateral and regional agreements tend to be based on the WTO model, and treaty interpretation mainly occurs under the DSU. However, that may change if the WTO dispute settlement should falter and bilateral and regional dispute settlement mechanisms become more active.

Further reading R. Acharya (ed), Regional Trade Agreements and the Multilateral Trading System (Cambridge: Cambridge University Press, 2016) P. Van den Bossche and W. Zdouc, The Law and Policy of the World Trade Organization: Text, Cases and Materials, 4th edition (Cambridge: Cambridge University Press, 2017), 43–​64 M. Kennedy, ‘Two Single Undertakings: Can the WTO Implement the Results of a Round?’’ 14 Journal of International Economic Law (2011) 77 D. Palmeter and P.C. Mavroidis, Dispute Settlement in the World Trade Organization: Practice and Procedure, 2nd edition (Cambridge: Cambridge University Press, 2004), 49–​85 J. Pauwelyn, ‘Sources of Law: The Most Burning Question in WTO Dispute Settlement?’ in J. d’Aspremont, S. Besson, and with the assistance of S. Knuchel (eds), The Oxford Handbook of the Sources of International Law (Oxford: Oxford University Press, 2018), 1027–​1045 Status of WTO Legal Instruments (2021), at: < https://​www.wto.org/​engl​ish/​res_​e/​books​p_​e/​ wto_​l​egal​_​ins​trum​ents​_​202​1_​e.pdf > WTO Regional Trade Agreements database, at: < http://​rtais.wto.org/​UI/​Public​Main​tain​ RTAH​ome.aspx >

Chapter 5

In ternationa l T ra de L aw Institu t i ons James Flett and Mislav Mataija *

I. II. III. IV. V. VI. VII.

Introduction Origins of the WTO Transparency at the WTO Legal status of the WTO Membership of the WTO Budget of the WTO WTO institutional entities and their powers and responsibilities A. Introduction: objectives and functions of the WTO B. The Ministerial Conference C. The General Council D. The Dispute Settlement Body E. The Trade Policy Review Body F. The Council for Trade in Goods, the GATS Council and the TRIPS Council, and their subsidiary committees and other bodies G. Other subsidiary committees, working parties and working groups H. Plurilateral bodies I. The Trade Negotiations Committee J. Dispute settlement panels and the Appellate Body K. The Director-​General and the Secretariat L. The Chair VIII. WTO decision-​making A. No formal typology of WTO acts B. The right to propose C. The general WTO decision-​making procedure: if no consensus (consensus meaning no Member present formally objects), majority of votes cast

91 93 94 95 96 97 99 99 101 101 102 104 105 108 109 109 110 115 117 118 118 119 119

*  Members of the Legal Service of the European Commission. Any views expressed are the personal views of the authors and not the Commission or the European Union.

International Trade Law Institutions    91 . Interpretation: if no consensus, three-​fourths of Members D 127 E. Waivers: if no consensus, three-​fourths of Members 129 F. Amendments: if no consensus, two-​thirds of Members (in principle), ratification 131 G. Accessions: if no consensus, two-​thirds of Members 131 H. Budget: two-​thirds majority comprising more than half the Members 132 I. Rule 33 of the (CTG) Rules of Procedure: if no consensus, refer the matter up 132 J. Decisions and actions of the DSB (the so-​called ‘reverse/​negative consensus’ rule) 133 IX. Elements lacking in the WTO institutional structure and proposals for change 136 . The current institutional crisis at the WTO: causes and resolution X 139 XI. Institutional aspects of other trade agreements 142 A. Overview 143 B. The FTA model 147 C. Horizontal questions 155 II. Conclusion X 157

I. Introduction This chapter focuses on international trade law institutions, and particularly the WTO, as the entity that contains by far the most developed and operationalized institutional structures in international trade law. That is, it focuses on the entities that make-​up, or operate within, the WTO, how they are constituted, their powers and responsibilities (general and specific, conferred, delegated, or implied), the procedures governing the conduct of their proceedings, and the relationships between them. We begin by briefly recalling the origins of the WTO, because this context is helpful for understanding why the WTO institutional structure is cast as it is. Sections III to VI then deal with certain threshold issues: transparency; legal status; membership; and budget. Section VII turns to a detailed explanation of the various entities and their powers and responsibilities, distinguishing between legislative and judicial entities. Section VIII addresses decision-​making. It clarifies what the consensus rule actually means, both in law and practice, and explains why, to-​date, Members have not generally called for a vote on contentious issues, notably because of the ‘one Member one vote’ rule, that is, the absence of any formal weighting according to the populations and relative economic and trade importance of different Members. It also addresses the specifics of judicial decision-​making and explains what the so-​called ‘reverse consensus’ rule actually means, namely that the relevant document is adopted automatically

92    James Flett and Mislav Mataija or by operation of law (ipso jure). Relatedly, it explains that, as a matter of law, the procedure for appointing members of the Appellate Body is majority voting (just as for the Director-​General): it is only a practice to extend indefinitely the period during which consensus is sought, with no Member calling for a vote. Section IX discusses certain elements lacking in the institutional structure of the WTO, notably an executive, a parliamentary assembly and a formal role for civil society (including non-​governmental organizations). It also considers various proposals that have been made for change or reform, particularly the 2004 Sutherland Report on the Future of the WTO and the associated literature. Many if not all of the proposals for change or reform are premised on the basic proposition that WTO Members might agree, one way or another, to further pool elements of ‘sovereignty’ in order to make the WTO operate more efficiently, in the interests of all Members. At the time of writing, there is little prospect of such proposals coming to fruition in the foreseeable future. This section also includes a discussion of recent proposals that have been made in response to the Trump administration’s attack on the WTO dispute settlement system, and by extension the WTO itself. Previous institutional analyses of the WTO have been written from the perspective of describing and critiquing the new organization, identifying its strengths and weaknesses and making proposals for how to improve it. The focus of those critiques has been on the inability of the WTO to conclude negotiations on new agreements necessary to respond to a rapidly changing global environment. However, it has generally been assumed that we should be able to build on what we have, and that we would not experience any significant step backwards, at least in institutional terms.1 Needless to say, the context in which this chapter is written is very different. The institutional vulnerabilities of the WTO have been starkly exposed through the actions of the government of one Member. Section X aims to explain why and how this has happened, and to expose the fallacies upon which this attack was based. However, in every crisis, there is opportunity. Several specific institutional opportunities present themselves and those are also explored in this section. If these institutional opportunities are seized, then we may in fact be living through a ‘constitutional moment’,2 even if it is to take a 1  See, e.g., A.H. Quershi, The World Trade Organization: Implementing Trade Norms (Manchester: Manchester University Press, 1996); J.H. Jackson, The World Trade Organization, Constitution and Jurisprudence (London: Royal Institute of International Affairs, 1998); W.J. Davey, ‘Institutional Framework’ in P.F.J. Macrory, A.E. Appleton and M.G. Plummer (eds), The World Trade Organization, Legal, Economic and Political Analysis, Vol 1 (Berlin: Springer, 2005); M. Footer, An Institutional and Normative Analysis of the World Trade Organization (Leiden: Martinus Nijhoff, 2006); Warwick Commission, The Multilateral Trade Regime: Which Way Forward? (Warwick: University of Warwick, 2007); D.P. Steger (ed), Redesigning the World Trade Organization for the Twenty-​first Century (Waterloo: Wilfred Laurier University Press, 2010); P. Van den Bossche and W. Zdouc, The Law and Policy of the World Trade Organization, 4th edition (Cambridge: Cambridge University Press, 2017), Chapter 2. 2  J.P. Trachtman, ‘The Constitutions of the WTO’ 17(3) Journal of International Trade Law (2006) 623, at 625 and fn 5; J.L. Dunoff, ‘Constitutional Conceits: The WTO’s ‘Constitution’ and the Discipline of International Law’ 17(3) European Journal of International Law (2006) 647, at 661 and fn 59.

International Trade Law Institutions    93 few years to fully unfold. That is, the moment at which all WTO Members, including the United States (under a new administration), finally came to understand that, ultimately, the benefits of the WTO and the rules-​based system far outweigh the compromises that it necessarily entails. Section XI addresses the institutional aspects of certain other international trade agreements. It shows, on the basis of a sketch of the main institutional features of a number of modern FTAs, that there are essentially two institutional models: that of an advanced, broad FTA, and that of a so-​called ‘regional economic organization’. The second is, generally speaking, more developed, but also more sui generis, and less defined by trade issues.

II.  Origins of the WTO Understanding the origins of the WTO is both helpful and necessary in order to properly comprehend its institutional structure and operation. The WTO Agreement states that, unless otherwise provided, the WTO is to be guided by the decisions, procedures, and customary practices followed by the parties to the GATT 1947 and the bodies established within that framework.3 The history of the regulation of international trade, including the WTO, is described in Chapter 2. This helps us to understand, from the outset, the key institutional features of the WTO. First, in essence, it consists of a legislature, on the one hand, and a judicial arm, on the other hand. There is no executive or parliamentary assembly and little if any formal role for civil society. The Director-​General and the Secretariat do not have the authority to set the agenda or formulate proposals designed to accommodate and balance the interests of all Members. Second, there is no system of voting weighted according to the population and relative economic and trade importance of different Members. Decisions are taken by consensus, meaning that no Member present formally objects. In practice, Members do not call for a vote on contentious issues. Although this may allow the organization to operate on a day-​to-​day basis with respect to non-​contentious issues, it makes the conclusion of new agreements very difficult. Third, this means that the key institutional relationship is between the legislature, on the one hand, and the judicial arm, on the other hand (with mandatory and binding dispute settlement being the central institutional novelty of the WTO compared to the GATT). As we shall see, it is the resolution of tensions associated with this institutional relationship that defines both the current state of the WTO and its future.

3 

Article XVI:1 of the WTO Agreement.

94    James Flett and Mislav Mataija

III.  Transparency at the WTO Transparency at the WTO is an important threshold issue at least in the sense that, if one wants to understand what the institutional structures of the WTO are and how they actually operate in practice, it is essential to be able to access the relevant information. It is also important to be clear that the issue of transparency may be different depending on the context. Transparency in the context of negotiations is different compared to transparency in the context of dispute settlement, for example. Furthermore, transparency in the sense of obtaining a document is a different issue compared to transparency in the sense of being present at or observing a meeting. It is also necessary to recognize that there may be legitimate reasons for curtailing access to information, such as the need to protect business confidential information, or the need to protect the effectiveness of negotiations. There may also be significant cultural differences between Members on the question of transparency. Finally, it is also important to be aware that, inevitably, in practice, some important information is likely never to be recorded in a formal document. WTO documents issued before 14 May 2002 are governed by the Decision adopted by the General Council on 18 July 1996.4 That decision provides that, in principle, documents shall be circulated as unrestricted, but with a significant list of exceptions. Notably, minutes of meetings of all WTO bodies (other than the Trade Policy Review Body) were only to be considered for derestriction six months after their date of circulation, with such derestriction normally taking at least a further two months. However, on 14 May 2002, the General Council decided5 to make most WTO documents immediately available, with a few exceptions relating, for example, to tariff negotiations and accessions. Minutes of meetings are automatically derestricted forty-​five days after the meeting.6 On 13 June 2006, the General Council decided to derestrict all GATT documents.7 At the request of certain Members, WTO dispute settlement hearings have been opened to public viewing with respect to those Members, both at the level of panels and 4  General Council, Procedures for the Circulation and Derestriction of WTO Documents, decision adopted 18 July 1996, WT/​L/​160/​Rev.1 (26 July 1996). 5  General Council, Procedures for the Circulation and Derestriction of WTO Documents, decision of 14 May 2002, WT/​L/​452 (16 May 2002). 6 There are special rules for public procurement (Committee on Government Procurement, Procedures for the Circulation and Derestriction of Documents on the Committee on Government Procurement, Decision of 8 October 2002, GPA/​72 (23 October 2002)) and civil aircraft (Committee on Trade in Civil Aircraft, Procedures for the Circulation and Derestriction of Documents Under the Agreement on Trade in Civil Aircraft, Decision of 13 November 2002, TCA/​8 (3 December 2002)). 7 General Council, Decision on Derestriction of Official GATT 1947 Documents, decision of 15 May 2006, WT/​L/​647 (13 June 2006). See also General Council, Derestriction of Some GATT 1947 Historical Bilateral Negotiating Documentation, decision of 25 July 2013, WT/​L/​892 (26 July 2013); General Council, Derestriction of Historical Bilateral Negotiating Documentation of the Kennedy Round, decision of 24 July 2014, WT/​L/​966 (25 July 2014); General Council, Derestriction of Historical Bilateral Negotiating Documentation of the Tokyo Round, decision of 30 November 2015, WT/​L/​966 (2 December 2015); General Council, Derestriction of Additional Negotiating Materials, decision of 30 November 2017, WT/​L/​1025 (1 December 2017).

International Trade Law Institutions    95 at the level of the Appellate Body.8 In this context, the rule in Article 18.2 of the DSU prevails: nothing in the DSU precludes a party to a dispute from disclosing statements of its own position to the public, even if, indirectly, this means that the position of the other party is also disclosed.9

IV.  Legal status of the WTO The WTO is established as an international organization.10 It has legal personality and is to be accorded by each of its Members such legal capacity, privileges and immunities as may be necessary for the exercise of its functions. The officials of the WTO and the representatives of the Members are also to be accorded by each Member such privileges and immunities as are necessary for the independent exercise of their functions in connection with the WTO.11 The WTO is authorized to conclude a headquarters agreement.12 The WTO is not part of or affiliated to the United Nations. However, the WTO maintains close ties with many other international organizations and entities, including those of the United Nations.13 The WTO Agreement has been registered in accordance with the provisions of Article 102 of the Charter of the United Nations.14 The WTO Agreement entered into force on 1 January 1995.15 8  Panel Report, Canada/​US –​Continued Suspension, adopted 14 November 2008, paras 7.38–​7.40; See also Chapter 38 of this handbook. 9  Panel Report, Russia –​Traffic in Transit, adopted 26 April 2019, Annex B-​2, Confidentiality Ruling. 10  Article I of the WTO Agreement. 11  Articles VIII:1-​3 of the WTO Agreement. See Staff Regulations 1.6; WT/​GC/​W/​103. The privileges and immunities to be accorded are to be similar to those stipulated in the Convention on the Privileges and Immunities of the Specialized Agencies, approved by the General Assembly of the United Nations on 21 November 1947 (Article VIII:4 of the WTO Agreement; G.A. Res. 179(III) of 21 November 1947, 33 U.N.T.S. 261). 12  Article VIII:5 of the WTO Agreement. See: General Council, Headquarters Agreement, decision of 31 May 1995, WT/​L/​69 (1 June 1995), approving the Headquarters Agreement between the World Trade Organization and the Swiss Confederation contained in WT/​GC/​1 and Add.1 and the Infrastructure Contract between the Swiss Authorities and the World Trade Organization contained in WT/​GC/​2. On 31 July 2008, the General Council approved the conclusion of a memorandum of understanding between the Swiss Confederation and the WTO on the Long-​Term Housing Needs of the WTO, concerning renovation and adaptation of the building housing the WTO, and other facilities for the WTO (WT/​GC/​ M/​115, WT/​BFA/​W/​170, WT/​BFA/​103). Pursuant to a decision adopted by the Preparatory Committee for the World Trade Organization on 8 December 1994, the Preparatory Committee, the Contracting Parties to the GATT 1947 and the Executive Committee of ICITO entered into the Agreement on the Transfer of Assets, Liabilities, Records, Staff and Functions from the Interim Commission of the International Trade Organization and the GATT to the World Trade Organization (PC/​9, L/​7580, ICITO/​1/​39 and WT/​GC/​M/​1, L/​36). 13  See further below: ‘Membership of the WTO’. 14  Article XVI:6 of WTO Agreement. 15  Article XIV of WTO Agreement; W/​Let/​1 (27 January 1995). The Preparatory Committee for the World Trade Organization, on 8 December 1994, confirmed 1 January 1995 as the date of entry into force of the WTO Agreement (PC/​M/​10 (19 December 1994), para 4).

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V.  Membership of the WTO There are currently 164 Members of the WTO, accounting for 99.5 per cent of the global population and 98 per cent of world trade.16 This includes the European Union, as well as each of its twenty-​seven Member States.17 Separate customs territories possessing full autonomy in the conduct of their external commercial relations may also be Members,18 and there are currently three: Hong Kong, China; Macau, China; and the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matus (Chinese Taipei). Members include developed countries, developing countries (entitled to certain special and differential treatment), and least developed countries (entitled to certain additional special and differential treatment). There is no WTO definition of a developing country, and in practice, for the time being, this status is based on self-​declaration. Least-​developed countries are those recognized as such by the United Nations.19 There are currently 23 Observer Governments, which are generally required to commence accession negotiations within five years of becoming Observers.20 There are also numerous intergovernmental organizations that have Observer status in the WTO, or in particular WTO bodies corresponding to their interests.21 Non-​governmental organizations may be present at meetings when invited, including at the Ministerial Conference, but they do not have observer status such that they are able to speak or directly present documents to the meeting.22 The WTO organizes an annual Public Forum, at which NGOs are invited to make their views known, including through the presentation of position papers on issues relevant to the WTO. The original Contracting Parties to the GATT 1947 became WTO Members with effect from 1 January 1995, whilst other Members have subsequently acceded. Accession is ‘on terms to be agreed’ between the acceding Member and the WTO.23 The WTO Agreement does not delimit what may or may not be negotiated as the ‘price’ of accession. Some Members, notably China and Russia, have been required to agree 16 

WTO Annual Report 2019, at. 7; Van den Bossche and Zdouc, above fn 1, at 113 and fn 193 (referring to data available on the website of the World Bank and the WTO). 17  Article XI:1 of the WTO Agreement. 18  Article XII:1 of the WTO Agreement. 19  Article XI:2 of the WTO Agreement. See also Decision on Measures in Favour of Least-​Developed Countries. 20  At < https://​www.wto.org/​ > (last visited 1 October 2021). 21 Article V:1 of the WTO Agreement. See guidelines for ‘Observer Status for International Intergovernmental Organisations in the WTO’ (WT/​L/​61 (25 July 1996), Annex 3). The following organizations have permanent observer status in General Council meetings: IMF, World Bank, UN, UNCTAD, FAO, WIPO, OECD and ITC. For complete information for the other WTO bodies, at < https://​www.wto.org/​ > (last visited 1 October 2021). 22  Article V:2 of the WTO Agreement; General Council, Guidelines for Arrangements on Relations with Non-​Governmental Organizations, Decision adopted by the General Council on 18 July 1996, WT/​ L/​162 (23 July 1996). See also WT/​GC/​M/​65 (18 June 2001), 66, 68, 78 and 95. 23  Article XII:1 of the WTO Agreement.

International Trade Law Institutions    97 terms that do not place them on an equal footing with all other Members. The acceding Member accedes to the WTO Agreement and the Multilateral Trade Agreements. Decisions on accession are taken by the Ministerial Conference.24 Significantly, they do not need to be ratified by national parliaments. It has been accepted that accession protocols, and by extension integrated provisions of working party reports, may be subject to dispute settlement, and are to be interpreted and applied on the basis of the customary rules of interpretation of public international law.25 Pursuant to Article XIII of the WTO Agreement, there are certain circumstances that may result in the non-​application of the multilateral trade agreements between particular Members, and these provisions have occasionally been used. Any Member may withdraw from the WTO Agreement with effect from the expiration of six months from the date on which written notice of withdrawal is received by the Director-​General.26

VI.  Budget of the WTO The Director-​General is required to present an annual budget estimate and financial statement for the WTO to the Committee on Budget, Finance, and Administration, for review and recommendation to the General Council for approval, by a two-​thirds majority comprising more than half the Members of the WTO. The General Council has adopted financial regulations, including the scale of contributions apportioning the expenses of the WTO among its Members and the measures to be taken in respect of Members in arrears.27 Members are required to promptly contribute to the WTO their share in the expenses of the WTO in accordance with the financial regulations.28 The total WTO budget for 2019 was CHF 197 million,29 which is relatively modest compared to other international organizations, reflecting the relatively small size of the Secretariat (currently about 600 people) and the relatively limited nature of its activities outside Geneva. Members contribute to the budget on the basis of their share of international trade (imports plus exports) in relation to the total international trade of all WTO Members, with a minimum contribution of 0.015 per cent.30 The European Union does not contribute to the budget, but its Member States do, including on the basis of intra-​ Union trade, making the European Union by far the largest contributor, at 33.6 per cent. Other important contributors include: the United States (11.6 per cent); China (10.1 per cent); Japan (4 per cent); Korea (2.9 per cent); Hong Kong (2.8 per cent); Canada (2.5 per 24 

Article XII:1-​2 of the WTO Agreement. See, e.g., Appellate Body Report, China –​Rare Earths, adopted 29 August 2014. 26  Article VI of the WTO Agreement. 27 Financial Regulations of the World Trade Organisation, WT/​ L/​156/​Rev.3 (27 February 2015); Financial Rules of the World Trade Organisation, WT/​L/​157/​Rev.1 (21 May 2007). 28  Article VII of the WTO Agreement. 29  WTO Annual Report 2019, at 177. 30  Regulation 12, Financial Regulations of the World Trade Organisation. 25 

98    James Flett and Mislav Mataija cent); Singapore (2.4 per cent); India (2.3 per cent); and Russia (2 per cent).31 The budget is subject to review by the WTO Office of Internal Oversight, which was established on 30 November 2015 to review management practices, expenses, budgetary control, and allegations of misconduct at the WTO. The budget is also subject to external audit.32 In 2003 a question arose about how to change from annual to biennial budgeting, notwithstanding the reference to ‘annual’ in Article VII:1 of the WTO Agreement. Ultimately, this was achieved by the Director-​General preparing and submitting two annual budget estimates covering each year of a biennium; the Committee considering these estimates and making recommendations to the General Council once every two years; and the General Council adopting two annual budgets once every two years.33 In the context of the 2019 crisis, the United States threatened to block the entire WTO budget proposal unless specific changes would be made designed to achieve Trump administration policy objectives regarding the dispute settlement system and specifically the Appellate Body. Remarkably, the changes demanded by the United States were adopted by the Director-​General and presented to the Committee on Budget, Finance, and Administration, for recommendation to the General Council, thus relieving the United States of the political burden associated with blocking the entire WTO budget. Instead, this placed other WTO Members in the untenable position of having to block the adoption of the entire WTO budget should they have wished to object to the Trump administration’s specific policy objectives. One may seriously reflect on whether, in so acting, the Secretariat has fully complied with the obligations under Article VI:4 of the WTO Agreement. On one view, as in previous years, the Director-​General should have maintained the original proposal, designed to cover all the lawful activities of the WTO, with the Budget Committee reporting any requests for changes to the General Council, leaving the Trump administration to block the original proposal should it have wished to do so.34 31 

WTO Annual Report 2019, at 180–​181. Regulations 43–​46, Financial Regulations of the World Trade Organisation. 33  Committee on Budget, Finance and Administration, Biennial Budgeting in the WTO, Possible Legal Approaches, WT/​BFA/​W/​104 (16 July 2003), paras 16–​17. 34 The budget originally proposed (WT/​ BFA/​W/​492 (10 September 2019); and WT/​BFA/​W/​492/​ Rev.1 (1 November 2019)) was discussed in the Budget Committee on 12 November 2019, which meeting was suspended. A revised budget proposal (incorporating the changes demanded by the Trump administration) was discussed in the Budget Committee on 27 November 2019 and 5 December 2019 (WT/​BFA/​183 (6 December 2019), paras 1.12-​1.104). The changes introduced at the demand of the United States were: (i) Article 25 DSU arbitrations would be funded from the WTO Secretariat Budget and arbitrators would be compensated on the same basis as panellists (rather than Appellate Body Members); (ii) a temporary limitation of CHF 100,000 would be placed on expenditure from the budget line for Appellate Body Members fees (thus effectively ruling out the conclusion of most pending appeals and the use of Article 25 of the DSU for appeal arbitrations by Appellate Body Members); and (iii) only the 2020 budget would be approved (thus reverting to an annual rather than a biennial approach) (WT/​BFA/​183 (6 December 2019), paras 1.33–​1.34, referring to emails sent to the Committee on 25 and 26 November 2019, stating that the additional elements have been ‘put forward by a Member’ (the United States)). Following the recommendation from the Budget Committee, the budget was approved at the General Council meeting on 9–​11 December 2019. 32 

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VII.  WTO institutional entities and their powers and responsibilities A. Introduction: objectives and functions of the WTO In order to properly understand the nature of the various WTO institutional entities, it is necessary to place them in the context of the objectives and functions of the WTO: raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of trade in goods and services, while allowing for the optimal use of the world’s resources35 in accordance with the objective of sustainable development. WTO Members also recognize the need for positive efforts to ensure that developing countries and especially least-​developed countries secure a commensurate share in the growth of international trade.36 These objectives inform the WTO Agreement as a whole and have often been referred to in the case law.37 The WTO was established to provide the common institutional framework for the conduct of trade relations among its Members in matters related to the WTO agreements.38 The constituting documents include the WTO Agreement, including the Multilateral Trade Agreements, and the Plurilateral Trade Agreements (which are optional),39 as well as various Ministerial Decisions and Declarations, although both directly and indirectly the WTO is connected with many other elements of public international law.40 In the event of a conflict the WTO Agreement prevails,41 and the subsidiary agreements prevail over the GATT 1994.42

35  The reference to the optimal use of the world’s resources may be understood as a reference to the concepts of absolute advantage and comparative advantage. 36  This may be understood as a reference to the concept of special and differential treatment. 37  See, e.g., Appellate Body Report, US –​Gasoline, adopted 20 May 1996, p. 30; Appellate Body Report, US –​Shrimp, adopted 6 November 1999, para 153; Appellate Body Reports, China –​Raw Materials, adopted 22 February 2012, para 8; Panel Reports, China –​Rare Earths, adopted 29 August 2014, para 7.259; Appellate Body Report, India –​Solar Cells, adopted 14 October 2016, paras 5.72 and 5.138-​5.149; Panel Reports, Argentina –​Import Measures, adopted 26 January 2015, para 6.5; Panel Report, Brazil –​ Aircraft (Article 21.5 –​Canada), adopted 4 August 2000, para 6.47 and fn 49; Panel Report, India –​ Quantitative Restrictions, adopted 22 September 1999, para 7.2; Appellate Body Report, EC –​Computer Equipment, adopted 22 June 1998, para 82; Appellate Body Report, Brazil –​Desiccated Coconut, adopted 20 March 1997, at 17. See also Ministerial Conference, Doha Ministerial Declaration, WT/​MIN(01)/​DEC/​ 1 (20 November 2001), paras 2 and 6. 38  Article II:1 of the WTO Agreement. 39  Articles II:2-​4 of the WTO Agreement. These are the Agreement on Trade in Civil Aircraft and the Agreement on Government Procurement. The International Dairy Agreement and the International Bovine Meat Agreement were terminated at the end of 1997. 40  See Chapters 4, 6 and 36 of this handbook. 41  Article XVI:3 of the WTO Agreement. 42  General Interpretive Note to Annex 1A of the WTO Agreement.

100    James Flett and Mislav Mataija The WTO Agreement is binding on all Members.43 The function of the WTO is to facilitate the implementation, administration and operation, and further the objectives, of the WTO Agreement and the Multilateral Trade Agreements, and to provide the framework for the implementation, administration and operation of the Plurilateral Trade Agreements.44 The WTO is also to provide a forum for negotiations among its Members concerning their multilateral trade relations,45 and to administer the DSU and the TPRM.46 It also co-​operates with the IMF and the World Bank in order to achieve greater coherence in global economic policymaking.47 Members must ensure the conformity of their laws, regulations, and administrative procedures with their WTO obligations.48 The WTO is commonly described as a ‘single undertaking’:49 no reservations are permitted.50 Within this framework there are a number of different institutional entities, with different powers and responsibilities. Before considering these different institutional entities in detail, it is important to note that issues of conferred versus implied powers do not assume particular importance in the WTO. Most entities are constituted in the same way (any Member may participate) and decide in the same way (by consensus). Furthermore, if consensus cannot be reached, matters are ‘referred up’ the hierarchy, even to the General Council and ultimately the Ministerial Conference.51 Thus, whilst there are some differences between the provisions establishing and controlling these various entities, which also often overlap significantly, ultimately the leitmotif is essentially the same. There is no executive or parliament, only the legislature in its various guises. This in turn means that the key institutional relationship in the WTO is between the legislature and the judiciary, which is therefore the focus below. 43 

Article II:2 of the WTO Agreement. Article III:1 of the WTO Agreement. 45 Article III:2 of the WTO Agreement. Several WTO agreements call for further negotiations, reviews or other work (the so-​called Built-​in Agenda issues) (1996 Singapore Ministerial Declaration, WT/​MIN(96)/​DEC (18 December 1996), paras 1 and 19). At the Doha MC Members launched a new round of negotiations (WT/​MIN(05)/​DEC), the scope of which has been subsequently adjusted or clarified (WT/​L/​579; WT/​MIN(05)/​DEC; WT/​MIN(11)/​11, Part I; WT/​MIN(13)/​DEC, Part III; WT/​ MIN(15)/​DEC, Part III; WT/​MIN(17)/​SR/​6; and WT/​MIN(17)/​67). 46  Articles III:3–​4 of the WTO Agreement. 47  Article III:5 of the WTO Agreement. See also Declaration on the Contribution of the World trade Organization to Achieving Great Coherence in Global Economic Policymaking; and Declaration on the Relationship of the Word Trade Organization with the International Monetary Fund. The agreements between the WTO and the IMF and World Bank are contained in WT/​L/​194 and WT/​M/​195 (18 November 1996). In certain circumstances these entities may provide information to dispute settlement panels and attend meetings of the DSB. However, the Appellate Body has found that there is nothing in these documents that affects the rights and obligations of WTO Members (Appellate Body Report, Argentina –​Textiles and Apparel, adopted 22 April 1998, paras 70–​73). 48   Article XVI:4 of the WTO Agreement. 49 See, e.g., Appellate Body Report, Brazil –​Desiccated Coconut, adopted 20 March 1997, 11–​ 12; Appellate Body Report, Argentina –​Footwear (EC), adopted 12 January 2000, para 81; Appellate Body Reports, China –​Rare Earths, adopted 29 August 2014, paras 5.30, 5.41, and 5.53. 50  Article XVI:5 of the WTO Agreement. 51  See, e.g., CTG, Rules of Procedure, WT/​L/​79 (7 August 1995), Rule 33 (‘Where a decision cannot be arrived at by consensus, the matter at issue shall be referred to the General Council for decision.’). 44 

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B. The Ministerial Conference The Ministerial Conference is the WTO’s highest decision-​making body, providing general political direction. It is comprised of representatives of all Members, at ministerial level, and meets (usually) at least once every two years. It is tasked with carrying out the functions of the WTO and taking actions to that effect. It has general authority to take decisions on all matters under any of the Multilateral Trade Agreements, if requested by a Member.52 The extraordinarily broad nature of these conferred powers makes any consideration of implied powers essentially moot. The Ministerial Conference also has specific authority, notably to appoint the Director-​General;53 adopt staff regulations;54 adopt interpretations of the WTO agreements;55 grant waivers;56 amend the WTO agreements;57 and decide on accessions.58 It also has certain specific powers under other agreements.59 To-​date there have been eleven meetings of the WTO Ministerial Conference.60

C. The General Council The General Council, consisting of representatives of all Members at ambassador level, meets in practice at least once every two months, in Geneva, and carries out the functions of the Ministerial Conference in the intervals between meetings of that body (including, for example, appointing the Director-​General, granting waivers, and approving accessions).61 The General Council also has specific authority, notably, to: make arrangements for co-​operation with other international organizations62 and 52  Article

IV of the WTO Agreement. See, for example, Ministerial Conference, Implementation-​ Related Issues and Concerns, Decision of 14 November 2001, WT/​MIN(01)/​17 (20 November 2001). 53  Article VI:2 of the WTO Agreement. 54  Article VI:3 of the WTO Agreement. 55  Article IX:2 of the WTO Agreement. 56  Article IX:3 of the WTO Agreement. 57  Article X of the WTO Agreement. 58  Article XII of the WTO Agreement. 59  See paragraph 2(b) of the GATT 1994 incorporation text; Articles XII:5(b) and XII:6 of the GATS; Article 64.3 of the TRIPS Agreement. 60  1996 (Singapore), 1998 (Geneva), 1999 (Seattle), 2001 (Doha), 2003 (Cancún), 2005 (Hong Kong), 2009 (Geneva), 2011 (Geneva), 2013 (Bali), 2015 (Nairobi) and 2017 (Buenos Aires). The twelfth meeting was scheduled for 2020 in Kazakhstan, but has been postponed to June 2022, in Geneva, due to the covid pandemic. The resulting Ministerial Declarations and Decisions can be found on the WTO web site (< www.wto.org >). The Rules of Procedure of the MC (and the GC) are contained in WT/​L/​161 (25 July 1996). 61   Article IV:2 of the WTO Agreement. 62  Article V:1 of the WTO Agreement. See also Article XXVI of the GATS; and Article 68 of the TRIPS Agreement. For example, the WTO has concluded agreements with the IMF and the World Bank (WT/​ L/​195 (18 November 1996)), the World Intellectual Property Organisation (WIPO) (IP/​C/​6 (13 December 1995)), the International Telecommunications Union (ITU) (S/​C/​11 (21 September 2000)), and the World Organization on Animal Health (OIE) (WT/​L/​272 (8 July 1998)). For an exchange of letters between the WTO and the UN, see: WT/​GC/​W/​10 (3 November 1995) and WT/​GC/​M/​(13 December 1995).

102    James Flett and Mislav Mataija non-​governmental organizations;63 approve the annual budget;64 and adopt financial regulations.65 It is, operationally, the central and dominant organ, acting in lieu of the Ministerial Conference, and supervising and guiding most of the other councils, committees and other bodies.66 It also has the authority to ‘assign functions’ to the subsidiary councils,67 and has adopted several decisions regulating the activities of the sectoral Councils and their subsidiary bodies, as well as certain other procedural matters.68 It also oversees a work programme on e-​commerce, against the background of a moratorium on the imposition of customs duties on electronic transmissions.69

D. The Dispute Settlement Body The General Council also convenes in order to discharge the responsibilities of the Dispute Settlement Body (DSB),70 as set out in the Dispute Settlement Understanding (DSU).71 The DSB may have a different chair and in practice has always done so.72 It is responsible for ‘administering’ the rules and procedures set out in the DSU, through decisions and actions, and, ‘accordingly’, has the specific authority to establish panels, adopt panel and Appellate Body reports, maintain surveillance of implementation of rulings and recommendations, and authorize suspension of concessions and other obligations.73 It also has the authority to appoint and reappoint persons to serve on 63 

Article V:2 of the WTO Agreement. See the Guidelines contained in WT/​L/​162 (23 July 1996). Article VII of the WTO Agreement. 65  Article VII of the WTO Agreement. 66  For an example of such guidance, see General Council, Minutes of Meeting Held on 3 and 8 May 2000, WT/​GC/​M/​55 (16 June 2000). 67  Article IV:5 of the WTO Agreement. 68 WT/​ GC/​M/​8 (13 December 1995), item 11 (reporting procedures and annual overview); WT/​ GC/​M/​5 (17 August 1995), at 11 and WT/​L/​76 (25 July 1995) (Procedure for decisions having financial implications which may be taken by WTO bodies); WT/​GC/​M/​8 (13 December 1995), item 13 and WT/​L/​106 (27 November 1995) (Guidelines on the arrangements for scheduling of meetings of WTO bodies); WT/​GC/​M/​8 (13 December 1995), item 3 and WT/​L/​93 (24 November 1995) (Decision-​Making Procedures under Articles IX and XII of the WTO Agreement); WT/​GC/​M/​74 (1 July 2002), item 5 and WT/​L/​452 (16 May 2002) (Procedures for the circulation and derestriction of WTO documents); WT/​ GC/​M/​77 (13 February 2003), item 17 and WT/​L/​510 (21 January 2003) and JOB/​GC/​22 (Guidelines for the appointment of officers to WTO bodies); and WT/​GC/​M/​77 (13 February 2003), item 17 and WT/​L/​ 509 (20 January 2003) (Procedures for the appointment of Directors-​General). 69  See WT/​DEC(98)/​DEC/​2 (25 May 1998); WT/​MIN(13)/​32 –​WT/​L/​907 (11 December 2013); WT/​ MIN(15)/​42 –​WT/​L/​977 (21 December 2015); WT/​MIN(17)/​65 –​WT/​L/​1032 (18 December 2017); WT/​ MIN(17)/​68 (20 December 2017) and WT/​MIN(17)/​SR/​6 (26 January 2018), Annex 1. 70  See also Chapter 34 of this Handbook. 71  Article IV:3 of the WTO Agreement. The Rules of Procedure of the DSB are contained in WT/​ DSB/​9 (16 January 1997). Rule 1 provides that the DSB follows the General Council’s Rules of Procedure, except as provided in the DSU or in the DSB Rules of Procedure. 72  See General Council, Guidelines for Appointment of Officers to WTO Bodies, Adopted by the General Council on 11 December 2002, WT/​L/​510 (21 January 2003), para 4.1 (each body should have a separate chairperson). 73  Articles 2.1, 6.1, 16.4, 17.14, 21 and 22 of the DSU. 64 

International Trade Law Institutions    103 the Appellate Body.74 It meets, in practice, once a month, and more frequently when required by the DSU.75 Appendix 2 of the DSU identifies certain special or additional rules concerning dispute settlement contained in the covered agreements. Some of these set out additional powers and responsibilities for the DSB. Notably, Annex V to the SCM Agreement provides for the DSB to initiate the procedure under Annex V to obtain information concerning serious prejudice, and to designate a representative to serve the function of facilitating this information-​gathering process. In US –​Large Civil Aircraft, the Appellate Body confirmed that the Annex V procedure is initiated by so-​ called reverse consensus, that is, in effect, automatically, or by operation of law (ipso jure).76 Apart from the specific powers and responsibilities conferred upon it, and notwithstanding the term ‘accordingly’, the DSB also has a general authority to ‘administer’ the DSU.77 However, this does not mean that the DSB has the authority to amend the DSU,78 or any covered agreement,79 or to interpret any covered agreement.80 An example of the exercise of this general authority to administer the DSU is the adoption of the Rules of Conduct.81 Another example is the decision regarding the calculation of time limits in dispute settlement proceedings, when the relevant time limit expires during the weekend or a WTO holiday, deferring to the first following working day.82 From time-​to-​time Members engaged in particular litigation reach procedural or other agreements between themselves, which are sometimes, if not always, notified to the DSB. Sometimes such an arrangement has been put to the DSB for decision, without any objection being raised. For example, in US –​FSC, the parties agreed to extend the period for compliance fixed by the adjudicator by one month, and that was approved by DSB decision.83 One may doubt whether this modification of an adopted report falls within the ‘administration’ of the DSU. The important point was rather that the parties had agreed to waive their respective DSU rights and would be bound by that agreement.

74 

Article 17.2 of the DSU. Article 2.3 of the DSU. See fn 5 to Article 6.1, fn 7 to Article 16.4, fn 8 to Article 17.14, fn 11 to Article 21.3 of the DSU. Compare Article 22.2 and 22.7 of the DSU. 76  Appellate Body Report, US –​Large Civil Aircraft (2nd Complaint), adopted 23 March 2012, paras 480–​549. 77  Article 2.1 of the DSU. 78  See Article X:8 of the WTO Agreement. 79  See Article X of the WTO Agreement. 80  See Article IX:2 of the WTO Agreement. As an actor in the context of the DSU, the DSB (which may mean in practice the Chair or the Secretariat acting under the authority of the Chair) may be called upon to apply and thus interpret various provisions of the DSU in the specific context of a particular dispute. However, they do so always subject to subsequent control by the adjudicators in that dispute (to the extent that such subsequent control remains a possibility). 81  Rules of Conduct for the Understanding on the Rules and Procedures Governing the Settlement of Disputes, adopted 3 December 1996, WT/​DS/​RC/​1 (11 December 1996). 82  See Working Practices Concerning Dispute Settlement Procedures, WT/​DSB/​6 (6 June 1996). 83  DSB, Minutes of Meeting held on 12 October 2000, WT/​DSB/​M/​90 (31 October 2000), paras 6–​7. 75 

104    James Flett and Mislav Mataija The DSB also provides a forum for Members to express their views on panel reports84 and Appellate Body reports.85 However, such views remain attributable to the Members expressing them, and not to the DSB. Members have occasionally circulated a document setting out their views (as opposed to simply recording them in the minutes of the DSB) and sought inclusion of such documents in the document series relating to that particular dispute.86 The DSB also provides a forum for the surveillance of the implementation of adopted reports. This is an important function. It provides for the ‘shaming’ of WTO Members that have not yet complied. The issue of implementation of the recommendations or rulings may be raised at the DSB by any Member at any time following their adoption. Unless the DSB decides otherwise, the issue of implementation of the recommendations and rulings must be placed on the agenda of the DSB meeting after six months following the date of establishment of the reasonable period of time for compliance and must remain on the DSB’s agenda until the issue is resolved. At each subsequent DSB meeting the Member concerned must provide the DSB with a status report in writing of its progress in the implementation of the recommendations or rulings.87

E. The Trade Policy Review Body The General Council also convenes, also, in practice, with a different chair, as the Trade Policy Review Body (TPRB).88 The TPRB meets regularly to conduct trade policy reviews of Members under the Trade Policy Review Mechanism (TPRM)89 and to consider the Director-​General’s annual reports on the WTO’s major activities and significant trade policy issues.90 The four Members with the largest share of world trade are reviewed every two years; the next sixteen every four years; and the rest every six years, with the possibility for longer periods for least-​developed Members.91 The purpose of the TPRM is to improve transparency and adherence to the rules and it makes an important contribution to that objective. However, such reports are not intended to serve as a basis for the enforcement of specific obligations or for dispute settlement purposes, or to impose new policy commitments on Members.92 The TPRM is 84 

Article 16.4 of the DSU. Article 17.14 of the DSU. 86  See, e.g., WT/​DS294/​16 (17 May 2006) (one of a series of such documents submitted by the United States with respect to the issue of zeroing). 87  Article 21.6 of the DSU. 88  Article IV:4 of the WTO Agreement. The Rules of Procedure of the TPRB are contained in WT/​ TPR/​6/​Rev.4 (16 June 2017): Rule 1 provides that the TPRM follows the GC Rules of Procedure, except as provided in the TPRM Rules of Procedure. 89  WTO Agreement, Annex 3. 90  WTO Agreement, Annex 3, para G. 91  WTO Agreement, Annex 3, para C(ii). These periodicities have been extended (see WT/​L/​1014 (27 July 2017)). 92  TPRM, para A(ii). 85 

International Trade Law Institutions    105 not a covered agreement, that is, it is not one of the agreements referred to in Article 1(1) and Appendix 1 of the DSU. This means that a case cannot be initiated on the basis of an affirmation that a Member has allegedly acted inconsistently with an obligation contained in the TPRM. However, the mere fact that information would be provided pursuant to the TPRM would not preclude use of that information in dispute settlement, especially since such information could normally be obtained or also obtained through other channels.93

F. The Council for Trade in Goods, the GATS Council and the TRIPS Council, and their subsidiary committees and other bodies Operating under the guidance of the General Council are the Council for Trade in Goods (CTG), the GATS Council and the TRIPS Council. They oversee respectively the functioning of the Multilateral Trade Agreements in Annex 1A of the WTO Agreement, the GATS and TRIPS Agreement. They also carry out the functions assigned to them by their respective agreements and by the General Council.94 They meet, formally or informally, several times a year. They establish subsidiary bodies as required, which in turn establish their own rules of procedure.95 The CTG96 exercises the powers of the Members in the context of the GATT 1994, and additionally oversees a variety of other agreements and committees.97 Certain agreements confer specific powers on the CTG.98 In practice, many of these subsidiary agreements and committees operate in a relatively autonomous way, probably because some of them were effectively carried over from the Tokyo Round, and because the WTO negotiations on specific agreements were conducted in a relatively compartmentalized manner. For example, the Committee on Anti-​Dumping Practices is directly established

93  See,

in this respect, the discussion in Panel Report, Russia –​Traffic in Transit, adopted 26 April 2019, paras 7.115–​7.118. 94  Article IV:5 of the WTO Agreement. 95  Article IV:6 of the WTO Agreement. 96  The CTG Rules of Procedure are contained in WT/​L/​79 (7 August 1995). 97  The CTG has Committees on: Market Access; Agriculture; Sanitary and Phytosanitary Measures; Technical Barriers to Trade; Subsidies and Countervailing Measures; Anti-​Dumping Practices; Customs Valuation; Rules of Origin; Import Licensing; Trade-​Related Investment Measures; Safeguards; Trade Facilitation; Expansion of Trade in Information Technology Products—​as well as a Working Party on State Trading Enterprises. 98  See paras 1, 4 and 5 of the Understanding on the Interpretation of Article XVII of the GATT 1994; paras 3, 7, 9 and 11 of the Understanding on the Interpretation of Article XXIV of the GATT 1994; Articles 8.1 and 8.11 of the Agreement on Textiles and Clothing (terminated on 1 January 2005); Articles 5.1, 5.3, 7.2 and 9 of the Agreement on Trade-​Related Investment Measures, Articles 5.1, 5.3, 7.2 and 9; Article 14.4 of the Anti-​Dumping Agreement; and Articles 7.4, 8.1, 8.2, 12.2 and 13.1 of the Safeguards Agreement.

106    James Flett and Mislav Mataija by the Anti-​Dumping Agreement (not the CTG); and responsibilities are assigned to it by the Anti-​Dumping Agreement or the Members (not the CTG).99 In order to precisely ascertain the relationships between the CTG and each of these subsidiary bodies it is necessary to study the precise wording of the relevant provisions in each subsidiary agreement, together with the relevant provisions of the WTO Agreement. For example, the Committee on Trade-​Related Investment Measures is closely linked to the CTG, in the sense that it is responsible for carrying out the responsibilities assigned to it by the CTG, and reports to it.100 Furthermore, significant TRIMs-​related decision-​making powers are reserved for the CTG.101 This is understandable, given that the TRIMs Agreement is in large measure a consolidation of various aspects of the application of Articles III and XI of the GATT 1994. In the case of the SPS Agreement, it is specifically provided that the Committee shall reach its decisions by consensus.102 There is no provision in the SPS Agreement that defines consensus as a decision with no Member present formally objecting. The SPS Committee Rules of Procedure re-​affirm the consensus rule, but do not further clarify this matter.103 Nevertheless, it would appear that, in adopting a number of decisions,104 the SPS Committee has in practice operated not by voting, but by consensus, meaning no Member present formally objecting. Presumably, this is based on the proposition that the SPS Agreement is an integral part of the WTO Agreement, and that therefore the consensus rule in Article IX:1 of the WTO Agreement, including the footnote that refers to no Member present formally objecting, also applies to the SPS Committee. The same observation would appear to apply to the other subsidiary committees and bodies. One important issue that has arisen in this context concerns the legal significance of secondary acts. Notably, in US –​Poultry (China), the Panel was called upon to consider the SPS Committee Decision on the Implementation of Article 4 of the Agreement on the Application of Sanitary and Phytosanitary Measures. The Panel noted that SPS Committee decisions typically state that they are not meant to affect the rights and obligations of Members, but this particular decision contained no such statement. It opined (erroneously 99 

Article 16 of the Anti-​Dumping Agreement. Articles 7(2) and (3) of the TRIMs Agreement. 101  Article 5(3) of the TRIMs Agreement. 102  Article 12(1) of the SPS Agreement. 103  CTG, Rules of Procedure for Meetings of the Committee on Sanitary and Phytosanitary Measures, Approved by the Council for Trade in Goods on 11 June 1997, G/​L/​170 (20 June 1997), Rule 33. See also SPS Committee, Working Procedures of the Committee, Adopted by the Committee at its Meeting of 29-​ 30 March 1995, G/​SPS/​1 (4 April 1995). 104  SPS Committee, Decision on the Implementation of Article 4 of the Agreement on the Application of Sanitary and Phytosanitary Measures, G/​SPS/​19/​Rev.2 (23 July 2004); SPS Committee, Guidelines to Further the Practical Implementation of Article 5.5, G/​SPS/​15 (18 July 2000); SPS Committee, Guidelines to Further the Practical Implementation of Article 6 of the Agreement on the Application of Sanitary and Phytosanitary Measures, G/​SPS/​48 (16 May 2008); SPS Committee, Recommended Procedures for Implementing the Transparency Obligations of the SPS Agreement (Article 7), G/​SPS/​7/​Rev. 2 (2 April 2002); SPS Committee, Revision of the Procedure to Monitor the Process of International Harmonization, G/​SPS/​11/​Rev.1 (15 November 2004). 100 

International Trade Law Institutions    107 in our view) that the decision is not binding, but that it expands on the Members’ understanding of certain provisions of the SPS Agreement.105 In US –​Tuna II (Mexico), the Appellate Body found that the TBT Committee Decision on Principles for the Development of International Standards, Guides and Recommendations with Relation to Articles 2, 5, and Annex 3 to the Agreement is a subsequent agreement within the meaning of Article 31(3)(a) of the Vienna Convention, and was therefore to be taken into account.106 A number of the subsidiary agreements authorize their Committees to establish further subsidiary bodies,107 and in some instances mandate this.108 In addition, a number of the subsidiary agreements confer quasi-​judicial powers. For example, the SCM Agreement mandates the establishment of a Permanent Group of Experts, from which a panel may seek assistance and from which the SCM Committee or a Member may seek an advisory opinion on the existence and nature of any subsidy.109 The Safeguards Agreement provides for the Committee on Safeguards to find, upon request by an affected Member, whether or not the procedural requirements of the Safeguards Agreement have been complied with, and to report its findings to the CTG.110 Perhaps not surprisingly, these mechanisms have never been used. The GATS Council111 also oversees the work of a number of subsidiary bodies.112 It is responsible for receiving notifications from Members of, inter alia, changes in laws pertaining to their commitments under the GATS; measures of other Members considered to affect the operation of the GATS; economic integration agreements; and the adoption and termination of security measures.113 It also has the authority to establish such subsidiary bodies as it considers appropriate for the effective discharge of its functions.114 That same decision established the Committee on Trade in Financial Services to carry out the responsibilities set out in that decision. The GATS Council is also charged with developing disciplines on domestic regulation115 and establishing rules for the rectification or modification of schedules.116 A number of GATS provisions 105 

Panel Report, US –​Poultry (China), adopted 25 October 2010, para 7.136 and fn 345. Appellate Body Report, US –​Tuna II (Mexico), adopted 13 June 2012, para 372. 107  Article 13(2) of the TBT Agreement; Article 16(2) of the Anti-​Dumping Agreement; Article 24(2) of the SCM Agreement. 108 For example, Article 24.3 of the SCM Agreement requires the Committee on Subsidies and Countervailing Measures to establish a Permanent Group of Experts composed of five independent persons, highly qualified in the fields of subsidies and trade relations. 109  Articles 24.3-​4 and 4.5 of the SCM Agreement. 110  Article 13(1)(b) of the Safeguards Agreement. 111  The GATS Council Rules of Procedure are contained in S/​L/​15 (19 October 1995). 112  The Council for Trade in Services has Committees on: Trade in Financial Services; and Specific Commitments—​as well as Working Parties on Domestic Regulation and General Agreement on Trade in Services Rules. 113  Articles III:3, III:5, V:7, Vbis (b), VII:4, VIII:4, X:2, XII:2, XIVbis2, XXI:1 of the GATS. 114  Article XXIV:1 of the GATS; Decision on Institutional Arrangements for the General Agreement on Trade in Services adopted together with the Marrakesh Agreement. 115  Article VI:4 of the GATS. 116  Article XXI:5 of the GATS. See GATS Council, Decision on Procedures for the Implementation of Article XXI of the General Agreement on Trade in Services (GATS), S/​L/​7 (20 October 1999); 106 

108    James Flett and Mislav Mataija call for multilateral negotiations on specific issues117 and a Working Party on GATS Rules oversees these matters.118 The TRIPS Council119 is responsible for monitoring the operation of the TRIPS Agreement and Members’ compliance with their obligations thereunder and affords Members the opportunity to consult on matters relating to the trade-​related aspects of intellectual property rights. It is also charged with carrying out such other responsibilities as may be assigned to it by the Members, including any assistance requested by them in the context of dispute settlement procedures. For these purposes, the TRIPS Council is empowered to receive relevant notifications;120 to consult with and seek any information it deems appropriate from any source; and to recommend amendments.121 It is also charged with several more specific duties, such as keeping under review negotiations on geographical indications122 or extending the initial period of ten years during which least-​developed countries are not required to apply most of the provisions of the TRIPS Agreement.123

G. Other subsidiary committees, working parties and working groups The Ministerial Conference is also required to establish a Committee on Trade and Development,124 a Committee on Balance-​of-​Payments Restrictions,125 and a Committee

GATS Council, Procedures for the Implementation of Article XXI of the General Agreement on Trade in Services (GATS), S/​L/​80 (29 October 2000); GATS Council, Decision on Procedures for the Certification or Rectifications or Improvements to Schedules of Specific Commitments, S/​L/​83 (18 April 2000); GATS Council, Procedures for the Certification or Rectifications or Improvements to Schedules of Specific Commitments, S/​L/​84 (18 April 2000). 117 See generally Article XIX of the GATS and Article X:1 (safeguard measures); Article XIII:2 (government procurement); Article XV:1 (subsidies); Annex on Movement of Natural Persons Supplying Services under the Agreement, para 3; Annex on Financial Services, para 3(b); Annex on Negotiations on Maritime Transport Services; Annex on Negotiations on Basic Telecommunications. 118  In addition, the GATS Council consults with Members on double taxation issues (Article XII:2), reviews Annex II Exemptions (Annex on Article II Exemptions) and reviews periodically developments in the air transport sector (Annex on Air Transport Services). 119  The TRIPS Council Rules of Procedure are contained in IP/​C/​1 (28 September 1995). 120  Articles 1.3, 3.1, 4(d) and 63.2 of the TRIPS Agreement. 121  Article 71 of the TRIPS Agreement. 122  Articles 23 and 24 of the TRIPS Agreement. 123  Article 66.1 of the TRIPS Agreement. Provision for such prolongation was one element addressed in the Declaration on the TRIPS Agreement and Public Health adopted by the Ministerial Conference at Doha, and the prolongation has been duly decided upon by the TRIPS Council. 124  Article IV:7 of the WTO Agreement; WT/​GC/​M/​1 (28 February 1995), item 7.A(1) (establishment and terms of reference). WT/​COMTD/​6 (17 October 1995) (Rules of Procedure). The Committee on Trade and Development has a Sub-​Committee on Least Developed Countries (WT/​COMTD/​M/​2 (8 August 1995), para 3). 125  Article IV:7 of the WTO Agreement; WT/​GC/​M/​1 (28 February 1995), item 7.A(1) (establishment and terms of reference); WT/​BOP/​10 (12 December 1995) (Rules of Procedure).

International Trade Law Institutions    109 on Budget, Finance and Administration,126 which carry out the functions assigned to them by the WTO agreements and any additional functions assigned to them by the General Council. For example, the General Council has charged the Balance-​of-​Payments Committee with conducting consultations on balance-​of-​payments issues under Articles XII:4 and XVIII:12 of the GATT 1994, Article XII:5 of the GATS and the Understanding on Balance-​of-​Payment Provisions of the GATT 1994.127 The MC may also establish additional Committees with such functions as it may deem appropriate.128 These include the Committee on Trade and Environment129 and the Committee on Regional Trade Agreements.130 The Ministerial Conference and General Council are also assisted by numerous Working Parties on Accessions, and Working Groups on Preshipment Inspection,131 Trade, Debt and Finance,132 as well as Trade and Technology Transfer.133

H. Plurilateral bodies The bodies provided for in the Plurilateral Trade Agreements, specifically the Trade in Civil Aircraft Committee and the Government Procurement Committee, carry out the functions assigned to them under those Agreements and operate within the institutional framework of the WTO. They must keep the General Council informed of their activities on a regular basis.134 The Information Technology Agreement Committee also operates under the auspices of the CTG.

I. The Trade Negotiations Committee The 2001 Doha MC established the Trade Negotiations Committee (TNC), in order to conduct the Doha Round Negotiations, under the authority of the General Council.135 126 

Article IV:7 of the WTO Agreement; WT/​GC/​M/​1 (28 February 1995), item 7.A(1) (establishment and terms of reference); WT/​L/​161 (25 July 1996) (Rules of Procedure). 127  General Council, WTO Committee on Balance-​of-​Payment Restrictions, WT/​L/​45 (23 February 1995). 128  Article IV:7 of the WTO Agreement. 129  WT/​GC/​M/​1 (28 February 1995), item 7.A(3) (establishment and terms of reference); WT/​L/​42 (23 February 1995) (Rules of Procedure). 130  WT/​ GC/​M/​10 (6 March 1996), para 11 (establishment and terms of reference); WT/​REG/​1 (14 August 1996) (Rules of Procedure). 131  The relevant activities are currently initially performed by the Committee on Customs Valuation (see WT/​GC/​M/​40/​Add.3 (15 July 1999), item 5 and G/​L/​300 (18 March 1999), para 23). 132  WT/​MIN(01)/​DEC/​1 (20 November 2001), para 36 (establishment and terms of reference). 133  WT/​MIN(01)/​DEC/​1 (20 November 2001), para 37 (establishment and terms of reference). There are also Working Groups on: The Relation Between Trade and Investment; Interaction Between Trade and Competition Policy; and Transparency in Government Procurement. However, these are currently inactive (WT/​L/​579 (2 August 2004), item g). 134  Article IV:8 WTO Agreement. 135  Ministerial Conference, Ministerial Declaration Adopted on 14 November 2001, WT/​MIN(01)/​ DEC/​1 (20 November 2001).

110    James Flett and Mislav Mataija It has established negotiating groups on market access, rules and trade facilitation. Negotiations also take place in special sessions of standing WTO bodies. The TNC is chaired by the Director-​General.

J. Dispute settlement panels and the Appellate Body Apart from three brief references to the DSB and the DSU,136 the WTO Agreement itself makes no reference to the dispute settlement system, panels or the Appellate Body.137 Almost all of the relevant provisions are set out in the DSU. The DSU clearly applies to disputes between Members regarding measures ‘taken by another Member’.138 It does not refer expressly to judicial review of measures attributable to the WTO. Clearly, certain provisions would not be apt for such a purpose, such as the provisions concerning consultations.139 However, the DSU does not contain any provision expressly precluding judicial review of measures attributable to the WTO. Thus, it seems that this may be possible, at least indirectly or by implication, and in a manner that is ancillary to a case directed against another Member’s measure. Thus, the case law supports the view that a panel may consider the propriety of its own establishment,140 which may be seen as an indirect consideration of the lawfulness of a DSB act (albeit one that occurs automatically or by operation of law that is, ipso jure). The Appellate Body’s finding regarding the initiation of an Annex V procedure under the SCM Agreement in US –​Large Civil Aircraft (2nd Complaint) may be seen in a similar light.141 Consistent with this, in India –​Quantitative Restrictions, the Appellate Body rejected the proposition that there was a principle of institutional balance in WTO law.142 The DSU provides for the establishment by the DSB of panels,143 including so-​called compliance panels144 and arbitration panels,145 and a standing Appellate Body.146 It also provides for the possibility of an arbitration to determine a reasonable period of time for compliance.147 Provision is made for the possibility of arbitration by mutual agreement

136 

Articles III:3 and IV:3 and fn 3 of the WTO Agreement. See also Chapter 34 of this Handbook. 138  Article 3.3 of the DSU. 139  Article 4 of the DSU. 140  Panel Report, Australia –​Automotive Leather II, adopted 16 June 1999, paras 9.13–​9.15. 141  Appellate Body Report, US –​Large Civil Aircraft (2nd Complaint), adopted 23 March 2012, paras 480-​549. 142 Appellate Body Report, India –​Quantitative Restrictions, adopted 22 September 1999, paras 102-​105. 143  Article 6.1 of the DSU. 144  Article 21.5 of the DSU. 145  Article 22.6 of the DSU. 146  Article 17.1 of the DSU. 147  Article 21.3(c) of the DSU. 137 

International Trade Law Institutions    111 between the disputing parties.148 Other DSU actors149 are the Members themselves (as parties150 or third parties151), the Director-​General,152 the Secretariat,153 the Chair of the DSB,154 the Chair of the relevant council or committee,155 the DSB,156 any individual or body from whom information is sought,157 and any expert or expert review group.158 Certain of the special or additional rules159 also refer to other actors.160 Panels and the Appellate Body are required to act independently161 and objectively.162 Panel and Appellate Body reports are adopted by the DSB by so-​called negative consensus,163 that is, in effect, automatically or by operation of law (ipso jure). Panels are charged with resolving the dispute before them and clarifying the provisions of the covered agreements in accordance with the customary rules of interpretation of public international law164 to the extent necessary in order to do so.165 They 148  Article 25 of the DSU. To-​date, this provision has been used once, in US –​Section 110(5) Copyright Act (Article 25). This provision is also being used in order to work around the current US blockage of AB appointments. 149  See also Chapter 39 of this Handbook. 150  Article 1.1 of the DSU. 151  Article 10 of the DSU. 152 Articles 5.6 (Good Offices, Conciliation and Mediation), 8.7 (Composition of Panels), 17.9 (working procedures for appellate review), 22.6 and footnote 12 (appointment of arbitration panellists), and 24.2 (good offices in cases involving least-​developed countries) of the DSU. The Director-​General is also charged with convening DSB meetings as necessary. See: Rules of Procedure for Meetings of the GC, Rule 2; Article 2.3 of the DSU. See also fn 5 to Article 6.1, fn 7 to Article 16.4, fn 8 to Article 17.14, fn 11 to Article 21.3 of the DSU. Compare Articles 22.2 and 22.7 of the DSU. 153  Articles 8.4 (maintenance of the indicative list), 8.6 (proposed nominations), 12.6 (depository) and 27 (Responsibilities of the Secretariat) of the DSU. 154 Articles 1.2 (resolution of conflicts between special or additional rules), 7.3 (special terms of reference), 8.7 panel composition), 12.10 (extension of consultations period in cases involving developing countries), 17.9 (working procedures for appellate review), 24.2 (good offices in cases involving least-​ developed countries) of the DSU. 155  Article 8.7 of the DSU (panel composition). 156 See, notably, Articles 2 (Administration), 6 (Establishment of Panels), 16.4 (Adoption of Panel Reports), 17.4 (Adoption of Appellate Body Reports), 21 (Surveillance of Implementation of Recommendations and Rulings), and 22 (Suspension of Concessions). 157  Article 13.1 of the DSU. 158  Article 13.2 of and Appendix 4 to the DSU. 159  Article 1.2 of and Appendix 2 to the DSU. 160  Notably, Article11.2 of the SPS Agreement refers to the use of experts or an advisory technical experts group and the consultation of other international organizations; (although not a special or additional rule, Article 11.3 of the SPS Agreement refers to the dispute settlement mechanisms of other international organizations or agreements); Articles 14.2-​4 of and Annex 2 to the TBT Agreement refer to a technical expert group and to any bodies referred to in Articles 3, 4, 7, 8 and 9; Article 19 Customs Valuation Agreement refers to the Technical Committee; Articles 4.5 and 24.4 SCM Agreement refer to the Permanent Group of Experts, Article 6.6 to all Members, Article 8.5 to the Subsidies Committee and an arbitration body, and Annex V to a Facilitator. 161  Articles 8.2, 8.9 and 17.3 of the DSU. 162  Article 11 of the DSU. 163  Articles 16.4 and 17.14 of the DSU. 164  It is generally accepted that these are codified, at least in part, in Articles 31 to 33 of the VCLT. 165  Articles 3.2 and 3.3 of the DSU.

112    James Flett and Mislav Mataija may not add to or diminish the rights and obligations of Members.166 There is, evidently, a certain tension between these two statements.167 Panels are authorized168 to consider the matter within their terms of reference, which may be standard (based on the panel request) or special (agreed with the other party).169 Panels may also consider certain provisions raised by the respondent (which should normally be done in the first written submission).170 The matter consists of a measure attributable to the respondent, an obligation (or right), and whether the measure is inconsistent with the WTO obligations and rights of the respondent. The DSU has no provision exhaustively delimiting the applicable law.171 Claims must in principle be brought under the covered agreements172 (subject to special terms of reference), but other law may be applicable. If a panel concludes that a measure is WTO inconsistent, it must recommend that the respondent bring the measure into conformity with the relevant agreement.173 Compliance panels have the specific task of adjudicating disagreements as to the existence or consistency of a measure taken to comply;174 arbitration panels have the task of quantifying nullification or impairment;175 and arbitrators the task of determining a reasonable period of time in which to comply.176 Panels establish their own working procedures, taking as a starting point the model set out in Appendix 3 to the DSU.177 In practice, a more or less standard set of working procedures has developed over time, although the procedures continue to evolve, and there are still significant variations from case to case. The working procedures cover such matters as confidentiality, the form, timing and content of submissions, preliminary rulings (which are not expressly provided for in the DSU), evidence, the posing of questions, the conduct of substantive meetings, third party sessions, executive summaries, interim review, the service of documents, and the correction of clerical errors. Panels also frequently adopt additional working procedures, for example on business confidential information or open hearings. WTO adjudicators have an implied power to address any matters arising during the proceedings that need to be addressed in order for them to exercise their functions.178 This has been exercised in order to clarify such things as, for example: the applicable rules of interpretation;179 the question of 166 

Articles 3.2 and 19.2 of the DSU. See also Chapter 35 of this handbook. 168  See also Chapter 36 of this handbook. 169   Article 7 of the DSU. 170  Such as, e.g., Articles XX and XXI of the GATT 1994. 171  Article 1.2 of the DSU. 172  Appendix 1 to the DSU. 173  Article 19.1 of the DSU. 174  Article 21.5 of the DSU. 175  Article 22.6 of the DSU. 176  Article 21.3(c) of the DSU. 177  Article 12.1 of and Appendix 3 to the DSU. 178  Appellate Body Report, Mexico –​Taxes on Soft Drinks, adopted 24 March 2006, para 45. 179  Appellate Body Report, US –​Gasoline, adopted 20 May 1996, at 17 (Article 31 of the VCLT); Appellate Body Report, Japan –​Alcoholic Beverages II, adopted 1 November 1996, para 23 (Article 32 167 

International Trade Law Institutions    113 burden of proof;180 the use of outside lawyers;181 the significance of prior reports;182 and so forth. The Secretariat has also produced an Editorial Guide for Panel Submissions, which the parties and third parties are invited to follow. Article 17 of the DSU expressly addresses appellate review. Article 17.1 provides that appeals lie from panel cases; Article 17.6 states that appeals must be limited to issues of law and legal interpretation; Article 17.12 instructs the Appellate Body to address all issues raised before it; and Article 17.13 empowers the Appellate Body to uphold, modify or reverse the panel. There is no provision for remand, although the Appellate Body can complete the legal analysis on the basis of facts that have been found or are uncontested.183 Other provisions of the DSU are also clearly directly relevant and applicable to appellate review.184 Some provisions of the DSU are clearly not directly relevant to, or applicable in, the context of appellate review,185 although all provisions of the DSU are susceptible to being interpreted and applied by the Appellate Body, given that the DSU itself is a covered agreement.186 Only one provision of the DSU expressly excludes appellate review: Article 26.2 of the DSU provides that, in the case of so-​called situation complaints, the procedures set out in the DSU only apply up to the point at which the panel report is circulated to Members. The conventional wisdom is that appeals do not lie from an arbitration panel. However, this remains an open question. Article 17.1 of the DSU provides that appeals lie from panel cases. And the rule in Article 22.7 of the DSU that the parties must accept the arbitration decision as final and not seek a second arbitration can be understood as merely preventing an endless loop of requests pursuant to Article 22.2 and arbitration pursuant to Article 22.6. The Appellate Body was established by the DSB, together with the conditions of employment of Appellate Body Members.187 The Appellate Body draws up its own working of the VCLT); Appellate Body Reports, Canada –​Renewable Energy/​Canada –​Feed-​in Tariff Program, adopted 24 May 2013, fn 512 (Article 33 of the VCLT). 180 

Appellate Body Report, US –​Wool Shirts and Blouses, adopted 23 May 1997, at 13–​16. Appellate Body Report, EC –​Bananas III, adopted 25 September 1997, paras 4–​12. 182  Appellate Body Report, US –​Stainless Steel (Mexico), adopted 20 May 2008, paras 160–​161. 183  See, for a recent example, Appellate Body Report, Korea –​Pneumatic Valves (Japan), adopted 30 September 2019, para 5.38. 184  For example, Articles 1 (Coverage and Application); 2 (Administration); 3 (General Provisions); 4.9 (Acceleration of Procedures in Case of Urgency); 18 (Communications with the Panel or Appellate Body); 19 (Panel and Appellate Body Recommendations); 20 (Time-​frame for DSB Decisions); and 26 (Non-​Violation Complaints) of the DSU. 185  For example, Articles 8 (Composition of Panels); and 15 (Interim Review) of the DSU. 186  Article 1.1 of and Appendix 1 to the DSU. 187  Preparatory Committee for the World Trade Organization, Establishment of the Appellate Body, Recommendations by the Preparatory Committee to the WTO approved on 6 December 1994, PC/​ IPL/​13 (8 December 1994); General Council, Minutes of Meeting on 31 January 1995, WT/​GC/​M/​1 (28 February 1995), at 8 (referring the matter to the DSB); DSB, Minutes of Meeting on 10 February 1995, WT/​DSB/​M/​1 (28 February 1995), items 3 and 4 (Establishment of the Appellate Body, Procedures for appointment of members of the Appellate Body); DSB, Establishment of the Appellate Body, WT/​DSB/​ 1 (19 June 1995). Appellate Body Members receive a monthly retainer, daily fees, travel and subsistence payments, and certain other benefits. Proposals to move them to full-​time employment, with a salary 181 

114    James Flett and Mislav Mataija procedures, in consultation with the Chairman of the DSB and the Director-​General.188 The Working Procedures for Appellate Review is an extensive and important institutional document, regulating such matters as the duties and responsibilities of Appellate Body Members; decision-​making; collegiality; the election of a Chair; the constitution of divisions and election of a presiding member; rules of conduct; incapacity; replacement; resignation; transition; and procedural aspects of an appeal, such as notices of appeal, the transmittal of the record, the working schedule and the conduct of the oral hearing. Rule 16(1) of the Working Procedures contains a specific expression of the doctrine of implied powers. It provides that, in the interests of fairness and orderly procedure in the conduct of an appeal, where a procedural question arises that is not covered by the rules, a division may adopt an appropriate procedure for the purposes of that appeal only, provided that it is not inconsistent with the DSU, any covered agreement, or the Working Procedures for Appellate Review. In this respect, some see the role of amicus curiae briefs in WTO litigation as opening the process to civil society. Others, including many developing countries, are concerned that non-​governmental organizations may not be democratic, may be rent-​seeking and may in fact represent the views of a narrow constituency. The case law on this issue gradually developed so as to recognize that such briefs are not per se excluded, either in panel proceedings or in appeal proceedings, notably given the flexibilities permitted by Article 12 of the DSU and the fact that Article 13 of the DSU permits panels to seek information from any source.189 However, when the Appellate Body adopted specific procedures regulating ex ante the submission of amicus curiae briefs in a particular case,190 the Members reacted. At a special meeting of the General Council requested by a large group of developing countries there was strong criticism of the Appellate Body, resulting in a Chair’s statement suggesting extreme caution in future cases, until the Members had considered what kind of rules might be needed.191 In practice, no such rules have ever been adopted, although at the same time neither panels nor the Appellate Body have since sought to establish ex ante rules governing the submission of amicus briefs. Such briefs still get filed, at both panel and appellate level, and are not rejected, but the substance of such briefs is rarely if ever referred to in the report itself. By contrast, like panels, the Appellate Body has also adopted procedures regulating the submission and treatment of confidential business information,192 as well as open and pension have been considered, but not adopted (see, e.g., WT/​DSB/​M/​101 (8 May 2001), at 25; JOB(01)/​46/​Rev.1 (30 April 2001)). 188  Article 17.9 of the DSU. See Appellate Body, Working Procedures for Appellate Review, WT/​AB/​ WP/​6 (16 August 2010). 189  Appellate Body Report, US –​Shrimp, adopted 6 November 1998, paras 104–​106; Appellate Body Report, US –​Lead and Bismuth II, adopted 7 June 2000, para 39. 190  Appellate Body Report, EC –​Asbestos, adopted 5 April 2001, paras 51–​52. 191 General Council, Minutes of Meeting Held on 22 November 2000, WT/​ GC/​ M/​ 60 (23 January 2001). 192  Appellate Body Report, EC and Certain Member States –​Large Civil Aircraft, adopted 1 June 2011, Annex III. Similar procedures have been adopted in a number of subsequent cases.

International Trade Law Institutions    115 hearings,193 without any objection from Members. On the other hand, it has not adopted rules regulating the issue of judicial holidays (that is, a period of time when the court is closed and time limits do not run). In this respect, it probably lacks the power to decide that certain days would not count towards the mandatory 90-​day period in Article 17.5 of the DSU. Furthermore, the 164 Members of the WTO have significantly different national holidays, which may make it difficult to identify those days that should qualify.

K. The Director-​General and the Secretariat The WTO Agreement establishes a Secretariat headed by a Director-​General. The Ministerial Conference appoints the Director-​General and adopts regulations setting out the powers, duties, conditions of service, and term of office of the Director-​General. The Director-​General in turn appoints the staff of the Secretariat and determines their duties and conditions of service in accordance with regulations adopted by the Ministerial Conference.194 He or she is also responsible for presenting the annual budget to the Committee on Budget, Finance, and Administration.195 The General Council has adopted procedures for the appointment of Directors-​General.196 Interestingly, that decision confirms that, if consensus cannot be reached, Members should consider the possibility of voting. The decision also establishes a term of office of four years, renewable once, and provides that the remuneration package is to be fixed by the Committee on Budget, Finance and, Administration, and subject to approval by the General Council. However, there is no decision setting out in general terms the powers and responsibilities of the Director-​General. In the past, as necessary, the Director-​General has from time-​to-​time delegated decision-​making to a Deputy Director-​General, for example when travelling or recusing themselves in order to avoid a conflict of interest. With the resignation of the Director-​General in August 2020, decision-​making powers were temporarily devolved upon the Deputy Director-​Generals, according to their areas of responsibility. The responsibilities of the Director-​General and the staff of the Secretariat are exclusively international in character. They are prohibited from seeking or accepting instructions from any government or any other authority external to the WTO. They are required to refrain from any action that might adversely reflect on their position as international officials. The Members of the WTO themselves are also required to respect the international character of the responsibilities of the Director-​General and the Secretariat and are prohibited from seeking to influence them in the discharge of their duties.197 193 

The first panel and AB hearings that were open to public viewing were in Canada/​US –​ Continued Suspension (see paras 7.38–​7.40 of the panel reports and the Procedural Ruling in Annex IV of the AB reports in those cases). Similar procedures have been adopted in a number of subsequent cases. 194  Articles VI:1-​3 of the WTO Agreement. 195  Article VII:1 of the WTO Agreement. 196  See WT/​GC/​M/​7 7 (13 February 2003); WT/​L/​509 (20 January 2003). 197  Article VI:4 of the WTO Agreement.

116    James Flett and Mislav Mataija The Director-​General and the Secretariat do not generally have any explicit rights of initiative or proposal. In practice, their role is generally considered to be one of supporting the Members, hence the oft-​repeated observation that the WTO is a Member-​driven organization. However, the Director-​General does chair the TNC, and may even produce draft texts,198 which is a recognition of the fact that, in practice, the Director-​General and by extension the Secretariat have a significant role to play in guiding negotiations. Proposals have been made to clarify and enhance the role of the Director-​General and the Secretariat.199 However, there is no reasonable prospect of these coming to fruition in the foreseeable future. The Director-​General has an important role to play in the dispute settlement system. Absent agreement, and upon request, the Director-​General is required to appoint panellists whom the Director-​General considers most appropriate, in accordance with the rules set out in the DSU.200 This specific institutional responsibility is critical to the functioning of the dispute settlement system, and thus the WTO itself. Failure to discharge it in accordance with the rules would be legitimate grounds for dismissal, with the responsibility then falling on the replacement, whether permanent or temporary. The independence and competence of panellists is central to the proper functioning of the dispute settlement system. The rules envisage that the Secretariat, acting under the authority of the Director-​General, should propose the persons considered most appropriate and that the nominations cannot be opposed other than for compelling reasons.201 However, the practice has departed dramatically from what is envisaged in the DSU.202 Instead of the Secretariat proposing adjudicators of the very highest quality who are then essentially automatically appointed, absent compelling reasons, a complex process of selection has arisen, tainted by the interests of the parties in that particular case. This raises serious questions about the quality and consistency of panel reports, and in turn significantly increases the pressure on the Appellate Body. There is an urgent need for the Director-​General to address this critical stress point in the institutional structure of the WTO and rectify the situation. The Director-​General also has a specific and similarly critical institutional responsibility to convene meetings of the DSB regularly and particularly when required by the DSU,203 and to establish the agenda in 198  See, e.g., the so-​called Dunkel Draft, Trade Negotiations Committee, Draft Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, MTN.TNA/​ W/​ FA (20 December 1991). 199  For an in-​ depth description of the formal and informal roles of the Director-​General and the Secretariat, see H. Nordstrom, ‘The World Trade Organization Secretariat in a Changing World’ 39(5) Journal of World Trade (2005) 819–​853. 200  Article 8.7 of the DSU. 201  Article 8 of the DSU. 202 For a description, see R. Malacrida, ‘WTO panel composition: searching far and wide for administrators of world justice’ in G. Marceau (ed), A History of Law and Lawyers in the GATT/​WTO (Cambridge: Cambridge University Press, 2015). 203  Rules of Procedure for Meetings of the General Council, Rule 2; Article 2.3 of the DSU. See also fn 5 to Article 6.1, fn 7 to Article 16.4, fn 8 to Article 17.14, fn 11 to Article 21.3 of the DSU. Compare Articles 22.2 and 22.7 of the DSU.

International Trade Law Institutions    117 conformity with the applicable rules.204 He or she may also provide good offices, conciliation or mediation.205 The WTO Secretariat, which currently has about 600 staff, has always been relatively small compared to other international organizations. It has been established based on rules specific to the WTO.206 In principle, disputes between staff and the administration may be heard by the Administrative Tribunal of the International Labour Organization, and this has occasionally occurred. The work of the Secretariat has grown steadily, and at some stage led to serious delays in the dispute settlement system, although this issue now appears to have been resolved, at least for the time being. Additional earmarked contributions have been made and trust funds have been established in order to support technical assistance for developing countries. Like the Director-​General, the Secretariat has an important role to play in the dispute settlement system. It is responsible for assisting panels, especially on the legal, historical and procedural aspects of matters dealt with by panels, and with providing secretarial and technical support.207 The Appellate Body is also provided with appropriate administrative and legal support as it requires.208 Although the extent of the Secretariat’s role in dispute settlement will never be publicly known, and no doubt varies from case-​to-​ case, it has surely been significant. In addition, the Secretariat assists Members in respect of dispute settlement at their request, and it is also recognized that there may be a need for additional legal advice and assistance in respect of dispute settlement to developing country Members. To that end, the Secretariat makes available qualified legal experts, whilst ensuring the continued impartiality of the Secretariat, and provides training.209 Furthermore, a dozen developed countries fund an Advisory Centre for WTO Law to provide legal assistance to developing countries and least developed countries.210 Whilst not formally part of the WTO institutional framework, it performs an important institutional function.

L. The Chair The General Council has adopted Guidelines for the Appointment of Officers to WTO Bodies.211 Whilst the Chair of a particular entity may appear at first sight to have

204 

Rules of Procedure Meetings of the General Council, Rules 3–​7. 5 of the DSU; Communication from the Director General, Article 5 of the Dispute Settlement Understanding, WT/​DSB/​25 (17 July 2001). See also Chapter 40 of this handbook. 206  WT/​L/​282 (21 October 1998), as most recently modified (WT/​GC/​M/​170 (9 February 2018), item 11 and WT/​BFA/​169 (20 November 2017)). 207  Article 27.1 of the DSU. 208  Article 17.7 of the DSU. 209  Articles 27.2–​3 of the DSU. 210  See < https://​www.acwl.ch/​ > (last visited 1 October 2021). 211  General Council, Guidelines for Appointment of Officers to WTO Bodies, adopted 11 December 2002, WT/​L/​510 (21 January 2003). 205 Article

118    James Flett and Mislav Mataija relatively limited procedural authority, he or she nevertheless has an important role to play. In addition to exercising any specific powers conferred by the relevant rules of procedure, the Chair declares the opening and closing of each meeting, directs the discussion, accords the right to speak, submits questions for discussion, announces decisions, rules on points of order and generally has complete control of the proceedings. The Chair may also call a speaker to order if the remarks of the speaker are not relevant.212

VIII.  WTO decision-​making A. No formal typology of WTO acts There is no formal typology of WTO acts. One can posit a distinction between primary acts, such as those by which the treaties are amended, and secondary acts, but even this distinction is unclear (for example, in the case of accessions). Generally speaking, reference is made to ‘decisions’, such as in Article IV of the WTO Agreement (decisions by the Ministerial Council) and in the title of Article IX of the WTO Agreement. However, whilst in some contexts it may be clear that what is required is a ‘decision’ and/​or that what has occurred is a ‘decision’, in other contexts significant ambiguity may arise. For example, sometimes reference is made to a ‘recommendation’.213 Notably, the DSU appears to refer to ‘decisions’ as a sub-​set of ‘actions’,214 and it is clear that when the so-​called negative consensus procedure applies there cannot be a decision (because this would require consensus),215 so there must rather be an ‘action’, which occurs automatically, or by operation of law (ipso jure). Committees tend to adopt a variety of descriptions for the documents they issue, such as, for example, ‘Guidelines’. Usually, the minutes of the relevant meeting will simply record that something was ‘agreed’. Thus, in sum, one may say that there are few if any formal distinctions, such as between: primary and secondary acts; general and specific acts; external and internal acts; acts with legal effects and those without. In this Chapter, for ease of reference, we use the term ‘decision’ in a general and non-​technical manner, without prejudice to the foregoing observations.

212

  See, e.g., Rules of Procedure for Meetings of the GC, Rule 17. See, e.g., Article VII:1 of the WTO Agreement (the Budget Committee makes a recommendation on the budget to the General Council). 214  Article 2.2 of the DSU. 215  Article 2.4 of the DSU. 213 

International Trade Law Institutions    119

B. The right to propose In WTO law, the right to propose a WTO act lies with any WTO Member216 or sometimes, for very specific matters, with a particular WTO body217 or with the Director-​ General.218 However, nothing generally precludes the Director-​ General or the Secretariat from making informal proposals, provided that they comply with any applicable procedural rules.

C. The general WTO decision-​making procedure: if no consensus (consensus meaning no Member present formally objects), majority of votes cast The general WTO decision-​making procedure219 is set-​out in Article IX:1 of the WTO Agreement. Members must first seek to arrive at a decision by consensus. A decision by consensus on a matter submitted for consideration is deemed to occur if no Member present at the meeting formally objects.220 Except as otherwise provided, where consensus cannot be achieved, the matter is to be decided by voting. At meetings of the Ministerial Conference and General Council each WTO Member has one vote.221 Decisions are taken by a majority of votes cast, unless otherwise provided in the WTO agreements. In using the term ‘shall’, the first sentence of Article IX:1 transforms the prior practice of decision-​making by consensus under the GATT into a mandatory rule. By definition, a practice is not something that is mandated, but merely the re-​iteration of something. When that thing is mandated, as in Article IX:1, by definition it ceases to be a practice. Therefore, it is not accurate to speak of the ‘practice’ of consensus in the WTO. There was a practice of consensus under the GATT, but under the WTO it is mandatory to first seek consensus. Article IX:1 does not specify the period of time during which Members are obliged to seek consensus before voting (in contrast to certain other provisions that do, such 216  Article IV:1 of the WTO Agreement (‘. . . if so requested by a Member . . .’) (for the Ministerial Conference and by extension the General Council); Articles X:1 and X:8 of the WTO Agreement (any Member may propose amendments). 217 For example, Article VII:1 (Budget Committee recommends annual budget and proposes financial regulations to the General Council); Article X:1 of the WTO Agreement (councils may propose amendments); Article 9 of the TRIMs (CTG proposes amendments of TRIMs to the General Council). 218  Article VII:1 of the WTO Agreement (Director-​General presents annual budget estimate to the Budget Committee). 219  To the extent of any conflict, the specific decision-​making procedures of the WTO prevail over other provisions of general international law (Appellate Body Report, Peru –​Agricultural Products, adopted 31 July 2015, para 5.112). 220  Fn 1 to Article IX:1 of the WTO Agreement. 221  The European Union has a number of votes equal to the number of EU Member States that are also Members of the WTO (currently 27).

120    James Flett and Mislav Mataija as Articles IX:3 and X, for example). Typically, the relevant rules of procedure provide that any Member may at any time move for the closure of the debate, that is, that the matter under consideration be decided on, by consensus, or if necessary by voting.222 However, the rules also typically provide that any Member may move for the adjournment of the debate, that is, for the deferral of the decision, which motion shall have priority.223 Such motion would also be decided upon by consensus or, where necessary, by voting. Where the voting procedure is simple majority, if there is no simple majority in favour of the proposed decision, it is unlikely that there would not be a simple majority in favour of deferral. In practice, if consensus cannot be reached, the meeting may well be suspended. Thus, the practice is that Members generally do not move for the closure of the debate, if necessary by voting, in circumstances where it is apparent that consensus has not yet been achieved. It should be noted that, because of the way that consensus is defined, the Chair of the meeting has, in practice, an important power, which is the power to determine that the period of time during which a Member present may formally object is closed. Once that point is reached, the Chair may gavel the decision, after which, it may be argued, it is too late for a ‘formal objection’ to have any legal effect. Certainly, Members must be given an opportunity to formally object, and they must also be given timely notice that the objection period is coming to an end. However, these are matters over which, in practice, the Chair has significant control, especially when proposals or changes are put forward with little notice, or in the meeting itself.224 The general voting rule is a majority of the votes cast, not a majority of the Members. It is probably correct to say that abstention is not a vote that is cast. Rather, a vote must be cast either by raising the hand (or the Member’s nameplate), by the provision of a voting paper in the meeting, or by postal ballot.225 Observance of this rule logically requires that it is necessary to ascertain how many Members support the motion and how many reject it, the total of these two categories being the total number of votes ‘cast’, and the motion being carried if the first category contains more votes than the second.

1. The two faces of consensus It is important to be clear that, somewhat confusingly, the consensus rule can be viewed from two quite distinct perspectives. The first perspective focuses on the fact that the consensus rule means that any one WTO Member can, in effect, veto approval of the document or matter submitted for 222 

See, e.g., Rules of Procedure for Meetings of the General Council, Rule 20. See, e.g., Rules of Procedure for Meetings of the General Council, Rule 21. 224  Normally, agenda items must be proposed with the notice of meeting, and the accompanying documentation, ten days beforehand (see, for example, Rules of Procedure of the General Council, Rules 2, 3 and 4). However, Rule 28 provides that proposals and amendments shall normally be introduced in writing and circulated not later than twelve hours before the commencement of the meeting. 225  It has been accepted that, in order to maintain social distance during the covid-​ 19 pandemic, meetings and hearings may also be conducted ‘virtually’, notwithstanding objections from some Members, notably the United States. Although ‘virtual’ meetings are not the same in all respects to in-​ person meetings, there is no doubt that this temporary compromise is both lawful and appropriate. 223 

International Trade Law Institutions    121 consideration, just by formally objecting. This is the aspect of the rule that can prevent the adoption by consensus of decisions in sensitive and controversial areas. Normally, according to Article IX:1 of the WTO Agreement, Members should then proceed to voting, either by a majority of the votes cast or according to the specific voting procedure that governs a particular matter. However, as a matter of practice, WTO Members do not generally call for a vote. From this perspective, consensus is an obstacle to decision-​ making, and voting would be preferable in terms of getting things done. The second perspective focuses on the fact that, because of the way consensus is defined (no Member present formally objects), a decision can be adopted by consensus even if some Members present at the meeting disagree but remain silent and/​or do not attend the meeting at all. That is, provided no Member formally objects to the decision, Members’ silence or abstention will not block consensus. By contrast, unanimity would mean that all Members or all Members present affirmatively support the decision. If unanimity occurs, one may also say there is consensus (because no Member present has formally objected). However, unanimity is not required by the WTO Agreement: all that is required is consensus, meaning that no Member present formally objects. In some if not many circumstances obtaining a decision by consensus, defined in this way, can actually be easier than obtaining the requisite number of affirmative votes in support of the document under consideration. From this perspective, consensus (as defined) facilitates decision-​making, and voting would make it more difficult to get things done. The fact is that many Members, especially developing country Members, do not attend all meetings, through choice or for lack of resources, or do not have a developed position on certain issues. The consensus rule, thus framed, nevertheless permits business to be conducted. On the other hand, this may also mean that developed country Members, with the resources to participate in principle in all meetings, may, in effect, dominate the decision-​making process, even when (or especially when) the procedure is consensus. To put the same point in slightly different terms, the consensus rule, as defined, encapsulates a self-​regulating mechanism for all Members. For political non-​priorities it allows Members to acquiesce in permitting the day-​to-​day interests of other Members to be processed through the system; but for political priorities it allows any one Member to veto, or at least force a vote should they wish to do so. It may be argued that the consensus rule, so defined, means that the voices of Members are de facto or latently weighted, in the sense that a delegate from a less economically powerful Member may prefer to remain silent faced with a proposal and a strongly-​worded intervention by a more economically powerful Member. Where the rules provide for a show of hands,226 the more powerful Member could see and react to the behaviour of the less powerful Member. Typically, it is provided that any voting would be by ballot, although the ‘raising of cards’ may also be suggested by the Chair.227

226  227 

See, e.g., Rules of Procedure of the General Council, Rule 24. See, e.g., Rules of Procedure of the General Council, Rule 34.

122    James Flett and Mislav Mataija Postal ballots may also be called where a qualified majority of all Members is required, although in practice such postal ballots have rarely been used.228

2. Consensus as a principle of general application With these observations in mind, an important legal question is whether or not the consensus rule in Article IX:1 (including footnote 1) of the WTO Agreement is confined to that provision, or also applies in the context of other decision-​making provisions, such as under Articles IX:2, IX:3, X and XII. It is submitted that the latter proposition is the better reading. Several elements support this. First, the title of Article IX is ‘Decision-​ Making’, and Article IX:1, first sentence is in the nature of a general statement of principle that informs all of the following provisions. Second, the first sentence refers to the ‘WTO’, suggesting that it is of general application to and within the WTO. Third, by their own terms, the first two sentences of Article IX:1 and footnote 1 are not limited to the majority voting procedure set out in the final sentence of Article IX:1. Fourth, whilst Article IX:1 refers to the Ministerial Conference and the General Council, footnote 1 refers to ‘the body concerned’, suggesting that it is of more general application. Fifth, the reference to ‘except as otherwise provided’ would appear to mean except as otherwise provided in any other treaty provision, or at least any other provision of the WTO Agreement. In this respect, it is also noteworthy that the final sentence of Article IX:1 refers more generally to ‘the relevant Multilateral Trade Agreement’. Finally, the third and fourth sentences of Article IX:1 (which provide that each Member has one vote whilst the European Union has a vote for each of its member States) would also appear to be of general application. It is true that some of the following provisions refer (again) to consensus,229 whilst others do not.230 However, these references are either incidental drafting associated with the introduction of a specific 90-​day period for seeking consensus,231 or specific provisions that exclude voting.232 It is therefore incorrect to juxtapose them with other provisions that do not refer to consensus for the purposes of concluding that the general consensus rule does not apply in the context of those other provisions. It could be argued that the phrase ‘except as otherwise provided’ in Article IX:1 does not meaningfully qualify the phrase ‘where a decision cannot be arrived at by consensus’. Rather, the latter simply introduces the premise, upon which the rest of the sentence is based. In other words, the sense of the sentence is that, ‘where a decision cannot be arrived at by consensus’, ‘the matter shall be decided by voting’, ‘except as otherwise provided’. In any event, even if such qualification would be considered to operate, the other specific provision would have to state expressly that the Members must not first seek to decide by consensus. No other provision contains such a statement.

228  See, e.g., Rules of Procedure of the General Council, Rule 34; and WT/​GC/​ M/​6 (20 September 1995), paras 2-​5 (postal ballot for certain draft waivers and the draft decisions on the accession of Ecuador). 229  Article IX:3(a), fn 4, Article X:1, X:8 and X:9 of the WTO Agreement. 230  Articles IX:2, IX:3 chapeau, IX:3(b), IX:4, X:2-​7, XII of the WTO Agreement. 231  Articles IX:3(a) and X:1 of the WTO Agreement. 232  Fns 3 and 4 and Articles X:8 and X:9 WTO of the Agreement.

International Trade Law Institutions    123 Consequently, in the context of the following provisions that do not refer to consensus,233 the general rule in Article IX:1 applies: the Members are mandated to first seek consensus, meaning no Member present formally objects. This reading would also be consistent with the approach that has been adopted in the context of waivers and accessions,234 which is discussed in more detail below. It would also be consistent with the views expressed by the Secretariat when considering how to give effect to the Doha Declaration on the TRIPS Agreement and Public Health.235 The same approach was adopted by the Secretariat when considering the change from annual to biennial budgeting in the WTO.236 This would also appear to be consistent with the rules of procedure of various bodies.237 It should be noted that this proposition would also apply to the provisions of the WTO Agreement that precede Article IX. Thus, it would appear correct to state that, in the context of Article V (relations with other organizations) and Article VI (including appointment of the Director-​General), Members are mandated to first seek consensus, which means no Member present formally objects. The position with respect to the budget (Article VII) is discussed in more detail below.

3. Majority of votes cast as the default voting rule A similar question arises in contexts where consensus cannot be reached, no specific voting rule is set-​out, but voting is not specifically excluded (see the following section). In these circumstances, it would appear to be the case that the default voting rule is the majority of votes cast. Thus, it would appear correct to state that, in the context of Article V (relations with other organizations) and Article VI (including appointment of the DG), Members are mandated to first seek consensus, which means no Member present formally objects, but if they proceed to vote, the vote would be by a majority of the votes cast.238

233 

Articles IX:2, IX:3 chapeau, IX:3(b), IX:4, X:2-​7, XII of the WTO Agreement. General Council, Minutes of Meeting of 15 November 1995, WT/​GC/​M/​8 (13 December 1995), at 6; Decision-​Making Procedures Under IX and XII of the WTO Agreement, Statement by the Chairman, as agreed on 15 November 1995, WT/​L/​93 (24 November 1995). 235  TRIPS Council, Proposals on Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health: Thematic Compilation, Note by the Secretariat, IP/​C/​W/​363/​Add.1 (23 July 2002), para 8 (‘If a decision concerning interpretation cannot be arrived at by consensus . . . ’). 236  Committee on Budget, Finance and Administration, Biennial Budgeting in the WTO, Possible Legal Approaches, WT/​BFA/​W/​104 (16 July 2003), para 7 (‘However, the decision-​making practice here, as in the case of other decisions by these two bodies, is that of consensus, pursuant to the first sentence of Article IX:1.’) 237 Rules of Procedure for Sessions of the MC, WT/​ L/​161 (25 July 1996), Rule 28 (decisions in accordance with Article IX of the WTO Agreement; Rules of Procedure for Meetings of the General Council WT/​L/​161, (25 July 1996), Rule 33; Rules of Procedure for Meetings of the CTG, WT/​L/​79 (7 August 1995), Rule 33 (absent consensus, refer the matter to the GC). 238  Notably, the same would be true for counterbalancing measures under the Safeguards Agreement, Article 8.2 of which refers to a suspension of which the CTG does not disapprove. Assuming that, in this context, consensus would not be found, the voting rule would be a majority of the votes cast. 234 

124    James Flett and Mislav Mataija

4. Specific provisions that exclude voting As explained above, the phrase ‘except as otherwise provided’ in Article IX:1 of the WTO Agreement qualifies the phrase ‘the matter at issue shall be decided by voting’. This means that, if there is another specific provision that excludes voting, that specific provision will prevail. There are a number of such provisions. Thus, footnote 4 of the WTO Agreement provides that a decision on a waiver to extend a transitional period or a period of staged implementation shall only be taken by consensus. This means that a three-​fourths majority vote in favour will not suffice. However, it is important to note that, as explained above, consensus still means consensus in the sense of no Member present formally objecting. That is because the consensus rule in the first sentence of Article IX:1, including footnote 1, is of general application, and it is not specifically excluded by footnote 4. The same observation applies to Article X:8 of the WTO Agreement, which provides for amendments to the DSU by the Ministerial Conference acting by consensus. This cannot be done by voting. It must be done by consensus. But consensus includes the situation in which no Member present at the meeting formally objects. The same observation applies to Article X:9, which provides for the addition of a Plurilateral Trade Agreement by the Ministerial Conference exclusively by consensus. Footnote 3 of the WTO Agreement provides that decisions of the General Council when convened as the DSB must be taken only in accordance with the provisions of paragraph 4 of Article 2 of the DSU. That provision in turn provides that, where the rules and procedures of the DSU provide for the DSB to take a decision, it shall do so by consensus. As discussed further below, the provisions of the DSU provide for the DSB to take a decision not to do certain things in six specific instances (corresponding to so-​ called ‘negative consensus’). Absent such a decision, where negative consensus operates, the relevant document is adopted automatically or by operation of law (ipso jure). For these matters, therefore, voting is excluded. For other matters arising in the DSB, the general rules apply: consensus (meaning no Member present formally objects), failing which, majority voting. Article 12.1 of the SPS Agreement provides that the SPS Committee shall decide by consensus. The same logic applies. This means consensus in the sense of no Member present formally objecting. Voting is excluded. The same statement is re-​iterated in Rule 33 of the SPS Committee Rules of Procedure.239 Furthermore, a note to the CTG Rules of Procedure240 provides that, where an Annex 1A Agreement specifically requires a decision to be taken by consensus and the matter is referred to the General Council under Rule 33, the General Council shall take the decision ‘only’ by consensus. The explanation usually offered for this is that SPS matters, and particularly public health, are so important that each Member retains a veto.

239  G/​L/​170 (20 June 1997). See also: SPS Committee, Working Procedures of the Committee, G/​SPS/​ 1 (4 April 1995). 240  WT/​L/​79 (7 August 1995).

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5. Formal objections to the proposed decision Because of the practice of almost never proceeding to a vote there is very little practice or clarity on what actually amounts to a ‘formal objection’ within the meaning of footnote 1 of the WTO Agreement. This is an important question, since the absence of a formal objection defines the existence of consensus. First, it would appear that a decision must have been proposed. Otherwise, there is nothing that can be objected to. Furthermore, for the parameters of the proposal to be sufficiently precise, it would also appear that such decision would generally need to have been proposed in writing beforehand, meaning that a mere ex post minute would be insufficient. In principle, this would require circulation of a document in a timely manner in accordance with the applicable rules. Whilst it would appear possible to modify a proposed decision during the meeting, it would appear that such modification should be effected in writing in order to avoid any contest as to the accuracy of the minute. Second, it is not clear what amounts to an ‘objection’. Members often criticize proposals without objecting to them. Arguably, in order for an objection to be made, the term ‘object’ should be explicitly used by the objecting Member, failing which there is a risk that the decision may pass by consensus.241 Third, it is also unclear what amounts to a ‘formal’ objection. Probably this does not need to be made in writing. Nevertheless, it probably does need to be recorded clearly in the minutes. Furthermore, it probably needs to be clear from the language used in the minutes that an objection was officially advanced by the Member in question. Equivocal or contradictory language is likely to be insufficient. Fourth, it is important that an opportunity has been provided to ‘formally object’. Whilst some provisions explicitly fix the time period during which consensus will be sought,242 the general rules do not. Logically, this is the time period during which a Member must ‘formally object’ if it wishes to prevent a decision by consensus. This may well be during the meeting itself. Thus, if the Member does not ‘formally object’ before the end of the discussion on that particular agenda item, a risk remains that the Chair will determine the existence of consensus and gavel accordingly. Evidently, in the conduct of such matters, the Chair of the meeting has some latitude and discretion when it comes to determining whether or not consensus, meaning no Member present formally objects, has actually been reached, within the relevant period.

6. The issue of the quorum Turning to the issue of quorum, there is a certain tension between the rule that a decision may be taken by consensus and the rule that a simple majority of Members shall

241  See, e.g., Appellate Body Report, US –​Clove Cigarettes, adopted 24 April 2012, para 253, finding that the ‘recommendation’ referred to in Article IX:2 of the WTO Agreement is an indispensable procedural requirement, that is, adopting a ‘strict’ and ‘literal’ reading of a procedural provision. 242  Notably, Article IX:3 of the WTO Agreement (waivers) (90 days).

126    James Flett and Mislav Mataija constitute a quorum.243 It might be argued that, absent a quorum, no decision by consensus is possible. The same logic might also apply to voting. Nevertheless, the practice is that decisions are adopted by consensus notwithstanding the rules on quorum. Indeed, the minutes of meetings do not generally record which Members were present, no doubt also because of the difficulty of monitoring this throughout long meetings with many attendees, making it impossible to verify, ex post, whether a particular meeting was quorate. This situation would appear to reflect the proposition that, in case of conflict, the primary treaty rules (which contain the consensus rule and the rules on voting) override the rules of procedure (which contain the quorum rule). This proposition would also operate with respect to the primary treaty language in the DSU regarding so-​called ‘negative consensus’. This means that DSB reports are adopted, in effect, automatically, that is, by operation of law (ipso jure), notwithstanding the fact that the DSB meeting may not be attended by a simple majority of all Members.

7. The practice of almost never voting and ‘green room’ meetings (consensus building) WTO Members have not generally exercised their right to call for a vote, and in any event chairs have preferred to continue the search for consensus.244 Rather, Members choose to remain within the bounds of the mandatory consensus rule. As explained above, given that consensus merely requires the absence of a formal objection, it may often be easier to obtain a decision by consensus than by voting. However, consensus also means that any Member opposing the decision can attend the meeting and veto the proposal. Consensus decisions are sometimes said to be more legitimate than voting on the grounds that they accommodate the interests of all Members, including both the more powerful and less powerful Members, in the sense that no Member is out-​voted. However, this proposition is based on the assumption that all Members are informed about meetings in advance and able to participate. At the same time, it is also recognized that the consensus requirement renders it increasingly difficult to find agreement, especially on important issues, given that any Member can veto a proposal. Proposals have been made to change the consensus rule, or to move away from the practice of not seeking a vote, although it remains unlikely that such proposals or initiatives will come to fruition in the foreseeable future.245 Also,

243  See, e.g., Rules of Procedure for Sessions of the MC, WT/​L/​161 (25 July 1996), Rule 16; Rules of Procedure for Meetings of the GC, WT/​L/​161 (25 July 1996), Rule 16. 244  For examples of rare exceptions, see: WT/​DSB/​M/​54 (20 April 1999), paras 26–​30 (the European Communities requested a vote on whether to overturn a ruling of the chair of the DSB in connection with the EC –​Bananas dispute, but the chair declined to call a vote); WT/​GC/​M/​40/​Add.4 (5 July 1999), para 10 (Egypt suggested that, in the absence of consensus, the Director-​General should be chosen by voting, but the chair preferred to continue searching for consensus); WT/​GC/​M/​6, paras 2–​5 (postal ballot for certain draft waivers and the draft decisions on the accession of Ecuador). 245  The Future of the WTO, Addressing Institutional Challenges in the New Millennium, Report by the Consultative Board to the Director-​General Supachai Panitchpakdi (Geneva: WTO, 2004) (the ‘Sutherland Report’).

International Trade Law Institutions    127 in practice, the consensus-​building process often has recourse to meetings among more restricted groups of Members, sometimes referred to as ‘green room’ meetings. Such meetings have had a controversial history. In the past, they have been perceived as restricted to a relatively few powerful and wealthy Members, to the exclusion of developing countries, which also lack the resources to fully participate. Today, such meetings are generally open to all Members and much more transparent.

8. Explicit consensus Finally, in certain circumstances, the Members have stated that ‘explicit consensus’ is required.246 There is uncertainty about what this means. Presumably, it means something different from what is provided for in the WTO Agreement, otherwise there would be no purpose in using different treaty language. On the other hand, presumably it does not mean a unanimous vote in favour by all Members: if that would have been the intent it would have been a straightforward matter to state that.247 The best view is that it probably means an affirmative statement in favour by all Members present at the relevant meeting or when voting by post.248

D. Interpretation: if no consensus, three-​fourths of Members The Ministerial Conference and General Council have exclusive authority to adopt interpretations of the WTO agreements, on the basis of a recommendation by any relevant council, by three-​fourths majority of the Members.249 In US –​Clove Cigarettes the Appellate Body opined that interpretations adopted pursuant to Article IX:2 of the WTO Agreement have pervasive legal effects and are binding on all Members.250 Such an interpretation must not be used to undermine the procedures for amendments, set out in Article X of the WTO Agreement. The procedure set out in Article IX:2 has never

246  Singapore Ministerial Declaration, WT/​MIN(96)/​DEC (18 December 1996), para 20 (for opening future negotiations on trade and investment, and trade and competition policy); Doha Ministerial Declaration, WT/​MIN(01)/​DEC/​1 (20 November 2001), paras 20, 23, 26 and 27 (for agreeing negotiating modalities for trade and investment, trade and competition policy, transparency in government procurement and trade facilitation). 247  Notably, Article X:2 of the WTO Agreement provides that certain amendments shall take effect only upon acceptance by all Members. 248  See Doha Work Programme, Decision Adopted by the General Council on 1 August 2004, WT/​ L/​579 (2 August 2004), para 1(g), stating that the General Council decides by ‘explicit consensus’ to commence negotiations on trade facilitation pursuant to the mandate provided in para 27 of the Doha Ministerial Declaration. 249  Article IX:2 of the WTO Agreement. Use of the term ‘exclusive’ would appear to mean that this power may not be assigned or delegated. 250  Appellate Body Report, US –​Clove Cigarettes, adopted 24 April 2012, paras 250 and 257.

128    James Flett and Mislav Mataija been explicitly used.251 As discussed above, the correct reading of Article IX:1 is that the consensus rule also applies to the adoption of authoritative interpretations.252 By contrast with the general rule in Article IX:1, it should be noted that the voting rule is three-​ fourths of Members, not three-​fourths of votes cast. In adopting an authoritative interpretation, and by contrast with the position of panels and the Appellate Body,253 the Members are not expressly enjoined by the treaty to follow the customary rules of interpretation of public international law, which it is generally accepted are codified, at least in part, in Articles 31–​33 of the Vienna Convention. On one view, this means that the Members could apply other rules of interpretation, or give different weight to specific elements of interpretation, such as preparatory work.254 Nevertheless, even if this would be correct, the more removed the proposed rules of interpretation would be from the customary rules of interpretation of public international law, the more difficult it might be to get the proposed interpretation adopted. Furthermore, it is not clear that such a view would sufficiently take into account the rule that the procedures must not be used to undermine the procedures for amendments. That rule must be given significance, even if it is of uncertain scope. The issue is important because an interpretation can be adopted by the Ministerial Conference or the General Council, but does not need to be accepted by Members. By contrast, amendments must generally be accepted by Members.255 One point that is clear is that an interpretation cannot contradict or conflict with the terms of the treaty as they are written. Furthermore, one may reasonably argue that, if a particular outcome could not be achieved in litigation through the application of the customary rules of interpretation of public international law, the only appropriate course of action in order to achieve such outcome would be an amendment. Therefore, using different rules of interpretation in the context of Article IX:2 to achieve the same objective would indeed undermine the rules on amendments. Hence, to give meaning to the rule that authoritative interpretations should not be used to undermine the rules on amendments, the better view may well be that such interpretations should

251 The Doha Ministerial Decision on Implementation-​ Related Concerns (WT/​ MIN(01)/​ 17 (20 November 2001)) contains interpretations of the WTO agreements. In US –​Clove Cigarettes, the Appellate Body ruled that paragraph 5.2 of the Doha Decision is not an authoritative interpretation within the meaning of Article IX:2 of the WTO Agreement because it was not based on a recommendation from the relevant Council (Appellate Body Report, US –​Clove Cigarettes, adopted 24 April 2012, para 255). For an example of a request for such an interpretation on which the General Council took no action, see WT/​GC/​W/​133 (25 January 1999) (relating to the so-​called sequencing issue). 252  The Appellate Body noted in US –​Clove Cigarettes that this specific issue was not raised in that appeal (Appellate Body Report, US –​Clove Cigarettes, adopted 24 April 2012, para 252). 253  Article 3.2 of the DSU. 254  For the contrary view, see A.H. Quershi, The World Trade Organization: Implementing Trade Norms (Manchester: Manchester University Press, 1996), at 7. 255  For the exceptions, see Articles X:6, X:8 and X:9 of the WTO Agreement.

International Trade Law Institutions    129 indeed be based on the customary rules of interpretation of public international law. In practice, given that, within the four corners of those rules, there is still significant room for reasonable people to disagree, the most likely approach is that a request for authoritative interpretation would not expressly state the interpretative rules on which it is based, but leave open the possibility that it might be based on Articles 31–​33 of the Vienna Convention. It has sometimes been argued that use of the term ‘exclusive’ in Article IX:2 of the WTO Agreement means that panels and the Appellate Body have no authority to make interpretations of the covered agreements. And yet, Article 3.2 of the DSU provides that the dispute settlement system serves to preserve the rights and obligations of Members under the covered agreements and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law. In addition, Article 3.9 of the DSU provides that the DSU is without prejudice to the rights of Members to seek authoritative interpretation of provisions of a covered agreement through decision-​making under the WTO Agreement. Article 3.9 of the DSU confirms both the potential for conflict between Article IX:2 of the WTO Agreement and Article 3.2 of the DSU, and the manner in which any such conflict would need to be resolved, namely, in favour of the authoritative interpretation. It should be noted that authoritative interpretations are binding on all Members, whereas the outcome of a dispute is binding only on the parties, there being no formal rule of precedent in WTO law. Furthermore, another way of tracing the line of distinction between Article IX:2 of the WTO Agreement and Article 3.2 of the DSU is that an interpretation pursuant to Article IX:2 of the WTO Agreement would be made in a manner detached from any particular fact and evidence pattern. Such an interpretation would rather be focused on resolving any apparent tensions between different treaty provisions in purely abstract terms. By contrast, in the context of Article 3.2, panels are engaged in the process of applying the law to a particular fact and evidence pattern. It is in the process of such an application that they construct reasoning that explains whether or not the measure at issue is inconsistent with the defendant’s WTO obligations and rights, and in doing so, to the extent necessary, clarify the meaning of the law. Although the distinction will always remain a problematic one, and may sometimes be difficult to discern, taken as a whole, these provisions nevertheless confirm that the focus of adjudication should be the resolution of a particular dispute through the application of the law to the facts, and not the clarification of the law for its own sake.

E. Waivers: if no consensus, three-​fourths of Members The Ministerial Conference (or the General Council in the intervening periods) may decide, exceptionally, to waive an obligation imposed on a Member by the WTO

130    James Flett and Mislav Mataija Agreement or any of the Multilateral Trade Agreements, after first seeking consensus, by three-​fourths majority of the Members.256 Waivers clearly have legal effects and can be relied upon in dispute settlement.257 On one reading, Article IX:3(a) refers to waivers from ‘this Agreement’ and foresees an attempt to reach consensus before voting; whilst Article IX:3(b) refers to waivers from the Multilateral Trade Agreements and neither it nor the chapeau of Article IX:3 envisages an attempt to reach consensus before voting.258 However, on another reading, the function of Article IX:3(b) is simply to engage the relevant subsidiary councils before a report is submitted to the Ministerial Conference (or the General Council in the intervening periods), following which Article IX:3(a) controls, because the Multilateral Trade Agreements are an integral part of the WTO Agreement.259 Furthermore, as explained above, the consensus rule, including as defined in footnote 1 to Article IX:1 of the WTO Agreement, applies in principle to all decision-​making. It is submitted that this latter reading is the better one. The General Council has agreed that, when dealing with waivers and accessions, the General Council will seek a decision in accordance with Article IX:1 (that is, by first seeking consensus), and only if this is not possible proceed to voting, ‘except as otherwise provided’.260 In proposing this statement, the Chairman of the General Council affirmed that it was merely a ‘clarification’ of the issue and did not change in any way the provisions of the WTO Agreement. As a matter of practice, all waiver decisions now follow the consensus procedure.261 According to Kuijper, this is a clear example of interpreting or de facto modifying the WTO Agreement without following either the procedure in Article IX:2 for authoritative interpretation or the procedure for amendment in Article X.262 In fact, what appears to have occurred is that the practice has changed and aligned with an interpretation of Article IX:3 suggested and facilitated (but not mandated) by the General Council decision, which is not itself an authoritative interpretation. This would not appear to be inconsistent with Articles IV:1, IV:2 or IX:1 of the WTO Agreement.

256  Article IX:3 of the WTO Agreement. See also Understanding in Respect of Waivers of Obligations Under GATT 1994. 257  See, e.g., Appellate Body Report, EC –​Bananas III, adopted 25 September 1997, paras 183-​188. For a more in-​depth discussion of the legal effects of waivers, see I. Feichtner, The Law and Politics of WTO Waivers (Cambridge: Cambridge University Press, 2012), at 169–​173. 258  Van den Bossche and Zdouc, above fn 1, at 149. 259  Article II:2 of the WTO Agreement. 260  General Council, Minutes of Meeting of 15 November 1995, WT/​GC/​M/​8 (13 December 1995), at 6; Decision-​Making Procedures Under IX and XII of the WTO Agreement, Statement by the Chairman, As agreed by the GC on 15 November 1995, WT/​L/​93 (24 November 1995). 261  For a more detailed discussion, see Feichtner, above fn 257), at 218–​220. 262  P.-​J. Kuijper, ‘Institutional Aspects’ in D. Bethlehem, D. McRae, R. Neufeld and I. Van Damme (eds), The Oxford Handbook of International Trade Law, 1st edition (Oxford: Oxford University Press, 2009), Chapter 5, at 96.

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F. Amendments: if no consensus, two-​thirds of Members (in principle), ratification The procedure for amendments is set out in Article X of the WTO Agreement. In sum, any Member or council may propose an amendment to the Ministerial Conference. The Members will first attempt, during a period of 90 days, to reach consensus. If consensus cannot be reached, the Members vote by two-​thirds majority. If the amendment is accepted, it must then be ratified by Members according to their municipal laws. Amendments to certain fundamental provisions must be ratified by all Members in order to take effect. Amendments to the DSU must be decided by consensus (voting is excluded), and take effect for all Members upon approval by the Ministerial Conference.263 Amendments to the TPRM are decided by consensus (meaning no Member present formally objects), failing which by voting, and take effect for all Members upon approval by the Ministerial Conference.264 The Ministerial Conference may decide by three-​fourths majority that certain amendments must be accepted by any Member wishing to remain in the organization. Modifications of schedules are governed by the special procedures in Article XXVIII of the GATT 1994 and are not subject to the formal amendment process provided for in Article X of the WTO Agreement.265 The General Council has decided to amended the TRIPS Agreement.266 It has also adopted the Protocol Amending the Marrakesh Agreement Establishing the World Trade Organization.267

G. Accessions: if no consensus, two-​thirds of Members Decisions on accession are taken by the Ministerial Conference, which must approve the accession by two-​thirds majority.268 However, the better reading of Article IX:1 is that the consensus rule applies to all decision-​making, including decision-​making on accession. Therefore, also with respect to accessions, first an attempt must be made to reach consensus, meaning no Member present formally objects, and only if this is not possible should voting be used. In practice, to-​date, all accessions have been agreed by consensus. Accession protocols are integral parts of the WTO Agreement, having full

263 

Article X:8 of the WTO Agreement, second sentence. The DSU has never been amended. Article X:8 of the WTO Agreement, third sentence. See, e.g., WT/​L/​1014 (27 July 2017) (amending the TPRM by reducing the periodicity of reviews by one year). 265  Appellate Body Reports, EC –​Bananas III (Article 21.5 Ecuador II) /​EC –​Bananas III (Article 21.5 –​ US), adopted 11 December 2008, paras 384–​385. 266  General Council, Amendment of the TRIPS Agreement, Decision of 6 December 2005, WT/​L/​641 (8 December 2005). 267  Agreement on Trade Facilitation, Ministerial Decision of 7 December 2013, WT/​MIN(13)/​36 –​ WT/​L/​911 (11 December 2013). 268  Article XII:1-​2 of the WTO Agreement. 264 

132    James Flett and Mislav Mataija legal effect, and can be enforced through dispute settlement.269 Whether or not Article XX of the GATT 1994 is available to justify violations of an accession protocol depends on the particular wording of the provisions of that protocol.270

H. Budget: two-​thirds majority comprising more than half the Members Article VII of the WTO Agreement, which concerns the budget, precedes Article IX, which is titled ‘Decision-​Making’. There are significant legal questions about the relationship between the two provisions. Article VII:1 requires the Director-​ General to ‘present’ an ‘estimate’ to the Budget Committee, which is then to make ‘recommendations thereon’ to the General Council. Whether or not such ‘recommendations’ are decisions is unclear. If they are, it would appear that the general rules apply by default: in making such recommendations, the Members in the Budget Committee must first seek consensus, failing which they should vote by a majority of the votes cast. In practice, to-​date, as in other areas, decisions have been taken by consensus. Article VII:1 further provides that the annual budget estimate is to be subject to approval by the GC. Article VII:3 provides that the GC shall adopt the annual budget estimate ‘by a two-​thirds majority comprising more than half the Members’. This rule implies that the two-​thirds majority refers to votes cast, as opposed to two thirds of all Members, because otherwise the subsequent reference to more than half the Members would be meaningless (given that two-​thirds is always more than half). A significant legal question is whether or not the consensus rule applies in this context. Although there is room for discussion on this matter, it is submitted that the better view is that the consensus rule applies generally, and there is no bar to it being also applied here. The consensus rule co-​exists with the rule on two-​thirds of votes cast in the same way that the consensus rule co-​exists with the rule on a majority of votes cast, as in Article IX:1. Furthermore, it co-​exists with the rule on ‘more than half ’ the Members in the same way that it co-​exists, for example, with the rules requiring a three-​fourths majority in provisions such as Article IX:2 and IX:3.

I. Rule 33 of the (CTG) Rules of Procedure: if no consensus, refer the matter up The rules of procedure of subsidiary bodies do not generally provide for voting on substantive issues. Rather, they typically provide that matters on which there is no 269  270 

Panel Reports, China –​Raw Materials, adopted 22 February 2012, paras 7.112–​7.115. Appellate Body Reports, China –​Rare Earths, adopted 29 August 2014, paras 5.22–​5.34.

International Trade Law Institutions    133 consensus may be referred to a higher body, and eventually the General Council and the Ministerial Conference.271

J. Decisions and actions of the DSB (the so-​called ‘reverse/​negative consensus’ rule) As discussed above, the first two sentences of Article IX:1 of the WTO Agreement, which provide for a decision by consensus and, where this is not possible, majority voting, are of general application. Hence they also apply to the DSB, except as otherwise provided. Decisions by the General Council when convened as the DSB may only be taken ‘in accordance with’ the provisions of Article 2.4 of the DSU,272 which states that when the rules and procedures of the DSU provide for the DSB to take a decision, it must do so by consensus.273 It is further specified that the DSB is deemed to have decided by consensus on a matter submitted for consideration if no Member present at the meeting formally objects.274 The DSU provides for the DSB to take a decision in six instances: a decision by consensus not to establish a panel;275 a decision by consensus not to adopt a panel report;276 a decision by consensus not to adopt an Appellate Body report;277 a decision by consensus not to place the issue of implementation on the DSB agenda absent resolution of the issue;278 a decision by consensus to reject a request to suspend concessions or other obligations made pursuant to Article 22(2) of the DSU;279 and a decision by consensus to reject a request to grant authorization to suspend concessions or other obligations following a decision by an arbitration panel.280 Thus, it is clear that, in each of these six instances of so-​called ‘negative consensus’ or ‘reverse consensus’, the specific DSU provisions control the relevant issue. However, it is important to be very clear about what the legal rules actually are and what actually occurs. When a DSB meeting is convened to consider, for example, an Appellate Body report, Article 17.14 of the DSU provides that the report shall be adopted by the DSB, unless the DSB decides by consensus not to adopt the report. For the DSB to decide by consensus not to adopt a report, one or more Members objecting to its adoption would have to propose a DSB decision by consensus to that effect. However, if one Member present formally objects (and normally the Member sponsoring the adoption of the report would be expected to object), then such proposal would be rejected. In this 271 

See, notably, CTG Rules of Procedure, WT/​L/​79 (7 August 1995), Rule 33. Fn 3 to Article IX:1 of the WTO Agreement. 273  Article 2.4 of the DSU. 274  Fn 1 to Article 2.4 of the DSU. 275  Article 6.1 of the DSU. 276  Article 16.4 of the DSU. 277  Article 17.14 of the DSU. 278  Article 21.6 of the DSU. 279  Article 22.6 of the DSU. 280  Article 22.7 of the DSU. 272 

134    James Flett and Mislav Mataija eventuality, the report is adopted automatically or by operation of law (ipso jure).281 This means that there is no DSB decision, but rather a DSB ‘action’ (the term used in Article 1.2 of the DSU) adopting the report, which is why the document subsequently circulated refers to a DSB ‘action’ not a DSB ‘decision’. It would not matter what the objecting Members would say or do, or for that matter what the Chair of the DSB or the Secretariat would say or do: absent a decision by consensus not to adopt the report it is adopted at that meeting automatically or by operation of law (ipso jure). The same logic must and indeed does apply to the adoption of any agenda item controlled by the so-​called ‘negative consensus’ procedure.282 As a matter of law, nothing in the DSB Rules of Procedure or, by extension, the GC Rules of Procedure, which are secondary WTO law, can be construed as overriding the provisions of the DSU, which constitutes primary WTO treaty law. In case of conflict, the DSU would prevail to the extent of the conflict. Accordingly, when the DSB Rules of Procedure provide for the approval of the agenda, the procedure for approving the agenda with respect to negative consensus items must also be construed as negative consensus. Such approval therefore also occurs ‘by operation of law (ipso jure)’ or ‘automatically’, and nothing said or done by others can prevent that.283 In the unlikely event that the Director-​General fails to comply with the obligation to convene a DSB meeting for the purposes of adopting the report,284 the Director-​General should be removed from office and the meeting convened by his or her replacement, whether permanent or temporary. The only situation in which a report will not be adopted is one in which no Member requests that the adoption of the report be placed on the DSB agenda (often, but not always, because the matter has been otherwise resolved).285 With these provisions in mind, it is important to note that, although Members often criticize panel or Appellate Body reports during a DSB meeting, it is extremely unusual for a Member to actually propose a decision by consensus not to adopt a report. Thus, there is usually nothing to which the sponsoring Member will be required to ‘formally object’. This is because Members well-​understand that

281 

Appellate Body Report, US –​Continued Suspension, adopted 14 November 2008, paras 310, 355 and 367; Appellate Body Report, US –​Large Civil Aircraft (2nd Complaint), adopted 23 March 2012, paras 524, 531, 532 and 549. 282  According to Rule 6 of the GC Rules of Procedure, WT/​ L/​161 (25 July 1996), the first item of business at each meeting is the consideration and approval of the agenda. 283  See WT/​DSB/​M/​54 (20 April 1999), paras 1-​10. In the context of EC –​Bananas III, and on the issue of sequencing, faced with a lack of consensus on approval of the agenda the meeting nevertheless went forward on the basis of the proposed agenda. 284  Rules of Procedure for Meetings of the General Council, Rule 2; Article 2.3 of the DSU. See also fn 5 to Article 6.1, fn 7 to Article 16.4, fn 8 to Article 17.14, fn 11 to Article 21.3 of the DSU. Compare Articles 22.2 and 22.7 of the DSU. 285  See, e.g., the following panel reports: EC –​Scallops (Canada); EC –​Scallops (Peru and Chile); EC –​ Bananas III (Article 21.5 –​EC); EC –​Butter; US –​DRAMS (Article 21.5 –​Korea); Japan –​Quotas on Laver; US –​Stainless Steel (Mexico) (Article 21.5 –​Mexico); Korea –​Bovine Meat (Canada); Mexico –​Additional Duties (US); US –​Steel and Aluminium Products (Canada); US –​Steel and Aluminium Products (Mexico); Canada –​Additional Duties.

International Trade Law Institutions    135 attempting to block the adoption of an Appellate Body report (for example) is futile as long as there is a sponsoring Member that would formally object. This means that, in practice, reports have been adopted by consensus,286 in the shadow of the negative consensus rule. Recently, the United States has expressed the view that it could unilaterally critique some procedural or substantive aspect of a report (such as its issuance after the 90-​day limit provided for in Article 17.5 of the DSU), thus rendering the applicable procedure consensus rather than negative consensus, thus allowing the United States to block the adoption of the report should it wish to do so.287 This proposition is clearly incorrect. Most recently, the United States actually sought to block the adoption of an Appellate Body report on such grounds, but the Chair of the DSB gavelled in any event, and rightly so.288 However, as indicated above, it would in fact make no difference what the Chair would do, since the report would be adopted in any event automatically, that is, by operation of law (ipso jure). An important legal issue is what procedure governs when the DSB acts other than in the context of the six negative consensus situations referred to above. The classic example of this would be the procedure for the appointment and reappointment of Appellate Body Members.289 It is sometimes assumed that the applicable procedure is consensus and that voting is excluded. However, this is not the way the treaties are written. As explained above, the general rule in Article IX:1 of the WTO Agreement refers to consensus (meaning no Member present formally objects), failing which majority voting, unless otherwise excluded. Such a decision by majority voting would be ‘in accordance’ with Article 2.4 of the DSU (as required by footnote 3 of the WTO Agreement) in the sense that it would not be out of accordance (or inconsistent) with that provision. Article 2.4 only applies where the DSU provides for the DSB to take a decision, but Article 17.2 of the DSU does not provide for the DSB to take a decision. It merely refers to appointment and re-​appointment. Thus, the procedures for appointment and re-​appointment of Appellate Body Members in fact align with those for appointment of the Director-​General (as a matter of law, consensus, meaning no Member present formally objects, failing which, majority voting). As a matter of practice, the period of time during which the search for consensus goes on is not curtailed, and no Member proposes a vote.

286  Footnote 1 of the DSU provides that: ‘The DSB shall be deemed to have decided by consensus on a matter submitted for its consideration, if no Member, present at the meeting of the DSB when the decision is taken, formally objects to the proposed decision.’ 287  See, e.g., DSB, Minutes of Meeting of 29 September 2017, WT/​DSB/​M/​402 (24 January 2018), point 5 (concerning the adoption of the Panel and Appellate Body Reports in EU –​Fatty Alcohols (Indonesia)). 288  DSB, Minutes of Meeting on 15 August 2019, WT/​DSB/​M/​433 (29 October 2019), paras 9.33-​35 (concerning the adoption of the Panel and Appellate Body Reports in US –​Countervailing Measures (China) (Article 21.5 –​China)). 289  Article 17.2 of the DSU.

136    James Flett and Mislav Mataija

IX.  Elements lacking in the WTO institutional structure and proposals for change As is often observed, the WTO institutional structure lacks an executive (non-​plenary) organ.290 Although the Director-​General and the Secretariat have an important informal role to play, they lack the powers to carry out the necessary functions. In particular, they lack the formal authority to set the agenda and formulate proposals that aim to reflect the interests of the Membership as a whole. As is also often observed, the WTO institutional structure makes no provision for a parliamentary organ. In recent years, a Parliamentary Conference of the WTO, convened under the auspices of the International Parliamentary Union, has met in parallel with the Ministerial Conference.291 However, it has no formal role in the WTO institutional structure. Civil society also has a relatively limited role to play in the WTO. Non-​governmental organizations do not have official observer status. Furthermore, for the time being, amicus curiae briefs have little if any formal or informal status in WTO dispute settlement. The 2004 Sutherland Report addressed these and many other institutional challenges facing the WTO in considerable detail.292 Its principal conclusions and recommendations may be summarized as follows: –​ The benefits and limitations of globalization are not sufficiently well-​understood by many constituencies and need to be explained. –​ Preferential trade agreements are seriously eroding the benefits of most favoured nation treatment and should be subject to meaningful review and effective disciplines. –​ The balance between loss of policy space and the advantages of cooperation and the rule of law is positive for all WTO Members. –​ The WTO should remain separate from other international organizations but continue to co-​operate closely with them and support trade policy related adjustments, with a view to coherence in global economic governance.

290  See,

eg, P.-​J. Kuijper, ‘Institutional Aspects’ in D. Bethlehem, D. McRae, R. Neufeld and I. Van Damme (eds), The Oxford Handbook of International Trade Law, 1st edition (Oxford: Oxford University Press, 2009), Chapter 5. 291  See < https://​www.ipu.org/​ > (last visited 1 October 2021). 292  The Future of the WTO, Addressing Institutional Challenges in the New Millennium, Report by the Consultative Board to the Director-​General Supachai Panitchpakdi (Geneva: WTO, 2004) (the ‘Sutherland Report’).

International Trade Law Institutions    137 –​ External transparency remains important, and is also the responsibility of Members. The WTO should continue to calibrate its relations with civil society, taking into account development objectives and available resources. –​ The dispute settlement system is a success that should not be diplomatically curtailed. A special expert group appointed by the DSB could provide measured criticism. Improvements could be made with respect to remand, panel selection, amicus curiae briefs, open hearings, compliance and compensation. –​ Members blocking consensus should be required to provide written reasons explaining why the matter is one of vital national interest. Greater use should be made of plurilateral agreements. –​ A Consultative Board of senior officials chaired by the Director-​General should be created, without executive powers. –​ The role of the Director-​General and the Secretariat, as the guardians of the WTO, should be strengthened. There is an extensive amount of academic literature devoted to these issues.293 For example, based on the Sutherland Report, Van den Bossche and Alexovicova have set out a comprehensive agenda for research into institutional reform of the WTO, covering: improvements to and alternatives for consensus decision-​making; transparency, democratic legitimacy and participation of civil society; secondary law-​making by WTO bodies; and an expanded role for the WTO Secretariat.294 Petersmann has argued for a long-​term perspective that would ensure that the world trading system will protect consumer welfare and citizens’ interests more effectively, with due regard for universal human rights and democratic self-​government.295 Steger has pleaded for a change in the culture of the WTO, which should move away from outdated mantras, including those identified by John Jackson, such as: the WTO is a government-​to-​ government organization; the WTO is a Member-​driven organization; WTO decisions are taken by consensus; national sovereignty must be preserved at all costs; the WTO is a single undertaking; with respect to the MFN principle, there should be no exceptions or reservations; negotiation rounds must always lead to early deliverables; the WTO is a contract from which Members may withdraw at any time; the WTO is about reciprocal concessions, not compliance with the rules; the exclusive purpose of the WTO is trade liberalization; and rule change can only take place through negotiating rounds.296 Cottier has proposed the creation of a Consultative Committee and a Standing Committee on Legal Affairs to consider the relationship between negotiation

293 

See also Chapter 2 of this Handbook. Van den Bossche and I. Alexovicova, ‘Effective Global Economic Governance by the World Trade Organization’ 8(3) Journal of International Economic Law (2005) 667–​690. 295  E.-​U. Petersmann, ‘Addressing Institutional Challenges in the WTO in the New Millennium: A Longer-​Term Perspective’ 8(3) Journal of International Economic Law (2005) 647–​665. 296  D.P. Steger, ‘The Culture of the WTO: Why it Needs to Change’ 10(3) Journal of International Economic Law (2007) 483–​495. 294  P.

138    James Flett and Mislav Mataija rounds and current work; the balance of negotiations and dispute settlement; the role of the Secretariat; the structure and process of decision-​making; the use of variable geometry; alternatives to special and differential treatment; technical assistance and capacity building; the relationship with other international law and organizations; the relationship with domestic law; the relationship with business and civil society; the relationship with national parliaments; and the role of academia.297 However, at the time of writing, there is little prospect of any of these proposals coming to fruition in the foreseeable future. The Trump administration’s blocking of further Appellate Body appointments has also given rise to a number of proposals for change.298 Notably, in an effort to engage with the concerns expressed by the Trump administration, several Members have made specific proposals for improvements.299 However, at present, these are also unlikely to be fruitful. At the DSB meeting on 29 July 2020, 120 Members supported the proposal to immediately launch the selection procedure for appointments to the Appellate Body, a level of support that is unprecedented in the history of the GATT and the WTO. In addition, 52 Members are participating in the Multi-​Party Interim Appeal Arbitration Arrangement (MPIA) pursuant to Article 25 of the DSU, which preserves, as between the participating Members, the possibility of appellate review and final resolution based on the same rules and procedures governing appellate review pursuant to Articles 16.4 and 17 of the DSU.300 The 10 Appeal Arbitrators and Members of the Pool were notified to the DSB on 31 July 2020.301 They are presently in the process of organizing themselves so as to ensure compliance with all of the requirements of the MPIA. 297 T. Cottier, ‘Preparing for Structural Reform in the WTO’ 10(3) Journal of International Economic Law (2007) 497–​508. For further contributions to the debate, see E. Bohne, The World Trade Organization, Institutional Development and Reform (London: Palgrave Macmillan, 2010); D.P. Steger (ed), Redesigning the World Trade Organization for the Twenty-​First Century (Waterloo: Wilfred Laurier University Press, 2009); C. Deere-​Birkbeck and C. Monagle, Strengthening Multilateralism: A Mapping of Proposals on WTO Reform and Global Trade Convergence (Geneva: International Centre for Trade and Sustainable Development, 2009); R. Meléndez-​Ortiz, C. Bellmann and M. Rodriguez Mendoza, The Future and the WTO: Confronting the Challenges, Part IV, Institutional Reform of the WTO (Geneva: International Centre for Trade and Sustainable Development, 2012); M. Elsig, The Functioning of the WTO: Options for Reform and Enhanced Performance (Geneva: International Centre for Trade and Sustainable Development, 2016). 298  G. Sacerdoti, ‘The WTO in 2018: Systemic Developments, Disputes and Review of the Appellate Body’s Reports’ (22 May 2019), Bocconi Legal Studies Research Paper No. 3392194; E.-​U. Petersmann, ‘How Should WTO Members React to Their WTO Governance and WTO Appellate Body Crisis?’ European University Institute, 2018. 299  See, notably, General Council, Communication from the European Union, China, Canada, India, Norway, New Zealand, Switzerland, Australia, Republic of Korea, Iceland, Singapore and Mexico, WT/​ GC/​W/​752/​Rev.1 (10 December 2018); and General Council, Communication from the European Union, China and India, WT/​GC/​W/​753/​Rev.1 (11 December 2018). With respect to the so-​called Walker Process (Informal Matters Related to the Functioning of the Appellate Body), see General Council, JOB/​GC/​215 (1 March 2019); JOB/​GC/​217 (8 May 2019); JOB/​GC/​220 (25 July 2019); JOB/​GC/​222 (15 October 2019); and JOB/​GC/​225 (9 December 2019). 300  JOB/​DSB/​1/​Add. 12 (30 April 2020) (and Suppl. 1-​4 and 6-​7). 301  JOB/​DSB/​1/​Add. 12/​Suppl. 5 (3 August 2020).

International Trade Law Institutions    139

X.  The current institutional crisis at the WTO: causes and resolution As explained, the key institutional relationship in the WTO is between the legislature in its various guises, on the one hand, and the judiciary, on the other hand. It is this relationship that stands at the core of the current institutional crisis at the WTO and that will define its future. In this section, we briefly explain the allegations advanced by the Trump administration. We also explain what, in our view, is institutionally required, in order to prevent the WTO in future being held hostage to cyclical dysfunctions in the domestic politics of any powerful Member. The Trump administration and its stakeholders would never have signed the WTO Agreement with its provisions on mandatory and binding dispute settlement. Many of the relevant individuals might even have wished the United States to withdraw entirely from the WTO but were unable to achieve this for domestic political reasons. A decision was therefore taken to neutralize mandatory and binding dispute settlement by opposing appointments to the Appellate Body. The situation was exacerbated by the early resignation of the Director-​General. The actions of the Trump administration were not in the interests of the United States or the other Members. However, no WTO Member has yet called a vote on the issue of Appellate Body appointments. The US objections to the functioning of the dispute settlement system were blended with a narrative about China because there is a significant overlap with stakeholders who would also never have agreed to China’s accession. That narrative was that Chinese state-​capitalism is unfair and the WTO is unable to apprehend it. The narrative did not seriously consider the possibility that, to the extent that there is an issue with Chinese state-​ capitalism, it would be rational to use all available tools to address it, including the WTO. Blended into this mix was also a narrative about trade remedies adjudication, particularly, for example, on the issues of zeroing and public bodies, and a closely related narrative about alleged judicial ‘activism’ by the Appellate Body. These aspects of the narrative represented the views of a narrow group of stakeholders who are unable or unwilling to understand the nature of WTO adjudication or accept specific outcomes with which they disagree. Given the remarkable diversity of WTO Members and the complexity of the issues that the WTO Agreement seeks to govern, significant ambiguity at the margins was unavoidable. Such ambiguity is said to be ‘constructive’ because it allows an agreement to be concluded even though there is no consensus ad idem between dominant domestic constituencies in different Members. The only reason why such ambiguity is not ‘destructive’ is because the parties simultaneously agree to mandatory and binding dispute settlement. Domestic executives are used to enjoying a certain margin of discretion, that is, deference from the courts in the interpretation and application of domestic legislation, including in areas such as trade defence. However, there is no WTO executive. WTO panels and the Appellate Body are engaged in a different kind of law: multilateral,

140    James Flett and Mislav Mataija constitutional, treaty law. They are performing a function similar to the function of the Court of Justice of the European Union when it interprets EU regulations in a manner that must be the same throughout the European Union, or the function of the US Supreme Court when it resolves conflicting lower judgments. The reference to ‘permissible interpretation’ in Article 17.6(ii) of the Anti-​Dumping Agreement is a specific instance of this problem. In sum, whilst domestic courts may rule on what is ‘permissible’, WTO adjudicators rule on what is the best understanding of the law; and there is no doubt that this difference has led to different expectations and significant tension. That is not to say that there is no policy space in WTO law. In what is arguably the most important part of WTO law, namely regulatory law, there is considerable policy space. Whilst in dubio mitius is not a general principle of public international law and is ill-​suited to the multilateral WTO system, the fact remains that, in WTO law, Members choose their own legitimate policy objectives and set their own levels of protection, and there is no general proportionality rule, in which trade effects are set-​off against legitimate policy objectives: only a more limited necessity test. Thus, while there is no explicit ‘discretion’, there are certainly a number of safeguards protecting Members’ policy space. In general, these safeguards have been taken seriously by the dispute settlement system and the Appellate Body. A judgment that would consist only of the terms of the treaty, the terms of the measure, and a declaration of inconsistency (or not) would not be a judgment at all. For something to even be an adjudication it must include the ‘basic rationale’302 or ‘the bridge of reason’. This also follows from basic requirements of due process and the rule of law. It is essential in order to permit the litigants to understand why a particular conclusion has been reached and why it may be said to be objective.303 The parties only consent to be judged because they will be given the reasons for the judgment. Without such reasons, it would be impossible to ensure that the agreements are interpreted and applied in a non-​ discriminatory way, and impossible to achieve the basic objective of security and predictability.304 The bridge of reason consists of inferring one or more propositions from two premises. It may be constructed deductively, from the general to the specific, from the law to the facts; or inductively, from the specific to the general, from the facts to the law. Political discourse about judicial pronouncements is incomplete and unbalanced if it uses only one of the four relevant metrics (judicial ‘activism’). The other relevant metrics are the judicial error of ‘default’ and the judicial virtues of ‘engagement’ and ‘restraint’.305 To critique all bridges of reason as judicial activism is to negate the judicial function completely, which seems, in a nutshell, to have been the (unstated) objective behind the actions of the Trump administration.

302 

Article 12.7 of the DSU. Article 11 of the DSU. 304  Article 3.2 of the DSU. 305 J.H. Jackson, The World Trade Organization, Constitution and Jurisprudence (London: Royal Institute of International Affairs, 1998), at 91. 303 

International Trade Law Institutions    141 As a simple matter of logic, in all multi-​level judicial systems, the controlling court must have the capacity to control the lower entity, including with respect to the bridge of reason (which is why legal characterizations of fact are legal matters susceptible to appeal), as well as, in exceptional circumstances, the establishment of the facts themselves (which is why appeals also lie, exceptionally, on the basis of Article 11 of the DSU). Otherwise, the lower court would have the means to unilaterally avoid scrutiny by the higher court. Relatedly, the meaning of municipal law is not a fact (it is fundamentally nonsensical to conflate meaning and fact), this being a proposition that is also aimed at frustrating or obstructing appellate review. The existence and content of a municipal law document (such as a judgement) opining that the measure at issue has a certain meaning is a fact; but when a panel adopts it as its own it takes the first step along the bridge of reason, constructed inductively. To criticize the Appellate Body on these grounds is, again, to criticize appellate review as such. The Appellate Body must confine itself to resolving the dispute before it. It must not stray outside its terms of reference. It must only clarify or interpret the terms of the treaty that directly frame the relevant obligation or right. It must not clarify or interpret context, which is merely a tool for clarifying or interpreting the relevant terms of the treaty. It should assimilate the proposition that frequently all if not most of a dispute is about how the law is applied to the facts (as opposed to how the law is interpreted) and begin and end its analysis with that in mind. There is no binding system of precedent in WTO dispute settlement, only a reasonable expectation of consistency, and a reasonable expectation that first instance judges properly understand their position and role within the system as a whole. To criticize the Appellate Body for acting consistently with its own case law and expecting panels to do the same is, again, to criticize the notion of consistency and the notion of a dispute settlement system, and a binding body of law, as opposed to ad hoc dispute resolution. If the Appellate Body fails to comply with the 90-​day time period in Article 17.5 of the DSU, this does not prevent the adoption of the report automatically or by operation of law (ipso jure). It does mean that the WTO (to whom the breach is attributable) may have breached its internal rules vis-​à-​vis Members. Whether or not that is the case and what the consequences are may fall to be determined according to the applicable rules of general public international law.306 Certainly, the legal consequence of surpassing the 90-​day deadline cannot reasonably be to consider the Appellate Body itself as acting unlawfully, and its reports as not being true Appellate Body reports. Rule 15 of the Working Procedures for Appellate Review is a standard provision in all courts. It is immaterial that it is in the Working Procedures rather than the DSU. It has been accepted by all Members, including the United States, and functioned extremely well for years. Exceptionally, the two (huge) aircraft cases involved a significant 306 

See Draft Articles on Responsibility of States for Internationally Wrongful Acts 2001, Text adopted by the International Law Commission at its fifty-​third session, in 2001, and submitted to the General Assembly (A/​56/​10), particularly Article 10.2 (breach of any international obligation that may arise for an international organization towards its members under the rules of the organization) and Chapter V (circumstances precluding wrongfulness).

142    James Flett and Mislav Mataija time period in the operation of the rule. All other delays were engineered by the Trump administration’s blocking of further Appellate Body appointments. Unless the Members are prepared to vote (if necessary, by secret and/​or postal ballot) for the appointment of new Appellate Body Members, the only agenda-​setting option they have is to use the Multi-​Party Interim Appeal Arbitration Arrangement under Article 25 of the DSU to continue appellate review. This will also maintain the existing institutional structures in place. If the system is to protect itself from the inevitable cycles of domestic politics in powerful Members it needs to construct a direct channel of communication between WTO adjudicators and municipal judges. This has been the key factor in the successful evolution of the European Union. It can be done on the basis of Article XVI:4 of the WTO Agreement. It should not involve imposition, but at the very least, in ‘as such’ cases, credit should be given to those Members that allow direct effect or have a functioning interpretation in conformity rule. Specifically, in ‘as such’ cases, the WTO adjudicator is often called upon to compare two normative rules expressed in relatively abstract terms: the WTO rule and the municipal rule. Where these rules are simply different it can be difficult to determine whether the municipal rule is consistent or inconsistent with the WTO rule, since the consistency of ‘as applied’ measures may depend upon how discretion or ambiguity in the municipal rule is construed when that rule is applied. For Members that do not provide for direct effect or interpretation in conformity, this can result in the repeated inconsistent application of the rule. Since WTO remedies are ‘prospective’ only, a complaining Member can find itself locked in an endless game of ‘cat and mouse’. In this situation, at some point it becomes reasonable to resolve the matter ‘as such’ at the level of the municipal rule. By contrast, for Members that allow direct effect or require interpretation in conformity, municipal judges should be called upon to construe the municipal rule consistently with WTO law, including as it has been clarified by the Appellate Body. This should provide a domestic law solution to the problem, thus meaning that the municipal law itself should not be found to be WTO inconsistent ‘as such’.

XI.  Institutional aspects of other trade agreements This section will examine the institutional framework of trade agreements outside the WTO framework, other than dispute settlement institutions. As a starting point, it is impossible to provide anything close to a comprehensive picture of the institutional set-​up across the universe of trade agreements (including bilateral FTAs, regional agreements, international organizations focused on trade, agreements such the European Union’s association agreements which go beyond trade issues etc.). The nature of the topic does not lend itself to generalizations. While one can classify and ‘code’ large numbers of trade agreements based on their substantive content (e.g. whether or not they contain ‘disciplines’ on certain issues), their institutional structure tends to be at least somewhat

International Trade Law Institutions    143 sui generis and difficult to compare without a fine-​grain analysis that is difficult to do for a large number of cases. This may explain the relative lack of scholarship dealing with the institutional aspects of trade agreements beyond dispute settlement. For these reasons, and due to the lack of space, this chapter will take a relatively modest approach. It will survey the provisions of several recent bilateral and plurilateral trade agreements including major trading countries (including the EU-​ Canada Comprehensive Economic and Trade Agreement (CETA), the EU-​Japan Economic Partnership Agreement, the US-​Korea Free Trade Agreement (KORUS), United States-​ Mexico-​Canada Agreement (USMCA), the Comprehensive and Progressive Agreement for Trans-​Pacific Partnership (CPTPP)), as well as (regional) trade agreements that set up more extensive institutional structures, in the context of regional economic organizations (including MERCOSUR, the Caribbean Community (CARICOM), the African Continental Free Trade Area (AfCFTA), Eurasian Economic Union (EAEU), Association of Southeast Asian Nations (ASEAN) and others). This ‘sample’ (if one can call it that) is admittedly small, but it does cover some of the most important recent trade agreements. On the basis of a sketch of the institutional aspects of these agreements, this section will attempt to draw some general conclusions about the types of institutional structures that trade agreements include, and how these differences correspond to the different types of agreements. It will be argued that, broadly speaking, modern trade agreements fall into one of two distinct groups or models: that of a standard FTA, which is comparable to the WTO model of committees, and that of a regional economic organization, which may include additional features such as an executive body or a supranational court. We also touch upon certain horizontal institutional questions, notably membership and decision-​making.

A. Overview To date, relatively little has been written on the institutional set-​up of trade agreements, especially in comparison with the extensive literature, and even database resources,307 studying their substantive aspects and dispute settlement questions.308 307  A. Dür, L. Baccini and M. Elsig, ‘The Design of International Trade Agreements: Introducing a New Dataset’ 9(3) The Review of International Organizations (2014), 353–​375; T. Allee and M. Elsig, ‘Dispute Settlement Provisions in PTAs: New Data and New Concepts’ in A. Dür and M. Elsig (eds), Trade Cooperation: The Purpose, Design and Effects of Preferential Trade Agreements (Cambridge: Cambridge University Press, 2015). 308  Two recent cases in point are the edited collections S. Lester, B. Mercurio, and L. Bartels (eds), Bilateral and Regional Trade Agreements: Case Studies (Cambridge: Cambridge University Press, 2015); R. Acharya (ed), Regional Trade Agreements and the Multilateral Trading System (Cambridge: Cambridge University Press, 2016). Putting dispute settlement to one side, neither of these volumes specifically addresses the institutional set-​up of trade agreements, and the authors of individual chapters touch upon the topic only tangentially (see, e.g., the chapters by C. Brown and J. Record, ‘EU-​Korea Free Trade Agreement’, and H. Gao, ‘China-​New Zealand Free Trade Agreement’ in S. Lester, B. Mercurio and L. Bartels (eds), Bilateral and Regional Trade Agreements: Case Studies (Cambridge: Cambridge University Press, 2015)).

144    James Flett and Mislav Mataija The literature frequently approaches the ‘institutional’ aspects of trade agreements in a rather broad sense. Thus, Duina and Morano-​Foadi describe ‘institutionalization’ as a concept encompassing a ‘rich body of law. . . clearly articulated and permanent principles for the resolution of disputes . . . decision-​making and decision-​monitoring organs charged with significant mandates, a body of judicial decisions that grows over time, rules setting out supranational mechanisms (and organizations) for governance, and established networks of actors (interest groups, lobbyists, etc.) outside the formal structure of RTAs lobbying and interacting in formal and informal (but established) ways with the official bodies and actors of RTAs.’309 On that metric, they conclude that, over time, trade agreements ‘by and large appear to move from less to more institutionalization’.310 Importantly, however, they include in their analysis both regional trade agreements such as NAFTA and those in the framework of a more elaborate international organization, such as the African Union or MERCOSUR. Relying on a similarly broad understanding of ‘institutionalization’ (strength and independence of secretariats, the degree of ‘legalization’ etc), a number of studies have looked at the link between economic interdependence and institutionalization. While the link between the two is more ambiguous than it might intuitively seem, Haftel suggests that there is indeed a positive link, as long as one takes into account not just the stated objectives of the agreements but the level of their implementation.311 This would suggest that higher levels of economic integration tend to go hand in hand with a more developed institutional structure. There is, of course, a chicken and egg question there: is the institutionalization driving the integration, or vice versa? A more elaborate and innovative institutional structure goes hand in hand not just with the level of trade and investment between the contracting parties, but also with the complexity of the substantive issues covered by the agreement. As Stoll explains, the issues covered by ‘advanced PTAs and mega-​regionals’ increasingly require the parties to set up a sort of dialogue, or procedures to take binding decisions. For similar reasons, they provide for broader involvement of civil society and non-​governmental actors.312 It has also been suggested that the increasing institutional ‘depth’ of an FTA is linked to the rise of international production networks, especially when developing countries are involved, and the need to manage the associated externalities.313 In a nutshell, a ‘deep’ FTA is not just a tool for eliminating trade barriers, but a mechanism 309 F.

Duina and S. Morano-​ Foadi, ‘Introduction: The Institutionalisation of Regional Trade Agreements Worldwide: New Dynamics and Future Scenarios’ 17(5) European Law Journal (2011) 561–​ 567, at 563. 310  Ibid., at 566. 311  Y.Z. Haftel, ‘Commerce and institutions: Trade, Scope, and the Design of Regional Economic Organizations’, 8 Review of International Organizations (2013) 389–​414, at 409. 312  P.-​T. Stoll, ‘Mega-​Regionals: Challenges, Opportunities and Research Questions’ in T. Rensmann (ed), Mega-​Regional Trade Agreements (Berlin: Springer, 2017) Section 3.5. 313  WTO, World Trade Report 2011, The WTO and preferential trade agreements: From co-​existence to coherence, at 111–​112.

International Trade Law Institutions    145 enabling the governance of international production. From that point of view, it seems clear why a more complex institutional structure might be needed for the FTA itself. Thus, unlike traditional FTAs which focus on the elimination of tariffs, modern FTAs might be better described as an incomplete contract requiring an institutional structure for further development or elaboration, as well as for enabling transparency and non-​State participation. Nevertheless, in the case of ‘standard’ FTAs, those structures rarely rise to the level of supranationalism, their ability to legislate is limited, and they are almost without exception based on contracting party consensus. Furthermore, like the WTO, they lack centralized enforcement.314 Indeed, some of the seemingly most effective powers of the organs set up by such agreements are designed not to enable them to act independently or to adapt the agreement to new conditions, but to re-​ assert contracting party control. The best example of this is the power to issue authoritative interpretations.315 Another oft-​debated question is the relationship between the proliferating FTAs and their accompanying institutional models and the WTO, or multilateralism more broadly. Trommer describes this as a contrast between the ‘thin’ institutionalism of FTAs (forum for exchanging pre-​determined preferences, based on consensus) and the ‘thick’ institutionalism of the WTO (a permanent institutional structure with repeat interactions, permanent central organs, a seat and a secretariat, which not just enables cooperation but, over time, shapes the preferences of the participants).316 Compared to the WTO, the ‘thin institutionalism’ and fragmentation of multiple FTAs is less transparent, and more difficult for smaller countries and civil society to effectively participate in.317 Linked to the theoretical point that, over time, ‘the proliferation of institutions leads global governance back towards more power-​based forms’,318 Trommer suggests that the lack of permanent institutional support may make the ‘adjudication of international trade disputes under PTA dispute settlement . . . return to a more diplomatic, rather than judicial format.’319 Looking into the nuts and bolts of the institutional set-​up of trade agreements reveals, however, significant diversity. Apart from the many differences between every single one of the hundreds of trade agreements currently in force, there are distinct families or groups of trade agreements. The differences between them are quite pronounced when it comes to institutional issues. 314 A.

de Mestral and L. Vanhonnaeker, ‘Exception Clauses in Mega-​ Regionals (International Investment Protection and Trade Agreements)’ in T. Rensmann (ed), Mega-​Regional Trade Agreements (Berlin: Springer, 2017), at 116–​117. 315 Compare, with respect to investment disciplines, S.W. Schill and H.L. Bray, ‘The Brave New (American) World of International Investment Law: Substantive Investment Protection Standards in Mega-​Regionals’ in T. Rensmann (ed), Mega-​Regional Trade Agreements (Berlin: Springer, 2017), Section 3.3. 316  S. Trommer, ‘The WTO in an Era of Preferential Trade Agreements: Thick and Thin Institutions in Global Trade Governance’ 16(3) World Trade Review (2017) 501, at 504–​505. 317  Ibid., at 504–​506 and 512. 318  Ibid., at 504. 319  Ibid., at 514.

146    James Flett and Mislav Mataija Baccini, Dür and Haftel, for example, speak of three groups: narrow and shallow agreements, focussing on trade in goods and tariff elimination; the ‘EU model’ (meaning: agreements setting up an internal market comparable to the EU), which is used by more deeply integrated regional economic organizations; and the more popular ‘NAFTA model’ which goes much further than ‘narrow and shallow agreements’ but focusses on rules rather than institutions.320 While a distinction should be drawn between FTAs and regional economic organizations, the specific categories outlined by Baccini, Dür, and Haftel are not fully representative of the landscape. For example, it is a stretch to describe the numerous modern FTAs concluded by, basically, all large trading countries as following the model of NAFTA. Nevertheless, despite the numerous differences, there are sufficient parallels in the institutional set-​up of most recent ‘deep’ FTAs to treat them as a single group. This group, interestingly, includes some plurilateral agreements, such as the CPTPP. This chapter does not focus on the institutional set-​up of what has been termed by Baccini, Dür, and Haftel, and others,321 as ‘shallow’ agreements, focussing on tariff reduction and other border measures. It can be safely assumed, at least, that the institutional set-​up of such agreements does not reach the complexity of ‘deep’ FTAs. For example, an agreement that does not touch upon TBT, SPS or IP issues would certainly not need as many (or any) specialized committees and would have less need of procedures for the adoption of secondary law. A second main model is that of a regional economic organization. Unlike Baccini, Dür, and Haftel, we do not necessarily describe this as the ‘EU model’, any more than we would describe the first as the ‘NAFTA model’. It is doubtless true that certain elements of the institutional set-​up of the European Union itself influenced other organizations, like CARICOM or MERCOSUR. But even those REOs having to some extent followed such EU models are vastly different from the European Union itself. In fact, given the breadth and depth of integration within the European Union in areas going far beyond trade, we do not propose to even look at the European Union itself in this context.322 Finally, a number of agreements do not neatly fit in either of the two models described above. One example are the European Union’s association agreements, which are bilateral treaties going beyond trade, but with most of their enforceable provisions focused 320 

A. Dür, L. Baccini, and Y.Z. Haftel, ‘Imitation and Innovation in International Governance: The Diffusion of Trade Agreement Design’ in A. Dür and M. Elsig (eds), Trade Cooperation: The Purpose, Design and Effects of Preferential Trade Agreements (Cambridge: Cambridge University Press, 2015). Horn, Mavroidis, and Sapir similarly argue that US FTAs contain more enforceable rules in a narrower set of areas, compared to EU FTAs. H. Horn, P.C. Mavroidis and A Sapir, ‘EU and US Preferential Trade Agreements: Deepening or Widening of WTO commitments’ in K.W. Bagwell and P.C. Mavroidis (eds), Preferential Trade Agreement: A Law and Economic Analysis (Cambridge: Cambridge University Press, 2011) 150–​172. 321  WTO World Trade Report 2011, above fn 316, at 110. 322  See further Chapter 11 of this handbook.

International Trade Law Institutions    147 on trade and competition issues. Compared to standard FTAs, those agreements foresee a simpler but somewhat stronger centralized institutional structure.323

B. The FTA model For all the differences between them, the rough outlines of the institutional set-​up of modern FTAs are similar. Bearing some resemblance to the WTO, FTAs (including, for example, recent US and EU FTAs) typically set up a joint committee, a number of specialized committees focused on particular topics, and other subordinate organs such as working groups. The decision-​making rule tends to be consensus. Typically, there is no centralized enforcement, and there is no permanent secretariat.

1. Joint committees A fairly typical feature of the institutional set-​up of FTAs is a joint committee. This is the central, and hierarchically superior body set up by an FTA. It has a horizontal role, not limited to particular subject-​matter. It tends to be composed of an equal number of representatives of the contracting parties, and chaired by their respective ministers (or equivalent), either together or on a rotating basis.324 One would expect the presiding ministers to be those in charge of trade, but some agreements leave this question somewhat open.325 An interesting feature of USMCA is a sort of variable geometry in the composition of its Free Trade Commission: when deciding on, interpreting or modifying a USMCA provision that applies between only two of the parties, the Commission is itself composed of representatives of those parties.326 The joint committee is typically in charge of overseeing the implementation of the agreement. It also supervises the specialized committees and other bodies set up by the agreement. To some extent, it may even have a legislative role: it is empowered to adopt decisions that are binding on the parties (on the basis of mutual consent).327 In KORUS, by contrast, there is no explicit provision of a general nature allowing the joint committee to take binding decisions. Rather, such powers must be found in specific provisions of the agreement, or in one of the other specific powers given to the joint committee, such as ‘considering ways to further enhance trade relations between the Parties’ or ‘seeking to resolve disputes that may arise regarding the interpretation or application of this Agreement’.

323  Baccini, Dür, and Haftel, above fn 323, nevertheless place them in the same category as regional economic organizations. 324  Article 26.1 of CETA; Article 22.1 of the EU-​Japan FTA. 325  For example, EU-​Japan refers to ministerial-​level representatives ‘responsible for matters under this Agreement’. One could imagine, for example, the ministers of environment being in charge of an environmental question, or ministers of health discussing an SPS question, and thus chairing a meeting of the joint committee devoted to such a topic. 326  Article 30.2.3 of the USCMA. 327  Article 26.3 of CETA; Article 22.2 of the EU-​Japan FTA.

148    James Flett and Mislav Mataija A joint committee may have the ability to consider or even adopt certain amendments to the agreement.328 Furthermore, it tends to be authorized to adopt authoritative interpretations of the agreement, binding on the adjudicators of trade and investment disputes. The joint committees tend to have a rather broad discretion in determining their rules of procedure, which presumably extends also to their composition. In CETA, for example, there are no specific provisions on the composition of the joint committee, other than that it shall comprise representatives of both parties and be co-​chaired by their trade ministers or their ‘designees’.329 Some of the powers of joint committees are phrased rather broadly, which may in practice be either far-​reaching or a dead letter. Thus, the CETA Joint Committee shall ‘consider any matter of interest relating to an area covered by this Agreement’ (Article 26.1.4) and may ‘communicate with all interested parties including private sector and civil society organisations’, ‘study the development of trade between the Parties and consider ways to further enhance trade relations between the Parties’ (Article 26.1.5), or ‘make appropriate recommendations’ (Article 26.3.2). In the EU-​Japan FTA, the joint committee ‘shall seek to solve problems that may arise under this Agreement or resolve disputes that may arise regarding the interpretation or application of this Agreement’ (Article 22.1.4) and can ‘take any other action in the exercise of its functions as the Parties may agree’ (Article 22.1.5). In KORUS, the joint committee may ‘consider any other matter that may affect the operation of this Agreement’ (Article 22.2) or ‘develop arrangements for implementing this Agreement’.330 The relationship between the joint committee and the specialized committees is somewhat comparable to the relationship between the WTO General Council and the WTO specialized councils, or to that between the Council for Trade in Goods and subsidiary committees and bodies. Apart from overseeing their work, the joint committees may delegate responsibilities to them, but also take over the tasks assigned to them by the agreement, change those tasks or even dissolve those bodies or create new ones.331 The broad roles of the joint committee are limited by the fact that it is not a standing body. Typically, joint committees only meet once per year, if they meet at all, bar urgency or requests for more frequent meetings. Interestingly, the role of a joint-​committee-​like body in recent plurilateral FTAs like USMCA and TPCPP is largely similar. There is still a body, perhaps named differently (e.g., Trans-​Pacific Partnership Commission in the case of the CPTPP, or the Free Trade Commission in the case of USMCA) with broad supervisory, interpretative, and decision-​making powers (including, notably, the power to decide on certain

328 

Article 26.1.5 of CETA; Article 22.2 of KORUS. Article 26.1.1 of CETA. 330  See also Article 27-​2.2 of the CPTPP. 331  Article 26.1.5 of CETA; Article 22.1.5 of the EU-​Japan FTA. 329 

International Trade Law Institutions    149 amendments332 and to issue authoritative interpretations) on a wide range of issues affecting the agreement, composed of ministerial or similar representatives of each party, chaired on the basis of rotation, and deciding by consensus.

2. Specialized committees, working groups and contact points Mirroring the WTO at least to some extent, modern trade agreements envisage a large number of specialized committees, which tend to be subordinate to the joint committee, not just in their daily functioning but also in their very set-​up and in the definition of their tasks. A sub-​set of these committees corresponds quite closely to the WTO institutional set-​ up. Thus, trade agreements variously foresee committees in charge of: –​ trade in goods; –​ services and investment; –​ SPS issues; –​ TBT issues; –​ agriculture; –​ customs cooperation, rules of origin, trade facilitation (USMCA); –​ mutual recognition of professional qualifications; –​ financial services; –​ government procurement; –​ intellectual property; –​ trade remedies (KORUS); –​ temporary entry for business persons (CPTPP); –​ telecoms (CPTPP). Beyond these most classic topics, certain FTAs envisage committees in charge of:





–​ regulatory cooperation; –​ civil society (CETA); –​ trade and sustainable development; –​ geographical indications; –​ investment; –​ e-​commerce; –​ textile and apparel (KORUS); –​ medicines and medical devices (KORUS); –​ labour (KORUS, CPTPP); –​ environmental affairs council (KORUS), committee (CPTPP); –​ fisheries (KORUS);

332 

CPTPP lists expressly the issues subject to such amendment in Articles 27-​2.2. See also Article 30.2 of the USMCA.

150    James Flett and Mislav Mataija

–​ SOEs (CPTPP); –​ cooperation and capacity building (CPTPP); –​ competitiveness and business facilitation, development, SMEs, regulatory coherence (CPTPP); etc. Neither of these lists is exhaustive, and there is quite a lot of diversity, but it can be generally concluded that most modern FTAs have a large number of specialized committees, on a range of issues that goes beyond the WTO framework. Typically, specialized committees do not have independent decision-​making powers. Instead, they are authorized to recommend certain decisions, or even amendments to the agreement if they appear necessary in light of the experience with its operation,333 to the joint committee. In addition, their task is to consider or discuss certain topics (in this respect, their powers tend to be worded rather broadly)334 and to monitor the implementation of particular chapters of the agreements. They may also set up ad hoc working groups on particular issues.335 In this sense, the role of specialized committees is relatively consistent and harmonized, both within and across the various individual agreements. Compared to the WTO context, the particular committees are less ‘sui generis’ because they are put in place at the same time, through a single agreement. The decision-​making rule for specialized committees tends to be the same as for the joint committee, i.e. consensus or a variation of consensus (CETA, for example, uses the terms ‘mutual consent’). KORUS, for example, provides that ‘all decisions of the Joint Committee and all committees, working groups, and other bodies established under this Agreement shall be taken by consensus of the Parties’.336 Like the joint committee, those bodies typically meet once per year, or more frequently as required. Specialized committees can be set up at several levels. Thus, in CETA, the Committee on Agriculture is subordinate to the Committee on Trade in Goods, and Joint Committee on Mutual Recognition of Professional Qualifications reports to the Committee on Services and Investment.337 Compared to the WTO framework, there tends to be more innovation in the design of these bodies when they are in charge of WTO +​areas, at least superficially. Examples of this are bodies in charge of regulatory cooperation or sustainable development. On regulatory cooperation, provision is usually made for a body (for instance, the ‘Regulatory Cooperation Forum’ in CETA) to not only discuss general 333 See, e.g., Article 7.13.2(c) of the EU-​ Japan FTA: ‘reviewing this Chapter in light of any developments under the WTO Committee on Technical Barriers to Trade established under Article 13 of the TBT Agreement, and if necessary, developing recommendations for amendments to this Chapter.’ 334  See, e.g., Article 2.14 of KORUS: The Committee on Trade in Goods may ‘consider any matter arising under’ several chapters of the agreement, ‘address tariff and non-​tariff barriers to trade in goods’ and refer them to the Joint Committee. 335  For example, Article 6.15.2 (e) of the EU-​Japan FTA. 336  Article 22.1.7 of KORUS; see also Article 22.3.3 of the EU-​Japan FTA. 337  Article 26.2.1 of CETA.

International Trade Law Institutions    151 regulatory issues, but to reach out to national regulators, or to review specific regulatory initiatives of a party.338 Nevertheless, the CETA Regulatory Cooperation Forum still falls squarely within the definition of a specialized committee and does not have independent decision-​making powers. In US trade agreements, there typically is no specialized body in charge of regulatory cooperation.339 As Steger reports, however, certain FTAs have taken the institutional design of regulatory cooperation further. Thus, the Australia—​New Zealand Closer Economic Relations Trade Agreement envisages ‘joint accreditation and harmonization systems, establishment of joint regulatory agencies, and mutual recognition arrangements covering both occupational qualifications and product standards’.340 In other areas, the CETA Civil Society Forum is innovative in its composition, grouping civil society representatives in order to ‘conduct a dialogue’ on the sustainable development aspects of the agreement.341 On labour issues, some recent FTAs set up committees or mechanisms for cooperation, which are in some cases somewhat de-​ coupled from ‘trade and’ issues but rather focus directly on labour matters, including respect for the ILO Declaration and ILO Convention, fundamental rights, prohibition of child labour and so on. The work of such committees seems to be more open to the stakeholders and the public at large than that of the other specialized committees.342 The same is true of committees devoted to environmental issues.343 Apart from specialized committees, trade agreements frequently envisage the operation of working groups. While similar in their set-​up and powers, working groups are typically in charge of more discrete topics, such as a particular sector. Thus, in the EU-​ Japan FTA there are working groups on wine and motor vehicles and parts. Working groups are typically subordinate to one of the specialized committees or to the joint committee. Indeed, ad hoc working groups can be set up on any subject matter under the auspices of certain specialized committees (typical examples are the TBT and SPS Committees). A frequent feature of FTAs are contact points, within the national administrations of the parties, in charge of certain defined tasks within specific chapters or for the agreement as a whole. For example, CETA envisages ‘CETA contact points’ for each party, which act as a sort of decentralized secretariat: their task is to monitor the work of all of the bodies set up by the agreement, coordinate the preparations for

338 

Article 21.6 of CETA. NAFTA (and still today), the United States had separately set up two ‘regulatory cooperation councils’ with Canada and Mexico. 340  D.P. Steger, ‘Institutions for Regulatory Cooperation in New Generation Economic and Trade Agreements’ 39 Legal Issues of Economic Integration (2012) 109, at 114. 341  Article 22.5 of CETA. Similarly, see the ‘Joint Dialogue with civil society’ in Article 16.16 of the EU-​ Japan FTA. See also the discussion of the EU –​Korea FTA in Brown and Record, above fn 308, p. 53. 342  Annex 19-​A to KORUS. The CPTPP provides for a Labour Council, the powers of which are rather more vaguely described, and its work is less open to external stakeholders, apart from the possibility of liaising with ‘relevant regional and international organisations, such as the ILO and APEC’ (19.12). 343  Article 20.6 of KORUS. See also Gao, above fn 308, at 92. 339 During

152    James Flett and Mislav Mataija committee meetings and follow up on joint committee decisions, as well as to facilitate communications between the parties.344 As mentioned before, FTAs do not typically have a permanent secretariat. One notable exception is the USMCA, which provides for a secretariat to be established by the Free Trade Commission (the USMCA’s take on a joint committee), with mostly supportive and administrative tasks. Still, compared to the WTO, this secretariat is hobbled by the fact that it has separate national sections, with separate offices in the territories of the parties, responsible for its own operation and costs, and with separate leadership.345 Thus, in effect, the difference between the USMCA Secretariat and the contact points envisaged in CETA is smaller than it may superficially appear. The European Union’s development-​oriented Economic Partnership Agreements, while resembling a standard FTA, contain some institutional specificities. For example, the EU-​CARIFORUM EPA provides for a Trade and Development Committee, with relatively extensive powers (including overall responsibility for the implementation of the agreement and its further elaboration, resolving certain disputes etc.), as well as a Parliamentary Committee, a forum for members of the parties’ legislatures to exchange views.346

3. Regional economic organizations The second model is that of an international organization, or regional organization, set up to address trade issues, at least to a significant extent. This has sometimes been referred to in the literature as ‘regional economic organizations’ or REOs. While we have decided not to address the European Union itself as an example of this model347—​given the complexity and scope of its legal system and its institutions, going far beyond trade issues—​there is no escaping the fact that many organizations in this group have been, at least to some extent, modelled on the European Union. Thus, for example, REOs tend to have one or more bodies made up of heads of state or high-​ level officials, loosely comparable to the European Council and the Council of the EU (‘Council of Ministers’). Several REOs have courts modelled on the Court of Justice of the European Union, including with respect to the various types of jurisdiction and powers.348 Departing from the FTA model, and disregarding the various substantive differences from the FTA model, organizations like the Eurasian Economic Union, CARICOM, ASEAN, MERCOSUR, the Andean Community or the African Continental Free Trade Area (AfCFTA) have several of the following institutional features: 344  Article

26.5 of CETA; see also Article 22.6 of the EU-​Japan FTA; somewhat less ambitiously, Article 22.1 of KORUS; Article 27.5 of the CPTPP. 345  Article 30.4 of the USMCA. 346  Articles 230-​231 of the EU-​CARIFORUM EPA. 347  See Chapter 11 of this handbook. 348  K.J. Alter and L.R. Helfer, Transplanting International Courts: The Law and Politics of the Andean Tribunal of Justice (Oxford: Oxford University Press, 2017) studies the Andean Tribunal of Justice from this point of view.

International Trade Law Institutions    153 –​ Legal personality, as well as the ability to conclude treaties in their own right;349 –​ At least one permanent body composed of heads of State or other high-​level officials, whose task is to provide political guidance and take decisions on matters concerning the agreement (although this is not always precisely defined). In many cases, there is more than one high-​level political body. For example, in CARICOM the Conference of Heads of Government must be distinguished from the Community Council (composed of ministers for CARICOM affairs). Likewise, in the case of ASEAN, there is the ASEAN Summit (heads of state) and the ASEAN Coordinating Council (ministers of trade). In the Eurasian Economic Union, a distinction should be made between the Supreme Council (heads of state) and the Intergovernmental Council (prime ministers); in addition, within the Eurasian Economic Commission, there is the Council of the Eurasian Economic Commission (deputy prime ministers) and the Board, composed of appointees to the Commission itself. MERCOSUR’s Council of the Common Market is composed of foreign affairs and economy ministers, with a rotating presidency. –​ A parliamentary body or assembly. This feature is by no means universal. Among the exceptions are MERCOSUR, with its parliament (PARLASUR), and the Andean Parliament, one of the institutions of the Andean Community. –​ A permanent court or arbitration mechanism.350 Unlike in a typical FTA, this court tends at least on paper to be more than simply a ‘dispute settlement’ mechanism (whether State-​to-​State or even individual-​State) limited to settling disputes in the interpretation and application of the treaty itself. Instead, the court is in some sense integrated into the domestic legal systems of the parties. For example, appeals may lie to that court from domestic jurisdictions,351 something like a preliminary reference or advisory opinion jurisdiction may be possible,352 and the decisions of such a court may have direct legal effects within the domestic legal orders of the parties. Moreover, it is common for such a court to exercise judicial review over the decisions taken by the other institutions.353







349 Article

228 of the Revised Treaty of Chaguaramas Establishing the Caribbean Community Including the CARICOM Single Market And Economy. See, similarly, Article 3 of the ASEAN Charter; Article 34 of the Additional Protocol to the Treaty of Asunción on the Institutional Structure of MERCOSUR, Protocol of Ouro Preto (1994). 350  MERCOSUR’s Permanent Review Court, while composed of permanent arbitrators, has a rather wide jurisdiction beyond State-​to-​State disputes, extending to claims by individuals as well as advisory opinions (Protocol of Olivos for the Settlement of Disputes in MERCOSUR). 351  This is true, in some instances, for the Caribbean Court of Justice (Article XXV of the Agreement Establishing the Caribbean Court of Justice). 352  The EAEU Court is, for example, authorized to deliver ‘clarifications’ on the request of EAEU bodies or Member States. Articles 45 and 46 of the Statute of the Court of the Eurasian Economic Union. 353 The EAEU Court, for example, may hear challenges to decisions of the Eurasian Economic Commission, or for failure to act (Statute, Article 39/​2). The same is true in the case of the Andean Community Court of Justice (Article 19 of the Treaty Creating the Court of Justice of the Cartagena Agreement (Amended by the Cochabamba Protocol)). Private litigants may also be parties before

154    James Flett and Mislav Mataija –​ A permanent secretariat or similar body, possibly headed by a Secretary General. –​ A central executive body in charge of implementing the agreement(s), although the effectiveness and methods vary greatly. For example, the CARICOM Bureau merely ‘assists’ the heads of government in reaching decisions and ‘facilitates’ implementation. By contrast, the Eurasian Economic Commission is described as a ‘permanent supranational regulatory body’. ASEAN foresees three ‘Community Councils’, including a ‘Community Economic Council’ which, together with subordinate ‘Sectoral Ministerial Bodies’ is in charge of implementing the agreements and decisions of the ASEAN Summit. MERCOSUR’s Common Market Group is explicitly defined as the ‘executive organ of the common market’354 which monitors compliance with the Treaty, enforces decisions taken by the Council, and has the power of initiative. Nevertheless, it is not a truly supranational body, as its members represent ministries and central banks of the parties. The Andean Community Commission is an example of a body with wide-​ranging executive powers; it is nevertheless also composed of the representatives of member State governments.355



As this already shows, there is significant diversity in this group, more so than among standard FTAs. This is in large part due to the diversity of issues dealt with by these organizations, and their higher level of political ambition which is not necessarily (only) focussed on trade issues. It should also be kept in mind that, as with all other features of the agreements, the proof of the pudding is in the eating. Thus, the fact that certain bodies and institutions appear significant on paper does not necessarily mean that the same will occur in practice, whether more generally or on trade issues. In some cases, the institutional set-​up is a mix between the FTA model and the REO model. For example, the AfCFTA has some features of a REO (an assembly of heads of state, a council of trade ministers, a permanent secretariat), but also has a WTO-​like structure of specialized committees and bodies, including a Dispute Settlement Body. Interestingly, specialized committees are essentially absent from most other REOs. Presumably, centralized executive bodies or secretariats are meant to take over the role played by specialized committees in the WTO or an FTA. Nevertheless, from a purely trade perspective one might raise the question if the type of discussion that takes place in a WTO or FTA specialized committee, such as a TBT or SPS committee, can truly be replicated in a generalist body, especially from the point of view of technical expertise. Special mention should be made of the European Union’s stabilization and association agreements, typically concluded with neighbouring third countries in the run-​up to their accession to the European Union. They contain among other things a strong set the Caribbean Court of Justice (Article XXIV of the Agreement Establishing the Caribbean Court of Justice), but under a more complex set of conditions. 354  Article 13 of the Treaty Establishing a Common Market between the Argentine Republic, the Federal Republic of Brazil, the Republic of Paraguay and the Eastern Republic of Uruguay (Treaty of Asunción). 355  Article 21 of the Andean Subregional Integration Agreement (Cartagena Agreement).

International Trade Law Institutions    155 of disciplines on trade, including common-​market type provisions on free movement of services, capital, and persons as well as provisions on competition. Institutionally, the central element of these agreements is a Stabilisation and Association Council, comparable to an FTA joint committee, composed of members of the Council of the European Union and the European Commission, on the one hand, and representatives of the third country, on the other. The SAC is authorized to take binding decisions in various areas covered by the agreement, which the parties are required to implement; to create subcommittees; as well as to resolve disputes between the parties.356 In addition, SAAs set up a joint parliamentary committee for exchanging views among legislators.357 However, probably the most important institutional aspect of SAAs is not obvious from their text: the role of EU law, and therefore of EU institutions, notably the Court of Justice of the European Union. SAAs universally contain an obligation for the third country to progressively align its legal system with that of the European Union, and in some cases (typically, competition, and state aid) to apply its own laws consistently with ‘interpretative instruments’ adopted by the EU institutions, which includes the case law of the Court of Justice of the European Union and decisions of the European Commission.358 Thus, one could argue that the EU institutions themselves form a crucial part of the institutional machinery of an SAA, and this certainly extends to trade issues as well.

C. Horizontal questions 1. Membership The question of membership depends very much on the type of agreement. A bilateral FTA, as a rule, does not envisage any other country joining. Plurilateral FTAs, on the other hand, may do so, but even in those cases the circle of States eligible to accede to plurilateral FTAs is geographically or otherwise restricted. Thus, the CPTPP allows for the accession of Asia-​Pacific Economic Cooperation (APEC) members, and other States or separate customs territories ‘as the Parties may agree’. The accession procedure takes its cue from the WTO rules: based on a request, a working party is formed, and conditions may be imposed on the acceding State. A relevant difference from the WTO

356  See,

e.g., Articles 115-​120 and 128 of the Stabilisation and Association Agreement between the European Union and Bosnia and Herzegovina (SAA BiH). 357  Article 121 of the SAA BiH. 358  For example, see Articles 70 (imposing a general obligation to ‘endeavour to ensure that its existing laws and future legislation will be gradually made compatible with the Community acquis’) and 71(2) of SAA BiH (concerning ‘interpretative instruments’ in the area of competition). For some examples of sector-​specific harmonization clauses in trade-​related areas, see Articles 59 (1) (transport), 76 (b) (consumer protection), 77 (labour), and 79 (personal data). For a discussion, see M. Mataija, ‘The Unfulfilled Potential of Stabilisation and Association Agreements Before SEE Courts’ in S. Rodin and T. Perišin (eds), Judicial Application of International Law in Southeast Europe (Berlin: Springer, 2015).

156    James Flett and Mislav Mataija process is that the accession must be ratified by each of the CPTPP parties domestically, i.e., there is no majority decision.359 Unsurprisingly, REOs universally provide for the possibility of accession of new members, which tends however to be restricted, for example on a geographical basis or on the basis of membership in other organizations.360 The decision-​making rule for approving new accessions tends to be consensus.361 There is, however, significant diversity on the exact procedure, and on the involvement of various bodies. Thus, the revised Treaty of Chaguaramas (CARICOM) authorizes the Conference of Heads of Government to decide on the accession of new members. While there is no specific rule on matters of accession, it appears that the general decision-​making rule for Conference decisions is three quarters of the membership.362 The Cartagena Agreement opens the possibility of any Latin American country to ‘adhere’, and simply provides that the ‘Commission shall define the terms of adherence’ in light of the Agreement’s objectives.363

2. Decision-​making The joint committees of FTAs tend to take decisions by ‘mutual consent’ or ‘consensus’. Usually, this is not further defined. Presumably, in bilateral FTAs it is envisaged that affirmative acceptance of a proposal will be given by both parties. Ambiguity remains, however, with respect to particular committees. For example, one can ask the question what ‘mutual consent’ means in the context of the CETA Joint Committee, which is composed of several representatives of both parties. The CETA Joint Committee Rules of Procedure do not shed much light on the matter, beyond reaffirming the mutual consent rule; however, it appears that the intention is that the two parties must accept each decision, with their members of the Joint Committee acting as a sort of delegation.364 In some cases, notably in plurilateral FTAs, it appears that something like the WTO definition applies. Thus, the CPTPP provides that ‘the Commission or any subsidiary body shall be deemed to have taken a decision by consensus if no Party present at any meeting when a decision is taken objects to the proposed decision’.365 For other instances, however, the same agreement explains that ‘agreement of all Parties’ is required—​but even then, provision is made for a sort of tacit consent within five days of consideration by the Commission (Article 27.3). In REOs, the question of decision-​making tends to get rather more complicated and case specific. 359 

Article 30.4 of the CPTPP. Article 20 of the Treaty of Asunción. AfCFTA is restricted to Member States of the African Union. It simply provides that it is open for signature and ratification or accession by those States, in accordance with their respective constitutional procedures (Article 22(1) of the Agreement Establishing the African Continental Free Trade Area). 361  Article 20 of the Treaty of Asunción. 362  Articles 28 and 238 of the Treaty of Chaguaramas (CARICOM). 363  Article 133 of the Cartagena Agreement. 364  Rule 10.4 of the Rules of Procedure thus provides that each decision will be signed by the co-​chairs. 365  Article 27.3. Similarly, see Article 30.3 of the USMCA. 360 

International Trade Law Institutions    157 It is common for the decision-​making rule to be consensus. However, there are examples of majority voting in certain bodies of REOs. One example is the AfCFTA, which requires consensus for substantive issues in all of its institutions (with a mechanism of cascading up to hierarchically superior bodies in case consensus cannot be achieved, which does not however explicitly state that in the final instance a decision can be made by majority), but majority voting is the rule for procedural issues.366 In CARICOM, a number of decisions, even beyond procedural ones, may be reached by various kinds of majority voting.367 In the Andean Community, which has a more complex institutional structure, the decision-​making rule depends on the specific body, but there are examples of both consensus and majority requirements.368 In MERCOSUR, by contrast, the decisions of all organs must be taken by consensus and in the presence of all State parties.369 In the EAEU, only one body (the Board of the Eurasian Economic Commission) adopts certain decisions by qualified majority, but it appears that this possibility is heavily restricted, such that all politically sensitive issues revert to the Council of the Eurasian Economic Commission, which decides by consensus.370 In some cases, the relevant provisions appear to be deliberately vague. Thus, the ASEAN Charter provides for ‘consultation and consensus’ as a basic principle but allows the ASEAN Summit to decide how a specific decision can be made where consensus cannot be achieved (obviously begging the question how the Summit makes that decision); moreover, these rules can be overridden by any one of the numerous legal instruments agreed within the framework of ASEAN.371

XII. Conclusion This chapter has looked at the institutional structure of, first, the WTO and, second, various recent trade agreements. With respect to both, the importance of institutions should not be underestimated. The complexities of modern trade, going far beyond the 366 

Article 14 of the Agreement Establishing the African Continental Free Trade Area. Interestingly, classifying a question as procedural or substantive is also to be decided by simply majority. An interesting question, which we are not well placed to answer, is whether the question of which is the appropriate decision-​making rule for the hierarchically highest body, the Assembly, in case a consensus cannot be reached, is itself procedural or substantive. 367  Articles 27-​ 29 of the Revised Treaty of Chaguaramas Establishing the Caribbean Community Including the CARICOM Single Market And Economy. 368  See, e.g., the contrast in the Cartagena Agreement between the Andean Commission, which in principle decides ‘by affirmative vote of the absolute majority of the Member Countries’ (Article 26), and the Andean Council of Foreign Ministers, which adopts decisions by consensus (Article 17). 369  Article 37 of the Protocol of Ouro Preto, Additional Protocol to the Treaty of Asunción on the Institutional Structure of MERCOSUR. 370  R. Dragneva and K. Wolczuk, ‘The Eurasian Economic Union: Deals, Rules and the Exercise of Power’, Research Paper Russia and Eurasia Programme, Chatham House, May 2017, at 13–​14. 371  Article 20 of the ASEAN Charter.

158    James Flett and Mislav Mataija mutual reduction of tariffs, require active rule making, monitoring, and enforcement. This, in turn, requires appropriate and effective institutional mechanisms. Ensuring that such institutions are effective is, however, a tall order, especially where consensus is the dominant decision-​making rule, which is the case both in the WTO system and for most FTAs. The complexity goes further than that. For example, the WTO consensus rule is often misunderstood. In FTAs, references to consensus or ‘mutual consent’ tend to be insufficiently elaborated in the context of committees with multiple members representing a single contracting party. In our analysis of the WTO, we conclude that the many proposals for making its institutional set-​up more effective are unlikely to come to fruition, or even be seriously debated, in the near future. Instead, we focus our analysis on the intersection of the ‘judicial’ and the ‘legislative’ function of the WTO, brought into sharp relief by the current dispute settlement crisis. In this respect, two particular points stand out. First, if institutional structures and procedures are to remain effective and properly protected from inappropriate exogenous influences more must be done to embed them and ensure proper adherence to what the rules actually say, as opposed to just paying lip service to them. Responsibility for this, as a matter of institutional culture, lies in the first place with the Director-​General, but by extension other management and indeed all employees. Second, serious consideration must be given to provisions of the relevant international laws that address the relationship between the relevant international law and the municipal law of the contracting parties. Even if direct effect and/​or interpretation in conformity are not imposed by the relevant international law, their existence as a matter of municipal law should be considered relevant to questions of whether municipal law is consistent with the relevant international law. In the context of FTAs, the institutional debate is rather undeveloped. In many cases, it remains to be seen how the institutional mechanisms will develop. In this chapter, we have examined two main types of FTA institutional structures: the ‘standard’ FTA model, which follows to a significant extent the WTO template (albeit with important individual differences), and the ‘regional economic organization’ model, which ventures into supranationalism, with varying degrees of effectiveness.

Further reading W.J. Davey, ‘Institutional Framework’ in P.F.J. Macrory, A.E. Appleton and M.G. Plummer (eds), The World Trade Organization, Legal, Economic and Political Analysis, Vol 1 (Berlin: Springer, 2005), 51–​87 F. Duina and S. Morano-​Foadi, ‘Introduction: The Institutionalisation of Regional Trade Agreements Worldwide: New Dynamics and Future Scenarios’ 17(5) European Law Journal (2011) 561–​567 A. Dür, L. Baccini, and Y.Z. Haftel, ‘Imitation and Innovation in International Governance: The Diffusion of Trade Agreement Design’ in A. Dür and M. Elsig (eds), Trade Cooperation: The Purpose, Design and Effects of Preferential Trade Agreements (Cambridge: Cambridge University Press, 2015), 167–​194

International Trade Law Institutions    159 M. Elsig, The Functioning of the WTO: Options for Reform and Enhanced Performance (Geneva: International Centre for Trade and Sustainable Development, 2016) D.P. Steger (ed), Redesigning the World Trade Organization for the Twenty-​first Century (Waterloo: Wilfred Laurier University Press, 2010) The Future of the WTO, Addressing Institutional Challenges in the New Millennium, Report by the Consultative Board to the Director-​General Supachai Panitchpakdi (Geneva: World Trade Organization, 2004) P.-​J. Kuijper, ‘Institutional Aspects’ in D. Bethlehem, D. McRae, R. Neufeld and I. Van Damme (eds), The Oxford Handbook of International Trade Law, 1st edition (Oxford: Oxford University Press, 2009), Chapter 5, 79–​128 E.-​U. Petersmann, ‘How Should WTO Members React to Their WTO Governance and WTO Appellate Body Crisis?’ (European University Institute, 2018) S. Trommer, ‘The WTO in an era of preferential trade agreements: Thick and thin institutions in global trade governance’ 16(3) World Trade Review (2017) 501–​526

Chapter 6

The Influ e nc e of In ternationa l T ra de L aw on Internati ona l L aw James Crawford and Freya Baetens *

I. II.

Introduction International trade law before ‘other’ international courts and tribunals A. International trade law before the World Court B. International trade law before Investor-State arbitral tribunals C. International trade law before regional human rights courts III. Expanding the limited influence of trade law on international law A. Explaining the limited influence of trade law on international law B. Gaining from international trade law’s experiences I V. Conclusion

160 161 162 170 174 176 176 182 189

I. Introduction International trade law is a subset of the larger field of international law. While Chapter 4 showed that this larger field exerts a considerable influence on international trade law, the present chapter will demonstrate that this influence is not unidirectional.1 *  The authors wish to thank the editors of this book for their feedback, as well as Rose Cameron and Niall Moran for their research assistance. This work was partly supported by the Research Council of Norway through its Centres of Excellence funding scheme (project number 223274) and the FRIPRO Young Research Talents (project number 274946). 1  See, e.g., J. Pauwelyn, ‘The Role of Public International Law in the WTO: How Far Can We Go’ 95 American Journal of International Law (2001) 535, at 538; Articles on Responsibility of States for Internationally Wrongful Acts (ARSIWA), with commentaries, [2001]-​II(2) Yearbook of the International

The Influence of International Trade Law on International Law    161 Commercial import and export treaties go back centuries.2 Later treaties of friendship, cooperation and navigation (FCN), popular until the late 1960s, provided States with ‘a framework for the cross-​border trade of their citizens’.3 The current international trade law system, with the WTO at its centre, grew out of post-​World War II efforts to prioritize economic and social stability, starting with the establishment of the United Nations’ Economic and Social Council.4 The effect of international trade law on international law as examined in the present chapter is, however, not limited to the WTO covered agreements but includes also bilateral and multilateral preferential trade agreements.5 This chapter discusses, first, to what extent international trade law has played a part in the development of international law through the lens of international adjudication (in other words, how ‘other’ international courts and tribunals have dealt with trade law); and second, why the influence of trade law on other fields of international law appears to have been limited and what international law might gain from international trade law’s experiences.6

II.  International trade law before ‘other’ international courts and tribunals This section considers the influence of international trade law on judgments and separate opinions at the PCIJ and its successor, the ICJ. It also looks at the impact of Law Commission 31, at 140, para 3; Appellate Body Report, US –​Gasoline, adopted 20 May 1996, at 17; D. McRae, ‘The Traditional Relationship Between International Trade Law and International Law’ 260 Recueil des cours (1996) 109, at 119 citing G. Schwarzenberger, ‘The Principles and Standards of International Economic Law’ 87 Recueil des cours (1966). 117. 2  P. Lamy, The Place of the WTO and its Law in the International Legal Order’ 17 European Journal of International Law (2007) 969, at 969, in relation to a fourteenth century commercial treaty relating to customs duties for Cypriot traders; see also McRae, above fn 1, at 114: FCN treaties are ‘among the earliest treaties entered into by States’. 3  McRae, above fn 1, at 159. 4  P.-​ T. Stoll, ‘World Trade Organization’ in R. Wolfrum (ed), Max Planck Encyclopedia of Public International Law (Oxford: Oxford University Press, 2014) at para 1. Institutional links between trade law and the UN remain, in particular between the WTO, the Economic and Social Council (ECOSOC), and United Nations Conference on Trade and Development (UNCTAD). See also Arrangements for effective cooperation with other intergovernmental organizations, Relations between the WTO and the United Nations, WT/​GC/​W/​10 (3 November 1995). 5  For the purpose of the present chapter, the influence of EU law is not discussed due to its special object and purpose. See further Chapter 11 of this handbook. 6  For the complex relationship between the CJEU and the WTO see, e.g., M. Mendez, ‘The GATT and WTO Before the EU Courts: Judicial Avoidance Techniques or a Case Apart?’ in M. Mendez (ed), The Legal Effects of EU Agreements (Oxford: Oxford University Press, 2013) 174–​249; M. Zhang, ‘Shall We Talk? Judicial Communication between the CJEU and WTO Dispute Settlement’ 28(1) European Journal of International Law (2017) 273–​293; T. Soave, ‘European Legal Culture and the WTO Dispute Settlement: Thirty Years of Socio-​Legal Transplants from Brussels to Geneva’ 19(1) The Law and Practice of International Courts and Tribunals (2020) 129.

162    James Crawford and Freya Baetens international trade law on other areas of international law, such as investment law and human rights law.

A. International trade law before the World Court The World Court does not decide cases in a legal vacuum and some judges have been well-​versed in international trade law.7 Yet, there is scant reference to trade law in general in the PCIJ’s and ICJ’s jurisprudence. The ICJ has been equally parsimonious in its reference to the jurisprudence of the WTO dispute settlement body in particular. Nevertheless, both the ICJ and PCIJ have dealt with disputes involving some aspect of trade law.

1. Too early to influence: trade before the PCIJ Oscar Chinn, heard by the PCIJ in 1934, concerned two transport operators on the River Congo (in present-​day Democratic Republic of the Congo, then a Belgian colony). The operators were Unatra, a majority State-​owned enterprise of Belgium, and Oscar Chinn, a British subject. In 1930–​31, the Belgian Government decided to reduce rates for certain items transported on the river and to compensate only certain government-​ run enterprises for any losses, in effect only offering compensation to Unatra.8 The United Kingdom asked the Court to adjudge that the measures taken by the Belgian Government were in conflict with the Convention of Saint-​Germain-​en-​Laye and customary international law.9 In particular, contrary to the Convention, Belgium had created a de facto monopoly for Unatra, in breach of freedom of trade (Article 2) and navigation (Article 5), and had thereby infringed the ‘complete commercial equality’ between nationals of the parties guaranteed by Article 1.10 In relation to customary international law, the United Kingdom relied on an asserted requirement that Belgium ‘respect the vested rights of foreigners’ in another State’s territory.11 The Court took a strict view of what would infringe freedom of trade as protected by the Convention. A ‘concentration of business’ would only be an infringement ‘if commerce is prohibited by the concession of a right precluding the exercise of the same

7 Certain judges have held important positions within the international trade legal system: e.g. Judge ad hoc Georges Abi-​ Saab (former chairperson of the WTO’s Appellate Body); Judge Yuji Iwasawa (Member of a WTO Permanent Group of Experts and author of the leading Japanese WTO law textbook); Judge Shi Jiuyong authored《普遍优惠制度与国际贸易》 (‘The Generalized System of Preferences and International Trade’) and《香港与关税和贸易总协定》 (‘Hong Kong and the General Agreement on Tariffs and Trade’); Judge Patrick Robinson (representative on the United Nations Commission on International Trade Law (UNCITRAL)); President Abdulqawi Yusuf (Representative and Head of the New York office of UNCTAD). 8  Oscar Chinn (United Kingdom v. Belgium) (1934) PCIJ Ser. A/​B, No. 63, at 75. 9  Ibid., at 65. 10  Ibid., at 83 and 86. 11  Ibid., at 81.

The Influence of International Trade Law on International Law    163 right by others’.12 The Court paid much attention to the ‘motive and aim’ of Belgium’s actions, noting that Belgium had intended to ‘assist trade during a period of depression’.13 The Court also took into account that Chinn would have been aware of the ‘existence of competition’ for trade on the Congo river when he began trading, and in particular he would have known of Unatra and its connection to the Belgian Government.14 Finally, in relation to the alleged violation of customary international law, the Court found that Chinn had no ‘vested right’.15 Rather, any ‘[f]‌avourable business conditions and goodwill are transient circumstances, subject to inevitable changes’.16 Belgium’s measures did not discriminate on the basis of nationality but simply favoured Unatra as a State-​ controlled enterprise.17 The Court thus rejected the United Kingdom’s claim. In his dissenting opinion, Judge Altamira contested that the consistency of the measure depended upon the ‘economic aim’ of the Belgian government.18 While he did not regard the prohibition of discrimination as absolute, he found that there was a point where it infringed the equality accorded in Article 1 of the Convention. He did not, however, view this as an encroachment upon State sovereignty as it was in line with Belgium’s treaty obligations under the Convention of Saint-​Germain.19 Sir Cecil Hurst concurred with Judge Altamira that Article 1 had been infringed and that there had been a lack of ‘complete commercial equality’.20 He did not share the majority’s view that it was necessary to show that the discrimination was based on nationality,21 because the aim of Article 1 was ‘the protection of individual equality’, as affirmed throughout the Convention.22 If the factual scenario presented in Oscar Chinn were dealt with today through the WTO, for example, the ‘motive and aim’ of the Respondent State would be irrelevant. Not even the impact of the measure might be determinative as the Appellate Body has rather conclusively rejected the ‘aims and effects’ test, in favour of a likeness determination under the non-​discrimination provisions of GATT and GATS.23 Further, insofar as the freedom of trade covered transit, GATT Article V:2 would appear to impose a broader standard of equal treatment, likely to require more extensive protection of

12 

Ibid., at 85. Ibid., at 86. 14  Ibid., at 84. 15  Ibid., at 88. 16  Ibid., at 88. 17  Ibid., at 88. 18  Oscar Chinn, above fn 8, Dissenting Opinion of Judge M Altamira, para 129. 19  Ibid., at para 115. 20  Oscar Chinn, above fn 8, Dissenting Opinion of Cecil Hurst, para 265. 21  Ibid., at para 268. 22  Ibid., at para 271. 23  See, e.g., Appellate Body Report, Japan –​Alcoholic Beverages II, adopted 1 November 1996, at 29; Appellate Body Report, EC –​Bananas III, adopted 25 September 1997, para 241; see in general M. Herdegen, Principles of International Economic Law, 2nd edition (Oxford: Oxford University Press, 2016) at 224–​225; M. Matsushina et al., The World Trade Organization: Law, Practice, and Policy, 3rd edition (Oxford: Oxford University Press, 2016) at 186–​189. 13 

164    James Crawford and Freya Baetens individuals and companies such as Oscar Chinn. Arguably, there would still be no breach of the prohibition against discrimination and neither would the measure be ‘prohibited generally under international law’.24 However, the different standards (‘commercial equality’ under the Convention of Saint-​Germain vs. ‘treatment no less favourable than that accorded to like products’ under GATT) make it hard to detect any interaction between general international law and current-​day international trade law. The PCIJ’s Advisory Opinion concerning the Customs Régime between Germany and Austria also touched on aspects of trade law as it assessed the compatibility of a proposed customs union between Germany and Austria with the applicable treaty law.25 Specifically, the question was whether the formation of such a union would be contrary to treaty undertakings by Austria not to ‘compromise’26 or ‘alienate’27 its independence. Ultimately, the PCIJ (by a narrow majority) held that the proposed customs union would not be compatible with Austria’s treaty obligations.28 The case was decided at a time when, as the Court predicated, each State retained the ‘sole right of decision in all matters economic, political, financial’.29 There was increasing concern as to the stability of the post-​war order, in which Austria’s independence from Germany was key. But the quality of the Advisory Opinion was criticized, as it allegedly gave too much weight to political considerations, rather than purely legal arguments.30 Others argued that ‘the interpretation of treaties is a judicial function, even if the treaty enjointment is one against doing acts which may have certain economic or political consequences’.31 Such debates casted a pall over the Court’s processes at a sensitive time.32 Although the legality of a customs union today could be examined in accordance with WTO standards, the particular political and historical focus of this case makes it rather difficult to extrapolate any of its findings to the current context.

2. Gradually gaining in importance: trade before the ICJ A first group of cases dealing with trade matters before the ICJ relate to disputes brought before the ICJ under the 1955 Treaty of Amity between the United States and Iran.33 24   T. Weiler, ‘Saving Oscar Chinn: Non-​Discrimination in International Investment Law’ in T. Weiler (ed) International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law (London: Cameron May, 2005) at 593–​595. 25  PCIJ, Customs Régime between Germany and Austria (Protocol of March 19th, 1931), Advisory Opinion, PCIJ Ser. A/​B No 41 (5 September 1931), para 23. 26  Article 88 of the Treaty of Peace between the Allied and Associated Powers and Austria, St Germain-​en-​Laye, 10 September 1919. 27   Austria, Great Britain, France, Italy, Czechoslovakia, Protocol No I concerning the Restoration of Austria, Geneva, 1922. 28   Austro-​German Customs Régime, para 65. 29   Austro-​German Customs Régime, para 25. 30   M. Finkelstein, ‘The World Court and the Anschluss’ 6(2) St. John’s Law Review (1932) 220, referring to E. M. Borchard, ‘The Customs Union Advisory Opinion’ 25 American Journal of International Law (1931) 711, at 715. 31  P.C. Jessup, ‘The Customs Union Advisory Opinion’ 26 American Journal of International Law (1932) 105, at 110. 32 See also R. Alleweldt, ‘Customs Regime between Germany and Austria (Advisory Opinion)’ MPEPIL (August 2009), paras 10 and 11. 33  US-​Iran, Treaty of Amity, Economic Relations and Consular Rights, Tehran, 15 August 1955.

The Influence of International Trade Law on International Law    165 A second group of cases concern disputes which deal with the tension between trade and environmental objectives. In a third and final group of cases parties before the Court have invoked WTO jurisprudence as support for arguments relating to procedural and interpretative issues.

a. Disputes under the 1955 US-​Iran Treaty of Amity The 1955 Treaty of Amity between the United States and Iran is an FCN treaty with certain special provisions protecting trade and investment. From around the middle of the twentieth century, FCN treaties began to be replaced by bilateral or regional trade and/​ or investment treaties.34 Nevertheless some discussion of cases that arose under the Treaty of Amity may provide an insight into how the ICJ has dealt with international trade law. The preamble of the Treaty of Amity states that the parties intended, inter alia, to ‘encourag[e]‌mutually beneficial trade and investments and closer economic intercourse generally between their people’. In terms of trade protection, the parties agreed to accord to products ‘destined for exportation’ to the other party ‘treatment no less favorable than that accorded to like products’ of any third State.35 That provision deals expressly with ‘duties, other charges, regulations, and formalities, on or in connection with importation and exportation’.36 The parties also agreed not to impose ‘restrictions or prohibitions’ on the import of any product of the other party unless the import of that product from all third States was similarly restricted or prohibited.37 Another Article dealt with customs regulations and procedures, obliging each party, inter alia, to ‘apply such requirements in a uniform, impartial and reasonable manner’, and granting national treatment to companies of each party vis-​à-​v is the other ‘with respect to all matters relating to importation and exportation’.38 However, these trade provisions did not come directly into play in the cases discussed below. In Oil Platforms, Iran alleged that the United States had violated the Treaty of Amity by attacking its oil platforms.39 At the preliminary objections stage of the case, the Court upheld its jurisdiction to hear Iran’s claim and the counter-​claim of the United States, but only in relation to breaches of Article X(1) of the Treaty: ‘[b]‌etween the territories of the two High Contracting Parties there shall be freedom of commerce and navigation’. Article I (‘[t]here shall be firm and enduring peace and sincere friendship between the United States of America and Iran.’) was not considered a free-​standing, substantive provision and could thus not form an independent basis of claim, although it could be 34  A. Paulus, ‘Treaties of Friendship, Commerce and Navigation’ Max Planck Encyclopedia of Public International Law online (article updated March 2011), para 4. 35  Article VIII(1) of the Treaty of Amity 1955. 36  Article VIII(1) of the Treaty of Amity 1955. 37  Article VIII(2) of the Treaty of Amity 1955. 38  Article IX of the Treaty of Amity 1955. 39  Oil Platforms (Islamic Republic of Iran v. United States of America) (Judgment) (2003) ICJ Rep 161, 170. The United States argued, by way of a counterclaim, that Iran had violated the Treaty of Amity by attacking vessels in the Gulf, at 172.

166    James Crawford and Freya Baetens relevant for the interpretation of other provisions, including Article X.40 Article IV, on reciprocal treatment of nationals and companies, was rejected as a basis of jurisdiction.41 At the Merits phase, the Court interpreted Article X in the context of Iran’s claim, which concerned the alleged interference in oil exports from Iran to the United States.42 The Court found that there had been ‘in principle an interference with [Iran’s] freedom of international commerce’ given the actions of the United States.43 However, it concluded that a violation of Article X would require interference with the freedom of commerce between the territories of Iran and the United States.44 In determining whether there had been trade in oil between the two territories at the relevant time, the Court noted the existence of ‘international trade law criteria, such as the “substantial transformation” principle, or the “value added approach”.’45 However it determined that the criterion was not whether oil arriving in the United States was ‘Iranian’, but whether there was ‘commerce’ in oil between the territory of Iran and the United States at the relevant time.46 Ultimately the Court held that there had been no such commerce, so the US actions against the oil platforms did not violate Article X(1).47 Of the dissenters, Judge Al-​Khasawneh was critical of the majority’s determination that Iranian oil that had been refined in a third country was no longer Iranian oil for the purpose of the Treaty of Amity. In particular, he stressed that ‘international trade law concepts are ill-​suited to be used as a yardstick against which a treaty-​protected freedom of commerce can be measured’.48 Judge Elaraby criticized the exclusion of indirect commerce saying it was ‘not well founded in law’ as there was no explicit mention of such an exclusion in the Treaty and its MFN clause suggested that products reaching the territory indirectly were covered.49 The reference to international trade terminology in Oil Platforms at least demonstrates the Court’s awareness of its potential relevance. So much is also clear from the judgment in Military and Paramilitary Activities, where the Court referred to Article XXI of the GATT in relation to the ambit of jurisdiction.50 Article XXI(d) provides that nothing in the Agreement was ‘to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests’. Similarly, Article XX(1)(d) of the Treaty of Amity states that the Treaty does not preclude the application of measures ‘necessary to fulfill the obligations of a High Contracting Party for the maintenance or restoration of international peace and 40 

Ibid., at 174. Ibid., at 178. 42  Ibid., at 161 and 200. 43  Ibid., at 203. 44  Ibid., at 204. 45  Ibid., at 207. 46  Ibid., at 207. 47  Ibid., at 218. 48  Oil Platforms, above fn 39, Dissenting Opinion of Judge Al-​Khasawneh, para 4. 49  Oil Platforms, above fn 39, Dissenting Opinion of Judge Elaraby, para 2.4. 50  Case concerning Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America), Merits, para 222. 41 

The Influence of International Trade Law on International Law    167 security, or necessary to protect its essential security interests’. Judge ad hoc Rigaux relied on commentaries to Article XXI of the GATT in his separate opinion,51 arguing against ‘the idea that the use of armed force could be one of the “measures” envisaged by such a provision’.52 Although the Treaty of Amity has now been terminated, this may well not affect jurisdiction over cases already commenced, or specific rights of either party which had accrued prior to termination.53 Several further cases are pending before the ICJ which were brought by Iran against the United States under the Treaty of Amity. First, Alleged Violations of the 1955 Treaty of Amity involves a claim by Iran that the United States violated a range of provisions under the Treaty of Amity, including Article X(1), by imposing certain sanctions on Iran.54 In a second case, Certain Iranian Assets, Iran claims that a series of legislative, administrative and judicial acts of the United States have ‘deprived Iranian companies and their property of the rights and protection guaranteed by the Treaty of Amity’.55 Such acts created exceptions to the immunity from execution of Iran, making certain Iranian assets held in the United States, including assets of Iran’s central bank, available for the execution of judgments.56 Iran claims that these actions violate, inter alia, Article X(1) of the Treaty of Amity (freedom of commerce). In this case, the ICJ may consider for the first time, standards which were regularly contained in FCN treaties, and which are now contained in international trade (and, more recently, investment) agreements,57 such as fair and equitable treatment, non-​discrimination, and most-​favoured-​nation and national treatment.

b. Disputes concerning the tension between trade and environmental objectives A second group of relevant disputes deals with the tension between trade and environmental objectives, which is addressed via dissenting and separate opinions of individual judges and submissions of the parties, rather than forming part of the judgment of the Court itself. For example, the Pulp Mills case concerned, inter alia, Argentina’s claim that the construction by Uruguay of a pulp mill on the River Uruguay would 51 

Oil Platforms, above fn 39, Separate Opinion of Judge ad hoc Rigaux, at 379.

52 Ibid.

53  Certain Iranian Assets (Islamic Republic of Iran v. United States of America) Judgment, (13 February 2019), para 30: ‘The Court begins by noting that . . . the denunciation of the Treaty announced by the United States on 3 October 2018 has no effect on the jurisdiction of the Court in the present case.’ 54  Alleged Violations of the 1955 Treaty of Amity, Economic Relations, and Consular Rights (Islamic Republic of Iran v. United States of America) [written submissions are currently being filed regarding the preliminary objections raised by the US]. 55  Iran, Observations and Submissions, para 2.5. Treaty of Amity, Economic Relations, and Consular Rights between the United States of America and Iran, Tehran, 15 August 1955. 56  Certain Iranian Assets, (Islamic Republic of Iran v. United States of America), Preliminary Objections, Judgment, 13 February 2019, paras 22-​26. 57  G. Jaenicke, ‘International Trade Conflicts before the Permanent Court of International Justice and the International Court of Justice’ in E.-​U. Petersmann and G. Jaenicke (eds) Adjudication of International Trade Disputes in International and National Economic Law (Fribourg: University Press Fribourg, 1992), at 44.

168    James Crawford and Freya Baetens adversely affect water quality.58 In their joint dissenting opinion, Judges Al-​Khasawneh and Simma referred to the jurisprudence of the WTO in respect of the standard of review and scientific evidence.59 Their opinion characterizes the Court’s determination as a ‘wasted opportunity’.60 This is because, they contend, ‘it would have been imperative that an expert consultation, in full public view and with the participation of the Parties, take place’, given the complex scientific evidence presented in the case.61 It is perhaps the World Trade Organization . . . which has most contributed to the development of a best practice of readily consulting outside sources in order better to evaluate the evidence submitted to it; in fact, it was devised as a response to the needs of the dispute resolution process in cases involving complex scientific questions.62

Another illustration of the reliance upon WTO jurisprudence can be found in the Advisory Opinion proceedings in Judgment No. 2867 of the Administrative Tribunal of the International Labour Organization upon a Complaint Filed against the International Fund for Agricultural Development (IFAD). The margin of appreciation or standard of review, as developed in the WTO context, was relied upon by IFAD in its Written Statement.63 More precisely, IFAD referred to the determination by the Appellate Body in EC –​Hormones,64 to argue that the scope of judicial review of a decision by an international organization is limited to determining whether ‘an egregious error that calls into question the good faith’ of the organization under review has occurred.65 In its Advisory Opinion, the Court did not address this jurisprudence. In Aerial Herbicide Spraying, Ecuador relied on WTO jurisprudence in its Memorial in relation to a related issue, namely a State’s sovereign ability to determine its own desired level of protection for the environment and for human health.66 Again, the Court chose not to comment on this source. While the Court’s decision in the Whaling Case also did not mention WTO jurisprudence, Judge Owada’s dissenting opinion relied on it to criticize the majority’s determination as to the appropriate scope and standard of judicial review of Japan’s whaling 58 

Pulp Mills on the River Uruguay (Argentina v. Uruguay), Argentina’s Application, para 2. In its Counter-​Memorial in Pulp Mills, Uruguay made reference to WTO jurisprudence in relation to the foreseeability of harm: Counter-​Memorial of Uruguay, at 303, para 4.105. 59  Pulp Mills on the River Uruguay (Argentina v. Uruguay) (Judgment) (2010) ICJ Rep 14. 60  Ibid., joint dissenting opinion of Judges Al-​Khasawneh and Simma, para 17. 61  Ibid., joint dissenting opinion of Judges Al-​Khasawneh and Simma, para 17. 62 Ibid., joint dissenting opinion of Judges Al-​ Khasawneh and Simma, para 16. In relation to provisions of the WTO DSU which relate to experts and fact-​finding, see McRae, above fn 1 at 200–​201. 63  Judgment No. 2867 of the Administrative Tribunal of the International Labour Organization upon a Complaint Filed against the International Fund for Agricultural Development (Advisory Opinion) (2012) ICJ Rep 10. 64  Appellate Body Report, EC –​Hormones, adopted 13 February 1998. 65  Judgment No. 2867 of the Administrative Tribunal of the International Labour Organization upon a Complaint Filed against the International Fund for Agricultural Development, Advisory Opinion, IFAD’s Written Statement, para 295. 66  Aerial Herbicide Spraying (Ecuador v Colombia), Memorial of Ecuador, para 7.9, fn 580.

The Influence of International Trade Law on International Law    169 programme, JARPA II.67 Judge Owada focused his criticism on the majority’s use of the ‘objective reasonableness’ test, applied to the ‘design and implementation’ of JARPA II which, he argued, was drawn from the WTO case, EC–​Hormones.68 In particular, the majority allegedly applied the WTO test ‘somewhat mechanically . . . without giving proper consideration to the context in which this standard of review was applied [in the WTO]’.69 The Appellate Body determined in its final report in EC –​Hormones that fact-​ finding by WTO panels is ‘neither de novo review as such, nor total deference’, but rather the ‘objective assessment of facts’.70 It concluded that: the review power of a panel is not to determine whether the risk assessment undertaken by a WTO Member is correct, but rather to determine whether that risk assessment [by which a measure taken is justified] is supported by coherent reasoning and respectable scientific evidence and is, in this sense, objectively justifiable.71

Judge Owada expressly recognized that the WTO Appellate Body decision ‘cannot in any sense constitute a precedent for [ICJ] purposes’,72 But he argued that ‘the WTO decision can be a useful point of reference for this Court in the present case’.73 Judge Owada contended that the majority in the Whaling Case overstepped its mandate by going beyond its role of determining whether JARPA II was ‘objectively reasonable, in the sense that the programme of research is based upon a coherent reasoning and supported by respectable opinions within the scientific community of specialists on whales’.74 He concluded that in light of the available scientific evidence, ‘it is difficult to see how the activities of JARPA and its successor, JARPA II, could be considered ‘unreasonable’.75 Also, all three parties referred to WTO jurisprudence in their written pleadings. Australia argued that the Court should look to the design and implementation of JARPA II based on WTO panel decisions.76 New Zealand urged the Court, based on WTO case law, to engage in an ‘objective identification of the purpose of a [whaling] programme’, taking into account ‘the facts and circumstances surroundings its development and implementation’.77 Japan pointed to the ‘margin of appreciation’ as defined in 67 

Whaling in the Antarctic (Australia v. Japan: New Zealand intervening) (Judgment) (2014) ICJ Rep 226. 68  Appellate Body Report, EC –​Hormones, adopted 13 February 1998; Whaling in the Antarctic, above fn 67, Dissenting opinion of Judge Owada, paras 32–​34. 69  Ibid., at para 34. 70  Appellate Body Report, EC –​Hormones, adopted 13 February 1998, para 589. 71  Ibid., at para 590. 72  Whaling in the Antarctic, above fn 67, Judge Owada, para 37. 73  Ibid., at para 37. 74  Ibid., at para 42. 75  Ibid., at para 48. 76  Whaling in the Antarctic, above fn 67, Australia’s Memorial, at 262. 77  Whaling in the Antarctic, above fn 67, New Zealand’s Written Statement, para 61.

170    James Crawford and Freya Baetens EC –​Hormones.78 The Court addressed these arguments but without making any reference to the invoked WTO sources.

c. Support for procedural and interpretative issues WTO jurisprudence in relation to fact-​finding was relied upon by Bosnia-​Herzegovina during oral proceedings in the Genocide Case, a case concerning very different subject matter. In that case, counsel urged the Court, on the basis of WTO jurisprudence, to draw what counsel described as ‘logical inferences’ from facts that were known to the Court.79 In Marshall Islands, the United Kingdom relied upon dispute settlement procedures of the WTO to support its argument for explicit prior notification before filing a claim.80 In Maritime Dispute (Peru v. Chile), counsel made oral submissions on the requirements of clarity and consistency needed to demonstrate State practice, referring to Japan-​Alcoholic Beverages II.81 In Navigational and related rights, Nicaragua relied on WTO determinations in its written pleadings in relation to the meaning of the phrase in contention in that case, objetos de comercio.82 In all of these instances, the Court refrained from making any reference to the invoked WTO jurisprudence and procedures when deciding upon the issue.

B. International trade law before Investor-State arbitral tribunals Investment tribunals are not empowered to decide on alleged violations of obligations under international trade agreements falling outside their jurisdiction. However, international trade law may come into play in several ways in the context of investment arbitration. Leaving aside instances in which rights and obligations under trade agreements are directly applicable under investment treaties,83 trade law may shed light on the appropriate interpretation of investment treaty provisions.84 Moreover, the case law of the WTO Panels and Appellate Body may provide guidance in the interpretation and 78 

Whaling in the Antarctic, above fn 67, Japan’s Counter-​Memorial, at 412. Also in Whaling in the Antarctic, counsel referred to the US –​Shrimp in relation to abuse of rights: Whaling, CR 2013/​16, at 32, para 5 (Pellet). MA, at 163, fn 435, and at 259, fn 775; CR 2013/​11, at 39, para 45 (Gleeson). Appellate Body Report, US –​Shrimp, adopted 6 November 1998, para 158 (also para 153). 79  CR 2006/​3, 28 February 2006, at 26, para 18 (Franck). 80  Marshall Islands, Preliminary Objections, CR 2016/​3, 9 March 2016, at 22, para 31 (Bethlehem). 81  Peru: CR 2012/​33, 11 December 2012, at 35, para 15 (Wood) on the clarity of state practice. Referring to Chile: CR 2012/​32, 7 December 2012, at 48, para 38 (Dupuy). 82  Costa Rica v Nicaragua, Rejoinder of Nicaragua, Annex 63, letter from Director of language services at WTO to UN in Geneva, 12 October 2006. 83  G. Verhoosel, ‘The Use of Investor-​State Arbitration under Bilateral Investment Treaties to Seek Relief for Breaches of WTO Law’ 6 Journal of International Economic Law (2003) 493, at 496; C. Kotuby, ‘ “Other international obligations” as the applicable law in investment arbitration’ 14 International Arbitration Law Review (2011) 162, at 162. 84  Verhoosel, above fn 83, at 496; Kotuby, above fn 83, at 162.

The Influence of International Trade Law on International Law    171 application of other rules of international law—​for instance, rules (whether in treaties or in customary law) not specific to investment law,85 including the rules of treaty interpretation themselves. In that sense, decisions on the meaning of WTO law may constitute subsidiary means for the determination of other rules of international law.86 Although investment tribunals are usually prevented from directly applying international trade law in the disputes of which they are seized, they use trade rules in the process of interpreting investment provisions proper. Investment tribunals commonly refrain from explicitly justifying the permissibility of relying on trade law from a methodological perspective87 and adopt varying approaches with respect of the desirability of doing so.88 The subsections below highlight three examples of areas in which investment tribunals have relied on WTO law. First, investment tribunals have turned to the concept of national treatment under trade law for the interpretation of the similarly worded obligation under investment law. Secondly, investment tribunals have had recourse to trade law with a view to delimiting the scope of legal concepts shared between the two regimes. Lastly, the WTO case law has provided guidance in the interpretation and application of interstitial norms indicating a connection or comparison commonly used in dispute settlement.

1. National treatment and the concept of ‘likeness’ The national treatment principle is of pivotal importance in both trade law and investment law.89 Given the similarities of the principle in the two regimes,90 investment tribunals frequently find themselves discussing the national treatment standard under 85  For a discussion of which such provisions might be see C.O. Verrill, Jr., ‘Are WTO Violations also Contrary to the Fair and Equitable Treatment Obligations in Investor Protection Agreements?’ 11 ILSA Journal of International and Comparative Law (2005) 287. 86  Methanex Corporation v. USA, Final Award of the Tribunal on Jurisdiction and Merits (3 August 2005), para 6. 87  See also Belenergia SA v. Italy (ICSID Case No ARB/​15/​40), Award (6 August 2019), para 546, where a party argued that the ‘likeness standard’ under WTO case law should be used by the tribunal as an ‘interpretative tool in the light of Article 31(3)(c) VCLT’ for the interpretation of the national treatment principle under the applicable investment treaty. 88  Such varying approaches are replicated in the doctrine. Contrast between Q. Ren, Public Interests in International Investment Law: Balancing Protection for Investor and Environment (Newcastle upon Tyne: Cambridge Scholars Publishing, 2018), at 82–​83 and J. Kurtz, ‘The Use and Abuse of WTO Law in Investor-​State Arbitration: Competition and its Discontents’ 20 European Journal of International Law (2009) 749, at 770. 89  Corn Products International Inc. v. Mexico (ICSID Case No ARB(AF)/​ 04/​ 1), Decision on Responsibility (15 January 2008), paras 109–​ 111, citing US—​ Section 337 of the Tariff Act of 1930, L/​6439 –​36S/​345 (16 January 1989), para 5.11; A. Bjorklund, ‘National Treatment’ in August Reinisch (ed), Standards of Investment Protection (Oxford: Oxford University Press, 2008) 29; F. Baetens, ‘Discrimination on the Basis of Nationality: Determining Likeness in Human Rights and Investment Law’ in S. Schill (ed), International Investment Law and Comparative Public Law (Oxford: Oxford University Press, 2010) 279–​316. 90  United Parcel Service of America Inc. v. Canada (ICSID Case No UNCT/​02/​1), Award on the Merits (24 May 2007), Separate Statement of Dean Ronald A. Cass, para 57; for an overview of the principle in the two regimes see Raúl Emilio Vinuesa, ‘National Treatment, Principle’ in Max Planck Encyclopedia of Public International Law online (last updated April 2011, accessed 14 May 2020).

172    James Crawford and Freya Baetens WTO law, either as a source from which analogies may be drawn or as a concept for which distinctions ought to be made. The determination of ‘likeness’ is key in the application of the obligation to accord national treatment, both under trade and under investment law. WTO Members are required to accord foreign products and services treatment no less favourable than the one accorded to ‘like’ domestic products or services.91 Under investment treaties, host States commonly undertake an ostensibly similar obligation to accord foreign investors and investments treatment at least as favourable to the one accorded to domestic investors and investments ‘in like circumstances’.92 When interpreting the latter term with a view to determining the common ground of comparison between the product or service in question and its domestic counterparts, investment tribunals have often sought recourse to WTO case law. For example, the Tribunal in SD Myers relied on Japan—​Alcoholic Beverages93 to affirm that the assessment of ‘likeness’ must be made on a case-​by-​case basis in light of all circumstances.94 The Tribunal then explained that ‘likeness’ under the GATT is not dispositive of the case, because different treatment of ‘like’ situations might be justified under the exceptions listed in Article XX GATT.95 By contrast, the Methanex Tribunal stressed the distinction between ‘like products’ under WTO law and ‘like circumstances’ under NAFTA, holding that trade criteria were deliberately excluded from the NAFTA Chapter on Investment.96 This approach was also adopted in the Cargill case97 and echoed in the Occidental Exploration award, where the Tribunal elaborated on the distinct purposes served by the principle of national treatment in the trade and investment regimes.98 In a similar vein, the Merrill & Ring Tribunal cautioned against treating the two similar expressions interchangeably in disregard of the distinct contexts in which they appear.99

2. Delimitation of the scope of legal concepts International trade law may be relevant for delimiting the scope of concepts shared by investment and trade law, including ‘procurement’, ‘services’ and ‘taxation,’

91 

Article III(4) of the GATT 1994; Article XVII(1) of the GATS; Article 2.1 of the TBT Agreement; see also Article 3.1 of the TRIPS Agreement and Article 2.3 of the SPS Agreement. 92  See, e.g., Article 1102(1) of NAFTA; for an overview of provisions see G. Tereposky and M. Maguire, ‘Utilizing WTO Law in Investor-​State Arbitration’ in A Rovine (ed), Contemporary Issues in International Arbitration and Mediation (Leiden: Martinus Nijhoff, 2011) 247, at 262–​263. 93  Appellate Body Report, Japan –​Alcoholic Beverages II, adopted 1 November 1996, paras 8.5–​8.6. 94  SD Myers, Inc. v. Canada, Partial Award (12 November 2000), para 244, and Separate Opinion by Dr Bryan Schwartz, para 126. 95  Ibid., at para 246, and Separate Opinion by Dr Bryan Schwartz, para 128. 96  Methanex Corporation v. USA, Final Award of the Tribunal on Jurisdiction and Merits (3 August 2005), Part IV Chapter B, paras 29–​35. 97  Cargill, Incorporated v. Mexico (ICSID Case No. ARB(AF)/​05/​2), Award (18 September 2009), paras 193–​194. 98  Occidental Exploration and Production Company v. Ecuador (LCIA Case No. UN3467), Final Award (1 July 2004), paras 174–​176. 99  Merrill & Ring Forestry L.P. v. Canada (ICSID Case UNCT/​07/​1), Award (31 March 2010), para 86.

The Influence of International Trade Law on International Law    173 ‘public bodies’, ‘measures’, ‘performance requirements’, and ‘legitimate expectations’. Most often investment tribunals choose to emphasize the differences between the two regimes, leading them to reject the WTO interpretation (delimitation through distinguishing). The concept of ‘procurement’ may illustrate the point. Provisions protecting investments tend to be inapplicable to ‘procurement’,100 a term which investment tribunals have occasionally been called to interpret. Having adopted a broad definition of ‘procurement’, the Mesa Tribunal noted that this approach was consistent with WTO case law on the matter.101 At the same time, the Tribunal noted the different context in which the term appears in Art. III(8)(a) GATT, where it is confined to procurement of products intended for governmental use and not for commercial resale. As a result, the Tribunal refused to read such qualifications into the NAFTA provision or impose additional requirements for its application.102 Similarly, the Occidental Tribunal considered that WTO law (as invoked by the claimant) was not helpful in defining ‘matters of taxation’, which fell beyond the jurisdiction of the tribunal.103

3. Interstitial norms indicating a connection or comparison Interstitial norms used in international trade indicating a connection or comparison may also be considered relevant for the purposes of investment adjudication.104 These include interpretations of ‘in relation to’, ‘consistent with’, necessity, proportionality, ‘alternative to’, self-​judging character and allocation of responsibility. For instance, the protection under investment treaties is commonly granted against measures adopted by the host State that ‘relate to’ foreign investors or investments.105 The claimant in Methanex relied on an interpretation of the term ‘relate to’ as put forward by its host State (the US) in the context of WTO proceedings.106 As the Tribunal observed, this interpretation was ‘of only marginal assistance’ in substantive terms, even if it highlighted the methodological importance of interpreting terms against the backdrop of their context and of the relevant instruments’ object and purpose.107 The Pope & Talbot Tribunal did not directly address the Respondent’s invocation of WTO case law to support the argument that ‘measures relating to’ (the investor or investment) 100 

See, e.g., Article 1108(7) of NAFTA. Mesa Power Group, LLC v. Canada (PCA Case No 2012-​17), Award (24 March 2016), paras 411–​414; see also paras 436, 449 and 456. 102  Ibid., at paras 431–​433; see also para 459. 103  Occidental Exploration and Production Company v. Ecuador (LCIA Case No. UN3467), Final Award (1 July 2004), para 69. 104 V. Lowe, ‘The Politics of Law-​ Making: Are the Method and Character of Norm Creation Changing?’ in M. Byers (ed), The Role of Law in International Politics: Essays in International Relations and International Law (Oxford: Oxford University Press, 2001) 213. 105  See, e.g., Article 1101(1) of NAFTA. 106  Appellate Body Report, US –​Gasoline, adopted 20 May 1996. 107  Methanex Corporation v. USA, Partial Award (7 August 2002), paras 144–​145; contrast SD Myers, Inc. v. Canada, Partial Award (12 November 2000), Separate Opinion by Dr Bryan Schwartz at paras 51–​ 52, relying on the interpretation of the same term in the WTO case law. 101 

174    James Crawford and Freya Baetens must amount to measures ‘primarily aimed at’ (the investor or investment), although it rejected such a narrow reading of the term.108 In SD Myers, the Tribunal articulated the principle that a legitimate objective—​in that case, environmental protection—​ought to be achieved by the host State through the means that are most in line with open trade, affirming (without references) that this was ‘consistent with the language and the case law arising out of the WTO family of agreements’.109 When ascertaining whether a specific measure ran contrary to the prohibition against performance requirements under Article 1106 of NAFTA, the same Tribunal considered WTO law to support the proposition that the substance of the measure in question ought to be assessed, rather than merely its form.110 Moreover, investment tribunals have relied on WTO law to interpret the concepts of ‘necessity’111 and ‘proportionality’,112 which are important tools in the application of obligations under both trade and investment law.

C. International trade law before regional human rights courts Very few references to international trade law can be found in the jurisprudence of regional human rights courts. Trade law does not seem to have been mentioned at all by the Inter-​American Court of Human Rights or the African Court of Human and Peoples’ Rights. Only in a small number of cases heard by the European Court of Human Rights (ECtHR), have applicants referred to WTO law to support their claims. Even in these cases, the Court has avoided engaging with international trade law, reaching its decisions on other grounds.

1. Food safety measures In De Luca, the applicant, wishing to avoid a ministerial ban on the trade of sweetbread of US origin, falsely declared it as originating from Yugoslavia.113 He was prosecuted and convicted under French criminal law, which prohibited smuggling in contravention of a ministerial decree. Before the domestic courts, the applicant argued that the decisions of the European Community, in implementation of which the relevant ministerial decree was issued, had been determined by the WTO Appellate Body to be contrary to the 108 

Pope & Talbot, Inc v. Canada, Award in relation to preliminary motion by Canada (26 January 2000), paras 28, 30, and 33. 109  SD Myers, Inc. v. Canada, Partial Award (12 November 2000), para 221. 110  Ibid., at paras 273–​275. 111  Sempra Energy International v. Argentina (ICSID Case No ARB/​ 02/​16), Award (28 September 2007), para 384; Continental Casualty v. Argentina (ICSID Case No ARB/​03/​9), Award (5 September 2008), para 192; the tribunal then extensively discussed the case law in paras 193–​195. 112  Occidental Petroleum Corporation and Occidental Exploration and Production Company v. Ecuador (ICSID Case No ARB/​06/​11), Award (5 October 2012), para 402. 113  De Luca v. France (App No 8112/​02), Judgment of 2 May 2006, paras 6–​8.

The Influence of International Trade Law on International Law    175 Agreement on the Application of the SPS Agreement. Thus, the applicant contended, his conviction was contrary to international (trade) law and violated the principle of legality.114 The domestic French court rejected the argument, denying the direct applicability of the SPS Agreement in the domestic legal order and affirming that, in any case, the applicant’s conviction was not based on the (allegedly unlawful) ministerial decree as such, but rather on the relevant provisions of the French Criminal Code.115 When addressing the same argument, the ECtHR adopted a similar approach, noting that the criminal conviction was based on domestic legal provisions fulfilling the requirements of accessibility and foreseeability.116 For the Court, an assessment of WTO law, or of the recommendations of the WTO Appellate Body, was simply irrelevant. Relying on the incompatibility of the same European Community decisions with WTO law, other veal importers sought to claim non-​contractual damages from the European Community for loss incurred by the unlawful measures. As their claims before the European Community courts were declared inadmissible, the importers turned to the ECtHR, asserting a breach of their right to a fair trial.117 Once again, the Court did not need to address the merits of the question of international trade law because the presumption (first articulated in Bosphorus) in favour of the European Community in matters of human rights protection provided a sufficient basis to dismiss the applicants’ complaints.118

2. Intellectual property rights In three ECtHR cases concerning governmental treatment of alleged intellectual property rights—​British-​American Tobacco,119 Anheuser-​Busch,120 and Kamoy Radyo Televizyon Yayıncılık ve Organizasyon121—​applicants referred to protection afforded by the Paris Convention for the Protection of Industrial Property,122 which is incorporated by reference within the TRIPS Agreement. In Anheuser-​Busch, the applicant also referred to other provisions of the TRIPS Agreement.123 In none of these cases did the Court directly address the arguments based on international trade law.

114 

Ibid., at paras 11–​12. Ibid., at para 13. 116  Ibid., at para 39. 117  La société Etablissements Biret Cie S.A. et la société Biret international v. 15 States (App No 13762/​04), Decision on Admissibility of 9 December 2008, section ‘complaints’. 118 Ibid. 119  British-​American Tobacco Company Ltd v. The Netherlands (App No 19589/​92), Judgment of 20 November 1995. 120  Anheuser-​Busch v. Portugal (App No 73049/​01) [GC], Judgement of 11 January 2007. 121  Kamoy Radyo Televizyon Yayıncılık ve Organizasyon A.Ş. v. Turkey (App No 19965/​06), Judgment of 16 April 2019. 122  Paris Convention for the protection of industrial property of March 20, 1883, as revised at Brussels on December 14, 1900, at Washington on June 2, 1911, at The Hague on November 6, 1925, at London on June 2, 1934, at Lisbon on October 31, 1958, and at Stockholm on July 14, 1967 (signed 14 July 1967, entered into force 26 April 1970) 828 UNTS 305. 123  Namely Articles 16, 17, 24 §5, and 65 §1. 115 

176    James Crawford and Freya Baetens Another context where human rights claims might interact with international trade law is suggested by the Hertel case.124 A scientist who had published assertions that microwave ovens were dangerous to human health was found by the Swiss courts to have infringed domestic law prohibiting unfair competition. He challenged this in the ECtHR as a violation of his right to freedom of expression, a claim upheld by the Court.125 Academic commentary has noted that Article 10 bis of the Paris Convention (incorporated in the TRIPS Agreement), which binds States to ensure effective protection against unfair competition and to prohibit false or misleading allegations concerning a competitor, has a similar rationale to the Swiss legislation the application of which was at issue in this case.126 However, the Court made no reference to the Paris Convention in its judgment.

3. Trade and customs agreements The WTO was mentioned in several cases before the ECtHR that all concerned the ‘Moldavian Republic of Transdniestria’, notably Ilaşcu,127 Ivanţoc,128 Catan,129 and Mozer.130 The situation arising pursuant to trade and customs agreements under the WTO between Moldova and Ukraine is part of the factual background of these cases; however, international trade law as such was not legally relevant. Moreover, the Court has refrained from using WTO case law as an aid to treaty interpretation: the only two such references to WTO jurisprudence are found in separate opinions (one partly concurring and partly dissenting, one dissenting) of Judge Pinto de Albuquerque.131

III.  Expanding the limited influence of trade law on international law A. Explaining the limited influence of trade law on international law This section investigates why the influence of international trade law on other fields of international law is relatively limited—​ as is particularly visible in how other 124 

Hertel v Switzerland (App No 25181/​94), 25 August 1998. Ibid., at para 51. 126  See T. Cottier and S. Khorana, ‘Linkages between Freedom of Expression and Unfair Competition Rules in International Trade: The Hertel Case and Beyond’ in T. Cottier, J. Pauwelyn and E. Bürgi (eds), Human Rights and International Trade (Oxford: Oxford University Press, 2005), at 266–​267. 127  Ilaşcu and others v. Moldova and Russia (App No 48787/​99) [GC], Judgment of 8 July 2004, para 180. 128  Ivanţoc and others v. Moldova and Russia (App No 23687/​05), Judgment of 15 November 2011, para 32. 129  Catan and others v. Moldova and Russia (App Nos 43370/​ 04, 8252/​05, and 18454/​06) [GC], Judgment of 19 October 2012, para 28. 130  Mozer v. Moldova and Russia (App No 11138/​10) [GC], Judgment of 23 February 2016, para 95. 131  Herrmann v Germany (App No 9300/​ 07) [GC], Judgment of 26 June 2012; Khamtokhu and Aksenchik (App No 60367/​08 and 961/​11) [GC], Judgment of 24 January 2017. Judge Pinto de Albuquerque also refers to a NAFTA investment arbitration in his Dissenting Opinion in Albert and others v. Hungary (App No 5294/​14), Judgment of 29 January 2019. 125 

The Influence of International Trade Law on International Law    177 international courts and tribunals (do not) refer to international trade law and case law in their judicial decisions. Reasons include jurisdictional limitations, applicable law limitation and the informal hierarchy of international norms.

1. Jurisdictional limitations: exclusive and compulsory jurisdiction of the WTO ‘Other’ international courts and tribunals most often do not have jurisdiction to decide on claims based on international trade law. This is reinforced by the exclusive competence given by international trade treaties to the dispute settlement mechanism identified in the treaty itself. In other words, parties are obliged to bring their claims before the tribunal stipulated in the trade agreement and even if they would have a choice, the jurisdiction rules of other courts are likely to preclude bringing such claims elsewhere. Most notably, the DSU provides for the exclusive and compulsory jurisdiction of the WTO dispute settlement bodies over claims under the WTO covered agreements.132 Moreover, unlike what is the case before most other courts and tribunals, a WTO Member does not need to prove that it has a particular interest in the dispute, nor any negative impact to that State, to be able to bring a claim, as there is a presumption of adverse impact on WTO Members when a (potential) infringement (‘of a Member’s rights’) occurs.133 The result is that disputes concerning trade under the WTO Agreement will almost always be brought to the WTO dispute settlement mechanism.134 There are exceptional situations, including the following three examples, in which jurisdictional limitations will not prevent a non-​trade tribunal to assess trade matters. First, a non-​WTO dispute resolution body may be called upon to resolve a trade dispute involving States that are not parties to the WTO. For example, Serbia and Iran could request the ICJ to resolve their trade disputes. The jurisdiction of the ICJ is limited to disputes which States agree to bring to the Court. Seventy-​four states currently have declarations accepting the compulsory jurisdiction of the Court.135 Of these, many contain extensive reservations.136 Modern international trade law is primarily treaty law, not customary international law.137 While some treaties which remain in force and relate to 132 Article

23 of the DSU. However, see Article 11.3 of the SPS Agreement, which provides that ‘[n]‌othing in this Agreement shall impair the rights of Members under other international agreements, including the right to resort to the good offices or dispute settlement mechanisms of other international organizations or established under any international agreement’; ARSIWA with Commentary, above fn 1, at 133, para 10; Pauwelyn, above fn 1, at 557. 133  Article 3.8 of the DSU. 134  Furthermore, new bilateral treaties relating to trade have to be reported to the WTO so they can be checked for consistency with other trade rules: P. Lamy, above fn 2, at 969. 135  ICJ website, ‘Declarations recognizing the jurisdiction of the Court as compulsory’, at < https://​ www.icj-​cij.org/​en/​decla​rati​ons > (last visited 8 October 2021). 136 For example, Australia’s Declaration, 22 March 2002; the United Kingdom’s Declaration, 22 February 2017; see also E.-​U. Petersmann, ‘Dispute Settlement in International Economic Law—​Lessons for Strengthening International Dispute Settlement in Non-​Economic Areas’ 2 Journal of International Economic Law (1999) 189, at 202. 137 McRae, above fn 1, at 231; Petersmann, above fn 138, at 202: ‘International economic law is essentially based on treaties on the reciprocal liberalization of market access barriers’; Methanex Final

178    James Crawford and Freya Baetens trade contain compromissory clauses sending disputes to the ICJ,138 most trade disputes are likely to arise under the WTO covered agreements or preferential trade agreements, and therefore fall under the jurisdiction of WTO dispute resolution mechanisms or their PTA counterparts. Second, some trade agreements explicitly allow their parties to take their non-​WTO trade disputes elsewhere. For example, the Agreement on the Global System of Trade Preferences among Developing Countries sends disputes to a ‘Committee of participants’ made up of representatives of the governments of the participants to the agreement.139 Third, occasions of concurrent or overlapping jurisdiction between the WTO and other dispute resolution bodies can arise. For example, in 1999 Chile closed its ports to European Community-​flagged vessels which did not respect certain conservation standards for swordfish, as identified by Chile.140 The European Community claimed that Chile’s measures were inconsistent with the GATT 1994 and a WTO panel was established to deal with the claim on 12 December 2000.141 On 18 December 2000, Chile sought to initiate proceedings concerning the same facts before a special tribunal of ITLOS.142 Ultimately the dispute was withdrawn from both institutions and settled.143 Similarly, on 16 August 2013, Denmark (on behalf of the Faroe Islands) initiated arbitration proceedings against the EU under UNCLOS with regard to the use of coercive economic measures by the EU in relation to Atlanto-​Scandian herring and Northeast Atlantic mackerel. On 4 November 2013, Denmark also requested WTO consultations with the EU concerning the same facts.144 Again both cases were settled.145 These cases Award: ‘As to the question of whether a rule of customary international law prohibits a State, in the absence of a treaty obligation, from differentiating in its treatment of nationals and aliens, international law is clear. In the absence of a contrary rule of international law binding on the States parties, whether of conventional or customary origin, a State may differentiate in its treatment of nationals and aliens. No conventional rule binding on the NAFTA Parties is to the contrary with respect to the issues raised in this case. Indeed, the text of NAFTA indicates that the States parties explicitly excluded a rule of non-​ discrimination from Article 1105’. 138 

For example, US –​China, Treaty of Friendship, Commerce, and Navigation, Nanking, 4 November 1946, Article XXVIII; US –​Italy, Treaty of Friendship, Commerce, and Navigation, Rome, 2 February 1948, Article XXV. 139  Articles 7 and 21 of the Agreement on the global system of trade preferences among developing countries, Belgrade, 12 April 1988. 140  Lamy, above fn 2, at 982. 141 WTO, Chile –​Swordfish, Panel requested on 6 November 2000, at < https://​www.wto.org/​engl​ish/​ trato​p_​e/​disp​u_​e/​case​s_​e/​ds19​3_​e.htm > (last visited 8 October 2021). 142 ITLOS, Case concerning the Conversation and Sustainable Exploitation of Swordfish stock in the South-​Eastern Pacific Ocean (Chile/​European Community), Order of 20 December 2000, at 4. 143  Chile –​Swordfish, above fn 142; ITLOS, Case concerning the Conversation and Sustainable Exploitation of Swordfish stock in the South-​Eastern Pacific Ocean (Chile/​European Community), Order of 16 December 2009, at 18. 144 WTO, EU –​Herring, Panel established 26 February 2014, at < https://​www.wto.org/​engl​ish/​trato​p_​ e/​disp​u_​e/​case​s_​e/​ds46​9_​e.htm > (last visited 8 October 2021); The Atlanto-​Scandian Herring Arbitration (The Kingdom of Denmark in respect of the Faroe Islands vs. the European Union), PCA Case No. 2013-​30. 145  EU –​Herring, settled on 21 August 2014; PCA Case No. 2013-​ 30 Atlanto-​Scandian Herring Arbitration, settled on 23 September 2014.

The Influence of International Trade Law on International Law    179 illustrate the possibility of a dispute, at least indirectly related to trade, being brought to a non-​WTO dispute resolution body, namely ITLOS and an arbitration panel constituted under UNCLOS, respectively. Such disputes are, however, relatively uncommon—​as further discussed below.

2. Applicable law limitations: the ‘sui generis’ character of WTO law WTO law is frequently accorded a ‘sui generis’ character, almost as if it were operating in a vacuum, or at the very least, separate (as a form of lex specialis)146 from other rules of international law. WTO law, and international trade agreements more broadly, do not generally fall under the scope of the applicable law before other courts and tribunals, and neither is it often seen as forming part of the interpretative framework (with some exceptions in the field of international investment law, as discussed above). This is also reflected in Article 55 of the ILC Articles on State Responsibility which refer to WTO law in relation to remedies as an example of a situation in which general law does not apply and WTO law, as lex specialis, prevails.147 As a result, the reverse is also true: for the application and interpretation of general law, non-​trade courts and tribunals will not easily refer to WTO law, which is perceived as solely relevant in a WTO context. As McRae stated in 1996, ‘the WTO may be the defining regime for multilateral trade in its broadest sense’ and ‘is on the road to achieving universality in the regulation of international trade’.148 This is partly due to jurisdictional restrictions, but the WTO’s quasi-​monopoly in the arena of international trade law is also due to the distinctive character of trade law. Powerful States and private players have long promoted the GATT, and then WTO, dispute settlement mechanisms. WTO law is beneficial to traders, investors and consumers149 who may support mechanisms which help ensure respect for it. Until recently, States generally supported judicial review of the implementation of WTO law.150 One reason for this involvement and support is the rationale behind international trade law. According to McRae, States have: accepted as the foundation of the international trading regime a principle [against barriers to trade] that fully implemented runs counter to the assumptions on which international law traditionally has rested.151

These foundations are ‘individual and welfare-​based’, whereas the assumptions of international law are ‘State and security-​based’.152 Moreover the units on which 146 D.

McRae, ‘The Place of the WTO in the International System’ in D. Bethlehem, D. McRae, R. Neufeld and I. Van Damme (eds), The Oxford Handbook of International Trade Law, 1st edition (Oxford: Oxford University Press, 2009), at 70. 147  ARSIWA, above fn 1, at 140, para 3 (Article 55). 148  McRae, above fn 1, at 27. See also Lamy, above fn 2, at 972 who described the WTO legal rules and forming ‘an integrated system’ governing ‘a community, namely its Members’. 149  Petersmann, above fn 138, at 210 and 235. 150  Ibid., at 230. 151  McRae, above fn 1, at 147–​8. 152  Ibid., at 215.

180    James Crawford and Freya Baetens international trade law depends (including customs territories such as the European Union and Hong Kong) are not the same as the units on which international law generally is built (States). Traditionally, it has been argued that this is because trade law does not have sovereignty at its centre.153 Rather, ‘[i]‌nternational trade law is concerned with removing the impediments that sovereignty places in the way of trading across borders’.154 However, this would seem to be changing in light of some of the ongoing developments in the WTO, such as the discussions and litigation regarding Article XXI GATT, the concept of State-​owned enterprises, and the US objections to the workings of the WTO Appellate Body.155 As a result, ‘sovereignty’ is emerging more frequently at the forefront of international trade law debates. Where States used to generally promote GATT and WTO dispute settlement mechanisms, this is no longer a certainty. Perhaps the WTO enjoyed a ‘honeymoon’ in this regard: the ICJ has known a similar backlash from African States after the South-​West Africa cases and from the United States after the Nicaragua case.156 Proponents of international trade law also suggest that it differs from international law in terms of its relationship to the individual. Individuals are central to the WTO legal order, as its rationale is that once impediments to free trade have been removed, it is through ‘improved conditions’ for private operators conducting trade that Members of the WTO benefit from the regime.157 While individual, often private, traders carry out the transactions which make up international trade,158 they are not per se protected by international trade law. Whereas in other areas of international law, such as human rights law or international humanitarian law, the rights of physical or moral persons are guaranteed as such, that is not the case in international trade law. Similar to general international law but unlike human rights or investment law, the focus of international trade law is the overall safeguarding of the system, such that all actors are encouraged or forced to abide by the rules of the system, which is designed, and aimed at, fostering positive living conditions for all through free trade.

153 

Ibid., at 158. Ibid., at 123. 155  Panel Report, Russia –​Traffic in Transit, adopted 26 April 2019, paras 7.5.3 and 7.5.6; Appellate Body Report, US –​Anti-​Dumping and Countervailing Duties (China), adopted 25 March 2011, paras 318–​20; European Commission, ‘State-​Owned Enterprises in the EU: Lessons Learnt and Ways Forward in a Post-​Crisis Context’ Institutional Paper 31/​2016, at < https://​ec.eur​opa.eu/​info/​sites/​info/​files/​file​_​imp​ ort/​ip0​31_​e​n_​2.pdf > (last visited 8 October 2021); USTR, ‘Report on the Appellate Body of the World Trade Organization’ (February 2020), at 5, at < https://​ustr.gov/​sites/​defa​ult/​files/​Report_​on_​the_​ Appellate_​Body_​of_​t​he_​W​orld​_​Tra​de_​O​rgan​izat​ion.pdf > (last visited 8 October 2021). 156  South West Africa, Second Phase (Judgment) [1966] ICJ Rep 6 and Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America) (Jurisdiction and Admissibility Judgment) [1984] ICJ Rep 392; see R. Jennings, R. Higgins and P. Tomka, ‘General Introduction’ in Andreas Zimmermann and Christian Tams (eds), The Statute of the International Court of Justice: A Commentary 3rd ed (Oxford: Oxford University Press, 2019), paras 81-​82 and 135. 157  Panel Report, US –​Sections 301–​310 of the Trade Act of 1974, adopted 27 January 2000, para 7.77. 158  McRae, above fn 1, at 132. 154 

The Influence of International Trade Law on International Law    181

3. Informal hierarchy of international norms The almost complete absence of consideration of international trade law by the ICJ and the ECtHR may reflect the relative rarity of clear overlap or conflict between the two bodies of law,159 combined with a belief in the primacy of general international law and human rights law in relation to other subfields of public international law such as international trade or investment law.160 The detailed survey of ICJ case law above suggests that references to international trade law, though not insignificant, have not been central to the decision-​making of the ICJ. One could wonder why the ICJ has not considered more the case law of the GATT and the WTO, as WTO panels and the Appellate Body have commonly referred to the case law of the ICJ. Some might think that this is because international law and the ICJ have, for a long time, seen WTO law as a self-​contained system. It is impossible to divine how individual judges have regarded the position of WTO law, or international trade law more broadly, within international law—​and a formal opinion in this respect has certainly never been put forward by the institution as such. In our view, the reality is far simpler: by the year 2000, the ICJ had made only three specific references to any other international tribunal.161 In its first decades, the Court exclusively cited its own judgments and advisory opinions, omitting for example to refer to the arbitral awards invoked by the parties in the Barcelona Traction case on the ground that these could not ‘give rise to generalization going beyond the special circumstances of each case’.162 In the Nottebohm Case, the ICJ cited external case law for the first time (namely the nineteenth century Alabama Claims decisions in the context of the competence-​compétence principle),163 followed by its partial reliance on the maritime delimitation method employed by an earlier arbitral tribunal in Continental Shelf (Tunisia v. Libya).164 Subsequently, the Court has shown more willingness to refer to external case law in delimitation cases (both territorial and maritime).165 It sharply distanced itself from the findings of another

159  A.R.

Ziegler and B. Boie, ‘The Relationship Between International Trade Law and International Human Rights Law’ in E. de Wet and J. Vidmar (eds), Hierarchy in International Law: The Place of Human Rights (Oxford: Oxford University Press, 2012), at 277–​278. 160 S. Joseph, ‘Trade Law and Investment Law’ in D. Shelton (ed), The Oxford Handbook of International Human Rights Law (Oxford: Oxford University Press, 2013), at 866. 161  E. Voeten, ‘Borrowing and Nonborrowing Among International Courts’ 39 Journal of Legal Studies (2010) 547, at 569. 162  Barcelona Traction, Light and Power Company, Limited (Belgium v Spain) (Judgment) (1970) ICJ Rep 40 at para 63. 163  Nottebohm Case (Preliminary Objection) (Judgment) [1953] ICJ Rep 111, 119; see also Arbitral Award of 31 July 1989 (Judgment)(1991) ICJ Rep 53, 68, para 46. 164  Continental Shelf (Tunisia/​Libyan Arab Jamahiriya) (Judgment) [1982] ICJ Rep 18, 57, paras 66, 79 and 111. 165  Land, Island and Maritime Frontier Dispute (El Salvador/​ Honduras: Nicaragua intervening) (Judgment) (1992) ICJ Rep 351, 591-​92, para 391; Maritime Delimitation and Territorial Questions between Qatar and Bahrain (Merits) (Judgment) (2001) Rep 40, 70–​7 1, paras 100 and 117; Sovereignty over Pulau Ligitan and Pulau Sipadan (Indonesia/​Malaysia) (Judgment) (2002) ICJ Rep 625, 682, para 135; Land and Maritime Boundary between Cameroon and Nigeria (Cameroon v Nigeria: Equatorial Guinea intervening) (Judgment) (2002) ICJ Rep 303, 414–​15, para 222.

182    James Crawford and Freya Baetens tribunal (the ICTY) concerning the international rules on State responsibility in the context of the Srebrenica murders.166 Case law of regional courts has never been cited by the Court. Hence, one would be hard-​pressed to disagree with the conclusion that ‘the Court’s policy of precedent essentially aims to assure a constructive dialogue with arbitration tribunals dealing with interstate disputes, primarily in border disputes’167—​and no more than that.

B. Gaining from international trade law’s experiences This section examines what international law might gain from international trade law’s experiences, specifically in the fields of membership, negotiations and outreach, as well as dispute resolution. Particularly the WTO has ‘certain particular characteristics that give it a degree of uniqueness and are themselves contributions to the process and substance of international law’.168 This final section will not address the influence of WTO law on international trade law (where the model of WTO dispute settlement is being used and improved) as many other authors in the present book focus on the interaction between WTO law and other trade agreements, but rather its potential influence on international law more broadly.

1. Membership, negotiations, and outreach The WTO has been described as an ‘exclusive club’ with ‘no limits on the terms of accession that the WTO can offer to applicant countries’.169 Indeed, unlike many international organizations, the barrier to entry is high. Serbia and Iran, for example, have not obtained membership, despite requesting it prior to 2005.170 Russia finally became a WTO Member in 2011 after eighteen years of accession talks. The underlying idea is that the commitment that must be demonstrated in order to gain WTO membership will translate, once membership has been attained, into an enhanced commitment to comply with WTO law. The WTO’s requirement of involved negotiations to arrive at bespoke terms of accession for each new member stands in contrast with the process generally applicable to a State acceding to a multilateral treaty. A State to which the treaty is open by its terms may ordinarily simply accede to it without seeking the approval of the other parties.171 Any tailoring of the acceding State’s obligations under the treaty takes place through a reservation 166  Case Concerning the Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and Herzegovina v Serbia and Montenegro) (Judgment) 26 February 2007, paras 402-​403. 167 G. Guillaume, ‘The Use of Precedent by International Judges and Arbitrators’ 2(1) Journal of International Dispute Settlement (2011) 5, at 20. 168  McRae, above fn 1, at 179. 169 S. Charnovitz, ‘The World Trade Organization in 2020’ 1 Journal of International Law and International Relations (2004) 167, at 179-​180. 170  WTO Website, Accessions, Iran and Serbia, at < https://​www.wto.org/​engl​ish/​thewt​o_​e/​acc_​e/​ acc_​e.htm > (last visited 8 October 2021). 171  See Article 15 of the VCLT.

The Influence of International Trade Law on International Law    183 unilaterally made by the acceding State, to which the existing parties to the treaty then decide whether or not to object.172 This contrast raises the question whether the rigorous requirements for WTO accession could be applied in other contexts to establish the seriousness of the treaty commitment and to increase the likelihood of compliance. However, it seems unlikely that the WTO process can be generalized for application in other contexts. The requirements for accession to a treaty, like the permissible scope for reservations, will depend on various factors such as the extent of the changes to domestic law which the treaty requires, the degree to which broad membership is desired, and the value placed on the integrity of the treaty (i.e., the uniformity of parties’ rights and obligations under it).173 Moreover, the WTO acts as a model for inter-​organizational cooperation, for example with the World Health Organization.174 Moreover, the WTO maintains and encourages links and participation of non-​governmental organizations in its proceedings.175 The WTO promotes transparency through its website and open public meetings. It also does so through notification requirements present in various WTO agreements, which seek to ensure that information concerning members’ trade-​related measures is available to the membership as a whole.176 Scrutiny of members’ policies takes place through the Trade Policy Review mechanism; the information obtained through this process feeds into decision-​making and into negotiations for further trade liberalization.177 On the other hand, some aspects of the WTO’s decision-​making process have been criticized for lack of transparency. Although formally decisions are taken by all members meeting together in the Ministerial Conference or the General Council (as well as by numerous specialized councils and committees), in practice the agenda is heavily influenced by a subset of members meeting in the informal ‘Green Room’ process.178 It has been argued that the establishment of an elected executive board could help provide greater transparency to the organization’s decision-​ making.179 WTO dispute settlement 172 ‘Guide

to Practice on Reservations to Treaties, adopted by the Commission at its sixty-​third session’, UN Doc A/​CN.4/​SER.A/​2011/​Add.1, [2011]-​II(3) Yearbook of the International Law Commission 23, guidelines 1.1 and 2.6.1. 173  Relatedly, States show marked variations in their willingness to prohibit reservations depending on the subject matter of the treaty in question: for example, treaties on environmental topics often expressly prohibit reservations: United Nations Office of Legal Affairs, Final Clauses of Multilateral Treaties Handbook (United Nations 2003), at < https://​treat​ies.un.org/​doc/​sou​rce/​publi​cati​ons/​FC/​Engl​ish.pdf > (last visited 8 October 2021), at 47; L.R. Helfer, ‘Not Fully Committed: Reservations, Risk and Treaty Design’ 31 Yale Journal of International Law (2006) 367, at 376. 174  Lamy, above fn 2, at 981. 175  Charnovitz, above fn 170, at 183–​4 and 186. 176 Agreements imposing such a requirement include the Agreement on Agriculture, the Anti-​ Dumping Agreement, the Agreement on Technical Barriers to Trade (TBT) and the Sanitary and Phytosanitary (SPS) Measures Agreement: WTO, MC11 Briefing Note, ‘Transparency’ (2017), at < https://​www.wto.org/​engl​ish/​thewt​o_​e/​minis​t_​e/​mc1​1_​e/​brief​i ng_​note​s_​e/​bftra​nspa​renc​y_​e.htm > (last visited 8 October 2021). 177 Ibid. 178 P. Delimatsis, ‘Institutional Transparency in the WTO’ in A. Bianchi and A. Peters (eds), Transparency in International Law (Cambridge: Cambridge University Press, 2013), at 116–​117. 179  Ibid., at 117–​8.

184    James Crawford and Freya Baetens proceedings also remain more confidential in some respects than those before some other international tribunals; for example, oral hearings are held in private.180 Written communications are also treated as confidential; however, a party may choose to make public its own submissions.181 Lessons can be learned from the decision-​making process applicable in the WTO. Majority voting was gradually replaced by consensus during the application of the GATT 1947,182 and now the WTO decision-​making process is governed entirely by consensus.183 In practice, failure to achieve consensus means that no decision is taken at all in the WTO.184 This process can exert significant pressure on objecting States to explain their position.185 Consensus then undermines, rather than promotes, the equality of participant States, because only the stronger States will have the ability to sustain a veto.186 More broadly, the consensus requirement makes it difficult to achieve change, thus reinforcing the status quo.187 By contrast, majority voting would empower the political branch of the WTO, which is arguably less efficient than the WTO dispute settlement system at present.188 In an ironic twist, of course, it is the consensus requirement under Article 2(4) DSU which has allowed the United States, by formally objecting to the (re-​)appointment of Appellate Body members, to paralyse the dispute settlement system itself. The WTO experience may also provide guidance with respect to the role of negotiations in dispute settlement. Given that the preferred aim of the WTO dispute settlement system is a ‘solution mutually acceptable to the parties to a dispute’,189 negotiations either directly or under the auspices of the WTO (in the form of good offices, conciliation, and mediation) are embedded in the WTO’s dispute settlement framework from the first until the final stages of a dispute.190 However, the use of alternative mechanisms of dispute resolution while the dispute is pending before a panel

180  T. Neumann and B. Simma, ‘Transparency in International Adjudication’ in A. Bianchi and A. Peters (eds), Transparency in International Law (Cambridge: Cambridge University Press, 2013), at 448. 181  Article 18(2) of the DSU; Panel Report, Argentina –​Poultry Anti-​Dumping Duties, adopted 22 April 2003, paras 7.14–​7.16; Neumann and Simma, above fn 181, at 442–​3. 182  J. Pauwelyn, ‘The Transformation of World Trade’ 104 Michigan Law Review (2005) 1, at 21–​22. 183 P.J. Kuijper, ‘WTO Institutional Aspects’ in D. Bethlehem, D. McRae, R. Neufeld and I. Van Damme (eds), The Oxford Handbook of International Trade Law, 1st edition (Oxford: Oxford University Press, 2009), at 96. 184 C.-​ D. Ehlermann and L. Ehring, ‘Decision-​Making in the World Trade Organization: Is the Consensus Practice of the World Trade Organization Adequate for Making, Revising and Implementing Rules on International Trade?’ 8 Journal of International Economic Law (2005) 51, at 55. 185  R. Wolfrum and J. Pichon, ‘Consensus’, Max Planck Encyclopedia of Public International Law online (updated October 2010, visited 23 July 2020), para 19. 186  Ehlermann and Ehring, above fn 185, at 66. 187  Ibid., at 65. 188  J. Tijmes-​ Lhl, ‘Consensus and majority voting in the WTO’ 8 World Trade Review (2009) 417, at 418. 189  Article 3(7) of the DSU. 190  See Articles 4, 5, 22(2) of the DSU.

The Influence of International Trade Law on International Law    185 remains rather limited in practice.191 As discussed below, negotiations play a more significant role at the stage of implementation of the findings of the dispute settlement mechanism.

2. Exporting elements of international trade dispute resolution The WTO dispute settlement system may also provide a useful point of reference in the context of reforms of other dispute settlement fora. The field of investment law is a prominent example, considering that Investor-State dispute settlement reform is being contemplated.192 Even though the precise structure of the proposed model has not yet been decided,193 the WTO model is sometimes presented as a solution, at least in the context of the proposal envisaging a two-​tier mechanism for the resolution of investment disputes.194 The EU in particular has been advocating the need for a two-​ tier mechanism for the resolution of investment disputes,195 proposing it in TTIP196 and agreeing to it with Vietnam, Singapore and Canada.197 In the European Commission’s words, ‘[t]‌he bilateral appellate mechanism could be modelled largely on the institutional set-​up of the WTO Appellate Body, with some adaptations both to make it specific for ISDS, and in light of experience in the WTO.’198 There are several grounds for scepticism as to the transposability of the WTO institutional and procedural structure to the field of investment law. It has been pointed out that coherence and integrity in the interpretation and application of the law, which are core reasons underlying the 191 N. Park and M.-​ H. Chung, ‘Analysis of a New Mediation Procedure under the WTO SPS Agreement’ 50 Journal of World Trade (2016) 93, at 93; X. Li and Y. Chen, ‘Constraints of the WTO Compensation Mechanism and Implications from Recent Practice’ 49 Journal of World Trade (2015) 643, at 646. 192  United Nations Commission on International Trade Law, ‘Possible future work in the field of dispute settlement: Reforms of Investor-State dispute settlement (ISDS): Note by the Secretariat’, A/​ CN.9/​917 (20 April 2017); see Chapter 32 of this handbook. 193  United Nations Commission on International Trade Law, ‘Report of Working Group III (Investor-​ State Dispute Settlement Reform) on the work of its resumed thirty-​eighth session’, A/​CN.9/​1004/​Add.1 (28 January 2020), para 15. 194 R.L. Katz, ‘Modeling an International Investment Court After the World Trade Organization Dispute Settlement Body’ 22 Harvard Negotiation Law Review (2016-​17) 163; J.M. Alvarez Zárate, ‘Legitimacy Concerns of the Proposed Multilateral Investment Court: Is Democracy Possible?’ 59 Boston College Law Review (2018) 2765, at 2784. 195  European Commission, ‘Trade for all: Towards a more responsible trade and investment policy’ (European Union 2015), at < https://​trade.ec.eur​opa.eu/​doc​lib/​docs/​2015/​octo​ber/​tradoc​_​153​846.pdf > (last visited 8 October 2021), at 21; also Council of the EU, ‘Negotiating directives for a Convention establishing a multilateral court for the settlement of investment disputes’ 12981/​17 ADD 1 DCL 1 (1 March 2018). 196 European Commission, ‘Proposal for Investment Protection and Resolution of Investment Disputes’ (12 November 2015), at < http://​trade.ec.eur​opa.eu/​doc​lib/​docs/​2015/​novem​ber/​tradoc​_​153​955. pdf > (last visited 8 October 2021). 197  See Chapter 32 of this handbook. 198  European Commission, ‘Investment in TTIP and Beyond—​The Path for Reform Enhancing the right to regulate and moving from current ad hoc arbitration towards and Investment Court’ (5 May 2015) Concept Paper, at 6–​9, at < http://​trade.ec.eur​opa.eu/​doc​lib/​docs/​2015/​may/​tradoc​_​153​408.PDF > (last visited 8 October 2021), 9.

186    James Crawford and Freya Baetens establishment of an appellate mechanism, are infeasible and potentially undesirable in the context of investment law, which in principle consists of a matrix of obligations of an essentially bilateral character.199 Furthermore, the fact that one of the two litigant parties is an individual investor, rather than a State, potentially leads to a difference not only in the likely workload of the adjudicative body,200 but also in the available bargaining tools and in the desired outcome of the dispute settlement process, compared to the litigant parties in a trade dispute. An individual litigant is often not interested in prospective remedies, such as the ones preferred under the WTO.201 If, however, the proposals for investment courts are taken forward, there are lessons to be learned from the WTO system. For example, timely progress in the proceedings may be achieved by using several features of the WTO dispute settlement mechanism as the blueprint for an investment court. These would include an appellate body comprising few members, which works in a collegiate manner even if it does not hear all cases in plenary formation,202 operates under short and strict time-​limits with a clear mandate,203 and does not remand but rather renders its own decision if it reverses the original award.204 The WTO dispute settlement mechanism is among the most widely used in the international legal order.205 The Dispute Settlement Understanding (DSU) is a modern example of what States in the 1990s desired in terms of dispute resolution. It can therefore serve as a model for other forms of dispute resolution. Much of the strength of the DSU has emanated from the exclusive and compulsory jurisdiction, and the quasi-​automatic formation of a WTO panel.206 It may be, however, that States do not have the will to establish dispute resolution forums which possess exclusive and compulsory jurisdiction in areas other than international trade law. Moreover, it is too idealistic to imagine that institutions such as the ICJ would now be altered to make the bases of their jurisdiction compulsory.207 Slightly less idealistic are calls for the creation of a trade chamber 199  D. McRae, ‘The WTO Appellate Body: A Model for an ICSID Appeals Facility?’ 1 Journal of International Dispute Settlement (2010) 371, at 383–​4. 200  See J. Ketcheson, ‘Investment Arbitration: Learning from Experience’ in S. Hindelang and M. Krajewski (eds), Shifting Paradigms in International Investment Law: More Balanced, Less Isolated, Increasingly Diversified (Oxford: Oxford University Press, 2016), at 118. That said, the potentially higher financial costs in investment treaty arbitration might lead to a less frequent exercise of the right of appeal: C.M. Brown, ‘A Multilateral Mechanism for the Settlement of Investment Disputes. Some Preliminary Sketches’ 32 ICSID Review (2017) 673, at 684. 201 S.S. Kho et al, ‘The EU TTIP Investment Court Proposal and the WTO Dispute Settlement System: Comparing Apples and Oranges?’ 32 ICSID Review (2017) 326, at 340–​1. 202  M. Bungenberg and A. Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court, 2nd edition (Berlin: Springer, 2020), at 109 (para 361). 203  Ibid., at 22–​23 (para 62), at 105 (para 347), at 126 (para 398). 204  F. Baetens, ‘The European Union’s Proposed Investment Court System: Addressing Criticisms of Investor-​State Arbitration While Raising New Challenges’ 43 Legal Issues of Economic Integration (2016) 367, at 381. 205  McRae, above fn 1, at 178. 206  Lamy, above fn 2, at 976; E.-​U. Petersmann, above fn 138, at 208 (exclusive and compulsory). 207  Jaenicke, above fn 57, at 58.

The Influence of International Trade Law on International Law    187 within the ICJ, in which judges might cultivate specialist knowledge and adopt efficient timelines of proceedings, and for compromissory clauses in treaties making recourse to an ICJ trade chamber mandatory in the event of a trade dispute.208 Setting aside purely aspirational lessons, there are practical lessons to be learned in terms of ‘tweaking’ existing institutions. The schedule for decision-​making and time-​ limits for the adoption of WTO panel reports is short.209Nevertheless WTO members still consider that the procedures take too much time (though they appear not to raise similar concerns when participating in judicial proceedings before other international courts and tribunals).210 These aspects, as well as the promotion of interventions by third States, and reliance on amicus curiae participation in the WTO, could be emulated by other international courts and tribunals.211 However, even though WTO panels and the Appellate Body accept such briefs but have never expressly relied on them (especially because many WTO Members such as the EU, Mexico, and Brazil considered that the AB overstepped when deciding that it could accept such briefs).212 Finally, there may be scope for the ‘increased integration’ of political and legal dispute settlement mechanisms, as in the WTO, for example by the Security Council more actively referring matters to the Court or by considering the use of judicial processes for addressing the lack of compliance with judicial rulings.213 There are also lessons to be learned, and features of the WTO to be noted and potentially replicated, in terms of the establishment of future international dispute resolution mechanisms. The WTO’s jurisdiction was established as a ‘single undertaking’ under the 1993 Marrakesh Agreement,214 pursuant to which WTO Members accepted all WTO-​covered agreements. This provides a blueprint for future institutions to mandate that participants must accept all relevant obligations, rather than pick and choose which obligations they might adopt, as is the practice with reservations to States’ declarations accepting the jurisdiction of the ICJ. The organs of the WTO are also all plenary organs, in which respect for sovereign equality is guaranteed (each State has one vote). The reliance on negative consensus voting avoids delays in contentious areas of decision-​making.215

208 

Ibid., at 58. McRae, above fn 1, at 184. 210  ISTR, ‘Report on the Appellate Body of the World Trade Organization’ (February 2020), at < https://​ustr.gov/​sites/​defa​ult/​files/​Report_​on_​the_​Appellate_​B ody_​of_​t​he_​W​orld​_​Tra​de_​O​rgan​izat​ ion.pdf > (last visited 8 October 2021), at 5. 211  Petersmann, above fn 138, at 212–​213, 240–​242. 212  DSB, ‘Minutes of Meeting held in the Centre William Rappard on 7 June 2000’, WT/​DSB/​M/​83 (7 July 2000). Interestingly, the United States welcomed the Appellate Body report in US –​Lead and Bismuth II, adopted 7 June 2000, para 38. There appears to be no reference to the contrary in the recent report by the USTR. 213  Petersmann, above fn 138, at 212. 214  Ibid., at 235. 215  McRae, above fn 1, at 181. 209 

188    James Crawford and Freya Baetens The WTO also acts ‘as a forum for permanent negotiations’,216 so that it is not restricted to third-​party decision-​making. It encourages parties to negotiate and settle their disputes out of court.217 Its two-​tier system (with appellate review) used to provide reassurance to parties, although that is currently (due to the US’s refusal to appoint Appellate Body members) an impossibility.218 Finally, the DSU has a role to play in the review of domestic implementing measures adopted by WTO Members, and this either avoids disputes in the follow-​up to decision-​making by the WTO dispute resolution mechanisms, or, at least channels such disputes through a structured judicial process.219

3. Considering the extrapolation of prospective remedies The remedies available in international trade law provide another source of reflection with respect to the approach to remedies in international law more broadly. The emphasis on ‘prospective remedies’ is an important feature of the international trade law dispute settlement system, and in particular of the WTO framework.220 Trade retaliation—​the suspension of trade obligations221—​even though frequently employed,222 is only seen as a second-​best alternative to compensation.223 In turn, both compensation and trade retaliation are less preferable to ‘full implementation of a recommendation to bring a measure into conformity with the covered agreements’.224 In this sense, the focus does not lie so much in ‘wip[ing] out all the consequences of the illegal act’225 but rather in ensuring compliance in the future. As explained by Vidigal, the findings and recommendations issued under the auspices of the WTO move beyond the binary of affirming or rejecting the existence of a breach but instead identify the specific problematic aspects giving rise to a breach and propose tailored solutions to rectify them.226 Ultimately, the WTO findings are not the final chapter in the dispute but merely another step in the attempt to reach a ‘solution mutually acceptable to the parties to a dispute’,227 for the benefit of all.228 In this respect, the WTO regime institutionalizes an approach to international litigation that has not realized its full potential in other fields of international law, including general international law. Litigant States occasionally have recourse to the ICJ by way of special agreement wishing not to establish a breach but rather seeking guidance as 216 

Lamy, above fn 2, at 984. Ibid., at 984. 218  Petersmann, above fn 138, at 234. 219  Ibid., at 208–​209. 220  See Chapter 37 of this handbook. 221  Article 22(1) of the DSU. 222  Li and Chen, above fn 192, at 643. 223  Ibid.; D.N. Palmeter and P.C. Mavroidis, Dispute Settlement in the World Trade Organization, 2nd edition, (Cambridge: Cambridge University Press, 2004), at 265–​266. 224  Article 22(1) of the DSU. 225  Factory at Chorzów (Claim for Indemnity), Merits, PCIJ Ser. A No 17, at 47. 226  See Chapter 37 of this handbook. 227  Article 3(7) of the DSU. 228  See Chapter 37 of this handbook. 217 

The Influence of International Trade Law on International Law    189 to the applicable rules in a dispute between them, especially when the stakes are high, as is often the case with disputes of a territorial character.229 When utilizing the Court’s compulsory jurisdiction, States commonly claim, and are content with, a declaration of a past or ongoing breach, showing little interest in the modalities which will ensure future compliance and maintenance of the good relations between the litigant parties. Negotiations out-​of-​court while the dispute is pending, particularly successful negotiations, have been rare in recent years, even though the Court has repeatedly emphasized their importance in achieving a friendly resolution of the dispute.230 The European Court of Human Rights has generally been reluctant to recommend specific measures to prevent future breaches, as the supervision of judgments is generally seen as a political task entrusted to the Committee of Ministers;231 this trend has however started to emerge following the adoption of several structural reforms, including the ‘pilot-​judgment procedure’232 and the procedure for an advisory opinion triggered by domestic courts under Protocol 16 ECHR.233 The Interamerican Court of Human Rights has focused more systematically on the extent and character of measures necessary to provide adequate remedy to ensure compliance with the States’ obligations under the American Convention on Human Rights.234 Seen in this light, the WTO dispute settlement framework lies at the forefront of an approach which views litigation as a means towards an end, rather than as an end in itself.

IV. Conclusion Numerous commentators have lauded international trade law, and the WTO dispute resolution mechanism in particular, as vehicles for change in international law more generally. Donald McRae, for example, has written that ‘there are procedural, institutional and substantive developments under the WTO that have important implications for the process and substance of international law’.235 Pascal Lamy, former 229 

For example, North Sea Continental Shelf (Judgment)(1969) ICJ Rep 6; Continental Shelf (Tunisia/​ Libyan Arab Jamahiriya) (Judgment) (1982) ICJ Rep 21. 230  Passage through the Great Belt (Finland v Denmark) (Provisional Measures Order) (1991) ICJ Rep 20; cf Frontier Dispute (Burkina Faso/​Mali) (Judgment) (1986) ICJ Rep 577. 231  M. Fyrnys, ‘Expanding Competences by Judicial Lawmaking: The Pilot Judgment Procedure of the European Court of Human Rights’ 12 German Law Journal (2011) 1231, at 1250. 232  See Article 61 of the Rules of Court; for an assessment A. Di Marco, ‘L’État face aux arrêts pilotes de la Cour européenne des droits de l’homme’ 108 Revue trimestrielle des droits de l’homme (2016) 887. 233  See L.-​A. Sicilianos, ‘L’élargissement de la compétence consultative de la Cour européenne des droits de l’homme –​À propos du Protocole no 16 à la Convention européenne des droits de l’homme’ 97 Revue trimestrielle des droits de l’homme (2014) 9. 234  See G. Staberock, ‘Human Rights, Domestic Implementation’, Max Planck Encyclopedia of Public International Law online (updated February 2011, visited 23 July 2020), para 9. 235  McRae, above fn 1, at 189. McRae also states, at 177, that there is ‘considerable scope for the provisions of the [VCLT], as well as other principles of international law, to be applied, developed and refined through dispute settlement under the WTO’.

190    James Crawford and Freya Baetens Director-​General of the WTO, describes the WTO as ‘an engine, a motor energizing the international legal order’.236 Joost Pauwelyn argues for ‘cross-​fertilization’,237 through which he hopes that WTO law will enrich public international law. In the sense that new rules of international trade law enhance international law, by creating new rights and obligations for the States parties to trade agreements, it is true that international trade law develops international law generally. In preparing the Articles on Responsibility of States for Internationally Wrongful Acts, the International Law Commission (ILC) had frequent regard to international trade law and the WTO. For example, the ILC sought to demonstrate that ‘[c]‌essation [of internationally wrongful conduct] is often the main focus of the controversy produced by conduct’ by referring to the WTO dispute settlement mechanism.238 International trade law was also relied upon in the ILC’s commentary on the Articles in relation to countermeasures.239 The WTO is a useful reference in relation to countermeasures because the WTO dispute settlement regime ‘required an authorization to take measures in the nature of countermeasures in response to a proven breach’.240 However, the influence of international trade law remains curtailed within the wider field of international law, outside the realm of WTO adjudication. At the present time, an important qualification, however, is necessary. The WTO system is not without its troubles: since December 2019, the future of the WTO dispute resolution mechanism is in doubt as a result of the United States’ continuing refusal to approve the appointment of Appellate Body members.241 The influence of international trade law on international law in non-​trade areas has been restricted for reasons such as its jurisdictional separateness, its limited relevance as part of the applicable law or even source of interpretation (due to the distinct or ‘sui generis’ character of trade law) and the informal hierarchy of international norms. However, there is room for non-​trade-​related areas of international law, and associated dispute resolution institutions, to learn from international trade law and in particular from the WTO as an institution.

236 

Lamy, above fn 2, at 984. Pauwelyn, ‘The Role of Public International Law in the WTO: How Far Can We Go?’ 95 American Journal of International Law (2001) 535, 552. 238  ILC Articles on State Responsibility with Commentaries, above fn 1, at 89, para 4. 239  Ibid., at 129, para 9; at 130, para 5; at 133, para 10. 240  Ibid., at 129, para 9, with reference to Articles 1, 3(7) and 22 of and Annex 2 to the Marrakesh Agreement. 241  WTO Press Release, ‘Members reiterate joint call to launch selection process for Appellate Body members’, (22 November 2019). Inside US Trade, ‘U.S. Slammed At DSB For Blocking Korean Appellate Body Reappointment’ Inside US Trade (23 May 2016); Statement by the United States at the Meeting of the WTO Dispute Settlement Body of 23 May 2016, at 1; Minutes of Meeting of the Dispute Settlement Body of 28 February 2018, para 7.2 W/​DSB/​M/​409; R. Lighthizer, ‘Appellate Body block the only way to ensure reform’ Inside US Trade (15 March 2019), at 1; P.-​J. Kuijper, ‘From the Board: The US Attack on the WTO Appellate Body’ 45 Legal Issues of Economic Integration (2018) 1, at 3. 237 J.

The Influence of International Trade Law on International Law    191

Further reading T. Cottier, J. Pauwelyn and E. Bürgi Bonanomi (eds), Human Rights and International Trade (Oxford: Oxford University Press, 2005) I. Van Damme, Treaty Interpretation by the WTO Appellate Body (Oxford: Oxford University, 2009) J. Harrison, The Human Rights Impact of the World Trade Organization (Oxford: Hart, 2007) S. Joseph, ‘Trade Law and Investment Law’ in D. Shelton (ed), The Oxford Handbook of International Human Rights Law (Oxford: Oxford University Press, 2013) 841 S.S. Kho et al., ‘The EU TTIP Investment Court Proposal and the WTO Dispute Settlement System: Comparing Apples and Oranges?’ 32 ICSID Review (2017) 326 J. Kurtz, ‘The Use and Abuse of WTO Law in Investor-​State Arbitration: Competition and its Discontents’ 20 European Journal of International Law (2009) 749 J. Kurtz, ‘WTO Norms as “Relevant” Rules of International Law in Investor-​State Arbitration’ 108 Proceedings of the American Society of International Law (2014) 243 J. Kurtz, The WTO and International Investment Law (Cambridge: Cambridge University Press, 2016) D. McRae, ‘The WTO Appellate Body: A Model for an ICSID Appeals Facility?’ 1 Journal of International Dispute Settlement (2010) 371 J. Pauwelyn, ‘The Rule of Law without the Rule of Lawyers? Why Investment Arbitrators are from Mars, Trade Adjudicators from Venus’ 109 American Journal of International Law (2015) 761 E.-​U. Petersmann and G. Jaenicke (eds), Adjudication of International Trade Disputes in International and National Economic Law (Fribourg: University Press Fribourg, 1992) G. Sacerdoti, ‘Trade and Investment Law: Institutional Differences and Substantive Similarities’ 9 Jerusalem Review of Legal Studies (2014) 1 G. Tereposky and M. Maguire, ‘Utilizing WTO Law in Investor-​State Arbitration’ in A. Rovine (ed), Contemporary Issues in International Arbitration and Mediation (Leiden: Martinus Nijhoff, 2011) 247 G. Verhoosel, ‘The Use of Investor-​State Arbitration under Bilateral Investment Treaties to Seek Relief for Breaches of WTO Law’ 6 Journal of International Economic Law (2003) 493

Chapter 7

The Regu l at i on of In ternationa l T ra de a nd (De mo cratic) L e g i t i mac y Manfred Elsig

I. II. III. IV. V.

Introduction Democratic legitimacy (Democratic) legitimacy and the WTO (Democratic) legitimacy and PTAs The lost discourse on democratic legitimacy in a new era of China-​United States rivalry I. Conclusions V

192 193 196 199 203 205

I. Introduction The trading system has undergone turbulent times. The liberal order created by the United States and its allies has been facing its biggest stress test. During the Presidency of Donald Trump, the World Trade Organization (WTO), the underlying rules, and its dispute settlement system came under attack to an extent not yet observed in its 25-​ year history. The WTO’s Appellate Body has stopped operating. The criticism of the Trump Administration vis-​à-​vis the multilateral system was accompanied by unilateral trade measures. In particular, tariffs became the preferred instrument of the Trump Administration to coerce other States into bilateral negotiations. While most trading partners reluctantly accepted these negotiations, in the case of China it has led to a stand-​off. Against the backdrop of the first major trade war in decades, this chapter analyses how perceptions about democratic legitimacy have evolved in recent years. Are

regulation of international trade    193 the goalposts of legitimate governance shifting, or are they just relegated to the background as power politics are making a revival in the global trading system? Have we witnessed a one-​time shock to the legitimacy of international trade institutions or are there structural changes underway that transcend US politics? The chapter is organized as follows. First, I briefly discuss various interpretations and narratives of democratic legitimacy and offer a cautionary note about applying democratic concepts without qualification when analysing global trade governance. Second, I focus on the WTO and discuss the most recent crises in light of debates about different forms and types of legitimacy. Third, I analyse how the debate on democratic legitimacy has been developing in relation to the increasing prominence and also changing nature of preferential trade agreements (PTAs). The chapter ends with reflections on how the new economic rivalry between the US and China further leads to a weakening of the perceived democratic legitimacy of existing institutions and might shape trade governance in years to come.

II.  Democratic Legitimacy Most concepts of legitimate democratic governance have developed in the context of democratic nation-​states. Therefore, when applying the notion of legitimate democratic governance to international institutions, the yardstick of comparison has been widely debated. Can international organizations be democratic, or if there are democratic deficits, should that be of concern?1 As I wrote back in 2007, ‘one needs to distinguish the disordered polities of international cooperation from domestic governance structures, where demos is clearly discernible, deliberation is more structured and mostly parliament-​driven, and where raison d’état has been shaped, defined, and brushed up over many decades of the respective polis’ existence’.2 In other words, some caution is in order when applying concepts developed in democratic systems to the international level. Just scaling the concept upwards without reservations is questionable. Whereas democratic States have increased in absolute numbers over time, we also notice that a number non-​democracies have become more influential in global governance, particularly China, which has recently moved from a rule-​taker to become a rule-​ maker.3 Further, we observe a backlash in the form of democracies moving from liberal to non-​liberal democracies (e.g. Brazil, India, Hungary, and Poland) that are openly

1 

A. Moravcsik, ‘Is There a “Democratic Deficit” in World Politics?’ 39(2) Government and Opposition (2004) 336–​363; see also R. Dahl, ‘Can International Organizations Be Democratic? A Skeptic’s View’ in I. Shapiro and C. Hacker-​Cordon (eds), Democracy’s Edges (Cambridge: Cambridge University Press, 1999) 19–​36. . 2  M. Elsig, ‘The World Trade Organization’s Legitimacy Crisis: What Does the Beast Look Like?’ 41(1) Journal of World Trade (2007) 75, at 79. 3  See also Chapter 13 of this handbook, on China’s role over time in creating trade rules.

194   Manfred Elsig questioning democratic norm diffusion originating at the international level.4 These recent developments offer a sober reading about the state of ‘democracy’ but also about the constraints and limits for applying concepts of democratic legitimacy to assessing international institutions. The terms democracy and legitimacy are largely overlapping. The term ‘legitimacy’ itself can be understood as ‘general compliance of people with decisions of a political order that goes beyond coercion or the contingent representation of interests’.5 A high level of compliance is driven by a shared view of fair and transparent processes through which those decisions are generated and by a strong perception that decisions coming out of the process positively impact people’s well-​being. Following this line of argument, the work by Fritz Scharpf has been instrumental.6 He differentiates between input and output legitimacy of political systems. Input legitimacy refers to the processes that lead to a decision. It focuses on issues such as participation, access, transparency and inclusiveness. Most of these elements are also in line with concerns for democratic decision-​making and should, in theory, increase the general compliance and acceptance of a political system and its outcomes. By comparison, output legitimacy is primarily focusing on whether decisions taken contribute to societal problem-​solving. For political institutions to be perceived as legitimate, they need to deliver both on the input and the output side of decision-​making. For political theorists, these concepts interact. Overall legitimacy (and therefore acceptance) increases when both input and output legitimacy are perceived to be meeting defined standards, many of which are also found in theories of democracy. A complicating factor, however, is that expectations about the role of international organizations vary. As Andrew Moravcsik in his work on the European Union argues, the individual assessment of legitimacy is strongly affected by philosophical conceptions, emphasizing different aspects of input or output legitimacy.7 The most important ones in his view include ‘a deliberate conception of democracy to improve political capacity of the citizenry, a pluralist conception concentrating on accountability, a libertarian conception as a means to protect individual liberties and a social-​democratic conceptions as a means to offset the power of concentrated wealth’.8 While the first two concepts are predominantly centred on input legitimacy by highlighting the quality of discourse and access to and control of decision-​makers, the latter two tackle issues of output legitimacy by highlighting various objectives such as the protection of individual rights and the protection of underprivileged segments of the society. There is thus disagreement on what functions and roles international organizations need to carry out

4 

J. Pevehouse, ‘Democracy from the Outside-​in? International Organizations and Democratization’ 56(3) International Organization (2002) 515–​549. 5  P. Nanz and J. Steffek, ‘Global Governance, Participation and the Public Sphere’ 39(2) Government and Opposition (2004) 314, at 315. 6  F. Scharpf, Governing in Europe. Effective and Democratic? (Oxford: Oxford University Press, 1999). 7  Moravcsik, above fn 1. 8  Elsig, above fn 2, at 80.

regulation of international trade    195 to be perceived as legitimate and democratic. In other words, an important ‘eye-​of-​the-​ beholder’ problem exists as well. Ruth Grant and Robert Keohane have further refined the pluralist concept of ‘accountability’ of institutions.9 They provide a sceptical account of global democracy and focus on how best to constrain the abuse of power by leading States and institutions. While the authors acknowledge the possibility of a participation (direct democracy type) model of global governance (i.e. to enlarge the political capacity of people), their preference goes to a delegation model (parliamentary democracy type) to which they attribute a better fit for the world of international organizations. Based on the latter model, they sketch several mechanisms to hold accountable those who govern.10 They find that only organizations that meet a minimal standard of accountability are perceived as (democratically) legitimate. Following their logic, the bar for a judgment of legitimacy is lowered to addressing mainly power politics. While various benchmarks have developed for assessing the input side of legitimacy, recent contributions have further shown that there is also little consensus on what makes international institutions legitimate from an output side. Tamar Gutner and Alexander Thompson argue alongside Andrew Moravcsik that expectations about the objectives of international organizations often vary.11 The authors convincingly show that performance matrices are manifold in order to assess the outcome side. They introduce the concept of performance parameters and objectives—​these range from process outputs to intermediate and macro outcomes.12 Macro outcomes for instance are more ambitious than process outputs which should be reflected in expectations about how well international organizations fulfil their mandates. Jonas Tallberg and Michael Zürn further remind us that legitimacy matters for international institutions insofar as it helps them to perform their tasks, to remain focal, to retain their capacity to develop new rules and their ability to commit States to comply with agreed obligations.13 This idea goes back to the early regime theories, which suggested that regimes only function if the expectations of States converge around their goals, principles, rules and decision-​making procedures; otherwise international

9  R. Grant and R. Keohane, ‘Accountability and Abuses of Power in World Politics’ 99(1) American Political Science Review (2005) 29–​43. They have the following working definition: ‘accountability implies that some actors have the right to hold other actors to a set of standards, to judge whether they have fulfilled their responsibilities in light of these standards, and to impose sanctions if they determine that these responsibilities have not been met (2005:29)’. 10 These accountability mechanisms are very diverse. Instruments range from hierarchical, supervisory, fiscal, legal, market-​based, peer-​based to public reputational approaches. 11  T. Gutner and A. Thompson, ‘The Politics of IO Performance: A Framework’ 5(3) The Review of International Organizations (2010) 227–​248. 12  The literature on performance not only develops different performance indicators, but also maps the sources of performance, usually distinguishing between international organization-​internal or international organization-​external factors. 13 J. Tallberg and M. Zürn, ‘The Legitimacy and Legitimation of International Organizations: Introduction and Framework’ 14(4) The Review of International Organizations (2019) 581–​606.

196   Manfred Elsig cooperation is lacking any impact.14 In other words, legitimacy is an important value in itself for international organizations to play an authoritative role in global governance. The flipside of this argument is that the de-​legitimation of international institutions can lead to a collapse of international cooperation.15 From the above, it follows that there are various notions and approaches to measure legitimate governance of international institutions, yet the broad differentiation between instruments that strengthen input legitimacy and outcomes that help address societal problems can be a helpful compass for the discussion. In addition, input and output legitimacy need to be considered as two sides of the same medal. If a lack of input or output legitimacy exists, this cannot be easily compensated. In the following, I discuss how different perceptions of legitimacy have evolved in the trading system by zooming in on different venues of rule-​making. I focus on progress (or lack thereof) in trade regulation and how this relates to the perceived legitimacy of international trade institutions and treaties. I also discuss how the tensions between the United States and China might shape discussions on trade regulation and democratic legitimacy in the future.

III.  (Democratic) Legitimacy and the WTO How has the debate on democratic legitimacy evolved in the context of the WTO? In the aftermath of the Uruguay Round negotiations, attention was first devoted to how developing countries can increase their participation and influence in WTO rule-​ making. Not only were developing countries relying on various coalitions to pursue their trade preferences, but inner circles of WTO concentric decision-​making also became more accessible as part of a general trend to make processes more transparent. As a result, criticism on the lack of input legitimacy became less vocal over time.16 At the end of the 1990s, when a new trade round was about to be launched, many developing countries pushed for greater attention to be paid to development concerns which should lead to greater output legitimacy in the long term. By the turn of the millennium, the WTO, a member-​driven organization, had adjusted its governance model by adapting its informal proceedings to give more access to less powerful trading nations and by agreeing to launch a new trade round in 2001 that would prioritize concerns voiced by 14 

S. Krasner, ‘Structural Causes and Regime Consequences: Regimes as Intervening Variables’ 36(2) International Organization (1982) 185–​205. 15  Tallberg and Zürn, above fn 13, develop in their contribution a framework of analysis for the legitimation and de-​legitimation of international organizations. 16  See also M. Elsig and T. Cottier, ‘Reforming the WTO: The Decision-​Making Triangle Revisited’ in T. Cottier and M. Elsig (eds), Governing the World Trade Organization: Past Present and Beyond Doha (Cambridge: Cambridge University Press, 2011) 289–​312.

regulation of international trade    197 developing countries.17 While the Doha Agenda and its goals were structuring the trade negotiations in the first decade of this century, progress was very limited. After the experience of a successful conclusion of the Uruguay Round and some sector-​specific agreements in the late 1990s, a significant expectations-​capacity gap emerged in the negotiations. With each deadline that passed without tangible results, the deficit in output legitimacy started to grow gradually. Paradoxically, one can observe that while input legitimacy increased, output legitimacy plummeted. Put differently, whereas power was increasingly constrained in decision-​making, this gain in input legitimacy did not translate into more outcome legitimacy in the form of substantial negotiation results. The imbalance between access to rule-​making and tangible outcomes became increasingly obvious. The idea of a trade round slowly died. Another imbalance started to materialize at the end of the 1990s. In comparison to the rule-​making and negotiation arm of the organization, the dispute settlement system was used actively by a growing number of WTO Members. The authority of both panels and the Appellate Body increased.18 In particular, final and binding Appellate Body decisions were in most cases implemented by the losing parties, panels generally followed the guidance provided by Appellate Body and a light form of precedence in WTO law developed. The growing authority of the Appellate Body was by and large accepted.19 So, originally, both input and output legitimacy went up.20 However, the Appellate Body’s authority came under increased scrutiny over time.21 If we focus on attempts to delegitimize the dispute settlement system, those attempts were always concentrated around the Appellate Body rather than the panel system. Criticism was first directed at procedural issues exemplified by the infamous Amicus Curiae Brief episode. Many WTO members called for limiting the access of non-​governmental organizations to the legal proceedings by not soliciting non-​governmental briefs sent to the Appellate Body. As Petros Mavroidis wrote at the time, this event was a storm in a teacup.22 The prominence of the Appellate Body rose with decisions producing important distributional consequences (e.g. on subsidies, on taxation) as well as cases addressing important non-​trade concerns. Not surprisingly, politicization increased while the legitimacy of the Appellate Body seemed to grow initially. However, the question arose whether the degree of legalization of the WTO dispute settlement system had gone too far.23 There was an increasing fear that due to lack 17 WTO, Doha WTO Ministerial Declaration, WT/​MIN(01)/​DEC/​1 (20 November 2001).

18   G. Shaffer, M. Elsig and S. Puig, ‘The Extensive (but Fragile) Authority of the WTO Appellate Body’ 79(1) Law and Contemporary Issues (2016) 237–​273. 19  A notable exception was the constant US criticism of how the Appellate Body overturned decisions of panels when it came to US practice in calculating dumping margins, known as zeroing. 20  Although, participation by low incoming developing countries in dispute settlement has remained low, see M. Elsig and P. Stucki, ‘Low-​Income Developing Countries and WTO Litigation: Why Wake Up the Sleeping Dog?’ 19(2) Review of International Political Economy (2012) 292–​316. 21  See also Chapters 5 and 34 of this handbook. 22  P.C. Mavroidis, ‘Amicus Curiae Briefs Before the WTO: Much Ado About Nothing’ 2001 Harvard Jean Monnet Working Paper No 02/​01. 23  J. Goldstein and L. Martin, ‘Legalization, Trade Liberalization, and Domestic Politics: A Cautionary Note’ 54(3) International Organization (2000) 603–​632.

198   Manfred Elsig of progress in rule-​making, the dispute settlement system could step in and through judicial decisions fill gaps in the various WTO contracts. WTO Members’ growing interest in recent years in regaining control over an independent judicial body was particularly reflected in Appellate Body Members’ selection and nomination dynamics.24 The refusal by the US Administration to appoint new Appellate Body Members or re-​appoint existing ones starting in 2017 has led to a paralysis of the system, and by 2020, the Appellate Body was no longer operational. The Trump Administration, notwithstanding many reform proposals put forward by other WTO Members to address and accommodate US concerns, did not blink and showed no willingness to give up its veto. The Trump Administration used various types of criticism to try to delegitimize the court. These ranged from false statistics about lost and won cases, criticism of the Appellate Body overstepping its mandate, concerns with procedural decisions, such as delaying the submission of the final report within 90 days of appeal, to directly attacking individual judges and individual members of the Secretariat, as well as lamenting that the system costs too much and criticizing individual Appellate Body Members for having earned excess money in delaying their work. The Trump Administration’s attempt to de-​legitimize the Appellate Body received relatively little support from other WTO members. Nevertheless, the United States has used its blocking power successfully. The above observation suggests that for an organization to be perceived as legitimate, it needs both to deliver on input and output in relation to its main functions. In the case of the WTO, an imbalance between rule-​making and rule enforcement may have put extra strain on the Appellate Body over the years, an issue which Appellate Body Members also grappled with.25 Many experts predicted that this alleged asymmetry between lack of rule-​making and the increasing strength of dispute settlement would hamper negotiations. It remains to be seen whether a more soft law approach with only a panel system will help unblock negotiations on updating trade rules that were negotiated more than 25 years ago.26 The alternative multi-​party interim appeal arbitration arrangement (MPIA) put into place in 2020 by two dozen WTO Members might provisionally act as an ad hoc Appellate Body for some limited number of cases, but the MPIA will in no way be able to replace the Appellate Body.27 Even if the Biden Administration can help overcome the existing impasse and work pragmatically towards reforming the Appellate Body (which at the time of writing does not seem to be the case), the institution will hardly regain its former level of legitimacy. Future Appellate Body Members would face public 24 M.

Elsig and M. Pollack, ‘Agents, Trustees, and International Courts: Nomination and Appointment of Judicial Candidates in the WTO Appellate Body’ 20(2) European Journal of International Relations (2014) 391–​415; see also J. Dunoff and M. Pollack, ‘The Judicial Trilemma’ 111(2) American Journal of International Law (2017) 225–​227. 25 C.-​ D. Ehlermann, ‘Tensions Between the Dispute Settlement Process and the Diplomatic and Treaty-​Making Activities of the WTO’ 1(3) World Trade Review (2002) 301–​308. 26  See also Chapters 4 and 5 of this handbook. 27  See K. Kugler, ‘Operationalising MPIA Appeal Arbitrations: Opportunities and Challenges’ in M. Elsig, R. Polanco and P. Van den Bossche (eds), International Economic Dispute Settlement: Demise or Transformation (Cambridge: Cambridge University Press, 2021) 68–​96.

regulation of international trade    199 scrutiny about their level of independence from the key WTO Members, potentially further de-​legitimizing the dispute settlement system. In other words, institutional tweaks to the design of the AB and more control over the work of Appellate Body Members and its Secretariat will reduce the dispute settlement’s independence, which is needed for such a ‘world court’ to be perceived as fully legitimate. The benchmark for legitimacy is not the GATT system but a functioning two-​tiered WTO system. From a macro perspective, one could argue that the big achievements of the WTO have been to tame US unilateralism which was prevalent in the 1980s by strengthening the rule of law and later to accommodate other powerful States in a rules-​based system, exemplified by the accession of China to the WTO in 2001.28 It is also noteworthy that, after the financial and economic crises in 2007, many commentators were upbeat about the WTO’s role in taming protectionism.29 Until recently, the general view was that the WTO did largely achieve these macro objectives. However, the most recent US turn to focus on trade deficits and promote economic nationalism through unilateral actions has unsettled the predominant view of WTO success. This optimism has now been replaced by many pessimist outlooks for the organization. The Trump Administration no longer accepted independent and compulsory third-​party adjudication for trade relations and put forward unspecified proposals which did not find consensus within the Geneva-​based organization.30 Losing the support of the main designer and supporter of the system certainly affects the overall perception of legitimacy. Also, the fact that a single country can hold an entire organization hostage suggests important input legitimacy gaps and an urgent need to revise decision-​ making processes. The push for going back to former GATT-​type power-​based dispute settlement will certainly not strengthen the perception of democratic legitimacy and will hamper expectations about the enforceability of new rules agreed in the future.

IV.  (Democratic) Legitimacy and PTAs As a result of the lack of progress in rule-​making in the WTO, we have witnessed an increasing number of PTAs since the late 1990s.31 For a long time, the core concessions in these agreements were about reciprocal tariff cuts, as an exception to the MFN rule of the WTO. Later, the scope of liberalization expanded and included various market 28 

Shaffer et al., above fn 18; see also M. Elsig, ‘The World Trade Organization at Work: Performance in a Member-​Driven Milieu’ 5(3) The Review of International Organizations (2010) 345–​363. 29  The role of the WTO in addressing protectionism as a result of the COVID pandemic will be an important research question. 30  While a number of WTO Members in principle supported some of the concerns raised by the Trump Administration, which had already appeared under President Obama, the lack of willingness by the Trump Administration to offer constructive solutions dampened other WTO Members’ enthusiasm to publicly support the US stance. 31  A. Dür, L. Baccini, and M. Elsig, ‘The Design of International Trade Agreements: Introducing a New Dataset’ 9(3) The Review of International Organizations (2014) 353–​375.

200   Manfred Elsig access commitments in areas such as services or public procurement. Beyond these so-​ called WTO-​plus commitments, non-​core WTO topics also entered the world of PTAs, ranging from investment regulation to non-​trade issues such as environmental, labour, or security concerns. While originally, some WTO Members were reluctant to negotiate PTAs, every WTO Member has now joined the PTA bandwagon, which has also provided a legitimacy boost for using these types of treaties to liberalize markets. What has also helped increase acceptance is that early criticism of non-​compatibility with the WTO and fragmentation has been overblown.32 A systematic study of WTO presence in PTAs has recently shown that the WTO covered agreements provide an important base for PTA commitments and that concerns about venue-​shopping have been potentially overstated.33 It is beyond this chapter to discuss the democratic legitimacy, both in terms of input and output dimensions for hundreds of PTAs that vary greatly along many dimensions.34 However, what can be observed generally is that given the absence of institutional structures, with the exception of regional trade pacts (e.g. MERCOSUR, EFTA, SADC), relatively little attention has been paid to questions of input legitimacy.35 Criticism has mostly emerged from non-​governmental groups representing environmental and labour concerns as well as from small and medium-​sized traders about the lack of input into the negotiations.36 As a reaction, in many democracies, transparency in policy formulation for trade agreements has increased, and consultation procedures have been established. In addition, in some countries, parliaments have become more engaged and vocal in trade talks. In the case of the European Union, the Lisbon Treaty has further empowered the European Parliament vis-​à-​vis other EU institutions, both in terms of mandating new trade talks, constant exchange with the negotiators from the European Commission, and most importantly, establishing co-​decision procedures with the European Council in terms of ratification of PTAs. In the United States, the PTA agenda under Trump was strongly driven by executive privileges as the US President drew on a number of instruments granted to the executive, which also led to pushback by Democrats in Congress. The Trump Administration was implicitly arguing that the

32  J. Bhagwati, Termites in the Trading System: How Preferential Agreements Undermine Free Trade (Oxford: Oxford University Press, 2008). 33  T. Allee, M. Elsig and A. Lugg, ‘The Ties between the World Trade Organization and Preferential Trade Agreements: A Textual Analysis’ 20(2) Journal of International Economic Law (2017) 333–​363. Presence in this context is measured by the amount of texts that are copy-​pasted from WTO agreements into PTA texts and the type and number of references to WTO agreements found in PTAs. 34  L. Baccini, A. Dür and M. Elsig, ‘The Politics of Trade Agreement Design: Revisiting the Depth-​ Flexibility Nexus’ 59(4) International Studies Quarterly (2015) 765–​775; T. Allee and M. Elsig, ‘Why Do Some International Institutions Contain Strong Dispute Settlement Provisions: New Evidence from Preferential Trade Agreements’’ 11(1) The Review of International Organizations (2016) 89–​120. 35 A. Capling and P. Low, Governments, Non-​ State Actors and Trade Policy-​Making: Negotiating Preferentially or Multilaterally? (Cambridge: Cambridge University Press, 2010). 36  In democratizing States with strong governments, business groups also often complain about the lack of engagement in the policy formulation stage.

regulation of international trade    201 output (‘fantastic’ new PTAs) will make up for a possible input legitimacy deficit within the US policy formulation process. The societal concerns about the effects of PTAs (and therefore output legitimacy) have also increased over time. The Trump Administration focused its narrative on PTA’s distributional effects and other economic externalities. While research shows that the overall trade flow impacts of PTAs are relatively moderate and on the aggregate positive,37 in many democracies, a discourse has developed about how trade deals mostly benefit highly competitive global firms, which finds support in newer studies.38 In addition, some critics lament the extent to which PTAs lead to outsourcing of jobs and putting pressure on wages, leading to overall negative outcomes, such as de-​industrialization and increasing domestic inequality.39 This type of criticism had been instrumentalized in the 2016 US elections by both main party contenders, and it continued into the 2020 US elections. Today, we observe in the US a growing consensus among members of Congress that trade agreements need to be re-​designed to protect US workers. The renegotiated NAFTA (called USMCA) has been the first major deal to attempt to lower the US trade deficit in goods trade by inserting certain corrective instruments (e.g. higher wages and increased labour protection in Mexico) and watering down independent enforcement mechanisms.40 Other US trading partners, particularly those having surpluses in goods trade with the US were targeted by the Trump Administration, and as a result trade talks started with many of the ‘surplus’ countries. Overall, one can observe that domestic support for trade agreements among the governing elites in the United States has shifted remarkably, although citizen support for free trade is still strong, as many surveys show. In the case of the United States, one could argue that an approach of competitive liberalization has been eroded by a new type of mercantilist and economic nationalist approach to trade. Taking a middle ground, some scholars are now advocating strengthening elements of ‘social inclusion’ in trade agreements.41 Such an approach aims to increase the acceptance and therefore legitimacy of PTAs among a growing sceptical electorate. At the same time, other major trading partners, for instance, the European Union, Australia, Korea or Japan, have continued to negotiate or modernize their PTA network. If we focus on the European Union, there seems to be large enough and

37  Dür et al., above fn 31; S. Baier and J. Bergstrand, ‘Do Free Trade Agreements Actually Increase Members’ International Trade?’ 71(1) Journal of International Economics (2007) 72–​95. 38 L. Baccini, P. Pinto, and S. Weymouth, ‘The Distributional Consequences of Preferential Liberalization: Firm-​Level Evidence’ 71(2) International Organization (2016) 373–​395. 39  US specific studies increasingly provide evidence of such shocks, in particular in relation to China, although trade concessions have occurred in the context of the WTO treaties, there is no PTA between the two countries, see D. Autor, D. Dorn and G. Hanson, ‘The China Shock: Learning from Labor-​ Market Adjustment to Large Changes in Trade’ 8 Annual Review of Economics (2016) 205–​240. 40  The KORUS FTA was the first re-​negotiated trade deal. 41  See, e.g., G. Shaffer, ‘Reconceiving Trade Agreements for Social Inclusion’ in M. Elsig, M. Hahn and G. Spilker (eds), The Shifting Landscape of Global Trade Governance (Cambridge: Cambridge University Press, 2019) 157–​181.

202   Manfred Elsig continued support for negotiating the market-​access type of PTAs. However, when it comes to the ratification of EU trade agreements, we observe occasional setbacks.42 Nevertheless, the EU has recently finalized an agreement with Japan and the ratification process for the EU-​Canada Comprehensive Economic and Trade Agreement (CETA), while highly politicized, is close to the finish line at the time of writing. One reason for continued support might be that trade shocks have not occurred as abruptly in the European Union compared to the alleged China shock in parts of the United States’ rust belt region. In addition, the existence of an established welfare system and the availability of trade-​adjustment programs have allowed European States to better cope with the short-​term pain of restructuring industries. In particular, in the UK, as a result of Brexit, we observe a high legitimacy of trade agreements among the governing elite. By announcing that the UK government is keen to copy-​paste existing EU agreements, it further lent credibility to the European Union’s network of treaties.43 Overall, the European Union is strongly influenced by a pragmatic market-​access-​ seeking agenda which is combined with an expanding agenda on tackling non-​trade concerns (including labour and human rights).44 The politicization then mostly kicks in during the ratification stage and in relation to large trading partners (e.g. Canada MERCOSUR). Overall, we observe that input legitimacy has improved, while output legitimacy remains contested to some degree. If we turn to the third big player in the universe of trade regulation, we see that China has been following a mix of classical PTAs with mainly smaller trading nations in Europe (e.g., Switzerland, Norway) and countries in the Asia-​Pacific region (e.g. Korea, Australia, Singapore, Chile) and most recently as part of a mega-​regional agreement (RCEP). In addition, it has prominently pushed for an infrastructure-​led approach to foster economic integration with its neighbourhood and beyond. The so-​called Belt and Road Initiative stands out as well as the Agenda 2025 through which the Chinese leadership aspires for China to become the leading competitor in many of the industries of the future. At the same time, the Chinese leadership is following a soft power approach through trade by building coalitions using a mix of infrastructure-​related agreements. However, it has also had recourse to demonstrating market power when it comes to countering criticism of its overall economic and political system. Overall, we observe a clear shift from China as a rule-​taker to a rule-​maker in global trade. Applying standards of democratic legitimacy to the Chinese efforts is tricky. The observed political processes hardly meet any standards of input legitimacy. On the output side, there is a lack of studies about the effects of Chinese bilateral trade agreements.

42  In particular groups on the left and right spectrum of politics have increasingly called into question the loss of sovereignty from signing up to international trade treaties that, for instance, involve investor-​ State arbitration systems in which firms can sue governments. See also Chapter 32 of this handbook. 43  See also Chapter 11 of this handbook. 44  However, also the European Union moves towards experimenting with unilateral enforcement, at < https://​trade.ec.eur​opa.eu/​doc​lib/​press/​index.cfm?id=​2204> (last visited 21 December 2020).

regulation of international trade    203 PTA negotiations are usually characterized by concession-​trading and the idea that countries voluntarily select themselves into PTAs. So, there is somewhere a win-​win situation in a world where cooperation is assumed to be a positive sum-​game. However, given the specific interests of the United States, China and the European Union in trade agreements, it seems that power politics may increasingly dominate the diffusion of distinct PTA templates. In addition, the danger of block-​building can no longer be discarded. The USMCA deal provides some illustrations. For instance, the United States insisted on a China-​clause which is intended to make it harder for Canada or Mexico to negotiate a bilateral trade agreement with China, a so-​called non-​market economy.45 Such disguised geopolitical approaches put existing and future PTA partners in an uncomfortable position. They affect the domestic support for PTAs, leading to an overall legitimacy crisis as the policy processes (and interests) in many PTA partners are trumped by the strategic concerns of powerful States. If solely the model treaties and templates of the dominating actors prevail in trade agreements, the public’s perception and acceptance will quickly turn negative.

V.  The Lost Discourse on Democratic Legitimacy in a New Era of China-​ United States Rivalry Beyond the lack of US leadership in the trading system, trade regulation also faces challenges related to an increasing China-​United States rivalry. Early realist international relations theory described conflictual situations emerging in times of power transition.46 Hegemonic stability theories suggested that when the hegemon loses relative power, he turns inwards, and the global system becomes less stable.47 After the Cold War, which was characterized by bipolarity and US-​Soviet rivalry, the 1990s were dominated by US unipolar power. Projections, however, suggest a potential power transition in a few years from now as China may overtake the United States as the most potent trade power. This has been one of the important concerns of the Trump and Biden Administrations, and therefore the United States has attempted to recalibrate its economic relations with China. The past years have seen a remarkable shift towards economic nationalism, and the United States has, under the pretext of pursuing ‘economic security’ started to increase and expand its existing unilateral measures. International institutions are seen again as epiphenomenal to State power. The Trump discourse suggested that the WTO covered agreements and its dispute settlement system had not 45 

See also Chapter 8 of this handbook. A.F.K. Organski, World Politics, 2nd edition (New York: Knopf, 1968). 47  M. Webb and S. Krasner, ‘Hegemonic Stability Theory: An Empirical Assessment’ 15(2) Review of International Studies (1989) 183–​198. 46 

204   Manfred Elsig delivered and that also PTAs had a detrimental effect on the US economy. The Trump Administration called for reform of the WTO, re-​negotiated its most important regional trade deal, put pressure on the European Union to re-​start transatlantic negotiations and finally tried to find a trade deal with China. At the same time, the Trump Administration threatened other countries with the imposition of high tariffs to make concessions in trade talks. While it could well be that overall legitimacy (based on the interpretation of trade deals protecting US workers and bringing back jobs) might eventually rise in the US again, the wider public in other parts of the world are more concerned that mercantilism and power politics have re-​captured US foreign policy. In turn, their assessment of PTAs as legitimate tools might turn more negative. Once power politics bluntly overtake cooperative forms of economic integration, the resulting international law instruments lose their appeal. As to WTO reform, it is noteworthy that WTO Members have reacted to accommodate various concerns of the United States relating to the working of the Appellate Body.48 However, most of the US criticism relates to constraining the autonomy of the Appellate Body and its Secretariat and has been voiced for some time. It is hard to see under what understanding of democratic legitimacy this could be interpreted as a move toward greater legitimacy of international organizations. The slogan of regaining sovereignty might resonate well in key constituencies of conservative and populist parties. However, when countries demand a treaty re-​negotiation or proceed to withdraw from an international organization, they undo the existing status quo compromise. As Stefanie Walter shows with respect to Brexit, disintegration also affects and hampers the sovereignty of the rest of the States party to an agreement. These sovereignty costs are not sufficiently accounted for.49 While some partial solutions are advocated, such as the provisional appeal instrument for WTO dispute settlement, these are transitional at best. The idea that the current legitimacy decline related to a weakening institution for arbitrating disputes could be compensated for by the increased performance of the negotiation arm is more than questionable. The prospects of progress in negotiations remain doubtful in times of superpower rivalry as trade talks in the WTO are increasingly affected by a new trade bipolarity. So, it looks like the WTO achieved its highest level of legitimacy in the late 1990s, and since then, it has been on a downward path, undergoing existential threats. The US power-​based initiatives relegate concerns about democratic legitimacy to the background. Even regular calls for further development-​mainstreaming in the WTO have taken a backseat to geopolitical concerns and the survival of multilateralism.

48 Informal Process on Matters Related to the Functioning of the Appellate Body, Report by the Facilitator H.E. Dr. David Walker (New Zealand), World Trade Organization, JOB/​GC/​222 15 October 2019). 49  S. Walter, ‘The Mass Politics of International Disintegration’, paper presented at Political Economy of International Organizations (PEIO) Conference, Salzburg (2019) at .

regulation of international trade    205 As far as China is concerned, it has signalled publicly that it is willing to fill the gap of leadership in multilateralism in the Trump era.50 Given the shock status in many Western democracies in early 2017, this announcement was positively received. However, it became obvious that this remained largely a declaration without a clear and constructive agenda. Few concrete proposals were put forward by China on how to re-​ invigorate multilateralism and address the crises in the WTO. At the same time, China has intensified its collaboration network through the Belt and Road Initiative, which has been received with varying enthusiasm in Europe. The very different reactions of European countries vis-​à-​vis this infrastructure-​centred project exemplify the degree of uncertainty and unpreparedness with which governments engage with a growing and more powerful China. It is hard to speculate how future rule-​making advocated by China through different trade venues will impact the overall acceptance of China’s move from rule-​taker to rule-​maker. From a democratic legitimacy perspective, there are many questions about how inclusive this process will be, how much it will be based on participation, and how much it will focus on global goods instead of narrowly defined national interests. Overall, Chinese definitions of legitimate governance will further clash with established Western-​type concepts. Output legitimacy will likely trump input legitimacy. As the power balance shifts towards non-​democracies and illiberal democracies, the attention to legitimacy concepts inspired by democratic countries’ perspectives will also further fade.

VI. Conclusions This chapter has discussed the current developments in global trade regulation through the prism of various concepts of democratic legitimacy. The diagnosis concluded that both the goalposts of legitimate governance are shifting and that concerns about democratic legitimacy have been relegated to the backseat as power politics again dominate in global trade. Anti-​globalism has been on the rise in many Western countries as witnessed by the election of Donald Trump in the United States and Boris Johnson in the United Kingdom.51 The ‘America First’ approach has led to re-​negotiations of bilateral trade deals by the United States following a mercantilist logic. The Biden Administration’s focus on ‘Build Back Better’ might not look that different when it comes to trade. In addition, the role of the WTO in international economic law has been drastically reduced by paralysing the dispute settlement system. China has also been actively pursuing its trade policy strategies through various venues, ranging from multilateral institutions to regional trade pacts (e.g. RCEP), bilateral deals and infrastructure-​led initiatives. The

50 

WEF talk by Chinese President Xi Jinping (17 January 2017). J. Bisbee, L. Mosley, T.B. Pepinsky. and P. Rosendorff, ‘Decompensating Domestically: The Political Economy of Anti-​Globalism’ 27(7) Journal of European Public Policy (2020) 1090–​1102. 51 

206   Manfred Elsig current trade clash between the United States and China might redefine how we see and assess the legitimacy of trade agreements in the future. Looking ahead, the growing rivalry between the United States and China risks further destabilizing the WTO as expectations about the role of the multilateral organizations among key WTO Members further diverge. Even if the approach by the Biden Administration softens to some degree vis-​à-​vis the WTO, it looks like both the US and China will increasingly compete to dominate rule-​making and engage in more aggressive forms of venue-​shopping. This will lead to further politicization. For the WTO, an organization that has been built on the premise of consensus decision-​making, this development is not good news for overall input legitimacy and will hardly make the performance of the WTO better (output legitimacy). Most scenarios suggest that a decline in the authority of the WTO will continue, and public opinion in many WTO constituencies will increasingly cast doubt on the legitimacy of the organization. Even if the Biden Administration pursues a more diplomatic path, the damage remains done. As to PTAs, there is a real danger that different spheres of influence develop and processes to strengthen regional blocks accentuate. Forms of coercive diffusion of templates (trade rules) could become more dominant than in the past.52 This would deprive countries of existing influence to shape PTA design and lower the perceived degree of legitimacy of PTA negotiation outcomes. The work of many years of calibrating the WTO to different demands and to foster the development of PTAs is certainly undermined by the power struggles we observe. In the end, the potential for international trade regulation, international law, and international institutions is also defined by how much WTO Members are willing to constrain themselves and abstain from unilateral measures. Recent debates about using national security exemptions to protect industries and ‘weaponizing’ interdependence show how political authorities might increasingly use tools to control market decisions. As Henry Farrell and Abraham Newman argue, governments with influence over central nodes of network structures can ‘weaponize networks to gather information or choke off economic and information flows, discover and exploit vulnerabilities, compel policy change, and deter unwanted actions’.53 The strategic use of these central nodes will certainly increase, even though the impact in a world with integrated supply chains will also yield negative consequences for those controlling the nodes. The crises of the WTO, the power politics and geopolitical interests dominating PTAs, and the increasing temptation to use unilateral tools for trade regulation have led to a lowering of expectations about the democratic legitimacy of current trade institutions. However, unfettered protectionism, trade conflicts and the COVID pandemic could also be a wake-​up call for re-​building and strengthening international institutions to

52  T. Allee and M. Elsig, ‘Are the Contents of International Treaties Copied and Pasted? Evidence from Preferential Trade Agreements’ 63(3) International Studies Quarterly (2019) 603–​613. 53  H. Farrell and A. Newman, ‘Weaponized Interdependence: How Global Economic Networks Shape State Coercion’ 44(1) International Security (2019) 42–​79.

regulation of international trade    207 reap the benefits of cooperation. Any alternative to a minimal rules-​based global trade system is worse.

Further reading A. Dür and M. Elsig (eds), Trade Cooperation: The Purpose, Design and Effects of Preferential Trade Agreements (Cambridge: Cambridge University Press, 2015) M. Elsig, B. Hoekman, and J. Pauwelyn (eds), Assessing the World Trade Organization: Fit for Purpose? (Cambridge: Cambridge University Press, 2017) M. Elsig, R. Polanco, and P. Van den Bossche (eds), International Economic Dispute Settlement: Demise of Transformation? (Cambridge: Cambridge University Press, 2021) P. Mavroidis and A. Sapir, China and the WTO: Why Multilateralism Still Matters (Princeton: Princeton University Press, 2021) J. Tallberg, K. Bäckstrand, and J-​ A. Scholte (eds), Legitimacy in Global Governance (Oxford: Oxford University Press, 2018)

Pa rt I I

B I L AT E R A L A N D R E G IONA L T R A DE AG R E E M E N T S

Chapter 8

North Ame ri c a n Trade: NAF TA a nd US- ​C aused Gl oba l T ra de Tensions Robert Brookfield and Lori Di Pierdomenico

I. II. III. IV.

Introduction North American trade: NAFTA and beyond (1994–​2017) Trump administration: TPP withdrawal and NAFTA renegotiation Trump administration: ​breakdown of the rule of law? A. Use of unilateral tariffs B. United States undermining the enforceability of the NAFTA and the WTO agreements V. Updating traditional North American trade issues through NAFTA 2.0 A. Automotive products B. Investment C. Cross-​border trade in services D. Agriculture E. Intellectual property F. Government procurement G. State-​owned enterprises VI. Newer issues reflected in NAFTA 2.0 A. Sectoral issues addressed in new ways B. Digital trade C. Labour and environment D. Greater inclusion E. Structural innovations

212 212 215 216 217 218 220 221 222 224 225 227 227 229 230 230 230 231 233 234

212    Robert Brookfield and Lori Di Pierdomenico VII. Important issues that did not change A. Bi-​national review of trade remedies B. Temporary entry C. Cultural industries exception VIII.  Conclusion

235 235 236 236 237

I. Introduction This chapter will focus on developments in North American trade since NAFTA entered into force in 1994 through its recent renegotiation/​replacement.1 Because NAFTA involves Canada, the United States, and Mexico, these countries will be the focus of the analysis. As the chapter will illustrate, despite criticisms over the years from political leaders and various special interest groups, the history of North American free trade,2 from the entry into force of NAFTA to its recent renegotiation, demonstrates the vitality, dynamism, and resilience of the North American trading system.

II.  North American trade: NAFTA and beyond (1994–​2017) NAFTA came into force during the successful conclusion of the Uruguay Round of the GATT and the establishment of the WTO. Despite changes in political parties of the US and Canadian governments to parties that had initially been skeptical of the agreement,3 the NAFTA entered into force and endured. As one of the first FTAs involving major 1 The

Protocol Replacing the North American Free Trade Agreement stipulates that the new agreement ‘supercedes’ NAFTA (para 1), a term that is somewhat ambiguous in treaty terminology. However, other elements of the Agreement suggest that the Protocol ‘terminates’ NAFTA and replaces it with the new Agreement. See for example Annex 14-​C (Legacy Investment Claims and Pending Claims), paras 3 and 5. Given treaty practice is to refer to one’s own country first, three official versions of the Protocol referring to each Party first are available: see Canadian text of the Protocol, at < https://​www.intern​atio​ nal.gc.ca/​trade-​comme​rce/​ass​ets/​pdfs/​agr​eeme​nts-​acco​rds/​cusma-​aceum/​cusma-​000-​proto​col.pdf > (last visited 14 March 2021). US text of the Protocol is at < https://​ustr.gov/​sites/​defa​ult/​files/​files/​agr​ eeme​nts/​FTA/​USMCA/​Text/​USM​CA_​P​roto​col.pdf > (last visited 14 March 2021); Mexican text of the Protocol is available at < http://​dof.gob.mx/​2020/​SRE/​T_​MEC​_​290​620.pdf > (last visited 14 March 2021). To limit confusion in this chapter, we will call the new agreement ‘NAFTA 2.0’, which entered into force on 1 July 2020. 2  The Canada-​US FTA, while still technically in force, has been suspended while NAFTA is in force. 3  US President Bill Clinton insisted on adding two side agreements on labour and the environment, while Canadian Prime Minister Chrétien, elected after promising to renegotiate the deal, did not succeed

North American trade: NAFTA    213 economies (in particular the United States), NAFTA served as a template for a number of other WTO Members seeking similar arrangements with their trade partners.4 In North America, for a long time after NAFTA entered into force, there were no significant developments in trade and investment law between the Parties, except for decisions in investor-​State litigation and a few State-​State dispute settlement cases.5 The Parties focussed instead on multilateral negotiations at the WTO, or bilateral or regional negotiations with other parties. The biggest engagements were by Mexico, which by 2005, had in force several significant FTAs, including with Japan, the European Union, and the European Free Trade Association (EFTA, composed of Switzerland, Norway, Iceland, and Lichtenstein).6 At that point, in addition to NAFTA, Canada had only FTAs in force with three smaller economies.7 The United States was party to six FTAs, the most significant being the regional agreement with Central America and the Dominican Republic.8 The pace of successful FTA negotiations picked up somewhat from 2005 to 2015, with the United States entering into agreements with seven countries,9 Mexico nine,10 and Canada seven.11 Negotiations actively continued thereafter with a number of other parties, notably the European Union, with which Canada entered into an agreement that has been provisionally applied since 2017,12 and with which the United States tried for some time to reach agreement.13 Most significantly for North America, all three North in doing so. See, e.g., The Canadian Encyclopaedia, Canada and NAFTA, at < https://​www.thec​anad​iane​ ncyc​lope​dia.ca/​en/​arti​cle/​north-​ameri​can-​free-​trade-​agreem​ent-​nafta > (last visited 7 April 2021). 4  Not

surprisingly, the new North American trade deal is viewed similarly. See J. Zumbrun, ‘New North American Trade Deal Seen as Template for Deals to Come: USMCA’s provisions could find their way into other trade deals, based on Trump administration’s reworking of NAFTA’ Wall Street Journal (14 December 2019). 5  There was also active dispute settlement under the NAFTA Chapter 19 bi-​national panel mechanism (over 120 decisions, including multiple remands, ​see < http://​worldt​rade​law.net/​databa​ses/​naft​a19.php > (last visited 14 March 2021). However, as that mechanism provides for an application by a bi-​national panel of domestic law, it does not advance international law obligations on the point. 6  Mexico’s Free Trade Agreements, (Congressional Research Service: 25 April 2017), at < https://​fas.org/​ sgp/​crs/​row/​R40​784.pdf > (last visited 14 March 2021). 7  Chile, Costa Rica, and Israel, at < https://​www.intern​atio​nal.gc.ca/​trade-​comme​rce/​trade-​agr​eeme​ nts-​acco​rds-​comm​erci​aux/​agr-​acc/​index.aspx?lang=​eng > (last visited 14 March 2021). 8  The other agreements were with Israel, Jordan, Australia, Chile, and Singapore, at < https://​ustr.gov/​ trade-​agr​eeme​nts/​free-​trade-​agr​eeme​nts > (last visited 14 March 2021). 9   Bahrain, Morocco, Oman, Peru, Panama, Colombia and South Korea. 10  Colombia, Israel, Peru, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama. 11 European Free Trade Association (EFTA), Peru, Colombia, Jordan, Panama, Honduras and South Korea. 12  Notice concerning the provisional application of the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part, at < https://​eur-​lex.eur​opa.eu/​legal-​cont​ent/​EN/​TXT/​PDF/​?uri=​CELEX:220​17X0​916(02)&from=​EN > (last visited 14 March 2021). 13  The US-​EU agreement was tentatively named the ‘Transatlantic Trade and Investment Partnership’ or TTIP. The TTIP negotiations were launched in 2013 and ended without conclusion at the end of 2016 (some of the European Union’s negotiating texts are available at < https://​trade.ec.eur​opa.eu/​doc​lib/​ press/​index.cfm?id=​1230/​ > (last visited 14 March 2021).

214    Robert Brookfield and Lori Di Pierdomenico American countries, together with nine other countries, concluded negotiations for the Trans-​Pacific Partnership (TPP) in 2015, signed it in early 2016 and moved energetically towards its ratification.14 The TPP was US President Obama’s top trade priority for 2016, signalled as ‘the heart’ of his trade agenda.15 With the election of President Trump, the trajectory of trade negotiations in North America changed significantly. In January 2017, the United States ‘permanently withdr[ew]’ from the TPP.16 According to the express terms of the TPP, the agreement could not enter into force without the United States, bringing into doubt whether the agreement would be implemented at all.17 Additionally, the NAFTA Parties began to renegotiate that FTA in 2017, leading to signature of ‘NAFTA 2.0’18 in November 2018. While NAFTA renegotiations were ongoing, Mexico and Canada (together with other TPP Parties, except the United States) effectively incorporated by reference the vast majority of the TPP into the re-​branded ‘Comprehensive and Progressive TPP’ (CPTPP), that came into force on December 2018 for six of the remaining eleven CPTPP countries, including both Canada and Mexico.19 The United States took other significant trade actions during the NAFTA 2.0 negotiations that affected North American trade, and in some instances were meant to create leverage in the negotiations. Among other actions, it imposed unilateral tariffs on steel and aluminum, threatened tariffs on automotive products, and blocked reappointments to the WTO’s Appellate Body. We will touch on these issues in the context of North American trade, noting that they are also dealt with in other chapters of this book.20

14 See

timeline at < https://​www.intern​atio​nal.gc.ca/​trade-​comme​rce/​trade-​agr​eeme​nts-​acco​rds-​ comm​erci​aux/​agr-​acc/​cptpp-​ptpgp/​timeli​ne_​n​egot​iati​ons-​chron​olog​ie_​n​egoc​iati​ons.aspx?lang=​eng > (last visited 14 March 2021). 15  Office of the Trade Representative, The President’s Trade Agenda: 2016, at < https://​ustr.gov/​sites/​ defa​ult/​files/​2016-​Trade-​Pol​icy-​Age​nda.pdf > (last visited 14 March 2021). 16 The Memorandum on Withdrawal of the United States from the Trans-​ Pacific Partnership Negotiations and Agreement of 23 January 2017 further elaborated that it is the policy of President Trump’s Administration to ‘represent the American people and their financial well-​ being in all negotiations, particularly the American worker and to create fair and economically beneficial trade deals that serve their interests’, 82 FR 8497, at < https://​www.govi​nfo.gov/​cont​ent/​pkg/​DCPD-​201700​064/​ html/​DCPD-​201700​064.htm > (last visited 5 May 2021). 17   See Article 30.5.2 of the TPP—​signatories representing at least 85 per cent of combined GDP or the original signatories in 2013 need to ratify the agreement for the TPP to enter into force. Since the United States has well over 15 per cent of that GDP, the TPP could not enter into force without them. 18  The new North American trade agreement refers to all three North American countries in the title of the agreement. Therefore, it carries a different name in each of the North American countries, as treaty practice is to refer to one’s own country first. In Mexico, for example, the Agreement is referred to as ‘T-​MEC’ for Tratado entre los Estados Unidos Mexicanos, los Estados Unidos de América y Canadá. In Canada, ‘CUSMA’ or the Canada-​United States-​Mexico Agreement. In the United States, ‘USMCA’ refers to the United States-​Mexico-​Canada Agreement. 19  The six original CPTPP Parties are Australia, Canada, Japan, Mexico, New Zealand and Singapore. Vietnam joined shortly thereafter in January 2019; see timeline, above fn 14. 20  See Chapters 17, 21 and 37 of this Handbook.

North American trade: NAFTA    215

III.  Trump administration: TPP withdrawal and NAFTA renegotiation As mentioned above, one of the first major decisions by President Trump when he took office in January 2017 was to ‘permanently withdraw’ the United States from the TPP. In a letter dated 30 January 2017, the United States advised New Zealand, as Depositary of the TPP, of their intention not to become a Party to the TPP and that the ‘United States has no legal obligations arising from its signature on February 4, 2016’.21 The letter does not address principles of good faith and consent to be bound under international law.22 The US withdrawal from the TPP was followed quickly by all three Parties to NAFTA initiating renegotiation of that agreement on 16 August 2017 after ‘repeated threats’ by US President Trump to withdraw from NAFTA.23 However, it is not clear under US law if a US President could indeed withdraw from NAFTA without Congressional approval.24 The US withdrawal from TPP and insistence on reopening NAFTA was not surprising in light of highly charged comments made about both agreements during the presidential campaign. For example, then-​candidate Trump blamed NAFTA for wiping out US manufacturing jobs because it allowed companies to move their factories to Mexico.25 In reality, researchers have found mixed effects on the US labour force. Some industries have shrunk, while others have grown.26 That said, the two primary goals for the United States in the re-​negotiation of NAFTA were to modernize the Agreement and to ‘rebalance’ it by improving the US trade balance and reducing the 21 

M.L. Pagan, Acting United States Trade Representative, Executive Office of the President letter to the TPP Depositary, Ministry of Foreign Affairs and Trade (30 January 2017), at < https://​ustr.gov/​sites/​ defa​ult/​files/​files/​Press/​Relea​ses/​1-​30-​17%20U​STR%20Let​ter%20to%20TPP%20Dep​osit​ary.pdf > (last visited 14 March 2021). 22  Articles 11 (Means of Expressing Consent to be Bound by a Treaty), and 12 (Consent to be Bound by a Treaty Expressed by Signature) of the VCLT. 23 ‘NAFTA Renegotiations: What You Need to Know’, Centre for International Governance Innovation, at < https://​www.cig​ionl​ine.org/​artic​les/​nafta-​ren​egot​iati​ons-​what-​you-​need-​know > (last visited 16 April 2020). The North American Free Trade Agreement (NAFTA), Summary (Congressional Research Service, 25 May 2017), at < https://​fas.org/​sgp/​crs/​row/​R42​965.pdf > (last visited 26 April 2020). 24  The President’s Authority to Withdraw the United States from the North American Free Trade Agreement (NAFTA) Without Further Congressional Action (Congressional Research Service: 5 March 2019), at < https://​fas.org/​sgp/​crs/​row/​R45​557.pdf > (last visited 14 March 2021), at 6: ‘. . . applying relevant methods of interpretation does not provide a clear answer as to whether the President possesses plenary constitutional authority to terminate US obligations under NAFTA’ (last visited 14 March 2021). 25  The North American Free Trade Agreement (NAFTA), Summary (Congressional Research Service: 25 May 2017), at < https://​fas.org/​sgp/​crs/​row/​R42​965.pdf > (last visited 14 March 2021). 26  The Economic Policy Institute said in 2013 that some 700,000 jobs had been lost as production moved to Mexico, with California, Texas, and Michigan among the worst hit states. See J. Faux, NAFTA’s Impact on US Workers’ Economic Policy Institute: Working Economics Blog (9 December 2013). A 2014 report from the Peterson Institute for International Economics said that at most 5 percent of dislocated US workers could be traced to imports from Mexico. It said over four million Americans lose their jobs each year by plant shutdowns and mass layoffs, regardless of trade.

216    Robert Brookfield and Lori Di Pierdomenico trade deficit with the NAFTA countries (notably, through tightening rules of origin for which the United States has ‘significant trade imbalances’, like autos and auto parts).27 Refocusing or renegotiating the NAFTA was not a trade priority for Canada, which had not questioned its viability or utility for Canadians.28 In 2017, by the time NAFTA was clearly on the US President’s chopping block, Prime Minister Trudeau’s only direction to his Trade Minister on North American trade was merely on strengthening cooperation under the current rules.29 For its part, despite some downsides resulting from NAFTA, the Mexican government has never wavered in its support.30 The Mexican economy expanded at an average annual rate of 2.57 percent since 1994, according to the World Bank,31 though falling well short of expectations.32 Further, some sectors (probably most importantly, corn production) suffered significantly from US competition.33 But on balance, the consensus view in Mexico appears to be that NAFTA assisted efforts to diversify the Mexican economy, which depended heavily on oil exports.34 It also helped the country to industrialize and build a manufacturing base.

IV.  Trump administration: b ​ reakdown of the rule of law? President Trump’s position on trade deals in general has been described as ‘combative economic populism and protectionism’.35 Others might call it the politics of the 27  2018

Trade Policy Agenda and 2017 Annual Report of the President of the United States on the Trade Agreements Program’, Office of the United States Trade Representative, at 9. 28  Mandate letters set out the priorities for the Minister in their particular portfolio. The Agreement is not even mentioned in any of Prime Minister Justin Trudeau’s mandate letters to his trade Ministers during the relevant period: dated 12 November 2015, 1 February 2017 and 28 August 2018, respectively archived at < https://​pm.gc.ca/​en/​all-​archi​ved-​mand​ate-​lett​ers > (last visited 14 March 2021). 29  Mandate Letter to Minister Freeland, 1 February 2017, at < https://​pm.gc.ca/​en/​all-​archi​ved-​mand​ ate-​lett​ers > (last visited 14 March 2021), the only mention of NAFTA provides that the Minister should ‘[s]‌trengthen trilateral North American cooperation with the United States and Mexico. This will involve working with the relevant Ministers to enhance North America’s global competitiveness and facilitate trade and commerce within the continent, including with respect to the North American Free Trade Agreement.’ 30  D. Agren, ‘The View from Mexico on NAFTA: It’s Complicated’ CIGI (12 October 2017), at < https://​www.cig​ionl​ine.org/​artic​les/​view-​mex​ico-​nafta-​its-​comp​lica​ted > (last visited 26 April 2020). 31 Ibid. 32  As stated by Fernando Tur Dávila, Economic Development Secretary in Nuevo León state, an industrial hub, ‘Mexico overestimates the positive effects of NAFTA. The growth due to the trade deal hasn’t been good . . . An increase in well-​being for the majority of the population has not yet arrived. There are 55 million poor people.’ Agren, above fn 30. 33  J.-​B. Velut, ‘NAFTA’s Developmental Impact on Mexico: Assessment and prospects’ IdeAs. Idées d’Amériques (1 Automne 2011), Intégrations dans les Amériques, para 26, at < https://​journ​als.open​edit​ ion.org/​ideas/​7 1?lang=​en#text > (last visited 14 March 2021). 34  Ibid. at para 45. 35  See C. Lima, ‘Trump Calls Trade Deal “A Rape of Our Country” ’ Politico (28 June 2016).

North American trade: NAFTA    217 breakdown of the rule of law. Two areas to highlight in this connection are use of unilateral tariffs and undercutting of the enforceability of trade agreements.

A. Use of unilateral tariffs President Trump made no secret of his desire to use impermissible tariffs (at the WTO or under FTAs) to allegedly protect US producers and as a weapon to compel trading partners to agree to unfavourable terms in trade agreements.36 His Administration did so primarily through three means. Section 232 of the Trade Expansion Act of 1962 gives the President broad authority to restrict imports in the interest of ‘national security’ by imposing tariffs.37 The power has been used to impose tariffs on steel and aluminum from all but certain excluded countries, whose application appears to have been based primarily on political considerations.38 For example, within North America, Canada and Mexico were first excluded, then included as an attempt to gain ‘leverage’ in the NAFTA 2.0 negotiations, then excluded once again following industry and congressional pressure.39 During the NAFTA 2.0 negotiations, the US Administration also threatened to impose tariffs on automotive products, which it ultimately did not do. The United States has since specifically committed to Mexico and Canada in binding treaty commitments not to impose tariffs on import volumes below specified thresholds.40 Section 301 of the Trade Act of 1974 allows the United States Trade Representative (USTR) to suspend trade agreement concessions if it unilaterally determines that a US trading partner engages in ‘discriminatory or unreasonable practices that burden or restrict US commerce.’ This power has not yet been used against North American trading partners.41 However, Section 301 has been the basis of US tariffs imposed 36  See, e.g., the summary in the European Union’s Opening Oral Submission in United States –​Steel and Aluminum Tariffs, at < https://​trade.ec.eur​opa.eu/​doc​lib/​docs/​2019/​novem​ber/​tradoc​_​158​427.pdf > (last visited 30 August 2021), paras 12-​16. 37  Trump Administration Tariff Actions: Frequently Asked Questions (Congressional Research Service: 22 February 2019), at < https://​fas.org/​sgp/​crs/​row/​R45​529.pdf > (last visited 14 March 2021). 38  For example, Australia was excluded from tariffs on steel and aluminum, apparently because of a political understanding: see J. Norman, ‘Donald Trump, Malcolm Turnbull hit deal to exclude Australia from new U.S. tariffs’ ABC News (Australian Broadcasting Corp.) (9 March 2018). Tariffs on steel from Turkey were increased and then reduced, apparently in part due to issues related to detention of an American pastor, see J. Deaux, ‘Trump Cuts Tariffs on Turkish Steel in Half, to 25 %’ Bloomberg (17 May 2017). Also, exclusions for Argentina and Brazil based on their agreement to voluntary export restraints were withdrawn because of currency changes, see J. Deaux ‘Trump Expands Aluminum, Steel Tariffs to Some Imported Products’ Bloomberg (24 January 2020). 39  Section 232 Investigations: Overview and Issues for Congress (Congressional Research Service: updated 2 April 2019), 7–​9, at < https://​fas.org/​sgp/​crs/​misc/​R45​249.pdf > (last visited 14 March 2021); M. Blanchfield and J. McCarten, ‘U.S. Agrees to Lift Steel and Aluminum Tariffs from Canada, Mexico’ Financial Post (17 May 2019). 40  Ibid., at 5. 41  Although the USTR, Ambassador Lighthizer, suggested in testimony to the US Congress that it could be used in that way—​see ibid. at 45.

218    Robert Brookfield and Lori Di Pierdomenico on China,42 and threat of tariffs on other countries if they proceed with proposed digital taxes.43 While increasing its use of unilateral tariffs, the Trump Administration further aggressively pursued an increasing number of trade remedy actions (anti-​dumping, countervail, and safeguards) within North America.44 These actions are not unprecedented, unlike the 232 and 301 tariff increases. They have been done in a framework of rules permitted by the WTO and other agreements (notably Chapter 19 of NAFTA, which allows anti-​dumping and countervail decisions to be challenged before a bi-​national panel). Indeed, while the specific trade remedy tools have been a long-​standing irritant between Canada and the United States45 there was never any suggestion that the tools themselves were unavailable to any WTO Member. And while those actions are generally initiated by private interests, the Trump Administration has been particularly aggressive in its use of them.46

B. United States undermining the enforceability of the NAFTA and the WTO Agreements State-​ to-​ State dispute settlement (SSDS) in NAFTA has been a longstanding problem, given that for some time it has been rendered ineffective when blocked by a defending Party. That mechanism, contained in Chapter 20 of the Agreement, provides that disputes are heard by ad hoc panels (rather than a permanent court structure) which offers flexibility and cost-​efficiency in a system with a limited number of disputes.47

42  Enforcing U.S. Trade Laws: Section 301 and China (Congressional Research Service: updated 26 June 2019), at < https://​fas.org/​sgp/​crs/​row/​IF10​708.pdf > (last visited 14 March 2021). 43  For USTR documents on the first investigation, initiated against France in 2019, see < https://​ustr. gov/​issue-​areas/​enfo​rcem​ent/​sect​ion-​301-​inv​esti​gati​ons/​sect​ion-​301-​fran​ces-​digi​tal-​servi​ces-​tax > (last visited 14 March 2021). For announcement of a broader investigation in June 2020 see < https://​ustr.gov/​ about-​us/​pol​icy-​offi​ces/​press-​off​i ce/​press-​relea​ses/​2020/​june/​ustr-​initia​tes-​sect​ion-​301-​inv​esti​gati​ons-​ digi​tal-​servi​ces-​taxes > (last visited 14 March 2021). 44   Canadian products were subjected to only two investigations between 2005 and 2014, but 11 times between 2015 and 2018, see C. Fournier, ‘Forget NAFTA. America’s Trade War with Canada Has Already Started’ Financial Post (26 January 2018). 45  Notably regarding softwood lumber—​see, for example, the summary at < https://​www.random​leng​ ths.com/​in-​depth/​us-​can​ada-​lum​ber-​trade-​disp​ute/​#Timel​ine > that covers the dispute since 1982 (last visited 14 March 2021). 46  For example, for the first time in 25 years it ‘self initiated’ an investigation (on aluminum sheet from China), at < https://​www.lexol​ogy.com/​libr​ary/​det​ail.aspx?g=​5fc19​4a0-​c3ec-​4889-​8d9d-​de841​a297​74f > (last visited 14 March 2021). 47  S. Lester, I. Manak and A. Arpas, ‘Access to Justice: Fixing NAFTA’s Flawed Dispute Settlement Process’ SSRN (5 October 2017), at < https://​pap​ers.ssrn.com/​sol3/​pap​ers.cfm?abst​ract​_​id=​3047​876 > (last visited 14 March 2021).

North American trade: NAFTA    219 While NAFTA Chapter 20 had been invoked successfully several times in NAFTA’s earliest days,48 this changed with the NAFTA sugar dispute in the early 2000’s. The United States was able to block the constitution of a dispute settlement panel in that case because there was no composed roster of panellists. The process for selecting panellists under NAFTA Article 2011(1) requires the disputing Parties to agree, or failing that, to appoint a panel through drawing lots from the roster of appointed panelists. However, at that time, the roster was not in place. Moreover, NAFTA Article 2011(3) provides a right of unlimited peremptory challenges of a Party to proposed panellists who are not on the roster.49 That potential problem was not initially fixed in NAFTA 2.0 when signed in 2018.50 It was fixed the following year in modifications agreed to by the three Parties following US internal negotiations between the US Administration and US Congress. Significantly, the Parties also created bilateral labour enforcement mechanisms.51 On entry into force of NAFTA 2.0, rosters and related rules of procedure were immediately established.52 The SSDS difficulties experienced in the NAFTA context have been replicated in the WTO, where the United States has also blocked appointments to the Appellate Body. While some have viewed the US complaints about the Appellate Body as legitimate,53 the lack of US engagement to address the issues alarms many. Some have argued that it may be that the Trump Administration wished to use the unilateral remedies provided under 48  Panel decision of 2 December 1996, Tariffs Applied by Canada to Certain U.S. Origin Agricultural Products (CDA-​95-​2008-​01); Panel decision of 6 February 2001, U.S. Safeguard Action Taken on Broomcorn Brooms from Mexico (USA-​97-​2008-​01); US-​Cross-​Border Trucking Services and Investment (USA-​98-​2008-​01). 49  Article 2011(3) of NAFTA: ‘Panelists shall normally be selected from the roster. Any disputing party may exercise a peremptory challenge against any individual not on the roster who is proposed as a panelist by a disputing party within 15 days after the individual has been proposed.’ 50 S. Lester and I. Manak, ‘Enforcement in the USMCA: The Draft SAA and the Trump Administration’s Elevation of Section 301k’ CATO Institute (June 2019), at < https://​www.cato.org/​ blog/​enfo​rcem​ent-​usmca-​draft-​saa-​trump-​admi​nist​rati​ons-​elevat​ion-​sect​ion-​301 > (last visited 14 March 2021). 51  USMCA: Amendment and Key Changes, (Congressional Research Service, updated 30 January 2020), at < https://​crs​repo​rts.congr​ess.gov/​prod​uct/​pdf/​IF/​IF11​391 > (last visited 14 March 2021). 52  Decision No.1 of the Free Trade Commission of the CUSMA, T-​MEC, USMCA (‘Agreement’), at (last visited 14 March 2021). 53 See D. Gantz, ‘An Existential Threat to WTO Dispute Settlement: Blocking Appointment of Appellate Body Members by the United States’ 2018 Arizona Legal Studies: Discussion Paper No.18-​26, at 3–​4: namely (i) alleged overreaching by the Appellate Body in a manner that conflicts with the WTO Dispute Settlement Understanding’s requirement that the panel and Appellate Body not ‘add to or diminish the rights and obligations provided in the covered agreements;’ (ii) the practice of the Appellate Body of discussing issues which are not before it, creating obiter dicta that is in the US view unwarranted; (iii) other Members’ use of the Appellate Body to obtain through litigation benefits that they could not have achieved through negotiations; (iv) Appellate Body review of facts and of a Member’s domestic law de novo; and (v) the Appellate Body’s alleged insistence that its reports be treated as precedent. It is worth noting as well that the United States sees the covered agreements as contractual, while other Members and some observers see them more as akin to a constitution. The United States has also objected to the recent practice of the Appellate Body and its secretariat permitting Appellate Body Members, whose terms have expired, to continue sitting on cases for which they were originally empaneled.

220    Robert Brookfield and Lori Di Pierdomenico Section 301(b) of the Trade Act of 1974,54 without regard to WTO rules. It is also possible that the United States hoped to avoid WTO litigation altogether as a result of its imposition of Section 232 tariffs and/​or quotas on imported steel and aluminum for ‘national security’ reasons.55 Importantly in this connection, there has been a rise in invoking the national security exception by other WTO Members in their respective claims.56 How the United States responds to multilateral efforts to preserve the WTO dispute settlement system moving forward will be significant in assessing its real motives.57 The United States’ recent monumental shift in policy toward supporting a waiver of the Trade-​Related Intellectual Property Rights (TRIPs) Agreement at the WTO to suspend patent protections on COVID-​19 vaccines may be indicative of a renewed support of the multilateral system.

V.  Updating traditional North American trade issues through NAFTA 2.0 The original NAFTA and the WTO Agreement negotiations overlapped,58 and covered similar topics. Notably, the Dunkel Draft put forward in December 199159 formed the basis of both the WTO Agreement and several elements of the NAFTA text.60 These WTO provisions cover general obligations in areas of trade in goods,61 services, 54

  Under which the Executive Branch (USTR) is empowered to take action under ‘an act, policy, or practice of a foreign country [that] is unreasonable or discriminatory and burdens or restricts United States commerce’. 55   Gantz, above fn 53. 56   Panel Report, Saudi Arabia –​Intellectual Property Rights, terminated; Panel Report, Russia –​Traffic in Transit, adopted 26 April 2019; see Chapter 27 of this handbook. 57  See Chapter 5 of this handbook. 58  NAFTA negotiations began formally in 1991 and concluded in August 1992. NAFTA was signed in December 1992, and entered into force in January 1994. The Uruguay Round negotiations took place from 1986 to 1993, with the new WTO Agreement entering into force in January 1995. 59  This text was intended to reflect the results of negotiations and to provide an arbitrated solution to issues on which negotiators failed to agree. As described at < https://​www.wto.org/​engl​ish/​thewt​ o_​e/​whati​s_​e/​tif_​e/​fact​5_​e.htm > (last accessed May 3, 2021), the draft became the basis of the final agreement. 60  For example, in intellectual property, NAFTA Chapter 17 is largely based on the Dunkel Draft even when the WTO TRIPS Agreement diverged. Article 20 of the TRIPS Agreement and Article 1708(10) of NAFTA, for instance, are very similar. While the Dunkel Draft and NAFTA refer to an obligation not to ‘encumber’ a trademark with special requirements, the final WTO Agreement added a requirement that the special requirement not be ‘unjustifiably encumber[ing]’. 61  As a question of terminology this chapter uses the term ‘goods’ for physical products. This is in keeping with the NAFTA drafting convention and general usage in North American FTAs. In contrast the WTO Agreement, as with GATT 1947, and some other trade agreements (such as those entered into by the European Union) generally use the term ‘product’ for physical goods. WTO panel reports have

North American trade: NAFTA    221 intellectual property, and government procurement. NAFTA provisions on those issues, plus on investment, in turn formed the basis of most FTAs that Canada, Mexico, and the United States put in their subsequent trade agreements, including the TPP.62 Many provisions did not significantly change in NAFTA 2.0, including ‘core’ non-​ discrimination obligations related to goods, services, and investment. Others changed largely in keeping with the outcome of the TPP. This section elaborates on some areas of development from the 1990s through to NAFTA 2.0, with an emphasis on novel elements in NAFTA 2.0 specifically.

A. Automotive products Arguably the most economically significant changes in NAFTA 2.0 are to the rules of origin for automotive products. Automotive production has always been significant in North America, presently accounting for almost US $300 billion in trilateral trade,63 with special rules dating back to at least 1965 through the Canada-​US Auto Pact, the Canada-​US FTA, then NAFTA.64 NAFTA effectively created a single North American market for light vehicles, increasing the ability to have integrated supply chains across the three countries. In part due to that flexibility, the focus of automotive investment generally moved from Canada and the northern United States to the southern United States and Mexico.65 This trend led to much criticism, particularly by unions in Canada examined the difference between these terms, finding that ‘product’ has a potentially broader meaning to include services (see Panel Report, China –​Publications and Audiovisual Products, adopted 19 January 2010, paras 7.1188 and 7.1340). Goods, used for example in Article 1.1(a)(1)(iii)) of the SCM Agreement, refers to property or possessions (see Appellate Body Report, US –​Softwood Lumber IV, adopted 17 February 2004, paras 57-​67). ‘Products’ refer to physically trade goods, although in some cases there is some inconsistency in usage, notably in the TRIPS Agreement where there are several references to ‘goods’ and ‘services’. 62 

See Chapter 10 of this handbook. for approximately US $290 billion worth of trade in passenger vehicles and parts in 2017, in D. Alanis, et al., ‘Preparing for North America’s New Auto Trade Rules’ BCG (1 November 2018). 64 The Agreement Concerning Automotive Products Between the Government of Canada and the Government of the United States of America, 4 ILM 302, reduced tariffs between the two countries. It imposed various requirements on production for the ‘big three’ major automotive producers in North America (Ford, Chrysler, and General Motors). The history of the Agreement is set out in some detail in Appellate Report Body Canada –​Autos, adopted 19 June 2000, paras 8-​14, and in particular fn 17. That case effectively prohibited the Auto Pact as it applied in Canada, and Canada removed those measures effective 18 February 2001, at < https://​www.wto.org/​engl​ish/​trato​p_​e/​disp​u_​e/​case​s_​e/​ds13​9_​e.htm > (last visited 14 March 2021). For a general history of automotive trends in North America starting with the Auto Pact see NAFTA and Motor Vehicle Trade, (Congressional Research Service, updated 28 July 2017), at < https://​crs​repo​rts.congr​ess.gov/​prod​uct/​pdf/​R/​R44​907 > (last visited 14 March 2021). See also S. A. Silver, ‘NAFTA’s Rules of Origin for Automobiles: A Need for Reform’ 62 Fordham Law Review (1994) 2245. Note in particular the discussion at 2247–​2248 of the controversy regarding valuation that existed in the original Canada-​US FTA, which was at least partially resolved in NAFTA. 65  Regarding movement from Canada and the Northern United States in the 1990s and early 2000s, see The Auto Industry Moving South: An Examination of Trend, 2003, at < http://​www.cargr​oup.org/​ 63  Accounting

222    Robert Brookfield and Lori Di Pierdomenico and the United States. Those unions supported NAFTA renegotiations that would in various ways increase wages and labour rights in Mexico.66 That led to substantial changes in rules for determining origin (and therefore lower tariffs) for those automotive products. In particular, there was an increase in the value that needed to be produced in North America, a requirement that a high level of North American steel and aluminum be used in their production, and a requirement that a significant percentage of the value of a vehicle must be produced by workers earning at least US $16 per hour.67 It is significant also in the context of threats by President Trump to impose charges on imports of Canadian and Mexican vehicles, that agreements related to those potential charges became effective in November 2018 in connection with the signature of NAFTA 2.0. The agreements committed the United States not to impose additional charges on Canadian and Mexican exports of vehicles or auto parts up to specified thresholds,68 which were significantly higher than existing volumes.69

B. Investment NAFTA 2.0 contains its predecessor’s core disciplines on investment protection, but with CPTPP-​like clarifications reflecting lessons learned from the case law. For instance, a clarification to the national treatment and most-​favoured nation treatment (MFN) principles helps to interpret the term ‘in like circumstances’. It stipulates that the obligation to treat other NAFTA investors no less favourably ‘in like circumstances’ requires a consideration of whether the treatment distinguishes between foreign investors and their investments on the basis of ‘legitimate public welfare objectives’.70 wp-​cont​ent/​uplo​ads/​2017/​02/​The-​Auto-​Indus​try-​Mov​ing-​South-​An-​Exam​inat​ion-​of-​Tre​nds.pdf > (last visited 14 March 2021), and regarding movement to Mexico see The Growing Role of Mexico in the North American Automotive Industry, 2016, at < http://​www.cargr​oup.org/​wp-​cont​ent/​uplo​ads/​2017/​02/​The-​ Grow​ing-​Role-​of-​Mex​ico-​in-​the-​North-​Ameri​can-​Aut​omot​ive-​Indus​try-​Tre​nds-​Driv​ers-​and-​Foreca​ sts.pdf > (last visited 14 March 2021). 66  NAFTA and Motor Vehicle Trade, above fn 64, with UAW comments at 20 and link to full comment at 21; report from UNIFOR, a Canadian Union with significant automotive workers ‘Update on Auto and NAFTA’, at < https://​www.uni​for.org/​sites/​defa​ult/​files/​docume​nts/​docum​ent/​2017-​02-​updat​e_​on​_​aut​ o_​an​d_​na​fta-​en.pdf > (last visited 14 March 2021). 67  See, e.g., the Canadian Government’s summary of those changes, at < https://​intern​atio​nal.gc.ca/​ trade-​comme​rce/​trade-​agr​eeme​nts-​acco​rds-​comm​erci​aux/​agr-​acc/​cusma-​aceum/​auto.aspx?lang=​eng > (last visited 14 March 2021); see also analysis in Alanis et al, above fn 63. 68  Mexico-​US side letter, at < https://​ustr.gov/​sites/​defa​ult/​files/​files/​agr​eeme​nts/​FTA/​USMCA/​Text/​ MX-​US_​Sid​e_​Le​tter​_​on_​232.pdf > (last visited 14 March 2021); Canada-​US side letter, at < https://​ustr. gov/​sites/​defa​ult/​files/​files/​agr​eeme​nts/​FTA/​USMCA/​Text/​Sid​e_​Le​tter​_​Tex​t_​on​_​232​_​CA-​US_​R​espo​ nse.pdf > (last visited 14 March 2021). 69  Alanis et al., above fn 63, which says that the export of vehicles and parts by Mexico and Canada to the United States are ‘currently well below’ the limits set out in the side letters. 70 Articles 14.4.4 and 14.5.3 of NAFTA 2.0 provide: ‘For greater certainty, whether treatment is accorded in ‘like circumstances’ under this Article depends on the totality of the circumstances, including whether the relevant treatment distinguishes between investors or investments on the basis of legitimate public welfare objectives.’

North American trade: NAFTA    223 Similarly, the provision on minimum standard of treatment is now expressly tied to customary international law and reflects a shared understanding between the Parties on what comprises customary international law71 for the purposes of the requirement of guaranteeing a minimum standard of treatment. The Parties also attempted defining the concepts of ‘fair and equitable treatment’ and ‘full protection and security’ under customary international law. However, the clear articulation of these concepts was no doubt hampered by the evolving nature of what might constitute customary international law.72 The most significant change to investment protection is in respect of the investor-​State Dispute Settlement (ISDS) mechanism. An investor of a Party may now only submit a claim to arbitration as provided for in NAFTA 2.0’s Annexes 14-​C (Legacy Investment Claims and Pending Claims), 14-​D (Mexico-​United States Investment Disputes), and 14-​E (Mexico-​United States Investment Disputes Related to Covered Government Contracts). For Legacy Investment Claims, an investor of Mexico, Canada or the United States has three years to bring a claim under NAFTA 2.0 for substantive breaches under NAFTA, after which time the NAFTA Parties’ consent to arbitrate NAFTA investment claims expires.73 Going forward, only the United States and Mexican investors will have the ability to bring ISDS claims under the substantive provisions of NAFTA 2.0.74 However, such challenges can be brought on limited grounds: they may only pursue a NAFTA Party for post-​establishment breaches of the national treatment and MFN provisions, as well as claims for breaches of the expropriation and compensation provision.75 The time allowed for initiating a claim is expanded under NAFTA 2.0 to four years.76 There is also a new requirement to pursue local remedies for 30 months in the case where the claimant or the enterprise has already initiated a proceeding before domestic courts or administrative tribunals.77 Investors in some sectors, such as oil and gas, telecommunications and transportation service sectors where US or Mexican investors have a contract with their host government may bring a claim for any substantive 71 

Annex 14-​A to NAFTA 2.0 (Customary International Law). Article 14.6 of NAFTA 2.0 provides: ‘For greater certainty, the mere fact that a Party takes or fails to take an action that may be inconsistent with an investor’s expectations does not constitute a breach of this Article, even if there is loss or damage to the covered investment as a result.’ 73  Annex 14-​C (Legacy Investment Claims and Pending Claims) to and Article 3 of NAFTA 2.0. 74 Canadian investors maintain investment protections vis-​ à-​ vis Mexico through the CPTPP. That agreement contains a modernized version of NAFTA’s ISDS mechanism, under which CPTPP investors, including investors of Mexico and Canada, may still bring a claim for substantive breaches of substantively similar investment disciplines. 75 Annex 14-​ D (Mexico-​ United States Investment Disputes) to and Article 14.D.3 (1) and (2) of NAFTA 2.0 (Submission of a Claim to Arbitration). NAFTA allowed pre-​establishment claims for national treatment, MFN, minimum standard of protection and performance requirements obligations. 76  Annex 14-​D (Mexico-​United States Investment Disputes) to and Article 14.D.5 (Conditions and Limitations on Consent) of NAFTA 2.0. Under NAFTA, the limitation period was capped at three years. 77  Annex 14-​D (Mexico-​United States Investment Disputes) to and Article 14.D.5(b) of NAFTA: ‘the claimant or the enterprise obtained a final decision from a court of last resort of the respondent or 30 months have elapsed from the date the proceeding in subparagraph (a) was initiated’. 72 

224    Robert Brookfield and Lori Di Pierdomenico breach of the Investment Chapter, although still subject to a three year time limitation for bringing a claim.78 Overall, it remains to be seen whether the ‘improvements’ to the NAFTA 2.0 ISDS mechanism will yield a net benefit to the NAFTA Parties. Certainly, Canada is generally viewed as being better off without ISDS under NAFTA 2.0.79 While investment claims can still be brought by governments under the regular SSDS process of Chapter 31, governments can be expected to be more restrained in bringing claims or defining the scope of their claims. Further, the remedy for success is unlikely to be financial compensation to the aggrieved investor.

C. Cross-​border trade in services The NAFTA Parties capitalized on the negotiated TPP outcomes, which improved the broad disciplines applicable to cross-​border services and service suppliers and strengthened specific sectoral integration. National treatment and MFN clarify what constitutes treatment ‘in like circumstances’, ensuring that the same test for nationality-​ based discrimination applies as under the Investment Chapter.80 The Parties included a GATS-​inspired market access provision, which restricts numerical limitations or legal form requirements that a Party may impose on services or service suppliers. It replaces the NAFTA’s toothless provision on quantitative restrictions.81 Unlike the GATS, where Members designate only those service sectors subject to the market access commitment, NAFTA 2.0’s market access obligation applies to all sectors, unless sectors are specifically excluded. In addition, NAFTA 2.0 goes further than other FTAs82 with sector-​specific improvements in respect to market access between the North American countries.83 78 Annex 14-​ E (Mexico-​ United States Investment Disputes Related to Covered Government Contracts) to and Articles 2(a)(i) and 4(b) of NATA 2.0, respectively. 79 For example, N. Bernasconi-​ Osterwalder, ‘USMCA Curbs How Much Investors Can Sue Countries—​Sort Of ’ International Institute for Sustainable Development (2 October 2018), at < https://​ www.iisd.org/​libr​ary/​usmca-​invest​ors > (last visited 14 March 2021): ‘All in all, Canada comes out of the investment negotiations in a better situation than when it went in, at least with respect to the United States.’ 80  This would avert the outcome in the Mexico-​United States dispute, In the Matter of Cross-​Broder Trucking Services, Final Report of the Panel, Secretariat File No. USA-​MEX-​98-​2008-​01), 6 February 2001, para 260 in which the Tribunal determined ‘like circumstances’ under the CBTS Chapter is to be construed narrowly. 81  Article 1207 of NAFTA requires each Party to list its quantitative restrictions at the federal level and to undertake to further list its provincial or state-​level quantitative restrictions within a year (which was not done). Parties also agree to negotiate every two years the liberalization or removal of the listed quantitative restrictions (also not done). 82  Article 10.5 of TPP; see also Article 9.6 of CETA; Article 4 of Mexico-​EU Agreement-​In-​Principle, the Cross-​Border Trade in Services Chapter (albeit maintaining the positive list format); Article 12.4 of KORUS. 83  For Canada, see Reservation II-​C-​12, for the United States; for the United States, see Reservation II-​ US-​10 and Appendix II-​A; for Mexico, see Reservation II-​Mex-​9.

North American trade: NAFTA    225 Many NAFTA 2.0 improvements are found in sector-​specific annexes. Annex 15-​A on Delivery Services ensures that a postal monopoly does not use that position to cross-​ subsidize non-​postal monopoly services and prohibits a Party from imposing universal service requirements as a condition for supplying a delivery service not covered by the postal monopoly. These provisions have been included in US FTAs since NAFTA,84 including the TPP. Courier services is a long simmering trade irritant for the United States, encapsulated in part in the NAFTA Chapter 11 landmark dispute, UPS v. Canada, in which UPS complained unsuccessfully about Canada Post’s improper use of its monopoly infrastructure.85

D. Agriculture As in most trade negotiations, agriculture was a sensitive issue in the NAFTA 2.0 negotiations. The original Canada-​US FTA and then the NAFTA provided for bilateral commitments between the Parties. The United States and Mexico agreed to convert all their restrictions to tariffs (albeit very high in some cases); Canada retained quantitative import quotas on some of its more sensitive products, notably dairy and poultry.86 When Canada, as part of the Uruguay round ‘tariffication’ process, converted those quantitative import quotas into tariff rate quotas, the United States unsuccessfully argued that this meant that no tariffs could be imposed on those products under NAFTA.87 However, a later US WTO challenge to the operation of the Canadian dairy support system was successful.88 A particularly significant US commitment for Mexico related to sugar. Mexico alleged that the United States had failed to implement commitments on sugar under NAFTA. This led to a series of complex disputes under NAFTA (separate proceedings under Chapter 11, 19, and 20) and at the WTO in the late 1990s and early 2000s.89 Other significant agricultural developments in North America included US labelling measures that in practice discriminated against Mexican and Canadian live animal exports to the

84 See, e.g., Article 1113 (Specific Commitments) of the US-​ Dominican Republic and Central American FTA; Annex 12-​B (Express Delivery Services) to KORUS FTA. 85  UPS v. Canada, (UNCITRAL) Award on the Merits, 24 May 2007. 86  M.N. Gifford, Agricultural Trade Liberalization under NAFTA: The Negotiation Process (2001), at < https://​ageco​nsea​rch.umn.edu/​rec​ord/​16846/​files/​ag010​006.pdf, 7-​8 > (last visited 14 March 2021), 87  Tariffs Applied by Canada to Certain U.S.-​Origin Agricultural Products, NAFTA Secretariat File No. CDA-​95-​2008-​01, Final Report of the Panel, 2 December 1996. 88  Panel Report, Canada—​Dairy, adopted 27 October 1999, see summary and links to document, at < https://​www.wto.org/​engl​ish/​trato​p_​e/​disp​u_​e/​case​s_​e/​ds10​3_​e.htm > (last visited 14 March 2021). 89 See Effects of NAFTA on Agriculture and the Rural Economy, USDA Economic Research Service, WRS-​02-​1, 89-​94, at < https://​www.ers.usda.gov/​webd​ocs/​publi​cati​ons/​40355/​313​05_​w​rs02​01b_​002. pdf?v=​0 > (last visited 14 March 2021) for a general summary of the disputes. That history is also set out in a decision of the Ontario Superior Court regarding an attempt to set aside a judgement in favour of US investors against Mexico (United Mexican States v. Cargill, 2010 ONSC 4656, paras 22-​39).

226    Robert Brookfield and Lori Di Pierdomenico United States,90 and Canadian grain marketing.91 Those issues were not topics of negotiation in NAFTA 2.0, but US fruit and vegetable producers did unsuccessfully seek to use those negotiations to further their attempts to obtain protection from Mexican competition,92 and Canada did accept obligations to address US concerns relating to grading.93 A variety of other agricultural restrictions were removed in trade between the three countries under NAFTA 2.0.94 The NAFTA 2.0 negotiations also involved a push to essentially dismantle Canada’s supply management system, particularly for dairy.95 That push was not successful. However, it did lead to Canada accepting significant commitments, especially related to the dairy industry. The outcome was both reduced restrictions on importation of certain dairy products into Canada, and restrictions on the ability of Canada to export certain dairy products that would compete internationally with the United States.96 Those provisions have already led to a successful challenge by the US of Canadian implementation through the NAFTA 2.0 dispute settlement mechanism.97 90  For

a detailed summary of the dispute until just before the United States repealed the measure see Country-​of-​Origin Labeling for Foods and the WTO Trade Dispute on Meat Labeling (Congressional Research Service: 8 December 2015), at < https://​fas.org/​sgp/​crs/​misc/​RS22​955.pdf > (last visited 14 March 2021); and a summary of the US removal and reactions at US Repeals Country-​of-​Origin Labelling, Avoiding Retaliation, Bridges, Volume 20 -​Number 1 (14 January 2016). 91  A significant irritant for the United States, the Canadian Wheat Board was a mandatory producer marketing system for wheat and barley in Western Canada. It was a marketing agency acting on behalf of Western Canadian farmers, passing all profits from its operation back to them. Its monopoly power was abolished in 2012 through the Marketing Freedom for Grain Farmers Act (2011). 92  See presentation from the US Department of Agriculture in 2017 describing factually the changes in imports, at < https://​mig​rati​onfi​les.ucda​vis.edu/​uplo​ads/​farm-​labor/​2017/​11/​28/​zahni​ser-​us-​prod​uce-​ impo​rts-​from-​mex​ico.pdf > (last visited 14 March 2021) and a discussion of the related US proposal in the NAFTA 2.0 negotiations (a proposal that was dropped by the United States during the negotiations), in Efforts to Address Seasonal Agricultural Import Competition in the NAFTA Renegotiation, (Congressional Reporting Service: 7 December 2017), at < https://​www.eve​rycr​srep​ort.com/​repo​rts/​ R45​038.html > (last visited 14 March 2021). For a description of the issue largely from the perspective of US producers seeking additional protection, see, e.g., Z. Anderson, ‘Florida Farmers Push Protection as Trump Seeks USMCA Approval’ The Sarasota, Fla., Herald Tribune (21 March 2019) (describing proposals made during the negotiations); and Z. Anderson, ‘Florida Farmers Continue to Raise Alarms as NAFTA Rewrite Nears Passage’ Sarasota Herald-​Tribune (5 January 2020) (summarizing continuing dissatisfaction after the negotiations). See for a description focussing on inspection issues (with links to other documents), see E. Cosgrove ‘US-​Mexico Tomato Deal Comes with Heavy Inspection Burden, Worrying Buyers’ Supplychaindive (23 September 2019). 93  See M. Hirtzer and J. Ingwersen, ‘U.S. Wheat Growers Have Trump’s Ear on Old Canada Trade Gripe’ Reuters (31 August 2018), for a description of the issue. Canada agreed to change this practice as part of NAFTA 2.0 in Article 3.A.4(Grain). 94  See North American Free Trade Agreement (NAFTA), Summary, above fn 23, at 16–​17. 95 NAFTA and the United States-​ Mexico-​ Canada Agreement (USMCA), (Congressional Research Service: updated 2 March 2020), at 16, at < https://​fas.org/​sgp/​crs/​row/​R44​981.pdf > (last visited 14 March 2021). 96  For the US Government’s summary of those outcomes, see < https://​ustr.gov/​trade-​agr​eeme​nts/​ free-​trade-​agr​eeme​nts/​uni​ted-​sta​tes-​mex​ico-​can​ada-​agreem​ent/​fact-​she​ets/​mar​ket-​acc​ess-​and-​dairy-​ outco​mes > (last visited 14 March 2021). 97  See < https://​ustr.gov/​about-​us/​pol​icy-​offi​ces/​press-​off​i ce/​press-​relea​ses/​2022/​janu​ary/​what-​they-​ are-​say​ing-​uni​ted-​sta​tes-​preva​ils-​usmca-​disp​ute-​canad​ian-​dairy-​restr​icti​ons > (last visited 15 May 2022).

North American trade: NAFTA    227

E. Intellectual property The United States, as a significant producer of intellectual property has for many years sought increased protection for US right-​holders.98 Canada and Mexico have not always adopted the same protections as the United States (for example, in the area of protecting copyright on the internet).99 Generally, NAFTA 2.0, like the TPP, has required Canada and Mexico to adopt US approaches on a number of intellectual property issues.100 One interesting area is the intersection between trademarks and geographical indications (names linked to a particular geographical area, such as ‘Champagne’).101 Because the European Union pushed for provisions on this point in its agreements with Canada and Mexico, neither State was in a position to agree in NAFTA 2.0 (or the TPP) on as extensive protection for trademarks over geographical indications as the United States would have wanted.102 Furthermore, a number of fairly small but significant changes were made to the intellectual property provisions regarding pharmaceutical protection,103 most prominently the removal of data protection on a certain new class of drugs (biologics).104

F. Government procurement NAFTA, as between Canada and the United States, expanded on the Canada-​US FTA and GATT Agreement on Government Procurement (which became the WTO Government Procurement Agreement, to which Mexico is not a Party). Although similar, NAFTA applied to much smaller contracts.105 Significantly, however, no 98  See, for a discussion of intellectual property in trade agreements, focussing on the US position in the TPP, D.J. Halbert, ‘The Curious Case of Monopoly Rights as Free Trade: The TPP and Intellectual Property and Why It Still Matters’ 7 Journal of Information Policy (2017) 204–​227. 99 See, e.g., M. Geist, ‘The Trouble with the TPP’s Copyright Rules’ Canadian Centre for Policy Alternatives (July 2016). 100  See North American Free Trade Agreement (NAFTA), Summary, above fn 23, at 26-​31. 101  The European Union is a strong proponent of enhanced protection for geographical indications. Canada and the United States have been reluctant to agree to enhanced protection for geographical indications, notably because as ‘new world’ countries, they have many producers or consumers that are familiar with European names, and they do not want to limit their use. The North American approach has been to focus more on trademarks, where individual companies can protect their marketing, including the use of geographical terms. 102  See, e.g., Article 20.35 of NAFTA 2.0 (International Agreements) which contains extensive provisions restricting the ability to make commitments related to geographical indications in other agreements. 103  USMCA: Amendment and Key Changes, (Congressional Research Service Report: updated 20 January 2020), at 2, at < https://​fas.org/​sgp/​crs/​row/​IF11​391.pdf > (last visited 14 March 2021). 104  See, e.g., W.A. Reinsch, ‘The Road to Ratification: Democrats’ Resistance to the USMCA’, 16 May 2019, Question 2 provides an explanation for US Democrats’ opposition to IP protection for biologics, at < https://​www.csis.org/​analy​sis/​road-​ratif​i cat​ion-​democr​ats-​res​ista​nce-​usmca > (last visited 14 March 2021). 105  Compare the thresholds for Canada and the United States under Annexes 1, 2, and 3 of Appendix 1 of the Government Procurement Agreement with those in Article 1001 of NAFTA. For a broader

228    Robert Brookfield and Lori Di Pierdomenico obligations applied at the sub-​central level of government on Canadian provinces and territories, or US or Mexican states. During the NAFTA 2.0 negotiations Canada prioritized sub-​central coverage, similar to its FTA with the European Union, with the objective of limiting ‘Buy America’ policies at the US state level, or that rely on US federal money to circumvent US federal procurement obligations. The United States, in contrast, sought (unsuccessfully) a ‘reciprocal’ provision that would have drastically reduced Canadian and Mexican access to the US market by limiting procurement access to an equal dollar value in each country. Given the relative size of the three countries, that would have meant that Mexican and Canadian firms would be allowed to bid on only a very limited set of procurements.106 This was a Trump Administration innovation not in keeping with previous US proposals on reforming the Government Procurement Agreement.107 At the same, the US negotiators opted for narrower government procurement carve-​outs from the cross-​border trade in services chapter and certain provisions of the investment chapter of NAFTA 2.0. Under NAFTA, the same carve-​outs were widely defined as ‘procurement by a Party or state enterprise’ and were accorded a broad scope by NAFTA Chapter 11 tribunals.108 NAFTA 2.0, however, adopted a GATT/​ GATS-​ style definition109 to government 110 procurement, effectively broadening the types of procurement measures that may be subject to investment and cross-​border trade in services disciplines of the Agreement. In the end, NAFTA 2.0 excludes Canada from government procurement obligations, leaving obligations in this area to be governed by the Government Procurement

comparison of different provisions in government procurement agreements from a US perspective, see International Trade: Government Procurement Agreements Contain Similar Provisions, but Market Access Commitments Vary, General Accounting Office, September 2016, GAO-​16-​727, at < https://​www.gao.gov/​ ass​ets/​690/​680​044.pdf > (last visited 14 March 2021). 106  For more discussion of the proposal and the impacts it would have had, see < https://​itcon-​inc. com/​cont​ent/​bill​ion-​dol​lar-​gov​ernm​ent-​proc​urem​ent-​mar​ket-​nafta-​cro​ssha​irs > (last visited April 8, 2021). 107 C.R. Yukins, ‘The U.S.-​ Mexico-​Canada Agreement (USMCA): Some Surprising Outcomes in Procurement’ George Washington Law Faculty Publications and Other Works, at 308, at < https://​scho​ lars​hip.law.gwu.edu/​cgi/​view​cont​ent.cgi?arti​cle=​2625&cont​ext=​facul​ty_​p​ubli​cati​ons > (last visited 14 March 2021). 108  According to Article 1108(7)(a) and (8)(b) of NAFTA, the provisions relating to national treatment (Article 1102), MFN treatment (Article 1103), senior management and boards of directors (Article 1107) and certain performance requirements (Article 1106) do not apply to ‘procurement by a Party or state enterprise’. Several NAFTA tribunals, (for example ADF v. United States (ADF Group Inc. (Can.) v. United States, ICSID (W. Bank) ARB/​AF/​00/​1, 163–​165) and Mercer v. Canada (ICSID Case No. ARB(AF)/​12/​3, paras 6.35–​6.36), have concluded that ‘procurement by a Party’ in the NAFTA context broadly refers to a ‘procurement’ by a government, as that term is plainly understood, and without further limitation, which may be generally summarized as obtaining by purchase a good or a service. 109 Articles III:8(a) (National Treatment on Internal Taxation and Regulation) and Article XIII:1 (Government Procurement) of the GATT 1994. 110  The term ‘government procurement’ is defined in Article 1.5 of NAFTA 2.0, (General Definitions) as ‘the process by which a government obtains the use of or acquires goods or services, or any combination thereof, for governmental purposes and not with a view to commercial sale or resale or use in the production or supply of goods or services for commercial sale or resale.’

North American trade: NAFTA    229 Agreement as between Canada and the United States, and the CPTPP as between Canada and Mexico. The only provisions in NAFTA 2.0 relate to US-​Mexico (which otherwise would have no obligations in this area since the US is not a Party to the CPTPP, and Mexico is not a Party to the Government Procurement Agreement).111 This contrasts with the approach taken in the TPP prior to the US withdrawal, which would have essentially updated NAFTA government procurement obligations by replacing the NAFTA Chapter with the TPP.112 It also contrasts with the approach taken by Canada and Mexico to expand government procurement access in their more recent agreements.113

G. State-​owned enterprises The treatment of State-​owned or controlled entities has caused tensions within North America—​in particular because of certain US stakeholders’ complaints against some bodies in Mexico or Canada (such the Canadian wheat board and Mexico’s state oil company (PEMEX)). However, the most significant developments in the TPP, replicated to a large extent in NAFTA 2.0, relate to a desire from, especially, the United States to create new disciplines that could be applied to State enterprises in China. NAFTA 2.0 provides ‘bright line’ rules for coverage of entities. This approach can be contrasted with the use of the term ‘public body’ in the WTO SCM Agreement, whose relatively narrow scope as found by the Appellate Body excluded, for example, many Chinese State-​owned enterprises. That limited scope is a cause for concern for many countries, particularly the United States.114 Key obligations on that broader category of covered entities include non-​discrimination obligations on purchase and sale,115 and limits on support (‘non-​commercial assistance’) to those entities.116 Significantly, given

111 

Yukins, above fn 107. Letter Ambassador Michael B. Froman (USTR) to His Excellency Ildefonso Guajardo Villarreal (Sec. of the Economy), 4 February 2016, at < https://​ustr.gov/​sites/​defa​ult/​files/​TPP-​Final-​ Text-​Let​ter-​Excha​nge-​US-​CA-​MX-​re-​GP-​Pro​cedu​res.pdf > (last visited 14 March 2021). 113 For an analysis of Canada’s government procurement commitments under CETA and the revised Government Procurement Agreement see L. Casier, ‘Canada’s International Trade Obligations: Barrier or Opportunity for sustainable public procurement?’ International Institute for Sustainable Development (25 March 2019), at < https://​www.iisd.org/​libr​ary/​cana​das-​intern​ atio​nal-​trade-​obli​gati​ons-​barr​ier-​or-​oppo​rtun​ity-​sust​aina​ble-​pub​lic > (last visited 14 March 2021) noting in particular on the increasing scope of subnational coverage in CETA, at 13; for a discussion of the expansion in the EU-​ Mercosur Agreement, see J.H. Grier, ‘EU-​ Mexico Agreement in Principle: Procurement’ Perspectives on Trade (24 April 2018), at < https://​trade.dja​ghe.com/​?p=​4795 > (last visited 14 March 2021). 114  D. Gantz, ‘The USMCA: Updating by Drawing on the Trans-​Pacific Partnership’ 2020 Arizona Legal Studies Discussion Paper No. 20-​06, at 2–​3, at < https://​pap​ers.ssrn.com/​sol3/​pap​ers.cfm?abst​ract​_​ id=​3542​536 > (last visited 14 March 2021). 115  Article 22.4 of NAFTA 2.0. 116  Articles 22.6, 22.7 and 22.8 of NAFTA 2.0. 112 See

230    Robert Brookfield and Lori Di Pierdomenico the link to concerns about Chinese State enterprises under the SCM Agreement, the limits on support are analogous to subsidy disciplines.117

VI.  Newer issues reflected in NAFTA 2.0 NAFTA 2.0 also contains several new types of provisions. Although lists of those new items vary,118 we focus on those issues aimed at modernizing the NAFTA to adapt to the novel and pressing trade issues in the twenty-​first century.

A. Sectoral issues addressed in new ways Two new approaches to structuring specific sectoral concerns are relevant. The first, which originates from TPP negotiations,119 is the creation of obligations through specific Annexes that apply to regulatory issues in particular sectors. These obligations typically relate to technical barriers to trade and are collected in Chapter 12 (Sectoral Annexes).120 The second is to include within a general Chapter or Annex issues that are not of general application, but apply only to particular sectors. Examples here include Annex 15-​D with obligations specific to a sports league and home shopping; Section B of Chapter 29 that relates to pricing of pharmaceutical and medical devices; and commitments related to import duties targeted to benefit courier companies.121

B. Digital trade The development of the digital economy and the recent proliferation of cross-​border data flows have resulted in one of the most important modernizations to NAFTA. The digital trade chapter addresses: (i) customs duties and non-​discriminatory treatment

117 

See Chapter 30 of this handbook. See, e.g., D. Gantz, ‘Important New Features in the USMCA’ Baker Institute for Public Policy (5 May 2020), at < https://​www.bak​erin​stit​ute.org/​resea​rch/​import​ant-​new-​featu​res-​usmca/​ > (last visited 14 March 2021). 119  See Article 8.13 (Annexes) of the TPP and the seven attached Annexes. 120  See also Annexes 3-​C and 3-​D to the agricultural chapter of NAFTA 2.0, which deal with Alcoholic Beverages and Proprietary Formulas, and largely duplicate Annexes 8-​A and 8-​F of the TPP. 121  Article 7.8(1)(f) of NAFTA 2.0; see also M. Rabson, ‘Shock at the Doorstep: New NAFTA Raises Duty-​Free Limits for Private Couriers but not Canada Post’ Financial Post (25 June 2020 and 26 June 2020), who notes that the increased duty-​free thresholds into Canada are only available for imports by private courier companies. 118 

North American trade: NAFTA    231 of ‘digital products’;122 (ii) data localization laws; (iii) civil liability for content creators and (iv) cooperation on matters of cybersecurity, spam prevention and consumer protection.123 In particular, under item (iii), the chapter seeks to include a US-​style ‘safe harbor’ rule for websites, blogs and social networks that host third-​party speech under Section 230 of the US Communications Decency Act of 1996. While the US provision has been described as ‘immunity from legal consequences for content generated by users’,124 this overstates what is reflected in the agreed NAFTA 2.0 text. Pursuant to Article 19.17(2), the Parties agree to not treat a supplier or user of an interactive computer service as an information content provider in determining ‘liability for harms’ relating to information stored or made available by the service, except to the extent the supplier or user has created or developed such information. This means, for example, that an online platform, such as Facebook or Google, could not be held liable for defamatory statements posted by its users. Annex 19-​A clarifies that Article 19.17(2) is subject to the general exceptions clause, which include measures necessary for the protection of public morals.125 There are also important exceptions within the Article that guarantee the right of a Party to enforce its criminal laws or prevent a supplier or user of an interactive computer service from complying with a specific, lawful order of a law enforcement authority.126 Cumulatively, these provisions guarantee a considerable amount of regulatory space for Parties to regulate content on interactive computer services, and constitute the strongest disciplines on digital trade negotiated by these countries to date.

C. Labour and environment Labour and environmental obligations were previously established through parallel agreements signed together with NAFTA.127 These agreements had their own dispute settlement mechanisms but labour and environmental groups often expressed dissatisfaction with their operation.128 One of the complaints was that the dispute settlement 122 The

term ‘digital product’ is broadly defined under Article 19.1 of NAFTA 2.0 as including ‘a computer program, text, video, image, sound recording, or other product that is digitally encoded, produced for commercial sale or distribution, and that can be transmitted electronically.’ 123  See Chapter 28 of this handbook. 124 I. Tamir and L. Tribe, ‘Did NAFTA 2.0 Sign Away Our Digital Future?’ Ottawa Citizen (15 October 2018). 125  Article 32.1(2) of NAFTA 2.0 incorporates Article XIV:(a)-​(c) of GATS. 126  Article 19.17(4)(c)(i) and (ii) of NAFTA 2.0. 127 These agreements were negotiated and signed after the Clinton administration took office—​ for the political history of the agreements, see S. Charnovitz ‘The NAFTA Environmental Side Agreement: Implications for Environmental Cooperation, Trade Policy, and American Treaty-​Making’ 8 Temple International and Comparative Law Journal (1994) 257. 128  See, e.g., for an overview of that perspective on labour, Canadian Labour Congress, ‘NAFTA renegotiation: An opportunity for more fairness’ at < https://​can​adia​nlab​our.ca/​uncate​gori​zed/​nafta-​ renego​tiat​ion-​oppo​rtun​ity-​more-​fairn​ess/​ > (last visited 30 August 2021); and C. Feingold, ‘Mexico’s

232    Robert Brookfield and Lori Di Pierdomenico system, being separate from the NAFTA dispute settlement and not offering effective remedies to induce compliance, was inadequate. A second criticism was that, because they were addressed in separate ‘side’ agreements, environment and labour issues received second-​class status. A third concern was that the substantive obligations were too limited. In response to those criticisms and as a condition for passing implementing legislation for four pending US FTAs under the Bush Administration in 2007, Congress insisted on labour and environmental obligations being strengthened in those agreements, and in all future US FTAs.129 Despite some opposition,130 the result of the TPP negotiations was a chapter that included enhanced obligations going beyond previous US agreements, such as requiring compliance with the Convention on the International Trade in Endangered Species (CITES), marine pollution obligations, and restrictions on ozone production,131 However, the TPP Environment Chapter does not include the same institutional structure as the NAFTA side agreement.132 Overall, NAFTA 2.0 includes most of the TPP innovations, but preserves the institutional structures of NAFTA.133 A significant omission in the environmental area is the lack of a reference to climate change, despite efforts by Canada and Democrats in Congress.134 With respect to labour, particularly as a result of the 2019 modifications to the original agreement signed in 2018, there are a number of key innovations going beyond the approach taken in the TPP.

Labor Reform: Opportunities and Challenges for an Improved NAFTA’ American Federation of Labor and Congress of Industrial Organizations (AFL-​CIO), (25 June 2019), at < https://​afl​cio.org/​test​imon​ies/​ mexi​cos-​labor-​ref​orm-​opport​unit​ies-​and-​cha​llen​ges-​impro​ved-​nafta > (last visited 30 August 2021),and on environment see L. Duncan and G. Garver, ‘NAFTA and the Environment: Time to Come Clean’, National Observer (28 September 2017); for a summary of the early operation of the labour agreement see M. Bognano and J. Lu, ‘NAFTA’s Labor Side Agreement: Withering as an Effective Labor Law Enforcement and MNC Compliance Strategy?’ in W.N. Cooke (ed), Multinational Companies and Global Human Resource Strategies (Greenwood: Quorum Books, 2018). 129  Known as the ‘May 10th Agreement’. S. Cho, ‘The Bush Administration and Democrats Reach a Bipartisan Deal on Trade Policy’ 11 ASIL Insights (31 May 2007). For a review of labour obligations related to US FTAs before and after that agreement, see for example, M.J. Bolle, Overview of Labor Enforcement Issues in Free Trade Agreements (Congressional Research Service: 22 February 2016), at < fas.org/​sgp/​crs/​ misc/​RS22823.pdf > (last visited 14 March 2021). 130  S. Trew, ‘Climate Change Safeguarded in TPP Environment Chapter’ Council of Canadians, at < https://​canadi​ans.org/​analy​sis/​clim​ate-​cha​nge-​safe​guar​ded-​tpp-​envi​ronm​ent-​chap​ter > (last visited 14 March 2021). 131  Regarding environmental obligations, see J. Chittooran, ‘TPP in Brief: Environmental Standards’ (15 April 2016), at < https://​www.third​way.org/​memo/​tpp-​in-​brief-​enviro​nmen​tal-​standa​rds > (last visited 14 March 2021). 132  For example, the North American Agreement on Environmental Cooperation includes a quasi-​ independent Secretariat. For a description of its value and its absence in the TPP, see A. De Mestral and M. Gehring, ‘NAFTA and Environmental Protection’ Corporate Knights (7 September 2017). 133 D. Gantz, ‘The U.S.-​ Mexico-​Canada Agreement: Labor Rights and Environmental Protection’ Baker Institute for Public Policy (13 June 2019), at < https://​www.bak​erin​stit​ute.org/​media/​files/​resea​rch-​ docum​ent/​62174​e56/​bi-​rep​ort-​061​319-​mex-​usmca-​4.pdf > (last visited 14 March 2021). 134  G. Hughes, ‘Despair, Resolve Among Climate Activists Over USMCA’s Environmental Shortfalls’ The Globe and Mail (31 January 2020).

North American trade: NAFTA    233 For example, NAFTA 2.0 includes bilateral (US-​Mexico and Canada-​Mexico) ‘rapid response’ mechanisms that allows complaints to be brought against action by individual companies.135 It also addresses concerns about the effectiveness of the threshold for determining violations and procedural requirements that arose with the only labour enforcement case to date under a US (or any other) FTA—​against Guatemala. Those changes include procedural changes that are not restricted to labour,136 as well as modifications to the standard necessary for finding a violation of certain labour and environmental obligations.137

D. Greater inclusion NAFTA 2.0 also includes separate provisions relating to small and medium sized enterprises, gender and indigenous peoples. Similar to the TPP, NAFTA 2.0 includes a chapter on small and medium sized enterprises. It requires certain relevant information to be available on websites and creates a committee,138 but NAFTA 2.0 goes somewhat further in adding a few additional obligations to assist those enterprises.139 While Canada unsuccessfully sought a separate chapter on gender,140 the agreement nonetheless addresses gender and trade.141 Notably, the Parties agree to protect workers against discrimination, including on the basis of sex, gender identity, and sexual orientation.142 After expressions of concern by certain US lawmakers, the text relating 135 

Hogan Lovells, ‘USMCA’s Rapid-​Response Labor Mechanism’, at < https://​www.lexol​ogy.com/​libr​ ary/​det​ail.aspx?g=​4114a​06e-​d56a-​42d8-​8aed-​073df​5f6b​911 > (last visited 14 March 2021). 136  For example, while a majority of the panel accepted an anonymous testimony, a strong dissent would not have allowed it (see In the Matter of Guatemala—​Issues Relating to the Obligations Under Article 16.2.1(a) (‘US-​Guatamala’)), Ruling on Request for Extension of Time to File Initial Written Submission and on the Treatment of Redacted Evidence (26 February 2006), at < https://​ustr.gov/​sites/​ defa​ult/​files/​files/​Issu​e_​Ar​eas/​Enfo​rcem​ent/​WTO/​Pend​ing/​Panel%20Rul​ing%202​0150​226.pdf > (last visited 14 March 2021), paras 65–​7 1, for the conclusion of the majority, and paras 1–​3 for the conclusion of the dissent. As modified in 2019, Article 31.11 of NAFTA 2.0 includes a new paragraph 2 that specifically allows, in paragraph (b), the use of anonymous testimony in any dispute, not only disputes related to labour obligations. 137  For example, Article 23.7 (Violence Against Workers) of NAFTA 2.0 adds footnote 14, which effectively removes the requirement to establish that a violation affects trade or investment. The Panel in US –​Guatemala found that this requirement was not met. See further C ­ hapter 23 of this Handbook. 138 Chapter 25 (Small and medium-​ sized enterprises), Articles 25.3 (Information Sharing) and 25.4 (Committee on SME Issues) of NAFTA 2.0; Chapter 24 of the TPP (Small and medium-​sized enterprises), Articles 24.1 (Information Sharing) and 24.2 (Committee on SMEs) of the TPP. 139  See, e.g., Articles 25.2 (Cooperation to Increase Trade and Investment Opportunities for SMEs), 25.5 (SME Dialogue), and 25.6 (Obligations in the Agreement that benefit SMEs) of NAFTA 2.0 do not have an equivalent in the TPP. 140 S. Thomson, ‘Liberals’ Hopes Stymied for Indigenous and Gender-​ Rights Chapters In Renegotiated NAFTA’ National Post (1 October 2018). 141  For a technical summary of the negotiated outcomes of the gender-​related provisions in NAFTA 2.0, see < https://​www.intern​atio​nal.gc.ca/​trade-​comme​rce/​trade-​agr​eeme​nts-​acco​rds-​comm​erci​aux/​ agr-​acc/​cusma-​aceum/​gend​er_​e​qual​ity-​egalit​e_​se​xes.aspx?lang=​eng > (last visited 14 March 2021). 142  Article 23.9 (Discrimination in the Workplace) of NAFTA 2.0.

234    Robert Brookfield and Lori Di Pierdomenico to worker discrimination was modified to add a footnote that appears to effectively stipulate that the United States meets the obligation through its existing legislation, precluding arguments that it needs to do more.143 Canada also did not succeed in convincing the United States and Mexico of the need for a chapter on Indigenous peoples and trade.144 but there was more emphasis on including Indigenous peoples’ interests in the agreement than in any previous FTA, with Indigenous rights and interests raised at a number of tables. The result was new provisions that relate specifically to Indigenous peoples such as an exception provision that prevents Parties from being required to violate obligations to Indigenous peoples, and a recognition of the importance of Indigenous trade in the preamble to the agreement.145

E. Structural innovations NAFTA 2.0 included a number of structural innovations in the way the three countries manage their trade relationship, most notably regarding any potential agreement with China in the future and potential review. The NAFTA 2.0 ‘Non-​Market Country FTA’ provision does not significantly change the legal relationship between the United States, Canada, and Mexico. NAFTA 2.0 allows future FTAs with consultation, and allows the agreement to be terminated on six months’ notice if two Parties are dissatisfied. However, through this provision, the United States signalled likely opposition to Canada or Mexico entering into an agreement with China.146 The obligation is narrow and limited to full FTAs. The United States demonstrated that it did not understand it to cover managed-​trade bilateral discussions with China, as there is no evidence that the United States followed that Article in notifying Canada and Mexico of its objectives for negotiations. Another structural innovation is the ‘Review Clause’ in Article 34.7. This started as a US proposal that the agreement be terminated after five years unless ‘heads of government’ 143 Footnote

15 in Article 23.9 (Discrimination in the Workplace) of NAFTA 2.0 provides: ‘The United States’ existing federal agency policies regarding the hiring of federal workers are sufficient to fulfill the obligations set forth in this Article. The Article thus requires no additional action on the part of the United States, including any amendments to Title VII of the Civil Rights Act of 1964, in order for the United States to be in compliance with the obligations set forth in this Article.’ See also T. Fitzsimons, ‘Footnote in New Trade Deal Causes Confusion Over LGBTQ Protections’ NBC News (4 December 2018). 144  For support by US and Canadian Indigenous groups for the concept, see, e.g., National Congress of American Indians, ‘Native Americans Push for Indigenous Chapter of NAFTA’, at < https://​trad​ efor​peop​lean​dpla​net.org/​nat​ive-​americ​ans-​push-​for-​ind​igen​ous-​chap​ter-​of-​nafta/​ > (last visited 14 March 2021). 145  Ibid., citing R. Schwartz: ‘This seems to be the most comprehensive and inclusive language for Indigenous peoples in any international trade or investment agreement’; see also Gantz, above fn 118, 4-​5. 146  C. Bown, ‘The 5 Surprising Things About the New USMCA Trade Agreement’ Washington Post (9 October 2018).

North American trade: NAFTA    235 (for the United States, it is the President, and not Congress) decide to extend it. The final version of the provision allows termination after 16 years, provided that 10 years of negotiations aimed at extending the agreement have failed. Some see this as still too much uncertainty, while others argue that it will promote healthy regular review.147

VII.  Important issues that did not change A few significant elements in the NAFTA 2.0 negotiations did not change, in many cases despite US attempts:

A. Bi-​national review of trade remedies Chapter 19 in the original Canada-​US FTA contained a review mechanism for anti-​ dumping or countervail cases. Under that mechanism, a litigant in a domestic case could choose not to appeal a decision to domestic courts and instead appeal before a bi-​national tribunal composed of experts from both the country that imposed the trade remedy and the country of the appellant. The same legal basis applied as in the relevant domestic court, but stakeholders preferred the greater number of expert participants in the Chapter 19 review, the neutrality among the group of third party adjudicators, and their ability to focus on the case. As noted above,148 Canada has had long-​standing concerns with US trade remedy laws and had even more reason to be concerned at the time of NAFTA 2.0 negotiations. In the original Canada-​US negotiations, Canada sought an exemption from their application, but settled for the US proposal for a bi-​ national mechanism.149 The mechanism was then copied into NAFTA, applying also to Mexico.150 The United States in the NAFTA 2.0 renegotiations sought elimination of Chapter 19, despite some significant support for its continued existence from parts of US

147 

See, e.g., Gantz, above fn 118, at 3-​4; ‘Does the US-​Mexico-​Canada Agreement Fall Short on Trade? A forum with Sen. Pat Toomey’, American Enterprise Institute, at 8, at < https://​www.aei.org/​wp-​cont​ ent/​uplo​ads/​2019/​12/​Tra​nscr​ipt-​Sena​tor-​Pat-​Too​mey-​R-​PA-​on-​the-​US-​Mex​ico-​Can​ada-​Agreem​ent.pdf > (last visited 14 March 2021). 148  See above fn 45. 149  M.S. Valihora, ‘NAFTA Chapter 19 or the WTO’s Dispute Settlement Body: A Hobson’s Choice for Canada’ 30 Case Western Reserve Journal of International Law (1998) 447, at 452-​453; G. C. Villanueva and P. M. Cadena, ‘An Assessment of the Chapter 19 Dispute Settlement Mechanism in the Context of the NAFTA Renegotiation’ 33 Maryland Journal of International Law (2018) 106, at 108. 150 P. Macrory, ‘NAFTA Chapter 19: A Successful Experiment in International Trade Dispute Resolution’ 2002 C.D. Howe Institute Commentary No. 168, who notes why this was in Mexico’s interests, at 4-​5, at < https://​www.cdh​owe.org/​sites/​defa​ult/​files/​atta​chme​nts/​rese​arch​_​pap​ers/​mixed/​com​ment​ ary_​168.pdf > (last visited 14 March 2021).

236    Robert Brookfield and Lori Di Pierdomenico industry.151 In the end, Mexico agreed to its removal in its bilateral agreement with the United States announced in August 2018,152 but, due to Canadian insistence, essentially the same review mechanism was included in the final NAFTA 2.0 (including as between the United States and Mexico).153

B. Temporary entry The ability of professionals and businesspeople (and their spouses) to move to conduct business was one of the significant features of NAFTA. Modernizing and expanding its scope was a key priority for Canada.154 However, NAFTA is only one of three FTAs in which the United States agreed to Mode 4 commitments.155 Presumably because of that sensitivity, NAFTA 2.0 largely replicates the existing language.156

C. Cultural industries exception A core feature of Canada’s trade agreements is the cultural industries exception, which excludes from the scope of an agreement five categories of cultural activities: written publication, film, broadcasting, music recordings and printed music. These categories correspond with the initial list of exempted activities including in the Canada-​United States FTA.157 Ironically, it was a key US demand during the TPP negotiations that Canada abandon its proposal to include a general exception for its cultural industries. Instead, the United States proposed a provision-​by-​provision approach to excluding cultural industries. In this sense, it is a major concession to Canada that the cultural 151 

Villanueva, above fn 149, at 121–​123. Morrow and R. Fife, ‘Trudeau Sends NAFTA Team to Washington with Orders to Seal Deal Quickly’ The Globe and Mail (27 August 2018), ‘Mexico did not insist on Chapter 19 but a Canadian official said Ottawa was still optimistic that the trade dispute mechanism could be maintained for Canada’. 153  See Gantz, above fn 118, 36-​ 37, concluding that ‘NAFTA Chapter 19 is effectively replicated’ in NAFTA 2.0. 154  Address by Foreign Affairs Minister on the modernization of the NAFTA (14 August 2017), at < https://​www.can​ada.ca/​en/​glo​bal-​affa​irs/​news/​2017/​08/​address_​by_​foreignaffairsministeronth​emod​ erni​zati​onof​t hen​orth​ame.html > (last visited 15 March 2021): ‘Fifth, we want to make the movement of professionals, which is increasingly critical to companies’ ability to innovate across blended supply chains, easier. NAFTA’s Chapter 16, which addresses temporary entry for businesspeople, should be reviewed and expanded to reflect the needs of our businesses.’ 155  For a description of how the US has only agreed to Mode 4 commitments in three FTAs, and the sensitivity of the issue more broadly, see L. Wallach and T. Tucker Debunking the Myth of Mode 4 and the US H-​1B Visa Program, Public Citizen’s Global Trade Watch, March 2006, at < https://​www.citi​zen. org/​wp-​cont​ent/​uplo​ads/​mode​_​fou​r_​h1​b_​vi​sa_​m​emo.pdf > (last visited 14 March 2021). 156  NAFTA and the Unites States-​ Mexico-​Canada Agreement (USMCA) (Congressional Research Service, updated 2 March 2020), at 27, at < https://​fas.org/​sgp/​crs/​row/​R44​981.pdf > (last visited 14 March 2021). 157  Article 2012 (Definitions) of CUSFTA. 152  A.

North American trade: NAFTA    237 industries general exception features in NAFTA 2.0 at all. That being said, under the terms of the exception, the United States and Mexico are permitted to take similar measures with respect to Canadian goods, services and content. Moreover, all three Parties may adopt measures of ‘equivalent commercial effect’ in retaliation to another Party’s cultural measure that would otherwise be inconsistent with the agreement.158 Under NAFTA, that right of retaliation was limited to the extent that it was inconsistent with the Canada-​US FTA.159 While the right to retaliate under NAFTA was never invoked by the United States or Mexico, its continuing existence could discourage Canada from taking action covered by the exception.

VIII. Conclusion Over the past three decades, the North American region has become increasingly integrated, despite testing times. The original NAFTA and the WTO Agreement formed the bedrock of that increasing integration. The TPP mega-​regional trade deal did not yield the intended upgrades to NAFTA. The NAFTA 2.0 negotiations, at times threatening to roll back or discontinue North American integration with the ‘America First’ populist rhetoric, managed to survive and can be qualified as largely a modest upgrade that hopefully will continue to ensure economic prosperity across North America. It has been over two years since NAFTA 2.0 entered into force and, with it, new US and Mexican administrations guiding and reshaping their national economic policy. All attention is on how the Biden Administration will handle trade with its North American partners. President Biden has historically supported trade liberalization initiatives throughout his long political career, including both the NAFTA and the TPP, harshly criticizing President Trump’s go-​it-​alone approach to free trade during his presidential campaign, thereby reinvigorating hopes for the North American integrative economic model. These hopes are seemingly out of place given some of the Biden Administration’s earliest trade actions. The TransCanada Keystone XL Pipeline, a multi-​billion-​dollar project supported by the Trump Administration, intended to extend a pipeline system from Alberta oil sands crude to various processing hubs in the United States, was killed by one of President Biden’s first Executive Orders as he took office. A second major hurdle to the future of North American trade would come quickly after that in the form of Biden’s ‘Buy American’ Executive Order, leaving both Canadian and Mexican governments scrambling for waivers to the stringent federal procurement rules. In spite of these challenges, NAFTA 2.0 will carry on largely tariff-​free trade in North America, which has thus far provided substantial opportunities across countless economic 158 

Article 32.6(3) and (4) of NAFTA 2.0. instance, the CUSFTA does not have Intellectual Property or Digital Trade chapters and its investment disciplines were far less reaching than in NAFTA. 159  For

238    Robert Brookfield and Lori Di Pierdomenico sectors. NAFTA 2.0 ensures North American prosperity may continue unabated, in spite of the future challenges that will no doubt arise.

Further reading D. Agren, The View from Mexico on NAFTA: It’s Complicated, CIGI, at < https://​www.cig​ionl​ ine.org/​artic​les/​view-​mex​ico-​nafta-​its-​comp​lica​ted > Centre for International Governance Innovation, ‘NAFTA Renegotiations: What You Need to Know’, at < https://​www.cig​ionl​ine.org/​artic​les/​nafta-​ren​egot​iati​ons-​what-​you-​need-​know > Congressional Research Service, ‘The North American Free Trade Agreement (NAFTA)’, Summary (25 May 2017), at < https://​fas.org/​sgp/​crs/​row/​R42​965.pdf > D. Gantz, An Introduction to the United States-​Mexico-​Canada Agreement (Northampton, MA: Edward Elgar, 2020) S. Lester, I. Manak and A. Arpas, ‘Access to Trade Justice: Fixing NAFTA’s Flawed Dispute Settlement Process’ 15(1) World Trade Review (2019) 63–​79

Chapter 9

Pacific T ra de Yuka Fukunaga and Pasha L. Hsieh

I. II.

Introduction 239 Overview of Regional Integration in the Asia-​Pacific 241 A. ASEAN Economic Community 242 B. Regional Comprehensive Economic Partnership (RCEP) 245 III. Comprehensive and Progressive Agreement for the Trans-​Pacific Partnership 246 A. Brief history of the CPTPP negotiations 246 B. Major WTO-​plus commitments and rules under the TPP/​CPTPP 249 I V. Conclusion 260

I. Introduction The economic growth of the Asia-​Pacific marks a paradigm shift in multilateral trade governance and international economic law. In particular, the beginning of the ‘Asian century’ is evidenced by the expectation that Asian countries’ share of global gross domestic product (GDP) will exceed that of the rest of the world in the 2020s.1 Regionalism across the Pacific has also progressed at an unprecedented rate. Since 2000, Asia-​Pacific FTAs have increased by four times and now represent 40 per cent of global trade pacts.2

1  V. Romei and J. Reed, ‘It’s Now Official—​The Asian Century is Set to Begin’ Financial Review (31 March 2019), at < https://​www.afr.com/​world/​asia/​it-​s-​now-​offic​ial-​the-​asian-​cent​ury-​is-​set-​to-​begin-​ 20190​331-​p51​9bi > (last visited 24 December 2019). 2  APEC Policy Support Unit, ‘APEC in Charts 2019’, at 16, at < https://​www.apec.org/​Publi​cati​ons/​ 2019/​12/​APEC-​in-​Cha​rts-​2019 >; Regional Trade Agreements, at < https://​www.apec.org/​Publi​cati​ons/​ 2019/​12/​APEC-​in-​Cha​rts-​2019 > (last visited 24 December 2019).

240    Yuka Fukunaga and Pasha L. Hsieh Given the impasse of WTO negotiations, the evolving legal frameworks for Pacific trade have become critical to the global economic order. We situate Asia-​Pacific regionalism in the context of global regionalism. Jagdish Bhagwati propounded the term ‘First Regionalism’ in reference to the FTAs of the 1960s, which mostly failed because of overriding political interferences.3 He observed that in the ‘Second Regionalism,’ robust economic motivations resulted in the success of the European single market and the North American Free Trade Agreement (NAFTA) in the 1980s and 1990s.4 Building on Bhagwati’s account, we argue that since the inception of the Doha Round in the 2000s, Asia-​Pacific regionalism has accelerated in the ‘Third Regionalism’, the next wave of global regionalism. The founding of the Association of Southeast Asian Nations (ASEAN) in 1967 and Asia-​Pacific Economic Cooperation (APEC) in 1989 initially invigorated Asian economic integration. Yet, what became the game changers in the Third Regionalism were the creation of the ASEAN Economic Community (AEC) and the emergence of mega-​ regional trade agreements: the Comprehensive and Progressive Agreement for Trans-​ Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP). Without the United States, 11 parties concluded the CPTPP in 2018. Although India decided not to join the RCEP in 2019, the remaining 15 countries ‘have concluded text-​based negotiations for all 20 chapters’ and signed the agreement in November 2020.5 Based on their current memberships, the CPTPP and the RCEP constitute 13.5 per cent and 22 per cent of the world’s GDP, respectively.6 Their contents are therefore pivotal in shaping the normative features of contemporary FTAs. This chapter provides an overview of the main legal structures that govern Pacific trade in the Third Regionalism. It first offers insight into the evolution from ASEAN to the AEC, as well as ASEAN’s external agreements with Asia-​Pacific economies including China, India, Japan, Korea, Hong Kong, Australia and New Zealand. It also discusses legal and policy considerations for RCEP negotiations. Then, by focusing on the CPTPP, the chapter analyses key issues such as rules of origin, market access, electronic commerce (e-​commerce), state-​owned enterprises (SOEs) and currency manipulation. It is imperative to understand these critical developments of Pacific trade amid rising national populism and the COVID-​19 pandemic. 3  J.

Bhagwati, Termites in the Trading System: How Preferential Agreements Undermine Free Trade (Oxford: Oxford University Press, 2008), at 29–​30. 4  J. Bhagwati, ‘Regionalism versus Multilateralism’ 15 The World Economy (1992) 535, at 540–​542. 5  Joint Leaders’ Statement on the Regional Comprehensive Economic Partnership (RCEP) (2019) (2019 Statement), at < https://​asean.org/​stor​age/​2019/​11/​FINAL-​RCEP-​Joint-​Lead​ers-​Statem​ent-​for-​3rd-​ RCEP-​Sum​mit.pdf > (last visited 1 June 2020). 6  For the text of the CPTPP, see < https://​www.intern​atio​nal.gc.ca/​trade-​comme​rce/​trade-​agr​eeme​ nts-​acco​rds-​comm​erci​aux/​agr-​acc/​cptpp-​ptpgp/​backg​roun​der-​docum​ent_​info​rmat​ion.aspx?lang=​ eng > (last visited 24 December 2019). For the text of the RCEP, see < https://​asean.org/​?stat​ic_​p​ost=​ rcep-​regio​nal-​compre​hens​ive-​econo​mic-​part​ners​hip > (last visited 24 December 2019). India accounts for 7.98% of global gross domestic product (GDP). India: Share of Global GDP Adjusted for Purchasing Power Parity from 2014 to 2024, at < https://​www.stati​sta.com/​sta​tist​ics/​271​328/​ind​ias-​share-​of-​glo​bal-​ gross-​domes​tic-​prod​uct-​gdp/​ > (last visited 24 December 2019).

Pacific Trade   241

II.  Overview of Regional Integration in the Asia-​Pacific During the Second Regionalism, the 21 economies of APEC pushed for greater Asia-​Pacific economic integration. However, APEC’s soft-​law approach made it difficult to achieve its Bogor Goals of realizing ‘free and open trade and investment in the Asia-​Pacific’ by 2020.7 Renewed momentum for regionalism surged after the Asian financial crisis in 1997. Frustrations in the region over US-​dominated global financial institutions galvanized the ‘ASEAN+​3’ framework for currency stability.8 The 10 ASEAN countries, China, Japan, and Korea created the currency swap arrangement known as the Chiang Mai Initiative, the predecessor to today’s Chiang Mai Initiative Multilateralization Agreement. At the outset of the Third Regionalism, Beijing and Tokyo vigorously competed for leadership in Asia. The East Asian Vision Group, set up under the ASEAN+​3 structure, proposed the East Asian Free Trade Area (EAFTA) in 2001.9 While China promoted the EAFTA initiative, Japan countered it with the alternative Comprehensive Economic Partnership for East Asia (CEPEA) in 2006, consisting of ASEAN+​3 countries, India, Australia and New Zealand.10 In Japan’s view, the CEPEA based on an ASEAN+​6 framework could implement the Fukuda Doctrine by enhancing ASEAN-​Japan relations.11 Also, the inclusion of US allies, India, Australia, and New Zealand would counterbalance Chinese influence. In the meantime, APEC’s proposal for the Free Trade Area of the Asia-​Pacific (FTAAP) and the US signing of the Trans-​Pacific Partnership (TPP), the CPTPP’s predecessor, have made Asia-​Pacific regionalism more politically complicated. The APEC Business Advisory Council proposed to form the 21-​party FTAAP in 2004 in order to revitalize APEC in light of proliferating trade and investment agreements.12 7  Asia-​Pacific Economic Cooperation, ‘1994 Leaders’ Declaration’, 15 November 1994, signed in Bogor, Indonesia. 8  S. Urata, ‘Constructing and Multilateralizing the Regional Comprehensive Economic Partnership: An Asian Perspective’ 2013 ADBI Working Paper 449, at 7. The 10 ASEAN countries are Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. 9  Summary of Stock-​Taking Report on the ASEAN Plus Three Economic and Financial Cooperation, in Report of the East Asian Vision Group II (EAVG) 43 (2013), at 43–​46 (2013); C.M. Kent, ‘East Asian Integration Towards an East Asian Economic Community’ 2017 ADBI Working Paper 665, at 23. 10  The Comprehensive Economic Partnership for East Asia (CEPEA) was an initiative by the Japanese Government-​funded think tank, the Economic Research Institute for ASEAN and East Asia based in Jakarta. R.C. Severino, ‘Japan’s Relations with ASEAN’ in T. Shiraishi and T. Kojima (eds), ASEAN-​Japan Relations (Cambridge: Cambridge University Press, 2014) 17, at 27-​28. 11  S. Sudo, Japan’s Asean Policy: In Search Of Proactive Multilateralism (Singapore: ISEAS Publishing, 2015) 69–​75. The Fukuda Doctrine is based on the Japanese Prime Minister Takeo Fukuda’s idea to position Japan as an equal partner with Southeast Asian countries in order to form a relationship of mutual trust and confidence. 12 APEC Business Advisory Council, ‘Asia Pacific Business Leaders to Press APEC Leaders to Accelerate Regional Economic Integration’ (14 February 2014), at 1.

242    Yuka Fukunaga and Pasha L. Hsieh APEC members adopted the FTAAP vision in 2006 and the 2010 APEC Leaders’ Declaration identified ‘ASEAN+​ 3, ASEAN+​ 6, and the Trans-​ Pacific Partnership’ as pathways to the comprehensive trade pact.13 APEC’s optimism about the TPP was echoed by the Obama administration, when it engaged in TPP negotiations with members of the Trans-​Pacific Strategic Economic Partnership (P4 Agreement) in late 2009.14 However, the Trump administration’s withdrawal from the TPP in 2017 and the escalating US-​China trade war ushered Asia-​Pacific regionalism into an era of uncertainty. At the same time, the US’s blocking appointments of WTO Appellate Body Members paralysed the multilateral dispute settlement mechanism leaving the Appellate Body unable to function. These profound changes in global trade have invigorated Asia-​ Pacific regionalism under the leadership of Asian economies, including particularly ASEAN and Japan.

A. ASEAN Economic Community The 1967 Bangkok Declaration gave birth to ASEAN. Rather than implementing economic integration, the initial focus of ASEAN was to form a loose security alliance to contain widespread communism.15 Premised on the Indonesian concepts of musyawarah and mufakat (consultation and consensus), postcolonial nationalism led to the ‘ASEAN way’ that has guided the bloc’s non-​intervention principle.16 However, as Asia’s earliest trade bloc, ASEAN’s internal and external agreements have formed the foundation for Asia-​Pacific regionalism. The CPTPP includes four ASEAN countries (Brunei, Malaysia, Singapore and Vietnam) and the RCEP is built upon the FTAs that ASEAN has entered into with external partners. India decided to opt out in 2019. The enactment of the ASEAN Charter in 2007 was ASEAN’s pivotal constitutional moment. The Charter codifies established practice and confers legal personality on ASEAN ‘as an inter-​governmental’ organization.17 It is not accurate to understand ASEAN as ‘incomplete’ compared to the European Union (EU) because ASEAN countries do not intend to form a customs union or single market. The EU functions as a supra-​national institution with a top-​down approach, whereas ASEAN has developed under a horizontal integration model. A key difference between EU law and ASEAN

13 

Ibid.; Asia-​Pacific Economic Cooperation, ‘1994 Leaders’ Declaration’, 13 November 2010. The P-​4 (Pacific 4) agreement was concluded between Singapore, New Zealand, Chile and Brunei in 2006. 15  R.C. Severino, Southeast Asia in Search of an ASEAN Community: Insights from the Former ASEAN Secretary-​General (Singapore: ISEAS Publishing, 2006), at 1–​11. 16 Ibid.; I. Venzke and L.-​ A. Thio, The Internal Effects of ASEAN External Relations (Cambridge: Cambridge University Press, 2016), at 9–​17. 17  Article 3 of the Charter of the Association of Southeast Asian Nations (ASEAN Charter), done at Singapore, 20 November 2007. 14 

Pacific Trade   243 law is the latter’s lack of ‘direct effect’ that could preempt national legislation.18 While the ASEAN Charter mandates that members ‘take all necessary measures’ to implement ASEAN treaties, neither national constitutions nor domestic law accords such treaties self-​executing power.19 However, various exceptions and policy space under ASEAN law could undermine incentives for trade liberalization. In the Third Regionalism, ASEAN has reinforced the notion of ASEAN centrality by planting itself at the center of a hub-​ and-​spoke structure in the Asia-​Pacific.

1. ASEAN’s internal integration under the AEC Blueprint 2025 Facing proliferating FTAs and the rise of China and India, ASEAN enhanced its trade liberalization by creating the ASEAN Free Trade Area (AFTA) in 1992. However, lengthy exclusion lists and complex rules of origin that led to low utilization by enterprises made the AFTA ineffective. In 2015, ASEAN launched the AEC and adopted the AEC Blueprint 2025 replacing the previous AEC Blueprint 2015.20 The AEC’s primary goal is ‘to enhance ASEAN’s trade and production networks’ and ‘establish a more unified market’ by facilitating ‘the seamless movement of goods, services, investment, capital and skilled labor.’21 The AEC legal framework follows an approach of incremental consolidation for agreements and commitments. Special and differential treatment is often accorded to ASEAN’s four least developed countries, Cambodia, Laos, Myanmar and Vietnam (known as CLMV countries). In terms of trade in goods, the ASEAN Trade in Goods Agreement (ATIGA) consolidated and streamlined post-​AFTA agreements on goods and trade facilitation. Under the ATIGA tariff schedule, 99.3 per cent of tariffs have been eliminated by the six more developed ASEAN countries and 97.7 per cent by CLMV countries.22 Tariff elimination is thus the most notable success of ASEAN’s regionalism. The ATIGA adopted the flexible co-​equal rule for its rules of origin, which allow both the ‘change in tariff classification’ and ‘regional value content 40 %’ rules. Cumulative rules of origin under the ATIGA and ASEAN+​1 FTAs allow for the consolidation of the regional supply chain. The EU-​Singapore FTA also incorporated this ‘ASEAN cumulation’ concept for its rules of origin. The remaining challenge for the ATIGA is to eliminate increasing intra-​ASEAN non-​tariff-​barriers.

18 

See generally Chapter 11 of this handbook. Article 5.2 of the ASEAN Charter; D.A. Desierto, ‘ASEAN’s Constitutionalization of International Law: Challenges to Evolution under the New ASEAN Charter’ 49 Columbia Journal of Transnational Law (2011) 268, at 300–​303. 20 ASEAN, ‘Kuala Lumpur Declaration on ASEAN 2025: Forging Ahead Together’, at < https://​ www.asean.org/​wp-​cont​ent/​uplo​ads/​ima​ges/​2015/​Novem​ber/​KL-​Decl​arat​ion/​KL%20Decl​arat​ion%20 on%20AS​EAN%202​025%20F​org ing%20Ahead%20Together.pdf > (last visited 1 June 2020). 21  ASEAN, ‘ASEAN Economic Community (AEC) Blueprint’ (2015), at < https://​asean.org/​wp-​cont​ ent/​uplo​ads/​arch​ive/​5187-​10.pdf > (last visited 1 June 2020), at 6. 22  ASEAN, ‘ASEAN Integration Report 2019’ (2019), at (last visited 1 June 2020), at 19–​20. 19 See

244    Yuka Fukunaga and Pasha L. Hsieh With respect to trade in services, the ASEAN Trade in Services Agreement (ATISA) includes ten successive ‘packages’ of services commitments negotiated under the Framework Agreement on Services since 1995. The packages of commitments are now WTO-​plus and exceed those of the ASEAN-​Australia-​New Zealand FTA, which is the ASEAN+​1 FTA with the highest level of liberalization. Importantly, the goal of the AEC Blueprint 2025 to facilitate the movement of skilled labour also highlights its difference from the European concept of freedom of movement that applies to all workers. The so-​called Mode 4 (movement of natural persons) within ASEAN is facilitated by the ASEAN Agreement on the Movement of Natural Persons and the mutual recognition arrangements for eight professions. As for investment promotion and protection, the ASEAN Comprehensive Investment Agreement (ACIA) was notably influenced by the US Model Bilateral Investment Treaty (BIT) and the NAFTA. To date, no investor or country has successfully invoked the investment agreement’s dispute settlement mechanism. The only ASEAN Investor-State dispute has been Yaung Chi Oo v. Myanmar, in which a Singaporean company challenged Myanmar’s expropriation of a joint venture brewery.23 Based on the interpretation of pre-​ACIA agreements, the tribunal dismissed the case on jurisdictional grounds.

2. ASEAN’s external integration through the ASEAN+​1 FTAs The ATIGA, the ATISA, and the ACIA constitute three key pillars of the AEC. Their incremental consolidation approach was also followed by many ASEAN+​1 FTAs. From 2002 to 2017, ASEAN as a bloc concluded FTAs with China, Japan, India, Korea, Australia and New Zealand, and Hong Kong. The only FTA with comprehensive coverage is the one with Australia and New Zealand. The most recent pacts with Hong Kong include an FTA and an investment agreement. ASEAN+​1 FTAs with China, Japan, India and Korea reflect a ‘building block’ structure. The ASEAN-​China FTA, for example, contains a framework agreement that requires the full FTA to be established ‘within 10 years’ and incorporates the specific agendas for completing other pacts.24 The framework agreement also includes an ‘early harvest program’ that immediately liberalizes tariffs for selected products, so that parties are entitled to trade benefits before finalizing subsequent agreements.25 With the conclusion of subsequent agreements on trade in goods, services, investment and a dispute settlement mechanism, the ASEAN-​China FTA became effective in 2010. Comparable to AEC agreements, ASEAN+​1 FTAs allow for evolution. For instance, while the first package of services commitments under the ASEAN-​China FTA contained WTO-​minus commitments, the second package elevated the commitments 23 

Yaung Chi Oo Trading Pte Ltd. v. Government of the Union of Myanmar (2003) 42 I.L.M. 404, paras 4–​8. 24  Articles 2 and 8 of the Framework Agreement on Comprehensive Economic Co-​operation between the Association of South East Asian Nations and the People’s Republic of China (2002). 25  Ibid., at Article 6.

Pacific Trade   245 to WTO-​plus.26 After the 2019 Protocol to amend the ASEAN-​ Japan FTA by incorporating services and investment provisions, all of ASEAN+​1 FTAs became ‘comprehensive’ in their coverage. These ASEAN+​1 FTAs, in turn, facilitate Pacific trade and constitute the benchmark for RCEP negotiations.

B. Regional Comprehensive Economic Partnership (RCEP) The conclusion of the CPTPP and ongoing US-​China trade conflicts have expedited the negotiations of the RCEP, which will be the world’s largest trade bloc in terms of global GDP. To ensure ASEAN centrality and prevent the marginalization of the bloc, ASEAN Member States first introduced the framework for the ‘ASEAN-​led process’ to integrate FTA partners in 2011.27 Based on ASEAN’s 2012 Guiding Principles for the RCEP, this mega-​regional trade agreement will essentially merge China’s EAFTA and Japan’s CEPEA proposals.28 The first round of negotiations took place in 2013 and 16 countries, including India, outlined the contents for the RCEP in 2017.29 At the RCEP Summit in Bangkok in November 2019, 15 negotiating countries agreed on the 20 chapters of the RCEP.30 India decided not to join the RCEP presumably on the ground that escalating trade deficits with China and ASEAN countries would substantially undermine the support for the Modi Government.31 The RCEP was signed in 2020 and entered into force in 2022. Although RCEP provisions remain confidential, the chapters of the agreement and ongoing negotiations reveal unique aspects of this mega-​FTA. First, the Western media has portrayed the RCEP as a China-​dominated agreement. This is not entirely accurate. Negotiating parties such as China and Japan have agreed and reiterated that the RCEP is an ASEAN-​led process in line with ASEAN centrality. Second, unlike the CPTPP and EU and US FTAs, the RCEP lacks chapters on SOEs and labour and environmental protection. The omission of SOE-​related disciplines could favour China, Vietnam and other ASEAN countries that rely on SOEs to drive their economic growth and maintain employment and social stability.32 The exclusion of labour and environmental protection 26 

Y. Fukunaga and H. Ishido, ‘Assessing the Progress of Services Liberalization in the ASEAN-​China Free Trade Area (ACFTA)’ 2013 ERIA Discussion Paper Series, at 3–​17. 27  ASEAN Framework for Regional Comprehensive Economic Partnership. 28 ASEAN, ‘Guiding Principles and Objectives for Negotiating the Regional Comprehensive Economic Partnership’ (2012), at < https://​asean.org/​wp-​cont​ent/​uplo​ads/​2012/​05/​RCEP-​Guid​ing-​Pri​ ncip​les-​pub​lic-​copy.pdf > (last visited 10 June 2020). 29 Outline of the RCEP Agreement (as at November 2017) in Joint Leaders’ Statement on the Negotiations for the Regional Comprehensive Economic Partnership (RCEP) (2017). 30  See 2019 Statement, above fn 5. For information on the 20 chapters, see above fn 1. 31  R. Mazumdar, ‘India Should Hold Off on RCEP Agreement’ Business Line (1 November 2019), at < https://​www.thehi​ndub​usin​essl​ine.com/​opin​ion/​india-​sho​uld-​hold-​off-​on-​rcep-​agreem​ent/​arti​cle2​ 9856​854.ece > (last visited 25 December 2019). 32  See generally Chapter 30 of this handbook.

246    Yuka Fukunaga and Pasha L. Hsieh provisions also demonstrate the deviation by Asian countries from the European Union and the United States’ trade-​plus approach. Finally, commentators surmise that the trade liberalization level of the RCEP will be lower than that of the CPTPP and bilateral FTAs and therefore the RCEP will be of limited significance to businesses. This suggestion ignores the fact that aside from market access, the harmonization of rules of origin alone can substantially decrease the ‘noodle bowl’ syndrome and business costs.33 In addition, Japan and Korea have attempted to apply the TPP’s e-​commerce requirements to the RCEP. Aligning e-​ commerce rules in 15 Asia-​Pacific countries will further facilitate intra-​Asian trade. Moreover, similar to ASEAN+​1 FTAs, the RCEP should be perceived as a framework agreement that provides a legal basis for incremental consolidation of subsequent commitments and agreements.34

III.  Comprehensive and Progressive Agreement for Trans-​Pacific Partnership The AEC is limited to ten ASEAN countries and the RCEP has not yet come into effect. In the Third Regionalism, the CPTPP, which includes 11 parties, is now the most important mega-​FTA in terms of its membership and contents. In contrast to the RCEP, the CPTPP has a pivotal ‘trans-​Pacific’ nature, even without the United States, because of the accession of Canada, Chile and Mexico. The CPTPP’s open accession clause, which allows ‘any State or separate customs territory’ to join the pact, also potentially eliminates legal obstacles to Taiwan’s prospective membership. Furthermore, the requirements under the CPTPP will inevitably become the benchmark for contemporary Asia-​Pacific FTAs. Consequently, the negotiations and selected key issues of CPTPP are critical to Pacific trade and will be detailed below.

A. Brief history of the CPTPP negotiations 1. The negotiations of the TPP and the US withdrawal TPP negotiations date back to the initiative started by Chile, New Zealand, and Singapore at the APEC Leaders meeting in Mexico in 2002. The initiative came to fruition as the Trans-​Pacific Strategic Economic Partnership Agreement (TPSEP), which

33  R.E. Baldwin, ‘Managing the Noodle Bowl: The Fragility of East Asian Regionalism’ 2007 ADB Working Paper Series on Regional Economic Integration No. 7. 34  See generally Chapter 29 of this handbook.

Pacific Trade   247 entered into force between New Zealand, Singapore, Chile and Brunei Darussalam in 2006.35 The agreement, which was initially relatively obscure, began to attract attention when the United States expressed its interest in joining the agreement in September 2008.36 In November 2009, the Obama administration announced that the United States would participate in the negotiations to expand the P4 to the TPP.37 By March 2010, TPP negotiations began, bringing together TPSEP countries as well as Australia, Peru, the United States and Vietnam.38 The negotiations were later joined by Malaysia in October 2010,39 Canada and Mexico in June 201240 and finally by Japan in July 2013.41 The negotiations set ambitious goals for liberalizing trade and investment and also for creating a model set of rules that would form the basis of the twenty-​first century trading order.42 With such high ambition, and such a diverse group of negotiating partners, it is not surprising that the negotiations encountered several difficult hurdles, including issues on access to Japan’s agricultural market and labour conditions in Vietnam. Additionally, the negotiating ability of the US Government was severely hampered by the lack of trade promotion authority (TPA) until the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (P.L. 114-​26) was adopted and signed into law by President Obama in June 2015.43 The TPP was signed in February 2016. It provided two paths for entry into force. The agreement could enter into force 60 days after all original signatories notified the depositary in writing of the completion of their applicable legal procedures, or alternatively, upon notification of at least six of the original signatories, accounting for at least 85 per cent of their combined GDP.44 This would ensure that the TPP would enter into force only if both Japan and the United States ratified the Agreement. Japan was the first to complete its domestic legal procedures for ratification in January 2017, followed by New Zealand in May 2017. Meanwhile, the Obama administration had 35 D.K. Elms and C.L. Lim, ‘An Overview and Snapshot of the TPP Negotiations’ in C.L. Lim, D.K. Elms and P. Lowe (eds), The Trans-​Pacific Partnership: A Quest for a Twenty-​first Century Trade Agreement (Cambridge: Cambridge University Press, 2012) 21, at 21–​25. 36  Ibid., at 25. 37 Office of the United States Trade Representative, ‘Increasing U.S. Exports, Creating American Jobs: Engagement with the Trans-​Pacific Partnership’ (13 November 2009), at < https://​ustr.gov/​about-​ us/​pol​icy-​offi​ces/​press-​off​i ce/​ blog/​2009/​november/​increasing-​us-​exports-​creating-​american-​jobs-​ engagement-​tra > (last visited 1 June 2020). 38  See Elms and Lim, above fn 35, at 27. 39  Ibid., at 28. 40  ‘TPP Partners Invite Mexico and Canada to Join TPP Talks, But not Japan’ Inside US Trade (22 June 2012). 41 ‘TPP Members Formally Agree to Let Japan Join Ongoing Negotiations’ Inside US Trade (22 April 2013). 42  J.J. Schott, B. Kotschwar, and J. Muir, Understanding the Trans-​Pacific Partnership (Washington, DC: Columbia University Press, 2013), at 13–​14. 43  D.A. Gantz, ‘The TPP and RCEP: Mega-​Trade Agreements for the Pacific Rim’ 33 Arizona Journal of International and Comparative Law (2016) 57, at 61. 44  Article 30.5 of the Trans-​Pacific Partnership Agreement.

248    Yuka Fukunaga and Pasha L. Hsieh a hard time garnering support for the TPP in the US Congress. Its efforts to put it to a vote during a lame-​duck session proved unsuccessful. In the presidential campaign, the then-​Republican nominee, Donald Trump, had made clear that there would be no TPP under his presidency,45 while the then-​Democratic nominee, Hilary Clinton, joined him in suggesting her skepticism about the Agreement out of concern for its negative impacts on American workers.46 On 23 January 2017, President Trump made good on his campaign pledge by withdrawing the United States from the TPP.47 The US withdrawal eliminated the possibility of the entry into force of the TPP in the near future.

2. Entry into force of the CPTPP While Australia expressed an interest in proceeding without America and allowing China and Indonesia instead to join the TPP,48 there was skepticism among the remaining TPP partners about salvaging the TPP Agreement without the United States. For Japan, the TPP without the United States was considered ‘meaningless’49 and the Japanese Government sought to persuade the Trump administration to return to the deal. However, faced with rejection by the United States, Japan shifted its strategy to bring the TPP into force without the United States while, simultaneously, hoping that the United States would eventually rejoin. In a ministerial statement of the trade ministers of the remaining 11 TPP partners in May 2017, ‘the Ministers agreed . . . to launch a process to assess options to bring the comprehensive, high quality Agreement into force expeditiously, including how to facilitate membership for the original signatories’.50 In November 2017, the Ministers announced that they had agreed on the core elements of the CPTPP.51 The agreement was signed at a Ministerial meeting in Santiago, Chile, on 8 March 2018. The parties to the CPTPP agreed to incorporate the TPP Agreement, ‘by reference, into and made part of [the CPTPP] mutatis mutandis, except for Article 30.4 (Accession), Article 30.5 (Entry into Force), Article 30.6 (Withdrawal) and Article 30.8 (Authentic Texts)’.52 In addition, they agreed to suspend certain provisions of the TPP

45 

‘Trump Economic Plan: ‘There Will be No TPP’ Even if it Passes in a Lame-​Duck Session’ Inside US Trade (16 September 2016). 46 ‘Clinton, in Michigan, is Emphatic in her Opposition to TPP, Trump’ Inside US Trade (11 August 2016). 47  White House Presidential Memorandum, ‘Presidential Memorandum Regarding Withdrawal of the United States from the Trans-​Pacific Partnership Negotiations and Agreement’ (23 January 2017), at < https://​www.whi​teho​use.gov/​presi​dent​ial-​acti​ons/​presi​dent​ial-​mem​oran​dum-​regard​ing-​wit​hdra​wal-​ uni​ted-​sta​tes-​trans-​paci​fic-​part​ners​hip-​negot​iati​ons-​agreem​ent/​ > (last visited 29 December 2019). 48  ‘Australia Open to China and Indonesia Joining TPP after US Pulls Out’ Guardian (23 January 2017), at < https://​www.theg​uard​ian.com/​austra​lia-​news/​2017/​jan/​2 4/​austra​lia-​open-​to-​china-​and-​ indone​sia-​join​ing-​tpp-​after-​us-​pulls-​out > (last visited 1 June 2020). 49  ‘Canada, Japan So Far Rejecting Notion of TPP Without the U.S.’ Inside US Trade (25 January 2017). 50  TPP Agreement, Ministerial Statement (21 May 2017). 51  TPP Agreement, Ministerial Statement (11 November 2017). 52  Article 1.1 of the CPTTP Agreement.

Pacific Trade   249 Agreement.53 The suspended provisions include a number of controversial provisions in the intellectual property rights chapter, and a few provisions relating to investment, labour and other chapters, but most obligations remained unchanged.54 Most importantly, the market access commitments by the parties are incorporated into the CPTPP without any changes. The CPTPP came into force on 30 December 2018 among Mexico, Japan, Singapore, New Zealand, Canada and Australia, which had completed their applicable legal procedures. As of today, the CPTPP has been ratified by the above six countries, and Vietnam and Peru. In the meantime, Brunei Darussalam, Chile, and Malaysia have not completed their applicable domestic procedures to ratify the CPTPP. On 1 February 2021, the United Kingdom formally applied for membership of the CPTPP. On 16 September 2021, China also formally applied to join the CPTPP. On 22 September 2021, Taiwan became the third to submit a formal application to join the CPTPP.

B. Major WTO-​plus commitments and rules under the TPP/​CPTPP 1. Market access and rules of origin The TPP partners had substantially reduced or eliminated tariffs on most non-​ agricultural and some agricultural products under the WTO covered agreements and bilateral FTAs even before the TPP negotiations began. Nevertheless, certain politically sensitive goods remained to be liberalized and the TPP market access negotiations on them were highly contentious. After protracted negotiations, the United States, Australia, Malaysia, Singapore, Chile, New Zealand, Vietnam, and Brunei Darussalam agreed to eliminate tariffs on all the tariff lines while the elimination rate by Canada, Mexico, and Peru was limited to 99 per cent, and Japan, to 95 per cent.55 In trade in services, the TPP Agreement established principles of liberalization such as national treatment, most-​favoured-​nation treatment and market access, while its negative list allows exemptions for the non-​conforming measures listed in each party’s schedule. In market access negotiations, the most controversial sectors were agricultural goods, textiles and apparel, and automobiles and automobile parts.

53 

Article 2 of the CPTPP Agreement. See Annex II ‘List of Suspended Provisions’ to the CPTPP Agreement. 55  World Economic Forum White Paper, ‘Will the Trans-​Pacific Partnership Agreement Reshape the Global Trade and Investment System? What’s In and What’s New: Issues and Options’ (16 July 2016), at < http://​www3.wefo​rum. org/​docs/​WEF_​White_​Paper_​Whats_​in_​and_​whats_​new.pdf > (last visited 1 June 2020), at 5. 54 

250    Yuka Fukunaga and Pasha L. Hsieh

a. Agricultural goods The CPTPP Agreement contains commitments to liberalize trade in agricultural goods significantly. For example, tariffs on beef would be eliminated in the United States, Canada, Mexico and Peru over the period of five to eleven years, and Japan’s beef tariffs of 38.5 per cent would be reduced to 9 per cent over 16 years. However, on certain highly sensitive agricultural products, the CPTPP falls short of a uniform-​across-​the-​board reduction in barriers and rather encompasses a patchwork quilt of separate agreements on tariff-​rate quotas (TRQs).56 One such sensitive product is sugar, reflecting fierce competition among Australia, Mexico, and the United States. The fact that sugar had been left out of the Australia-​US FTA had foreshadowed difficulties in the negotiation.57 After the thorny negotiation, the TPP partners succeeded in agreeing to liberalize trade in sugar through quotas. Most importantly, Australia obtained from the United States an additional 65,000 tons of quota plus 23 per cent of future additional quota allocations, which would lead to a significant increase in its sugar export, although it would still fall far behind Mexico, which exports 1 to 1.5 million tons of sugar to the United States.58 Another sensitive sector is that of dairy products partly because it was one of the five ‘sacred products’ designated by the Japanese Government. The ‘sacred products’ consist of rice, wheat and barley, beef and pork, sugar and dairy products. Prime Minister Abe had pledged at the 2012 general election that he would not approve the TPP if it required liberalization of trade of ‘sacred products.’59 In the TPP, while Japan agreed to reduce or eliminate tariffs on certain types of cheeses over the period of 11 to 21 years, it maintained state trading of skim milk powder and butter and only set a nominal quota on them. Finally, rice is the politically most important ‘sacred product’ for Japan. Japan had ‘tariffied’ non-​tariff measures on rice imports in 1999 but kept a tariff of JPY341/​kg on rice while importing 770,000 tons of rice through state trading in accordance with Annex 5 to the WTO Agreement on Agriculture. Japan had made no liberalization commitments on rice under FTAs until the TPP. In the TPP, Japan agreed to offer a quota of 50,000 tons (to be expanded to 70,000 tons after the thirteenth year of entry into force) to America and a quota of 6,000 tons (to be expanded to 8,400 tons after the thirteenth year of entry into force) to Australia. The liberalization commitments made under the TPP remain unchanged under the CPTPP. 56 

C. Hendrix and B. Kotschwar, ‘Agriculture’ in C. Cimino-​Isaacs and J.J. Schott (eds), Trans-​Pacific Partnership: An Assessment (Washington, DC: Peterson Institute for International Economics, 2016) 101, at 102. 57 D. Elms, ‘Agriculture and the Trans-​ Pacific Partnership Negotiations’ in T. Voon (ed), Trade Liberalisation and International Co-​ operation: A Legal Analysis of the Trans-​ Pacific Partnership Agreement (Cheltenham, UK, Northampton, MA, US: Edward Elgar Publishing, 2013) 106, at 118-​120. 58  See Hendrix and Kotschwar, above fn 56, at 110–​113. 59  See Manifesto of the Liberal Democratic Party (2012), at < https://​jimin.jp-​east-​2.stor​age.api.nifcl​ oud.com/​pdf/​ seisaku_​ichiban24.pdf?_​ga=​2.24730938.1429224113.1574732096-​2119975252.1574732096 > (last visited 29 December 2019).

Pacific Trade   251

b. Textiles and apparel Liberalization of trade in textiles and apparel was Vietnam’s primary target in the TPP negotiations because these products are the most important export products for Vietnam and the United States is the largest importer of them.60 In the meantime, the United States was concerned that its highly protected industry of textiles and apparel would suffer loss because of an import surge from Vietnam. While Washington agreed to eliminate a tariff on cotton dress shirts upon the entry into force of the TPP, it succeeded in securing a transition period of ten to 12 years for the elimination of tariffs on other textiles and apparel. Moreover, the CPTPP allows the parties to impose an additional tariff on a textile or apparel good as an emergency action if, as a result of the reduction or elimination of a tariff, increased imports of the good causes serious damage to a relevant domestic industry.61 Most importantly, the CPTPP has incorporated restrictive rules of origin to limit the benefits of trade liberalization in textiles and apparel. More specifically, the CPTPP adopts the yarn-​forward rule, following the approach of the United States in most of its FTAs. According to this rule, apparel needs to be made from yarn and fabric that originate in a CPTPP country in order to benefit from trade liberalization commitments under the CPTPP. The rule is particularly detrimental to Vietnam because it produces apparel using yarn that originates in non-​ CPTPP countries, particularly China. Vietnam has to procure yarn from within the CPTPP region or produce yarn on its own to enjoy trade benefits under the CPTPP. The central issue during the negotiations was the nature and degree of the flexibility of the yarn-​forward rule since the rule under US FTAs accompanied with flexibilities of different degrees. In response to demands from Vietnam and US retailers and apparel importers, the United States proposed a ‘short-​supply’ list, which would allow apparel using non-​TPP yarn and fabric to benefit from TPP tariff commitments when yarn and fabric are not commercially available within the TPP region. After protracted negotiations, the two sides agreed on a ‘short-​supply’ list that contains 187 products, many of which are required to be used for specific apparel items.62 They also agreed on an Earned Import Allowance Programme, which would allow the export of certain apparel cut and sewn in Vietnam duty free to the United States if it used a specified amount of US-​made fabrics.63 It is unclear how much the flexibilities would help Vietnam export apparel to the United States. In any event, the yarn-​forward rule has promoted investment in the production of yarn and fabrics in Vietnam.64 The 60  K.A.

Elliott, ‘Rules of Origin in Textiles and Apparel’ in Cimino-​Isaacs and Schott, above fn 56, at 139. 61  Article 4.3 of the TTP. 62  Appendix 1 to Annex 4-​A to the TTP. 63 Appendix E to ‘U.S. Tariff Elimination Schedule: United States –​Viet Nam Earned Import Allowance Programme’ to the TTP. 64 D. Ngoc Tien and N. Thi Thuy, ‘The Trans-​ Pacific Partnership Agreement: Opportunities and Challenges for Vietnam’s Textile and Apparel Industry’ 2014 Forum for Research in Empirical International Trade (F.R.E.I.T.) Working Paper No. 742, (14 July 2014), at < https://​www.freit.org/​Workin​ gPap​ers/​Pap​ers/​Trad​ePol​icy General/​FREIT742.pdf > (last visited 29 December 2019), at 14–​15.

252    Yuka Fukunaga and Pasha L. Hsieh CPTPP does not change the commitments and rules concerning textiles and apparel under the TPP, except those applicable to the United States.

c. Automobiles and automobile parts The liberalization of automobiles and automotive parts was one of the most important objectives of the TPP negotiations for Japan and the United States. Concerning tariffs, Japan had already eliminated the most-​favoured-​nation tariffs on automobiles and automobile parts under WTO covered agreements while the United States imposed a 2.5 per cent tariff on the imports of passenger cars and 25 per cent on the imports of trucks. In the TPP, the United States agreed to eliminate the car tariff over a period of 25 years and the truck tariff over a period of 30 years. It also agreed to immediately eliminate tariffs on more than 80 per cent of automobile parts. In addition, Canada has agreed to eliminate a 6.1 per cent tariff on passenger cars and trucks over the period of five years and 11 years respectively and immediately eliminate tariffs on nearly 90 per cent of automobile parts. At the same time, Japan reached separate agreements with Canada and the United States to incorporate a special automotive safeguard to protect the Canadian and US auto industry from possible import surges from Japan. The agreement between Canada and Japan on automobiles and automobile parts became effective as a part of the CPTPP. The rules of origin for automobiles were one of the most controversial aspects of the negotiations because Canada and Mexico, which are required under NAFTA to meet the 62.5 per cent benchmark of the regional value content calculated using the net cost method, demanded similarly restrictive rules of origin in the TPP. A compromise was struck after negotiations to require either 45 per cent of the regional value content calculated using the net cost method or 55 per cent using the build-​down method. The CPTPP allows for accumulation so that any value-​added within a party to the CPTPP Agreement may be used to calculate a regional value of the final product. The rules of origin for automobiles remain the same under the CPTPP. In the meantime, the rules of origin once again became controversial in the negotiations of the United States—​Mexico—​Canada Agreement (USMCA). In response to the strong US demand to raise the threshold of the regional value content, the three countries have agreed to raise the percentage from 62.5 per cent to 75 per cent over three years from the entry into force of the USMCA along with additional requirements such as the regional value of the steel used in the manufacture of automobiles and the wage level of auto workers.65 For the United States, one of its priorities in the TPP negotiations was to address non-​tariff barriers to the Japanese automobile market, such as safety and environmental regulations. Japan and the United States reached a separate agreement on this issue, which has been incorporated as an appendix to Japan’s tariff schedule. The appendix confirms Japan’s obligations under the TBT Chapter concerning the imports

65 

See generally Chapter 8 of this handbook.

Pacific Trade   253 of automobiles. More specifically, Japan has recognized seven of the US Federal Motor Vehicle Safety Standards, designated in a side letter exchanged with the United States, as being equivalent to Japanese standards. Moreover, the appendix provides that Japan or the United States may initiate consultations or special dispute settlement procedures in accordance with relevant provisions of the appendix. Although the bilateral agreements between Tokyo and Washington concerning the automobile sector did not come into force due to the United States’ withdrawal from the TPP, Japan has revised its domestic automobile regulations in accordance with commitments to the United States. On the other hand, the White House maintains its automobile tariffs and is threatening to impose an additional automobile tariff of 25 per cent. The automobile tariffs were the primary concern for Japan in the bilateral trade negotiations with the United States, beginning in April 2019. However, the Japan-​US Trade Agreement, signed in October 2019, does not provide for commitments concerning the automobile sector, except that, according to Annex II of the Agreement, the two sides have agreed that ‘customs duties on automobile and auto parts will be subject to further negotiations with respect to the elimination of customs duties.’

2. Pharmaceutical patents Several CPTPP provisions confer protection over intellectual property rights beyond the level provided by the TRIPS Agreement. Reflecting the diverse interests of the developing and developed negotiating partners, TPP negotiations on intellectual property rights were one of the toughest. Negotiations around pharmaceutical patents was one of the most protracted parts of the negotiations. The United States proposed a provision granting ‘certain pharmaceutical-​specific intellectual property protections’ that would apply to all the TPP partners on the condition that ‘innovators bring medicines to TPP markets within an agreed window of time.’66 The provision implies that the United States was prepared to abandon its FTA policy, under which it takes distinct approaches to developed and developing countries in intellectual property protection.67 The policy change was needed to respond to the demands of stakeholders in the US pharmaceutical industry, but naturally provoked opposition from other TPP partners, which criticized that the proposed provision would reduce the availability of low-​cost generics.68 Despite the criticism from various quarters, such as health and development organizations, the agreed TPP text contains several provisions69 that would benefit the 66  USTR, ‘Trans-​Pacific Partnership Trade Goals to Enhance Access to Medicines’, at < https://​ustr. gov/​sites/​defa​ult/​files/​uplo​ads/​TPP%20Tr​ade%20Go​als%20to%20Enha​nce%20Acc​ess%20 to%20 Medicines.pdf > (last visited 29 December 2019). 67  For example, while the United States required stringent protection in an FTA with South Korea, it accepted more relaxed obligations with exceptions in FTAs with certain Latin American countries. K. Weatherall, ‘The TPP as a Case Study of Changing Dynamics for International Intellectual Property Negotiations’ in Voon, above fn 57, at 50, 56–​57. 68  Ibid., at 53–​60. 69  See generally Chapter 19 of this handbook.

254    Yuka Fukunaga and Pasha L. Hsieh global pharmaceutical industry, particularly ‘big pharma.’ For example, Article 18.37.2 extends the scope of patentable subject matter to new uses of known products, including pharmaceuticals. The provision was criticized for allowing pharmaceutical companies to ‘evergreen’ their patent rights by obtaining a patent for a new use of already patented pharmaceuticals and thereby prolong their monopolies of the pharmaceuticals.70 While several flexibilities incorporated in the TPP would limit the risk of ‘evergreening’,71 a concern remained that the provision would constrain the ability of developing countries to access generic pharmaceuticals.72 Another provision that could have accorded benefits to pharmaceutical industries is Article 18.46.3, which requires TPP Parties to adjust the term of the patent to compensate for unreasonable delays in the issuance of patents. Similarly, Article 18.48.2 requires the parties to make available an adjustment of the patent term to compensate the patent owner for unreasonable curtailment of the effective patent term as a result of the marketing approval process. While some flexibilities are allowed,73 these provisions could also prolong monopolies of patented pharmaceuticals.74 One of the most controversial provisions is Article 18.51, the first ever trade agreement provision providing data exclusivity for biologics.75 As the United States’ original demand to allow 12 years of exclusivity met strong opposition from many of the TPP partners, Article 18.51.1 adopts a two-​track system, which would allow the parties to choose to provide either data protection of at least eight years or data protection of five years along with ‘other measures.’ Even with this flexibility, developing TPP partners would have had to amend their domestic laws after transition periods. Following the United States’ withdrawal, the remaining parties have agreed to suspend the application of all these provisions related to pharmaceuticals under the CPTPP.

3. Electronic commerce As a twenty-​first century model, the CPTPP contains a comprehensive chapter on e-​ commerce. It provides broader and deeper rules and commitments on e-​commerce than other FTAs including those concluded by the United States.76 A comparison with two mega FTAs recently concluded by the European Union (i.e., the Comprehensive 70  I. Gustafson, ‘TPP Pharmaceuticals, Council on Hemispheric Affairs’ (11 April 2016), at < http://​ www.coha.org/​tpp-​phar​mace​utic​als/​ > (last visited 29 December 2019). 71  E.M. Morris, ‘Much Ado About the TPP’s Effect on Pharmaceuticals’ 20 SMU Science and Technology Law Review (2017) 135, at 142–​150. 72 D. Gleeson, J. Lexchin, R. Lopert and B. Kilic, ‘The Trans Pacific Partnership Agreement, Intellectual Property and Medicines: Differential Outcomes for Developed and Developing Countries’ 18 Global Social Policy (2018) 7, at 11–​15. 73  See Morris, above fn 71. 74  See Gleeson, Lexchin, Lopert and Kilic, above fn 72, at 15–​16. 75  R. Labonté, A. Schram, and A. Ruckert, ‘The Trans-​Pacific Partnership: Is It Everything We Feared for Health?’ 5 International Journal of Health Policy and Management (2016) 487, at 489. 76  H. Gao, ‘The Regulation of Digital Trade in the TPP: Trade Rules for the Digital Age’ in J. Chaisse, H. Gao and C. Lo (eds), Paradigm Shift in International Economic Law Rule-​Making: TPP as a New Model for Trade Agreements? (Singapore: Springer, 2017) 345–​362, 358.

Pacific Trade   255 Economic Trade Agreement between the EU and Canada (CETA) and the Economic Partnership Agreement between the EU and Japan (JEEPA) highlights the high ambition of the CPTPP partners. First, the CPTPP parties explicitly recognize the importance ‘of avoiding unnecessary barriers to’ the use and development of e-​commerce.77 Based upon this recognition, the CPTPP prohibits certain conduct that restricts the cross-​border transfer of information by electronic means, such as customs duties on electronic transmissions,78 data localization requirements79 and source code disclosure requirements.80 Moreover, the CPTPP requires that the parties allow the cross-​border transfer of information by electronic means, including personal information, when this activity is for the conduct of the business of a covered person.81 In contrast, the CETA merely confirms the application of relevant WTO rules82 and does not provide additional rules except that it explicitly prohibits the imposition of customs duties on electronic transmissions.83 The JEEPA is slightly closer to the CPTPP in that it prohibits not only the imposition of customs duties on electronic transmissions,84 but also the disclosure requirement of source code,85 but it takes a cautious approach to the cross-​border transfer of information by electronic means by providing that the parties shall reassess within three years of the date of entry into force of the agreement the need for inclusion of provisions on the free flow of data into the agreement.86 Second, the CPTPP parties also recognize the importance of protecting consumers in e-​commerce. For example, measures to restrict the cross-​border transfer of information by electronic means or to require data localization may be justified if these measures are adopted or maintained to achieve a legitimate public policy objective.87 The CPTPP also requires the parties to adopt or maintain measures to protect consumers from unsolicited commercial electronic messages.88 In addition, the CPTPP requires the parties to adopt or maintain consumer protection laws to proscribe fraudulent and deceptive commercial activities that cause harm or potential harm to consumers engaged in online commercial activities89 and adopt or maintain a legal framework that provides for the protection of the personal information of the users of e-​commerce.90

77 

Article 14.2.1 of the TPP. Article 14.3.1 of the TPP. 79   Article 14.13.2 of the TPP. 80  Article 14.17.2 of the TPP. 81  Article 14.11.2 of the TPP. 82  Article 16.2.1 of CETA. 83  Article 16.3.1 of CETA. 84  Article 8.72 of JEEPA. 85  Article 8.73.1 of JEEPA. 86  Article 8.81 of JEEPA. 87  See Articles 14.11.3 and 14.13.3 of the TPP. 88  Article 14.14.1 of the TPP. 89  Article 14.7.2 of the TPP. 90  Article 14.8.2 of the TPP. 78 

256    Yuka Fukunaga and Pasha L. Hsieh While the CPTPP leaves the parties the discretion as to how to enforce these laws, it encourages the parties to promote compatibility between their regimes for the protection of personal information.91 The provisions of the chapter on e-​commerce have been incorporated into the CPTPP, including a flexibility provision that allows certain existing measures of Malaysia and Vietnam to be exempt from dispute settlement under the CPTPP for two years after the entry into force of the agreement. In the meantime, while the CETA and the JEEPA recognize the importance of consumer protection in e-​commerce, they stop short of imposing concrete obligations on the parties except for a requirement in the JEEPA to adopt or maintain measures regarding unsolicited commercial electronic messages.92 Finally, the CPTPP chapter on e-​commerce is expected to present model rules for any future initiatives to adopt an agreement on e-​commerce. Indeed, a chapter on digital trade in the USMCA and the Agreement between Japan and the United States concerning Digital Trade contain several rules similar to those under the CPTPP. Nevertheless, differences in approaches between the United States and the European Union are illustrated by these recent agreements. In addition, certain rules under the CPTPP, such as the prohibition on data localization, may be unacceptable for some emerging economies such as China and India. It remains to be seen if the CPTPP can be a real model for global rules on e-​commerce.

4. State-​owned enterprises The CPTPP is the first trade agreement that contains comprehensive rules on SOEs.93 The United States is concerned that SOEs are causing distortion in competition and harming American private enterprises. SOEs are most prevalent in China, but are also common in many CPTPP partners, particularly Vietnam and Malaysia.94 The principal negotiating objectives provided in the TPA included the adoption of regulations on SOEs.95 The United States’ concern is shared by some other TPP partners. The conduct of SOEs could potentially be subject to the regulations of the SCM Agreement if SOEs are considered to be ‘public bodies’ within the meaning of Article 1.1(a)(1) of the SCM Agreement. For the United States, SOEs, whose majority owner is the government, should be considered as ‘public bodies’ and, therefore, a financial contribution by such SOEs constitutes a subsidy when it confers a benefit.96 In the meantime, the WTO Appellate Body adopts a narrow interpretation of the ‘public bodies’ by pointing out that the mere fact that a government is the majority shareholder of an 91 

Article 14.8.5 of the TPP. See Article 8.79 of the JEEPA. 93  M. Matsushita, ‘State-​Owned Enterprises in the TPP Agreement’ in Chaisse, Gao and Lo, above fn 76, at 187, 198. 94  S. Miner, ‘Commitments on State-​Owned Enterprises’ in Cimino-​Isaacs and Schott, above fn 56, at 335, 338. 95  Section 102(b)(8) of the Trade Promotion Authority (TPA). 96  See, e.g., Appellate Body Report, US –​Anti-​Dumping and Countervailing Duties (China), adopted 11 March 2011, para 277. 92 

Pacific Trade   257 entity does not demonstrate that the entity is a ‘public body’ unless there is evidence that the entity possesses or has been vested with governmental authority.97 The United States has expressed its concern that the narrow interpretation of the ‘public body’ made by the Appellate Body limits the application of the SCM Agreement to SOEs.98 In the light of the frustration of the United States with the limited applicability of the SCM Agreement to SOEs, the CPTPP adopts a relatively broad definition of SOEs.99 Article 17.1 defines an SOE as ‘an enterprise that is principally engaged in commercial activities in which a Party: (a) directly owns more than 50 per cent of the share capital; (b) controls, through ownership interests, the exercise of more than 50 per cent of the voting rights; or (c) holds the power to appoint a majority of members of the board of directors or any other equivalent management body.’100 The CPTPP provides various obligations of the parties regarding SOEs such as non-​discriminatory treatment, commercial considerations, and transparency. The chapter on SOEs could potentially be the most difficult hurdle for China if it seeks to join the CPTPP because it would have to make fundamental changes to its industrial policies in order to make them align with the CPTPP regulations.101 In other words, the chapter could give the TPP parties negotiation leverage against China if China seeks to join the CPTPP.102 The chapter on SOEs has been incorporated into the CPTPP without any changes from the TPP.103

5. Labour Enhancing cooperation on labour matters of mutual interest is one of the principal objectives of the TPSEP. Similarly, the objectives of the CPTPP stipulated in its preamble include the protection and enforcement of labour rights, the improvement of working conditions and living standards, the strengthening of cooperation and the Parties’ capacity on labour issues. In line with these objectives, a comprehensive chapter on labour was incorporated in the CPTPP. Labour was one of the most controversial issues in the US congressional debate on the TPA. The bipartisan agreement of 10 May 2007,104 reflected in the four US FTAs 97 

Ibid., at para 318. See, e.g., WTO DSB, Minutes of Meeting Held in the Centre William Rappard on 25 March 2011, WT/​ DSB/​M/​294 (9 June 2011), paras 96-​98. 99 M. Matsushita and C.L. Lim, ‘Taming Leviathan as Merchant: Lingering Questions about the Practical Application of Trans-​Pacific Partnership’s State-​Owned Enterprises Rules’ 1 World Trade Review (2019), at 10–​12. 100  The definition is further broadened under the USMCA to include indirect ownership. USMCA, Article 22.1. 101  See Miner, above fn 94, at 346–​347. 102  Ibid., at 336. 103  See generally Chapter 30 of the handbook. 104  The bipartisan agreement was struck between the Bush administration and Democrats on key trade issues, such as trade and labour and trade and environment, on 10 May 2007. S. Cho, ‘The Bush Administration and Democrats Reach a Bipartisan Deal on Trade Policy’ 11(15) ASIL Insights (2007), at < https://​www.asil.org/​insig​hts/​vol​ume/​11/​issue/​15/​bush-​adm​inis​trat​ion-​and-​democr​ats-​reach-​bip​arti​ san-​deal-​trade-​pol​icy > (last visited 8 June 2020). 98 

258    Yuka Fukunaga and Pasha L. Hsieh with Colombia, Panama, Peru and South Korea, required the United States and its FTA parties to adopt, maintain and enforce in their own laws and the five basic internationally recognized labour standards, as stated in the 1998 International Labor Organization (ILO) Declaration on the Fundamental Principles and Rights at Work.105 In addition, it was also agreed in the agreement of 10 May 2007 that labour obligations under the FTAs would be subject to the same dispute settlement and the same enforcement mechanisms as all other FTA obligations. The agreement of 10 May 2007 has been incorporated into the negotiating objectives under the TPA renewed in 2005.106 The labour chapter of the TPP was built upon the agreement of 10 May 2007 and takes the most ambitious approach among the recent FTAs concluded by the United States.107 Similar to other FTAs concluded by the United States, the CPTPP not only requires the parties to adopt and maintain in their statutes and regulations, and practices thereunder, the basic rights as stated in the ILO Declaration,108 but it also provides for several enforcement mechanisms, such as the public submissions procedures,109 cooperative labour dialogue110 and labour consultations.111 If a matter referred to the labour consultations is not resolved within 60 days, the matter may be referred to a panel established under the chapter on dispute settlement.112 Moreover, the CPTPP has gone a step further from the previous US FTAs in that it requires not only the protection of the basic rights stated in the ILO Declaration but also the adoption of laws and regulations governing ‘acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health’.113 It is also notable that the CPTPP explicitly prohibits the parties from weakening or reducing adherence to labour rights or the working conditions in a special trade or customs area, such as an export processing zone in order to promote trade and investment.114 In parallel with the chapter in the TPP, the United States agreed on bilateral Labour Consistency Plans with Brunei, Malaysia, and Vietnam. These Plans contained concrete legal and institutional reforms that must in principle be implemented before the CPTPP enters into force. The failure to implement the plans would trigger dispute settlement. Notably, the United States’ withdrawal from the TPP has taken away momentum for the enforcement of the labour chapter. Although the CPTPP does not suspend any 105  USTR, Bipartisan Trade Deal (May 2007), at < https://​ustr.gov/​sites/​defa​ult/​files/​uplo​ads/​fac​tshe​ ets/​2007/​ass​et_​u​ploa​d_​fi​le12​7_​11​319.pdf > (visited 8 June 2020). 106   I.F. Fergusson, ‘Trade Promotion Authority (TPA) and the Role of Congress in Trade Policy, Congressional Research Service’ (15 June 2015), at < https://​fas.org/​sgp/​crs/​misc/​RL33​743.pdf >, at 11 (last visited 29 December 2019). 107  C. Cimino-​Isaacs, ‘Labor Standards in the TPP’ in Cimino-​Isaacs and Schott, above fn 56, at 261–​ 262 and 269–​271. 108  Article 19.3.1 of the TPP. 109  Article 19.9 of the TPP. 110  Article 19.11 of the TPP. 111  Article 19.15 of the TPP. 112  Article 19.15.12 of the TPP. 113  Article 19.13.2 of the TPP. 114  Article 19.4(b) of the TPP.

Pacific Trade   259 provisions of the labour chapter, it is questionable that any party to the CPTPP would take advantage of the chapter to enforce labour rights in the territory of another party, particularly given that the parties have some labour issues within their own territories.115

6. Currency manipulation One of the principal negotiating objectives of Washington under the TPA was to prevent parties to a trade agreement from manipulating exchange rates in order to gain an unfair competitive advantage over other parties to the agreement.116 It is provided that the objective is to ‘establish accountability through enforceable rules, transparency, reporting, monitoring, cooperative mechanisms, or other means to address exchange rate manipulation involving protracted large scale intervention in one direction in the exchange markets and a persistently undervalued foreign exchange rate to gain an unfair competitive advantage in trade over other parties to a trade agreement.’117 Despite the strong pressure from the US manufacturing industries to include an enforceable currency chapter in the TPP in order to prevent TPP partners, particularly Japan, from intervening in currency markets,118 there was strong skepticism within the US Government: such a chapter might impose undue restrictions on its own monetary policy.119 At the end of the negotiations, the TPP partners merely adopted the Joint Declaration of the Macroeconomic Policy Authorities of Trans-​Pacific Partnership Countries and did not include any provision or chapter on currency manipulation within the TPP. The Declaration does not constitute part of the TPP and is therefore not covered by the dispute settlement chapter in the TPP. It simply confirms an obligation under the Articles of Agreement of the International Monetary Fund to avoid manipulating exchange rates or the international monetary system in order to prevent the effective balance of payments adjustment or to gain an unfair competitive advantage.120 However, the transparency and reporting requirements121 and the macroeconomic policy consultations held regularly by a group of TPP Macroeconomic Officials, established by the declaration122 would allow the TPP partners to monitor their monetary policy mutually and prevent currency manipulation.123 115 

See J.C. Tham and K.D. Ewing, ‘Labour Clauses in the TPP and TTIP: A Comparison without a Difference?’ 17 Melbourne Journal of International Law (2016) 1, at 24-​29. 116  Section 102(b)(12) of the TPP. 117  Ibid. 118  See, e.g., ‘Levin Unveils Japan TPP Action Plan Highlighting Auto Tariffs, Currency’ Inside US Trade (24 July 2013). 119  See, e.g., ‘Froman Warns Currency Provisions in TPP Could Affect U.S. Monetary Policy’ Inside US Trade (22 November 2013); ‘Yellen Warns TPP Currency Rules Could ‘Hobble’ U.S. Monetary Policy’ Inside US Trade (24 February 2015). 120  Joint Declaration of the Macroeconomic Policy Authorities of Trans-​Pacific Partnership Countries (Declaration), Section I. 121  Ibid., at Section II. 122  Ibid., at Section III. 123  C.F. Bergsten and J.Y. Schott, ‘TPP and Exchange Rates’ in Cimino-​Isaacs and Schott, above fn 56, at 349, 351–​352.

260    Yuka Fukunaga and Pasha L. Hsieh The Declaration has become moot because of the withdrawal of the United States from the TPP. It is notable that a chapter on Macroeconomic Policies and Exchange Rate Matters in the USMCA includes similar provisions including the transparency and reporting requirements and the monitoring and consultation mechanisms.124 Similar rules may be incorporated in bilateral deals to be concluded by the United States in the near future.

IV. Conclusion In this chapter, we provided the landscape of the legal structures that govern Pacific trade in the Third Regionalism. We explained the origin of Asia-​Pacific regionalism that is based on the founding of ASEAN and APEC. Due to its soft-​law nature, APEC has functioned as an incubator for FTAs without directly contributing to negotiations of trade rules. The significant milestone of ASEAN is the creation of the AEC, which consolidates ASEAN’s internal and external agreements with seven Asia-​ Pacific economies. The recent amendments and upgrades to ASEAN+​1 FTAs have made the scope of their coverage comprehensive and provide a normative foundation for the RCEP. Given the RCEP’s pending status, the CPTPP is currently the most pivotal mega-​ FTA. As the world’s economic gravity has shifted to Asia, the legal frameworks of the AEC, the RCEP, and the CPTPP have become essential to the multilateral trading system. The Covid-​19 pandemic has significantly endangered international trade. Asia-​Pacific governments have therefore deemed FTA negotiations a priority in order to rebuild and consolidate the global supply chain. Novel CPTPP rules and commitments on market access, rules of origin, e-​commerce, SOEs and ‘trade-​plus’ issues on labour and environmental protection have become important references for regional FTAs and WTO negotiations. More importantly, the CPTPP’s trans-​Pacific nature and openness enable it to accommodate like-​minded members. Indonesia, Korea, Taiwan, and Thailand have allegedly expressed interest in joining the pact. In May 2020, Chinese premier Li Keqiang also indicated that ‘China is willing to consider joining the’ CPTPP, along with the RCEP.125 From a geopolitical perspective, the RCEP represents the covered interests of Asia’s largest economies, China, ASEAN and Japan, and will give leverage to Beijing in the context of US-​China conflicts. The level of liberalization under the RCEP may be lower than that of the CPTPP. Yet, it is important to note that the RCEP’s consolidation of rules of origin alone will yield salient impact on intra-​Asia trade. Based on the experience of ASEAN+​1 FTAs, the scope of liberalization is also expected to expand over time. Consequently, the RCEP and the CPTPP will 124 

Articles 33.5–​33.7 of the USMCA. Caixin Global, ‘Premier Sends ‘Powerful’ Signal for China to Join Asia-​Pacific’s Largest Trade Pact’, at < https://​www.caixi​nglo​bal.com/​2020-​05-​29/​prem​ier-​sends-​power​ful-​sig​nal-​for-​china-​to-​join-​asia-​ pacif​i cs-​larg​est-​trade-​pact-​101560​855.html > (last visited 5 June 2020). 125 

Pacific Trade   261 be complementary rather than competing and will collectively construct pathways to the FTAAP.

Further reading J. Chaisse, H. Gao and C.-​fa Lo (eds), Paradigm Shift in International Economic Law Rule-​ Making: TPP as a New Model for Trade Agreements? (Singapore: Springer, 2017) C. Cimino-​Isaacs and J.J. Schott (eds), Trans-​Pacific Partnership: An Assessment (Washington, DC: Peterson Institute for International Economics, 2016) P.L. Hsieh, ‘Against Populist Isolationism: New Asian Regionalism and Global South Powers in International Economic Law’ 51(3) Cornell International Law Journal (2018) 683) P.L. Hsieh and B. Mercurio (eds), ASEAN Law in the New Regional Economic Order: Global Trends and Shifting Paradigms (Cambridge: Cambridge University Press, 2019) P.L. Hsieh, New Asian Regionalism in International Economic Law (Cambridge: Cambridge University Press, 2022) J.A. Huerta-​Goldman and D.A. Gantz (eds), The Comprehensive and Progressive Trans-​Pacific Partnership: Analysis and Commentary (Cambridge: Cambridge University Press, 2021) M. Rimmer, The Trans-​Pacific Partnership: Intellectual Property and Trade in the Pacific Rim (Cheltenham, UK, Northampton, MA, US: Edward Elgar Publishing, 2020) T. Voon (ed), Trade Liberalisation and International Co-​operation: A Legal Analysis of the Trans-​Pacific Partnership Agreement (Cheltenham, UK, Northampton, MA, US: Edward Elgar Publishing, 2013)

Chapter 10

Trans-​A tl a nt i c Trade : t h e C omprehensiv e E c onomi c and Trade Ag re e me nt bet ween Cana da a nd t h e European Uni on a nd i ts Member Stat e s Sylvie Tabet and Colin M. Brown *

I. II.

Introduction The Comprehensive Economic and Trade Agreement (CETA) A. Trans-​Atlantic trade agreements B. Trade in goods C. Trade in services and investment D. Government procurement E. Intellectual property F. Investment protection and investment dispute settlement G. Trade and sustainable development H. Dispute settlement, institutional provisions and general and final provisions I. Ratification and implementation I II. Conclusions

263 263 263 266 267 272 274 277 279 282 286 291

* The authors were lead counsel to the Canadian Government and the European Commission respectively for the negotiation and ratification of CETA. The views expressed herein are personal and should not be attributed to the Government of Canada or the European Commission.

Trans-Atlantic Trade   263

I. Introduction Trade across the Northern Atlantic Ocean goes back several centuries. This chapter seeks to survey the current situation, with a focus on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States. To date, it remains the only recent free trade agreement (FTA) in application between the European Union and a North American State. CETA is the first successful effort at bringing together two regional blocks—​the EU single market and the NAFTA economic bloc, through an agreement with Canada whose economy is largely integrated with that of the United States and Mexico following almost three decades of regional integration resulting from the Canada-​US FTA, NAFTA and now the USMCA. Many of the approaches taken in CETA have informed subsequent developments in EU trade policy and influenced Canada’s position in other negotiations such as the TPP. The ratification process of CETA in the European Union has been particularly complicated, including both legal challenges and political debates, illustrating the complexity for the European Union and its trade partners of concluding trade agreements as mixed agreements.1 This contribution thus seeks to both provide a summary of the main features of CETA with a focus on the more important aspects, their significance for policy in the European Union and Canada and at the same time aims to put them in the broader context of international economic law.

II.  The Comprehensive Economic and Trade Agreement (CETA) A. Trans-​Atlantic trade agreements CETA is the most sophisticated agreement currently in force between a North American State and the European Union. Negotiations to establish a free trade agreement between the United States and the European Union (the Transatlantic Trade and Investment Partnership—​TTIP) were put on hold with the election of President Trump in 2016 and have not been reinitiated under President Biden. The FTA between Mexico and the European Union (part of a broader association agreement) is a much older agreement, 1  See,

e.g., G. Van der Loo and J. Pelkmans, ‘Does Wallonia’s Veto of CETA Spell the Beginning of the End of EU Trade Policy?’ CEPS (20 October 2016), at < https://​www.ceps.eu/​ceps-​publi​cati​ons/​does-​ wallon​ias-​veto-​ceta-​spell-​beginn​ing-​end-​eu-​trade-​pol​icy/​ > (last visited 20 December 2021). A mixed agreement is an agreement which requires ratification by both the European Union and its Member States. See Chapter 11 of this handbook.

264    Sylvie Tabet and Colin M. Brown dating from 1997, entering into force in 2000. Whilst an agreement in principle has been reached on its replacement, it has not, at the time of writing, been proposed for ratification in either the European Union or Mexico.2 The replacement agreement bears, in any event, a number of similarities to CETA. Equally, Canada has concluded an agreement with the United Kingdom, post-​Brexit, but this is a so-​called ‘roll-​over’ of CETA. This transitional agreement preserves the existing preferential access to each other’s markets. The Canada-​United Kingdom Trade Continuity Agreement entered into force on 1 April 2021 and continued CETA negotiated disciplines and access while Canada and the United Kingdom negotiate an FTA.3 The volume of trade between the European Union and North America is by all measures significant and reflects one of the deepest economic relationships in the world. The first destination of EU goods exports in 2020 was the United States (18.3 per cent), with Canada in 10th place (1.7 per cent) and Mexico in 12th (1.6 per cent).4 The United States is second in terms of goods imports (11.8 per cent) with Mexico and Canada in fifteenth and sixteenth place (with 1.2 per cent).5 From Canada’s perspective, the European Union was seen as an important market that would complement its existing preferential access to the United States and Mexico through NAFTA, its existing FTAs with Latin American countries and its existing and anticipated FTAs with Asian economies. As an integrated bloc, with a gross domestic product (GDP) of more than $16 trillion at time negotiations began, the European Union was Canada’s second-​largest trading partner in goods and services, as well as its second largest source of, and destination for, foreign direct investment. Furthermore, Canada and the European Union had long-​standing cultural, linguistic and historical links. Since the provisional application of CETA in 2017, trade in goods between two parties has been surging: it has increased by 31 per cent in the three years following the application of the agreement and even accounting for the decrease in trade resulting from the COVID 19 pandemic, bilateral trade in goods in 2020 was still 12.5 per cent higher

2 

See < https://​trade.ec.eur​opa.eu/​doc​lib/​press/​index.cfm?id=​1833 > (last visited 20 December 2021). Following the United Kingdom’s withdrawal from the European Union on 31 January 2020, Canada and the United Kingdom signed a memorandum of understanding (MOU) intended to reduce impact on Canadian businesses by loss of CETA coverage due to expiry of the EU-​UK Withdrawal Agreement pending the entry into force of the TCA. The MOU applied only to goods market access. The TCA was signed on 9 December 2021. The TCA continues the tariff elimination schedule anticipated under CETA, addresses rules of origin issues arising from EU-​UK highly integrated production/​manufacturing (Canada agreed to recognize UK products with EU-​origin inputs for three years) and adjusts CETA TRQs and origin quotas to reflect trade flows or expected trade flows for agricultural goods. CETA investment and services reservations continue to be applicable to the United Kingdom through incorporation in the TCA except where modified. The TCA does not include Investor-State dispute settlement (ISDS). 4  EU trade statistics, at < https://​trade.ec.eur​opa.eu/​doc​lib/​docs/​2006/​septem​ber/​tradoc​_​122​530.pdf > (last visited 20 December 2021). 5 Ibid. 3 

Trans-Atlantic Trade   265 than the pre-​CETA level.6 When CETA came into effect, around 98 per cent of tariffs on all non-​agricultural Canadian goods exported to the European Union were eliminated and vice versa. CETA has resulted in an increase in trade in goods in particular in the food and agricultural market and trade in environmental goods. Almost all provinces in Canada have increased their goods exports to, and imports from the European Union. A similar significant increase in trade in services has been observed in the three years following the provisional application. Comparing 2016 and 2019, total Canada-​EU services trade has increased by 39.0 per cent. Even when taking into account the effects of the COVID-​19 pandemic, EU-​Canada trade in services was still 15 per cent higher in 2020 than before CETA’s provisional application.7 CETA is thus driving an increase in trade between Canada and the European Union, testament to the deep cuts in tariffs it has brought as well as the significant liberalization and trade facilitation resulting from the agreement. CETA is also of interest for a number of other reasons. As an agreement between advanced and largely open economies, CETA was bound to raise challenges when it came to tackling remaining tariffs and deepening the existing market access into sensitive areas from a tariff and procurement perspective. The agreement was however seen as an opportunity to deepen an overall close positive relationship and resolve certain bilateral trade irritants (including with respect to trade in beef and wine and more generally non-​tariff barriers to the flow of goods), enhance regulatory cooperation and trade in services and incorporate domestic regulations disciplines. The result was a modern and comprehensive agreement which builds on a number of existing treaties and MOUs between Canada and the European Union and its Member States and goes beyond WTO disciplines and commitments in many areas. CETA represents a new approach resulting in part from the fusion of EU and Canadian (North American) approaches to FTAs, and in part as a result of the policy debates which were raging on either side of the Atlantic as the agreement was finalized. In the European Union, particularly, these focussed on the approach to ISDS which had become particularly controversial in the context of the TTIP negotiations with the United States. The approach to public services was also an issue which attracted a high level of attention, with the debate around TTIP finding its way into the discussions around CETA. More generally, the parallel TTIP negotiations had an effect on both the negotiating dynamic and the substance of CETA. Concerns about maintaining the right balance between trade disciplines and a government’s right to regulate were reflected in the negotiations and ultimately in the agreement. In addition, the issue of trade and 6 See

< https://​www.consil​ium.eur​opa.eu/​en/​infog​raph​ics/​eu-​can​ada-​trade-​deal-​remo​ves-​barri​ers-​ and-​fuels-​gro​wth/​ > (last visited 6 January 2022); see < https://​www.intern​atio​nal.gc.ca/​trade-​comme​ rce/​econom​ist-​eco​nomi​ste/​sta​tist​ics-​stati​stiq​ues/​ove​r vie​w_​ca​nada​_​eu-​aperc​u_​ca​nada​_​ue.aspx?lang=​ eng > (last visited 20 December 2021). 7  See EU press release on the 4th anniversary of the provisional application of CETA (21 September 2021), at < https://​trade.ec.eur​opa.eu/​doc​lib/​press/​index.cfm?id=​2302 > (last visited 20 December 2021); see < https://​www.intern​atio​nal.gc.ca/​trade-​comme​rce/​econom​ist-​eco​nomi​ste/​sta​tist​ics-​stati​stiq​ues/​ ove​rvie​w_​ca​nada​_​eu-​aperc​u_​ca​nada​_​ue.aspx?lang=​eng > (last visited 20 December 2021).

266    Sylvie Tabet and Colin M. Brown labour and the environment (in EU terms ‘trade and sustainable development’ received a great deal of attention). In Canada, CETA also gave rise to an intense debate around intellectual property protections.

B. Trade in goods CETA provides for significant tariff liberalization. In Chapter 2 and their annexed tariff schedules, the parties agree to eliminate customs duties for goods, either immediately when CETA comes into force, or gradually within 3, 5 or 7 years for almost all goods. Ultimately, the tariffs for almost 99 per cent of all Canadian and EU tariff lines will be removed. Both sides have agreed to eliminate 100 per cent of tariff lines for industrial products. 99.4 per cent of tariff lines for the European Union and 99.6 per cent for Canada were removed on the entry into application of the agreement. Most tariffs on farm produce, processed foods and drinks will be removed. Some products are, however, given sensitive treatment, including limited tariff-​free quotas for beef, pork and sweetcorn granted by the European Union and cheese by Canada. CETA does not remove tariffs for poultry or eggs for either party. The European Union and Canada will fully eliminate all tariffs on fisheries products. Canada agreed to eliminate its WTO tariffs on fisheries products upon entry into force of the agreement. This is accompanied by agreed provisions on sustainable fisheries where there is an agreement to use monitoring, control and surveillance measures, as well as to fight illegal, unreported, and unregulated fishing. The tariff commitments are backstopped by a standstill clause (Article 2.7) and a number of other commitments that ensure the tariff commitments are not undermined. Thus, Chapter 2 also provides for national treatment, by incorporating Article III of the GATT 1994 (Article 2.3) and prohibits import and export restrictions (based on Article XI of the GATT 1994) (Article 2.11). It also prohibits export taxes which is an important WTO-​plus obligation routinely included in FTAs (Article 2.6). CETA also contains a detailed chapter on customs and trade facilitation. Chapter 6 sets common principles and provides for enhanced cooperation and information exchange between the customs authorities of the European Union and Canada. This is done to simplify the procedures relating to import, export and transit requirements. Commitments on transparency mean that legislation, decisions and administrative policies, and details of fees and charges related to the import or export of goods must be published. Any interested person may comment on new customs-​related initiatives. There is a requirement to apply, where possible, automated procedures for the efficient and expedited release of goods, to use risk management where appropriate, and pre-​arrival processing. There is also a requirement to issue, upon request, binding preliminary information on the tariff classification of goods (advance rulings) (Article 6.9), which will provide legal certainty and stability in the customs treatment of goods. In addition, Canada and the European Union will provide for an impartial and transparent system for addressing complaints by operators about customs rulings and decisions.

Trans-Atlantic Trade   267 CETA also sets out rules on technical barriers and trade and sanitary and phytosanitary matters. Chapter 4 of CETA incorporates many provisions of the WTO TBT Agreement, then sets out a number of areas for co-​operation. Importantly, CETA provides for protocols on the mutual acceptance of conformity assessments and mutual recognition on compliance and enforcement relating to good manufacturing practices for pharmaceutical products (Article 4.5). This first protocol enlarges the scope of cooperation to a number of additional sectors and creates a possibility for further expansion based on requests from economic operators. Under the CETA protocol on the mutual acceptance of the results of conformity assessment, the parties agree to accept compulsory conformity assessment certificates issued by the other party. The TBT chapter also has detailed provisions on transparency, ensuring that new regulations can be commented on by interested parties (Article 4.6). Chapter 5 aims to smooth trade in agricultural products by facilitating approaches to SPS measures. In particular, it envisages the possibility to agree on zoning and the possibility to agree to principles and guidelines on regionalization of measures together with a mechanism to recognize equivalence between the two parties.

C. Trade in services and investment 1. Overview An important objective for Canada and the European Union in negotiating CETA was to improve opportunities for and facilitate trade in services and to increase investment flows in both directions. The European Union is the largest importer of services in the world and, for Canada, access to the EU market was extremely attractive in particular in areas such as engineering, architectural services, and certain niche markets. The European Union, for its part, was particularly interested in increasing its access to procurement of services including at the sub-​national level. Unlike the GATS approach followed by the European Union in its earlier FTAs, services provided through an investment such as a subsidiary, are covered in a separate chapter which also covers non-​services investments.

2. Core services disciplines: non-​discrimination guarantees and improved market access Core disciplines in the cross-​border trade in services chapter prohibit discrimination (national treatment, most-​favoured-​nation treatment) and market access restrictions such as numerical limitations, requirements to maintain a representative office, residency requirements or legal form requirements in order to supply services to each other’s customers. Unlike in the GATS, these core obligations apply to all sectors unless excluded. The investment chapter also contains disciplines relating to the establishment of investment addressing market access restrictions to the establishment of investments. Like

268    Sylvie Tabet and Colin M. Brown the cross-​border services chapter, the investment chapter contains non-​discrimination obligations. Canada and the European Union are to treat each other’s investors no less favorably than they treat any other investor in their territory. In addition, the chapter includes a section on investment protection (see Section 2.4). The disciplines in the cross-​border services and investment chapters apply to all sectors and measures unless subject to a reservation or exclusion. Measures affecting cross-​ border trade in financial services, financial institutions, and investors and their respective investments in financial institutions are governed by the obligations set out in the financial services chapter. As a result of the negotiations, the parties agreed to take on further commitments as compared to the GATS in several sectors, leading to further liberalization in these sectors.8 These include for example maritime transport (dredging, feedering and ship repositioning) and air services as well as certain financial services. The parties’ reservations against the obligations are contained in the investment and services annexes.9 Liberalization commitments are also reflected in the reservations. For example, Canada agreed to raise the threshold of its review of acquisitions of enterprises under the Investment Canada Act to CAD$1.5 billion (for non state enterprises), a significantly higher threshold than previously applicable.10 Canada has since extended the CAD$1.5 billion threshold to investors from countries with which it has a trade agreement. The listing of reservations against the otherwise generally applicable core obligations (the so-​called negative list approach) was a massive undertaking. It constituted a departure from previous practice for both Canada and the European Union. While the approach follows the NAFTA practice adopted by Canada in its FTAs, Canada had never previously listed reservations at the sub-​national level11 or against market access.12 The listing of reservations for all core obligations was also a new approach for the European Union and its Member States, although one that it then took over for later agreements.13 Reservations were taken with respect to existing regulatory measures inconsistent with key obligations in the services and investment chapters (Annex I: Reservations for existing measures and liberalization commitments)14 as well as to preserve policy 8 

The further commitments are reflected in part in the parties’ reservations against core obligations. CETA Investment and Services Annexes I and II, and for Canada Annex III for financial services. 10   The new threshold only applies with respect to net benefit reviews by investors who are nationals of the European Union or entities controlled by nationals of the European Union who are not state-​ enterprises. Annex I—​Services and investment reservations Canada Federal, Reservation I-​C-​1. Also see Annex 8-​F—​Declaration on the Investment Canada Act. 11  In previous agreements such as NAFTA, a blanket protection was extended to all existing non-​ conforming measures at the subnational government level without specific listing. 12  In previous FTAs where Canada undertook market access commitments, it did not list all existing non-​conforming measures. 13  In previous agreements, the European Union relied instead on a ‘positive list’ method that involves agreeing to commitments in a specified list of areas, which is how the GATS is structured. 14  Annex I reservations are subject to a ‘ratchet’ locking in any liberalization and preventing the measures from becoming more restrictive. 9 See

Trans-Atlantic Trade   269 flexibility in certain sectors or with respect to certain activities (Annex II: reservations for future measures). Existing non-​conforming measures in Annex I are subject to a standstill and ratchet mechanism leading to further liberalization over time.15 The parties excluded sensitive public sectors like health care, public education, and other social services from non-​discrimination and market access obligations.16 Their intention to retain broad flexibility to regulate in these areas was also emphasized in the Joint Interpretative Instrument. Services related to cultural industries (in the case of Canada) and to audiovisual services (for the European Union) were excluded from the scope of the cross-​border services chapter and from the obligations in the establishment and non-​discrimination sections of the investment chapter, as well as the domestic regulations chapter.17 The asymmetrical exclusion in this sensitive area reflects previous approaches adopted by Canada and the European Union in their trade agreements.18 Moreover, both Parties’ shared commitment to cultural diversity was highlighted in the preamble to the Agreement and in the Joint Interpretative Instrument.19

3. Temporary entry of short-​term business visitors Canada and the European Union agreed in CETA to provisions facilitating the temporary entry of business visitors across Canada-​EU borders. Short-​term business visitors, investors and professionals can enter each other’s territory for business purposes without having to obtain work permits. The period of time of such temporary entry depends on each category of services, with the more meaningful commitments having been made in the area of professional services. For example, under the provisions of the agreement, independent professionals such as engineers may provide services without work permit in the territory of the other party for a period of up to 12 months cumulatively over a 24-​month period. The provision facilitating labour mobility also applies to key personnel and employees of a corporation relocating within the company to the European Union or Canada. 15  For

measures listed under Annex I neither Party may make measures that were in place when CETA came into force more restrictive, and any autonomous liberalization is locked in. 16  Annex II reservations; see also Joint Interpretative Statement. 17  Article 9.2.2; Article 8.2.3; Article 12.2; see also exclusions for culture in the subsidies chapter and government procurement chapter. 18  In previous agreements Canada included a general exception for cultural industries applicable to the whole agreement (not to specific chapters) but subject to retaliation. 19 See preamble (‘RECOGNISING that the provisions of this Agreement preserve the right of the Parties to regulate within their territories and the Parties’ flexibility to achieve legitimate policy objectives, such as public health, safety, environment, public morals and the promotion and protection of cultural diversity; AFFIRMING their commitments as parties to the UNESCO Convention on the Protection and Promotion of the Diversity of Cultural Expressions, done at Paris on 20 October 2005, and recognising that states have the right to preserve, develop and implement their cultural policies, to support their cultural industries for the purpose of strengthening the diversity of cultural expressions, and to preserve their cultural identity, including through the use of regulatory measures and financial support)’; see also the Joint Interpretative Statement stating that CETA preserves the ability of the European Union and its Member States and Canada to regulate for the promotion and protection of cultural diversity.

270    Sylvie Tabet and Colin M. Brown

4. Mutual recognition of qualifications for professionals CETA marks the first time that substantive and binding provisions on the mutual recognition of professional qualifications by regulators and/​or professional bodies has been included in an FTA to which Canada is a party. Chapter 11 sets out the approach for regulators with regard to mutual recognition negotiations, while fully preserving their ability to recognize, regulate, and license professionals.20 The recognition provision obliges the parties to allow a professional covered by a mutual recognition agreement (MRA) to pursue professional activities in accordance with that MRA, irrespective of where that professional was trained or educated, or of any citizenship or residency requirements. The provision also obliges the parties to afford each other’s recognized professionals treatment no less favourable than that provided to their domestic professionals. For both parties, facilitating labour mobility with respect to highly-​skilled business people is important given the nature of the trade flows between the parties and to enable service providers to take advantage of liberalization achieved through other parts of the agreement. However, the TFEU and division of powers in Canada limited the ability to go further on temporary entry and on mutual recognition of professionals. Committees were set up to pursue further work in this respect. Some concrete results are expected in the near term, for example the adoption of a decision on the MRA for architects.21

5. Domestic regulation An innovation in CETA is the inclusion of a chapter on domestic regulation for licensing and qualification requirements and procedures for the supply of a service or to carry out economic activity. The disciplines on domestic regulations build on Article V of the GATS disciplines and on discussions at the WTO. The obligations in the domestic regulation chapter ensure that regulatory measures do not nullify or impair market access for services and investment granted elsewhere in the agreement. Licensing and qualification requirements and procedures in Canada and the European Union must be transparent, objective, fair, and timely. The provisions apply to the framework for licensing—​ensuring that requirements are clear, publicly available and based on objective criteria—​and also to procedures, ensuring that the consideration of and decision with respect to an application is timely, non-​arbitrary, and not subject to unreasonable fees. A mechanism for prompt review of a decision made by a domestic regulator must also be available. Like in the investment and services chapters, the parties excluded sensitive sectors such as social services, aboriginal affairs, minority affairs, cultural industries and water services from the application of the domestic regulations disciplines. In addition, the 20 Regulatory

bodies from both jurisdictions initiate the MRA process and submit their recommendations to the Joint Committee on Cooperation for the Recognition of Qualifications, which is comprised of Canadian and EU government officials. The Joint Committee’s role oversees the MRA negotiating process. It ensures that the MRAs are consistent with CETA. 21  Other professions (engineers, foresters) have expressed interest in future engagement.

Trans-Atlantic Trade   271 provisions of the chapter do not apply to existing non-​conforming measures as listed in Annex I reservations under the cross-​border trade in services and investment chapters, as well as certain sectors and activities listed in Annex II reservations.

6. Financial services CETA includes a sector specific chapter for measures adopted or maintained by Canada and the European Union relating to financial institutions, investors and their respective investments in financial institutions, and cross-​border trade in financial services. The inclusion of a specific chapter on financial services follows the NAFTA practice. The chapter tailors the general commitments in CETA to the financial services sector. In addition to national treatment, MFN treatment, and market access obligations,22 the chapter includes specific commitments on regulatory transparency and the cross-​ border transfer and processing of information by financial institutions. Because of regulatory concerns, commitments related to the cross-​border provision of financial services were limited to certain services such as reinsurance and auxiliary financial services (the full list of committed financial services is contained in the Annex on cross-​border trade in financial services). Reservations against the obligations in the chapter are included in the services, investment, and financial services annexes. In addition, the financial services chapter does not apply to regulations relating to public pensions or other means of social insurance. Importantly, the chapter’s prudential carve-​out provides Canada and the European Union the necessary regulatory flexibility to take reasonable measures for prudential reasons without violating CETA. This allows, for example, regulators to take measures to safeguard the integrity and stability of the financial system. While prudential carve-​ outs are standard in trade agreements,23 in CETA the parties provided additional interpretive guidelines clarifying the application of the prudential carve-​out, as well as guidance on the participation of the Financial Services Committee in Investor-State disputes where prudential measures are at issue.

7. International maritime transport services A separate chapter on maritime transport includes obligations not to maintain discriminatory measures with respect to accessing and using ports, and the use of infrastructure and services of ports. The chapter also contains additional obligations with respect to the transport of passengers and/​or cargo between different countries, including the direct contracting of suppliers of other transport services. This includes allowing international maritime service suppliers to provide the repositioning of empty containers on a non-​revenue basis, as well as to provide feeder services for international cargo between ports in each other’s territory; a prohibition on cargo-​sharing arrangements with third countries; access to the carriage of government cargo; and obligations to facilitate 22  Negotiations on disciplines on performance requirements for the financial services sector were deferred to a later date. 23  See Chapter 33 of this handbook.

272    Sylvie Tabet and Colin M. Brown multimodal transport operations. The extent of the parties’ commitments is better understood by reference to the reservations against the chapter’s obligations included in the investment and services Annexes I and II.24

8. Telecommunications Telecommunications services are covered by the investment and cross-​border services chapters as well as specific disciplines in the telecommunications chapter. While no major new liberalization in telecommunications resulted from CETA, the agreement will facilitate more competition and market access over time. For example, Canada has guaranteed to EU service providers the benefit of any future liberalization and, once granted, market access will not be made more restrictive.25

9. Electronic commerce While CETA does not go as far as more recent FTAs in the regulation of digital trade, Canada and the European Union agreed to maintaining an ongoing dialogue including on the verification of online identities, the treatment of spam, and the protection of consumers and businesses from online fraud. The chapter includes a commitment extending the moratorium on customs duties, fees or charges on digital products transmitted electronically between Canada and the European Union. The parties may still apply internal taxes and charges that are consistent with CETA’s other chapters (i.e. non-​discriminatory). Canada and the European Union also committed to clear and transparent domestic regulations for e-​commerce; to protect personal information; to promote interoperability, innovation and competition in the e-​ commerce sector; and to facilitate the use of e-​commerce by small and medium-​sized enterprises. The chapter does not include commitments on cross-​border data flows and data localization requirements but commitments with respect to data processing for financial institutions were included in the financial services chapter.26

D. Government procurement Through CETA, the European Union gained access to Canada’s provincial, territorial and municipal government procurement opportunities. This was one of the primary objectives for the European Union in negotiating CETA. Canada for its part secured access to the sizable EU procurement market estimated at over € 2 trillion per year.27 As

24 See, e.g., Canada’s reservation II-​ C-​14 which provides that in Canada, feeder services may be provided by EU service suppliers only between the Ports of Halifax and Montreal. 25  Annex I—​Services and investment reservations Canada Federal, Reservation I-​C-​9. 26  Article 13.15—​Transfer and processing of information. 27 The estimated value of tenders published in the Tenders Electronic Daily (TED) above the thresholds amounts to €300 billion.

Trans-Atlantic Trade   273 a result of the agreement, Canadian companies can bid on EU government procurement projects including at the subnational level, such as local contracting authorities and public utilities including gas, electricity, heat and water distributors, and urban transit and railway operators. The procurement chapter in CETA, Chapter 19, builds on Canada and the European Union’s commitments in the WTO GPA. It requires the Canadian and the EU governments at all levels to treat each others’ suppliers of goods and services in an open, transparent, and non-​discriminatory manner with respect to their covered public procurements. In CETA, the non-​discrimination, impartiality, and transparency commitments apply to a broader range of government procurement of goods and services. Both the European Union and Canada also expanded the coverage of contracting entities (e.g., government entities at the national and sub-​national level, including state-​ owned corporations and Crown corporations, as well as regional, local and municipal governments, school boards and publicly funded academic, health and social services entities) above certain monetary values.28 The disciplines in the procurement chapter apply to a contract procured by a covered government entity; that is not below the applicable contract value thresholds; and does not fall within the exclusions for certain entities, or goods, or services. Coverage is set out in the annexes. The annexes identify covered entities at the central government level, sub-​central government level, and other entities such as government enterprises, or public utilities (see the EU and Canada market access schedules, Annex 19-​1, Annex 19-​2 and Annex 19-​3). These annexes also identify for each category the applicable contract value threshold for goods and services.29 Unless excluded, all goods and a broad list of services (including professional services such as architecture and engineering services) as well as construction services are subject to the obligations as set out in the annexes.30 In addition, the annexes contain general exclusions that apply to all government entities as well as specific exclusions that only apply to certain listed entities.31 Canada and the European Union have notably provided for general exceptions for measures to protect human health, the environment, national security and public safety. Certain sectors are also excluded from the government procurement obligations (such as financial services, cultural industries, healthcare and social services

28  In earlier trade agreements, Canada did not include coverage at the sub-​federal level or to Crown corporations. The Canada–​United States Agreement on Government Procurement was the first instance in which coverage was extended to government procurement contracts at the provincial, territorial and municipal level certain municipalities. While the European Union agreed to cover contracts issued by its sub-​central government entities and Crown corporations under the WTO GPA, Canada was excluded from the list of beneficiary countries because of the lack of reciprocity. 29  CETA thresholds are 130,000 SDR for goods and services and SDR 5,000,000 for works at the EU level, 200 000 SDR and SDR 5,000,000 for works. 30  For excluded goods see Annex 19-​4; for coverage of services other than construction services see Annex 19-​5; for construction services see Annex 19-​6. 31  Annex 19-​7, general notes on additional exceptions.

274    Sylvie Tabet and Colin M. Brown for Canada, and broadcasting and postal services for the European Union; and ports and airports for both). Although procurement coverage extends in some cases to the collection, purification and distribution of water and to entities operating in the health, education, and social services sectors, nothing in CETA requires the parties to privatize or contract out the delivery of public services. The parties expressly reaffirmed in the Joint Interpretative Statement that CETA does not ‘require governments to privatize any service nor prevent governments from expanding the range of services they supply to the public’. It is only when a covered entity decides to contract out the service that it can be subject to the procurement chapter obligations. In addition, Chapter 19 requires the publication of information on procurement opportunities,32 the rules applicable to the procurement process and information on contract awards. Canada has also committed to establish a single electronic point of access (SPA) for procurement tenders. Once established, the SPA, which functions in a similar way to the procurement system maintained by the European Union, facilitates access to information about available procurement opportunities.33 Although SMEs in Canada and the European Union have in the past had some difficulties in participating in each other’s procurement markets, CETA’s rules requiring transparency in procurement processes and the advertising of opportunities, and the significant government efforts to explain the applicable procurement processes will make it easier for SME to access opportunities. The procurement chapter also requires the parties to establish or maintain domestic review procedures to allow the challenge of decisions with respect to covered procurement that are not consistent with Chapter 19 obligations.

E. Intellectual property CETA’s chapter on intellectual property, Chapter 20, complements the rights and obligations under the TRIPS Agreement. It includes obligations with respect to copyright and related rights, trademarks, designs, patents, geographical indications, plant varieties, as well as enforcement measures, border measures and cooperation between Canada and the European Union. The negotiation in respect of intellectual property issues was particularly controversial in Canada. The European Union pressed for additional protections in several areas: copyright protection, pharmaceutical patents, geographical indications (GI) and enforcement in the case of infringement. 32  Prospective suppliers should have access to the information necessary to prepare and submit bids for a procurement opportunity including a description of the nature and quantity of goods or services being procured, conditions for the participation of suppliers, and the evaluation criteria that will be used to select a supplier. 33  Canada has five years from the entry into force of CETA to implement the SPA. The commitment to establish a SPA was a major undertaking for Canada.

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1. Copyright and related rights On copyright, the provisions in Chapter 20 are consistent with the EU approach in its recent FTAs. For Canada, the provisions were largely consistent with its recent modernization of its copyright law, including with respect to unauthorized camcording of presentations of films, digital locks and the liability of internet service providers for copyright infringement.

2. Pharmaceutical products CETA contains additional protections with respect to the award of patents for pharmaceutical products. These provisions were included at the European Union’s request and required reform of Canada’s patent regime. First, Article 20.27 of CETA provides for a sui generis protection for pharmaceuticals beyond the end of the patent term (the ‘patent restoration’ provision) to reflect delays in regulatory approval. In order to implement these changes, Canada amended its legislation, by introducing a patent restoration term through the issuance of a Certificate of Supplementary Protection similar to what is done under EU legislation. The supplementary protection will only apply to products receiving market authorization after the introduction of the new regime. The additional period of market exclusivity for eligible pharmaceutical products is for a maximum period of two years in Canada while in the European Union it can extend to five years for most products. Second, CETA introduces certain requirements for any ‘patent linkage’ regime whereby the granting of marketing authorizations (or notices of compliance or similar concepts) for generic pharmaceutical products is linked to the existence of patent protection. Article 20.28 requires that under such a regime, ‘all litigants are afforded equivalent and effective rights of appeal’. To implement the new requirements, Canada had to amend the litigation framework for proceedings under the Patented Medicines (Notice of Compliance) Regulations from a summary process to a full trial procedure with evidence. Overall the new procedure provides a more efficient litigation process, binding final determinations of infringement and validity, and a right of appeal. Third, CETA contemplates a period of protection of at least eight years for data submitted to regulators as part of a marketing approval process of a pharmaceutical product that utilizes new chemical entities (including biologics).34 This requirement did not require additional changes to the parties’ existing data protection regimes.

3. Geographical indications The protection of GIs for certain products was a key objective for the European Union in the CETA negotiations. The EU system protects certain wines, spirits, agricultural products or food products as originating in the territory of a particular country, region or locality if a quality, reputation or other characteristic of the product is linked to its geographical origin. Prior to CETA, the category of products eligible for protection as 34 

Article 20.29—​Protection of undisclosed data related to pharmaceutical products.

276    Sylvie Tabet and Colin M. Brown geographical indications in Canada was limited to wines and spirits. With CETA, the scope of products eligible for protection as geographical indications was expanded to certain food and agricultural products. This was a significant achievement for the European Union and posed some challenges for Canada in the context of the USMCA negotiations, given the United States’ resistance to broader protections of geographical indications. The US insisted on introducing into the USMCA additional procedural safeguards for the recognition of new geographical indications.35 The procedures include a notification mechanism to allow an objection to an application for a geographical indication, or a request for cancellation of an existing geographical indication, that includes a term that is considered customary in common language as the common name for the relevant good. While the requirement to allow the cancellation of existing GIs on this basis does not extend to geographical indications protected through CETA provisions (which were essentially grandfathered together with other trade agreements that pre-​date USMCA),36 the USMCA provisions require Canada to notify the United States and Mexico before recognizing any additional geographical indication in trade agreements (except for wines and spirit) and may limit Canada’s flexibility to recognize new EU geographical indications. The scope of application of these GI obligations to agricultural products and foods is determined by reference to the list of product classes in Annex 20-​C. Pursuant to Article 20.19, the parties must provide the legal means to prevent another person or business from using a GI in their territory to describe goods that do not originate from the designated territory or goods that are not manufactured or produced in accordance with the law of the other party’s territory. Of significance, restrictions also apply to the use of GI names, even when used with terms such as ‘kind’, ‘style’, ‘imitation’, ‘type’. An exception is however provided for a number of products commonly used in Canada (e.g. Asiago, Gorgonzola, feta). The parties must also provide for mechanisms to prevent a person from manufacturing, preparing, packaging, labelling, selling or importing or advertising a food commodity in a manner that is false, misleading or deceptive or is likely to create an erroneous impression regarding its origin. Annex 20-​A contains the list of GI terms that will be protected and lists certain terms in English and French that are subject to exceptions from the protections.37 Article 20.22 allows the CETA joint Committee to add other GIs to the Annex. A number of exceptions to the GI protections are contemplated, such as when the GI is a person’s name or a commonly used names/​terms and for English and French translations of commonly used food names. Notably an exception applies with respect to trademarks existing prior to CETA’s provisional application. However, new trademarks which contain or consist of a GI of the other party will not be possible. To implement its obligations with respect to GIs, Canada amended its trademarks legislation to expand the category of products eligible for protection as GIs. 35 

Section 20.30 of the USMCA. Section 20.35(6) of the USMCA. 37  Canada recognized 171 EU GIs for agricultural products and foods. 36 

Trans-Atlantic Trade   277 The provisions on enforcement of intellectual property rights (Section C) and on border measures (Section D) set out procedures that each party must implement in its domestic regime to prevent infringement of intellectual property rights (IPRs) and border remedies to help prevent the export and import of products infringing IPRs, including GIs. As a result of these commitments, Canada added GIs to the scope of its IPR border enforcement regulations.

F. Investment protection and investment dispute settlement The investment protection and investment dispute settlement provisions are amongst the most innovative provisions of CETA and have set a precedent for future investment protection and investment dispute settlement provisions both bilaterally and multilaterally. Much has already been written on these provisions and a full analysis is beyond the scope of this contribution.38 A few observations are, however, in order. First, these provisions were developed against the background of a major substantive policy debate around investment protection, particularly in the European Union. Whilst the debate had been arguably somewhat constant in Canada in the years preceding CETA, the TTIP negotiations with the United States sparked a broad debate in the European Union over investment protection. CETA was caught up in that debate and reflects the European Union’s new approach to investment protection and ISDS. The result is an agreement that takes a new approach affirming the importance of the ability of States to regulate and ensuring that the balance between that ability to regulate and the protection of investors is properly struck. This is particularly evident in a number of provisions. Article 8.9 addresses this issue directly, clarifying that the provisions do not interfere with the parties’ right to regulate, and that the fact that a measure may interfere with an investment or its expectation of profit does not in itself constitute a breach of the provisions. Another example is Article 8.10, which guarantees the investor’s right to fair and equitable treatment but based only on a closed list of grounds. These grounds are intended as a statement of what the parties considered to be the substantive content of the fair and equitable treatment standard. For both sides, this was a departure, with Canada tending to limit the fair and equitable treatment standard by referring to the minimum standard of treatment at customary international law whilst for the European Union, its Member States had consistently not further defined the fair and equitable standard in their bilateral treaties(the European Union’s initial position was developed from the

38 See, e.g., M. Bungenberg and A. Reinisch (eds), CETA Investment Law; Article-​ by-​ Article Commentary (Nomos/​Hart, 2021); M.M. Mbengue and S. Schacherer (eds), Foreign Investment under the Comprehensive Economic and Trade Agreement (CETA) (Springer, 2019); in particular, A. von Walter and M.L. Andrisani, ‘Resolution of Investment Disputes’, at 189.

278    Sylvie Tabet and Colin M. Brown practice of the Member States).39 These grounds can only be altered via an amendment of the agreement. Finally, in this context, Article 8.12, dealing with expropriation, has an Annex (8-​A) which clarifies the rare circumstances that regulatory activities of a horizontal nature may require compensation under the expropriation standards. This is modelled on the North American approach. Second, the change in approach was particularly pronounced in terms of ISDS. Many States, including Canada, had previously put in place ISDS reforms, but CETA represents a step-​change in approach, which also kick-​started the multilateral process of reform of investor state dispute settlement in the United Nations Commission for International Trade Law (UNCITRAL). This is done in a number of key ways. First, the ability of the disputing parties to choose their arbitrators in a particular case is removed in favour of a permanent set of adjudicators who are appointed by both parties at the entry into force of the agreement and before any dispute arises. Second, an appellate mechanism is established (the first in any FTA or bilateral investment treaty) which provides for a review of the first instance tribunal of legal issues or if it is argued that there has been a manifest error in the appreciation of the facts. Third, it is agreed that Canada and the European Union (and its Member States) work towards the establishment of a multilateral investment court. A bilateral structure is relatively administratively costly and so a multilateral approach may ultimately make more sense.40 Whilst a permanent structure in CETA will deliver consistency within CETA, given the similarity (if not identity) across the 3,000 existing investment treaties, a multilateral construct will be better able to ensure consistency over this larger number of treaties. Third, one of the challenges which was faced by the negotiators was the different approach between EU Member States (recalling that this was the first EU agreement including investment protection/​ISDS to be negotiated) and Canada as regards the availability of ISDS in respect of the establishment (market access) of investments. The large number of EU Member State agreements which provided the initial basis for the European Union’s policy only provided for protection of investment once the investment was made (i.e. post-​establishment). Canada however has a policy of providing protection also for the right to establish and for providing a gateway to ISDS in some such circumstances (subject to significant exceptions including with respect to reviews under the Investment Canada Act). The particular problem which arose in CETA was that the investment chapter is an integrated whole, covering investment liberalization (establishment), non-​discrimination both as regards establishment and post-​establishment and post establishment protection. Finally, the EU conception with respect to an outright exclusion of ISDS with respect to the establishment of investments prevailed. This 39  An

example, however, of the Member States starting to define the fair and equitable treatment standard can be found in Article 4 of the France-​Colombia BIT, published in the Journal Officiel de la République Française on 23 October 2020. It is worth noting, anecdotally, that the European Commission recruited the French official who had worked on those negotiations and that person was also involved in the CETA negotiations. 40  Note that the European Union has agreed similar structures with Singapore, Viet Nam, Mexico and is negotiating on this basis with Chile, Indonesia and other countries.

Trans-Atlantic Trade   279 is reflected in Article 8.18 which specifies that investment dispute settlement only applies to Section C of Chapter 8 (non-​discriminatory treatment) as regards the ‘expansion, conduct, operation, management, maintenance, use enjoyment and sale or disposal’ of a covered investment and to Section D (investment protection). This quoted language is intended to identify those elements that generally correspond to post-​establishment situations. Fourth and finally, this chapter shows that CETA is, to an extent, a living agreement. A number of elements were not completed during the negotiations and the agreement envisages that decisions would be adopted to complete the chapter. As a result, the Committees established under the agreement adopted rules for the functioning of the appellate mechanism, fleshing out how the body would function, the Code of Conduct for adjudicators under CETA, rules on mediation, and a decision clarifying how binding interpretations under the agreement would be adopted.41 These were adopted as decisions by the CETA Joint Committee and the Committee on Services and Investment respectively on 29 January 2021. This is an illustration of how modern FTAs can also provide for adjustments and updates to be made. In this case it was largely to complete work which was not completed during the negotiations. This chapter, by setting out a new approach, is one of the most important in CETA in terms of establishing precedents for future FTAs and for future multilateral developments.

G. Trade and sustainable development Both Parties had previously included provisions dealing with labour and the environment (what is termed ‘trade and sustainable development’ by the European Union and in the 41  See Council Decision (EU) 2020/​678 of 18 May 2020 on the position to be taken on behalf of the European Union in the CETA Joint Committee established under the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part, as regards the adoption of a decision setting out the administrative and organizational matters regarding the functioning of the Appellate Tribunal, OJ 2020 L 161, p. 1; Council Decision (EU) 2020/​680 of 18 May 2020 on the position to be taken on behalf of the European Union in the Committee on Services and Investment established under the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part, as regards the adoption of a code of conduct for Members of the Tribunal, Members of the Appellate Tribunal and mediators, OJ 2020 L 161, p. 5; Council Decision (EU) 2020/​681 of 18 May 2020 on the position to be taken on behalf of the European Union in the Committee on Services and Investment established under the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part, as regards the adoption of rules for mediation for use by disputing parties in investment disputes, OJ 2020 L 161, p. 7; Council Decision (EU) 2020/​679 of 18 May 2020 on the position to be taken on behalf of the European Union in the CETA Joint Committee established under the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part, as regards the adoption of a decision on the procedure for the adoption of interpretations in accordance with Articles 8.31.3 and 8.44.3(a) of CETA as an Annex to its Rules of Procedure, OJ 2020 L 161, p. 3).

280    Sylvie Tabet and Colin M. Brown agreement) in their FTAs. The challenge posed in CETA, like in other areas, was to integrate the two approaches into a coherent whole. CETA contains three chapters dealing with trade and sustainable development. Chapters 22, 23 and 24 cover sustainable development generally, trade and labour, and trade and the environment. This differs from the European Union’s standard approach which is to have a single trade and sustainable development chapter incorporating both labour and environmental provisions. CETA has, in Chapter 22, overarching provisions on sustainable development, focussing in particular on general co-​operation and the establishment of a Committee on Trade and Sustainable Development intended to provide a forum to oversee the implementation and functioning of the labour and environmental chapters. This was a reflection of Canada’s preference for distinct chapters and approaches on labour and environment combined with the European Union’s preference for a single coherent chapter. In addition to establishing the Committee on Trade and Sustainable Development, Chapter 22 also creates a Civil Society Forum (Article 22.5). This is to be made up of civil society organizations from each party which are in turn participants in each party’s consultative mechanisms, with a balanced representation covering different interests. The consultative mechanisms are referred to separately in the labour and environment chapters and are intended to be domestic groups which are either already established or to be established specifically for the purpose of the agreement. These groups are given various opportunities to interact with the governments of the parties. In particular, they are given the right to make submissions in the form of opinions or recommendations to the parties at any time, they may be consulted as part of the consultations linked to potential dispute settlement, and they are to be kept informed of the appropriate measures to be taken in the event of a finding by a Panel of Experts that there is a breach of an agreement (Articles 23.10.12 and 24.15.11) in the context of which they can submit observations. Substantively as concerns labour, Chapter 23 contains a number of provisions reflecting the European Union’s standard approach. This involves, in particular, a requirement to ensure that labour law and practices provide protection for fundamental principles and rights at work such as freedom of association and collective bargaining, the elimination of all forms of forced or compulsory labour, the elimination of child labour, and the elimination of discrimination as reflected in the International Labour Organisation (ILO) Declaration on Fundamental Principles and Rights at work. It also provides that the parties reaffirm their commitments to effectively implement the fundamental ILO Conventions which they have ratified and to make ‘continued and sustained efforts’ to ratify those ones which they have not yet ratified.42 Additionally, CETA contains a ‘non-​regression clause’ requiring that the parties do not lower their labour standards in order to encourage trade or investment. Finally, CETA contains detailed provisions requiring that the parties maintain labour inspection mechanisms and administrative and judicial systems to ensure that labour rights are effectively 42 

The meaning of this term is discussed by the Panel of Experts in the report rendered pursuant to the EU-​Korea FTA; see paras 277-​280 of the Panel Report (issued on 20 January 2021).

Trans-Atlantic Trade   281 protected in their domestic legal systems. This provides also for fairly detailed procedural provisions on the rights of interested parties to ensure that their interests are reflected in proceedings. Like the labour chapter, the environment chapter reaffirms each party’s commitment to implement the multilateral environmental agreements to which they are party (including, therefore, the Paris Agreement on Climate Change) and a ‘non-​regression’ clause. The chapter also contains access to remedies and procedural guarantees and provisions on sustainable trade in forestry products and fishery products. Both chapters have separate but nearly identical dispute settlement provisions, which envisage that disputes are governed by the standard State-​to-​State dispute settlement mechanism which applies to the extent that the chapter does not regulate the specific matter. Importantly, and in distinction to the State-​to-​State dispute settlement chapter (Chapter 29), these mechanisms do not require that there be an alleged breach of the agreement. It is sufficient for there to be ‘a matter arising’ under the relevant chapter to trigger consultations. During the consultations, relevant international organizations (the ILO being named specifically as regards labour) may provide information or views. If matters are not resolved through consultations, the matter may be referred to the Committee on Trade in Sustainable Development which may also seek the input of the relevant domestic civil society organizations. Failing this, recourse may be had to a Panel of Experts, made up of persons with expertise in labour matters (for the labour chapter) or environmental matters (for the environmental chapter) or international dispute resolution more generally. The mechanisms envisage that the Panel should seek information (rather than simply have the option of doing so) either from the ILO or from relevant international bodies when the dispute relates to multilateral ILO conventions or multilateral environmental agreements (Articles 23.10.9 and 24.15.9). Neither mechanism includes the possibility of suspending concessions under the agreement (in distinction to Chapter 29), with both requiring that, where the Panel determines that a Party has not acted in conformity with its obligations, the parties endeavour to identify an appropriate measure or decide on a ‘mutually satisfactory action plan’ (Articles 23.10.12 and 24.16.11). Of note is that the parties are obliged to inform their civil society organizations through the relevant consultative mechanisms established under the agreement (as noted above) of the measures that the parties intend to take and that the civil society organizations and Civil Society Forum may submit observations (Articles 23.10.12 and 24.16.11). This provides for a ground-​breaking interaction between the governments of Canada and the European Union and civil society actors. Finally, it is worth pointing out the relatively detailed review clause for the labour dispute settlement mechanism (Article 23.11 and in particular paragraphs 3 to 5), which stems from a difference in approach between Canada and the European Union. Canada wished to envisage the possibility of imposing some form of sanctions in the event that there was a failure to comply with an award of the Panel. This, however, goes against the European Union’s established practice on these matters. Hence, it was agreed to establish the possibility of a review of the dispute settlement chapter in light of its functioning, and developments within each Party and internationally together with the views of

282    Sylvie Tabet and Colin M. Brown stakeholders with the possibility of updating the relevant provisions.43 There have been discussions on this matter but these have not led to amendments to these provisions.44 There is no comparable provision for the environmental mechanism. These chapters are amongst the most evolved provisions addressing trade and sustainable development in any FTA. Both Canada and the European Union have consistently acted to promote trade and sustainable development. As can be seen, it is particularly the provisions on the involvement of civil society in the implementation and operation of the agreement which are far reaching and which are accompanied by a broad substantive coverage.

H. Dispute settlement, institutional provisions and general and final provisions 1. Dispute settlement The State-​to-​State dispute settlement mechanism found in Chapter 29 follows the standard EU approach with a mechanism broadly based on the WTO dispute settlement mechanism but without an Appellate Body. There are a number of noteworthy features. First, CETA (like other EU and Canadian FTAs) includes both incorporated WTO rules and ‘WTO plus’ provisions, that is provisions that include additional rights and obligations as compared to WTO obligations. This means that disputes can, in theory, be submitted under the WTO and under the FTA (and under other relevant agreements between the two parties). CETA includes a fork-​in-​the-​road provision which requires a party to choose which route to follow in respect of a dispute concerning a substantially equivalent provision.45 In other words, if a dispute concerns the application of the national treatment rule in Article III:4 of the GATT 1994 incorporated into CETA, then the complainant would have the choice between going ahead under CETA or the WTO. They would be guided, probably, by whether there existed other possible violations under CETA, in which case initiating a dispute under CETA would make most sense, since it would allow in a single proceeding the consideration of the WTO and WTO plus provisions. It would avoid the necessity of initiating a dispute under both the WTO and CETA. However, once a decision is taken as regards a substantially equivalent obligation, there is a requirement to follow the path chosen. 43 For

an overview of approaches to trade and sustainable development chapters and their enforcement see the study commissioned by the European Commission ‘Comparative Analysis of Trade and Sustainable Development (TSD) Provisions for Identification of Best Practices to Support the TSD Review’ Interim Report November 2021, at < https://​trade.ec.eur​opa.eu/​doc​lib/​docs/​2021/​novem​ber/​ tradoc​_​159​899.pdf > (last visited 20 December 2021). 44 At the time of writing (December 2021) the European Union was conducting a review of its approach to trade and sustainable development implementation and enforcement. 45  Article 29.3 of CETA.

Trans-Atlantic Trade   283 This also raises important questions of co-​ordination between the two legal regimes. In order to ensure that a bilateral panel reaches an interpretation consistent with a WTO interpretation, CETA requires such a panel to take into account interpretations of panels and the Appellate Body.46 It also provides (as with other EU FTAs) that the WTO Agreement cannot be invoked to prevent a successful complainant from suspending obligations pursuant to the Agreement.47 This means that, in the event of a failure to come into compliance a party may set aside WTO obligations in adopting countermeasures. Hence, the relatively low WTO tariff bindings which Canada and the European Union have could be increased in the event of the adoption of countermeasures under the agreement. Second, CETA does not have an independent secretariat to administer the agreement, filling the role that the WTO Director General and the WTO Secretariat provide in respect of the WTO. Hence, the system for appointment of panel members envisaged in CETA provides that the parties must first seek to agree, failing which the panel members are to be drawn by lot from pre-​established lists, of at least fifteen, of whom five are of EU nationality, five of Canadian nationality and five are from a third country.48 This latter group will act as chairpersons. Third, whilst much of the procedure resembles that of WTO dispute settlement, with consultations, panel establishment, interim report, final report, a reasonable period of time for compliance, and then compliance review there are some differences. The most significant is that the problem of ‘sequencing’ is addressed,49 with it being clear that if there is disagreement around compliance after the end of the reasonable period of time for compliance then the panel is called on first to decide whether there is compliance before the complainant can potentially adopt countermeasures.50 Moreover, if the respondent considers that it has come into compliance there is a specific provision (the equivalent of which does not exist in the WTO) which allows the respondent to force a compliance panel in the event that the complainant disagrees that there is compliance. If successful, the complaint is obliged to remove any countermeasures. This system is intended to ensure effective and efficient dispute settlement procedures under CETA.

2. Institutional provisions CETA is envisaged as a living instrument. This does not mean that it can be radically changed without going through the same procedures which were required for its provisional application and entry into force. Rather, it implies that CETA has a number of 46 

Article 29.17 of CETA. Article 29.3.4 of CETA. 48  Articles 29.7 and 29.8 of CETA. 49 See, G. Vidigal, ‘Sequencing: Dispute Settlement System of the World Trade Organization (WTO)’ in Max Planck Encyclopedias of International Law, Max Planck Encyclopedia of International Procedural Law, at < https://​opil.oup​law.com/​view/​10.1093/​law-​mpei​pro/​e3338.013.3338/​law-​mpei​pro-​ e3338 > (last visited 20 December 2021). 50  Article 29.14.6 of CETA. 47 

284    Sylvie Tabet and Colin M. Brown mechanisms which allow decisions to be taken and adjustments to be made to ensure the effective management of the agreement. These mechanisms are, however, tightly circumscribed. The main decision-​making body is the CETA Joint Committee. It is co-​chaired by the Canadian Minster for International Trade and the European Commissioner responsible for Trade (or their designees). The Joint Committee is made up exclusively of representatives of the Government of Canada and the European Commission unless a matter concerns the investor state dispute settlement in which case it will include Member State representatives.51 It is important additionally to understand that the Joint Committee cannot decide freely. Any decision that it takes has to be prepared in advance and is subject to the relevant domestic authorization procedures. In the European Union, this implies that there is an Article 218(9) TFEU decision for the circumstances in which the Joint Committee would take a decision with legal effects.52 If the decision does not have legal effects, Union law requires nevertheless that in certain circumstances the Commission is authorized by the Council of the European Union to take a particular position.53 In Canada, the applicable procedures depend on the nature of the decision and could require Cabinet approval. Unsurprisingly, any decision by the Joint Committee can only be adopted by mutual consent (Article 26.3(3)). The Joint Committee has a number of powers set out in Chapter 26. Its main role is to supervise the application and implementation of CETA and the work of the subsidiary bodies. It can also, in certain circumstances, adopt decisions amending the agreement. Such decisions can only be adopted when explicitly provided for in the agreement. On the EU side this is necessary, because such an approach to amendments excludes the European Parliament. The logic is that the Parliament gives its consent to such decisions being possible when it gives its assent to an agreement, hence it has to be clear from the agreement when such decisions are possible (it is a form of delegation of the power to make amendments normally reserved for more technical changes). To give a concrete example, Article 2.4(4) gives the CETA Joint Committee the power to decide on the acceleration of tariff reduction or the elimination of tariff reductions. There is no comparable provision for services and investment reservations. Moreover, Article 30.2, which refers to amendments, explains how the CETA Joint Committee can adopt amendments modifying the protocols and annexes but expressly excludes that possibility for the services and investments restrictions. Any decision to reduce, remove or otherwise change service and investment restrictions would hence require a full amendment

51  The

Commission is responsible for the external representation of the Union on matters of EU exclusive competence. 52  Article 218(9) TFEU requires that the Council of the European Union adopt a decision by qualified majority on a proposal from the Commission and after the European Parliament is informed. The Union cannot act externally without such an internal authorization if the intended decision of the Joint Committee is to have legal effects. 53  See Case C-​660/​13 Council v Commission (Swiss MoU), EU:C:2016:616.

Trans-Atlantic Trade   285 procedure. In Canada, any decision requiring amendment of the agreement would be subject to the regular treaty amendment process, including Cabinet approval and tabling of the amended treaty in Parliament. A number of other powers are attributed to the Joint Committee. One that is interesting to note is the power to adopt interpretations of the agreement (Article 26.1(4)(e). These have historically been used in the field of investment dispute resolution but the EU provided for them as regards FTAs as a whole. Indeed, it was the practice of the European Union to use them in its FTAs that do not provide for ISDS. CETA thus combines this possibility for both ISDS and State-​to-​State dispute settlement.54

3. General and final provisions Chapter 30, which sets out the general and final provisions has a number of articles of note. Article 30.6 deals with the ability to invoke CETA before domestic courts. In line with previous EU FTAs, or decisions adopting FTAs, CETA expressly provides that it cannot be invoked before domestic courts and that it exclusively creates rights and obligations for the parties. This puts it on a parallel with the WTO in the EU legal system.55 CETA, in distinction to previous EU FTAs, also clarifies that rights of action under domestic law as regards the other party for a possible breach of the agreement (Article 30.6(2)) are prohibited. This provision is more common in North American FTAs. Another important provision is Article 30.8 which provides for co-​ordination or termination of agreements between the European Union or its Member States and Canada. For instance, the bilateral investment treaties between Canada and EU Member States (listed in Annex 30-​A) are terminated once CETA definitively enters into force (they are, in the words of CETA ‘replaced and superseded’). For those agreements, a legacy provision is envisaged which permits claims still to be brought under them for three years as regards treatment accorded during the period of time when those agreements were still in place. Other agreements are incorporated into CETA and made subject to a specific conflict rule (the bilateral Alcoholic Beverages and Wines and Spirits Drinks agreements) (Article 30.8(3) and (4)). The bilateral agreements on Mutual Recognition and on Veterinary matters are terminated (Article 30.8(5) and (6)). Finally, Article 30.10 provides for procedures for when new States accede to the European Union. As is explored further below, CETA straddles matters of EU exclusive competence and shared competence. For matters of exclusive competence, a State acceding to the European Union is subject automatically to the treaties which the European Union has in application (the analogy is to an extension of territory of a State in general international law). There is therefore no need for an accession to such an agreement, but there may be a corresponding need to make adjustments (for example procurement commitments are listed by EU Member State). For matters of 54  In the European Union, these would require an Article 218(9) TFEU decision, given that, whilst intended to declare how the agreement should be interpreted, they are decisions having legal effects. 55  Case C-​149/​96 Portuguese Republic v Council, EU:C:1999:574.

286    Sylvie Tabet and Colin M. Brown shared or exclusive Member State competence then a separate act is required. The result is that Article 30.10 envisages that, if accession to CETA is provided for in the treaty of accession of a new Member State to the European Union, then it must take place on those terms and if not provided for, the new Member State will apply to accede separately. Furthermore, it is foreseen that the CETA Joint Committee can examine the effects of the accession and is empowered to make any necessary adjustments.

I. Ratification and implementation In Canada, ratification of CETA was relatively uncontroversial. The fact that it would be a mixed agreement gave rise to some concerns about the risks that certain Member States could ‘veto’ the ratification because of opposition, in particular, to the investment protection and ISDS provisions of the agreement (further examined below).56 In the lead-​up to the signature of the agreement by the European Union and its Member States, there had been some signs that the opposition to these provisions in some Member States may pose challenges and delays to the ratification of the agreement.57 Nevertheless, provisional application of the agreement pending Member States’ ratification was seen as allowing Canadians to benefit immediately from 99 per cent of the agreement. Canada therefore agreed to the provisional application of CETA on the same basis as the European Union. This meant that provisions of the agreement that are not provisionally applied by the European Union would not be provisionally applied by Canada. The non-​application of investment protection provisions and ISDS during the provisional application period was not seen as problematic from Canada’s perspective given that existing bilateral investment agreements with six Member States (where investment protection had been seen as more pressing) would continue to apply until the CETA provisions came into force. Prior to CETA, Canada had limited experience with respect to the provisional application of treaties. Internally, Canada’s approval process with respect to provisional application of treaties is essentially the same as for the ratification of a treaty. The agreement

56   CETA will enter into force fully and definitively when all EU Member States’ parliaments have ratified the agreement. The agreement was signed on 30 October 2016 during the EU-Canada bilateral Summit. The European Parliament gave its consent to CETA on 15 February 2017. On 21 September 2017, the agreement entered into force provisionally. 57  In order to assuage concerns expressed by Member States in particular with respect to regulatory flexibility, the Investment Tribunal and public services, a Joint Interpretative Instrument was issued by Canada and the European Union together with the signature of the agreement. The instrument did not alter the text of the agreement but provided some legally binding interpretative guidance. In addition, EU Member States and institutions unilaterally adopted 38 statements and declarations on CETA, which were entered into the Council minutes. Contrary to the Joint Interpretative Instrument, these unilateral statements or declarations do not give a binding interpretation on CETA, but reflect the position of several EU institutions and Member States on the conclusion of this agreement.

Trans-Atlantic Trade   287 was approved by Canada’s legislature through the passage of the CETA Implementation Act58 in May 2017. The provisional application date was set by agreement of the parties as of 21September 2017.59 The implementation of CETA in Canada was more complex than for previous FTAs, except perhaps for NAFTA. It required important amendments to several Acts of Parliament, in addition to changes to the Customs Tariff. For example, amendments were made to the Export Import Permit Act, the Patent Act, the Trademarks Act, the Coasting Trade Act, and the Investment Canada Act. Significant administrative and regulatory changes were also required before the provisional application and entry into force of CETA. Provincial and territorial representatives were also asked to confirm the completion of necessary steps within their jurisdiction.60 Together with the provisional application of the agreement, Canada published a Statement on Implementation61 providing the Government’s understanding of the rights and obligations set out in CETA. For each chapter, the Statement sets out what the agreement says and how Canada has implemented the agreement in domestic law and other actions the Government will undertake to give effect to the agreement. In the European Union, the ratification of CETA took place against the background of an ongoing legal and political debate as to the powers of the European Union in the field of trade and investment. Into that mix was added the question whether those powers were being exercised consistently with EU constitutional law and fundamental rights. This was shaped by a combination of disagreements on the European Union’s competence for investment and other elements, which had been ongoing since the entry into force of the Treaty of Lisbon and the increased intensity of the debate around trade policy which has essentially started with the TTIP negotiations. CETA was seen by many as a blueprint for those negotiations. At the time of the signature of CETA, the European Union was still negotiating TTIP with the United States and it was therefore widely considered that the approach taken as regards CETA would set the path also for the procedures for TTIP (which was intended to cover, at least in general terms, many of the same issues as CETA). 58 An Act to implement the Comprehensive Economic and Trade Agreement between Canada and the European Union and its Member States and to provide for certain other measures, Article 9, ‘Canada–​European Union Comprehensive Economic and Trade Agreement Implementation Act’ (last visited 20 December 2021). Bill C-​30 received royal assent on 16 May 2017. 59 Exchange of letters; Notice concerning the provisional application of the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part, at < https://​eur-​lex.eur​opa.eu/​legal-​cont​ent/​EN/​TXT/​PDF/​?uri=​ CELEX:220​17X0​916(02)&from=​EN > (last visited 20 December 2021). 60 Under the Canadian Constitution, the federal government is fully responsible for the implementation and application of international treaties, but that when Canada incurs obligations in an agreement that fall under provincial or territorial jurisdiction, it is incumbent upon the provinces and territories to fulfil these obligations. 61  Canada-​European Union Comprehensive Economic and Trade Agreement—​Canadian Statement on Implementation, at < https://​www.intern​atio​nal.gc.ca/​trade-​comme​rce/​trade-​agr​eeme​nts-​acco​rds-​ comm​erci​aux/​agr-​acc/​ceta-​aecg/​can​adia​n_​st​atem​ent-​enon​ce_​c​anad​ien.aspx?lang=​eng > (last visited 20 December 2021).

288    Sylvie Tabet and Colin M. Brown The European Commission made the proposal to sign CETA on 5 July 2016.62 Almost a year earlier, on 10 July 2015, it submitted a request to the Court of Justice of the European Union for an Opinion pursuant to Article 218(12)TFEU on the Singapore-​ EU FTA. This request led to the Court’s Opinion 2/​15 on the division of competences between the Union and its Member States of 16 May 2017.63 This meant that the decision on signature of CETA, which was adopted on 28 October 2016, was done as the litigation in Opinion 2/​15 was continuing (indeed, the Court’s hearing in Opinion 2/​15 took place on 12 and 13 September 2016). That litigation had to solve the question of whether the Union had exclusive competence for all of the matters covered in the deep and comprehensive FTAs being negotiated (the Singapore-​EU agreement was the first such agreement in respect of which negotiations were completed, CETA was the second). This issue had been controversial since the entry into force of the Treaty of Lisbon in 2009. The Commission argued (and had consistently taken the view since the entry into force of the Treaty of Lisbon) that the Union had exclusive competence for the entire FTA. The Council and Member States (25 Member States intervened in the proceedings) argued otherwise, claiming that the Union did not have competence for a number of areas including investment, some aspects of services, sustainable development etc, and that these were either matters of shared competence or of exclusive Member State competence. Despite its position, the Commission nevertheless proposed CETA as a mixed agreement given that there was pressure to move towards its adoption.64 The Commission, consistent with its position that the whole agreement fell under EU exclusive competence, proposed that the whole agreement be provisionally applied.65 Inevitably, the Council disagreed and decided that certain parts of CETA should not be provisionally applied.66 This was not legally problematic for the Commission since the Council had full discretion to decide what provisions to provisionally apply (i.e., it 62  Proposal for a COUNCIL DECISION on the signing on behalf of the European Union of the Comprehensive Economic and Trade Agreement between Canada of the one part, and the European Union and its Member States, of the other part COM/​2016/​0444 final—​2016/​0206 (NLE) 5 July 2016. 63  Opinion 2/​15 (Singapore FTA), EU:C:2017:376. 64  In the Explanatory Memorandum (p. 4) to the proposal, the Commission stated ‘[i]‌n view of this [the disagreement between the Member States and the Commission on the question of competence], and in order not to delay the signature of the Agreement, the Commission has decided to propose the signature of the Agreement as a mixed agreement. Nevertheless, this is without prejudice to the views expressed by the Commission in Case A-​2/​15. Once the Court issues its opinion in Case A-​2/​15, it will be necessary to draw the appropriate conclusions’. The Commission was of course aware that proposing the agreement as an ‘EU-​only’ agreement would provoke a long and difficult discussion with the Member States. Note that the Commission had not formally proposed the Singapore-​EU FTA and so CETA would have been the first post-​Lisbon FTA on which it would have taken a position. 65  See Proposal for a COUNCIL DECISION on the provisional application of the Comprehensive Economic and Trade Agreement between Canada of the one part, and the European Union and its Member States, of the other part, COM/​2016/​0470 final—​2016/​0220 (NLE). 66 Council Decision (EU) 2017/​ 38 of 28 October 2016 on the provisional application of the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part, OJ 2017 L 11, p. 1080.

Trans-Atlantic Trade   289 could do so on policy grounds, unrelated to the views on the underlying competence). Nevertheless, the Commission had an interest that the areas not subject to provisional application were as limited as possible. The Council decided to exclude the following areas from provisional application: -​ investment protection and ISDS; -​ the relevant parts of the chapter on financial services that dealt with investment protection and ISDS; -​ certain intellectual property provisions with penal aspects; -​ certain provisions dealing with administrative and judicial procedures concerning the application of the agreement at Member State level; and -​ the trade and sustainable development chapters which are to be applied respecting the division of competence between the Union and the Member States.67 This state of provisional application continues whilst the full agreement is subject to ratification at Member State level. Since the Court of Justice clarified in Opinion 2/​15 that the entirety of the trade and sustainable development chapters are exclusive EU competence, the entirety of those three chapters are fully applied, given that they are applied subject to the division of competence between the European Union and its Member States.68 Provisional application is important because it allows the agreement to be applied whilst the parts of the agreement under Member States’ competence are subject to the relevant ratification procedures. This means that a large part of the benefits of the agreement can be enjoyed before the ratification process if fully complete. As of the time of completion of this contribution, 15 of the 27 Member States had completed the ratification procedure so this situation of provisional application is likely to continue for some time.69 The fact that CETA was treated as a mixed agreement meant that it was subject to the ‘common accord’ of the Union and the Member States. This process implied that the decision on signature, which, as a decision of the Union only required a qualified majority to be adopted, was not adopted unless all Member States gave their agreement to sign CETA (the ‘common accord’). This meant that for the decision on signature to be adopted all Member States had to at least agree to sign CETA. Whilst this makes sense from the perspective of ensuring consistent and co-​ordinated external action by the Union and its Member States, it does not permit the Union to act where it has been 67 

Given there was a disagreement on the division of competence this provision made it difficult to understand in practice which provisions were being applied and which ones were not. The Opinion of the Court of Justice in Opinion 2/​15 would have the effect that these provisions would be provisionally applied in full. 68  In the Singapore FTA there is a single trade and sustainable development chapter (the European Union’s standard approach) whilst in CETA this is divided into three chapters (Chapters 22, 23 and 24). 69 See < https://​www.consil​ium.eur​opa.eu/​en/​docume​nts-​publi​cati​ons/​treat​ies-​agr​eeme​nts/​agreem​ ent/​?id=​2016​017 > (last visited 19 November 2021).

290    Sylvie Tabet and Colin M. Brown granted powers to do so. Indeed, the Court of Justice has since clarified that the ability of the Union to act cannot be subjected to the requirement that all Member States agree, in similar situations where the Union should be free to act by qualified majority.70 This approach led to the (in)famous situation where Wallonia, one of the constituent regions of Belgium, whose agreement was required before Belgium could agree to sign CETA, held up the signature of the agreement. It raised concerns about the agreement on a number of issues. These were eventually dealt with via a Joint Interpretive Statement, a number of unilateral Declarations entered into the Council minutes, both of which were already under preparation in order to provide vehicles for the Union and the Member States to respond to a number of concerns and a number of understandings at Belgian national level.71 One of those understandings at the Belgian national level led to Belgium to request an Opinion from the Court of Justice. This request, which became Opinion 1/​17, was one of a number of challenges to CETA before the courts of the European Union and the Member States testing whether CETA, and in particular the Investment Court system, was consistent with either EU law or national law. The French constitutional court was the first to address this issue, concluding in July 2017 that CETA was not inconsistent with French law.72 The Court of Justice of the European Union next confirmed that the Investment Court System was not inconsistent with EU law in its Opinion 1/​17 (importantly, this was the first time that the Court of Justice had confirmed that a dispute settlement system was consistent with EU law at the first time of asking).73 The Irish courts have also rejected a challenge that CETA is inconsistent with Irish law.74 A challenge before the German Constitutional Court has also been dismissed.75 The governance structure set up under CETA has been in full effect since the provisional application of the agreement. There have been regular meetings of the CETA Joint Committee as wells as meetings of the specialized committees (including bilateral dialogues on sector specific issues and regulatory cooperation forum) set up under the agreement. As a result, the Joint Committee and the Committees have adopted a number of decisions (for example, as already noted, with respect to the CETA investment disputes mechanism, the functioning of the appellate tribunal, the procedure for adopting interpretations of the Agreement, the Code of Conduct for Adjudicators and rules on 70 

Opinion 1/​19 (Istanbul Convention) of 6 October 2021 (not yet published).   Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States, OJ 2017 L 11, p. 3 and Statements to be entered in the Council minutes, OJ 2017 L 11, p. 9. 72 Conseil Constitutionnel, Décision n° 2017-​ 749 DC du 31 juillet 2017 (Accord économique et commercial global entre le Canada, d’une part, et l’Union européenne et ses États membres, d’autre part). 73  Opinion 1/​17 of the Court (CETA), EU:C:2019:341. 74  Patrick Costello and The Government of Ireland, Ireland and The Attorney General judgement of the High Court of 16 September 2021 [2021] IHC 600 [2021 No. 1282 P.], at < https://​www.cou​rts.ie/​acc/​ alfre​sco/​ee027​962-​92c2-​407a-​aa81-​5dfc4​f3c0​a5c/​2021_​I​EHC_​600.pdf/​pdf#view=​fitH > (last visited 10 December 2021). Note that at the time of writing, the petitioner is seeking to appeal this judgment. 75  Order of 9 February 2022 at https://​www.bunde​sver​fass​ungs​geri​cht.de/​Sha​redD​ocs/​Pre​ssem​itte​ ilun​gen/​EN/​2022/​bvg22-​022.html (last visited 11 May 2022). 71

Trans-Atlantic Trade   291 mediation). The Joint Committee has also adopted recommendations on Trade and Gender, SMEs and Trade, Climate action and the Paris Agreement.76 Work is ongoing to address existing market barriers or irritants and facilitating trade between Canada and the European Union.77 Agendas and reports of the meetings are publicly available.78

III. Conclusions CETA is an important agreement, setting a new basis for a major part of transatlantic trade and representing an effort by two broadly like-​minded governments to lay down rules for trade but which are also a baseline or example for other agreements. Overall, it contributed to a significant increase in overall bilateral trade between Canada and the EU and a renewed focus on the relationship. For Canada, CETA together with CPTPP, which ensured Canada’s access to Japan and other Asian economies, were important pieces of its efforts to diversify its trade and extend its network of trade agreements. The agreement was the object of a high degree of scrutiny both during the negotiations and afterwards, in particular in the context of its conclusion and ratification process in the European Union. The ratification and implementation of CETA in the European Union has been shaped by the two leading Opinions from the Court of Justice on trade policy in the last 25 years (Opinions 2/​15 and 1/​17). In many ways it also shaped the European Union’s approach to FTAs with the European Union’s now splitting FTAs between those parts which are exclusive EU competence (and not requiring the ratification by Member States individually) and Investment Protection Agreements (which, if the Member States insist on exercising their competence, require Member State ratification). CETA has also impacted Canada’s position in subsequent agreements. In a number of areas such as intellectual property (e.g. geographical indications) and investment protection, Canada has had to contend with a different approach in CETA and in the CPTPP and USMCA. Nevertheless, CETA’s influence is apparent in Canada’s 2021 Foreign Investment Promotion and Protection Agreement (FIPA) Model. Time will tell whether some of the reforms initiated in CETA will evolve further in multilateral settings like UNCITRAL for ISDS reform or in a bilateral setting insofar as similar progressive provisions are included. 76 

All recommendations and decisions, together with reports of the meetings can be found at (last visited 20 December 2021). 77  For example, work in the agriculture committee resulted in information material on Exporting Beef and Pork to the EU: Simplified Information for Canadian Stakeholders and the committee on mutual recognition of professional qualifications oversaw negotiations on an agreement between the European Union and Canada on the mutual recognition of professional qualifications of architects. Efforts to improve participation and promote benefits of the agreement for SMEs and women were also pursued. bilateral cooperation also took place on trade-​related aspects of the international climate change regime. 78  See < https://​trade.ec.eur​opa.eu/​doc​lib/​press/​index.cfm?id=​1811 > (last visited 20 December 2021).

292    Sylvie Tabet and Colin M. Brown

Further reading M. Bungenberg and A. Reinisch (eds), CETA Investment Law; Article-​by-​Article Commentary (Nomos/​Hart, 2021) A.K. Bjorklund, J.P. Gaffney, F. Gélinas and, H. Wöss (eds), ‘TDM CETA Special’ 1 Transnational Dispute Management (2016), at < www.transn​atio​nal-​disp​ute-​man​agem​ent. com/​arti​cle.asp?key=​2308 > S. Griller, W. Obwexer, and E. Vranes (eds), Mega-​Regional Trade Agreements: CETA, TTIP, and TiSA: New Orientations for EU External Economic Relations (Oxford: Oxford University Press, 2017) M. Fanou, ‘The CETA ICS and the Autonomy of the EU Legal Order in Opinion 1/​17—​A Compass for the Future’ 22 Cambridge Yearbook of European Legal Studies (2020) 106–​132 D. Kleimann and G. Kübek, ‘The Signing, Provisional Application, and Conclusion of Trade and Investment Agreements in the EU: The Case of CETA and Opinion 2/​15’ 45(1) Legal Issues of Economic Integration (2018) 13 M.M. Mbengue and S. Schacherer (eds), Foreign Investment under the Comprehensive Economic and Trade Agreement (CETA) (Springer, 2019) A. de Mestral, ‘When Does the Exception Become the Rule? Conserving Regulatory Space under CETA’ 18(3) Journal of International Economic Law (2015) 641–​654

Chapter 11

Tr ade L aw i n E u rope Holger P. Hestermeyer

I.

History and fundamentals of the EU legal order A. Introduction B. Institutions C. Division of competences D. Sources and effect of EU law II. The EU customs union A. History B. The EU customs union today III. The internal market A. History B. The definition of ‘internal market’ C. The internal market today I V. The European Union’s external trade A. The European Union’s competence for the common commercial policy, EU-​only, and mixed agreements B. Procedure C. The European Union’s network of FTAs . Brexit V A. The legal framework for leaving the European Union and its application B. The regulation of trade between the European Union and the United Kingdom C. The regulation of trade with third countries I. Conclusion V

294 294 295 297 297 298 299 299 301 302 302 303 307 308 309 310 311 312 314 316 318

294   Holger P. Hestermeyer Writing about the law governing trade in Europe means, to a large extent, writing about the law of the European Union. The European Union’s 27 Member States hold the lion’s share of the continent’s GDP and account for most of its trade. European non-​Member States are, generally, either seeking membership to the Union1 or linked to it through treaty arrangements including a trade component. The withdrawal of the United Kingdom, which made up 16 per cent of the European Union’s GDP, constitutes a significant loss for the Union but does not put in question the European Union’s leading role for trade on the continent, nor indeed its status as one of the three major trading blocks of the world, and as one of the world’s most influential regulators.2 What is more, the European Union is often cited as a model for regional integration, leading to (not always appropriate)3 attempts to copy EU approaches. Accordingly, even though the European geographical space is larger than the EU and countries linked to it through trade agreements, for reasons of space, this contribution will focus on how EU law treats trade, including the European Union’s customs union, its internal market, and its external trade policy. The legal implications of Brexit will also be discussed. The contribution will not cover the Common Agricultural Policy.

I.  History and fundamentals of the EU legal order A grasp of the history and fundamentals of the European Union’s legal system is indispensable for understanding the Union’s rules on trade.4

A. Introduction Although trade plays an essential role in European integration, the European project has always been about more than trade. After the devastation wrought by the Second World War and the horrors inflicted on the world and Europe by Nazi Germany, the priority was to ensure peace on the continent. In the Schuman Declaration of 9 May 1950, the French 1  Accession candidates currently are Albania, the Republic of North Macedonia, Montenegro, Serbia and Turkey. After the finalization of this chapter, Ukraine and Moldova became accession candidates. They are listed at European Commission, ‘Candidate Countries and Potential Candidates’, at < https://​ ec.eur​opa.eu/​envi​ronm​ent/​enl​arg/​can​dida​tes.htm > (last visited 16 May 2022). 2  See WTO, World Trade Statistical Review 2019, 96 ff; ‘What will the EU look like after Brexit’, Financial Times (22 January 2018); A. Bradford, The Brussels Effect (Oxford: Oxford University Press, 2020). 3 A. Malamud and P. Schmitter, ‘The Experience of European Integration and the Potential for Integration in South America’, IBEI Working Paper No. 2007/​6. 4 See, e.g., R. Schütze, An Introduction to European Law, 2nd edition. (Cambridge: Cambridge University Press, 2015).

TRADE LAW IN EUROPE    295 foreign minister proposed placing the Franco-​German coal and steel production, vital for the manufacture of arms, under a common High Authority, as a first step to make war between the countries ‘not merely unthinkable, but materially impossible’.5 One year later, France, Germany, Italy, and the Benelux countries put Schuman’s project into practice with the Treaty of Paris setting up the European Coal and Steel Community (ECSC).6 THe key moment for integration came in 1957 when the six founding States concluded the Treaties of Rome, which added a European Atomic Energy Community (Euratom)7 and a European Economic Community (EEC)8 to the ECSC. Unlike the other two Communities, the EEC affected all sectors of Member States’ economies. The Treaties of Paris and Rome were the first steps of what today’s EU treaties describe as ‘the process of creating an ever closer union among the peoples of Europe, in which decisions are taken as closely as possible to the citizen in accordance with the principle of subsidiarity’.9 Over the following decades, numerous further treaties strengthened the European legal system. The most significant recent changes to the treaty framework resulted from the Treaties of Maastricht in 199210 and Lisbon in 2009,11 which created a European Union that absorbed the former Communities.12 Today, three treaties form the ‘constitution’ of the European Union:13 the Treaty on European Union;14 the Treaty on the Functioning of the European Union;15 and the Charter of Fundamental Rights.16 The Union grew from 6 to 28 Member States.17 After the entry into force of the Withdrawal Agreement between the European Union and the United Kingdom18 on 31 January 2020, it now has 27 Member States.

B. Institutions The treaties create a number of institutions, of which the Commission, the European Parliament, the European Council, the Council, and the Court of Justice of the European Union stand out. 5  R. Schuman, ‘The Schuman Declaration –​9 May 1950’, at < https://​eur​opa.eu/​europ​ean-​union/​ about-​eu/​symb​ols/​eur​ope-​day/​schu​man-​dec​lara​tion​_​en > (last visited 16 May 2022). 6  18 April 1951, 261 UNTS 140. The treaty expired in 2002. 7  Treaty Establishing the European Atomic Energy Community, 25 March 1957, 298 UNTS 259. 8  Treaty Establishing the European Economic Community, 25 March 1957, 298 UNTS 3. 9  Preamble to the TEU. 10  OJ 1992 C 191, p. 1. 11  OJ 2007 C 306, p. 1. 12  With the exception of the ECSC, which had lapsed in 2002 (Article 97 of the ECSC). 13  On the use of ‘constitution’ see H. Hestermeyer, Eigenständigkeit und Homogenität in föderalen Systemen (Tübingen: Mohr Siebeck, 2019) 18 ff. 14  Consolidated Version, OJ 2012 C 326, p. 13. 15  Consolidated Version, OJ 2012 C 326, p. 47. 16  OJ 2012 C 326, p. 391. 17  On the history of European integration, see L. van Middelaar, The Passage to Europe (transl. Liz Waters, New Haven: Yale University Press, 2013); G. Clemens et al., Geschichte der europäischen Integration (Paderborn: Schöningh, 2009). 18  Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, OJ 2019 C 384, p. 1.

296   Holger P. Hestermeyer The Commission operates as the executive of the European Union. The Commissioners act in the interest of the Union as a whole. The Commission oversees the application of EU law (the execution of EU law itself, however, is in most cases a task of Member States), promotes the interests of the Union, and proposes new initiatives. Currently, each Member State of the European Union has one Commissioner. The Commission is led by its President, one of the Commissioners, who is proposed by the European Council and elected by the European Parliament.19 Legislative and budgetary functions are exercised jointly by the directly elected European Parliament and the Council, which consists of representatives of each Member State at the ministerial level.20 Decision-​making in the Council at times requires unanimity (e.g., for association agreements, trade agreements in particularly sensitive areas and (de facto) mixed agreements21), but more often than not, decisions can be taken by a qualified majority (e.g., with regard to the internal market, the common customs tariff, and generally for the common commercial policy22). A qualified majority in the Council is reached when at least 55 per cent of the Member States (i.e., 15) representing at least 65 per cent of the Union’s population agree. A blocking minority must include at least four Council members.23 The Union receives its general policy directions, the impetus for its development and its priorities from the European Council. That body is distinct from the Council and consists of the Heads of State or Government of the Member States, together with the President of the European Council and the President of the Commission.24 The Court of Justice of the European Union consists of the lower instance General Court and the Court of Justice. The latter is composed of one judge from each Member State and is assisted by Advocates General, independent members of the Court who are the first to write a recommendation for a judgment in complex cases. Cases come to the Court in several ways. For example, the Commission may sue Member States for infringing EU law, national courts may (and at times must) refer questions of EU law arising in cases before them to the Court of Justice, and people or institutions may attack the legality of acts of the institutions of the Union. These procedures also strengthen the enforcement of EU law and, thus, the internal market. The Court of Justice does not hear appeals from national courts.25

19 

Article 17 of the TEU. Articles 14, 16 of the TEU. 21 Articles 207(4), 218(8) of the TFEU. On mixed agreements, see R.A. Wessel and J. Larik, EU External Relations Law: Text, Cases and Materials (Oxford: Hart, 2020), Chapter 4. 22 European Parliament, A Guide to EU Procedures for the Conclusion of International Trade Agreements (Brussels: European Parliament, 2016), 8ff.; I. Sokolska, Developments up to the Single European Act (Brussels: European Parliament, 2019), at 5. 23  Article 16(4) of the TEU. 24  Article 15 of the TEU. 25  Article 19 of the TEU. 20 

TRADE LAW IN EUROPE    297

C. Division of competences Like in federal States, the European Union’s powers are divided between the central level (the European Union) and its components (Member States). The treaties define the competences of the European Union, which only has the power to act where the treaties confer it (‘principle of conferral’).26 Simplifying somewhat, the treaty rules distinguish three types of competences: exclusive EU competences, exclusive Member State competences, and shared competences. In areas of exclusive EU competence, Member States may only legislate if empowered by the Union. In fields of shared competence, Member States may only exercise their competence to the extent that the Union has not exercised its competence.27 Exclusive Member State competences are those where there is no legal basis for EU action, precluding the European Union from acting. With regard to trade, the European Union enjoys exclusive competence notably for the customs union, competition rules necessary for the functioning of the internal market, monetary policy with regard to the euro and—​externally—​the common commercial policy, allowing it to conclude trade agreements with the broad content permitted under Article 207 of the TFEU as described below.28 As to the internal market, however, a shared competence has become the most important tool of the European Union: Under Article 114 of the TFEU, the European Union can approximate national laws and regulations to establish and guarantee the functioning of the internal market.29

D. Sources and effect of EU law Akin to national legal systems, EU law establishes a hierarchy of norms. Primary EU law consists of the treaties of the European Union (i.e. the TEU, and the TFEU) and the Charter of Fundamental Rights. Similar to national constitutional law, all other EU law has to comply with these primary rules. Secondary EU law consists of the legal acts the EU institutions adopt based on the treaties. According to Article 288 of the TFEU, the Union may adopt different types of legal act, including, in particular, regulations and directives. Regulations are binding and directly applicable in all the Member States so that individuals can rely on them in national courts. Directives, in contrast, are only binding on Member States ‘as to the result to be achieved’. In principle (though, as will be shown below, not always), directives are not directly applicable but have to be transposed into national law before individuals can rely on them in the Member States. Member States are given a deadline for implementing them and are free to choose the form and method for implementing the directive in their national law.30 Both directives 26 

Article 5(1) of the TEU. Article 2 of the TFEU. 28  Article 3 of the TFEU. 29  D. Classen, ‘Grundfragen der Rechtsangleichung und –​harmonisierung’ in T. Oppermann et al. (eds), Europarecht, 8th edition. (München: C.H. Beck, 2018), 527 ff. 30  See Article 288 of the TFEU. 27 

298   Holger P. Hestermeyer and regulations can only be passed if the European Parliament and the Council (i.e., the institution representing the Member States) approve them.31 What makes EU law stand out from other regional integration systems set up under public international law is not just the system’s scope, but its normative strength, particularly the direct effect and primacy of EU law. The direct effect of EU law goes back to a 1963 Court of Justice judgment, which held that individuals may rely on a provision of the predecessors to the EU treaties in national courts and before national authorities even if it has not been transposed into national law where the provision so permits.32 This doctrine is in stark contrast to the traditional dualist approach that most countries follow in international law with regard to treaties. According to the Court, directives also benefit from direct effect under certain conditions after the expiry of the transposition deadline. As a matter of principle, direct effect applies vertically between an individual and a Member State and only exceptionally between individuals.33 The primacy of EU law concerns the hierarchy of norms. The Court of Justice decided that EU law that complies with the treaties benefits from primacy, meaning that national law of whatever rank that conflicts with obligations of EU law is to be disapplied to the extent of the conflict.34 The combination of direct effect and primacy grants EU law an extraordinary power to facilitate trade: where national law erects a trade barrier in violation of EU law, the national administration may not apply the national provision, and where it does so nevertheless an individual can turn to the national courts for a remedy.

II.  The EU customs union The European Union is one of the currently 18 customs unions worldwide.35 A customs union is defined in Article XXIV:8(a) of the GATT 1994 as ‘the substitution of a single customs territory for two or more customs territories’ requiring (i) the elimination of duties and other restrictive regulations of commerce with respect to substantially all the trade between the members of the union and (ii) the application of substantially the same duties and other regulations of commerce by all members of the customs union in their external trade (i.e., a common external tariff).36 31 

For details and an exception relating to ‘special’ legislative procedures see Schütze, above fn 4, 39 ff. Case 26/​62 Van Gend & Loos, EU:C:1963:1. 33  Schütze, above fn 4, at 115 ff. 34  Case 6/​64 Costa v. ENEL, EU:C:1964:66; Schütze, above fn 4, at 142 ff. 35  Seven customs unions were notified to the WTO under the enabling clause, eleven under Article XXIV GATT. The latter include three customs unions concluded by the European Union, namely with Andorra, San Marino and Turkey, at < http://​rtais.wto.org > (last visited 16 May 2022). 36 See further A. Tevini, ‘Art. XXIV’ in R. Wolfrum et al. (eds), WTO –​Trade in Goods (Leiden: Martinus Nijhoff, 2011). In Customs Régime between Germany and Austria, the PCIJ cited the slightly different definition used in the Austrian Memorial, requiring ‘uniformity of customs law and 32 

TRADE LAW IN EUROPE    299

A. History The customs union has been at the heart of the European project since the EEC Treaty was concluded.37 Article 9(1) of the EEC Treaty read: ‘[t]‌he Community shall be based upon a customs union covering the exchange of all goods and comprising both the prohibition, as between Member States, of customs duties on importation and exportation and all charges with equivalent effect and the adoption of a common customs tariff in their relations with third countries.’ The customs union was not created immediately, however. The treaty provided for the progressive abolition of internal tariffs in three stages,38 the progressive establishment of a common customs tariff39 and the progressive elimination of quantitative restrictions.40 In the meantime, under Article 12 of the EEC Treaty, Member States were prohibited from introducing or increasing tariffs between themselves.41 The customs union was finalized on 1 July 1968, one and a half years ahead of the original schedule.42 Today, 50 years after it entered into force, the customs union has faded from public view as it is taken for granted. In the treaties, the internal market and the ‘area of freedom, security and justice without internal frontiers’43 are now the main focus. Still, neither of those could be conceived without the abolition of customs borders, which only a customs union can guarantee.44

B. The EU customs union today Article 28 of the TFEU establishes a customs union between the Member States. The customs territory of the Union is described in detail in Article 4 (1) of the Union Customs Code (UCC).45 It comprises the territories, territorial waters, internal waters, and customs tariff; unity of the customs frontiers and of the customs territory vis-​à-​vis third States; freedom from import and export duties in the exchange of goods between the partner States; apportionment of the duties collected according to a fixed quota’. Advisory Opinion, (1931) PCIJ Ser. A/​B, no 41, 18. 37  The Treaty of Paris abolished tariffs and quantitative restrictions on coal and steel without creating a common external tariff. As a sectoral FTA it required a GATT waiver. Coal and steel products, 1 S/​ 17, adopted on 10 November 1952; H. Steinberger, GATT und regionale Wirtschaftszusammenschlüsse (Köln: Carl Heymanns, 1963), 109 (fn 464); N. Vaulont, Die Zollunion der Europäischen Wirtschaftsgemeinschaft (Brussels: EU Commission, 1980), at 9. 38  Article 13 ff. of the EEC Treaty. 39  Article 18 ff. of the EEC Treaty. 40  Article 30 ff. of the EEC Treaty. 41  A similar prohibition in Article 31 of the EEC Treaty covered quantitative restrictions. Article 12 was the first provision to be held to produce direct effect in Member States: see Case 26/​62 Van Gend en Loos, EU:C:1963:1. 42 Commission, The Completion of the Customs Union, Information Memo P-​41/​68, June 1968. 43  Article 3(2), (3) of the TEU. 44 C. Herrmann, ‘AEUV Art. 28’ in E. Grabitz et al. (eds), Das Recht der Europäischen Union (München: C.H. Beck, 2019), paras 9, 1. 45  Regulation (EU) No 952/​2013 of the European Parliament and of the Council of 9 October 2013 laying down the Union Customs Code (recast), OJ 2013 L 269, p. 1. The latest consolidated amended version is from 1 January 2020.

300   Holger P. Hestermeyer airspace of the Member States with some exceptions (e.g., it excludes the Faroe Islands and Greenland for Denmark, Büsingen, and Heligoland for Germany, Ceuta and Melilla for Spain, French overseas territories for France, and Livigno for Italy). Monaco and the UK Sovereign Base Areas of Akrotiri and Dhekelia are situated outside the territory of the Member States but are considered to be part of the customs territory of the Union.46 The customs union covers all trade in goods.47 Internally, the treaties prohibit customs duties or charges having equivalent effects on imports and exports between the Member States48 as well as quantitative restrictions on imports or exports and measures having equivalent effect.49 The prohibition of internal tariffs within the customs union is complemented by a prohibition of internal taxes on products of other Member States in excess of the taxes imposed on similar domestic products or that afford indirect protection to other products.50 The prohibition of quantitative restrictions and measures having equivalent effect tackles non-​tariff barriers in an unprecedented broad manner.51 It lies at the heart of the free movement of goods, one of the European Union’s four economic freedoms, which will be described below. The prohibition of tariffs and quantitative restrictions applies to products originating in Member States and to products from third countries that are in free circulation in the Union.52 A product is ‘in free circulation’ once the import formalities have been complied with in a Member State, and the applicable customs duties or charges have been levied.53 A product released for free circulation obtains the status of a Union good.54 The customs union thus dispenses with the need for proof of origin for intra-​Union trade. Externally, according to Article 31 of the TFEU, the Union establishes a Common Customs Tariff.55 Establishing a common tariff and making it work efficiently are not simple matters: tariffs can come from different sources—​the European Union can establish them autonomously or by a treaty. Thus the customs union is closely tied to the Union’s common commercial policy, its capacity to conclude trade agreements for the European Union and its Member States, which will be discussed below. To make a tariff work, numerous additional legal rules are required, ranging from a nomenclature, rules on customs valuation, and rules of origin, to autonomous measures for a reduction in

46  Article 4 (2) of the UCC. The Italian municipality of Campione d’Italia was included in the customs territory by Regulation (EU) 2019/​474 of the European Parliament and of the Council of 19 March 2019 amending Regulation (EU) 952/​2013 laying down the Union Customs Code, OJ 2019 L 83, p. 38. 47  Article 28(1) TFEU, on the term ‘goods’ see Case 7/​68 Commission v Italy, EU:C:1968:51. See also Herrmann, above fn 44, paras 40 ff. 48  Article 30 of the TFEU. 49  Articles 34 and 35 of the TFEU. 50  Article 110 of the TFEU. 51  L.W. Gormley, EU Law of Free Movement of Goods and Customs Union (Oxford: Oxford University Press, 2009), 2. 52  Article 28(2) of the TFEU. 53  Article 29 of the TFEU. 54  Gormley, above fn 51, para 5.46. 55  Article 31 of the TFEU.

TRADE LAW IN EUROPE    301 customs duty. International obligations in regard to all these rules have to be respected. For example, as a contracting party to the HS Convention, the European Union has to base its nomenclature on the harmonized system.56 Additional complications stem from the fact that Member States administer EU customs law, requiring an appropriate level of cooperation between the Member States and the harmonization of procedural law related to customs. The European Union has, over time, strengthened and consolidated its legal framework for customs law.57 Today, the UCC,58 the UCC Delegated Act,59 and the UCC Implementing Act are at the core of that framework.60 Article 56 of the UCC defines the ‘common customs tariff ’, which comprises a number of documents, including Council Regulation No 2658/​87 of 23 July 1987 on the tariff and statistical nomenclature and on the Common Customs Tariff.61 Under the Council Decision on the system of own resources of the European Union, tariffs are part of the Union’s own resources. That means that tariffs are collected by Member States, and then paid to the European Union—​deducing 20 per cent as collection costs.62 The European Union’s customs union is, indubitably, a great success. However, the number and scope of the measures required for the customs union to work smoothly should not be underestimated. It is no surprise that organizations that are not as deeply integrated as the European Union struggle to fully realize the benefits of a customs union.63

III.  The internal market The European Union’s ambition goes far beyond merely establishing a customs union. From the inception of the EEC, one of its goals was establishing a common market64 of all Member States. Today, Article 3(3), first sentence, of the TEU provides that the European Union ‘shall establish an internal market’. 56 

Article 3(1)(a) of the International Convention on the Harmonized Commodity Description and Coding System, 14 June 1983, 1503 UNTS 157. 57  In particular Articles 28, 31 (common customs tariff), 33 (customs cooperation between member states), 43 (common agricultural policy), 114 (approximation of laws), 203 (association of the overseas countries and territories), 207 (common commercial policy), 217 (association agreements), 352 (further appropriate measures) of the TFEU. 58  Regulation No 952/​2013, above fn 45. 59  Commission Delegated Regulation (EU) 2015/​2446 of 28 July 2015 supplementing Regulation (EU) No 952/​2013 of the European Parliament and of the Council as regards detailed rules concerning certain provisions of the Union Customs Code, OJ 2015 L 343, p. 1, as amended. 60  Commission Implementing Regulation (EU) 2015/​2447 of 24 November 2015 laying down detailed rules for implementing certain provisions of Regulation (EU) No 952/​2013 of the European Parliament and the Council laying down the Union Customs Code, OJ 2015 L 343, p. 558, as amended. 61  OJ 1987 L 256, p. 1, as amended. 62  Council Decision on the system of own resources of the European Union, 5602/​14 (12 February 2014). 63  See, e.g., C. Gutiérrez Ortíz, El Arancel Externo Común en el Mercado Común del Sur, Unidad de Enlace del H. Senado de la nación con el Parlamento del Mercosur, December 2014. 64  Article 2 of the EEC Treaty.

302   Holger P. Hestermeyer

A. History The Union’s work on implementing a common market lost its impetus after the completion of the customs union and the harmonization of Member State legislation on value-​ added taxes. In the economic crisis of the 1970s, Member States raised non-​tariff barriers to protect their markets. EU measures against this protectionism were hampered by the fact that at the time there was a unanimity requirement to pass EU law for the common market. However, the 1980s saw a renewed interest in the common market, resulting in a 1985 White Paper from the Commission with 279 legislative proposals to eliminate physical, technical, and fiscal non-​tariff barriers to ‘complete’ the common market by the end of 1992. It also proposed a shift away from relying mainly on harmonization towards a strategy realizing the common market by combining mutual recognition of rules of other Member States with harmonization.65 The strategy was a success: treaty reform through the Single European Act allowed passing single market measures with a qualified majority rather than with unanimity.66 95 per cent of the measures envisaged by the White Paper had been passed by the end of 1993.67 The Single European Act changed the terminology from the ‘common’ market to today’s ‘internal’ market, a shift that was completed with the Lisbon Treaty in 2009,68 though sometimes ‘single’ or ‘common market’ is used as a synonym. However, neither the measures undertaken according to the White Paper nor later initiatives ‘completed’ the internal market, which remains incomplete, particularly with regard to services.

B. The definition of ‘internal market’ The internal market remains—​and will always remain—​incomplete because the concept of an internal market is both vague and stunningly ambitious. The ‘internal market’ is defined in Article 26(2) of the TFEU as ‘an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties’. The term ‘internal’ seems to equate the EU market with an ‘internal’ national market. At closer inspection, this terminological parallel does not add anything to the conceptual vagueness of the term. National internal markets differ substantially with regard to the level of trade barriers that goods and services face. That level depends, for example, on the extent to which regions wield regulatory powers, i.e., on the division of competences between the central level and the constituent entities.69 65 

Completing the Internal Market, White Paper, 14 June 1985, COM(85) 310, paras 5 ff., 13. See House of Lords EU Committee, Re-​launching the Single Market, 29 March 2011, paras 5 ff., 61 ff. 66  See today’s Article 114 of the TFEU. Single European Act, OJ 1987 L 169, p. 1. 67  The Community Internal Market –​1993 Report –​, 14 March 1994, COM(94) 55 final, C. 68 S. Weatherill, The Internal Market as a Legal Concept (Oxford: Oxford University Press, 2017), at 16 ff. 69  Weatherill, above fn 68, at 1 ff.

TRADE LAW IN EUROPE    303 Even nations struggle to find an acceptable balance between their constituent regions or states’ desire for regulatory autonomy and the frictionless commerce that results from, e.g., harmonizing national regulation. The debates on the scope of the commerce clause in the US Constitution or on intra-​Canadian trade in the context of CETA illustrate this struggle.70 The reality is that there is no clearly defined correct or desirable level of integration of an ‘internal market’, but simply a balance between the desired level of autonomy of component states and the amount of acceptable trade friction stemming from diversity.71

C. The internal market today The law of the internal market encompasses numerous measures and is multifaceted. It involves both treaty provisions preventing Member States from imposing barriers or distorting the market and EU legislative acts.72 This chapter can only give a rough overview. It will present the four freedoms of the Union as well as additional treaty provisions strengthening the internal market and point to some of the legislation passed to make the internal market operate more efficiently. Empirically, while the internal market today allows for nearly frictionless intra-​EU trade with regard to goods, the market remains more strongly compartmentalized into national markets in the area of services.73

1. The four freedoms At the constitutional core of the internal market the treaties provide for the so-​called ‘four freedoms’: the free movement of goods,74 persons,75 services76 and capital.77 Additionally, the treaties guarantee the freedom of establishment, which straddles the line between the free movement of services and persons.78 These rights apply where the EU legislator has not created secondary law that functions as lex specialis, even though that law in turn has to comply with the primary treaty law. A short overview of the free movement of goods shall illustrate the structure of these freedoms.79 70 

E. Chemerinsky, Constitutional Law, 6th edition (New York: Wolters Kluwer, 2019), at 155 ff. For a comparison of the elimination of trade restrictions in the US and EU internal markets, see M.P. Egan, Single Markets: Economic Integration in Europe and the United States (Oxford: Oxford University Press, 2015), at 78 ff. 71  See Hestermeyer, above fn 13. 72  Weatherill, above fn 68, at 5 ff. 73 Commission, A deeper and fairer Single Market, Factsheet. 74  Articles 28-​37 of the TFEU. 75  Articles 45-​48 of the TFEU. 76  Articles 56-​62 of the TFEU. 77  Articles 63-​66 of the TFEU. 78  Articles 49-​55 of the TFEU. 79  For an exhaustive treatment, see C. Barnard, The Substantive Law of the EU: The Four Freedoms (Oxford: Oxford University Press, 2019); D. Ehlers (ed), Europäische Grundrechte und Grundfreiheiten, 4th edition (Berlin: De Gruyter, 2014).

304   Holger P. Hestermeyer The free movement of goods tackles both tariff/​ tax and regulatory barriers. With regard to tariffs/​taxes it includes a prohibition of customs duties and charges having equivalent effect and discriminatory internal taxation, which has been discussed above.80 The key provision with regard to regulatory barriers is Article 34 of the TFEU which prohibits ‘[q]‌uantitative restrictions on imports and all measures having equivalent effect’ between the Member States.81 While the prohibition of quantitative restrictions recalls a similar ban in Article XI of the GATT 1994, what gives the provision teeth is the prohibition of measures having equivalent effect. The Court of Justice has interpreted this prohibition to encompass ‘[a]ll trading rules enacted by Member States which are capable of hindering, directly or indirectly, actually or potentially, intra-​[EU] trade’82 except for mere selling arrangements.83 Thus, even national non-​ tariff barriers that do not discriminate de jure against imported goods violate EU law unless they can be justified. Member States can justify their measures in one of two ways: either under Article 36 of the TFEU, which provides that Article 34 does not preclude prohibitions or restrictions on imports justified ‘on grounds of public morality, public policy or public security; the protection of health and life of humans, animals or plants; the protection of national treasures possessing artistic, historic or archaeological value; or the protection of industrial and commercial property’ as long as such prohibitions do not ‘constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States’.84 Additionally, according to the Court of Justice, ‘[o]‌bstacles to movement within the [EU] resulting from disparities between the national laws relating to the marketing of the product in question must be accepted in so far as those provisions may be recognized as being necessary in order to satisfy mandatory requirements’ relating e.g. to consumer or environmental protection or public health and where the provisions apply without distinction to domestic and imported products.85 Where a non-​tariff barrier cannot be justified, a court in a Member State has to disapply that national rule as a result of the principles of direct effect and primacy of EU law. De facto, these rules establish a rule of mutual recognition: the sale of a good lawfully marketed in one Member State cannot be prohibited in another unless a restriction can be justified through its pursuit of a public policy goal, provided that it is proportional. The rules also encourage the Member States to pursue harmonized standards. 80 

See Articles 30, 110 of the TFEU. Article 35 of the TFEU similarly tackles quantitative restrictions on exports and all measures having equivalent effect. 82  Case 8/​74 Dassonville, EU:C:1974:82, para 5. 83  Case C-​267/​91 Keck and Mithouard, EU:C:1993:905, para 16. 84  The terms recall Article XX of the GATT 1994. See G. de Baere and I. Van Damme ‘Co-​adaptation in the International Legal Order: The EU and the WTO’ in: J. Crawford and S. Nouwen (eds), Select Proceedings of the European Society of International Law, Vol. 3 (Oxford: Hart, 2012), 311 ff. 85  Case 120/​78 Cassis de Dijon, EU:C:1979:42, para 8. 81 

TRADE LAW IN EUROPE    305 Finally, Article 37 of the TFEU tackles discrimination of goods from other Member States by state monopolies. While the free movement of goods has effectively torn down unnecessary trade barriers between the Member States, the coronavirus crisis has demonstrated that gains cannot be taken for granted. A number of Member States, including France, Germany, and Italy restricted exports of personal protection equipment.86 These actions were justified under Article 36 of the TFEU, but they proved disruptive for the Union and (in the medium term) counterproductive with regard to the protection of public health. Structurally, the other three freedoms resemble the free movement of goods, even though their scope and effectiveness vary depending on the specific case-​law and content. Thus, for example, the free movement of services remains more limited than the free movement of goods due to the nature of trade in services and barriers to services trade, even though the treaty protects all modes of service delivery through the right of establishment and the freedom to provide or receive services.87 The free movement of Union citizens has proven even more problematic. The treaties guarantee the free movement of workers and the right to establishment. But the free movement of workers raises a host of complex social questions, such as workers’ rights to benefit from the host country’s social system and the movement and rights of the workers’ accompanying family members, particularly if they are not from the EU. The right of free movement has gained a further layer of complexity through the introduction of a Union citizenship, which according to Article 21 of the TEU includes a (non-​ economic) right to move and reside freely within the territory of the Member States, albeit only ‘subject to the limitations and conditions laid down in the Treaties and by the measures adopted to give them effect.’ In these areas, secondary EU law plays an essential role—​thus e.g., in the area of free movement of persons, Directive 2004/​38/​EC88 has provided more clarity.

2. Other Treaty provisions on the internal market The fundamental freedoms principally tackle state measures that impose internal market barriers. The TFEU also seeks to prevent private parties from skewing the market by prohibiting anti-​competitive practices,89 and any abuse of a dominant

86  See Anordnung von Beschränkungen im Außenwirtschaftsverkehr mit bestimmten Gütern vom 4. März 2020, BAnz AT 4.3.2020 B1; Article 1(1) Ocdpc n. 639 del 25 febbraio 2020 Ulteriori interventi urgenti di protezione civile in relazione all’emergenza relativa al rischio sanitario connesso all’insorgenza di patologie derivanti da agenti virali trasmissibili, Gazz. Uff. N. 48, 26 February 2020; Décret n° 2020-​ 190 du 3 mars 2020 relatif aux réquisition nécessaires dans le cadre de la lutte contre le virus covid-​19, JORF n°0054, 4 March 2020. 87  Oppermann, above fn 29, at 424 ff. See, e.g., Joined Cases 286/​82 and 26/​83, Luisi and Carbone EU:C:1984:35. 88  Directive 2004/​38/​EC of the European Parliament and of the Council of 29 April 2004 on the right of citizens of the Union and their family members to move and reside freely within the territory of the Member States, OJ 2004 L 158, p. 77, as amended. 89  Article 101 of the TFEU.

306   Holger P. Hestermeyer position within the internal market90 as ‘incompatible with the internal market’. State aid granted by a Member State or through state resources that distorts or threatens to distort competition is similarly prohibited by the treaty ‘in so far as it affects trade between Member States’.91 Unusually, the Commission plays a central role in the enforcement of the competition and state aid rules. A large body of secondary EU law builds on these treaty provisions.92 A number of other treaty rules shape and influence either the whole internal market or segments of it, such as the single European currency (the Euro)93 or the common agriculture and fisheries policy.94 They cannot be treated here.

3. Legislative measures The European Union has, over time, passed a significant body of secondary EU law to overcome intra-​EU market barriers.95 A broad-​brush overview of this legislative activity with regard to goods and services is useful for this contribution. As to goods, the European Union has effectively harmonized the technical requirements for goods in some sectors, e.g., through the REACH regulation for chemicals.96 Under the so-​called ‘new approach’, however, EU harmonization is more often than not limited to essential health, safety, and environmental protection requirements, as only these can justify restricting the marketing of a product under free movement rules. Product standards and technical specifications play an important role, including tools for conformity assessment and rules for the accreditation of conformity assessment bodies. The ‘new legislative framework’ in 2008 brought clear rules for market surveillance and ‘CE’ labelling on products to show EU legal conformity.97 In non-​harmonized sectors, the treaty’s free movement rules simplify market access. To improve the way mutual recognition works in practice, the European Union passed Regulation 2019/​515, which repealed a predecessor regulation stemming from 2008.98 In addition, to prevent technical barriers to trade, an EU directive requires the Member States to inform the Commission of draft technical regulations (including with regard to information society services). It offers the Commission and other

90 

Article 102 of the TFEU.

91   Article 92 For details, 107 ofsee theA.TFEU. Jones

et al., Jones & Sufrin’s EU Competition Law, 7th edition (Oxford: Oxford University Press, 2019); K. Bacon, European Union Law of State Aid, 3rd edition (Oxford: Oxford University, 2017). 93  Article 119 ff. of the TFEU. 94  Articles 38-​44 of the TFEU. 95  See Commission, ‘The European Single Market’, at: < https://​ec.eur​opa.eu/​gro​wth/​sin​gle-​market​_​ en> (last visited 16 May 2022). 96  Regulation (EC) No 1907/​2006 of the European Parliament and of the Council of 18 December 2006 concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH), OJ 2006 L 396, p. 1, as amended. 97  For a comprehensive overview see Commission Notice, The ‘Blue Guide’ on the implementation of EU product rules 2016, OJ 2016 C 272, p. 1. 98  Regulation (EU) 2019/​515 of the European Parliament and the Council of 19 March 2019 on the mutual recognition of goods lawfully marketed in another Member State and repealing Regulation (EC) No 764/​2008, OJ 2019 L 91, p. 1.

TRADE LAW IN EUROPE    307 Member States an opportunity to comment on such rules before they are passed and to collect them in a database once passed.99 With regard to services, too, a significant body of secondary law improves the functioning of the internal market. While these rules were initially rather specific, general rules have followed. One of the most significant general measures on services trade today is the 2006 services directive, which codifies the requirements under which a Member State may limit access to, or exercise of, a service activity in its territory.100 Another is the set of rules on the recognition of professional qualifications, including the issuance of a European Professional Card.101 The particularly contentious question of which employment legislation applies to workers posted from one Member State to another is tackled by a 1996 directive.102 In addition to these rules, a host of additional, often sector-​specific rules in fields ranging from financial services103 to transportation104 are in place.

IV.  The European Union’s external trade The liberalization of trade within the European Union and the formation of a customs union went hand in hand with the establishment of an external trade policy, part of the ‘common commercial policy’.105 The policy is complemented by other fields of EU action, such as development cooperation,106 cooperation agreements,107 association agreements108 and the Union’s 99 

Directive (EU) 2015/​1535 of the European Parliament and of the Council of 9 September 2015 laying down a procedure for the provision of information in the field of technical regulations and of rules on Information Society services (codification), OJ 2015 L 241, p. 1. The database is the Technical Regulation Information System (TRIS). 100  Directive 2006/​ 123/​EC of the European Parliament and the Council of 12 December 2006 on services in the internal market, OJ 2006, L 376, p. 36. See Article 14. 101  Directive 2005/​ 36/​EC of the European Parliament and of the Council of 7 September 2005 of professional qualifications, OJ 2005, L 255, p. 22, as amended. 102 Directive 96/​ 7 1/​ EC of the European Parliament and of the Council of 16 December 1996 concerning the posting of workers in the framework of the provision of services, as amended. See Oppermann, above fn 29, at 425 ff. 103  Consider, e.g., ‘passporting’ in financial services under Articles 34, 35 of Directive 2014/​65/​EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments, OJ 2014 L 173, p. 349. 104  See, e.g., Regulation (EC) No 1072/​ 2009 of the European Parliament and of the Council of 21 October 2009 on common rules for access to the international road haulage market, OJ 2009 L 300, p. 235, as amended. 105  Articles 206-​207 of the TFEU. The competence goes back to Article 113 of the EEC treaty. 106  Articles 208-​211 of the TFEU. 107  Article 212(3) of the TFEU. 108  Article 217 of the TFEU.

308   Holger P. Hestermeyer neighbourhood policy.109 As part of its development policy, the European Union maintains a generalized scheme of preferences, which offers a partial or full removal of customs duties on two-​thirds of tariff lines for low and lower-​middle income countries (standard GSP), the reduction of those tariffs to 0 per cent as part of a special incentive arrangement for sustainable development and good governance (GSP+​) and duty-​free quota-​free access for all products except arms and ammunition from least developed countries (EBA).110

A. The European Union’s competence for the common commercial policy, EU-​only, and mixed agreements The European Union has an exclusive competence for the common commercial policy,111 encompassing ‘changes in tariff rates, the conclusion of tariff and trade agreements relating to trade in goods and services, and the commercial aspects of intellectual property, foreign direct investment, the achievement of uniformity in measures of liberalization, export policy and measures to protect trade such as those to be taken in the event of dumping or subsidies’ (Article 207 of the TFEU). Under that competence,112 the European Union may conclude trade agreements, implement these within certain limits and legislate on external trade autonomously, i.e., independently of any treaties.113 The scope of the provision has been and remains contested and the provision has been amended repeatedly. The original wording was interpreted rather expansively by the Court of Justice114 but even so did not encompass all WTO Agreements.115 The Treaty of Lisbon, which entered into force in 2009, brought the scope of the provision back in line with the WTO Agreements.116 Today’s provision, too, is interpreted broadly, allowing e.g., provisions in FTAs on sustainable development to fall within the competence.117 It thus, today, allows for the conclusion of broad modern FTAs by the European Union alone (‘EU-​only’). However, some provisions in modern trade agreements do not fall under the European Union’s exclusive competence under Article 207 of the TFEU, in particular provisions on 109 

Article 8 of the TEU. Commission, Generalised Scheme of Preferences, at < https://​pol​icy.trade.ec.eur​opa.eu/​deve​ lopm​ent-​and-​sus​tain​abil​ity/​gene​rali​sed-​sch​eme-​pre​fere​nces​_​en > (last visited 16 May 2022). 111  Article 3(1)(e) of the TFEU. The Court of Justice held the common commercial policy to be an exclusive competence in Opinion 1/​75 (OECD Understanding on a Local Cost Standard), EU:C:1975:145. 112  Additionally, the Union can act under Article 209(2) of the TFEU to conclude agreements in the field of development cooperation and under Article 217 of the TFEU to conclude association agreements. 113 M. Hahn, ‘Article 207’ in C. Calliess and M. Ruffert (eds), EUV/​AEUV, 4th edition (München: Beck, 2016), para 1. 114  Opinion 1/​75 (OECD Understanding on a Local Cost Standard), EU:C:1975:145; Opinion 1/​78 (Commodity Agreement on Natural Rubber), EU:C:1979:224, para 45. 115  Opinion 1/​94 (WTO Agreements), EU:C:1994:384. 116  See Case C-​414/​11 Daiichi Sankyo, EU:C:2013:520 (on the TRIPS Agreement). 117  Opinion 2/​15 (EU-​Singapore FTA), EU:C:2017:376, paras 36, 142, 147, 163. 110  EU

TRADE LAW IN EUROPE    309 non-​direct investment or on Investor-​State Dispute Settlement.118 Where an agreement goes beyond its competences, the European Union can conclude the agreement together with the Member States.119 Such agreements, to which both the European Union and its Member States become states parties, are called ‘mixed agreements’. They have existed from the very inception of the European Communities.120

B. Procedure The European Union’s procedure for making trade agreements is rather complex.121 The Commission prepares the negotiations, proposes to the Council to open them and informs Parliament. It may propose draft negotiating directives. The Council authorizes the opening of negotiations and adopts negotiating directives. The negotiations are then conducted by the Commission (namely by its Directorate-​General for Trade), in consultation with a special committee appointed by the Council, the Trade Policy Committee, and keeping the European Parliament informed. Once the negotiations have been finalised, it is the Council that decides to sign and conclude the agreement on a proposal by the Commission, but the FTA can only be ratified and enter into force once the European Parliament has approved it in a yes or no vote.122 Thus, the procedure puts the fate of an agreement into the hands of both the directly elected Parliament and the EU Member States through the Council. Some Member States have adopted rules to give their parliaments or even regional entities influence on their position in the Council.123 Where an agreement is mixed, it also has to be ratified by the Member States. This process can be lengthy, but the Council can authorize the agreement’s provisional application, as occurred with CETA.124 118 

Opinion 2/​15 (EU-​Singapore FTA), EU:C:2017:376. The mixity is mandatory if the competence is an exclusive Member State competence, it is optional if the competence is shared. See further M. Chamon and I. Govaere (eds), EU External Relations Post-​ Lisbon: The Law and Practice of Facultative Mixity (Leiden: Brill, 2020). 120  P.-​J. Kuijper et al., The Law of EU External Relations, 2nd edition (Oxford: Oxford University Press, 2015), 101 ff. 121 See Articles 218, 207 of the TFEU. The same holds true for some nation states. See, e.g., Congressional Research Service, Trade Promotion Authority (TPA): Frequently Asked Questions (21 June 2019). 122  European Commission, Negotiating EU Trade Agreements, at < https://​trade.ec.eur​opa.eu/​doc​lib/​ docs/​2012/​june/​tradoc​_​149​616.pdf > (last visited 16 May 2022). 123  See for Germany the Gesetz über die Zusammenarbeit von Bundesregierung und Deutschem Bundestag in Angelegenheiten der Europäischen Union (EUZBBG), BGBl I2013, 2170, Gesetz über die Zusammenarbeit von Bund und Ländern in Angelegenheiten der Europäischen Union (EUZBLG), BGBl I 1993, 313. 124  In practice this has (generally) been permitted only after consent by the European Parliament. See A. Suse and J. Wouters, ‘The Provisional Application of the EU’s Mixed Trade and Investment Agreements’ in I. Bosse-​Platière and C. Rapoport (eds), The Conclusion and Implementation of EU Free Trade Agreements: Constitutional Challenges (Cheltenham: Edward Elgar, 2019), at 176 ff. See 119 

310   Holger P. Hestermeyer While in the past almost all EU FTAs were concluded as mixed agreements, the clarification of the European Union’s competences in Opinion 2/​15 of the Court of Justice shows that the European Union may conclude even broad FTAs as EU-​only agreements as long as non-​foreign direct investments and Investor-State dispute settlement are excluded. The European Union can thus avoid the additional layer of complexity that mixed agreements entail. Following this clarification, the European Union split its FTA with Singapore into an EU-​only FTA that entered into force in 2019 and a mixed investment agreement.125 Similarly, the EU-​Japan EPA was adopted as an EU-​only agreement.126 The Commission is keen to continue this approach. The Council, however, prefers to decide on splitting trade agreements on a case-​by-​case basis.127

C. The European Union’s network of FTAs The European Union has created one of the largest networks of FTAs.128 It is also of significant complexity, as is evident from the variety of names used for its preferential trade agreements, such as ‘association agreement’, ‘stabilization and association agreements’, ‘deep and comprehensive free trade area’, or ‘economic partnership agreement’. While the first of these, the ‘association agreement’, reflects the legal basis in EU law under which the agreement was adopted, other denominators were chosen for different reasons. The content of the agreements is even more diverse, even though different models are discernible, each with its own up-​and downsides. Many of the countries in the vicinity of the European Union are closely linked to it and indeed partially integrated into the internal market, applying some of the Union’s rules, even where they are not accession candidates.129 Iceland, Liechtenstein, and Norway form part of the European Economic Area (EEA), which extends the European Union’s internal market and its rules, albeit under a different institutional setup.130 While the EEA offers unparalleled access to the EU internal market, its non-​EU Member States are rule-​takers of the European Union.131 Switzerland has, over decades, also D. Kleimann and G. Kübek, ‘The Signing, Provisional Application, and Conclusion of Trade and Investment Agreements in the EU: The Case of CETA and Opinion 2/​15’ 45 Legal Issues of Economic Integration (2018) 13. 125  Free Trade Agreement between the European Union and the Republic of Singapore, OJ 2019 L 294, p. 3, entry into force 21 November 2019. 126  Agreement between the European Union and Japan for an Economic Partnership, OJ 2018 L 330, p. 3, entry into force on 1 February 2019. 127  Suse and Wouters, above fn 124, at 181. 128 The WTO’s Regional Trade Agreements Database lists 43 agreements in force for the European Union. 129  On the influence of EU rules in the world, see Bradford, above fn 2. 130  Thus, e.g., the EEA Agreement is interpreted by the EFTA Court with regard to the three non-​EU EEA state parties. See Agreement on the European Economic Area, OJ 1994 L 1, p. 3. See EFTA Court (ed), The EEA and the EFTA Court (Oxford: Hart, 2014). 131  ‘Norway for Now—​or Never?’, The Economist (3 November 2018).

TRADE LAW IN EUROPE    311 built a relationship that encompasses dozens of agreements linking the country closer to the Union. This approach has allowed close economic interconnections, but it has reached the limits of what can be done without a governance superstructure and entails a significant burden of constant updating and negotiations.132 Andorra, San Marino, and Turkey are linked to the European Union through customs unions.133 The EU-​ Turkey customs union has proven economically beneficial, in particular by dispensing with the need for rules of origin, but it is limited, excluding agriculture, services, and public procurement and allowing the partners to negotiate their own FTAs. These are unproblematic where the partners reach the same agreements with third parties, but parallel negotiations have proven difficult for Turkey, putting strains on the relationship.134 Association agreements, meant to provide for closer relations than mere FTAs, were over time concluded with a broad range of countries.135 Finally, the European Union maintains a number of ‘normal’ FTAs, including agreements with Japan,136 Canada,137 and South Korea.138

V. Brexit Under the EU Treaties, membership in the European Union is voluntary. Article 50(1) of the TEU provides that ‘[a]‌ny Member State may decide to withdraw from the Union in accordance with its own constitutional requirements’. On 31 January 2020, the United Kingdom became the first Member State to leave the Union. This section will describe the legal framework for withdrawing from the Union and how it was applied with regard to the United Kingdom. It will then discuss the consequences for the United Kingdom’s 132 See

T. Cottier et al. (eds), Die Rechtsbeziehungen der Schweiz und der Euopäischen Union (Bern: Stämpfli, 2014). 133  Council Decision of 26 November 1990 OJ 1990 L 374, p. 13 (Andorra); Agreement on Cooperation and Customs Union between the European Economic Community and the Republic of San Marino, OJ 2002 L 84/​43; Decision No 1/​95 of the EC-​Turkey Association Council of 22 December 1995 on implementing the final phase of the Customs Union. 134  World Bank, Evaluation of the EU-​Turkey Customs Union (2014), at < https://​doc​umen​ts1.worldb​ ank.org/​cura​ted/​en/​298​1514​6830​8967​367/​pdf/​858300ES​W0P1​440d​iscl​osed​0902​6014​0TR.pdf > (last visited 16 May 2022). 135  J. Bast, ‘European Community and Union, Association Agreements’ in R. Wolfrum (ed), Max Planck Encyclopedia of International Law (Oxford: Oxford University Press, 2009). See, e.g., Article 1(2)(d) Association Agreement between the European Union and Ukraine, OJ 2014 L 161, p. 3. On the Agreement see G. Van der Loo, The EU-​Ukraine Association Agreement and Deep and Comprehensive Free Trade Area (Leiden: Brill 2016). 136  See above fn 126. 137  Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part, OJ 2017 L 11, p. 23, provisionally applied since 21 September 2017. 138  Free Trade Agreement between the European Union and its Member States, of the one part, and the Republic of Korea, of the other part, OJ 2011 L 127, p. 6, provisionally applied since July 2011, entry into force 13 December 2015.

312   Holger P. Hestermeyer trading relationship with the European Union and third countries, i.e., countries that are not EU Member States.

A. The legal framework for leaving the European Union and its application Under Article 50(1) of the TEU, the decision to leave the Union is left solely to the Member State in question as a matter of that Member State’s sovereign choice,139 following its constitutional requirements. Once a Member State has taken such a decision, it notifies the European Council of its intention to leave.140 The United Kingdom held a referendum on its EU membership on 23 June 2016, in which 51.9 per cent of the voting public chose to leave the European Union. However, as the legislation authorizing the referendum had failed to state the consequences of the vote, it was merely advisory under UK law. The unwritten UK constitution required the decision to withdraw from the European Union to be taken by an Act of Parliament.141 Only after this Act142 had been passed could the United Kingdom on 27 March 2017 give its notice of withdrawal.143 Under Article 50(2) and (3) of the TEU, the notice sets in motion a two-​year time period, during which the European Union144 shall negotiate with the Member State in light of guidelines provided by the European Council and conclude an agreement ‘setting out the arrangements for . . . withdrawal, taking account of the framework for its future relationship’. The conclusion of a withdrawal agreement requires, on the EU side, a decision by a qualified majority of the Council after obtaining the consent of the European Parliament.145 If the parties do not reach a withdrawal agreement within the two-​year period, the EU treaties nevertheless cease to apply to the withdrawing Member State. The two-​year period can be extended by the European Council deciding by unanimity and in agreement with the withdrawing Member State.146 During that period and as long as the withdrawal agreement has not entered into force, the withdrawing Member State may unilaterally revoke its notice of withdrawal.147 Afterwards, the only way back into the Union is through the accession process.148 139 

Case C-​621/​18 Wightman, EU:C:2018:999, para 50. Article 50(2) of the TEU. 141  R (on the application of Miller and another) v Secretary of State for Exiting the European Union [2017] 1 All ER 593 (24 January 2017). 142  European Union (Notification of Withdrawal) Act 2017, 2017 c. 9. 143  European Council, United Kingdom notification under Article 50 TEU, Doc. XT 20001/​17 of 29 March 2017. 144  For purposes of the withdrawal process, the European Council and the Council discusses and decides without the withdrawing Member State. Article 50(4) of the TEU. 145  Article 50(2) of the TEU. 146  Article 50(3) of the TEU. On the interpretation of these provisions see H. Hestermeyer, ‘Art. 50 TEU. Smit and Herzog on the Law of the European Union (forthcoming). 147  Case C-​621/​18 Wightman, above fn 139, para 75. 148  Article 50(4) of the TEU. 140 

TRADE LAW IN EUROPE    313 As envisaged by the treaties, the Union prepared its negotiation process with guidelines passed by the European Council on 29 April 2017,149 complemented by additional guidelines later on.150 The guidelines fleshed out the skeletal treaty provisions on withdrawal and led to agreed terms of reference for the negotiations between the parties.151 Three decisions stand out. First, the European Union decided to approach the negotiations as one block and maintained that unity throughout the negotiation process. Second, negotiations proceeded in two phases. In the first phase, ‘withdrawal issues’ were discussed, including the rights of EU and UK citizens in the partner’s territory, the financial settlement, arrangements relating to Northern Ireland (the United Kingdom’s only territory with a land border with the European Union) and a transition period. Only after sufficient progress on these issues had been achieved, the negotiations moved on to the future relationship between the European Union and the United Kingdom. Third, with regard to the future relationship, the parties negotiated a political declaration rather than a full trade agreement as part of the withdrawal negotiations, as the negotiation of a full trade agreement does not fall under Article 50 but under the Union’s general rules relating to negotiating and concluding international agreements, allowing for negotiations of such an agreement only after the withdrawal of the United Kingdom.152 Throughout the negotiations, the European Union published a significant number of negotiating documents, building on an approach to transparency it had pioneered during unsuccessful negotiations of an FTA with the United States. The negotiations proved arduous and required several extensions of the two-​year period, with Northern Ireland emerging as the most difficult issue.153 The parties had agreed that a withdrawal agreement had to protect the Good Friday Agreement, a 1998 agreement ending 30 years of civil unrest in the province between Unionists, who wanted the province to remain part of the United Kingdom, and Irish nationalists, who wanted it to join Ireland. To protect the peace, there was agreement that a visible border on the island of Ireland had to be avoided. As it was EU law and the EU Customs Union that had eliminated the need for a border, however, this meant that either the United Kingdom needed to remain partly under the EU regulatory umbrella, or Northern Ireland did. In the latter case, there would be checks in the Irish Sea154 between Great Britain and Northern Ireland.155

149  European Council, Guidelines Following the United Kingdom’s Notification under Article 50 TEU, EUCO XT 20004/​17 (29 April 2017). 150 European Council, Guidelines, EUCO XT 20011/​ 17 (15 December 2017); European Council, Guidelines, EUCO XT 20001/​18 (23 March 2018). 151  Terms of Reference for the Article 50 TEU negotiations, at < https://​ec.eur​opa.eu/​info/​sites/​defa​ ult/​files/​eu-​uk-​art-​50-​terms-​ref​eren​ce_​a​gree​d_​am​ends​_​en.pdf > (last visited 16 May 2022). 152  These three decisions were met with some consternation by the UK. 153  On the issue K. Hayward, The Irish Border (London: Sage 2021). 154  Some checks between Great Britain and Northern Ireland long predate Brexit, as the island of Ireland has long been treated as one unit for purposes of animal health. 155  ‘Alternative arrangements’ to create an invisible border were also considered.

314   Holger P. Hestermeyer In three separate votes, the UK Parliament rejected a first draft Withdrawal Agreement,156 which envisaged a customs union between the United Kingdom and the European Union as a backstop should no better solution be found in the negotiations between the parties on their future relationship.157 This led to a collapse of the UK Government. The new UK Government rejected the UK remaining under the EU umbrella as part of the ‘backstop’ and renegotiated the Withdrawal Agreement,158 changing the approach to Northern Ireland and providing for checks in the Irish Sea. After ratification by the United Kingdom and the European Union, the Agreement entered into force on 31 January 2020. At that moment, the UK withdrew from the European Union.

B. The regulation of trade between the European Union and the United Kingdom Under the Withdrawal Agreement, EU law remained applicable in the United Kingdom during a transition period until 31 December 2020.159 The treaty provided for the possibility to extend that period,160 but the United Kingdom decided not to have recourse to that possibility. This left little time for the parties to agree on an FTA. In the negotiations, the UK government decided to prioritize the United Kingdom’s sovereignty and pursued a traditional FTA.161 The negotiations that ensued were unprecedented, as they formally constituted the negotiations of a trade-​liberalizing FTA, but in reality erected significant trade barriers in the UK-​EU trade relationship.162 Nevertheless, they were successfully concluded in record time. The two sides announced the new Trade and Cooperation Agreement (TCA)163 on 24 December 2020. It was provisionally applied from 1 January 2021 and entered into force on 1 May 2021.164 156  Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the Atomic Energy Community, OJ 2019 C 66 I, p. 1 (not in force). 157  The UK Parliament is usually not empowered to vote on treaties and was granted a ‘meaningful vote’ on the withdrawal agreement by statutory law. This provision was later withdrawn. 158  Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the Atomic Energy Community, OJ 2020 L 29, p. 7. 159  Article 126, 127(1) of the WA. 160  Article 132 of the WA. 161  Both sides published their mandates: Council Decision authorising the opening of negotiations with the United Kingdom of Great Britain and Northern Ireland for a new partnership agreement (including negotiation directives), Council 5870/​20 and addendum (25 February 2020); HMG, The Future Relationship with the EU: The UK’s Approach to Negotiations, CP211 (February 2020). 162  Written evidence submitted by H. Hestermeyer, House of Commons Committee on the Future Relationship with the European Union, FRE0008 (14 May 2020). 163 Trade and Cooperation Agreement between the European Union and the European Atomic Energy Community, of the one part, and the United Kingdom of Great Britain and Northern Ireland, of the other part, OJ 2021 L 149, p. 10. 164  The time constraints led to a number of abnormalities. Thus, the agreement was published and agreed before it underwent legal scrubbing. The UK implementing legislation (European Union (Future

TRADE LAW IN EUROPE    315 The TCA is an agreement of significant breadth. Beyond trade (including digital trade and energy) and transport, it covers fisheries, social security coordination, continued cooperation in law enforcement and judicial cooperation in criminal matters, cooperation in health and cyber security and participation in some EU programmes. In terms of governance the agreement establishes a Partnership Council to supervise and facilitate the implementation and application of the TCA along with a number of subordinate committees.165 It also provides for state-​to-​state dispute settlement.166 With regard to trade the agreement provides for zero tariffs and quotas, but the emphasis on sovereignty meant there was limited scope to prevent regulatory barriers to trade.167 The two most remarkable features of the agreement are the provisions concerning the ‘level playing field’ and the agreement’s capacity for failure or further development. As to the former,168 the agreement intends to ensure a level playing field with regard to competition policy, subsidy control, state-​owned enterprises, taxation, labour and social standards, environment and climate, trade and sustainable development. Depending on the specific area of the level playing field the treaty imposes substantive obligations, non-​ regression obligations and/​or provisions on enforcement. Two elements deserve special mention: the treaty establishes specific remedial measures regarding subsidies169 and a rebalancing mechanism allowing a party to take rebalancing measures where the parties diverge significantly with regard to the regulation of labour and social standards, environmental and climate protection as well as subsidy control materially impacting trade or investment between the parties as a result.170 If the provisions and mechanisms on the level playing field prove successful, they might well become a model for future agreements. As to the agreement’s capacity for failure or further development, the TCA contains a number of provisions allowing the parties to strengthen their relationship171—​or to terminate it in part or entirely.172 The application of the TCA has meant the introduction of significant trade barriers in the UK-​EU relationship. The introduction of rules of origin, SPS measures, and the falling away of services liberalization such as passporting for financial services has caused friction—​even though on the UK side most border measures for goods are only Relationship) Act 2020, 2020 c. 29), which contains provisions of exceptional breadth and vagueness (see its section 29), was published on December 29 and passed all legislative stages one day later. See S. Fella et al., The UK-​EU Trade and Cooperation Agreement: summary and implementation, House of Commons Library Briefing Paper, 30 December 2020. 165 

Article 7, 8 of the TCA. Article 734 ff. of the TCA. 167  For descriptions of the agreement see Fella et al., above fn 162; I. Hallak et al., EU-​UK Trade and Cooperation Agreement: An analytical overview, European Parliamentary Research Service, 2021. 168  Article 355 of the TCA. 169  Article 374 of the TCA. 170  The conditions and procedures are described in Article 411 of the TCA. See H. Hestermeyer, ‘Levelling the playing field? Welcome to the TCA! 45 EULawLive (2021) 2. 171  See, e.g., Articles 7(4), 68, 96(4), 96(5), 96(8), 122, 126, 158(3), 329, 510 of the TCA. 172  See, e.g., Articles 411(10), 441, 458, 472, 521, 692, 772, 779 of the TCA. 166 

316   Holger P. Hestermeyer phased in gradually.173 The most contentious issue in the EU-​UK relationship, however, remains Northern Ireland. Trade with Northern Ireland (including intra-​UK trade) falls under the complex rules of the Protocol on Ireland/​Northern Ireland to the Withdrawal Agreement, under which Northern Ireland applies a significant amount of EU law174 to prevent a border on the island of Ireland, resulting in additional controls on trade between Great Britain and Northern Ireland, which has led to criticism by the UK government, even though it had negotiated the Protocol.

C. The regulation of trade with third countries Brexit does not just affect the trade relationship between the European Union and the United Kingdom, but also between the two parties and third countries, which raises issues both on a multilateral and on a bilateral level. On a multilateral level, the United Kingdom no longer operates as an EU Member State within the WTO. It has established its own tariffs175 and has submitted schedules to the WTO for certification.176 It has also acceded to the Government Procurement Agreement177 and some other agreements.178 Bilaterally, the United Kingdom stopped benefiting from the European Union’s trade agreements after it ceased to be a Member State of the European Union179 and the transition period expired.180 To continue trade under terms as similar as possible to those enjoyed under the EU FTAs, the United Kingdom put in place a ‘trade agreement continuity’ program,181 under which it negotiated UK treaties with the relevant partner countries to replace the European Union’s trade agreements with as few

173 

HMG, ‘The Border with the European Union: Importing and Exporting Goods’, December 2021, at < https://​ass​ets.pub​lish​ing.serv​ice.gov.uk/​gov​ernm​ent/​uplo​ads/​sys​tem/​uplo​ads/​atta​chme​nt_​d​ata/​file/​ 1041​528/​2021_​Dece​mber​_​Bor​ders​OPMo​del.pdf > (last visited 16 May 2022). 174  See Article 5(4) and Annex 2, Article 8 and Annex 3, Article 9 and Annex 4, Article 10(1) and Annex 5 to the Protocol. 175 HMG, ‘Tariffs on goods imported into the UK’, at < https://​www.gov.uk/​guida​nce/​tari​ffs-​on-​ goods-​impor​ted-​into-​the-​uk > (last visited 16 May 2022). 176 Committee on Market Access, Rectification and modification of schedules—​ Schedule XIX—​ United Kingdom, G/​ MA/​ TAR/​ RS/​ 570 (24 July 2018) and related documents; Council for Trade in Services, Communication from the United Kingdom of Great Britain and Northern Ireland, Certification of schedule of specific commitments, S/​ C/​ W/​ 380 (3 December 2018) and related documents. 177  Accession of the United Kingdom to the Agreement on Government Procurement in its own right, WTO GPA/​CD/​2 (28 February 2019). 178  The United Kingdom’s Withdrawal from the European Union, WT/​GC/​206 (1 February 2020). 179  This was the agreed position also for mixed EU FTAs. 180  During the transition period the United Kingdom remained bound by the EU Agreements (Article 129(1) of the WA) and the European Union notified its partners that the United Kingdom should be treated as a Member State (Footnote to Article 129(1) of the WA), which the partners were willing to do. 181  See also J. Larik, ‘Brexit, the Withdrawal Agreement, and Global Treaty (Re-​ )Negotiations’ 114 American Journal of International Law (2020) 443.

TRADE LAW IN EUROPE    317 changes as possible, at times even through ‘short form’ agreements incorporating the EU trade agreement mutatis mutandis and listing necessary changes in an annex.182 The program was a significant success with currently 36 agreements in force whether fully ratified, through provisional application or a bridging mechanism, including agreements with Canada, Japan and South Korea.183 Changes with regard to the EU agreements relate e.g., to institutions, quantitative elements such as TRQs, rules of origin,184 and regulatory issues. EU FTAs providing for regulatory alignment with the EU (e.g. the EEA with Norway and Iceland) or the EU-​Turkey Customs Union could not be replicated without more significant changes, as otherwise replication would imply following EU rules. Accordingly, these replacement treaties lead to increased trade barriers.185 The trade agreement continuity process illustrates that while it can be difficult to reach new terms of trade in an FTA, once an FTA has been agreed there is significant reluctance to lose its preferential terms of trade. Some major trade partners had initially refused to replicate their EU FTA with the United Kingdom, hoping to obtain better terms in a renegotiation. However, ultimately they signed agreements very similar to the EU ones.186 The massive negotiation effort and its significance for the fate of the country has led to changes in the way the UK Parliament engages with treaties. In the United Kingdom, treaties are negotiated, signed, and ratified by the Government with limited parliamentary involvement. Parliament does not get to vote on the treaties, only on implementing legislation before the treaty is ratified. Otherwise, its power is largely limited to delaying ratification according to the scrutiny mechanism under the Constitutional Reform and Governance Act 2010.187 Before Brexit, Parliamentary scrutiny of international non-​ EU agreements was conducted by the Secondary Legislation Scrutiny Committee. It did not lead to treaties being drawn to the special attention of the House. With Brexit, the EU Committee of the House of Lords began scrutinizing Brexit-​related treaties and 182  See

Agreement Establishing an Association between the United Kingdom of Great Britain and Northern Ireland and the Republic of Chile (30 January 2019), CP35. 183  The current list of agreements is available at HGM, ‘UK trade agreements with non-​EU countries’, at < https://​www.gov.uk/​guida​nce/​uk-​trade-​agr​eeme​nts-​with-​non-​eu-​countr​ies > (last visited 10 September 2021). 184  The United Kingdom has tried to reach agreement on cumulating EU content into UK content, given the deep integration of UK industry with EU industry. UK content will, however, no longer count as EU content in the European Union’s trade agreements. 185  See Agreement on Trade in Goods between the United Kingdom of Great Britain and Northern Ireland, Iceland and the Kingdom of Norway, 8 December 2020, CP 328; Free Trade Agreement between the United Kingdom of Great Britain and Northern Ireland and the Republic of Turkey (with Exchange of Letters), 29 December 2020, CP 372; Article 1 of the Trade Agreement between the United Kingdom of Great Britain and Northern Ireland and the Swiss Confederation, 11 February 2019, CP 55. 186  This was true, e.g., for Japan. On the negotiations see Department for International Trade, UK-​ Japan Free Trade Agreement: The UK’s Strategic Approach (13 May 2020). 187  A. Lang, Parliament’s Role in Ratifying Treaties, House of Commons Library Briefing Paper (17 February 2017); House of Lords Select Committee on the Constitution, Parliamentary Scrutiny of Treaties (30 April 2019).

318   Holger P. Hestermeyer published a large body of reports on them.188 The work was deemed a success and ultimately led to the establishment of an International Agreements Committee of the House of Lords that will scrutinize all treaties laid before Parliament under the Constitutional Reform and Governance Act 2010. Calls for further change, in particular for granting Parliament an up or down vote on trade agreements, have so far not been heeded.

VI. Conclusion The European Union has developed into one of the world’s leading trading powers. It has created a functioning customs union, an integrated internal market (though its integration, particularly in the services sector, leaves much to be desired), and a global network of FTAs second to none. Despite its success, it cannot simply serve as a model to be copied. The Union relies on a level of regional integration that is acceptable in the European context due to the specific historic circumstances of the continent. As Brexit demonstrates, this level of integration is not sustainable without popular support.

Further reading C. Barnard, The Substantive Law of the EU: The Four Freedoms, 6th edition (Oxford: Oxford University Press, 2019) M. Egan, Single Markets: Economic Integration in Europe and the United States (Oxford: Oxford University Press, 2015) H. Hestermeyer, ‘Levelling the Playing Field? Welcome to the TCA!’ 45 EULawLive (2021) 2 P.J. Kuijper et al. (eds), The Law of EU External Relations: Cases, Materials, and Commentary on the EU as an International Legal Actor, 2nd edition (Oxford: Oxford University Press, 2015) J. Larik, ‘Brexit, the Withdrawal Agreement, and Global Treaty (Re-​ )Negotiations’ 114 American Journal of International Law (2020) 443 K. Lenaerts and P. Van Nuffel, EU Constitutional Law (Oxford: Oxford University Press, 2021) P. Oliver (ed), Free Movement of Goods in the European Union, 5th edition (Oxford: Hart, 2010) S. Weatherill, The Internal Market as a Legal Concept (Oxford: Oxford University Press, 2017) P. Witte and H.-​M. Wolffgang (eds), Lehrbuch des Zollrechts der Europäischen Union, 9th edition (Herne: NWB Verlag, 2018)

188 An

overview is provided by House of Lords EU Committee, Scrutiny of international agreements: lessons learned (27 June 2019).

Chapter 12

In ternationa l T ra de P olicy in L at i n America ( Pac i fi c Al liance—​M E RC O SU R) Jorge Luis Changanaquí Miranda and John Ramiro Cusipuma Frisancho

I. II.

Introduction General overview of core principles in Latin American RTAs A. Core principles in Latin American trade agreements B. What is new in Latin American trade agreements? C. Trade disciplines mainly excluded from Latin American RTAs D. Regulation of dispute settlement mechanisms in Latin American trade agreements III. Next steps for the Pacific Alliance and MERCOSUR I V. Conclusions

319 321 321 329 332 334 337 339

I. Introduction Trade has generated economic growth and greater welfare by creating jobs and providing better salaries, and generally improving the quality of life of people around the world, among other benefits. However, political interests of another type outweigh those positive effects, as well as the pandemic that is threatening the lives of thousands of people and the economy of the world.

320   Miranda and Frisancho The COVID-​19 pandemic, as well as the protectionism schemes emerging in certain economies, is causing serious damage to the foundation of open trade. This is supported by those who are against globalization and by others who consider that it is not possible to open markets and at the same time protect other interests of global concern, such as the protection of the environment or public health. Although Latin American economies underwent a significant trade liberalization process, which will be set out in this chapter, the results of such efforts have not reached the expected goals. Nevertheless, Latin American countries still trust the benefits of a rules-​based multilateral trade system, which explains their lack of open trade wars among them, as well as the limited disputes in the WTO between countries of this region. Latin American countries1 have made several attempts to achieve regional economic integration without reaching a deep integration between them. In the 1960s, the Latin America Free Trade Association (ALALC) was established by the Treaty of Montevideo to create a Latin American Common Market. Political differences among Latin American countries made the implementation of this agreement very difficult, and it was suspended by the end of that decade. Some years later, the 1980 Treaty of Montevideo replaced the ALALC with the Latin American Integration Association (LAIA), which shared similar ambitious goals of creating a common market but introduced more flexibility by, for example, allowing arrangements that would include some but not all the member countries, and by recognizing the different levels of development among its members. LAIA ultimately comprised 13 different territories2 representing more than half a billion inhabitants. However, it granted tariff preferences to only 10 per cent of the traded goods, and its success at integration was undermined by the economic crisis of the 1980s.3 Latin American efforts for regional economic integration have not always sought the integration of all the countries in the region. In fact, experience in the region shows that many schemes for economic integration coexist, even nowadays with the Andean Community, the Caribbean Community (CARICOM), the Bolivarian Alliance for Latin America and the Caribbean (ALBA), the Union of South American Nations, the Southern Common Market (MERCOSUR), the Pacific Alliance, and the bilateral treaties signed outside the framework of the LAIA. Of the above-​mentioned examples, two pacts comprise the biggest economies in the Latin American Region: Chile, Colombia, Mexico and Peru form the Pacific Alliance, while Argentina, Brazil, Paraguay, and Uruguay form MERCOSUR. This chapter will 1 

For the purposes of this Chapter, when the authors refer to the Latin American region, it includes the following countries: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay, and Venezuela. 2 These include Argentina, Bolivia, Brazil, Chile, Colombia, Cuba, Ecuador, Mexico, Panama, Paraguay, Peru, Uruguay, and Venezuela. 3  R. Polanco, ‘The TPP and its Relation with Regional and Preferential Agreements in Latin America’ SECO/​WTI Academic Cooperation Project Working Paper N° 21/​2016, at 6.

International trade policy in Latin America—MERCOSUR    321 focus on trade policy in the region taking into account these two integration processes, because they represent the most active joint efforts in regional trade liberalization. The main trading partners of the two blocs are not in the region4. Both MERCOSUR and the Pacific Alliance have concluded or are currently negotiating RTAs and agreements with other regional integration mechanisms or economies outside the region, such as the European Union or economies from the Asia-​Pacific region. However, the two blocs are also working towards integrating a regional trade market (composed of 640 million inhabitants approximately). Governments in Latin America are aware that regional trade integration could improve enterprise internationalization, particularly of small and medium enterprises (SME), as they are one of the key actors in the economic development of countries of the region5. Furthermore, cultural, linguistic, and geographical proximity allows SMEs to ship their first exports within the regional market. Once the SMEs have gained experience in international trade, they begin to export to the world market. Hence, the regional market is of the utmost importance with regard to international trade. With common aspects as well as divergences between them, the Pacific Alliance and MERCOSUR could initiate an ambitious process of integration that would be beneficial for their inhabitants as it will allow them to access better opportunities in the world market, developing regional and global supply chains. For those reasons, it is important to analyse the trade policy of both blocs, which illustrates the approaches of most Latin American Countries in negotiating RTAs.

II.  General overview of core principles in Latin American RTAs A. Core principles in Latin American trade agreements The crisis of the 1980s6 caused a major debt problem in Latin American economies and led to a major shift in the trade policy of the region. During the next years, Latin 4  As

a matter of reference, the main trading partners of the two blocs are located in Asia, North America or Europe. 5 M. Dini and G. Stumpo (eds), ‘Mipymes en América Latina: un frágil desempeño y nuevos desafíos para las políticas de fomento’ Documentos de Proyectos (LC/​TS.2018/​75), Santiago, Comisión Económica para América Latina y el Caribe (CEPAL) (2018). According to the authors, SMEs and micro enterprises compose more than 90% of the formal enterprise sector in Latin American Countries. 6  M. Carrera Troyano, ‘La deuda externa en América Latina, veinte años después: una nueva media “década perdida” ’ LXIII(247) Investigación Económica (2004), at 104–​105. According to the author: ‘The year 1982 has been indelibly marked in Latin American history. It will be the year of the “debt crisis”, which was triggered when Mexico, first, and then the rest of Latin America did not manage to meet their external commitments, because they could not satisfy interest payments on their debt and repayments of the principal of the loans with revenue from their exports, new loans or direct investments or their reserves. This was a dramatic event that, on the one hand, ushered in a “lost decade” during which the

322   Miranda and Frisancho American countries supported the industrialization of their economies and expanded their internal market, while keeping the State as a key player in this model7. Nevertheless, this policy, once again led to failure. Private agents were unable to compete with the State enterprises in fair conditions as the economies in the region adopted imports substitution schemes. The rupture of this scheme promoted a paradigm shift towards trade openness. Thus, economies once closed to the world, started to open their borders to export their products as well as to receive new technologies and investment from other countries. The new economic approach which had its origin in the Washington Consensus8 fostered trade liberalization as a mean of economic growth and development. The main idea of this reform was to build a strong force of exporters to benefit from the reduction or elimination of tariff and non-​tariff barriers and find new markets, where consumers would have a greater spending capacity. Furthermore, free trade would allow the expansion of the efficient and therefore competitive sectors.9 At that time, some Latin American countries, parties to the GATT 1947, were engaged in the Uruguay Round of multilateral trade negotiations. They were convinced that trade openness was the path to follow to achieve general well-​being, economic growth, and development. The WTO fosters further trade liberalization through RTAs in a bilateral, plurilateral or multilateral context. For that purpose, WTO Members may invoke Article XXIV of the GATT 1994, the Enabling Clause, or Article V of the GATS. As a consequence, regional trade agreements proliferated worldwide10 and Latin America is no exception. In the region, there are over 116 RTAs notified to the WTO, where 10 of them are from the Caribbean, 40 from Central America and 66 from South America. On the other hand, Europe has 100 RTAs, East Asia 89, North America 48, Africa 35, Middle East 30, Oceania 25 and West Asia 23. In addition, a large number of negotiations took place in Latin America between 2000 and 2016.11 These numbers, region did not achieve improvements in per capita income and experienced lower living standards compared to the 1980s and, on the other, it will be remembered as the moment that marks the transition from the protectionist and development policies of the State of the period of “import substitution” until the application of the policies of the Washington Consensus’. 7 S.A. Hannan, ‘The Impact of Trade Agreements in Latin America using the Systemic Control Method’ IMF Working Paper WP/​17/​45 (2017), at 7. 8   A. Dingenmans and C. Ross, ‘Los acuerdos de libre comercio en América Latina desde 1990. Una evaluación de la diversificación de exportaciones’ 108 CEPAL Review (2012) 32. 9  Ibid., at 32. 10  According to the Regional Trade Agreements Database of the WTO, as of February 2020, 304 RTAs are in force, with 265 notified under Article XXIV of the GATT 1994, 161 under Article V of the GATS and 58 under the Enabling Clause. Of these agreements, 150 cover only trade in goods, 2 of them trade in services and 152 both trade and services. The numbers presented show that WTO Members have oriented their trade policy towards further liberalization. Nevertheless, it is true that these RTAs have different levels of ambition. Furthermore, there are regions that have a larger number of RTAs than others. 11  Regional Trade Agreements Database of the WTO, at < https://​rtais.wto.org/​UI/​cha​rts.aspx > (last visited 25 October 2020).

International trade policy in Latin America—MERCOSUR    323 show the importance of studying the trade policy of the main regional integration processes of Latin America. In Central America, originally in 1961, Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua built the Central American Common Market12. Each of these countries signed, between 2005 and 2013, a bilateral RTA with Panama, which joined in 2017. This sub-​region has also signed RTAs with South American countries, the Caribbean, the European Union, and North American countries. In South America, three main integration processes have been notified to the WTO: the Andean Community (Bolivia, Colombia, Ecuador, and Peru)13, MERCOSUR, and the Pacific Alliance, followed by RTAs between Argentina and Brazil, Chile and Colombia, Peru and Chile, Peru and Mexico, and MERCOSUR and Chile.14 It is worth mentioning that although Mexico is considered part of North America, it is also considered a Latin American country for trade purposes. The Pacific Alliance was founded by Chile, Colombia, Mexico, and Peru on 28 April 2011 with the signing of the Framework Agreement of the Pacific Alliance. Its objectives are to establish an economic trading area of deep integration to advance towards the free circulation of goods, services, capitals, people and economy; drive major growth, economic development, and the economic competitiveness of its members; achieve a higher standard of living; overcome socio-​economic inequalities and enhance the social inclusion of its inhabitants; and become a platform in the Asia-​Pacific region for political discussion, economic and commercial integration, and representation.15 In that regard, the spirit of integration in the Pacific Alliance goes beyond trade, and is not limited to the four founding countries, as it also shows interest in other economies. Some of these States wish to join the Alliance, like Costa Rica and Panama, while many others are interested in linking up in other ways. To date, there are 59 observer countries, including: China, the United States, Japan, Germany, Egypt, Uruguay, among others. Furthermore, the Pacific Alliance has concluded an RTA with Singapore and is negotiating other trade agreements with New Zealand, Australia and Canada, as Candidate Associated States of the Pacific Alliance, and in the near future probably with Ecuador and South Korea. The bloc’s political guidance is set by the presidential declarations of the member countries, who meet in Presidential Summits. Their declarations do not themselves constitute legal instruments but they set the guidelines for the legal system of the Pacific Alliance. The Council of Ministers is made up of the Ministers of Foreign Affairs and 12  Established by the General Treaty on Central American Economic Integration, signed in December 1960, at < https://​treat​ies.un.org/​doc/​Publ​icat​ion/​UNTS/​Vol​ume%20455/​vol​ume-​455-​I-​6543-​Other.pdf > (last visited 10 September 2021). 13  Originally integrated by Chile and Venezuela. 14 Development Bank of Latin America –​CAF, ‘América Latina en el comercio global, ganando mercados’ (2005), at < https://​sciot​eca.caf.com/​han​dle/​123456​789/​165 >, at 4 (last visited on 10 September 2021). 15 Pacific Alliance, at < https://​alia​nzap​acif​i co.net/​que-​es-​la-​alia​nza/​#la-​alia​nza-​del-​pacif​i co-​y-​sus-​ objeti​vos > (last visited 10 September2010).

324   Miranda and Frisancho Foreign Trade, which must meet at least once a year, and its decisions are adopted by consensus and are considered an integral part of the Alliance’s legal system.16 In addition, the High-​Level Group, made up of the vice-​ministers of Foreign Affairs and Foreign Trade, is in charge of supervising the work of the technical groups, evaluating new areas in which progress can be made, and preparing proposals for external relationship with other regional organizations or groups, especially in the Asia-​Pacific. As for the Technical Groups and Subgroups, these are made up of public servants and their function is to negotiate disciplines related to the issues of the Pacific Alliance. Another important trait of this bloc is the Enterprise Council (CEAP), through which the private sector has an important and active participation, including the identification of trade barriers that affect integration. The private sector has the opportunity to meet with the Council of Ministers of the Pacific Alliance in order to directly express their interests and ideas for deeper integration. After ten years of work, the Pacific Alliance has been characterized for its pragmatism and fostering initiatives related to digital innovation, the internationalization of small and medium enterprises, the protection of the environment, progressive interoperation of single windows for international trade, trade facilitation, among others.17 In that regard, with the clear objective of deepening integration, in 2018 the bloc approved the 2030 Strategic Vision of the Pacific Alliance, which focuses on the generation of greater growth, development, and competitiveness, and the contribution to the fulfilment of the Sustainable Development Goals of the United Nations, in order to have a more integrated, global, connected, and citizen-​oriented Pacific Alliance. Although this integration progress covers a variety of topics, the commercial part is undoubtedly one of the most important pillars. In May 2016, the Additional Protocol of the Framework Agreement of the Pacific Alliance entered into force. It is an ambitious trade instrument that will result in the liberalization of 100 per cent of the trade in goods in approximately 14 years; improve customs operations between its members; attract more investment; allow for better access to government procurement contracts, among other initiatives. Furthermore, origin cumulation between the countries of the bloc allows traders to tap into regional value chains, a key element that motivated the interest of members in joining the Protocol. It is important to mention that the Pacific Alliance is the eighth largest economy and the eighth largest exporter worldwide. In Latin America, this bloc represents 38 per cent of GDP, concentrates 50 per cent of total trade and attracts 45 per cent of foreign direct investment. In 2019, the four countries, which are the most competitive economies in

16 

See Articles 4 and 6 of the Framework Agreement of the Pacific Alliance. of the work carried out by these groups are: ‘the Policy Index for SMEs—​Pacific Alliance’; the study ‘Potential Productive Chains between the Countries of the Pacific Alliance and China, Japan, Korea and Thailand’; the ‘Single Windows Interoperability Agreement’; and, the tools to accelerate and enhance innovation, among others, the Corporate Innovation Program (InnovAP), the Network of Angel Investors of the Pacific Alliance (AngelesAP) and the Network of Business Accelerators of the Pacific Alliance. 17  Some

International trade policy in Latin America—MERCOSUR    325 Latin America,18 had a population of 230 million people and an average GDP of $ 9,050 per capita.19 Unlike the Pacific Alliance, MERCOSUR is a full regional integration process and it has international legal personality20 as an international organization. Established by the Treaty of Asunción in 1991, its founding members are Argentina, Brazil, Paraguay and Uruguay.21 MERCOSUR’s principles and objectives are found in Article 1 of the Treaty of Asunción where it is stated that its common market involves the free movement of goods, services, people and capital. A common external tariff has been set for those purposes since its creation.22 In addition to improving the economic ties between State Parties and the Associated States, MERCOSUR also contemplates much deeper integration, including democratic principles, human rights, public health, labor aspects, cooperation, transportation, tourism, among others.23 Importantly, MERCOSUR takes into account the disparities between its members, allowing Paraguay and Uruguay to receive a non-​reciprocal preferential treatment.24 According to Article 41 of the Protocol of Ouro Preto, the sources of law of MERCOSUR are: the Treaty of Asuncion, its protocols and the additional or supplementary instruments; the agreements concluded within the framework of the Treaty of Asuncion and its protocols; and the Decisions of the Council of the Common Market, the Resolutions of the Common Market Group and the Directives of the MERCOSUR Trade Commission. MERCOSUR’s institutional structure comprises the following bodies: the Council of the Common Market (CMC), the Common Market Group (GMC), the MERCOSUR Trade Commission (CCM), the Joint Parliamentary Commission, the Economic-​Social Consultative Forum, and the MERCOSUR’s Administrative Secretariat. MERCOSUR’s highest political authority is embodied in the Pro Tempore Presidency and is alternated every six months to the mandatories of each of its founding States.

18 

World Bank, ‘Doing Business 2020’ (Washington, DC: World Bank, 2020). Pacific Alliance, at < https://​alia​nzap​acif​i co.net > (last visited 10 September 2021). 20  Article 34 of the Protocol of Ouro Preto; MERCOSUR has international legal personality. 21 MERCOSUR, at < https://​www.merco​sur.int/​en/​about-​merco​sur/​merco​sur-​in-​brief/​ > (last visited 10 September 2021). Subsequently, the Bolivarian Republic of Venezuela became the fifth State Party of MERCOSUR in 2012, but its rights and obligations have been suspended, in accordance with the provisions of the Protocol of Ushuaia. In addition, the Plurinational State Bolivia is in the process of accession. 22  The external common tariff did not enter into force until 1995. 23 The Associated States are those members of LAIA with which MERCOSUR has concluded RTAs, and which subsequently request to be considered as such. The Associated States are authorized to participate in meetings of MERCOSUR bodies that deal with issues of common interest. This is the current situation of Chile, Colombia, Ecuador and Peru. Similarly, Associated States may also be those countries with which MERCOSUR enters into agreements pursuant to Article 25 of the 1980 Treaty of Montevideo (agreements with other States or economic integration areas of Latin America); this being the case of Guyana and Suriname. 24  Usually those related to south-​to-​south cooperation. 19 

326   Miranda and Frisancho MERCOSUR makes decisions through three bodies: the CMC, its main body, which conducts the integration process politically; the GMC, which oversees the daily functioning of the bloc; and the CCM, which is responsible for the administration of the common commercial policy instruments. However, MERCOSUR lacks a supranational law-​making arm, meaning that all of its decisions and regulations need to be implemented in the legal frameworks of its members. Decisions are adopted by consensus, are binding and need to be implemented within 30 days after being issued.25 Although MERCOSUR contemplates integration across a broad array of areas, like the Pacific Alliance, the liberalization of trade cannot be overlooked. The Treaty of Asuncion called for full liberalization (including tariff and non-​tariff restrictions) by 31 December 1994. As a result, trade between MERCOSUR’s members increased during its first years. However, non-​tariff measures also started to proliferate as certain sectors of the economy became sensitive, leading to a decrease in MERCOSUR’s internal trade. More recently, MERCOSUR’s trade has begun to recover. MERCOSUR is the fifth largest economy worldwide with a GDP of $ 2.38 trillion. The four countries together have a population of 275 million people, in approximately the 72% of the territory of South America. The bloc has received 45.3 per cent of the total flow of direct investment destined to South America, Central America and Mexico.26 Additionally, the Latin American Region has an extensive web of RTAs, with trade partners from different regions including Asia and Africa. Most of them cover goods and services disciplines, there are also some RTAs that only cover goods disciplines27, but there are no agreements that cover only services. These RTAs aim for different scopes of coverage and liberalization of goods and services, some being more ambitious than others. Since the RTAs parties are also WTO Members, almost all Latin American RTAs reaffirm the parties’ rights and obligations under the WTO Agreement,28 and include, as a basis, provisions from the WTO agreements. Furthermore, parties are sometimes reluctant to accept a provision that goes beyond the WTO standards. That does not mean that the Latin American RTAs are not in conformity with the conditions established in Article XXIV of the GATT 1994. Apart from the matters also covered by the WTO Agreement, more comprehensive plurilateral agreements, such as the TPP or CPTPP, MERCOSUR or Pacific Alliance, as well as bilateral agreements between Latin American countries with the United Sates, the European Union, Korea or other developed countries, contain specific obligations relating to notably environment, labor, State-​owned enterprises, regulatory

25 

Article 40 of the Protocol of Ouro Preto. Ministry of Foreign Affairs of Brazil, ‘Mercosur’, at < http://​www.itamar​aty.gov.br/​en/​polit​ica-​exte​ rna/​int​egra​cao-​regio​nal/​6347-​merco​sur-​en > (last visited 10 September 2021). 27  See, e.g., the RTAs between Brazil and Mexico, in force since May 2003, Costa Rica and Canada, in force since November 2002, and, Chile and Indonesia, in force since August 2019. 28  C. Hofman et al, ‘A New Database on the Content of Preferential Trade Agreements’ Policy Research Working Paper World Bank Group (2017), at 17. 26 

International trade policy in Latin America—MERCOSUR    327 cooperation, anti-​corruption, movement of capital, consumer protection, data protection, e-​commerce, financial services, SMEs, and gender. In that regard, in principle, we can identify two types of provisions in Latin American RTAs: those confirming obligations already assumed under the WTO Agreement and those that are not. In addition, the third kind of provision comes from the WTO Agreement but goes beyond its commitment. Other authors categorize only two types of RTA provisions: WTO and WTO-​plus.29 Regarding trade in goods, Latin American RTAs eliminate or reduce tariffs by periods of five, 10, and 20 years, but always including products that have a full preferential treatment at the entry into force of the agreement. Latin American countries that are a party to the Andean Community and MERCOSUR grant 100 per cent of preferential treatment between and among them30. In the Pacific Alliance, the most recent integration bloc in the region, at its entry into force in 2012,31 its members agreed to liberalize 92 per cent of the tariff headings negotiated, and to liberalize the remaining 8 per cent in the following years.32 Regarding rules of origin, a key element in the Latin American RTAs is the opportunity to cumulate origin with parties and non-​parties of the agreement.33 For example, the trade agreement between Colombia, Ecuador, and Peru and the European Union allows these South American countries to cumulate origin among them as well as with Central American countries, even though there are no obligations between them according to the provisions of that treaty.34 For that purpose, in June of 2019, the General Secretariat of the Andean Community and the Central American Economic Integration Secretariat signed an arrangement with the aim to provide administrative cooperation for the application of cumulation of origin between the Central American countries and the Andean Community members. In the case of trade remedies, Latin American RTAs include provisions on antidumping, countervailing measures, and safeguards (global and bilateral). In most of the RTAs, parties reaffirm their rights and obligations under the WTO, and establish that an incompatibility with those provisions will be resolved in the multilateral forum.35 Nevertheless, in some RTAs, parties include WTO-​ plus provisions for 29 

Ibid., at 11. of the Commission of the Andean Community N° 414: Improvement of Andean Integration; Decision of the Common Market Council No 37/​05: Regulation of Decision CMC No 54/​04. 31  Additional Protocol of the Framework Agreement of the Pacific Alliance. 32 F. Novak and S. Namihas, ‘Alianza del Pacífico: situación, perspectivas y propuestas para su consolidación’ Konrad Adenauer Stiftung and Pontificia Universidad Católica del Perú (2018) 72. 33  WTO, ‘RTAS Provisions Glossary’, at < https://​rtais.wto.org/​USERGU​IDE/​Glos​sary​_​MT_​Eng.pdf > (last visited 10 September 2021). 34  See, e.g., Article 4: Cumulation of Origin with Other Countries, of Annex II of the EU FTA with Colombia, Ecuador and Peru establishes that ‘[a]‌t the request of a signatory Andean Country or the European Union, materials originating in a Central American, South American or Caribbean country (hereinafter referred to in this Article as a “non-​Party”) shall be considered as materials originating, respectively, in a signatory Andean Country or in the European Union when further processed or incorporated into a product obtained there’. 35  See, e.g., Chapter 7 of the Chile-​Korea FTA, Section C; Chapter 6 of the Mexico-​Panama FTA; Chapter 7 of the Colombia-​Canada FTA. 30 Decision

328   Miranda and Frisancho transparency purposes. For example, the CPTPP includes more detailed provisions governing good practices in anti-​dumping procedures.36 Some agreements, such as those with the United States,37 establish that in applying a global safeguard, a party may exclude imports of the other party if those imports are not a substantial cause of serious injury38. This clause has generated a big debate regarding its compatibility with the multilateral system, taking into account that there is no explicit provision in the Safeguards Agreement allowing parties of a bilateral agreement to exclude each other from the application of a global safeguard. With respect to TBT and SPS measures, Latin American countries reaffirm or incorporate in their RTAs in part or entirely the TBT Agreement, and the SPS Agreement, but as in the case of trade remedies, those chapters include WTO-​plus provisions regarding transparency and encouraging the harmonization of standards and cooperation.39. Furthermore, parties establish that TBT and SPS chapters are not subject to dispute settlement.40 Regarding trade in services, Latin American RTAs have different approaches. Some apply a positive list, as is the case for the Latin American RTAs with the United States or South Korea and the CPTPP. Others use a negative list, as in the agreement between MERCOSUR with the European Union. The agreements with the United States also include the rachet clause41 that establishes that future unilateral liberalization becomes binding under the RTA.42 RTAs between Latin American countries in most cases use the negative list approach, as is the case of the Pacific Alliance and the RTAs between its members; nevertheless, MERCOSUR liberalizes trade in services applying positive lists. Investment is also an important topic for Latin American countries, given that they look to these chapters to attract investment to their territories.43 Common provisions are 36  Asian Development Bank, ‘How to Design, Negotiate, and Implement a Free Trade Agreement in Asia’, Office of Regional Economic Integration (2018), at 49. 37 Peru, Colombia, Chile, among others, have similar provisions in their respective RTAs with the United States. We are referring in this point to the principle of parallelism that seeks to avoid the exclusion of the application of the measure of origins that together contribute significantly to the damage of the national industry. Panel Report, Dominican Republic –​Safeguard Measures, adopted 22 February 2012. 38  See, e.g., Article 8.6 of the Colombia-​US FTA; Article 10.2 of CUSMA. 39  RTAs between the European Union and Colombia, Ecuador and Peru, between Mexico and Peru, and between Colombia and United States, among others, establish for example that a party must notify the other party a proposed measure at the same time that present the notification to the WTO and notify proposed measures that are based in international standards. 40  See, e.g., Colombia-​US FTA; the EU FTA with Colombia, Ecuador and Peru. 41  The ratchet clause obliges an RTA party to not reestablish a trade barrier that has been eliminated in a service sector in which that party had made a commitment. 42  O. Rosales, ‘Temas controversiales en negociaciones comerciales Norte –​Sur’ CEPAL Santiago de Chile (2010), at 15. 43  Development Bank of Latin America –​CAF, ‘América Latina en el comercio global, ganando mercados’ (2005), at < https://​sciot​eca.caf.com/​han​dle/​123456​789/​165 > at 5 (last visited 10 September 2021).

International trade policy in Latin America—MERCOSUR    329 the ones related to the minimum standard of treatment, expropriation, MFN treatment, and a list of non-​conforming measures and Investor-State dispute settlements.44 Latin American RTAs contain differences in their respective security exception provisions. Some agreements have the same or similar provision as the WTO (Articles XXI of the GATT 1994 and XIV of the GATS), but other agreements include a clause with a broader scope that allows countries to invoke the exception with no possibility of challenging the justification of its application as is the case of the agreements with the United States45. Most recent agreements also contain balance of payment exceptions that go beyond the WTO and tax exceptions that deal with the incompatibility between the RTA and a double taxation agreement46. Core provisions in Latin American RTAs are diverse without a clear trend or patron. As we explained earlier, these provisions are similar to the WTO standard or go beyond the WTO, which varies depending on the trade partner that signs the RTA with the Latin American country. Provisions that go beyond the WTO are usually included in agreements with developed countries; nevertheless, some RTAs between Latin American countries have those provisions, but not at the same level of ambition. We consider that this pragmatism in the negotiation of RTAs obeys to the main interest of Latin American countries to reach better market access for its products and services.

B. What is new in Latin American trade agreements? RTAs between Latin American countries and the United States, the European Union, Canada and Australia or plurilateral trade agreements, where Latin American countries are parties, such as the CPTPP, include provisions setting out progressive disciplines that go beyond the rules of the WTO. These disciplines include chapters or provisions related to labour, environment, State-​owned enterprises (SOEs), gender, among others. Latin American countries have also proposed and supported new disciplines like traditional knowledge, small and medium enterprises (SMEs), regulatory cooperation, development, competitiveness. SMEs in Latin America represent 99.5 per cent of enterprises and generate 60% of formal employment in this region.47 For that reason, the internationalization of SMEs is a priority in the region, and RTAs are essential tools to accomplish this objective as 44  These

provisions are included in the investment chapter of the RTA. Nevertheless, if an RTA does not have this chapter, it is because the parties of that RTA have a specific investment protection agreement that also includes Investor-State dispute settlement disciplines. 45  See, e.g., footnote 2 of Article 22.2 of Colombia-​US FTA: ‘For greater certainty, if a Party invokes Article 22.2 in an arbitral proceeding initiated under Chapter Ten (Investment) or Chapter Twenty-​One (Dispute Settlement), the tribunal or panel hearing the matter shall find that the exception applies’. 46  Dispute settlement mechanisms are discussed below. 47  CAF and OECD, ‘América Latina y el Caribe 2019, políticas para PYMES competitivas en la Alianza del Pacífico y países participantes de América del Sur’ (2019), at < https://​www.oecd.org/​publi​cati​ons/​ amer​ica-​lat​ina-​y-​el-​car​ibe-​2019-​60745​031-​es.htm >, at 31 (last visited 10 September 2021).

330   Miranda and Frisancho well as to foster the integration of value chains that improve the competitiveness of Latin American SMEs. The RTAs of Colombia, Guatemala, Honduras, Mexico, Panamá, Chile, Peru, El Salvador and the Andean Community contain provisions on SMEs in numerous chapters, including regulatory cooperation, e-​commerce, services, and government procurement, transparency, and intellectual property. The most comprehensive treatment of SMEs is found in the RTAs with the European Union and in the CPTPP, which have chapters focused on finding ways to assist SMEs and exchange best practices.48 Moreover, integration processes such as the Pacific Alliance and MERCOSUR envisage relying on working groups dedicated to the improvement of the competitiveness of SMEs. For instance, in the Pacific Alliance, the work of this group is aimed at improving the participation of SMEs in the Pacific Alliance market, but it also develops studies, plans, or other documents, like the digitization of SMEs49. Through regulatory cooperation commitments, trade partners focus their efforts on eliminating or reducing unnecessary trade barriers and on the harmonization of their regulations and standards.50 For this purpose, regulatory cooperation commitments include the implementation of core regulatory practices, review mechanisms and cooperation in the form of exchange of good practices between the Parties. This discipline has been included in RTAs by developed countries. Nonetheless, some Latin American countries have embraced this important mechanism to facilitate trade as a relevant discipline to be included in their trade agreements. Under this frame, trade partners negotiate binding documents to establish the same requirements for the importation of a product, regarding matters as sanitary and phytosanitary measures or technical requirements (such as labelling, for instance). For example, the Pacific Alliance has been developing the harmonization on the trade in cosmetics, organic products, pharmaceuticals and medical devices, among others. MERCOSUR has also been working on provisions for the trade in cosmetics and food products. Furthermore, both blocs have been working towards identifying sectors where they can harmonize to improve the flows of trade between them. In the same line, 48 In

the CPTPP, to which Mexico, Peru and Chile are parties, there is an SME Chapter that establishes means to exchange information and best practices. In other RTAs where there are no specific chapters that cover SME disciplines, there are provisions that stablish a particular obligation that benefits SMEs. For example, in the Chile-​Australia FTA, parties agree to exchange information to maximize access for small and medium enterprises to the government procurement market (Article 15.24.3). Likewise, in the Costa Rica-​Singapore FTA it is stated that the priority of Chapter 14 ‘Cooperation, Promotion and Enhancement of Trade Relations’ must be focused on, among others, increasing the export capacity of small and medium enterprises (Article 14.12.g). 49 For a broader perspective about this work, see ‘Latin America and the Caribbean 2019: Policies for competitive SMEs in the Pacific Alliance and participating countries in South America’ (Paris: OECD, 2019). 50 OECD, Regulatory Cooperation for an Interdependent World (Paris: OECD, 1994), at 15. The OECD has categorized different ways of regulatory cooperation that comprise the exchange of information regarding the adoption of international standards, cooperation on best practices, the negotiation of agreements of harmonization, among others.

International trade policy in Latin America—MERCOSUR    331 Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama, members of the Central American Economic Integration Secretariat (SIECA) have decided to foster regulatory cooperation. The gender inequality gap in Latin America is significant, with income losses, just in this region, calculated at about US $ 658 billion.51 Nevertheless, Latin America ranks third, behind Western Europe and North America, in the Global Gender Gap Report of the World Economic Forum (2018), with an average gender gap of 29.2 per cent.52 Gender inequality appears in different sectors, and trade is not the exception. For that reason, RTAs include gender provisions, to contribute to the reduction of gender inequality. Gender provisions encourage cooperation for the development of trade policies to reduce the gender gap in trade activities, exchange of information of methodologies to measures the effectiveness of such policies, and the development of mechanisms to eliminate barriers for women in trade.53. In Latin America, Chile is the country that has included the most gender provisions in its trade agreements, including with Uruguay, Canada54, the European Union, and Argentina. Mexico has done the same in the USMCA agreement. In the same line, negotiations between the Pacific Alliance countries and their Associate State Candidates (Australia, Canada, New Zealand and Singapore) include gender provisions. Additionally, the Pacific Alliance has a Gender Working Group that meets regularly to develop initiatives. MERCOSUR as a bloc has not included independent gender provisions in its trade agreement,55 MERCOSUR members such as Argentina and Uruguay have included gender provisions in their agreements with Chile. It is important that Latin American countries include these kinds of provisions in their RTAs. Each Latin American country needs to define its own agenda addressing its main interests. Notwithstanding integration blocs as the Pacific Alliance, MERCOSUR, the Andean Community, among others, have been working with a concrete agenda 51 G. Ferrant and A. Kolev, ‘The Economic Cost of Gender-​ Based Discrimination in Social Institutions’ OECD Development Centre (2016), at < https://​www.oecd.org/​dev/​deve​lopm​ent-​gen​der/​ SIGI​_​cos​t_​fi​nal.pdf >, at 2 (last visited 10 September 2021). 52  World Economic Forum, ‘Latin America and the Caribbean’, at < https://​repo​rts.wefo​rum.org/​glo​ bal-​gen​der-​gap-​rep​ort-​2018/​latin-​amer​ica-​and-​the-​caribb​ean/​ > (last visited 10 September 2021). 53  See, e.g., Article 19.10.6.n.ii of the CPTPP which states that an area of cooperation may include the promotion of equality of, elimination of discrimination against, and the employment interests of women. In Article 14.19 of CUSMA, parties agree to encourage enterprises to voluntarily incorporate into their internal policies those internationally recognized standards, guidelines, and principles of corporate social responsibility that may address areas such as gender equality. 54  This RTA includes a Gender Chapter where the parties reaffirm their commitments to effectively implement the obligations under the Convention on the Elimination of all Forms of Discrimination Against Women, and, among others, acknowledge that international trade and investment are engines of economic growth, and that improving women’s access to opportunities and removing barriers in their countries enhances their participation in national and international economies, and contributes to sustainable economic development. 55  The EU-​MERCOSUR Agreement`s chapter on trade and sustainable development also contains references to gender equality, at < https://​trade.ec.eur​opa.eu/​doc​lib/​docs/​2019/​july/​tradoc​_​158​ 166.%20Tr​ade%20and%20Sust​aina​ble%20Deve​lopm​ent.pdf > (last visited 10 September 2021).

332   Miranda and Frisancho regarding these topics, not all countries that are part of them, consistently, include these provisions in their bilateral RTAs. An example could be the gender policy which the Pacific Alliance has included in its negotiations. However, only Chile shows a strong interest in developing gender provisions in its own RTAs.

C. Trade disciplines mainly excluded from Latin American RTAs Even though Latin American countries have promoted the inclusion of new disciplines in trade agreements with their trading partners, certain areas have remained off-​limits in their own trade agreements, particularly labour and environmental provisions. Labour provisions seek to promote regulatory harmonization between trading partners, and for North-​South RTAs, they help to avoid comparative advantages generated out of low production costs based on arguably poorer working conditions56. Labour obligations in RTAs establish a set of commitments between Parties regarding domestic labour laws, with reference to international standards, and the enforcement of those laws. These commitments, however, are binding obligations that are enforceable under dispute settlement procedures and in certain circumstances can lead to a fine to remediate failures of labour law enforcement or the suspension of commercial benefits granted under the trade agreement.57 It is particularly the enforcement mechanisms of such provisions that poses a challenge for most Latin American countries. Indeed, the United States58, Canada59 and the European Union60 have all initiated actions (such as inspections) under their respective labour chapters with Colombia and Peru, and the United States brought a labour dispute against Guatemala.61

56 

D. Martínez et al., La dimensión laboral en los acuerdos de integración regional y libre comercio en las Américas (Lima: Organización Internacional de Trabajo, 2003). 57  A. Samet, ‘Labor Provisions in U.S. Free Trade Agreements: Case Study of Mexico, Chile, Costa Rica, El Salvador and Peru’ 2011 Inter-​American Development Bank Policy Brief IDB-​172, at 8. According to Article 20.1.b of the Peru-​Canada Agreement on Labor Cooperation, if the requesting Party considers that the other Party has failed to observe the terms of the action plan, the requesting Party may request the imposition of an annual monetary assessment on the other Party. Article 16.2 of CAFTA-​DR (Enforcement of Labor Law, is subject to the dispute settlement mechanism of the Agreement, where the complaining party could request the suspension of benefits of the party complained against. 58 See < https://​www.dol.gov/​agenc​ies/​ilab/​our-​work/​trade/​fta-​subm​issi​ons > (last visited 10 September 2021) 59 See < https://​www.can​ada.ca/​en/​emp​loym​ent-​soc​ial-​deve​lopm​ent/​servi​ces/​lab​our-​relati​ons/​ intern​atio​nal/​agr​eeme​nts/​colom​bia-​act​ion-​plan.html > (last visited 10 September 2021) 60 See < https://​ec.eur​opa.eu/​trans​pare​ncy/​regexp​ert/​index.cfm?do=​grou​pDet​ail.grou​pMee​ting​ Doc&docid=​12295 > (last visited 10 September 2021) 61  Final report of the Panel in the Matter of Guatemala—​Relating to the Obligations Under Article 16.2.1(a) of the CAFTA-​DR, 14 June 2017, at < http://​www.sice.oas.org/​tpd/​usa_​ca​fta/​Dis​pute​_​Set​tlem​ ent/​final_​panel_​repo​rt_​g​uate​mala​_​Art​_​16_​2_​1_​a_​e.pdf > (last visited 10 September 2021)

International trade policy in Latin America—MERCOSUR    333 With additional dispute settlement options, certain RTAs provide channels for dispute settlement even where potentially there is no link to trade, as it was stated by Guatemala in the dispute with the United Stated under the frame of Chapter 16 of the Dominican Republic-​Central America Free Trade Agreement (CAFTA-​DR)62, carrying a risk of intervention by a foreign nation in matters that were not agreed in the RTA and that are of State sovereignty63. In addition, labor provisions often include a mechanism for public engagement that allows non-​State actors, such as labor unions and NGOs, to participate in the development of programs and policies and present their concerns with respect to the administration of the labor mechanism.64 As for environmental provisions, the general view is that including them in RTAs contributes to achieving sustainable development goals. Also, environmental provisions are used to ensure that both parties share the same standards of protection of the environment, assuring that competitive advantages are not generated by harming the environment. Environmental provisions in RTAs include the obligation of Parties to enforce their own environmental laws, maintain their environmental standards, recognize commitments made in multilateral environmental agreements (MEAs). They also include provisions on procedural guarantees in environmental matters, as well as different types of enforcement and dispute settlement mechanisms.65 Some agreements with the United States include establishing a Secretariat for Environmental matters that reviews submissions that assert that a Party is failing to effectively enforce its environmental laws.66 Again, Latin American countries’ concerns in respect of the inclusion of environmental provisions is that the enforcement mechanism may be trigged in matters not exclusively related to trade.67 Furthermore, Latin American States are deeply concerned that their trade partners may take protectionist measures under the guise of environmental protection, thereby undermining the international trading system. Indeed, in many cases it is difficult to differentiate between valid environmental and protectionist motives,68 for example the imposition of taxes for products that could affect the 62 See

< http://​www.min​eco.gob.gt/​sites/​defa​ult/​files/​Inte​grac​ion%20y%20c​omer​cio%20e​ xter​ior/​final_​panel_​report_​in_​t​he_​m​atte​r_​of​_​gua​tema​la_​-​_​issu​es_​r​elat​ing.pdf > (last visited 10 September 2021) 63   J. Toyama, ‘Previsiones Laborales de los Tratados de Libre Comercio: El Caso Peruano’ (Santiago, Chile: United Nations Economic Commission for Latin America and the Caribbean-​ECLA, 2011), at 147–​148. 64 See, e.g., Article 16.6: Cooperative Labor Consultations of the DR-​ CAFTA, at < https://​ustr. gov/​sites/​defa​ult/​files/​uplo​ads/​agr​eeme​nts/​cafta/​asset_​uplo​ad_​f​i le3​20_​3​936.pdf > (last visited 10 September 2021) 65  OECD, ‘Environment and Regional Trade Agreements’ (2007) at 2–​4. 66  That is the case for the US-​Panama FTA, US-​Colombia FTA, US-​Peru FTA and CAFTA-​DR. 67  The first consultations to review the effective enforcement of environmental commitments under a trade agreement of the region, were celebrated under the US-​Peru FTA. 68  D. Hunter et al, International Environmental Law and Policy (New York: New York Foundation Press, 1998), at 1179

334   Miranda and Frisancho environment, and the requirement of environmental certifications for the importation of these products. Notwithstanding, labour and environment provisions are commonly found in agreements between Latin American countries and developed trade partners, where the asymmetries of power play a major role. Trade partners such as the United States, Canada and the European Union tend to have enough leverage to push Latin American countries to include labour and environmental provisions to ensure a trade deal with them. However, some Latin American countries have included in their trade agendas that labour and environmental provisions should take part in their future trade agreements. Such is the case of Chile and MERCOSUR members.

D. Regulation of dispute settlement mechanisms in Latin American trade agreements In general terms, trade agreements include enforcement mechanisms to discourage non-​compliance as well as to solve disputes when they arise. Parties may negotiate the best terms to discipline their trade agreements, but such terms will be void of content if Parties do not comply with them. Dispute settlement chapters provide the means to enforce the commitments made in trade agreements in an expeditious manner. As with any contract, in this case between States, if commitments cannot be enforced, the agreement will most likely fail. Dispute settlement chapters date back to the very first LAIA agreements which predate the creation of the WTO. Notwithstanding their structural similarities, Latin American States have adopted different approaches to dispute settlement, which will be analysed in the upcoming paragraphs. In some cases, the dispute settlement mechanisms in Latin America have moved beyond the quasi-​judicial model and have created a judicial institution, such as the Court of Justice of the Andean Community69 and the Permanent Review Court of MERCOSUR.70 Both Courts build enforcement mechanisms that go beyond State-​to-​ State dispute settlement and allow private nationals (mainly enterprises) to file claims against the States for measures breaching the agreements or decisions of the economic integration bloc.

69  The Court of Justice of the Andean Community, according to its constituent treaty, has jurisdiction over the following actions: nullification, non-​compliance, pretrial interpretation, omission or failure to act, arbitration (between the subsidiary bodies of the Andean Community and third parties), and labour claims. 70  Pursuant to the Olivos Protocol, the Permanent Review Court of MERCOSUR has jurisdiction over the following actions: review appeals made to the awards of the ad hoc arbitral tribunal of MERCOSUR, cases that cannot be settled before the MERCOSUR Group, irreparable damage cases due to exceptional measures, interpretation, application or breach of international agreements, as well as the issue of advisory opinions regarding the legal framework of MERCOSUR.

International trade policy in Latin America—MERCOSUR    335 As with the WTO DSU and other dispute settlement mechanisms, Latin American agreements promote consultations between the disputing parties to arrive at a mutually satisfactory solution. Likewise, they include the possibility of applying good offices, such as mediation and conciliation, as a means of alternative dispute resolution. Also, they contemplate the possibility of referring disputes to a political body composed of high-​level officials from the Parties, which is usually known as the administration committee of an agreement. If these alternatives do not bear fruit, the possibility of resorting to a panel or arbitration tribunal to resolve the dispute is foreseen. There is no appeal against a panel’s decision, and it is binding. In the case of non-​compliance or, if the winning party considers that the resolution has not been implemented adequately, a compliance review procedure and the eventual suspension of benefits are available. Most of the dispute settlement mechanisms included in trade agreements subscribed by Latin American countries follow the model set by the DSU, a quasi-​judicial model.71 However, it cannot be said that there is a uniform practice in the region. Different approaches regarding the design of dispute settlement mechanisms exist, especially regarding the Pacific Alliance and MERCOSUR members. As in other disciplines, the model adopted in trade agreements is usually influenced by the trade partners in negotiation with Latin American countries. Therefore, some agreements envisage compliance over shorter periods than others. Both the MERCOSUR and Pacific Alliance trading blocs exclude certain disciplines from the scope of the dispute settlement chapter. In recent trade agreements, such as the CPTPP, Chile-​Uruguay FTA, and EU-​MERCOSUR FTA, dispute settlement does not apply to disciplines such as competition, regulatory cooperation, SMEs, gender, and cooperation. For agreements that include labour and environmental commitments (trade and sustainable development in case of trade agreements with the European Union), these chapters include their own mechanism for consultations and settlement of disputes. On the other hand, the DSU establishes that a Member can initiate a dispute settlement when it considers that the benefits accruing to it directly or indirectly under the covered agreements are being impaired or nullified by measures taken by another Member72. 71  For

the purposes of this study, we will follow the categories of Dispute Settlement Mechanisms described by C. Chase, A. Yanovich, J. Crawford and P. Ugaz, ‘Mapping of Dispute Settlement Mechanisms in Regional Trade Agreements—​Innovative or Variations on a Theme?’ Economic Research and Statistics Division World Trade Organization, at < https://​www.wto.org/​engl​ish/​res_​e/​rese​r_​e/​ersd2​ 0130​7_​e.pdf >, at 10 (last visited 10 September 2021), thus the models that will be considered are: (i) a political/​diplomatic model, (ii) a quasi-​judicial model, and (iii) a judicial model. The first model includes trade agreements that have no dispute settlement provisions, and only foresees negotiated outcomes for disputes. The second model allows the parties access to third-​party adjudication at some stage of the dispute settlement process. This could be, for instance, the right to request the establishment of an ad-​ hoc tribunal or panel to settle the specific dispute. The third model involves a fixed-​term permanent institution instead of an ad-​hoc panel to resolve a particular dispute. Thus, they have independence and autonomy, which are translated into legal personality and their own budget. 72  Article 3.3 of the DSU. Additionally, Appellate Body Report, US –​Corrosion-​Resistant Steel Sunset Review, adopted 9 January 2004, para 81bstates that ‘in principle, any act or omission attributable to a WTO Member can be a measure of that Member for purposes of dispute settlement proceedings’.

336   Miranda and Frisancho Latin American trade agreements provide for different circumstances to request consultations. Pacific Alliance States may initiate a dispute with another member or one of their treaty partners when: (i) a Party considers that an actual or proposed measure73 of another Party is or would be inconsistent with an obligation of the Agreement; (ii) a Party has otherwise failed to carry out an obligation under the Agreement; or (ii) when a Party considers that a benefit it could reasonably have expected to accrue to it under the Agreement is being nullified or impaired as a result of the application of a measure of another Party that is not inconsistent with the Agreement.74 The second and third grounds for requesting consultations are rarely found in MERCOSUR States agreements, which typically limit the ability to initiate a dispute to when: (i) a Party considers that an actual measure of another Party is inconsistent with an obligation of the Agreement;75 or (ii) a Party has otherwise failed to carry out an obligation under the Agreement.76 Regarding the choice of forum provisions, both models share the practice of including a ‘fork in the road’ provision. Parties are given a choice over selecting a forum for the dispute, but that selection impedes the parties from bringing the same dispute to a different forum. Consultations in both models are a prerequisite for the referral of a dispute to a panel or arbitral tribunal. Furthermore, both models foresee a political intervention in a body composed by high level officials of the Parties and the intervention of a technical committee, with the view to settle amicably any dispute that may arise. As for the contentious phase, both blocs prefer ad hoc arbitration,77 even if MERCOSUR treaties refer to arbitral tribunals, while the Pacific Alliance treaties name their panels. Also, MERCOSUR States prefer to use a roster of adjudicators and for all of them to be qualified jurists. In contrast, the Pacific Alliance States have a mixed practice of using rosters78, which do not require jurists, as long as they comply with the general qualifications. Trade agreements of the region typically include a reasonable period of time for implementing the report or award issued by the panel or arbitration tribunal. Most agreements include an opportunity for parties to agree on a time frame of 30 to 45 days

73 

Similar provisions are established in the RTAs between Peru and the United States, Colombia and the United States, CUSMA, and the CPTPP. 74  Some examples of that practice may be found in the provisions defining the scope of application of, among others, the following RTAs: Japan-​Chile Strategic Economic Partnership, US-​Chile FTA, EU FTA with Colombia, Peru and Ecuador, CUSMA, Australia-​Peru FTA, Canada-​Peru FTA and the CPTPP. 75  The term ‘actual measure’ means any measure that is in force. 76  See, e.g., the India-​MERCOSUR FTA and the Israel-​MERCOSUR FTA. 77  It is important to note that MERCOSUR has a Permanent Review Court, the main body of the dispute resolution system of this bloc, which reviews the awards of the ad hoc arbitration tribunals. 78  In some agreements such as the Additional Protocol to the Pacific Alliance Framework Agreement (Article 17.13), the adjudicators are selected case by case. When parties are unable to agree, the agreement sets a residual nomination mechanism where the parties refer to the indicative list of the WTO (WT/​ DSB/​44/​Rev.48/​Corr.1). In the case of MERCOSUR, see Articles 10 and 11 of the Protocol of Olivos.

International trade policy in Latin America—MERCOSUR    337 to implement the final report when it is not determined through arbitration. Some agreements, like the ones between the Pacific Alliance States and the United States do not foresee this possibility and enable the winning party to request compensation or otherwise request suspension of benefits. Compensation and suspension of concessions provisions exist in most dispute settlement mechanisms of the region. After a clear sequencing procedure of compliance, the winning party may request compensation and if it is not granted, it can suspend concessions. The right to suspend concessions must be exercised taking into account of the harm caused by the non-​compliance; in that way it must be proportional. Moreover, it must follow an order for its application. First, concessions suspended must be in the same sector, and if this is not possible, then the winning party may resort to cross-​retaliation, meaning that they can suspend concessions in other sectors. It remains unclear how a dispute settlement mechanism derived from a trade agreement between the Pacific Alliance and MERCOSUR would be drafted. However, an analysis of the practice of both blocs could eventually lead trade negotiators of the region to develop a brand new functional and more resourceful model that would eventually be used to settle disputes in contrast to the multilateral system.

III.  Next steps for the Pacific Alliance and MERCOSUR There are more differences than similarities between the two blocs as described in Section II of this chapter. The Pacific Alliance does not have a big institutional organization and it does not aim to become a customs union, its main focus its to create and enhance regional value chains and to trade with the economies of the Asia-​Pacific region. In contrast, MERCOSUR was conceived as a regional integration process (customs union), inspired by the European Union, to promote integration among its members. In that way it has a developed institutional structure. These differences have influenced the success of both blocs in their relations with trading partners. In that context, as described in the previous sections of this chapter, the Pacific Alliance and MERCOSUR have focused their agendas on achieving regional integration and new trade agreements with different economies from outside the region to foster trade openness and foreign investments in Latin America. Both blocs have achieved important milestones since 2019. On the one hand, the Pacific Alliance concluded an RTA with Singapore, and continues negotiations with New Zealand, Australia, and Canada, as Candidate Associated States of the Pacific Alliance. In April 2020, the First and Second Protocols to the Additional Protocol of its Framework Agreement entered into force. The latter treaties incorporate new provisions regarding the harmonization of barriers to trade, electronic commerce,

338   Miranda and Frisancho telecommunications and administrative provisions.79 Furthermore, Mexico has initiated negotiations with Ecuador, while Chile and Ecuador have signed a comprehensive trade agreement that supports its request to become a Member of the Pacific Alliance.80 On the other hand, MERCOSUR concluded a long-​lasting negotiation with the European Union, its major trading partner81 and it is currently involved in negotiations with South Korea, Singapore, Lebanon, Canada, and India. Despite its short existence, the Pacific Alliance has shown major accomplishments in regards of trade openness, as it has implemented a comprehensive trade agreement among its members and entered into negotiations with major economies from outside the region. A factor that is key to outline the future of the Pacific Alliance is that its members have similar approaches as for free trade, and a vast network of trade agreements. Said common policies might enable the bloc to continue with its negotiations and expand its presence in the Asia Pacific region. MERCOSUR’s importance cannot be disregarded, as it comprises major trading players of the region. Nevertheless, the economies of MERCOSUR have not been favoured with economic stability as well as consistent trade policy over the last few years. Notwithstanding that MERCOSUR is composed of four members (with the right to vote) Brazil and Argentina exercise a predominant role, which sometimes creates difficulties as the trade policy of both countries does not always share the same approach. Convergence between the Pacific Alliance and MERCOSUR could lead to major developments in the region as it can finally generate trade integration in Latin America. Unfortunately, up to date, there has not been much progress on the initiative to explore a rapprochement between both blocs. Finally, it is important to highlight the effects that the COVID-​19 pandemic has caused in the trade negotiations in progress by both blocs. The Pacific Alliance has not been able to conclude the negotiations with all the Candidate Associated States as they appear to be taking longer than expected, and during the pandemic, internal affairs have made each country prioritize policies other than trade and investment. On the side of MERCOSUR, Argentina has declared that it will not take part in the pending and future negotiations of the bloc during the pandemic.82 That situation poses a problem for MERCOSUR’s progress on its trade negotiations as they will not continue unless Argentina decides otherwise. This bloc is also concerned about the difficulties facing the approval and eventual ratification of the EU-​MERCOSUR FTA. 79  See < http://​www.acue​rdos​come​rcia​les.gob.pe/​ima​ges/​stor​ies/​alia​nza/​docs/​6._​Pri​mer_​Prot​ocol​o_​ Mo​difi​cato​rio.pdf > (last visited 10 September 2021) and < http://​www.acue​rdos​come​rcia​les.gob.pe/​ima​ ges/​stor​ies/​alia​nza/​docs/​6._​Segu​ndo_​Prot​ocol​o_​Mo​difi​cato​rio.pdf > (last visited 10 September 2021). 80 See < https://​www.sub​rei.gob.cl/​acuer​dos-​come​rcia​les/​acuer​dos-​en-​nego​ciac​ion-​y-​suscri​tos > (last visited 10 September 2021). 81 See < https://​ec.eur​opa.eu/​trade/​pol​icy/​in-​focus/​eu-​merco​sur-​asso​ciat​ion-​agreem​ent/​ > (last visited 10 September 2021). 82 See < https://​www.canc​ille​ria.gob.ar/​es/​act​uali​dad/​notic​ias/​el-​gobie​rno-​argent​ino-​y-​el-​merco​sur > (last visited 10 September 2021).

International trade policy in Latin America—MERCOSUR    339 The future of these blocs remains uncertain, especially during the COVID-​19 pandemic as it has slowed down their initiatives and trade negotiations; nevertheless, the Pacific Alliance seems to be better equipped to deal with these difficulties and to continue down the path of trade openness.

IV. Conclusions Latin American countries believe in free trade as a means to develop their economies and generate wealth for their people. Most of them have built a web of trade agreements mainly with big economies as the United States and the European Union but have also strengthened bonds amongst themselves. In this path, they have shown a pragmatic approach to secure international markets for the augmentation of their trade flows of goods and services, as well as to promote the attraction of foreign investment. Consequently, they have an à la carte structure of their RTAs that includes WTO standard provisions, WTO plus provisions and progressive topics such as SOEs, labor, environment, competition policy, among others. Furthermore, Latin American ensure their trade commitments with a mechanism of supervision and enforcement allowing them to settle disputes in expeditious ways. Dispute settlement mechanisms throughout the region follow the trends of the most developed countries as several Latin American are involved in the latest trade agreements. In constructing this web of trade agreements, Latin American countries have found their own priorities such as SMEs, gender, regulatory cooperation, and traditional knowledge. Whilst those topics are gaining in importance, most provisions only introduce a model of cooperation. Moreover, integration processes such the Pacific Alliance and MERCOSUR have been developing more substantial work regarding these disciplines. Notwithstanding such developments in trade policy, some Latin American countries face difficulties including labour and environmental provisions in their trade agreements. The possibility of finding their sovereignty compromised by allowing non-​exclusively trade related provisions (such as those referred to labor and environment standards contained in ILO Conventions and MEAs) to be reviewed under the special enforcement mechanisms established under the RTAs poses challenges which undermines the desire of the parties to achieve a mutually beneficial agreement in a short period of time. Finally, it is important to follow up the Pacific Alliance and MERCOSUR’s work. The integration procedures set up by these two blocs contain the latest trends in international trade law of the region, and will most likely set a path to follow for other Latin American countries.

340   Miranda and Frisancho

Further reading S. Ahmed Hannan, ‘The Impact of Trade Agreements in Latin America using the Systemic Control Method’ 2017 IMF Working Paper WP/​17/​45 Asian Development Bank, ‘How to Design, Negotiate, and Implement a Free Trade Agreement in Asia’ Office of Regional Economic Integration (2008) 131 M. Carrera Troyano, ‘La deuda externa en América Latina, veinte años después: una nueva media “década perdida” ’ LXIII Investigación Económica (2004) 247 C. Chase et al., ‘Mapping of Dispute Settlement Mechanisms in Regional Trade Agreements—​ Innovative or Variations on a Theme?’ 2013 World Trade Organization, Staff Working Paper 10 A. Dingenmans and C. Ross, ‘Los acuerdos de libre comercio en América Latina desde 1990. Una evaluación de la diversificación de exportaciones’ 108 CEPAL Review (2012) 108 F. Novak and S. Namihas, ‘Alianza del Pacífico: situación, perspectivas y propuestas para su consolidación’ Konrad Adenauer Stiftung and Pontificia Universidad Católica del Perú (2018) 72. C. Hofman et al., ‘A New Database on the Content of Preferential Trade Agreements’ 2017 World Bank Group Policy Research Working Paper R. Polanco, ‘The TPP and its Relation with Regional and Preferential Agreements in Latin America’, SECO/​WTI Academic Cooperation Project Working paper No. 21/​2016 O. Rosales, ‘Temas controversiales en negociaciones comerciales Norte—​Sur’ CEPAL Santiago de Chile (2010) 64 A. Samet, ‘Labor Provisions in U.S. Free Trade Agreements: Case Study of Mexico, Chile, Costa Rica, El Salvador and Peru’ 2011 Inter-​American Development Bank Policy Brief IDB -​PB -​172

Chapter 13

T r ade and Inv e stme nt Lib eraliz ation: T h e C ase of Chi na Henry Gao *

I. II.

Introduction Long march: GATT, China and WTO accession A. China and the GATT B. Resumption of GATT Contracting Party status C. WTO accession III. China and the Doha Round IV. China’s FTAs V. Belt and Road Initiative (BRI) VI. Free trade zones VII. WTO reform: a China Round? VIII. US-​China trade war IX. Conclusion

342 342 342 344 346 350 352 356 359 360 366 371

*  This research is supported by the National Research Foundation, Singapore under its Emerging Areas Research Projects (EARP) Funding Initiative. Any opinions, findings and conclusions or recommendations expressed in this material are those of the author(s) and do not reflect the views of National Research Foundation, Singapore.

342   Henry Gao

I. Introduction China’s rise in the international trade and investment system is one of the most important events of the twenty-​first century. Many non-​Chinese observers regard China’s rapid ascent with surprise or even suspicion, but most Chinese believe that China was simply restoring its rightful place in the world, a position it held for thousands of years until the glory was lost in the mid-​nineteenth Century. Regardless of one’s view, no one can deny the importance of China in the international trade and investment system today. At the same time, one should note that China’s relationship with the multilateral trading system is not always straightforward but full of twists and turns. Thus, this chapter will trace the relationship from the very beginning of the post-​war multilateral trading system, followed by its withdrawal and absence from the GATT, then its re-​entry into the system, its rapid ascent, and the ensuing implications. The chapter does not purport to provide a complete analysis, but it will try to cover all the salient features of China’s approach to the main issues, which is essential for anyone wishing to understand the multilateral trading system and the challenges presented by China.

II.  Long march: GATT, China and WTO accession A. China and the GATT As one of the victorious Allied Powers, the Republic of China (ROC) participated in the work of the Preparatory Committee for the UN Conference on Trade and Employment in 1946 to 1947, which tried to establish the ITO.1 When the ITO failed to come into being due to the unfavourable political environment in the United States, China joined 22 other countries in signing the Protocol of Provisional Application of the General Agreement on Tariffs and Trade (GATT 1947) and became one of its founding contracting parties on 21 April 1948.2 1  For

an overview of China’s participation in the early dates of the GATT, see X. Liu, ‘Jin Wensi yu Guanmao Zongxieding [Wunz King and the GATT]’, 5 Ershiyi Shiji (Wangluo Ban) [Twenty-​First Century (web edition)] (2002), at < http://​www.cuhk.edu.hk/​ics/​21c/​media/​onl​ine/​0204​056.pdf > (last visited 2 September 2021), at 2–​6. See also H. Gao, ‘China’s Participation in the WTO: A Lawyer’s Perspective’ 11 Singapore Year Book of International Law (2007) 41; G. Shi (ed), Zhongguo Jiaru Shijie Maoyi Zuzhi Zhishi Duben (Si): Zhongguo Jiaru Shijie Maoyi Zuzhi Tanpan Licheng [Reader on China’s Accession to the World Trade Organization (Four): Negotiation History of China’s Accession to the World Trade Organization] (Beijing: Renmin Chubanshe [People’s Publishing House], 2011), at 12–​.14. 2  Ibid., at 7. This is also reflected in the recitals in the preamble to the GATT 1947, which listed ‘the Republic of China’ as one of the founding contracting parties.

Trade and Investment Liberalization: The Case of China     343 A year later, however, the Republican government lost the Civil War against the Communists and was forced to retreat to the outlying island of Taiwan. The Communist Party of China (CPC) took control of the bulk of Chinese mainland and established a rival government—​the People’s Republic of China (PRC)—​on 1 October 1949. The new government never officially announced whether they wanted to remain in the GATT,3 but with the establishment of the Council for Mutual Economic Assistance in 1949 as the trade organization of socialist countries,4 it seemed unlikely that the PRC was keen to participate in the GATT, a ‘capitalist club’ boycotted by the USSR since the very beginning. This resulted in a rather bizarre scenario, as the exiled Republican government could not honour its tariff reduction obligations for the goods shipped to the mainland while the Communists could enjoy the preferential tariffs for all goods originating from the mainland.5 Upon discovering this, the United States threatened the ROC Government with the termination of MFN treatment,6 and the latter responded by formally withdrawing from the GATT, which took effect on 5 May 1950.7 The murky state of the law on succession makes the validity of Taiwan’s withdrawal an interesting case study as one could well argue that, because Taiwan no longer represented China after 1949, it also did not have the right to withdraw in 1950. However, China did not protest at that time. It had more pressing concerns, including being embroiled in the Korean War. Even when it was restored to its seat at the United Nations in 1971,8 China still did not raise the issue.9 It was only after the launch of economic reform and opening 3  According

to Article 55 of the Common Program of the Chinese People’s Political Consultative Conference of 1949, which served as China’s interim constitution until 1954, ‘with respect to the treaties and agreements made by the Kuomintang government and foreign governments, the Central People’s Government of the Peoples’ Republic of China shall conduct examination and may either recognize, repeal, revise or renegotiate them according to their respective contents’. Several treaties were recognized or repealed according to this provision, but the Chinese government never explicated stated how it would deal with the GATT. See Gao, above fn 1, at 42. 4  While China never joined the CMEA for ideological and historical reasons, it has maintained economic exchange with CMEA countries. See J. Howell, ‘Foreign Trade Reform and Relations with International Economic Institutions’ in C. Hudson (ed), The China Handbook (New York: Routledge, 2013), 173, at 175; R. Shen, China’s Economic Reform: An Experiment in Pragmatic Socialism (Westport, CT: Praeger, 2000) 97. 5  Liu, above fn 1, at 7. 6  Ibid. See also Shi, above fn 1, at 14; Gao, above fn 1, at 42–​43. 7   General Agreement on Tariffs and Trade, Contracting Parties, Communication from Secretary-​ General of United Nations Regarding China, GATT/​CP/​54 (8 March 1950). 8 See United Nations General Assembly Resolution 2758, adopted on 5 October 1971, which decided ‘to restore all its rights to the People’s Republic of China and to recognize the representatives of its Government as the only legitimate representatives of China to the United Nations, and to expel forthwith the representatives of Chiang Kai-​shek from the place which they unlawfully occupy at the United Nations and in all the organizations related to it’. 9  While the GATT was not a specialized agency of the United Nations, it generally followed the decisions of the United Nations on political issues. See WTO, GATT Analytical Index: Guide to GATT Law and Practice, 6th edition. (Geneva: WTO and Bernan Press, 1995) 877. Thus, even though China did not raise the issue of GATT membership itself at the time, the GATT Contracting Parties still decided to revoke the Taiwan Government’s observer status, which it had acquired in 1965. See GATT Contracting

344   Henry Gao up in the late 1970s that China started to realize the importance of the MFN tariff regime under the GATT.10 Thus, China joined the GATT as an observer in 1984,11 and made a formal request to resume its GATT contracting party status in 1986.

B. Resumption of GATT Contracting Party status On 10 July 1986, China formally submitted the application to resume its status as a GATT contracting party.12 On 4 March 1987, the GATT established a Working Party to handle China’s application.13 Things moved quickly initially, as the main players such as the United States wanted to use China as the example to encourage change in the Communist bloc.14 By the beginning of 1989, the Working Party was ready to start drafting the Accession Protocol.15 However, when China cracked down on student protesters on 4 June 1989, the West imposed sanctions on China, and all work in the Working Party stalled.16 For the next two-​and–​a-​half years, the Working Party went into hibernation.17 Not until 1992, when the Fourteenth National Congress of the Communist Party adopted a Resolution to make the ‘Socialist Market Economy’ the goal of the reform,18 did the accession negotiations resume. Nonetheless, this did not solve all the problems as many Parties, Twenty-​Seventh Session, Summary Record of the First Meeting, Held at the Palais des Nations, Geneva, on Tuesday, 16 November 1971, at 3 p.m., SR-​.27/​1 (19 November 1971), at 1–​4. See also Gao, above fn 1, at 43–​44. 10 

See Shi, above fn 1, at 24–​26. first asked to observe the meetings of individual GATT sessions in 1982. See People’s Republic of China: Attendance at Thirty-​Eighth Session, L/​5344 (5 July 1982). In 1984, China submitted a formal request to have observer status in meetings of the Council of Representatives and its subordinate bodies. See China—​Request for Observer Status, L/​5712 (26 October 1984). Since then, China has been attending GATT meetings regularly as an observer. See J. Qin, ‘GATT Membership for Taiwan: An Analysis in International Law’ 24 New York University Journal of International Law and Politics (1992) 1059, at 1072. 12  China’s Status as A Contracting Party: Communication from the People’s Republic of China, L/​6017 (14 July 1986). 13  Minutes of Meeting: Held in the Centre William Rappard on 4 March 1987, C/​M/​160 (30 March 1987), at 9–​12. 14  Y. Yang, ‘China’s WTO Accession: The Economics and Politics’ 34 Journal of World Trade (2000) 77, at 88–​89. 15   Shi, above fn 1, at 73–​76. 16  The Working Party meeting originally scheduled for June 1989 was cancelled due to concerns by the participants over ‘political and economic upheaval in China’, see C. Devereaux, R.Z. Lawrence and M. Watkins, Case Studies in US Trade Negotiation Volume 1: Making the Rules (Washington, DC: Institute for International Economics, 2006) 252. 17  J. Gertler, ‘China’s WTO Accession—​The Final Countdown’ in D.Z. Cass, B. Williams and G. Barker (eds), China and the World Trading System: Entering the New Millennium (Cambridge: Cambridge University Press, 2003) 56. See also ‘China’s Entry into GATT is Stalled by Thorny “Socialist Market Economy” ’ Wall Street Journal (3 March 1993). 18  Z. Jiang, ‘Jiakuai Gaige Kaifang he Xiandaihua Jianshe Bufa, Duoqu Youzhongguo Tese Shehui Zhuyi Shiye de Weida Shengli [Accelerate Steps of Reform and Opening Up and the Development of Modernization, Seize Greater Success in the Endeavor on Socialism with Chinese Characteristics]’, 11 China

Trade and Investment Liberalization: The Case of China     345 observers were sceptical about China’s willingness to embrace true capitalism. For example, Douglas Newkirk, the then Assistant US Trade Representative, stated bluntly that ‘[t]‌he GATT was not written with a Socialist Market Economy in mind’.19 Drawing on their own experience, many foreign countries did not appreciate that a Party Resolution carries much more weight than the laws passed by Parliament. It was not until the goal was incorporated into the PRC Constitution in 199320 that others began to appreciate that China was indeed taking the commitment to market reform seriously. During the first half of the 1990s, China participated in the Uruguay Round negotiations hoping that discussions on its status could be concluded in time for it to become a founding member of the WTO.21 Unfortunately, the world had changed significantly. The Cold War was over, and China had lost its symbolic value as a reformer within the communist bloc. With the former Soviet countries also eager to join the GATT, China’s terms of accession were increasingly regarded as a template for other transition economies.22 Thus, Western governments imposed more rigorous terms.23 At the same time, the Uruguay Round negotiations turned out to be much more difficult than originally imagined, and most countries concentrated their resources on the Uruguay Round rather than on talks with China. Also, for the first time in history, the Uruguay Round included negotiations over trade in services and trade-​related intellectual property rights. Disciplines on rules on non-​tariff measures were also strengthened. As China lacked experience in these new areas, they posed new challenges for China. On the other hand, China itself had also changed since the 1980s. First, the 1990s saw China’s rise as a major trader in the world, with goods ‘Made in China’ flooding many parts of the world. Many countries, both developed and developing, felt the threat of China to their traders not only in the world market but in their domestic markets too. For them, letting China accede to the GATT to enjoy expanded market access opportunities without demanding a pound of flesh would be unthinkable. At the same time, with the income level of the Chinese on the rise, more and more Western companies started to recognize the potential of China as the largest untapped market in the world. They demanded better market access opportunities in China which went beyond tariff concessions, and this too required extensive negotiation. Report at the Fourteenth National Congress of the China Communist Party, 12 October 1992, at < http://​ www.gov.cn/​test/​2007-​08/​29/​con​tent​_​730​511.htm > (last visited 11 June 2020). 19   R. Bhala, ‘Enter the Dragon: An Essay on China’s WTO Accession Saga’ 15 American University International Law Review (2000) 1469, at 1480. 20  Article 15 of the Constitution used to state ‘[t]‌he state practices planned economy on the basis of Socialist public ownership’. It was amended to ‘[t]he state practices Socialist market’. See Zhonghua Renmin Gongheguo Xianfa Xiuzhengan (1993 Nian) [Amendment to the Constitution of the People’s Republic of China (2013)], adopted by the First Session of the Eighth National People’s Congress on 29 March 1993, at < http://​www.npc.gov.cn/​wxzl/​wxzl/​2000-​12/​05/​conte​nt_​4​585.htm > (last visited 11 June 2020). 21  See Bhala, above fn 19, at 1480. 22  N. Lardy, Integrating China into the Global Economy (Washington, DC: The Brookings Institution, 2002), at 63. 23 Ibid.

346   Henry Gao Even though China declared its intention in early 1994 to complete substantive negotiations by the end of that year,24 when the WTO was established on 1 January 1995, the end of the accession negotiations was still nowhere in sight.25

C. WTO accession Frustrated that China did not become a founding Member of the WTO as it wished, the head of Chinese delegation, Gu Yongjiang, stated at the meeting of the China Working Party on 20 December 1994 that ‘while China does not wish to close the door for negotiation, China will not take the initiative to request bilateral negotiations or meetings of the Working Party’.26 All work of the Working Party stopped for the better part of 1995,27 and it was not until November 1995 that China submitted a new request for accession to the WTO.28 Subsequently, the GATT Working Party was converted into a WTO Accession Working Party in December 1995.29 The Chinese Government set out three principles on WTO accession.30 First, as an international organization, the WTO would not be complete without the participation of China. Second, China should join as a developing country. Third, China’s accession should be based on a balance of rights and obligations. As we will soon see from the detailed analysis of the terms of the Chinese accession deal below, however, China has failed to achieve most of these principles. In 1999 and 2000, China signed bilateral agreements with the United States and the (then) European Communities, respectively. The one with the United States is the most comprehensive and covers both market access on goods and services, as well as rules issues, especially those on trade remedies.31 In contrast, the one with the European Communities focuses on sectors of specific interests to the European Communities, such as automobiles, telecommunications, insurance, and distribution.32 On 10 November 2001, at the Fourth Session of the Ministerial Conference in Doha, WTO Members adopted the Chinese Accession Protocol, which was approved by the National People’s Congress Standing Committee the next day. One month later, the protocol took effect, and China finally became a Member of the WTO.

24  In

his letter to the Director General and contracting parties to the GATT on 25 January 1994, then Chinese premier Li Peng stated China’s wish to ‘conclude the negotiation to resume its GATT membership quickly and become a founding Member of the WTO’. See Shi, above fn 1, at 118. 25  Ibid., at 134–​39. 26  Ibid., at 135–​39. 27  Ibid., at 436–​42. 28  WTO, Communication from China, WT/​ACC/​CHN/​1 (7 December 1995). 29 Ibid. 30  MOFCOM, Zhongguo Jiaru Shimao Zuzhi de Lishi Beijing [Historical Background of China’s WTO Accession] (28 January 2010), at < http://​cwto.mof​com.gov.cn/​arti​cle/​sjzl/​201​001/​201​0010​6765​ 404.shtml > (last visited 11 June 2020). 31  See Shi, above fn 1, at 280–​87. 32  Ibid., at 387–​88.

Trade and Investment Liberalization: The Case of China     347 With an accession negotiation spanning 15 years, China’s WTO accession process was, until then, the longest in GATT/​WTO history. This record was broken by Russia ten years later, but China’s accession package remains the most complicated in the history of the WTO. This is not only due to its large trade volume, which ranked sixth largest at the time of accession, but also because of the unique nature of the Chinese economic system. At the time, China was in the process of transition from a traditional planned economy to a ‘socialist market economy’, a process that has yet to be completed 20 years after China’s WTO accession and subsequently led to many problems. What benefits did China get as a newly minted WTO Member? Many commentators point to lower tariffs at the MFN rate and the removal of non-​tariff measures. In my view, however, both of them have been greatly exaggerated. First, even before its accession, China had signed bilateral trade agreements with most of its trade partners, which typically included MFN clauses granting China the same MFN rates as under other agreements, including the WTO. Studies confirm that China’s import industries reaped larger gains while its exporting industries only saw modest gains.33 Second, non-​tariff barriers were a big problem before China’s accession, but rather than being eliminated; they have largely been retained and even entrenched by China’s accession deal.34 Instead, I would argue that the biggest benefits resulting from China’s WTO accession are its ability to use the WTO dispute settlement system and participate in the rule-​making efforts of the multilateral trading system. But again, both benefits are also double-​edged swords that could be used by and against China at the same time.35 While the direct benefits to China seem uncertain, the indirect benefits appear to be quite substantial, especially considering the phenomenal growth of China’s trade and economy since its accession. This is because China’s WTO accession has helped to further integrate China into the world economy. Furthermore, China was able to ride on the wave of globalization by becoming a key node in the global supply chain. On the other hand, the price that China had to pay to get into the club seems rather hefty. First of all, China made substantive market access commitments on both goods and services. For goods, China agreed to reduce its overall tariff level to 10 per cent by 2008, making it one of the lowest levels in the world.36 For services, China also made extensive commitments, covering more than 100 out of the total of 160 services sectors enumerated in the Services Sectoral Classification List. Such a level of commitments is on par with major developed countries and was regarded as ‘the most radical services reform program negotiated in the WTO’.37

33 

T.‐W. Lai, R. Riezman and P. Wang, ‘China’s Gains from WTO Accession: Imports vs Exports’ 24 Review of International Economics (2016) 837, at 849–​50. 34  See paragraphs below. 35  See below Section 3. 36  G. Shi, ‘Working Together for a Brighter Future Based on Mutual Benefit’ in H. Gao and D. Lewis (eds), China’s Participation in the WTO (London: Cameron May, 2005) 15, at 15–​16. 37  A. Mattoo, ‘China’s Accession to the WTO: The Services Dimension’ 6 Journal of International Economic Law (2003) 299, at 333.

348   Henry Gao In addition to the market access commitments, concerns over China’s unique economic system also led to a wide range of rules commitments. Tailor-​made for China, these commitments fall under two categories: obligations that are beyond those normally required of WTO Members, often called ‘WTO-​plus obligations’; and rights that are below those generally enjoyed by WTO Members, referred to as ‘WTO-​minus rights’.38 Many of the WTO-​ plus obligations were designed to enhance the transparency of China’s trade regime.39 For example, China committed to translating all laws and regulations affecting trade in goods and services into one of the WTO official languages.40 Also, to monitor China’s implementation of its accession commitments in the first ten years of its membership, a special annual transitional review mechanism was established.41 The other obligations aim to prevent the erosion of accession commitments. One example is the extension of national treatment to foreign individuals, enterprises, and foreign-​funded enterprises, above and beyond the normal national treatment rule, which only covers measures applicable to products.42 Another example is an explicit commitment to eliminating all taxes and charges on exports for most products.43 While onerous, these WTO-​plus obligations can still be justified as necessary to bridge the gaps in China’s economic and legal systems so that the accession commitments would not be easily evaded. However, the WTO-​minus rights provisions, are more defensive (or some might say protective) in nature. They mainly cover the realm of trade remedies measures, where the normal WTO rules are weakened to make it easier for other WTO Members to invoke these protections against Chinese imports. For example, the normal WTO safeguard rules are watered down so that other Members may apply safeguard measures against Chinese imports whenever there are ‘market disruptions’, rather than ‘serious injury’ as mandated by the Safeguards Agreement.44 Such measures do not need to be applied on an MFN basis and instead can be applied against China only.45 Moreover, once one Member applies a safeguard measure against China, any other WTO Member can piggyback with its own safeguard measure to prevent diversion of Chinese exports into its own market as the result of the first safeguard measure.46

38   J. Qin, ‘WTO-​Plus’ Obligations and Their Implications for the WTO Legal System: An Appraisal of the China Accession Protocol’ 37 Journal of World Trade (2003) 483. See Gao, above fn 1, at 54–​57. 39  For a detailed discussion of these provisions, see H. Gao, ‘The WTO Transparency Obligations and China’ 12 Journal of Comparative Law (2018) 329. 40  Report of the Working Party on the Accession of China, WT/​ MIN(01)/​3 (10 November 2001), adopted on 10 November 2001, at para 334. 41  Protocol on the Accession of China, adopted on 10 November 2001, Section 18. 42  Ibid., at Section 3. 43  Ibid., at Section 11.3 44  Ibid., at Section 16. 45  Ibid., at Section 16.3. 46  Ibid., at Section 16.8.

Trade and Investment Liberalization: The Case of China     349 Concerns over the reliability of the price data in China also led to the inclusion of the ‘non-​market economy status’ provision in Section 15(a) of China’s Accession Protocol, which essentially allows other WTO Member to disregard domestic prices in China and use inflated third-​country prices instead in anti-​dumping investigations against Chinese products. The provision is supposed to expire 15 years after China’s accession. However, the United States and the European Union continued to use similar methodologies in their anti-​dumping investigations when the time came. In response, China brought two separate WTO disputes against them.47 Among the two, only the case against the European Union has led to the formation of a panel, but the United States also worked with the European Union on the case, which the US Trade Representative Robert Lighthizer regarded as the ‘most serious litigation matter that we have at the WTO right now’.48 The panel was supposed to issue its final report by mid-​2019, but it suspended its work in June 2019 at China’s request.49 No formal reason was announced, but it has been speculated that this could be due to the unfavourable panel ruling in the interim report50 or the United States’ suspension of its case against China on intellectual property rights.51 Section 15(b) includes a similar provision to water down the requirements for subsidy investigations against Chinese products, but it doesn’t have an expiration date like its sister provision. China’s bid for developing country treatment was also not very successful.52 In the WTO, a Member’s developing country status is largely determined by self-​designation, subject to challenge from other Members.53 This is what happened in China’s accession process, as concerns over China’s size and unique economic system led to the denial of many special and differential treatments reserved for developing countries.54 For 47 

These two disputes are: DS515: US –​Price Comparison Methodologies; DS516: EU –​Price Comparison Methodologies. 48  The President’s Trade Policy Agenda and Fiscal Year 2018 Budget, Hearing before the Committee on Finance, United States Senate One Hundred Fifteenth Congress First Session, S. HRG. 115–​247, JUNE 21, 2017, at 12. 49 Communication from the Panel, EU –​Price Comparison Methodologies, WT/​DS516/​13 (17 June 2019). 50  H. Gao and W. Zhou, ‘The End of the WTO and the Last Case?’ East Asia Forum (10 July 2019), at < https://​www.eastas​iafo​rum.org/​2019/​07/​10/​the-​end-​of-​the-​wto-​and-​the-​last-​case > (last visited 11 June 2020); J. Pauwelyn, ‘WTO Dispute Settlement Post 2019: What to Expect?’ 22 Journal of International Economic Law (2019) 297, at 316. The news was first reported in B. Baschuk, ‘China Loses Market-​ Economy Trade Case in Win for EU and U.S., Sources Say’ Bloomberg (18 April 2019), at < https://​www. bloomb​erg.com/​news/​artic​les/​2019-​04-​18/​china-​is-​said-​to-​lose-​mar​ket-​econ​omy-​trade-​case-​in-​eu-​u-​ s-​win > (last visited 11 June 2020). 51  See J. Kreier, ‘China NME Case Suspended’ International Economic Law and Policy Blog (20 June 2019), at < https://​ielp.worldt​rade​law.net/​2019/​06/​china-​nme-​case-​suspen​ded.html > (last visited 11 June 2020). The case was DS542: China —​Intellectual Property Rights II. 52  H. Gao and W. Zhou, ‘Myth Busted: China’s Status as a Developing Country Gives it few Benefits in the World Trade Organisation’ The Conversation (7 October 2019), at < https://​thec​onve​rsat​ion.com/​ myth-​bus​ted-​chi​nas-​sta​tus-​as-​a-​dev​elop​ing-​coun​try-​gives-​it-​few-​benef​i ts-​in-​the-​world-​trade-​organ​ isat​ion-​124​602 > (last visited 11 June 2020). 53  C. Michalopoulos, ‘The Role of Special and Differential Treatment for Developing Countries in GATT and the World Trade Organization’ 2000 World Bank Policy Research Working Paper No. 2388, at 2. 54  Report of the Working Party on the Accession of China, above fn 40, para 9.

350   Henry Gao example, China agreed to forgo the special treatment under Articles 27.8, 27.9, and 27.13 of the SCM Agreement.55 Similarly, on agricultural subsidies, China agreed to cap its de minimis level at 8.5 per cent, which is lower than the 10 per cent allowed for developing countries.56

III.  China and the Doha Round As its accession coincided with the launch of the Doha Round, China was able to participate in the new Round from the very beginning. It has been thought that, as the biggest developing country in the WTO, China would become the leader of the developing country camp. In the first few years, however, China deliberately kept a low profile.57 China’s official explanation was that it has already made heavy commitments as a Recently-​Acceded Member (‘RAM’), exceeding the commitments made by most WTO Members in the Uruguay Round.58 Thus, China should not be expected to make new concessions but should instead focus on implementing its accession commitments. Another implicit reason is that China lacked experience in trade negotiations and wanted to learn before participating in the new Round. The major players were initially sympathetic to China’s RAM argument and did not demand much from China. While its ambitious agenda covered many issues, the Doha Round negotiations focused mainly on agriculture in the first few years, with developing countries demanding that developed countries eliminate export subsidies and reduce domestic support for agriculture. This is understandable given the importance of agricultural exports for most developing country Members. However, China has a different export structure centred mostly on industrial products and marked by very few agricultural exports. Moreover, China is also one of the largest importers of many agricultural commodities, such as wheat, cotton, and soybeans. Thus, the reduction of subsidies would raise world commodity prices and be inimical to its trade interests. On the other hand, openly opposing the developing country position would have been politically insensitive. That partly explains why China chose to keep quiet in the first few years, and the other Members were also content to leave it alone. After a deal on agriculture was reached in 2006, the Round’s focus shifted to Non-​ Agricultural Market Access (NAMA) or industrial products. As a manufacturing 55 

Ibid., at para 171. Ibid., at para 235. 57  For an overview of China’s participation in WTO negotiations until 2006, see H. Gao, ‘China’s Ascent in Global Trade Governance: From Rule Taker to Rule Shaker, and Maybe Rule Maker?’ in C. Deere-​Birkbeck (ed), Making Global Trade Governance Work for Development (Cambridge: Cambridge University Press, 2011) 153–​180. See also G. Shaffer and H. Gao, ‘China’s Rise: How It Took on the U.S. at the WTO’ University of Illinois Law Review (2018) 115, at 132–​34. 58  R. Huang, ‘Multilteralism v. Regionalism: China’s Participation in WTO Agriculture Negotiations’ in H. Gao and D. Lewis (eds), China’s Participation in the WTO (London: Cameron May, 2005) 35, at 39. 56 

Trade and Investment Liberalization: The Case of China     351 powerhouse and the world’s largest exporter, China emerged as the elephant in the room. It was simply too big to be ignored. Moreover, having agreed to reduce their agricultural subsidies, the United States and the European Union wanted to obtain significant concessions on industrial products from major developing countries to justify their agricultural concessions. Thus, in the same year, China was invited to join the United States, European Union, Japan, Canada, India and Brazil in the inner group of key players.59 Citing the phenomenal growth of China’s exports since its accession to the WTO, the United States and the European Union called China ‘the biggest beneficiary’ of the multilateral trading system. They urged China to be ‘more responsible’ in negotiations.60 In particular, they wanted China to make greater concessions in key sectors such as industrial machinery, chemicals, and electronics. While China recognized that it has special responsibilities as a large developing country, it resented being singled out in the negotiations, in a similar way that it has resented the discriminatory clauses in its accession package. Thus, when India created an impasse at the July 2008 Ministerial Conference by refusing to cave in on special products and a special safeguard mechanism, China rejected the US request to provide additional concessions on special products in agriculture and sectoral negotiations on industrial goods.61 China’s decision was partly based on its domestic political difficulties, but an equally important reason was China’s desire to be treated no differently than India.62 China’s evolving role in the Doha Round can also be gauged by the number of submissions it has made. Its first proposal was submitted in June 2002, addressing the issue of fisheries subsidies.63 The number of Chinese proposals slowly rose to a dozen over the next three years, reflecting the cautious approach that China has taken.64 As China was offered ‘a seat at the big kids’ table’,65 its participation also intensified, with the number of Chinese proposals jumping to over one hundred just before the July 2008 meeting.66 59  For an overview of China’s participation in WTO negotiations since 2006, see H. Gao, ‘From the Doha Round to the China Round’ in L. Toohey, C.B. Picker and J. Greenacre (eds), China in the International Economic Order: New Directions and Changing Paradigms (Cambridge: Cambridge University Press, 2015) 79–​97. 60  See R.B. Zoellick, ‘Whither China: From Membership to Responsibility?, Remarks to National Committee on U.S.-​China Relations’, New York City (21 September 2005), at < https://​2001-​2009.state. gov/​s/​d/​for​mer/​zoell​ick/​rem/​53682.htm > (last visited 11 June 2020). See also S. Schwab, ‘Remarks at the 40th Anniversary Gala Dinner of the National Committee on US-​China Relations’, New York (12 October 2006), at < www.ncu​scr.org/​files/​2006G​ala _​SusanSchwab.pdf > (last visited 11 June 2020). 61  P. Blustein, Misadventures of the Most Favored Nations: Clashing Egos, Inflated Ambitions, and the Great Shambles of the World Trade System (New York: Public Affairs, 2009) 274. 62  This is partly reflected in the passionate speech made by China’s WTO Ambassador Sun Zhenyu when the talks collapsed in mid 2008. See H.E. Ambassador Sun Zhenyu, Permanent Mission P.R.C. to the WTO, Statement at the Informal Trade Negotiations Committee Meeting, 11 August 2008, < http://​ wto2.mof com.gov.cn/​aarticle/​inbrief/​200808/​20080805717988.html > (last visited 11 June 2020). 63  Negotiating Group on Rules, Proposal from the People’s Republic of China on Fisheries Subsidies, TN/​RL/​W/​9 (20 June 2002). 64  See Gao, above fn 57, at 161. 65  Blustein, above fn 61, at 274. 66 Ibid.

352   Henry Gao

IV.  China’s FTAs As a latecomer, China did not sign any FTA before its accession to the WTO. This made perfect sense because concluding, or even just negotiating, FTAs pre-​WTO accession would have encouraged existing WTO Members to request the same preferences. This would have defeated the purpose of any FTA and made it more difficult for China to complete its accession negotiation. After its accession, however, China went on a shopping spree of FTAs. Starting with an FTA with the Association of Southeast Asian Nations (ASEAN) in 2002, China has concluded agreements with Chile (November 2005), Pakistan (November 2006), New Zealand (April 2008), Singapore (October 2008), Peru (April 2009), Costa Rica (April 2010), Iceland (April 2013), Switzerland (July 2013), South Korea (June 2015), Australia (June 2015), Georgia (May 2017), Maldives (December 2017), Mauritius (October 2019) and Cambodia (October 2020). In addition, China also signed two Closer Economic Partnership Arrangements (CEPA) with Hong Kong and Macau, respectively, as well as an Economic Cooperation Framework Agreement (ECFA) with Taiwan, and the Regional Comprehensive Economic Partnership (RCEP) Agreement. In addition, China has launched negotiations on a bilateral basis with the Gulf Cooperation Council (April 2005), Norway (September 2008), Sri Lanka (September 2014), Israel (March 2016), Moldova (March 2018), Panama (July 2018) and Palestine (October 2018). In November 2012, China also launched negotiations on a regional basis with Korea and Japan (November 2012). China also applied to join the Comprehensive and Progressive Agreement for Trans-​Pacific Partnership (CPTPP) in September 2021 and the Digital Economy Partnership Agreement (DEPA) in November 2021, respectively. Compared with the ones entered into by major Western powers such as the United States, European Union and Japan, the Chinese FTAs tend to be rather old-​fashioned, with most of the commitments concentrating on trade in goods with only limited coverage of services and investment concessions.67 This is not only a continuation of China’s cautious approach to trade liberalization in general but also reflects its overwhelming interests in goods trade. Moreover, China is reluctant to include in its FTAs behind-​the-​border regulatory issues such as environmental protection, labour rights, and competition issues.68 Instead, these issues tend to be covered by standalone side agreements or memoranda of understanding, or, even if they are mentioned in

67 H. Gao, ‘China’s Strategy for Free Trade Agreements: Political Battle in the Name of Trade’ in R. Buckley, R. Hu and D. Arner (eds), East Asian Economic Integration: Law, Trade and Finance (Cheltenham: Edward Elgar, 2011) 104, at 110–​11. 68  H. Gao, ‘China’s Evolving Approach to Environmental and Labour Provisions in Regional Trade Agreements’ ICTSD Blog (25 August 2017), at < http://​www.ictsd.org/​opin​ion/​china-​3 > (last visited 9 May 2020).

Trade and Investment Liberalization: The Case of China     353 isolated provisions in the main text, are couched only in soft, non-​binding mutual cooperation type of language.69 This does not mean that China’s FTA model will remain static. Instead, China has been willing to consider and incorporate new issues and approaches by learning from other ‘high-​standard’ FTAs. This includes broadening coverage, such as the addition of electronic commerce in the 2015 FTAs with Korea and Australia.70 In other recent FTAs, commitments were deepened. A good example is the FTA with Mauritius, which covers more than 100 services sub-​sectors by both sides, with Mauritius committing to open more than 130 sub-​sectors.71 The FTA with Australia also includes a ‘built-​in agenda’ for the parties to ‘initiate next round of the negotiation on trade in services in the form of negative listing approach’.72 This is interesting given the popularity of the negative listing approach common to US-​led FTAs.73 China has also been periodically upgrading its FTAs, with new issues such as competition, environment, and e-​commerce included in the upgraded FTAs with Singapore and Chile, both over a decade old. One of the pet clauses of Chinese FTAs is a provision recognizing China’s market economy status, which has become the sine qua non for any aspiring member of China’s coveted FTA club. This is not only China’s way of expressing its dissatisfaction with the non-​market economy clause in its Accession Protocol, but also helps to establish precedents among WTO Members regarding the recognition of China’s market economy status. Unfortunately, as China’s FTA partners are mostly smaller countries, such precedents are unlikely to sway the major players. Moreover, as the Australian practice of ‘market disruption’ has shown, even the recognition of China’s market economy status might not prevent the other party from adopting a non-​market economy methodology in its anti-​dumping investigations.74 The most ambitious FTA involving China is the RCEP, which aims to link up the ten countries of ASEAN with its five trade partners, i.e., China, Japan, Korea, Australia and New Zealand. Together, these 15 countries account for 30 per cent of the world’s population, GDP, and trade, and the RCEP is widely regarded as one of the most important free trade agreements in the world. The RCEP is often regarded as a China-​led FTA, but this is far from the truth. The idea for Asia Pacific regional integration can be traced back to the formation of the Asia Pacific Economic Cooperation (APEC) in 1989. Over the years, there have been many

69 Ibid. 70 For

a discussion of the e-​commerce chapter in the Australia FTA, see H. Gao, ‘E-​Commerce in ChAFTA: New Wine in Old Wineskins?’ in C.B. Picker, H. Wang and W. Zhou (eds), The China-​ Australia Free Trade Agreement A 21st-​Century Model (Oxford: Hart Publishing, 2018) 283–​303. 71  MOFCOM, Zhongguo yu Maoliqiusi Qianshu Ziyou Maoyi Xieding [China Signed Free Trade Agreement with Mauritius], at < http://​fta.mof​com.gov.cn/​arti​cle/​chi​nama​urit​ius/​chi​nama​urit​iusn​ews/​ 201​910/​4164​3_​1.html > (last visited 1 June 2020). 72  Article 8.24 of the China-​Australia Free Trade Agreement. 73  See further Chapters 8 and 18 of this handbook. 74  See W. Zhou, ‘Australia’s Anti-​ Dumping and Countervailing Law and Practice: An Analysis of Current Issues Incompatible with Free Trade with China’ 49 Journal of World Trade (2015) 975–​1010.

354   Henry Gao competing visions. In 1990, Malaysian Prime Minister, Dr. Mahathir bin Mohamad, first proposed the idea of an East Asia Economic Caucus (EAEC) or East Asia Economic Group (EAEG),75 which encompasses ASEAN and its three East Asian neighbours (China, Korea, and Japan). Also known as ‘ASEAN plus three’ or ‘10 +​3’, this was also China’s preferred model. At the time, the idea did not lead to substantive discussions due to the launch of the Doha Round. When the Doha Round started to falter, however, various ideas started to resurface again. The EAEC idea morphed into a proposal for an East Asia Community (EAC), which was noted in the Chairman’s Press Statement for the Seventh ASEAN Plus Three Foreign Ministers’ Meeting in Kuala Lumpur in July 2006 as a ‘long-​term goal’.76 Fearing the strong influence of China, Japan modified the EAC proposal and turned it into a ‘10 +​6’ initiative by adding, as counterbalances to China, three more members, i.e., India, Australia, and New Zealand.77 In June 2008, Australian Prime Minister Kevin Rudd proposed an even bolder proposal for an Asia Pacific Community, which would also include the United States and the other 16 countries.78 As there was no unifying vision, the negotiations on an East Asia trade deal did not take off for several years. When the United States assembled a group of like-​minded countries like Australia and Singapore to launch the negotiations for a Transpacific Partnership (TPP)in 2010,79 however, China realized that it needed to build its own mega trade deal in the region to counter the efforts of the United States to ‘pivot to Asia’. This was achieved by agreeing to the Japanese initiative of ‘10 +​6’, which by then had evolved into the proposal for the Comprehensive Economic Partnership for East Asia (CEPEA).80 In 2012, the ASEAN plus six countries finally agreed to launch negotiations for the new agreement, which, as a further twist to the alphabet soup, was finally renamed as RCEP. 75  D. Biers, ‘Malaysia’s Prime Minister Ponders Asian Caucus Plan’ Wall Street Journal (11 July 1996), at < https://​www.wsj.com/​artic​les/​SB837​0280​7933​2804​000 > (last visited 1 June 2020). For a detailed analysis of the proposal, see M. Kimura, ‘Asian Expectations toward Japan’s Role in the Consensual Process of Regional Integration: The Case of the East Asian Economic Caucus’ in V. Blechinger and J. Legewie (eds), Facing Asia—​Japan’s Role in the Political and Economic Dynamism of Regional Cooperation (Munchen: Iudicium, 2000) 21–​56. 76  Chairman’s Press Statement for the Seventh ASEAN Plus Three Foreign Ministers’ Meeting Kuala Lumpur, Ministry of Foreign Affairs, Malaysia, Putrajaya (26 July 2006), at < https://​asean.org/​chair​ man-​s-​press-​statem​ent-​for-​the-​seve​nth-​asean-​plus-​three-​fore​ign-​minist​ers-​meet​ing-​kuala-​lum​pur > (last visited 1 June 2020). 77  Y. Nishikawa, ‘Q+​A-​What is Japan’s East Asia Community idea all about?’ Reuters (22 October 2009), at < https://​www.reut​ers.com/​arti​cle/​japan-​asia/​qa-​what-​is-​jap​ans-​east-​asia-​commun​ity-​idea-​ all-​about-​idUS​T256​9992​0091​022?pag​eNum​ber=​1&virt​ualB​rand​Chan​nel=​0 > (last visited 1 June 2020). 78  F. Frost, ‘Australia’s proposal for an “Asia Pacific Community”: issues and prospects’, Parliament of Australia Department of Parliamentary Services Research Paper, no. 13, 2009–​10 (1 December 2009), at < https://​www.aph.gov.au/​binar​ies/​libr​ary/​pubs/​rp/​2009-​10/​10r​p13.pdf > (last visited 1 June 2020). 79  See also Chapter 9 of this handbook. 80  Chairman’s Statement of the 4th East Asia Summit Cha-​am Hua Hin, Thailand, 25 October 2009, (last visited 1 June 2020).

Trade and Investment Liberalization: The Case of China     355 According to the RCEP’s Guiding Principles and Objectives,81 ‘[n]‌egotiations for the RCEP will recognize ASEAN Centrality in the emerging regional economic architecture’, which means that ASEAN is in the driving seat for the RCEP. Indeed, all the other six non-​ASEAN States already have an existing FTA with ASEAN, confirming ASEAN’s role as the hub of the RCEP. This appeared to be a compromise between China and Japan, the two biggest powers in the region, as neither was willing to concede the leadership role to the other.82 However, as a weak regional institution with no uniform agenda, ASEAN does not have much power to move the negotiations forward, and the 2015 deadline to conclude negotiations was missed. After missing several additional deadlines, the RCEP countries finally announced in November 2019 that they had reached an agreement among all countries except India and were aiming to sign the agreement in 2020.83 However, on 29 November 2019, Japan’s RCEP chief negotiator announced that it would not sign the deal unless India was also on board,84 which appears to be a reaffirmation of its fear over the dominance of China without a counterweight. Despite the dramatic turn of events, the RCEP was finally signed in November 2020 and entered into force on 1 January 2022. Compared to the other mega-​regional agreement or negotiations such as the TPP, TTIP, or the CETA, the RCEP is shallow.85 It mainly covers the traditional goods trade. More than half of the Members schedule their services commitments pursuant to a GATS-​type of positive listing approach, which implies that concessions will not be very ambitious. It does not include popular new issues that are often found in other mega agreements such as labour, environment, and state-​owned enterprises. And even for those issues that are included, such as competition and government procurement, the commitments are couched in a soft, best-​endeavour language lacking substance. However, even such low ambition is hard to swallow for certain participants, such as India. For a long time, India insisted that it would only agree to a coverage of up to 80 per cent, due to concerns that cheaper industrial products from China will flood the market and destroy its small and uncompetitive domestic industries.86 To be fair, India’s concerns are not unfounded, as ASEAN also saw its trade balance with China turning 81 Guiding

Principles and Objectives for Negotiating the Regional Comprehensive Economic Partnership (20 November 2012), at < https://​asean.org/​wp-​cont​ent/​uplo​ads/​2012/​05/​RCEP-​Guid​ing-​ Pri​ncip​les-​pub​lic-​copy.pdf > (last visited 1 June 2020). 82   For the leadership competition and historical issues between China and Japan, see R. Stubbs, ‘ASEAN Plus Three: Emerging East Asian Regionalism?’ 42 Asian Survey (2002) 440, at 443, 452. 83 Joint Leaders’ Statement on The Regional Comprehensive Economic Partnership (RCEP) (4 November 2019), at < https://​asean.org/​stor​age/​2019/​11/​FINAL-​RCEP-​Joint-​Lead​ers-​Statem​ent-​for-​3rd-​ RCEP-​Sum​mit.pdf > (last visited 1 June 2020). 84  ‘Top Japan Negotiator Says It is Not Considering Signing RCEP Trade Pact Without India’, Straits Times (29 November 2019), at < https://​www.strai​tsti​mes.com/​asia/​east-​asia/​japan-​wont-​sign-​regio​nal-​ compre​hens​ive-​econo​mic-​part​ners​hip-​pact-​if-​india-​doe​snt-​join > (last visited 1 June 2020). 85  See W.A. Reinsch, J. Caporal and L. Murray, ‘At Last, An RCEP Deal’, Centre for Strategic and International Studies (3 December 2019), at < https://​www.csis.org/​analy​sis/​last-​rcep-​deal > (last visited 1 June 2020). 86 Ibid.

356   Henry Gao from a surplus of $8 billion before the ASEAN-​China FTA to a deficit of $44.6 billion in 2013 before ballooning further to $63.8 billion the next year.87 This is why India eventually pulled from the agreement. Notwithstanding its modest content, the very fact that the ASEAN plus five countries could conclude an agreement is a major boost to the region. This is because the East and Southeast Asia region already has one of the largest intra-​industry trade shares among major regions in the world,88 especially in sectors such as electronics and computer products. Thus, the RCEP, once concluded, will only further boost the economic integration in the region, which should lead to more trade and economic growth for all parties involved.

V.  Belt and Road Initiative (BRI) In contrast to RCEP, the child that China reluctantly adopted, BRI is entirely China’s own creation. It is a combination of two initiatives which President Xi Jinping announced in 2013, i.e., the Silk Road Economic Belt, which connects China with Europe through the Eurasian Continent,89 and the 21st Century Maritime Silk Road, which links China with Southeast Asian countries, Africa and Europe across the Pacific and Indian oceans.90 As the centrepiece of President Xi’s foreign policy, the BRI covers sixty-​five countries in three continents, with a total population of 4.4 billion.91 Altogether, they account for 29 per cent of global GDP and 23.4 per cent of global merchandise and services exports.92 Through the TPP, the United States tried to build an Island Chain across the Pacific to contain China and disrupt China’s supply chains. For example, the ‘yarn forwarding 87  H. Gao, ‘The Potential Collapse of the TPP: Implications for ASEAN’, Brink (15 December 2016), at < https://​www.brinkn​ews.com/​the-​potent​ial-​colla​pse-​of-​the-​tpp-​impli​cati​ons-​for-​asean/​ > (last visited 1 June 2020). 88 I. Gil and H. Kharas, An East Asian Renaissance: Ideas for Economic Growth (Washington, DC: World Bank, 2007), at < https://​openkn​owle​dge.worldb​ank.org/​han​dle/​10986 > (last visited 1 June 2020), at 20–​22. 89  First suggested by President Xi Jinping in a speech titled ‘Promote People-​to-​People Friendship and Create a Better Future’ at Kazakhstan’s Nazarbayev University on 7 September 2013. See President Xi Jinping Delivers Important Speech and Proposes to Build a Silk Road Economic Belt with Central Asian Countries, 7 September 2013, at < http://​www.fmprc.gov.cn/​mfa_​eng/​topics​_​665​678/​xjpfwz​ysie​sgjt​fhsh​ zzfh​_​665​686/​t1076​334.shtml > (last visited 1 June 2020). 90  First proposed by President Xi in his speech to the People’s Representative Council of Indonesia on 2 October 2013. See W. Jiao, ‘President Xi gives speech to Indonesia’s parliament’ China Daily (2 October 2013), at < http://​www.chi​nada​ily.com.cn/​china/​201​3xia​pec/​2013-​10/​02/​con​tent​_​170​0791​5_​2.htm > (last visited 1 June 2020). 91  MOFCOM, ‘Yidai Yilu Zhanlue de Tichu he Xingcheng [One Belt One Road Initiative: The Proposal and Development]’, at (last visited 1 June 2020). 92  Ibid. For a detailed review of the Belt and Road Initiative, see G. Shaffer and H. Gao, ‘A New Chinese Economic Order?’ 22 Journal of International Economic Law (2020), at 614–​620.

Trade and Investment Liberalization: The Case of China     357 rule’ in the TPP requires that to be eligible for TPP preferences, the textile products manufactured in a TPP member country also need to have its yarn made within the TPP region.93 This effectively blocks access to the TPP market by Chinese yarn producers. In response, China has been trying to build its own supply chain by linking up with developing countries in Asia, Africa, and Latin America. The strategy is twofold. First, China can sell its products in these countries, which also helps diversify China’s export markets and solve the problem of surplus capacity. Second, China can obtain natural resources and raw materials either directly from these countries or through transportation hubs strategically located there, such as the Gwadar Port in Pakistan and the Kra Canal in Thailand. Many countries along the BRI corridor, however, suffer from poor infrastructure. That is why the BRI made improving infrastructure connectivity one of its main objectives, in addition to enhancing ‘policy coordination’, reinforcing ‘unimpeded trade’, accelerating ‘financial integration’, and boosting ‘people-​to people bonds’.94 To finance these infrastructure projects, China also proposed the establishment of a new development bank—​the Asian Infrastructure Investment Bank (AIIB)—​in 2013, the same year that the BRI initiative was announced. The AIIB was formally launched a year later and started operations in 2016.95 By 2019, it had quickly grown, despite the boycott by the United States, to 100 members, which includes all major developed countries except the United States and Japan.96 While headquartered in Beijing and counting China as the largest shareholder, China has tried to reduce the impression of the AIIB as being a Chinese institution. The AIIB also emphasizes its ‘openness, transparency, independence and accountability’ and its mode of operation as a ‘Lean, Clean and Green’ organization.97 In addition to the AIIB, China has further spearheaded the establishment of the New Development Bank (formerly called the BRICS Development Bank), which is based in Shanghai. With a capital of $100 billion, the New Development Bank has its shares equally divided between the five BRICS countries (Brazil, Russia, India, China, and South Africa) with equal voting rights in selecting its projects.98 In 2014, China also created the Silk Road Fund, with a pledged funding of $40 billion.99 93 

USTR, ‘TPP Chapter Summary: Textiles and Apparel’, at < https://​ustr.gov/​sites/​defa​ult/​files/​TPP-​ Chap​ter-​Summ​ary-​Texti​les-​and-​Appa​rel.pdf > (last visited 1 June 2020). 94 National Development and Reform Commission, Ministry of Foreign Affairs and Ministry of Commerce of the People’s Republic of China with State Council authorization, ‘Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-​Century Maritime Silk Road’ (28 March 2015), at < http://​www.china​emba​ssy.org.sg/​eng//​jrzg/​t1250​480.htm > (last visited 1 June 2020). 95  AIIB, ‘Our Story So Far’, at < https://​www.aiib.org/​en/​about-​aiib/​who-​we-​are/​timel​ine/​index.html > (last visited 1 June 2020). 96  AIIB, ‘Members and Prospective Members of the Bank’, at < https://​www.aiib.org/​en/​about-​aiib/​ gov​erna​nce/​memb​ers-​of-​bank/​index.html> (last visited 1 June 2020). 97  AIIB, ‘Our Founding Principles’, at < https://​www.aiib.org/​en/​about-​aiib/​index.html > (last visited 1 June 2020). 98  New Development Bank, ‘About Us’, at < https://​www.ndb.int/​about-​us/​esse​nce/​hist​ory/​ > (last visited 1 June 2020). 99  Silk Road Fund, ‘About Us’, at < http://​www.silkr​oadf​und.com.cn/​enweb/​23775/​23767/​index.html > (visited 1 June 2020).

358   Henry Gao Various Chinese firms, especially financial institutions, both public and private, were also urged by the Chinese Government to help finance and invest in BRI projects. In 2019, it was estimated that total direct investment in the BRI countries amounted to more than $90 billion.100 Building infrastructure projects along the BRI can help China export its products and its technical standards too. This is most evident in the telecommunication sectors, where Chinese telecom giants such as Huawei and ZTE are the leading players in the construction of telecommunication networks in developing countries, especially those within the BRI.101 In addition to the hardware infrastructure, the software infrastructure in BRI countries is also increasingly dominated by Chinese standards.102 One good example is the electronic world trade platform, or the eWTP, an ambitious initiative by Alibaba that aims to build online marketplaces around the world in its own image.103 The project has led to enthusiastic responses from countries around the world as well as international organizations, with the WTO announcing an official partnership with Alibaba in 2017.104 While the BRI, in its current form, is but a loose assembly of countries, China has long been planning to harness its full potential by building up a pan-​BRI FTA framework. In December 2015, the State Council issued Several Opinions on Accelerating the Implementation of the Free Trade Area Strategy, which state that, in the medium to long term, China is to build a global FTA network that covers countries along the BRI and links up all key countries in the five major continents.105 Indeed, if we look at the recent additions to China’s FTA club and those in the pipeline, almost all of them seem to fall within BRI coverage. Such a heavily skewed hub-​and-​spoke system with China at the centre would definitely boost China’s power vis-​à-​vis the other countries and make it easier for China to protect its own trade interests.

100  Zhongguo

Yidai Yilu Wang [China One Belt One Road Network], ‘Tujie: “Yidai Yilu” Changyi Liunian Chengjidan [Pictograph: ‘One Belt One Road’ Initiative’s Achievements in First Six Years]’(9 September 2019), at (last visited 1 June 2020). 101  S. Bicheno, ‘Chinese Vendors Continue to Gain Share in the Global Telecoms Equipment Market’, telecoms.com (2 March 2020), at < https://​telec​oms.com/​502​843/​chin​ese-​vend​ors-​conti​nue-​to-​gain-​ share-​in-​the-​glo​bal-​telec​oms-​equipm​ent-​mar​ket > (last visited 1 June 2020). 102   A. Polk, ‘China Is Quietly Setting Global Standards’ Bloomberg (7 May 2018), at < https://​www. bloomb​erg.com/​opin​ion/​artic​les/​2018-​05-​06/​china-​is-​quie​tly-​sett​ing-​glo​bal-​standa​rds > (last visited 1 June 2020). 103  See H. Gao, ‘Digital or Trade? The Contrasting Approaches of China and US to Digital Trade’ 21 Journal of International Economic Law (2018) 297, at 308–​10. 104  WTO, ‘WTO, World Economic Forum and eWTP launch joint public-​private dialogue to open up e-​commerce for small business’ (11 December 2017), at < https://​www.wto.org/​engl​ish/​new​s_​e/​news1​7_​ e/​eco​m_​11​dec1​7_​e.htm > (last visited 1 June 2020). 105  State Council, ‘Guowuyuan Guanyu Jiakuai Shishi Ziyou Maoyiqu Zhanlue de Ruogan Yijian [Several Opinions of the State Council on Accelerating the Development of FTA Strategy]’, Guofa [2015] #69 (17 December 2015), at < http://​www.gov.cn/​zhen​gce/​cont​ent/​2015-​12/​17/​conten​t_​10​424.htm > (last visited 1 June 2020).

Trade and Investment Liberalization: The Case of China     359

VI.  Free trade zones In addition to the BRI and the AIIB, 2013 also saw China embarking on another major initiative: free trade zones (FTZs). In Chinese, they share exactly the same name—​‘Zimao Qu’—​as FTAs, which leads to a lot of confusion. In practice, however, they are quite different from each other since FTAs aim to reduce trade barriers in foreign markets, while FTZs are mainly designed as tools for autonomous trade and investment liberalization within China. For example, the Overall Plan for the first pilot FTZ in Pudong, Shanghai clarifies that FTZs are to be piloted, with further opening up in goods trade, services, and investment.106 As of 24 May 2020, there are a total of 18 FTZs, which cover all the coastal provinces of China, as well as key inland provinces. Broadly speaking, they are all tasked with promoting trade and investment, but there are still variations among them. Most importantly, the earlier batches of FTZs, especially the one in Shanghai, are supposed to be ‘test beds for domestic economic reforms’ by cutting government red tape and experiment with trade and investment liberalization measures.107 One good example is the ‘negative list’ approach to foreign investment market access, which was pioneered by the Shanghai FTZ in 2013. In contrast to the ‘positive list’ approach for services in Chinese FTAs, the Shanghai FTZ scheduled commitments on foreign investment as a ‘negative list’.108 It included a total of 190 special administrative measures (restrictions) on foreign investment. While relatively long, it was still an improvement of the main instrument on foreign investment—​the Foreign Investment Guiding Catalogue—​by both reducing the number of sectors subject to investment restrictions and simplifying the procedure for investment approval. Since then, the list has been revised on an annual basis and keeps getting shorter, with the latest list containing only 37 measures.109 Moreover, the negative list approach was also gradually adopted at the national level. The initial list issued

106  State Council, ‘Guowuyuan Guanyu Yinfa Zhongguo (Shanghai) Ziyou Maoyi Shiyanqu Zongti Fangan de Tongzhi [Notice of the State Council on Issuing the Overall Plan for the China (Shanghai) Free Trade Pilot Area]’, Guofa [2013] #38 (27 September 2013), at < http://​www.gov.cn/​zwgk/​2013-​09/​27/​ cont​ent_​2496​147.htm > (last visited 1 June 2020). 107 Ibid. 108  The People’s Government of Shanghai Municipality, ‘Zhongguo (Shanghai) Ziyou Maoyi Shiyanqu Waishang Touzi Zhunru Tebie Guanli Cuoshi (Fumian Qingdan) [China (Shanghai) Free Trade Pilot Area Special Administrative Measures on Market Access for Foreign Investment (Negative List)] (2013)’, Hufufa [2013] 75, (30 September 2013), at < http://​www.shang​hai.gov.cn/​nw2/​nw2​314/​nw32​419/​nw32​510/​ nw32​512/​u26​aw40​135.html > (last visited 1 June 2020). See also Chapter 18 of this handbook. 109  MOFCOM, ‘Zhongguo jiang Jixu Yajian Quanguo he Zimao Shiyanqu de Waizi Zhunru Fumian Qingdan [China to Continue to Shorten the Negative List for Foreign Investment both Nationally and in FTZs]’ (3 March 2020), at < http://​sg.mof​com.gov.cn/​arti​cle/​sxtz/​202​003/​202​0030​2941​161.shtml > (last visited 1 June 2020).

360   Henry Gao in June 2014 included 328 restrictions; the latest version issued in 2019 was reduced by more than 60 per cent to 131.110 In contrast, the later batches of FTZs, especially those located in the hinterlands, seem to be designed with a different objective. Examples are the new FTZs established in 2017 in Chongqing, Henan, Hubei, Shaanxi, and Sichuan. Strategically located, these FTZs are tasked with developing the poorer interior provinces and linking up China’s Western regions with BRI countries. For example, the ones in Chongqing and Sichuan serve as key nodes in the China-​Europe Railway Express, which reaches all the way into Europe, while the one in Shaanxi is crucial in linking China with central Asian States. Within BRI countries, China worked with its state-​owned companies to finance and build huge Chinese-​built commercial facilities and industrial parks in new ‘economic and trade cooperation zones’. By February 2020, China had built eighty-​two such zones within BRI countries with a total investment of $34 billion.111 Working in tandem, the internal FTZs and external economic and trade cooperation zones help boost the trade between China and the BRI countries, furthering China’s goal of turning the BRI into a giant hub and spoke system.

VII.  WTO reform: a China Round? Since its WTO accession, China’s exports have been growing exponentially. In 2009, China became the world’s top goods exporter. Four years later, China unseated the United States as the top trading nation in the world. In contrast to the burgeoning Chinese economy, the United States and Europe have been suffering from economic decline since the global financial crisis in 2008. China regards its rise as a long-​overdue restoration of its rightful position, as it has been the largest economy in the world for most of its history, except the brief aberration over the past 150 years. However, the Western powers view China’s rapid development with suspicion, as they attributed China’s success mostly to its state-​led development model, with state-​owned enterprises, massive subsidies and heavy government intervention playing a major role. The most notorious example of the Chinese development model is the Made in China 2025 Plan, which was prepared in 2014 by the Chinese Academy of Sciences and the Chinese Academy of Engineering under the leadership of the Ministry of Industry and Information Technology (MIIT), along with the National Development and Reform 110 

Xinhua, ‘Shichang Zhunru Fumian Qingdan (2019 Nian Ban) Fabu [Market Access Negative List (2019 Edition) Released]’ (22 November 2019), at < http://​www.xinhua​net.com/​fort​une/​2019-​11/​22/​c_​112​ 5261​249.htm > (last visited 1 June 2020). 111  X. Gong, ‘Nuli Shixian Duofang Gongying, Chixu Tuidong Jingwai Jingmao Hezuoqu Gaozhiliang Fazhan [Strive to Achieve Multilateral Win-​win, Continue Pushing for High Quality Development in Economic and Trade Cooperative Zones Abroad]’, Zhongguo Jingji Daobao [China Economic Herald] (6 March 2020), at < http://​www.ceh.com.cn/​ep_​m/​ceh/​html/​2020/​03/​06/​06/​06_​45.htm > (last visited 1 June 2020).

Trade and Investment Liberalization: The Case of China     361 Commission (NDRC) and 20 agencies. Officially adopted by the State Council in 2015,112 the Plan sought to move China up in the value chain of industrial activities and turn China into a manufacturing power that controls core technologies in key sectors by 2025. In particular, it aimed to achieve 70 per cent self-​sufficiency in high-​tech industries by 2025 and a dominant position in global markets by 2049—​the hundredth anniversary of the People’s Republic of China. To achieve these goals, the Plan employed problematic tactics such as direct government intervention, massive subsidies, investments and acquisitions in foreign markets by State Owned Enterprises (SOEs), and forced technology transfers. These practices led to widespread criticisms of the Plan, which many governments regarded not only as economic aggression but also a potential national security threat. In June 2018, the European Union even brought a WTO case against China, alleging China’s various technology transfer measures violated the TRIPS Agreement, the GATT 1994, and China’s Accession Protocol.113 In view of the backlashes, China has toned down the propaganda on the Plan, but observers suspected that it has always remained on the Chinese Government’s agenda. To counter the Chinese threat, the United States led a concerted effort of like-​minded countries to ‘level the playing field’. In particular, building on the influential ‘China Inc’ paper by Harvard law professor Mark Wu,114 the US-​led coalition has been arguing that the existing WTO rules are insufficient in dealing with the problems created by China’s state capitalism. At the 11th WTO Ministerial Conference in Buenos Aires, the United States, the European Union, and Japan issued a joint statement115 condemning ‘severe excess capacity in key sectors exacerbated by government-​financed and supported capacity expansion, unfair competitive conditions caused by large market-​distorting subsidies and state owned enterprises, forced technology transfer, and local content requirements and preferences’ as ‘serious concerns for the proper functioning of international trade, the creation of innovative technologies and the sustainable growth of the global economy’. To ‘address this critical concern’, they vowed to ‘enhance trilateral cooperation in the WTO and in other forums’. At the 11th Ministerial Conference, the United States set the agenda on the substance of the negotiation and strived to control how the negotiations should be conducted. At the conclusion of the conference, the USTR Robert Lighthizer stated that ‘MC11 will be remembered as the moment when the impasse at the WTO was broken. Many members recognized that the WTO must pursue a fresh start in key areas so that like-​minded 112  State

Council, ‘Guowuyuan Guanyu Yinfa de Tongzhi [State Council Notice on Issuing ]’, Guofa [2015] #28 (8 May 2015), at < http://​www.gov.cn/​zhen​ gce/​cont​ent/​2015-​05/​19/​conte​nt_​9​784.htm > (last visited 1 June 2020). 113  China—​Certain Measures on the Transfer of Technology, Request for consultations by the European Union, WT/​DS549/​1, G/​L/​1244, IP/​D/​39 (6 June 2018). 114  M. Wu‚ ‘The “China, Inc.” Challenge to Global Trade Governance’ 57 Harvard International Law Journal (2016) 261. 115  USTR, ‘Joint Statement by the United States, European Union and Japan at MC11’ (12 December 2017), at < https://​ustr.gov/​about-​us/​pol​icy-​offi​ces/​press-​off​i ce/​press-​relea​ses/​2017/​decem​ber/​joint-​ statem​ent-​uni​ted-​sta​tes > (last visited 1 June 2020).

362   Henry Gao WTO Members and their constituents are not held back by the few Members that are not ready to act.’116 In other words, instead of trying to seek a consensus among all WTO Members like it did in the past, the United States would now work with the ‘coalition of the willing’ and move at its own speed. Since then, the trilateral group has intensified its work with several more joint statements. In turn, these statements have morphed into WTO reform proposals, with the key players all chipping in. Among the major players, the European Union was the first to issue a comprehensive concept paper. Released on 18 September 2018, it is entitled ‘WTO Modernisation: Introduction to future EU proposals’117 and covers three aspects: rule-​ making and development, regular work and transparency, and dispute settlement. Three days later, Canada followed with its discussion paper on ‘Strengthening and Modernizing the WTO’, which also includes three aspects: ‘(1) improve the efficiency and effectiveness of the monitoring function; (2) safeguard and strengthen the dispute settlement system; and, (3) lay the foundation for modernizing the substantive trade rules when the time is right’.118 In addition to the two comprehensive papers, both the European Union and Canada have also tabled various more specific proposals.119 The United States has not issued any comprehensive proposal but prefers to address the specific issues through stand-​alone proposals.120 In addition, Canada also convened a series of meetings with a group of like-​minded countries. Informally referred to as the Ottawa Group, it includes most of the WTO’s key players except the United States, China, and India.121 The proposals by the European Union, United States, Canada, and the Ottawa Group share a lot of commonalities, especially on the following groups of issues, which are of particular relevance to China.

116 USTR, ‘USTR Robert Lighthizer Statement on the Conclusion of the WTO Ministerial Conference’ (14 December 2017), at < https://​ustr.gov/​about-​us/​pol​icy-​offi​ces/​press-​off​i ce/​press-​relea​ ses/​2017/​decem​ber/​ustr-​rob​ert-​lig​hthi​zer-​statem​ent > (last visited 1 June 2020). 117  European Commission, ‘WTO modernisation: Introduction to future EU proposals’, 18 September 2018, at < https://​trade.ec.eur​opa.eu/​doc​lib/​docs/​2018/​septem​ber/​tradoc​_​157​331.pdf > (last visited 1 June 2020). 118 WTO, General Council, ‘Strengthening and Modernizing the WTO: Discussion Paper —​ Communication from Canada’, JOB/​GC/​201 (24 September 2018). 119 Such as Proposal by the European Union, China, Canada, India, Norway, New Zealand, Switzerland, Australia, Republic of Korea, Iceland, Singapore, Mexico, Costa Rica and Montenegro, on Appellate Body Reform, WT/​GC/​W/​752/​Rev.2 (10 December 2018); Proposal by Canada titled Strengthening the Deliberative Function of the WTO, JOB/​GC/​211 (14 December 2018). 120 These include, for example, Proposal by the United States, ‘An Undifferentiated WTO: Self-​ Declared Development Status Risks Institutional Irrelevance’, WT/​GC/​W/​757/​REV.1 (15 January 201)9; Proposal by Argentina, Costa Rica, the European Union, Japan and the United States Procedures to Enhance Transparency and Strengthen Notification Requirements Under WTO Agreements, JOB/​GC/​ 204 (1 November 2018). 121  The members include Australia, Brazil, Canada, Chile, European Union, Japan, Kenya, Korea, Mexico, New Zealand, Norway, Singapore and Switzerland.

Trade and Investment Liberalization: The Case of China     363 The first group of issues concerns the need to update the substantive rules of the WTO, such as clarifying the application of ‘public body’ rules to SOEs, expanding the rules on forced technology transfer, and addressing barriers to digital trade.122 All of these are long-​standing issues which have been litigated in the WTO.123 Each reflects a major concern over China’s trade and economic systems, which employ measures that are perceived as unfair trade practices. These include China’s unique state-​led development model, which emphasizes the role of state-​owned firms in the Chinese economy, often without a clear boundary between the State and the firm.124 They also refer to China’s over-​zealous drive to obtain and absorb foreign intellectual property rights, where foreign firms are met with explicit or implicit demands to trade their technologies for markets. The third touches on the core of the authoritarian regime in China, where the Government maintains tight control over information and the Internet.125 The second group of issues addresses the procedural question of boosting the efficiency and effectiveness of the WTO’s monitoring function, especially the rules relating to compliance with the WTO’s notification requirements, with subsidies as the leading example.126 While no WTO Member may claim a perfect record in subsidy notifications, China’s failure to fulfil that obligation seems to be particularly egregious. This seems to be a perennial problem, which the USTR has been complaining about ever since China’s accession to the WTO.127 After much nudging from the United States, China finally submitted its first subsidies notification in April 2006, nearly five years behind schedule.128 However, even that remained incomplete as China did not notify subsidies by sub-​central governments, which would take China another ten years to report.129 Moreover, the subsequent notification took China four more years to submit. Frustrated

122 

See EU Proposal, at 4-6; Canada proposal, at 5. See also Chapters 29 and 30 of this handbook. public body, see Appellate Body Report, US –​Anti-​Dumping and Countervailing Duties (China), adopted 25 March 2011, paras 276 to 359; on forced technology transfer, see China –​Intellectual Property Rights II, Request for consultations by the United States, WT/​DS542/​1, IP/​D/​38 (26 March 2018); China –​Certain Measures on the Transfer of Technology, Request for consultations by the European Union, WT/​DS549/​1, G/​L/​1244, IP/​D/​39 (6 June 2018); on digital trade barrier, see Appellate Body Report, China –​Publications and Audiovisual Products, adopted 19 January 2010, paras 338 to 413; see also the potential WTO case when Google pulled out of China, which was discussed in H. Gao, ‘Google’s China Problem: A Case Study on Trade, Technology and Human Rights Under the GATS’ 6 Asian J WTO & Intl Health L & Policy (2011) 347. 124   See also Chapter 30 of this handbook. 125  For an overview of China’s data regulation framework, see H. Gao, ‘Data Regulation with Chinese Characteristics’ in M. Burri (ed), Big Data and Global Trade Law (Cambridge: Cambridge University Press, 2021) 245–​267. 126  See EU proposal, at 9–​11; Canada proposal, at 2. 127  USTR, ‘2002 Report to Congress on China’s WTO Compliance’ (1 December 2002) at, < https://​ china.usc.edu/​sites/​defa​ult/​files/​arti​cle/​atta​chme​nts/​2002-​rep​ort-​chi​nas-​wto-​com​plia​nce.pdf > (last visited 1 June 2020), at 22–​23. 128  USTR, ‘2018 Report to Congress on China’s WTO Compliance’ (February 2019), at < https://​ustr. gov/​sites/​defa​ult/​files/​2018-​USTR-​Rep​ort-​to-​Congr​ess-​on-​China%27s-​WTO-​Com​plia​nce.pdf >(last visited 1 June 2020), at 75. 129 Ibid. 123 On

364   Henry Gao over the slow progress, the United States invoked Article 25.10 of the SCM Agreement to file a ‘counter notification’ in October 2011, which identified more than 200 unreported subsidy measures.130 To address the problem, the joint draft by the United States, the European Union, Japan and Canada on strengthening the notification requirements proposed some rather drastic measures, such as naming and shaming the delinquent Member by designating it as ‘a Member with notification delay’, curtailing its right to make interventions in WTO meetings and nominations to chair WTO bodies, and even levying a fine at the rate of 5 per cent of its annual contribution.131 The last significant issue is development, another longstanding issue stemming from the United States and the European Union’s call for greater ‘differentiation’ among WTO Members. The underlying rationale is that, while developed countries were willing to extend special and differential treatment to smaller developing countries, they are rather reluctant to extend the same treatment to large developing countries, such as China, an economic powerhouse in its own right.132 Thus, in their proposals, the European Union and Canada called for the rejection of ‘blanket flexibilities’133 for all WTO Members, which are to be replaced by ‘a needs-​driven and evidence-​based approach’134 that ‘recognizes the need for flexibility for development purposes while acknowledging that not all countries need or should benefit from the same level of flexibility’.135 The US proposal is more radical by proposing the automatic termination of S&DT for Members which fall into one of the following four categories: OECD members, G20 members, classification as ‘high income’ by the World Bank, or a share of at least 0.5 per cent of global goods trade.136 Such a classification system would strip many WTO Members of their developing countries’ status, including China, as it meets two criteria, i.e., G20 membership and a large trade share. Realizing that it has become the unspoken target of WTO reform, China quickly responded with two documents. The first is a November 2018 position paper setting out China’s three principles and five suggestions on WTO reform.137 In May 2019, China submitted a formal proposal on WTO reform, which further elaborated on the main

130 

Ibid., at 76. Council and Council for Trade in Goods, ‘Procedures to enhance transparency and strengthen notification requirements under WTO Agreements –​Communication from Argentina, Australia, Canada, Costa Rica, the European Union, Israel, Japan, New Zealand, the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu, and the United States –​Revision’, JOB/​GC/​204/​Rev.3, JOB/​CTG/​14/​Rev.3 (5 March 2020), at 3–​4. 132  See further Chapter 22 of this handbook. 133  EU Proposal, at 6. 134  Ibid., at 7. 135  Canada Proposal, at 5. 136 United States, ‘Draft General Council Decision –​Procedures to strengthen the negotiating function of the WTO -​Decision of X Date’, WT/​GC/​W/​764, (15 February 2019), at 1–​2. 137  MOFCOM, ‘China’s Position Paper on WTO Reform’ (20 December 2018), at < http://​engl​ish.mof​ com.gov.cn/​arti​cle/​news​rele​ase/​couns​elor​soff​i ce/​wes​tern​asia​anda​fric​arep​ort/​201​812/​201​8120​2818​679. shtml> (last visited 1 June 2020). 131 General

Trade and Investment Liberalization: The Case of China     365 issues of concern to China, and the specific actions that need to be taken.138 While many of the suggestions directly respond to the China-​related reform proposals mentioned earlier, China also tries to turn the table by launching its own offensive. For example, China suggests that the first priority should be solving the existential issues facing the WTO, such as the impasse over the Appellate Body Member appointment process, the abuse of the national security exception and the resort to unilateral measures.139 Of course, given the mounting pressure, most of the Chinese proposals directly address the aforementioned points. First, while China expresses willingness to consider some of the new substantive issues being proposed, such as electronic commerce and investment facilitation, it objects to many proposals. For example, one of the five suggestions in China’s position paper is the need to ‘respect members’ development models’, which means that China ‘opposes special and discriminatory disciplines against state-​owned-​enterprises in the name of WTO reform’.140 This is reiterated in the reform proposal, which is listed under the heading of ‘Adhering to the Principle of Fair Competition in Trade and Investment’.141 While some Western commentators might be puzzled by such an adamant position on the SOE issue, this is not surprising given that SOEs relate to two of the three ‘core interests’ of China as famously defined by State Councillor Dai Binguo in 2009.142 As mentioned earlier, China resents being singled out in WTO negotiations. Because these proposals clearly target China, it is no surprise that China would react so strongly. Moreover, even in respect of issues on which China seems to agree with other WTO Members, the Chinese position sometimes comes with a twist. Electronic commerce is one such example, with the Chinese proposal focusing on ‘cross-​border trade in goods enabled by the Internet, as well as on such related services as payment and logistics services’.143 As discussed elsewhere, this is very different from the position taken by the United States, which emphasizes digital transmissions and the associated issue of the free flow of data.144 Second, China adopts a dual-​track approach to the procedural issue of subsidy notifications. On the defensive side, China proposes that developing countries only comply with the notification obligations on a best-​endeavour basis and should receive more technical assistance for that purpose.145 On the offensive side, China throws 138  WTO, General Council, ‘China’s Proposal on WTO Reform: Communication from China’, WT/​ GC/​W/​773 (13 May 2019). 139   Ibid., at paras 2.1–​2.10. 140  MOFCOM, above fn 140. 141  WTO, above fn 141, Section 2.4.2. 142  The three core interests are: preserving China’s basic state system and national security, national sovereignty and territorial integrity, and the continued stable development of China’s economy and society. See M.D. Swaine, ‘Part One: On “Core Interests” ’ China Leadership Monitor no. 34’, at < https://​ carneg​ieen​dowm​ent.org/​files/​CLM34M​S_​FI​NAL.pdf > (last visited 1 June 2020). State-​owned economy is the basic economic system according to Articles 6 and 7 of the Chinese Constitution, which also state that public ownership and state-​owned economy must be the leading force in the economy. 143  WTO, above fn 141, at para 2.22. 144  Gao, above fn 103. 145  WTO, above fn 141, at para 2.28.

366   Henry Gao the ball into the court of developed countries by calling them to ‘lead by example in submitting comprehensive, timely and accurate notifications’ and ‘improve the quality of their counter-​notifications’.146 Third, China is taking a flexible approach in respect of development. As a matter of principle, it made it clear that S&DT is an ‘entitlement’ that China ‘will never agree to be deprived of ’.147 At the same time, it also indicated its willingness to ‘take up commitments commensurate with its level of development and economic capability’.148 Such an approach is not new but is consistent with what China has been doing for some time. For example, when trade facilitation was first brought within the scope of WTO negotiations as one of the four ‘Singapore Issues’, most developing country Members were unwilling to participate as they believed that the benefits would mostly accrue to developed countries with large trade volumes while developing countries would need to foot the bill for modernizing their customs processes.149 However, China took a different position because it realized that, as one of the largest and most diversified traders in the world, it stood to benefit greatly from such an initiative. Thus, China actively participated in the negotiations and became one of the first developing countries to ratify the agreement upon conclusion. Moreover, China did not designate any Category C measures and agreed to implement 94.5 per cent of the measures immediately upon ratification.150 All of its Category B measures have been fully implemented by January 2020.151

VIII.  US-​C hina trade war When China joined the WTO, globalization was in its heyday and optimism abounded. The sentiment was nicely summed up by US President Bill Clinton in his speech152 in 2000 promoting the bill that granted China permanent normal trading status: By joining the W.T.O., China is not simply agreeing to import more of our products; it is agreeing to import one of democracy’s most cherished values: economic freedom. The more China liberalizes its economy, the more fully it will liberate the potential of

146 Ibid. 147 

MOFCOM, above fn 140.

148 Ibid. 149 

Third World Network, ‘Many Developing Countries Against Trade Facilitation Rules in WTO’ (28 June 2003), at < https://​www.twn.my/​title/​twninf​o35.htm > (last visited 1 June 2020). See also Chapter 22 of this handbook. 150  WTO Trade Facilitation Agreement Database, at < https://​www.tfad​atab​ase.org/​memb​ers/​china/​ meas​ure-​breakd​own?date=​2020 > (last visited 1 June 2020). 151 Ibid. 152  Full Text of Clinton’s Speech on China Trade Bill (9 March 2000), at < https://​www.iatp.org/​sites/​ defa​ult/​files/​Full_​Text_​of_​Clinto​ns_​S​peec​h_​on​_​Chi​na_​T​rade​_​Bi.htm > (last visited 1 June 2020).

Trade and Investment Liberalization: The Case of China     367 its people —​their initiative, their imagination, their remarkable spirit of enterprise. And when individuals have the power, not just to dream but to realize their dreams, they will demand a greater say.’ . . . . . . The Chinese government no longer will be everyone’s employer, landlord, shopkeeper and nanny all rolled into one. It will have fewer instruments, therefore, with which to control people’s lives. And that may lead to very profound change.’

In other words, it was widely believed that the WTO would help to transform China from communism to capitalism, with more freedom to the people in both economic and political spheres. This was to be achieved through the policy of ‘engagement’, which was adopted by successive US administrations from Clinton to Obama.153 However, as time went by, the United States realized that communism not only did not retreat, but also further advanced in China, with the state-​owned economy growing stronger and the rule of the Party further entrenched in the process.154 This disillusion over the transformative power of the multilateral trading system led to the exploration of other means to help effect change in China. Initially, President Obama tried to build a ‘coalition of the willing’ with the launch of the TPP negotiations in 2010, which included rules on SOEs, competition, labour, government procurement, and digital trade, all designed to address the challenges resulting from China’s state capitalism. When President Trump came into office, however, the TPP deal was scrapped as he believed it was a ‘disaster’ that is bad for American business and workers.155 Instead, President Trump resorted to another tool that he deemed more direct and effective: a trade war. As a prelude, in August 2017, President Trump requested the USTR, to ‘determine, consistent with section 302(b) of the Trade Act of 1974 (19 U.S.C. 2412(b)), whether to investigate any of China’s laws, policies, practices, or actions that may be unreasonable or discriminatory and that may be harming American intellectual property rights, innovation, or technology development.’156 On 22 March 2018, the USTR released its “Section 301 Report into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation”, which made positive findings on these issues. 153 There

have been some debates on whether the engagement policy started with the Clinton administration, but most agree that it was that administration which made engagement the main theme of America’s China policy. See N. Thomas, ‘Matters of Record: Relitigating Engagement with China’ Marco Polo, (3 September 2019), at < https://​macrop​olo.org/​analy​sis/​china-​us-​eng​agem​ent-​pol​icy/​ > (last visited 1 June 2020); O. Schell, ‘The Death of Engagement’ The Wire China (7 June 2019), at < https://​www.thewi​rech​ina.com/​2020/​06/​07/​the-​birth-​life-​and-​death-​of-​eng​agem​ent > (last visited 1 June 2020). 154  For a discussion about the evolution of different stages of SOE reform in China, see W. Zhou, H. Gao and X. Bai, ‘China’s SOE Reform: Using WTO Rules to Build a Market Economy’ 68 International and Comparative Law Quarterly (2019) 977. See also Chapter 30 of this handbook. 155  D.A. Irwin, ‘Mr. Trump’s Trade War’ Wall Street Journal (15 December 2017), at < https://​www.wsj. com/​artic​les/​don​ald-​tru​mps-​trade-​war-​151​3356​667 > (last visited 1 June 2020). 156 Presidential Memorandum for the United States Trade Representative (14 August 2017), at < https://​www.whi​teho​use.gov/​presi​dent​ial-​acti​ons/​presi​dent​ial-​mem​oran​dum-​uni​ted-​sta​tes-​trade-​rep​ rese​ntat​ive > (last visited 1 June 2020).

368   Henry Gao That report suggested ‘[a]‌range of tools may be appropriate to address these serious matters including more intensive bilateral engagement, WTO dispute settlement, and/​ or additional Section 301 investigations.’157 On the same day, President Trump directed the USTR to raise tariffs against Chinese products, bring WTO cases against China’s discriminatory licensing practices, and the Treasury Department to impose investment restrictions on Chinese firms.158 On 3 April 2018, the USTR published a proposed list of Chinese products subject to an additional tariff of 25 per cent.159 In total, the list covers about 1,300 separate tariff lines with an estimated worth of roughly $50 billion. With the MOFCOM announcing 25 per cent additional tariff on 106 US products with the same value, China responded quickly.160 In several rounds of tit-​for-​tat retaliations over the next one and half years, the stakes quickly escalated to cover $550 billion worth of Chinese products and $185 billion worth of US goods.161 In other words, the additional tariffs cover almost the entire bilateral trade between the two, with only limited exceptions.162 The illegality of the additional tariffs by the United States is beyond doubt. Years before the current case, the Panel in US –​Sections 301 Trade Act, ruled unequivocally that Section 301, to the extent that it requires the United States to make a unilateral determination of compliance, violates Article 23.2(a) of the DSU. That provision requires that a Member shall ‘not make a determination to the effect that a violation has occurred . . . except through recourse to dispute settlement’. However, relying on both the US Statement of Administrative Action (SAA) accompanying the US legislation implementing the results of the Uruguay Round163 and the US statements in that case,164 157 USTR,

‘Findings of the Investigation into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation Under Section 301 of the Trade Act of 1974’ (22 March 2018), at < https://​ustr.gov/​sites/​defa​ult/​files/​Sect​ion%20301%20FI​NAL.PDF > (last visited 1 June 2020). 158 Presidential Memorandum on the Actions by the United States Related to the Section 301 Investigation (22 March 2018), at < https://​www.whi​teho​use.gov/​presi​dent​ial-​acti​ons/​presi​dent​ial-​mem​ oran​dum-​acti​ons-​uni​ted-​sta​tes-​rela​ted-​sect​ion-​301-​invest​igat​ion/​ > (last visited 1 June 2020). 159  USTR, ‘Under Section 301 Action, USTR Releases Proposed Tariff List on Chinese Products’ (3 April 2018), at < https://​ustr.gov/​about-​us/​pol​icy-​offi​ces/​press-​off​i ce/​press-​relea​ses/​2018/​april/​under-​ sect​ion-​301-​act​ion-​ustr > (last visited 1 June 2020). 160  MOFCOM, ‘Guanyu dui Yuanchanyu Meiguo de Bufen Jinkou Shangpin Jiazheng Guanshui de Gonggao [Notice on the Collection of Additional Tariff on Some Imported Products from the United States]’, ShangwubuGonggao No. 34 (4 April 2018), at < http://​www.mof​com.gov.cn/​arti​cle/​b/​e/​201​804/​ 201​8040​2728​516.shtml > (last visited 1 June 2020). 161  D. Wong and A. Chipman Koty, ‘The US-​China Trade War: A Timeline’ China Briefing (13 May 2020), at < https://​www.china-​brief​i ng.com/​news/​the-​us-​china-​trade-​war-​a-​timel​ine > (last visited 1 June 2020). For a detailed analysis of the different phases of trade war, see C.P. Bown, ‘US-​China Trade War: The Guns of August’ (20 September 2019), at < https://​www.piie.com/​blogs/​trade-​and-​inv​estm​ent-​ pol​icy-​watch/​us-​china-​trade-​war-​guns-​aug​ust > (last visited 1 June 2020). 162  According to the US government, US imports from China in 2018 were only $540 billion with its export to China $120 billion. See United States Census Bureau, ‘Trade in Goods with China’, at < https://​ www.cen​sus.gov/​fore​ign-​trade/​bala​nce/​c5700.html > (last visited 1 June 2020). 163  Panel Report, US –​Sections 301-​Trade Act, adopted 27 January 2000, paras 7.110–​7.112. 164  Ibid., at para 7.116.

Trade and Investment Liberalization: The Case of China     369 the Panel was satisfied that the US Government had undertaken ‘never to adopt a determination of inconsistency prior to the adoption of DSB’165 and thus concluded that the provisions at issue were not inconsistent with US obligations under the WTO. With a keen awareness of the volatility of politics, the Panel ended its report with the following prescient admonition:166 Significantly, all these conclusions are based in full or in part on the US Administration’s undertakings mentioned above. It thus follows that should they be repudiated or in any other way removed by the US Administration or another branch of the US Government, the findings of conformity contained in these conclusions would no longer be warranted.

By taking unilateral measures against China without DSB authorization, the United States has violated its WTO obligations. Not surprisingly, this is also China’s view, as articulated in its three successive WTO cases against the different rounds of US tariffs.167 In addition, the specific weapons that the United States chose in the trade war—​additional tariffs on top of its WTO bound tariffs against Chinese products—​also violate the MFN and tariff binding obligations under Articles I:1 and II:1 of the GATT 1994, respectively. In response, the United States claims that the additional tariffs were necessary steps to address China’s distortive policies on technology transfer, which are ‘harmful, trade distorting policies not directly covered by WTO rules’.168 While such an argument is unlikely to be accepted by a panel or the Appellate Body, the United States has been able to convince many WTO Members of the necessity of WTO reform to address what it perceives as the underlying problem. However, by firing its own rounds of additional tariffs, China has also lost its innocence in the trade war. In its announcement on the additional tariffs, China stated that its retaliatory tariffs were necessary to ‘respond to the emergency caused by the violation of international obligations by the US, defend China’s lawful self-​interests’, and were taken pursuant to ‘relevant laws and regulations such as The Foreign Trade Law of the People’s Republic of China and basic principles of international law’.169 MOFCOM did not spell out the exact provisions, but the most relevant would appear to be Article 7 of Foreign Trade Law, which states that if any country imposes discriminatory trade measures against China, China may take corresponding measures against such countries. However, this provision cannot provide sound legal justification as it is essentially a simplified version of Section 301 and thus suffers from the same problem. With 165 

Ibid., at para 7.112. Ibid., at para 8.1. 167  The three cases are: DS543: US –​Tariff Measures; DS565: US –​Tariff Measures II; DS587: US –​Tariff Measures III. 168  US Mission to International Organizations in Geneva, ‘Ambassador Dennis Shea’s Statement at the WTO General Council’ (8 May 2018), at < https://​gen​eva.usmiss​ion.gov/​2018/​05/​08/​amb​assa​dor-​den​ nis-​sheas-​statem​ent-​at-​the-​wto-​gene​ral-​coun​cil/​ >(last visited 1 June 2020). 169  MOFCOM, above fn 163. 166 

370   Henry Gao regard to international law principles, Dr. Yang Guohua, a formal senior MOFCOM official, has mentioned170 the following possibilities: the right of self-​defence under Article 51 of the UN Charter; the termination or suspension of a treaty’s operation as a consequence of its breach by another party under Article 60 of the VCLT; and necessary measures to safeguard an essential interest against a grave and imminent peril under Article 25 of the Draft Articles on State Responsibility. The biggest problem with these general principles, however, is whether they could be used to justify blatant violations of explicit WTO obligations, notwithstanding the famous statement by the Appellate Body in US –​Gasoline that WTO agreements are not to ‘be read in clinical isolation from public international law’. After a roller-​coaster ride spanning the better part of two years, the two sides finally signed a bilateral Phase One trade deal171 on 15 January 2020. At 96 pages, the Agreement includes seven chapters on the following issues: (1) intellectual property, (2) technology transfer, (3) trade in food and agricultural products, (4) financial services, (5) macroeconomic policies and exchange rate matters and transparency, (6) trade expansion and (7) dispute resolution. Most of the chapters cover rules or regulatory issues, with Chapter 6 setting out detailed market access commitments by spelling out in dollar values China’s additional import targets for the next two years. The purchase commitments are supposed to solve the trade imbalance problem, which is what prompted President Trump to launch the trade war in the first place. Technically speaking, however, all the additional tariffs imposed by the United States over the past two years were triggered by the rules issues, as explained earlier. While the Agreement helped avoid further escalation of the trade war, it left most existing retaliatory tariffs intact172 and institutionalized the unilateral and confrontational approach to resolving disputes, which could reignite the bilateral trade tensions.173 Moreover, the deal fails to address the more significant and systemic issues, such as China’s SOEs and industrial policies and subsidies. Instead, these issues are expected to be addressed by the two parties in their Phase Two negotiations.174

170 G.

Yang, ‘Zhongmei Maoyizhan Zhong de Guojifa [International Law behind the Trade War between US and China]’, Wuda Guojifa Pinglun [International Law Review of Wuhan University] (2018) 120, at 135–​138, at < http://​ilr.whu.edu.cn/​d/​file/​zxqk/​dqml/​2018-​11-​12/​75156​e95c​2e26​3ec0​8cb8​9708​dca0​ 31c.pdf > (last visited 2 September 2021), at 135–​38. 171  USTR, ‘Economic and Trade Agreement Between the Government of the United States of America and the Government of the People’s Republic of China’ (15 January 2020), at < https://​ustr.gov/​countr​ies-​ regi​ons/​china-​mongo​lia-​tai​wan/​peop​les-​republ​icch​ina/​phase-​one-​trade-​agreem​ent/​text > (last visited 1 June 2020). 172  C. Bown, ‘US-​China Trade War Tariffs: An Up-​to-​Date Chart’, PIIE (14 February 2020), at < www. piie.com/​resea​rch/​piie-​cha​rts/​us-​china-​trade-​war-​tari​ffs-​date-​chart > (last visited 1 June 2020). 173  W. Zhou, ‘WTO Dispute Settlement Mechanism Without the Appellate Body: Some Observations on the US-​China Trade Deal’ 9 Journal of International Trade and Arbitration Law (2020) 443, 451–​453. 174  USTR, ‘2019 Report to Congress on China’s WTO Compliance’ (March 2020), at < https://​ustr.gov/​ sites/​defa​ult/​files/​2019_​Repo​rt_​o​n_​Ch​ina%E2%80%99s​_​WTO​_​Com​plia​nce.pdf > (last visited 1 June 2020) at 30.

Trade and Investment Liberalization: The Case of China     371

IX. Conclusion Started as a pariah State that rarely traded with the rest of the world, China re-​integrated itself into the world economy, and grew to be the largest trader in the world. At the time of China’s accession to the WTO, pundits hailed the event as a historic triumph of capitalism that marked the end of history. Twenty years after China’s accession, however, most observers are left with a mixed filling, as the success of China’s economic and trade development has led to unexpected consequences both within and beyond China. In particular, these problems are most vividly reflected in the US-​China trade war, which is still ongoing at the time of this writing. At the ideological level, the two countries hold quite different views on the roles of government. One believes, as eloquently put by Thomas Paine, that ‘government, even in its best state, is but a necessary evil’175 and therefore should be subject to constant checks and balances to make sure that it does not encroach upon the rights of private citizens and businesses. However, the other regards the government as ‘the key safeguard in achieving the China Dream of great rejuvenation of the Chinese nation’176 and calls for further strengthening of the national governance capacity in all areas, including the economy. At the technical level, the two also employ different tools to regulate the economy, with one supporting a laissez-​faire economy unfettered by government intervention, while the other advocates that the State has a responsibility in promoting economic development. The means used to promote development include the use of state-​owned enterprises in strategic sectors, periodic economic planning which prioritizes the development of certain industries, and tools of ‘macroeconomic control’ that regulate issues ranging from exchange rate policy, money supply, to housing development and birth control. Unless these deeper systemic issues are resolved, any deal the two sign will be merely a temporary ceasefire, rather than a deal for a ‘perpetual peace’, as Kant would put it. Many suggestions have been put forward lately, with the most well-​known among them being the recent Joint Statement on ‘US China Trade Relations—​A Way Forward’,177 drafted by

175 

T. Paine, Common Sense: Addressed to the Inhabitants of America (New York: Cosimo Inc, 2006), at 1. See also Executive Order 13771 of 30 January 2017. Reducing Regulation and Controlling Regulatory Costs, 82 FR 9339. 176  Central Committee of the Communist Party of China, ‘Zhonggong Zhongyang Guanyu Jianchi he Wanshan Zhongguo Tese Shehui Zhuyi Zhidu, Tuijin Guojia Zhili Tixi he Zhili Nengli Xiandaihua Ruogan Zhongda Wenti de Jueding [CPC Central Committee Decision on Several Important Questions on Insisting and Improving Socialism with Chinese Characteristic and Accelerating the Modernization of State Governance System and Governance Capacity]’, adopted by the Fourth Session of the Nineteenth Central Committee of the Communist Party of China on 31 October 2019, at < http://​www.gov.cn/​zhen​ gce/​2019-​11/​05/​cont​ent_​5449​023.htm > (last visited 1 June 2020). 177  The US-​China Trade Policy Working Group, ‘US-​China Trade Relations—​A Way Forward Joint Statement’ (18 October 2019), at < https://​shang​hai.nyu.edu/​news/​us-​and-​chin​ese-​eco​nomi​sts-​prop​ose-​ way-​forw​ard-​trade > (last visited 1 June 2020).

372   Henry Gao the US-​China Trade Policy Working Group, a group of prominent economists and legal scholars from both countries, led by renowned Harvard economist Dani Rodrick. The Joint Statement calls for wide latitude for both countries in formulating their own ‘industrial policies, technological systems, and social standards’, the achievement of which could be realized through ‘well-​calibrated’ trade policies, so long as the adverse effects on foreign actors are minimized. Unfortunately, as it is premised on a dubious political economy analysis, the Joint Statement does not provide practical solutions to the real issues in the bilateral negotiations.178 Instead, by granting excessive policy space to the two largest trading nations, it would create a dangerous precedent for bypassing existing rules in favour of more ‘policy spaces’ for national governments. In turn, this would undermine the rule-​ based multilateral institutions, and run contrary to the aim of ‘perpetual peace’, because the ‘state of peace must be formally instituted, for a suspension of hostilities is not in itself a guarantee of peace’.179 To sum up, unilateralism does not provide a good solution for the challenges resulting from China’s rise. Instead, such challenges must be addressed by the rule of law, either through multilateral rules and institutions to be negotiated in the ongoing discussions on WTO reform, or, in the meantime, by creatively utilizing some of the existing rules, especially those on subsidies in both the WTO agreements and China’s accession package.180 It is exactly at times like this that we have to be reminded that only the rule of law would provide the true foundations for a ‘perpetual peace’.

Further reading R. Bhala, ‘Enter the Dragon: An Essay on China’s WTO Accession Saga’ 15 American University International Law Review (2000) 1469 P. Blustein, Misadventures of the Most Favored Nations: Clashing Egos, Inflated Ambitions, and the Great Shambles of the World Trade System (New York: Public Affairs, 2009) H. Gao, ‘China’s Participation in the WTO: A Lawyer’s Perspective’ 11 Singapore Year Book of International Law (2007) 41 H. Gao, ‘China’s Ascent in Global Trade Governance: From Rule Taker to Rule Shaker, and Maybe Rule Maker?’ in C. Deere-​Birkbeck (ed), Making Global Trade Governance Work for Development (Cambridge: Cambridge University Press, 2011) 153–​180 H. Gao, ‘China’s Strategy for Free Trade Agreements: Political Battle in the Name of Trade’ in R. Buckley, R. Hu and D. Arner (eds), East Asian Economic Integration: Law, Trade and Finance (Cheltenham, UK: Edward Elgar, 2011) 104–​120

178 

For a detailed analysis of the Joint Statement, see W. Zhou and H. Gao, ‘US–​China Trade War: A Way Out?’ 19 World Trade Review (2020) 605–​617. 179  I. Kant, ‘Perpetual Peace’ in I. Kant and H.S. Reiss, Kant: Political Writings (Cambridge: Cambridge University Press, 1991), at 98. 180  See Zhou, Gao and Bai, above fn 154.

Trade and Investment Liberalization: The Case of China     373 H. Gao, ‘From the Doha Round to the China Round’ in L. Toohey, C.B. Picker and J. Greenacre (eds), China in the International Economic Order: New Directions and Changing Paradigms (Cambridge: Cambridge University Press, 2015) 79–​97 H. Gao, ‘The WTO Transparency Obligations and China’ 12 Journal of Comparative Law (2018) 329 H. Gao, ‘China’s Changing Perspective on the WTO: From Aspiration, Assimilation to Alienation’ 21 World Trade Review (2022, forthcoming) H. Gao and D. Lewis (eds), China’s Participation in the WTO (London: Cameron May, 2005) A. Mattoo, ‘China’s Accession to the WTO: The Services Dimension’ 6 Journal of International Economic Law (2003) 299 J. Ya Qin, ‘WTO-​Plus’ Obligations and Their Implications for the WTO Legal System: An Appraisal of the China Accession Protocol’ 37 Journal of World Trade (2003) 483 G. Shaffer, ‘Governing the Interface of U.S.-​China Trade Relations’ 115 American Journal of International Law (2021) 622 G. Shaffer and H. Gao, ‘China’s Rise: How It Took on the U.S. at the WTO’ 2018 University of Illinois Law Review (2018) 115 G. Shaffer and H. Gao, ‘A New Chinese Economic Order?’ 22 Journal of International Economic Law (2020) 607 W. Zhou, H. Gao and X. Bai, ‘China’s SOE Reform: Using WTO Rules to Build a Market Economy’ 68 International and Comparative Law Quarterly (2019) 977 W. Zhou and H. Gao, ‘US –​China Trade War: A Way Out?’ 19 World Trade Review (2020) 605 M. Wu‚ ‘The “China, Inc.” Challenge to Global Trade Governance’ 57 Harvard International Law Journal (2016) 261

Chapter 14

Eu rasian E c onomi c U nion and T ra de and Inve stme nt Liberali z at i on Marina Trunk-​F edorova

I. Introduction II. Historical background III. The Eurasian Economic Union A. General information B. Sources of law in the EAEU C. Bodies of the EAEU D. Competencies of EAEU bodies IV. The EAEU: trade issues A. Customs regulation B. Trade defence measures C. Tariff preferences for developing countries D. Technical regulation E. Trade in services with third countries F. Internal market V. The EAEU and the WTO VI. EAEU law in WTO dispute settlement practice VII. EAEU and regional trade agreements VIII. EAEU: regulation of foreign investments A Treaties B. Case-​law IX. Conclusion

375 375 377 377 378 378 379 380 380 382 383 383 384 384 385 387 389 389 389 392 394

Eurasian Economic Union: Trade and investment    375

I. Introduction The Eurasian Economic Union (EAEU) is one of the main results of the regional economic integration process in the post-​Soviet region.1 The idea of the creation of a ‘Eurasian Union’ was formulated for the first time in 1994, and it came into being in 2015.2 The EAEU is an organization of regional economic integration created in line with Article XXIV of the GATT 1994 and Article V of the GATS. During the first six years of its functioning, the EAEU has made numerous steps aimed at strengthening economic cooperation. Although there are still many tasks to be fulfilled in this area, the active position of the Eurasian Economic Commission regarding the creation of a common market, the growing workload of the EAEU Court, and the interest of the EAEU in broadening its international economic relations, inter alia, by concluding free trade agreements with third countries and contribute to the development of this new actor in international economic relations within and with the Eurasian region.

II.  Historical background After the collapse of the Soviet Union in 1991, most of its former republics decided to continue cooperation in a number of areas and founded the Commonwealth of Independent States (CIS).3 Over the years, several smaller fora for integration between post-​Soviet countries have also been established, but both the CIS and these smaller fora were not very successful in strengthening economic relations in the region.4 In recent years, however, the Eurasian region has experienced intensive economic integration.5 In 2000, Belarus, Kazakhstan, Kyrgyzstan, Russia, and Tajikistan concluded the Treaty on the Establishment of the Eurasian Economic Community (EurAsEC),6

1 

‘Post-​Soviet region’ is used here to mean countries, which were republics of the USSR (without the Baltic States). 2 This idea was formulated by the then President of the Republic of Kazakhstan Mr. Nursultan Nazarbaev in his speech at the Moscow State University on 29 March 1994. See, e.g., 25 let idei evrazijskoy integratsii N.A. Nazarbaeva (Nur-​Sultan, Kazakhstani Institute of Strategical Studies, 2019) 18. 3 Currently, the CIS Member States are Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Uzbekistan, Tajikistan, and Turkmenistan. Georgia left the CIS in 2009. The CIS website lists Ukraine among CIS Member States, at < https://​cis.minsk.by/​map > (last visited 15 October 2021). 4 See, e.g., G.G. Schinkaretskaja, Razreshenie mezhdunarodnyh sporov v. EvrAzES, in Conference volume Problemy sovershenstvovaniya pravovoy systemy EurAsEC (Moscow, 2004), 148. 5  ‘Eurasian region’ in this context means post-​ Soviet Central Asian states, as well as Russia and Belarus. 6  Treaty on the Establishment of the Eurasian Economic Community was signed on 10 October 2000, at < https://​wits.worldb​ank.org/​GPTAD/​PDF/​arch​ive/​EAEC.pdf > (last visited 15 October 2021).

376   Marina Trunk-Fedorova which established a new regional organization of economic integration.7 The Treaty on the EurAsEC contained provisions on its organizational structure (Inter-​State Council, Integration Committee, Interparliamentary Assembly, and the EurAsEC Court), membership, decision-​making, budget, etc. The goals of the EurAsEC were to create a customs union and a single economic space between the EurAsEC Member States.8 In 2007, three EurAsEC Member States—​Belarus, Kazakhstan, and Russia—​agreed on the creation of a customs union. They signed the Treaty on the Creation of a Single Customs Territory and the Formation of the Customs Union.9 Later, on 18 November 2011, Belarus, Kazakhstan, and Russia signed the Declaration on Eurasian Economic Integration, which led to the functioning of a Single Economic Space as from 1 January 2012.10 In order to systemize the ever-​growing legal framework of the EurAsEC and raise cooperation to the next level, Belarus, Kazakhstan, and Russia decided to create a new organization, signing the Treaty on the Eurasian Economic Union11 (EAEU) on 29 May 2014. Shortly thereafter, Armenia12 and Kyrgyzstan13 acceded to the EAEU. They became EAEU members on 2 January 2015 (Armenia) and on 12 August 2015 (Kyrgyzstan) respectively. The functioning of the EurAsEC was terminated by the Agreement on the Termination of Activities of the Eurasian Economic Community14 as of 1 January 2015. Many treaties concluded within the framework of the EurAsEC were terminated due to the entering into force of the Treaty on the Eurasian Economic Union.15 However, a number of these treaties and decisions of EurAsEC bodies remained in force, as they are

7 

For more on the EurAsEC see Z. Kembayev, Legal Aspects of the Regional Integration Processes in the Post-​Soviet Area (Berlin, Heidelberg: Springer Verlag, 2009); J. Cooper, ‘The Development of Eurasian Economic Integration’ in R. Dragneva and K.Wolczuk (eds), Eurasian Economic Integration: Law, Policy and Politics (Cheltenham: Edward Elgar, 2013), 15–​33. 8  Article 2 of the EurAsEC Treaty. 9  Treaty on the Creation of a Single Customs Territory and the Formation of the Customs Union of 6 October 2007, at < https://​www.con​sult​ant.ru/​docum​ent/​con​s_​do​c_​LA​W_​93​361/​#:~:text=​ ДОГО​ВОР.%20от%206%20октя​бря%202​007,от%2010%20октя​бря%202​000%20г > (last visited 15 October 2021). 10  Declaration on Eurasian Economic Integration of 18 November 2011, at < http://​www.eur​asia​ncom​ miss​ion.org/​ru/​Lists/​EECD​ocs/​Dekl​arac​ija.pdf > (last visited 15 October 2021). 11   Treaty on the Eurasian Economic Union of 29 May 2014, at < https://​www.wto.org/​engl​ish/​thewt​o_​ e/​acc_​e/​kaz_​e/​WTACC​KAZ8​5_​LE​G_​1.pdf > (last visited 15 October 2021). 12  Treaty on the Accession of the Republic of Armenia to the Treaty on the Eurasian Economic Union of 29 May 2014 (10 October 2014), at < http://​www.con​sult​ant.ru/​cons/​cgi/​onl​ine.cgi?req=​ doc&base=​LAW&n=​286​812&fld=​134&dst=​100​0000​001,0&rnd=​0.57054​3171​8812​413#0 > (last visited 15 October 2021). 13  Treaty on the Accession of the Kyrgyz Republic to the Treaty on the Eurasian Economic Union (29 May 2014), at < http://​www.con​sult​ant.ru/​cons/​cgi/​onl​ine.cgi?req=​doc&base=​LAW&n=​172​976&fld=​ 134&dst=​100​0000​001,0&rnd=​0.76506​4442​3978​692#0 > (last visited 15 October 2021). 14  Agreement on the Termination of the Activities of the Eurasian Economic Community (10 October 2014), at < https://​Docs.cntd.ru/​docum​ent/​420227​082 > (last visited 15 October 2021). 15  Annex 33 to the EAEU Treaty.

Eurasian Economic Union: Trade and investment    377 relevant also for the EAEU. This includes the Treaty on the Functioning of the Customs Union within the Multilateral Trading System of 19 May 201116 (by virtue of Annex 31 to the EAEU Treaty), or technical regulations adopted by the Commission of the EurAsEC Customs Union.

III.  The Eurasian Economic Union A. General information Article 1.2 of the EAEU Treaty provides that the Eurasian Economic Union (the Union or the EAEU) is an international organization of regional economic integration, which possesses international legal personality. The central goal set in the EAEU Treaty is economic integration. According to Article 1.1 of the EAEU Treaty, the parties ‘shall establish the Eurasian Economic Union and ensure free movement of goods, services, capital and labor as well as coordinated, agreed or common policy in the economic sectors defined in the present Treaty and in the international agreements within the EAEU’.17 The EAEU Treaty envisages the possibility of third States joining the EAEU. Article 108 of the EAEU Treaty stipulates that the EAEU is open for accession by any State sharing its objectives and principles on the terms agreed upon by the Member States. An interested State needs to conduct negotiations and sign an international agreement on its accession to the EAEU. The EAEU Treaty also provides that interested third States can receive observer status. According to Article 109 of the EAEU Treaty,18 authorized representatives of an

16 At < https://​www.wto.org/​engl​ish/​thewt​o_​e/​acc_​e/​kaz_​e/​WTACC​KAZ6​9_​LE​G_​1.pdf > (last visited 15 October 2021). 17  See also Article 4 of the EAEU Treaty, which lists the following objectives: creation of conditions for stable economic development of the Member States in order to improve the living standards of their people; desire to create a common market for goods, services, capital and labour within the EAEU; comprehensive modernization, cooperation and competitiveness of national economies within the global economy. 18  Article 109 provides:

‘1. Any State has a right to address to the Chairman of the Supreme Council to obtain the status of an Observer State in the EAEU. 2. Decision on granting the status of an Observer State in the EAEU or on the refusal to grant such status shall be made by the Supreme Council based on interests of development of integration and achievement of the objectives of this Treaty. 3. Authorized representatives of an Observer State in the EAEU may be present by the invitation at meetings of the bodies of the EAEU, to receive documents taken by the bodies of the EAEU, which are not confidential. 4. The status of an Observer State in the EAEU does not give the right to participate in decision-​making of the bodies of the EAEU. 5. A State receiving the status of the Observer State in the EAEU is obliged to refrain from any action that could harm the interests of the EAEU and its member States, the object and purpose of this Treaty.’

378   Marina Trunk-Fedorova observer State in the EAEU may be present by invitation at meetings of the bodies of the EAEU, to receive documents taken by the bodies of the EAEU, which are not confidential. The status of an observer State in the EAEU does not give the right to participate in decision-​making of the bodies of the EAEU. There are currently three observer States in the EAEU: Moldova, Uzbekistan and Cuba.19 Several EAEU Member States are also Members of the WTO, namely: Armenia, Kazakhstan, Kyrgyzstan and Russia. Belarus is not a WTO Member, its accession negotiations are pending.20 It is worth noting that the Eurasian Economic Union itself is neither a WTO Member, nor does it have an observer status at the WTO.21

B. Sources of law in the EAEU Article 6 of the EAEU Treaty lists the following sources of the EAEU law: the Treaty on the Eurasian Economic Union; international treaties within the Union; international treaties of the Union with a third party; decisions and resolutions of the Supreme Eurasian Economic Council, the Eurasian Intergovernmental Council and the Eurasian Economic Commission adopted within the competences provided for by the EAEU Treaty and international treaties within the Union.

C. Bodies of the EAEU The Eurasian Economic Union is an intergovernmental organization, which has the following permanent bodies: -​ The Supreme Eurasian Economic Council is the supreme body of the EAEU, which determines the strategy, directions and prospects of the integration development of the EAEU and takes decisions aimed at implementing its objectives. It consists of the Heads of States of the EAEU Members who meet at least once a year.22 -​ The Eurasian Intergovernmental Council consists of the Heads of Governments of the EAEU Member States.23 Meetings of the Intergovernmental Council are held as





19  At < https://​eec.eaeun​ion.org/​comiss​ion/​dep​artm​ent/​dep_​razv​_​int​egr/​mez​hdun​arod​noe-​sotr​udni​ ches​tvo/​o-​stat​use-​gosu​dars​tva-​nablyu​date​lya.php > (last visited 15 October 2021). 20  See WTO Accessions, Belarus, at < https://​www.wto.org/​engl​ish/​thewt​o_​e/​acc_​e/​a1_​be​laru​s_​e.htm > (last visited 15 October 2021). 21  See Understanding the WTO: The Organization, Members and Observers, at (last visited 15 October 2021). 22  Articles 10–​11 of the EAEU Treaty. 23  Article 14 of the EAEU Treaty.

Eurasian Economic Union: Trade and investment    379 necessary, but at least twice a year.24 According to Article 16 of the EAEU Treaty, the Intergovernmental Council has the power to ensure implementation and control of the performance of the EAEU Treaty, of international treaties within the Union and of decisions of the Supreme Council. -​ The Eurasian Economic Commission is a permanent governing body of the EAEU.25 The Commission consists of the Council and the Board. The Council of the Commission is composed of one representative from each Member State. Each representative is a deputy Head of the Government of a Member State, duly authorized in accordance with the legislation of that State.26 The Board is composed of Board members, one of whom is the Chairperson of the Board of the Commission. The Board is comprised of representatives of the Member States based on the principle of equal representation. There are ten members of the Board of the Commission. -​ The Court of the Eurasian Economic Union is a permanent judicial body of the EAEU.27 The Court consists of ten judges (two judges from each EAEU Member State). The EAEU Court has competencies to hear disputes at the request of a Member State arising in connection with the implementation of the EAEU Treaty, international treaties within the Union and/​or decisions of the Bodies of the Union. The second category of disputes arise out of complaints of business entities that a decision, action (or omission) of the Eurasian Economic Commission violated the rights or legitimate interests of the entity envisaged by the EAEU Treaty and/​or international treaties within the EAEU.28 The working language of EAEU bodies is Russian.29

D. Competencies of EAEU Bodies Under the EAEU Treaty, the EAEU has competencies to regulate the customs union and a single economic space. Article 1 of the EAEU Treaty determines three types of policies, which can be carried out by the EAEU: common policy, agreed policy or coordinated policy in the economic sectors determined under the EAEU Treaty and international treaties within the EAEU. A common policy is exercised, for example, in customs union matters, whereas agreed or coordinated policies are exercised in further areas covered by the EAEU Treaty (e.g. transport policy, energy policy, etc.)

24 

Article 15 of the EAEU Treaty. Article 18 of the EAEU Treaty. 26  Annex I to the EAEU Treaty, para 23. 27  Article 19 of the EAEU Treaty. 28  Annex 2 to the EAEU Treaty, para 39. 29  Article 110(1) of the EAEU Treaty. 25 

380   Marina Trunk-Fedorova

IV.  The EAEU: trade issues The EAEU in its ‘external dimension’ is a customs union, which was created in accordance with the respective WTO rules. The EAEU Treaty, however, covers many more areas of cooperation than purely customs matters.30 Article 25 of the EAEU Treaty lists the following features of the EAEU Customs Union: internal market of goods; Common External Tariff and other common measures regulating foreign trade in goods with third parties; common regime for trade in goods with third parties; common customs regulation; free movement of goods without customs declarations and state control (transport, sanitary, veterinary and sanitary, phytosanitary quarantine, between territories of the EAEU Member States, except for the cases, provided in the EAEU Treaty).

A. Customs regulation Article 32 of the EAEU Treaty stipulates that the EAEU applies common customs regulations in accordance with the Customs Code of the Eurasian Economic Union, international treaties and acts constituting the law of the Union and governing customs legal relations, and in accordance with the provisions of the EAEU Treaty. The Customs Code of the EAEU is contained in Annex 1 to the Treaty on the Customs Code of the Eurasian Economic Union of 11 April 2017,31 which entered into force on 1 January 2018. It replaced an earlier Customs Code of 2010, which was created for the EurAsEC Customs Union. The EAEU maintains the Single Commodity Nomenclature of Foreign Economic Activity of the Eurasian Economic Union.32 It is based on the Harmonized Commodity Description33 developed by the World Customs Organization. The Nomenclature is maintained by the Eurasian Economic Commission.34

30 

The choice of issues covered in this part is based on the structure of the EAEU Treaty. < https://​www.con​sult​ant.ru/​docum​ent/​cons​_​doc​_​LAW​_​215​314/​352f41c1d6534​5e60​ee49​ffe0​ f4aa​2324​4017​4b2/​#dst100​008 > (last visited 15 October 2021). Unofficial English translation is available at < http://​www.eur​asia​ncom​miss​ion.org/​ru/​act/​tam_​s​otr/​dep_​ta​moj_​zak/​Sit​eAss​ets/​Cust​oms%20C​ ode%20of%20the%20E​AEU.pdf > (last visited 15 October 2021). 32  Article 42 of the EAEU Treaty. The Single Commodity Nomenclature was adopted by the Decision of the Council of the Eurasian Economic Commission of 16 July 2012 N 54, with later changes, at < https://​eec.eaeun​ion.org/​comiss​ion/​direct​ion/​trade/​catr/​ett/​defa​ult.php > (last visited 15 October 2021). 33  See International Convention on the Harmonized Commodity Description and Coding System, at < http://​www.wco​omd.org/​en/​top​ics/​nomen​clat​ure/​ins​trum​ent-​and-​tools/​hs_​con​vent​ion.aspx > (last visited 15 October 2021). 34  Article 45 of the EAEU Treaty. 31 At

Eurasian Economic Union: Trade and investment    381 As stipulated in Article 42 of the EAEU Treaty, the EAEU has a Common Customs Tariff,35 which is applied in respect of the customs territory of the Union. The rates of import customs duties, including seasonal rates, in the Common Customs Tariff of the Eurasian Economic Union are determined by the Eurasian Economic Commission.36 By the time of the creation of the EAEU, Armenia, Kyrgyz Republic and Russia had already been WTO Members, whereas the others were in the process of accession. As the EAEU Members joined the WTO at different times, they had different bound duty rates obligations at the WTO. This is why it was necessary to introduce some exemptions from the Common Customs Tariff of the EAEU. Article 42(6) of the EAEU Treaty addresses this situation: ‘Any state, which has acceded to the Union, shall have the right to apply rates of the import customs duties different from the Common Customs Tariff rates of the Eurasian Economic Union in accordance with the list of goods and rates approved by the Commission pursuant to an international agreement of accession of such state to the Union’. The situation with regard to Kazakhstan, which completed its WTO accession process after the creation of the EAEU, is regulated by a special protocol concluded by the EAEU Member States in 201537 and is part of EAEU law. The Protocol prescribes that goods imported into the territory of Kazakhstan at lower customs duty rates are determined for internal consumption and may not be re-​exported to the territories of other EAEU Member States. However, it is also possible to pay the EAEU import duty rate, and in such cases the goods will be released for the whole EAEU customs territory.38 It is also worth noting that EAEU Members, which are also WTO Members, have started negotiations regarding new bound duty rates for those Members, of which the rates are lower than those stipulated in the EAEU customs tariff.39 A number of cases regarding customs issues have been already handled by the EAEU Court. Several of them concerned customs classification of imported goods, like the dispute regarding the challenge by an economic operator ‘Sanofi-​Aventis Vostok’ of the Decision of the Board of the Eurasian Economic Commission of 3 October 2017, which 35  Adopted by the Decision of the Council of the Eurasian Economic Commission of 16 July 2012 N 54, with later changes, at < http://​www.eur​asia​ncom​miss​ion.org/​ru/​act/​trade/​catr/​ett/​Pages/​defa​ult.aspx > (last visited 15 October 2021). 36   Article 45 of the EAEU Treaty. 37  Protocol on Certain Issues concerning the Importation and Circulation of Goods in the Customs Territory of the Eurasian Economic Union (Протокол о некоторых вопросах ввоза и обращения товаров на таможенной территории Евразийского экономического союза) of 16 October 2015), at < https://​www.con​sult​ant.ru/​docum​ent/​cons​_​doc​_​LAW​_​187​626/​ > (last visited 15 October 2021). 38  Article 3 of the Protocol. 39 ‘Prognosis of Social-​ Economic Development of the Russian Federation for the Year 2017 and for the Planned Period of the Years 2018 and 2019’, Ministry of Economic Development of the Russian Federation at, < https://​www.con​sult​ant.ru/​docum​ent/​cons​_​doc​_​LAW​_​281​493/​f19fa1c1489ff​32d4​7abb​ d266​1a51​f5d7​3137​a91/​ > (last visited 15 October 2021), see further in part V below.

382   Marina Trunk-Fedorova contained the classification of components for one-​way insulin pens, according to the Single Commodity Nomenclature of the EAEU.40 The EAEU Common Customs Tariff was subject to consideration in the WTO dispute Russia –​Tariff Treatment.41 A short analysis of this case is given in Section VI below.

B. Trade defence measures Trade defence measures fall within the competence of the Eurasian Economic Commission. Its Department on Internal Market Defence conducts investigations and takes decisions on the imposition of antidumping, countervailing, and safeguard measures, a recent example being the antidumping duty imposed on tyres from China.42 There are currently 20 antidumping measures in force in the EAEU.43 In the past, the EAEU also applied several safeguard measures, by now their application terms have expired. Certain trade defence measures of the EurAsEC Customs Union—​the predecessor of the EAEU—​had already been subject to WTO review. The WTO dispute Russia –​ Commercial Vehicles,44 initiated by the European Union, concerned antidumping duties imposed by the EurAsEC Customs Union on light commercial vehicles from Germany and Italy. As the EurAsEC Customs Union was not a WTO Member, the complaint was brought against one of its Member States (Russia). This situation has not changed. As the EAEU is not a WTO Member, its measures cannot be challenged at the WTO directly, but can be challenged as measures of one of its Member States. Currently, there are several proceedings regarding EAEU antidumping measures on steel pipelines at the WTO. Although the measures have been imposed by the EAEU, the respondents are individual EAEU Member States: Armenia, Kazakhstan, and the Kyrgyz Republic.45 It is worth noting that these antidumping measures have 40  Decision of the Court of the EAEU of 21 December 2018 and Decision of the Appeal Chamber of 7 March 2019 on challenging of the Decision of the Board of the Eurasian Economic Commission of 3 October 2017 № 132 ‘On the classification of components for one-​way insulin pens for subcutaneous injection, according to the Single Commodity Nomenclature of Foreign Economic Activity of the Eurasian Economic Union’, at < https://​courte​uras​ian.org/​cour​t_​ca​ses/​C-​3.18/​ > (last visited 15 October 2021). 41  Panel Report, Russia –​Tariff Treatment, adopted 12 August 2016. It is not possible to challenge EAEU measures at the WTO, as the EAEU is not a WTO Member. See also Section VI below. 42  Decision of the Board of the Eurasian Economic Commission of 17 November 2015, N 154 and Decision of the Board of the Eurasian Economic Commission of 29 June 2021, N 84. 43  At < http://​www.eur​asia​ncom​miss​ion.org/​ru/​act/​trade/​podm/​inv​esti​gati​ons/​Measu​res.aspx > (last visited 15 October 2021). 44  Appellate Body Report, Russia –​Commercial Vehicles, adopted 9 April 2018. It is worth noting that Volkswagen tried to challenge this antidumping duty before the EurAsEC Court in the proceedings allowing private parties to challenge acts and omissions of the Eurasian Economic Commission. The complaint did not go further for technical reasons (which could have been fixed). 45  Consultations requested in Armenia –​Anti-​Dumping Measures on Steel Pipes on 17 October 2018, Kazakhstan –​Anti-​Dumping Measures on Steel Pipes on 19 September 2021, and Kyrgyz Republic –​Anti-​ Dumping Measures on Steel Pipes on 17 October 2018.

Eurasian Economic Union: Trade and investment    383 been also challenged before the EAEU Court in proceedings allowing private parties to challenge acts and omissions of the Eurasian Economic Commission.46 At the moment of writing the cases were pending.

C. Tariff preferences for developing countries The EAEU maintains tariff preferences in respect of goods originating from developing countries and/​or least developed countries. Article 36 of the EAEU Treaty stipulates that preferential goods originating from developing countries, who use the common system of tariff preferences are levied 75 per cent of the regular customs duty, and preferential goods originating from least developed countries are subject to a zero import duty rate. The Eurasian Economic Commission also has competencies in respect of specifying the conditions and application procedure for the common system of tariff preferences of the Union.47 The list of goods subject to tariff preferences is approved by the Council of the Eurasian Economic Commission.48 There are 29 developing countries and 48 LDCs in the list of countries-​users of the common system of tariff preferences of the Eurasian Economic Union.49

D. Technical regulation The EAEU has the competence to adopt mandatory technical regulations for EAEU Member States regarding the products included in the list approved by the Eurasian Economic Commission.50 The predecessor of the EAEU—​the EurAsEC Customs Union—​had already started working on the creation of common technical regulations for its Member States.

46  See

the Application of the PAO ‘Interpipe Nizhnedneprovsky truboprokatny zavod’, at < https://​ courte​uras​ian.org/​cour​t_​ca​ses/​eaeu/​pao-​interp​ayp-​nizhne​dnep​rovs​kiy-​tru​bopr​okat​nyy-​zavod-​ob-​ospa​ riva​nii-​bezde​ystv​iya-​eek/​ > (last visited 15 October 2021); the Application of ‘Interpipe Novomoskovsky Trubny zavod’, at < https://​courte​uras​ian.org/​cour​t_​ca​ses/​eaeu/​ao-​interp​ayp-​nov​omos​kovs​kiy-​trub​ nyy-​zavod-​ob-​ospa​riva​nii-​bezde​ystv​iya-​eek/​ > (last visited 15 October 2021), the Application of OOO “Interpipe Niko Tube”, at < courteurasian.org/​court_​cases/​eaeu/​ooo-​interpayp-​niko-​tyub-​ob-​ osparivanii-​bezdeystviya-​eek/​ > (last visited 15 October 2021). 47  Article 45 of the EAEU Treaty. 48 Decision of the Council of the Eurasian Economic Commission of 13 January 2017 N 8, at < eurasiancommission.org/​ru/​act/​trade/​dotp/​commonSytem/​Documents/​Перечень%20 преференциальных%20товаров_​новый.pdf > (last visited 15 October 2021). 49  Decision of the Council of the Eurasian Economic Commission of 5 March 2021 ‘On Amendments to the Decision of the Commission of the Customs Union of 29.11.2009 N 130’, at < http://​www.eur​asia​ ncom​miss​ion.org/​r u/​act/​trade/​dotp/​comm​onSy​tem/​Docume​nts/​Пере​чни%20ст​ран-​пользо​в ате​ лей%20Е​С ТП.pdf > (last visited 15 October 2021). 50  Articles 46 and 52 of the EAEU Treaty.

384   Marina Trunk-Fedorova Currently, more than 40 EAEU technical regulations have entered into force.51 These include technical regulations on safety of equipment for playgrounds,52 or on safety of milk and dairy products.53 EAEU Member States may use their respective technical regulations, as long as the EAEU has not created common technical regulations on goods in question.54 EAEU technical regulation provisions were under consideration in the WTO dispute Russia –​Railway Equipment.55 In this dispute Ukraine challenged Russian measures, which were allegedly inconsistent with, inter alia, certain provisions of the TBT Agreement. The measures in question concerned conformity assessment procedures and issuance of conformity assessment certificates for railway equipment. By that time, the relevant Technical Regulations of the Customs Union, e.g. the Technical Regulation No. 001/​2011 ‘On safety of railway rolling stock’ had entered into force and Russia applied the provisions of this Regulation. The Customs Union technical regulation was under consideration here from the perspective of how Russia applied this regulation. The panel and the Appellate Body found that a part of challenged Russian measures were inconsistent with the TBT. On 5 March 2020, Russia reported that it had complied with the recommendations of the DSB.56

E. Trade in services with third countries Article 38 of the EAEU Treaty stipulates that EAEU Member States must coordinate among them trade in services with third parties, but this may not imply any supranational jurisdiction of the Union in this sphere.

F. Internal market The EAEU internal market means an economic space with free movement of goods, persons, services and capital. Within the functioning of the internal market,

51  At < https://​www.eur​asia​ncom​miss​ion.org/​ru/​act/​texn​reg/​deptex​reg/​tr/​Pages/​TRVs​ily.aspx > (last visited 15 October 2021). 52  Technical regulation of the EAEU ‘On safety of equipment for playgrounds’ (042/​2017), at < http://​ www.eur​asia​ncom​miss​ion.org/​ru/​act/​texn​reg/​deptex​reg/​tr/​Pages/​TR_​E​EU_​0​42_​2​017.aspx > (last visited 15 October 2021). 53 Technical regulation of the EAEU ‘safety of milk and dairy products’ (033/​ 2013), at < http://​ www.eur​asia​ncom​miss​ion.org/​ru/​act/​texn​reg/​deptex​reg/​tr/​Pages/​ТР-​ТС-​033.aspx > (last visited 15 October 2021). 54  Annex 9 to the EAEU Treaty, section 3. 55  Panel Report and Appellate Body Report, Russia –​Railway Equipment, adopted 5 March 2000. 56  At < https://​www.econ​omy.gov.ru/​mater​ial/​dir​ecti​ons/​vneshne​ekon​omic​hesk​aya_​deya​teln​ost/​vto/​ raz​resh​enie​_​spo​rov/​ds_​499/​ > (last visited 15 October 2021).

Eurasian Economic Union: Trade and investment    385 Member States may not apply import and export customs duties (other duties, taxes and fees having equivalent effect), non-​tariff regulatory measures, safeguard, antidumping and countervailing measures in mutual trade, except as provided for by the EAEU Treaty.57 In certain cases, under Article 29 of the EAEU Treaty, mutual trade in goods can be limited, if required for: (i) protection of human life and health; (ii) protection of public morals and public order; (iii) environmental protection; (iv) protection of animals, plants, or cultural values; (v) fulfilment of international obligations; and (vi) national defence and security of a Member State.58 For example, trade restrictions were imposed in the form of quantitative restrictions banning the export of certain kinds of medical items (e.g. medical masks or chemical protection suits)59 as well as food products (e.g. buckwheat, sugar, potato)60 introduced by some EAEU Member States in April 2020. These bans covered trade with other EAEU Members, and Member States in question referred to Article 29 of the EAEU Treaty to justify restrictions in mutual trade. These export bans were lifted later in 2020. It is worth noting that the EAEU itself also introduced an export ban for certain kinds of goods (like medical masks or protective glasses) from the EAEU to third countries.61

V.  The EAEU and the WTO At a certain time, in the phase of the creation of the EurAsEC Customs Union, there was an idea to create the Customs Union first and accede to the WTO as one trading block—​ the EurAsEC Customs Union.62 However, soon it became clear that the three countries (Belarus, Kazakhstan, and Russia) had different speeds of accession negotiations, and therefore the decision was taken to accede to the WTO individually rather than as a union. It was therefore necessary to clarify how the rights and obligations of a Customs Union Member State would exist alongside each State’s rights and obligations as a WTO Member conducting its own trade policy. This problem had to be solved by the Treaty on the Functioning of the Customs Union within the Multilateral Trading System of 19 May 2011.63 As mentioned above, this Treaty, initially concluded by the Member States of the EurAsEC Customs Union, was included in the EAEU legal framework by the Protocol

57 

Article 28 of the EAEU. Article 29 of the EAEU Treaty. 59  Resolution of the Government of the Russian Federation of 2 March 2020 N 223; Resolution of the Council of Ministers of the Republic of Belarus of 17 March 2020 N 149. 60  Order of the Minister of Agriculture of the Republic of Kazakhstan of 22 March 2020 N 103. 61  Decision of the Board of the Eurasian Economic Commission of 24 March 2020 N 41. 62  See, e.g., J. Lynn, ‘WTO in Confusion After Russia Customs Union Plan’ Reuters (18 June 2009). 63 At < https://​ec.eur​opa.eu/​food/​sys​tem/​files/​2016-​10/​ia_​eu-​ru_​sps-​req_​d​ecis​ion-​87_​eur​asec​_​ en.pdf > (last visited 15 October 2021). 58 

386   Marina Trunk-Fedorova on the Functioning of the Eurasian Economic Union within the Multilateral Trading System.64 According to Article 1 of this Treaty, after the date of accession of EAEU Member States to the WTO, the provisions of the WTO Agreement as set out in the Protocols of accession of these states to the WTO become a part of the legal framework of the Customs Union. In case of divergences between consolidated results of the negotiations on rates of import duties of the EAEU Member States, reached during their accession to the WTO, such Parties must consult each other and enter into negotiations expeditiously with WTO Members, whose interests are affected. As explained above, the EAEU Customs Tariff contains a number of exemptions, in order to (provisionally) accommodate partly lower duty rates negotiation by individual EAEU Member States at the WTO. At the same time, negotiations with WTO Members have been launched, which are aimed at re-​negotiations of certain concessions, in order to be able to achieve a common customs tariff for all EAEU Member States. The relations between WTO law and EAEU law were under consideration in several disputes before the EurAsEC Court and then before the EAEU Court. For the first time, this was an issue in 2013, in a dispute regarding antidumping duties imposed by the EurAsEC.65 The duties were challenged before the EurAsEC Court66 by a foreign producer. The Court first pointed out that treaties concluded within the Customs Union are lex specialis with regard to the WTO agreements.67 The Court confirmed that ‘in the result of Russia’s accession to the WTO, the GATT 1994 and Agreement on application of Article VI of the GATT 1994 (inter alia) have become part of the legal system of the Customs Union’.68 It further explained that there is no hierarchy between the WTO Agreement and treaties within the Customs Union, and at the same time, if there is a conflict between a provision of a WTO agreement and that of an Agreement concluded within the Customs Union, the WTO norms prevail.69 Having analysed the parties’ arguments, the Court found no ‘controversies’ between WTO law and Customs Union law.70 It did not, however, explain what ‘controversy’ meant in this context. 64 

Annex 31 to the Treaty on the EAEU. Judgment of the EurAsEC Court of 24 June 2013 on the application of Novokromatorsky Machine-​Building Plant. 66  Article 3(3) of the Treaty on the Termination of Activities of the Eurasian Economic Community stipulates that judgments of the Court of the EurAsEC Court remain in their former status. 67  Judgment of the EurAsEC Court of 24 June 2013 on the application of Novokromatorsky Machine-​ Building Plant, 25, at < https://​courte​uras​ian.org/​cour​t_​ca​ses/​eura​zes/​1-​7.2-​2013/​ > (last visited 15 October 2021); Judgment of the Appeal Chamber of the EurAsEC Court of 21 October 2013 on the application of Novokromatorsky Machine-​Building Plant, 9, at < https://​courte​uras​ian.org/​cour​t_​ca​ses/​ eura​zes/​1-​7.2-​2013/​ > (last visited 15 October 2021). 68  Judgment of the EurAs EC Court of 24 June 2013 on the application of Novokromatorsky Machine-​ Building Plant, above note 67, at 22. 69  Judgment of the EurAs EC Court of 24 June 2013 on the application of Novokromatorsky Machine-​ Building Plant, above fn 67, at 23. 70  Judgment of the EurAs EC Court of 24 June 2013 on the application of Novokromatorsky Machine-​ Building Plant, above fn 67, at 23, 26. 65  See

Eurasian Economic Union: Trade and investment    387 The Court of the Eurasian Economic Union confirmed in a judgment of 27 April 2017 that the provisions of the WTO Agreement (relating to areas, in which EAEU Member States delegated their competence to the Eurasian Economic Union) had become part of the legal system of the EAEU. Therefore, according to the Court, the provisions of the GATT 1994 and the Agreement on Implementation of Article VI of GATT 1994 had to be taken into account in the case under consideration.71 A potential issue is the place of WTO panel and Appellate Body reports in the EAEU Court’s jurisprudence. For example, the EurAsEC Court made a reference72 to the Appellate Body report in Brazil –​Desiccated Coconut.73 The Court of the Eurasian Economic Union in its judgment of 27 April 2017 regarding an anti-​dumping measure imposed by the Eurasian Economic Commission74 referred to the WTO panel report in Russia –​Commercial Vehicles.75 It is worth noting that Article 50 of the Statute of the EAEU Court does not mention rulings and recommendations of the DSB among the sources of law, which are applied by the EAEU Court.76 At the same time, the Court referred to them, as well as to decisions of some other dispute settlement bodies, e.g. to a judgement of the ECJ,77 which was called a ‘persuasive precedent’ in the decision of the EAEU Court on the complaint brought by sole entrepreneur Mr. K.P. Tarasik.78 Perhaps the EAEU Court will also clarify the status of DSB rulings and recommendations in one of its future decisions.

VI.  EAEU law in WTO dispute settlement practice The EAEU is not a WTO Member, and therefore it cannot be a party in WTO dispute settlement proceedings. However, as indicated above, the law of the EAEU has already been considered in the WTO dispute settlement proceedings. For instance, in Russia –​ Tariff Treatment,79 the European Union challenged Russia’s import duty rates for certain

71 

Judgment of the EAEU Court of 27 April 2017 on the application of the PJSC ArselorMittal Krivoy Rog, 5–​6, 22, at < http://​courte​uras​ian.org/​cour​t_​ca​ses/​eaeu/​C-​3.16/​ > (last visited 15 October 2021). 72  Judgment of the EurAsEC Court of 24 June 2013 on the application of Novokromatorsky Machine-​ Building Plant, 21. 73  Appellate Body Report, Brazil –​Desiccated Coconut, adopted 20 March 1997. 74  Judgment of the EAEU Court of 27 April 2017 on the application of the PJSC ArselorMittal Krivoy Rog, above fn 71, at 16. 75  Panel Report, Russia –​Commercial Vehicles, adopted 9 April 2018. 76  The Statute of the EAEU Court is contained in Annex 2 to the EAEU Treaty, above fn 11. 77  Case 302/​87 European Parliament v Council of the European Communities, EU:C:1988:461. 78  Judgment of the EAEU Court of 28 December 2015 on the application of K.P. Tarasik, 15, at < https://​courte​uras​ian.org/​cour​t_​ca​ses/​eaeu/​C-​4.15/​ > (last visited 15 October 2021). 79  Panel Report, Russia –​Tariff Treatment, adopted 12 August 2016.

388   Marina Trunk-Fedorova kinds of paper and palm oil, as Russia had made concessions regarding lower duty rates than those, which it actually applied. The basis of the challenge was that Russia had to apply the EAEU Customs Tariff, which contained higher rates than those provided by Russia. Russia began to bring about the necessary adjustments of the majority of these duty rates through the EAEU bodies already before the issuance of the panel report, which stated that ‘to the extent that the first to eleventh measures continue to be inconsistent with Article II:1(b), first sentence, of the GATT 1994, the Panel recommends that Russia bring them into conformity with its obligations under the GATT 1994’. Russia later informed the DSB that it had complied with its recommendations and rulings through certain decisions of the Board of the Eurasian Economic Union and of the Council of the Eurasian Economic Commission.80 In other WTO disputes, EAEU measures were also under consideration by panels and the Appellate Body: Russia –​Railway Equipment,81 and Russia –​Commercial Vehicles.82 However, not all of the challenges have been brought against Russia. In some recent disputes, other EAEU Members have been respondents: Armenia –​ Anti-​Dumping Measures on Steel Pipes, Kazakhstan –​Anti-​Dumping Measures on Steel Pipes, and Kyrgyz Republic –​Anti-​Dumping Measures on Steel Pipes,83 all of which were brought by Ukraine. In these decisions, the WTO panels attributed the EAEU measures to an individual EAEU Member State. For example, in Russia –​Tariff Treatment, the Panel concluded that EAEU common customs tariff requirements establishing the duty rates applicable to the tariff lines at issue were attributable to Russia.84 A similar approach was used in the later disputes mentioned above. It is worth noting that the EAEU Treaty does not contain a provision that disputes between EAEU Members cannot be solved by the WTO. In 2017, there has been an attempt to bring a such a claim to the WTO, by Kyrgyzstan against Kazakhstan85 regarding certain border restrictions. However, a few days after bringing it, it withdrew its complaint. In 2020, Kyrgyzstan raised a specific trade concern at the Committee on Trade Facilitation regarding the treatment of goods from Kyrgyzstan transiting through the territory of Kazakhstan to the Russian Federation. Kazakhstan considered

80 At < http://​www.wto.org/​engl​ish/​trato​p_​e/​disp​u_​e/​case​s_​e/​ds48​5_​e.htm#:~:text=​The%20E​urop​ ean%20Un​ion%20cha​llen​ged%20tar​iff,(the%20“CCT”). > (last visited 15 October 2021). 81  Appellate Body Report, Russia –​Railway Equipment, adopted 5 March 2020. 82  Appellate Body Report, Russia –​Commercial Vehicles, adopted 9 April 2018. 83  Consultations requested in Armenia –​Anti-​ Dumping Measures on Steel Pipes 17 October 2018, Kazakhstan –​Anti-​Dumping Measures on Steel Pipes on 19 September 2021, and Kyrgyz Republic –​Anti-​ Dumping Measures on Steel Pipes on 17 October 2018. 84  See Panel Report, Russia –​Tariff Treatment, adopted 26 September 2016, para 7.47. 85  ‘Kyrgyzstan to withdraw WTO complaint as Kazakhstan lifts border restrictions,’ bne IntelliNews, 6 December 2017, at < https://​www.inte​llin​ews.com/​kyr​gyzs​tan-​to-​withd​raw-​wto-​compla​int-​as-​kaz​akhs​ tan-​lifts-​bor​der-​restr​icti​ons-​133​641/​ > (last visited 15 October 2021).

Eurasian Economic Union: Trade and investment    389 that the issue should be addressed within the framework of the Eurasian Economic Union.86

VII.  EAEU and regional trade agreements The EAEU has already concluded several free trade agreements.87 The first such agreement concluded by the EAEU was with the Socialist Republic of Viet Nam, which entered into force on 5 October 2016. Other agreements in force are the Interim Agreement Leading to Formation of a Free Trade Area between the Eurasian Economic Union and its Member States and the Islamic Republic of Iran, and the Free Trade Agreement between the Eurasian Economic Union and its Member States and the Republic of Serbia. The Agreement on Trade and Economic Cooperation between the Eurasian Economic Union and the People’s Republic of China, which is also in force, is not a classical FTA but an agreement with more general provisions. The Free Trade Agreement with the Republic of Singapore is not yet in force at the time of writing.

VIII.  EAEU: regulation of foreign investments A. Treaties Each EAEU Member State has concluded a number of international investment agreements—​both with each other and with thirds countries.88 Armenia has concluded 42 BITs (39 in force), Belarus has concluded 66 BITs (56 in force), Kazakhstan 47 (43 in force), Kyrgyzstan 34 (24 in force), and Russia has concluded 78 BITs (62 of which are in force).89 Many of these treaties had been signed before the creation of the EAEU. EAEU Member States have retained the right to conclude international investment agreements with non-​EAEU members. Article 33 of the EAEU Treaty stipulates that the 86  Report (2020) of the Committee on Trade Facilitation to the Council for Trade in Goods, G/​L/​137, 20 November 2020, at < https://​docs.wto.org/​dol​2fe/​Pages/​SS/​direct​doc.aspx?filen​ame=​q:/​G/​L/​1375. pdf&Open=​True > (last visited 15 October 2021). 87  For the texts of EAEU Trade Agreements, at < http://​eur​asia​ncom​miss​ion.org/​ru/​act/​trade/​dotp/​ Pages/​Торго​вые-​сог​лаше​ния-​ЕАЭС.aspx > (last visited 15 October 2021). 88 UNCTAD Investment Policy Hub, at < https://​inves​tmen​tpol​icy.unc​tad.org > (last visited 15 October 2021). 89  UNCTAD Investment Policy Hub, at < https://​inves​tmen​tpol​icy.unc​tad.org/​intern​atio​nal-​inv​estm​ ent-​agr​eeme​nts/​by-​econ​omy > (last visited 15 October 2021).

390   Marina Trunk-Fedorova aim of the EAEU foreign trade policy includes an ‘increase in volumes and improvement of structure of trade and investment’. However, it does not establish a competence of the EAEU to conclude international investment agreements with third countries in its own capacity, which is different from the European Union’s common commercial policy, which includes ‘foreign direct investments’.90 It is worth noting that FTAs concluded by the EAEU with third countries might contain chapters on the protection of foreign investments, but such agreements shall be concluded with the participation of the EAEU Member States. For example, Chapter 8 of the EAEU—​Viet Nam FTA covers ‘Trade in Services, investment and movement of natural persons’, although it is worth noting that it applies only between Viet Nam and Russia (Article 8.2(1)).91 The situation regarding intra-​ EAEU BITs is rather complex. EAEU Member States entered into a number of BITs before the EAEU Treaty was concluded, and these BITs remain in force. For example, Belarus has concluded BITs with Armenia (2001) and Kyrgyzstan (1999); Kazakhstan has concluded BITs with Russia (1999), Armenia (2006), and Kyrgyzstan (1997). Second, regional agreements on foreign investment have also been concluded between different participants within the framework of the Commonwealth of Independent States. For instance, CIS Member States concluded the 1993 Agreement on Cooperation in the Field of Investing Activities,92 although Russia decided later not to participate in this treaty. Another agreement, the 1997 CIS Convention on Protection of Investor Rights93 has six parties—​Armenia, Belarus, Kazakhstan, Kyrgyz Republic, Moldova, and Tajikistan. The 2008 Agreement on Promotion and Reciprocal Protection of Investments in the Member States of the Eurasian Economic Community (Eurasian Investment Agreement)94 was signed by Belarus, Kazakhstan, Kyrgyz Republic, Russia, and Tajikistan. The most recent investment treaty covering intra-​EAEU investments is the EAEU Treaty itself, which contains provisions regulating foreign investments in Section XV and Annex 16. Section XV falls in the part, which is called ‘Single Economic Space’. However, despite the title ‘Single Economic Space’, the provisions contained in this chapter are formulated as a traditional international investment agreement. Thus, unlike the European Union, which has decided that all intra-​EU BITs must be terminated,95 the

90

  Article 207 of the TFEU. Free Trade Agreement Between the Eurasian Economic Union and its Member States, of the One Part, and the Socialist Republic of Viet Nam, of the Other Part, at < https://​inves​tmen​tpol​icy.unc​tad.org/​ intern​atio​nal-​inv​estm​ent-​agr​eeme​nts/​tre​aty-​files/​3455/​downl​oad > (last visited 15 October 2021). 92  At < https://​cis-​legi​slat​ion.com/​docum​ent.fwx?rgn=​4584 > (last visited 15 October 2021). 93 At < https://​inves​tmen​tpol​icy.unc​tad.org/​intern​atio​nal-​inv​estm​ent-​agr​eeme​nts/​tre​aty-​files/​3127/​ downl​oad > (last visited 15 October 2021). 94 At < https://​inves​tmen​tpol​icy.unc​tad.org/​intern​atio​nal-​inv​estm​ent-​agr​eeme​nts/​tre​aty-​files/​2997/​ downl​oad > (last visited 15 October 2021). 95  Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union, SN/​4656/​2019/​INIT, OJ 2020 L 169, p. 1 (last visited 15 October 2021); see also Case C-​ 284/​16 Slovak Republic v. Achmea B.V., EU:C:2018:158. 91 

Eurasian Economic Union: Trade and investment    391 EAEU has taken a different approach. Foreign investors from other EAEU countries are treated as regular foreign investors from countries, with which BITs have been concluded. It is also not clear, which international investment agreement shall prevail in cases where there are parallel treaties on investment protection between two respective countries, provided that they might be parties, e.g., to a BIT, to a CIS convention, and to the EAEU Treaty at the same time. According to Article 65 of Annex 16 to the EAEU Treaty, its provisions shall apply to all investments made by investors of the EAEU Member States in the territory of another Member State since December 16, 1991. Like most traditional BITs, it contains broad definitions of investment96 and investor97 and also stipulates a number of guarantees: fair and equitable treatment of the investments and activities related to the investments made by investors of other Member States; national treatment; most-​favored-​nation treatment.98 It also contains provisions on expropriation.99 Dispute settlement provisions are also very similar to those of traditional BITs. Disputes shall be resolved thorough negotiations, and if a dispute cannot be settled amicably by means of negotiations during a period of six months, it may be submitted at the choice of the investor for consideration to: –​ a competent court of the Party, in which territory the investments were made, or –​ international commercial arbitration at the Chamber of commerce of any state, upon which the parties to the dispute agreed, or

96 

Article II.I(7) of Annex 16 defines investment broadly as ‘Tangible and intangible assets, invested by the investor of one Member State in objects of business activities in the territory of another Member State in accordance with the legislation of the latter, including: cash monetary assets (money), securities, other property; right to carry out business activity, conferred by the legislation of the member States or under contract, including, in particular, rights to explore, develop, extract and exploit the natural resources; property and other rights, having monetary value’. 97  Article II.I(8) of Annex 16 defines ‘Investor of a member State’ as ‘any person of a member State, that is making investments in the territory of another member State in accordance with the legislation of the latter’. 98  Paragraph 68 provides that ‘Each member State shall ensure in its territory fair and equitable treatment to the investments and activities related to the investments made by investors of other Member States’; paragraph 69 stipulates that ‘Treatment referred to in paragraph 68 of this Protocol shall not be less favorable than that granted by that member State in respect of investments and activities related to such investments to its own (national) investors; and paragraph 70 states that ‘Each Member State shall provide under like (similar) circumstances to investors of any other Member State, their investments and activities related such investments a treatment no less favorable than that accorded to investors of any third State, its investments and activities related to such investments.’ 99  Paragraph 79 provides that ‘Investments of investors of one Member State made in the territory of another Member State, cannot be subjected to direct or indirect expropriation, nationalization and other measures tantamount to expropriation or nationalization (hereinafter -​the expropriation), except when such measures are taken in the public interest in accordance with legislation of the state-​recipient procedure, they are not discriminatory and are accompanied by the payment of prompt, adequate compensation.’

392   Marina Trunk-Fedorova –​ an ad hoc arbitration court in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law, or –​ arbitration by the International Centre for Settlement of Investment Disputes.100

It is worth noting that the EAEU is not a party to the Energy Charter Treaty (ECT), whereas several EAEU Member States are, i.e., Armenia, Kazakhstan, Kyrgyzstan.101 Belarus has signed the ECT but has not yet ratified it.102 Russia initially signed the ECT but on 17 April 2018, it officially confirmed its intention not to be considered as signatory to the Energy Charter Treaty and the Protocol on Energy Efficiency and Related Environmental Aspects.103

B. Case-​law There have been several intra-​EAEU investor-​to-​State disputes by now, the majority of which are currently pending. The claims were brought under the EAEU Treaty and/​ or other relevant investment treaties. The level of involvement of each of the EAEU Member States in investment disputes can be probably explained by the intensity and the character of its investment connections with other EAEU Member States. For example, Armenia (or Armenian investors) have not been party to any intra-​ EAEU investor-​to-​state disputes so far, whereas Belarus has been respondent in two cases brought by Russian investors concerning a contract concluded with the Government for the construction of buildings104 and concerning a joint venture to develop railcar manufacturing capacity in Belarus;105 both disputes are still pending. Kyrgyzstan has been a respondent in several disputes brought by Kazakhstani investors,106 as well as in the currently pending dispute RusHydro v. Kyrgyz

100 

Annex 16, para 85. < https://​www.energy​char​ter.org/​proc​ess/​ene​rgy-​char​ter-​tre​aty-​1994/​ene​rgy-​char​ter-​tre​aty/​ > (last visited 15 October 2021). 102  Energy Charter Treaty, Members & Observers, at < https://​www.energy​char​ter.org/​who-​we-​are/​ memb​ers-​observ​ers/​countr​ies/​bela​rus/​ > (last visited 15 October 2021). 103 At < https://​www.energy​char​ter.org/​who-​we-​are/​memb​ers-​observ​ers/​countr​ies/​russ​ian-​fed​erat​ ion/​> (last visited 15 October 2021). However, Russia was a respondent in the dispute brought by former Yukos shareholders, which was based on provisional application of the ECT by Russia. Yukos Universal Limited (Isle of Man) v. The Russian Federation, PCA Case No. 2005-​04/​AA227, Veteran Petroleum Limited v. The Russian Federation, PCA Case No. 2005-​05/​AA228, Hulley Enterprises Limited v. Russian Federation, PCA Case No. AA 226, Final Award, 18 July 2014. 104  OOO Manolium Processing v. The Republic of Belarus, PCA Case No. 2018-​06, brought under the EAEU Treaty (2014). 105  GRAND EXPRESS Non-​ Public Joint Stock Company v. Republic of Belarus, ICSID Case No. ARB(AF)/​18/​1, brought under the EAEU Treaty (2014) and the Eurasian Investment Agreement (2008). 106  BTA Bank JSC v. Kyrgyz Republic brought under the Kazakhstan—​ Kyrgyzstan BIT (1997), OKKV (OKKB) and others v. Kyrgyz Republic brought under CIS Investor Rights Convention (1997); 101  At

Eurasian Economic Union: Trade and investment    393 Republic107 brought by a Russian investor. Regarding investment disputes with non-​EAEU investors, all individual EAEU Member States were respondents in disputes brought under their BITs with third countries,108 for example, Russia has been a respondent State in several investment disputes109 brought by investors from such countries. Armenia was a respondent in four disputes, all of which were brought by US investors under the Armenia—​United States of America BIT (1992).110 It is worth noting that several disputes against individual EAEU Member States were brought by investors from third countries under the ECT.111 There were also several investment claims brought by investors from EAEU Member States against third countries.112 It is noteworthy that the Kyrgyz Republic and Russia signed but did not ratify the ICSID Convention.113 Therefore, disputes with participation of these two States (or their nationals) are to be brought before other arbitration institutions (or ad hoc arbitration) listed in Annex 16 to the EAEU Treaty. It is also possible to bring a claim under the ICSID Additional Facility Rules, like in the case brought by a Russian investor against Belarus.114 Armenia, Belarus, and Kazakhstan are parties to the ICSID Convention and were respondents in several ICSDS disputes. It is worth noting that although two EAEU Member States are currently participating in the work of the UNCITRAL Working Group III,115 no plans to reform or replace ISDS system under the EAEU Treaty are currently known.

Consolidated Exploration Holdings Ltd. and others v. Kyrgyz Republic, ICSID Case No. ARB(AF)/​13/​ 1 brought under the Kazakhstan—​Kyrgyzstan BIT (1997) and CIS Investor Rights Convention (1997); National Center on Complex Processing of Mineral Raw Materials of the Republic of Kazakhstan v. Kyrgyz Republic, PCA Case No. 2019-​01 brought under Kazakhstan—​Kyrgyzstan BIT (1997). 107  PJSC RusHydro v. Kyrgyz Republic, PCA Case No. 2018-​21, PCA Case No. 2018-​21, brought under the Eurasian Investment Agreement (2008) and the Treaty on Eurasian Economic Union (2014). 108  For individual country data, see UNCTAD Investment Policy Hub, at < https://​inves​tmen​tpol​icy. unc​tad.org/​intern​atio​nal-​inv​estm​ent-​agr​eeme​nts > (last visited 15 October 2021). 109  See Chapter 32 of this handbook. 110 At < https://​inves​tmen​tpol​icy.unc​tad.org/​intern​atio​nal-​inv​estm​ent-​agr​eeme​nts/​treat​ies/​bit/​199/​ arme​nia-​-​-​uni​ted-​sta​tes-​of-​amer​ica-​bit-​1992-​ > (last visited 15 October 2021). One of these disputes was settled, two are pending, and one was decided in favor of investor. 111  Petrobart Ltd. v. The Kyrgyz Republic, SCC Case No. 126/​2003; Aktau Petrol Ticaret A.S. v. Republic of Kazakhstan, ICSID Case No. ARB/​15/​8; Türkiye Petrolleri Anonim Ortaklığı v. Republic of Kazakhstan, ICSID Case No. ARB/​11/​2; AES Corporation and Tau Power B.V. v. Republic of Kazakhstan, ICSID Case No. ARB/​10/​16; Ascom Group S.A., Anatolie Stati, Gabriel Stati and Terra Raf Trans Traiding Ltd. v. Republic of Kazakhstan, SCC Case No. 116/​2010; Liman Caspian Oil BV and NCL Dutch Investment BV v. Republic of Kazakhstan, ICSID Case No. ARB/​07/​14. See also above note 103. 112  See, e.g., Alexander Nelin v. Republic of Cyprus, ICSID Case No. ARB/​ 18/​41; KazTransGas JSC v. Georgia, PCA Case No. 2017-​22. For more information, see above fn 108. 113  Convention on the Settlement of Investment Disputes between States and Nationals of Other States, at < https://​icsid.worldb​ank.org/​sites/​defa​ult/​files/​ICSID%20Con​vent​ion%20Engl​ish.pdf > (last visited 15 October 2021). 114  GRAND EXPRESS Non-​ Public Joint Stock Company v. Republic of Belarus, ICSID Case No. ARB(AF)/​18/​1. 115  See, e.g., at < https://​und​ocs.org/​en/​A/​CN.9/​WG.III/​WP.207 > (last visited 15 October 2021).

394   Marina Trunk-Fedorova

IX. Conclusion The Eurasian Economic Union is an organization of regional economic integration, which deals with both external trade relations with third countries and internal single market issues. In the external dimension, the EAEU is currently conducting negotiations with several trading partners regarding a conclusion of FTAs. In the internal dimension, the goal has been set to achieve deeper economic integration, e.g., through EAEU technical regulations, a common market for pharmaceuticals, etc. At the same time, some important issues remain within the competence of individual EAEU Member States, like the relationships with the WTO or conclusion of international investment agreements.

Further reading A. Aseeva and J. Górski (eds), The Law and Policy of New Eurasian Regionalization: Economic Integration, Trade, and Investment in the Post-​Soviet and Greater Eurasian Space (The Hague: Brill Nijhoff, 2021) Zh. Kembayev, ‘Regional Integration in Eurasia: The Legal and Political Framework’ 41 Review of Central and East European Law (2016) 157–​194 V. Kim, Das Freihanelsabkommen zwischen der Eurasischen Wirtschaftsunion und der Sozialistischen Republik Vietnam und das Abkommen über eine verstärkte Partnerschaft und Zusammenarbeit zwischen der Republik Kasachstan und der Europäischen Union (Berlin: Berliner Wissenschaftsverlag, 2020) A. Klofat, ‘Regulatory Competition Within the Eurasian Economic Union and the European Union: A Comparative Legal Analysis’ 44(2) Legal Issues of Economic Integration (2017) 173–​196 A. Trunk, M. Trunk-Fedorova and A. Aliyev (eds), Law of International Trade in the Region of the Caucasus, Central Asia and Russia: Public International Law, Private Law, Dispute Settlement (The Hague: Brill Nijhoff, forthcoming) S. Verdiyeva, Regional Trade Agreements in Eastern Europe, Central Asia and the Caucasus: Is Multilateralization of Regionalism possible? (Berlin: Peter Lang GmbH, 2020)

Chapter 15

A frica and T ra de and Investme nt Liberaliz at i on Kholofelo Kugler * and Mulualem Getachew Adgeh

I. II.

Introduction Trade and investment liberalization in Africa A. The basic framework of African economic integration B. Africa’s external economic relationships with the European Union and the United States III. Trade and investment dispute settlement A. Regional dispute settlement mechanisms B. The AfCFTA and dispute settlement C. Participation by African countries in WTO dispute settlement I V. Conclusion

395 396 397 411 420 420 426 427 428

I. Introduction Since the beginning of African nations’ independence from European colonial powers in the late 1950s and early 1960s, many African countries opened their markets and joined the global market of goods, services, and capital. During the 1960s and 1970s,

*  The

views expressed in this chapter do not necessarily reflect the views of any organization with which she is affiliated.

396    Kholofelo Kugler and Mulualem Getachew Adgeh African countries, particularly former French colonies, were more active than any other region in concluding bilateral investment agreements (BITs),1 which provided protection for (mostly) European investments in the newly independent States. Organizations like the GATT and, from 1995, the WTO have been crucial in shaping Africa’s belief that trade liberalization, and not trade protection, is the best vehicle for economic development. Africa now boasts the highest number of WTO Members. Out of Africa’s 552 African Union (AU) Members States, 44 of them are Members of the WTO, and out of the remaining 11 countries, nine of them are in the process of acceding to the WTO.3 The belief that the prosperity of individual African countries is inextricably linked to the collective success of Africa as a whole has influenced Africa’s goal of achieving continent-​wide economic and political integration, based on the European Union model.4 This chapter discusses trade and investment liberalization in Africa. Section II addresses the policy and regulatory infrastructure of African trade and investment regimes, as well as trade agreements with two important economic partners, the European Union and the United States. Section III outlines the regional dispute settlement mechanisms, as well as Africa’s involvement in international trade disputes at the WTO. Finally, our conclusions are contained in Section IV.

II.  Trade and investment liberalization in Africa Thus far, Africa has experienced mixed results in its economic integration project. Since its inception, African economic integration has been conceptualized and reemphasized

1  UNCTAD

Investment Policy Hub, at < https://​inves​tmen​tpol​icy.unc​tad.org/​intern​atio​nal-​inv​estm​ ent-​agr​eeme​nts > (last visited 10 May 2020) (UNCTAD Investment). 2  The Sahwari Arab Democratic Republic (also referred to as Western Sahara) is a member of the AU and is Africa’s 55th State. It has been on the United Nations (UN) list of Non-​Self-​Governing Territories since 1963 following the transmission of information on Spanish Sahara by Spain under Article 73e of the UN Charter. See UN, ‘Report of the Committee on Information from Non-​Self-​Governing Territories’, Supplement No. 14 (A/​5514), 1963, Annex III. 3  AU Member States that are not WTO Members are Eritrea and the Sahwari Arab Democratic Republic, as well as the following States in the process of WTO accession: Algeria, Comoros, Equatorial Guinea, Ethiopia, Libya, São Tomé and Principe, Somalia, South Sudan and Sudan. See, G. Erasmus, ‘When African Trade Arrangements Incorporate WTO Disciplines without All Member States being WTO Members’ Trade Briefs TRALAC (24 January 2018), at < https://​www.tra​lac.org/​publi​cati​ons/​arti​ cle/​12624-​when-​afri​can-​trade-​arran​geme​nts-​inco​rpor​ate-​wto-​disc​ipli​nes-​with​out-​all-​mem​ber-​sta​tes-​ being-​wto-​memb​ers.html > (last visited 20 January 2020); WTO, ‘WTO Accessions’, at < https://​www. wto.org/​engl​ish/​thewt​o_​e/​acc_​e/​statu​s_​e.htm > (last visited 10 September 2021). 4  B. Gavin and L. Van Langenhove, ‘Trade in a World of Regions’ in G.P. Sampson and S. Woolcock (eds), Regionalism, Multilateralism and Economic Integration: The Recent Experience (Tokyo: United Nations University Press, 2003) 277–​313, at 281.

Africa and Trade and Investment Liberalization    397 in a myriad of strategy documents and action plans and managed by different bodies. Among other challenges, fundamental structural, infrastructural, social, and economic challenges, coupled with wavering political will and cooperation, have thwarted these efforts and endeavours.5 African countries’ trade and investment regulatory frameworks co-​exist with their extra-​regional international obligations, which have influenced the substance of their agreements and the depth of their commitments. African countries’ regional trade commitments are typically shallow, rarely exceeding those made at the WTO or at the bilateral level with more powerful trading partners, and are characterized by variable geometry, i.e., varying levels of progression and speed of fulfilling commitments based on the level of development of a country. Additionally, few African Regional Economic Communities (RECs) have advanced further than trade in goods commitments, with drawn-​out or stalled negotiations in trade in services and other disciplines.6 Moreover, the intra-​regional investment rules co-​exist with BITs that African countries have concluded with countries outside and within Africa.7 These factors create fertile ground for slow progress and inconsistency in achieving economic integration and cooperation in Africa.

A. The basic framework of African economic integration Though Africa remains the least economically integrated continent, economic integration and intra-​African trade have been regional aspirations from the beginning of the post-​colonial period. The quest for African cooperation and integration were triggered by the Pan-​African movements, headed by the likes of Julius Nyerere of Tanzania and Kwame Nkrumah of Ghana, which aimed for greater political independence and economic emancipation in Africa.8 This spirit of Pan-​Africanism and great hope for the continent’s future inspired the establishment of the Organisation for African Unity (OAU) in 1963. In 1980, the Lagos Plan of Action for the Economic Development of Africa (Lagos Action Plan) was adopted. It aimed to implement all its objectives by the year 2000. In the area of intra-​African trade expansion, the Lagos Action Plan sought to:

5 See, generally, M. Qobo, ‘The Challenges of Regional Integration in Africa in the Context of Globalisation and the Prospects for a United States of Africa’ ISS Paper 145, Institute for Security Studies (2007). 6  For example, the SADC Protocol on Trade in Services was concluded in 2012 but it still has not entered into force. 7  In 2014, African countries had concluded over 850 BITs, close to 700 with countries outside Africa and over 150 with other African countries. See UNECA, Investment Policies and Bilateral Investment Treaties in Africa: Implications for Regional Integration (2016), at 18, at < https://​www.uneca.org/​sites/​defa​ ult/​files/​Publi​cati​onFi​les/​eng_​i​nves​tmen​t_​la​ndsc​apin​g_​st​udy.pdf > (last visited 14 May 2020). 8  See, generally, O. Agyeman, ‘The Osagyefo, the Mwalimu, and Pan-​ Africanism: A Study in the Growth of a Dynamic Concept’ 13(4) The Journal of Modern African Studies (1975) 653–​675.

398    Kholofelo Kugler and Mulualem Getachew Adgeh

a. b. c. d.

reduce or eliminate trade barriers; adopt mechanisms and measures for trade facilitation and development; establish African multinational production corporations and joint ventures; and establish an African Common Market.9

The instrument that currently sets out the roadmap and goals for Africa’s economic integration is the Treaty Establishing the African Economic Community (better known as the Abuja Treaty). It was signed on 3 June 1991 in Abuja, Nigeria and entered into force in May 1994. Importantly, the Abuja Treaty recognized the role of the RECs as the best means to organize sub-​regional economic activity to achieve full economic and political integration in Africa.10 Its provisions thus strengthened the role of the existing RECs and mandated the establishment of RECs, where they did not exist.11 The Abuja Treaty established ambitious objectives and timelines for Africa’s economic integration project. Specifically, pursuant to Article 6, the Africa Economic Community (AEC) would be established in six stages over a period of 34 years (i.e., by 2028). These stages are described in Box 1 below. Few of the goals and timelines established in the Abuja Treaty have been achieved. By 2022, only Stage 6 (the last stage) should have been outstanding.12 It thus remains to be seen whether Africa’s economic integration will be achieved by 2028. In 2002, the AU replaced the OAU as the regional governing body. The AU currently coordinates Africa’s economic integration activities. Concurrently, the New Partnership for Africa’s Development (NEPAD) was established to fortify Africa’s commitment to its regional integration aspirations.13 At the 24th Ordinary session of the Assembly of the Union in January 2015 in Addis Ababa, Ethiopia, the Heads of State and Government of the AU adopted Agenda 2063.14 This Agenda was built on the pledges made through the OAU/​AU 50th Anniversary Solemn Declaration and comprises seven aspirational goals shaped by the Pan-​African vision of ‘an integrated, prosperous and peaceful Africa, driven by its own citizens, representing a dynamic force in the international arena’.15 Trade has been identified as one of the cornerstones of this vision because it would stimulate fast regional integration. 9 

Article 250 of the Lagos Action Plan. The RECs were proposed by the 1980 Lagos Plan of Action for the Development of Africa, African Union, ‘Regional Economic Communities (RECs)’, at < https://​au.int/​en/​org​ans/​recs > (last visited 15 September 2019). 11  Article 28.1 of the Abuja Treaty. 12  Qobo, above fn 5, at 1. 13  NEPAD has since been renamed the NEPAD Agency and incorporated into the AU as it is the implementing arm for the AU’s Agenda 2063 development strategy. See AU, ‘NEPAD—​AU Development Agency’, at < https://​au.int/​en/​nepad > (last visited 26 January 2020) and United Nations Department of Economic and Social Affairs, New Partnership for Africa’s Development—​NEPAD, at < https://​www. un.org/​deve​lopm​ent/​desa/​soc​ialp​ersp​ecti​veon​deve​lopm​ent/​iss​ues/​new-​part​ners​hip-​for-​afri​cas-​deve​ lopm​ent-​nepad.html > (last visited 26 January 2020). 14  Agenda 2063 The Africa We Want, Popular Version (April 2015), at 11. 15  Ibid., at 1. 10 

Africa and Trade and Investment Liberalization    399

Box 1: Stages of African economic integration contemplated in the Abuja Treaty • Stage 1 (1994–​1999): strengthening and establishing RECs; • Stage 2 (1999–​2007): • Stabilizing tariff and non-​ tariff barriers, customs duties and internal taxes and determining the timetable for the gradual removal of trade barriers and the gradual harmonization of customs duties; • Strengthening sectoral integration, particularly in trade, agriculture, money and finance, transport and communications, and industry and energy; and • Coordinating and harmonizing activities among the existing and future RECs. • Stage 3 (2007–​2017): establishing an FTA in each REC and, subsequently, establishing a customs union by adopting a common external tariff; • Stage 4 (2017–​2019): coordinating and harmonizing tariff and non-​tariff systems among the RECs with a view to establish a continental customs union by adopting a common external tariff; • Stage 5 (2019–​2023): establishing an African Common Market through: • adopting common policies in, inter alia, agriculture; • harmonizing monetary, financial, and fiscal policies; • applying the principle of free movement of persons; and • constituting the proper resources of the Community; and • Stage 6 (2023–​2028): consolidating the African Common Market; integrating all sectors and establishing a single domestic market and monetary union; establishing the African Central Bank and creating a single African currency; implementing the Pan-​Africa Parliament, finalizing the harmonization of the RECs; establishing African multinational enterprises in all sectors; and implementing the structure of the executive organs of the Community.

As such, Agenda 2063 aspires to increase intra-​Africa trade from the current level of 12 percent to 50 percent in 2045, and to raise Africa’s share of global trade from 2 percent to 12 percent.16 The recently launched African Continental Free Trade Area (AfCFTA) is part of this program to create a unified and prosperous Africa by creating a single continental market for goods, services, and the free movement of persons and capital.17 While there has been considerable scepticism about the success of the African integration project,18 some commentators are hopeful that the AfCFTA and Agenda 2063 will succeed

16 

Ibid., at Aspiration 2, para 26 of Agenda 2063. Ibid., at Aspiration 2, para 24 of Agenda 2063. 18  See Qobo, above fn 5, at 1. 17 

400    Kholofelo Kugler and Mulualem Getachew Adgeh in boosting sustainable and lasting economic growth in Africa.19 The AfCFTA will be discussed further below.

1. The Regional Economic Communities (RECs) The objective of the Abuja Treaty was that all the RECs would establish common markets and those eight individual common markets would be merged to be the ‘building blocs’ of an Africa-​wide common market.20 The following eight RECs are recognized by the AU:

1. 2. 3. 4. 5. 6. 7. 8.

The Community of Sahel-​Sharan States (1998) (CEN-​SAD);21 The Common Market for Eastern and Southern Africa (1993) (COMESA);22 The East African Community (1990) (EAC);23 The Economic Community of Central African States (1983) (ECCAS);24 The Economic Community of West African States (1975) (ECOWAS);25 The Inter-​Governmental Authority on Development (1996) (IGAD);26 The Southern African Development Community (1992) (SADC);27 and The Arab Maghreb Union (1989) (UMA).28

In addition to the above RECs, there are other African intergovernmental organizations with trade and investment capacities.29 In west Africa, there are the 19 L. Signé and C. van der Ven, ‘Africa’s Industrialization Under the Continental Free Trade Area: Local Strategies for Global Competitiveness’, African Growth Initiative at Brookings (June 2019), at < https://​www.brooki​ngs.edu/​blog/​afr​ica-​in-​focus/​2019/​06/​04/​afri​cas-​indust​rial​izat​ion-​under-​the-​cont​ inen​tal-​free-​trade-​area-​local-​str​ateg​ies-​for-​glo​bal-​comp​etit​iven​ess/​ > (last visited 26 January 2020). 20 J. de Melo and Y. Tsikata, ‘Regional Integration in Africa: Challenges and Prospects, A Contribution to the Handbook of Africa and Economics’ FERDI Working Paper 93 (February 2014), at 4, at < https://​ferdi.fr/​dl/​df-​6Lm5L​ieRw​5yaW​5shk​AeNS​SBj/​ferdi-​p93-​regio​nal-​inte​grat​ion-​in-​afr​ica-​cha​ llen​ges-​and-​prospe​cts.pdf > (last visited 22 May 2020). 21  CEN-​ SAD Member States are Benin, Burkina Faso, Central African Republic, Chad, Comoros, Côte d’Ivoire, Djibouti, Egypt, Eritrea, Gambia, Ghana, Guinea-​ Bissau, Libya, Mali, Mauritania, Morocco, Niger, Nigeria, Senegal, Sierra Leone, Somalia, the Sudan, Togo and Tunisia. 22  COMESA Member States are Burundi, Comoros, Democratic Republic of Congo, Djibouti, Egypt, Eswatini, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Somalia, Sudan, Tunisia, Uganda, Zambia and Zimbabwe. 23  EAC Member States are Burundi, Kenya, Rwanda, South Sudan, Tanzania and Uganda. 24  ECCAS Member States are Angola, Burundi, Cameroon, Central African Republic, Chad, Congo, Democratic Republic of Congo, Equatorial Guinea, Gabon, Rwanda and Sao Tome and Principe. 25  ECOWAS Member States are Benin, Burkina Faso, Cabo Verde, Côte d’Ivoire, Gambia, Ghana, Guinea, Guinea Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone and Togo. 26  IGAD Member States are Djibouti, Ethiopia, Eritrea, Kenya, Somalia, Sudan, South Sudan, and Uganda. 27  SADC Member States are Angola, Botswana, Comoros, Democratic Republic of Congo, Eswatini, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Tanzania, Zambia and Zimbabwe. 28  UMA Member States are Algeria, Libya, Mauritania, Morocco, and Tunisia. 29 UNCTAD, Trade Liberalization, Investment and Economic Integration in African Regional Economic Communities; Towards the African Common Market (2012), at 2, at (last visited 10 May 2019); M. Moïse Mbengue, ‘Africa’s

Africa and Trade and Investment Liberalization    401 West African Economic and Monetary Union (WAEMU)30 and the Mano River Union (MRU).31 In central Africa, there are the Central African Economic and Monetary Union (CEMAC)32 and the Economic Community of Great Lakes Countries (ECGLC).33 In the Indian Ocean, there is the Indian Ocean Commission (IOC).34 Finally, in southern Africa, the world’s oldest customs union, the Southern African Customs Union (SACU) also adds to the list of non-​REC regional economic arrangements.35 However, of the recognized RECs, only COMESA, EAC, ECOWAS and SADC have advanced to, at least, the level of a preferential trade agreement (PTA). The EAC is a customs union, ECOWAS’s and COMESA’s customs unions are in the implementation phase, and SADC is a free trade area. We provide an overview of the trade and investment regimes of these four RECs below.

2. Africa’s trade and investment regimes African RECs are diverse and at different levels of integration. However, a few common threads can be discerned in the regional regulatory frameworks. Regional commitments in trade tend to be quite shallow, conservative, and seldom advance further than trade in goods. However, Africa has emerged as a leader in crafting newer-​generation investment rules that recognize their development needs and require investors to comply with the economic and social needs of each sub-​region.

a. COMESA The Treaty Establishing COMESA (COMESA Treaty) entered into force in December 1994 and was revised in 2009.36 COMESA’s trade and investment-​related provisions are contained in several legal instruments, including the COMESA Treaty, as amended, and its Annexes, Protocols,37 and Regulations. The COMESA Treaty includes trade undertakings in Chapter 6 (titled Co-​Operation in Trade Liberalisation and Voice in the Formation, Shaping and Redesign of International Investment Law’ 34(2) ICSID Review (2019) 466. 30 WAEMU Member States are Benin, Burkina Faso, Côte d’Ivoire, Guinea Bissau, Mali, Niger, Senegal, and Togo. The Members notified the customs union to the WTO under the Enabling Clause on 27 October 1999 (WT/​COMTD/​N/​11). 31  MRU Members are Côte d’Ivoire, Guinea, Liberia and Sierra Leone. 32  CEMAC Member States are Cameroon, the Republic of the Congo, Gabon, Equatorial Guinea, the Central African Republic and Chad. The members notified a customs union under the Enabling Clause on 21 July 1999 (WT/​COMTD/​N/​13). 33  ECGLC Members are Burundi, the Democratic Republic of Congo, and Rwanda. 34 IOC Member States are Comoros, Madagascar, Mauritius, Reunion (an EU (France) overseas territory) and Seychelles. 35  SACU’s Member States are Botswana, Eswatini, Lesotho, Namibia, and South Africa. SACU was notified as a customs union under Article XXIV of the GATT 1994 on 25 June 2007 (WT/​REG231/​N/​1). 36  See WT/​COMTD/​N/​3. COMESA was notified to the WTO as an RTA under the Enabling Clause on 4 May 1995 (WT/​COMTD/​N/​14). 37  Including the Protocol on Transit Trade and Transit Facilities (Annex I of the COMESA Treaty); Protocol on Third Party Motor Vehicle Insurance (Annex II of the COMESA Treaty); Protocol Relating to the Unique Situation of Lesotho, Namibia and Swaziland (Annex III of the COMESA Treaty).

402    Kholofelo Kugler and Mulualem Getachew Adgeh Development).38 That chapter includes disciplines on customs duties, rules of origin, non-​discrimination, as well as trade remedies. Article 47 of the COMESA Treaty provides for the creation of a customs union within 10 years of the entry into force of the treaty, i.e., by 2004. The customs union was launched in 2009 but it is still not in operation.39 Beyond WTO-​like trade disciplines, the COMESA trade chapter includes a competition provision,40 pursuant to which the COMESA Competition Commission, Africa’s first regional competition authority, was established.41 Chapter 26 of the COMESA Treaty promotes and protects investment, noting Member States’ agreement to accede to dispute settlement mechanisms such as the Convention on the Settlement of Investment Disputes (ICSID Convention) as ‘a means of creating a conducive climate for investment promotion’.42 In 2007, Member States concluded the Investment Agreement for the COMESA Common Investment Area (CCIA Agreement). This is the first African regional investment agreement that proposes an approach that is sensitive to the particular needs of African countries.43 The CCIA Agreement was revised in 2017 to ‘strengthen the sustainable development dimension of the agreement and to safeguard the right of host States to regulate investment in their territories’.44 By May 2022, the Revised CCIA Agreement had not yet been ratified by any COMESA Member State and had thus not yet entered into force.45

b. EAC The Treaty for the Establishment of the EAC (EAC Treaty) entered into force in 2000 and was amended in 2008.46 In addition to the EAC Treaty, trade and investment in the EAC is regulated by a number of protocols47 and various subsidiary legal instruments (regulations, rules, and acts). The EAC has achieved the highest level of integration of all 38  There are other trade-​related provisions elsewhere, for example, in Chapters 7, 8, 9, 11, 15, 18 and 19, which cover common market cooperation, re-​exportation of goods, simplification and harmonization of trade documents and procedures, transport and communications, standards, agriculture and tourism, respectively. 39  UNECA, ‘COMESA –​Trade and Market Integration’, < https://​www.uneca.org/​oria/​pages/​com​esa-​ trade-​and-​mar​ket-​inte​grat​ion > (last visited 11 May 2020). 40  See Article 55. 41  See P. Steyn, ‘Africa’s First Supranational Competition Authority Commences Operations: Issues Arising from the New COMESA Merger Control Regime’ 9 Competition Law International (2013) 137. 42  Article 162 of the COMESA Treaty. 43   Mbengue, above fn 29, at 467. 44 UNCTAD, World Investment Report 2018: Investment and New Industrial Policies (2018), at 90, at < https://​unc​tad.org/​en/​Publ​icat​ions​Libr​ary/​wir​2018​_​en.pdf > (last visited 15 May 2020); see Chapter 32 of this handbook. 45  COMESA, ‘Plans Afoot to Publicize Common Investment Area Agreement’ (27 April 2020), at < https://​www.com​esa.int/​plans-​afoot-​to-​public​ize-​com​mon-​inv​estm​ent-​area-​agreem​ent/​ > (last visited 15 May 2020). 46  The trade in goods part of the EAC Treaty was notified to WTO on 9 October 2000 under the Enabling Clause (WT/​COMTD/​N/​14) and the trade in services part was notified on 1 August 2012 (S/​C/​ N/​655). 47  These include: the Protocol on the Establishment of the East African Customs Union of 2004 (EAC Customs Union Protocol); the Protocol on the Establishment of the EAC Common Market of 2009

Africa and Trade and Investment Liberalization    403 the African RECs. It launched a Customs Union in 2005, established a Common Market in 2010, and began the implementation of its Monetary Union in 2013, with the aim of adopting a single currency within 10 years (i.e., by 2023). Chapter 11 of the EAC Treaty provides for Co-​operation in Trade Liberalisation and Developments.48 Chapter 12 contains provisions on Co-​operation in Investment and Industrial Development and contemplates that the EAC Member States49 will take measures to ‘harmonise and rationalise investment incentives’.50 The EAC Customs Union Protocol contains chapters on, inter alia, customs administration, tariffs (including the establishment of a common external tariff), rules of origin and trade remedies. The EAC Common Market Protocol establishes the EAC Common Market, which is underpinned by, inter alia, free movement of goods, services, persons and labour and capital. On 1 January 2017, the EAC Summit launched the international East African e-​passport. This passport replaces the old intra-​regional passport and the individual national passports of EAC citizens.51 The EAC does not have a regional investment code. Nevertheless, it is one of the first RECs to adopt an investment model law when it adopted the EAC Model Investment Code in 2006 (EAC Model Investment Code). In comparison to the CCIA Agreement, the EAC’s Model Investment Code is a more traditional agreement, which confers more rights than obligations on investors.

c. ECOWAS The Treaty of ECOWAS (ECOWAS Treaty) entered into force in 1975 and was revised in 1993.52 Trade and investment in ECOWAS are currently regulated by the Revised ECOWAS Treaty of 1993 (Revised ECOWAS Treaty) and various supplementary acts, protocols, regulations, and decisions. In addition to other provisions,53 Chapter VIII of the Revised ECOWAS Treaty provides for co-​operation in trade, customs, taxation, statistics, money, and payments. This chapter establishes the framework for trade cooperation and includes provisions on customs duties, trade remedies, and non-​ discrimination. Article 35 provides for progressive liberalization and the establishment of a customs union within 10 years of 1 January 1990 (i.e., by 2000). Moreover, Chapter (EAC Common Market Protocol); and the Protocol on the Establishment of the EAC Monetary Union of 2013. 48  Other trade-​related chapters include chapters on standards and testing (Chapter 13); services (Chapter 15); and agriculture and food security (Chapter 18). 49  Referred to as Partner States in the EAC’s legal instruments. 50  Article 80.1(f) of the EAC Treaty. 51  EAC, Joint Communiqué: 17th Ordinary Summit of the [EAC] Heads of State, 2 March 2016, para 18, at < https://​www.eac.int/​com​muni​que/​374-​446-​526-​joint-​com​muni​que-​17th-​ordin​ary-​sum​mit-​of-​ the-​east-​afri​can-​commun​ity-​heads-​of-​state > (last visited 20 May 2020). 52  ECOWAS was initially notified to the WTO as an RTA under the Enabling Clause. On 6 July 2005, the Revised Ecowas Treaty was notified as an RTA under Article XXIV of the GATT 1994 (WT/​ COMTD/​N/​21). 53  For example, Chapter IV on co-​operation in food and agriculture and Chapter VII on co-​operation in transport, communications and tourism.

404    Kholofelo Kugler and Mulualem Getachew Adgeh IX contemplates the establishment and completion of an economic and monetary union by, respectively, 15 years after 1 January 1990 and five years after the establishment of the customs union (i.e., by 2005).54 Like the other RECs, ECOWAS’ trade integration project is progressing, albeit slowly. One of the region’s successes was the launch of the ECOWAS passport in 2000, which abolished intra-​regional visas and serves as an international passport.55 On the other hand, the common external tariff was adopted at the Heads of State Summit in Dakar in October 201356 but it is still in the implementation phase. Two objectives of the ECOWAS Treaty are to harmonize regional national investment laws and to eventually adopt a region-​wide investment code.57 To this end, in 2008, ECOWAS adopted the ECOWAS Supplementary Act on Investments58 to regulate intra-​ ECOWAS investments.59 Article 23 prohibits ECOWAS Member States from competing to attract investment by providing incentives or other means that distort regional competition for investment. In addition to providing for the standard protections of national treatment, most-​favoured-​nation (MFN) treatment, fair and equitable treatment, and reasonable protection and security,60 the ECOWAS Supplementary Act on Investments imposes on investors sustainable development requirements such as pre-​establishment environmental and social impact assessments, compliance with human rights norms during the course of the investment and corporate social responsibly.61 Further, ECOWAS adopted the ECOWAS Common Investment Code (ECOWIC) in July 2018. It is not yet in force.62 ECOWIC updated and revised the ECOWAS Supplementary Act on Investments. It only applies to intra-​ECOWAS investments. The ECOWIC expands the sustainable development aspects to include chapters on environment and sustainable development, human capital, development objectives and social responsibility, corruption and unethical practices, and technology transfer,63 which have become standard in African investment legal instruments.

54 

Article 54, and Article 54 of the Revised ECOWAS Treaty. ‘ECOWAS –​Free Movement of People’, at < https://​www.uneca.org/​pages/​eco​was-​free-​ movem​ent-​pers​ons > (last visited 20 May 2020). 56  The customs union of ECOWAS was notified to the WTO on 2 May 2019 under Article XXIV:7(a) of the GATT 1994 (WT/​REG399/​N/​1). 57  Article 3 of the ECOWAS Treaty. 58   Supplementary Act A/​SA.3/​12/​08 Adopting Community Rules on Investment and the Modalities for their Implementation with ECOWAS. 59  While the definitions of ‘home State’ and ‘host State’ indicate that the Act applies only to intra-​ community investments, the definition of ‘investor’ includes ‘a company that has invested or is making an investment in the territory of a Member State’, which could include foreign investors. See Article 1(d), (g), (h) of the ECOWAS Supplementary Act on Investments. These discrepancies are noted in M. Happold, ‘Investor–​State Dispute Settlement using the ECOWAS Court of Justice: An Analysis and Some Proposals’ 34 ICSID Review (2019), at 508–​509. 60  Chapter II of the ECOWAS Supplementary Act on Investments. 61  Chapter III of the ECOWAS Supplementary Act on Investments. 62  Mbengue, above fn 29, at 468. 63  Respectively, Chapters 6–​9 and 13 of ECOWIC. 55  UNECA,

Africa and Trade and Investment Liberalization    405

d. SADC The SADC Treaty entered into force in 1992 and was revised in 2001, 2007, 2008 and 2009.64 Trade and investment liberalization in SADC are governed by the SADC Treaty and various subsidiary legal instruments including, protocols, charters, pacts and memoranda of understanding. Article 21 of the SADC Treaty establishes, inter alia, trade and investment as areas of co-​operation. The most relevant protocols include the Protocol on Trade of 1996 (SADC Trade Protocol),65 the Protocol on the Tribunal and Rules thereof of 2000 (SADC Tribunal Protocol),66 the Protocol on Finance and Investment of 2006 (SADC FIP)67 and the Protocol on Services of 2012.68 The SADC Trade Protocol contains the substantive trade law of SADC. Regarding trade in goods, it covers rights and obligations such as non-​discrimination, the elimination of quantitative restrictions, customs procedures and trade remedies. It also addresses trade in services, intellectual property, and competition policy. These provisions mirror closely and refer to WTO provisions. For example, the anti-​dumping provision of the SADC Trade Protocol merely states that Members States are not prevented from applying anti-​dumping measures that are consistent with WTO law.69 Moreover, SADC Members States undertook to adopt policies and measures in line with their obligations under the GATS for regional trade in services.70 The SADC FIP regulates intra-​SADC investments.71 Annex 1 to the SADC FIP is the intra-​SADC investment code and is based on principles of sustainable development and regional cooperation in investments.72 In 2016, this annex was repealed by the Agreement Amending Annex 1 of the SADC FIP (SADC FIP Annex 1 Amendment), which entered into force in August 2017. The amended Annex 1 articulates the rights and obligations of investors and State Parties, which were silent in the original Annex 1. Article 5 delineates the investment protection provisions to include a definition of ‘fair and adequate compensation’ that includes public interest considerations and to carve out some policy space for SADC Member States, including their right to determine what they consider to be expropriation. The SADC FIP Annex 1 Amendment also includes a national treatment provision pursuant to which SADC Members States undertake to accord treatment no less favourable to investors and their investments than that they accord to their own investors and investment in ‘like circumstances’. However, ‘like circumstances’ will be considered on a case by case basis, taking into account the impact 64  SADC was notified at the WTO under Article XXIV of the GATT 1994 on 2 August 2004 (WT/​ REG176/​N/​1; WT/​REG176/​N/​1/​Rev.1). 65  This protocol entered into force in 2000 and was amended in 2007 (Annex on dispute settlement) and 2016. 66  This Protocol entered into force in 2001 and was amended in 2002, 2007, and 2008. 67  This Protocol entered into force in 2010 and was repealed in 2016. 68  Not in force. 69  Article 18 of the SADC Trade Protocol. 70  Article 23 of the SADC Trade Protocol. 71  Article 3 of the SADC FIP. 72  Articles 3, 10, 12, and 13 of Annex 1 of the SADC FIP.

406    Kholofelo Kugler and Mulualem Getachew Adgeh of some socio-​economic factors.73 The amendment also expands on SADC Member State’s right to regulate established in the original Annex 1.74 To support its Members States in BITs negotiations, SADC completed the SADC Model Bilateral Investment Treaty Template (SADC Model BIT) in 2012. Consistent with the provisions of the current Annex 1 of the SADC FIP, the SADC Model BIT is a ‘new generation’ BIT that clarifies the hitherto narrow obligations imposed on home States, providing more policy space for host States, and limiting tribunals’ discretion. It also includes obligations on home States and investors to try to impact the quality and quantity of foreign direct investment.75

3. Challenges to African economic integration Although Africa-​wide regional integration has been on the agenda of African leaders and intellectuals since the 1950s, it has not been easy to implement. Many factors have affected (the pace of) Africa’s integration. We highlight the intra-​REC challenges below. The 2016 Regional Integration Index for Africa76 provides a detailed description of the levels of REC integration across the following five dimensions:77 trade integration,78 regional infrastructure,79 productive integration,80 free movement of people,81 and financial macroeconomic integration.82 While this index indicates that the overall performance of regional integration in Africa is mixed, all RECs achieved higher than average score in one or more dimension. However, the EAC achieved the highest overall scores, meaning that it is the most integrated of all Africa’s RECs.83 The variations in integration contribute to the inequalities across the continent and create additional obstacles to achieving the ultimate objective of creating a common continental market for goods and services, with free movement of people and

73 

Article 6 of the SADC FIP Annex 1 Amendment. Article 12 of the SADC FIP Annex 1 Amendment. 75  L. Johnson and L. Sachs, ‘International Investment Agreements, 2011-​2012: A Review of Trends and New Approaches’ in A. Bjorklund (ed), Yearbook on International Investment Law & Policy (2012–​ 2013) 219, at 251. 76  See African Union, African Development Bank, and United Nation Economic Commission for Africa, ‘Africa Regional Integration Index Report 2016’, at 11. 77  Which are divided into 16 indicators. 78  Which is divided into the following indicators: levels of customs duties, share of intra-​regional goods imports and exports as a percentage of GDP and share of total intra-​regional goods trade. 79 Which is divided into the following indicators: infrastructure development index (transport, electricity, ICT, water and sanitation); proportion of intra-​regional flights; total regional electricity trade per capita (net); and average cost of roaming. 80  Which is divided into the following indicators: share of intra-​regional intermediate goods exports and imports and merchandise trade complementarity index. 81  Which is divided into the following indicators: proportion of the availability of visas on arrival for REC nationals; ratification of the Abuja Treaty’s Protocol on Free Movement of Persons; and proportion of REC nationals who do not require visa for entry. 82  Which is divided into the following indicators: convertibility of national currencies and inflation rate differential (based on harmonized indices of consumer prices). 83  Africa Regional Integration Index, at 17. 74 

Africa and Trade and Investment Liberalization    407 capital. A major factor contributing to the sluggish progress of regional integration is the overlapping membership of countries to more than one REC. This ‘spaghetti bowl’ of trade agreements hinders African regional integration due to inefficiencies, duplication, the costs of complying with multiple rules, and, sometimes, the impossibility of complying with all rules (particularly rules of origin) at once.84 Of Africa’s 55 States, 24 hold memberships in two RECs, 20 are members of three RECs, and six belong to four RECs. Only four African States maintain membership in one REC and the Saharawi Arab Democratic Republic is the only AU Member State that is not part of a REC. In order to harmonize and coordinate the activities of the RECs, COMESA, ECCAS, ECOWAS, IGAD and SADC signed the 1998 Protocol on Relations between the AEC and the RECs.85 In 2007, the AU Assembly adopted the Protocol on Relations between the AU and the RECs,86 which entered into force in 2008, and was signed by all RECs except UMA. These protocols have not resolved the problems of overlapping REC membership of African countries. Without practical disciplines to address these issues, the most feasible solution would be the eventual goal of the African regional integration project: the dissolution of the individual RECs into a single African market. Other factors also affect the pace of African regional integration. These include criticisms that the key AU organs, such as the AU Commission, the Parliament and the Court of Justice are not sufficiently empowered to move the integration process forward.87 Because of these organs’ weak or non-​existent enforcement mechanisms, Members States do not comply with their decisions when they do not suit them. Further, commentators have cited the lack of genuine commitment and political will of most African leaders and their desire to keep their domestic power base, which would be eroded by integration, as stumbling blocks to African integration.88 Furthermore, some have observed that Africa’s weak economic integration is tied to the history of colonialism when neighbours stopped trading with each other and, instead, exported their products (mainly minerals and raw materials) to Europe and the United States. This trend has continued long after the end of colonialism.89 While recognizing the numerous achievements attained so far, there is still a long way to go to achieve all the goals enshrined in the Treaty of Abuja. Given the long-​standing

84   See J.T. Gathii, ‘African Regional Trade Agreements as Flexible Legal Regimes’ 35 North Carolina Journal of International Law and Commercial Regulation (2009) 648, at 656-​662; Mbengue, above fn 29, at 479. 85  R. Frimpong Oppong, Legal Aspects of Economic Integration in Africa (Cambridge: Cambridge University Press, 2011), at 77. 86  See Decision on the Protocol on Relations between the African Union and the Regional Economic Communities (RECs), D ​ oc. EX.CL/​348 (IX). 87  Governance of Integration in Africa: Challenges and Way Forward, (African Union). 88  P.A. Jiboku, ‘The Challenge of Regional Economic Integration in Africa: Theory and Reality’ 3(4) Africa’s Public Service Delivery & Performance Review (2015), at 20–​21. 89  See, generally, S. Ocheni and B.C. Nwankwo, ‘Analysis of Colonialism and Its Impact in Africa’ 8 Cross-​Cultural Communication (2012) 3.

408    Kholofelo Kugler and Mulualem Getachew Adgeh structural and political challenges that exist, it will be difficult to achieve all the African regional integration goals before 2028. Nevertheless, the progress made in recent years is steering Africa’s regional integration project in the right direction.

4. The Tripartite Free Trade Area (TFTA) On 12 June 2011, the Head of States and Governments of COMESA, the EAC and SADC met in Sharm El-​Sheikh, Egypt to launch negotiations for the establishment of the COMESA-​EAC-​SADC FTA, commonly referred to as the TFTA. Negotiations of the legal texts were concluded in May 2017, and 24 of the 27 participating Member States had signed the agreement. Kenya, Egypt, Uganda, and South Africa have ratified the Agreement, which will enter into force once it has been ratified by 14 countries.90 The countries comprising the Common Market of the TFTA have a combined population of over 630 million people and a total Gross Domestic Product (GDP) of approximately US$1.3 trillion, which constitutes close to 60 per cent of Africa’s GDP. The integration process is based on three pillars of the Tripartite Strategy: market integration, infrastructure development, and industrial development.91 The main objective of the TFTA is to strengthen and deepen the economic integration of southern and eastern Africa. It is anticipated that this will be achieved through the harmonization of policies across the three RECs in the areas of trade, customs, and infrastructure development.92 The TFTA recognizes that its composite Members are at different levels of economic development and thus adopts variable geometry regarding the pace of liberalization across negotiating regions and aims to build on the existing framework of the regional communities.93 The conclusion of the TFTA was a high point in the African integration project. Notwithstanding the great strides made, the TFTA has essentially been rendered redundant by the conclusion of the AfCFTA Agreement because the raison d’être of the TFTA is to be the foundation for initiating AfCFTA negotiations.

5. The Agreement Establishing the African Continent Free Trade Area (AfCFTA) In January 2012, African leaders endorsed the Action Plan for Boosting Intra-​African Trade (BIAT)94 and adopted a decision to establish a Pan-​African Continental Free Trade 90   The Agreement initially covered 26 Members States. However, since the EAC expanded to include South Sudan, the number of participating states is now 27. See TRALAC, ‘SADC-​EAC-​COMESA Tripartite Free Trade Area Legal Texts and Policy Documents’, at < https://​www.tra​lac.org/​resour​ces/​by-​ reg​ion/​com​esa-​eac-​sadc-​tri​part​ite-​fta.html > (last visited 20 January 2020). 91 These are contained in the Vision and Strategy Document endorsed at the Second Tripartite Summit in June 2011. 92  SADC, ‘Tripartite Cooperation’, at < https://​www.sadc.int/​about-​sadc/​cont​inen​tal-​interr​egio​nal-​ inte​grat​ion/​tri​part​ite-​coop​erat​ion/​ > (last visited 20 January 2020). 93  TFTA, preamble. 94  BIAT contains seven major clusters aimed at addressing the key constraints and challenges of intra-​ African trade. These are: trade policy, trade facilitation, productive capacity, trade-​related infrastructure, trade finance, trade information and factor market integration. Assembly/​AU/​Dec.394[XVIII].

Africa and Trade and Investment Liberalization    409 Area by 2017. The AfCFTA negotiations were launched in June 2015 in Johannesburg, South Africa.95 They were divided into three phases. Phase I covered trade in goods and services and dispute settlement—​this part of the agreement has entered into force. However, key issues are still to be completed, including services commitments. On 28 January 2022, the Eighth Meeting of the AfCFTA Council of Ministers Responsible for Trade agreed on the rules of origin and the adopted rules cover 87.7 percent of goods on the tariff lines of member states.96 Phase II negotiations were launched in February 2019 and cover intellectual property rights, investment, and competition policy.97 In February 2020, the State Parties decided that the Phase III negotiations on e-​commerce would begin immediately after the Phase II negotiations.98 However, the Phase II negotiations were initially scheduled to be concluded in December 202099 and then rescheduled to end in December 2021 due to the COVID-​19 pandemic. Yet, for the third time, State Parties issued a directive to complete the Phase II negotiations by the end of 2022.100 Phase III negotiations on e-​commerce were scheduled to proceed after the completion of Phase II. The negotiations and the technical working group meetings are proceeding but no clear deadline is set for their conclusion.101 The AfCFTA Agreement entered into force on 30 May 2019, 30 days after the receipt of the twenty-​second instrument of ratification on 29 April 2019, pursuant to Article 23 thereof. The operational phase of the AfCFTA Agreement was launched on 7 July 2019 in Niamey, Niger. The following five key instruments were adopted to support the operational phase: (i) the agreed rules of origin;102 (ii) the AfCFTA Trade in goods password protected dashboard; (iii) the online NTB monitoring mechanism; (iv) the 95  See

UNECA, ‘Action Plan for Boosting Intra-​Africa Trade’, at < https://​www.uneca.org/​pages/​act​ ion-​plan-​boost​ing-​intra-​afr​ica-​trade > (last visited 30 January 2020). 96  J. MacLeod and D. Luke, ‘Breathing Life Into the AfCFTA: Why the Details Matter’ Policy Analysis, International Institute for Sustainable Development (March 2022), at (last visited 12 May 2022). TRALAC, ‘What Needs to be Done to Begin Commercially Meaningful Trade Under the AfCFTA?’ (March 2022), at (last visited 12 May 2022). 97  L. Signé and C. van de Ven, ‘Keys to Success for the AfCFTA Negotiations’ Policy Brief, Africa Growth Initiative at Brookings (May 2019), at 2–​3, at < https://​www.brooki​ngs.edu/​wp-​cont​ent/​uplo​ads/​ 2019/​05/​Key​s_​to​_​suc​cess​_​for​_​AfC​FTA.pdf > (last visited 20 January 2020). 98  Decision on the African Continental Free Trade Area (AfCFTA) Doc. Assembly/​AU/​4(XXXIII), Assembly/​AU/​Dec.751(XXXIII), item 23 (p. 3), 33rd Ordinary Session of the Assembly of the Union, 9–​10 February 2020, Addis Ababa, Ethiopia. 99  Johannesburg Declaration on the Start of Trading Under the Agreement Establishing the African Continental Free Trade Area, Ext/​Assembly/​AU/​Decl.1(XIII), item 15 (p. 4), Assembly of the African Union, 13th Extraordinary Session (on the AfCFTA) 5 December 2020 Johannesburg, South Africa, Virtual Platforms (Zoom). 100  K. Ighobor, ‘One Year of Free Trading in Africa Calls for Celebration Despite Teething Problems’, United Nations African Renewal (Jan. 2022), at (last accessed 12 May 2022). 101 Ibid. 102  Although negotiations had not been completed by the end of 2020.

410    Kholofelo Kugler and Mulualem Getachew Adgeh Pan-​African payment and settlement system; and (v) dashboard of the African Trade Observatory for official trade information and statistics.103 By February 2021, 54 out of 55 AU Members had signed the Agreement—​Eritrea is the only country that has not signed. By May 2022, 43 AU Members had ratified the AfCFTA.104 On 19 March 2020, the AfCFTA’s Secretary General, Mr. Wamkele Mene, was sworn in at the AU headquarters in Addis Ababa in Ethiopia. The headquarters of the AfCFTA Secretariat are in Accra, Ghana. Trading was set to begin on 1 July 2020, until the COVID-​19 pandemic derailed these plans.105 Trading under the AfCFTA Agreement officially started on 1 January 2021.106 The AfCFTA is the largest free trade area since the creation of the WTO. This Agreement forms a large part of the cog to create a single continental market with free movement of people and capital, including a harmonized African financial system. The AfCFTA encompasses 1.2 billion people with a combined GDP of more than $2.5 trillion.107 It is expected to initially eliminate 90 percent of Africa’s internal tariffs on goods and substantially decrease tariffs on the remaining 10 percent over a period of 10 years. Member countries have also agreed to ease non-​tariff barriers. If the agreement is fully implemented, it is expected to increase regional trade by 16 per cent, or US$ 16 billion over time.108 Moreover, it is predicted that Africa’s competitiveness will increase by integrating African economies into the global economy and creating an enabling environment for technology transfer, industrial development, and diversification of sources of growth.109 While the implementation and the conclusion of the remaining negotiations will be crucial to the success of the AfCFTA, it is nonetheless a significant development towards facilitating economic growth by integrating the continent and boosting intra-​African trade. The political will that African countries have shown throughout the relatively 103 Assembly of the African Union Twelfth Extraordinary Session 7 July 2019 (Niamey, Niger), Decision on the Launch of the Operational Phase of the African Continental Free Trade Area (AfCFTA), item 7. 104  TRALAC, ‘Status of AfCFTA Ratification Infographic’ (3 May 2022), at < https://​www.tra​lac.org/​ resour​ces/​info​grap​hic/​13795-​sta​tus-​of-​afc​fta-​ratif​i cat​ion.html> (last visited 12 May 2022). 105 AU, ‘Operational Phase of the African Continental Free Trade Area Launched’, at < https://​ au.int/​en/​artic​les/​oper​atio​nal-​phase-​afri​can-​cont​inen​tal-​free-​trade-​area-​launc​hed > (last visited 20 April 2020); K. Ighobor, ‘AfCFTA: Implementing Africa’s Free Trade Pact the Best Stimulus for Post-​ COVID-​19 Economies’ Africa Renewal (15 May 2020), at < https://​www.un.org/​africa​rene​wal/​magaz​ine/​ may-​2020/​coro​navi​rus/​imple​ment​ing-​afr​ica%E2%80%99s-​free-​trade-​pact-​best-​stimu​lus-​post-​covid-​ 19-​econom​ies > (last visited 20 May 2020). 106  However, thus far, no trading has taken place under the AfCFTA due to operational challenges. 107  IMF, ‘Is the African Continental Free Trade Area a Game Changer for the Continent?’ in IMF, Regional Economic Outlook: Sub-​Saharan Africa, Recovery Amid Elevated Uncertainty (April 2019), at 39, at < https://​www.imf.org/​en/​Publi​cati​ons/​REO/​SSA/​Iss​ues/​2019/​04/​01/​sreo0​419 > (last visited 25 May 2019). 108  Ibid at 40. 109 IMF, ‘A Competitive Africa: Economic integration could make the continent a global player’ (December 2018), at 51, at < https://​www.imf.org/​exter​nal/​pubs/​ft/​fandd/​2018/​12/​pdf/​afc​fta-​econo​mic-​ inte​grat​ion-​in-​afr​ica-​fof​ack.pdf > (last visited 26 January 2020).

Africa and Trade and Investment Liberalization    411 short negotiation period is unprecedented and much is owed to, inter alia, the presidents of Rwanda and Chad, Messrs. Paul Kagame and Idriss Déby, respectively, who used their tenure as Chair of the Assembly of the AU to accelerate the completion of these negotiations.

6. The Pan-​African Investment Code The Pan-​African Investment Code110 is also among the efforts made at the continental level to foster coherence and consistency in the rules and principles that will govern investment protection, promotion, and facilitation in Africa.111 Although the code is a non-​binding guideline, it could provide valuable inputs to individual countries or regional investment agreements negotiations. In fact, the PAIC serves as the main basis of the AfCFTA’s Investment Protocol.112 The PAIC has been hailed for its focus on Africa’s sustainable economic development and for ranking ‘among the boldest investment instruments adopted so far’.113 It emphasizes the importance of the Sustainable Development Goals114 and imposes obligations on investors, such as compliance with corporate governance standards,115 to adhere to socio-​political obligations, to refrain from bribery, and to comply with business ethics and human rights. The PAIC also provides advice on how state contracts and public-​private partnerships should be drafted and how investors can assist to promote technology transfer and environmental protection.116 Moreover, the PAIC provides host countries the option to implement Investor-State dispute settlement (ISDS), thus striking a balance between the pro and anti-​ISDS African States.117

B. Africa’s external economic relationships with the European Union and the United States Beyond Cold War proxy wars and political interference, Africa’s economic relationships with its main trade partners continue to influence the pace of African regional integration, including the commitments that are made to regional trading partners. Sub-​ Saharan Africa’s top five trading partners are China, India, the Netherlands, the United

110   Work on the code was initiated by the African Union Commission at the behest of ministers during the third Conference of African Ministers in Charge of Integration, held in Abidjan, Côte d’Ivoire on 22 and 23 May 2008. It was finalized in 2016. 111 M. Mbenegue, ‘The Quest for a Pan-​ African Investment Code to Promote Sustainable Development’, 5(5) Bridges Africa (21 June 2016), at < https://​www.ictsd.org/​brid​ges-​news/​brid​ges-​afr​ica/​ news/​the-​quest-​for-​a-​pan-​afri​can-​inv​estm​ent-​code-​to-​prom​ote-​sust​aina​ble > (last visited 20 May 2019). 112  Mbenegue, above fn 29, 470. 113  Mbengue, above fn 29, 472. 114  Preamble of the PAIC. 115  Articles 22, 20, 21 and 24 of the PAIC. 116  Articles, 26, 27, 29 and 37 of the PAIC. 117  Article 42 of the PAIC.

412    Kholofelo Kugler and Mulualem Getachew Adgeh States and South Africa118 and its top five sources of investment (by capital) are China, France, the United States, the United Arab Emirates and the United Kingdom.119 Although China is Africa’s top trade and investment partner, it has concluded a PTA with Mauritius only.120 On the other hand, China has concluded BITs with 33 African countries; however, 15 of those agreements have not entered into force.121 China’s economic policy is discussed in Chapter 13. We thus focus below on the economic relationships between Africa and the European Union and the United States, respectively, which remain important to Africa’s economic development.

1. European Union-​Africa Economic Partnership Agreements (EPAs) Due to their geographical proximity, Africa’s economic relationship with Europe was established long before the transatlantic slave trade and colonization. However, the earliest formal economic agreement between the two continents is the Lomé Convention of 1975.122 The four Lomé Conventions were succeeded by the Cotonou Agreement in 2000. This Agreement was concluded for a 20-​year period from 2000 to 2020 and is underpinned by the following three pillars: development cooperation; trade advancement; and political dimensions. It is the most comprehensive partnership agreement between developing countries and the European Union. Since 2000, the Cotonou Agreement has been the framework for the European Union’s relations 118  World Bank WITS, ‘Sub-​Saharan Africa Trade’, at < https://​wits.worldb​ank.org/​coun​trys​naps​hot/​ en/​SSF > (last visited 20 May 2020). 119  P. Madden, ‘Figure of the Week: Foreign Direct Investment in Africa’, Africa in Focus, Brookings Institute, 9 October 2019, at < https://​www.brooki​ngs.edu/​blog/​afr​ica-​in-​focus/​2019/​10/​09/​fig​ure-​of-​ the-​week-​fore​ign-​dir​ect-​inv​estm​ent-​in-​afr​ica/​ > (last visited 20 May 2020). 120 Chinese Ministry of Commerce, China FTA Network, at < http://​fta.mof​com.gov.cn/​engl​ish/​ index.shtml > (last visited 20 May 2020). 121  Ghana (1989); Egypt (1994); Morocco (1995); Mauritius, Zimbabwe, and Zambia (1996, the China-​ Zambia BIT is not in force); Gabon, Nigeria, Sudan, Cameroon, Democratic Republic of Congo, South Africa (1997, the China-​Nigeria BIT was terminated and replaced in 2001; however both have not entered into force). The China-​Democratic Republic of Congo BIT is not in force, the two countries concluded another BIT in 2011, which is also not in force); Cape Verde and Ethiopia (1998); Republic of Congo and Botswana (2000, the China-​Botswana BIT is not in force); Sierra Leone, Mozambique, and Kenya (2001, the BITs with Sierra Leone and Kenya are not in force); Côte d’Ivoire (2002, not in force); Djibouti (2003, not in force); Benin, Uganda, and Tunisia (2004, the BITs with Benin and Uganda are not in force); Equatorial Guinea, Namibia, Guinea, Madagascar (2005, the BITs with Namibia and Guinea are not in force); Seychelles (2008, not in force); Mali (2009); Chad and Libya (2010, not in force); Tanzania (2013). See UNCTAD Investment Policy Hub, China Bilateral Investment Treaties (BITs), at < https://​ inves​tmen​tpol​icy.unc​tad.org/​intern​atio​nal-​inv​estm​ent-​agr​eeme​nts/​countr​ies/​42/​china > (last visited 20 May 2020). 122 The Lomé Convention is a trade and aid agreement first signed on 28 February 1975. The agreement is between the European Economic Community and 71 African, Caribbean, and Pacific (ACP) countries aiming to increase aid and investment expenditure to ACP countries. It was later renegotiated and reviewed four times. The Convention had four main characteristics: (i) non-​reciprocal preferences for most exports from ACP countries to European Economic Community; (ii) equality between partners, respect for sovereignty, mutual interests and interdependence; (iii) the right of each state to determine its own policies; and (iv) security of relationships based on the achievements of the cooperation system.

Africa and Trade and Investment Liberalization    413 with 79 countries from Africa, the Caribbean, and the Pacific (ACP). The Agreement entered into force in April 2003 and was revised in 2005, 2010, and most recently in 2017, to comply with the revision clause to re-​examine the Agreement every five years. The Agreement expired on 29 February 2020 but was extended until 30 November 2020 and again until 30 November 2021, unless a new partnership agreement between the European Union and ACP countries is provisionally applied or enters into force before that date. On 3 December 2020, the European Union and the Organisation of African, Caribbean and Pacific States (OACPS) reached a political deal on a new agreement to succeed the Cotonou Agreement. The European Union-​ OACPS Partnership Agreement, also referred to as the post-​Cotonou’ agreement, was signed on 15 April 2021, signalling the end of the negotiations. This agreement will serve as the new legal framework for European Union-​ACP relations.123 In line with the trade and economic pillars of the Cotonou Partnership Agreement, in 2002, the European Union and the ACP countries initiated negotiations to conclude EPAs. The EPAs are Free Trade Agreements (FTAs) between the European Union and ACP countries that essentially seek to preserve the access to the European Union market that the ACP countries had enjoyed under the four Lomé Conventions and the Cotonou Agreement. However, the EPAs are a shift from the previous non-​reciprocal agreements to reciprocal agreements. For the European Union, these agreements spell a departure from the development agenda, which has always characterized its formal relationships with Africa, to a trade focus. These negotiations were anticipated to be concluded in 2008 but proved difficult and impossible to finalize as anticipated. One of the pressing reasons why the European Union has sought to negotiate the EPAs was to bring its economic arrangements with Africa in line with WTO law. Arguably, the European Union’s experience with the 16-​year long Bananas dispute, which was initiated by banana-​producing-​and-​exporting countries in the Americas in the early years of the WTO, provided a strong impetus to re-​examine its preferential trade arrangements with the ACP countries.124 The European Union’s bananas import licensing scheme was found to be inconsistent with, inter alia, the MFN provisions of the GATT 1994 and the GATS (Articles I:1 and II, respectively), as well as Article III:4 of the GATT 1994 (the national treatment obligation). The Appellate Body found that the import licencing procedures for bananas (and related services and service suppliers) from the ACP countries and the European Union were more favourable and less onerous than those applicable to bananas (and related services and service suppliers) from non-​ACP and non-​European Union countries.125

123 European

Council, Council of the EU, ‘Cotonou Agreement’, at < https://​www.consil​ium.eur​ opa.eu/​en/​polic​ies/​coto​nou-​agreem​ent/​ > (last visited 18 May 2022); EUR Lex, Cotonou Agreement, at < https://​eur-​lex.eur​opa.eu/​legal-​cont​ent/​EN/​TXT/​?uri=​LEGIS​SUM%3Ar12​101 > (last visited 20 May 2020). 124  See L. Bartels, ‘The Trade and Development Policy of the European Union’ 18(4) European Journal of International Law (2007) 715–​756. 125  See Appellate Body Report, EC –​Bananas III, adopted 25 September 1997, paras 206, 207, 214, 234.

414    Kholofelo Kugler and Mulualem Getachew Adgeh While restructuring their trade relationship, the ACP and the European Union had to obtain waivers under Article IX of the WTO Agreement from the WTO membership to maintain their preferential relationship.126 The time provided for by the waivers was not sufficient to conclude the Africa-​EU EPAs. These agreements are currently at various stages of completion, with lower results than anticipated. Despite the initial objective of encompassing trade in service and other trade-​related disciplines, they remain partial agreements that focus on trade in goods.127 This is, arguably, due to the hesitation of many African countries to adopt far-​reaching rules with such an economically powerful and efficient trading partner. The European Union has concluded or is negotiating five EPAs with West Africa,128 Central Africa,129 Eastern and South Africa (ESA),130 the EAC, and some SADC countries.131 The progress of these EPAs, on 31 December 2020, are provided in Box 2 below: The delays in completing the EPAs are due to several concerns that EPA critics, including some African leaders, have raised. These concerns include: fears that highly subsidized agricultural imports from the European Union might obliterate African agricultural production; that the reduction of tariff and customs would mean less much-​needed revenue for these countries; the inclusion of WTO-​plus issues; and Brexit. Many African countries fear the loss of market access to the United Kingdom post-​Brexit, which remains a major export destination for, especially, former British colonies.132 Another major factor is that 37 out of 55 African States already have preferential market access to the European Union. 33 African States are least developed countries (LDCs) that already enjoy duty free quota free market access to the European Union through the Everything But Arms (EBA) preference scheme. Further, four African States benefit from preferential market access through the European Union’s Standard GSP133 and GSP+​134

126 

The first waiver for the Lomé Convention IV was valid from two years from December 1994 (L/​ 7604 of 19 December 1994). In October 1996, the waiver was extended until 2000 (WT/​L/​186 (18 October 1996)). In November 2001, the waiver was again extended until December 2007 (WT/​L/​4361 (7 December 2001)). This waiver also included the Bananas waiver that also expired on 31 December 2007. 127 I. Ramdoo, ‘EPAs: What has Africa Gained and What Can it Lose?' 4(7) Bridges Africa (1 September 2015), at < https://​www.ictsd.org/​brid​ges-​news/​brid​ges-​afr​ica/​news/​econo​mic-​part​ners​hip-​ agr​eeme​nts-​what-​has-​afr​ica-​gai​ned-​and-​what-​can > (last visited 23 August 2019). 128  This comprises 16 West African countries: the 15 ECOWAS members and Mauritania. 129 This comprises eight central African countries: Cameroon, Central African Republic, Chad, Republic of Congo, Democratic Republic of Congo, Equatorial Guinea, Gabon and São Tomé & Principe. 130 This comprises the following 11 COMESA countries: Comoros, Djibouti, Eritrea, Ethiopia, Madagascar, Malawi, Mauritius, Seychelles, Sudan, Zambia and Zimbabwe. 131  Botswana, Eswatini, Lesotho, Mozambique, Namibia and South Africa. 132  See S.R. Hurt, D. Lee and U. Lorenz-​Carl, ‘The Argumentative Dimension to the EU-​Africa EPAs’ International Negotiation (2013) 18, at 71 and 76; S. Krapohl and S. Van Huut, ‘A Missed Opportunity for Regionalism: The Disparate Behaviour of African Countries in the EPA-​Negotiations with the EU’ 42(4) Journal of European Integration (2019) at 8. 133  Republic of Congo, Kenya and Nigeria. 134  Cape Verde.

Africa and Trade and Investment Liberalization    415

Box 2: The progress of the negotiation and implementation of the EPAs • Central Africa: Cameroon is the only country thus far to sign the interim Central Africa EPA in January 2009. The Agreement has been provisionally applied in Cameroon since August 2014. Negotiations with the others are ongoing; • EAC: the EPA was concluded on 16 October 2014. The European Union has signed the agreement and Rwanda and Kenya signed it on 1 September 2016. Kenya has also ratified it. For the Agreement to enter into force, the three remaining EAC members need to sign and ratify it. However, the way forward is unclear as the EAC has raised some concerns. From June 2021, the European Union and Kenya have been exploring ways to implement the agreement bilaterally. On February 2022, the European Union and Kenya launched their negotiations on a separate interim Economic Partnership Agreement (iEPA); • ESA: Mauritius, Seychelles, Zimbabwe and Madagascar signed an interim agreement in 2007, which has been provisionally applied since 2012. The European Parliament gave consent for ratification in January 2013. Provisional application for Comoros started on 7 February 2019. Negotiations for the final agreement are ongoing, including on extending the scope of the agreement to include areas that are not currently covered; • West Africa: the text of the agreement was initialled on 30 June 2014 and on 10 July 2014, the heads of state of ECOWAS endorsed the agreement for signing. Nigeria is the only country that has not signed the agreement. Provisional application with Côte d’Ivoire and Ghana started on 3 September 2016 and 15 December 2016, respectively; and • SADC EPA Group: negotiations were concluded on 15 July 2014. The SADC EPA Group signed the EPA on 10 June 2016 and the European Parliament gave its consent on 14 September 2016. The agreement provisionally entered into force on 10 October 2016 with respect to all parties except Mozambique. This is first EPA in Africa to be fully operational after Mozambique started applying it in February 2018. Negotiations are underway for the accession of Angola.a a 

See, European Parliament, ‘Fact Sheets on the European Union: Africa’, at < http://​www.europ​arl. eur​opa.eu/​fac​tshe​ets/​en/​sheet/​180/​afr​ica > (last visited 30 January 2020); European Commission, ‘Economic Partnerships’, at < https://​ec.eur​opa.eu/​trade/​pol​icy/​countr​ies-​and-​regi​ons/​deve​lopm​ ent/​econo​mic-​partn​ersh​ips/​ > (last visited 14 February 2021); European Commission, Overview of Economic Partnership Agreements, Updated July 2021, at < https://​trade.ec.eur​opa.eu/​doc​lib/​docs/​ 2009/​septem​ber/​tradoc​_​144​912.pdf > (last visited 10 September 2021) (EC Overview of EPAs); and European Commission, Directorate-​General for Trade, ‘EU and Kenya advance talks on interim Economic Partnership Agreement with sustainability provisions’, at < https://​pol​icy.trade.ec.eur​opa. eu/​news/​eu-​and-​kenya-​adva​nce-​talks-​inte​rim-​econo​mic-​part​ners​hip-​agreem​ent-​sus​tain​abil​ity-​pro​ visi​ons-​2022-​02-​17_​en> (last visited 12 May 2022).

schemes.135 As discussed in Chapter 22, European Union GSP beneficiaries are obliged to ratify the 15 United Nations/​International Labour Organization conventions on core human and labour rights. To qualify for GSP+​, countries must ratify 12 additional 135 European

Commission, ‘Generalised Scheme of Preferences (GSP)’, at < https://​ec.eur​opa.eu/​ trade/​pol​icy/​countr​ies-​and-​regi​ons/​deve​lopm​ent/​gene​rali​sed-​sch​eme-​of-​pref​eren​ces/​ > (last visited 2 February 2020).

416    Kholofelo Kugler and Mulualem Getachew Adgeh conventions on the environment and governance principles.136 Thus, for most African countries, implementing the EPAs, that require reciprocity, is less appealing than their current non-​reciprocal European Union market access.137 Notwithstanding these complications, the European Union is committed to completing and enforcing the EPAs. As evidence of this, on 14 June 2019, the European Union formally requested consultations pursuant to Article 77 of the EU-​SADC EPA over a safeguard measure applied by SACU on imports of frozen bone-​in chicken portions from the European Union.138 The measure entered into force on 28 September 2018. The duty decreased progessively annually to 30 percent, 25 percent, and 15 percent. The measure was terminated on 11 March 2022.139 The European Union argued that this safeguard measure is inconsistent with, inter alia, Article 34(2) of the EU-​SADC EPA.140 Consultations took place on 13 September 2019 in Gaborone, Botswana. In April 2020, the European Union requested the establishment of an arbitral panel. This process was suspended due to the COVID-​19 pandemic but resumed in November 2020.141 The arbitration panel was established on 29 November 2021.142 It was composed of Makane Moïse Mbengue (Chair), Faizel Ismail (for the SADC EPA Group), Hélène Ruiz Fabri (for the European Union). The hearing was held on 2–​4 March 2022.143 According to the arbitration Working Procedures, the arbitral award must be issued, at the latest, 180 days from the day the arbitration panel was established. This is the first trade dispute between the European Union and its ACP trading partners that has progressed to litigation.

136 

See Article 9 and Annex VIII of Regulation (EU) No 978/​2012 of the European Parliament and of the Council of 25 October 2012 applying a scheme of generalized tariff preferences and repealing Council Regulation (EC) No 732/​2008, OJ 2012 L 303, p. 1. 137  Krapohl and Van Huut, above fn 132, at 2. 138  Note Verbale, NV/​ 2019 (14 June 2014), at < https://​trade.ec.eur​opa.eu/​doc​lib/​docs/​2019/​june/​ tradoc​_​157​928.pdf > (last visited 30 January 2020) (EU Request for Consultations). 139  See the four notices Government Gazette No. 41939, No. R.1009, 28 September 2018; Government Gazette No. 41939, No. R.1008, 28 September 2018; Government Gazette No. 41939, No. R.1010, 28 September 2018; and Government Gazette No. 41939, No. R.1011, 28 September 2018 that contain the safeguard measure. 140  EU Request for Consultations; see, also, First Written Submission of the EU, SACU –​Safeguard Measure imposed on Frozen Chicken from the European Union, paras 76-​248, at < https://​trade.ec.eur​opa. eu/​doc​lib/​docs/​2022/​janu​ary/​tradoc​_​160​016.pdf > (last visited 19 May 2022). 141  EC Overview of EPAs, above fn a in Box 2. 142 SACU Secretariat, ‘SACU’s Safeguard on Frozen Bone-​ in Chicken Cuts EPA Arbitration Procedure Working Procedures’, adopted by the arbitration panel on 8 December 2021, at < https://​www. sacu.int/​docs/​news/​2021/​EU-​SACU-​Arbi​trat​ion-​Final-​Work​ing-​Pro​cedu​res-​sig​ned-​final.pdf > (last visited 19 May 2022). 143  SACU Secretariat, ‘Oral Hearing of the Arbitration Panel in the Dispute Between the EU and SACU Regarding SACU’s Safeguard on Frozen Bone-​in Chicken Cuts’, at < https://​www.sacu.int/​docs/​ news/​2022/​EU-​SACU-​Arbi​trat​ion-​Not​ice-​of-​Oral-​Hear​ing.pdf > (last visited 19 May 2022) and SACU Secretariat, ‘Establishment of the Arbitration Panel in the Dispute Between the EU and SACU Regarding SACU’s Safeguard on Frozen Bone-​in Chicken Cuts’, at < https://​www.sacu.int/​docs/​pr/​2021/​Not​ice-​ Call-​for-​Ami​cus-​cur​iae-​subm​issi​ons-​in-​EU-​SACU-​Arbi​trat​ion.pdf > (last visited 19 May 2022).

Africa and Trade and Investment Liberalization    417 The dispute settlement proceedings under the EU-​SADC EPA are similar to the WTO dispute settlement mechanisms with three panellists, an interim stage, a stage to agree upon or determine a reasonable period of time for compliance, and a compliance review procedure.144 This is a significant development because the European Union could have initiated this dispute against one of the SACU members at the WTO. Perhaps the uncertainty that the Appellate Body impasse has introduced in the WTO dispute settlement system could result in an increasing number of disputes being resolved in regional dispute settlement mechanisms.

2. United States: African Growth and Opportunity Act Sub-​Saharan Africa’s trade relationship with the United States is governed by the African Growth and Opportunity Act (Public Law 106/​200) (AGOA), which grants market access to the United States for the 49 eligible Sub-​Saharan African countries.145 The Act was signed by President Bill Clinton in May 2000 in order to expand the United States’ trade and investment with Sub-​Saharan Africa, stimulate economic growth, encourage economic integration and facilitate the region’s integration into the global economy.146 The Act originally covered an eight-​year period until September 2008 but it was extended under President George Bush Jr. in July 2004 until 2015. It was again by President Barack Obama in June 2015 until 30 September 2025.147 The United States applied accordingly for waivers under Article IX of the WTO Agreement.148 AGOA covers more than 6,000 products. This includes approximately 5,000 products that fall under the United States’ GSP and more than 1,000 AGOA-​specific duty-​free exports.149 AGOA grants duty-​free treatment for products from Sub-​Saharan Africa, unless the United States determines that a product is import-​sensitive.150 AGOA also provides textiles and apparel specific duty-​free access under separate rules of origin.151

144 

See Chapter III of the EU-​SADC EPA. South Sudan was added to AGOA in December 2011, see Senate Bill to amend AGOA, s.2007 (15 December 2011)​. 146  Section 102 of AGOA. 147  TRALAC, ‘About AGOA’, at < https://​agoa.info/​about-​agoa.html > (last visited 1 February 2020). 148  See General Council Decision of 29 May 2009, United States—​African Growth and Opportunity Act, WT/​L/​754 (29 May 2009); General Council Decision of 30 November 2015, United States—​African Growth and Opportunity Act, WT/​L/​970 (2 December 2015). 149  TRALAC, ‘AGOA FAQs’, at < https://​agoa.info/​about-​agoa/​faq.html#what_​p​rodu​cts_​cove​red > (last visited 1 February 2020). 150  Section 506AA(b)(1) of AGOA. 151  Qualifying apparel must be made locally (cut, make, trim) but the fabric can be sourced from anywhere in the world, see section 112(b)(3)(A). Textiles (yarns and fabric) may be from one or more qualifying AGOA lesser developed beneficiary country provided that they are wholly produced from locally produced fibres, yarns, fabrics, or components knit-​to-​shape in these countries, See section 112(b) (3) of AGOA. The rules of other origin for other products are: products must be the ‘growth, product, or manufacture’ of one or more AGOA beneficiary country, or if some imported/​non-​originating materials are used, the cost of those materials plus direct cost of processing must equal at least 35 per cent of the 145 

418    Kholofelo Kugler and Mulualem Getachew Adgeh Only ‘lesser developed’152 AGOA beneficiaries are eligible for the textiles and apparel scheme.153 In 2019, the top AGOA exporters were Nigeria, South Africa, Angola, Kenya and Ghana. The number one export was crude oil, which accounted for almost 60 per cent of US imports from Sub-​Saharan Africa under AGOA.154 Sub-​Saharan African countries’ eligibility to receive preferences under AGOA is not unconditional. The United States grants preferences to countries that are or establishing a market economy, incorporate an open rules-​based trading system and minimize government interference in the economy. Beneficiaries have further obligations—​they are required to, inter alia, eliminate barriers to US trade and investment, including through national treatment and measures conducive to domestic and foreign investment and the resolution of bilateral trade and investment disputes. Other requirements include increasing the availability of health care and education opportunities, combating corruption and bribery and upholding human and social rights.155 The President of the United States monitors and conducts annual reviews to assess the beneficiaries’ eligibility for the preference scheme.156 The President can thus terminate a country’s beneficiary designation if the eligible African country is not making continual progress to meet the AGOA requirements and criteria.157 Over the years, the United States has withdrawn, suspended and reinstated AGOA eligibility after the annual review. More recently, Rwanda’s preferences under the apparel programme were suspended due to its import ban on second-​hand clothes and footwear from the United States. This measure was originally proposed by the entire EAC customs union in 2016, and the imports were meant to be phased out over three years.158 Subsequent to an out-​of-​cycle AGOA review, Burundi, Kenya, Tanzania, Uganda

products appraised value at the US port of entry. Up to 15 per cent (of the 35 per cent) may consist of US materials, see section 506A(2) of AGOA. 152  LDCs, classified as such by their GNP per capita being less than $ 1,500 in 1998 as measured by the World Bank. 153 TRALAC, ‘AGOA Eligible Products’, at < https://​agoa.info/​about-​agoa/​produ​cts.html > (last visited 1 February 2020). 154  Office of the USTR, ‘2020 Biennial Report on the Implementation of the African Growth and Opportunity Act’, June 2020, at 10–​11, at < https://​ustr.gov/​sites/​defa​ult/​files/​ass​ets/​agoa/​USTR-​Bienn​ial-​ Rep​ort-​to-​Congr​ess-​on-​AGOA-​062​320.pdf > (last visited 1 February 2021) (2020 Biennial Report). 155  Section 104(a) of AGOA. 156  Section 506 A(a)(2)-​(3) of AGOA. 157  Section 104(b9 of AGOA. 158  EAC, Joint Communiqué: 17th Ordinary Summit of the East African Community Heads of State, para 17, at < https://​www.eac.int/​com​muni​que/​374-​446-​526-​joint-​com​muni​que-​17th-​ordin​ary-​sum​mit-​ of-​the-​east-​afri​can-​commun​ity-​heads-​of-​state > (last visited 1 February 2020). The measure implements Articles 79 and 80 of the EAC Treaty. Article 79 requires Members to adopt measure to promote self-​ sustaining and balanced industrial growth. Further, Article 80 outlines EAC strategic and priority areas, which encompass the cotton, apparel, textile, leather sectors. See also E. Katende-​Magezi, ‘The Impact of Second Hand Clothes and Shoes in East Africa’, 2017, CUTS International, Geneva, at 10.

Africa and Trade and Investment Liberalization    419 opted not to implement the import ban. Rwanda refused to withdraw the measure.159 Consequently, the US government suspended AGOA benefits for apparel products from Rwanda, effective 31 July 2018.160 The 2021 annual review was initiated on 13 May 2020.161 On 22 December 2020, US President Donald Trump, issued a proclamation reinstating the Democratic Republic of Congo as a beneficiary eligible for the lesser developed country category, after withdrawing it from AGOA in 2010.162 In 2021, 39 Sub-​Saharan African countries qualified for AGOA.163 Notwithstanding the controversy surrounding AGOA eligibility, some African countries have benefited from trading under this preference scheme. For example, Lesotho, which is designated a ‘lesser developed beneficiary country’ under AGOA, has become Africa’s second largest exporter of textiles and apparel to the United States, after Kenya.164 This is mainly attributed to mostly Taiwanese investors who have established textile firms to benefit from the preferential rules of origin. The investments have created employment and business opportunities in Lesotho’s textile sector.165 The United States administration seeks to phase out AGOA in favour of bilateral free trade agreements with individual African countries. Thus far, the United States has initiated FTA negotiations with Kenya.166 If the negotiations prove successful, Kenya will be the first Sub-​Saharan African country and the second African country, after Morocco, to conclude a bilateral FTA with the United States. There are fears that this move will cause further rifts in Africa’s economic integration goals.167

159 

‘SMART Announces Successful Trade Outcome With East African Community’ Textile World (29 March 2018), at < https://​www.texti​lewo​rld.com/​text​ile-​world/​2018/​03/​smart-​announ​ces-​suc​cess​ful-​ trade-​outc​ome-​with-​east-​afri​can-​commun​ity/​ > (last visited 1 February 2020). 160  See 2020 Biennial Report, above fn 154, at 17. 161  See Office of the United States Trade Representative, ‘Annual Review of Country Eligibility for Benefits Under the African Growth and Opportunity Act’, Federal Register Vol. 85 No. 93 (13 May 2020). 162  Presidential Proclamation to take Certain Actions Under the African Growth and Opportunity Act and for Other Purposes, Proclamation 10128 of 22 December 2020. 163  The following eligible countries did not qualify: Burundi; Cameroon (excluded from 1 January 2021); Mauritania; and South Sudan. Seychelles was graduated from AGOA in 2017. See TRALAC, ‘AGOA Country Eligibility’, at < https://​agoa.info/​about-​agoa/​coun​try-​elig​ibil​ity.html > (last visited 14 February 2021). 164  TRALAC, ‘Brochure -​AGOA Performance and Country Profile of Lesotho’, at < https://​agoa.info/​ ima​ges/​docume​nts/​15552/​leso​thoc​ount​rybr​ochu​reag​oafi​nal.pdf > (last visited on 15 August 2019). 165  P. Gibbon, ‘AGOA, Lesotho’s “Clothing Miracle” & the Politics of Sweatshops’ 30(96) Review of African Political Economy (2003), at 315–​317. 166 J. Leonard and D. Herbling, ‘U.S., Kenya to Start Trade Talks Seen as Template for Africa’ Bloomberg (28 January 2020), at < https://​www.bloomb​erg.com/​news/​artic​les/​2020-​01-​28/​u-​s-​kenya-​to-​ start-​trade-​talks-​vie​wed-​as-​templ​ate-​for-​afr​ica > (last visited 30 January 2020). 167  J. Caporal, ‘Going Solo: What Is the Significance of a U.S.-​Kenya Free Trade Agreement?’ Centre for Strategic and International Studies (18 March 2020), at < https://​icsid.worldb​ank.org/​sites/​defa​ult/​files/​ Casel​oad%20Sta​tist​ics%20Cha​rts/​The%20IC​SID%20C​asel​oad%20Sta​tist​ics%202​021-​2%20Edit​ion%20 ENG.pdf > (last visited 20 March 2020).

420    Kholofelo Kugler and Mulualem Getachew Adgeh

III.  Trade and investment dispute settlement According to UNCTAD, of the known 1190 ISDS cases that have been initiated by the end of 2021, 29 African States have been respondents in approximately 150 disputes.168 In other words, around 12 percent of all ISDS disputes have been brought against African States. Six of these were intra-​Africa disputes and two disputes were invoked under a regional African investment agreement.169 With almost 50 disputes, Egypt has fared the worst. In fact, over 55 percent of Africa’s international investment disputes have been brought against five north African countries: Egypt, Libya, Algeria, Morocco and Tunisia. In contrast, Africa has had markedly less experience in international trade disputes. We discuss below Africa’s regional trade and investment dispute settlement regimes, including its involvement in international trade disputes.

A. Regional dispute settlement mechanisms Except IGAD170 and CEN-​SAD,171 all the other African RECs have judicial organs to resolve disputes interpret, apply and ensure adherence to their respective agreements. These regional courts are the COMESA Court of Justice (COMESA Court), the EAC Court of Justice (EACJ), the ECCAS Court of Justice, the ECOWAS Court of Justice (ECOWAS Court), the SADC Tribunal and the UMA Judicial Authority.172 African States have shown a reluctance to bring State-​ to-​ State economic disputes. Therefore, the REC judicial bodies have adjudicated mostly human rights violations and labour disputes between the REC and its employees.173 It is thus 168 

UNCTAD Investment. disputes under the Algeria-​Egypt BIT against each State party; two disputes under the Madagascar-​Mauritius BIT against Madagascar; one dispute under the South Africa-​Mozambique BIT against Mozambique; and one dispute under the Congo-​Mauritius BIT against Congo. The two disputes against Lesotho were brought by foreign investors under the SADC Investment Protocol before it was repealed. 170   Article 18A of the Treaty Establishing IGAD states that the Members States shall establish a dispute settlement mechanism. 171  Despite various efforts, the authors were unable to locate IGAD’s constitutional documents. See, also The Danish Institute for Human Rights, African Human Rights Complaints Handling Mechanisms A Descriptive Analysis (2008), at 145. 172  Parts of this section draws on some of the author’s published research. See K. Kugler ‘WTO Dispute Settlement and the Participation of African Countries in International Trade Disputes’ in K. Kugler and F. Sucker (eds), International Economic Law: (southern) African Perspectives and Priorities (Cape Town: Juta Law, 2021). 173  TRALAC, Dispute Settlement in Trade Relations FAQs, Issue No. 4 September 2018, at 2; J. Gathii, ‘The COMESA Court of Justice’ in R. Howse et al. (eds), The Legitimacy of International Trade Courts and Tribunals (Cambridge: Cambridge University Press, 2018) 314–​348. 169 Two

Africa and Trade and Investment Liberalization    421 unsurprising that African dispute settlement regimes emphasize negotiation and alternative means of dispute resolution before recourse to contentious means of dispute resolution.174 Nevertheless, as discussed below, the COMESA Court and the EACJ have each adjudicated a trade dispute. This development could be a function of the fact that both these RECs grant legal standing to non-State actors to use their dispute settlement systems. It could also be a symptom of longstanding trade differences that can no longer be resolved diplomatically. As only COMESA, the EAC, ECOWAS, and SADC are at a more advanced stage of integration, the discussion below is limited to their dispute settlement mechanisms.

1. COMESA Chapter 5 of the COMESA Treaty regulates the COMESA Court, which comprises a First Instance Division that is composed of seven judges and an Appellate Division, composed of five judges.175 It is the ultimate authority on the interpretation of the COMESA Treaty. Disputes can be referred by a Member State against another Member State (i.e. State-​State disputes); the Secretary-​General of COMESA against a Member State; and legal and natural persons against Member States.176 The COMESA Court has adjudicated the first of only two trade-​related disputes so far.177 The dispute was initiated by Polytol Paints, a Mauritian company, against the government of Mauritius regarding the importation of Kapci paint from Egypt. The company challenged a law that Mauritius passed in 2001 that applied tariffs of 40 percent on certain products from Egypt, including the paint at issue. According to Article 46 of the COMESA Treaty, Member States must accord duty-​free treatment to products eligible for Common Market treatment. The Mauritian law was found to be inconsistent with Mauritius’s COMESA commitments.178 Regarding investment disputes, Articles 27 and 28 of the CCIA Agreement establishes a system for State-​State and Investor-State disputes, respectively. Pursuant to Article 27, State-​State disputes may be adjudicated through the COMESA Court sitting as an arbitral tribunal; an independent arbitral tribunal; or as a court. On the other hand, under Article 28, Investor-State disputes may not be heard by the COMESA Court sitting as a court but can be adjudicated in the national courts of the Member home State, the COMESA Court sitting as an arbitral tribunal, or through international arbitration, including ICSID and under the UNCITRAL Arbitration Rules. As previously discussed, the CCIA Agreement is not yet in force.

174 

See, e.g., Article 26 of the CCIA Agreement. See Articles 19.2, 20.1 and 20.4 of the COMESA Treaty. 176  Articles, 24, 25 and 26, respectively, of the COMESA Treaty. 177  Republic of Mauritius v Polytol Paint &Amp; Adhesives Manufacturers Co. Ltd (Application No. 1 of 2012) [2012] COMESACJ 13; (6 December 2012) (Mauritius v Polytol Paint). 178  Mauritius v Polytol Paint, at 28. 175 

422    Kholofelo Kugler and Mulualem Getachew Adgeh

2. EAC The EAC Treaty, Customs Union Protocol, and Common Market Protocol each have a dispute settlement chapter. Chapter 8 of the EAC Treaty establishes the EACJ, which, like the COMESA Court, is composed of a First Instance Division (that has 10 judges) and an Appellate Division (that has five judges).179 Although it shares concurrent jurisdiction with its Member States’ national courts, its decisions on the interpretation and application of the EAC Treaty take precedence.180 Like the COMESA Court, EAC Member States, the Secretary General and legal and natural persons have locus standi in the EACJ.181 Article 24 of the EAC Customs Union Protocol establishes the EAC Committee on Trade Remedies that, inter alia, handles matters relating to dispute settlement. Annex IX of the Protocol on the East African Customs Union, the EAC Customs Union Dispute Settlement Mechanism Regulations (EAC Dispute Settlement Regulations), operationalizes Article 41 of the EAC Customs Union Protocol, the dispute settlement provision. Pursuant to Regulation 4, these procedural rules apply to the resolution of intra-​EAC disputes relating to trade remedies, rules of origin and any other matter under the EAC Customs Union Protocol. Trade disputes between an EAC Member State and a foreign country must be adjudicated under the WTO’s dispute settlement mechanism. The EAC Dispute Settlement Regulations closely mirror the WTO’s Understanding on rules and procedures governing the settlement of disputes (DSU). They contemplate, inter alia, amicable consultations as a first step in the dispute, the establishment of a panel, an inter-​review stage, and making recommendations to the EAC Committee, which issues a final and binding decision.182 Other features similar to the WTO’s dispute settlement system are the availability of good offices, conciliation, and mediation; third party rights; compensation and the suspension of concessions or other obligations as temporary measures; and arbitration.183 Finally, Article 54 Common Market Protocol provides that any dispute arising from the interpretation or application of the protocol will be resolved in conformity with the EAC Treaty.184 In 2019, the EACJ issued its judgement in the dispute, British American Tobacco (U) Ltd. V The Attorney General of Uganda.185 British American Tobacco (U) Limited 179 

Articles 23.2 and 24.2 of the EAC. Article 32 of the EAC Treaty. 181  See Articles, 28, 29 and 30. 182  See Regulations 6, 8, 9 and 12 of the EAC Dispute Settlement Regulations. 183  Regulations 7, 11, 17 and 20 of the EAC Dispute Settlement Regulations. 184  The seemingly overlapping jurisdiction of various dispute settlement fora was challenged in the EAC Court, which found that it has jurisdiction over disputes arising from the Custom Union and Common Market Protocols and that the dispute settlement mechanisms of the Protocols do not oust the jurisdiction of the EAC Court over disputes arising under the Protocols. See The East African Law Society v. The Secretary General of The East African Community, 2013; The East African Centre for Trade Policy and Law v. The Secretary General of the East African Community, 2011. 185 See British American Tobacco (U) Ltd v The Attorney General of Uganda (Reference No 7 of 2017), at < https://​www.eacj.org/​?cases=​refere​nce-​no-​7-​of-​2017-​brit​ish-​ameri​can-​toba​cco-​u-​ltd-​vs-​the-​attor​ney-​ gene​ral-​of-​uga​nda > (last visited 26 January 2020). 180 

Africa and Trade and Investment Liberalization    423 challenged the government of Uganda for an excise duty it levied on cigarettes. Uganda’s measure imposed higher taxes on cigarettes manufactured in Kenya as compared to those manufactured in Uganda. The EACJ borrowed from WTO jurisprudence on non-​discrimination (MFN) and found that the tax measure adopted by the Ugandan government discriminated between like products from Uganda and Kenya, which is inconsistent with the EAC Protocol. As previously mentioned, the EAC does not have an investment agreement. Thus, there is no investment dispute settlement mechanism. Instead, Section 15 of the EAC Model Investment Code provides that investment disputes should be resolved in accordance with national laws and procedures. Unless otherwise agreed, ICSID rules are available to investors whose certificate of investment provides for international arbitration.

3. ECOWAS Although ECOWAS was established in 1975, the ECOWAS Court was only established in 1991 by the Protocol on the Community Court of Justice (ECOWAS Court Protocol), which established a State-​to-​State dispute settlement system.186 The ECOWAS Court is composed of seven members from which a President and Vice President is elected.187 It is tasked with interpreting and applying the provisions of the ECOWAS Treaty.188 While decisions of the ECOWAS Court are final, they may be reviewed on narrow, factual grounds.189 In addition to the ECOWAS Court, the Revised ECOWAS Treaty also makes provision for the Arbitration Tribunal of the Community (Arbitration Tribunal).190 The Arbitration Tribunal has not yet been operationalized; in the meantime, the ECOWAS Court may exercise its competences.191 In 2005, the jurisdiction of the ECOWAS Court was expanded to allow access for natural and legal persons but only in human rights disputes against ECOWAS Member States.192 Article 33 of the ECOWAS Supplementary Act on Investments establishes the ECOWAS dispute settlement mechanism for investments. It envisages that intra-​ ECOWAS investment disputes would be resolved by recourse to, initially, mediation, and if that fails, arbitration in ECOWAS national courts and national investment dispute settlement mechanisms. Only if there is disagreement over the means of dispute

186 

Articles 9.2 and 9.3 of the ECOWAS Court Protocol. Article 3.2 of the ECOWAS Court Protocol. 188  Article 9.1 of the ECOWAS Court Protocol. 189  Articles 19.2 and 25 of the ECOWAS Court Protocol. 190  Articles 15 and 16 of the Revised ECOWAS Treaty. 191  Article 3.5 of the Supplementary Protocol A/​SP.1/​01/​05 Amending the Preamble and Articles 1, 2, 9 and 30 of Protocol A/​P.1/​7/​91 Relating to the Community Court of Justice and Article 4 Paragraph 1 of the English Version of the Said Protocol. The Rules of the Court of Justice of the Economic Community of West African States were adopted in 2002. 192  Article 4 of the Supplementary Protocol of the ECOWAS Court Protocol, which is now Article 10 of the ECOWAS Court Protocol. 187 

424    Kholofelo Kugler and Mulualem Getachew Adgeh settlement, may Member States refer their dispute to the ECOWAS Court. The reliance on national courts to resolve investment disputes shows that ECOWAS Member States are not yet ready to cede control over investment disputes, as opposed to human rights disputes. The ECOWIC also provides for State-​to-​State adversarial investment dispute settlement through the arbitration division of the ECOWAS Court, national dispute settlement mechanisms, and as a last resort, the ECOWAS Court.193 In addition to these, litigants in Investor-State and investor-​investor adversarial disputes have recourse to, inter alia, ISDS, where provided for in an investment contract or agreement. Investors are required to exhaust local remedies, unless otherwise stated in an investment agreement.194

4. SADC The SADC Tribunal is composed of five regular Members and five alternate Members,195 and sits with a quorum of three or five Members selected by the President of the Tribunal. In 2007, the Tribunal acquired appellate jurisdiction over issues of law and legal interpretation.196 The SADC Tribunal has jurisdiction over disputes that relate to the interpretation of SADC law.197 Article 15 of the SADC Tribunal Protocol conferred jurisdiction on the SADC Tribunal over State-​to-​State disputes and between natural or legal persons and Member States, subject to the exhaustion of local remedies in the domestic jurisdiction of the Member State against which an action is brought. It also established the compulsory jurisdiction of the SADC Tribunal. However, in 2014, SADC repealed the old SADC Tribunal Protocol.198 This was principally triggered by the Zimbabwean government’s failure to comply with the rulings of the SADC Tribunal regarding the expropriation of farmland in Zimbabwe.199 The most significant change in the new 193 

Article 53 of ECOWIC. Article 54 of ECOWIC. 195  Article 3 of the SADC Tribunal Protocol 196  Amendment of Article 15 and Article 20A of the SADC Tribunal Protocol (Article 3 and 5 of the Agreement Amending the Protocol on Tribunal, 2007). 197  Article 14 of the SADC Tribunal Protocol. 198  Article 48 of the 2014. SADC Tribunal Protocol. 199 See Mike Campbell (PVT) Limited and Another v. Republic of Zimbabwe (2/​07) [2007] SADCT 1 (13 December 2007); Mike Campbell (Pvt) Ltd and Others v. Republic of Zimbabwe (2/​2007) [2008] SADCT 2 (28 November 2008); Campbell and Another v Republic of Zimbabwe (SADC (T) 03/​2009) [2009] SADCT 1 (5 June 2009); Fick and Another v. Republic of Zimbabwe (SADC (T) 01/​2010) [2010] SADCT 8 (16 July 2010). Lesotho was challenged by an investor that had brought a challenge against Lesotho at the SADC Tribunal for the role it played in incapacitating the SADC Tribunal. See Swissbourgh Diamond Mines (Pty) Limited, Josias Van Zyl, The Josias Van Zyl Family Trust and others v. The Kingdom of Lesotho, PCA Case No 2013-​29 (First Case), UNCITRAL. See also L.E. Peterson, ‘Investigation: Lesotho is Held Liable for Investment Treaty Breach Arising out of its Role in Hobbling a Regional Tribunal That Had Been Hearing Expropriation Case’ IAReporter (14 July 2016), at < https://​www.iar​epor​ter.com/​artic​les/​ invest​igat​ion-​leso​tho-​is-​held-​lia​ble-​for-​inv​estm​ent-​tre​aty-​bre​ach-​aris​ing-​out-​of-​its-​role-​in-​hobbl​ing-​ a-​regio​nal-​tribu​nal-​that-​had-​been-​hear​ing-​exprop​riat​ion-​case/​ > (last visited 18 May 2020). 194 

Africa and Trade and Investment Liberalization    425 SADC Tribunal Protocol is the withdrawal of locus standi from non-​state actors; thus, converting the SADC Tribunal to a State-​to-​State dispute settlement mechanism only.200 The new SADC Tribunal Protocol is not yet in force. Nevertheless, the SADC Tribunal has been suspended since the 2010 SADC Summit after the adverse judgments against Zimbabwe.201 The SADC Trade Protocol establishes a State-​to-​State panel system for trade disputes. However, as a last resort, these disputes may be resolved by the SADC Tribunal.202 Annex VI of the SADC Trade Protocol sets out the procedural rules and, like the EAC, draws heavily on the WTO’s dispute settlement system.203 The 2007 amendment of the SADC Trade Protocol Dispute Settlement Annex introduced Article 1bis to prevent forum shopping and an appellate mechanism to review panel reports, the provisions of which are loosely based on Article 17 of the DSU.204 For investment disputes, the SADC FIP allows state-​to-​state dispute settlement before the SADC Tribunal.205 Article 28 of Annex 1 of the SADC FIP established an Investor-State dispute settlement mechanism, which allowed disputes to be referred to international arbitration under the SADC Tribunal or elsewhere, including ICSID. However, Investor-State dispute settlement options were later revoked.206 SADC’s aversion to ISDS is also reflected in the SADC Model BIT which indicates a preference for State-​State dispute settlement over Investor-State as ‘[s]‌everal States are opting out or looking at opting out of Investor-State mechanisms, including Australia, South Africa and others’.207 The timing of the amendment of Annex 1 seems to coincide with the promulgation of the South African Protection of Investment Act in 2015. Subsequent to an internal review of its investment regime, South Africa notified the termination of its earliest BITs, which were concluded, mainly, with western European countries and adopted domestic investment legislation that entered into force in 2018.208 South Africa disposed of ISDS in its investment law, which was inconsistent with the SADC FIP at the time.209

200 

Article 33 of the 2014 SADC Tribunal Protocol. SADC, at < https://​www.sadc.int/​about-​sadc/​sadc-​insti​tuti​ons/​tri​bun/​ > (last visited 19 May 2020). 202  Article 32 of the SADC Trade Protocol. 203  Articles 3, 4, 5, 8, 10, 12 and 16 of the Annex VI to the SADC Trade Protocol Concerning the Settlement of Disputes Between the Member States of the Southern African Development Community (SADC Trade Protocol Dispute Settlement Annex). 204 New Article 15A of the SADC Trade Protocol Dispute Settlement Annex (Article 10 of the Agreement Amending the SADC Trade Protocol Dispute Settlement Annex). 205  Article 24.3 of the SADC FIP. 206  Article 26 of the SADC FIP Annex 1 Amendment. 207  SADC Model Bilateral Investment Treaty Template with Commentary, Commentary to Article 29, at 55. 208  M. du Plessis and K. Kugler, ‘International Economic Relations’ in J. Dugard et al. (eds,) Durgard’s International Law: A South African Perspective, 5th edition (Claremont: Juta Law, 2018) 638–​662. 209  E.C. Schlemmer, ‘Investor Protection in South Africa –​Eroded Bit by Bit?’ in C. Cai et al. (eds), The BRICS in the New International Legal Order on Investment: Reformers or Disruptors (Leiden: Brill/​ Nijhoff, 2020), at 156. 201 

426    Kholofelo Kugler and Mulualem Getachew Adgeh

B. The AfCFTA and dispute settlement The State-​State dispute settlement system under the AfCFTA was established by the Protocol on Rules and Procedures of the Settlement of Disputes of the Agreement (AfCFTA Dispute Protocol). It was signed together with the AfCFTA and the Protocols on Trade in Goods and Trade in Services in March 2018 in Kigali, Rwanda. Like the other Phase I agreements, it has entered into force. The AfCFTA Dispute Protocol is, to a considerable extent, similar to the DSU. It creates a Dispute Settlement Body (DSB), which will administer all issues relating to dispute settlement.210 It establishes a panel system and an Appellate Body. Members may also resort to arbitration as an alternative to the panel system; however, only at the first instance.211 Further features include consultations; good offices, conciliation, and mediation; panel establishment and composition; third party rights; and a Secretariat that supports panels.212 While, like the DSU, decisions to adopt panel and Appellate Body reports and to grant authorization for retaliation are taken by negative consensus; the AfCFTA Dispute Protocol does not provide for panel establishment by negative consensus like the DSU does. It is not clear whether this was an omission or if the State Parties intended this. However, the effect is that disputes could be stopped ab initio because the responding party could simply block the establishment of a panel.213 Notwithstanding these similarities, the AfCFTA Dispute Protocol has introduced some significant innovations to avoid some of the pitfalls that plague the WTO’s dispute settlement mechanism. For example, pursuant to Article 20 of the AfCFTA Dispute Protocol, the DSB must fill Appellate Body vacancies within two months of that vacancy arising. This decision is taken by consensus. However, if the DSB is unable to make the appointment within the required two-​month period, the chairperson of the DSB, in consultation with the Secretariat of the AfCFTA, will fill the vacancy within one month of the DSB’s failure to do so. This fall-​back method prevents any State Party from blocking Appellate Body appointments. Article 25 of the AfCFTA Dispute Protocol also resolves the perennial sequencing problem by clearly stipulating the different steps sequentially, instead of pegging them to the end of the reasonable period of time as provided for in Articles 21 and 22 of the DSU.214 African States have rarely used the REC dispute settlement mechanism to resolve trade and investment disputes so it remains to be seen whether, and to what extent, the AfCFTA’s will be successful. 210 

Article 23 of the AfCFTA Dispute Protocol. Article 6.6 of the AfCFTA Dispute Protocol. 212  See Articles 7–​10, 13, 19.4, 22.9, 25 and 29 of the AfCFTA Dispute Protocol. 213  See K. Kugler and K. Nyaga, ‘What Lessons Can the AfCFTA Learn from the WTO’s Dispute Settlement Mechanism’s Challenges?’ (22 December 2020), at < https://​www.afrono​mics​law.org/​2020/​ 12/​22/​what-​less​ons-​can-​the-​afc​fta-​learn-​from-​the-​wtos-​disp​ute-​set​tlem​ent-​mec​hani​sms-​cha​llen​ges/​ > (last visited 14 February 2021) 214 Ibid. 211 

Africa and Trade and Investment Liberalization    427

C. Participation by African countries in WTO dispute settlement African countries have rarely used the WTO’s dispute settlement system. Thus far, Tunisia is the only African country to initiate a dispute at the WTO. In fact, the first dispute initiated by an African country at the WTO was against a fellow African country, Morocco. Tunisia’s dispute concerned Morocco’s imposition of anti-​dumping duties on imports of school exercise books from Tunisia. Tunisia requested consultations in respect of the provisional and definitive anti-​dumping duties.215 On 21 July 2021, the panel circulated its report to WTO Members—​the panel found Morocco’s measures inconsistent with its obligations under the Anti-​Dumping Agreement. On 28 July 2021, Morocco notified its appeal of the panel report.216 This dispute has joined the queue of appeals at the WTO that are not being adjudicated due to the non-​functioning of the Appellate Body. Morocco is, to date, the only African country to have initiated appeals at the WTO. Its appeal in its dispute with Turkey217 also did not proceed. In this case, Morocco withdrew its notice of appeal because the challenged measure had expired218 while the dispute was under appeal. The Appellate Body issued a brief report, and the panel report was adopted on 8 January 2020. Morocco’s measures were found to be WTO inconsistent. Thus far, only three African countries, Egypt, South Africa, and Morocco have participated in WTO disputes as respondents. Most of these disputes were settled during the consultations phase. Thus far, only two panel reports involving African countries’ trade measures (anti-​dumping measures) have been adopted. These are Egypt –​Steel Rebar and Morocco –​Hot-​Rolled Steel (Turkey) and Turkey was the complainant in both disputes. While African countries are not active as main parties, to date, 19 African countries have reserved their rights to participate as third parties.219 Egypt has been a third party most frequently, followed by South Africa. Several factors have been advanced to explain the low use of the WTO’s dispute settlement system by African countries. These include:

215 Request

for Consultations by Tunisia, Morocco –​Provisional Anti-​ Dumping Measures on School Exercise Books from Tunisia, WT/​DS555/​1 (10 July 2018); Request for Consultations by Tunisia, Morocco –​Definitive Anti-​Dumping Measures on School Exercise Books from Tunisia, WT/​DS578/​1 (27 February 2019). 216 Notification of an Appeal by Morocco, Morocco—​ Definitive AD Measures on Exercise Books (Tunisia), WT/​DS578/​5 (28 July 2021). 217 Notification of an Appeal by Morocco, Morocco –​Hot-​ Rolled Steel (Turkey), WT/​DS513/​5 (23 November 2018). 218 Communication of the Appellate Body, Morocco –​Hot-​ Rolled Steel (Turkey), WT/​DS513/​7 (5 December 2019). 219 Benin, Cameroon, Chad, Côte d’Ivoire, Egypt, Eswatini, Ghana, Kenya, Madagascar, Malawi, Mauritius, Namibia, Nigeria, Senegal, South Africa, Tanzania, Zambia, Zimbabwe (at 10 September 2021).

428    Kholofelo Kugler and Mulualem Getachew Adgeh



i. lack of interest in upholding or clarifying systemic principles of WTO law because most African countries trade under preferential arrangements; ii. high WTO litigation costs, including costs for hiring outside counsel, costs for hiring and dedicating government staff to work on the dispute, and the opportunity cost of spending scarce government resources on (often protracted) litigation, as opposed to other immediate priorities; iii. lack of technical expertise; iv. lack of vibrant, strong, and organized domestic industries to lobby governments to protect their interests through WTO litigation; v. no incentive by smaller countries to litigate against, especially more powerful trading partners, because of limited retaliatory power; and vi. low share of world trade.220

Prohibitive costs and lack of technical expertise could be overcome by countries accessing resources that are available to developing countries and LDCs for WTO litigation purposes. For example, requesting the services of organizations like the Advisory Centre on WTO Law or obtaining representation by commercial law firms on a pro bono basis. In previous cases, at the request of the ACWL, White and Case represented Benin and Chad pro bono in the original panel and Appellate Body proceedings in US –​Upland Cotton.221 In the compliance stage of the proceedings, Chad, which was a third party, was represented by the ACWL.222 Moreover, the ACWL is representing Tunisia in its case against Morocco.

IV. Conclusion African regional integration has been a work in progress for over 60 years. Its progress has been challenged by a myriad of factors including external influences, infrastructural challenges, governance issues, the spaghetti bowl of regional economic activity regulation, and fears of losing out to neighbours. Nevertheless, the recent resurgence in reigniting this objective, which culminated in the completion of the AfCFTA, is promising. Admittedly, the proof of the pudding will be in the implementation. African countries are multitudinous and diverse. Hence, any initiative to integrate these components will necessarily be fraught with challenges and disagreements.

220 

J. Apecu, ‘The Level of African Engagement at the World Trade Organization from 1995 to 2010’ International Development Policy/​Revue internationale de politique de développement (Online) (2013), at 52–​54. 221  H.E. Zunckel, ‘The African Awakening in United States -​Upland Cotton’ 39(6) Journal of World Trade (2005), at 1081. 222  Panel Report, US –​Upland Cotton (Article 21.5 –​Brazil), adopted 20 June 2008, para 8.29. Benin did not participate in the compliance proceedings as a third party.

Africa and Trade and Investment Liberalization    429 However, as African countries develop, Africa’s relationships with its external partners becomes more complicated. African countries are no longer content to be rule-​takers, they are increasingly expressing their desires and wishes and developing disciplines that allow them to carve out policy space. Simultaneously, African countries recognize their vulnerability—​not a single African country is party to the current international mega-​regional agreements. Therefore, in creating an internal African market, African countries seek to create new markets for their own goods and services and signal to the world the vast economic opportunities that lie within the continent. Indeed, there are many issues to resolve. But if the recent political will is anything to go by, African countries can overcome historical challenges and steer the continent to economic prosperity.

Further reading O.D. Akinkugbe et al., ‘Africa’s Participation in International Economic Law in the 21st Century: An Introduction’ 17(1) Manchester Journal of International Economic Law (2020) 1–​10 K.J. Alter, J.T. Gathii, and L.R. Helfer, ‘Backlash Against International Courts in West, East and Southern Africa: Causes and Consequences’ 27(2) European Journal of International Law (2016) 293–​328 R. Frimpong Oppong, Legal Aspects of Economic Integration in Africa (Cambridge: Cambridge University Press, 2011) J. Gathii, African Regional Trade Agreements as Legal Regimes (Cambridge: Cambridge University Press, 2011) K. Kugler and F. Sucker (eds), International Economic Law: (Southern) African Perspectives and Priorities (Cape Town: Juta Law, 2021) J. de Melo, and J. Regolo, ‘The African Economic Partnership Agreements with the EU: Reflections inspired by the case of the East African Community’ 1(1) Journal of African Trade (2014) 15–​24 S.O. Oloruntoba, Regionalism and Integration in Africa: EU-​ACP Economic Partnership, Agreements and EURO-​Nigeria Relations (London: Palgrave Macmillan, 2016) G. Palomba et al., ‘Chapter 3: Is the African Continental Free Trade Area a Game Change for the Continent?’ in IMF, Regional Economic Outlook Sub-​Saharan Africa: Recovery Amid Elevated Uncertainty, 39–​53 (Washington, D: IMF, 2019) M. Paterson, K. Virk, and J. Cook, South Africa, The SADC Economic Partnership Agreement, and Regional Integration in Southern Africa (Cape Town: Center for Conflict Resolution, 2018) D. Robertson, ‘EU-​ACP Economic Partnership Agreements: Modern Colonialism Disguised in Violation of the WTO’ 50(2) Vanderbilt Journal of Transnational Law (2017) 463–​497

Pa rt I I I

SU B S TA N T I V E L AW

Chapter 16

A n I n t rodu c t i on to C ore Pri n c i pl e s of I n t e rnat i ona l T r a de L aw Katherine Connolly and Nicolas Lockhart *

I. II.

Introduction Obligations: market access A. Tariff barriers to market access B. Non-​tariff barriers to market access: quantitative restrictions C. Market access issues for trade in services III. Non-​discrimination IV. Good governance A. Transparency B. Administration V. Balancing trade vs other trade interests A. Exceptions for preferential treatment B. Subsidies C. Trade remedies VI. Balancing trade vs non-​trade interests A. GATT 1994 exceptions B. TBT and SPS Agreements

434 434 434 436 439 441 447 447 449 452 452 455 458 465 467 469

*  With thanks for their assistance to Stella Perantakou and Dominic Coppens. The authors practice WTO law with Sidley Austin LLP. The views expressed in this article are exclusively those of the authors and do not necessarily reflect those of Sidley Austin LLP, its partners, or its clients. This article has been prepared to information purposes only and does not constitute legal advice.

434    Katherine Connolly and Nicolas Lockhart

I. Introduction This chapter provides an overview of core principles of international trade law. We cover the typical range of obligations and exceptions that apply to international trade in goods and services, under both the WTO covered agreements and free trade agreements (FTAs). As WTO obligations and exceptions frequently overlap with those in FTAs, we focus on the WTO provisions and associated jurisprudence. We begin with obligations relating to market access. These obligations are wide-​ ranging and discipline a variety of activities: we address tariff barriers, quantitative restrictions, non-​tariff barriers and finally some services-​specific market access considerations. Second, we discuss the non-​discrimination obligations, which cover both the so-​called ‘most-​favoured nation’ (MFN) and the national treatment principles. Third, we look at the various obligations that can best be described as ‘good governance’ obligations, which promote transparency and proper administration by national authorities. Fourth, we consider obligations that balance competing trade-​related interests, including exceptions for preferential treatment (covering regional trade agreements and special and differential treatment to developing/​ least developed Members), subsidies, and trade remedies. Finally, we address obligations that look to balance competing trade and non-​trade interests, including GATT 1994 exceptions and the SPS and TBT Agreements.

II.  Obligations: market access A. Tariff barriers to market access In the context of trade in goods,1 market access refers to the ability of imported goods to cross the border, and into the market, of an importing country. The duties and other charges levied on imports—​which we refer to as tariffs—​are the most immediately obvious barrier to market access: charges contingent upon the importation of goods confer an immediate price advantage on domestic goods. Under WTO law, tariffs are not, in principle, prohibited. They are understood to be legitimate instruments for accomplishing trade or other policy objectives, including the generation of fiscal revenue for the importing country (in contrast, for example, quantitative restrictions are prohibited outright).2 However, international trade law places limits on the extent of tariffs by, inter alia, providing that duties/​charges on imported products cannot exceed a negotiated maximum or ceiling level, which is called a 1 

2 

See also Chapter 17 of this handbook. Appellate Body Report, India –​Additional Import Duties, adopted 17 November 2008, para 159.

An Introduction to Core Principles of International Trade Law    435 tariff binding. The agreed maximum levels are product-​specific and recorded in each Member’s3 ‘Schedule of Concessions’, typically negotiated during the Uruguay Round or a subsequent accession. The market access disciplines on tariffs are set out in Article II:1 of the GATT 1994.4 Paragraph (a) contains a general prohibition against an importing Member according to imported products tariff treatment that is less favourable than that provided in the Member’s Schedule. Paragraph (b) elaborates on the principle articulated in paragraph (a); in practice, a violation of subparagraph (a) typically gives rise to a concurrent violation of subparagraph (b). The first sentence of subparagraph (b) clarifies that ‘ordinary customs duties’ (OCDs) cannot exceed those provided for in a Member’s Schedule.5 The second sentence identifies, and prohibits, an additional category of measures, described as ‘other duties and charges imposed on or in connection with importation’ (ODCs). The distinction between the two categories of measures identified in the two subparagraphs (OCDs vs ODCs) is not immediately clear. The Appellate Body maintains they are indeed distinct categories, but its explanation does not shed much further light: ‘while in some instances OCDs may be of a similar kind to ODCs, in other instances they may be of a different kind’.6 It seems, in sum, that the first category covers ‘customs duties in the strict sense of the term’, i.e., excluding extraordinary or exceptional duties collected upon importation; whereas the latter is a residual ‘catch all’ category, capturing any other import duties/​charges.7 To cover their bases, complainants may decide to present alternative arguments under both categories. In essence, the defining element of both OCDs and ODCs is that they constitute charges that arise by reason of importation. Article II:2 of the GATT 1994 excludes three categories of measure from the disciplines in paragraph 1. These are: (i) a charge equivalent to an internal tax falling under Article III of the GATT 1994; (ii) anti-​dumping or countervailing duties; and (iii) fees and other charges commensurate with the cost of services rendered.

3  We use ‘Member’ throughout, rather than ‘contracting party’. See Language Incorporating GATT 1947 and other instruments into GATT 1994, Explanatory Note 1. 4  The full text of Article II:1 provides: ‘(a) Each Member shall accord to the commerce of the other contracting parties treatment no less favourable than that provided for in the appropriate Part of the appropriate Schedule annexed to this Agreement; (b) The products described in Part 1 of the Schedule relating to any Member, which are the products of territories of other contracting parties, shall, on their importation into their territory to which the Schedule relates, be exempt from ordinary customs duties in excess of those set forth and provided therein. Such products shall also be exempt from all other duties or charges of any kind imposed on or in connection with the importation in excess of those imposed on the date of this Agreement or those directly and mandatorily required to be imposed thereafter by legislation in force in the importing territory on that date’. 5  A Member’s MFN concessions are set out in Part I of its Schedule. See Appellate Body Report, Argentina –​Textiles and Apparel, adopted 22 April 1998, para 45. 6  Appellate Body Report, India –​Additional Import Duties, adopted 17 November 2008, para 157. 7  See Panel Report, Dominican Republic –​Safeguard Measures, adopted 22 February 2012, paras 7.85 and 7.79; Appellate Body Report, India –​Additional Import Duties, adopted 17 November 2008, para 151; Panel Report, Peru –​Agricultural Products, adopted 31 July 2015, para 7.408.

436    Katherine Connolly and Nicolas Lockhart As a result, a question may arise as to the proper boundaries of Article II; for example, whether a given measure imposes an import charge (covered under Article II) or an internal tax (covered under Article III). This raises a ‘horizontal’ question that crops up throughout this chapter: how to determine what set of obligations, if any, apply to a given measure. This is frequently a crucial first step in an adjudicator’s assessment. Often, choosing one provision to apply over another is the difference between finding a violation or not. A key guiding principle is that the applicability of WTO obligations is a matter for the panel’s objective assessment, based on the specific legal standard for the provision in question. Typically, this involves an objective assessment of the measure’s design, structure and operation.8 The domestic legal characterization of a measure, or the intent of a Member’s legislators, is not dispositive.9 We will return to this concept several times. In the case of Article II versus Article III (national treatment), the key is whether the charge in question arises upon—​by reason of, or as a consequence of—​importation. The Appellate Body has cautioned that ‘the time at which a charge is collected or paid is not decisive’, but rather whether the obligation to pay a charge ‘accrues due to an internal event, such as the distribution, sale, use or transportation of the imported products’; or, whether it accrues due to importation.10 Finally, it is worth noting that the GATT 1994 does not discipline the imposition of export duties or charges. However, some Members that acceded to the WTO after the entry into force of the WTO agreement have taken on ‘WTO-​plus’ commitments to eliminate export duties.11

B. Non-​tariff barriers to market access: quantitative restrictions Article XI:1 of the GATT 1994 prohibits ‘quantitative restrictions’.12 These are measures that limit the amount of a product that may be imported to, or exported from, a Member’s territory (including outright bans). The prohibition on these measures reflects the fact that, under WTO law, tariffs are, in the Appellate Body’s words, the ‘preferred trade policy instrument’ for restricting imports.13 The policy rationale for

8   See, e.g., Appellate Body, EC –​Seal Products, adopted 18 June 2014, para 5.19, citing Appellate Body Report, EC –​Asbestos, adopted 5 April 2001, para 72; Appellate Body Report, Australia –​Apples, adopted 17 December 2010, para 173. 9  See Appellate Body Report, US –​Softwood Lumber IV, adopted 17 February 2004, para 65; Appellate Body Report, China –​Auto Parts, adopted 12 January 2009, fn 244. 10  Appellate Body Report, China –​Auto Parts, adopted 12 January 2009, para 162. 11  See China’s Accession Protocol, para 11.3. 12  The full text of Article XI:1 states: No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licences or other measures, shall be instituted or maintained by any Member on the importation of any product of the territory or any other Member or on the exportation or sale for export of any product designed for the territory of any other Member. 13  Appellate Body Report, India –​Additional Import Duties, adopted 17 November 2008, para 159.

An Introduction to Core Principles of International Trade Law    437 this preference is that quantitative restrictions have greater trade-​distorting effects than tariffs. Although tariffs create disincentives for international trade by distorting prices, they do not impose an absolute limit on the quantity of trade (whereas quantitative restrictions do); tariffs also generate revenue for governments; and, the administration of quotas is typically more burdensome and less transparent for traders. The case law has described Article X1:1 as ‘very broad in scope’.14 To be subject to the prohibition in Article XI:1, a measure must: (1) be ‘made effective through quotas, import or export licences or other measures’; and (2) it must ‘prohibit[] or restrict[]’ the importation or exportation or sale for export of any product. The first requirement under Article XI raises another ‘boundary’ issue with Article III: when is a measure properly characterized as an internal regulation (Article III) versus a ‘border measure’ (Article XI)? The distinction is significant: the former category of measures is permitted, provided that there is no discrimination, whereas the latter is simply prohibited. The Ad Note to Article III sheds some light, providing that if an imported product is barred at the border because it fails to meet a regulatory standard that is also applicable to the like domestic product, then it falls under Article III.15 However, the Ad Note leaves open whether a measure could ever be simultaneously subject to both Articles III and XI. The case law has not brought much further clarity. In EC –​Asbestos, the measure at issue was a ban on all asbestos products. The Panel found that, because the ban applied to both domestic and imported asbestos products, the measure fell exclusively under Article III, and was not a prohibited quantitative restriction under Article XI.16 This would suggest that Article III applies to a measure to the exclusion of Article XI: if a measure regulates the internal sale of both domestic and imported products, it will not be prohibited under Article XI. This approach seems logical. The GATT 1994 treats so-​ called ‘border measures’ differently from ‘internal measures’: the former are strictly regulated (sometimes prohibited outright); the latter are granted more latitude. Of course, complications can arise on the facts; a measure may be domestically framed as an ‘internal measure’, but in practice apply only to imports; a careful assessment of the measure’s design, structure, and operation may be needed. In India –​Autos, the Panel found that different aspects of a single measure may fall either under Article III or Article XI. The difference was whether the measure affected imports’ competitive opportunities on the domestic market (disciplined by Article III) or their opportunities for entering the market in the first place (Article XI).17 The 14 

Panel Report, India –​Quantitative Restrictions, adopted 22 September 1999, para 5.129. text of the Ad Note: ‘Any internal tax or other internal charge, or any law, regulation or requirement of the kind referred to in paragraph 1 which applies to an imported product and to the like domestic product and is collected or enforced in the case of the imported product at the time or point of importation, is nevertheless to be regarded as an internal tax or other internal charge, or a law, regulation or requirement of the kind referred to in paragraph 1 and is accordingly subject to the provisions of Article III’. 16  Panel Report, EC –​Asbestos, adopted 5 April 2001, paras 8.86-​8.100. 17  Panel Report, India –​Autos, adopted 5 April 2002, para 7.224. 15 Full

438    Katherine Connolly and Nicolas Lockhart Panel also acknowledged the potential for ‘overlap’ in the two provisions.18 In practice, this may be an area in which parties should be prepared to bring claims and develop arguments under both provisions. The second requirement under Article XI is that the measure ‘prohibit or restrict’ imports or exports. This raises another ‘horizontal’ question, which runs through the GATT 1994, as well as other covered agreements: what constitutes a ‘restriction’ on imports or exports? The question of when a measure restricts trade comes up frequently throughout this chapter. On the one hand, the concept of ‘trade-​ restrictiveness’ is relatively broad: it encompasses any ‘limiting condition or regulation’ on ‘action’.19 On the other hand, the Appellate Body has found that not ‘every condition or burden placed on importation or exportation will be inconsistent with Article XI’. Rather, Article XI only prohibits those conditions that limit imports or exports.20 At first glance, this requirement could be understood to require a complainant to demonstrate that a measure has a limiting effect on international trade. However, it is well-​understood that evidence of actual trade effects is not necessary to discharge a complainant’s burden of proof under Article XI. WTO law does not protect actual trade flows, but rather the competitive opportunities for imported products.21 To illustrate, a quota on pineapple imports would be trade-​ restrictive even where the imposing Member imported no pineapples in the first place. It is the opportunity to access the pineapple market that is protected under WTO law, because this opportunity allows traders to plan reliably. We return to the concept of how a measure might limit competitive opportunities further below when considering discrimination. As an evidentiary matter, complainants can ‘prove’ that a measure is trade-​restrictive by pointing to the measure’s design, structure, and expected operation. As documentary evidence, the complainant could point to the terms of the measure, its regulatory context, and individual instances of application. In certain circumstances—​especially where the restriction is de facto rather than de jure—​the existence of actual, real-​world trade effects may carry weight as an evidentiary matter. Panels have found that such evidence can weigh in favour of finding trade-​restrictiveness, with the caveat that, as a matter of law, it is not required to establish the existence of a restriction. And, of course—​because WTO law affects competitive opportunities over actual trade flows—​ if the measure is trade-​restrictive by its terms, evidence that a measure has no real-​ world trade effects cannot ‘rebut’ a complainant’s prima facie case.

18 Ibid. 19 

Panel Report, India –​Quantitative Restrictions, adopted 22 September 1999, para 5.129. Body Report, Argentina –​Import Measures, adopted 26 January 2015, para 5.217, citing Appellate Body Report, China –​Raw Materials, adopted 22 February 2012, paras 319–​320; see also Panel Report, EU –​Energy Package, circulated to the WTO Members 10 August 2018, paras 7.974–​975; Panel Report, Dominican Republic –​Import and Sale of Cigarettes, adopted 19 May 2005, para 7.265. 21  See Appellate Body Report, Argentina –​Import Measures, adopted 26 January 2015, para 5.217; Appellate Body Report, China –​Raw Materials, adopted 22 February 2012, para 7.455. 20  Appellate

An Introduction to Core Principles of International Trade Law    439 Further, just as evidence of actual trade-​effects is not necessary to show trade-​ restrictiveness, it is also not sufficient on its own. There may be an observable impact on actual trade flows, but a complainant must still explain, through the measure’s design, structure and operation, how and why the measure restricts trade in the alleged way. Or as the Appellate Body put it, ‘even if it emerges from trade statistics that the level of exports is unusually low . . . [the complainant must still provide] a persuasive explanation of precisely how the measure at issue causes or contributes to the low level of exports.’22 Overall, the take-​away is that complainants should always focus on establishing a plausible narrative of how the design, structure and operation of a measure restricts trade. Demonstrating an actual reduction in trade flows can helpfully supplement this analysis, by contributing to the evidentiary weight in a complainant’s favour—​but this is ultimately icing on the cake.

C. Market access issues for trade in services International trade in services23 is subject to many barriers to market access, albeit not tariffs. In the WTO, these are, in principle, disciplined under Article XVI of the GATS. The GATS distinguishes between four ‘modes of supply’ of services: (i) cross border supply (e.g., financial advice provided via email); (ii) consumption abroad (e.g., medical tourism abroad); (iii) commercial presence (e.g., local offices of a foreign law firm); and (iv) presence of natural persons (e.g., nurses working abroad). Under Article XVI:1 of the GATS, Members must provide market access according to the commitments laid out in their GATS Schedule. In those sectors, Members are required to accord services and services suppliers of any other Member treatment no less favourable than that set out in their Schedule. Further, Members cannot apply any of the six types of measure listed in Article XVI:2.24 In practice, WTO Members have made modest services commitments and the majority of services trade operates outside the scope of the WTO disciplines. As a consequence, there is relatively limited case law clarifying the precise content of the market access obligations in the GATS. In the FTA context, countries seeking to increase the level of services liberalization have adopted a ‘negative list’ approach, in which Members must identify the services in respect of which they do not make commitments.25

22 

Appellate Body Report, Argentina –​Import Measures, adopted 26 January 2015, paras 11.20-​11.21 See also Chapter 18 of this handbook. 24  These are defined in sum as: (a) limitations on the total number of services suppliers; (b) limitations on the total value of services transactions; (c) limitations on the total number of service operations or on the total quantity of service output; (d) limitations on the total number of natural persons that may be employed in a particular service sector; (e) measures which restrict or require specific types of legal entity or joint venture through which a service supplier may supply a service; and (f) limitations on the participation of foreign capital. 25  See, e.g., US –​Korea FTA; the CPTPP; and CETA. 23 

440    Katherine Connolly and Nicolas Lockhart Because the WTO obligations depend entirely on the Members’ scheduled commitments, one issue that the case law has addressed is how to interpret Members’ schedules. In US –​ Gambling, for example, the United States had made full market access commitments in a sector described as ‘other recreational services (except sporting)’. The complainant argued this included gambling services; the United States argued that it did not. The Appellate Body found that, since Members’ Schedules are an integral part of the GATS, they must be interpreted in accordance with the usual rules of treaty interpretation in the Vienna Convention, and other Members’ schedules are relevant context.26 This raises another interesting question: how to classify services that do not exist at the time the Members negotiated their Schedules, for example services arising from technological innovation. Members’ schedules remain principally based on the so-​called ‘W-​120’, an informal document produced by the WTO Secretariat nearly twenty-​five years ago.27 Naturally, new services have since emerged, and even become ubiquitous (search engines, social media, and cloud computing)28 in ways that were simply not envisaged at that time. The Appellate Body has said that, where the terms traditionally used in classifying services are ‘sufficiently generic’, the scope of services covered by a commitment ‘may change over time’.29 This approach has some limitations. For example, when is a term ‘generic’ enough to encompass ‘new’ services? And, in what precise ways might the scope of a services commitment ‘change over time’? Finally, it may often be difficult, if not impossible, to shoehorn a genuinely ‘new’ service into an existing category, even accounting for the potentially changing scope of commitments.30 Some commentators have suggested that trade negotiators should now look beyond the traditional services classification tools.31 A number of FTA parties have side-​stepped this issue by including, for example, reservations on commitments in ‘Unrecognised or Technically Unfeasible Services’.32 Other FTAs have included chapters dedicated to specifically defined digital services, such as e-​commerce.33 More generally, a group of Members has been pursuing negotiations on a possible Trade in Services Agreement (TISA), which seeks to build on the basic principles of the GATS, but significantly extend participating Members’ commitments. The stalling of 26 

See Appellate Body Report, US –​Gambling, adopted 20 April 2005, para 182.  Services negotiators used Division 94 of the Central Product Classification available in 1994, together with the WTO Services Sectoral Classification List, MTN.GNS/​W/​120 (10 July 1991). 28  This issue also arises in connection with environmental services; see S. Tamminen and others, Trading Services for a Circular Economy (2020), at < https://​www.sitra.fi/​en/​publi​cati​ons/​trad​ing-​servi​ ces-​for-​a-​circu​lar-​econ​omy/​ > (last visited 4 April 2021), at 11. 29  Appellate Body Report, China –​Publications and Audiovisual Products, adopted 19 January 2010, para 396. 30  See, e.g., Energy Services, Background Note by the Secretariat, S/​C/​S/​311 (12 January 2010), para 47 which points out that no immediately relevant category exists for certain energy-​related services. 31  See, e.g., OECD, Trade in Services Related to the Environment (2017), para 10. 32  See R. Zhang, ‘Covered or not covered: that is the question’, WTO Working Paper, 7 December 2015. 33  See, e.g., US –​Australia FTA, Chapter 16. 27

An Introduction to Core Principles of International Trade Law    441 those negotiations and broader WTO negotiations has made services liberalization an area ripe for focus under FTAs.

III.  Non-​discrimination Non-​discrimination, another bedrock principle of international trade law, encompasses both the ‘most-​favoured nation’ (‘MFN’) (imports from one Member vs another Member) and national treatment (domestic vs imported) principles. In general terms, the obligation is simple: Members must afford apples-​to-​apples treatment as between imported goods from different Members, and as between domestic and imported goods. In practice, of course, circumstances are often more complicated and do not always lend themselves to straightforward answers. The non-​discrimination obligation finds expression throughout the WTO covered agreements and FTAs, most notably in Articles I and III of the GATT 1994. Article I provides that a Member violates the MFN obligation if it accords to the imported goods of one Member an ‘advantage, favour, privilege or immunity’ that is not accorded ‘immediately and unconditionally’ to the ‘like’ goods of all other Members.34 Article III sets out the equivalent national treatment obligation, vis-​à-​vis both internal taxes (paragraph 2), and internal regulation (paragraph 4). A key step in assessing a non-​discrimination claim is to define whether the products subject to a measure are ‘like’ each other. Although the concept of ‘likeness’ appears in each of the WTO non-​discrimination provisions, it is not defined expressly in the treaty text. The Appellate Body has explained that ‘likeness’ is, fundamentally, ‘a determination about the nature and extent of a competitive relationship between and among products’.35 This competitive relationship must be assessed in the particular market at issue, i.e., the respondent’s market (although evidence from other markets may be pertinent).36 To assess this relationship, a panel must look at: (1) the respective products’ physical characteristics, i.e., properties, nature, and qualities; (2) their end uses; (3) consumers’ tastes and habits (sometimes also called ‘perceptions and behaviour’); and (4) tariff classifications.

34  Article 1 applies to ‘customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports, and with respect to the method of levying such duties and charges, and with respect to all formalities in connection with importation and exportation, and with respect to all matters referred to in paragraphs 2 and 4 of Article III’. Thus, Article I covers both ‘border measures’ (like customs duties) as well as ‘internal measures’ (like internal taxes and regulation). 35  Appellate Body Report, EC –​Asbestos, adopted 5 April 2001, para 99; Appellate Body Report, Philippines –​Distilled Spirits, adopted 20 January 2012, para 170. 36  Appellate Body, Korea –​Alcoholic Beverages, adopted 17 February 1999, para 137, citing Appellate Body Report, Japan –​Alcoholic Beverages II, adopted 1 November 1996, fn 20; Appellate Body Report, Canada –​Periodicals, adopted 30 July 1997, at 25.

442    Katherine Connolly and Nicolas Lockhart This is a case-​by-​case assessment in which a panel must take into account both the specific circumstances and the applicable WTO provision. As the famous (to trade lawyers!) adage goes, ‘the concept of ‘likeness’ is a relative one that evokes the image of an accordion’, which ‘stretches and squeezes in different places as different provisions of the WTO Agreements are applied’.37 The case law has found that the accordion stretches wider under Articles I:1 and III:4; and squeezes narrower under Article III:2. However, although the concept of likeness is narrower under Article III:2 (first sentence), the provision makes up for this limitation by also capturing the broader concept of ‘directly competitive or substitutable’ goods (second sentence).38 When the universe of like products has been defined, the next issue is: does the measure differentiate between like products? The WTO non-​discrimination obligations cover both de jure and de facto discrimination. The former are measures that, by their terms, make distinctions between products exclusively on the basis of origin (‘all domestically produced cheeses shall be subject to a 10 % sales tax; all imported cheeses shall be subject to a 30 % sales tax’). De facto measures appear to be origin neutral on their face (‘all cheddar shall be subject to a 10 % sales tax; all mozzarella shall be subject to a 30 % sales’) but have a discriminatory effect in practice (all domestically produced cheese is cheddar; all imports are mozzarella). Both types of discrimination are prohibited under WTO law. When a measure discriminates de jure, it has an impact on the assessment of likeness: a panel will make a (rebuttable) presumption that the products in question are ‘like’.39 Thus, in our first example, a complainant would not be required to show that domestic cheeses are ‘like’ imported cheeses. In contrast, in our second example, a complainant would have to make a prima facie case that cheddar and mozzarella are ‘like’ products. This distinction is important: removing the requirement to demonstrate ‘likeness’ considerably lessens a complainant’s burden of proof. This, therefore, raises another potentially thorny question: when does a measure involve a de jure distinction based exclusively on origin? Under one strand of the case law, ‘a determination of whether a distinction is based exclusively on origin will depend on the nature, configuration, and operation of the measure at issue’.40 This would suggest that the assessment depends upon the terms of the measure itself, and how those terms are applied. Thus, if a measure is de jure discriminatory by its terms, a complainant necessarily receives the benefit of a presumption of ‘likeness’. 37 

Appellate Body Report, Japan –​Alcoholic Beverages, adopted 1 November 1996, at 21. The term ‘directly competitive or substitutable products’ identifies a broader category of products than ‘like’ products. The Appellate Body has explained that ‘as with ‘like products’ under the first sentence, the determination of the appropriate range of ‘directly competitive or substitutable products’ under the second sentence must be made on a case-​by-​case basis’. Appellate Body Report, Japan –​ Alcoholic Beverages II, adopted 1 November 1996, at 25. 39  See Panel Report, US –​Tariff Measures (China), circulated 15 September 2020, para 7.83; Appellate Body Report, Argentina –​Financial Services, adopted 9 May 2016, para 6.38; Panel Report, Colombia –​ Ports of Entry, adopted 24 April 2013, paras 7.355-​7.356; 40  Appellate Body Report, Argentina –​Financial Services, adopted 9 May 2016, para 6.41. 38 

An Introduction to Core Principles of International Trade Law    443 However, a recent strand of case law takes a different approach. The respondent’s measure prohibited—​by its terms—​imports of food products from a single, named Member (the complainant). The regulatory rationale behind the measure was alleged safety concerns, but this was not stated in the terms of the measure. Under the traditional approach, this would be a case of distinction based on origin alone. However, the Appellate Body took into account the (unstated) regulatory objective behind the measure to find that the measure did not discriminate based on origin alone; and consequently, found the complainant was required to present a prima facie case of likeness.41 This approach creates uncertainty around the boundaries of de jure versus de facto discrimination, and dilutes the benefits to complainants of a presumption of likeness. Following this approach, complainants may need to present arguments on ‘likeness’ out of an abundance of caution, even where the measure appears, by its terms, to draw an exclusively origin-​based distinction. These days, de facto discriminatory measures are more common. So, when do measures that appear origin-​neutral on their face, in fact make origin-​based distinctions between products? Recall our earlier example: cheddar cheese faces a lower tax rate than mozzarella cheese. If cheddar were the only domestically produced cheese, and all mozzarella were imported, the measure would be clearly de facto discriminatory. But what if some portion of domestic products fall into the higher-​taxed category and some portion of imports fall into the lower-​tax category? Does that ‘cancel out’ any discriminatory effect, or is it sufficient that a single imported product is taxed in excess of a ‘like’ domestic product? The Appellate Body has explained that the adjudicator’s task is to define the universe of like products, then to compare the treatment accorded to the two groups of like products.42 For national treatment, the two groups subject to comparison are: (i) domestic like products; and (ii) imported products from the Member alleging the complaint.43 For MFN, the two compared groups are: (i) like products imported from one Member; and (ii) like products imported from any other Member or Members.44 Regulatory distinctions between the two respective groups are permitted, provided that the treatment accorded to one group of products is not less favourable than that accorded to the other group of products.45 When there is an origin-​based split of products across the advantaged/​disadvantaged divide, the key is to look for an asymmetrical advantage granted to one group of products over the other. To illustrate, take the following scenario. Imagine that 80 per cent of our domestic cheese market were subject to the lower-​taxed category, compared to 20 per cent of the imported market. A complainant would have a reasonable argument that, based on these ratios, the measure was de facto discriminatory. But the closer together these 41 

See Appellate Body Report, Korea–​ Radionuclides, adopted 26 April 2019, paras 5.227–​5.239. See Appellate Body Report, US –​Clove Cigarettes, adopted 24 April 2012, paras 190–​194. 43  Ibid., at para 196. 44  See Appellate Body Report, US –​Tuna II (Mexico), adopted 13 June 2012, para 7.72. 45  Appellate Body Report US –​Clove Cigarettes, adopted 24 April 2012, para 193. 42 

444    Katherine Connolly and Nicolas Lockhart ratios become to an equal divide (perhaps 60/​40), the weaker the complainant’s case. In each case, an adjudicator must make a case-​by-​case assessment, taking into account the full set of circumstances. Thus far, our cheese examples have avoided a further complication, because there is no question as to the advantage (or favourable treatment) conferred on the group of domestic products: beneficial tax treatment. Of course, this is not always the case: as the Appellate Body has confirmed, a measure may treat imported and domestic products differently without necessarily conferring an advantage on the latter.46 So, when does a distinction in treatment amount to an advantage? This question picks up a horizontal issue that we addressed in our discussion of Article XI of the GATT 1994: when does a condition or burden placed on importation or exportation amount to a ‘restriction’ on trade? In that context, the Appellate Body has found that a measure restricts trade where it limits the ‘competitive opportunities’ of (some) imported products; or, put differently, the measure modifies the ‘conditions of competition’ against (some) imported products.47 The case law takes a similar approach to the concept of an ‘advantage’ (and ‘favourable treatment’) in discrimination cases. The Appellate Body has found that a difference in treatment amounts to an advantage where it ‘modifies the conditions of competition’ in favour of domestic products over imported products (or the products of one Member over another).48 Examples of differences in treatment between imported and domestic goods which confer a competitive advantage include: distinctions in enforcement procedures,49 distribution channels,50 statutory content requirements,51 allocation of import licences,52 and dual retail systems for imported and domestic goods.53 Finally, we recall that non-​ discrimination obligations appear throughout the covered agreements. In addition to the GATT 1994, non-​discrimination obligations are found in, among others, the GATS, the SPS Agreement, the TBT Agreement, the TRIPS Agreement and the Safeguards Agreement. For the most part, these non-​ discrimination obligations mirror those in the GATT 1994. In the services context, Articles II and XVII of the GATS requires non-​discrimination as between ‘like services and services suppliers’.54 The Appellate Body has explained that, similarly to

46 Appellate Body Report, Korea –​Various Measures on Beef, adopted 10 January 2001, para 370. However, we note that where goods are ‘like’ under Article III:2, any difference in treatment is prohibited; if the goods are ‘directly competitive or substitutable, the question is whether the measure alters the conditions of competition so as to afford protection to domestic goods. 47  See Appellate Body Report, Argentina –​Import Measures, adopted 26 January 2015, para 5.217; Appellate Body Report, China –​Raw Materials, adopted 22 February 2012, para 7.455. 48  See Appellate Body Report, Korea Various Measures on –​Beef, adopted 10 January 2001, para 177. 49  GATT Panel Report, US –​Section 337 Tariff Act, adopted 7 November 1989, para 5.20. 50  GATT Panel Report, Canada –​Provincial Liquor Boards (US), adopted 18 February 1992, paras 5.12–​5.16. 51  Panel Report, US –​Gasoline, adopted 20 May 1996, para 6.10. 52  Appellate Body Report, EC –​Bananas III, adopted 25 September 1997, paras 7.179–​7.180. 53  Appellate Body Report, Korea –​Various Measures on Beef, adopted 10 January 2001, paras 142-​151. 54  Emphasis added.

An Introduction to Core Principles of International Trade Law    445 the GATT 1994, ‘the determination of likeness [under the GATS] must focus on the competitive relationship of the services and service suppliers at issue’; and, that an ‘integrated’ (not separate) assessment of services and service suppliers, together, is required.55 One notable departure from the GATT 1994 ‘model’ is Article 2.1 of the TBT Agreement. The Appellate Body has found that, in addition to assessing whether a measure grants certain products more favourable treatment based on origin (MFN or national treatment), an adjudicator must also assess whether the difference in treatment stems solely from a ‘legitimate regulatory distinction’ (e.g., public health or environmental protection). According to the Appellate Body, Article 2.1 of the TBT Agreement ‘should not be interpreted as prohibiting any detrimental impact on competitive opportunities for imports in cases where such detrimental impact stems exclusively from legitimate regulatory distinctions’.56 In making this assessment, the Appellate Body has focused on whether a measure is applied in an even-​handed manner (including whether it is properly ‘calibrated’ to the relevant risk); or if, instead, the measure is applied in a manner that constitutes arbitrary or unjustifiable discrimination.’57 Thus, for Article 2.1, the ‘justification’ of the measure is incorporated into the obligation itself. The rationale behind this approach is that the TBT Agreement does not include an exception that would otherwise afford Members with the necessary policy space to differentiate between products for legitimate reasons. A number of FTAs have adopted a similar standard in their services and investment chapters. For example, Articles 9.4 and 10.3 of the CPTPP requires non-​discrimination as between like services and services suppliers/​investments ‘in like circumstances’.58 A footnote confirms that, the terms ‘like circumstances’ includes ‘the totality of the circumstances, including whether the relevant treatment distinguishes between [investors/​services or services suppliers] on the basis of legitimate public welfare objectives’.59

55  Appellate Body Report, Argentina –​Financial Services, adopted 9 May 2016, paras 6.22–​6.29; Panel Report, EU –​Energy Package, circulated 10 August 2018, para 7.419. 56  Appellate Body Report, US –​Clove Cigarettes, adopted 24 April 2012, para 174. 57  See Appellate Body Report, US –​COOL, adopted 23 July 2012, para 340; Appellate Body Report, US –​Tuna II (Mexico), adopted 13 June 2012, para 297. The Appellate Body has confirmed that the jurisprudence under the chapeau of Article XX (addressing whether a measure is applied in a way that constitutes arbitrary or unjustifiable discrimination) is relevant. See Appellate Body Report, US –​Tuna II (Article 21.5 –​Mexico), adopted 3 December 2015, para 227. 58  The full text of Article 9.4 (national treatment) reads: ‘Each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory’. (See equivalent MFN obligation in Article 9.5). The full text of Article 10.3 (national treatment) reads: ‘Each Party shall accord to services and services suppliers of another Party treatment no less favourable than it accords, in like circumstances, to its own services and service suppliers’. (See equivalent MFN obligation in Article 10.4). 59  Footnote 14 to Articles 9.4 and 9.5; and footnote 2 to Articles 10.3 and 10.4.

446    Katherine Connolly and Nicolas Lockhart Some WTO Members have called for a similar approach in discrimination cases under the GATT 1994, especially under Article III:4. The European Union has taken this position in dispute settlement,60 and recently the United States has been vocal on the issue.61 The United States in particular criticizes the approach of the Appellate Body under the GATT 1994, in which a detrimental effect on the competitive opportunities of imports is, alone, sufficient to find a breach of the non-​discrimination obligation.62 The United States argues that Article III:4 ‘embraces the concept that the reason behind a measure is important’, and that consequently only measures with a protectionist intent should be inconsistent. This approach is yet to find a solid foothold in the case law.63 The Appellate Body has accepted that regulatory intent—​as expressed through the design, structure and operation of the measure—​can be relevant in assessing whether a regulatory distinction entails protection of domestic production. However, the Appellate Body has consistently rejected arguments that a difference in treatment stemming from a ‘legitimate regulatory distinction’ must be considered under the non-​ discrimination obligations under the GATT 1994.64 The rationale is that, unlike the TBT Agreement, the GATT 1994 includes general exceptions under Article XX, which give policy space to Members to adopt discriminatory measures for legitimate reasons.65 Thus, whereas the consideration of legitimate regulatory distinctions is ‘built-​in’ to the non-​discrimination obligation under the TBT Agreement, this issue is considered under Article XX of the GATT 1994. This difference in approach means that, under the TBT Agreement, a complainant bears the burden of showing there is no legitimate regulatory distinction behind the measure; whereas under the GATT 1994, the burden is on the respondent to show the measure is justified. This creates an incentive for complainants to bring their claims under the GATT 1994, rather than the TBT Agreement, where possible.

60 

Appellate Body Report, EC –​Seal Products, adopted 18 June 2014, paras 5.100–​5.103. See USTR, Report on the Appellate Body of the World Trade Organization, February 2020, at 90-​ 95, at < https://​ustr.gov/​about-​us/​pol​icy-​offi​ces/​press-​off​i ce/​press-​relea​ses/​2020/​febru​ary/​ustr-​iss​ues-​ rep​ort-​wto-​appell​ate-​body > (last visited 12 May 2021). 62  See USTR, Report on the Appellate Body of the World Trade Organization, February 2020, at 90-​ 95, at < https://​ustr.gov/​about-​us/​pol​icy-​offi​ces/​press-​off​i ce/​press-​relea​ses/​2020/​febru​ary/​ustr-​iss​ues-​ rep​ort-​wto-​appell​ate-​body > (last visited 12 May 2021). 63 One exception to note is the Appellate Body Report in Dominican Republic –​Cigarettes. Respondents in a number of disputes since have sought (unsuccessfully) to rely on the Appellate Body’s statement in that case: ‘the existence of a detrimental effect on a given product resulting from a measure does not necessarily imply that this measure accords less favourable treatment to imports if the detrimental effect is explained by factors or circumstances unrelated to the foreign origin of the product’ (para 96). The Appellate Body has since effectively disavowed this statement as support ‘for the proposition that, under Article III:4, panels should inquire further whether ‘the detrimental effect is unrelated to the foreign origin of the product’’. See Appellate Body Report, US –​Clove Cigarettes, adopted 24 April 2012, fn 372. 64  See Appellate Body Report, EC –​Seal Products, adopted 18 June 2014, para 5.117. 65  Ibid., at paras 5.122ff. 61 

An Introduction to Core Principles of International Trade Law    447

IV.  Good governance International trade rules recognize the importance of principles of good governance in rule-​making that affects international trade. To this end, in addition to the substantive disciplines outlined above, there are also disciplines to ensure transparency and reasonable administration of measures that affect international trade. Ultimately, these rules stem from the need to ensure security and predictability in the international trading system.

A. Transparency A variety of different obligations in international trade law promote transparency of Members’ trade regulations. Generally, these obligations require Members to make information relating to their trade regulations easily available, through a variety of mechanisms. This contributes to the security and predictability of the international system and facilitates the exercise of Members’ WTO rights generally. We identify three categories of transparency obligation, each addressed below: (1) notification obligations; (2) publication obligations under Article X of the GATT 1994; and (3) specific procedural requirements to explain and consult in decision-​making. First, notification is a cross-​cutting obligation that appears throughout the WTO covered agreements and FTAs in respect of a variety of measures. WTO notification obligations arise in connection with, among others: anti-​dumping measures;66 countervailing duties;67 safeguard measures;68 subsidies;69 SPS measures;70 and TBT measures.71 Typically, notification obligations require Members to identify and notify a measure to the relevant WTO Committee, along with specified information. The required accompanying information can be quite extensive. For example, to properly notify a safeguard measure, a Member must include ‘all pertinent information’, which includes ‘evidence of serious injury or threat thereof caused by increased imports, precise description of the product involved and the proposed measures, proposed date of introduction, expected duration and timetable for progressive liberalisation’.72 Notification obligations have come into focus recently as the subject of several WTO reform proposals. Certain Members take the view that other Members are not meeting

66 

See Article 12 of the Anti-​Dumping Agreement. See Article 22 of the SCM Agreement. 68  See Article 12 of the Safeguards Agreement. 69  See Article 8.6 of the SCM Agreement. 70  See Article 7 of and Annex B to the SPS Agreement. 71  See Article 2.9 of the TBT Agreement. 72  Article 12.2 of the Safeguards Agreement. 67 

448    Katherine Connolly and Nicolas Lockhart their notification obligations, especially in relation to alleged subsidy programs.73 This divide reflects the fact that notification is difficult to police; under the current rules, it rests on an individual Member to take proactive steps to notify its measures, and it is difficult to bring a dispute for failure to notify. For this reason, some reform proposals are seeking to give ‘teeth’ to WTO notification obligations, for example by imposing penalties on Members that repeatedly fail to notify. In considering reforms, though, other Members have highlighted that there may be different reasons why Members fail to notify. For some developing country Members, falling short of notification obligations may be a capacity issue: collecting and submitting the required information is a resource-​intensive exercise. Any notification reform should be properly calibrated to reflect this reality, including through an appropriate balance between carrot and stick, and should provide capacity-​building where needed. Along with requirements to notify measures to the WTO, there are also publication obligations, which require Members to publish certain measures domestically. In particular, Article X:1 of the GATT 1994 requires publication of a broad swathe of measures affecting international trade.74 In the FTA context, many have dedicated ‘Transparency’ chapters requiring publication of existing as well as proposed future measures, with an adequate opportunity for comment.75 Generally, the rationale behind publication obligations is to allow traders to become familiar with the rules that affect them, which ultimately serves security and predictability in the international trading system. One trend in the more recently negotiated WTO agreements and FTAs is to require online publication. For example, the USMCA specifically requires certain information to be made ‘available on a free, publicly accessible website’.76 A similar purpose is served by another transparency-​related obligation, namely the requirement, in some areas of WTO law, for each Member to establish standing information portals to disseminate information about its measures. For example, the TBT Agreement requires that Members ‘shall ensure that an enquiry point exists which is able to answer all reasonable enquiries’, and to provide relevant documents regarding their TBT measures.77 Finally, some WTO agreements require a domestic authority to make decisions in conformity with a prescribed set of rules, including procedural obligations that serve a 73 

See, e.g., Procedures to enhance transparency and strengthen notification requirements under the WTO Agreements, Communication from the United States to the General Council for Trade in Goods, JOB/​GC/​148 (30 October 2018). 74 Article X:1 covers: ‘Laws regulations, judicial decisions and administrative rulings of general application, made effective by any Member, pertaining to the classification or the valuation of products for customs purposes, or to rates of duty, taxes or other charges, or to requirements, restrictions or prohibitions on imports or exports or on the transfer of payments therefor, or affecting their sale, distribution, transportation, insurance, warehousing, inspection, exhibition, processing, mixing or other use’. 75  See, e.g., Chapter 27 of CETA and Chapter 26 of the CPTPP. 76  See Article 7.2 of USMCA. See also Article 2 of the Trade Facilitation Agreement. 77  See Article 10 of the TBT Agreement. See similar obligations in paragraph 3 of Annex B to the SPS Agreement; Article III:4 of the GATS.

An Introduction to Core Principles of International Trade Law    449 transparency purpose. Typically, these may include a requirement to provide a reasoned and adequate explanation of a decision; and/​or an to consult with interested parties. A good example—​and, indeed, of the value of transparency obligations generally—​is found in the Customs Valuation Agreement, which requires domestic authorities to provide importers with written explanations of their decision-​making process.78 WTO adjudicators have held that explanations of this kind serve ‘an important ‘transparency and due process objective’’, by allowing ‘importers and WTO Members to ‘effectively exercise their respective rights . . . when requesting domestic tribunals, courts, and WTO panels to determine whether the manner or means of valuation by a customs authority was consistent with the importing Member’s WTO obligations’.79 In this respect, some FTAs go further, by requiring customs administrations to issue, upon request, advance rulings (i.e., prior to the importation of goods) setting forth ‘the treatment that the Party shall provide to the goods at the time of importation’.80

B. Administration The primary obligation governing administration is set out in Article X:3(a) of the GATT 1994. Members are required to ‘administer in a uniform, impartial and reasonable manner all its laws, regulations, decisions and rulings of the kind described in [Article X:1]’. Thus, the administration obligation in Article X:3 applies to the same broad set of trade-​affecting measures to which the publication obligation in Article X:1 applies.81 As the Appellate Body has explained, the three elements of Article X:3(a)—​reasonableness, impartiality, uniformity—​establish ‘minimum standards for transparency and procedural fairness in the administration of trade regulations’.82 To demonstrate a violation of Article X:3(a), a complainant must establish that the respondent (1) administers laws, regulations, decisions or rulings of the kind described in Article X:1; and (2) does so in a manner that is non-​uniform, partial and/​or unreasonable.83 We briefly address each element. The first requirement is that the challenged conduct involves administration. This refers to the manner in which a measure is implemented, applied, or put into practical effect.84 It encompasses both single instances of administration and the ‘processes’

78 

See Article 1.2(a) (third sentence) and Article 16. Appellate Body Report, US –​Shrimp, adopted 6 November 1998, para 183. See also Panel Report, Thailand –​Cigarettes (Philippines), adopted 15 July 2011, para 7.868. 80  Article 7.5 of USMCA. 81  See above fn 78. 82  See Appellate Body Report, US –​Shrimp, adopted 6 November 1998, para 183. See also Panel Report, Thailand –​Cigarettes (Philippines), adopted 15 July 2011, para 7.868. 83  Panel Report, Thailand –​Cigarettes (Philippines), adopted 15 July 2011, para 7.868. 84  Panel Report, Thailand –​Cigarettes (Philippines), adopted 15 July 2011, para 7.873. See also Panel Report, US –​COOL, adopted 23 July 2012, para 7.821. 79  See

450    Katherine Connolly and Nicolas Lockhart leading to administrative decisions. Importantly, the administration of a measure is different from its substantive content. To illustrate, the substantive content of a measure may be regulated by provisions such as Articles I, II or III of the GATT 1994. These require, for example, that the measure not discriminate; and that it not impose tariffs in excess of a Member’s schedule. Article X:3(a) complements these requirements, layering on an additional obligation that the measure be applied, in practice, in a reasonable, uniform and impartial manner. A measure might fully satisfy the substantive requirements but be administered improperly. Conversely, the measure could violate the substantive requirements but be administered in satisfaction of Article X:3(a). Finally, the measure could violate both sets of provisions, although the legal and factual basis for the violations would be different. This distinction between substantive content and administration can create confusion. For example: when a complainant brings an Article X:3(a) claim, what exactly is the challenged measure at issue? Is it the measure being administered? Or is it the contested manner or practice of administration of that measure? The Appellate Body has addressed this question directly.85 For purposes of Article X:3(a), the challenged measure must be of the kind described in Article X:1. The claim made regarding that measure relates to the manner in which it is administered. Or, as one complainant has put it: ‘the ‘manner of administration’ is not a ‘measure’; rather, it is . . . a description of how a measure operates so as to breach an Agreement provision.’86 The second requirement is that the administration must be ‘impartial’, ‘uniform’ or ‘reasonable’. These are distinct not cumulative, so a complainant need only show failure under one element (say, reasonableness) to demonstrate a violation of Article X:3(a).87 The case law gives a good illustration of the types of measures that may fall foul of Article X:3(a) (and, indeed, of the measure/​administration distinction). • EC –​Selected Customs Matters: the underlying measure concerned a product certification requirement to access the domestic market. The measure’s administration involved a process for obtaining a certification. The process was found to be ‘informal and casual’; with ‘no formal opportunity for an applicant country to be heard, or to respond to any arguments that may be made against it’.88 • US –​COOL: the underlying measure was a product labelling requirement. The requirement was partly administered through a letter from the relevant authorities, effectively threatening that unless industry voluntarily adopted stricter labelling

85 

See Appellate Body Report, EC –​Selected Customs Matters, adopted 11 December 2006, para 127. Appellate Body Report, EC –​Selected Customs Matters, adopted 11 December 2006, para 125. 87  See Panel Report, Argentina –​Hides and Leather, adopted 16 February 2001, para 11.86. 88  See Appellate Body Report, US –​Shrimp, adopted 6 November 1998, paras 2–​6 and 180–​184. 86 

An Introduction to Core Principles of International Trade Law    451 standards than required by the current rules, the rules would be modified. This ‘caused uncertainty and confusion’ for the industry in seeking to comply with the labelling requirements, which was ‘not [] reasonable’.89 • China –​Raw Materials: the underlying measure was an export quota scheme. The quota was administered through eligibility criteria. The panel found that ‘a system of quota allocation where an undefined and vaguely worded criterion can trump all other criteria’ is ‘unreasonable’ administration.90 • Thailand –​Cigarettes (Article 21.5): the underlying measure was a value added tax (VAT). The tax was administered through a notification requirement by which importers were obliged to notify market price information that they could not know at the time of notification. Other proxy market price information was informally accepted, but importers still faced legal jeopardy for failing to notify the required information. The panel found that the notification requirements created ‘uncertainty and confusion’ for importers as to how they should comply with the requirements, which was ‘unreasonable’.91 Thus, the case law returns frequently to the notion of uncertainty and confusion for traders. This reflects the overall focus of WTO rules as seeking to create security and predictability in the international trading system. Finally, some covered agreements contain obligations requiring Members to provide traders with a mechanism, under domestic law, to secure independent review and enforcement of certain domestic acts regulated by WTO disciplines.92 Good governance also provides the rationale behind these types of obligations, ensuring that affected private parties have an effective mechanism to secure independent oversight of the acts. A good example is Article 11 of the Customs Valuation Agreement. This provides that: (i) each Member’s legislation must provide for a right of appeal in regard to a determination of customs value; (ii) the right of appeal may be initially to an authority within the customs administration, but legislation must provide for the right of appeal (without penalty) to a judicial authority; and (iii) notice of the decision on appeal, and reasons for the decision, must be given in writing. These concepts are considerably developed in the FTA space; for example USMCA sets out more detailed procedures ‘[w]‌ith a view to providing effective, impartial, and easily accessible procedures for review and appeal of administrative determinations on customs matters’.93

89 

Appellate Body Report, US –​COOL, adopted 23 July 2012, paras 7.859 and 7.866. Panel Report, China –​Raw Materials, adopted 22 February 2012, para 7.744. 91 Panel Report, Thailand –​Cigarettes (Philippines) (Article 21.5), circulated 12 November 2018, para 7.926. 92  See, e.g., Article X:3(b) of the GATT 1994; Article 11 of the Customs Valuation Agreement; and Article 13 of the Anti-​Dumping Agreement. 93  Article 7.15 of USMCA. 90 

452    Katherine Connolly and Nicolas Lockhart

V.  Balancing Trade vs Other Trade Interests In this section, we address rights and obligations relating to the balance between various competing trade-​related interests. First, we address provisions which—​as an exception to the MFN rule—​allow preferential treatment in certain circumstances of trade from some origins. These are Article XXIV of the GATT 1994 (allowing preferences for parties to deeper ‘regional’ trade agreements) and provisions allowing special and differential treatment to developing/​least developed Members (including the so-​called Enabling Clause). Second, we look at the subsidies rules, which set out circumstances under which trade-​distorting State financial aid/​support to industry is permitted. Third, we look at the trade remedies agreements, which specially permit import duties in response to different types of harmful import trade.

A. Exceptions for preferential treatment 1. Preferences for ‘regional’ trade integration: Article XXIV of the GATT 1994 WTO law recognizes the value of Members pursuing deeper integration with a subset of WTO Members, often neighbours. Members have a variety of legitimate incentives, both political and economic, for pursuing such arrangements, variously described as ‘customs unions’, ‘regional trade agreements’, ‘free trade agreements’ or ‘preferential trade agreements’. Specifically, Article XXIV:5 of the GATT 1994 (and Article V of the GATS) allows preferential trade in the context of these arrangements, which would otherwise be prohibited under MFN rules. There is much interesting work on the proliferation of regional trade integration and a full review is outside the scope of this Chapter.94 We make the following comments on the legal standard under Article XXIV:5. First, Article XXIV:5 operates as a formal ‘exception’, justifying a violation of the GATT 1994. Under the general WTO jurisprudence on the burden of proof, the responding Member would bear the burden of proof under Article XXIV:5. Second, Article XXIV:8 defines the arrangements to which the exception in Article XXIV:5 applies. These are: a ‘free trade area’ (‘FTA’) or a ‘customs union’.95 A ‘free trade 94  For a more detailed analysis of Article XXIV, see N. Lockhart and A. Mitchell, ‘Regional Trade Agreements under GATT 1994: An Exception and Its Limits’ in A. Mitchell (ed), Challenges and Prospects for the WTO (London: Cameron May, 2005), at 217. See also Part II of this handbook. 95  The exception also extends to ‘interim agreements’ necessary for the formation of customs unions or FTAs, subject to certain requirements: the ‘interim agreements’ must lead to the formation of a customs union or FTA ‘within a reasonable period of time’

An Introduction to Core Principles of International Trade Law    453 area’ exists where an agreement liberalizes ‘substantially all trade’ between the parties to the agreement. A ‘customs union’ exists where member states have additionally agreed to adopt a common external tariff. One hotly debated question is the meaning of the term ‘substantially all trade’. The Appellate Body has not provided much clarification, noting only that it is less than ‘all the trade’ and more than ‘merely some of the trade’.96 One reason for the uncertainty is that Article XXIV:5 is largely untested in dispute settlement. Curiously, although FTAs are prolific, they are rarely challenged in dispute settlement. Consider, for example: the European Union; the Southern Common Market (MERCOSUR); NAFTA97 and USMCA; or the newer Regional Comprehensive Economic Partnership (RCEP) and the re-​booted Trans-​Pacific Partnership (now CPTPP98). These are high-​profile arrangements covering trade of enormous value, that have never been examined in dispute settlement under Article XXIV:5.99 Third, to be justified by the exception, a challenged measure must be adopted upon formation of the FTA/​customs union; and be necessary for the formation of the FTA/​customs union.100 The first requirement means that WTO-​inconsistent measures that are added after an FTA/​customs union has been formed would, in principle, not fall within the exception. This language could create difficulties for the parties, who may not have provided for every eventuality upon the formation of their agreement. However, the limited case law suggests a pragmatic approach is appropriate. For example, one panel accepted justification of a discriminatory measure, on grounds that the ‘mechanism providing for the exclusion of [FTA] partners from safeguard measures’ was established upon formation of the FTA/​customs union, even though the specific measure was applied long after.101

2. General principle of ‘special and differential treatment’ WTO law provides—​throughout the covered agreements—​for special and differential treatment (‘S&DT’) to address the special situation and needs of developing and least-​ developed countries. The purpose of these provisions is to further economic development through the promotion of international trade opportunities. Article XVIII of the original GATT 1947 recognized that economic development would contribute to raising living standards for GATT contracting parties, particularly ‘in the early stages of development’. This provision granted developing countries

96 

Appellate Body Report, Turkey –​Textiles, adopted 19 November 1999, para 48. North American Free Trade Agreement. 98  Comprehensive and Progressive Trans-​Pacific Partnership. 99  In principle, agreements notified under Article XXIV of the GATT 1994 should be reviewed for consistency by the Committee on Regional Trade Agreements; however, this review process has not been effectively functioning for some time. 100  See Appellate Body Report, Turkey –​Textiles, adopted 19 November 1999, para 45. 101  Panel Report, US –​Line Pipe, adopted 8 March 2002, para 128. Note that, although the panel’s reasoning is instructive, the Appellate body found it unnecessary to review these findings, and declared them moot and of no legal effect. See Appellate Body Report, US –​Line Pipe, adopted 8 March 2002, paras 198-​199. 97 

454    Katherine Connolly and Nicolas Lockhart certain flexibilities on the import side to maintain trade-​restrictive measures to promote development. In 1965, the GATT 1947 was amended with the introduction of a new Part IV on ‘Trade and Development’, which established that developed countries would ‘not expect reciprocity’ from developing countries in return for commitments made in trade negotiations. This created the possibility for developed countries to open their markets to developing countries, on an asymmetrical basis, to promote economic development. In 1971, the GATT parties complemented Part IV with a 10-​year waiver of the obligations in Article I to permit developed countries to grant tariff preferences to imports from developing countries.102 In 1979, in a decision known as the ‘Enabling Clause’, the GATT parties made the 1971 waiver permanent, on expanded terms that recognize that GATT parties ‘may accord differential and more favourable treatment to developing countries’.103 We address the Enabling Clause further below. The WTO agreements also include a series of S&DT provisions, which give developing and least-​developing countries special rights, and lesser obligations, in recognition of their stage of development. S&DT provisions typically afford additional time to implement obligations; flexibility of commitments; capacity building; and additional provisions for least-​developed Members.104 The most recent multilateral WTO agreement—​the Trade Facilitation Agreement (‘TFA’)—​reflects a novel approach to S&DT. In previous WTO agreements, the terms of S&DT were fixed in the text of the agreement. By contrast, the TFA adds flexibility, allowing each developing/​least developed Member to determine for itself the timing of its implementation of the Agreement, provision-​by-​provision, with the possibility of extensions. The TFA also takes a more programmatic approach to capacity building. An implementing Member identifies their specific capacity needs to implement a particular TFA provision; it develops a capacity building plan with donor Members; and it reports on progress to the Committee. If the plan is delayed, implementation may also be delayed. This new approach to S&DT flexibilities is likely to be used again in the future.

3. Preferences under the ‘Enabling Clause’ The 1979 Enabling Clause is an integral part of the GATT 1994.105 By way of waiver to the MFN obligation, the Enabling Clause allows, in sum, for preferential treatment (both tariff and non-​tariff) to be granted to developing countries by developed countries and as amongst developing countries.

102 

Decision on Generalized System of Preferences, 25 June 1971, L/​3545 (BISD 18S/​24). Decision on Differential and More Favourable Treatment, Reciprocity, and Fuller Participation of Developing Countries, 28 November 1979, L/​4903 (BISD 26S/​203). 104  See ‘Special and Differential Treatment Provisions in WTO Agreements’, WT/​COMTD/​W/​258 (2 March 2021) for a comprehensive list of S&D provisions in the WTO covered agreements. 105  Appellate Body Report, EC –​Tariff Preferences, adopted 20 April 2004, para 90. 103 

An Introduction to Core Principles of International Trade Law    455 Thus, the Enabling Clause is the WTO legal basis for the ‘Generalised System of Preferences’ (GSP), by which developed countries offer non-​reciprocal preferential treatment (usually zero or low duties on imports) to products originating in developed countries. The Enabling Clause is, additionally, the legal basis for various FTA-​like regional arrangements amongst developing countries. The Appellate Body has clarified that the Enabling Clause cannot justify discrimination, as part of a GSP scheme, between products originating from different GSP beneficiaries. Thus, the MFN principle still requires that ‘identical treatment is available to all similarly-​situated GSP beneficiaries’.106 Like Article XXIV:5, the Enabling Clause operates as an exception, so it is for the respondent to prove that any inconsistency is justified.107 However, the Appellate Body has explained that due to its ‘special status’ in the WTO system, a complainant bears responsibility for identifying the Enabling Clause as an issue in dispute, including in its request for panel establishment.108 This unusual rule does not apply to any other exception provision.

B. Subsidies WTO disciplines on subsidies seek to balance the availability of subsidies as a legitimate government policy tool, on the one hand, against their market-​distorting effects, on the other. Subsidies, generally, give beneficiary industries a competitive edge that undermines the market access opportunities of other non-​subsidized producers. To illustrate: as explained above, tariffs are disciplined under international trade law because they make imports more expensive, giving domestic goods a price advantage. Subsidies have a similar effect, working from the other direction: by providing economic support from the government, they provide subsidized producers with additional resources that can be used to lower prices in the marketplace. In general, countries have found it easier to agree to disciplines on subsidies that benefit goods, rather than services. In the WTO, for example, subsidy disciplines apply to trade in goods, but not trade in services. The same is true in most FTAs, although some go further. For example, the subsidies disciplines in the EU-​UK Trade and Cooperation Agreement (TCA) applies to trade in services, for example by prohibiting subsidies contingent on services-​related export performance, or the use of domestic over imported services.109 In straightforward terms, subsidies are financial aid or support granted by the State to select industries. Legally, the definition of a ‘subsidy’ has proved to be somewhat more

106 

Appellate Body Report, US–​Line Pipe, adopted 8 March 2002, para 173. See Appellate Body Report, EC –​Tariff Preferences, adopted 20 April 2004, para 105. 108  See ibid., at paras 110 and 113. 109  See Article 3.1.1(a) of the EU-​UK Trade and Cooperation Agreement. 107 

456    Katherine Connolly and Nicolas Lockhart complicated and could (and has) supported books of its own.110 Article 1 of the SCM Agreement defines a ‘subsidy’ as, in sum: (1) a financial contribution given by a government or any public body within the territory of a Member; (2) which confers a benefit or advantage. Under the first part of this definition, a public entity must transfer economic resources to a beneficiary. The transfer can involve the provision of money, goods, or services. For the transfer to meet the definition, the public entity need not incur a cost in making the transfer. Rather, under the second part of the definition, the transfer must put the recipient in a more advantageous position than would have been the case, absent the transfer. The subsidy disciplines in other trade agreements tend to rely on the same basic building blocks of a ‘subsidy’. The case law has raised numerous questions about the precise definition of a ‘subsidy’, such as: what is the difference, if any, between the value of a financial contribution and the amount of the benefit?111 When input products are subsidized, does that subsidy ‘pass through’ to downstream users of the input?112 What are the defining features of a ‘public body’ whose financial support can be a subsidy?113 When government policy encourages private financial institutions to provide support to an industry, does that involve a subsidy?114 We touch on some of these issues further when discussing countervailing duties, in the trade remedies section below. WTO rules do not prohibit the grant of a subsidy. Instead, they impose disciplines on subsidies that benefit ‘specific’ firms and industries.115 This means that subsidies that benefit a government’s economy generally are not subject to WTO disciplines. For example, tax breaks or stimulus packages that are available across-​the-​board are not specific. Nor is the provision of infrastructure, such as roads, when it is open to general use. Although all specific subsidies are, in principle, subject to the SCM Agreement, only a small subset violate the rules. A first category of subsidies is prohibited when they are granted contingent on exportation or the use of domestic content. This occurs where, for example, an enterprise will only receive the subsidy if it exports a certain percentage of its production; or, if domestic goods make up a certain percentage of its input products. These prohibited subsidies are deemed to have the most trade-​distorting effects. A second category of subsidies—​‘actionable subsidies’—​fall foul of the rules if they have certain trade-​distorting effects in the marketplace for the subsidized product. One

110  See D. Coppens, WTO Disciplines on Subsidies and Countervailing Measures: Balancing Policy Space and Legal Constraints (Cambridge: Cambridge University Press, 2014), Chapter 3. 111  See Panel Report, US –​Export Restraints, adopted 23 August 2001, para 8.20. 112  See Panel Report, US –​Softwood Lumber III, adopted 1 November 2002, para 7.71. 113  See Appellate Body Report, US –​Anti-​Dumping and Countervailing Duties (China), adopted 25 March 2011, paras 317–​318. 114  See Appellate Body Report, US –​Countervailing Duty Investigation on DRAMS, adopted 25 July 2005, para 114. 115  For rules on specificity, see Article 2 of the SCM Agreement.

An Introduction to Core Principles of International Trade Law    457 such effect is where the subsidy causes injury to another Member’s domestic market.116 Another is where the subsidy causes defined types of harm to imports’ access to other markets, including the subsidizing Member’s own, and third-​country trading partners. Free trade agreements and customs unions sometimes go further than WTO law in disciplining subsidies. For example, the EU-​UK TCA contains a variety of other ‘WTO-​plus’ subsidy disciplines including new categories of prohibited subsidies, such as ‘subsidies for restructuring an ailing or insolvent economic actor’ in the absence of ‘a credible restructuring plan’ prepared with a view to ‘ensuring the return to long-​term viability’.117 The agreement also goes considerably further than WTO rules in providing for unilateral remedial measures if there is evidence that a subsidy ‘causes, or there is serious risk it will cause, significant negative effects on trade or investment between the Parties’.118 Looking ahead, some WTO Members have proposed significant changes to WTO subsidy rules. For example, in December 2020, the United States proposed a potentially far-​reaching change in WTO subsidy disciplines. In a draft Ministerial decision, it advocated that a subsidy would be conferred when government regulation does not impose sufficiently rigorous environmental standards.119 The proposal argues that lower environmental standards allow for cheaper production, which confers a competitive advantage compared with producers in other jurisdictions that face higher standards.120 This approach would significantly alter the current conception of a subsidy. Notably, under the US proposal, the alleged benefit arises from the (insufficiently rigorous) content of government regulation, rather than the government’s transfer of economic resources to a recipient. The proposed approach would require an understanding on minimum environmental standards to serve as a benchmark for deciding that a Member’s regulatory standards are not sufficiently rigorous and confer a benefit. It is worth noting that the subsidy disciplines provide no exceptions to allow for WTO-​inconsistent subsidies that pursue legitimate public policy objectives, such as public health or environmental protection. This is arguably problematic, particularly in the realm of environmental policy. Subsidies can be a legitimate government policy tool in situations of market failure, where they can incentivise preferred types of economic activity, e.g., environmentally friendly or socially conscious. In Canada –​Renewable Energy/​Canada –​Feed-​in Tariff Program, WTO adjudicators were called upon to address a ‘feed-​in tariff ’ program, which is a policy tool designed to promote investment in renewable energy. Under these programs, a government typically fixes above-​market prices for purchases of renewable energy, ensuring cost recovery 116 

See Article 5 of the SCM Agreement. See Article 3.5.3 of the EU-​UK Trade and Cooperation Agreement. 118  See Articles 3.5.8 and 3.5.12 of the EU-​UK Trade and Cooperation Agreement. 119  ‘Advancing Sustainability Goals through Trade Rules to Level the Playing Field’, Draft Ministerial Decision, WT/​GC/​W/​814 (17 December 2020). 120  Notably, these proposals have not appeared in recent US FTAs (like USMCA). However, USMCA and the CPTPP do include additional rules on fisheries subsidies, which are especially relevant in the context of ongoing negotiations in this area at the WTO. See Chapter 31 of this handbook. 117 

458    Katherine Connolly and Nicolas Lockhart plus a reasonable rate of profitability for renewable energy sources. In some cases, the government makes the purchases itself. The Appellate Body found that the market for renewable electricity was distinct from the market for electricity produced by other means.121 Indeed, the renewable market would not have existed absent the government’s intervention. This meant that an assessment of the alleged ‘benefit’ under the FIT program could not be made through a comparison of the situation of renewable and non-​ renewable electricity producers.122 Finally, WTO Members are at an advanced stage in negotiating a new subsidies agreement to prohibit subsidies that threaten the sustainability of marine wild capture fishing. These negotiations were originally launched in 2001 and were given fresh impetus in 2015 under United Nations Sustainable Development Goal (SDG) 14.6, which calls on WTO Members to adopt an agreement to end subsidies supporting overcapacity and overfishing, and illegal, unreported, and unregulated fishing, with appropriate special and differential treatment for developing and least developed countries.123

C. Trade remedies 1. What are trade remedies? Common features In WTO law, there are three ‘trade remedies’ agreements: the Anti-​ Dumping Agreement, the SCM Agreement, and the Safeguards Agreement. In this section, we address first the common features of the three WTO trade remedies agreements, before considering some specific features of each agreement. First, each WTO trade remedies agreement fits into the ‘architecture’ of the GATT 1994 in a similar way. The GATT 1994 contains bedrock obligations—​most relevantly Articles II and XI—​that promote the liberalization of international trade. The trade remedies agreements all operate as carefully prescribed ‘safety valves’ to permit departure from these bedrock provisions where a domestic industry has suffered injury (or threat of injury) caused by imported goods.124 Thus, each trade remedies agreement permits the imposition of trade restrictive measures that would otherwise violate the GATT 1994, provided that the imposing Member meets a set of conditions. Trade remedies do not, however, operate like typical ‘exception’ provisions: the complainant bears the burden of proof of demonstrating the trade remedy conditions have not been met. Trade remedies can be described, therefore, as ‘conditional obligations’. 121  Appellate Body Report, Canada –​Renewable Energy/​Canada –​Feed-​in Tariff Program, adopted 24 May 2013, paras 5.188–​5.190. 122  Ibid., at para 5.246. 123 Goal 14.6, Transforming our world: the 2030 Agenda for Sustainable Development. See further Chapter 31 of this handbook. 124  Each trade remedy agreement elaborates on a provision of the GATT 1994. The Anti-​Dumping Agreement and the SCM Agreement elaborate on Article VI of the GATT 1994 (‘Anti-​Dumping and Countervailing Duties’); the SGA elaborates on Article XIX of the GATT 1994 (‘Emergency Action on Imports of Particular Products’).

An Introduction to Core Principles of International Trade Law    459 Second, each of the trade remedies agreements is responsive to a particular type of international trade. The Anti-​Dumping Agreement and the SCM Agreement both respond to ‘unfair trade’: they allow additional import duties to counteract imports that have been dumped or subsidized, respectively. The rationale is that these behaviours harmfully distort the market and justify a corrective, trade-​restrictive, response. The Safeguards Agreement, by contrast, allows for ‘emergency’ action against imports that are ‘fairly’ traded (not dumped or subsidized) but that have, among others, significantly increased as a result of the Member’s GATT 1994 obligations. The Safeguards Agreement recognizes that international trade liberalization can harm domestic industries and gives governments (in certain circumstances) a policy tool to allow ‘breathing’ space for domestic industries to adjust to import competition. Third, each agreement allows restrictive measures against imports solely where imports have caused or threatened injury to a domestic industry. Absent such injury, there is no entitlement to impose a measure, even if there is confirmed dumping or subsidization. This recognizes that trade remedies exist precisely to provide a remedy to identified harm. The standard for demonstrating injury is the same under the Anti-​ Dumping Agreement and the SCM Agreement: ‘injury’ includes ‘material injury’, ‘threat of material injury’ and ‘material retardation’, capturing the different temporal stages at which harm may arise. A higher standard of ‘serious injury’ applies under the Safeguards Agreement, because it allows for restrictions against fairly traded imports.125 Fourth, the trade remedies agreements are notable for the standard of review that applies in WTO dispute settlement. Under each agreement, the importing Member’s domestic authorities make determinations of dumping, subsidization, increased imports, injury, causation, etc. To conform to the agreements, the authorities must make these determinations consistently with an elaborate set of procedural and substantive rules. When assessing whether a Member has complied with these trade remedy obligations, WTO adjudicators do not make their own de novo assessments of whether, say, imports have been dumped. Instead, they assess whether the domestic authorities have provided a ‘reasoned and adequate explanation’ of their determinations.126 For example, if an authority failed to properly explain the basis for a finding of dumping, a panel would find an anti-​dumping duty in violation of the Anti-​Dumping. But a panel would not take any position on whether there is (or is not) dumping. In explaining the degree of deference that adjudicators should apply under the trade remedies agreements, the Appellate Body has explained that the appropriate scrutiny lies somewhere between de novo review and ‘total deference’ to the authorities’ conclusions.127 125  See

Article 3 of the Anti-​Dumping Agreement and Article 15 of the SCM Agreement (‘injury’), compared to Article 4 of the Safeguards Agreement (‘serious injury’). 126  Appellate Body Report, US –​Steel Safeguards, adopted 10 December 2003, para 303. 127  Appellate Body Report, US –​Lamb, adopted 16 May 2001, para 101, citing Appellate Body Report, EC –​Hormones, adopted 13 February 1998, para 117. For further discussion, see J. Bohanes and N. Lockhart, ‘Standard of Review in WTO Law’ in D. Bethlehem, D. McRae, R. Neufeld and I. Van Damme (eds), The Oxford Handbook of International Trade Law, 1st edition (Oxford: Oxford University Press, 2009), Chapter 14.

460    Katherine Connolly and Nicolas Lockhart There have been many WTO disputes under the trade remedies agreements, which have explored the limits of these three safety valves. Next, we set out the basics of each agreement, and explore some areas of particularly contentious interpretation.

2. SCM Agreement We have just set out basic subsidy rules in the SCM Agreement. In addition to challenging a subsidy in dispute settlement, Members may also unilaterally impose additional duties, or ‘countervailing duties’, against subsidized goods imported into their own market, to counter subsidies that cause injury to a domestic industry producing the subsidized product. The procedural and substantive rules for imposing countervailing duties are set out in Section IV of the SCM Agreement. To impose a countervailing duty, a Member’s domestic authorities must determine, inter alia, whether the targeted imports are subsidised; thus, they must make their own determination of whether a subsidy exists, consistent with the rules we have outlined. To recall, under Article 1 of the SCM Agreement, a subsidy exists where there is: (1) a financial contribution by a government or any public body within the territory of a Member; which (2) confers a benefit. In this section, we focus on an especially contentious area in the context of countervailing duties: the definition of the term ‘public body’. This issue has great practical significance: the wider the scope of the term, the wider the scope of conduct that that can be targeted by countervailing duties. In an early dispute, a panel found that ‘[a]‌n entity will constitute a ‘public body’ if it is controlled by the government or other public bodies’.128 However, the Appellate Body took a different approach, requiring that a public body ‘be an entity that possesses, exercises, or is vested with governmental authority’.129 The Appellate Body has explained that the public body assessment must be made ‘from entity to entity, State to State, and case to case’, and requires a ‘proper evaluation of the core features of the entity concerned, and its relationship with government in the narrow sense’.130 According to the Appellate Body, a complainant may demonstrate ‘governmental authority’ by adducing evidence that a government exercises ‘meaningful control over an entity and its conduct’. However, ‘mere formal links’ between an entity and a government; or the ‘mere fact that a government is the majority shareholder of an entity’ is unlikely to suffice.131 This approach creates a high bar for investigating authorities (and complainants directly challenging alleged subsidies in dispute settlement). Among others, as an evidentiary matter, it is difficult to find evidence that an entity in an overseas jurisdiction is subject to meaningful government control. The Appellate Body’s 128 

See Panel Report, Korea –​Commercial Vessels, adopted 11 April 2005, para 7.50. Appellate Body Report, US –​Anti-​Dumping and Countervailing Duties (China), adopted 25 March 2011, paras 317–​318 (emphasis added). 130 Ibid. 131 Ibid. 129 

An Introduction to Core Principles of International Trade Law    461 interpretation has received considerable criticism. A recent trilateral proposal from the European Union, Japan, and the United States stated that: The Ministers observed that many subsidies are granted through State Enterprises and discussed the importance of ensuring that these subsidizing entities are captured by the term ‘public body’. The Ministers agreed that the interpretation of ‘public body’ by the WTO Appellate Body in several reports undermines the effectiveness of WTO subsidy rules. To determine that an entity is a public body, it is not necessary to find that the entity ‘possesses, exercises or is vested with governmental authority’.132

The Ministers did not propose an alternative definition but agreed to ‘continue working’ on a definition on the above basis. This is likely to be an important issue in WTO reform negotiations.

3. Anti-​Dumping Agreement The Anti-​Dumping Agreement allows for additional duties in response to dumped imports causing injury to a domestic industry.133 Under Article 2.1, a product is ‘dumped’ if it is ‘introduced into the commerce of another country at less than its normal value’. The ‘normal value’ is, in principle, a home market price in the country of export. It is defined as ‘the comparable price in the ordinary course of trade, for the like product when destined for consumption in the exporting country’. Thus, at a general level, dumping is a relatively simple concept: Is the export price of a product less than the price at which the like product is sold in the exporting Member’s own domestic market? In practice, the methodology for determining whether dumping exists is complex and has been the subject of much litigation. In particular, there has been much focus on how to determine the ‘normal value’ of a product. A full exploration of the intricacies of normal value calculations is outside the scope of this chapter; we highlight some key issues below. The Anti-​Dumping Agreement gives a cascading hierarchy of options for determining normal value.134 To start with, normal value must be calculated based on aggregated individual domestic sales in the exporting country’s market, made in the ordinary course of trade. If such sales cannot be used—​either because there are none in the ordinary course of trade, or because of a ‘particular market situation’—​the Anti-​Dumping Agreement allows two alternative methodologies. These are: representative sales in an appropriate third country market, or a cost-​plus constructed value. Whichever alternative method is used, in all cases the value must reflect the price of goods in the home market (and adjustments are required where appropriate). This reflects a key feature 132  Joint Statement of the Trilateral Meeting of the Trade Ministers of Japan, the United States and the European Union, 14 January 2020, at < https://​trade.ec.eur​opa.eu/​doc​lib/​docs/​2020/​janu​ary/​tradoc​_​158​ 567.pdf > (last visited 13 May 2021). 133  A price undertaking may be given in lieu of the imposition of import duties. See Article 8 of the Anti-​Dumping Agreement. 134  See Appellate Body Report, EC –​Tube or Pipe Fittings, adopted 18 August 2003, paras 93–​95.

462    Katherine Connolly and Nicolas Lockhart of the Anti-​Dumping Agreement: it is typically understood to target the behaviour of private commercial actors, not the behaviour of governments. As the Appellate Body explains, dumping is an exporter-​specific concept’, constituting ‘international price discrimination’ resulting from the practices of individual producers/​exporters.135 In this regard, a major point of contention has been the extent to which anti-​ dumping duties can be used to counter government behaviour, rather than producer/​exporter behaviour. This is best demonstrated by importing Members’ various attempts to depart from the real-​world, or ‘true’ costs of individual producers/​ exporters when constructing normal value, on grounds that those costs are distorted due to government intervention. For example, in EU—​Biodiesel, the measure at issue was an anti-​dumping duty on biodiesel imports from Argentina. The European Union’s investigating authorities found that domestic biodiesel sales were not made ‘in the ordinary course of trade’, so determined a constructed normal value. In so doing, they found that Argentina’s export duties on soybeans (a key input product) had depressed the domestic soybean price, which affected domestic biodiesel producers’ costs. On this basis, the authorities rejected producers’ recorded costs on grounds they were not ‘reasonable’; and replaced them with higher ‘surrogate costs’ when constructing normal value. The panel and Appellate Body found this approach to violate the Anti-​ Dumping Agreement because there was no valid basis to reject the producer’s own recorded costs. Also, in the event that authorities do not use a producer’s own recorded costs, the Appellate Body has explained that, in principle, authorities are not prohibited from ‘resorting to sources of information other than producers’ [recorded] costs in the country of origin’.136 However, ultimately, irrespective of the information used, authorities remain obliged to ensure the final output—​constructed normal value—​ reflects conditions prevailing in the country of origin. Otherwise, the information must be adjusted accordingly. Put differently, if soybean prices are low because of government intervention in the market, this is part-​and-​parcel of the prevailing conditions in the market and must be reflected. In a line of case law following EU –​Biodiesel, WTO adjudicators have consistently rejected other approaches to calculating normal value, each a variation on the same theme.137 In doing so, WTO adjudicators have firmly drawn the boundaries of the remedy provided by the Anti-​Dumping Agreement. WTO anti-​dumping disciplines are responsive specifically to dumping, i.e., ‘international price discrimination’ resulting 135 

Appellate Body Report, US –​Stainless Steel (Mexico), adopted 20 May 2008, para 112 and fn 208. Report, EU –​Biodiesel (Argentina), adopted 26 October 2016, para 7.171; Appellate Body Report, EU –​Biodiesel (Argentina), adopted 26 October 2016, para 6.74. 137  See, e.g., Appellate Body Report, EU –​Biodiesel (Argentina), adopted 26 October 2016, para 6.70; Appellate Body Report, Ukraine –​Ammonium Nitrate, adopted 30 September 2019, paras 6.82-​ 6.89; Panel Report, EU –​Cost Adjustment Methodologies II (Russia), circulated 24 July 2020, paras 7.202-​7.224; Panel Report, Australia –​Anti-​Dumping Measures on Paper, adopted 28 January 22, paras 7.108–​7.125. 136  Panel

An Introduction to Core Principles of International Trade Law    463 from individual producer/​exporter behaviour. According to this case law, they are not responsive to government conduct, however significant its distortive effects might be.138 Instead, government conduct is remedied (and disciplined) by other provisions of the covered agreements, including the SCM Agreement.

4. Safeguards Agreement The safeguard disciplines are contained in Article XIX of the GATT 1994, as elaborated upon by the Safeguards Agreement. These disciplines are unique amongst the WTO trade remedies because they allow trade restrictive measures—​either tariffs or quotas—​ to counter fairly-​traded imports that are causing injury. Thus, the conditions for imposing a safeguard measure are strict. Amongst other conditions, a safeguard remedy is only available where the importing Member can demonstrate that serious injury occurs ‘as a result of ’ Members’ WTO trade-​liberalization obligations. This is an important part of the rationale behind the Safeguards Agreement: a safety valve when required trade liberalization becomes disruptive and harmful to a Member’s domestic industries. Of course, recourse is limited; a Member may only impose a safeguard where: • As a result of unforeseen developments, and • the effect of obligations incurred under the GATT 1994; • a product is being imported into a territory in such increased quantities and under such conditions, as to • cause or threaten serious injury to domestic producers in that territory of like or directly competitive products. The importing Member’s domestic authorities must find cumulatively that each condition is present. Unlike anti-​dumping and countervailing duties, which by definition discriminate between exporters from different Members, safeguard measures must be applied on an MFN basis.139 In practice, Members often depart from the MFN rule by exempting imports from partners in a free trade agreement. However, it is still unclear whether this exemption is permitted.140 Safeguards measures are also more strictly time-​limited than anti-​dumping or countervailing duties. Whereas the latter can be extended indefinitely, provided proper reviews are conducted, a safeguard measure may only be applied for a maximum of eight years.141 138 Ibid.

139  Article

2.2 of the Safeguards Agreement provides that ‘Safeguard measures shall be applied to a product being imported irrespective of its source’. 140  The Panel in US –​Line Pipe found that such an exemption was permitted (at para 128); however, the Appellate Body declared this finding moot and of no legal effect (at paras 198–​199). 141  See Article 7 of the Safeguards Agreement.

464    Katherine Connolly and Nicolas Lockhart Until recently, litigation under the safeguard disciplines has focused on issues like: does the requirement to consider ‘unforeseen circumstances’ in Article XI of the GATT 1994 apply cumulatively with the obligations in the Safeguards Agreement (it does)?142 And there are on technical questions like, is a simple end-​point-​to-​end-​point comparison permitted when determining the existence of increased imports (it is not; authorities must consider intervening trends)?143 However, recent disputes have focused on a more fundamental question: when do the safeguard disciplines apply to a trade restriction?144 The legal standard for applicability of the covered agreements is a theme we have discussed previously in this chapter. In answering this question in the context of the safeguard disciplines, WTO adjudicators have—​thus far—​relied on fundamental principles: the applicability of the safeguard disciplines is a matter for a WTO panel’s objective assessment, based on a measure’s design, structure and operation.145 And, as with any objective question, the domestic legal characterization of a measure is not dispositive.146 Thus, WTO adjudicators have found the safeguard disciplines to be inapplicable even where the importing Member asserted the measure was a safeguard;147 and, conversely, have found the disciplines to be applicable even where the importing Member asserted the measure was not a safeguard.148 Under this approach, what matters is whether the measure possesses the ‘constituent features’ of a safeguard measure, which are that the measure is designed: (1) to suspend, in whole or in part, a GATT 1994 obligation; (2) to protect a domestic industry from injury caused or threatened by increased imports of the relevant product. Thus, like a number of other covered agreements,149 the applicability of the Safeguards Agreement depends on the objective or purpose of the measure, considered in light of the measure’s design, structure, and expected operation. 142  See Appellate Body Report, Korea –​Dairy, adopted 12 January 2000, paras 85–​90; Appellate Body Report, Argentina –​Footwear (EC), adopted 12 January 2000, para 84. 143  See Appellate Body Report, Argentina –​Footwear (EC), adopted 12 January 2000, para 129. Other hot-​button issues in litigation have included: at what point is an increase in imports ‘sudden enough, sharp enough, and significant enough’ to cause injury (see Appellate Body Report, Argentina –​Footwear (EC), adopted 12 January 2000, para 131; Panel Report, Ukraine –​Passenger Cars, adopted 20 July 2015, paras 7.147–​7.148; and Panel Report, US –​Wheat Gluten, adopted 19 January 2001, paras 8.31-​8.33); and the scope of the ‘domestic industry’ (see Appellate Body Report, US –​Lamb, adopted 16 May 2001, para 86). 144  See Panel Report, Dominican Republic –​Safeguard Measures, adopted 22 February 2012, paras 7.50-​7.9; Appellate Body Report, Indonesia –​Iron or Steel Products, adopted 27 August 2018, paras 5.52–​5.71. 145  See Appellate Body Report, Indonesia –​Iron or Steel Products, adopted 27 August 2018, para 5.60. 146  See ibid., at para 5.60. 147  See ibid., at para 5.70. 148  See Panel Report, Dominican Republic –​Safeguard Measures, adopted 22 February 2012, paras 7.56 and 7.89. 149 See, e.g., the SPS Agreement, which applies to measures taken for the purpose of protecting human, animal or plant life or health; and the Customs Valuation Agreement, which applies to measures taken for the purpose of levying ad valorem customs duties.

An Introduction to Core Principles of International Trade Law    465

VI.  Balancing trade vs non-​ trade interests International trade law recognizes that there are circumstances in which trade-​related obligations like market access, or non-​discrimination, must cede to other public policy objectives, like public health, environmental protection, and national security. The overarching principle is to seek a balance that allows appropriate policy space to regulate, on the one hand; while preventing disguised protectionist measures, on the other. In this section, we outline the various ways in which WTO law strikes this balance. Many WTO covered agreements contain formal ‘exception’ provisions, which justify violations of an agreement, if a measure properly pursues various identified legitimate objectives. The obvious example is Article XX of the GATT 1994, a ‘general exceptions’ provision. Other agreements have an equivalent provision with similar text (e.g., Article XIV of the GATS). Many FTAs include ‘exception’ provisions based on this language. Some FTAs simply incorporate the text of Article XX mutatis mutandis.150 Others elaborate on the Article XX text, for example including additional clarifications as to the scope of the defence.151 In other instances, WTO law imposes obligations that are a balance between trade and non-​trade interests. These include, most notably, the disciplines on internal regulations under the SPS and TBT Agreements. For these rules, the ‘exception’ affording policy space is ‘built-​in’ to the obligation itself. A good example is Article 2.2 of the TBT Agreement: a technical regulation (e.g., a product-​labelling requirement) ‘shall not be more trade-​restrictive than necessary to pursue a legitimate objective’. These ‘exception-​ like’ provisions are best understood as another type of ‘conditional obligation’. We begin this section by setting out some common principles for balancing trade and non-​trade rights in WTO law. We then dig into the legal standard developed in the case law under the ‘general exceptions’ provisions (notably Article XX of the GATT 1994), and the ‘national security’ provisions (notably Article XXI of the GATT 1994). Finally, we address the main rules for adopting internal regulations that address non-​ trade interests, in particular under the SPS and TBT Agreements. First, ‘exceptions’ always set out legal conditions that must be fulfilled in order to justify a violation; there is no carte blanche (or ‘self-​judging’) exception. Thus, in dispute settlement, a party seeking to justify a violation bears the burden of demonstrating that the legal conditions are met. Some exceptions—​like those for ‘national security’ (Article

150 

See Article 22.1(3) of the Korea –​Australia FTA. example, a number of FTAs include language clarifying that Article XX(b) applies to ‘environmental measures necessary to protect human, animal or plant life or health’, and that Article XX(g) applies to measures ‘relating to the conservation of living and non-​living exhaustible natural resources’. See Article 2101 of NAFTA; Article 28.1 of the Australia –​Peru FTA; Article EXC.1(3) of the TCA. 151 For

466    Katherine Connolly and Nicolas Lockhart XXI of the GATT 1994)152 or ‘public morals’ (Article XX(a))—​apply to especially sensitive policy areas. Adjudicators will, therefore, give parties considerable deference on issues like: does a situation implicate a Member’s ‘essential security interests’?153 Or, what amounts to a ‘public moral’ in the Member’s territory?154 However, a party is always required to make its case, and an adjudicator is always required to make an ‘objective assessment’ of the matter. Even in these especially sensitive areas, therefore, if a party fails to support its defence with sufficient argument and evidence, it cannot benefit from the exception.155 Second, with respect to formal ‘exception’ provisions, which operate to justify violations of a primary obligation (like Articles XX and XXI of the GATT 1994), the respondent always bears the burden of establishing that the legal conditions are met. Thus, once a complainant demonstrates a violation, the respondent may seek to show, for example, that the measure is necessary to protect public health. However, as flagged earlier, sometimes an ‘exception’ is built-​in to the primary obligation. In these cases, the complainant bears the burden of proof. Under Article 2.2 of the TBT Agreement, for example, a complainant must demonstrate that a measure is more trade-​restrictive than necessary to pursue a legitimate objective (for example by presenting less trade-​restrictive alternatives). This can put complainants in a difficult position. A foreign measure’s objective, and its means and degree of contribution to the objective—​key factual elements of the complainant’s case—​are not always ascertainable by an outsider. Complainants often have to make their case with respect to a vague target, with the respondent being deliberately unclear or shifting the goal posts in the dispute. In the context of Article 2.2, this likely contributes to the notorious difficulty of winning claims. Third, as part of the legal conditions in balancing trade and non-​trade interests, WTO law typically applies a ‘lesser harm rule’: Members must, to the extent possible, pursue the least trade-​restrictive means of achieving their policy objectives. To this end, adjudicators have consistently taken into account the existence of less trade-​restrictive alternative measures which achieve an equivalent contribution to the policy objective as the challenged measure. This is a sensible approach: if a respondent can achieve the same non-​trade outcome through a measure that is less harmful to trade interests, it should follow that course. In this regard, one recent case under Article 20 of the TRIPS Agreement bears examination. This provision requires that the use of a trademark not be ‘unjustifiably encumbered’ (another example of a ‘conditional obligation’). The Panel found that if a readily available alternative measure ‘would lead to at least equivalent policy outcomes’, this would ‘call[] into question whether the stated [policy] reasons sufficiently support 152 

See also Article XIV bis of the GATS; and Article 73 of the TRIPS Agreement. Panel Report, Saudi Arabia –​IPRs, terminated, paras 7.279–​7.282. 154  Panel Report, US –​Tariff Measures (China), circulated 15 September 2020, paras 7.113–​7.119. 155  See, e.g., Panel Report, Saudi Arabia –​IPRs, terminated, paras 7.283–​7.293; Panel Report, US –​Tariff Measures (China), circulated 15 September 2020, paras 7.191–​7.201. 153 

An Introduction to Core Principles of International Trade Law    467 any encumbrances on the use of trademarks resulting from the measure’.156 This seems like a sensible application of the standard approach to balancing trade and non-​ trade interests. However, the Appellate Body found that an examination of proposed alternatives is ‘not a necessary inquiry’ under Article 20.157 This is a departure from the prevailing standard which, if it bleeds into other areas of the jurisprudence, would likely undermine the WTO’s protection of trade interests.

A. GATT 1994 exceptions The two most prominent exceptions in the GATT 1994 are Article XX (‘general exceptions’) and Article XXI (‘security exceptions’). A full reckoning with either provision is outside the scope of this chapter; we confine ourselves to setting out briefly the legal standard for justification as established under the case law.158 Article XX consists of a so-​called ‘chapeau’, plus ten subparagraphs. The chapeau provides that measures cannot be justified under Article XX if they constitute a means of ‘arbitrary or unjustified discrimination’, or a ‘disguised restriction on trade’. The subparagraphs each set out specific categories of justifiable measures, identified based on the particular type of policy objective that the measure pursues. The Appellate Body has found that this structure demands a two-​step analysis: First, does the measure fall under one of the subparagraphs? Second, does the measure satisfy the conditions of the chapeau? In practice, the case law has focused on four of the ten subparagraphs: (a), (b), (d) and (g). Subparagraphs (a), (b) and (d) identify measures which are ‘necessary’ to protect public morals; to protect human, animal or plant life, or health; or to secure compliance with WTO-​consistent laws or regulations. Subparagraph (g) allows for the justification of measures that are ‘related to’ the ‘conservation of exhaustible natural resources’. Thus, to demonstrate that a measure properly falls under one of these subparagraphs, a respondent must show that it: (1) has the requisite objective (public morals; protection of human life etc.); and (2) has the requisite connection to that objective (it is ‘necessary’ or ‘related to’). The chapeau of Article XX provides that measures cannot be justified if they constitute a means of ‘arbitrary or unjustifiable discrimination’, or a ‘disguised restriction on international trade’. It is common for respondents to succeed in their defence under the subparagraphs, but to fail under the chapeau. This is because, under the chapeau, adjudicators typically broaden their analysis, looking not just at the theoretical operation of the measure, but at the measure’s application in practice. Under the chapeau, an adjudicator will consider anomalous features of the measure and how it operates. The Appellate Body’s findings in Brazil-​Tyres give a good example of this dynamic. 156 

Panel Report, Australia –​Tobacco Plain Packaging, adopted 29 June 2020, para 7.2598. Appellate Body Report, Australia –​Tobacco Plain Packaging, adopted 29 June 2020, para 6.653. 158  See further Chapter 27 of this handbook. 157 

468    Katherine Connolly and Nicolas Lockhart The measure concerned a ban on imports of ‘retreaded tyres’, on grounds that these tyres create breeding grounds for disease-​carrying mosquitos. On these facts alone, the Appellate Body found that the measure was ‘necessary to protect public health’ under subparagraph (b).159 However, the ban had an exception: it allowed imports of retreaded tyres from Brazil’s partners in MERCOSUR. The Appellate Body considered that this exception effectively amounted to an arbitrary loophole in an alleged public health measure, and it found the measure constituted ‘arbitrary or unjustifiable discrimination’.160 It is challenging for respondents to succeed under Article XX, which has led to some criticism of the Appellate Body’s approach. The merits of these critiques are outside the scope of this chapter. We do note, however, that the policy space granted to Members under Article XX is more accessible than might appear from a review of the case law alone. Members frequently notify GATT-​inconsistent measures as justified under Article XX, including, for example: import prohibitions on weapons or harmful substances; or export restrictions on personal protective gear during a pandemic.161 These types of measures are commonplace and are usually simply accepted as justified. It is also appropriate for WTO adjudicators to ensure that trade commitments are not set aside by Members with a rigorous and coherent basis. Article XXI sets out the ‘security exception’, which has gained notoriety in recent years.162 The provision adopts a similar chapeau/​subparagraph structure as Article XX. However, the subparagraphs do not identify objectives per se, but rather types of measures, defined by their relationship to three circumstances that implicate national security (in sum: measures relating to fissionable materials; the supply of certain goods to military establishments; and measures taken in time of war or other emergency in international relations). The chapeau is also considerably pared-​back from its Article XX counterpoint. Until recently, Article XXI had not been invoked in a WTO dispute settlement. However, two panel reports have now addressed the provision,163 with others ongoing.164 The key takeaway from the case law is a firm rejection of the so-​called ‘self-​ judging’ interpretation of Article XXI, in which respondents need merely invoke the provision to succeed. Panels have found that, although the terms of Article XXI confer a high degree of discretion, respondents must still demonstrate, with argument and evidence, that the conditions of Article XXI are met. In sum, the challenged measure 159 

Appellate Body Report, Brazil –​Retreaded Tyres, adopted 17 December 2007, paras 210–​212. Ibid., at para 233. 161  See, e.g., G/​MA/​QR/​N/​ARG/​2; G/​MA/​QR/​N/​USA/​5; and G/​MA/​QR/​N/​ISR. 162  See further Chapter 27 of this handbook. 163  See Panel Report, Russia –​Traffic in Transit, adopted 26 April 2019; Panel Report, Saudi Arabia –​ IPRs, terminated. 164  See the various challenges to the United States’ Section 232 steel and aluminium tariffs: US –​Steel and Aluminium Products (China); US –​Steel and Aluminium Products (EU); US –​Steel and Aluminium Products (India); US –​Steel and Aluminium Products (Norway); US –​Steel and Aluminium Products (Russia); US –​Steel and Aluminium Products (Turkey). 160 

An Introduction to Core Principles of International Trade Law    469 must be of a type defined in one of the three subparagraphs; and, under the chapeau, the measure must be plausibly connected to the protection of an identified ‘essential security interest’.165

B. TBT and SPS Agreements Years of negotiations have gradually whittled down market access barriers in the form of tariffs and quantitative restrictions. These days, the thornier barriers to international trade often come in the form of regulatory measures. Countries have in place a multitude of regulations targeting the way goods are marketed, for a variety of policy reasons, including health and safety, environmental and consumer protection, and security. Imported goods are required to adhere to these regulations to access the market. International trade law recognizes a country’s sovereign right to take these kinds of measures.166 However, it imposes conditions on the exercise of that right. The key concept underlying disciplines on regulatory measures is the balance between a country’s right to regulate to pursue non-​trade interests, on the one hand, and the trade interests of other countries, on the other. Under WTO law, regulatory measures pursuing non-​trade interests are disciplined, among others, under the SPS Agreement and the TBT Agreement. Each Agreement sets out the scope of application of the respective disciplines. The SPS Agreement applies to measures that have a specific purpose, in sum to protect against certain risks relating to food safety, and the spread of pests and diseases, including through the movements of live plants and animals.167 The TBT Agreement applies more broadly to regulations that lay down mandatory product characteristics, product-​related production requirements, or labelling or naming requirements. Evidently, there may be overlap: a measure may, for example, lay down a product characteristic with the purpose of protecting health from food-​related risks. In this case, the SPS Agreement applies to the exclusion of the TBT Agreement; the scope of application of the disciplines is mutually exclusive.168 165 

See Panel Report, Russia –​Traffic in Transit, adopted 26 April 2019, paras 7.101 and 7.127–​147; Panel Report, Saudi Arabia –​IPRs, terminated, paras 7.241–​7.255. 166  Article 2.1 of the SPS Agreement. 167   Paragraph 1 of Annex A provides that the Agreement covers: any measure applied: (a) to protect animal or plant life or health within the territory of the Member from risks arising from the entry, establishment or spread of pests, diseases, disease-​carrying organisms or disease-​causing organisms; (b) to protect human or animal life or health within the territory of the Member from risks arising from additives, contaminants, toxins, or disease-​causing organisms in foods, beverages or feedstuffs; (c) to protect human life or health within the territory of the Member from risks arising from diseases carried by animals, plants or products thereof or from the entry, establishment or spread of pests; or (d) to prevent or limit other damage within the territory of the Member from the entry, establishment or spread of pests. 168  Article 1.5 of the TBT Agreement provides that ‘the provisions of this Agreement do not apply to sanitary and phytosanitary as defined in [the SPS Agreement]. Different parts of a single regulation could be subject, respectively, to the SPS Agreement and TBT Agreement.

470    Katherine Connolly and Nicolas Lockhart Also, if a measure is consistent with the SPS Agreement, it is presumed to be justified under Article XX(b) of the GATT 1994. No such presumption applies with respect to the TBT Agreement, which applies cumulatively with the GATT 1994.

1. SPS Agreement Since 1995, WTO Members have notified over 26,000 SPS measures. These include regulations that: mandate the maximum level of arsenic in pet food;169 specify the permitted ingredients in ‘food detergent’ products;170 and set out required sampling and test methods for fruit or vegetable chutney.171 The SPS Agreement explicitly recognizes that WTO Members enjoy a right to impose SPS measures, but it provides that the exercise of this right is subject to certain obligations.172 As a starting point, the first question in practice is whether an SPS measure conforms to an international standard. If so, under Article 3, the measure benefits from a rebuttable presumption of consistency with the Agreement. If a measure does not conform to an international standard—​for example, it pursues a higher level of protection, or no international standard exists—​the next question is whether sufficient scientific evidence exists to prepare a ‘risk assessment’. If sufficient scientific evidence exists, Members are required to perform a risk assessment, to establish the nature and extent of the risk. Articles 5.1 through 5.3 set out exacting obligations for how a risk assessment is performed, including factors that must be included in the assessment, and the types of scientific evidence on which a Member may rely.173 However, the Appellate Body has confirmed that a risk assessment may be based on divergent or minority scientific views, provided these are from respected and qualified sources.174 If sufficient scientific evidence does not exist, Article 5.7 applies. This provides Members with the option of adopting a ‘provisional’ SPS measure ‘on the basis of available pertinent information’, including drawn from international organizations and other Members.175 Article 5.7 also requires that Members actively seek out further 169 

G/​SPS/​N/​JPN/​79 (19 October 2020). G/​SPS/​N/​CHN/​1184 (4 November 2020). 171  G/​SPS/​N/​UGA/​133 (22 October 2020). 172  Article 2.1 of the SPS Agreement. 173 Members must: ensure that their SPS measures are based on ‘an assessment, as appropriate to the circumstances, of the risks to human, animal or plant life or health, taking into account the risk assessment techniques developed by the relevant international organisations’ (Article 5.1); take into account the following mandatory factors: ‘available scientific evidence; relevant processes and production methods; relevant inspection, sampling and testing methods; prevalence of specific diseases or pests; existence of pest-​or disease-​ free areas; relevant ecological and environmental conditions; and quarantine or other treatment (Article 5.2) take into account the following mandatory economic factors: ‘the potential damage in terms of loss of production or sales in the event of the entry, establishment or spread of a pest or disease; the costs of control or eradication in the territory of the importing Member; and the relative cost-​effectiveness of alternative approaches to limiting risk (Article 5.3). 174  Appellate Body Report, US/​Canada –​ Continued Suspension, adopted 14 November 2008, para 677. 175  Article 5.7 provides: ‘In cases where relevant scientific evidence is insufficient, a Member may provisionally adopt [SPS] measures on the basis of available pertinent information, including that from 170 

An Introduction to Core Principles of International Trade Law    471 scientific information to enable a risk assessment to be conducted, and keep their provisional measure under review. Thus, Members are not precluded from adopting protective measures when scientific evidence is insufficient to confirm the existence of a risk. However, the Appellate Body has found that this option is limited to situations where scientific evidence makes it impossible to perform a risk assessment. Situations where scientific evidence is merely uncertain or contradictory do not provide a basis to forego a risk assessment. The Appellate Body has explained that Article 5.7 is one of the ways the SPS Agreement gives expression to the precautionary approach under international law: in situations where scientific evidence does not allow an adequate assessment of a particular risk, governments may nonetheless act pre-​emptively to avoid possible harm.176 Some respondents have invoked the precautionary approach in dispute settlement, seeking to add flexibility to the obligations under the SPS Agreement, including those related to risk assessments. However, the Appellate Body has rejected the view that the precautionary approach can override any explicit requirements of the Agreement. Instead, it explained that through Article 5.7 (and other provisions),177 the Agreement itself already gives expression to the precautionary approach.178 Even if a measure is properly supported by a risk assessment, it may still fall foul of the SPS Agreement, if it is more trade-​restrictive than necessary to protect human, animal or plant life or health, under Articles 2.2 (first clause) and 5.6. A complainant may demonstrate such a violation by showing that a reasonably available alternative measure exists, which is ‘significantly’ less trade-​restrictive, and which achieves the importing Member’s appropriate level of protection, or ‘ALOP’. The ALOP is a key concept in balancing market access against the right to regulate. An importing Member is entirely free to choose for itself what level of protection is acceptable; it may, if it wishes, choose a level of protection entailing zero tolerance for risk. Indeed, this is among the areas of WTO law in which the most deference is given to Members’ regulatory freedoms; a panel is not entitled to second-​guess a respondent’s chosen ALOP, provided it is properly substantiated. The requirement of proper substantiation, however, means a Member is obliged, at a minimum, to articulate its ALOP

the relevant international organizations as well as from [SPS] measures applied by other Members. In such circumstances, Members shall seek to obtain the additional information necessary for a more objective assessment of risk and review the [SPS] measures accordingly within a reasonable period of time. 176 

See Appellate Body Report, EC –​Hormones, adopted 13 February 1998, paras 124–​125. EC –​Hormones, the Appellate Body explained that ‘there is no need to assume that Article 5.7 exhausts the relevance of a precautionary principle. It is reflected also in the sixth paragraph of the preamble and in Article 3.3. These explicitly recognize the right of Members to establish their own appropriate level of sanitary protection, which level may be higher (i.e., more cautious) than that implied in existing international standards, guidelines and recommendations’ (para 124). 178  See Appellate Body Report, EC –​Hormones, adopted 13 February 1998, paras 124-​125; Appellate Body Report, US/​Canada –​Continued Suspension, adopted 14 November 2008, para 680; Panel Report, EC –​Approval and Marketing of Biotech Products, adopted 21 November 2006, paras 7.88–​7.89. 177 In

472    Katherine Connolly and Nicolas Lockhart with sufficient specificity. In the Appellate Body’s words: ‘a Member is not free to establish its [ALOP] with such vagueness or equivocation’ that it cannot serve its purpose as a benchmark to assess whether an SPS measure is more restrictive than necessary under Article 5.6.179 There is, therefore, an important role for panels in scrutinizing an asserted ALOP. This does not involve second-​guessing whether an asserted level of protection is acceptable. Rather, the panel ‘looks behind the veil’ of the respondent’s assertions to assess whether those assertions are consistent with other (objective) information regarding the ALOP, and whether the asserted ALOP is sufficiently precise. For example, if a respondent has made statements regarding its ALOP before the dispute started, a panel should not accept subsequent assertions in a dispute that move the bar to a higher level. Further, to prevent other Members’ rights from being eroded, panels should not accept vague ALOPs that seek to shield SPS measures behind a veil of obscurity. Finally, the SPS Agreement contains other substantive provisions setting out obligations relating to, inter alia, recognition of other Members’ equivalent SPS measures;180 adaption of SPS measures to regional conditions;181 and control, inspection, and approval procedures.182

2. TBT Agreement Like the SPS Agreement, the TBT Agreement captures a broad swathe of regulatory measures: since 1995, Members have notified over 38,000 TBT measures.183 These include: prohibitions on the use of toxic substances in cosmetics;184 requirements to test for harmful substances used in manufacturing wallpaper;185 or limitations on HFC emissions from commercial refrigeration equipment.186 The TBT Agreement also sets out obligations to base TBT measures on international standards, where they exist (with some exceptions);187 and obligations relating to conformity assessment procedures, i.e., testing, verification, inspection and certification of goods to confirm that products fulfil the requirements of relevant TBT measures.188 179 

Appellate Body Report, Australia –​Apples, adopted 17 December 2010, para 343. See Article 4.1. 181  See Article 6. 182  See Article 8. 183  Annex 1 of the TBT Agreement provides that the Agreement applies to three types of measure: (1) technical regulations (which ‘lay down product characteristics or their related processes and production methods, including the applicable administrative provisions, with which compliance is mandatory’); (2) standards; and (3) conformity assessment procedures. 184  G/​TBT/​N/​EU/​757 (12 November 2020). 185  G/​TBT/​CHN/​1499 (9 November 2020). 186  G/​TBT/​N/​USA/​1668 (6 January 2006). 187  See Article 2.4: ‘Where technical standards are required and relevant international standards exist or their completion is imminent, Members shall use them, or the relevant parts of them, as a basis for their technical regulations except when such international standards or relevant parts would be an ineffective or inappropriate means for the fulfilment of the legitimate objectives pursued, for instance because of fundamental climatic or geographical factors or fundamental technological problems’ (emphasis added). 188  See rules set out in Articles 5 through 9 of the TBT Agreement. 180 

An Introduction to Core Principles of International Trade Law    473 Like SPS measures, Members are entitled to take TBT measures, subject to certain requirements. We have already addressed one of these: Article 2.1 establishes a non-​ discrimination obligation vis-​à-​vis Members’ TBT measures. In addition, Article 2.2 sets out one of the Agreement’s primary obligations relating to market access.189 The essence of this obligation is to ensure that a regulation is ‘not more trade restrictive than necessary to fulfil a legitimate objective’. The three steps required in assessing a claim under Article 2.2 are similar to those in the equivalent provision under the SPS Agreement: (1) is the challenged regulation trade restrictive; (2) does it pursue a legitimate objective; and (3) is there an alternative measure that would be less trade-​ restrictive and would make an equivalent contribution to the relevant objective? This assessment raises several horizontal issues that crop up throughout the WTO agreements, some of which we have already addressed. On trade-​restrictiveness, a key question is—​just as under Article XI of the GATT 1994—​when does a mere ‘condition’ or ‘burden’ placed on international trade become a ‘restriction’? If a regulation affects trade but does not amount to a ‘restriction’, it cannot violate Article 2.2 (regardless of whether the objective it pursues is ‘legitimate’). The case law discussed under Article XI of the GATT 1994 is relevant here: as a general rule, a regulation is ‘trade-​restrictive’ when, by its design, structure and expected operation, it limits the competitive opportunities available to imported products. As under Article XI, in practice, the line is not always clear. Complainants are advised to develop a persuasive narrative of trade-​ restrictiveness and supplement this narrative with evidence of actual trade effects, if available. On a measure’s ‘legitimate objective’, a panel must, as always, identify the regulation’s purpose through an objective assessment, rather than simply accepting the respondent’s own assertions. With regard to whether the objective is ‘legitimate’, the penultimate sentence of Article 2.2 sets out a non-​exhaustive list of objectives that are presumed ‘legitimate’: ‘national security requirements; the prevention of deceptive practices; the protection of human health or safety, animal or plant life or health or the environment’. These objectives overlap with those identified in other areas of WTO law, namely the SPS Agreement and the exceptions under Articles XX and XXI of the GATT 1994. Article 2.2 of the TBT Agreement similarly seeks to accommodate these non-​trade interests by asking, at the third step of analysis, whether an alternative measure exists that would be less trade-​restrictive, and that would make an equivalent contribution to the relevant objective. This third step requires a comparison of the (1) trade restrictiveness and (2) contribution made by the challenged regulation, on the one hand, against the (1) trade restrictiveness and (2) contribution of the proposed alternative, on the other. Thus, it is not sufficient for an adjudicator to make a binary, yes/​no assessment of trade restrictiveness and contribution (i.e., is the measure trade restrictive? Does 189  Article 2.2 provides: ‘Members shall ensure that technical regulations are not prepared, adopted or applied with a view to or with the effect of creating unnecessary obstacles to international trade. For this purpose, technical regulations shall not be more trade restrictive than necessary to fulfil a legitimate objective, taking account of the risks non-​fulfillment would create . . .’.

474    Katherine Connolly and Nicolas Lockhart it make a contribution to the objective?) The adjudicator must identify the degree of trade-​restrictiveness and contribution of the challenged and alternative measures, in order to make comparison between the two. Complainants have not been successful in bringing claims under Article 2.2. The case law suggests that, unless a measure is also discriminatory, panels are reluctant to find a violation based on trade-​restrictiveness alone. In particular, panels have shown deference to respondents’ arguments regarding the contribution made by the challenged regulation, and the inability of any proposed alternative to achieve an equivalent level. This contrasts notably with the SPS Agreement and the Article XX general exceptions. There, although the underlying exercise is the largely same, complainants have been much more successful. Thus, while all three sets of disciplines seek to balance trade and non-​trade interests, in practice the TBT Agreement has been applied to lean further towards regulatory deference than the SPS Agreement and the general exceptions.

Further reading L. Bartels, ‘The Chapeau of the General Exceptions in the WTO GATT and GATS Agreements: A Reconstruction’ 109 American Journal of International Law (2015) 95 P. van den Bossche and D. Prévost, Essentials of WTO Law (Cambridge: Cambridge University Press 2016), Chapters 3 and 5 N.F. Diebold, ‘Standards of Non-​ Discrimination in International Economic Law’ 60 International and Comparative Law Quarterly (2011) 831 H. Horn and P.C. Mavroidis, ‘Still Hazy after All These Years: The Interpretation of National Treatment in the GATT/​WTO Case-​law on Tax Discrimination’ 15 European Journal of International Law (2004) 39 G. Marceau, ‘The New TBT Jurisprudence in US -​Clove Cigarettes, WTO US -​Tuna II, and US –​Cool’ 8 Asian Journal of WTO and International Health Law & Policy (2013) 40 M. Matsushita, ‘A View on Future Roles of the WTO: Should There Be More Soft Law in the WTO’ 17 Journal of International Economic Law (2014) 701 P.C. Mavroidis and R. Wolfe, ‘From Sunshine to a Common Agent: The Evolving Understanding of Transparency in the WTO’ 21 Brown Journal of World Affairs (2015) 117 A.D. Mitchell, ‘A Legal Principle of Special and Differential Treatment for WTO Disputes’ 5 World Trade Review (2006) 445 L. Rubini, ‘Ain’t Wastin’ Time No More: Subsidies for Renewable Energy, The SCM Agreement, Policy Space, and Law Reform’ 15 Journal of International Economic Law (2012) 525

Chapter 17

T r a de i n G o od s Ricardo Ramírez-​H ernández

I. II.

Introduction Classification of goods A. Facilitating commercial transactions and the negotiation of trade agreements B. Data collection C. Trade regulation III. Tariffs or duties IV. Types and modalities V. The return to the rule of the jungle and tariffs? A. Disciplines applicable to tariffs VI. Rules of origin A. Criteria for determining the origin of goods B. Types of rules of origin C. Main disciplines contained in RTAs VII. Import or export quantitative restrictions A. Introduction B. Quotas C. Licences D. Other measures E. Measures not covered VIII. Customs administration and trade facilitation A. Introduction B. Trade facilitation measures IX. Conclusion

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476   Ricardo Ramírez-Hernández

I. Introduction Tariffs and quantitative restrictions existed long before the creation of the world trading system. Back in the GATT days, they were among the most frequently used tools for protection. Since the first rounds of negotiations, tariff liberalization has become a priority. In the case of quantitative restrictions, the agreed conversion of quantitative restrictions on agricultural goods into tariffs, i.e., the tariffication process, was the starting point of a serious dismantling of the use of these instruments. At the same time, it became clear that sooner or later, with the increase in the use of other instruments such as technical regulations or sanitary and phytosanitary, as well as with the uprise of global value chains, both tools might become obsolete. There was also a shared view that tariff and quantitative restrictions had little economic rationale.1 However, everything changed in the past few years. On one side, tariffs are now regaining popularity as instruments of ‘persuasion’ to punish countries or achieve economic and non-​economic goals. More importantly, the COVID-​19 pandemic resulted in countries adopting various types of quantitative restrictions. For instance, as of August 2021, at least 101 countries had introduced export prohibitions or restrictions related to the pandemic. The above underscores the importance of these instruments. In addition, rules of origin and trade facilitation were and continue to be essential parts of the framework for trading in goods. As opposed to tariffs, rules of origin never fade away and they remain one of the engines for the proper functioning of global value chains. Finally, one of the few positive things coming out of the COVID-​19 pandemic is the understanding of the urgent need to streamline and modernize import and export operations. For that purpose, trade facilitation disciplines will play a pivotal role.

II.  Classification of goods Regulation of trade in goods depends on their classification. If there were no classification rules, the exchange in trade in goods would be very slow and intricate. Without a common customs classification criterion, how would applicable rules on cross-​border trade in goods be determined and administered? How would trade negotiations among countries be conducted in regard to specific goods? How would statistical trade data be collected? The classification of goods has three main purposes: (i) facilitating commercial transactions and the negotiation of trade agreements; (ii) collecting data; and (iii) regulating trade.

1 

See further Chapter 3 of this handbook.

Trade in Goods    477

A. Facilitating commercial transactions and the negotiation of trade agreements The primary purpose of customs classification is to facilitate commercial transactions by establishing a common language. Without this language, exporting, for example, avocados from Mexico to Russia would be much more challenging. Even among those who speak the same language, communication would be much more complex, thus, hindering commercial transactions. In the same vein, if each country were to have its own criteria for classifying goods, trade negotiations for establishing tariffs and common applicable rules to goods would be problematic.

B. Data collection Agreed customs classification is paramount in developing a record of all trade statistics. Efforts to obtain a common tariff classification began in 1853. Under the auspices of the League of Nations, the Draft Customs Nomenclature of 1937 was developed (Geneva Nomenclature). The Minimum List of Commodities for International Trade Statistics was published one year later. However, it was not until 1950 that an agreement was reached on a Standard International Trade Classification. Around the same time, in 1947, the European Customs Union Study Group was established in Brussels, which created the Brussels Nomenclature (later referred to as the Customs Co-​operation Council Nomenclature). As part of these efforts, the Customs Co-​operation Council was established, with its Convention entering into force on 4 November 1952, the precursor to the 1994 World Customs Organization (WCO).2 In 1959, the Convention on Nomenclature for the Classification of Goods in Customs Tariffs (HS Convention) entered into force and was reviewed alongside the Tariff Nomenclature.

C. Trade regulation A common misunderstanding is that customs classification is only relevant when dealing with tariffs. However, in practice, most regulations in trade in goods have a close link with customs classification. For instance, although anti-​dumping or countervailing duties are imposed on imports of a specific product, the description of such product is based on its customs classification. Import or export restrictions (such as quotas or licences) are also typically specified in accordance with their customs classification.

2  J. Nakagawa, International Harmonization of Economic Regulation (New York: Oxford University Press, 2011), at 21–​24; United Nations, Standard International Trade Classification, Revision 4, ST/​ESA/​ STAT/​SER.M/​34/​REV.4 (New York, 2006), at < https://​unst​ats.un.org/​unsd/​publ​icat​ion/​Seri​esM/​Seri​ esM_​34re​v4E.pdf > (last visited 9 September 2021), at v.

478   Ricardo Ramírez-Hernández The WCO administers and updates the Harmonized Commodity Description and Coding System (Harmonized System or HS), which entered into force in 1988. Currently, 183 countries are Members of the WCO, together representing more than 98 per cent of world trade. The HS is currently integrated by 21 sections composed of 97 chapters, with approximately 1.241 headings and more than 5.000 subheadings. The sixth edition of the HS entered into force in January 2017. A seventh edition of the HS entered into force in January 2022. According to the WCO: ‘[t]‌he new HS2022 edition makes some major changes to the Harmonized System with a total of 351 sets of amendments covering a wide range of goods moving across borders.3 The Harmonized System nomenclature comprises six-​digit codes (subjheadings). This means that all countries share the same classification or nomenclature of their goods up to six-​digit codes. Nonetheless, each country may add two or four more digits to each good digit code, depending on the needs of each country to administer or monitor imports or exports. Given the importance of customs classification for international trade, the WCO and WTO have a close relation. Cooperation exists between the WCO and the WTO bodies responsible for market access, such as customs valuation, rules of origin, or trade facilitation.4 Despite the fact that the HS has not been formally adopted by the WTO, some disputes have revealed its importance for WTO law. For instance, the European Union put forward an interpretation of its WTO schedule of concessions, which subjected boneless chicken cuts from Brazil and Thailand to different customs classifications. Not surprisingly, the different classification entailed a different tariff treatment. The core issue in dispute was the interpretation of the word ‘salted’ in the European Union’s schedule. According to the European Union, ‘salted’ entailed only products which have been ‘deeply and homogeneously impregnated with a level of salt sufficient to ensure long-​term preservation.’5 Thus, the main question was whether ‘the term salted in the concession contained in heading 02.10 covers the products at issue which, in turn, will entail a determination of whether that concession included the requirement that salting is for preservation and, more particularly, for long term preservation’.6 The Appellate Body had to consider whether the HS is relevant to the interpretation of a WTO Member’s schedules of concessions. The Appellate Body stated the ‘broad consensus among the GATT Contracting Parties to use the Harmonized System as the basis for their WTO Schedules,’ constituted an ‘agreement’ between WTO Members ‘relating to’ the WTO Agreement that was ‘made in connection with the conclusion of ’

3 WCO, HS Nomenclature 2022 Edition, Brussels, 2020, at < http://​www.wco​omd.org/​en/​top​ics/​ nomen​clat​ure/​ins​trum​ent-​and-​tools/​hs-​nomen​clat​ure-​2022-​edit​ion.aspx > (last visited 13 April 2020). 4  World Trade Organization, The WTO and Word Customs Organization, Geneva, 2020, at < https://​ www.wto.org/​engl​ish/​thewt​o_​e/​cohe​r_​e/​wto_​wc​o_​e.htm > (last visited 9 September 2021). 5  Panel Report, EC –​Chicken Cuts, adopted 27 September 2005, para 7.81. 6  Ibid., at para 7.86.

Trade in Goods    479 that Agreement, within the meaning of Article 31(2)(a) of the Vienna Convention on the Law of Treaties (VCLT).7 Thus, for purposes of WTO law interpretation, the Harmonized System constitutes proper context under Article 31(2)(a) of the VCLT.

III.  Tariffs or duties Neither ‘tariff ’ nor ‘duty’ is a term defined in WTO law or jurisprudence. ‘Duty’ is a broad term which could include an ‘internal duty’, for example, an indirect tax such as a value-​added tax (VAT), or ‘customs duty’ which is a tax on the importation or exportation of a certain good. Customs duties are also referred to as tariffs. The imposition of custom duties is a right of every country. Custom duties are lawful instruments of trade policy which countries use to acquire further income as well as to protect their domestic industry. As mentioned, custom duties could be imposed not only on the importation but also, although not common, on the exportation of a certain good. As will be discussed below, customs duties on the exportation of goods are regulated differently from import duties. Whilst the amount of a customs duty must be based on the international commitments agreed by each country in its WTO commitments, unlike other trade barrier, the customs duty is the only permissive trade barrier. In this regard, the Appellate Body has stated that: Tariffs are legitimate instruments to accomplish certain trade policy or other objectives such as to generate fiscal revenue. Indeed, under the GATT 1994, they are the preferred trade policy instrument, whereas quantitative restrictions are in principle prohibited . . . Irrespective of the underlying objective, tariffs are permissible under Article II:1(b) [of the GATT 1994] so long as they do not exceed a Member’s bound rates.8

7  Appellate Body Report, EC –​Chicken Cuts, adopted 27 September 2005, para 199. See also Appellate Body Report, China –​Auto Parts, adopted 12 January 2009, para 151: ‘. . . Because WTO Members’ Schedules of Concessions were constructed using the nomenclature of the Harmonized System, the Harmonized System is apt to shed light on the meaning of terms used in these Schedules’; Appellate Body Report, EC –​Computer Equipment, adopted 22 June 1998, para 89: ‘We are puzzled by the fact that the Panel, in its effort to interpret the terms of Schedule LXXX, did not consider the Harmonized System and its Explanatory Notes . . . Neither the European Communities nor the United States argued before the Panel that the Harmonized System and its Explanatory Notes were relevant in the interpretation of the terms of Schedule LXXX. We believe, however, that a proper interpretation of Schedule LXXX should have included an examination of the Harmonized System and its Explanatory Notes.’ 8  Appellate Body Report, India –​Additional Import Duties, adopted 17 November 2008, para 159.

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IV.  Types and modalities Duties are usually classified based on the form they adopt, such as ad valorem, specific or mixed.9 More than 97 per cent of the duties imposed by WTO Members take the ad valorem form. The amount of a tariff is intrinsically linked to the legal instrument on which it is based. In the case of the WTO, the duty that each WTO Member agrees to impose to all other Members of the WTO on a most favoured nation basis is called, an MFN duty. There is a distinction between bound duties and duties actually charged, which will be discussed below. A bound duty is the maximum rate of a duty to which a Member binds itself; for example, Mexico’s bound duty for buses is 50 per cent ad valorem. This means that Mexico may not impose a higher duty rate without breaching its commitments under Article II of the GATT 1994. Article II prohibits Members from increasing their duties above their bound duty included in their WTO commitments. In this regard, the Appellate Body has stated that ‘a tariff binding in a Member’s Schedule provides an upper limit on the amount of duty that may be imposed’ and that ‘a reduction in its value by the imposition of duties in excess of the bound tariff rate would upset the balance of concessions among Members.’10 99 per cent of duties of WTO developed countries are bound; for developing countries and economies in transition, respectively, 73 per cent and 98 per cent of duties are bound. Bound tariffs can be modified, but since this upsets the balance of tariff concessions agreed among WTO Members, such a Member must, in accordance with Article XXVIII of the GATT 1994, grant compensation to the other Members. In case of unbound duties, WTO Members are not obliged to impose a certain amount of tariff.11 Notably, the obligation to impose a certain ceiling or tariff binding does not preclude a Member from imposing a lower tariff. Thus, the applied duty is the rate which the Member actually charges and of which the amount necessarily is to be less or equal to that of the bound duty. The difference between the bound duty and the duty effectively 9 An ad valorem duty is the duty expressed by a percentage over the custom value of the good. Ad valorem duties are the most common type of duties. For example, a duty of 35 per cent on the value of railway equipment. A specific duty is the duty expressed as a monetary amount over the measurement unit of the particular good, i.e., it is based on a particular quantity. The specific duty is not based on the goods value, but in its measurement unit (e.g., piece, litre, metre, kilogramme). For example, a duty of $5 USD per kilogramme of macadamia nuts. A mixed or compound duty has an ad valorem component as well as a specific component. For example, a duty of 20 per cent plus $97 USD per ton of rice. 10  Appellate Body Report, Argentina –​Textiles and Apparel, adopted 22 April 1998, paras 46 and 47. 11  For more information on tariffs and non-​tariffs measure see, World Tariffs Profiles, The World Tariff Profiles is an annual co-​publication of the WTO, the International Trade Centre (ITC) and the United Nations Conference on Trade and Development (UNCTAD), containing information on the tariffs and non-​tariff measures imposed by over 170 countries including WTO and non-​WTO Members. The 2021 version is available at < https://​www.wto.org/​engl​ish/​res_​e/​rese​r_​e/​tariff​_​pro​file​s_​e.htm > (last visited 9 September 2021).

Trade in Goods    481 charged is commonly known as ‘water’. It is a space within which the WTO Members may freely adjust their duties. International trade instruments signed among WTO Members, such as those establishing free trade zones or customs unions, also contain disciplines on customs duties. With respect to the level of such customs duties, in light of the MFN principle, these duties are necessarily lower than the bound customs duties inscribed in the WTO. For example, under the United States-​Mexico-​Canada Agreement (USMCA),12 almost all products traded between Canada, Mexico, and the United States are exempt from customs duties.

V.  The return to the rule of the jungle and tariffs? Up to 2017, the discussion on trade barriers increasingly shied away from the ‘traditional’ trade barriers, such as tariffs or quotas, and concerned more sophisticated forms of trade protectionism, such as, technical barriers to trade or trade and environment/​ labour issues. Moreover, although not perfect, the WTO dispute settlement system constituted an effective deterrent against unilateral trade sanctions and provided a decent level of comfort to the Membership regarding compliance with WTO law disciplines. However, this changed in 2018. On 11 January 2018, the US Department of Commerce issued a report with its findings from the investigation conducted under Section 232 regarding imports of steel products,13 concluding that such imports threaten to impair national security and recommending that the President take immediate action by adjusting the level of these imports through quotas or tariffs. As a result of that report, in March 2018, the United States imposed a 25 per cent ad valorem rate duty on imports of steel (and aluminum) from several countries’ (including Canada, the European Union, and Mexico). Countries affected challenged those increases in the WTO. In May 2019, United States, Canada, and Mexico informed the WTO that they had reached a mutually agreed solution, which envisaged the withdrawal of these tariffs.14 A few days after this agreement, the United States President threatened Mexico with raising tariffs against

12 

Referred to as CUSMA by Canada, T-​MEC by Mexico, and USMCA by the United States. disputes initiated by: India (WT/​DS547/​7), the European Union (WT/​DS548/​13), Canada (WT/​DS550/​10), Mexico (WT/​DS551/​10), Norway (WT/​DS552/​9), Russia (WT/​DS554/​2), Switzerland (WT/​DS556/​4), and Turkey (WT/​DS564/​2). Section 232 is a delegation by the US Congress of its Constitutional authority to the President to regulate international commerce. The use of this authority does not require further approval and, according to a report by the US Congressional Research Service, it grants the President ‘broad discretion in applying this authority’. Congressional Research Service, ‘Section 232 Investigations: Overview and Issues for Congress’, updated 2 April 2019, at 32. 14  Mutually agreed solution, WT/​DS551/​13 (3 June 2019). 13 See

482   Ricardo Ramírez-Hernández all products coming from Mexico and gradually increase them ‘until the illegal immigration problem is remedied.’ It seemed that the USMCA signing in December 2019 would put an end to the menacing tariffs. However, a few weeks after USMCA came into force (July 2020), the United States imposed a 10 per cent national security tariff on aluminum from Canada. In response, Canada issued an ultimatum to impose retaliatory tariffs on $2.7 billion worth of US goods. In October, the United States withdrew these tariffs until after the presidential election in November. On top of this, the WTO Dispute Settlement adjudicatory body, the Appellate Body, in December 2019, became non-​operational. Many legal and economic issues arise from these episodes. From a rule of law standpoint, it is problematic for a key player in international trade to disregard the rules and impose unilateral sanctions, thereby attacking the foundation of a rules-​based global trading system. Although the particular instance of rule-​breaking is problematic enough, it is worse that these types of actions undermine the credibility of the whole system, in particular when they are undertaken by one of the architects of the system. This runs counter to what the traditional role of the United States has been. As one author puts it, ‘America’s most significant contribution to international life has been that, unlike every other victorious great power in history, after decisively triumphing—​in the world’s bloodiest conflict—​it chose to forgive, rebuild, and rehabilitate the vanquished. It imagined a new way for the nations of the world. It often acted in ways that were inspired by the common good and not just narrow national interest.’15 Regaining the credibility of the rules-​based global trading system and avoiding a ‘ law of the jungle’ type of regime is perhaps the greatest challenge ahead. As mentioned, it is only recently that tariffs have re-​emerged as a ‘preferred’ trade barrier. In the trade world, the belief was that, sooner or later, tariffs would either disappear or become a non-​issue on the trade agenda. However, President Trump made tariffs a key component of his trade policy, despite the clear tensions with US trade obligations and even whether it made economic sense. Chapter 3 discusses from an economic standpoint the effects of tariffs on domestic producers, governments, and consumers. In the end, although the concrete effects of a tariff should be analysed on a case-​by-​case basis, US actions demonstrated a truism about tariffs, namely that tariffs imposed by one country create an incentive for the affected country to do the same and as concluded by Saggi and Schropp any benefit from imposing them is cancelled out.16

15  F.

Zakaria, Ten Lessons for a Post-​Pandemic World (New York: W.W. Norton & Company, 2020), at 225. 16  See Chapter 3 of this handbook. ‘In fact, with respect to the tariff and steel the consensus among economists is that tariffs should not be the way to go. As two former Nobel prize winners in economy put it in early March 2018, President Trump signed new tariffs on steel and aluminum, surrounded by steelworkers in their hard hats. Shortly after, the IGM Booth panel, which we talked about in the introduction, asked its roster of experts, all senior economics professors at top economics departments, Republicans and Democrats, whether ‘imposing new US tariffs on steel and aluminum will improve Americans’ welfare.’ Sixty-​five percent ‘strongly’ disagreed with the statement. All the others merely ‘disagreed.’ No one agreed. No one was even unsure. When asked the additional question of whether

Trade in Goods    483 It has now been two years since President Biden came into office and the 232 tariffs for some countries are still in place and no concrete solution to the WTO dispute settlement crisis can be foreseen in the near future.

A. Disciplines applicable to tariffs WTO and RTAs include additional disciplines applicable to tariffs.

1. ‘Other charges’ At the outset, it is important to mention that Article II of the GATT 1994 broadens the scope of the obligation not to raise duties in excess of the bound duty rate to all ‘other charges’ that, despite not being called duties or tariffs, actually operate as tariffs on imports or exports of goods. This means that if a WTO Member were to impose some additional rate on imports, though not denominating it as such, that charge would nonetheless be construed as a duty, including for the purposes of Article II. This provision prevents WTO Members from circumventing their commitments through the imposition of ‘other charges’ which have an equivalent effect to that of a duty or tariff. Although there is no definition of what constitutes an ‘other duty or charge’ in the GATT 1994 and in the ‘Understanding on the Interpretation of Article II:1(b) of the General Agreement on Tariffs and Trade 1994’, the ordinary meanings of Article II:1(b) and Article II:2 make it clear that any fee or charge that is in connection with importation and that is not an ordinary customs duty, nor a tax or duty as listed under Article II:2 (internal tax, anti-​dumping duty, countervailing duty, fees or charges commensurate with the cost of services rendered) would qualify for a measure as an ‘other duties or charges’ under Article II:1(b).17

In RTAs, the concern about ‘other charges’ is dealt with through the definition of customs duty. In other words, the definition of customs duty ‘includes any kind imposed on or in connection with the importation of a good, and any surtax or surcharge imposed in connection with such importation.’18

‘adding new or higher import duties on products such as air conditioners, cars, and cookies (to encourage producers to make them in the US) would be a good idea,’ once again all of them agreed it would not be. Paul Krugman, the standard-​bearer of liberal economics, likes trade but so does Greg Mankiw, a Harvard professor who headed the Council of Economic Advisors under President George W. Bush and a frequent critic of Krugman’s views.’ A.V. Banerjee and E. Duflo, Good Economics for Hard Times (New York: Public Affairs, 2019), at 4. 17 

Panel Report, Dominican Republic –​Import and Sale of Cigarettes, adopted 19 May 2005, para 7.113. Article 1.5 (General Definitions) of USMCA. See also Article 1.3 (General Definitions) of the CPTPP and Article 1.1. of CETA. 18  See

484   Ricardo Ramírez-Hernández

2. Drawback or duty deferral programs Many countries provide import schemes or programs that allow them to exempt from import duties inputs which are incorporated into goods which are subsequently exported. Under WTO law, these schemes are permitted provided that the duties exempt or refunded are ‘not in excess’ of the duties owed. For instance, if under a drawback scheme, a car producer who pays 10 per cent of imports duties on tires would be eligible for an exemption or refund of such duties paid if such tire is incorporated into a vehicle, as long as the tax exempted or refunded does not exceed the 10 per cent duty.19 However, some RTAs ban20 or condition21 the limitation on refunding customs duties and anti-​dumping or countervailing duties when a good is incorporated into another good and then exported to a member of the RTA.

3. Prohibition or limitation on the use of performance requirements Some RTAs either prohibit or limit the use of performance requirements. A performance requirement, either related to the national or domestic content of a good or service or to the export performance or volume, is a condition imposed by a government in order to waive the imposition of customs duties.22 For example, a waiver of liability to pay customs duties is granted upon the condition that the good produced contains a certain percentage of domestic inputs (for instance, a Canadian measure which granted an import duty exemption to manufacturers of motor vehicles, provided that, among other conditions, the amount of Canadian value-​added in the manufacturer’s local production of motor vehicles must be ‘equal to or greater than’ the amount of Canadian value-​added in the local production of motor vehicles of that class during a particular year)23 or that an amount of export is achieved (for example, an Argentine Government measure which required economic operators to compensate imports annually with exports of at least the same value).24

19  ‘A harmonious reading of Article 1.1(a)(1)(ii), footnote 1, and Annexes I(i), II, and III to the SCM Agreement and the Ad Note to Article XVI of the GATT 1994 confirms that duty drawback schemes can constitute an export subsidy that can be countervailed only if they result in a remission or drawback of import charges ‘in excess’ of those actually levied on the imported inputs consumed in the production of the exported product. Thus, in the context of duty drawback schemes, the financial contribution element of the subsidy (i.e., the government revenue foregone that is otherwise due) is limited to the excess remission or drawback of import charges on inputs and does not encompass the entire amount of the remission or drawback of import charges.’ Appellate Body Report, EU –​PET (Pakistan), adopted 25 March 2018, para 5.138. 20  See Article 2.5 of USMCA, if Mexico imports steel from China and then incorporates such steel into a car and ships the car to Canada, the Mexican manufacturer may not request a refund, or a duty referral of the customs duty paid for importing the steel. 21  See Article 2.5 of CETA, the prohibition on drawback is not applicable ‘to a Party’s regime of tariff reduction, suspension or remission, either permanent or temporary, if the reduction, suspension or remission is not expressly conditioned on the exportation of a good.’ 22  See, e.g., Article 2.1 of USMCA. 23  See Panel and Appellate Body Reports, Canada –​Autos, adopted 31 May, 2000. 24  See Panel and Appellate Body Reports, Argentina –​Import Measures, adopted 26 January 2015.

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4. Prohibition on export duties In principle, there are no specific WTO disciplines on export duties. However, some WTO Members, as part of their accession commitments,25 agreed not to impose duties on certain exports.26 Similarly, various RTAs include an express prohibition on the imposition of export duties.27

VI.  Rules of origin The WTO Agreement on Rules of Origin defines rules of origin as ‘laws, regulations and administrative determinations of general application applied by any Member to determine the country of origin of goods.’ In other words, the rules that determine the ‘origin’ of a smartphone, for purposes of a particular trade regime, manufactured with various parts from India, Brazil, Singapore, United States, and assembled in Costa Rica. All instruments which regulate rules of origin establish various criteria or requirements to determine whether a particular good complies with the specific rule of origin.

A. Criteria for determining the origin of goods A good that is wholly obtained or produced entirely in the territory of a country will be initially from that country. The rules of origin are especially relevant in cases where the good is made from materials or inputs from different countries. Trade instruments, WTO and RTAs, contain specific criteria for determining the origin of a good: (i) national or regional content; (ii) change in tariff classification; (iii) production, manufacturing, or processing; and (iv) others.

25  Julia Ya Qin identifies two instances where Members included concessions on export duties in their GATT schedules. The first is a concession on export duties on tin ore and tin concentrates, made in the early years of the GATT by the United Kingdom in respect of the Malayan Union. The second is a concession made by Australia where Australia agreed not to impose any export duty on certain iron ore, titanium ore, zirconium ore, coal, peat, coke, refined copper, unwrought nickel, nickel oxide, and lead waste and scrap. See J. Ya Qin, ‘Reforming WTO Disciplines on Export Duties: Sovereignty Over Natural Resources, Economic Development and Environmental Protection’ 46(5) Journal of World Trade (2012) 1152. 26  The Appellate Body found that the imposition of export duties was inconsistent with Paragraph 11.3 of China’s Accession Protocol. Appellate Body Report, China –​Raw Materials, adopted 22 February 2012, para 287. 27  See, e.g., Article 2.15 of USMCA: ‘No Party shall adopt or maintain any duty, tax, or other charge on the export of any good to the territory of another Party, unless the duty, tax, or charge is also applied to the good if destined for domestic consumption.’

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1. National or regional content The regional content criterion is based on the value of the inputs or materials contained in the good in question. If the value of the inputs meets a certain percentage, the good will be considered as originating from the country from which the inputs derive. For the purposes of this rule, there are two methods for determining the value of the inputs: one is based on the transaction value, that is, the market value of the goods; the other is based on a construction of the value (also called the ‘net cost method’). For example, USMCA28 provides: 9503.00-​9505.90 ( . . . ) No required change in tariff classification to any of subheading 9503.00 through 9505.90, provided there is a regional value content of not less than: (a) 45 percent where the transaction value method is used; or (b) 35 percent where the net cost method is used.

Under this criterion, a scooter, produced in Canada, classified under tariff heading 95.03, would be complying with this USMCA rule of origin if 45 per cent (using the transaction value method, which is typically based on the invoice value of the good) or 35 per cent (using the net cost method, which is based on the cost of each input), of the value of its inputs is Canadian.

2. Substantial transformation or tariff-​jump The substantial transformation criterion is based on the fact that a good will be originating from the territory where a transformation took place if, despite being made from materials not originating from that territory, that is, the place where a significant or substantial transformation took place. This transformation is evidenced or manifested through a change in tariff classification or ‘tariff jump’ of the good. For example, the rule of origin of pork belly may provide that a country could import live swine from a third country and ‘transform’ it into pork belly in the territory claiming origin. In terms of tariff jump, this substantial transformation would be translated as importing live swine which is classified in Chapter 01: ‘live animals’ and ‘transformed’ into ‘pork belly’, which is classified in Chapter 16.

a. Production or manufacturing There are rules that require a particular manufacture or process operation to be carried out in its territory. For instance, the rule of origin applicable to ties under USMCA is the following: 62.13-​62.17 A change to heading 62.13 through 62.17 from any other chapter, except from heading 51.06 through 51.13, 52.04 through 52.12, 53.10 through 53.11,

28 

Chapter 4, Annex 4-​B (product-​specific rules of origin).

Trade in Goods    487 Chapter 54 or heading 55.08 through 55.16, 58.01 through 58.02 or 60.01 through 60.06, provided that the good is both cut and sewn or otherwise assembled in the territory of one or more of the Parties.

b. Other criteria Recently, USMCA introduced a new ‘labor value content’ criterion to determine the origin of a vehicle.29 This criterion requires that between 40 to 45 per cent of the content of a vehicle be manufactured in a country that has a minimum wage of at least 16 dollars per hour. It is not clear whether this formula will become a new template in future trade agreements or if the operation of this rule would be the premise that free trade agreements foster cheap labour.

B. Types of rules of origin The WTO Agreement of Rules of Origin also divides the rules of origin into two categories: preferential and non-​preferential.

1. Non-​preferential rules of origin In the context of the WTO, the need to establish a rule of origin for the purpose of obtaining a tariff preference is impractical in terms of obtaining a trade preference or concession. This is because, based on the MFN principle, the tariff preferences agreed in the WTO apply to all WTO Members. Only a small number of the 164 WTO Members do not benefit from MFN treatment. However, the determination of the origin of the good is important for other non-​preferential purposes, such as the application of quotas, antidumping duties and the preparation of trade statistics. The Agreement on Rules of Origin aims at establishing common or harmonized rules of origin among all WTO Members and establishes a work program on harmonization, which should have been concluded in 1998. During the Uruguay round negotiations and today, there are three major hurdles: agreeing on methodologies to confer origin when the manufacturing and production processes in each country vary; countries trying to grapple with the different rules of origin regimes provided for in the RTAs; and finding a way to avoid conflicts between rules of origin and other trade disciplines. For example, one major issue in this ongoing negotiation concerns one of the principles under Article 9(a) of the Agreement on Rules of Origin, which provides that rules of origin shall apply ‘equally for all purposes as set out in Article 1’. Articles 1, read together with Article 2, provides that the rules of origin ‘shall include all rules of origin used in non-​preferential commercial policy instruments’. Members are still debating

29 Article

goods).

7, Appendix (Provisions related to the product-​specific rules of origin for automotive

488   Ricardo Ramírez-Hernández the scope of this obligation vis-​à-​vis other GATT 1994 and WTO covered agreement obligations, such as marks of origin, sanitary and phytosanitary measures, trademarks, or geographical indications. For example, imagine a multilateral rule of origin which provides that the country of origin of guacamole (a sauce made of avocados) is the country where the avocados are transformed. Imagine that Nigeria imports avocados from Mexico and transform them into guacamole. Could that sauce be called ‘made from 100 % Mexican Avocados’, despite being of Nigerian origin? If there is a sanitary measure against Mexican avocado, could that restriction also be extended to Nigerian origin guacamole? Imagine a geographical indication or trademark for a particular type of avocado harvested in Mexico; how would that protection be extended to guacamole of Nigerian origin? At present, there are no agreed WTO non-​preferential rules of origin. As long as no agreement is reached on harmonized rules of origin, the applicable rules of origin are those established by each Member in its domestic legislation. Article 2 of the Agreement on Rules of Origin requires WTO Members to ensure that their rules be administered in a consistent, uniform, impartial, and reasonable manner; and based on objective criteria. Most importantly, these rules of origin must be ‘used to implement and support trade policy instruments, rather than to substitute for, or to supplement, the intended effect of trade policy instruments. Allowing Members to use rules of origin to pursue the objectives of ‘protecting the domestic industry against import competition’ or ‘favouring imports from one Member over imports from another’ would be to substitute for, or supplement, the intended effect of a trade policy instrument and, hence, be contrary to the objective of Article 2(b).’30

2. Preferential rules of origin In accordance with Article 1 of the WTO Agreement on Rules of Origin, preferential rules of origin are those provided for in ‘contractual or autonomous trade regimes’, i.e., RTAs. The rules of origin are fundamentally linked to tariff preferences. In the case of RTAs, rules of origin provide the ‘gateway’ to obtain a tariff preference. To put in context, the importance of rules of origin and in general the evolution of international trade in goods, it is useful to refer to the work of economist Richard Baldwin. Baldwin describes the evolution of globalization as directly related to the ability of humans to facilitate the movement of goods, ideas, and persons. He calls these processes ‘unbundlings’. The first unbundling started when humans ‘shortened’ distances between them, starting with the creation of the steam engine in the eighteenth century. During the nineteenth and twentieth centuries, advances in technology greatly facilitated the movement of goods. The booming trade yielded new opportunities that encouraged nations to expand their most competitive sectors. It also yielded new competition that forced nations out of the sectors they were less good at. As a result, the world economy became

30 

Panel Report, US –​Textiles Rules of Origin, adopted 21 July 2003, para 6.43.

Trade in Goods    489 much less ‘flat’; national economies tended to specialize in producing things they were relatively good at.31

It was during the end of the twentieth century that the second unbundling took centre stage, in particular thanks to the Information Communication Technology (ICT) revolution. Now, it is not only easier to move goods, but also to move ideas. This changed the whole way trade took place, and global value chains became the new way or form of trading between nations. When the second unbundling redrew the international boundaries of production . . . comparative advantage was denationalized. That is to say, under the Old Globalization, the frontline of competition was best thought of as national borders. For example, cars made in Germany competed with cars made in Japan. Under the New Globalization, the frontline of competition is better thought of as being between cross-​national production networks—​call them ‘global value chains,’ or GVCs for short. When thinking about this from a national perspective, the New Globalization is much less about allowing nations to make better use of their particular competencies and much more about changing their competencies. This is well illustrated by the example of a Vietnamese firm exporting transport parts to Japan . . . In short, the second unbundling did not help Vietnam exploit its comparative advantage—​it changed Vietnam’s comparative advantage. It shifted Vietnam from an importer of motorcycle parts to an exporter. This flip happened because one of Japan’s sources of comparative advantage—​its know-​how—​moved across the border and was combined with one of Vietnam’s sources of comparative advantage; namely, its low-​cost labour. More and more of the value is being added by services that are related to manufacturing; less and less is being added by simple manufacturing itself. Put differently, much of value addition that used to happen in fabrication stages before the second unbundling has been transferred to the pre-​and post-​fabrication stages that are dominated by service inputs.32

Finally, we are currently in the process of what Baldwin calls the third unbundling. In a nutshell, the next radical change in globalization is likely to involve workers in one nation undertaking service tasks in another nation—​tasks that today require physical presence. Or to use the unbundling theme, globalization’s third unbundling is likely to mean that labor services are physically unbundled from laborers.33

It is in the context of the second unbundling that rules of origin are important. A rule of origin establishes the requirements to consider a good as ‘originating’ from a particular country or region. Under RTAs, such status i.e., ‘originating’, provides the right 31 

R. Baldwin, The great convergence (Cambridge: Harvard University Press, 2016), at 122. Ibid., at 145–​146, 153. 33  Ibid., at 298. See also R. Baldwin, The Globotics Upheaval: Globalisations, Robotics and the Future of Work (New York: Oxford University Press, 2019). 32 

490   Ricardo Ramírez-Hernández to receive preferential treatment. But rules of origin go much beyond the granting of a right to receive a tariff preference. The essence of rules of origin is to promote integration between countries or regions by fostering the incorporation of goods or inputs from other countries while also encouraging manufacturing operations at home. For instance, a rule of origin in an RTA between Guatemala and Peru, which provides that a shoe originates from either country only if the leather comes from either country, promotes regional supply of that input. Recently, however, rules of origin have been used as a tool or incentive for local production as opposed to economic integration. For example, there is the new USMCA rule of origin for vehicles which, among other things, provides that, in seven years, 100 percent of the steel incorporated into cars must come from Canada, Mexico, and the United States. The second reason relates to global value chains. As a result of the second unbundling, companies created these chains of production. Companies allocated the production of inputs for a certain product to different countries but also diversified manufacturing in search of countries with better conditions for production (including but not limited to cheaper labour costs). The more sophisticated the product, the more diverse the inputs, as well as the complexity of the relations between the various actors involved. Thus, rules of origin play a major role in the design and operation of this ‘web’ of goods, inputs, and manufacturing called global value chains. Frequently the outsourcing or investment decision of a company depends on the applicable rule of origin. To illustrate this, just Imagine the web of value chains involved in the manufacturing of a Boeing 787 plane, as shown in Figure 1.

787 Dreamliner Global Partners Major Structures and Propulsion

Fixed trailing edge Wing Kawasaki Heavy Industries Mitsubishi Nagoya, Japan Nagoya, Japan Wing tips KAL-ASD Busan, South Korea Flap support fairings KAL-ASD Busan, South Korea Tail fin Boeing: Salt Lake City, UT Aft fuselage Strata: Abu Dhabi, UAE Boeing Horizontal stabilizer Charleston, SC Leonardo SpA: Foggia, Italy Boeing: Salt Lake City, UT Rudder CCAC Chengdu, China Tail cone Boeing AMS Auburn, WA Aft 48 fuselage KAL-ASD Busan, South Korea

Nacelles Collins Aerospace Chula Vista, CA Landing gear Safran Landing Systems Toronto, Canada Center wing box Subaru Nagoya, Japan

Center fuselage Leonardo SpA Grottagile, Italy Main landing gear wheell well Kawasaki Nagoya, Japan Passenger entry doors Latécoère Hermosillo, Mexico

Mid-forward fuselage Forward fuselage Kawasaki Heavy Industries Spirit Nagoya, Japan Wichita, KS

Moveable trailing edge Boeing Melbourne, Australia

Cargo access doors Saab Linköping, Sweden

Wing/body fairing Centra Industries Cambridge, Canada Landing gear doors Boeing Winnipeg, Canada Engines BTC GE: Evendale, Ohio Rolls-Royce: SATO, Singapore Fixed and moveable leading edge Spirit Tulsa, OK

Figure 1  Diagram of a Boeing 787 Source: The Boeing Company

Trade in Goods    491

C. Main disciplines contained in RTAs The structure of the chapters on origin in RTAs is similar. They establish general provisions regarding the various criteria to determine the origin of a good, and an annex which contains specific rules of origin applicable to individual products. The rules of origin applicable to each product vary depending on the regional trade agreement in question. This is due to the fact that the rules of origin are tailored to the particular needs of each country, taking into account the benefits that can be obtained from inputs or processes carried out in the territories or regions of its trading partners. Together with the criteria to determine the origin, regional trade agreements impose certain disciplines regarding the origin of the goods. Those disciplines concern notably: (i) de minimis; (ii) accumulation; (iii) non-​qualifying operations and (iv) origin quota.

1. De minimis De minimis provisions offer alternative flexibility to an exporter because, instead of complying with the specific rule of origin established in the agreement, the de minimis rule allows the exporter to comply with the rule of origin if only a small portion of a good’s inputs or materials (usually 10 per cent, or less, in terms of value the final good)34 are non-​originating materials. For instance, if an office desk is made using all local inputs except for imported screws, and those screws represent 10 per cent or less of the value of the final good, the desk is nonetheless considered as originating in that country. In general, this flexibility does not apply to agricultural or textile goods.

2. Accumulation Accumulation is a key element for integrating members of an RTA. Accumulation allows an exporter to consider as originating inputs made, or any manufacturing performed, in the territory of another party. For example, under Article 3.10 of the CPTPP, New Zealand could claim as originating in New Zealand an input to a refrigerator made in Malaysia. However, there is also ‘crossed’ or ‘diagonal’ cumulation between RTAs. For instance, under CETA, Canada and the European Union agreed that for vehicles, if and when there is an agreement between each of them and the United States, materials originating in the United States will be considered as originating.35

3. Non-​qualifying operations Typically, the substantial transformation criterion in rules of origin results in a tariff jump. There are some operations that would typically result in a change in tariff classification but are considered ‘minimal’36 and therefore excluded from the determination of origin. For example, rolled paper is classified differently from a paper sheet. Despite 34 

See, e.g., Article 3.1. of the CPTPP. Annex 5-​A to CETA’s Origin Protocol. 36  CPTPP and USMCA call this rule ‘de minimis’ (see Article 3.10 of the CPTPP and Article 4.12 of USMCA, respectively). CETA calls this ‘sufficient production’ (see Article 5 of CETA’s Origin Protocol). 35 

492   Ricardo Ramírez-Hernández being classified under different subheadings, the mere cutting of the paper would not be considered a substantial transformation.

4. Origin quota Recent RTAs contain, for certain goods, what is called an ‘origin quota’, which provides for a more flexible rule of origin applicable up to a certain amount of exports. Usually, this kind of scheme is called a Tariff Preference Level (TPL) and it is most commonly applied to textiles and apparel products. For instance, Appendix 1 and 2 of Chapter 6 of USMCA provides duty-​free access for specified quantities of yarns, fabrics, apparel, and made-​up textile goods that do not meet the origin criteria (i.e., non-​originating goods), but undergo significant processing in one or more Party countries.

VII.  Import or export quantitative restrictions A. Introduction Tariffs are authorized provided that the amount is consistent with WTO and the relevant RTA’s commitments. By contrast, Article XI of the GATT 1994 establishes a general prohibition on the imposition of import and export restrictions. As the Panel in Turkey –​Textiles stated: The prohibition on the use of quantitative restrictions forms one of the cornerstones of the GATT system. A basic principle of the GATT system is that tariffs are the preferred and acceptable form of protection. Tariffs, to be reduced through reciprocal concessions, ought to be applied in a non-​discriminatory manner independent of the origin of the goods (the ‘most-​favoured-​nation’ (MFN) clause). Article I, which requires MFN treatment, and Article II, which specifies that tariffs must not exceed bound rates, constitute Part I of GATT. Part II contains other related obligations, inter alia to ensure that Members do not evade the obligations of Part I. Two fundamental obligations contained in Part II are the national treatment clause and the prohibition against quantitative restrictions. The prohibition against quantitative restrictions is a reflection that tariffs are GATT’s border protection ‘of choice’. Quantitative restrictions impose absolute limits on imports, while tariffs do not. In contrast to MFN tariffs which permit the most efficient competitor to supply imports, quantitative restrictions usually have a trade distorting effect, their allocation can be problematic and their administration may not be transparent.37

37 

Panel Report, Turkey –​Textiles, adopted 19 November 1999, para 9.63.

Trade in Goods    493 Article XI of the GATT precludes the imposition of prohibitions or restrictions on imports or exports. The Appellate Body has identified four elements that could be drawn from this provision:38 -​ The only restrictions allowed under WTO law are customs duties, i.e., tariffs/​ duties or other internal charges (which are subject to Articles I to III of the GATT 1994).39 -​ The obligation includes not only a prohibition but also a restriction, i.e., a limitation on the import and export of merchandise. -​ They are called quantitative in the sense that they establish a limit on the quantity or amount of the exported or imported product. The Appellate Body has clarified that ‘not every condition or burden placed on importation or exportation will be inconsistent with Article XI, but only those that are limiting, that is, those that limit the importation or exportation of products’.40 -​ The provision mentions certain trade policy instruments through which a prohibition or restriction becomes operative, such as quotas, import licenses or other measures41 (such as a restriction on the port of entry of certain merchandise42 or bonding requirements43). The obligation under Article XI:1 of the GATT 1994 is incorporated or transposed in several RTAs.44 As mentioned before, quotas and import licences are expressly mentioned by Article XI. Whether a quota, licence, or other measure is WTO inconsistent needs to be determined on a case-​by-​case basis. Some can be inconsistent per se, but sometimes they can be expressly regulated by the WTO or RTA in question.

38 

Appellate Body Reports, Argentina –​Import Measures, adopted 26 January 2015, paras 5.216–​5.221; Appellate Body Reports, China –​Raw Materials, adopted 26 January 2015, paras 319–​321. 39  ‘[I]‌ nsofar as this may suggest that the mere application of a tariff by a Member on imports of another Member is somehow unfair or prejudicial. Such a connotation would, in our view, be at odds with negotiations by Members of tariff concessions that allow for the imposition of duties up to a bound level. Tariffs are legitimate instruments to accomplish certain trade policy or other objectives such as to generate fiscal revenue. Indeed, under the GATT 1994, they are the preferred trade policy instrument, whereas quantitative restrictions are in principle prohibited. Irrespective of the underlying objective, tariffs are permissible under Article II:1(b) so long as they do not exceed a Member’s bound rates.’ Appellate Body Report, India –​Additional Import Duties, adopted 17 November 2008, para 159. 40  Appellate Body Reports, Argentina –​Import Measures, adopted 26 January 2015, para 5.217. 41 The disciplines of Article XI:1 extend to restrictions of a de facto nature. See Panel Report, Argentina –​Hides and Leather, adopted 16 February 2001, para 11.17. 42  Panel Report, Colombia –​Ports of Entry, adopted 20 May 2009, paras 7.219–​7.223, 7.273. 43  Panel Report, US –​Certain EC Products, adopted 10 January 2001, para 6.61. 44  See, e.g.?, Article 2.10 of USMCA or 2.11 of CETA.

494   Ricardo Ramírez-Hernández

B. Quotas A quota is a limitation of the amount that a country will be allowed to export or import into a certain territory. Quotas can apply to imports45 and exports.46 According to the instrument in which they are incorporated, they could be ‘MFN Quotas’ or ‘Preferential Quotas’, MFN quotas are those provided under WTO law. Every WTO Member has access to such quotas. Conversely, preferential quotas are those provided for in RTAs and can be used only by parties to an RTA. Quotas can also take the form of tariff rate quotas (TRQs) which establish a certain quantity to be imported paying a determined preferential tariff rate (in-​quota tariff). When the amount provided in the TRQ is exhausted, importers must pay the normal duty (out-​of-​quota tariff). Under the WTO and RTAs, quotas are tools agreed by countries when total liberalization (i.e., tariff reduction) cannot be achieved (in many cases because of pressure or lobbying by national producers). This notion is reinforced when, in modifying a tariff concession, a WTO Member is entitled to replace such a concession with a tariff rate quota.47 Both quotas and TRQs need to be applied on a non-​ discriminatory basis in accordance with Article XIII of the GATT 1994:48 Applying Article XIII:1 to a tariff quota requires that the word ‘restriction’ be read as a reference to a tariff quota. Article XIII:1 is then rendered thus: no tariff quota shall be applied by a Member on the importation of any product of the territory of any other Member, unless the importation of the like product of all third countries is similarly made subject to the tariff quota. The application of the tariff quota is thus on a product-​wide basis. The principle of non-​discriminatory application captured by Article XIII:1 requires that, if a tariff quota is applied to one Member, it must be applied to all; and, consequently, the term ‘similarly restricted’ means, in the case of tariff quotas, that imports of like products of all third countries must have access to, and be given an opportunity of, participation. If a Member is excluded from access to, and participation in, the tariff quota, then imports of like products from all third countries are not ‘similarly restricted’.49

With respect to the possible overlap between the Article XIII of the GATT 1994 and the MFN principle, the Appellate Body has illustrated the difference: ‘if a Member imposes differential in-​quota duties on imports of like products from different supplier 45 

GATT Panel, France –​Import Restrictions, adopted 14 November 1962. See Appellate Body Report, China –​Raw Materials, adopted 22 February 2012. 47  Paragraph 6 of the Understanding on the Interpretation of Article XXVIII of the GATT 1994. 48  There are some countries, which, as part of their WTO accession process agreed not to impose duties on exports. In China –​TRQs, the United States brought a number of claims under Paragraph 116 of China’s Working Party Report, which contains commitments regarding China’s administration of its agricultural TRQ’s. Panel Report, China –​TRQs, adopted 28 May 2019. 49  Appellate Body Reports, EC –​Bananas III (Article 21.5 –​Ecuador II)/​EC –​Bananas III (Article 21.5 –​ US), adopted 11 December 2008 and 22 December 2008, para 337. 46 

Trade in Goods    495 countries under a tariff quota, Article I:1 would be implicated; if that Member fails to give access to, or allocate tariff quota shares on a non-​discriminatory basis among supplier countries, the requirements of Articles XIII:1 and XIII:2 would apply. In the absence of Article XIII, Article I would not provide specific guidance on how to administer tariff quotas in a manner that avoids discrimination in the allocation of shares.’50 Prior to the establishment of the WTO, voluntary export restraints were often used as a form of protectionism and typically administered in a non-​transparent manner. After the Uruguay Round, WTO Members agreed not to implement any new voluntary export restraints and elected to gradually eliminate the existing ones because of their trade-​distorting effects. Recently, in the context of the investigation under Section 232, the United States agreed with Argentina, Brazil, and South Korea not to impose tariffs if those countries agree to restrict their respective exportation of steel products and aluminum to certain quantities. Some WTO Members challenged this measure and argued that this scheme constituted a voluntary export restraint, which is prohibited under Article 11.1(b) of the Safeguards Agreement (which establishes an explicit prohibition to ‘seek, take or maintain any voluntary export restraints’). Moreover, the claimants alleged that the quotas at issue restrict the importation of steel products and aluminum due to their limiting effect on the quantity of the imported product (steel or aluminum) from Argentina, Brazil, or South Korea and therefore also violate Article XI:1 of the GATT 1994.

C. Licences A licence is a permit to import or export particular merchandise. The procedures for obtaining an import license are subject to the Agreement on Import Licensing Procedures,51 which draws a distinction between ‘automatic licenses’ and ‘non-​ automatic licenses.’ Automatic licences are ‘granted in all cases’,52 whereas non-​ automatic licences are those ‘not falling within the definition of automatic licenses’53 (for example, to apportion quantities under a quota). Although there is no agreement on export licensing procedures, export licences, as well as the procedures to obtain them, are also covered by Article XI:1 of the GATT 1994.54 50

  Ibid., at para 343. The preamble to the Agreement on Import Licensing Procedures clearly indicates that it relates to import licensing procedures and their administration, but not to import licensing rules. Appellate Body Report, EC –​Bananas III, adopted 25 September 1997, para 197. 52  Article 2 of the Agreement on Import Licensing Procedures. 53  Article 3 of the Agreement on Import Licensing Procedures. 54  ‘The Panel finds that China’s export licensing regime is not per se inconsistent with Article XI:1 on the basis that it permits export licensing agencies to require a licence for ‘goods subject to . . . export restrictions’, as provided for in Article 19 of China’s Foreign Trade Law. The Panel finds, however, that the discretion that arises from the undefined and generalized requirement to submit an unqualified number of ‘other’ documents of approval in Article 11(7) of China’s 2008 Export Licence Administration Measures, as applicable to goods subject to export licensing only, or the 51 

496   Ricardo Ramírez-Hernández With regard to the relationship between Article XI and the Agreement on Import Licensing Procedures, it is clear that violation of Agreement on Import Licensing Procedures would necessarily imply that a quantitative restriction violates Article XI. However, whether a measure that fully complies with this agreement, is ‘immune’ from a challenge under Article XI remains an open question.55 Another related issue is the order of analysis. In the context of whether a panel should address another provision of the GATT or the Agreement on Import Licensing Procedures, the Appellate Body stated that a panel should address first the agreement which ‘deals specifically and in detail, with the administration of import licensing procedures’.56 Based on the reasoning of the Appellate Body in Argentina –​Import Measures, this logic should also apply to Article XI, but it seems that panels tend to consider first the general provision, i.e. Article XI.57

D. Other measures There is a ‘broad residual category’ of measures that might fall within the scope of Article XI:1 of the GATT 1994. This includes, for instance, measures that restrict imports based on the purchase of local goods or investing in an importing country;58 establish minimum import59 or export prices60 (whereby importation or exportation will not be allowed if the merchandise is below the set minimum price); the amount imports based on the amount of exports61 (trade balancing); or imports of certain products to specific ports of entry.62

‘other materials’ in Articles 5(5) and 8(4) of China’s Working Rules on Export Licenses, amounts to an additional restriction inconsistent with Article XI:1.’ Panel Report, China –​Raw Materials, adopted 22 February 2012, para 7.958. 55  ‘. . .

Moreover, since the Panel made no finding as to the consistency of the DJAI procedure with the Import Licensing Agreement, we do not opine on the general relationship between the GATT 1994 and the Import Licensing Agreement’. Appellate Body Report, Argentina –​Import Measures, adopted 26 January 2015, fn 666. 56  Appellate Body Report, EC –​Bananas III, adopted 25 September 1997, para 204. 57  See, e.g., Colombia –​Ports of Entry where the Panel declined to rule on whether there was also an Article XIII violation: ‘[I]‌n addition to being a prohibited restriction within the meaning of Article XI:1, the ports of entry measure is imposed only on certain textile, apparel or footwear goods arriving from Panama, independent of the products’ origin, and not like-​product imports originating in, and shipped from, any other Member or third country. Whether or not it is discriminatory in its design, the restrictions on ports of entry are prohibited under Article XI:1’. Panel Report, Colombia –​Ports of Entry, adopted 20 May 2009, para 7.291. 58  Appellate Body Report, Argentina –​Import Measures, adopted 26 January 2015. 59  Brazil –​Measures on Import Licensing and Minimum Import Prices. 60  See Appellate Body and Panel Reports, China –​Raw Materials, adopted 22 February 2012. 61  See Appellate Body and Panel Reports, India –​ Autos, adopted 5 April 2002. 62  See Appellate Body and Panel Reports, Colombia –​Ports of Entry, adopted 20 May 2009.

Trade in Goods    497

E. Measures not covered Finally, the prohibition on quantitative restrictions under Article XI:1 does not extend63 to three types of measure provided in Article XI:2, namely: export prohibitions related to the exporting country’s temporal64 scarcity65 of food or other essential products;66 import or export prohibitions or restrictions necessary to apply certain type of standards for classification, grading or marketing of commodities67 and import restrictions on agricultural or fisheries products, necessary to enforce governmental measures in certain circumstances.68

VIII.  Customs administration and trade facilitation A. Introduction Since 1947, the main goal of international trade negotiations has been the reduction or elimination of import tariffs or duties. To some extent, this objective has been achieved under the GATT 1947, then under the WTO, and RTAs. 63 In

one of its first cases, the Appellate Body characterized measures under Article XI:(2) as exemptions: ‘Articles XX and XI:(2)(c)(i) are limited exceptions from obligations under certain other provisions of the GATT 1994, not positive rules establishing obligations in themselves. They are in the nature of affirmative defences’. Appellate Body Report, US –​Wool Shirts and Blouses, adopted 23 May 1997, at 16. More recently, the Appellate Body addressed the question of the relationship between Articles XI (2) and XX as follows: ‘Members can resort to Article XX of the GATT 1994 as an exception to justify measures that would otherwise be inconsistent with their GATT obligations. By contrast, Article XI:2 provides that the general elimination of quantitative restrictions shall not extend to the items listed under subparagraphs (a) to (c) of that provision. This language seems to indicate that the scope of the obligation not to impose quantitative restrictions itself is limited by Article XI:2(a). Accordingly, where the requirements of Article XI:2(a) are met, there would be no scope for the application of Article XX, because no obligation exists.’ Appellate Body Report, China –​Raw Materials, adopted 22 February 2012, para 334. 64 Describing a measure applied for a limited time; a measure taken to bridge a ‘passing need’. Appellate Body Report, China –​Raw Materials, adopted 22 February 2012, para 323. 65   ‘. . . deficiencies in quantity that are crucial, that amount to a situation of decisive importance, or that reach a vitally important or decisive stage, or a turning point’. Appellate Body Report, China –​Raw Materials, adopted 22 February 2012, para 324. 66  ‘. . . otherwise absolutely indispensable or necessary products’. Appellate Body Report, China –​Raw Materials, adopted 22 February 2012, para 326. 67  See GATT Panel, Canada –​Herring and Salmon, paras 4.1 and 4.2. 68 No WTO panel has addressed this provision. A good account of the drafters’ intention was discussed by the GATT Panel in Japan –​Agricultural Products I: ‘in agriculture and fisheries you have to deal with the capricious bounty of nature, which will sometimes give you a huge catch of fish or a huge crop, which knocks the bottom out of prices. You also have the phenomenon peculiar to agriculture and fisheries of a multitude of small unorganized producers that cannot organize themselves. It often

498   Ricardo Ramírez-Hernández However, other obstacles to trade result from bureaucratic burdens or red tape related to imports or exports. Increasingly, States have valued the objective of expediting the movement, customs clearance, and circulation of goods, including while in transit. What is the use of a zero-​tariff if an importer’s goods spoil during a lengthy customs clearance procedure? The greater the amount of time required to obtain customs clearance, the higher the associated costs on imports or exports (e.g., insurance or the rent of the warehouse). This is particularly important for perishable goods or products like vaccines that need special storage. Applying the same level of scrutiny by customs administrations could also generate barriers. Moreover, the time and cost of customs administrations practices can also interfere with imports or exports. In some countries, imports or exports are carried out only by certain persons (i.e., customs brokers), who have control over the cost of the service due to their monopoly practices. Another related problem is the application of sanctions, including the risk that the salary of customs officials is linked to the penalties or sanctions applied on imports or exports. Finally, due to the recent COVID-​19 pandemic situation, trade facilitation measures have emerged as a key element in the regulation of trade in goods. As a result of the pandemic, the ‘COVID19 Trade Facilitation Repository’ was launched. This is a joint platform of actions and initiatives with the aim of consolidating information on trade-​ facilitation measures.69

B. Trade facilitation measures 1. The WTO Trade Facilitation Agreement Trade facilitation measures are measures that, in substance, make the procedures of international trade less agile and burdensome. One of the lessons learned from the COVID 19 pandemic was the great importance of expedite custom procedures. One or five days in clearing customs really made a difference. In 2013, WTO Members concluded the Agreement on Trade Facilitation, which has the potential to reduce costs relating to worldwide trade by between 10 per cent

happens that the Government has to step in and organize them.’ (EPCT/​A/​PV/​19, emphasis added) The drafters agreed that the exception: ‘was not intended to provide a means of protecting domestic producers against foreign competition, but simply to permit, in appropriate cases, the enforcement of domestic governmental measures necessitated by the special problems relating to the production and marketing of agricultural and fisheries products’ (Havana Reports, p. 89, emphasis added). They also agreed that the exception: ‘should not be construed as permitting the use of quantitative restrictions as a method of protecting the industrial processing of agricultural or fisheries products.’ (Havana Reports, p. 93, emphasis added)’. GATT Panel, Japan –​Agricultural Products I, para 5.1.2. 69  See WTO, Trade Facilitation Agreement Facility, at < https://​www.tfaf​acil​ity.org/​covi​d19-​trade-​facil​ itat​ion > (last visited 13 April 2020).

Trade in Goods    499 and 18 per cent.70 The Agreement on Trade Facilitation entered into force in 2017, with different implementation dates depending on each developing country or least developing country Member, and with different dates of implementation for each provision according to a process of self-​determination. The Agreement on Trade Facilitation is a two-​fold instrument: Section I establishes the substantive commitments, and Section II regulates the special and differential treatment for developing country Members and least developing country (LDCs) Members. Section I sets out commitments of various types, such as mandatory provisions, attenuated obligations, and best effort clauses or permissive clauses. The Trade Facilitation Agreement develops three GATT 1994 provisions, namely Articles V (freedom of transit), VIII (fees and formalities connected with importation and exportation), and X (publication and administration of trade regulations). Additionally, there are provisions adapted to new technologies. Among the most relevant provisions, in the Trade Facilitation Agreement and RTAs, we find the following: -​ Publication of information. A basic, but important provision, is the obligation to publish laws and regulations, and other documents related to importation, exportation, and transit. The information is, inter alia, on procedures, rates of duties, taxes, fees and charges, restrictions or prohibitions, procedures for appeal or review. The aim of this provision is to help governments, traders, and interested parties. -​ Advance rulings. Probably one of the most useful provisions is the availability of a previous written determination (i.e., an advance ruling) granted by the authority if certain conditions are met before importing goods. These are related to, for example, goods’ tariff classifications, origin of the goods, methods or criteria to be used for determining the customs value of a good, requirements for exemption from customs duties, or quota, or tariff-​rate quota. -​ Customs Cooperation. Custom authorities are encouraged to share information. Such information includes general information on best practices, as well as specific information on the individual exports subject to the protection of confidential information. -​ Expedited release of goods. There are a number of provisions to expedite the release of goods, such as post-​clearance audits, providing electronic submission and processing of documentation and data in advance of the arrival of the goods, usage of information technology, or risk controls. -​ Freedom of transit. These disciplines cover goods in transit. These rules are of interest not only to those landlocked Members, whose trade is subject to transit











70 See OECD, Implementation of the WTO Trade Facilitation Agreement: The Potential Impact on Trade Costs, May 2018, at < http://​www.oecd.org/​trade/​top​ics/​trade-​facil​itat​ion/​ > (last visited 9 September 2021).

500   Ricardo Ramírez-Hernández through other territories, but also in general for countries that need to import goods which have to transit other WTO Members. The disciplines try to make traffic in transit easier or, at least, less burdensome, considering that the goods will not be imported into the territory that allows such transit. Finally, the Agreement on Trade Facilitation sets out a new approach to Special and Differential Treatment. Traditionally, at the WTO, depending on the development stage of a Member, provisions envisage different timings for their implementation. It has been recognized that a horizontal approach to all developing and least-​developed Members was not very appropriate due to different levels of development and specific needs of developing countries or LDC Members. Accordingly, and bearing in mind that within the category of development there is a broad range of countries with very different levels of development, WTO Members decided to allow developing country and LDCs Members to design a ‘tailor made’ list to implement the provisions of the Trade Facilitation Agreement, and determining in which areas technical assistance is required.71 This approach allowed the support of WTO Members for the Agreement on Trade Facilitation negotiations but has made more challenging the full implementation of this instrument. Finally, the COVID 19 pandemic showed the importance of trade facilitation measures. Accordingly, the COVID 19 Trade Facilitation Resource Repository was launched as a joint initiative, among others, by WTO, WCO, UNCTAD and the International Trade Centre,72 which consolidates relevant information.

2. RTAs Prior to the Agreement on Trade Facilitation negotiations, RTAs already contained certain provisions on customs administration and trade facilitation (but not in a single chapter). In the most recent RTAs, such as CPTTP, CETA, or the USMCA, there is a specific chapter establishing customs administration and trade facilitation provisions. The WTO has reported that between 1990 and 2004, trade facilitation obligations were included in RTAs but with limited coverage. Since 2004—​ when the TFA negotiations started—​the trend has continued but with more extensive coverage.73 In general terms, RTAs set out deeper provisions on trade facilitation compared to the WTO. There are several types of trade facilitation obligations in RTAs. Some of the most prominent obligations concern the following: -​ Single window: In every trade operation (import, export, or transit) there are different authorities involved, including customs authorities and a number of



71 

See further Chapter 22 of this handbook. See < https://​www.tfaf​acil​ity.org/​covi​d19-​trade-​facil​itat​ion > (last visited 9 September 2021). 73 WTO, World Trade Report 2015. Speeding up trade: benefits and challenges of implementing the WTO Trade Facilitation Agreement (Geneva: WTO; 2015), at 47–​48, at < https://​www.wto.org/​engl​ish/​res_​e/​ books​p_​e/​wor​ld_​t​rade​_​rep​ort1​5_​e.pdf > (last visited 9 September 2021). 72 

Trade in Goods    501







documents or information to be filed. In this vein, a single point of entry is essential to allow the trader to submit everything needed and to stay in contact with appropriate office up until the final decision. While at the WTO, Members ‘shall endeavour to establish or maintain a single window’ regarding requirements for importation, exportation, or transit of goods,74 CPTPP Parties ‘shall endeavour to provide a facility that allows importers and exporters to electronically complete standardised import and export requirements at a single entry point’,75 and in USMCA, the Parties ‘shall establish or maintain a single window system’ limited to importation.76 -​ Advance rulings. On request by an applicant the authority must issue a written decision before the importation regarding the treatment that such authority will grant at the time of importation on a specific matter. The type of treatment could cover tariff classification, origin, customs valuation, requirements such as relief or exemption from customs duties, requirements for quotas, or an additional matter. While under the WTO Members are only obliged to issue advance rulings on two matters (tariff classification and origin) and are only encouraged to provide advance rulings on other matters,77 the CPTPP78 and the USMCA have a broader coverage.79 -​ Authorized operators. Subject to some requirements, certain additional trade facilitation measures could be granted to certain operators, such as fewer documents and requirements, fewer physical inspections or examinations, rapid release time, deferral of payments of duties, taxes, fees and charges, special guarantees, single customs declaration for a given period, and clearance of goods at the facilities of the operator. While at the WTO Members must provide at least three of the above-​ mentioned measures,80 the CPTPP does not address these types of measure, but USMCA goes further by requiring Parties to maintain a trade facilitation partnership program for operators who meet specified security criteria in accordance with the Framework of Standards to Secure and Facilitate Global Trade of the WCO.81 -​ Expedited or express shipments. For certain operators and subject to some conditions, this is a trade facilitation measure that involves fever documents and the quicker release of goods when the good is of a certain value (de minimis). More importantly the goods at hand will not be subject to payment of customs duties and taxes, except internal taxes such as value added and excise taxes. Basically, it refers to the services provided by courier enterprises, which is particularly relevant in a digital trade era. While at the WTO Members are free to set a de minimis shipment 74 

Article 9.4.1 of the Agreement on Trade Facilitation. Article 5.6.2 of the CPTPP. 76  Article 7.10.1 of USMCA. 77  Article 3.9 of the Agreement on Trade Facilitation. 78  Article 5.3.1 of the CPTPP. 79  Article 7.5.4 of USMCA. 80  Article 7.7.1 of the Agreement on Trade Facilitation. 81  Article 7.14.1 of USMCA. 75 

502   Ricardo Ramírez-Hernández value due to the impossibility of establishing a common value,82 the CPTPP allows each Party to determine the value; and USMCA sets out different amounts for its Parties (for the United States US$800, for Mexico US$117 for customs duties and US$50 for taxes, and for Canada C$150 for customs duties and C$40 for taxes).83

IX. Conclusion Trade in goods has been regulated internationally for almost 75 years. As the original form of trade protectionism, tariffs have been there for the same time. As trade became more sophisticated and countries understood the shortcomings of imposing tariffs, there was a belief that, at some point, tariffs would be substituted by other forms of trade barriers, such as technical barriers of trade or sanitary measures. However, tariffs regained their relevance recently, when some WTO Members, use them as a tool of advancing its trade policy goals even if it meant not necessarily adhering to a rules-​ based system. As seen in this chapter, the classification of goods is where all the regulation of the trade of goods starts. It is a fundamental tool for traders to operate and governments to regulate trade. WTO and RTAs incorporate diverse disciplines pertaining to duties which address not only the different types, modalities, or amount but also their linkage to domestic industrial policy issues, such as rules on drawback or performance requirements. This chapter addresses an often overlooked topic in the regulation of trade in goods, i.e., rules of origin. Rules of origin are permanent, they outlast tariff, quotas and other forms of trade protection. One could not conceive trade today without considering the applicable rules of origin throughout the web of a global value chain. To some extent, like tariffs, traditional import or export restrictions, such as quotas or licences, seemed to be moving towards annihilation. However, the COVID 19 pandemic taught us that, in times of peril, they are a convenient recourse to restrict imports and exports. The COVID 19 pandemic also revealed the importance of trade facilitation. It made clear that an efficient customs clearance proceeding could not only save companies money but also people’s lives. Finally, a few reflections on the future of trade in goods. In terms of lessons learned, one of the most important lessons of COVID 19 pandemic is that the lack of leadership and coordination in the world trading system created chaos which caused the proliferation of unilateral protectionist measures. In terms of challenges, a major one is that WTO Members need to restore the trust and credibility in a rules-​based system. Thus far, all the right things have been said but concrete actions are needed to move

82  83 

Article 7.8 of the Agreement on Trade Facilitation. Article 7.8.1 of USMCA.

Trade in Goods    503 forward. In terms of future disciplines, three major issues can be foreseen. First, the distinction between trade in goods and trade in services will become more and more blurred as they become further intertwined. So, this begs the question whether in the future it will still be necessary to draw a clear line between the regulations of trade in goods and trade in services. Second, the inclusion of other areas, such as labour or environment under the international trade realm will certainly impact trade disciplines. What has been up to now a tangential discussion regarding the relation between trade and labour and trade and environment will be at the heart of ‘new generation’ trade instruments. Environment-​related tariffs or taxes and labour enforcement through restrictions on imports may thrive. Finally, technology will likely also permeate the new trade disciplines. The third ‘unblunding’ is here. Three-​dimensional printing, artificial intelligence, and digital economy in general are a reality and are starting to having a significant impact not only on day-​to-​day trade operation, flows, and performance but will also bring into the scene new trade (non-​human) actors. In sum, challenging and fascinating times lie ahead.

Further reading R. Baldwin, The Globotics Upheaval: Globalisations, Robotics and the Future of Work (New York: Oxford University Press, 2019) L. Bartels and C. Häberli, ‘Binding Tariff Preferences for Developing Countries under Article II GATT’ 13(4) Journal of International Economic Law (2010) 969–​995 P. Van den Bossche and W. Zdouc, The Law and Policy of the World Trade Organization: Text, Cases and Materials, 4th edition (Cambridge: Cambridge University Press, 2017) N. Neufeld, ‘The Long and Winding Road: How WTO Members Finally Reached a Trade Facilitation Agreement’ 2014 WTO Staff Working Paper ERSD-2014–06 S. Roy and J. Lee Ann, ‘Identifying Non-​Tariff Barriers: Evolution of Multilateral Instruments and Evidence from the Disputes (1948-​2011)’ 11(3) World Trade Review (2012) 462–​478

Chapter 18

T r a de i n Se rv i c e s Chantal Ononaiwu

I. II.

Introduction The GATS: an unfinished agenda A. Key features of the existing framework B. Built-​in agendas C. Plurilateral initiatives III. Advances under services FTAs A. Disciplines on domestic regulation B. Temporary entry of business persons C. Cross-​border e-​commerce or digital trade D. Sector-​specific rules I V. Further evolution of international regulation of trade in services: concluding thoughts

504 506 506 511 513 516 517 524 525 526 530

I. Introduction Services make an important contribution to national economies, accounting for a significant share of gross domestic product1and employment,2 and providing inputs to all sectors of the economy. Services also make a significant contribution to world trade.

1  Globally, services value-​added accounted for 65 per cent of gross domestic product (GDP) in World Bank, ‘Services, Value Added (% of GDP)’ (2019), at < https://​data.worldb​ank.org/​indica​tor/​NV.SRV. TOTL.ZS > (last visited 10 September 2021). 2 Employment in services accounted for 50 per cent of total employment in World Bank, ‘Employment in services (% of total employment)’ (2019), at < https://​data.worldb​ank.org/​indica​tor/​ SL.SRV.EMPL.ZS > (last visited 10 September 2021).

Trade in Services    505 Global trade in services has been growing faster than trade in goods.3 While services are still traded largely through a commercial presence,4 digitalization, the internet, and lower-​cost telecommunications are making the supply of services over digital networks easier. Services that can be supplied digitally represent the fastest growing segment of services trade, and a long-​term shift towards online services is expected.5 New technologies that enable digital supply have facilitated the growing participation of developing countries and micro, small and medium-​sized enterprises (MSMEs) in services trade.6 Services play an integral role in global trade beyond being products for export. They provide the core infrastructure for trade in goods, facilitate the online supply of services and e-​commerce generally, and are key enablers of global production networks.7 Services are also an important source of value-​added in world trade. Services are embodied in the exports of goods8 and manufacturing firms increasingly provide services that are inputs to the goods they produce or are bundled with those goods.9 These trends reflect the intertwined nature of manufacturing and services and the increasingly blurred lines between what constitutes a service and what constitutes a good, due largely to technological developments. Services value-​added contained in international goods and services exports accounts for close to 50 per cent of the value of international goods and services trade.10 However, the multilateral framework for trade in services provided by the GATS,11 has not evolved in line with the growing importance of services in the global economy and world trade. Scheduled commitments of WTO Members generally are less liberal 3 WTO,

World Trade Report 2019: The Future of Services Trade (Geneva: World Trade Organization, 2019), at 22. In contrast to balance of payments statistics, the Trade in Services by Mode of Supply (TISMOS) dataset of the WTO includes the supply of services through a commercial presence and thereby captures the total value of services trade. Based on TISMOS, the WTO estimated that services trade grew 5.4 per cent annually on average from 2005 to 2017, faster than the 4.6 per cent yearly growth in goods trade over that period. 4  Ibid. The WTO estimated that in 2017, the supply of services through foreign affiliates accounted for 58.9 per cent of services trade. 5  Ibid., at 9–​10; WTO, ‘Trade in Services in the Context of COVID-​19: Information Note’ (28 May 2020) 2, at (last visited 10 September 2021). 6  WTO, above fn 3, at 7-​8. 7   M. Roy, ‘Elevating Services: Services Trade Policy, WTO Commitments, and their Role in Economic Development and Trade Integration’ 53(6) Journal of World Trade (2019) 923. 8  Using the OECD Trade in Value-​Added (TiVA) database, the WTO estimates that in 2015, services value-​added accounted for 33 per cent of manufacturing exports for developed economies and 29 per cent for developing economies: see WTO, above fn 3, at 46. 9 A study using data for 31 economies estimated that the share of services value-​ added in manufacturing exports increases from 37 percent to 53 per cent when the services activities conducted within manufacturing firms are taken into account: see S. Mirodout and C. Cadestin, ‘Services in Global Value Chains: From Inputs to Value-​creating Activities’ 2017 OECD Trade Policy Papers 197. 10  WTO, above fn 3, at 8. 11 WTO, The Legal Texts: The Results of the Uruguay Round of Multilateral Trade Negotiations (Geneva, 2002) 284.

506   Chantal Ononaiwu than applied measures. Built-​in agendas under the GATS for progressive liberalization and the development of further rules are unfulfilled. In contrast, since the conclusion of the GATS, there has been an explosion in the number of FTAs with commitments to liberalize trade in services. These agreements generally reflect a greater binding of applied regimes and feature rule-​making in several areas beyond the GATS. This chapter will illustrate how FTAs have developed frameworks that better reflect the role of services in world trade and the changing dynamics of services trade. The remainder of the chapter is organized as follows. Section II briefly reviews key features of the existing GATS framework and the attempts to elaborate that framework. It also examines plurilateral initiatives to achieve more ambitious outcomes than the multilateral regime. Section III assesses how FTAs have gone further than the GATS, both in terms of liberalization commitments and disciplines. The final section offers thoughts on initiatives that can support the further evolution of international regulation of services trade in line with the role of services in the global economy.

II.  The GATS: an unfinished agenda A. Key features of the existing framework 1. Introduction The GATS, one of the landmark agreements to emerge from the Uruguay Round of negotiations, provides a multilateral framework for the expansion and progressive liberalization of trade in services.12 The Agreement broadly covers measures by Members affecting trade in services.13 The broad scope of the GATS is signified by its definition of trade in services as the supply of services through four modes.14 A hallmark of the GATS is that, in addition to the traditional notion of cross-​border supply, the Agreement covers the supply of services through consumption abroad, a commercial presence15 in the host country, and the temporary presence of natural persons.16 The reach of the Agreement is equally extensive in terms of its coverage of services, as the only services excluded from its scope are those supplied in the exercise of governmental authority and most air transport services.17 The broad reach of the GATS is also evidenced by its 12 

Second preambular recital of the GATS. Article I:1 of the GATS. 14  Article I:2 of the GATS. 15  Commercial presence is defined broadly to cover the constitution, acquisition and maintenance of a juridical person, as well as the creation or maintenance of a branch or representative office: Article XXVIII(c) of the GATS. 16  The Annex on Movement of Natural Persons Supplying Services under the Agreement clarifies that the GATS does not apply to measures affecting natural persons seeking access to the employment market of a Member or measures regarding citizenship, residence or employment on a permanent basis. 17  Article 1:3(b) of the GATS, Annex on Air Transport Services. 13 

Trade in Services    507 coverage not only of services but also service suppliers, which reflects the reality that services regulation frequently is focused on the service provider rather than the service. A wide array of regulatory measures are within the scope of the Agreement, given that measures ‘affecting’ trade in services are understood as those which have ‘an effect on’ trade in services, and not merely measures which directly govern or regulate trade in services.18 The GATS contains disciplines which aim to liberalize barriers to trade in services arising from regulations that discriminate against foreign services and service suppliers. The Agreement also features provisions that can be used to reduce the adverse effects of non-​discriminatory regulations on trade in services. The GATS thereby acknowledges that impediments to trade in services may arise in circumstances where regulations are applied equally to all service suppliers in a market. Measures that apply to all service providers may, in practice, make it impractical or too costly for foreign firms to enter or expand operations in a domestic market. Service providers that serve more than one market may need to conform to different local requirements that pursue the same regulatory goal and incur the redundant costs of complying with multiple regulations. Impediments to trade in services can arise not only from the substance of non-​discriminatory regulations, but also from lack of transparency in their development and application and procedural fairness in their administration. Reducing the trade-​impeding impact of regulations is complex because governments exert control or influence over the activities or behaviour of service suppliers to pursue a host of important policy objectives, such as consumer protection, minimizing the impact of negative externalities, preventing the abuse of market power and ensuring universal access to essential services. While trade liberalization is a core objective of the GATS, the Agreement recognizes the important role of regulation in services sectors. It expressly recognizes the right of Members to regulate and introduce new regulations on the supply of services to meet national policy objectives.19 Further, the Agreement specifies that the objective of progressive liberalization should be achieved while giving due respect to national policy objectives.20 In addition, through several exceptions, the GATS affirms the right of Members to pursue various regulatory objectives even if, in doing so, they act inconsistently with their obligations under the Agreement.21

18 

Appellate Body Report, EC –​Bananas III, adopted 25 September 1997, para 220. GATS, fourth preambular recital. 20 GATS, third preambular recital. The Appellate Body has noted that the term ‘national policy objectives’, which is general and undefined, may cover a wide array of objectives: Appellate Body Report, Argentina –​Financial Services, adopted 14 April 2016, para 6.114. 21  General and security exceptions are set out in Articles XIV and XIVbis of the GATS respectively. In addition, the Annexes set out further exceptions, such as the so-​called ‘prudential carve-​out’ in paragraph 2(a) of the Annex on Financial Services, which permits Members to take measures for prudential reasons. 19 

508   Chantal Ononaiwu

2. Disciplines on discriminatory measures Discriminatory measures can be addressed by the market access, national treatment, and most-​favoured nation (MFN) obligations in the GATS. The market access provision prohibits a Member from maintaining certain restrictions on entry and establishment in scheduled sectors unless those measures have otherwise been specified in its schedule.22 The generally proscribed market access restrictions may be overtly discriminatory or, with the exception of limitations on the participation of foreign capital, may be applicable to both domestic and foreign services and service suppliers.23 The national treatment and MFN disciplines serve the function of prohibiting discrimination against foreign services and service suppliers vis-​à-​vis like services and service suppliers.24 The national treatment discipline requires Members who schedule this obligation, subject to any specified reservations, not to discriminate between like domestic and foreign services and service suppliers.25 The MFN discipline, a general obligation, complements the national treatment provision by mandating non-​ discrimination between like foreign services and service suppliers.26 The potential reach of the MFN provision is limited by several allowed departures, including the maintenance of MFN-​inconsistent measures that were listed as exemptions27 and preferential treatment accorded under regional trade agreements.28 Fundamentally, both anti-​discrimination provisions discipline measures which modify the conditions of competition between services and service suppliers in a competitive relationship.29 In recognition of the infeasibility of rapid and unrestrained opening of services markets to foreign competition, market access and national treatment are specific commitments which apply only to services sectors that a Member has included in its schedule. The GATS affords Members considerable flexibility to define the scope of their commitments.30 They are free to decide whether to include a sector or sub-​sector 22 Article XVI of the GATS. The exclusive focus of the provision is on six categories of market access restrictions, namely, limitations on the number of service suppliers, the total value of service transactions or assets, the total number of service operations or the quantity of service output and the total number of natural persons that may be employed in a service sector or that a service supplier may employ; measures that restrict or require specific types of legal entity or joint venture through which a service provider may supply a service; and limitations on the participation of foreign capital. 23  Panel Report, China –​Electronic Payment Services, adopted 16 July 2012, paras 7.653–​ 54; Panel Report, EU –​Energy Package, adopted 10 August 2018, paras 7.713 and 7.718. 24   Appellate Body Report, Argentina –​Financial Services, adopted 14 April 2016, para 6.105. 25  Article XVII of the GATS. 26  Article II of the GATS. 27  The Annex on Article II Exemptions permitted the listing of exemptions on a one-​off basis. 28  Article V of the GATS. 29  The Appellate Body has determined that the concept of ‘likeness’ under Articles II and XVII of the GATS is concerned with the competitive relationship of services and services suppliers, and that the concept of ‘no less favourable treatment’ under both provisions is focussed on a measure’s modification of the conditions of competition: Appellate Body Report, Argentina –​Financial Services, adopted 14 April 2016, paras 6.25 and 6.106. 30  Appellate Body Report, Argentina –​Financial Services, adopted 14 April 2016, para 6.112; Panel Report, China –​Publications and Audiovisual Products, adopted 12 August 2009, para 7.921.

Trade in Services    509 in their schedules and whether, with respect to each of the four modes of supply, they will undertake a commitment to provide market access or national treatment, and attach limitations to any such commitment.31 Overall, the specific commitments in GATS Schedules are modest in terms of their sectoral coverage and the level of market access and national treatment that has been bound under each mode of supply for committed sectors.32 Generally, scheduled commitments do not guarantee the level of openness of the measures currently applied by WTO Members.33 Exceptionally, services trade reforms were driven by the phased-​ in commitments made during the extended negotiations on basic telecommunications and financial services in the late 1990s.34 In addition, acceded Members undertook more extensive service commitments than original Members.

3. Disciplines on non-​discriminatory measures The GATS uses two types of approaches to reduce the adverse effects of non-​ discriminatory measures on trade, both of which leave Members free to pursue different policy objectives and levels of regulatory stringency. The first is through what has been called ‘policed decentralization’, that is, the imposition of constraints on Members’ regulations.35 The GATS does so through general obligations, such as the provisions on transparency36 and the rules on domestic regulation.37 With respect to transparency, the existing obligations include requirements to publish measures affecting the operation of the Agreement and to notify the WTO of new or changed measures. With respect to domestic regulation, the existing disciplines under Article VI are largely procedural and impose minimum standards of procedural

31 

Article XX of the GATS. above fn 7. Roy notes that, on average, WTO Members have scheduled a little over a third of all services sectors. Mode 1 (cross-​border supply) frequently is unbound, that is, not committed, while mode 2 (consumption abroad) is more unrestricted. Sector-​specific commitments for mode 3 (commercial presence) tend to be subject to more limitations, while commitments on mode 4 (presence of natural persons) are typically limited, on a horizontal basis, to certain categories of natural persons. 33  Some WTO Members opted to schedule their commitments in financial services on the basis of the Understanding on Commitments in Financial Services, which was negotiated during the Uruguay Round. This Understanding features a ‘standstill’ commitment allowing WTO Members to schedule reservations only to the extent of existing non-​conforming measures. 34  WTO negotiations on basic telecommunications generated the Fourth Protocol to the GATS and the Reference Paper on Regulatory Principles for Telecommunications. The extended negotiations on financial services in 1995 produced the Second Protocol to the GATS and those in 1997 generated even further improvements in specific commitments, which were reflected in the Fifth Protocol. 35  A.O. Sykes, ‘The (Limited) Role of Regulatory Harmonization in International Goods and Services Markets’ 2(1) Journal of International Economic Law (1999) 49, at 50. This approach is also referred to as ‘policed regulation’ in K. Nicolaïdis and J. Trachtman, ‘From Policed Regulation to Managed Recognition in GATS’ in P. Sauvé and R.M. Stern (eds), GATS 2000: New Directions in Services Trade Liberalization (Washington DC: Brookings Institution, 2000), at 240. 36  Article III of the GATS. 37  Article VI of the GATS. 32  Roy,

510   Chantal Ononaiwu fairness in the application of national measures affecting trade in services.38 Most expressly apply only in sectors in which a Member has undertaken specific commitments, suggesting that these disciplines are largely designed to ensure that the value of specific market access and national treatment commitments are not undermined by the manner in which domestic regulations are applied. Article VI also addresses impediments to trade in services arising from certain types of domestic regulations. It creates a mandate to develop any necessary disciplines to ensure that measures relating to qualification requirements and procedures, technical standards, and licensing requirements do not constitute unnecessary barriers to trade in services.39 Pending the entry into force of such disciplines in scheduled sectors, a ‘standstill’ discipline applies for the licensing and qualification requirements and technical standards that Members apply in scheduled sectors.40 The GATS also enables Members to discipline non-​ discriminatory measures through the assumption of specific commitments. As indicated above, certain non-​ discriminatory restrictions fall within the scope of the market access provision. Through the scheduling of additional commitments, Members can address measures affecting trade in services that are not subject to scheduling under the market access and national treatment provisions, including those relating to qualifications, standards, or licensing matters.41 The Reference Paper, which was developed during the extended negotiations on basic telecommunications,42 illustrates how WTO Members can elaborate disciplines on domestic regulation which may be assumed, in whole or in part, through the scheduling of additional commitments. This reference text sets out measures that Members should take to ensure a pro-​competitive regulatory framework for telecommunications. It addresses a range of regulatory issues, built on existing disciplines in the GATS, including safeguards against anti-​competitive practices of suppliers, interconnection, universal service obligations, licensing, the independence of regulators and the allocation and use of scarce resources.43 38 These

include requirements under Article VI for the reasonable, objective and impartial administration of measures of general application affecting trade in services, to maintain procedures for the review of administrative decisions affecting trade in services, for the timely handling of applications for an authorization to supply a service, and to provide adequate procedures to verify the competence of foreign professionals. 39  Article VI:4 prescribes that these disciplines shall aim to ensure that these measures are based on objective and transparent criteria, such as competence and the ability to supply the service, are not more burdensome than necessary to ensure the quality of the service and, in the case of licensing procedures, do not in themselves constitute a restriction on the supply of the service. 40 Article VI:5 prohibits a Member from applying licensing and qualification requirements and technical standards that nullify or impair its specific commitments in a manner which does not comply with any of the criteria outlined in Article VI:4 and could not reasonably have been expected of the Member at the time the specific commitments were made. 41  Article XVIII of the GATS. 42  Negotiating Group on Basic Telecommunications ‘Reference Paper’ (24 April 1996), at < https://​ www.wto.org/​engl​ish/​trato​p_​e/​ser​v_​e/​teleco​m_​e/​tel2​3_​e.htm > (last visited 11 September 2021). 43  The disciplines on competitive safeguards, interconnection, and universal service expanded on the disciplines in the GATS addressing monopolies and exclusive service suppliers (Article VIII) and other

Trade in Services    511 Recognition, the other approach under the GATS for addressing the adverse trade effects of non-​discriminatory regulation, facilitates market access despite differences in national regulation. Through recognition, a host country grants market access to foreign service suppliers which comply with home country regulation that comes reasonably close to satisfying its own regulatory goals. Recognition therefore facilitates market access in spite of genuine differences of opinion between countries over the appropriate emphasis and stringency of regulation.44 The trade impact of regulatory heterogeneity is reduced by avoiding the need for internationally active service providers to comply with more than one set of regulations or prove compliance with substantive regulatory requirements to multiple regulatory authorities. The GATS allows Members to recognize, either autonomously or through agreement, the education or experience obtained, requirements met, or licences or certifications granted in another country.45

B. Built-​in agendas The GATS was recognized to be an unfinished platform for services trade liberalization. The Agreement contains several mandates to develop further disciplines and specific commitments. Notwithstanding several attempts to fulfill these mandates, the multilateral framework for trade in services has not been updated in over two decades. The Agreement contains a built-​in agenda of progressive liberalization through successive rounds of negotiations designed to increase the specific level of commitments undertaken by Members.46 Services negotiations were launched in 2000. However, there have been no significant developments in the negotiations on specific commitments since 2008, when a group of WTO Members signaled the additional improvements they could make to their schedules.47 In recent years, Members have held only exploratory discussions on market access in the WTO Council on Trade in Services in Special Session, by exchanging views on current areas of interest across different sectors. Further to the mandate in Article XIX:3 of the GATS to establish modalities for the special treatment of least developed countries (LDCs) in services

anti-​competitive business practices of service suppliers (Article IX). Those on licensing, independent regulators and scare resources are in keeping with the existing disciplines in the Agreement on transparency and domestic regulation. 44 

Sykes, above fn 35, at 67. Article VII of the GATS. Paragraph 3(a) of the Annex on Financial Services also permits Members to recognize the prudential measures of another country. 46  Article XIX of the GATS. 47  32 Members participated in this Services ‘Signalling’ Conference, namely, Argentina, Australia, Bangladesh, Brazil, Canada, Chile, China, the EC, EC Presidency (France), Egypt, Hong Kong, China, India, Indonesia, Japan, Korea, Lesotho, Malaysia, Mauritius, Mexico, Morocco, New Zealand, Norway, Pakistan, Philippines, Singapore, South Africa, Switzerland, Chinese Taipei, Thailand, Turkey, United States and Uruguay: WTO ‘Services Signalling Conference: Report by the Chairman of the TNC’ JOB(08)/​93 (30 July 2008). 45 

512   Chantal Ononaiwu negotiations, WTO Members adopted, at the Eighth Ministerial Conference in 2011, a waiver to allow preferential treatment of services and service suppliers from LDCs.48 In light of the failure to conclude further negotiations of specific commitments since the late 1990s, GATS commitments do not reflect the unilateral market-​openings that WTO Members have undertaken in the past two decades. The GATS mandates multilateral negotiations on government procurement,49 the development of the necessary multilateral disciplines to avoid the trade-​distortive effects subsidies may have on trade in services,50 and multilateral negotiations on emergency safeguard measures based on the principle of non-​discrimination.51 Negotiations on these three subjects were initiated in 1995 and 1996 in the Working Party on GATS Rules. However, they were largely focussed on conceptual issues and did not progress to text-​based discussions. Work in all three areas stalled as there was no consensus amongst the Membership on the problems that new disciplines would need to address and the benefits that new or additional disciplines would generate.52 Initially, professional services, in particular the accountancy sector, were prioritized with respect to the mandate under Article VI:4 of the GATS for the development of disciplines on domestic regulation. The (now defunct) Working Party on Professional Services developed regulatory disciplines for the accountancy sector, the only multilateral disciplines which have been adopted pursuant to Article VI:4 of the GATS to date.53 Since 1999, negotiations in the Working Party on Domestic Regulation (WPDR) have concentrated on the development of disciplines applicable to all sectors. Members’ proposals were consolidated into draft texts issued by the Chair of the WPDR, which incorporated disciplines to enhance transparency, ensure efficiency of authorization procedures, require regulatory measures be based on objective and transparent criteria, and require decisions to be reached and administered independently from other suppliers and through adequate and impartial procedures.54 There was no consensus to include an obligation that measures must not be more trade restrictive than necessary to fulfill national policy objectives, or a so-​called ‘necessity’ test, although this test is a seminal feature of the Accountancy Disciplines. As this necessity analysis might entail 48  WTO

‘Preferential Treatment to Services and Service Suppliers of Least-​Developed Countries’, WT/​L/​847 (19 December 2011). Following the submission of a collective request by the LDCs, developed and developing WTO Members have notified the preferential treatment they intend to provide. 49   Article XIII of the GATS. 50  Articles XV of the GATS. 51  Article X of the GATS. 52 WTO, ‘Report by the Chairperson of the Working Party on GATS Rules’, S/​ WPGR/​R/​21 (14 April 2011). 53 WTO Council for Trade in Services ‘Guidelines for Mutual Recognition Agreements or Arrangements in the Accountancy Sector’, S/​ L/​ 38 (28 May 1997); WTO Council for Trade in Services ‘Disciplines on Domestic Regulation in the Accountancy Sector’, S/​ L/​ 64 (17 December 1998) (‘Accountancy Disciplines’). 54  The most recent consolidated text is contained in the 2011 Progress Report of the Chair of the Working Party: WTO Working Party on Domestic Regulation ‘Disciplines on Domestic Regulation Pursuant to GATS Article VI:4’, S/​WPDR/​W/​45 (14 April 2011).

Trade in Services    513 an enquiry into whether less trade-​restrictive alternatives are reasonably available to the Member to achieve its desired policy objective,55 it could subject to scrutiny the measure chosen by a Member to achieve its regulatory objective. Discussions in the WPDR stalled in 2011, and subsequent efforts to generate an outcome at the Eleventh Ministerial Conference in 2017 were unsuccessful. In recent years, there have been several initiatives to rejuvenate multilateral discussions on disciplines on domestic regulation. Inspired by the Trade Facilitation Agreement applicable to trade in goods, India tabled in 2017 a proposal for a counterpart Trade Facilitation for Services Agreement to address issues that are pertinent to facilitating trade in services.56 The draft text sought to clarify and improve aspects of the GATS, such as the provisions on transparency, domestic regulation, and recognition, and featured mode-​ specific provisions which sought to facilitate the movement of information, data, and natural and juridical persons to enable services trade. In 2019, the WPDR considered a proposal by India on disciplines for the supply of services through the presence of natural persons.57 However, multilateral efforts to develop disciplines on domestic regulation have not progressed further, which reflects the difficulty of elaborating horizontal disciplines acceptable to the entire Membership.

C. Plurilateral initiatives As multilateral negotiations to update the GATS stalled, WTO Members have embarked on plurilateral initiatives which sought to achieve more ambitious outcomes that could be ‘multilateralized’ in the future. From 2013, 23 WTO Members representing 70 per cent of global services trade engaged in negotiations on a Trade in Services Agreement (TiSA) aimed at securing further market-​opening amongst the participants and enhancing rules governing services trade. The participants’ goal was to set a new global standard for services trade that could ultimately be incorporated into the WTO in the future.58 The framework text of the TiSA reinforced and built on the core disciplines of the GATS, including MFN treatment, national treatment, and

55 In

the context of Article XIV of the GATS, which provides exceptions for measures that are necessary to achieve specified policy objectives, the Appellate Body has interpreted necessity to require that the measure be the least WTO-​inconsistent measure that is reasonably available to achieve the desired objective: Appellate Body Report, US –​Gambling, adopted 7 April 2005, para 308; Appellate Body Report, Argentina –​Financial Services, adopted 14 April 2016, para 6.182. 56  WTO Council for Trade in Services, Council for Trade in Services –​Special Session, Working Party on Domestic Regulation, ‘Communication from India: Trade Facilitation Agreement for Services’, S/​C/​ W/​372, TN/​S/​W/​63, S/​WPDR/​W/​58 (23 February 2017). 57  WTO Working Party on Domestic Regulation, ‘Communication from India: GATS Article VI:4 –​ Disciplines for Supply of a Service through the Presence of a Natural Person of a Member in the Territory of Another Member’, S/​WPR/​W/​61/​Rev.1 (8 March 2019). 58  R.F. Fefer, ‘Trade in Services Agreement (TiSA) Negotiations: Overview and Issues for Congress’ (Congressional Research Service, 3 January 2017) 6.

514   Chantal Ononaiwu recognition.59 Participants discussed enhanced obligations on transparency and domestic regulation and proposed rules on state-​owned enterprises (SOEs).60 The US proposal on SOEs contemplated the future development of disciplines on the provision of non-​commercial assistance to SOEs, inspired by the disciplines of that nature which had been developed under the TPP.61 Otherwise, the TiSA negotiations did not seek to address subsidy disciplines for services trade. TiSA participants had also agreed to submit their ‘best free trade agreement’ commitments as their market access offers.62 Disciplines on e-​commerce or digital trade were also under negotiation, along with specific rules for sectors such as telecommunications and financial services.63 Since late 2016, TiSA negotiations have been on hold, due, in part, to disagreements over some substantive issues, such as liberalization of public services and cross-​border transfer of personal data. Following the Eleventh WTO Ministerial Conference, groups of WTO Members have been pursuing discussions to elaborate rules on several issues related to trade in services, namely, Services Domestic Regulation, Investment Facilitation, and E-​commerce. In parallel with the work of the WPDR, a group of 67 WTO Members, representing over 90 per cent of world services trade, are participating in a Joint Initiative on Services Domestic Regulation.64 In December 2021, participants adopted a Declaration announcing the successful conclusion of negotiations on a Reference Paper on Services Domestic Regulation, with the objective of elaborating on the provisions of the GATS, pursuant to Article VI:4.65 The Reference Paper disciplines address transparency of information for service suppliers, certainty and predictability in the application process for authorization to supply services, as well as regulatory quality and facilitation through measures that promote good regulatory practices.66 This reflects the participants’ preference for facilitating services trade through disciplines concerning procedural and administrative matters rather than disciplines on the substance of non-​discriminatory measures, such as a necessity test. The Reference Paper features horizontal disciplines

59 

Ibid., at 8. Ibid., at 8–​9. 61  See Chapter 30 of this handbook for a discussion of the TPP’s disciplines on subsidization of services supplied by SOEs. 62  Fefer, above fn 58, at 10. 63  Ibid., at 10–​14. 64 WTO, ‘Negotiations on Services Domestic Regulation Conclude Successfully in Geneva’ (2 December 2021), at (last visited 15 May 2022); WTO Ministerial Conference, ‘Joint Ministerial Statement on Services Domestic Regulation’, WT/​MIN(17)/​61 (13 December 2017). 65  WTO, ‘Declaration on the Conclusion of the Negotiations on Services Domestic Regulation’, WT/​ L/​1129 (2 December 2021); WTO, ‘Joint Statement Initiative on Services Domestic Regulation: Reference Paper on Services Domestic Regulation’, INF/​SDR/​2 (26 November 2021). 66  WTO, ‘Services Domestic Regulation: Rationale, Potential Economic Benefits, Practice in Regional Trade Agreements’ (26 November 2020), at < https://​www.wto.org/​engl​ish/​new​s_​e/​news2​0_​e/​sdr_​fa​ ctsh​eet_​nov2​0_​e.pdf> (last visited 19 October 2021). 60 

Trade in Services    515 as well as an optional set of alternative disciplines on financial services, which Members can incorporate in their schedules as additional commitments. Participants are working towards submission of their Schedules of Specific Commitments for certification by the end of 2022.67 The Joint Statement Initiative (JSI) on Investment Facilitation for Development, in which more than 100 WTO Members are participating, aims to develop a multilateral framework on investment facilitation, which would improve the transparency and predictability of investment measures, streamline and speed up administrative procedures and requirements and enhance international cooperation, information sharing, and the exchange of best practices.68 Notably, in the negotiations on the future Investment Facilitation for Development Agreement (IFDA), participants have sought to align certain disciplines on transparency of investment measures, as well as the streamlining and speeding up of administrative measures, with the parallel disciplines in the Reference Paper on Services Domestic Regulation, so as to ensure that similar standards are applicable to investment in all sectors. As Members are yet to conclude the text of the future IFDA, it remains to be fully seen how and to what extent that agreement will build upon GATS disciplines which cover measures affecting foreign direct investment in services activities. Participants in the JSI on Electronic Commerce have embarked on negotiations on trade-​related aspects of electronic commerce.69 The application of the GATS to the electronic delivery of services has been affirmed in WTO dispute settlement and is a generally held view amongst WTO Members.70 Notably, the JSI negotiations on Electronic Commerce, in which 86 WTO Members are participating, have featured proposals that implicate existing commitments under the GATS, such as improved market access commitments and revision of the Reference Paper on telecommunications. Proposals have also featured with respect to the transparency and administration of measures affecting electronic commerce, which reflect principles that have been captured in the work on disciplines under Article VI:4 of the GATS. Participants are also discussing requirements to have in place a sound regulatory framework for electronic commerce that addresses issues such as online consumer protection, recognition of electronic contracts and electronic signatures, unsolicited messages, and cybersecurity. Importantly, these plurilateral initiatives have been influenced by the disciplines developed under FTAs, which are examined in the next section. 67 

Declaration, above fn 65. Ministerial Conference, ‘Joint Ministerial Statement on Investment Facilitation for Development’, WT/​MIN(17)/​48 (11 December 2017). 69  WTO ‘Joint Statement on Electronic Commerce’, WT/​L/​1056 (25 January 2019). 70  It has been held that cross-​border supply of services (mode 1) under the GATS includes all means of delivery: Panel Report, US –​Gambling, adopted 10 November 2004, para 6.285. The general view of WTO Members is that electronic delivery of services falls within the scope of the GATS and electronic delivery can take place under any of the four modes of supply: WTO ‘Work Programme on Electronic Commerce –​Progress Report to the General Council adopted by the Council for Trade in Services on 19 July 1999’, S/​L/​74 (27 July 1999), para 4. 68 WTO

516   Chantal Ononaiwu

III.  Advances under services FTAs While the WTO has not updated the multilateral framework for trade in services in the past two decades, there has been an explosion in the number of services FTAs over that period, referred to in the WTO context as ‘regional trade agreements or RTAs’. The number of services RTAs notified to the WTO jumped from 6 in 2000 to 188 by October 2021.71 These agreements have gone beyond the GATS, both in terms of liberalization commitments and rules. FTAs have gone further than WTO commitments in binding applied regimes, though not necessarily generating additional market openings.72 Some of these preferential agreements use a similar approach as the GATS to scheduling commitments. However, most adopt a ‘negative list’ approach, according to which the obligations in respect of which liberalization commitments are undertaken, such as market access, national treatment, and MFN treatment, apply to services sectors within the scope of the Agreement, unless reservations have been scheduled for non-​conforming measures.73 The scheduling of reservations for existing non-​conforming measures typically results in the binding of the levels of openness applicable at the time of the agreement’s conclusion. Many FTAs that use the negative list approach also include a ‘ratchet’ mechanism, which automatically binds in the Agreement (and therefore prevents the reversal of) any autonomous liberalization of non-​conforming measures which is undertaken in the future. Increasingly, FTAs that liberalize both trade in services and investment address services investments within the framework of the agreements’ investment disciplines. This approach recognizes the increasingly integrated nature of corporations, the intertwined nature of manufacturing and services activities and the reality that many investments have services and non-​services components. FTAs have also recognized the interdependence of goods and services sectors through the inclusion of provisions to facilitate the temporary movement of natural persons for business purposes, and not only service providers. In terms of rules, the EU’s state aid regime, as well as the disciplines on subsidy control in the EU-​UK TCA that replaced the EU’s state aid regime for the UK,74 comprehensively regulate subsidies that affect trade in services. In addition, the CPTPP and the USMCA feature disciplines on the subsidization of services supplied by SOEs.75 71  WTO, ‘Regional Trade Agreements Database’, at < http://​rtais.wto.org/​UI/​Public​Main​tain​RTAH​ ome.aspx > (last visited 20 October 2021). 72  Roy, above fn 7, at 41. 73  It was estimated that, as at the end of 2018, 60 per cent of services RTAs were using, at least in part, a negative list approach: B. Gootiiz et al., ‘Services’ in A. Mattoo, N. Rocha and M. Roota (eds), Handbook of Deep Trade Agreements (Washington DC: World Bank, 2020) 111, at 125. 74  Title XI, Chapter 3 sets out rules on subsidies that affect trade and investment. 75  See Chapter 30 of this handbook; note that the Agreement that the United States refers to as the USMCA is referred to by Canada as CUSMA and Mexico as T-​MEC.

Trade in Services    517 Otherwise, FTAs have not gone beyond the GATS in developing subsidies disciplines for services trade. However, many preferential agreements have gone further than the GATS in developing disciplines on measures that regulate the supply of services within countries’ territories, such as disciplines with respect to domestic regulation, the temporary presence of natural persons, electronic commerce, and specific services sectors. These FTA disciplines better reflect the role of services in world trade and the reality or changing dynamics of services trade.

A. Disciplines on domestic regulation 1. Introduction Like the GATS, FTAs have sought to address the trade-​impeding impact of non-​ discriminatory regulations through principles of policed decentralization, such as provisions on regulatory transparency and the administration of measures. Similar to the GATS, FTAs also employ recognition as a mechanism for dealing with impediments to trade in services that arise from differences in regulatory measures. Notably, recent FTAs have developed another approach to addressing impediments arising from regulatory heterogeneity, namely, provisions aimed at promoting good regulatory practices throughout the regulatory cycle, as well as regulatory cooperation between the parties. In some FTAs, the interdependence of goods and services sectors is acknowledged through the cross-​cutting nature of some of these disciplines, such as the provisions on transparency76 (which may be supplemented by additional transparency disciplines in the services chapter) and good regulatory practice or regulatory coherence. In addition, some recent FTAs elaborate disciplines on licensing and qualification requirements and procedures which relate to the authorization to supply a service or pursue any other economic activity.77

2. Principles of policed decentralization These disciplines in FTAs are largely designed to improve transparency between regulators and service providers, promote fairness and impartiality in the decision-​ making of regulators, and avoid burdens to service suppliers seeking authorization to supply a service. Some of the FTA disciplines on transparency develop existing requirements under the GATS rather than introduce wholly new obligations. For

76 See,

e.g., Chapter 26 of the CPTPP (Transparency and Anti-​corruption); Chapter 29 of the USMCA (Publication and Administration); Chapter on Transparency of the Modernized Trade Part of the European Union-​Mexico Global Agreement (EU-​Mexico Trade Agreement); Chapter 27 of CETA (Transparency); Chapter 18 of the Colombia-​Korea FTA(Transparency); Chapter 13 of the PACER Plus (Transparency). 77 Title on Investment and Trade in Services, Chapter V (Regulatory Framework), Section A (Domestic Regulation) of the EU-​Mexico Trade Agreement; Chapter 12 of CETA; Part Two, Heading One, Title II, Chapter 5, Section I (Domestic Regulation), UK-​EU TCA.

518   Chantal Ononaiwu example, the publication requirement in Article III of the GATS is strengthened by cross-​cutting disciplines to make measures publicly available in such a manner so as to enable interested persons to become acquainted with them.78 In this regard, some Agreements specifically encourage making measures electronically available through websites.79 Similarly, the obligation under Article III:4 of the GATS to establish enquiry points is amplified by a requirement to establish appropriate mechanisms to respond to inquiries from interested persons on services regulations.80 Some recent FTAs require the provision to service providers of the information necessary to comply with requirements or procedures for obtaining, amending, maintaining or renewing an authorization to supply a service.81 Also featured in some agreements is an obligation to allow a reasonable period between the publication of new or changed measures and their effective date.82 Such a reasonable period could minimize the costs of ‘surprise’ incurred by foreign firms, thereby reducing the likelihood that they would be placed at a competitive disadvantage because of insufficient time to make the necessary adjustments to comply with the new measures. In some instances, FTA disciplines introduce wholly new transparency obligations than those applicable under the GATS. Some agreements seek to introduce greater transparency in the development of regulations by requiring or encouraging the parties to publish in advance proposed regulations, provide interested persons a reasonable opportunity to comment, and address the substantive issues raised in comments received.83 Such prior comment requirements, which are also imposed under the Accountancy Disciplines developed under Article VI:4 of the GATS, can reduce the possibility that regulations may create unnecessary barriers to trade owing to limited or mistaken information on the part of regulators. Some recent FTAs also encourage the publication of the rationale for and purpose of proposed and adopted regulations.84 These requirements can help reveal regulations that result from ‘capture’ by private interests and can therefore provide an incentive for regulators to carefully consider the

78  Article

26.2.1 of the CPTPP; Article 18.1.1 of the Colombia-​Korea FTA; Article 27.1.1 of CETA; Article 335(1) of the UK-​EU TCA. 79  Article 26.2.5 of the CPTPP; Articles 29.2.1 and 29.2.3 of the USMCA. 80 Article 10.11.1 of the CTPP; Article 9.8(a) of the Colombia-​ Korea FTA; Article 66(1) of the Comprehensive Economic Partnership Agreement between Japan and India (Japan-​India CEPA), signed 16 February 2011, at < https://​www.mofa.go.jp/​reg​ion/​asia-​paci/​india/​epa201​102/​index.html > (last visited 20 October 2020); Article 336(1) of the UK-​EU TCA. 81  Article 5.6 of the EU-​Mexico Trade Agreement, Title on Investment and Trade in Services, Chapter V (Regulatory Framework), Section A (Domestic Regulation); Article 15.8.6 of the USMCA; Article 153 of the UK-​EU TCA. 82  Article 26.2.3 of the CPTPP; Article X.4.2 of the EU-​Mexico Trade Agreement; Article 335(3) of the UK-​EU TCA. 83  Articles 26.2.2 and 26.2.4 of the CPTPP; Article 29.2.2 of the USMCA; Article 27.1.2 of CETA; Article 346(1) of the UK-​EU TCA. 84  Article 26.2.5 of the CPTPP; Article X.4.1(b) of the EU-​Mexico Trade Agreement; Article 335(2) of the UK-​EU TCA.

Trade in Services    519 implications of proposed measures. With respect to technical standards, some FTAs encourage the use of open and transparent processes for their development.85 FTAs have also incorporated disciplines concerning the development and administration of measures. Some of these provisions are similar to or build on existing disciplines of a procedural nature in Article VI of the GATS, such as the requirements for the objective and impartial administration of measures of general application and for the review of administrative decisions. In some FTAs, these disciplines are cross-​ cutting and elaborate on the concept of ‘due process’ embodied in GATS disciplines.86 In addition, some FTAs require that the decision-​making of competent authorities on authorizations be impartial with respect to all applicants.87 Further, the existing requirements in Article VI:3 of the GATS concerning the timely handling of licensing applications have been elaborated in some FTAs. For example, some agreements include obligations to establish indicative timeframes for reaching a decision on an application for a licence, to provide the applicant with a reasonable opportunity to correct any deficiencies in the application, to promptly inform an unsuccessful applicant of the reasons for rejection of the application and to permit the applicant to resubmit the application.88 Notably, most FTAs have avoided disciplines that impose constraints on the substance of domestic regulations, such as a necessity test.89 As was mentioned above, a similar trend is evident in the discussions in the WPDR on horizontal disciplines under Article VI:4 of the GATS and in the Joint Initiative Reference Paper on Services Domestic Regulation. However, some of the disciplines in FTAs essentially provide specific guidance or clarity on the requirements in Article VI:4 that licensing and qualification requirements and procedures must be based on objective and transparent criteria, that such measures must not be more burdensome than necessary to ensure the quality of the service, and that licensing procedures do not in themselves constitute a restriction on the supply of the service. For example, CETA requires that licensing

85  Article 5.5 of the EU-​Mexico Trade Agreement (Title on Investment and Trade in Services, Chapter V (Regulatory Framework), Section A (Domestic Regulation); Article 15.8.5 of the USMCA; Article 154, UK-​EU TCA. 86  For example, some RTAs specify that the requirement of objective and impartial administration of measures entails ensuring that persons affected by administrative proceedings are provided with reasonable notice and afforded with a reasonable opportunity to present facts and arguments in support of their position: see Article 26.3 of the CPTPP; Article 29.3 of the USMCA; Article 337(2) of the UK-​EU TCA. In addition, some agreements prescribe that procedures for the review of administrative decisions should afford the parties to the proceedings the right to a reasonable opportunity to support or defend their positions and a decision based on the record: see Article 26.4 of the CPTPP; Article 29.4 of the USMCA; Article 338(2) and (3) of the UK-​EU TCA. 87  Article 12.3.10 of CETA. Article 15.8.2(b) of the USMCA and Article 155(3)(a) of the UK-​EU TCA require the Parties to ensure that competent authorities reach and administer their decisions in an independent manner. 88  Article 12.3 of CETA; Article 15.8.3 of the USMCA; Article 10.8.4 of the CPTPP; Article 150(1), UK-​ EU TCA. 89  WTO, above fn 3, at 180. The WTO notes that less than 25 FTAs feature such a provision.

520   Chantal Ononaiwu and qualification requirements and procedures be based on criteria that preclude the competent authority from exercising its power of assessment in an arbitrary manner.90 That Agreement also requires that licensing and qualification procedures be as simple as possible and not unduly complicate or delay the supply of a service.91 Some recent FTAs prescribe that licensing and qualification procedures must not in themselves prevent fulfilment of requirements.92 Notably, the USMCA features provisions specifically directed at small and medium-​sized enterprises (SMEs), including a best endeavour obligation to avoid authorization procedures for services sectors imposing disproportionate burdens on such firms.93 Some recent agreements also seek to avoid an applicant having to approach more than one competent authority for each application for an authorization.94 These FTAs also require that applicants should, to the extent practicable, be allowed to submit applications at any time. If a specified time period for application exists, a reasonable period for submitting an application should be allowed.95 Those agreements also call for the scheduling of examinations, where required, at frequent intervals.96 In addition, some FTAs encourage the acceptance of applications in electronic format under similar conditions of authenticity as paper submissions, as well as the acceptance of authenticated copies in place of original documents.97 A number of agreements prescribe that authorization fees must be reasonable and commensurate with the administrative cost of the service provided and must not in themselves restrict the supply of a service provided.98 In some instances, FTAs also provide that authorizations, once granted, should enter into effect without undue delay.99 90  Article

12.3.1 of CETA. The Agreement specifies that such criteria shall be clear and transparent, objective and established in advance and made publicly accessible. Article 155(1) and (2) of the UK-​EU TCA prescribe similar requirements for measures relating to authorization. 91  Article 12.3.7 of CETA. 92  Article 5.2(c) of the EU-​ Mexico Trade Agreement, Title on Investment and Trade in Services, Chapter V (Regulatory Framework), Section A (Domestic Regulation); Article 15.8.2(c) of the USMCA. 93  Article 15.10.3 of the USMCA. 94  Article 5.2(e) of the EU-​ Mexico Trade Agreement, (Title on Investment and Trade in Services, Chapter V (Regulatory Framework), Section A (Domestic Regulation)); Article 15.8.2(d) of the USMCA; Article 147 of the UK-​EU TCA. 95  Article 5.3(a) and (b) of the EU-​ Mexico Trade Agreement, (Title on Investment and Trade in Services, Chapter V (Regulatory Framework), Section A (Domestic Regulation)); Article 15.8.3(a) and (b) of the USMCA; Article 148 of the UK-​EU TCA. 96  Article 5.3(c) of the EU-​ Mexico Trade Agreement, (Title on Investment and Trade in Services, Chapter V (Regulatory Framework), Section A (Domestic Regulation)); Article 15.8.3(c) of the USMCA; Article 152 of the UK-​EU TCA. 97  Articles 12.3.11 and 12.3.12 of CETA; Article 15.8.3(d) and (g) of the USMCA; Article 5.3(d) and (e) of the EU-​Mexico Trade Agreement, (Title on Investment and Trade in Services, Chapter V (Regulatory Framework), Section A (Domestic Regulation)); Article 149 of the UK-​EU TCA. 98  Article 12.3.8 of CETA; Article 15.8.4 of the USMCA; Article 10.8.5 of the CPTPP; Article 151(1) of the UK-​EU TCA. 99  Article 12.3.5 of CETA; Article 15.8.3(l) of the USMCA; Article 5.3(m) of the EU-​ Mexico Trade Agreement, (Title on Investment and Trade in Services, Chapter V (Regulatory Framework), Section A (Domestic Regulation)); Article 150(3) of the UK-​EU TCA.

Trade in Services    521

3. Recognition The basic disciplines on recognition in FTAs are modelled on or draw on Article VII of the GATS. However, a number of these agreements provide further guidance than the GATS on how recognition could be achieved and provide a supporting framework for parties that are interested in negotiating mutual recognition agreements (MRAs).100 Some agreements identify priority sectors for the conclusion of MRAs,101 while others commit the parties to consultations to seek to identify professional services in relation to which dialogues on recognition could proceed.102 In some cases, FTAs call on the parties to encourage the relevant bodies to develop recommendations on proposed MRAs, which are subject to the review of joint institutions for consistency with the trade agreement.103 In other cases, FTAs require the parties to encourage their relevant bodies to engage in dialogue on approaches to facilitating authorization of service providers of the other party, including autonomous recognition, the negotiation of MRAs, and the development of mutually acceptable professional standards and criteria.104 A number of FTAs also include voluntary guidelines for bodies that enter into MRA negotiations.105 These guidelines are modelled on the MRA guidelines that were developed under the GATS for the accountancy sector, and cover both the conduct of negotiations and the substantive issues that may be addressed in the final agreement. However, some recent FTAs provide more detailed guidance on the process for recognition of qualifications.106

100 

WTO, above fn 3, at 180. The WTO notes that 95 per cent of RTAs include a provision on MRAs and in many cases foresee the possibility for the parties concluding MRAs in the future. 101  Article 85 of the CARIFORUM-​EU EPA; Annex 12-​A, para 1 and Appendix 12-​A-​1 of the US-​Korea FTA. The CARIFORUM-​EU EPA contains a built-​in agenda on mutual recognition in accounting, architecture, engineering and tourism. The US-​Korea FTA identifies engineering, architectural and veterinary services as possible sectors for mutual recognition. 102  Annex 15-​C to the USMCA; Annex 8C to the RCEP. 103 EU-​ Mexico Trade Agreement, Chapter on Mutual Recognition of Professional Qualifications; Article 11.3 of CETA; Annex 12-​A, paras 2 and 7 of the US-​Korea FTA. Under the EU-​Mexico Trade Agreement and CETA, the recommendations should assess, inter alia, the potential value of an MRA and the compatibility of the Parties’ licensing or qualification regimes. Where the recommendations are determined to be consistent with the trade agreement, the relevant bodies can negotiate an MRA. CETA further prescribes that if the draft MRA is found to be consistent with the trade agreement, it is adopted by the MRA Committee. This decision becomes binding on the Parties once they have notified fulfillment of their respective internal requirements. 104 Annex 15-​ C to the USMCA; Annex 8C to the RCEP. The USMCA establishes a Professional Services Working Group, which provides support to the relevant bodies engaged in dialogue on recognition and should be kept abreast of any MRA negotiations conducted. 105  Annex 11-​A to CETA; Annex on MRA Guidelines to the EU-​Mexico Trade Agreement; Annex 15-​ C, Appendix 1, to the USMCA; Annex 24 to the UK-​EU TCA. 106  The MRA Guidelines under the EU-​Mexico Trade Agreement, CETA and UK-​EU TCA detail a process for recognition of qualifications involving four steps, namely, verification of equivalency of the scope of practice or qualifications of the regulated profession; evaluation of any substantial differences in the scope of qualifications required to practice the profession; compensatory measures to bridge any substantial difference; and identification of the conditions for recognition. The Guidelines under the UK-​EUTCA also address assessment of the economic value of an envisaged arrangement.

522   Chantal Ononaiwu

4. Good regulatory practices These cross-​cutting provisions seek to facilitate trade and investment by improving regulatory quality, promoting regulatory compatibility, and reducing or eliminating unnecessarily burdensome, duplicative, or divergent regulatory requirements.107 The provisions in FTAs on good regulatory practices, like the GATS, affirm the ability of governments to achieve their public policy objectives and the level of protection they consider to be appropriate.108 These provisions encourage certain practices relating to the planning, design, issuance, implementation, and review of regulatory measures. These include processes or mechanisms to facilitate effective interagency coordination and review of proposed regulatory measures. Important features of such processes or mechanisms should be developing systemic regulatory improvements, as well as identifying potential overlap and duplication and preventing the creation of inconsistent requirements across domestic authorities.109 These FTA provisions also encourage regulatory agencies to conduct regulatory impact assessments in relation to proposed regulations. Such assessments should examine the need for a proposed regulation and examine feasible alternatives that would address the need identified.110 The agreements also promote review of existing regulations to determine whether they should be modified or repealed so as to make the regulatory regime more effective in meeting the domestic policy objectives.111 Also encouraged is the consideration of the regulatory measures in other Parties, as well as relevant developments in international, regional, and other fora when planning regulatory measures.112 Transparency is an intrinsic feature of these good regulatory practices. The Parties are to make publicly available a description of their internal coordination mechanisms, (on an annual basis) a list of regulatory measures that they reasonably expect to adopt with the following twelve months, and information on new regulatory measures.113 107  Chapter 25 of the CPTPP; Chapter 21 of CETA; Chapter 28 of the USMCA; Chapter on Good Regulatory Practice of the EU-​Mexico Trade Agreement; Chapter 15bis of the Additional Protocol to the Framework Agreement of the Pacific Alliance, as amended by the First Modifying Protocol (Pacific Alliance Additional Protocol), Chapter 15bis; Part Two, Heading One, Title X of the UK-​EU TCA. 108 Article 25.2 of the CPTPP; Article 28.2 of the USMCA; Article X.2 of the EU-​ Mexico Trade Agreement (Chapter on Good Regulatory Practice); Article 340 of the UK-​EU TCA. 109 Article 28.4 of CUSMCA; Article 25.4 of the CPTPP; Article X.4 of the EU-​ Mexico Trade Agreement (Chapter on Good Regulatory Practice); Article 15bis.4 of the Pacific Alliance Additional Protocol; Article 343 of the UK-​EU TCA. 110  Article 28.11 of the USMCA; Article 25.5.1 to 25.5.3 of the CPTPP; Article X.8 of the EU-​Mexico Trade Agreement (Chapter on Good Regulatory Practice); Article 15bis.5.1 and 5.2 of the Pacific Alliance Additional Protocol; Article 347 of the UK-​EU TCA. 111  Article 28.13 of the USMCA; Article 25.5.6 of the CPTPP; Article X.9 of the EU-​ Mexico Trade Agreement (Chapter on Good Regulatory Practice); Article 15bis.5.7 of the Pacific Alliance Additional Protocol; Article 348 of the UK-​EU TCA. 112  Article 25.5.8 of the CPTPP; Article 21.5 of CETA; Article 15bis.5.4 of the Pacific Alliance Additional Protocol. 113  Articles 28.4.2, 28.6 and 28.9.9 of the USMCA; Articles 25.4.2, 25.5.5 and 25.5.7 of the CPTPP; Articles X.5, X.6 and X.9 of the EU-​Mexico Trade Agreement (Chapter on Good Regulatory Practice);

Trade in Services    523 The USMCA also requires the Parties to publish information pertaining to proposed regulations, official plans and results of retrospective reviews, information about their regulatory processes, and an annual report of the annual costs and benefits of economically significant regulations.114 In addition, the FTAs encourage the use of mechanisms to provide continuing opportunities for interested persons to provide input into regulatory processes.115 With a view to promoting regulatory compatibility and regulatory cooperation between the parties,116 these FTAs encourage mechanisms such as exchanging information on regulations being developed and on post-​implementation reviews of regulations and facilitating the greater use of international standards.117 CETA also specifically identifies achieving a harmonized, equivalent, or compatible solution or considering mutual recognition in specific cases as means of minimizing unnecessary divergences in regulations. Under some of these FTAs, the parties may exclude certain measures from the scope of these provisions,118 and the provisions are not subject to dispute settlement.119 Such provisions on good regulatory practices and regulatory cooperation can help to address the trade-​impeding impact of regulatory differences, without relying on the application of general legal standards such as a ‘necessity’ test in dispute settlement. This avoids assessments being made in dispute settlement about sensitive matters such

Articles 15bis.4.2, 15bis.5.6 and 15bis.5.8 of the Pacific Alliance Additional Protocol; Articles 344 and 345 of the UK-​EU TCA. 114 

Articles 28.9.1, 28.13.4, 28.15 and 28.16 of the USMCA. 28.9.3 to 28.9.6, 28.10.5 and 28.14 of the USMCA; Article X.7 of the EU-​Mexico Trade Agreement (Chapter on Good Regulatory Practice); Article 346 of the UK-​EU TCA. The USMCA specifically requires interested persons (regardless of domicile) to be given at least 60 days to submit comments on proposed regulations. The regulatory authority is required to evaluate any information provided in written comments received during the comment period. Interested persons must also be provided the opportunity to submit written suggestions for the issuance, modification or repeal of a regulation. The basis for such suggestions may include that the regulation has become ineffective, more burdensome than necessary to achieve its objective, fails to take into account changed circumstances, or relies on incorrect or outdated information. 116  Article 28.1 of the USMCA defines regulatory cooperation as efforts between the parties to prevent, reduce or eliminate ‘unnecessary regulatory differences’ to facilitate trade. Article 21.2.4 of CETA also commits the parties to regulatory cooperation in order to prevent and eliminate unnecessary barriers to trade and investment, pursue regulatory compatibility, recognition of equivalence and convergence and promote transparent, efficient and efficient regulatory processes that support public policy objectives. 117  Article 28.17 of the USMCA; Article 25.7 of the CPTPP; Article 21.4 of CETA; Articles 350-​353 of the UK-​EU TCA. 118  Some agreements allow the parties to determine, following entry into force of the Agreement, the regulatory measures within the scope of the provisions: Article 25.3 of the CPTPP; Article 15bis.3 of the Pacific Alliance Additional Protocol. The USMCA excludes upfront certain measures from the scope of the provisions, including measures concerning financial services: Article 28.1 and Annex 28-​A. 119  Article 25.11 of the CPTPP; Article X.13 of the EU-​Mexico Trade Agreement (Chapter on Good Regulatory Practice); Article 15bis.11 of the Pacific Alliance Additional Protocol; Article 354 of the UK-​EU TCA. Article 28.20 of the USMCA envisages recourse to dispute settlement only to address a sustained or recourse course of action or inaction that is inconsistent with the Chapter. 115  Articles

524   Chantal Ononaiwu as a government’s choice of policy instruments to achieve its desired policy objectives. Notably, provisions on domestic regulatory coherence have featured in the discussions in the JSI on Investment Facilitation for Development.

B. Temporary entry of business persons Some FTAs have also gone beyond the GATS in developing specific disciplines on regulatory measures that affect the temporary entry of business persons. In line with the interdependent nature of trade in goods and services, these disciplines apply to measures affecting the temporary entry of not only service providers, but also business persons engaged in trade in goods and the conduct of investment activities. Some disciplines promote the transparency of measures affecting the temporary entry of business persons. These include obligations to make publicly available explanatory material regarding the requirements and procedures for temporary entry that will enable business persons to become acquainted with them.120 The CPTPP specifically prescribes the publication of typical timeframes for processing applications for visas, permits, or other immigration formalities.121 Some agreements also require the Parties to have appropriate mechanisms to respond to enquiries from interested persons regarding measures relating to temporary entry.122 In some cases, FTAs impose requirements to collect and make available to the other Party data concerning the granting of temporary entry to business persons of the other Party who have been issued immigration documentation.123 Other disciplines seek to ensure that application procedures for temporary entry do not unduly impede trade in services (or trade in goods or the conduct of investment activities). These include obligations to, as expeditiously as possible, process completed applications for visas, permits, or other immigration formalities and inform the applicant of the outcome.124 The USMCA provides that where temporary entry or an immigration document authorizing employment has been refused in particular circumstances, a written notice providing the reasons for refusal must be provided to the business person and his home country.125 Often, FTAs with specific disciplines on temporary entry require that the fees for processing applications for temporary entry

120  Article 16.5.1 of the USMCA; Article 12.6 of the CPTPP; Article 4.7 of the EU-​ Mexico Trade Agreement (Chapter on Temporary Presence of Natural Persons for Business Purposes); Article 10.4.1 of CETA; Article 11.6.1 of the China-​Korea FTA; Article 9.7(1)(b) of the RCEP. 121  Article 12.6 of the CPTPP. 122  India-​Japan FTA, Article 77.1; Article 12.6 of the CPTPP; Article 11.6.2 of the China-​Korea FTA; Article 9.7(1)(d) of the RCEP. 123  Article 16.5.2 of the USMCA; Article 10.4 of CETA. 124  Article 12.3.1 of the CPTPP; Articles 77.4 and 78.1 of the India-​Japan FTA; Article 9.6 of the RCEP. 125 Article 16.4.3 of the USMCA. This requirement applies to cases where temporary entry may adversely affect the settlement of a labour dispute at the place of employment or the employment of a person involved in that dispute.

Trade in Services    525 be reasonable or limited to the approximate cost of the services provided.126 The India-​ Japan FTA includes a best-​endeavour obligation to simplify the requirements and facilitate and expedite the procedures relating to the temporary movement of natural persons.127 FTAs have also established institutional arrangements, such as working groups, committees, or contact points, to consider the development of measures to further facilitate temporary entry, such as electronic processing systems for visas.128 These agreements may also limit recourse to dispute settlement where temporary entry has been refused to cases where the matter involves a pattern of practice, and all available administrative measures have been exhausted.129 Some of these disciplines have featured in the work of the WPDR on horizontal disciplines under Article VI:4 of the GATS, including in the proposal India tabled in 2019 to specifically address licensing requirements and procedures, qualification requirements and procedures, and technical standards that affect mode 4 supply of services. However, India’s proposal addressed in a far more limited way measures relating to immigration measures. The proposal included provisions directed at application procedures and requirements for temporary entry related to the fulfilment of the host country’s licensing requirements and procedures, qualification requirements, and procedures or technical standards.130

C. Cross-​border e-​commerce or digital trade In line with the growing importance of the cross-​border supply of services and the supply of services over digital networks, FTAs increasingly feature provisions that aim to facilitate cross-​border e-​commerce or digital trade. These include rules that address barriers to cross-​border e-​commerce, such as prohibitions on customs duties on electronic transmissions or discriminatory internal taxation of content delivered electronically,131 limitations on localization requirements for servers and computer facilities,132 126 

Article 12.3.3 of the CPTPP; Article 10.3.3 of CETA; Article 16.4.4 of the USMCA. Article 77.5. 128  Articles 12.7 and 12.8 of the CPTPP; Article 16.6 of the USMCA; Article 10.5 of CETA; Article 11.7 of the China-​Korea FTA. 129   Article 16.7 of the USMCA; Article 12.10 of the CPTPP; Article 80 of the India-​Japan FTA; Article 11.8.3 of the China-​Korea FTA; Article 9.9 of the RCEP. 130  See fn 56 above. Such temporary entry would cover circumstances where an applicant may need a visa or permit to travel to a foreign Member country in order to apply for a licence as per the host country’s licensing requirements or procedures or for writing an examination as per the host country’s qualification requirements or procedures, for the purpose of obtaining authorization to supply a service. In such circumstances, it would not be possible for the applicant to electronically (that is, from his/​her home country) obtain authorization to supply the service in the host country. 131  Article 16.3 of CETA; Article 14.3 of the CPTPP; Article 203 of the UK-​EU TCA; Article 12.11 of the RCEP. 132  Article 19.12 of the USMCA; Article 14.13 of the CPTPP; Article 13.11bis of the Pacific Alliance Additional Protocol; Article 12.14 of the RCEP. 127 

526   Chantal Ononaiwu barriers to cross-​border data flows,133 requirements of prior authorization of a service by electronic means solely on the basis that it is provided online,134 and requirements of transfer of or access to source code.135 Some FTAs also feature provisions that encourage the compatibility and interoperability of the e-​commerce laws of the trading partners. In some recent agreements, there are obligations to maintain a legal framework for electronic transactions that is consistent with leading international reference frameworks, to avoid unnecessary regulatory burdens on electronic transactions, and to facilitate input by interested persons in the development of the legal framework for electronic transactions.136 A number of FTAs also include provisions that encourage the recognition of electronic signatures and interoperable electronic authentication.137 These agreements also feature obligations to establish legal frameworks for online consumer protection and the protection of personal information of users of e-​commerce.138 Also featured in some agreements are requirements to adopt measures regarding unsolicited commercial electronic messages.139 The UK-​EU TCA also encourages government data which has been made publicly available to be in an easily accessible format.140 FTAs often feature cooperation provisions that encourage the exchange of information and sharing of experiences on regulations, policies, enforcement, and compliance regarding e-​commerce.141 Many of these FTA disciplines on e-​commerce have featured in the JSI negotiations on Electronic Commerce.

D. Sector-​specific rules FTAs have developed regulatory disciplines for specific sectors, such as telecommunications, courier or delivery services, financial services,142 professional 133  Article 19.11 of the USMCA; Article 14.11 of the CPTPP; Article 15.8 of the China-​ Korea FTA; Article 13.11 of the Pacific Alliance Additional Protocol; Article 201 of the UK-​EU TCA; Article 12.15 of the RCEP. 134  Article 204 of the UK-​EU TCA. 135  Article 207 of the UK-​EU TCA. 136  Article 14.5 of the CPTPP; Article 19.5 of the USMCA; Article 12.10 of the RCEP. 137  Article 14.6 of the CPTPP; Article 19.6 of the USMCA; Article 13.4 of the China-​Korea FTA; Article 13.10 of the Pacific Alliance Additional Protocol; Article 206 of the UK-​EU TCA; Article 12.6 of the RCEP. 138   Articles 14.7 and 14.8 of the CPTPP; Articles 19.7 and 19.8 of the USMCA; Articles 13.6 and 13.8 of the Pacific Alliance Additional Protocol; Articles 202 and 208 of the UK-​EU TCA; Articles 12.7 and 12.8 of the RCEP. 139 Article 14.14 of the CPTPP; Article 19.13 of the USMCA; Article 13.9 of the Pacific Alliance Additional Protocol; Article 209 of the UK-​EU TCA; Article 12.9 of the RCEP. 140  Article 210 of the UK-​EU TCA. 141  Article 14.15 of the CPTPP; Article 19.14 of the USMCA; Article 13.7 of the China-​ Korea FTA; Article 211 of the UK-​EU TCA; Article 12.16 of the RCEP. 142  Some RTAs have standalone chapters on financial services which create a distinct framework for the liberalization of trade in financial services and the protection of investments in financial institutions. In other agreements, financial services fall under the general framework for trade in services and investment. Notwithstanding such differences, provisions on financial services in RTAs generally draw

Trade in Services    527 services, legal services,143 and tourism.144 The following highlights how some FTAs have gone beyond the GATS in elaborating disciplines that encourage a pro-​competitive regulatory framework for telecommunications and delivery services. In both sectors, the prevention of anti-​competitive practices by the dominant incumbent supplier are key policy objectives for many countries.

1. Telecommunications Like the GATS Annex on Telecommunications and the Reference Paper on Basic Telecommunications, many FTAs include disciplines which seek to foster a transparent and competitive framework for foreign telecommunications service providers. Some agreements feature not only disciplines pertaining to basic telecommunications services, but also conditions for the supply of value-​added services. The latter seek to discourage the unwarranted imposition on suppliers of value-​added services of the requirements which are applicable to suppliers of basic telecommunications services, such as competitive safeguards and interconnection requirements.145 Some FTAs contain more expansive provisions on several matters which are addressed in the regulatory disciplines on telecommunications in the GATS. Stronger provisions on transparency are included in some FTAs, such as obligations to allow interested persons to comment on rulemaking proposed by the telecommunications regulatory body.146 In addition, the provisions in some agreements on the resolution of telecommunications disputes allow for aggrieved persons to petition the telecommunications regulatory body to reconsider its decisions.147 Further, more detailed provisions on spectrum management feature in some FTAs, such as obligations to make publicly available the current state of allocated frequency bands and to endeavour to rely on an open and transparent process and market-​based approaches on the GATS Annex on Financial Services and, in some cases, the Understanding on Commitments in Financial Services. Accordingly, financial services provisions in RTAs include specific exceptions, such as the prudential carve-​out, or exclusions for financial services that are designed to ensure that the obligations under the agreement do not unduly interfere with the Parties’ ability to regulate the sector. They may also include a number of obligations concerning the regulatory framework for financial services. Some RTAs have developed regulatory disciplines that go beyond the GATS, such as the USMCA which includes in its Chapter on Financial Services provisions on location of computing facilities, expedited availability of insurance services and transparency and administration of measures. 143   Articles 192–​194 of the UK-​EU TCA facilitate the provision of legal services in relation to home jurisdiction law and public international law (except EU law) under the lawyer’s home jurisdiction title. 144 Articles 110–​ 118 of the CARIFORUM-​ EU EPA feature provisions governing the regulatory framework for tourism services liberalized under the Agreement. These include binding provisions on the prevention of anti-​competitive practices, mutual recognition and development cooperation, as well as best-​endeavour obligations dealing with access to technology, SMEs and compliance with environmental and quality standards. 145  Article 18.14 of the USMCA. 146  Article 18.24 of the USMCA; Article 13.22 of the CPTPP; Article 14.19(b) of the Pacific Alliance Additional Protocol; Article 16 of Annex 8B to the RCEP. 147  Article 18.23 of the USMCA; Article 13.21 of the CPTPP; Article 14.22(c) of the Pacific Alliance Additional Protocol; Article 23 of Annex 8B to the RCEP.

528   Chantal Ononaiwu when making a spectrum allocation for commercial telecommunications services.148 In some cases, FTAs provide telecommunications providers with the flexibility to choose the technologies they use to supply their services.149 Further, some agreements include provisions calling for ‘forbearance’ by regulatory authorities or reliance on market forces to achieve wide choices in the supply of telecommunications services and intervention only when necessary.150 Several FTAs contain provisions on a range of regulatory issues that are not specifically addressed in the GATS. A number of agreements include obligations which seek to ensure that foreign telecommunications providers have access to or can share network elements and critical infrastructure which are controlled by dominant incumbent operators and too costly and difficult for new entrants to replicate. Some FTAs specifically call on the Parties to ensure that major suppliers provide access to network elements on an unbundled basis.151 In addition, some agreements include obligations to ensure major suppliers provide co-​location at their premises of equipment necessary for interconnection or access to unbundled network elements.152 Similarly, some FTAs call on the Parties to ensure that major suppliers provide access to poles, ducts, conduits, or any other structures deemed necessary.153 Further, there are obligations in some agreements to ensure that major suppliers do not impose unreasonable or discriminatory conditions on the resale of public telecommunications services, which enables smaller operators who do not have their own telecommunications facilities to enter the market.154 Also, several FTAs govern the pricing by major suppliers of leased circuit services, which enable business subscribers to have exclusive access to certain networks. These agreements call on the Parties to ensure that major suppliers offer leased circuit services at capacity-​based, cost-​oriented prices.155

148  Article 18.21 of the USMCA; Article 13.19 of the CPTPP; Article 10.10 of the China-​Korea FTA; Article TS.11 of the EU-​Mexico Trade Agreement (Chapter on Telecommunications Services); Article 14.17.4 of the Pacific Alliance Additional Protocol; Article 15 of Annex 8B to the RCEP; Article 175 of the UK-​EU TCA. 149  Article 18.15 of the USMCA; Article 13.23 of the CPTPP; Article 10.14 of the China-​Korea FTA; Article TS.15 of the EU-​Mexico Trade Agreement (Chapter on Telecommunications Services); Article 14.21 of the Pacific Alliance Additional Protocol; Article 21 of Annex 8B to the RCEP. 150   Article 18.16 of the USMCA; Article 13.3 of the CPTPP; Article 15.14 of the CETA; Article 3 of Annex 8B to the RCEP. 151 Article 18.8 of the USMCA; Article 13.10 of the CPTPP; Article 14.11 of the Pacific Alliance Additional Protocol; Article 19 of Annex 8B to the RCEP. 152 Article 18.11 of the USMCA; Article 13.13 of the CPTPP; Article 14.13 of the Pacific Alliance Additional Protocol; Article 11 of Annex 8B to the RCEP. 153 Article 18.12 of the USMCA; Article 13.14 of the CPTPP; Article 14.14 of the Pacific Alliance Additional Protocol; Article 20 of Annex 8B to the RCEP. 154 Article 18.7 of the USMCA; Article 13.9 of the CPTPP; Article 14.10 of the Pacific Alliance Additional Protocol; Article 8 of Annex 8B to the RCEP. 155 Article 18.10 of the USMCA; Article 13.12 of the CPTPP; Article 14.12 of the Pacific Alliance Additional Protocol; Article 10 of Annex 8B to the RCEP.

Trade in Services    529 Other FTAs include obligations for public telecommunications services suppliers to provide number portability and dialing parity.156 Some agreements have also sought to enable reasonable and non-​discriminatory access to submarine cable systems, which are the first point of interface between a country’s domestic connections and its international connectivity.157 Some recent FTAs also seek to promote transparency and competition with respect to international mobile roaming rates.158

2. Delivery Services Recently, some FTAs have developed disciplines to address barriers to trade in delivery services which arise from the maintenance of a postal monopoly. These agreements require the definition of the scope of any postal monopoly on the basis of objective criteria, so as to reduce the scope for discretion with respect to the delineation of the reserved area.159 Similar to the GATS Telecommunications Reference Paper, these FTAs require the administration of universal service obligations in a transparent, non-​ discriminatory, and impartial manner with regard to all suppliers subject to the obligation.160 The agreements also seek to discipline the anti-​competitive practices of the postal monopoly outside of its reserved area, for example, through cross-​subsidies and abuse of its monopoly position.161 There are also provisions that seek to discipline the use of overly burdensome licensing requirements, such as the requirement to supply a delivery service on a universal basis, for suppliers of delivery services not covered by the postal monopoly.162 Again, similar to the GATS Reference Paper, the FTAs require that the regulator of delivery services is not accountable to any supplier and that its decisions are impartial, non-​discriminatory and transparent with respect to all delivery services not covered by a postal monopoly.163

156 Article

18.4 of the USMCA; Article 13.5 of the CPTPP; Article 15.10 (number portability) of the CETA; Article TS.12 (number portability) of the EU-​ Mexico Trade Agreement (Chapter on Telecommunications Services); Article 14.5 of the Pacific Alliance Additional Protocol; Article 5 (number portability) of Annex 8B to the RCEP; Article 177 (number portability) of the UK-​EU TCA. 157  Article 18.13 of the USMCA; Article 13.15 of the CPTPP; Article 10.5 of the China-​ Korea FTA; Article 18 of Annex 8B to the RCEP. 158   Article 18.25 of the USMCA; Article 13.6 of the CPTPP; Article 10.16 of the China-​Korea FTA; Article TS.17 of the EU-​Mexico Trade Agreement (Chapter on Telecommunications Services); Article 14.20 of the Pacific Alliance Additional Protocol; Article 22 of Annex 8B to the RCEP; Article 181 of the UK-​EU TCA. 159  Annex 15-​A, para 3 to the USMCA; Annex 10-​B, para 3 to the CPTPP. 160  Annex 15-​A, para 4 to the USMCA; Article 5.6 of the EU-​Mexico Trade Agreement (Section on Delivery Services); Article 160(1) of the UK-​EU TCA. 161  Annex 15-​A, paras 5 and 6 to the USMCA; Annex 10-​B, paras 5 and 6 to the CPTPP; Article 5.8 of the EU-​Mexico Trade Agreement (Section on Delivery Services); Article 162 of the UK-​EU TCA. 162  Annex 15-​A, para 7 to the USMCA; Annex 10-​B, para 7 to the CPTPP. 163  Annex 15-​A, para 8 to the USMCA; Annex 10-​B, para 8 to the CPTPP; Article 5.10 of the EU-​ Mexico Trade Agreement, Section on Delivery Services; Article 164 of the UK-​EU TCA.

530   Chantal Ononaiwu

IV.  Further evolution of international regulation of trade in services: concluding thoughts This Chapter has demonstrated how FTAs have built on the multilateral framework for trade in services with respect to the binding of applied regimes and disciplines on measures that regulate the supply of services within countries’ territories. With the exception of a few FTAs, governments have not demonstrated a willingness to develop disciplines on services subsidies. The prospects for further rule-​making on services subsidies are not bright, largely due to the importance that governments assign to the preservation of policy space in this area. Various initiatives would support the further evolution of international regulation of services trade in line with the importance of services to domestic economies and the role of services in the global economy. At the domestic level, services trade policy should be formulated in a context where there is consideration of the sector’s broader contribution to national development objectives. This entails understanding the role of services in global trade beyond being products for export, as well as an appreciation of the complementarity between goods and services, the blurring of lines between goods and services trade, and the increasing servicification of manufacturing. Appreciating the inter-​relationship between services and other areas of economic activity and how economic activity is regulated will aid the development of appropriate international rules that govern services trade. This could be facilitated by coordination between trade ministries and the range of other government actors with remit over policies that affect services trade. Collaboration between trade officials and sectoral regulators is critical to fostering dialogue not only on the trade impact of regulations but also on whether the domestic regulatory framework is adequate to ensure that market opening delivers the anticipated benefits. The mapping of the regulatory status quo through the identification of existing non-​ conforming measures, including the rationale for and effectiveness of such measures, is valuable for the negotiation of liberalization commitments as well as framework rules on trade in services. Further improvements in services trade statistics and the measurement of services trade restrictiveness will also contribute to a better understanding of the potential benefits of greater openness in services markets.

Further reading A. Hoe Lim and B. de Meester (eds), WTO Domestic Regulation and Services Trade: Putting Principles into Practice (Cambridge: Cambridge University Press, 2014)

Trade in Services    531 B. Gootiiz et al, ‘Services’ in A. Mattoo, N. Rocha and M. Ruta (eds), Handbook of Deep Trade Agreements (Washington DC: World Bank, 2020) 111 M. Roy, ‘Elevating Services Trade Policy, WTO Commitments, and their Role in Economic Development and Trade Integration’ 53(6) Journal of World Trade (2019) 923 WTO, World Trade Report 2019: The Future of Services Trade (Geneva: World Trade Organization, 2019)

Chapter 19

T h e Re l at i on sh i p B et w e e n I n t e l l e c t ua l Prope rt y a n d T r a de T h rou g h t h e L e n s of G e o g r a ph i c a l I n di c at i on s The Journey Before, During and After the TRIPS Agreement Irene Calboli *

I . II. III. IV. V. VI. VII. *  I

Introduction: the general framework 533 The patchwork of international protection before the TRIPS Agreement: GIs as intellectual property Cinderella? 535 The triumph of multilateralism with the TRIPS Agreement: GIs (finally) reach a global (controversial) status 539 The ‘shift’ away from multilateralism towards bilateral agreements: the double side of GIs and the continued controversy 542 Multilateralism strikes back: all (GI) roads eventually lead (also) to Geneva 546 The ‘new normal’: learning to live with a combination of multilateralism, plurilateralism, and bilateralism 549 Conclusion 551

thank Madison Kuczynski for her editorial assistance and the editors of this Edition for their feedback and infinite patience during the drafting of this Chapter.

The relationship between intellectual property and trade    533

I.  Introduction: the general framework The regulation of intellectual property rights (IPRs) and how goods and services are protected across jurisdictions constitutes a fundamental aspect of international trade. The relationship between intellectual property (IP) and international trade has been widely studied by scholars,1 including in a chapter published in the first edition of this Handbook authored by Professors Andrew Mitchell and Tania Voon,2 which addresses in depth the TRIPS Agreement3 and the remaining challenges after its adoption. That chapter remains relevant today and readers are encouraged to consult it for a detailed review of the TRIPS Agreement and related issues. Instead, in this chapter, I offer a different type of analysis and focus on the protection of a specific IPR, geographical indications (GIs), as a lens into the process of international norm settings before and after the TRIPS Agreement. This methodological choice—​focusing on a specific topic as a general lens instead of multiple rights—​is due, on one side, to the fact that a comprehensive review of IPRs and their relationship with trade regulations is not possible given word limitations. Nevertheless, the international regulation of GIs is a particularly suitable topic to illustrate the changes, successes and challenges of the international IP system, including the multilateral as well as the bilateral and plurilateral processes that have characterized IP norm-​setting to date.4 In other words, the story of the international protection of GIs

1  The literature on the topic is extensive and the author cannot refer here to all relevant works. See., e.g., the contributions in D. Gervais (ed), Intellectual Property, Trade and Development: Strategies to Optimize Economic Development in a TRIPS Plus Era, 2nd edition (Oxford: Oxford University Press, 2014); J. Rosen (ed) Intellectual Property at the Crossroads of Trade (Cheltenham: Edward Elgar Publishing, 2012); C.M. Correa (ed), Research Handbook on the Interpretation and Enforcement of Intellectual Property under WTO Rules (Cheltenham: Edward Elgar Publishing, 2010). For commentary before or at the time of the adoption of the Agreement on Trade-​Related aspects of Intellectual Property Rights (TRIPS), see K.E. Maskus and M. Penubarti, ‘How Trade-​Related Are Intellectual Property Rights?’ 39 Journal of International Economics (1995) 227; F.M. Abbott, ‘Protecting First World Assets in the Third World: Intellectual Property Negotiations in the GATT Multilateral Framework’ 22 Vanderbilt Journal of Transnational Law (1989) 689; J.H. Reichman, ‘Intellectual Property in International Trade: Opportunities and Risks of a GATT Connection’ 22 Vanderbilt Journal of Transnational Law (1989) 747. 2  A. Mitchell and T. Voon, ‘TRIPS’ in D. Bethlehem, D. McRae, R. Neufeld & I. Van Damne (eds) The Oxford Handbook of International Trade Law, 1st edition (Oxford: Oxford University Press, 2009) 186. 3  Agreement on Trade-​ Related Aspects of Intellectual Property Rights, April 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, ‘Legal Instruments—​Result of the Uruguay Rounds’ vol. 31, 33 I.L.M. 81 (1994). 4  Generally, for a comprehensive review of the international debate and regulation of the protection of geographical indications (GIs), see the contribution published in I. Calboli and N.G. Wee Loon (eds), Geographical Indications at the Crossroads of Trade, Development, and Culture (Cambridge University Press, 2017).

534   Irene Calboli provides unique insights into the history and complexity of the relationship between IP protection and international trade. Notably, like the international regulation of other IPRs, the current system of GI protection developed across several periods. In the first part of the twentieth century, international GI protection (or lack thereof) was addressed at the multilateral level by a small number of (Western) countries though international agreements.5 Then, in the 1990s, GI protection was inserted into the global IP agenda, which marked the official union of IP and trade as part of the adoption of the TRIPS Agreement as one of the pillars of the newly created WTO.6 However, at the turn of the century, GI negotiations were affected, like IPRs in general, by the crisis of multilateralism causing a shift towards bilateral and regional agreements.7 Still, in the past decade, GI negotiations have proven the resilience of multilateralism and its revival as GIs became the subject of the latest agreement adopted by the World Intellectual Property Organization (WIPO). Today, the negotiations and discussions related to GI protection reflect the co-​existence and combination of multilateralism, bilateralism and regionalism. The structure of this chapter closely follows each of these periods. In particular, Section II reviews the (limited) multilateral process of international protection of GIs before the adoption of the TRIPS Agreement, notably the provisions included in the Paris Convention for the Protection of Industrial Property (Paris Convention),8 the Madrid Agreement for the Repression of False or Deceptive Indications of Source on Goods (Madrid Agreement)9 and the Lisbon Agreement for the Protection of Appellations of Origin (Lisbon Agreement).10 Building on this introduction, Section III recounts the push towards a considerably higher harmonization with the TRIPS Agreement. Following the adoption of the TRIPS Agreement, all members of the WTO had to offer a minimum protection to GIs and heightened protection to GIs identifying wines and spirits. TRIPS also included a built-​in agenda for further negotiations, although these negotiations never yield satisfactory results.11 Starting from the impasse in multilateral negotiations, Section IV elaborates on the resulting shift towards bilateral and plurilateral agreements (FTAs) as alternative fora for IP norm-​setting regarding GI protection. Still, as addressed in Section V, the multilateral IP system proved its resilience with the adoption of the Geneva Act of the Lisbon

5 

See below Section II. See below Section III. 7  See below Section IV. 8 Paris Convention for the Protection of Industrial Property, 20 March 1883, 21 U.S.T. 1583, 828 U.N.T.S. 305 5 Paris Convention°. 9  Madrid Agreement for the Repression of False and Deceptive Indications of Source, 14 April 1891, 828 U.N.T.S. 168 5 Madrid Agreement°. 10  Lisbon Agreement for the Protection of Appellations of Origin and their International Registration, 31 October 1958, 923 U.N.T.S. 205 5 Lisbon Agreement°. 11  Articles 22 and 23 of the TRIPS Agreement; see below Section III. 6 

The relationship between intellectual property and trade    535 Agreement (Geneva Act) under the auspices of WIPO in 2015.12 Section VI concludes by highlighting the ‘new normal’, that is the combination of multilateralism, regionalism, and bilateralism. This combination has always been present in the international IP landscape, but it has now become more predominant and complex, as highlighted by the intricate web of GI provisions negotiated and adopted today. This combination also applies to the regulation and negotiations of all other IPRs, not only GIs.

II.  The patchwork of international protection before the TRIPS Agreement: GIs as intellectual property Cinderella? The process of ‘internationalization’ of IP protection officially started with the adoption of the Paris Convention in 1883. Even though at first members included only a limited number of (Western) countries,13 the Paris Convention aimed at establishing minimum standards for the protection of patents, trademarks, industrial design, and utility models in members’ states in order to facilitate the movement of the goods embodying these rights across the signatories to the Convention.14 In the following decades, the Paris Convention was subjected to several revisions, the latest of which was adopted in Stockholm in 1967.15 During the second half of the twentieth century, the number of members also steadily increased, especially closer to the years preceding the adoption of the TRIPS Agreement. Today, the Paris Convention has 178 signatories.16 The provisions of the Paris Convention fell into three main areas for all the IPRs: the establishment of the principle of national treatment (or non-​discrimination based on

12  Geneva

Act of the Lisbon Agreement on Appellations of Origin and Geographical Indications and Regulations Under the Geneva Act of the Lisbon Agreement on Appellations of Origin and Geographical Indications, WIPO Document LI/​DC/​19 (20 May 2015) (Geneva Act). 13 For the list of current members of the Paris Convention, including historical data regarding accession and entry into force of the Convention in the various members, see Wipo Lex, Wipo-​ Administered Treaties, Contracting Parties, Paris Convention, at (last visited February 15, 2022). 14  See, e.g., S. Ricketson, The Paris Convention for the Protection of Industrial Property: A Commentary (Oxford: Oxford University Press, 2015); G.H.C. Bodenhausen, Guide to the Application of the Paris Convention for the Protection of Industrial Property as Revised at Stockholm in 1967 (wipo.int, 1968). 15  The Paris Convention was originally enacted in 1883, and subsequently revised in Brussels in 1900, Washington in 1911, The Hague in 1925, London in 1934, Lisbon in 1958, and Stockholm in 1967. See generally, WIPO, Intellectual Property Handbook: Policy, Law and Use at (last visited 15 February 2022). 16 See WIPO Lex, above fn 13.

536   Irene Calboli national origin);17 the creation of a right of priority for patents, trademarks, and industrial design based on the first filing in one of the Paris Convention members;18 and several common standards for patents, trademarks, industrial design, trade names, and indications of source. The Paris Convention also established a minimum standard for effective protection against unfair competition.19 However, the provisions of the Paris Convention provided only an initial primer of international harmonization and many differences continued to apply in the level of IP protection in the various member states.20 In addition, certain IP rights proved more controversial for uniform protection at the international level due to disagreement amongst countries negotiating the Paris Convention. In turn, the protection afforded to these IPRs was minimal and signatories had ample discretion on how to implement such protection.21 Certainly, GIs were not one of the priorities of the Paris Convention negotiations and accordingly GI protection was excluded from the Convention, and in general during the early period of international IP harmonization. Instead, the 1883 version of the Paris Convention protected GIs only indirectly as part of the general protection that signatories had to provide for ‘indications of source and appellations of origin’.22 The Paris Convention also did not provide a definition for these ‘indications’.23 Moreover, the Paris Convention protected these indications only against third parties’ false or misleading uses.24 In particular, Article 10 prohibited the use of false indications of origin when they were accompanied by ‘a false, fictitious, or deceptive trade name’.25 The provision also mandated the seizure of the goods identified by false indications of origin when ‘any producer, manufacturer, or merchant . . . engaged in the production or manufacture of or trade in’ such goods.26 This prohibition was partially reinforced in 1958 with the introduction of Article 10bis as part of the Lisbon revision of the Convention. Notably, Article 10bis

17 

fn 8, Articles 1–​3 of the Paris Convention. Article 4 of the Paris Convention. 19  Article 10bis of the Paris Agreement. 20  The fact that the Paris Convention did not attempt to level national IP laws to a larger extent was the main reason for the successful adoption of the agreement. See Bodenhausen, above fn 14 at 9–​16. 21  For example, the Paris Convention does not indicate means to protect industrial design. Article 5quinquies of the Paris Convention. 22 Article 1(2) of the Paris Convention. ‘The protection of industrial property has as its object . . . indications of source or appellations of origin . . .’ 23 See, e.g., I. Calboli, Expanding the Protection of Geographical Indications of Origin Under TRIPS: ‘Old’ Debate Or ‘New’ Opportunity? 10 Marquette Intellectual Property Law Rev. 182, 187 (2006). 24  Articles 10 and 10bis of the Paris Convention. 25  Article 10(1) of the Paris Convention. ‘The provisions of the preceding Article shall apply in cases of direct or indirect use of a false indication of the source of the goods or the identity of the producer, manufacturer, or merchant.’ 26  Article 10(2) of the Paris Convention. 18 

The relationship between intellectual property and trade    537 established that indications that were ‘liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose, or the quantity, of the goods’27 constitute acts of unfair competition and should be forbidden. Still, the provision again applied to all indications of source and not to GIs per se.28 Another international agreement adopted in 1891, the Madrid Agreement, offered only a slightly higher level of protection to GIs.29 Similar to the Paris Convention, the Madrid Agreement only focused on border measures and continued to offer specific protection against false and deceptive indications of source in general.30 The Madrid Agreement also did not define ‘indications of source’. The only specific development favoring GI protection in the Madrid Agreement was the introduction of specific protection for indications related to wines. According to Article 4, signatories had to provide protection to indications of origin relating to wines, unlike indications of origin relating to other goods.31 Regardless, only a limited number of countries signed the Madrid Agreement, resulting in the Agreement having limited relevance in practice and the continued neglect of effective harmonization of GI protection at the international level.32 Only in 1958, did the international community adopted a specific agreement on GIs, the Lisbon Agreement.33 In particular, the Lisbon Agreement provided a higher level of protection for ‘appellation of origin’ (AOs) beyond the prohibition against false or deceptive indications. Most relevant, the Agreement directly protected AOs, which were defined as ‘geographical name[s]‌of a country, region, or locality, which serve[] to designate a product originating therein, the quality and characteristics of which are due exclusively or essentially to the geographical environment, including natural

27  Article 10(3) of the Paris Convention. ‘The following in particular shall be prohibited: . . . (iii) indications or allegations the use of which in the course of trade is liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose, or the quantity, of the goods.’ 28 Ibid. 29  See Calboli, above fn 23 at 188. 30  Article 1(1) of the Madrid Agreement. ‘All goods bearing a false or deceptive indication by which one of the countries to which this Agreement applies, or a place situated therein, is directly or indirectly indicated as being the country or place of origin shall be seized on importation into any of the said countries.’ 31  Article 4 of the Madrid Agreement. ‘The courts of each country shall decide what appellations, on account of their generic character, do not fall within the provisions of this Agreement, regional appellations concerning the source of products of the vine being, however, excluded from the reservation specified by this Article.’ (emphasis added). 32  As of February 2022, thirty-​six States are members of the Madrid Agreement. For the list of current members of the Madrid Agreement, including historical data regarding accession and entry into force in the various members, see WIPO Lex, WIPO-​Administered Treaties, Contracting Parties, Madrid Agreement (Indications of Source), at (last visited 15 February 2022). 33  Lisbon Agreement.

538   Irene Calboli and human factors’.34 Under the Lisbon Agreement, signatories were obliged to protect appellations of origin also against ‘imitation or usurpation’ including their use accompanied by terms such as ‘like, type, or style’.35 AOs were also protected against becoming generic terms in any member country.36 The Lisbon Agreement also created a system of international registration modeled upon the trademark registration system.37 Still, despite offering a comprehensive international framework for protection, the Lisbon Agreement had only a few signatories, which made the Agreement less internationally relevant than many had hoped. The low number of signatories was largely due to the higher (and stricter) level of protection, which would require changes in the laws of most countries—​coupled with the fact that some appellations of origin were considered generic terms in many countries.38 This limited application of the Agreement continued to translate into a lack of international harmonization for GI protection. Overall, as I and other scholars have highlighted before, the reason for the remaining ‘dis-​harmonization’ of GI protection throughout the twentieth century was again due to the conflict of trade-​related interests between ‘Old World’ and ‘New World’ countries—​primarily Europe versus the Americas, Australia, and New Zealand—​ and the still feeble voices of many developing countries as part of international IP negotiations.39 These divergent positions resulted in a patchwork of international protection, which remained mostly ineffective and permitted inexistent levels of protection in several countries. As I elaborate in the next part of this chapter, it was only during the negotiations that led to the adoption of the TRIPS Agreement in 1994 that the status of GI protection rose from being a neglected Cinderella to become a relevant topic of discussion within the IP and trade agenda.40 This was not the case, on the other side, with respect to patents and trademarks, which found ample scope of protection and detailed provisions in the Paris Convention due to the alignment of interests—​in favor of harmonization of the relevant provisions—​of the countries that originally negotiated the Convention.41

34  Article

2(1) of the Lisbon Agreement defines ‘appellation of origin’ as ‘the geographical name of a country, region, or locality, which serves to designate a product originating therein, the quality and characteristics of which are due exclusively or essentially to the geographical environment, including natural and human factors’. 35   Article 3 of the Lisbon Agreement. 36  Ibid. (proving that ‘[p]‌rotection shall be ensured against any usurpation or imitation, even if the true origin of the product is indicated or if the appellation is used in translated form or accompanied by terms such as ‘kind,’ ‘type,’ ‘make,’ ‘imitation,’ or the like.’). 37  Article 5 of the Lisbon Agreement. 38  As of February 2022, thirty States are members of the Lisbon Agreement. For the list of current members, including historical data regarding accession and entry into force in the various members, see WIPO Lex, WIPO-​Administered Treaties, Contracting Parties, Lisbon Agreement, at (last visited 15 February 2022). 39  See Calboli, above fn 23, at 197. 40  See below Part III. 41  See Ricketson, above fn 14, Ch. 10–​12.

The relationship between intellectual property and trade    539

III.  The triumph of multilateralism with the TRIPS Agreement: GIs (finally) reach a global (controversial) status As noted by scholars and addressed in detail in the first edition of this handbook, the creation of the WTO and the adoption of the TRIPs Agreement marked the triumph of multilateralism—​negotiations amongst several countries and open to new members—​ also with respect to IPRs.42 Moreover, for the first time since the establishment of the GATT, IP was directly recognized not only as a relevant part of the international trade system, but as one of its three fundamental pillars along with trade in goods and services.43 Certainly, the scope of the agreement was unprecedented compared to previous international IP treaties. The TRIPS Agreement provided the first and comprehensive revision of existing IPRs both in terms of clarifying the definitions of protectable subject matter as well as the rights granted to IP owners.44 The TRIPS Agreement also provided specific provisions related to national IP enforcement. All WTO Members—​ from 128 Members in 1995 to 164 today—​were mandated to implement the provisions of the TRIPS Agreement, and only least developed countries (LCDs) were granted specific exceptions.45 Ultimately, even though several commentators labelled the agreement as the result of a maximalist (and largely Western) approach towards IPRs, its impact on the international community cannot be understated.46 Without question, the adoption of the TRIPS Agreement was crucial to advance the GI protection agenda on a worldwide scale.47 With the TRIPS Agreement, GIs went from being unidentified indications of source in the Paris Convention or

42 

Mitchell and Voon, above fn 2, at 186. See T. Cottier, ‘The Agreement on Trade-​Related Aspects of Intellectual Property Rights’ in P. F.J. Macrory, A.E. Appleton, and M. Plummer (eds) The World Trade Organization: Legal, Economic and Political Analysis 1041 (New York: Springer, 2005). 44 See the contributions in C.M. Correa and Y.A. Abdulqawi (eds), Intellectual Property and International Trade: Trips Agreement 3rd ed. (Kluwer Law International, 2016). 45  F.M. Abbott, The LDC TRIPS Transition Extension and the Question of Rollback, Policy Brief No. 15, (2013) International Centre for Trade and Sustainable Development (ICTSD); WTO, WTO Members Agree to Extend TRIPS transition period for LDCs until 1 July 2034, June 29, 2021, at < https://​www.wto. org/​engl​ish/​new​s_​e/​news2​1_​e/​tri​p_​30​jun2​1_​e.htm > (last visited 15 February 2022). 46  See F.M. Abbott, ‘Toward a New Era of Objective Assessment in the Field of TRIPS and Variable Geometry for the Preservation of Multilateralism’ 8(1) Journal of International Economic Law 77 (2005); G. Dutfield and U. Suthersanen, ‘Harmonisation or Differentiation in Intellectual Property Protection? The Lessons of History’ 23(2) Prometheus 137 (2005); G.B. Dinwoodie, ‘The Integration of International and Domestic Intellectual Property Lawmaking’ 23 Colum.-​VLA J.L. & Arts (2000) 307. 47  See Calboli, above fn 23, at 189. 43 

540   Irene Calboli strong-​rights-​but-​little followers Cinderellas in the Lisbon Agreement to fully accepted IPRs. In particular, Article 22 established that all WTO Members had to provide the ‘legal means’ to prevent misleading uses of GIs or uses which constitute ‘an act of unfair competition’.48 Article 23 additionally established a system of higher protection for GIs relating to wines and spirits, requiring WTO Members to protect those GIs against ‘usurpation,’ regardless of consumer confusion or unfair competition.49 The fact that WTO Members from both the ‘old world’ and ‘new world’ had considerable interests in the wine and spirits business certainly contributed to this double standard. The higher protection for GIs related to wines and spirits included terms used for goods ‘the true origin of the goods is indicated or the [GI] is used in translation or accompanied by expression such as ‘kind’, ‘type’, ‘style’, ‘imitation’, or the like’.50 WTO Members could also refuse or invalidate trademark registrations containing or consisting of GIs identifying wines or spirits.51 On the other hand, GIs still remained one of the most controversial items on the TRIPS Agreement’s negotiating table. The deep disagreement on the legal treatment, and even the recognition of GIs, was clear from the exceptions that the negotiators carved out to limit their protection. For example, Article 24 allowed WTO Members to grandfather existing trademark rights for signs identical or similar to foreign GIs used or registered in good faith before TRIPS’ implementation in their country.52 Article 24 also permitted the use of homonymous GIs. In other words, the provision exempted WTO Members from prohibiting the use of foreign GIs for wines or spirits where the term had been used ‘in a continued manner with the same or related goods or services’ in the territory of that WTO Member for at least ten years prior to 15 April 1994 (the date on which the TRIPS Agreement was formally concluded), or where this continuous use has been in good faith.53 Article 24 also allowed the use of terms that had become generic in a given WTO Member.54 The ongoing disputes over the use of words like Parmesan, Feta, or Gorgonzola between the European Union and other countries are relevant examples of the impact of this exception and likely the reason for this exception.55 Hence, neither the pro-​GIs nor the anti-​GIs camps were satisfied with the outcome of the TRIPS Agreement negotiations, the former wanting more protection and the latter wanting less protection. Accordingly, the negotiators embedded a compromising

48 

Article 22(2) of the TRIPS Agreement. Article 23(1) of the TRIPS Agreement. 50 Ibid. 51  Article 23(2) of the TRIPS Agreement. 52  Article 24(5) of the TRIPS Agreement. 53  Article 24(4) of the TRIPS Agreement. 54  Article 24(6) of the TRIPS Agreement. 55 For a detailed review see I. Calboli, ‘Time to Say Local Cheese and Smile at Geographical Indications of Origin—​International Trade and Local Development in the United States’ 53 Hous. L. Rev. (2015–​2016) 373. 49 

The relationship between intellectual property and trade    541 feature in the text of the agreement to overcome the impasse—​a ‘built-​in agenda’ in which WTO Members accepted to engage in further negotiations and consider enhancing GI protection beyond the levels included in the 1994 version of the TRIPS Agreement.56 This instrument, never used before in trade negotiations, was an effective, albeit temporary, compromising strategy to advance TRIPS’ larger IP and trade agenda.57 Notably, Articles 23 and 24 included the commitment to future negotiations discussing a multilateral system of notification and registration of GIs (at first for wines and spirits)58 and the possibility to extend to all GIs the higher protection granted to GIs for wines and spirits.59 These action items were also included in Doha ‘Development’ Round of WTO negotiations in 2001,60 which expanded the proposal for a multilateral register to all GIs.61 Yet, at the 2003 WTO meeting in Mexico the controversy proved again too deep to be resolved, causing the negotiations to collapse.62 The following rounds of WTO Ministerial Conferences and negotiations63 did not resolve the conflict and, almost three decades since the adoption of the TRIPS Agreement, the mandate of the TRIPS Agreement’s ‘built-​in-​agenda’ remains unfulfilled. As I elaborate in the next part of this chapter, it was precisely this impasse that led to the proliferation of independent negotiations in the context of bilateral and plurilateral FTAs. In these parallel fora, countries could push their respective interests more forcefully with other parties in exchange for different IP or non-​IP related benefits. Of course, the shift away from multilateral negotiations has been a staple feature of all IP negotiations and not only GIs. Still, the analysis of FTA provisions on GIs is particularly interesting due to the large number of agreements concluded, in particular by the European Union, on the topic.

56 

Articles 22(4) of the TRIPS Agreement. F. Felix Addor and A. Grazioli, ‘Geographical Indications beyond Wines and Spirits: A Roadmap for a Better Protection for Geographical Indications in the WTO/​TRIPS Agreement’ 5 J. World Intell. Prop. (2002) 865. 58  Article 23(4) of the TRIPS Agreement. See also J.M. Waggoner, ‘Acquiring A European Taste for Geographical Indications’ 33 Brook. J. Int’l L. (2008) 569, 578. 59  Article 24(1) of the TRIPS Agreement. 60  WTO, Ministerial Declaration of 14 November 2001, WT/​MIN(01)/​DEC/​1, 41 I.L.M. 746 (2002) (Declaration). Para. 12(b) stated ‘[T]‌he other outstanding implementation issues shall be addressed as a matter of priority by the relevant WTO bodies, which shall report to the Trade Negotiations Committee [TNC], established under paragraph 46 below, by the end of 2002 for appropriate action.’ (emphasis added). 61 Ibid. 62 Details about the WTO negotiations in Cancun are available at (last visited 15 February 2022). 63 See WTO, Document No. TN/​ C/​W/​61 (21 April 2011), at (last visited 15 February 2022) (highlighting that ‘Delegations continued to voice the divergent views that have characterized this debate, with no convergence evident on the specific question of extension of Article 23 coverage: some Members continued to argue for extension of Article 23 protection to all products; others maintained that this was undesirable and created unreasonable burdens.’). 57 

542   Irene Calboli

IV.  The ‘shift’ away from multilateralism towards bilateral agreements: the double side of GIs and the continued controversy The growth of FTAs as alternative fora for international trade negotiations originated from the negotiations’ deadlock in the WTO.64 Certainly, even though FTAs are not a new phenomenon and GATT Contracting Parties negotiated FTAs long before the creation of the WTO,65 the trend has intensified in the past two decades. In addition, post-​ WTO FTAs generally include IP chapters—​a feature that started with the adoption of the North American Free Trade Agreement (NAFTA) in the early 1990s.66 These IP chapters often introduce (also controversial) TRIPS-​plus standards.67 In this respect, GI provisions are peculiar amongst recent FTAs due to the great divide between the European Union and the United States, two groups that otherwise are in full agreement on promoting TRIPS-​plus standards.68 Because of this divide, the number of GI-​related provisions in FTAs often surpasses those on patents, trademarks, and copyright as negotiators try to promote or compromise diverging positions. GIs have also been the subject of standalone FTAs as well as FTAs focused specifically on names for wines and spirits.69 64  See V.K. Aggarwal and S. Evenett, ‘A Fragmenting Global Economy: A Weakened WTO, Mega FTAs, and Murky Protectionism’, CEPR Discussion Paper No. DP9781 (2013), at (last visited 15 February 2022). 65  For an updated list of the FTAs that have been concluded since the creation of GATT, see WTO, Regional Trade Agreements, at (last visited 15 February 2022). 66  North American Free Trade Agreement, Ch. 17, December 17, 1992, 32 I.L.M. 289 (1993); NAFTA Chapter 17 was negotiated alongside the negotiations that led to the creation of WTO and the adoption of the TRIPS Agreement. 67  See, e.g., the contributions in J. Drexl, J. Henning Grosse Ruse-​Khan H., and S. Nadde-​Phlix (eds), EU Bilateral Trade Agreements and Intellectual Property: For Better or Worse? (Berlin: Springer, 2014). See also S. Frankel, ‘The Legitimacy and Purpose of Intellectual Property Chapters in FTAs’, in R. Buckley, V. Io Lo and L. Boulle (eds), Challenges to Multilateral Trade: The Impact of Bilateral, Preferential and Regional Agreements (The Hague: Wolters Kluwer, 2008) 185; B. Mercurio, ‘TRIPS-​plus Provisions in FTAs: Recent Trends’ in L. Bartels and F. Ortino (eds), Regional Trade Agreements and the WTO Legal System (Oxford: Oxford University Press, 2006) 215. 68 For a comprehensive review, see T. Engelhardt, ‘Geographical Indications Under Recent EU Trade Agreements’, 46(7) International Review of Intellectual Property and Competition Law (2015) 781 (reviewing several EU FTAs); B. O’Connor and G. De Bosio, ‘The Global Struggle Between Europe and United States over Geographical Indications in South Korea and in the TPP Economies’ in W. van Caenegem and J. Cleary Springer (eds), The Importance of Place: Geographical Indications as a Tool for Local and Regional Development (Berlin: Springer, 2017) 47. 69  See Agreement between the European Union and the Government of the People’s Republic of China on Cooperation on, and Protection of, geographical Indications, 2020 OJ L 408, p. 1/​3. For

The relationship between intellectual property and trade    543 At the outset, however, the shift towards FTAs raises a preliminary question of validity, notably whether FTAs are compatible with the MFN principle in the TRIPS Agreement, according to which ‘any advantage, favour, privilege or immunity granted by a Member to the nationals of any other country shall be accorded immediately and unconditionally to the nationals of all other Members’.70 In general, this question has been resolved by accepting that FTAs do not conflict with the MFN principle.71 Still, some of the GI specific provisions raised additional issues. In particular, the FTAs negotiated by the European Union list specific GIs to be recognized by other negotiating parties.72 While these lists usually include GIs identifying unique geographical areas, in a few instances they include names that are contested by non-​ FTA third party WTO Members.73 In addition, most EU FTAs grant preferential treatment and automatically recognize the GIs included in the list,74 while other GIs need to undergo a registration process in order to be protected in the territory of the negotiating parties. Yet, even though one could claim that this differential treatment could represent a violation of the MFN principle, no objection seems to have been officially raised in the WTO so far. More fundamentally, the analysis of GI provisions in FTAs continues to reflect the controversy of the legal treatment of GIs, which followed the negotiators from the multilateral forum to the FTA negotiations.75 This ongoing controversy is demonstrated by the often-​convoluted provisions establishing GI protection and detailing the process for GI registration and oppositions in different FTAs. In particular, both the European Union and the United States regularly try to transfer their positions on GIs into the provisions of the FTAs they are negotiating. Yet, because these positions diverge sharply, countries negotiating separate FTAs with both the European Union and the United States—​for example South Korea, Singapore, Vietnam and Japan—​find it challenging to

specific references to the ‘wine agreements’ negotiated by the EU, see below fn 83. See also G. Meloni and J. Swinnen, ‘Trade and Terroir. The Political Economy of the World’s First Geographical Indications’ 81 Food Policy (2018) 1 (analyzing the protection of GIs in the wine sector and their influence on the policy developments to other sectors). 70 

Article 4 of the TRIPS Agreement. D. Curzi and M. Huysmans, ‘The Impact of Protecting EU Geographical Indications in Trade Agreements’ 104 American Journal of Agricultural Economics (2022) 364 (explaining that, once implemented, provisions negotiated through FTAs apply without discrimination to GIs from the negotiating parties and foreign GIs). 72 M. Huysmans, ‘Exporting Protection: EU Trade Agreements, Geographical Indications, and Gastronationalism’ Review of International Political Economy (2020) 73  This is the case, in particular, with names that are deemed to be generic in third party countries, such as cheese names. See Curzi and Huysmans, above fn 71, at 367–​68. 74  The lists are highly contentious not only for countries that are not parties in the FTAs. For example, Cyprus, Greece, Italy have threatened not to ratify the Comprehensive Economic and Trade Agreement between the EU and Canada because of insufficient GI protection. Huysmans, above fn 72 at 1–​2. 75 See generally A. Moerland, Why Jamaica Wants to Protect Champagne: Intellectual Property Protection in EU Bilateral Trade Agreements (Gelderland: Wolf Legal Publisher, 2013). 71 See

544   Irene Calboli reach a balance between the two positions as they implement these separate FTAs into their national systems.76 As a result, the imposition of these diverging positions—​ranging from the scope and the means of protections to the process of registration, opposition, and cancellation of GIs—​has led to a complexity of legal provisions in the text of the FTAs negotiated, respectively, with the European Union and the United States.77 Not surprisingly, this complexity has often created legal incoherence in the implementation of GI protection at the national level in the countries that have to ratify separate FTAs concluded with both the European Union and the United States.78 Similar considerations apply to the provisions on GIs included in the ‘megaregional’ FTAs, such as the Comprehensive and Progressive Agreement for Trans-​Pacific Partnership (CPTPP)79 and the Regional Comprehensive Economic Partnership (RCEP).80 Several of the parties to these agreements individually negotiated FTAs with the European Union or the United States, neither of which is part of these megaregional FTAs. Here again, the result of these additional and diverging FTA commitments with the European Union and the United States made the drafting of the GI provisions in the CTTPP and the RCEP complicated and the implementation into national laws of the members of the megaregional FTAs partially incoherent. This consideration does not change because of the fact that, after over a decade of arm-​wrestling FTA matches between the European Union and the United States, the current FTAs’ landscape seems to indicate that the EU lead on GIs is growing across many continents. Notably, since the early 2000s, the European Union concluded a higher number of FTAs,81 which have not only recognized European GIs in foreign jurisdictions but have also upgraded the level of GI protection in these jurisdictions to the higher standard provided in Article 23 of the TRIPS Agreement.82 These FTAs are in addition to the bilateral agreements related to wines and spirits that the European Union concluded with several countries, including the United States.83 76  For example, because Vietnam is a party in the CTTPP, previously TPP, a clause had to be added to the EU-​Vietnam agreement stating that the protection of listed EU GIs in Vietnam may be invalidated. See O’Connor and De Bosio, above fn 68, at 58–​60 (comparing the EU-​South Korea agreement to US-​ South Korea and EU-​Vietnam to the TPP, and noting that the party that comes first tends to affect the scope for compromise with the second). 77 Ibid. 78 Ibid. 79  The Comprehensive and Progressive Agreement for Trans-​Pacific Partnership (CPTPP) is a trade agreement among: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. It evolved from the Trans-​Pacific Partnership (TPP), which never entered into force due to the withdrawal of the United States. Chapter 18, Section E, focuses on GIs. 80  The RCEP Agreement, signed on November 15, 2020, is a comprehensive trade agreement that applies to a significant portion of the world’s economy. Australia, Brunei Darussalam, Cambodia, China, Indonesia, Japan, Lao PDR, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, South Korea Thailand and Vietnam. It is expected that India may accede to the treaty. Its Chapter 11, Section D, focuses on GIs. 81  Huysmans, above fn 72, at 1–​2. 82  See above Section III. 83  For the list of bilateral and free trade agreements concluded by the EU with other countries, see European Commission, Wine, Bilateral and Free Trade agreements, at (last visited 15 February 2022). 84 

European Commission, Global Europe: Competing in the World (A Contribution to the EU’s Growth and Jobs Strategy), COM (2006) 567, p. 18, at < https://​eur-​lex.eur​opa.eu/​Lex​UriS​erv/​Lex​UriS​erv.do?uri=​ COM:2006:0567:FIN:en:PDF > (last visited 15 February 2022). See also Pascal Lamy, ‘Stepping Stones or Stumbling Blocks? The EU’s Approach Towards the Problem of Multilateralism vs Regionalism in Trade Policy’ 25(10) World Economy (2002) 1399. 85  Free Trade Agreement between the European Union and its Member States, of the one part, and the Republic of Korea, of the other part, OJ 2011 L 127, p.​1. 86 Trade Agreement between the European Union and its Member States, of the one part, and Colombia and Peru, of the other part, OJ 2012 L 354, p.​3. 87  Agreement establishing an Association between the European Union and its Member States, on the one hand, and Central America on the other part, OJ 2012 L 346, p. ​3. 88 Association Agreement between the European Union and the European Atomic Energy Community and their Member States, of the one part, and Ukraine, of the other part, OJ 2017 L193. 89 Association Agreement between the European Union and the European Atomic Energy Community and their Member States, of the one part, and Georgia, of the other part, OJ 2014 L 261​, p. 4. 90 Association Agreement between the European Union and the European Atomic Energy Community and their Member States, of the one part, and the Republic of Moldova, of the other part, OJ 2014 L 260​, p. 4. 91  Economic Partnership Agreement between the European Union and its Member States, of the one part, and the SADC EPA States, of the other part, OJ 2016 L 250, p.​3. 92  Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part, OJ 2017 L 11​, p. 23. 93 Free Trade Agreement Between the European Union and the Republic of Singapore, 2019 OJ L 294/​3. 94  Free Trade Agreement Between the European Union and the Socialist Republic of Viet Nam, OJ 2020 L 186, p.​3. 95  At the time of writing the negotiations between the EU and Japan on the Economic Partnership Agreement (EPA) have been finalized. For the documents see, European Commission, EU-​Japan Economic Partnership: Texts of the Agreement, at < https://​trade.ec.eur​opa.eu/​doc​lib/​press/​index. cfm?id=​1684 > (last visited February 15, 2022). 96  Engelhardt, above fn 69, at 783–​87.

546   Irene Calboli Still, despite the undeniable success of the EU strategy at the bilateral and regional levels, the progress achieved remains limited to these countries and regions and does not apply to all countries internationally. In turn, international GI protection remains uneven.97 As I elaborate in the next part of this chapter, it is precisely this impossibility to reach full harmonization through FTAs that brought countries back to the multilateral negotiating table. No matter how controversial and complex it may be to navigate the multilateral system, it remains crucial, as the only forum to promote rules that can be applied on an international basis.

V.  Multilateralism strikes back: all (GI) roads eventually lead (also) to Geneva The importance of a well-​functioning multilateral system and governance has become more evident than ever in the past two years due to the challenges created by the Covid-​ 19 pandemic.98 However, even before the pandemic, the undeniable growing relevance of FTAs as alternative negotiating fora did not erase the significance of the multilateral system with respect to the negotiation and promotion of the IP and trade agenda.99 Interestingly, the return of multilateral negotiations happened precisely at the same time as the successful revision of the Lisbon Agreement and the adoption of the Geneva Act in 2015.100 In particular, the Geneva Act entered into force in February 2020 when the EU submitted the instruments to ratify that agreement. The Geneva Act also updated the ‘Lisbon System’ for the international registration and protection of GIs, which allows the registration of AOs and/​or GIs with a single procedure across all members of the

97 

See O’Connor and De Bosio, above fn 68, at 74–​5. particular, the Covid-​19 pandemic has led to the discussion related to a waiver of patents and other IPRs related to the Covid-​ 19 vaccines and treatments. See Council for Trade-​ Related Aspects of Intellectual Property Rights, ‘Waiver from Certain Provisions of the TRIPS Agreement for the Prevention, Containment and Treatment of COVID-​ 19: Communication from India and South Africa’ (IP/​C/​W/​669 (2 October 2020) and IP/​C/​W/​669/​Rev.1 (21 May 2021). Positions in this respect vary between policymakers and scholars, even though it is clear that vaccine inequity is a fundamental problem for the global recovery. See, e.g., B.C. Mercurio, ‘WTO Waiver from Intellectual Property Protection for COVID-​19 Vaccines and Treatments: A Critical Review’ 62 Virginia Journal of International Law Online (2021) 9; J.L. Contreras, ‘US Support for a WTO Waiver of COVID-​19 Intellectual Property’ 56(3) Intereconomics (2021) 179. 99  For a review of the role of TRIPS in a changing global landscape, see G.B. Dinwoodie and R.C. Dreyfuss, A Neofederalist Vision of TRIPS: The Resilience of the International Intellectual Property Regime (Oxford: Oxford University Press, 2012). 100  Geneva Act. 98 In

The relationship between intellectual property and trade    547 system, 36 jurisdictions at the time of writing.101 Under the Lisbon System, a GI is validly protected for all members as long as it is protected in the country of origin and is protected against the misuse or misappropriation of the GIs in all members of the Lisbon System. In 2018, the Kingdom of Cambodia, became the first country to adhere to the Geneva Act102 and, in 2021, the Cambodian GI ‘Kampot Pepper’ became the first GI to be protected in the members of the Lisbon System through a single registration procedure.103 At the time of writing, the Geneva Act has a total of 11 contracting parties, including the European Union and its Member States.104 Still, the adoption of the Geneva Act was again controversial and the Diplomatic Conference that led to the successful revision of the Lisbon Agreement could be concluded largely because only the (pro-​GIs) members of the Special Lisbon Union were allowed to vote on the revisions.105 This situation—​unprecedented within WIPO—​ drew the ire of non-​voting WIPO Members, such as the United States, Australia, and New Zealand.106 Nevertheless, despite the controversies, the successful adoption of the Geneva Act not only represented a remarkable achievement for the multilateral system, but it was also proof that artfully conducted trade negotiations could still yield positive outcomes within multilateral fora and are ultimately needed to achieve global standards of protection.107 In addition, besides being a testament to the resilience of the multilateral system, the Geneva Act constitutes a masterful example of legislative compromise. Notably, the agreement seeks to, and to a large extent succeeds in, blending the existing high-​ level of GI protection in the Lisbon Agreement with the more flexible approach 101 

As of February 2022, thirty-​six States are members of the Lisbon Union. See, at WIPO Lex, WIPO-​ Administered Treaties, Contracting Parties, Lisbon Union, at < https://​wipo​lex.wipo.int/​en/​treat​ies/​Show​ Resu​lts?sear​ch_​w​hat=​B&bo_​id=​11 > (last visited 15 February 2022). 102 WIPO, Cambodia First to Join the Geneva Act of WIPO’s Lisbon Agreement, 9 March 2018 < https://​ www.wipo.int/​lis​bon/​en/​news/​2018/​news_​0​001.html > (last visited 15 February 2022). 103 WIPO, Lisbon Agreement’s Geneva Act Receives First Geographical Indication: Kampot Pepper From Cambodia, 18 January 2021, < https://​www.wipo.int/​lis​bon/​en/​news/​2021/​news_​0​001.html > (last visited 15 February, 2022). 104 See WIPO Lex, WIPO-​Administered Treaties, Contracting Parties, Lisbon Agreement, Geneva Act, at < https://​wipo​lex.wipo.int/​en/​treat​ies/​Show​Resu​lts?sear​ch_​w​hat=​A&act​_​id=​50 > (last visited 15 February, 2022). 105  For a summary of the preparatory phases that led to the Geneva Act, see A.G. Micara, ‘The Geneva Act of the Lisbon Agreement for the Protection of Appellations of Origin and Their International Registration: An Assessment of a Controversial Agreement’ 47(6) International Review of Intellectual Property and Competition Law (2016) 673. 106  See ibid., at 679 (recounting that the Lisbon Union Assembly convened a Diplomatic Conference during a meeting in 2013 for a ‘revision’ of the agreement, which allowed the vote only of the members, whereas a new treaty would have required the agreement of all WIPO members); see also D. Gervais, ‘A Look at the Geneva Act of the Lisbon Agreement: A Missed Opportunity?’ in I. Calboli and N.-L. Wee Loon (eds), Geographical Indications at the Crossroads of Trade, Development, and Culture (Cambridge: Cambridge University Press, 2017) 122. 107 This consideration also applies to the exceptions to IP protection. See Marrakesh Treaty to Facilitate Access to Published Works for Persons Who Are Blind, Visually Impaired or Otherwise Print Disabled, WIPO Doc. VIP/​DC/​8 (27 June 2013) (entered into force 30 September 2016).

548   Irene Calboli mandated in TRIPS and today adopted by all WTO members.108 For example, the Geneva Act protects both AOs, like the Lisbon Agreement, and GIs, bringing the language of the agreement in line with the language used in TRIPS.109 Moreover, while the Geneva Act obligates members to protect both registered AOs and GIs within their territory, it does not include the Lisbon Agreement’s language ‘as such’ and further states that the ‘Contracting Party shall be free to choose the type of legislation under which it establishes the protection stipulated in this Act’.110 In this way, both groups of countries—​the members of the 1958 Lisbon Agreement as well as WTO Members—​ could easily implement the requirement of the Geneva Act. The Geneva Act also allows certain intergovernmental organizations to join, such as the European Union or the African Intellectual Property Organization (OAPI).111 The Geneva Act also seeks to find a compromise between the enhanced protection for AOs in the Lisbon Agreement—​which protects AOs against ‘any usurpation or imitation’ even if the true origin is mentioned or the term is translated or accompanied by delocalizers such as ‘‘kind’, ‘type,’ ‘make,’ ‘imitation’, or the like’112—​and the TRIPS Agreement, which offered enhanced protection only to GIs identifying wines and spirits.113 In particular, the Geneva Act promotes the TRIPS Agreement’s ‘built-​in’ agenda and increases the level of protection for all GIs compared to the original provisions of the TRIPS Agreement. Yet, it does so by aptly combining elements related to the protection of well-​known marks (mandated to and implemented today by all WTO Members) and GIs.114 Notably, the language of the Geneva Act provides that members must provide legal means to prevent GIs’ unauthorized uses with respect to: (i) identical or similar goods (including translations and uses accompanied by delocalizers); (ii) non similar goods or services, if the user would suggest a connection, including a use liable ‘to impair or dilute in an unfair manner, or take unfair advantage of, that reputation’ of the GI; and (iii) ‘any other practice liable to mislead consumers as to the true origin, provenance or nature of the goods,’ including uses amounting to imitation.115 Ultimately, the Geneva Act uses a trademark approach—​the dilution standards—​to enhance GI protection, which makes it more palatable, and technically simpler, for all WTO Members to adopt the revised standards.116 On the other side, the Geneva Act remains unclear on the issue of genericness—​one of the heated issues of the GI debate.117 Like the Lisbon Agreement, the Geneva Act allows a Lisbon member to reject a GI within 12 months of registration if it is generic in their

108 

Micara, above fn 105, at 785. Ibid. See above Section III. 110  Articles 9 and 10(1) of the Geneva Act. 111  Article 1(xiv) of the Geneva Act. 112  Article 3 of the Lisbon Agreement (emphasis added). 113  Article 23 of the TRIPS Agreement. 114  Article 11 of the Geneva Act. 115 Ibid. 116  Gervais, above fn 106, at 128–​9. 117  Ibid., at 131–​2. 109 

The relationship between intellectual property and trade    549 territory.118 Members can also allow the coexistence of a GI and a trademark and protect prior trademark rights. However, if a GI later becomes generic in a Lisbon Agreement Member, it remains unclear if a GI could be treated as generic in that Member if it is not generic in its country of origin.119 On the other hand, the Geneva Act is clearer on the point that it allows the protection of prior trademark rights and GIs to be rejected on the basis of genericness in a member country at the time that country joins the system.120 Finally, the Geneva Act made several improvements to the GI registration process via the revised Lisbon System. For example, it introduced a clearer system to refuse new GIs and a new system allowing interested parties to ‘request the Competent Authority to notify a refusal in respect of the international registration.’121 Still, the agreement did not fully address the issue of registration fees and, in particular, maintenance fees.122 This issue was a major point of contention during the Diplomatic Conference, since the Lisbon System does not have a system of fees like other IPRs, and remains a delicate topic of discussion amongst WIPO Members at the present time.123 Ultimately, however, despite the criticism, the Geneva Act brought the Lisbon System closer to the TRIPS Agreement and represented the biggest step to implement (at least de facto) the TRIPS Agreement’s ‘built-​in’ GI agenda. By bringing GI protection closer to a trademark approach, the Geneva Act also paved the way for a large number of stakeholders, both in civil law and common law countries, to join the agreement. Of course, much remained to be done, yet the agreement represents both the resilience of the multilateral system as well as its growing complexity and how successful developments in norm-​setting are increasingly more the result of a variety of negotiations in multiple settings, including not only the multilateral arena but also at the regional and bilateral levels.

VI.  The ‘new normal’: learning to live with a combination of multilateralism, plurilateralism, and bilateralism In light of the above, what conclusions can be derived from the analysis of the existing GI-​provisions and ongoing GI negotiations, and how can these conclusions assist in 118 

Article 5(3), (4) of the Lisbon Agreement; Article 15(1) of the Geneva Act. Article 6 of the Lisbon Agreement; Article 12 of the Geneva Act. 120  Gervais, above fn 106, at 131–​2. 121  See Articles 15–​16 of the Geneva Act; see also ibid. Rule 9 (explaining how Contracting Parties should notify the Lisbon Secretariat of the refusal); Rule 10 (explaining what does not represent a valid refusal for the Lisbon Secretariat); and Rule 11 (illustrating the procedure for withdrawal or refusal). 122  Fee maintenance was a hotly debated topic the Diplomatic Conference. Gervais, above fn 106, at 130–​31. 123 Ibid. 119 

550   Irene Calboli better understanding the current relationship between IP and trade at large, at the multilateral, regional and bilateral levels? Certainly, the answer to these questions is complex, as the journey through the development of GI protection before, during, and post-​TRIPS demonstrates. Yet, the main take away from the GI analysis in this chapter seems to be that the relationship between IP and trade in today’s international arena depends on a multiplicity of fora and layers of negotiations, every one of which is necessary and interconnected despite the fact that they may take place at a different level. Notably, the continuous trends towards bilateral and mega-​regional agreements in the past two decades, coupled with the deterioration of the trust and effectiveness of the multilateral system, have resulted in the international IP context becoming more segmented and more difficult to successfully navigate.124 In particular, the multilateral process of IP standard-​setting will continue to be increasingly cumbersome.125 Instead, the ‘new normal’ for the advancement of the IP and trade agenda will most likely require the aforementioned multilayered set of legal instruments—​at the multilateral, regional and bilateral levels—​all of which are necessary to effectively advance IP negotiations. Depending on the topic at issue, these multilayered instruments will also co-​exist to a different degree. Likewise, agreements related to administrative procedures rather than substantive IP norms, may be easier and less controversial to negotiate at the multilateral level.126 Yet, this new normal does not equate to the bleak picture painted by some critics. For example, in 2005, former WTO Director-​General Ruggiero warned that, should FTAs become ‘an instrument of normal competition with the multilateral system’, the result would ‘not only change the trade geography, but also influence political relations’ and ‘the poor and the weak will have to fear ‘a return to the law of the jungle . . .’.127 Certainly, forum shifting was, and still is, one of ‘the most important challenge[s]‌in today’s international trading system . . .’, particularly from the perspective of organizations such as the WTO and WIPO.128 However, despite the words of former WIPO Director-​General Ruggiero in 2015, FTAs did not lead to the demise of multilateralism, and multilateralism remains one of the ‘the greatest source[s] of legitimacy and inclusiveness for making rules’ in the era of shared governance for International IP norm settings.129 124  See H. Grosse Ruse-​ Khan, ‘From TRIPS to FTAs and Back: Re-​Conceptualising the Role of a Multilateral IP Framework in a TRIPS-​Plus World’ 48 Netherlands Yearbook of Int’l L. (2017) 58–​107; M. Trimble, ‘Advancing National Intellectual Property Policies in a Transnational Context’ 74 Md. L. Rev. (2005) 203. 125  A relevant example in this respect is the ongoing debate on the protection of traditional knowledge in the WIPO Intergovernmental Committee on Intellectual Property and Genetic Resources, Traditional Knowledge and Folklore. On the topic, see the contributions in D.F. Robinson, A. Abdel Latif, and P. Roffe (eds) Protecting Traditional Knowledge (Routledge, 2017). 126  A relevant example was the adoption in 2006 of the Singapore Treaty on the Law of Trademarks, 27 March 2006, S. Treaty Doc. No. 110–​2. 127  R. Ruggiero, WTO After 10 Years, WTO Annual Public Symposium, Geneva, 20–​22 April 2005, at < https://​www.wto.org/​sea​rch/​searc​h_​e.aspx?sea​rch=​basic&sea​rchT​ext=​2005+​ruggi​ero&met​hod=​pag​inat​ ion&pag=​0&roles=​%2Cpub​lic%2C > (last visited 15 February 2022). 128 Ibid. 129  ‘Francis Gurry on the Challenges for Multilateralism in the Field of Intellectual Property’, WIPO Magazine, October 2016, at < https://​www.wipo.int/​wipo_​m​agaz​ine/​en/​2016/​05/​artic​le_​0​001.html >

The relationship between intellectual property and trade    551 Ultimately, despite the criticism, FTAs do provide legitimate alternatives and parallel fora to discuss issues and standards. In particular, these agreements can be very useful—​ for example to discuss issues between countries with shared interests in Europe, Africa, South-​East Asia or South America.130 FTAs can even revive the relevance of multilateralism, as in the case for the discussion leading to the adoption of the Geneva Act. As stated by the European Commission, FTAs can serve to ‘tackl[e]‌issues which are not ready for multilateral discussion and [] prepar[e] the ground for the next level of multilateral liberalisation’.131 Accordingly, while certainly these alternative fora do entail some fragmentation of the multilateral system, this fragmentation is not necessarily to the detriment of the countries excluded nor does it necessarily weaken the possibility of achieving globally acceptable standards.132 To the contrary, regional and bilateral negotiations can play an important role in the shaping of international IP norms within and beyond the region or the parties in the agreement. In summary, the history of GIs’ protection in this chapter highlights how today’s IP and trade agenda depends on a combination of multilateral, regional, and bilateral negotiations and rules. Regarding GIs in particular, future negotiations will certainly see the continuation of regional and bilateral negotiations. In addition, while the hopes for the successful reactivation of the TRIPS Agreement’s GI ‘built-​in’ agenda are likely inexistent, more countries will certainly join the Geneva Act and more GIs will be registered through the revised Lisbon System for international registrations. International, regional and national organizations and IP offices will also certainly continue to promote education and technical assistance in the area of GIs to promote awareness and, with it, create favourable conditions for future developments. In other words, the future of GIs will continue to see development on several fronts, with a combination of multilateralism, regionalism, and bilateralism.

VII. Conclusion This chapter uses the international protection of GIs as a lens to review the history and developments of the fundamental relationship between IP and trade. This choice is due both to the limited analysis that can be addressed in the chapter and the particularly

(last visited 22 February 2022); see also Edward Kwakwa, ‘Some Comments on Rulemaking at the World Intellectual Property Organisation’ 12 Duke J. Comp. & Int’l L. (2002) 179. 130 See, e.g., I. Calboli and C. Visser, ‘Regional Trademark Protection: Comparing Regional Organizations in Europe, Africa, South East Asia, and South America’ in J.C. Ginsburg and I. Calboli (eds), Cambridge Handbook on International and Comparative Trademark Law (Cambridge: Cambridge University Press, 2020) 103. 131  See European Commission, above fn 84, at 17 (adding that ‘Many key issues, including investment, public procurement, competition, other regulatory issues and IPR enforcement, which remain outside the WTO at this time can be addressed through FTAs’.). 132  See G. Teubner and A. Fischer-​Lescano, ‘Regime Collisions: The Vain Search for Legal Unity in the Fragmentation of Global Law’ 25 Mich. J. Int’l L. (2004) 999.

552   Irene Calboli relevant example provided by GIs. A similar analysis could have been conducted, however, using other IP lenses—​patents, trademarks, copyrights, or trade secrets. Yet, even though these journeys would have offered different details to the readers, they would have ultimately reached the same conclusions: that today’s international IP landscape, no matter the IPRs at issue, is the result of rules adopted and negotiations conducted at multiple levels—​multilateral, regional, and bilateral. These different layers have long been present in the IP and trade landscape. Hence, their presence and complexity have increased in the past two decades for the reasons highlighted in this chapter and will likely continue to increase in future years.

Further reading G. Belletti, A. Marescotti and J.-​M. Touzard, ‘Geographical Indications, Public Goods, and Sustainable Development: The Roles of Actors’ Strategies and Public Policies’ 98 World Development (2017) 4 I. Calboli, ‘Geographical Indications Between Trade, Development, Culture, and Marketing: Framing a Fair(er) System of Protection in the Global Economy?’ in I. Calboli and N.-G. Wee Loon (eds), Geographical Indications at the Crossroads of Trade, Development and Culture: Focus on Asia-​Pacific (Cambridge: Cambridge University Press, 2017) 3–​35 D. Gangjee, Relocating the Law of Geographical Indications (Cambridge: Cambridge University Press, 2012) D. Gangjee (ed), Research Handbook on Intellectual Property and Geographical Indications (Cheltenham: Edward Elgar Publishing, 2016) D. Marie-​Vivien and E. Biénabe, ‘The Multifaceted Role of the State in the Protection of Geographical Indications: A Worldwide Review’ 98 World Development (2017) 1 J. Reinbothe ‘Negotiating for the European Communities and Their Member States’ in J. Watal and A. Taubman (eds), The Making of Trips Insights from the Uruguay Round Negotiations (Geneva: World Trade Organization, 2015) 187

Chapter 20

T r a de i n Ag ri c u lt u re Fiona Smith *

I. II.

Introduction The WTO’s legacy A. Market access B. Domestic support C. Export competition III. GATT 1947’s legacy I V. The ITO’s legacy V. Conclusion

553 557 559 563 567 568 570 572

I. Introduction The regulatory landscape governing international agricultural trade has become more complicated in recent times. Over three hundred regional trade agreements exist alongside the WTO’s rules.1 These regional agreements apply to the States that sign and ratify them and comprise trade obligations that entrench or extend their WTO obligations. States have agreed to further reduce or eliminate import and export restrictions that slow the flow of agricultural products across borders;2 to agree additional reciprocal

*  I

am grateful for comments from Sean Coyle and the ‘Shut Up and Write’ Group, School of Law, University of Leeds. The usual caveat applies. 1 WTO, Regional Trade Agreements Database, at < http://​rtais.wto.org/​UI/​Public​Main​tain​RTAH​ ome.aspx > (last visited 28 September 2021). 2  For example, South Korea went beyond WTO commitments and eliminated all tariffs on wine from the European Union: EU-​Korea Free Trade Agreement 2011, Tariff Schedule of Korea OJ 2011 L 127, p. 6 and 86.

554   Fiona Smith non-​discrimination commitments;3 and to modernize WTO rules to accommodate contemporary challenges, like climate change.4 Scholars respond to this proliferation of regional trade agreements in two ways. First, some argue that regional trade agreements accelerate the WTO’s neoliberal mission by unshackling international agricultural trade from States’ ‘protectionism’.5 They claim that States are opening their agricultural markets beyond their obligations in multilateral rules6 and agreeing to experimental solutions to interminable problems, like how to balance the relationship between trade and development to protect developing and least-​developed countries’ food security.7 These experimental solutions form the basis for WTO regulatory reform too.8 Second, others argue that regulating international agricultural trade through WTO rules and regional trade agreements is risky. As regional trade agreements proliferate, specialized regimes are created with their own rules, procedures, institutions, law-​making practices, and particular vision about the way that the law should work.9 The risks of this ‘fragmentation’ mirror those highlighted by the International Law Commission in the broader field of public international law. Namely, the ‘emergence of conflicting jurisprudence, forum-​shopping and loss of legal security’, together

3  For example, in CETA, Canada agreed tariff free access to 90.9 per cent for all EU agricultural tariff lines; c/​f the EU reduced all its agricultural tariff lines to 92.2 per cent: OJ 2017 L11, p. 23; European Commission, CETA-​Summary of the final negotiating results, (2016), at (last visited 28 September 2021); see also the US-​Japan Trade Agreement 2019: Japan agreed duty free access to 90+​per cent on American agrifood exports, c/​ f the US concessions on 42 tariff lines: Office of the USTR, Fact Sheet on Agriculture-​Related Provisions of the US-​Japan Trade Agreement, at < https://​ustr.gov/​about-​us/​pol​icy-​offi​ces/​press-​off​i ce/​fact-​she​ets/​ 2019/​septem​ber/​fact-​sheet-​agri​cult​ure%E2%80%90rela​ted > (last visited 28 September 2021). 4  The EU-​ Mercosur FTA contains a chapter governing trade and sustainable development. On 3 June 2020, the Dutch government rejected the agreement due to concerns that it failed to protect the Amazon from deforestation: ‘EU mulls Dutch rejection of Mercosur deal’ (4 June 2020), at < https://​ www.arg​usme​dia.com/​en/​news/​2111​447-​eu-​mulls-​dutch-​reject​ion-​of-​merco​sur-​deal > (last visited 28 September 2021). 5 Namely, using trade measures to protect domestic farmers from the pressures of international trade. T. Josling, ‘Agriculture’ in S. Lester, B. Mercurio and L. Bartels (eds), Bilateral and Regional Trade Agreements: Commentary and Analysis (Cambridge: Cambridge University Press, 2015), at 171. 6 K. Anderson, Finishing Global Farm Trade Reform: Implications for Developing Countries (Adelaide: University of Adelaide Press, 2017), Chapter 6. Note how Japan’s longstanding reluctance to open its agricultural sector changed following a refocus within Japan on agricultural trade liberalization and competitiveness. President Abe agreed an EU demand that Japan reduce its cheese tariff by 100 per cent in return for concessions on EU tariffs on Japanese cars: H. Suzuki, ‘The New Politics of Trade: EU-​ Japan’ 39(7) Journal of European Integration (2017) 875, at 882–​883. 7  K. Kuhlmann and A. Agutu, ‘The African Continental Free Trade Area: Towards a New Legal Model for Trade and Development’ 51(4) Georgetown Journal of International Law (2020) 753, at 753, 782 and 803. 8 For an experiment in trade remedies see: T. Voon, ‘Eliminating Trade Remedies from the WTO: Lessons from Regional Trade Agreements’ 59(3) International and Comparative Law Quarterly (2010) 625. 9  A. Mitchell, T. Voon and E. Sheargold, ‘PTAs and Public International Law’ in Lester, Mercurio and Bartels (eds), above fn 5, Chapter 6.

Trade in Agriculture    555 with potential ‘conflicts between rules, or rules-​based systems, deviating institutional practices and . . . the loss of an overall perspective on the law’.10 The central issue for scholars taking this perspective is how to make these rules, procedures, institutions, and institutional practices coherent. Coherence comes through identifying the conflicts between all these legal regimes and carefully interpreting their rules in accordance with customary rules of treaty interpretation laid down in the Vienna Convention on the Law of Treaties (Vienna Convention).11 Both responses to regional trade agreement proliferation provide important insights, but they focus on a particular issue: how to maintain a coherent global legal order for regulating international agricultural trade.12 The central problem is said to come from the failure to recognize the continued significance of WTO rules when regional trade agreements regulate agricultural trade in different ways. The fear is that States charged with legal reform, and traders and lawyers interpreting the rules, will not understand that WTO rules and regional trade agreements comprise a single unified system. And, what appears to be regional trade agreements’ flaws, eccentricities, and deviations away from WTO rules, is a distinct level of global governance within that unified system.13 The role of law in this unified system, and by extension, of the institutions charged with administering that law, is to constrain excessive displays of political power by the State and guarantee the well-​being of global society.14 This way of understanding the new regulatory landscape is problematic. Questions about the stability of WTO rules and regional trade agreements are not asked. Instead, scholarly reflection focuses on the nature and function of law as ‘articulated through the vocabularies of public law and the constitution’.15 In this constitutionalist discourse,

10  M. Koskenniemi, Report of the Study Group of the International Law Commission: Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law, United Nations, 13 April 2006, A/​CN.4/​L.682, paras 8–​9. 11  Vienna Convention on the Law of Treaties, 1969, 1155 UNTS 331, (1969) 8 ILM 679. 12  See Simmonds’ analysis of rationality in English Tort and Contract Law: Simmonds, ‘The Changing Face of Private Law: Doctrinal Categories and the Regulatory State’ 2(3) Legal Studies (1982) 257, at 257. 13  The unified system includes global, regional and national governance, with regional agreements constituting regional governance. See, e.g., J. Habermas, ‘The Constitutionalization of International Law’ 26 Ratio Juris (2013) 302; cited in A. Bianchi, International Law Theories: An Inquiry into Different Ways of Thinking (Oxford: Oxford University Press, 2016), 45. On the influence of German Constitutionalism in international law, see Bianchi, ibid., Chapter 3. 14  I draw on Slobodian’s intellectual history of neoliberalism, rather than the constructivist tradition starting with Polanyi: K. Polanyi, The Great Transformation (Beacon Books, 1944) (first imprint 1957). See Q. Slobodian, Globalists: The End of Empire and the Birth of Neoliberalism (Boston: Harvard University Press, 2018), 2, 5–​7. 15 M. Koskenniemi, ‘Between Coordination and Constitution: International Law as a German Discipline’ 15(1) Redescriptions: Yearbook of Political Thought, Conceptual History and Feminist Theory (2011), at 45–​46. See also M. Fakhri, ‘A History of Food Security and Agriculture in International Trade Law, 1945-​2017’ in J.D. Haskell and A. Rasulov (eds), A History of Food Security and Agriculture in International Trade Law, 1945–​2017’ in J.D. Haskell and A. Rasulov (eds), New Voices and New Perspectives in International Economic Law, special edition, European Yearbook of International Economic Law (2020) 55.

556   Fiona Smith international agricultural trade law is understood as a form of higher law, which has an innate ability to constrain State power. The only useful avenues for scholarly investigation from this perspective revolve around: determining the normative hierarchy, establishing the legitimacy of institutions like the WTO, and strengthening legal rules and institutions to separate international law from regional and domestic law, and to show how law can constrain politics.16 This is not to say that such approaches are unworthy endeavours because it is difficult to discern what obligations WTO rules and regional trade agreements impose, or whether those rules facilitate efficient trade at all. But these accounts mask a more fundamental issue: that political disagreement over the correct way to govern international agricultural trade is incapable of final resolution by legal rules, so the rules are more fragile than they appear. Political disagreement is complex and not a single idea: States might believe they have found common ground for a (legal) agreement, but this common ground is an illusion. In reality, each State’s viewpoint cuts across all the others, with each heading towards a different conclusion, instead of to a point where agreement on everything has truly been reached.17 As a consequence, issues that appear settled from the States’ perspective can re-​emerge and must be resolved once again through another (legal) agreement. It is true that multilateral rules and regional trade agreements are amended, so old quarrels seem resolved and new challenges emerge only when the social, economic, and political situation changes. But this is an argument about legal form rather than a resolution to the disagreement. Instead, multilateral or regional rules take a particular form because different views and options for the best way to regulate international agricultural trade do not remain open. New rules render old ideas irrelevant, meaning new rules and ways of thinking about the problem are always needed.18 Indeed, as Howse shows in the context of WTO dispute settlement, innovative interpretations of the rules during disputes set agreements onto new and unexpected trajectories. This trajectory moves from free trade values towards a ‘hybrid approach’ perhaps ‘inspired by or anchored in the “post-​war embedded liberalism” ’ of earlier rules, like the GATT 1947.19 While Howse does not make the point, his argument implies that solving similar disagreements between States in future dispute settlement proceedings using legal arguments submitted in the extant dispute is no longer an option if the dispute settlement bodies have shifted the regulatory trajectory in this way. The form of the disagreement about the rules’ meaning has moved on. In this chapter, I argue that multilateral rules and regional trade agreements governing international agricultural trade should be thought of as multiple attempts to

16 A. Peters, ‘Compensatory Constitutionalism: The Function and Potential Fundamental International Norms and Structures’ 19 Leiden Journal of International Law (2006), 579, at 606–​607, 609. 17  L. Wittgenstein, Philosophical Investigations (London: Blackwell, 1953), para 20. 18  This argument draws on Simmonds, above fn 12, 258. 19  R. Howse, ‘The World Trade Organization 20 Years On: Global Governance by Judiciary’ 27(9) European Journal of International Law (2016), 76.

Trade in Agriculture    557 resolve a single disagreement between States: namely, how three competing objectives should be balanced within legal rules. These three competing objectives are (i) how to facilitate the flow of agricultural products between states (trade liberalization) (ii) while allowing States flexibility to use trade measures, like subsidies, to protect non-​trade values, like human rights (non-​trade values), and (iii) pursuing other domestic policy goals (domestic policy autonomy). At its heart, this disagreement is not about how (or whether) to prioritize ‘the market’ over the State in the context of agricultural trade. It is a fundamental disagreement about how best to structure ongoing political and moral disagreements between States about what rules are needed to allow for a just and fair global distribution of food without damaging our social and cultural heritage and the Earth’s ability to continue to sustain life.20 Multilateral rules and regional trade agreements remain fragile because disparate political and moral views of how to balance these competing objectives persist despite the conclusion of legal agreements and are never resolved. Instead, the disagreement continues, moulded and shaped by the previous rules. To exemplify this argument, I start with the WTO rules in the Agreement on Agriculture. I then peel back the layers of agreement and disagreement first to the WTO’s predecessor, the GATT 1947, and back further to the stillborn International Trade Organization (ITO). I do this to show that the disagreement remains despite multiple attempts to resolve it, and that each set of rules leaves a legacy that shapes how subsequent multilateral rules and regional trade agreements are created.21

II.  The WTO’s legacy Cross-​border trade in agriculture is regulated predominantly by the Agreement on Agriculture.22 This Agreement is one of three listed in Annex 1A to the WTO Agreement expressly designed to govern different dimensions of agriculture and food trade, notably market access and domestic agricultural policies, animal, plant life, and human health and safety, and the quality of imported food.23 I focus on market access and 20 On

the politician as problem solver, see R. Geuss, Philosophy and Real Politics (New Jersey: Princeton University Press, 2008), at 13–​15; H. Brabazon (ed), Neoliberal Legality: Understanding the Role of Law in the Neoliberal Project (London: Routledge, 2017), at 3. 21  I use the word ‘created’ because markets are created by rules. See generally A.A. Chaufen, Faith and Liberty: The Economic Thought of the Late Scholastics (Oxford: Lexington Books, 2003). 22 Article 21.1 Agreement on Agriculture states: ‘[T]‌ he provisions of GATT 1994 and of other Multilateral Trade Agreements in Annex 1A to the WTO Agreement shall apply subject to the provisions of this Agreement’. On Article 21.1, see Appellate Body Report, EC –​Export Subsidies on Sugar, adopted 19 May 2005, para 221; and on ‘conflict’ in Article 21.1, see Appellate Body Report, Indonesia –​Import Licensing Regimes, adopted 22 November 2017, paras 5.15 and 5.17. 23  The SPS Agreement on import restrictions on the grounds of food safety, animal, plant life and health; and TBT Agreement on technical regulations and voluntary standards going to food quality, non-​ trade concerns, like environmental footprint of food.

558   Fiona Smith domestic farm policy regulation as covered by the Agreement on Agriculture, leaving food safety and food quality to other contributors.24 The Agreement on Agriculture’s ambition is to ‘establish a fair and market-​oriented agricultural trading system’. To facilitate this, the Agreement requires ‘substantial and progressive reductions in agricultural support and protection sustained over an agreed period’, to correct and prevent ‘restrictions and distortions in world agricultural markets’.25 Its rules solve three problems. First, they stop States from placing absolute quantitative limits (quotas) on crops or livestock imports to protect domestic farmers’ livelihoods from cheaper imported goods. Second, they limit financial support given by States that encourage farmers to grow crops and rear livestock in particular ways. Third, they limit State support to farmers that compensates for downturns in global food prices.26 To resolve these problems, the Agreement on Agriculture’s rules centre around three ‘pillars’: market access;27 domestic support;28 and export competition.29 Each pillar attempts to settle one aspect of the disagreement between States on how best to open their agricultural markets to trade (trade liberalization) while tailoring their agricultural policies to suit domestic challenges (domestic policy autonomy) and protecting non-​trade values. Tracing the Agreement on Agriculture’s general legacy forward into regional trade agreements, we can see that the Agreement on Agriculture did not settle this disagreement, but only shaped its contours. For example, during the EU-​Mercosur FTA negotiations, European farmers feared lowering EU tariffs on poultry exported from Mercosur countries would lead to an increase in cheap chicken, overwhelming the East European poultry sectors. European environmentalists raised concerns that non-​trade values, like environmental protection, would be undermined if Brazilian farmers boosted soy and beef production by clearing large areas of rainforest to meet new demand from Europe.30 Whilst within Mercosur countries, Argentinian wine producers objected to the European Union’s insistence that European Geographical Indications (GIs) on wine remain protected under the proposed trade agreement.31

24 

See also Chapter 16 of this handbook. Recitals 2 and 3 of the preamble to the Agreement on Agriculture. 26  GATT, Ministerial Declaration on the Uruguay Round MIN.DEC (20 September 1986), Section D (i)–​(ii). A. Swinbank and C. Tanner, Farm Policy and Trade Conflict: the Uruguay Round and CAP Reform (Ann Arbour: University of Michigan Press, 1996), Chapter 4. 27  Part III (Articles 4–​5) of the Agreement on Agriculture. 28  Part IV (Articles 6–​7, Annexes 2 and 3) of the Agreement on Agriculture. 29  Part V (Articles 8–​10) of the Agreement on Agriculture. 30  A. Quintana, ‘EU-​Mercosur, An Agreement with Differentagriculutral Standards,’ Euroactiv (30 November 2020), at < https://​www.eurac​tiv.com/​sect​ion/​agri​cult​ure-​food/​news/​eu-​merco​sur-​an-​ agreem​ent-​with-​differ​ent-​agric​ultu​ral-​standa​rds/​> (last visited 28 September 2021). 31  P.P. Córtes, ‘EU-​Mercosur Deal Divides Both Sides of the Atlantic’ Euroactiv (11 July 2019), at < https://​www.eurac​tiv.com/​sect​ion/​econ​omy-​jobs/​news/​eu-​merco​sur-​deal-​divi​des-​both-​sides-​of-​the-​ atlan​tic/​ > (last visited 28 September 2021). 25 

Trade in Agriculture    559 In response to these suspicions, the EU and Mercosur trade negotiators discussed how to open their domestic markets to agricultural trade beyond WTO requirements, without harming the EU poultry sector. They considered how the relationship between non-​trade values and agricultural production should be managed to protect the Amazon rainforest and whether the European Union could respond to its farmers’ concerns by offering further financial support to offset any adverse impact from the deal.32 This is a disagreement about how trade liberalization, non-​trade values and domestic policy autonomy should be balanced in the future, shaped by the way it was resolved by the Agreement on Agriculture’s rules in the past.

A. Market access The Agreement on Agriculture’s market access rules reduces restrictions on imported agricultural products.33 Members retain some policy autonomy because they can insulate their domestic agricultural sectors using a specific trade measure—​a tariff.34 Members had to discard other forms of non-​tariff import restrictions on agricultural products, like quantitative restrictions, minimum import prices, and variable import levies that were so problematic in the then European Economic Community’s Common Agricultural Policy (CAP).35 All non-​tariff barriers were converted into tariffs through a process of ‘tariffication’.36 How to convert non-​tariff barriers into tariffs is not set out in the Agreement on Agriculture, but Annex 3 of the GATT Modalities Agreement contains the agreed methodology by which Members achieve their commitments in the Agreement on Agriculture.37 The tariffication process rebalanced the relationship between trade liberalization, non-​trade values, and domestic policy autonomy in agriculture in favour of trade liberalization.38 In practice, Members disagreed over how far the rules should affect their 32 

Pundy, above fn 30. Part III (Articles 4–​5) of the Agreement on Agriculture. 34  Article 4.1 of the Agreement on Agriculture. 35  D. Harvey, ‘What Does the History of the Common Agricultural Policy Tell Us?’ in J.A. McMahon and M.A. Cardwell (eds), Research Handbook on EU Agricultural Law (London: Edward Elgar, 2015), at 3. 36  Article 4.2 of the Agreement on Agriculture. The measures to be converted are listed in footnote 1 to Article 4.2: this is an illustrative list, see Appellate Body Report, Chile –​ Price Band System, adopted 23 October 2002, paras 209–​210; 216; Appellate Body Report, Peru –​Agricultural Products, adopted 31 July 2015, para 5.51. On defining variable import levy and minimum import price, see Appellate Body Report, Chile –​Price Band System, paras 236–​238. But note Article XX GATT protects some import restrictions: see Appellate Body Report, Indonesia –​Import Licensing Regimes, adopted 22 November 2017, para 5.46. 37  Modalities for the Establishment of Specific Binding Commitments under the Reform Programme MTN.GNG/​MA/​W/​24 (20 December 1993) (GATT Modalities). Elements of Annex 3 are incorporated into Annex 5 AoA, but these cover when special treatment comes to an end. The GATT Modalities document is not a covered agreement for WTO dispute settlement: Appellate Body Report, EC –​Export Subsidies on Sugar, adopted 19 May 2005, para 199. 38  Panel Report, Canada –​Dairy, adopted 27 October 1999, paras 7.25–​7.26. 33 

560   Fiona Smith domestic agricultural sectors. Some artificially inflated their non-​tariff barriers’ value, and thus the resultant tariff, to limit the required tariff reductions’ impact. This ‘dirty tariffication’ practice protected farmers because it created a higher tariff ‘wall’.39 These Members disagreed with the carefully crafted balance between the three competing objectives embedded into the rules and tried to undermine the ‘agreement’ by pursuing more domestic policy autonomy.40 Notwithstanding this domestic policy autonomy ‘grab’, the rules required Members to reduce existing and newly converted tariffs by specific amounts according to a formula set out in the Modalities Agreement. This insistence that all Members’ policies were covered was reiterated by the Appellate Body in Chile –​Price Band System, much to Chile’s consternation as it believed it had secured agreement among Members that its price band system was exempt from the conversion.41 For developed countries, the average tariff reduction was 36 per cent over six years (1995–​2001), with a minimum cut of 15 per cent per tariff line; for developing countries, the average reduction was 24 per cent over ten years, with a minimum cut of 10 per cent per tariff line, while least-​ developed countries did not need to make tariff reductions to take account of their different economic situation. This exception gave greater protection for development, an important non-​trade value.42 Despite the Agreement on Agriculture market access rules rebalancing agricultural trade in favour of trade liberalization, Members still disagree about whether to reduce high agricultural tariffs.43 For example, a European negotiating objective for the EU-​ Japan EPA was to gain access to ‘closed’ Japanese markets by securing a reduction in Japanese tariffs on agricultural products and processed foods.44 The Agreement on Agriculture also introduced minimum market access requirements in the form of tariff quotas to embed trade liberalization into the rules. These tariff quotas are recorded, where relevant, together with agricultural tariffs, in each Member’s legally binding Schedule of Commitments.45 Tariff quotas ensured historic market access levels were not reduced in cases where converted non-​tariff barriers created prohibitively high tariffs.46 Despite the 2013 Bali Ministerial Decision, which improves transparency in tariff quota administration, access to Members’ markets 39  M.D. Ingco, ‘Tariffication in the Uruguay Round: How Much Liberalization?’ 19(4) World Economy (1996) 425. 40   Other attempts to carve out exceptions to non-​tariff barrier conversion: Panel Report, India –​ Quantitative Restrictions, adopted 6 April 1999, paras 5.240–​5.241; Appellate Body Report, EC –​Bananas III, adopted 25 September 1997, paras 156–​7. 41  Article 4.1 of the Agreement on Agriculture; Appellate Body Report, Indonesia –​Import Licensing Regimes, adopted 22 November 2017, paras 216 and 212. 42  GATT Modalities, above fn 37, para 5. 43  The 2008 Draft Modalities contain a tiered reduction formula: see WTO, Revised Draft Modalities for Agriculture, TN/​AG/​W/​4/​Rev.4 (December 2008), paras 59–​65 (2008 Draft Modalities). 44 EPRS, Bilateral trade deal with Japan-​largest to date for EU (February 2019), at 2–​3. 45  Appellate Body Report, EC –​Computer Equipment, adopted 22 June 1998, para 84. 46  GATT Modalities, above fn 37, para 6; see J.A. McMahon, The WTO Agreement on Agriculture: A Commentary (Oxford: Oxford University Press, 2006), at 50–​54.

Trade in Agriculture    561 through tariff quotas remains an area of disagreement.47 In response to pressure from European beef farmers, the European Union protected its beef sector in the EU-​ Mercosur FTA by resorting to tariff quotas, in part because it is one of the only market access restrictions permitted by the Agreement on Agriculture.48 The Agreement on Agriculture’s rules on market access address non-​trade values too. This protection takes the form of a quantitative (rather than qualitative) carve-​out from tariff reduction commitments. For example, the rules protect development concerns, with Annex 5B guaranteeing special treatment for agricultural products that are ‘a predominant staple in the traditional diet of a developing country Member’.49 Annex 5A also excludes any agricultural products from tariff reduction commitments on the grounds of food security and environmental protection.50 Whilst Annex 5A appears to give greater domestic policy autonomy to protect non-​trade values, its impact was limited. Four countries (Japan, Korea, the Philippines and Israel) chose to meet the requirements and made the necessary reservations in their Schedules, but only Japan used the exception.51 Annex 5A lapsed in 2000.52 Further repatriation of the protection of non-​trade values back to Members was pushed into the domestic support (subsidies) rules of the Agreement on Agriculture. Despite this ‘agreement’, developing country Members still press for the power to restrict market access on food security, livelihood security, and development grounds.53 In practice, Members’ control over the volume (and kind) of agricultural goods flowing into their markets after the Agreement on Agriculture came into force is limited. Following an unexpected decline in the price of agricultural goods or a sudden import surge, Article 5 Agreement on Agriculture allows Members to increase import duties on ‘tariffied’ products under specific circumstances. Members resort to this special safeguard measure to protect their farmers and avoid additional regulatory hurdles under the WTO’s general rules on safeguards in Article XIX of the GATT 1994 and the Safeguards Agreement.54 Due to limitations on Article 5’s use, this exercise in autonomy is predominantly used by developed countries.55

47 WTO, Understanding on Tariff Quota Administration of Agricultural Products as defined in Article 2

of the Agreement on Agriculture, Ministerial Decision, WT/​MIN(13)/​39 (11 December 2013). See Pundy, above fn 30. 48   ‘EU-​Mercosur trade deal “invitation” to other agreements: Brazil Beef Group’ Reuters (5 July 2019), at < https://​www.reut​ers.com/​arti​cle/​us-​bra​zil-​beef/​eu-​merco​sur-​trade-​deal-​inv​itat​ion-​to-​other-​agr​ eeme​nts-​bra​zil-​beef-​group-​idUSKC​N1U0​28L > (last visited 28 September 2021). 49  GATT Modalities above fn 37, para 6; on the staple diet carve-​out, see Annex 5, Section B 7(a)–​(b), to the Agreement on Agriculture. 50  Annex 5, Section A 1(a)-​(e), to the Agreement on Agriculture. 51  McMahon, above fn 46, at 54. 52  Annex 5, Section A 3, to the Agreement on Agriculture. 53  See McMahon, above fn 46, at 53–​4. On further domestic policy autonomy and protection of non-​ trade values in market access, see 2008 Draft Modalities, above fn 43, paras 129–​131. 54  Article 5. See McMahon, above fn 46, at 54–​60. 55  McMahon, above fn 48, at 55.

562   Fiona Smith Developing countries’ inability to use Article 5’s ‘special agricultural safeguard’ is a source of ongoing disagreement between WTO Members. In 2008, a group of developing countries, led by India, proposed a new special safeguard for the Agreement on Agriculture to allow developing countries greater policy autonomy over their agricultural sectors and enable them to protect development as a non-​trade value. These demands to rebalance market access rules were unsuccessful but calls for changes to the rules continued throughout the subsequent 12 years. These calls were shaped in part too by shifts in the panel and Appellate Body’s jurisprudence towards favouring greater domestic policy autonomy for States over their agricultural policies and the protection of non-​trade values.56 In Indonesia –​Import Licensing Regimes, the Appellate Body held that the GATT general exceptions, which protect non-​trade values beyond those set out in the Agreement on Agriculture (such as public morals and public health), constitute relevant exceptions to the requirement to convert non-​tariff barriers into tariffs set out in Article 4.2, footnote 1, of the Agreement on Agriculture.57 Furthermore, the Panel in Indonesia –​ Chicken recognized that a domestic policy favouring food self-​sufficiency (food sovereignty) over trade in food was a legitimate policy objective and not per se, a violation of WTO rules.58 It is not surprising, following these decisions, that Members made renewed calls to reconfigure the Agreement on Agriculture’s special safeguard to balance trade liberalization, non-​trade values, and domestic policy autonomy in a different way. For example, in January 2020, the G33 group of developing countries recommended to the WTO Committee on Agriculture that their proposal for an updated special agricultural safeguard to protect development and food security as critical non-​trade values go back on the negotiating agenda.59 However, the Russian Federation’s submission to the WTO Committee on Agriculture in 2018 reveals that agreement between Members on the precise form of this special safeguard is far from settled, with Russia pressing rebalancing in favour of more trade liberalization, not less.60 In its submission, Russia showed that only eight out of the 33 Members eligible to use the existing special agricultural safeguard provision in 56  J.A. McMahon, The Negotiations for a New Agreement on Agriculture (The Hague: Martinus Nijhoff, 2011), Chapter 7. 57   Appellate Body Report, Indonesia –​Import Licensing Regimes, adopted 22 November 2017, para 5.41. 58  Panel Report, Indonesia –​Chicken, adopted 22 November 2017, para 7.679. 59 WTO, Ministerial Decision on Special Safeguard Mechanism for Developing Country Members, WT/​MIN(15)/​43 (19 December 2015) and market access commitments for cotton from least-​developed countries, WTO, Ministerial Decision on Cotton, WT/​MIN(13)/​41 (11 December 2013); G33 submission to the Committee on Agriculture on the special safeguard still highlights this problems, JOB/​AG/​178 (30 January 2020), at < https://​www.wto.org/​engl​ish/​new​s_​e/​news2​0_​e/​agr​i_​31​jan2​0_​e.htm > (last visited 28 September 2021); negotiations on the special safeguard mechanisms remain ongoing: WTO, ‘Agriculture negotiations chair introduces draft text for ministerial outcome on farm trade,’ 29 July 2021, at (last visited 28 September 2021). 60 WTO, Usage of Special Agricultural Safeguards: Submission by the Russian Federation, JOB/​AB/​145 (19 October 2018), at 1.

Trade in Agriculture    563 Article 5 did so, and that such usage could damage the export trade from 78 Members, including ten least-​developed nations. The Russian Federation argued that the way the agricultural safeguard allowed some countries to protect their domestic agricultural markets at the expense of other Members required further investigation.61 This disagreement over how best to craft a special safeguard to balance trade liberalization with non-​trade values and domestic policy autonomy tips over into regional agreements. In 2019, the OECD reported that practice in regional agreements differs widely: some agreements contain ‘sunset clauses’ specifying a date when resort to a special safeguard will end as between the parties, whereas others completely exclude regional partners from any global safeguard action brought by a WTO Member.62

B. Domestic support The trade negotiations leading up to the creation of the Agreement on Agriculture’s domestic support ‘pillar’ focussed on improving ‘the competitive environment by increasing discipline on the use of all direct and indirect subsidies and other measures affecting directly or indirectly agricultural trade.’ The aim was to prevent and reduce distortions to trade caused by ‘structural surpluses’ of agricultural products.63 Despite plummeting global commodity prices and land values during the 1980s, global stocks of agricultural products did not respond to these market signals. Instead, stocks ballooned in response to financial incentives given to farmers as part of developed countries’ agricultural policies. These policies displaced developing countries’ exports to Japanese, European, and American markets.64 Global wheat stocks rose by approximately 70 per cent between 1980–​1981, with cereal stocks in the then European Economic Community (EEC) rising by over 50 per cent.65 Calls from developing, least-​developed countries, and the United States for new rules to govern domestic support and remove these trade distortions were counterbalanced by European arguments that farm support in the CAP achieved domestic policy objectives. The European trade negotiators claimed that domestic support stabilized farm gate prices and guaranteed food security through a continuous supply of cereals, vegetables, fruits, and livestock grown and reared in EEC Member States.66 As the

61 Ibid.

62 OECD, Joint Working Party on Agriculture and Trade: The evolution of the treatment of agriculture in

preferential and regional trade agreements, TAD/​TC/​CA/​WP(2108)/​5/​FINAL (7 February 2019), para 212. 63  Uruguay Round Ministerial Declaration, above fn 26, Section D, paras 2(ii) and 1. 64  D.G. Johnson, ‘World Agriculture in Disarray: Revisited’ 31(2) Australian Journal of Agricultural Economics (1987) 142, at 152. 65  Also EEC cereal, butter, and beef stocks: Swinbank and Tanner, above fn 26, at 23–​4. 66  Swinbank and Tanner, above fn 26, at 73. European Community Preference remains a key pillar of the CAP: see C. Häberli, ‘The Story of Community Preference for Food Security’ in McMahon and Cardwell, above fn 37, 437. GATT, Framework Agreement on Agriculture Reform Programme, Draft Text by the Chairman, MTN.GNG/​NG5/​W/​170 (11 July 1990), para 8(a)–​(e).

564   Fiona Smith draft 1990 Uruguay Round negotiating text stated, only a ‘substantial and progressive’ reduction in domestic support for agricultural products could realign the rules in favour of trade liberalization. Unlike the negotiations around market access, the calibration towards trade liberalization in domestic support would have to give due regard to ‘maintaining the possibility for . . . [states] to pursue national policy goals affecting agriculture through policies with minimal trade effects’.67 It is no surprise that, given the orientation of this disagreement between States during the negotiations, the Agreement on Agriculture’s domestic support rules strike a different balance between trade liberalization, non-​trade values, and domestic autonomy from its market access rules. The focus is on non-​trade values and domestic policy autonomy rather than on trade liberalization. However, this balance was tilted slightly back again in favour of trade liberalization by the Panel and the Appellate Body’s decisions in the US –​Cotton dispute. Much to the United States’ surprise, since it believed paying farmers not to produce certain crops was a legitimate exercise of their domestic policy autonomy,68 the Appellate Body upheld the Panel’s finding that such measures are prohibited. From then on, it was clear that when domestic support falls outside the Agreement on Agriculture’s rules, it is considered under the much more stringent rules in the WTO SCM Agreement.69 The Agreement on Agriculture balances trade liberalization, non-​trade values, and domestic policy autonomy by distinguishing between domestic support that distorts trade and undermines trade liberalization and domestic support that has only minimal effects on trade.70 From a 1986–​88 baseline period, developed countries had to reduce their domestic support by 20 per cent between 1995 and 2000.71 Developing countries were subject to less stringent reduction commitments, the rules requiring a 13.3 per cent reduction over ten years starting from 1995, while least-​developed countries were exempt.72 General exemptions from these reduction commitments were permitted for de minimus domestic support and ‘direct payments for production-​limiting’ programmes’, the so-​called ‘Blue Box’ support. These exemptions were introduced to resolve a disagreement between the United States and the then EEC as to how certain payments made under their farm policies could be accommodated in the Agreement on Agriculture.73 67  Framework Agreement on Agriculture Reform Programme, Draft Text by the Chairman, above fn 66, para 2. 68   See United States’ arguments in Appellate Body Report, US –​Upland Cotton, adopted 21 March 2005, paras 15–​18. 69  Appellate Body Report, US –​Upland Cotton, adopted 21 March 2005, paras 394, 544–​545. 70 Annex 2, Section 1(a)–​ (b), to the Agreement on Agriculture requires that domestic support directed towards permitted domestic policy objectives must have ‘no, or at most minimal effects on production’ and be ‘provided through a publicly-​ funded government programme, (including government revenue forgone) not involving a transfer from consumers; and the support ‘shall not have the effect of providing support to producers’. McMahon, above fn 46, at 66–​67. 71  GATT Modalities, above fn 37, paras VIII, XV and XVI. 72 Ibid. 73  De Minimus support: Article 6.4(a)–​ ,(b) of the Agreement on Agriculture; Blue Box support: Article 6.5 of the Agreement on Agriculture.

Trade in Agriculture    565 Although trade-​ distorting domestic support levels remain high despite these reductions, Members still disagree whether to change the rules. For example, in January 2020, the Cairns Group of major agricultural exporting countries proposed a cap on, and further reductions to, trade-​distorting domestic support entitlements to rebalance the domestic support rules back in favour of trade liberalization.74 Non-​trade distorting domestic support, known as the ‘Green Box’, was excluded from the reduction commitments and could be retained.75 Thus, the rules permitted Members to incentivize farmers to change their production practices to favour environmental protection,76 pay their farmers to retire,77 provide payments to build infrastructure services, and provide pest control advice.78 Accommodating such support in the rules was thought to be a useful way to resolve disagreements prevalent in the 1990s between the then EEC and the United States over how the EEC could still pursue domestic policy objectives without unduly undermining trade liberalization.79 However, the twenty-​first century iteration of the European Union’s CAP continues to rely on domestic support measures to deliver these ‘public goods’ in ways which remain controversial among other WTO Members.80 Moreover, the European Union continues to emphasize the need to retain this exact balance between non-​trade values and trade liberalization in its regional trade agreements, much to the consternation of some of its negotiating partners.81 Domestic support measures directed at other non-​trade values, like food security and development, are also permitted under the Agreement on Agriculture. Members could purchase food to amass a public food stockpile or for distribution as part of targeted food security and food aid programmes.82 To be eligible, States must purchase food at prevailing market prices.83 This requirement excludes countries that are unable to afford the volumes of food required for their food security programmes.84 This issue

74 WTO, Framework for Negotiations on Domestic Support, JOB/​AG/​177 (23 January 2020). 75 

Annex 2 to the Agreement on Agriculture. Decoupled support, specifically payments made under environmental programmes, Annex 2:12 to the Agreement on Agriculture. 77 Decoupled support, specifically structural support provided through producer retirement programmes, Annex 2:9 to the Agreement on Agriculture. 78  Support for general services, Annex 2:2 to the Agreement on Agriculture. 79  Australia supported further trade liberalization and acted as honest broker in discussions between the United States and the European Union: Swinbank and Tanner, above fn 26, at 67. 80  C. Potter, ‘Agricultural Multifunctionality, working lands and public goods: Contested models of agri-​environmental governance under the Common Agricultural Policy’ in McMahon and Cardwell, above fn 35, at 113. 81  J. Brunsden, A. Beattie, and A. Williams, ‘EU trade chief seeks revised talks to close transatlantic rift’ Financial Times (11 May 2020), at < https://​www.ft.com/​cont​ent/​e4eb5​ed9-​97ed-​4c78-​a139-​84c4d​ 7dcd​f87 > (last visited 28 September 2021) 82  Annex 2:3 (public stockholding) and 2.4 (domestic food aid) to the Agreement on Agriculture. 83  National Food Security Act 2013; ‘Food bill gets presidential assent’ The Hindu (12 September 2013), at < http://​www.thehi​ndu.com/​news/​natio​nal/​food-​bill-​gets-​presi​dent​ial-​ass​ent/​art​icle​5120​677.ece?ref=​ rela​tedN​ews > (last visited 28 September 2021). 84 OECD, Feeding India: Prospects and Challenges in the Next Decade (2014), at 71 and 87. 76 

566   Fiona Smith remains a point of contention for developing countries, like India, with large public food stockpiling programmes.85 Members do not universally accept India’s position. For example, in 2013, Pakistan, Canada, and the United States raised concerns in the WTO Committee on Agriculture that India’s public food stockholding programme resulted in large-​scale food waste and excess food being dumped on neighbouring countries’ agricultural markets.86 The 2014 Bali Ministerial Decision on Public Stockholding for Food Security Purposes introduced a moratorium on dispute settlement against developing countries that make use of the provision to support their food security as a critical non-​trade value. However, this moratorium has done little to settle this disagreement.87 The arguments over the compatibility of India’s public stockholding programme with the Agreement on Agriculture continue to be unresolved.88 The debate over domestic support as a mechanism to protect non-​trade values remains an important issue for discussion at the 12th Ministerial Meeting scheduled to be held in late 2021. This ongoing disagreement has not influenced the trade negotiations in contemporary regional trade agreements, however. Since 2000, domestic support provisions in regional trade agreements either mirror WTO rules or, in addition to adopting the WTO rules, they require further multilateral trade talks to bridge the divide.89 For example, Article 7.4(1)(a) of the CETA states that the Parties will work jointly to reach an agreement to ‘further enhance multilateral disciplines and rules on agricultural trade in the WTO’, while, in Article 7.8, reaffirming their rights and obligations under the WTO subsidy rules in the Agreement on Agriculture and the SCM Agreement.

85  A.R. Mishra, ‘India Wants Workable Solution on Public Stockholding for Food Security’ Mint (9 December 2017), at < https://​www.livem​int.com/​Polit​ics/​0a7​mr1h​qIGL​9bYP​HH4o​PHJ/​India-​wants-​ worka​ble-​solut​ion-​on-​pub​lic-​stock​hold​ing-​for-​foo.html > (last visited 28 September 2021). 86  WTO, ‘Farm produce stockholding worries members who fear impact on trade and incomes’ (26 September 2013), at < https://​www.wto.org/​engl​ish/​new​s_​e/​news1​3_​e/​agco​m_​26​sep1​3_​e.htm > (last visited 28 September 2021). 87 WTO, Ministerial Decision: Public Stockholding for Food Security Purposes, WT/​L/​939 (28 November 2014). WTO, ‘Agriculture talks chair calls on Members to inject sense of urgency in run-​up to MC12’ (10 March 2020), at < https://​www.wto.org/​engl​ish/​new​s_​e/​news2​0_​e/​agr​i_​24​feb2​0_​e.htm > (last visited 28 September 2021). 88 WTO, ‘WTO members submit new proposals to move farm negotiations to ‘solution-​ finding phase’ (15 July 2021), at < https://​www.wto.org/​engl​ish/​new​s_​e/​news1​9_​e/​agn​g_​16​jul1​9_​e.htm > (last visited 28 September 2021); WTO, WTO Members discuss Kazakhstan’s offer to host 12th Ministerial Conference in June 2021 (29 May 2020), at < https://​www.wto.org/​engl​ish/​new​s_​e/​news2​1_​e/​agr​i_​18​mar2​ 1_​e.htm > (last visited 28 September 2021); J.W. Glauber, J. Hepburn, D. Laborde, and S. Murphy, ‘What National Farm Policy Trends Could Mean for Efforts to Update WTO Rules on Domestic Support’, April 2020, IISD, at 9, at < https://​www.iisd.org/​sites/​defa​ult/​files/​publi​cati​ons/​farm-​pol​icy-​tre​nds-​en.pdf > (last visited 28 September 2021). 89  OECD report, above fn 62, at 4, 40.

Trade in Agriculture    567

C. Export competition The structural surpluses and volatile commodity prices of the 1980s were caused in part by the domestic agricultural policies of the then EEC and the United States.90 Payments made to farmers to incentivize production fall within the Agreement on Agriculture’s rules on domestic support. In contrast, its rules on export competition (export subsidies) govern export refunds, export insurance, export credits, and export credit guarantees that enabled farmers to export without paying attention to market demand or the world price. Unlike the domestic support rules, which tilt towards the protection of non-​trade values and domestic policy autonomy, the export subsidy rules focus on trade liberalization, with only limited concessions to non-​trade values and domestic policy autonomy in the areas of development and food security.91 An export subsidy is defined in the Agreement on Agriculture as ‘a subsidy contingent upon export performance’, with specific export subsidies listed in Article 9.92 In addition to direct payments and payments in kind, Article 9 includes payments to reduce marketing and processing costs of exported agricultural products, and internal transport and freight charges.93 Article 8 prohibits export subsidies paid ‘otherwise than in conformity’ with the Agreement, including the commitments in each Member’s schedule. Any export subsidy that fails to comply with the Agreement on Agriculture’s rules will be challenged under the SCM Agreement.94 Like domestic support, export subsidies were to be reduced over a specific time, calculated from a 1986–​1990 base period.95 The few concessions to non-​trade values comprised least-​developed countries’ exemption from reduction commitments and a longer implementation period for developing countries. Starting from 1995, expenditure by developing countries on export subsidies was to be reduced by 24 per cent over ten years, and the volume of agricultural products receiving such subsidies by 14 per cent. Developed countries were required to make reductions of 36 per cent and 21 per cent respectively, over five years (1995–​2000).96 Some concessions were given for food security in the context of food aid, which the 2008 Draft Modalities significantly expanded.97 The export subsidy rules weighting in favour of trade liberalization were consistently upheld by Members, to the point that non-​trade values, like development, became synonymous with trade liberalization. In the Nairobi Ministerial Decision on Export 90

  Swinbank and Tanner, above fn 26, at 20–​21. Appellate Body’s interpretation of Article 10.2 of the Agreement on Agriculture includes the United States’ export credit programme, even though it appeared that Article 10 was an exhortation only to continue negotiations on specific disciplines covering export credits: Appellate Body Report, US –​ Upland Cotton, adopted 21 March 2005, para 763(e)(i). 92  Article 1(e) of the Agreement on Agriculture 93  Article 9(a), (d) and (e) of the Agreement on Agriculture. 94  Article 3.1(a) SCM Agreement; see Panel Report, Canada –​Dairy (Article 21.5 –​New Zealand and the United States), adopted 18 December 2001, para 6.92. 95  GATT Modalities, above fn 37, paras XI, XV and XVI. 96 Ibid. 97  Article 10.4 of the Agreement on Agriculture; 2008 Draft Modalities, above fn 45, Annex L, para 3. 91  The

568   Fiona Smith Competition, Members declared their commitment to exercise ‘utmost restraint’ in using export subsidies: all developed Members to ‘immediately eliminate’ their remaining export subsidies, and developing countries to follow within three years for most of their agricultural products.98 This agreement between Members as to how best to balance trade liberalization with non-​trade values and domestic policy autonomy in the context of export subsidies remains consistent across regional trade agreements. The OECD found that 26 per cent of the 54 regional trade agreements it evaluated in 2019 banned or phased out export subsidies, with only 7 per cent allowing their signatories to use export subsidies at all.99 The report went on to note that the rate at which export subsidies were being eliminated had accelerated from 2005 onwards as a direct consequence of the 2005 Hong Kong Ministerial Meeting, where the elimination of all export subsidies was first raised.100 This discussion shows that the Agreement on Agriculture balances trade liberalization, non-​trade values, and domestic policy autonomy in a particular way. And, that despite the Agreement on Agriculture’s comprehensive nature, States still disagree on the correct balance between these three competing objectives in multilateral trade talks and in contemporary regional trade agreements. It is clear that when States start to negotiate regional trade agreements, they do not come to the negotiating table with an entirely novel negotiating strategy. Instead, their starting positions are shaped by their perceptions of the Agreement on Agriculture’s deficiencies. The disagreement about how to balance trade liberalization, non-​trade values, and domestic policy autonomy is not resolved by the multilateral rules, therefore, but just shifted onto a new axis. Yet, the Agreement on Agriculture’s ‘take’ on where the balance between these three competing objectives became out of line and how it must be corrected is not accidental. It was shaped by previous ‘agreements’ between States, the GATT 1947, and its predecessor, the ITO.101

III.  GATT 1947’s legacy GATT 1947 governed trade in goods from 1947 until the WTO came into force in January 1995.102 Its rules applied to agriculture, but only sporadically and ineffectively.103 98 WTO, Ministerial Decision on Export Competition WT/​MIN(15)/​45 (21 December 2015), paras 6–​7. 99 

OECD report, above fn 62, at 36. Negotiations on Agriculture: Special Report by the Chairman, TN/​AG/​21 (28 November 2005), para 11. 101  The WTO rules’ stated purpose is to augment rules governing trade in goods in the GATT: see the fourth recital in the preamble to the WTO Agreement. 102  The GATT of 1947 was subsumed into the WTO rules (with some amendments) and is referred to as GATT 1994. See G. Marceau, ‘Transition from GATT to WTO: A Most Pragmatic Operation’ 29(4) Journal of World Trade (1995) 147. 103  M. Margulis, ‘The Forgotten History of Food Security in Multilateral Trade Negotiations’ 16(1) World Trade Review (2017) 25. 100 WTO,

Trade in Agriculture    569 GATT 1947’s express coverage of agriculture was limited to an exemption allowing countries to use import and export restrictions (quotas) to fulfil domestic agricultural policy objectives, specifically to alleviate shortages and excess production, and to control crop and livestock production.104 Inserted at the United States’ insistence, this provision protected the quotas used in its domestic agricultural programme.105 Despite careful crafting of this exception, the policy was found to violate the GATT 1947 in a dispute brought by the Netherlands and Denmark.106 Rather than withdrawing the policy, the United States asked for a temporary waiver from the rules that remained in place until 1995.107 The only other reference to agriculture in the GATT 1947 was in Article XVI:3, which exhorted States to ‘avoid the use of subsidies on the export of primary products’ though this did not forbid their use.108 Domestic subsidies for agriculture were not prohibited. GATT 1947’s dearth of regulation over international agricultural trade enabled the United States and the then EEC to use elaborate import restrictions to limit the volume of cheaper agricultural products allowed to enter their markets and provide financial support to their farmers (in various forms).109 This interconnection of market access restrictions and domestic support meant that their farmers continued to grow crops and raise livestock even when the production costs and the demand for those crops and livestock did not justify such production. Any excess agricultural production was dumped on to international markets, undercutting whatever price other countries could get for their agricultural goods.110 United States’ and European farm support schemes also paid export subsidies to farmers to offset the difference between the market price for the goods and the production costs. Such subsidies were a cause of considerable consternation to other GATT Contracting Parties, especially developing and least-​developed countries.111 The size and scale of European and United States domestic agricultural policies and the fact they operated mostly outside the GATT 1947’s rules meant other States believed its rules only exceptionally applied to agriculture, if at all.112 104 

Article XI:2(c)(i)-​(iii) of the GATT 1994. McMahon, above fn 46, at 2. 106 Ibid. 107 GATT, Waiver Granted to the United States in Connection with Import Restrictions Imposed under Section 22 Agricultural Adjustment Act (of 1933) as amended, BISD3S/​32 (5 March 1955). 108  See the ban on export subsidies on manufactured goods: Article XVI:4 of the GATT 1994. 109  See, e.g., that the European CAP’s compliance with the GATT was questionable: see Häberli, above fn 66, at 437. 110  This strategy devastated developing and least developed countries: GATT, Trends in International Trade (1958) (Chair, Gottfried Häberler), paras 245-​246 (on the levels of protection in the USA and the EEC) and paras 254–​256 (the impact on ‘unindustrialized countries’). 111  On the EU CAP, see Harvey, above fn 35, at 3. On US farm policy see, Glauber and Effland, ‘US Agricultural Policy’ in W.H. Meyers and T. Johnson (eds), Handbook of International Food and Agricultural Policies: Volume 1: Policies for Agricultural Markets and Rural Activity (Singapore: World Scientific, 2018). 112  The GATT was not an international organization, so signatory governments were referred to as Contracting Parties: Article XXXII & XXXIII of the GATT 1947. See also Chapter 2 of this handbook. 105 

570   Fiona Smith During this GATT 1947 period, there is little focus on agricultural trade liberalization, a significant rise in domestic policy autonomy, and the emergence of diverging ideas of how best to protect non-​trade values.113 The GATT 1947’s inability to constrain United States and European ‘protectionism’, while enabling all States to protect non-​ trade values and pursue important domestic policy objectives in their agricultural sectors, was a constant source of disagreement among the Contracting Parties. This disagreement became the impetus for the negotiation of new multilateral rules designed to address this problem.114 Given this disagreement’s scope, it is not surprising to see that the Uruguay Round Ministerial Declaration resulting in the WTO’s creation and the Agreement on Agriculture cited the ‘urgent need to bring more discipline and predictability to world agricultural trade’.115 While European and United States’ domestic agricultural policies were not named in the Ministerial Declaration, it contained strong allusions to the adverse effects caused by both those policies: singling out ‘restrictions and distortions . . . related to structural surpluses’. These are direct references to the CAP’s product-​specific subsidies that incentivised farmers to grow crops and rear livestock even when there was no international market for these goods;116 and the need to ‘bring all measures affecting import access . . . under strengthened and more operationally effective GATT rules’, which was, in turn, a direct reference to the United States’ GATT agricultural waiver protecting US farm payments.117 While the Uruguay Round may have started by focussing on how the GATT 1947’s rules had failed to balance trade liberalization, non-​ trade values, and domestic policy autonomy in European and United States’ agricultural policies correctly, the negotiations later expanded to include similar disquiet about Japanese agricultural protectionism and Canada’s dairy sector.118

IV.  The ITO’s legacy The contours of this disagreement between States about why the GATT 1947 rules failed is not unexpected. This is because this disagreement was shaped by the earlier rules contained in the ITO. The GATT 1947’s negotiators only intended that the agreement address trade-​ related challenges of commercial policy. Other challenges to international trade in

113 

McMahon, above fn 46, Chapter 1. Uruguay Round Ministerial Declaration, above fn 26. 115  Ibid., at para 2. 116 M.N. Cardwell, ‘The Direct Payments Regime: Delivering a ‘fair standard of living for the agricultural community’?’ in McMahon and Cardwell, above fn 35, at 41, 49. 117  Swinbank and Tanner, above fn 26, at 67. 118  Ibid., at 64 (Japan) and 68 (Canada). 114 

Trade in Agriculture    571 employment, economic development, business practices, and commodities were to be controlled by other rules set out in distinct Chapters.119 These Chapters were grouped together under an institutional structure, the ITO. The idea was to create ‘multitiered governance’ from the global level down to and including the State. The ITO Charter and its chapters would operate at the global level to ‘encase’ (not insulate) the economy from the short-​term political interests of States that would otherwise undermine the many positive (albeit unknowable) benefits that flowed from a well-​functioning global market.120 State control would not be removed entirely as rules were required to create and stabilize the market.121 Instead, the ITO Charter would redesign ‘states, laws, and other institutions to protect the market’ from domestic politics and, as a corollary, from the inherent tendency of democracy to destroy itself.122 In this reimagined world of global market protection, the balance between trade liberalization, non-​trade values, and domestic policy autonomy in agriculture was incorporated into the ITO’s rules in a particular way. The ITO Charter’s Intergovernmental Commodities Agreements Chapter (Chapter VI) set agriculture within a broader concern about primary commodities. Article 56(1) noted that primary commodities, loosely defined as ‘any product of farm, forest or fishery or any mineral’, raised ‘special difficulties’.123 Chapter VI identified three such ‘difficulties’, or areas of disagreement among states, that were to be resolved by the rules. First, how to balance production and consumption when farmers could not react to rapid changes in consumers’ preference due to the natural lifecycles of crops and livestock. Second, how could any overabundance be reduced. And, third, how could price volatility be eliminated to stabilize commodity prices and keep trade flowing.124 In keeping with the ITO’s function to shrink the role of the State (domestic policy autonomy) to protect global agricultural markets (trade liberalization), Article 57 permitted limited State intervention in commodities markets only to restore the appropriate balance between supply, demand, and price; that intervention taking the form of intergovernmental commodity agreements that stabilized commodity markets and boosted consumption.125 The decision on how best to manage the global market in each commodity was taken away from the State and given to impassive experts, who would determine which measures were needed within those agreements. The State’s role was to acquiesce in the experts’ opinions and implement the agreements’ terms. Any

119  Article 1.6 Havana Charter for an International Trade Organization (ITO Charter), April 1948, at < https://​www.wto.org/​engl​ish/​doc​s_​e/​lega​l_​e/​havan​a_​e.pdf > (last visited 28 September 2021). 120  Slobodian, above fn 14, at 2 and ‘Encasement not Liberation,’ Slobodian, ibid. at 5–​7. 121  This interpretation of the function of international agricultural trade rules is inspired by Chafuen, above fn 23. 122  The ITO’s neoliberal vision was driven by the United States and the United Kingdom: see D. Gale Johnson, World Agriculture in Disarray (New York: Macmillan, 1973), at 12–​13. 123  Emphasis added. Article 56(1) of the ITO Charter. 124  Article 55 of the ITO Charter. 125 On the general relationship between the ITO and agriculture, see C.H. Alexandrowicz, International Economic Organizations (New York: FA Praegar, 1953), at 162–​168.

572   Fiona Smith disagreements about how best to protect non-​trade values would be taken up by the experts in determining the terms of the Commodity Agreements.126 These non-​trade values were adverse effects on agricultural markets of price fluctuations, rather than general concerns about food security or climate change.127 When the United States’ Congress failed to ratify the ITO Charter in 1950, despite repeated attempts by President Truman to submit it to Congress, other countries followed this lead, leading to the collapse of the ITO.128 The GATT 1947’s historical purpose within the ITO Charter meant its rules were designed to cover manufactured goods, rather than address the ‘special difficulties’ associated with international agricultural trade. These ‘special difficulties’, identified in Article 56(1) of the ITO Charter, acknowledged the need to balance trade liberalization with non-​trade values and domestic policy autonomy. Yet, the ITO failed, and the GATT 1947 limped on, devoid of any institutional coherence, effective dispute settlement, and without any operative rules in agriculture.129 Disagreements among States about how to balance trade liberalization, non-​trade values, and domestic policy autonomy once thought settled in the ITO rules, resurfaced during the period covered by the GATT rules and took on a new form. Rather than coalescing around what form the ITO’s Commodity Agreements should take, or how (or whether) food security could be addressed by the Commodity Chapter of the ITO, disagreements raged instead about how market access rules could be better crafted to constrain American protectionism, and what forms of domestic and export subsidy controls might offset the pernicious effects of the CAP. The GATT 1947’s deficiencies were instrumental in the creation of the Agreement on Agriculture’s three pillars: market access, domestic support, and export competition. The disagreement was not resolved, but moved onto another trajectory.

V. Conclusion This chapter presents a new way to understand the relationship between regional trade agreements and multilateral rules governing international agricultural trade. I argue that there is an ongoing disagreement between States that runs throughout all attempts to regulate international agricultural trade, whether in regional trade agreements or in the multilateral rules. This disagreement centres on how to balance three competing objectives in legal rules: namely, how to open each State’s market to agricultural trade 126 Ibid. 127 

Fakhri, above fn 15, at 63. For another perspective, see I.D. Trofimov, ‘The Failure of the International Trade Organization: A Policy Entrepreneurship Perspective’ 5(1) Journal of Politics and Law (2012) 56. 129  Ruggie describes this as a period of ‘embedded liberalism’: see J.G. Ruggie, ‘International Regimes, Transactions and Change: Embedded Liberalism in the Postwar Economic Order’ 36(2) International Organization (1982) 379. 128 

Trade in Agriculture    573 while protecting crucial non-​trade values and allowing each State to retain sufficient autonomy over their domestic agriculture sectors. Each new regional or multilateral trade agreement captures the balance between these three competing objectives in a certain way, but they lock in disagreement between States about how best to proceed.130 This is because once a new trade agreement has been concluded by States, previous proposals on what ‘works’ become irrelevant and different suggestions are needed that take into account that agreement’s solution. So, while each trade agreement is successful on its own terms in so far as the trade negotiators concluded an agreement, these newly agreed rules do not settle the ongoing disagreement between States. Instead, the disagreement continues on a new axis shaped by the latest rules. By peeling back the layers of agreement and disagreement, starting from contemporary regional trade agreements, back to the WTO Agreement on Agriculture, to the GATT 1947, and then back to the ITO, I expose this pattern of agreement and disagreement and reveal the fragility of international agricultural trade regulation. Agricultural trade is important. It affects access to food, our values as a society, and its production is linked to anthropogenic climate change. Before we consider how the WTO and trade regulation could evolve to address these challenges, we should re-​ evaluate the function and limits of legal rules as our faith in rules to deliver permanent solutions to intractable political problems may be misplaced.

Further reading M. Fakhri, Sugar and the Making of International Trade Law (Cambridge: Cambridge University Press, 2014) M.D. Ingco, ‘Tariffication in the Uruguay Round: How Much Liberalization?’ 19(4) World Economy (1996) D. Gale Johnson, World Agriculture in Disarray (New York: Macmillan, 1973) J.A. McMahon, The WTO Agreement on Agriculture: A Commentary (Oxford: Oxford University Press, 2006) J.A. McMahon and M.G. Desta (eds), Research Handbook on the WTO Agreement on Agriculture: New and Emerging Issues in International Agricultural Trade Law (Cheltenham: Edward Elgar, 2012) M. Margulis, ‘The Forgotten History of Food Security in Multilateral Trade Negotiations’ 16(1) World Trade Review (2017) 25 D. Orden, D. Blandford and T. Josling (eds), WTO Disciplines on Agricultural Support (Cambridge: Cambridge University Press, 2011) A. Swinbank and C. Tanner, Farm Policy and Trade Conflict: the Uruguay Round and CAP Reform (Ann Arbour: University of Michigan Press, 1996)

130 

I am grateful to Sean Coyle for this point.

Chapter 21

T r a de Re m e di e s i n I n t e rnat i ona l T r a de Hugo Perezcano Díaz

I. II.

Introduction Antidumping A. Brief historical overview B. Relevant definition and key elements III. Countervailing duties A. Brief historical overview B. Definitions and key elements C. Subsidy categories in the WTO context D. Recent developments IV. Safeguards A. Brief historical overview B. Definition and key elements V. Concluding remarks

574 577 577 582 585 586 587 590 591 593 593 596 598

I. Introduction After WWII, the world has been moving toward greater liberalization of international trade, although not always with the same impetus. At times, it may appear to have been moving in the opposite direction, such as in recent years when nationalistic rhetoric and protectionist pressures have been accompanied by concrete actions such as Brexit or the adoption of high tariffs by the United States, which prompted retaliation by affected countries. However, overall in the past 70 years, the world has advanced toward greater trade liberalization.

Trade Remedies in International Trade    575 The GATT established the basic framework of the international trading system. In the course of 50 years the GATT evolved into the WTO Agreement that comprises numerous agreements that comprehensively regulate international trade in goods and services and created the WTO. The world has also produced a myriad of trade agreements going beyond the liberalization achieved by the GATT 1947 and the WTO covered agreements. Nonetheless, it is common ground —​at least among nations—​that even when markets open, measures allowing a country to protect its domestic industry from import competition should be available in defined circumstances. Trade remedies are such measures. They are intended to remedy, in other words to cure or counter, injury or prevent a threat of injury caused by goods imported into the territory of a country that compete with like goods (or, in the case of safeguards, also with directly competitive goods) produced by the importing country’s domestic industry. There are three types of trade remedies:

–​ antidumping duties, –​ countervailing duties, and –​ safeguards. Some view trade remedies as barriers to trade. Others view them as instruments that promote trade liberalization in the sense that States can more confidently agree to greater market openness knowing that there are certain safety nets.1 This chapter does not advocate for one view over the other. Rather, it aims to explain what trade remedies are and provide an overview of how they work. It acknowledges that, on one hand, the WTO agreements grant Members the right to apply trade remedies. At the same time, they impose strict conditions, containing some of the most detailed rules of the world trading system. These rules govern trade remedies in substance as well as the procedures to be followed for their adoption. It would be naïve, however, to think that that they are not abused. It is no surprise that the vast majority of disputes under the WTO involve trade remedies. Out of 606 dispute settlement cases at the time of writing (2021), 140 involve claims of breach of the Anti-​Dumping Agreement, 134, of the SCM Agreement, and 62, of the Safeguards Agreement.2 Some have suggested that trade remedies should

1 See, e.g., T. Voon, ‘Eliminating Trade Remedies from the WTO: Lessons from Regional Trade Agreements’ 59(3) International and Comparative Law Quarterly (2010); J. Barceló III, ‘Antidumping Laws As Barriers to Trade. The United States and the International Antidumping Code’ 57(4) Cornell Law Review (1972); C. Bown, ‘Trade Remedies and World Trade Organization Dispute Settlement: Why Are So Few Challenged?’ World Bank Policy Research Working Paper 3540 (2005), at < http://​docume​nts. worldb​ank.org/​cura​ted/​en/​479​0214​6876​4048​986/​Trade-​remed​ies-​and-​World-​Trade-​Organ​izat​ion-​disp​ ute-​set​tlem​ent-​Why-​are-​so-​few-​cha​llen​ged > (last visited 23 July 2021). 2  WTO, ‘WTO | Anti-​Dumping -​Gateway’, List of disputes citing the anti-​dumping agreement, at < https://​www.wto.org/​engl​ish/​trato​p_​e/​adp_​e/​adp_​e.htm > (last visited 19 September, 2021); ‘WTO | Subsidies and Countervailing Measures -​Gateway’, List of disputes citing the SCM agreement, at < https://​www.wto.org/​engl​ish/​trato​p_​e/​scm_​e/​scm_​e.htm > (last visited 19 September, 2021); ‘WTO |

576   Hugo Perezcano Díaz disappear.3 But it would also be naïve to think that that could happen in the foreseeable future. History shows —​as will be seen—​that trade remedies have been a feature of the modern trading system. They are also regarded as fundamental trade policy instruments. This is evidenced by WTO Members incorporating provisions in subsequent regional trade agreements to preserve their ability to apply trade remedies,4 and the intensive worldwide use of such remedies, especially by the largest trading nations. Indeed, since 1995 over 63 countries have initiated nearly 6,300 antidumping investigations, more than 31 have initiated over 600 countervailing duty investigations and around 40, close to 400 safeguards investigations. The top 10 users of each type of measure account for over 70 per cent, 90 per cent and 55 per cent, respectively, of all such investigations. Some of the world’s leading trading nations are among the principal users of trade remedies: India is the top user of antidumping (1071) and safeguard (46) actions, and among the top 10 of countervailing duties (28). The United States has initiated the most countervailing investigations (290), it follows India in the number of antidumping investigations (817) and is among the top 10 users of safeguards (13). The European Union (533 and 89 investigations, respectively) and China (292 and 17, respectively) are also among the top 10 users of antidumping and countervailing actions.5 The intent of this chapter is not to provide an in-​depth analysis of each of the trade remedies and their constitutive elements. Instead, it seeks to serve as an introduction that will assist in better understanding their place in the international trading system. The rest of the chapter is therefore divided into four sections. Sections II–​IV are devoted, each, to one of the three types of trade remedies.6 Each section, in turn, Trade Topics -​Safeguards Gateway’, List of disputes citing the safeguards agreement, at < https://​www. wto.org/​engl​ish/​trato​p_​e/​safe​g_​e/​safe​g_​e.htm > (last visited 19 September 19, 2021). 3 

See, e.g., Voon, above fn 1, at 625–​67. See, e.g., Chapter 3 of CETA; Chapter 6 of the CPTPP; Chapter 10 CUSMA; and Chapter 7 of RCEP. 5 WTO, Anti-​ dumping Initiations by Reporting Member 1995-​ 2019, ‘WTO | Anti-​ Dumping –​ Gateway’, at < https://​www.wto.org/​engl​ish/​trato​p_​e/​adp_​e/​adp_​e.htm > (last visited 23 July 2021); Countervailing Initiations by Reporting Member 1995-​2019,‘WTO | Subsidies and Countervailing Measures—​Gateway’, at < https://​www.wto.org/​engl​ish/​trato​p_​e/​scm_​e/​scm_​e.htm > (632 initiations in total) (last visited 23 July 2021); and Safeguard Initiations by Reporting Member 1995-​2019, ‘WTO | Trade Topics—​Safeguards Gateway’, at < https://​www.wto.org/​engl​ish/​trato​p_​e/​safe​g_​e/​safe​g_​e.htm > (400 initiations in total) (last visited 23 July 2021). Some countries have initiated single investigations on a regional basis. The WTO indicates which countries have done so to avoid double counting the number of investigations. However, they are counted separately as reporting members. The European Union is counted as a single trading block. Its Member States are not individually counted, although those that joined the European Union since 2004 are still counted individually prior to their accession. Selection of the largest trading nations based on: International Trade Centre: International trade in goods—​Imports and exports 2008–​2019, at < https://​www.intra​cen.org/​itc/​mar​ket-​info-​tools/​sta​tist​ics-​imp​ort-​coun​try-​ prod​uct/​ > (last visited 23 July 2021). See also WTO, World Trade Statistical Review 2019, at < https://​ www.wto.org/​engl​ish/​res_​e/​stati​s_​e/​wts202​0_​e/​wts2​0_​to​c_​e.htm > (last visited 23 July 2021). 6 This chapter does not address more specific measures, such as special agricultural safeguards covered by Article 5 of the WTO Agreement on Agriculture. In general, those safeguards are more or less automatic tariff-​rate quotas that do not involve injury determinations. Furthermore, it is questionable 4 

Trade Remedies in International Trade    577 provides a historical overview for contextual purposes, followed by the relevant, legal definitions and a description of the key elements under the corresponding WTO agreements. Section V contains concluding remarks.

II. Antidumping According to Blonigen and Prusa, ‘the term “dumping” denotes a situation when a firm charges a lower price in a foreign market than it charges for the same good in its domestic market or when it exports the good at a price below costs.’7

A. Brief historical overview Dumping is ultimately about price discrimination between national markets. Many authors trace the origins of dumping back to 1904 when Canada adopted what commonly has been referred to as the first anti-​dumping law, which was actually a set of amendments to the Customs Act of 1897. Yet, the need for measures to protect the domestic industry from price discrimination goes further back in time. Viner surveyed such practice from before the 1880s up until the time of his writing in the 1920s, when several countries had already adopted anti-​dumping laws. The definition of what constitutes dumping and its regulation has evolved over time, but the underlying concerns are the same. On the one hand, there is a need for protection in the form of duties to counter anti-​competitive practices and price discrimination, and on the other, a need to keep markets open and resist protectionism. In the nineteenth century, European nations were concerned with German cartels that maintained high domestic prices through price-​fixing and controlling supply in the domestic market, while selling abroad below the domestic prices. The United States was concerned that English manufacturers were dumping ‘with the deliberate purpose of crushing or, in the language of the time, ‘stifling’ or ‘strangulating’ the young American industries’.8 Yet, ‘[e]‌xport dumping on a continued and systematic scale’

whether they are a remedy in the same sense as the traditional ones: antidumping duties, countervailing duties, and safeguards. Without underestimating their importance, their use is also much more limited in terms of the type of products covered, the number of countries that might use them, the circumstances triggering their application, and their duration. 7 

B.A. Blonigen and J.P. Thomas, ‘Dumping and Antidumping Duties’ NBER Working Paper No. 21573 (21 September 2015), at 1. 8  J. Viner, ‘The Prevalence of Dumping in International Trade: I’ 30(5) Journal of Political Economy (1922) 656–​658.

578   Hugo Perezcano Díaz had been a common practice of US manufacturers since the late 1880s.9 In fact, these practices, especially by US steel producers, led Canada to adopt the first antidumping law in 1904,10 which permitted a ‘special duty’ to be levied over certain imported goods ‘of a kind made or produced in Canada,’ in addition to the applicable import tariffs. This special duty was meant to offset the difference between the export price of the imported good and its ‘fair market value’ which was defined as the ‘ordinary selling price in the country of production’.11 Unlike other tariffs, this duty could be levied administratively, rather than being enacted; hence, making it more flexible.12 Motivated as well by the US threat of dumping, New Zealand and Australia followed Canada in adopting anti-​dumping laws, although they were quite different. The New Zealand law was specifically aimed at imports of certain ‘agricultural implements’ and allowed the government to grant domestic producers a ‘bonus’ or subsidy that would allow them to compete with importers of such ‘foreign implements’. However, if domestic producers agreed to reduce their prices, a ‘special countervailing duty on the imports of foreign implements sold under unfair conditions’ could be imposed instead of granting a bonus. The bonus method was intended to offer domestic producers protections, while avoiding price increases.13 The Australian law was mainly directed at suppressing monopolies, but it included certain provisions to deal with dumping. Upon a finding that goods were being imported with ‘unfair intent’, that is ‘with the intent to destroy or injure an Australian industry by their sale or disposal’ within Australia, importation of the goods could be restricted or entirely prohibited. The Australian law did not contemplate the imposition of duties.14 South Africa in 1914 adopted an anti-​ dumping law very similar to that of Canada. The US Antidumping Act of 1916 took a very different approach, criminalizing the sale of imported goods at prices substantially lower than the market value in the exporting country. However, this emerging system was not widely used. Other than the Canadian law, which appears to have worked well, other laws were complex and proved very difficult to apply. The Board established by the New Zealand law of 1905 met only once to consider a complaint, which it dismissed. No proceedings were initiated under the Australian law and the US Antidumping Act of 1916 was a criminal statute that required ‘predatory intent’ with the aim of limiting competition to be demonstrated.15 It was 9 

J. Viner, ‘The Prevalence of Dumping in International Trade: II’ 30(6) Journal of Political Economy (1922) 808–​809. 10  D. Ciuriak, ‘Anti-​Dumping at 100 Years and Counting: A Canadian Perspective’ SSRN Scholarly Paper (12 March 2004), at < https://​doi.org/​10.2139/​ssrn.2268​239 > (last visited 30 October 2020), at 4. 11  Parliament of Canada, ‘House of Commons Debates, 9th Parliament, 4th Session. Official Report. Debates of the House of Commons, Ottawa: Library of Parliament (8 August 1904), 8844–​8845, at < https://​parl.canadi​ana.ca/​view/​oop.deb​ates​_​HOC​0904​_​05/​1?r=​0&s=​1 > (last visited 23 July 2021). 12  Ciuriak, above fn 10, at 2. 13 Viner, Dumping: A Problem in International Trade (Chicago: University of Chicago Press, 1922), at 204–​205. 14  Ibid., at 206–​209. 15  Ibid., at 201–​202, 205, and 209; I.A. Douglas, ‘The Rise of US Anti-​Dumping Activity in Historical Perspective’ 28(5) The World Economy (2005) 652–​653.

Trade Remedies in International Trade    579 not until 1921 that the antidumping system, as we know it today, began to take shape with the adoption of comprehensive antidumping laws by the United States and Great Britain. That year, as well, New Zealand and Australia amended their antidumping laws to more closely follow the Canadian model, and Canada itself introduced amendments to its antidumping law.16 The First World War played a role as European nations were in dire need of imports that the United States was largely able to supply. Thus, the United States experienced a production boom. However, with the end of the war that boom came to end as well. There was overproduction in the United States that was no longer needed as European nations began to recover and which the US market could not absorb. This affected especially the agricultural sector, which could not halt production. Europe needed to repay wartime debts and sought export markets, especially the wealthier United States. This led to oversupply and prices dropped. The United States responded by raising tariffs. It began by reverting the pre-​ war tariff reductions on agricultural goods and adopting a new antidumping law. The US Congress adopted in tandem the so-​called Emergency Tariff Act of 1921 and Antidumping Act of 1921,17 although the 1916 Act was not repealed. The new Antidumping Act of 1921 contains all the essential elements that we find in the modern anti-​dumping system. Imported products were considered to be dumped when the importer’s ‘purchase price’ or the ‘exporter’s sale price’ was less than the ‘foreign market value’ of the goods, namely the price ‘at which such or similar merchandise is sold or freely offered for sale to all purchasers in the principal markets of the country from which exported in the usual wholesale quantities and in the ordinary course of trade for home consumption (or, if not so sold or offered for sale for home consumption, then for exportation to countries other than the United States)’; or, in the absence of such value, less than the cost of production. If imported products were found to be dumped and there was a finding as well that an industry in the United States was being injured or likely to be injured or prevented from being established by reason of the importation of such products, a ‘special dumping duty’ in the amount equal to the difference between the purchase price or the exporter’s sales price and the foreign market value (or the cost of production) would be levied. The Emergency Tariff Act of 1921 was replaced in 1922 by the more general Fordney-​ McCumber Tariff Act that raised the average tariff rate for dutiable products to almost 40 per cent and to around 15 per cent overall. After the stock market crash of 1929, the United States passed the infamous Smoot-​Hawley Tariff Act which raised tariffs to their highest levels in a century. Within two years, more than 20 nations had retaliated by

16 

Viner, above fn 13, 192, 198 et seq., 227 et seq., and 230 et seq. of the United States, 67th Congress. An Act Imposing temporary duties upon certain agricultural products to meet present emergencies, and to provide revenue; to regulate commerce with foreign countries; to prevent dumping of foreign merchandise on the markets of the United States; to regulate the value of foreign money; and for other purposes., Pub. L. No. 67-​10, Ch. 13 & 14, Tit. I & II, (1921). 17  Congress

580   Hugo Perezcano Díaz raising tariffs and imposing quantitative restrictions and exchange controls.18 World trade shrunk. Although the Unites States began to liberalize trade through bilateral trade agreements under the Reciprocal Trade Agreements Act of 1934, the world was again at war shortly thereafter. In 1944, before the war ended, the UN Monetary and Financial Conference meeting took place at Bretton Woods in the United States. The Conference dealt mainly with the financial arrangements for the world after the war, but the idea of establishing an international organization to develop and coordinate international trade was put forward as a necessary complement.19 The United States developed a series of ‘Proposals for Expansion of World Trade and Employment’ in November 1945 for consideration by an International Conference on Trade and Employment, in which it expressed the need for an International Trade Organization (ITO), ‘the members of which would undertake to conduct their international commercial policies and relations in accordance with agreed principles’, including subscribing ‘to a general definition of the circumstances under which antidumping and countervailing duties may properly be applied to products imported from other members’.20 The GATT 1947 and the Havana Charter included provisions on the adoption of anti-​dumping duties. Moreover, anti-​dumping became the first area of GATT regulation through more detailed ‘codes’. The first five rounds of multilateral negotiations were principally aimed at obtaining further tariff reductions and increasing the number of contracting parties. The Kennedy Round, concluded in 1967, was the first to focus on non-​tariff barriers. While its success in this area was limited,21 it produced the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade, the first so-​called ‘Anti-​dumping Code’. The Anti-​dumping Code was further developed in the Tokyo Round and later again in the Uruguay Round becoming part the WTO agreements. Negotiations on anti-​dumping have continued since the WTO was established, both within and outside the WTO framework. Yet, little progress has been made. At the WTO, negotiations in general have moved very slowly and produced few results; there has been no progress on antidumping. By and large, in regional agreements, WTO Members have preserved their rights and obligations under the Antidumping Agreement. Developments in the context of regional trade agreements are few, limited in scope, and have had little impact on the overall application of antidumping duties.

18 

C. Wilcox, A Charter for World Trade (New York: Macmillan, 1949), at 8. M. Matsushita, T.J. Schoenbaum, P.C. Mavroidis, and M. Hahn, The World Trade Organization—​ Law, Practice and Policy, 3rd edition (Oxford: Oxford University Press, 2015), at 1. See, generally, J.H. Jackson, The World Trade Organization: Constitution and Jurisprudence (London: Royal Institute of International Affairs, 1998), at 12 et seq. 20  US Department of State. Proposals for Expansion of World Trade and Employment. Commercial Policy Series 2411 (Washington, DC: US Government Printing Office, 1945), at 11 and 12. 21  Jackson, above fn 19, at 20. 19 

Trade Remedies in International Trade    581 Only in a handful of regional trade agreements, the parties thereto have agreed to reciprocally exempt goods of another party from the application of antidumping actions.22 The 1988 Canada-​US Free Trade Agreement introduced a novel dispute settlement mechanism that allowed binational panels to review antidumping (and countervailing duty) determinations issued by each party’s investigating authority, as an alternative to resorting to domestic courts. That mechanism was reproduced in the NAFTA and then again in CUSMA (NAFTA’s recent iteration)23 thanks to Canada’s insistence in the face of the US attempt to drop it.24 However, such a mechanism remains confined to North America, as none of the CUSMA parties have carried it over to their other regional trade agreements nor have other countries sought to replicate it. Certain aspects of the WTO rules have been somewhat finessed in recent regional trade agreements, such as the CETA, the CPTPP, CUSMA and the RCEP, for instance by providing added transparency regarding antidumping actions. Still, unless such rules make their way into the WTO agreements, they are unlikely to affect the operation of antidumping rules to any significant extent and, even if they did, it would remain to be seen if they would have an impact on the use of antidumping actions. A few countries have also agreed in recent regional trade agreements to prohibit certain controversial practices, such as zeroing,25 which the WTO Appellate Body has repeatedly found to be inconsistent with the Antidumping Agreement.26 Despite the strong, generalized reaction to the United States’ zeroing practice, a prohibition on zeroing has not received broad support for inclusion in regional trade agreements, nor have the countries that claim to oppose zeroing consistently prohibited it. For example, among the 15 members

22 

The European Union is the most notable example. It should be noted, however, that it is a customs union and it surpasses by far any other region in the world in the economic integration it has achieved. For examples of reciprocal elimination of antidumping actions in free trade areas see, for instance, Article 4 of the 1988 Protocol on Acceleration of Free Trade in Goods of the Australia New Zealand Closer Economic Relations Trade Agreement; Article M-​01 of the Canada-​Chile FTA. 23  The recent iteration of NAFTA has a different legal title in each of the Parties. In Canada, it is the Canada-​United States-​Mexico Agreement (referred to as CUSMA); in Mexico it is Tratado entre los Estados Unidos Mexicanos, los Estados Unidos de América y Canadá (referred to as T-​MEC); and in the United States it is the United States-​Mexico-​Canada Agreement (referred to as USMCA). 24  See also Chapter 8 of this handbook. 25  The WTO explains: ‘An investigating authority usually calculates the dumping margin by getting the average of the differences between the export prices and the home market prices of the product in question. When it chooses to disregard or put a value of zero on instances when the export price is higher than the home market price, the practice is called “zeroing”. Critics claim this practice artificially inflates dumping margins’. WTO Glossary, ‘zeroing’, at < https://​www.wto.org/​engl​ish/​thewt​o_​e/​glo​ssar​y_​e/​ zeroin​g_​e.htm > (last visited 19 September 2021). 26  As Mavroidis and Prusa have noted, ‘[a]‌ t least 30 separate Panel and AB decisions have found the practice of zeroing to be inconsistent with the ADA [Anti-​Dumping Agreement]. According to Bown and Prusa (2011), it is quite likely that the WTO AB has devoted more time to zeroing than any other single issue in the WTO’. P.C. Mavroidis and T.J Prusa. ‘Die Another Day Zeroing in on Targeted Dumping: Did the AB Hit the Mark in US–​Washing Machines?’ EUI Working Paper RSCAS 2018/​01 (January 2018), at 4, at < https://​scho​lars​hip.law.colum​bia.edu/​cgi/​view​cont​ent.cgi?arti​cle=​3355&cont​ ext=​facu​lty_​scho​lars​hip > (last visited 23 July 2021).

582   Hugo Perezcano Díaz of RCEP, only Australia and New Zealand agreed to prohibit zeroing, while the CPTPP, to which Australia and New Zealand are also party, does not include a similar provision.

B. Relevant definition and key elements Dumping is defined under the GATT 1994 and the Anti-​Dumping Agreement as the introduction of a product into the commerce of another country at a price that is less than its normal value. The notion of domestic price has evolved into that of normal value which, as explained below, is the domestic price or a proxy of the domestic price. The anti-​dumping system is ultimately about price comparability to determine if there is price discrimination.

1. The products in question Because dumping is a phenomenon of international trade, the starting point in an anti-​ dumping analysis is the product introduced into the commerce of another country allegedly being dumped. It is also referred to as the product under consideration by the investigating authority of the country of importation. This product is, quite literally, at the center of the analysis. It is the subject of two separate like-​product analyses. The first comparison is between the product under consideration and a like product that is destined for consumption in the country of export for purposes of determining the normal value. The purpose of this analysis is to determine the normal value and the dumping margin. The second like-​product analysis is between the product under consideration and a like product produced by the domestic industry in the country of importation. This second analysis is part of the injury determination. The two comparisons are not necessarily identical because they refer to two different markets and the product under consideration participates in only one of them, that of the importing country. Article 2.6 of the Anti-​ Dumping Agreement (and footnote 46 of the SCM Agreement) provides that, throughout the Agreement, ‘the term “like product” (“produit similaire”) shall be interpreted to mean a product which is identical, i.e. alike in all respects to the product under consideration, or in the absence of such a product, another product which, although not alike in all respects, has characteristics closely resembling those of the product under consideration’. There is ample GATT/​WTO jurisprudence on the term ‘like products’, especially in the context of Articles I (most-​ favoured nation treatment) and III (national treatment) of the GATT 1994, where a key element of likeness is whether the products in question are in a competitive relationship. However, the definition used in the Anti-​Dumping Agreement (as well as in the SCM Agreement) is narrower: ‘like product’ means an identical product, and the Anti-​ Dumping Agreement clarifies, moreover, that such a product is alike in all respects to the product under consideration. Only in the absence of an identical product can the product under consideration be compared to a broader category of similar products. Some commentators have noted that it is not easy to find a product ‘alike in

Trade Remedies in International Trade    583 all respects’.27 That will have to be determined in each instance. Even if in a particular case there is no identical product and the investigating authority has some discretion in defining the product to be compared, the implication of the language used in the Anti-​ Dumping Agreement is, nevertheless, that the category is narrower than in other parts of the WTO agreements (except, again, the SCM Agreement that uses the exact same language as the Anti-​Dumping Agreement) because the product to be compared must have characteristics closely resembling those of the product under consideration.

2. Export price Determining the export price is straightforward. It is the price at which a product exported from one country is introduced into the commerce of another country. It is usually the transaction value of the exported good that is used for customs purposes and reflected in the sales invoices. If there is no such export price or if it is unreliable because of an association or a compensatory arrangement that the exporter has, it may be constructed on the basis of the price at which the imported products are first resold to an independent buyer. If the products are not resold to an independent buyer, or if they are not resold in the condition that they were imported (for instance, if they are consumed in the production of another good), the Anti-​Dumping Agreement gives the investigating authority latitude to construct the export price using a reasonable methodology.

3. Normal value In its habitual sense, normal is something that is usual, typical, or ordinary.28 Thus, the normal value of a product is the usual, typical, or ordinary value of that product. According to Article VI of the GATT 1994 and Article 2.1 of the Anti-​Dumping Agreement, the normal value is the domestic price of the like product (domestic by reference to the country of export) and it must satisfy two conditions: –​ it must be the price in the ordinary course of trade for the like product when destined for domestic consumption, and –​ it must be comparable to the export price. The GATT 1994 and the Anti-​ Dumping Agreement provide for alternative methodologies to determine the normal value in the absence of a domestic price meeting those conditions. The first situation is where there are no sales of the like product in the ordinary course of trade in the domestic market of the country of export. Neither the GATT 1994 nor the Anti-​Dumping Agreement define the phrase ‘ordinary course of trade’. Ordinary involves the same notion as normal and refers to the normal, 27  P.C. Mavroidis, The Regulation of International Trade, vol. 2. (Cambridge, Massachusetts: The MIT Press, 2016), at 99. 28  See “normal, adj. and n.” in Oxford English Dictionary Online. Oxford University Press, at < http://​ www.oed.com/​view/​Entry/​128​269 > (last visited 5 March 5 2020).

584   Hugo Perezcano Díaz usual, regular, or customary manner in which the product is traded in the domestic market of the country of export.29 Thus, the price must be a market price, as determined by the forces of supply and demand. The WTO Appellate Body in US –​Hot-​Rolled Steel stated that it agreed with the parties that ‘[g]‌enerally, sales are in the ordinary course of trade if made under conditions and practices that, for a reasonable period of time prior to the date of sale of the subject merchandise, have been normal for sales of the foreign like product’30 (i.e., the like product in the country of export). This definition does not really add much clarity except for the indication that normality involves a reasonable period of time. Because ordinary course of trade concerns trade of a particular product in the domestic market of the country of export, the conditions of this market dictate the price to be used as the normal value. It therefore involves a factual inquiry that is specific to trade in that product in that market. The other two situations involve domestic sales in the ordinary course of trade. In general, a low volume of domestic sales will not permit a proper comparison with the export price, since the domestic price will not be reliably comparable to the export price. Footnote 2 of the Anti-​Dumping Agreement clarifies that sales are normally sufficient if they constitute at least 5 per cent of the sales of the product under consideration (that is, of the product exported to the country in question). However, a smaller ratio should still allow for a proper comparison if evidence shows that the overall volume of domestic sales is of sufficient magnitude. The third situation, when a particular market situation prevents a proper comparison of prices, is perhaps the most complex. The GATT 1994 and the Anti-​Dumping Agreement do not define ‘particular market situation’, but the first thing to note is that it concerns the market in the country of export where the like domestic product is traded and, therefore, requires a factual, case-​by case analysis. Also, it is only relevant insofar as it renders the domestic sales of that product unfit to permit a proper comparison. As noted by the Panel in Australia —​Anti-​Dumping Measures on A4 Copy Paper, the phrases ‘particular market situation’ and ‘permit a proper comparison’ function together to establish a condition that would allow disregarding domestic market sales —​ which are in the ordinary course of trade—​as the basis for the normal value. The Panel noted: ‘[s]‌pecifically, that domestic sales do not permit a proper comparison’ must be ‘because of the particular market situation’. If domestic sales do permit a proper comparison, then they cannot be disregarded as the basis for normal value, regardless of the existence of the particular market situation and its effects, whatever those may be’.’31 Thus, if there are no domestic sales of the like product in the ordinary course of trade, or if there are such sales but the prices are not comparable, then the normal value of the domestic product can be determined using one of two alternative methodologies: 29  See

‘ordinary, adj. and adv.’, in Oxford English Dictionary Online, at < http://​www.oed.com/​view/​ Entry/​132​361 > (last visited 23 July 2021). 30  Appellate Body Report, US –​ Hot-​Rolled Steel, adopted 23 August 2001, para 139. 31  Panel Report, Australia –​Anti-​Dumping Measures on A4 Copy Paper, adopted 27 January 2020, para 7.27.

Trade Remedies in International Trade    585 –​ the comparable price of the like product when exported to an appropriate third country, so long as the price is representative, or –​ the cost of production in the country of origin plus a reasonable amount for administrative, selling and general costs, and for profits, which is a proxy for the domestic price.

4. Dumping margin Once the normal value is established, the dumping margin is simply the difference between the normal value and the export price. However, a fair comparison between the export price and the normal value is required. Prices must be compared at the same level of commerce, normally at the ex-​factory level, and in respect of contemporaneous sales of both products. Due allowance must be made for differences which affect price comparability, including differences in conditions and terms of sale, taxation, levels of trade, quantities, physical characteristics among others that affect price comparability.

III.  Countervailing duties In contrast to dumping, subsidies are policy instruments used to pursue a wide array of objectives32 and, thus, involve government conduct. The term subsidy, though widely used, is difficult to define. In 1961, a GATT Working Party concluded that it was ‘neither necessary nor feasible to seek an agreed interpretation of what constitutes a subsidy’.’33 A decade later, Houthakker remarked that: ‘[m]‌y own starting point was also an attempt to define subsidies. But in the course of doing so, I came to the conclusion that the concept of a subsidy is just too elusive.’34 In 1998, Steenblik observed that Houthakker might just as well have described the situation at the turn of the century, and added: Few terms from public finance and economics are as familiar in daily life, or as evocative, as ‘taxes’ and ‘subsidies’. The man on the street has no trouble in defining them: what he renders unto Caesar are taxes; what he gets back is his due; everybody else receives subsidies. When the 18th and 19th century economists spoke of subsidies (or ‘bounties’) they generally had in mind government grants, especially to encourage exports. In recent years, however, the term ‘subsidy’ has been pressed into service as a catch-​all for any benefit granted to an individual, firm or sector,

32  WTO, ‘World Trade Report 2006 –​Exploring the links between subsidies, trade and the WTO’, at 45, at < https://​www.wto.org/​engl​ish/​res_​e/​pub​lica​tion​s_​e/​wtr0​6_​e.htm > (last visited 23 July 2021). 33  GATT Document BISD 10S/​209, para 23; Mavroidis, above fn 27, 201. 34  R. Steenblik, ‘Subsidy Measurement and Classification: Developing a Common Framework’, paper presented at the OECD Workshop on Environmentally Harmful Subsidies, OECD (November 2002), at < https://​www.oecd.org/​site/​agr​ehs/​35218​605.pdf > (last visited 23 July 2021), at 4.

586   Hugo Perezcano Díaz including those resulting from government inaction. The proliferation of legal definitions for ‘subsidy’ invests the word with even more connotations.35

Steenblik noted that there are only two internationally agreed definitions of subsidy: the one used by the United Nations Statistics Division for purposes of constructing national accounts and which, therefore, has a budgetary focus; and the one provided for in the SCM Agreement for the purpose of regulating the use of subsidies that affect international trade. He summarized the latter as follows, noting that the WTO definition is the more comprehensive of the two: ‘[a]‌subsidy is a financial contribution by a government, or agent of a government, that confers a benefit on its recipients’.’36

A. Brief historical overview Subsidies have a long history. As Adam Smith wrote in his Wealth of Nations, Bounties upon exportation are, in Great Britain, frequently petitioned for, and sometimes granted, to the produce of particular branches of domestic industry. By means of them, our merchants and manufacturers, it is pretended, will be enabled to sell their goods as cheap or cheaper than their rivals in the foreign market.37

By the nineteenth century direct-​export subsidies had been succeeded by a more complex system of indirect-​export subsidies, basically in the form of refunds of internal taxes collected on certain goods subsequently exported; drawbacks of duties collected on imported materials used in the production of certain goods subsequently exported; and grants upon export of certain goods manufactured with domestic materials, in the amount of applicable duties on similar imported materials, even if no imported materials were used. Many countries saw these practices as unfair and began negotiating ‘anti-​bounty clauses’ in bilateral trade agreements. However, treaties lacked enforcement provisions, so such clauses were ultimately ineffective. Therefore, around the turn of the century many countries began to adopt measures that allowed for the imposition of countervailing duties. The first such measure was included in the US Tariff Act of 1890. It allowed collection of countervailing duties on imports of subsidized refined sugar. Other countries followed suit. In 1922, the United States extended the provision

35 R. Steenblik, ‘Subsidy Reform: Doing More to Help the Environment by Spending Less on Activities that Harm It’, presented at the workshop Doing More with Less, IUCN’s 50th Anniversary (November 1998), at < https://​www.cbd.int/​financ​ial/​fiscal​envi​ron/​g-​subs​idy-​iucn.pdf > (last visited 23 July 2021). 36 R. Steenblik, A Subsidy Primer, Global Subsidies Initiative of the International Institute for Sustainable Development (2007), at < https://​www.iisd.org/​gsi/​sites/​defa​ult/​files/​pri​mer.pdf > (last visited 23 July 2021), at 8. 37  A. Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Electronic Classics Series (Pennsylvania State University, 2005), at 405.

Trade Remedies in International Trade    587 on countervailing duties to cover imports of goods that benefited from production subsidies.38 The Havana Charter included disciplines that dealt with subsidies but only some of them were carried over to the GATT 1947: a self-​judging obligation to notify the nature and extent of any subsidy ‘which operates directly or indirectly to increase exports of any product from, or to reduce imports of any product into, its territory’; and an obligation to discuss the possibility of limiting subsidization where ‘it is determined that serious prejudice to the interests of any other contracting party is caused or threatened by any such subsidization’. The GATT 1947 rules on subsidies were amended in 1955 and 1960, and significant changes were negotiated in the Tokyo Round and incorporated into the 1979 Subsidies Code,39 including the obligation to make a finding of injury (or threat thereof) before countervailing duties could be imposed, which was not previously required. It also improved the rules concerning subsidies on industrial products, but changes were still largely cosmetic with regard to primary products.40 The Uruguay Round saw significant improvements to subsidies disciplines with respect to goods, beginning with a definition of subsidy. As regards services, while the GATS national treatment and MFN disciplines have some application to subsidies, Article XV merely provided a placeholder for future negotiations to develop multilateral disciplines to avoid distortive effects on trade in services as well as to address the appropriateness of countervailing procedures.

B. Definitions and key elements The concept of subsidy defined in Article 1 of the SCM Agreement ‘captures situations in which something of economic value is transferred by a government to the advantage of a recipient’.41 Although the definition seems sufficiently broad, some commentators have argued that it excludes policies that reduce costs, such as certain labour policies that hinder the organization of trade unions or that encompass weak workplace health and safety standards.42 It is debatable whether regulation (in its broadest sense) constitutes a subsidy. Whatever the case, it is not a subsidy in the WTO context. Steger has noted that the WTO is not concerned with all forms of subsidization or government intervention in the marketplace, only with subsidies that distort trade.43 Indeed, because the 38 

J. Viner, above fn 13, at 166 et seq. Agreement on Interpretation and Application of Articles VI, XVI and XXIII of the GATT. 40  See, generally, A.L. Stoler, ‘Evolution of Subsidies Disciplines in GATT and the WTO’ 44(4) Journal of World Trade (2010) 11. 41  Appellate Body Report, US –​Softwood Lumber IV, adopted 17 February 2004, para 51. 42  W.E. Schrank, ‘The Nature of Subsidies’ Technical Paper (Rome: FAO, 2003), at < http://​www.fao. org/​3/​Y46​47E/​y4647​e05.htm >, at 6 (last visited 23 July 2021). 43  D.P. Steger, ‘The Subsidies and Countervailing Measures Agreement: Ahead of Its Time or Time for Reform?’ 44(4) Journal of World Trade (2010) 780. 39 

588   Hugo Perezcano Díaz ‘operational purpose’ of the GATT provisions on subsidies and the SCM Agreement is ‘setting a standard for maintaining ‘fair’ international trade’ in goods, these agreements have a much narrower scope.44 Therefore, subsidies on services and consumer subsidies, for instance, which would be covered by the SCM Agreement definition, are beyond the scope of the remedies provided for by such agreements. The Panel in US –​Export Restraints reviewed the negotiating history of Article 1 of the SCM Agreement. It noted that: ‘[t]‌he negotiating history confirms that the introduction of the two-​part definition of subsidy, consisting of ‘financial contribution’ and ‘benefit’, was intended specifically to prevent the countervailing of benefits from any sort of (formal, enforceable) government measures, by restricting to a finite list the kinds of government measures that would, if they conferred benefits, constitute subsidies.’45 The Panel concluded ‘that the requirement of a financial contribution from the outset was intended by its proponents precisely to ensure that not all government measures that conferred benefits could be deemed to be subsidies’.46 WTO jurisprudence has clarified that ‘the definition of a subsidy has two distinct elements (i) a financial contribution (or income or price support), (ii) which confers a benefit’.47 The Appellate Body has underscored that financial contribution and a benefit are ‘two separate legal elements in Article 1.1 of the SCM Agreement, which together determine whether a subsidy exists’.48 The Appellate Body has observed that ‘[a]‌n evaluation of the existence of a financial contribution involves consideration of the nature of the transaction through which something of economic value is transferred by a government’. Even though a financial contribution covers a wide range of transactions, Article 1 of the SCM Agreement nevertheless sets forth an exhaustive list of ‘the types of government conduct deemed to constitute a financial contribution’.49 Mavroidis explains that the terms ‘income or price support’ were ‘meant to be some sort of catch-​all provision, an anticircumvention device’, although ‘it is not that anything goes.’50 The Panel in China -​GOES clarified that ‘it does not include all government intervention that may have an effect on prices, such as tariffs and quantitative restrictions’ because, as is the case with financial contribution, the focus is on the nature of the government action and not on the effects of such action.51 Benefit is not defined in the SCM Agreement. However, Article 14 provides some guidance for calculating the amount of a subsidy in terms of the benefit to the recipient by reference to market benchmarks, that is, by comparison to conditions available in the marketplace. The Appellate Body has explained that the financial contribution must

44 

Schrank, above fn 42. Panel Report, US –​Export Restraints, adopted 23 August 2001, para 8.73. 46  Ibid., at para 8.65. 47  Ibid., at para 8.20. 48  Appellate Body Report, Brazil –​Aircraft, adopted 20 August 1999, para 157 (original emphasis). 49  Appellate Body Report, US –​Large Civil Aircraft (2nd Complaint), adopted 23 March 2012, para 613. 50  Mavroidis, above fn 27, at 215. 51  Panel Report, China –​GOES, adopted 16 November 2012, paras 7.85 and 7.92. 45 

Trade Remedies in International Trade    589 be more favourable than the terms available in the market, and thus make the recipient ‘better off ’ than it would otherwise have been.52 The SCM Agreement is predicated on the potential of specific subsidies to be trade distorting. A subsidy that is targeted more closely to the intended beneficiaries is likely to be more distorting because its relative price effect will be more concentrated. In contrast, the broader the recipients base, the more ‘spread out’ and shallower the impact of the subsidy is likely to be.53 The SCM Agreement, therefore, only aims at disciplining the use of subsidies that are specific. For that reason, a subsidy is only subject to the operative parts of the SCM Agreement if it is specific to an enterprise or industry, or group of enterprises or industries, as described by Steger: Article 2 of the SCM Agreement sets forth principles for determining the following types of specificity: (1) enterprise specificity (a government targets a particular company or companies for subsidization); (2) industry specificity (a government targets a particular sector or sectors for subsidization); and (3) regional specificity (a government targets producers in specified parts of its territory for subsidization).54

The Appellate Body noted that subsidies may be specific to a single enterprise or industry or a class of enterprises or industries that are known and particularized.55 Nonetheless, specificity remains ‘a general concept’ the breadth or narrowness of which ‘is not susceptible to rigid quantitative definition’, as observed by the Panel in US –​Upland Cotton. Thus, ‘[w]‌hether a subsidy is specific can only be assessed on a case-​by-​case basis’.56 Specificity may be de jure where ‘access to a subsidy is explicitly limited to certain enterprises or, alternatively, if there are “criteria or conditions” governing the eligibility for a subsidy that are spelled out in law, regulation, or other official document’, unless ‘there are objective criteria or conditions that are clearly spelled out in law, regulation, or other official document’, in which case the subsidy will not be de jure specific.57 Yet, even ‘where the evidence suggests that a subsidy is not de jure specific . . . the specificity inquiry does not necessarily end at that point because, ‘notwithstanding any appearance of non-​specificity’ resulting from the application of Article 2.1(a) and (b), a subsidy may nevertheless be found to be ‘in fact’ specific.’58 If there are reasons to believe that this is the case, the investigating authority may consider the following factors under Article 2(c) of the SCM Agreement: ‘use of a subsidy programme by a limited number of certain enterprises, predominant use by certain enterprises, the granting of disproportionately

52 

Appellate Body Report, Canada –​Aircraft, adopted 20 August 1999, para 157. ‘World Trade Report 2006 Exploring the Links between Subsidies, Trade and the WTO’, above fn 32, at 198. 54  Steger, above fn 43, at 785. 55  Appellate Body Report, US –​Anti-​Dumping and Countervailing Duties (China), adopted 25 March 2011, para 373. 56  Panel Report, US –​Upland Cotton, adopted 21 March 2005 para 7.1142. 57  Appellate Body Report, US –​Countervailing Measures (China), adopted 25 March 2011, para 4.120. 58  Ibid., at para 4.121. 53  WTO,

590   Hugo Perezcano Díaz large amounts of subsidy to certain enterprises, and the manner in which discretion has been exercised by the granting authority in the decision to grant a subsidy.’ The direct recipients of a subsidy are not always the producers of the goods that are traded internationally. Sometimes subsidies are granted to producers of goods that are subsequently used by downstream producers as inputs of processed products that are then exported. The Appellate Body has explained that: Where the producer of the input is not the same entity as the producer of the processed product, it cannot be presumed, however, that the subsidy bestowed on the input passes through to the processed product. In such case, it is necessary to analyze to what extent subsidies on inputs may be included in the determination of the total amount of subsidies bestowed upon processed products.59

The Appellate Body emphasized that, ‘in the absence of such an analysis, it cannot be shown that the essential elements of the subsidy definition are present in respect of the processed product’ that is exported. It must be established that the cumulative conditions set out in Article 1 —​i.e. a financial contribution by a government or public body which confers a benefit—​have passed to the processed product and in what measure, as it is seldom the case that the subsidy in full has been passed on downstream, especially when the producers of the input and of the processed product are different entities.60

C. Subsidy categories in the WTO context The SCM Agreement takes what has been aptly called a ‘traffic light’ approach. It classifies covered subsidies into three categories: prohibited, actionable, and non-​ actionable subsidies, commonly referred to as red, amber and green light subsidies, respectively.61 Subsidies contingent on export performance or on the use of domestically produced over imported products are prohibited. They are deemed inherently trade distorting and specific by definition. A WTO Member shall neither grant nor maintain such subsidies. Actionable subsidies can either be challenged or countervailed by the importing country if they cause ‘adverse effects’ to the interests of a WTO Member. There are three types of adverse effects: (i) injury to the domestic industry of another Member; (ii) nullification or impairment of benefits accruing directly or indirectly to other Members; or (iii) serious prejudice to the interests of another Member. Injury to the domestic industry is usually addressed through an investigation conducted by the competent authority of the importing country that may result in

59 

Appellate Body Report, US –​Softwood Lumber IV, adopted 17 February 2004, para 140. Ibid., at paras 142 and 143 (original emphasis). 61  In addition to the SCM Agreement, this section draws on Steger, above fn 43, at 782–​783; Mavroidis, above fn 27, at 187–​212; WTO, above fn 32, at 200. 60 

Trade Remedies in International Trade    591 the application of countervailing duties on imported products found to have been subsidized. However, subsidies may also hinder competition from fairly traded products that are imported into the market of the subsidizing country or even in the market of a third country where fairly traded exports from one country compete with subsidized imports of another country. The terms ‘nullification or impairment of benefits’ are used in the SCM Agreement in the same sense that they are used in Article XXIII of the GATT 1994. If under the DSU a measure is found to breach the provisions of the WTO agreements, it is presumed to nullify or impair benefits accruing under such agreements to the WTO Member that successfully challenged the measure. Since actionable subsidies are not prohibited by the WTO rules, the burden is on the Member that challenges a subsidy to demonstrate that benefits that would accrue to it directly or indirectly are being nullified or impaired. A common example is when tariff concessions under Article II of the GATT 1994 that benefit imports of a certain product into a WTO Member are eroded or offset by subsidies granted by such Member to its domestic industry that produces a like product. In such a case there would be no breach of Article II of the GATT 1994 because tariff concessions would continue to apply, but imports would compete in the market of the subsidizing Member with lower-​ priced, domestically produced, like products. The subsidy would nullify or impair the benefits of such tariff concessions. Non-​Actionable subsidies were initially identified to provide a ‘safe harbor’ for subsidies that were not deemed to cause adverse effects, even though they were specific. Therefore, they could not be challenged. These subsidies included certain assistance to research activities; certain assistance to disadvantaged regions; and certain assistance to promote the adaptation of existing facilities to new environmental requirements. However, the provisions that established the conditions and requirements to designate a subsidy as non-​ actionable were never used.62 This category lapsed on 1 January 2000 pursuant to Article 31 of the SCM Agreement. These subsidies are now included in the amber light category.

D. Recent developments While nearly every detail of the SCM Agreement continues to be dissected and interpreted by dispute settlement panels, no rule development has occurred in the WTO. The placeholder for negotiations of subsidies rules on services under Article XV of the GATS as part of the WTO’s built-​in agenda for future work remains just that, a placeholder. Little progress has been made.63 Also, the issue of subsidization through state-​owned enterprises was picked up in the TiSA negotiations, but those negotiations have also stalled.64 62 

WTO, above fn 32, at 200. See WTO, ‘WTO negotiations on GATS rules’, at < https://​www.wto.org/​engl​ish/​trato​p_​e/​ser​v_​e/​ gats_​r​ules​_​neg​s_​e.htm > (last visited 14 June 2021). 64  For a discussion of TiSA, see Chapter 18 of this handbook. 63 

592   Hugo Perezcano Díaz In the context of regional trade agreements, greater progress has been made, at least with respect to SOE disciplines.65 The CPTPP and CUSMA ban subsidies, or what they refer to as ‘non-​commercial assistance’, provided to or from a Party’s State-​owned enterprises that causes adverse effects or injury to the interests of another party or injury to a domestic industry of another party.66 Haywood has aptly noted that the CPTPP created ‘what in practice looks like an SOE trade remedy’67 Otherwise, EU law on state aid (which regulates government support within the EU single market) remains the furthest reaching set of disciplines regulating subsidization between States. And since state aid is no longer applicable in the as a result of Brexit, the detailed subsidy disciplines have been adopted by the European Union and United Kingdom in their Trade and Cooperation Agreement (TCA), marking another interesting rule development.68 The TCA requires the United Kingdom to implement its own domestic subsidy control mechanism, based on a broader concept of subsidy than that provided in the SCM Agreement and applicable to goods as well as services. There is also a growing discussion on transnational or foreign subsidies, which are granted by a government or public body in one country to confer a benefit to a recipient located in another country.69 The European Union has noted that ‘foreign subsidies appear to have facilitated the acquisition of EU undertakings, influenced other investment decisions or have distorted the market behaviour of their beneficiaries’, including in public procurement markets.70 Specific concerns have been raised with regard to the Chinese government’s funding of projects in third countries or assisting Chinese investments abroad under its Belt and Road Initiative.71 Current legal instruments, both domestic and international, do not fully address trade distortions caused by transnational subsidies. For instance, the European Union has a well-​developed framework

65 

For a discussion of SOE rules, see Chapter 30 of this handbook. 17.6 of the CPTPP; Article 22.6 of CUSMA; S. Miner, ‘Commitments on State-​Owned Enterprises’ in C. Cimino-​Isaacs and J. Schott (eds), Trans-​Pacific Partnership: An Assessment, Policy Analyses in International Economics 104 (Washington, DC: Peterson Institute for International Economics, 2016), at 339. 67  K. Haywood, ‘The Treatment of State Enterprises in the WTO & Plurilateral Trade Agreements’ Emerging Issues Briefing Note 3, The Commonwealth Secretariat (May 2016), at 5. 68 Trade and Cooperation Agreement between the European Union and the European Atomic Energy Community, of the One Part, and the United Kingdom of Great Britain and Northern Ireland, of the Other Part, Part Two: Trade, Transport, Fisheries and Other Arrangements, Heading One: Trade, Title XI: Level playing field for open and fair competition and sustainable development, Chapter three: Subsidy control, at < https://​eur-​lex.eur​opa.eu/​legal-​cont​ent/​EN/​TXT/​PDF/​?uri=​CELEX:220​ 20A1​231(01)&from=​EN > (last visited 23 July 2020). 69  See European Commission, ‘Levelling the Playing Field as Regards Foreign Subsidies,’ White Paper (17 June 2020), at < https://​eur-​lex.eur​opa.eu/​legal-​cont​ent/​EN/​ALL/​?uri=​COM:2020:253:FIN > (last visited 15 June 2021). See also V. Crochet and V. Hegde, ‘China’s ‘Going Global’ Policy: Transnational Subsidies under the WTO SCM Agreement’, Working Paper 220, The Leuven Centre for Global Governance Studies (February 2020), at 5, at < https://​ghum.kuleu​ven.be/​ggs/​publi​cati​ons/​wor​king​_​pap​ ers/​wp220-​croc​het-​hegde.pdf > (last visited 23 July 2020). 70  European Commission, above fn 69, at 4 and 7. 71  Crochet and Hegde, above fn 69, at 4. 66  Article

Trade Remedies in International Trade    593 on state aid, but it only applies to its Member States, not to non-​EU Members,72 and transnational subsidies also seem to fall outside the scope of the SCM Agreement, except perhaps with respect to export subsidies.73 That said, the reader should keep an eye on the recent decision of the European Union to apply countervailing measures on imports from Egypt based on the Commission’s finding that ‘the governments of Egypt and China have pooled their resources to provide the companies manufacturing in the China-​Egypt Suez Economic and Trade Cooperation Zone with favorable conditions that confer benefits to them.’74 The EU measure demonstrates the need to develop rules to close this regulatory gap in order to adequately address the trade-​distortive effects of transnational subsidies.75

IV. Safeguards Although called ‘measures’ in the Safeguards Agreement, safeguards are not a type of duty, charge or —​indeed—​measure (as that term is understood in the WTO context). Rather, they allow a country to withdraw or modify tariff concessions, or to suspend in whole or in part other obligations temporarily, in order to prevent or remedy serious injury to domestic producers. In other words, the country of import has discretion to choose the specific type of measure to adopt as a remedy. They usually take the form of an increase in tariffs (since these are normally easier to manage and are more transparent) but they could take other forms, for instance, quantitative restrictions on imports.

A. Brief historical overview Safeguards go back to the US 1934 Reciprocal Trade Agreement Act. While the United States sought to reduce the protectionist barriers to trade of the 1920s through reciprocal trade agreements, there remained a concern that imports benefiting from tariff concessions would surge and harm the domestic industry. Thus, the United States included in its trade agreements provisions that would allow a party to withdraw 72 

European Commission, above fn 69, at 5. Crochet and Hegde, above fn 69, at 19. 74 European Commission Implementing Regulation (EU) 2020/​ 776 of 12 June 2020 imposing definitive countervailing duties on imports of certain woven and/​ or stitched glass fibre fabrics originating in the People’s Republic of China and Egypt and amending Commission Implementing Regulation (EU) 2020/​492 imposing definitive anti-​dumping duties on imports of certain woven and/​or stitched glass fibre fabrics originating in the People’s Republic of China and Egypt para 670, at (last visited 23 July 2020). 75  European Commission, above fn 69, at 5. 73 

594   Hugo Perezcano Díaz concessions if imports caused serious injury to its domestic industry. These provisions ultimately developed into the so-​called escape clause included in the Mexico-​United States Reciprocal Trade Agreement of 1942,76 which allowed either party to temporarily withdraw concessions granted under the agreement to protect their respective domestic industry from injury caused by an increase in imports of certain products resulting from unforeseen developments and the concessions that had been negotiated.77 This type of provision eventually made its way into the GATT 1947 as Article XIX. Article XIX of the GATT 1947 had several problems, including the lack of a definition of serious injury. This gave the importing country a broad margin to determine, without the need for an investigation, when injury had occurred, imposing a burden on the exporting country to challenge that determination. Also, while safeguard measures were intended to be temporary in order to facilitate adjustment of the affected domestic industry, Article XIX of the GATT 1947 did not provide an indication of how long they could be kept in place and, therefore, provided no incentive for the domestic industry to adjust. Another criticism was that safeguards were not constrained to tariffs and import quotas could also be imposed.78 Yet, perhaps the main concern over the use of safeguard measures under Article XIX of the GATT 1947 was the obligation to apply them on an MFN basis, coupled with the obligation to compensate all GATT Contracting Parties affected by the safeguard or have them suspend substantially equivalent concessions or other obligations under the GATT. This led to a widespread use by certain countries (especially the United States and the (then) European Communities79) of voluntary export restraints or VERs, also known as voluntary restraint agreements or VRAs, whereby exports of a particular product from one country to another were restrained through negotiated arrangements either between the governments of the countries concerned, or between the government of the importing country and the exporters of that product.80 These arrangements could 76 US Department of State, Memorandum by the Assistant Legal Adviser for Economic Affairs (Metzger) to the Deputy Legal Adviser (Tate) regarding the Renewal of Reciprocal Trade Agreements Act and Related Problems (25 February 1953). 77  Article XI of the Mexico-​United States Reciprocal Trade Agreement, signed on 23 December 1942. 78  N. Grimwade, International Trade Policy: A Contemporary Analysis (London: Routledge, 1996), at 71–​72. 79  Ibid., at 59. 80  Orderly marketing arrangements or OMAs and other terms were also used to describe these types of arrangements or mechanisms. VERs, VRAs and OMAs were sometimes used interchangeably. Sometimes nuances were drawn between one type or another, either by authors or other sources, including legal sources in certain countries (such as OMAs in the United States). See, for instance, the OECD Glossary of Statistical Terms, at < https://​stats.oecd.org/​gloss​ary/​det​ail.asp?ID=​4996 > (last visited 23 July 2020), at < https://​stats.oecd.org/​gloss​ary/​det​ail.asp?ID=​4994 > (last visited 23 July 2020) and at < https://​stats.oecd.org/​gloss​ary/​det​ail.asp?ID=​2882 > (last visited 23 July 2020). The WTO Agreement on Safeguards explicitly refers to VERs and OMAs ‘or any other similar measures on the export or the import side’ (Article 11(1)(b)). It includes in a footnote the following ‘examples of similar measures . . . export moderation, export-​price or import-​price monitoring systems, export or import surveillance, compulsory import cartels and discretionary export or import licensing schemes, any of which afford protection’. The differences, which may be more or less subtle, are not relevant for purposes

Trade Remedies in International Trade    595 be formal or informal and even tacitly agreed to. As noted by John Jackson, ‘voluntary’ was ‘something of a euphemism’ because they arose from political tensions in an importing country where too many imports, or a surge in imports of a particular product led the relevant domestic industry to lobby for protection which, in turn, led the importing country to negotiate an export restraint arrangement rather than taking action that could have been inconsistent with GATT rules.81 One might question why it was preferable to enter into these types of arrangements rather than challenge the measures through the GATT dispute settlement mechanism. The answer lies in a lack of incentives resulting from a combination of factors. In particular, the safeguard rules lacked precision prior to the Uruguay Round. In addition, the GATT dispute settlement mechanism was much less developed than its successor and did not provide the country of export certainty that, if it were to prevail, safeguards would be withdrawn. The principal users of safeguards, the United States and the European Communities (which accounted for over two thirds of VERs82) had great economic leverage. Also, VERs allowed exporters to retain certain market access for their products, while benefitting from higher prices resulting from reduced competition. There was no complacency, however, either on the import or the export side. Intense negotiations on safeguards took place during the Tokyo Round, although the GATT Contracting Parties were unable to reach any substantive agreement. When the Uruguay Round was launched, completing the efforts that began during the Tokyo Round to conclude a comprehensive agreement on safeguards was a priority. This time negotiators succeeded.83 The GATT Contracting Parties, however, were unable to consider in detail and reach agreement on safeguards for trade in services. Thus, Article X of the GATS required WTO Members to engage in ‘multilateral negotiations on the question of emergency safeguard measures based on the principle of non-​discrimination’. The results of those negotiations should have entered into effect no later than three years from the date of entry into force of the WTO Agreement, but as with subsidies disciplines, no progress has been made. In 2011, the chairman of the WTO Working Party on GATS Rules84 reported that, although WTO Members had engaged in constructive discussions, these were still ‘conceptual in nature’ as there remained ‘fundamental divergences over the objectives and expected outcome of these negotiations and neither the problems that would need to be addressed by new disciplines nor the of this chapter, since they were generally designed to side-​step GATT disciplines on import or export restrictions. 81 J.H. Jackson, F.L. Kirgis, G.M. Meier, J.L. Katz and P.D. Ehrenhaft, ‘Orderly Marketing Arrangements’ 72 Proceedings of the Annual Meeting of the American Society of International Law (1978) 1. 82  Grimwade, above fn 78. 83  Ministerial Declaration on the Uruguay Round, Punta del Este, Uruguay (20 September 1986); A.F. Lowenfeld, International Economic Law, 2nd edition (Oxford: Oxford University Press, 2008), at 93; Mavroidis, above fn 27, at 323. 84  The Working Party on GATS Rules was established in 1995 to carry out the negotiating mandates contained in the GATS, including on emergency safeguard measures. See WTO, ‘WTO negotiations on GATS rules’, above fn 63.

596   Hugo Perezcano Díaz benefits that would accrue from such disciplines had been sufficiently identified.85 This remains the state of play at the time of writing.

B. Definition and key elements Safeguards are measures that temporarily restrict imports of a particular product that, as a result of unforeseen developments and trade liberalization, is being imported in such increased quantities and under such conditions that cause or threaten to cause serious injury to a WTO Member’s domestic producers of like or directly competitive products. Their purpose is to offer protection from import competition so that the domestic industry can make the necessary structural adjustments that will allow it to compete with such imports.

1. Import surge Safeguards can be adopted in response to a surge of imports of a particular product resulting from the combined effect of ‘unforeseen developments’ and the trade-​ liberalizing obligations undertaken by Members in the WTO agreements, that cause or threaten to cause serious injury to the domestic producers of like or directly competitive products. Obviously, trade agreements are intended —​and indeed expected—​ to increase trade flows. The circumstances that may trigger the use of safeguards must therefore go beyond the foreseen liberalizing effect of the WTO agreements. This is why they are called ‘emergency action’ in Article XIX of the GATT 1994. The Appellate Body has explained that ‘import restrictions that are imposed on products of exporting Members when a safeguard action is taken must be seen, as we have said, as extraordinary’, adding that ‘when construing the prerequisites for taking such actions, their extraordinary nature must be taken into account’.86 Safeguards measures are extraordinary as well because, as opposed to antidumping or countervailing duties, they do not target what are deemed to be unfair trade practices. Instead, they target products that are being imported fairly in accordance with the rules that govern international trade. The increase in the quantity of imports may be absolute or relative to the domestic production of the like or directly competitive product. In other words, the volume of imports may be larger than what it was, or it may be larger than the output of the domestic industry, even if the volume of imports has remained constant. The Appellate Body has clarified that, while investigating authorities are required to consider trends in imports over a period of time —​namely the period of investigation—​in measuring whether imports have increased, ‘the increase in imports must have been sudden and recent’ in relation to when the safeguard measure is adopted.87 The evaluation does not ‘merely [involve] a mathematical or technical determination’; it requires both a 85 

WTO Report by the Chairperson of the Working Party on GATS Rules, TN/​S/​36 (21 April 2011). Appellate Body Report, Argentina –​Footwear (EC), adopted 12 January 2000, para 94. 87  Ibid., at para 130. 86 

Trade Remedies in International Trade    597 quantitative and a qualitative analysis. The Appellate Body concluded that ‘the increase in imports must have been recent enough, sudden enough, sharp enough, and significant enough, both quantitatively and qualitatively, to cause or threaten to cause ‘serious injury’’.88

2. Duration and industry adjustment Safeguards are strictly temporary measures. Their purpose is not to provide protection from import competition, but some breathing space for domestic industry to adjust to the conditions of that competition. Thus, they can be maintained only for such period of time necessary to prevent or remedy serious injury and to facilitate adjustment of the domestic industry to competition from imported products. Lowenfeld has noted that ‘[p]‌erhaps the most important feature of the Safeguards Agreement, at least in concept, is the link between the objective of preventing or remedying serious injury and the objective of facilitating adjustment by the domestic industry’.89 In fact, if the domestic industry, rather than being injured, comes out fortified, the industry wins, the importing country wins as competition in its market would be enhanced to the benefit of consumers, and international trade benefits overall. Under the Safeguards Agreement, the duration of a safeguard must not exceed four years (including the duration of any provisional measures). After one year, the measures must be progressively liberalized at regular intervals. After three years, the situation must be reviewed no later than the mid-​term of the measure to consider whether the measures can be withdrawn or the pace of liberalization increased. The measures can be extended once for no more than an additional four years.

3. Non-​discriminatory application of safeguards Whether safeguards can be applied selectively to certain countries has been hotly debated, although the Safeguards Agreement now expressly rules out such selective application. In contrast to anti-​dumping, which targets conduct of particular firms, or subsidization which involves conduct of a particular government, country-​specificity does not exist in the context of fairly traded goods, even if one or a few countries are the main source of the imports of the product at issue. This question was specifically discussed by the GATT Contracting Parties in the 1950s. Proposals to allow for a selective application of safeguards (emergency action, as it was then called) were rejected. The prevailing view was that, even if more extreme circumstances were present and remedial action on an MFN basis could lead to serious disruptions of trading conditions or cause severe damage to the interests of third parties, the GATT provisions (not limited to Article XIX) would be sufficient to ‘meet the situation’.90

88 

Ibid., at para 131. Lowenfeld, above fn 83, at 97. 90  L/​76, L/​76, adopted on 13 February 1953. 89 

598   Hugo Perezcano Díaz Despite the Safeguards Agreement’s requirement that safeguard measures be applied on an MFN basis (Article 2) and its preclusion of VERs (Article 11), the debate over selective application is not entirely resolved. Certain trade agreements, for instance, require that the other parties of such agreements be excluded from the application of safeguards.91 This has been seen by some WTO Members as in-​line with the Article XXIV derogation of the MFN rule, but other Members argue that it is inconsistent with the Safeguards Agreement that prohibits selective application of safeguards.92

4. Compensation Safeguard measures are a derogation of a WTO Member’s obligations. As such, they alter the balance of tariff concessions or of other rights and obligations that the Members had agreed to. Therefore, they require compensation in order to maintain a level of concessions and other obligations that is substantially equivalent to that which existed between the Member that adopts the safeguard and each of the Members whose trade flows are affected by that measure. Prior to the adoption of the measure, the importing Member must consult with other Members that have a substantial interest as exporters of the product in question and must offer compensation. These consultations would normally be conducted bilaterally, since trade flows will vary by country. If the Members concerned are not able to reach agreement within 30 days, the importing country may nevertheless adopt the safeguard and the respective exporting Member may suspend the application of substantially equivalent concessions or other obligations 90 days after adoption. However, if the safeguard was adopted as a result of an absolute increase in imports, concessions or other obligations may not be suspended during the first three years that the measure is in place.

V.  Concluding remarks Despite their economic inefficiencies, trade remedies have played and continue to play an important role in the world trading system, and it is likely to remain so in the foreseeable future. Even those who advocate their elimination recognize that it is unlikely to happen on a global scale.93 Indeed, even on a smaller scale, few countries have agreed to eliminate them in their mutual trading relations and cases are limited either to markets that are fully or very closely integrated, such as within the European Union,

91  See,

e.g., Article 802 of NAFTA and, more recently, Article 10.2 of CUSMA in the context of a free trade area. See also Article 98 of the Rulings concerning the Application of Safeguard Measures to Imports from Countries that are not Members of the Southern Common Market (Mercosur), adopted by Decision 17/​96 of the Common Market Council, in the context of a customs union. 92 See Appellate Body Report, Argentina –​ Footwear (EC), adopted 12 January 2000, section VI; Appellate Body Report, US –​Line Pipe, adopted 8 March 2002, section IX. 93  See, e.g., Voon, above fn 1, at 627.

Trade Remedies in International Trade    599 or between countries with less important mutual trade flows.94 But perhaps the clearest indication that countries continue to view trade remedies as important tools of international trade is that they have consistently preserved their corresponding WTO rights and obligations in their regional trade agreements and even sought to enhance them to some extent. That is not to say, however, that the world should be complacent. Trade remedies are not a cure for all trade ailments. They are intended to remedy very particular situations and they should be used accordingly. They have not been. The sheer number of dispute settlement cases involving trade remedies is a clear indication. Their use has been progressively —​even if slowly—​disciplined and these efforts should continue, indeed more vigorously.

Further reading J. Barceló III, ‘Antidumping Laws as Barriers to Trade. The United States and the International Antidumping Code’ 57(4) Cornell Law Review (1972) 491–​560 B.A. Blonigen and T.J. Prusa, ‘Dumping and Antidumping Duties’ Working Paper National Bureau of Economic Research (21 September 2015) N. Grimwade, International Trade Policy: A Contemporary Analysis (London: Routledge, 1996) A.F. Lowenfeld, International Economic Law, 2nd edition (Oxford: Oxford University Press, 2008) M. Matsushita, T.J. Schoenbaum, and P.C. Mavroidis, The World Trade Organization: Law, Practice, and Policy, 3rd edition (Oxford: Oxford University Press, 2015) P.C. Mavroidis, The Regulation of International Trade (Cambridge: The MIT Press, 2016) A. Sykes, ‘Trade Remedy Laws’ SSRN Scholarly Paper (1 April 2005) M.J. Trebilcock, and R. Howse, The Regulation of International Trade, 4th edition (London: Routledge, 2012)

94  Ibid., at 667; J. Kasteng and C. Prawitz, Eliminating Anti-​ Dumping Measures in Regional Trade Agreements (Kommerskollegium, 2013), at < http://​www.komm​ers.se/​publik​atio​ner/​Rappor​ter/​2013/​ Elim​inat​ing-​Anti-​Dump​ing-​Measu​res-​in-​Regio​nal-​Trade-​Agr​eeme​nts/​ > (last visited 23 July 2020), at 5.

Pa rt I V

BA L A N C I N G T R A D E A N D N O N -​T R A D E OBJECTIVES

Chapter 22

Dev e l op m e n t, A i d, a n d Pre f e re n t ia l Syst e m s Jan Yves Remy and Alicia Nicholls

I. II.

Introduction 603 ‘Development’ at the multilateral level 605 A. S&DT at the WTO 605 B. The current debate on effectiveness and eligibility of S&DT provisions 608 C. Other approaches to S&DT eligibility 612 D. Recent initiatives and WTO case law 614 III. ‘Development’ in regional trade agreements 615 A. FTAs between developing countries (South-​South) 616 B. FTAs between developed and developing countries (North-​South) 618 C. FTAs between developed countries (North-​North) 622 IV. Conclusion 622

I. Introduction Whatever its precise definition, the concept of ‘development’1 in international economic law and policy has evolved over time. Traditionally, ‘development’ in the WTO 1 A good discussion of the multiple meanings of ‘development’ may be found in S. Rolland, Development at the WTO (Oxford: Oxford University Press, 2012), although the international community has recently adopted the concept of ‘sustainable development’ as the prevailing development paradigm.

604    Jan Yves Remy and Alicia Nicholls has been equated with accommodating the needs of WTO Members, in particular, the poorest ones, so that they are able to reap the promised benefits of global trade. Indeed, the eponymous Doha Development Round was the WTO community’s attempt to ensure the effective and fair implementation of ‘special and differential treatment’ (S&DT) provisions in the WTO-​covered agreements. But the Round’s bleak outlook shows that advancing development concerns in an institution whose mandate is trade liberalization and not development per se is not automatic. Today two-​thirds of the WTO’s 164 Members self-​designate as ‘developing countries’ as distinct from when the GATT 1947 was negotiated.2 The conundrum for the WTO is how to effectively accommodate the needs of the growing number of developing country Members while maintaining the core tenets of the rules-​based multilateral system, namely, reciprocity and non-​discrimination. A new dimension has also crept into the WTO’s ‘development’ lexicon which is reflective of the global preoccupation with pursuing development through a ‘sustainable’ route, that is, by ‘meet[ing] the needs of the present without compromising the ability of future generations to meet their own needs’.3 This is reflected in the 17 Sustainable Development Goals (SDGs), agreed to in 2015 by UN Members as part of the ‘2030 Agenda for Sustainable Development’.4 Aimed at meeting three main objectives—​ economic, social, and environmental—​the 17 SDGs further comprise 169 targets and cover issues like poverty reduction, public health, industry and innovation, climate change, and gender equality which are to be pursued over the period 2016–​2030. A number of global initiatives and efforts were negotiated with the SDGs in mind, including the Paris Agreement5 under the United Nations Framework Convention on Climate Change (UNFCCC). The economic and social fall-​out of the novel coronavirus (COVID-​19) pandemic has given further impetus to finding ways of harnessing trade for sustainable development, and achievement of the SDGs by the 2030 deadline. Beyond preambular language in the WTO Agreement,6 the WTO’s texts make scant mention of sustainability. Indeed, its overarching trade liberalization mandate makes the WTO an unlikely poster child for avidly pursuing ‘sustainable development’ goals as an end in itself. Nonetheless, even the WTO cannot escape consideration of the SDGs. In defined areas of its negotiations, like eliminating fisheries subsidies and promoting women in trade, specific mention of the SDGs is made. Even the WTO’s 2 The

original 23 Contracting Parties were Australia, Belgium, Brazil, Burma, Canada, Ceylon, Chile, China, Cuba, Czechoslovakia, France, India, Lebanon, Luxembourg, Netherlands, New Zealand, Norway, Pakistan, Southern Rhodesia, Syria, South Africa, the United Kingdom, and the United States. 3  ‘World Commission on Environment and Development, ‘Report of the World Commission on Environment and Development: Our Common Future’, 1987, at < https://​sus​tain​able​deve​lopm​ent. un.org/​cont​ent/​docume​nts/​5987​our-​com​mon-​fut​ure.pdf > (last visited 12 October 2019). 4  United Nations, ‘Resolution adopted by the General Assembly on 25 September 2015’, at < http://​ www.un.org/​ga/​sea​rch/​view_​doc.asp?sym​bol=​A/​RES/​70/​1&Lang=​E > (last visited 17 November 2019). 5 UNFCCC, ‘The Paris Agreement’, at < https://​unf​ccc.int/​sites/​defa​ult/​files/​engl​ish_​pari​s_​ag​reem​ ent.pdf > (last visited 17 November 2019). 6  Under the preamble to the WTO Agreement, Members recognize that their relations in the field of trade and economic endeavour should be conducted with a view, inter alia, to allowing for the ‘optimal use of the world’s resources in accordance with the objective of sustainable development’.

Development, Aid, and Preferential Systems    605 work on promoting greater MSME7 participation in world trade stems largely from the international recognition of the business community’s important role in stimulating development.8 That said, the impasse in WTO negotiations has left the WTO rulebook frozen in the realities of the mid-​1990s. Frustration with the slow pace of multilateral rule-​ making has made plurilateralism an attractive alternative within the WTO, while also contributing to the rapid propagation of FTAs outside the multilateral setting. In fact, as of 31 August 2021, there are 350 RTAs notified to the GATT/​WTO and in force,9 including north-​north, north-​south and increasingly, south-​south FTAs. FTAs provide an alternative platform for pursuing ‘development’. Often ‘WTO-​plus’ in their scope and level of commitment, they exhibit novel approaches to S&DT and incorporate explicit sustainable development provisions beyond preambular statements. While agreements incorporating extensive sustainable development provisions remain limited to a handful of countries10, they could provide a glimpse of how the multilateral system might better address development concerns in the future. The remainder of this chapter is divided into two main sections. First, we discuss development approaches taken within the WTO in the context of negotiations as well as in dispute settlement. Given the controversy generated by S&DT eligibility in recent WTO debates, a major part of our discussion centres on these proposals. Prior to concluding, we also consider approaches to S&DT and sustainable development taken in FTAs, with a view to demonstrating the potential approaches that might be taken in the multilateral context.

II.  ‘Development’ at the multilateral level A. S&DT at the WTO Although development in the WTO goes beyond S&DT, this concept remains an important part of the conversation. S&DT is not defined by the WTO but, in essence, it is 7   At the 11th Ministerial Conference in Buenos Aires on 13 December 2017, 88 WTO Members created the Informal Working Group on MSMEs. 8  The role of domestic and international private businesses in helping countries mobilize financing for their attainment of the SDGs is specifically mentioned in the Addis Ababa Outcome document on Financing for Development (paras 35–​49). Moreover, SDG 9, inter alia, speaks to increasing the access of small enterprises, especially in developing countries, to finance and their integration into global value chains. 9  WTO Secretariat, ‘Regional Trade Agreements’, at < https://​rtais.wto.org/​UI/​pub​lics​umma​r yta​ble. aspx​htm > (last visited 31 August 2021). 10 While several countries include sustainable development provisions in their agreements, the European Union has gone further to make trade and sustainable development chapters a staple of its FTA practice. See Section III below.

606    Jan Yves Remy and Alicia Nicholls concerned with the grant of certain preferences and flexibilities to developing countries and LDCs because of their status. As such, S&DT is not an end itself but provides a means for building the capacity of WTO Members so that they can follow through on their trade liberalization commitments. A total of 155 S&DT provisions (183 if provisions are counted more than once) are included across the WTO’s agreements and decisions.11 They can be divided into six main categories: (i) those aimed at increasing the trade opportunities of developing countries; (ii) those under which WTO Members should safeguard the interests of developing countries; (iii) those providing for flexibility of commitments, of action, and use of policy instruments; (iv) those providing transitional time periods; (v) those relating to technical assistance; and (vi) those relating to the LDCs.12 While it has been a cornerstone of the rules-​based multilateral trading system from the days of the GATT 1947, S&DT was not part of the original GATT 1947. Indeed, at the time of the signature of the GATT 1947, the binary categorization of countries as either ‘developed’ or ‘developing’ did not exist. Of the 23 original GATT contracting parties, 11 of them could, by today’s standards, be considered developing, but all parties accepted the same commitments, irrespective of their levels of development.13 The situation began to change with the publication in 1958 of the Haberler Report which found that the limited growth in developing countries was partly due to the protectionism practised by industrialized countries for agricultural goods.14 The initial phase of S&DT focused primarily on import substitution and, later, on securing market access in developed country markets for developing country exports, which were mainly agricultural goods and commodities.15 A watershed moment was the addition of Part IV of the GATT 1947 in 1965 entitled ‘Trade and Development’ which was influenced primarily by three factors, including the publication of the Haberler Report, the establishment of UNCTAD in 1964 and the number of newly independent States which contributed to the preponderance of developing countries in the GATT 1947.16 In 1979, the Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries, commonly referred to as the ‘Enabling Clause’17, was added to the GATT 1947. It did three key things. First, through the Generalized System of Preferences (GSP) it permanently allowed developed countries to accord differential and more favourable treatment to developing countries, as an

11 WTO Secretariat, ‘Special and Differential Treatment Provisions in WTO Agreements and Decisions’ WT/​COMTD/​W239 (12 October 2018). 12  This typology is based on that used by the WTO Secretariat in the report, above fn 12. 13  R. Wilkinson and J. Scott, ‘Developing Country Participation in the GATT: A Reassessment’ 7(3) World Trade Review (2008) 473–​510. 14 GATT, Trends in International Trade: A Report by a Panel of Experts (Geneva, 1958). 15  A. Keck and P. Low, ‘Special and Differential Treatment in the WTO: Why, When and How?’ Staff Working Paper ERSD-​2004-​03. 16 Ibid. 17  The Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries, L/​4903, adopted on 28 November 1979.

Development, Aid, and Preferential Systems    607 exception to the MFN treatment standard under Article I of the GATT 1947 (and later the GATT 1994). Second, it permitted differential and more favourable treatment under the GATT 1947 and under regional or global preferential trade arrangements entered into by less-​developed contracting parties. Third, it reiterated the principle of non-​ reciprocity18 and also introduced the concept of graduation.19 The WTO, with UNCTAD, administers the Generalized System of Preferences (GSPs) under which developed countries can provide unilateral, non-​ reciprocal preferences to products from developing and LDCs, as well as programmes under the Enabling Clause. Together these constitute preferential trade agreements (PTAs) of which 37 have been notified to the WTO.20 As of 2020, thirteen Members have notified their national GSP schemes to the UNCTAD Secretariat.21 At the WTO Ministerial Conferences in Bali22 and Nairobi,23 Members agreed that developed countries and larger developing countries would grant duty-​free and quota-​free access to LDC countries’ exports. As a result, improvements were made to some GSP schemes and new schemes introduced specifically for LDCs. Distinct from the GSPs are the special programs for developing countries which require waivers from the WTO General Council.24 Certain Caribbean countries have benefitted from non-​reciprocal access to the US market for most goods under the Caribbean Basin Initiative and to Canada under the Caribbean-​Canada Agreement (CARIBCAN). The United States also operates the African Growth and Opportunity Act (AGOA) enacted in 2000 which lies at the heart of its economic and political engagement with Africa. It remains debatable whether these non-​ reciprocal preferential schemes have improved development outcomes in beneficiary countries. Several factors impact their effectiveness. First, they are applied unilaterally, meaning that preferences may be changed or withdrawn by the grantor without prior discussion with the beneficiaries. The US GSP, for instance, is renewed periodically by Congress and sometimes lapses.25 18 

Article 5 of the Enabling Clause. Article 7 of the Enabling Clause. 20  WTO Secretariat, ‘List of PTAs’, at < http://​ptadb.wto.org/​ptaL​ist.aspx > (last visited 31 August 2021). 21 These are Australia, Belarus, Canada, the European Union, Iceland, Japan, Kazakhstan, New Zealand, Norway, the Russian Federation, Switzerland, Turkey and the United States. See UNCTAD, ‘About GSP’, at < https://​unc​tad.org/​en/​Pages/​DITC/​GSP/​About-​GSP.aspx > (last visited 21 April 2020). 22 Preferential Rules of Origin for Least-​ Developed Countries—​Bali Ministerial Decision, WT/​ MIN(13)/​42, WT/​L/​917 (7 December 2013). 23  Preferential Rules of Origin for Least-​Developed Countries—​ Nairobi Ministerial Declaration, WT/​MIN(15)/​47, WT/​L/​917 (19 December 2015). 24  In a communication dated 27 June 2019, the United States submitted its request for the General Council to renew the waiver for the CBERA through to 30 September 2025. See G/​C/​W/​765 (27 June 2019). This request was subsequently approved by the General Council. 25 US Federal Register, ‘A Notice by the U.S. Customs and Border Protection on 04/​ 20/​ 2018 —​Renewal of the Generalized System of Preferences (GSP) and Retroactive Application for Certain Liquidations and Reliquidations Under the GSP’, at < https://​www.fede​ralr​egis​ter.gov/​docume​nts/​2018/​ 04/​20/​2018-​08411/​rene​wal-​of-​the-​gene​rali​zed-​sys​tem-​of-​pref​eren​ces-​gsp-​and-​retr​oact​ive-​appl​icat​ion-​ for-​cert​ain > (last visited 12 November 2019). 19 

608    Jan Yves Remy and Alicia Nicholls This creates uncertainty for firms seeking to take advantage of these preferential programs. Second, preferences are political in nature which means that communist States—​like Cuba—​are generally excluded.26 Third, these preferential schemes generally have a low rate of utilization by developing countries largely because they exclude many of the products of particular export interest to developing countries, such as agriculture and textiles. The Caribbean Basin Initiative, for example, does not cover services trade which accounts for most of the trade of Caribbean countries.27

B. The current debate on effectiveness and eligibility of S&DT provisions S&DT has become a polarizing and politically sensitive issue in the WTO, with the debate coalescing around two principal issues: first, the effectiveness of the current S&DT provisions and, second, which countries should be eligible for such treatment. Although they are of course linked, these issues raise specific concerns that have elicited different responses from WTO Members. With respect to effectiveness, developing countries have long felt that the ‘best endeavour’, non-​binding nature of the S&DT provisions in many WTO legal texts renders those provisions too imprecise and abstract to form the content of obligations and be the subject of enforceable rights. While developing countries hold steadfast to the need for blanket S&DT, the extent to which S&DT provisions are actually being utilized by developing country Members remains largely unknown. There is no mechanism which actively monitors Members’ reliance on S&DT provisions across the WTO covered agreements, but there is empirical evidence to suggest that S&DT provisions are not as widely used as believed and that they have not led to the expected outcomes. A report by the UN Committee on Development Policy found that ‘the survey results indicate that some measures are used more than others and that LDCs do not find all measures equally relevant. Special provisions on agriculture, food aid, sanitary and phytosanitary matters receive high priority in most LDCs. But, issues such as import licensing, TRIMS, and customs valuation are considered less important’.28 The survey offered several reasons for underutilization, such as lack of information, limited coordination with development policy and in some cases, poor design of the S&DT provisions themselves. This may warrant a

26 

See section 2702 of the Caribbean Basin Economic Recovery Act (CBERA) which prohibits the US President from designating a communist country as a ‘beneficiary’. 27  The majority are services-​ based economies. Only a few (Belize, Guyana, Haiti and Trinidad & Tobago) are commodities-​exporters. 28  UN, Survey Results on Use and Benefits of Special and Differential Treatment, at < https://​www. un.org/​ldcpor​tal/​sur​vey-​resu​lts-​on-​use-​and-​benef​i ts-​of-​spec​ial-​and-​diffe​rent​ial-​treatm​ent/​ > (last visited 21 April 2020).

Development, Aid, and Preferential Systems    609 comprehensive evaluation of the level of S&DT use by Members, through, for instance, a dedicated study, or as part of each Member’s trade policy review exercise. Moreover, the limited empirical evidence suggests that S&DT has done little to improve countries’ development outcomes.29 The Doha Development Round was in part dedicated to improving the effectiveness of the S&DT provisions and provided a negotiating platform on which developing countries could voice their concerns. Under paragraph 44 of the Doha Ministerial Declaration,30 WTO Members reaffirmed that S&DT provisions ‘are an integral part of the WTO agreements’ and took note of the concerns expressed regarding their operation in addressing specific constraints faced by developing countries, particularly LDCs. They further agreed to review all S&DT provisions ‘with a view to strengthening them and making them more precise, effective and operational’. By 2003, Members (mainly African Group and LDC members) had tabled 88 proposals on S&DT which the Chair of the General Council divided into categories A-​ C according to their likelihood of being accepted by Members. However, there has been limited progress on these proposals. It is, therefore, not unfair to suggest that failure on the Doha Agenda has cost the WTO’s advancement on its development agenda.31 The second, but related, issue concerns which WTO Members should qualify for S&DT. Eligibility for S&DT is currently premised on a country’s self-​designation as a ‘developing country’, unlike the case for LDCs of which the categorization in the WTO is based on the United Nations’ classification, and which has defined graduation metrics.32 The WTO does not define what is a ‘developing country’, nor does it provide any guidelines or criteria according to which countries are developing countries or should self-​declare as such or a basis for graduation. Except for the LDC category, it also does not acknowledge differentiation in the levels of development among developing country Members. Eligibility has, therefore, become contentious in the Doha Round because many developed countries are unwilling to provide additional concessions to larger emerging economies like China, India and Brazil which continue to self-​classify as developing countries and which rival and exceed some developed countries in their share of world trade and world trade GDP. Indeed, it has been increasingly difficult to justify giving the same level of flexibility to large emerging economies as to smaller, less resourced countries like those in the Caribbean and the Pacific whose collective share of world trade does not exceed 1 %.

29 

J. Bacchus and I. Manak, The Development Dimension What to Do about Differential Treatment in Trade (Washington, DC: Cato Institute, 2020), at 13. 30  Doha Ministerial Declaration, WT/​MIN(01)/​DEC/​1 (14 November 2001). 31  J. Bacchus and I. Manak, above fn 29, at 12. 32  As of December 2018, there are 47 countries listed as LDCs by the UN Committee for Development Policy. See < https://​www.un.org/​deve​lopm​ent/​desa/​dpad/​wp-​cont​ent/​uplo​ads/​sites/​45/​publ​icat​ion/​ ldc_​l​ist.pdf > (last visited 21 February 2020).

610    Jan Yves Remy and Alicia Nicholls The issue of eligibility for S&DT has arisen most recently in the context of WTO reform discussions. In separate proposals, the European Union,33 Canada,34 and Norway35 have each proposed a case-​by-​case approach to S&DT eligibility that is based on an assessment of the particular agreement and the needs of the country at issue.36 Under the Trump Administration, the United States had tabled a proposal outlining ‘objective’ criteria for classification and eventual graduation of developing countries. Its approach was undoubtedly driven by its view that larger developing countries like China and India do not belong in the category of developing countries. In its original proposal to the General Council, the United States had enumerated four criteria pursuant to which WTO Members should be excluded from S&DT in current and future WTO negotiations:37

i. A WTO Member that is a Member of the OECD, or a WTO Member that has begun the accession process to the OECD; ii. A WTO Member that is a member of the Group of 20 (G20); iii. A WTO Member that is classified as a ‘high income’ country by the World Bank; or iv. A WTO Member that accounts for no less than 0.5 per cent of global merchandise trade (imports and exports). The United States later revised the proposal to respond to certain criticisms. While still proposing the four exclusionary and non-​cumulative criteria, points (iii) and (iv) were revised with the caveat that, ‘for the three consecutive years immediately prior to the date of this decision or classifies as a ‘high income’ country for a third consecutive year or any three consecutive years thereafter’.38 The United States added that its proposal ‘would not preclude a Member from seeking to address particular needs during a current or future WTO negotiation’.39 33 ‘WTO Modernisation: Introduction to Future EU Proposal’, European Union concept paper (September 2018), at < https://​trade.ec.eur​opa.eu/​doc​lib/​docs/​2018/​septem​ber/​tradoc​_​157​331.pdf > (last visited 17 February 2020). 34 ‘Strengthening and Modernizing the WTO: Discussion Paper: Communication from Canada’, JOB/​GC/​201 (24 September 2018). 35 ‘Pursuing the Development Dimension in WTO Rule-​ Making Efforts: Communication from Norway; Canada; Hong Kong, China; Iceland; Mexico; New Zealand; Singapore and Switzerland’, WT/​ GC/​W/​770/​Rev.3 (26 April 2019). 36  See ‘WTO Modernisation: Introduction to Future EU Proposals’, European Union concept paper (September 2018), at < https://​trade.ec.eur​opa.eu/​doc​lib/​docs/​2018/​septem​ber/​tradoc​_​157​331.pdf > (last visited 17 February 2020). ‘Pursuing the Development Dimension in WTO Rule-​Making Efforts: Communication from Norway; Canada; Hong Kong, China; Iceland; Mexico; New Zealand; Singapore and Switzerland’, WT/​GC/​W/​ 770/​Rev.3 (26 April 2019). 37  ‘Draft General Council Decision: Procedures to Strengthen the Negotiating Function of the WTO’, WT/​GC/​W/​764 (15 February 2019). 38  ‘Draft General Council Decision: Procedures to Strengthen the Negotiating Function of the WTO’, WT/​GC/​W/​764/​Rev.1 (15 November 2019). 39  Ibid., at 2.

Development, Aid, and Preferential Systems    611 Following the tabling of that original proposal, then President Donald Trump had also directed the United States Trade Representative (USTR), on 26 July 2019, to use ‘all available means to secure changes at the WTO that would prevent self-​declared developing countries from availing themselves of flexibilities in WTO rules and negotiations that are not justified by appropriate economic and other indicators’.40 In a statement agreeing with the President’s directive, USTR Robert Lighthizer contended that ‘for far too long, wealthy countries have abused the WTO by exempting themselves from its rules through the use of special and differential treatment’.41 The Trump Administration began using this as a basis for certain decisions, such as the recent changes in respect of which countries are considered ‘developing countries’ and LDCs for the purposes of its countervailing duties law. Relying on per capita GNI, share of world trade and other factors in formulating its updated list, the United States had excluded several countries which currently self-​designate as developing countries for WTO purposes.42 The US proposal was strongly criticized. Some considered it to be ‘a major shift –​from S&DT as an embedded treaty right arising from the fact that a country is in the process of development, to a concession that could be only temporarily provided for, and which is given only when certain conditions have been met’.43 Under the US proposal, the right of countries to decide on their own pace of adjustment to trade rules would have no longer been unabridged, representing a major shift in the balance of rights and obligations across the Membership. Income per capita is an incomplete measure of a country’s level of development.44 For instance, it did not capture these countries’ levels of inequality or susceptibility to external shocks. In response to the US proposal, a group of developing countries45 reiterated S&DT as ‘an integral part of the WTO agreements’ and that the self-​declaration approach best serves WTO objectives. Pointing to a wide array of socio-​economic indicators, 40  The US White House, ‘Memorandum on Reforming Developing Country Status at the World Trade Organization’, at < https://​www.whi​teho​use.gov/​presi​dent​ial-​acti​ons/​mem​oran​dum-​reform​ing-​dev​elop​ ing-​coun​try-​sta​tus-​world-​trade-​organ​izat​ion/​ > (last visited 12 December 2019). 41  Office of the United States Trade Representative, ‘Statement by USTR Robert Lighthizer’, at < https://​ustr.gov/​about-​us/​pol​icy-​offi​ces/​press-​off​i ce/​press-​relea​ses/​2019/​july/​ustr-​rob​ert-​lig​hthi​zer-​ statem​ent > (last visited 12 December 2019). 42 Federal Register, ‘Designations of Developing and Least-​ Developed Countries Under the Countervailing Duty Law’, at < https://​www.fede​ralr​egis​ter.gov/​docume​nts/​2020/​02/​10/​2020-​02524/​ desig​nati​ons-​of-​dev​elop​ing-​and-​least-​develo​ped-​countr​ies-​under-​the-​cou​nter​vail​ing-​duty-​law > (last visited 18 February 2020). 43  A. Kwa and P. Lunenborg, ‘Why the US Proposals on Development will Affect all Developing Countries and Undermine WTO’, South Centre Policy Brief No. 58 (March 2019), at < https://​www.sout​ hcen​tre.int/​wp-​cont​ent/​uplo​ads/​2019/​03/​PB58_​Why-​the-​US-​Propos​als-​on-​Deve​lopm​ent-​will-​Aff​ect-​ all-​Dev​elop​ing-​Countr​ies-​and-​Underm​ine-​WTO​_​EN.pdf > (last visited 24 April 2019). 44  J.J. Cotton, A. Nicholls and J.Y. Remy, ‘Using a Trade Vulnerability Index to Determine Eligibility for Developing-​Country Status at the WTO: A Conceptual Response to The Ongoing Debate—​Working Paper’, SRC Staff Working Paper, at < https://​shrida​thra​mpha​lcen​tre.com/​wp-​cont​ent/​uplo​ads/​2020/​09/​ Usinga​Trad​eVul​nera​bili​tyIn​dex.pdf > (last visited 23 February 2021). 45  ‘The Continued Relevance of Special and Differential Treatment in Favour of Developing Members to Promote Development and Ensure Inclusiveness: Communication from China, India, South Africa,

612    Jan Yves Remy and Alicia Nicholls they noted that a wide gap still existed between developing and developed countries which necessitated the continued bifurcation of global trade rules. They also argued that Article XII Members46 made more extensive commitments when acceding to the WTO than the founding Members. Although supporting S&DT reform, the Norwegian proposal47 noted that ‘aiming at consensus on a negotiated set of criteria for when a developing Member should have access to [S&DT] is neither realistic nor necessarily useful’. However, while there was not widespread support for the US proposal it had led some countries like Taiwan, Brazil, Singapore and South Korea to commit to no longer self-​designate as developing countries in current or future WTO negotiations. Following the Biden Administration’s coming to office in January 2021, the US is no longer tabling this problematic proposal at General Council meetings.

C. Other approaches to S&DT eligibility 1. Vulnerability-​based approaches An older proposal receiving limited traction is the creation of a second subcategory of developing countries, which would be known as ‘Small Vulnerable Economies’ (SVEs) and would be entitled to enhanced flexibilities similar to LDCs. During the Doha negotiations in 2001, Caribbean WTO Members requested that they, among others, be recognized as SVEs for the purposes of the negotiations. Based on technical work undertaken by the United Nations on Small Island Developing States (SIDS) and the Commonwealth Secretariat’s work on small States, they pointed to their vulnerabilities stemming from high levels of trade openness, the concentration of their exports in a few products, high transport costs and limited capacity in general and that this required SVEs to have similar levels of special treatment as LDCs. While WTO Members agreed to a Work Programme on SVEs in accordance with the Doha Declaration of 2001,48 it was agreed in the Hong Kong Ministerial Declaration of 200549 that no official SVE sub-​category would be formed. This hesitance might be explained by many WTO Members’ belief that the characteristics identified with vulnerability are present to various degrees in all developing countries, and that the lack

the Bolivarian Republic of Venezuela, Lao People’s Democratic Republic, Plurinational State of Bolivia, Kenya, Cuba, Central African Republic and Pakistan’, WT/​GC/​W/​765/​Rev. 2 (4 March 2019). 46 

That is, Members which acceded to the WTO pursuant to Article XII of the WTO Agreement. The Norwegian proposal has since been endorsed by several other WTO developed and developing Members: Canada, Hong Kong, Iceland, Mexico, New Zealand, Singapore and Switzerland. See ‘Pursuing the Development Dimension in WTO Rule-​Making Efforts: Communication from Norway; Canada; Hong Kong, China; Iceland; Mexico; New Zealand; Singapore and Switzerland’, WT/​GC/​W/​ 770/​Rev.3 (26 April 2019). 48  Doha Ministerial Declaration, WT/​MIN(01)/​DEC/​1 (14 November 2001). 49  Hong Kong Ministerial Declaration, WT/​MIN(05)/​DEC (18 December 2005), para 41. 47 

Development, Aid, and Preferential Systems    613 of a robust statistical relationship between each of these vulnerability characteristics on the one hand, and the trade performance of the proponents on the other.50 Despite those objections, SVEs have managed to create a space in the negotiations to represent their concerns. However, they have not succeeded in obtaining recognition as an identifiable category of developing countries that deserve special treatment in ongoing negotiations. In a recent spin on the ‘vulnerability’ approach, the current authors have proposed a ‘trade vulnerability index’ as the basis on which to designate a country as ‘developing’ for the purposes of the WTO.51 Such an approach would be based on an already growing empirical literature on vulnerability, would consider objective criteria, and would ensure that only the most vulnerable Members are entitled to S&DT. The authors identified possible trade vulnerability index indicators which were selected from a review of the literature on economic vulnerability and international trade which were then grouped according to a typology and mapped with the relevant S&DT provision. The proxy indicators are, however, indicative and in some instances may need to be verified for significance with econometric or statistical approaches.52

2. Agreement-​based approaches The Trade Facilitation Agreement (TFA) concluded in 2013 heralded a novel needs-​ based approach to S&DT.53 While eligibility for S&DT under the TFA remains contingent on ‘developing country’ or ‘LDC’ status, it is up to a Member to indicate the timing of implementation of provisions according to its implementation capacities and its assistance needs.54 For instance, though China self-​designates as a ‘developing country’, it has notified 94.5 per cent under Category A, 5.5 per cent under Category B and none under Category C.55 TFA implementation, however, has not necessarily been smooth for all WTO Members. While most have notified their Category A and B commitments and have given indicative deadlines for notifying their Category C commitments, some have experienced difficulties in mobilizing financing from donor countries which has complicated completing their Category C notifications. Donors have treated some developing countries, ranked by the World Bank as middle or high income based solely on their GNI per capita, as ineligible for assistance for TFA implementation. One

50  R. Kaukab, ‘Development Effects of the Doha Round on Small Vulnerable Economies (SVEs)’, at < https://​www.cuts-​citee.org/​pdf/​WP09-​01.pdf > (last visited 20 April 2020). 51  Cotton, Nicholls and Remy, above fn 44. 52  Ibid., at 51. 53  Section II of the TFA. 54  Section II of the TFA contains S&DT provisions for developing country Members and LDCs. It envisages that provisions contained in Articles 1 to 12 of the TFA are to be implemented by these countries based on this section. Members are to categorize their ability to implement each provision of the TFA using an A to C box approach. 55  WTO Secretariat TFA Database, ‘Notifications List’, at < https://​tfad​atab​ase.org/​notifi​cati​ons/​list > (last visited 21 April 2020).

614    Jan Yves Remy and Alicia Nicholls Caribbean country, Trinidad and Tobago, had to obtain loan funding for TFA implementation56 which is against the spirit of the TFA. A study on implementation of the TFA in the Asia-​Pacific region found that ‘some developing countries are at risk of losing access to implementation flexibilities and technical assistance, as they have yet to notify definitive dates of implementation of some provisions by the deadline of 22 August 2019’.57 As such, on-​going WTO negotiations which seek to use the TFA’s S&DT approach must consider and find solutions to these implementation challenges.

D. Recent initiatives and WTO case law While development issues can be taken up on an ad hoc basis by any WTO body,58 much of the dedicated work takes place in the Committee on Trade and Development (CTD), and its subsidiary body, the Sub-​Committee on Least-​Developed Countries. The WTO has launched several initiatives aimed at building capacity in its developing country Members. In December 2005, it launched its Aid for Trade Initiative at the Hong Kong Ministerial Conference.59 Based at the WTO Secretariat, the Enhanced Integrated Framework is a global partnership of governments and donor agencies seeking to assist LDCs in using trade for development and poverty reduction.60 While the WTO is tasked with helping Members achieve the 2030 Agenda for Sustainable Development by promoting trade rules which are pro-​growth and pro-​ development,61 its actual SDG work programme remains limited. That said, some efforts have been made to advance the SDGs, including in a WTO publication62 which 56 In 2015, the Inter-​ American Development Bank approved a $ 25 million loan for Trinidad & Tobago’s trade facilitation efforts, including the establishment of the TTBizlink, its single window for trade and business facilitation. See IDB, ‘Trinidad and Tobago to strengthen its trade facilitation processes with help from the IDB’, at < https://​www.iadb.org/​en/​news/​trini​dad-​and-​tob​ago-​str​engt​hen-​ its-​trade-​facil​itat​ion-​proces​ses-​help-​idb > (last visited 30 April 2020). 57  A. Levelu and Y. Duval, ‘Implementation of the WTO Trade Facilitation Agreement in Asia and the Pacific: 2 years on’, ESCAP Trade Insights Issue No. 26, at < https://​www.unes​cap.org/​sites/​defa​ult/​files/​ WTOT​FA_​t​rade​insi​ght-​FINAL.pdf > (last visited 20 April 2020). 58 These include, for example, fisheries subsidies, women and trade and e-​ commerce which correspond to at least one or more of the SDGs. 59 Paragraph 57 of the Hong Kong Declaration provides that ‘Aid for Trade should aim to help developing countries, particularly LDCs, to build the supply-​side capacity and trade-​related infrastructure that they need to assist them to implement and benefit from WTO Agreements and more broadly to expand their trade’. Hong Kong Ministerial Declaration, WT/​MIN(05)/​DEC (22 December 2005). 60  Enhanced Integrated Framework Secretariat, ‘Who we are’, at < https://​www.enh​ance​dif.org/​en/​ who-​we-​are > (last visited 21 April 2020). 61  For instance, the Addis Ababa Action Agenda of the Third International Conference on Financing for Development (Addis Ababa Action Agenda) called on WTO Members ‘to redouble their efforts to promptly conclude the negotiations on the Doha Development Agenda’ and to ‘[place] the needs and interests of developing countries, including least developed countries, at the heart of the Doha Work Programme’ (para 83). 62  WTO Secretariat, ‘Mainstreaming trade to attain the Sustainable Development Goals’, at < https://​ www.wto.org/​engl​ish/​res_​e/​books​p_​e/​sdg_​e.pdf > (last visited April 21, 2020).

Development, Aid, and Preferential Systems    615 examined the role of the WTO and trade in attaining the SDGs and which offered recommendations. Moreover, recent negotiations, like those relating to fisheries subsidies and those taking place pursuant to the Buenos Aires Declaration on Trade and Women’s Economic Empowerment make special mention of the SDGs in their negotiating mandates. Though these are important milestones for the WTO, recent case-​law highlights the inadequacy of existing agreements to comprehensively address sustainability concerns. Among the more controversial decisions was one taken by the Appellate Body in Canada—​Renewable Energy /​Canada—​Feed-​in Tariff Program63 where the limits of the SCM Agreement were exposed. The absence of textual exceptions for the protection of the environment in the SCM Agreement meant that the Appellate Body had to find creative ways to incorporate such elements as part of the definition of ‘market’ in Articles 1 and 14 of the SCM Agreement. The Appellate Body found that a WTO Member could create a new renewable energy market in solar panels and wind turbines within which a feed-​in tariff scheme could operate, without providing a ‘benefit’ for purposes of the SCM Agreement. We are also witnessing recourse by countries to the general exceptions clause to justify their renewable energy schemes. But as they were not drafted with the current environmental issues in mind, they are not fit for purpose. In India –​Solar Panels,64 for instance, the Appellate Body, for the first time in its history, interpreted Article XX(j) as part of India’s (unsuccessful) defence of measures designed to promote its manufacture of solar cells and modules. That provision, however, is concerned with measures taken by Members that are ‘essential to the acquisition or distribution of products in general or local short supply’. India also invoked sub-​paragraph (d) of Article XX as a basis for relying on international environmental instruments with which, it claimed, its domestic measures sought to comply. The Appellate Body held that India could invoke these instruments but noted that they needed to possess a certain degree of normativity, specificity, and enforceability in the domestic legal system. Similarly, the Panel in EU –​Energy Package recognized the security of energy supply as a legitimate regulatory purpose but did so in the context of the ‘public order’ defence under Article XIV(a) of the GATS.65

III.  ‘Development’ in regional trade agreements The present stalemate in the WTO’s negotiating function has accelerated the conclusion of RTAs by both developed and developing countries. These agreements are becoming 63  Appellate Body Reports, Canada –​Renewable Energy /​Canada –​Feed-​in Tariff Program, adopted 24 May 2013. 64  Appellate Body Report, India –​Solar Panels, adopted 14 October 2016. 65  Panel Report, EU –​Energy Package, not yet adopted.

616    Jan Yves Remy and Alicia Nicholls increasingly ‘WTO-​plus’, that is, they surpass existing WTO disciplines in their scope and depth, often covering areas not comprehensively covered under existing multilateral rules. FTAs’ treatment of development outpaces multilateral developments in four main ways. First, some FTAs have become very creative in their approach to S&DT, building it as a permanent feature of the agreement.66 They also allow for greater differentiation among developing countries and for more specific transition periods.67 Second, as stated by one renowned expert in the field, many FTAs now go beyond ‘merely giving lip service to sustainability to including sustainability provisions in the body of the agreement, through detailed chapters, specific paragraphs, or side agreements’.68 Third, the approach to development cooperation in some FTAs is much more explicit, with priority areas and mechanisms for cooperation identified allowing for a more case-​by-​case approach to assistance.69 Fourth, some FTAs have built-​in mechanisms for reviewing their operation, including its development impact. This section examines the treatment of S&DT and sustainable development issues in FTAs between developing countries (South-​South), between developed and developing countries (North-​South) and developed countries (North-​North).

A. FTAs between developing countries (South-​South) S&DT under FTAs between developing countries is often differentiated according to the parties’ levels of development. The first but less common approach is specifically naming those parties to the agreement which qualify for S&DT. The Revised Treaty of Chaguaramas establishing The Caribbean Community including the CARICOM Single Market & Economy (CSME) distinguishes between ‘Less Developed Countries’ and ‘More Developed Countries’ for the purposes of that agreement.70 The Revised Treaty of Chaguaramas creates a special regime for disadvantaged countries, regions, and industries and the Less Developed Countries in order to enhance their prospects for successful competition within the Community, and redress, to the extent possible, any negative impact of the establishment of the CSME’.71 A country’s designation as an LDC for CARICOM purposes is not inconsequential from a jurisprudential standpoint. One 66 

S. Rolland, Development at the WTO (Oxford: Oxford University Press 2012), fn 194.

67 Ibid.

68  P. Draper, N. Khumalo and F. Tigere, Sustainability Provisions in RTAs: Can they be multilateralised? (Geneva: ICTSD and IDB, 2017). 69 Development cooperation is found throughout the CARIFORUM-​ EU Economic Partnership Agreement, while Australian treaty practice generally incorporates cooperation chapters. 70 Article 4 of the Revised Treaty of Chaguaramas. CARICOM also operates a CARICOM Development Fund to provide technical and financial assistance to disadvantaged countries, regions and sectors in the bloc. See < https://​cari​com.org/​insti​tuti​ons/​cari​com-​deve​lopm​ent-​fund-​cdf/​ > (last visited 15 October 2021). 71  Article 142(1) of the Revised Treaty of Chaguaramas. See also the special regime for disadvantaged countries, regions and sectors under Articles 146–​159 and special regime for Less Developed Countries under Articles 160–​167.

Development, Aid, and Preferential Systems    617 of the deciding factors taken into consideration by the Caribbean Court of Justice in its recent Advisory Opinion on the legality of opt-​outs from freedom of movement decisions was that the two Member States requesting the exemption were LDCs for the purposes of the Treaty.72 Also of note is that the Revised Treaty of Chaguaramas does not provide time limits for this S&DT. A second approach to eligibility is that taken in the Common Market for Eastern and Southern Africa (COMESA) which provides for special treatment for Members designated as ‘Least Developed Countries’ by the Authority of the Common Market under that agreement. Unlike the CARICOM Treaty, however, the COMESA Treaty does not ex ante delineate which countries are LDCs. COMESA Members agree to take several measures designed to strengthen the capacities of LDCs and disadvantaged regions to solve their problems.73 COMESA also established a special fund for co-​ operation, compensation, and development ‘for tackling the special problems of under-​ developed areas and other disadvantages arising from the integration process’.74 A third approach to eligibility is based on geographical characteristics, such as whether a State is an island or landlocked. Under the Revised Treaty of the Economic Community of West African States (ECOWAS), Member States agree to grant certain Member States, particularly island and land-​locked States, ‘special treatment in respect of the application of certain provisions [of the Treaty] and to accord them any other assistance that they may need’.75 S&DT under south-​south FTAs often permits shallower and/​or longer liberalization commitments for less developed parties. Under the CARICOM-​Cuba Trade and Economic Cooperation Agreement, which adopts the CARICOM nomenclature of LDCs and more developed countries (MDCs), the pace of liberalization takes particular account of the differences in the levels of development between Cuba and the ‘so-​called’ LDCs of CARICOM.76 Explicit technical cooperation provisions also tend to be standard in many South-​South FTAs in order to promote trade and investment, as well as in certain priority areas like education, technology and culture.77 Some have incorporated sustainable development concerns which go beyond S&DT. The Revised Treaty of Chaguaramas mandates the Community, in collaboration with competent national, regional and international agencies and organizations to promote the development, management and conservation of the fisheries78 and

72 Original Jurisdiction CCJ Application No. AOOJ2019/​ 001 In the matter of a request for an Advisory Opinion by the Caribbean Community pursuant to Article 212 of the Revised Treaty of Chaguaramas and Rule 11.3(1) of the Caribbean Court of Justice (Original Jurisdiction) Rules 2019 -​ [2020] CCJ 1 (OJ) (AO). 73  Article 144 of the COMESA Treaty. 74  Article 150 of the COMESA Treaty. 75  Article 68 of the Revised Treaty of ECOWAS. 76  Article 5 of the CARICOM-​Cuba Trade and Economic Co-​operation Agreement. 77  See, e.g., Article 157 of the COMESA Treaty on technical cooperation, Article 10 of the CARICOM-​ Cuba Trade and Economic Development Agreement. 78  Article 60 of the Revised Treaty of Chaguaramas.

618    Jan Yves Remy and Alicia Nicholls forest resources79 in and among the Member States on a sustainable basis. The COMESA Treaty also requires Member States to cooperate in the sustainable management of their natural resources80 and the environment,81 in the prevention of the illegal trade in toxic and hazardous waste82 and in sustainable wildlife development and management.83 The Chile-​Malaysia FTA84 lists sustainable forest management, among the scope of areas for cooperation between the parties.85 It should be noted, however, that the cooperation chapter is exempted from dispute settlement, which limits enforcement.86 Unlike a growing number of North-​South FTAs, most South-​South FTAs generally do not incorporate explicit gender provisions, although Chile has now made this part of its general treaty practice.87

B. FTAs between developed and developing countries (North-​South) FTAs between developed and developing countries differ in their approaches to S&DT and the inclusion of sustainable development concerns. The United States, for example, uses the North American Free Trade Agreement (NAFTA) as its template for agreements with both developed and developing countries.88 It generally does not provide any significant special treatment for its developing country partners,89 usually reserving special treatment for beneficiaries of its GSP and other unilateral preferential schemes. USMCA, which replaced the NAFTA in July 2020, is a useful indicator of the future US approach to the conclusion of FTAs and its treatment of development.90 While it 79

  Article 61 of the Revised Treaty of Chaguaramas.   Article 123 of the COMESA Treaty. 81  Article 124 of the COMESA Treaty. 82  Article 125 of the COMESA Treaty. 83  Article 126 of the COMESA Treaty. 84  Text of Cooperation Chapter of Chile-​Malaysia Free Trade Agreement, at < http://​www.sice.oas. org/​Trade/​CHL_​MYS/​CHL_​MY​S_​FT​A_​e/​C9_​e.pdf > (last visited 17 February 2020). 85  Article 9.3(2) of the Chile-​Malaysia FTA. 86  Chapter 12 (Dispute Settlement) of the Chile-​Malaysia FTA. 87  On gender provisions in RTAs, see J.-​A. Monteiro, ‘Gender-​related Provisions in Regional Trade Agreements’, WTO Staff Working Paper, at < https://​www.wto.org/​engl​ish/​res_​e/​rese​r_​e/​ersd2​0181​5_​ e.pdf > (last visited 30 April 2020). See also Chapter 23 of this handbook. 88  The NAFTA was concluded among the United States, Canada, and Mexico in 1993 and came into force on 1 January 1994. The United States and Canada already had an FTA called the CUSFTA. 89 Its developing country partners are Colombia (US-​ Colombia FTA), Costa Rica; Dominican Republic; El Salvador; Guatemala; Honduras, Nicaragua (CAFTA-​DR), Jordan (US-​Jordan), Korea (US-​ Korea), Morocco (US-​Morocco), Oman (US-​Oman), Panama (US-​Panama) and Peru (US-​Peru). It is also in talks with Kenya for the negotiation of an FTA. 90  See also Chapter 8 of this handbook. Note that the Canada refers to this agreement as CUSMA and Mexico refers to it as T-​MEC. 80

Development, Aid, and Preferential Systems    619 follows NAFTA closely, one major difference, which is consistent with subsequent US practice, is the inclusion of a dedicated environment chapter which, inter alia, prohibits some of the most harmful fisheries subsidies91 and requires parties to promote the long-​ term conservation of certain marine species.92 In contrast to the United States, the European Union’s treaty practice has been more pro-​development in its dealings with developing country partners. The 2008 European Union-​CARIFORUM Economic Partnership Agreement (CEPA)—​the first of the EPAs signed—​set a new standard in the treatment of S&DT and the incorporation of sustainable development provisions in FTAs. Development cooperation is prevalent throughout the CEPA. Moreover, S&DT is manifested in four forms: (1) differences in obligations, (2) asymmetrically phased implementation schedules, (3) development aid to assist in defraying the cost of implementation, and (4) attaining some commitments that are conditional on technical assistance.93 The S&DT principle in the CEPA is applied not only between the European Union and CARIFORUM but among CARIFORUM countries.94 One of the issues included for cooperation between the European Union and CARIFORUM is on illicit financial activities,95 a development issue which has assumed greater importance in recent years and is recognized in the SDGs.96 The CEPA also contains a built-​in review mechanism for monitoring the agreement’s operation and development impact.97 The first such review in 2014 found no substantial increase in EU-​CARIFORUM trade.98 Among the reasons cited for this limited impact include the global financial and economic crisis of 2008 and supply-​side constraints faced by CARIFORUM firms. A caveat made in the report was the lack of data. While the European Union is currently undertaking a second comprehensive review, a recent independent study again found that ‘the EPA has not substantially improved market entry and export earnings for CARIFORUM States thus far, nor has it redressed the

91 

Article 24.20 of USMCA. See also Chapter 31 of this handbook. Article 24.19 of USMCA. 93  R.L. Bernal, Globalization, Trade, and Economic Development: The CARIFORUM-​ EU Economic Partnership Agreement (New York: Palgrave Macmillan, 2013) 125. 94  Ibid., at 125. 95  Article 237 of CEPA. 96  SDG 16.4 seeks to significantly reduce illicit financial and arms flows, strengthen recovery and return of stolen assets, and combat all forms of organized crime by 2030. 97  Under Article 5 of CEPA, the Parties undertake ‘to monitor continuously the operation of the Agreement . . . in order to ensure that the objectives of the Agreement are realised, the Agreement is properly implemented and the benefits for men, women, young people and children deriving from their Partnership are maximised.’ 98  European Union, ‘Five Year Review of the CARIFORUM-​EU Economic Partnership Agreement Joint Working Document 14 July 2015’, at < http://​trade.ec.eur​opa.eu/​doc​lib/​docs/​2016/​janu​ary/​tradoc​_​ 154​165.pdf > (last visited 30 April 2020). A second review (for the ten-​year period) is currently underway. The report of the ex post evaluation commissioned by the European Commission may be found here: https://​op.eur​opa.eu/​en/​publ​icat​ion-​det​ail/​-​/​publ​icat​ion/​c9cf2​0af-​6788-​11eb-​aeb5-​01aa7​5ed7​1a1/​ langu​age-​en (last visited 19 October 2021). 92 

620    Jan Yves Remy and Alicia Nicholls imbalance in the trade in cultural goods and services between the two parties’.99 This demonstrates that even with extensive S&DT provisions on paper, development is not automatic. The European Union has made sustainable development an important part of its trade policy.100 The European Union’s strategy of incorporating development in its FTAs, regardless of treaty partner, has significantly evolved since the EPA. The ‘Trade for All Strategy’ outlined in the Next Steps for a Sustainable European Future—​European action for Sustainability was adopted after the UN 2030 Agenda.101 The EU-​Korea FTA, signed in 2011 but ratified in 2015, was the first of these new generation EU FTAs to feature a dedicated TSD chapter. Such chapters are now found in subsequent EU FTAs.102 The European Union’s FTAs now include an environment chapter and a trade and sustainable development chapter. The preambles of the TSD chapter in EU FTAs typically note the chapter’s objective of integrating sustainable development into the parties’ trade and investment relationship, in particular labour and environmental aspects of sustainable development. The preambles make specific reference to a number of multilateral sustainable development initiatives and multilateral environmental agreements (MEAs).103 These chapters typically include express provisions on the right of the State to regulate and also impose an obligation on the State not to lower standards to encourage trade or investment. Parties commit to trade and investment favouring sustainable development, biodiversity, sustainable management of forests, trade in timber and timber products, the sustainable use of fisheries resources, and sustainable agriculture. Since then, the substantive provisions of the European Union’s TSD chapters have evolved in their depth and scope. For example, the newest agreements—​the EU-​Mercosur FTA and EU-​Mexico FTA—​include a specific trade and climate change provision in their TSD chapters wherein the parties recognize the importance of pursuing the ultimate objective of the United Nations Framework Convention on Climate Change (UNFCCC) in order to address the urgent threat of climate change and the role of trade to this.104 The parties commit to effectively implement the UNFCCC and the Paris Agreement by 99  M.

Burri and K. Nurse, ‘Culture in the CARIFORUM-​European Union Economic Partnership Agreement: Rebalancing Trade flows between Europe and the Caribbean’ (UNESCO 2019), at < https://​ en.une​sco.org/​cre​ativ​ity/​sites/​cre​ativ​ity/​files/​pol​icyr​esea​rch-​book3-​en.pdf > (last visited 28 April 2020). 100 European Parliament, ‘The future of Sustainable Development Chapters in EU Free Trade Agreements’, at < https://​www.europ​arl.eur​opa.eu/​RegD​ata/​etu​des/​IDAN/​2018/​603​877/​ EXPO_​IDA(2018)603877​_​EN.pdf > (last visited 29 May 2020). 101  European Commission, ‘Communication from The Commission to The European Parliament, The Council, The European Economic and Social Committee and the Committee of The Regions—​Next steps for a sustainable European future European action for sustainability’, at < https://​eur-​lex.eur​opa.eu/​ legal-​cont​ent/​EN/​TXT/​PDF/​?uri=​CELEX:5201​6DC0​739&from=​EN > (last visited 30 April 2020). 102  See the European Union’s FTAs with Canada; Central America; Colombia, Peru, and Ecuador; Georgia; Japan; Mercosur; Mexico; Moldova; Singapore; South Korea; Ukraine and Vietnam. 103  These include Agenda 21, while newer FTAs include reference to Agenda 2030 and the SDGs and the Paris Agreement. 104  Article 6 of the EU-​Mercosur FTA; Article 5 of Chapter XX of the EU-​Mexico FTA.

Development, Aid, and Preferential Systems    621 taking measures that contribute to the implementation of the their respective National Determined Contributions (NDCs). These agreements also include more extensive provisions on sustainable management of marine biological resources and aquaculture, and on trade and responsible management of supply chains. The institutional and monitoring provisions have also evolved. The TSD chapters all provide for the establishment of a TSD committee or sub-​committee and designation of contact points.105 The EU-​Korea FTA provides for a TSD committee and a separate civil society mechanism whereas the EU-​Mexico FTA has a TSD sub-​committee and an in-​built civil society mechanism. Under both agreements, the parties commit to reviewing, monitoring and assessing the impact of the implementation of the agreement on sustainable development.106 In the newer EU-​Mexico FTA, this falls under the TSD sub-​committee’s purview, and the scope of review is also much wider to include policy developments in each party, international developments and stakeholder reviews.107 Finally, the TSD chapters in EU FTAs also include extensive provisions on the settlement of disputes arising under the chapter which require parties to engage in consultations and which establishes a panel of experts. Beyond the EU, Canada also stands out in its efforts to promote the SDGs through its mainstreaming of gender in its FTAs108, including the addition of dedicated Trade and Gender chapters. The updated Chile-​Canada FTA109 was the first to include a dedicated gender chapter, followed by the modernized Canada-​Israel FTA.110 Canada also fought for the inclusion of explicit gender provisions in its chapters in CUSMA’s labour and investment.111 Cooperation and capacity building chapters are common in most Australian FTAs with developing countries,112 and provide for economic and technical cooperation between the parties, and outline priority areas and illustrative forms of cooperation.113 While lacking a general cooperation chapter, the Singapore-​Australia FTA, which is one of the older Australian FTAs, contains an education cooperation chapter aimed at using education to foster people-​to-​people links and bilateral trade and investment between

105 

In the EU-​Korea FTA, it only states that senior officials may serve, but in the newer EU-​Mexico FTA, it specifically states which officials the committee should comprise. 106  Article 13.10 of the EU-​Korea FTA. 107  Article 18 of Chapter XX of the EU-​Mexico FTA. 108  Canada has made the advancement of gender equality a core component of its foreign policy through, for example, its Feminist International Assistance Policy elaborated in 2017. See Government of Canada, ‘Canada’s Feminist International Assistance Policy’, at < https://​www.intern​atio​nal.gc.ca/​world-​ monde/​iss​ues_​deve​lopm​ent-​enjeu​x_​de​velo​ppem​ent/​pri​orit​ies-​priori​tes/​pol​icy-​politi​que.aspx?lang=​ eng > (last visited 20 April 2020). 109  Appendix II—​Chapter N bis—​Trade and Gender of the Chile-​Canada FTA. 110  Chapter 13 of the Canada-​Israel FTA. 111  Articles 14.17 and 23.9 of CUSMA. 112 The Australia-​ China Free Trade Agreement is a notable exception as it does not include a cooperation chapter. 113  See, e.g., Chapter 18 of the Australia-​ Chile FTA, Chapter 16 of the KAFTA, Chapter 16 of the MAFTA, Chapter 20 of the PAFTA, Chapter 22 of the CPTPP.

622    Jan Yves Remy and Alicia Nicholls the two countries.114 Newer generation Australian FTAs, namely the recently concluded Peru-​Australia FTA (PAFTA)115 and the Comprehensive and Progressive Agreement for Trans-​Pacific Partnership (CPTPP)116 are the only two Australian FTAs so far with dedicated development chapters and SME chapters. Under PAFTA, for example, the development chapter provides for joint development activities117 and identifies broad-​ based economic growth,118 women and economic growth,119 and education, science and technology, research and innovation120 as priority areas. The most extensive S&DT provisions in Australian treaty practice reside in the ASEAN-​Australia-​New Zealand FTA (AANZFTA) which, like the CPTPP, comprises parties of varying levels of socio-​economic development, a fact which is recognized in its preamble amongst other provisions as ‘the need for flexibility, including special and differential treatment, especially for the newer ASEAN Member States; as well as the need to facilitate the increasing participation of newer ASEAN Member States in this Agreement and the expansion of their exports, including, inter alia, through strengthening of their domestic capacity, efficiency and competitiveness’. It also allows for commitments by each newer ASEAN Member State to be made in accordance with its individual stage of development.121

C. FTAs between developed countries (North-​North) The extent to which FTAs between developed countries incorporate development provisions depends on the development priorities of the treaty partners. Dedicated environmental chapters are standard in most developed countries’ FTAs, including the United States, Canada, the European Union and Australia, regardless of treaty partner. However, explicit gender provisions and wider sustainability development provisions and chapters remain limited to certain countries.

IV. Conclusion With the stalemate in the Doha Development Agenda, the question arises whether there is any prospect for the multilateralization of the approaches taken to ‘development’ within FTAs and whether there are best practices which could be adopted. 114 

Chapter 15 of the SAFTA. Chapter 22 of the PAFTA. 116  Chapter 23 of the CPTPP. 117  Article 22.6 of the PAFTA. 118  Article 22.3 of the PAFTA. 119  Article 22.4 of the PAFTA. 120  Article 22.5 of the PAFTA. 121  Article 20(d) of the AANZFTA. 115 

Development, Aid, and Preferential Systems    623 Certain factors serve as a constraint on the WTO’s ability to undertake a more ambitious approach to development based on FTA practice. First, only a few countries make a concerted effort to include sustainable development as part of their rule-​making practice. These are primarily developed countries (predominantly the European Union and Canada) which reflect a very specific—​if not one-​sided—​approach to how to incorporate development in FTAs. A second, and related, stumbling block is the resistance by some developing countries to including non-​trade issues in trade agreements which they see as disguised protectionism by developed countries. Third, even the approaches among influential Members are not easily reconciled, since their varied approaches reflect their own development priorities. For instance, the European Union includes special treatment aimed at development in its agreements, whereas the United States does not. Countries’ treaty practice also differs in terms of the specific MEAs to which they make explicit reference. The types of enforcement mechanisms to ensure compliance with the sustainability provisions also differ among the agreements.122 And, fourth, extensive S&DT provisions do not necessarily translate to development outcomes. That said, the development fall-​out from the COVID-​19 pandemic and the current stalemate in the advancement of development in the WTO mean there is much merit, and even an imperative, in exploring the ways in which FTA solutions to these issues could be adapted to a multilateral setting. The inclusion of binding and explicit commitments on sustainable development issues—​gender, the environment, MSMEs—​ is one FTA approach which should be adopted in the WTO setting. On S&DT, eligibility and effectiveness are the most pressing issues at the multilateral level. While the needs-​based approach of the TFA has been welcomed, questions remain about its application, as do other approaches—​like the ‘objective’ criteria approach—​formerly proposed by the United States under the Trump Administration. FTAs deserve consideration since they offer new options for S&DT, including cascading degrees of differentiation among developing countries, concrete development cooperation provisions, a case-​by-​case approach based on the priority needs of countries, and a built-​in review mechanism for monitoring progress on development outcomes.

Further reading J. Bacchus and I. Manak, The Development Dimension What to Do about Differential Treatment in Trade (Washington, DC: Cato Institute, 2020) R. Bernal, Globalization, Trade and Economic Development: The CARIFORUM-​EU Economic Partnership Agreement (New York: Palgrave MacMillan, 2013) H.-​J. Chang, Kicking Away the Ladder: Development Strategy in Historical Perspective (London: Anthem Press, 2005)

122 In some, like the CARIFORUM-​ EU EPA, a CARIFORUM-​ EC Consultative Committee on environmental issues is used for consultations and monitoring as per Article 189 of that agreement, while in the US-​Peru FTA (Article 18.6) it is an Environmental Affairs Council.

624    Jan Yves Remy and Alicia Nicholls P. Draper, N. Khumalo and F. Tigere, Sustainability Provisions in RTAs: Can They Be Multilateralised? (Geneva: ICTSD and IDB, 2017) M. Matsushita, T.J. Shoenbaum, P.C. Mavroidis and M. Hahn, The World Trade Organization: Law, Practice, and Policy, 3rd edition (Oxford: Oxford University Press, 2015) S. Rolland, Development at the WTO (Oxford: Oxford University Press, 2012) J. Sachs, The Age of Sustainable Development (New York: Colombia University Press, 2015) UNCTAD, Trading into Sustainable Development: Trade, Market Access, and the Sustainable Development Goals (Geneva: United Nations, 2016) World Commission on Environment and Development (WCED), Report of the World Commission on Environment and Development: Our Common Future (New York: United Nations, 1987) World Summit on Sustainable Development, Plan of Implementation of the World (New York: United Nations, 2002) A. Beviglia Zampetti and J. Lodge (eds), The CARIFORUM-​ EU Economic Partnership Agreement: A Practitioner’s Analysis (The Hague: Kluwer Law International, 2011)

Chapter 23

Pro g re s si v e T r a de : L a b ou r a n d G e n de r Marcus Gustafsson * and Amrita Bahri **

I. II.

Introduction 626 Trade and labour 627 A. Parallel worlds: a brief history of two governance systems 628 B. The return of labour standards 629 C. Enforcement and effectiveness 635 D. An emerging trade-​labour linkage 637 III. Trade and gender equality 639 A. Introduction 639 B. Multilateral initiatives 639 C. Bilateral/​regional initiatives 643 D. What is gender mainstreaming? 644 E. Benefits and best practice examples of gender mainstreaming in FTAs 645 IV. Conclusion 648

* 

The information and views set out in this article are those of the author and do not necessarily reflect the official opinion of the European Commission. He would like to thank Iryna Polovets, Victor Crochet and James Flett for helpful comments on an earlier draft. **  The author would like to thank her research assistant Aarushi Mittal for her help with edits and citations.

626    Marcus Gustafsson and Amrita Bahri

I. Introduction Both gender equality and labour concerns, sometimes referred to as ‘non-​trade issues’, are largely excluded from the WTO rulebook. Yet, because trade ultimately affects and is affected by both labour and gender concerns, they have found a place in existing bilateral and regional FTAs.1 Moreover, they are inseparable sides of the same coin since labour provisions such as workers’ rights, reasonable work hours, parental leave or childcare, occupational safety and health, minimum wage, and anti-​discrimination directly impact female workers. These issues are related to an extent that multiple trade agreements have incorporated these concerns into one single legal provision. For instance, the Canada-​Ukraine FTA provides for the elimination of discrimination in respect of employment and occupation based on gender.2 Likewise, in the Canada-​Costa Rica Agreement on Labour Cooperation, an agreement adopted alongside the two States’ FTA, the parties confirm that their domestic laws, regulations, procedures and practices shall reflect labour standards including elimination of discrimination and equal pay for women and men.3 These examples show the inter-​relation between these concerns. There are, however, various differences in the way labour and gender provisions are drafted and incorporated in existing trade agreements. The first difference lies in the sheer number of existing FTAs that include such provisions. Over 30 per cent of FTAs in force include labour provisions but only around 20 per cent accommodate gender equality concerns (sometimes equating them with labour concerns).4 Moreover, the language of these provisions is very different. While many labour provisions are drafted as binding legal obligations with the use of ‘hard’ verb constructions, most of the gender equality provisions are drafted with non-​mandatory verb and ‘soft’ permissive grammatical constructions.5 Almost all FTAs have explicitly and unambiguously excluded gender-​related provisions and chapters from the application of their dispute settlement machineries, rendering these provisions less enforceable than most labour provisions. These differences indicate that trade policy instruments have accommodated both 1  The term ‘free trade agreements’ or ‘FTAs’ in this chapter is used to refer to all international trade agreements (except the WTO multilateral agreements) and may include regional trade agreements, plurilateral agreements, bilateral agreements, preferential agreements, economic partnership agreements, and such others. 2  Annex 13-​A of the Canada-​Ukraine FTA. Similar provisions can be found in the Canada-​Honduras FTA, the Canada-​Columbia FTA and the Canada-​Panama FTA. 3  Agreement on Labour Cooperation Between the Government of Canada and the Government of the Republic of Costa Rica. 4  Authors’ calculations. 5 R. Bhala and C.N. Wood, ‘Two Dimensional Hard-​ Soft Law Theory and the Advancement of Women’s and LGBTQ+​Rights Through Free Trade Agreements’ 47(2) Georgia Journal of International and Comparative Law (2019) 299, at 306 (the authors state that most gender related commitments in USMCA and CPTPP are aspirational and non-​binding, and hence non-​enforceable, and that they are sometimes drafted with vagueness and ambiguity, and so they are susceptible to myriad interpretations).

Progressive Trade: Labour and Gender    627 labour and gender concerns, but they have developed a larger appetite for labour standards than for gender issues. This might be, in part, because labour, as one of three main manufacturing inputs together with capital and raw materials, is seen as a trade-​ germane interest. That might not be the case for other ‘supposedly’ non-​trade-​germane social concerns such as gender equality.6 Another probable reason is the long relationship between trade and labour standards, stretching at least as far back as the founding of the ILO, and possibly all the way back to the colonial slave trade.7 This chapter provides an overview of the growing influence of both labour standards and gender equality concerns in contemporary trade debates, and in particular how existing FTAs have increasingly accommodated both types of issues. In the following sections, the chapter will first chart out the relationship between trade and labour and thereafter discuss the nexus between trade and gender concerns.

II.  Trade and labour The trade-​labour relationship can be characterized in three main ways: in terms of the link between the trade in goods and labour standards; in terms of labour trade flows, that is, migration and the trade in services;8 and finally, in terms of the effect of trade liberalization on employment. Although these three aspects are interlinked, assessing the employment effects of trade liberalization is mainly a task for economists rather than lawyers.9 This section will thus focus primarily on the first type of relationship, and to a limited extent on the second. The first subsection recalls the recent history of how the global trade and labour governance frameworks developed following World War II. This history is necessary to understand why recent developments in the area of trade and labour have emerged from a surge of labour chapters in FTAs. The second subsection explores these developments by outlining and comparing labour chapters of several FTAs. The third subsection then analyses the impact and enforcement mechanisms in those labour chapters. Finally, the section concludes by noting that the number, scope, and potential for enforcement 6  D.

LeClercq, ‘The Disparate Treatment of Rights in Trade’ 90 Fordham Law Review (2021) 1 (the author notes that this appetite depends largely on whether the non-​trade concerns are related to trade and whether they impact production or trade costs). 7  A. Smith, J. Harrison, L. Campling, B. Richardson, and M. Barbu, Free Trade Agreements and Global Labour Governance (Abingdon: Routledge, 2021), at 16–​18. 8  For an overview of labour and migration aspects in the GATS, see S. Charnovitz, ‘The (Neglected) Employment Dimension of the World Trade Organization’ in V.A. Leary and D. Warner (eds), Social Issues, Globalisation and International Institutions (Leiden: Brill, 2006) 157, at 133–​135. The welfare gain from reducing barriers to migration remain substantial, see World Bank, Moving for Prosperity: Global Migration and Labor Markets (Washington, DC: World Bank Group, 2018) at 1. 9  See, e.g., ILO, Handbook on assessment of labour provisions in trade and investment arrangements (Geneva: ILO, 2017) 25–​30. The OECD has published several studies on the subject, at < https://​www. oecd.org/​trade/​top​ics/​trade-​and-​jobs/​ > (last visited 14 June 2021).

628    Marcus Gustafsson and Amrita Bahri of labour provisions have all increased, and offers some reflections on the factors that appear to be driving these developments.

A. Parallel worlds: a brief history of two governance systems In the aftermath of World War II, the third Bretton Woods institution originally intended to govern international economic relations, alongside the IMF and the World Bank, was the International Trade Organization.10 Article 7 of its charter stated that ‘all countries have a common interest in the achievement and maintenance of fair labour standards related to productivity, and thus in the improvement of wages and working conditions as productivity may permit’, and gave the ILO a consultative role.11 However, the putative members were unable to reach an agreement and the rules on trade in goods were extracted and re-​packaged as the GATT 1947. Labour standards were largely ignored but for Article XX(e) of the GATT, which permits the restriction of imports of goods made using prison labour.12 As a consequence, global trade governance under the GATT 1947, and global labour governance led by the ILO, developed more or less in parallel during the twentieth century. In 1983, the United States started experimenting with tying labour standards to trade preferences under the Caribbean Basin Economic Recovery Act, which offered unilateral tariff treatment to several regional partners.13 In 1986, such conditionality was extended to its general tariff preferences (GSP) program.14 The European Union followed suit in the 1994 reform of its own GSP program.15 However, developing countries were staunchly opposed to linking labour standards with trade, mainly due to fears of potential protectionism.16 Having kept labour issues out of the negotiations that led to the creation of the WTO in 1995, the issue came to the forefront during the first WTO Ministerial Meeting in Singapore in 1996. In a victory for developing countries, the introduction of a ‘social clause’ was rejected by WTO Members. Instead they agreed on the following statement: 10 C. VanGrasstek, The History and Future of the World Trade Organization (Geneva: WTO, 2013) at 40. 11  Havana Charter for an International Trade Organization (Havana Charter, ITO Charter 1948) (United Nations [UN] Doc E/​CONF.2/​78). 12  Note however that import restrictions related to labour standards, child and forced labour may also be possible to justify under the public morals exception in Article XX(a) of the GATT 1994, or Article XIV(a) of the GATS. See the further discussion regarding these provisions in the context of gender at fns 112–​123 and accompanying text below. 13  Caribbean Basin Economic Recovery Act, 1983, 97 Stat. 369. 14  Smith et al, above fn 7, at 27–​30. 15  Ibid., at 30. 16 R. Howse, B. Langille and J. Burda, ‘The World Trade Organization and Labour Rights: Man Bites Dog’ in V.A. Leary and D. Warner (eds), Social Issues, Globalisation and International Institutions (Leiden: Brill, 2006) 157, at 174–​182.

Progressive Trade: Labour and Gender    629 We renew our commitment to the observance of internationally recognized core labour standards. The International Labour Organization (ILO) is the competent body to set and deal with these standards, and we affirm our support for its work in promoting them. We believe that economic growth and development fostered by increased trade and further trade liberalization contribute to the promotion of these standards. We reject the use of labour standards for protectionist purposes, and agree that the comparative advantage of countries, particularly low-​wage developing countries, must in no way be put into question. In this regard, we note that the WTO and ILO Secretariats will continue their existing collaboration.17

Although the debate around a trade-​labour linkage has continued, the WTO has avoided serious engagement on this issue ever since, despite the acknowledgement in its Preamble that ‘trade . . . should be done with a commitment to raising living standards and ensuring full employment . . .’.18

B. The return of labour standards Despite its rejection of a trade-​ labour linkage, the 1996 Ministerial Declaration nevertheless contains an unequivocal recognition of the importance of ‘core labour standards’. The then ILO Director-​General, Michel Hansenne, seized on this recognition, as well as the recognition of the ILO as the competent body, to seek to revitalize the organization’s standard-​setting agenda.19 As a result, in 1998, ILO Members adopted the Declaration on Fundamental Principles and Rights at Work (‘1998 Declaration’).20 The 1998 Declaration recognizes four ‘principles concerning fundamental rights’, namely: freedom of association and the right to collective bargaining; elimination of forced labour; elimination of child labour; and elimination of workplace discrimination. The recognition of the ‘principles concerning fundamental rights’, as well as the designation of seven (now eight) Conventions as ‘fundamental’,21 was not uncontroversial.22 Nevertheless, references to the Declaration and fundamental labour standards rapidly proliferated across a range of FTAs among ILO Members interested in taking 17 

Singapore Ministerial Declaration, (WT/​MIN(96)/​DEC) (adopted, 13 December 1996), Article 4. Recital 1 in the preamble to the WTO Agreement. 19  ILO, ‘The ILO, standard setting and globalization—​Report of the Director-​General’, (1997), at < https://​www.ilo.org/​pub​lic/​engl​ish/​standa​rds/​relm/​ilc/​ilc85/​dg-​rep.htm#I.%20LAY​ING%20THE > (last visited 14 June 2021). 20 ILO, ILO Declaration on Fundamental Principles and Rights at Work and its Follow-​up, adopted by the International Labour Conference at its Eighty-​sixth Session, Geneva, 18 June 1998. 21  ILO, ‘History of the ILO: ILO Declaration on Fundamental Principles and Rights at Work’, at < https://​libgui​des.ilo.org/​c.php?g=​657​806&p=​4649​148 > (last visited 14 June 2021). 22 See P. Alston, ‘ “Core Labour Standards” and the Transformation of the International Labour Rights Regime’ 15 European Journal of International Law (2004) 457, and the response by F. Maupain, ‘Revitalization Not Retreat: The Real Potential of the 1998 ILO Declaration for the Universal Protection of Workers’ Rights’ 16 European Journal of International Law (2005) 439. 18 

630    Marcus Gustafsson and Amrita Bahri on-​board labour concerns. The ILO reports that, by 2019, 85 of the 293 FTAs notified to the WTO contained labour provisions.23 Of these, around two thirds refer to the 1998 Declaration, around a fifth to the Worst Forms of Child Labour Convention, and around a tenth to the ILO Decent Work Agenda, the 2008 Social Justice Declaration, or to the eight fundamental Conventions.24 References to the fundamental Conventions are particularly common in EU FTAs, and were even introduced in a recent reform of its anti-​dumping instrument.25 In 2019, 18 of the European Union’s 42 FTAs contained labour chapters.26 Other prolific users of labour provisions are the United States and Canada.27 As with the introduction of a labour linkage in its GSP program, the United States was a pioneer in including labour standards in trade agreements. In 1994, it secured agreement on the North American Agreement on Labour Cooperation (NAALC) as an annex to NAFTA. All subsequent US FTAs have directly incorporated labour clauses.28 These have tended to refer to the 1998 Declaration. However, given that the United States has only ratified two fundamental ILO Conventions, its focus has been on the establishment and maintenance of domestic legal processes rather than the incorporation of international standards.29 Therefore, the core obligation in most US FTA labour chapters reads ‘[a]‌Party shall not fail to effectively enforce its labour laws, through a sustained or recurring course of action or inaction, in a manner affecting trade [or investment] between the Parties . . .’30 In earlier FTAs, such as the 2005 Dominican Republic–​Central America Free Trade Agreement (CAFTA-​DR), this is the only labour provision subject to dispute settlement. On the other hand, that agreement also allows a party to demand monetary payments from the party found in breach in function of the severity of the breach and as long as the breach persists (albeit limited to 15 million USD per year).31 Subsequent FTAs negotiated by the United States did away with this type of compensation, but widened the scope of dispute settlement to the entire labour chapter,32

23 ILO, Labour provisions in G7 trade agreements (Geneva: ILO, 2019), at 15. 24 

Ibid., at 14. 1(4)(b) and 1(5)(c) of Regulation (EU) 2018/​825 of the European Parliament and of the Council of 30 May 2018, OJ 2020 L 143, p. 1. 26  ILO, above fn 23, at 15. 27  Ibid., at 15. 28  Smith et al, above fn 7, at 35. 29  J. Harrison, ‘The Labour Rights Agenda in Free Trade Agreements’ 20 Journal of World Investment & Trade (2019) 705, at 716. 30  Article 16.2.1.a of the CAFTA-​DR; Article 17.31.a of the US-​Colombia Trade Promotion Agreement (TPA); Article 19.5.1 of the CPTPP. 31  Articles 16.6.6; 20.17; 20.18.2 of the CAFTA-​ DR. Canada has used a similar approach, see, e.g., Articles 20(4) and (5). Canada-​Colombia Agreement on Labour Cooperation. 32  For a helpful overview, see C. Cimino-​Isaacs, ‘Labour Standards in the TPP’ in C. Cimino-​Isaacs and J.J. Schott (eds), Trans-​Pacific Partnership: An Assessment (Washington, DC: PIIE, 2016) 261, at 286–​287. 25  Articles

Progressive Trade: Labour and Gender    631 including provisions on court access and due process.33 Moreover, later FTAs require that the parties ‘shall adopt and maintain’ what is referred to as the four ‘rights’34 of the 1998 ILO Declaration.35 In addition, labour chapters in US FTAs invariably establish a Labour Affairs Council made up of cabinet level officials and designated national contact points, responsible for coordination and implementation.36 The US approach was transposed to the TPP. It was not further changed by the eleven countries who incorporated the TPP into the CPTPP, following the United States’ withdrawal from the former. Compared to previous US FTAs, the CPTPP adds an obligation to adopt regulations governing ‘acceptable conditions of work’ concerning ‘minimum wages, hours of work, and occupational safety and health’.37 Moreover, Article 19.6 extends the goal of eliminating forced labour among the FTA members, to also discourage the importation of goods produced through forced labour in non-​Member countries. The CPTPP also establishes a consultative body of civil society stakeholders, and an opportunity for individuals to make public submissions on any issues arising under the labour chapter.38 The innovations introduced in the CPTPP were maintained between the United States, Canada and Mexico in the USMCA.39 Notably, the United States had negotiated bilateral ‘labour plans’ under the TPP with Vietnam, Brunei, and Malaysia containing extensive commitments to improving domestic labour standards.40 These were shelved under the CPTPP, but the USMCA contains a similar annex requiring Mexico to pass laws protecting collective bargaining rights.41 In other respects, the USMCA goes further than the CPTPP or any other FTA to date. A major innovation is a ‘rapid response labour mechanism’.42 This mechanism allows FTA members to file complaints 33 

See, e.g., Article 16.3 of the CAFTA-​DR; Article 17.4 of the US-​Colombia TPA. See also Article 19.8 of the CPTPP. 34  Whether the ILO Declaration refers to ‘rights’ or ‘principles’ is not clear, see J. Agustí-​Panareda, F.C. Ebert, and D. LeClercq, ‘ILO Labor Standards and Trade Agreements: A Case for Consistency’ 36 Comparative Labor Law & Policy Journal (2015) 347, at 363–​367. 35  See, e.g., Articles 17.2 and 17.4 of the US-​Colombia TPA. See also Articles 19.3 and 19.8 of the CPTPP. 36  Articles 16.4 and 16.5 of the CAFTA-​DR; Articles 17.5 and 17.6 of the US-​Colombia TPA. See also Article 19 of the TPP. 37  Article 19.3.2 of the CPTPP. 38  Articles 19.9 and 19.14 of the CPTPP. See also Articles 19.10 (‘Cooperation) and 19.11 (‘Cooperative Labour Dialogue’) of the CPTPP. 39   Known as the USMCA in the United States, CUMSA in Canada, and TMEC in Mexico. See also Chapter 8 of this handbook. 40  Cimino-​Isaacs, above fn 32, at 271–​274; Congressional Research Service, ‘Worker Rights Provisions and U.S. Trade Policy’, (16 July 2021), at < https://​crs​repo​rts.congr​ess.gov/​prod​uct/​pdf/​R/​R46​842#page=​ 43&zoom=​100,116,597 > (last visited 14 June 2021), at 27. 41  Annex 23-​A of the USMCA. See further D.A. Gantz, An Introduction to the United States-​Mexico-​ Canada Agreement (Cheltenham: Edward Elgar Publishing, 2020), at 76–​78. 42  Annexes 31-​A and 31-​B of the USMCA. These apply between the United States and Mexico, and Canada and Mexico, respectively. See further K. Claussen, ‘A First Look at the New Labour Provisions in the USMCA Protocol of Amendment’ IELP blog (12 December 2019), at < https://​ielp.worldt​rade​law. net/​2019/​12/​a-​first-​look-​at-​the-​new-​labor-​pro​visi​ons-​in-​the-​usmca-​proto​col.html > (last visited 14 June 2021).

632    Marcus Gustafsson and Amrita Bahri of a possible ‘denial of rights’ of free association and collective bargaining at individual facilities of another member. The complaint is adjudicated by a three-​person panel under strict deadlines. The mechanism also envisages domestic processes being put in place in order for individuals to bring evidence of denial of rights to the attention of their governments. The first two cases under this mechanism were initiated in May 2021.43 The potential for enforcement is also enhanced by language lowering the threshold for when violations of labour rights and standards are presumed to ‘affect trade’, and thus can be subject to the agreement’s dispute settlement. This responds to what had been perceived as an overly onerous standard44 imposed by the panel in the US-​Guatemala dispute under the CAFTA-​DR.45 The Panel had found that trade was only affected by the non-​application of labour laws if exporting producers could be shown to have acquired a competitive advantage, and that the United States had failed to show this.46 The clarifications in the USMCA suggest that the mere trading or production of competing goods is sufficient to show trade affectation, and introduces a rebuttable presumption that any derogation from labour laws does affect trade and investment.47 Two other developments are worth mentioning. First, Article 23.8 of USMCA extends labour rights protection to migrant workers. Second, trucks and passenger vehicles are only considered as originating in a USMCA member, and thereby eligible for preferential tariff treatment, if the wage rate is at least USD 16/​hour.48 This marks the first time that rules of origin are used to set definitive minimum wage conditions on certain goods.49 The other major user of labour chapters in its trade agreements is the European Union. Compared to the United States, all of the EU Member States have ratified the fundamental ILO Conventions.50 It is therefore surprising to find that, just as under the GSP program, the European Union has been playing catch-​up on the inclusion of labour provisions in its FTAs. Research suggests that the European Union has tended to take a less confrontational approach to labour enforcement.51 Where the United States openly

43 

Congressional Research Service, above fn 40, at 36–​37. Harrison, above fn 29, at 719, and Chapter 8 of this handbook, where the authors note that Article 31.11 of the USMCA responds to the US-​Guatemala dispute by allowing the use of anonymous testimony. 45  In re Guatemala—​Issues Relating to the Obligations (U.S. v. Guatemala), Final Report, CAFTA-​DR Arb. Panel (14 June 2017) (US-​Guatemala Panel), at < http://​www.sice.oas.org/​tpd/​usa_​ca​fta/​Dis​pute​_​ Set​tlem​ent/​final_​panel_​repo​rt_​g​uate​mala​_​Art​_​16_​2_​1_​a_​e.pdf > (last visited 14 June 2021). 46  US-​Guatemala Panel, paras 190, 196, 501, 503–​507. 47  Footnotes 4–​5 and 8–​14 to Articles 23.3–​23.5 and 23.7 of the USMCA. 48  Chapter 4, Annex 4-​B, Appendix, Article 7.3(a) of the USMCA. 49  F.C. Ebert and P.A. Villarreal, ‘The renegotiated ‘NAFTA’: what is in it for labour rights?’ EJIL: Talk! (11 October 2018), at < https://​www.ejilt​alk.org/​the-​reneg​otia​ted-​nafta-​what-​is-​in-​it-​for-​lab​our-​rig​hts > (last visited 14 June 2021). 50  ILO, ‘Ratifications by country’, at < https://​www.ilo.org/​dyn/​norm​lex/​en/​f ?p=​1000:11001:::NO::: > (last visited 14 June 2021). 51  Smith et al., above fn 7, at 129–​133; ILO, Social Dimensions of Free Trade Agreements (Geneva: ILO, 2015), at 69. 44  See

Progressive Trade: Labour and Gender    633 admits that labour chapters are a tool to even the playing field, the European Union has emphasized its support for sustainable development and universalist aspirations.52 In fact, since the 2011 EU-​Korea FTA, the European Union has merged its labour and environmental chapters into a joint ‘sustainable trade’ chapter (except in CETA).53 Furthermore, although those chapters are subject to dispute settlement, they preclude any suspension of trade benefits in response to violations.54 The European Commission has suggested that a sanctions-​based approach might be less effective; that it is difficult to assess the harm caused by breaches of sustainable trade provisions; that sanctions would therefore mean narrowing the scope of the sustainable trade chapters; and that it would not be acceptable to trading partners.55 Moreover, EU agreements have included less strict references to the implementation of specific labour standards into domestic law, relying instead on a reaffirmation of the 1998 Declaration56 and an obligation to make ‘continued and sustained efforts’ to ratify and implement all fundamental ILO Conventions.57 EU agreements have traditionally also contained no requirements to provide for due process and effective legal remedies under domestic law, except in CETA.58 Nevertheless, the differences between the EU and US approaches should not be overemphasized.59 Both refer to the rights or principles of the 1998 Declaration, prohibit derogation from or weakening of enacted laws,60 provide for dialogue and cooperation at both the governmental and non-​governmental levels,61 and for recourse to a panel of experts to settle disputes. Recent EU agreements also add clauses similar to the CPTPP, protecting worker safety and health, providing for ‘minimum employment standards’ and ‘non-​discrimination in respect of working conditions, including for 52 

Harrison, above fn 29, at 717, 724. See also M. Bronckers and G. Gruni, ‘Retooling the Sustainability Standards in EU Free Trade Agreements’ 24 Journal of International Economic Law (2021) 25, at 25, 32, 33, 37, 40. 53  See, e.g., Chapter 12 of the EU-​Singapore FTA; Chapter 13 of the EU-​Vietnam FTA. 54  See, e.g., Article 13.16 of the EU-​Korea FTA; Article 12.16.1 of the EU-​Singapore FTA; Article 13.16.1 of the EU-​Vietnam FTA. 55  EC Non-​Paper, ‘Feedback and way forward on improving the implementation and enforcement of Trade and Sustainable Development chapters in EU Free Trade Agreements’ (26 February 2018), at < https://​trade.ec.eur​opa.eu/​doc​lib/​docs/​2018/​febru​ary/​tradoc​_​156​618.pdf > (last visited 14 June 2021), at 3. See further G.M. Durán, ‘Sustainable Development Chapters in EU Free Trade Agreements: Emerging Compliance Issues’ 57 Common Market Law Review (2019) 1031, at 1058–​1065, and the contrary view in Bronckers and Gruni, above fn 52, at 37–​50. 56  See, e.g., the first sentence of Article 23.3.1 of CETA (‘Each Party shall ensure that its labour law and practices embody and provide protection for the fundamental principles and rights at work which are listed below’) is not present in other EU agreements. 57  See, e.g., Articles 13.4.2–​13.4.4 of the EU-​Viet Nam FTA; Article 13.4.3 of the EU-​Korea FTA. 58 Article 23.5 of CETA, demonstrating Canada’s influence in the negotiations. But see also the discussion at fn 68 below. 59  Smith et al., above fn 7, at 36. 60  See, e.g., Article 13.7 of the EU-​Korea FTA; Article 13.3 of the EU-​Vietnam FTA; Articles 23.4 and 23.5 of the USMCA. See also Bronckers and Gruni, above fn 52, at 30–​32. 61  Although an innovation in the USMCA, this has been a mainstay in EU FTAs, see Smith et al., above fn 7, at 42–​43.

634    Marcus Gustafsson and Amrita Bahri migrant workers’, with reference to the ILO Decent Work Agenda and 2008 Declaration on Social Justice.62 However, the recent EU-​UK Trade Cooperation Agreement (TCA),63 negotiated following Brexit, has adapted the traditional EU approach in certain respects. On the one hand, the TCA includes the traditional references to the promotion of ILO labour standards seen in other recent EU agreements, and these remain subject to panel arbitration but are excluded from retaliation.64 On the other hand, the TCA contains a ‘non-​regression’ provision whereby the parties agree not to ‘weaken or reduce, in a manner affecting trade or investment between the Parties, its labour and social levels of protection below the levels in place [on 31 December 2020], including by failing to effectively enforce its law and standards.’65 This resembles traditional non-​derogation clauses, but is more extensive.66 In particular, ‘enforcement’ includes ‘an effective system of labour inspections’, the availability of ‘administrative and judicial proceedings’, and ‘appropriate and effective remedies, including interim relief, as well as proportionate and dissuasive sanctions’.67 This more closely approximates the US or Canadian approach, as also reflected in CETA.68 Notably, the non-​regression clause, which also exists with respect to environmental commitments, does allow for suspension of benefits in case a panel finds the TCA has been violated.69 In addition, the TCA contains a ‘rebalancing’ clause. If ‘material impacts on trade or investment . . . are arising as a result of significant divergences’ in the areas of ‘labour and social, environmental or climate protection’, ‘either Party may take appropriate rebalancing measures to address the situation.’70 These measures can be taken after 14 days of consultation, unless the other party requests the establishment of an arbitration panel. The panel must rule on the legality of the proposed rebalancing measures within 30 days. If the panel fails to do so, the measures can be imposed three days later and the other party may take proportionate countermeasures.71 This ensures that the rebalancing measures are not held up due to panel delays.72

62 

See, e.g., Article 4.10 of the (draft) EU-​Mercosur FTA; Articles 23.2–​23.3 of CETA. Trade and Cooperation Agreement between the European Union and the European Atomic Energy Community, of the one part, and the United Kingdom of Great Britain and Northern Ireland, of the other part, OJ 2021 L 149, p. 10. 64  Articles 399 and 409 of the TCA. 65   Article 387.2 of the TCA. 66  See also the provisions cited at fn 60 above; Bronckers and Gruni, above fn 52, at 32–​33. 67  Article 388 of the TCA. In reference to the ILO tripartite structure, the parties also agree to ‘respect the role and autonomy of the social partners at a national level’. 68  See above fn 58. 69  Article 410 of the TCA. 70  Article 411 of the TCA. 71  Article 411.3 of the TCA. 72  According to Article 13.15.2 of the EU-​Korea FTA, the Panel of Experts must normally issue its report within 90 days. Although there were explicable reasons for certain delays, the EU-​Korea Panel (see fn 81 below) only delivered its report after 387 days. Likewise, the WTO Appellate Body has not been able to meet its prescribed 90-​day deadline in Article 17.5 of the DSU. 63 

Progressive Trade: Labour and Gender    635 Rebalancing thus allows almost instantaneous retaliation, subject to an enhanced ‘material’ impact test, caused by ‘significant’ divergences. Its use in addition to the normal panel procedures will likely depend on the severity of the legal standard these terms will be found to imply, as well as the general level of trust and cooperation between the parties. Moreover, whether the non-​regression and rebalancing clauses, or so-​ called ‘level playing field’ provisions, will be incorporated in subsequent agreements is not certain. These provisions are a result of specific exigencies and negotiation positions in the context of Brexit,73 and the fact that the TCA provides for decreased rather than increased levels of trade liberalization. Nevertheless, the European Union appears to be progressively moving towards a more assertive enforcement policy.74 In particular, although the TCA still exempts the general sustainable trade provisions from retaliation following dispute settlement, it might signal a future willingness to carve out an exception with respect to non-​regression of existing standards. As the above discussion suggests, most labour chapters are found in FTAs between developed and developing countries. Yet there are exceptions, demonstrating that developing countries are not as such averse to addressing trade and labour.75 For example, Chile included an extensive labour chapter modelled on the TPP in its 2016 FTA with Uruguay,76 and also included a labour provision (albeit brief) in its 2017 FTA with Argentina.77 Indeed, given the large and diverse membership of the CPTPP, the TPP provisions on labour may become an influential template for other agreements, including between developing countries.

C. Enforcement and effectiveness Some commentators have expressed doubts about the effectiveness and enforceability of labour clauses.78 However, recent developments, although not yet certain, suggest

73 I. Hallak, ‘The Level Playing-​ Field for Labour and Environment in EU-​UK Relations’ EPRS Briefing (April 2021), at < https://​www.europ​arl.eur​opa.eu/​RegD​ata/​etu​des/​BRIE/​2021/​690​576/​ EPRS_​BRI(2021)690576​_​EN.pdf > (last visited 14 June 2021), at 9. 74  See the EU trade strategy communications discussed in Hallak, above fn 73, at 6, and see EC, above fn 55. There also appears to be a willingness to condition tariff reductions on the implementation of sustainable trade provisions; potentially in the EU-​New Zealand FTA being negotiated, where New Zealand has called for the sustainable trade chapter to be covered by standard dispute settlement. See B. Coates, ‘Seeking Progress Towards Climate-​supportive Trade: The EU-​NZ FTA Negotiations’ The Greens/​EFA (July 2021), at < https://​www.gre​ens-​efa.eu/​files/​ass​ets/​docs/​seeking_​progress_​toward​s_​cl​ imat​e_​su​ppor​tive​_​tra​de_​-​_​the​_​eu-​nz_​f​t a_​n​egot​iati​ons.pdf > (last visited 14 June 2021), at 41–​42. 75  Smith et al., above fn 7, at 37, referring to labour agreements within Mercosur, the SADC and the Caribbean Community. 76  Chapter 11 of the Chile-​Uruguay FTA. However, Article 11.15 exempts that chapter from the dispute settlement chapter. 77  Article 11.6 of the Chile-​Argentina FTA. 78  For a recent overview, see Smith et al., above fn 4, at 41–​49, as well as the outcome of the authors’ own case studies at 129–​134.

636    Marcus Gustafsson and Amrita Bahri that enforcement may improve. First, the USMCA offers important innovations. As discussed in the previous section, the agreement lowers the high legal standard imposed by the US-​Guatemala Panel for when violations of labour rights are deemed to ‘affect trade’, and thus may result in a finding that the FTA has been violated.79 Furthermore, the rapid response mechanism, including domestic complaints procedures, as well as the minimum wage requirement introduced through the rules of origin have the potential to provide for efficient and targeted enforcement. As also discussed in the previous section, a trend of increased enforcement is likewise evident in EU practice.80 At a minimum, these developments suggest an increased readiness by politicians to view labour provisions as not only a means to deflect concerns about trade liberalization, but as having actual and demonstrable effects. Second, in contrast to the US-​Guatemala Panel—​which was the first and so far only US labour dispute which resulted in a panel ruling—​a recent panel ruling under the EU-​ Korea FTA has taken a more labour-​friendly approach. The European Union argued that Korea’s laws did not ‘respect, promote, and realise’ the principle of freedom of association in accordance with the 1998 Declaration, as incorporated into the FTA. Similar to the US-​Guatemala Panel, the Panel first addressed whether the dispute concerned ‘trade-​related aspects of labour’. The Panel found that the ‘key international labour principles and rights’ of the 1998 Declaration were universalist in nature, and as such could not be circumscribed and are ‘inherently related to trade’.81 The panel supported this observation by invoking the chapter’s references to sustainable development and the parties’ desire to create a ‘floor’ of labour rights as an integral component of that approach.82 This dismissal of a trade-​relatedness test for the provision at issue thereby presents a notable contrast to the approach taken by the US-​Guatemala panel.83 On substance, the panel mostly agreed with the European Union. Korea had pointed out that the Declaration did not itself impose any legal obligations and that Korea had not ratified ILO Conventions C.87 and C.98 concerning freedom of association.84 Although Article 19.5 of the ILO Constitution85 makes clear that ILO membership only imposes a limited set of obligations beside those that Members take on by ratifying specific conventions, the panel considered that, as stated in the Declaration, ILO Members ‘have an obligation arising from the very fact of membership’ to realize the fundamental 79 

See above fns 44 to 47 and accompanying text.   See above fn 74. 81  Panel of Experts Proceeding Constituted under Article 13.15 of the EU-​ Korea FTA (‘EU-​Korea Panel Report’), (20 January 2021), at < https://​trade.ec.eur​opa.eu/​doc​lib/​docs/​2021/​janu​ary/​tradoc​_​159​ 358.pdf>, accessed 14 June 2021 > (last visited 14 June 2021), at paras 65 and 95. 82  Ibid at paras 69-​79, 95. 83  D. LeClercq, ‘Guest Post: The Panel Report under the EU-​Korea Trade Agreement Concerning Labor Practices: What are the Purposes of Trade Agreements as they Relate to the ILO’s Fundamental Labor Rights?’ IELP blog (8 February 2021), at < https://​ielp.worldt​rade​law.net/​2021/​02/​guest-​post-​the-​ panel-​rep​ort-​under-​the-​eu-​korea-​trade-​agreem​ent-​con​cern​ing-​labor-​practi​ces-​what-​are-​t.html > (last visited 14 June 2021). 84  EU-​Korea Panel Report, para 106. 85 ILO, Constitution of the International Labour Organisation (1 April 1919). 80

Progressive Trade: Labour and Gender    637 principles enumerated therein.86 The panel noted, however, that ‘States are bound to respect principles contained in human rights instruments whether or not they have ratified them’ and that this is a ‘highly unusual situation in international law’.87 Thus, even though commentators had expressed doubts that the 1998 Declaration’s somewhat unclear language of ‘principles concerning fundamental rights’ could easily be transposed and enforced through FTAs,88 the Panel interpreted those references as not only aspirational but as entailing concrete commitments. Taken together, the enhanced provisions in the USMCA, the TCA and the European Union’s success before the EU-​Korea Panel suggest that the enforcement of labour chapters may improve. Notably, despite the lack of a means to suspend benefits under the EU-​Korea FTA to enforce the ruling, Korea not only committed to make the necessary changes to its domestic laws, but also to ratify three out of four outstanding fundamental Conventions, including on freedom of association and collective bargaining.89

D. An emerging trade-​labour linkage There is a natural and undeniable link between trade and labour. Labour is one of the three basic inputs next to capital and raw material in goods manufacturing, and has an even more central role to play in trade in services. However, despite numerous proposals for how such a link could be operationalized at the global level,90 the WTO membership has refused to engage on this issue ever since the Singapore Declaration. Nevertheless, as shown above, the ILO’s response in the form of its 1998 Declaration, through the efforts of certain ILO Members, has in effect re-​introduced labour rights into the global trade regime via the FTA back door. Furthermore, insofar as States are serious about moving the trade regime in the direction of sustainable development91 and about integrating the social aspect inherent in that concept,92 they must move away from the Singapore paradigm of treating trade and labour as conflicting notions. Indeed, the EU-​Korea FTA panel 86 

Article 2 of the 1998 ILO Declaration. EU-​Korea Panel Report, para 108. 88  Agustí-​Panareda et al., above fn 34, at 364–​367. 89   EC, ‘EU-​Korea FTA 7th Committee on Trade and Sustainable Development Joint Minutes’, at < https://​trade.ec.eur​opa.eu/​doc​lib/​docs/​2021/​may/​tradoc​_​159​567.pdf > (last visited 14 June 2021). 90  See, e.g., W. Plasa, Reconciling International Trade and Labor Protection: Why We Need to Bridge the Gap between ILO Standards and WTO Rules (Lanham, MD: Lexington Books, 2015); C. Barry and S. G. Reddy, ‘International Trade and Labour Standards: A Proposal for Linkage’ 39 Cornell International Law Journal (2006) 545. 91 See the first recital in the preamble to the WTO Agreement; EC, ‘Annex to the Trade Policy Review—​An Open, Sustainable and Assertive Trade Policy’ (18 February 2021), at < https://​trade.ec.eur​ opa.eu/​doc​lib/​docs/​2021/​febru​ary/​tradoc​_​159​439.pdf > (last visited 14 June 2021), at 3–​5. 92  See, e.g., UNGA, ‘Transforming our world: the 2030 Agenda for Sustainable Development’ A/​RES/​ 70/​1 (adopted on 25 September 2015), at 2 (‘We are committed to achieving sustainable development in its three dimensions—​economic, social and environmental’). 87 

638    Marcus Gustafsson and Amrita Bahri could be said to have taken a step in that direction.93 Furthermore, the available empirical research does not appear to confirm that the enforcement of labour standards leads to protectionism.94 A revitalised trade-​labour linkage has thus been driven by the step-​by-​step introduction of ever widening labour chapters in FTAs, a more pro-​active stance on enforcement, and a renewed emphasis on sustainable development. In addition, in recent years, more sceptical globalization narratives have emerged, shifting the political focus more squarely to the losers of globalization.95 Indeed, the more protectionist narrative of the Trump administration likely contributed to a bipartisan opening for US Congressional Democrats96 to push for the unprecedented labour innovations in the USMCA. Whether these recent political shifts towards sustainable development and the losers of globalization will endure, remains to be seen. Although labour issues also recently re-​entered the fringes of the on-​going WTO negotiations on fisheries,97 there is a risk that labour standards will become politicized. For instance, China has taken exception to certain countries’ import restrictions over allegations of forced labour in Xinjiang.98 For now, FTAs will thus remain the main avenue through which the emerging trade-​ labour linkage is likely to continue to develop.

93 See above fn 82 and accompanying text. See also the reformulated wording of the Singapore Declaration (‘labour standards should not be used for protectionist trade purposes’; ‘comparative advantage should in no way be called into question’), into: ‘violation of fundamental principles and rights of work cannot be invoked . . . as a legitimate comparative advantage’ in, e.g., Article 4.9 of the (draft) EU-​Mercosur FTA, Trade and Sustainable Development Chapter (emphasis added); Article 12.3.5 of the EU-​Singapore FTA. 94 See, e.g., EU-​ Korea Panel Report, para 88, referring to the oft-​quoted report OECD, Trade, Employment and Labour Standards: a Study of Core Workers’ Rights and International Trade (Paris: OECD Publishing, 1996), as well as ILO, above fn 2, at 22. See also C. Carrère, M. Olarreaga and D. Raess, ‘Labor Clauses in Trade Agreements: Hidden Protectionism?’ Review of International Organizations (2021), at < https://​link.sprin​ger.com/​arti​cle/​10.1007/​s11​558-​021-​09423-​3 > (last visited 14 June 2021); K. Bandyopadhyay, ‘The Impact of Global Labour Standards on Export Performance’ in A. Negi, J.A. Pérez-​Pineda and J. Blankenbach (eds), Sustainability Standards and Global Governance (Singapore: Springer, 2020), 113–​129. For the classical statement of the opposite argument based on economic theory, see J.N. Bhagwati, ‘Trade Liberalization and Fair-​Trade Demands: Addressing the Environmental and Labour Standards Issues’ 18 World Economy (1995) 745. 95 N. Lamp, ‘How Should We Think about the Winners and Losers from Globalization? Three Narratives and Their Implications for the Redesign of International Economic Agreements’ 30 European Journal of International Law (2020) 1359. 96  Gantz, above fn 41, at 79. 97 USTR, ‘United States Urges WTO Members to Address Forced Labour on Fishing Vessels in Ongoing Fisheries Subsidies Negotiations’ (26 May 2021), at < https://​ustr.gov/​about-​us/​pol​icy-​offi​ces/​ press-​off​i ce/​press-​relea​ses/​2021/​may/​uni​ted-​sta​tes-​urges-​wto-​memb​ers-​addr​ess-​for​ced-​lab​our-​fish​ing-​ vess​els-​ongo​ing-​fisher​ies-​subsid​ies > (last visited 14 June 2021). 98  Y. Hayashi, ‘U.S. Steps Up Pressure on Businesses Over Forced Labor in China’ Wall Street Journal (9 August 2021), at < https://​www.wsj.com/​artic​les/​u-​s-​steps-​up-​press​ure-​on-​bus​ines​ses-​over-​for​ced-​ labor-​in-​china-​1162​8501​400 > (last visited 1 September 2021).

Progressive Trade: Labour and Gender    639

III.  Trade and gender equality A. Introduction The focus on the nexus between international trade and gender equality predates the establishment of the WTO. One of the first acknowledgements of the inter-​relationship between gender and commerce can be traced back to the TFEU of 1957.99 In 1995, the World Trade Organization’s Marrakesh Agreement enshrined the objective of sustainable development in its preamble. A quarter-​century later, the discussion about sustainable development in policy circles has evolved dramatically, and the nexus between trade and gender equality has become far better understood and accepted. The Addis Ababa Agenda of Action100 for instance, which builds a clear network between international trade and gender equality, reads as follows: ‘Recognizing the critical role of women as producers and traders, we will address their specific challenges in order to facilitate women’s equal and active participation in domestic, regional and international trade.’101 Furthermore, the 2030 Agenda for Sustainable Development recognizes international trade as an engine for inclusive and sustainable economic growth, and an important means to achieve the UN’s 2030 Sustainable Development Goals (SDGs).102 The most recent multilateral instrument that reinforces this view is the WTO’s Joint Declaration on Trade and Women’s Economic Empowerment, which seeks to build a framework to guide Members to adopt or adapt gender-​responsive trade policies.103 Multiple developments in recent years have sought to create an inclusive trading environment, both at the multilateral as well as at regional and bilateral levels. The following subsections provide a discussion on how gender equality considerations are addressed in multilateral and regional/​bilateral trade forums.

B. Multilateral Initiatives The WTO’s webpage on ‘Women and Trade’ starts with the following phrase: ‘Trade can play an important role in driving women’s economic empowerment. The WTO therefore seeks to build a more inclusive trading system that will allow more women to

99 

Article 157 of the TFEU. UN, ‘Third International Conference on Financing for Development (FfD3)’ (13-​16 July 2015), at < https://​www.un.org/​esa/​ffd/​ffd3/​con​fere​nce.html > (last visited 9 June 2021). 101  UNDESA, ‘Addis Ababa Action Agenda of the Third International Conference on Financing for Development’ (Addis Ababa Action Agenda) (2015), at 90. 102  UNGA, ‘Transforming our world: the 2030 Agenda for Sustainable Development’ A/​RES/​70/​1 (21 October 2015), at < https://​www.refwo​rld.org/​docid/​57b6e3​e44.html > (last visited 13 November 2020). 103 ‘Buenos Aires Joint Declaration on Trade and Women’s Economic Empowerment’ (WTO Ministerial Conference, 12 December 2017) (2017 Buenos Aires Declaration). 100 

640    Marcus Gustafsson and Amrita Bahri participate in trade and to reap the economic benefits of global trading.’104 The question remains as to how the WTO can contribute to building a more inclusive trading system. None of the WTO’s Multilateral and Plurilateral Agreements or Ministerial Decisions explicitly mentions concerns relating to gender equality. Moreover, the WTO jurisprudence so far has been completely silent on gender issues.105 Yet, recent developments and studies show that the WTO can contribute in several ways. In the last few years, the WTO has engaged in notable efforts including various outreach events106 and research outputs107 that have contributed to enhancing the understanding on trade and gender equality. In addition, the WTO in 2017 nominated a specialized division—​‘The WTO Trade and Gender Focal Point’—​which is responsible for handling trade and gender issues. This division is responsible for coordinating work among divisions, taking stock of what the WTO is doing, exploring opportunities for further work and introducing new initiatives to promote inclusive trade. The Focal Point has four key functions: (i) raising awareness and understanding of the relationship between trade and gender; (ii) facilitating WTO Members’ actions and policies on trade and gender; (iii) generating new data to better understand the impact of trade on women; and (iv) capacity-​building through the provision of training on trade and gender issues to public and private stakeholders. Another important institutional development in this respect was the 2020 agreement of several WTO Members to establish an Informal Working Group on Trade and Gender. The Informal Working Group’s objectives are threefold: (i) share best practices among Members on increasing women’s participation in trade; (ii) consider and clarify what a ‘gender lens’ is in the context of international trade and review how a gender lens could usefully be applied to the work of the WTO; (iii) review and discuss gender-​ related analytical work produced by the WTO Secretariat and explore how best to support the delivery of the WTO Aid for Trade work programme.108 These developments and initiatives reaffirm the intention and willingness of the WTO as an organization to engage in making trade more inclusive. With nearly universal membership, there is no doubt that WTO can play an important role in preparing a framework for the regulation of inclusive and sustainable

104  WTO, ‘Women and Trade’, at < https://​www.wto.org/​engl​ish/​trato​p_​e/​wome​nand​trad​e_​e/​wome​ nand​trad​e_​e.htm > (last visited 9 June 2021). 105   A mere browse through the Panel or Appellate Body reports shows that none of them so far have been vocal about gender concerns. 106  Outreach efforts include conferences, seminars, round table discussions and workshops on trade and women empowerment. WTO, ‘Women and Trade’, above fn 104. 107  The most recent outputs are: World Bank Group & WTO, ‘Women and Trade: The role of trade in promoting gender equality’ (2020); R. Acharya et al, ‘Trade and Women—​Opportunities for Women in the Framework of the World Trade Organization’ 22(3) Journal of International Economic Law (2019) 323; WTO, ‘Women and the WTO Gender Statistics (1995-​2016)’ (2017); WTO, ‘Gender Aware Trade Policy A Springboard for Women’s Economic Empowerment’ (2017); J.-​A. Monteiro, ‘Gender-​related provisions in Regional Trade Agreements’ (December 2018). 108 WTO, ‘Interim Report Following the Buenos Aires Joint Declaration on Trade and Women’s Economic Empowerment’ WT/​L/​1095/​Rev.1 (25 September 2020), at 2.

Progressive Trade: Labour and Gender    641 trade.109 In particular, it can contribute through the GATS, the Agreement on Agriculture, the Aid for Trade Program,110 the Trade Policy Review Mechanism, the Trade Facilitation Agreement and the Revised Agreement on Government Procurement. These agreements and mechanisms do not contain a single gender-​ explicit commitment or provision, yet current scholarship has shown how their gender-​ considerate application can foster women empowerment and women participation in trade and commerce.111 In addition, countries could potentially invoke GATT Article XX(a) to strengthen women’s empowerment through foreign trade. The public morals exception has been considered as a ‘catch-​all’ exception for measures that might relate to or affect any value that a country may view as a matter of its public morals.112 This exception has been used in WTO agreements, as well as in the majority of FTAs. Public morals range from views related to religion,113 human rights,114 consumption of alcohol,115 drug trafficking and corruption,116 gambling,117 consumer protection,118 and protection of animals.119 .120 Certain moral interests are shared more commonly than others, as opposed to being country-​specific.121 Gender equality is not specifically mentioned in Article XX, but it is recognized as a fundamental moral norm by the majority of WTO Members in multiple international conventions and treaties.122 109 

The WTO can contribute by helping to prepare a set of guidelines for drafting and implementation of gender-​responsive FTAs in the future. In addition, efforts can be directed at amending the current WTO texts to include provisions that can protect women’s economic interests, or negotiating new instruments such as joint statement initiatives. 110  WTO, Nairobi Ministerial Declaration, adopted on 19 December 2015, WT/​MIN(15)/​DEC. 111  R. Acharya et al, ‘Trade and Women—​Opportunities for Women in the Framework of the World Trade Organization’ 22(3) Journal of International Economic Law (2019) 323, at 327; WTO and World Bank, ‘Women and Trade: The role of trade in promoting gender equality’ (2020), at < https://​www.wto. org/​engl​ish/​res_​e/​pub​lica​tion​s_​e/​women_​trad​e_​pu​b280​7_​e.htm > (last visited 21 July 2021); Global Alliance for Trade Facilitation, ‘The TFA through a gender lens’, at < https://​www.tradef​acil​itat​ion.org/​ glo​bal-​allia​nce-​publi​cati​ons/​the-​tfa-​thro​ugh-​a-​gen​der-​lens/​ > (last visited 21 July 2021). 112  L.M. Jarvis, ‘Women’s Rights and the Public Morals Exception of GATT Article 20’ 22(1) Michigan Journal of International Law (2000) 219. 113  Israel restricted importation of non-​Kosher meat products. See WTO Secretariat, ’Report of the WTO Secretariat on the Trade Policy Review of Israel’ (13 August 1999), at < https://​www.wto.org/​engl​ ish/​trato​p_​e/​tpr_​e/​tp47​6_​e.htm > (last visited 28 September 2020. 114  The United States restricted importation of products made by indentured child labor. See Treasury and General Government Appropriations Act of 1998, Pub. L. No. 105-​61, § 634, 111. Stat. 1272, 1316 (1997). 115  Indonesia restricted importation of alcohol for moral reasons. See WTO Secretariat, ‘Report on the Trade Policy Review of Indonesia’ (23 May 2007), at < https://​www.wto.org/​engl​ish/​trato​p_​e/​tpr_​e/​tp37​ 8_​e.htm > (last visited 21 July 2021). 116  See Panel Report, Colombia –​Textiles, adopted 22 June 2016, paras 7.338-​39. 117  Appellate Body Report, US –​Gambling, adopted 20 April 2005. 118  Appellate Body Report, Brazil –​Taxation, adopted 11 January 2019. 119  Appellate Body Report, EC –​Seal Products, adopted 18 June 2014. 120  N.F. Diebold, ‘The Morals and Order Exceptions in WTO Law: Balancing the Toothless Tiger and Undermining Mole’ 11(1) Journal of International Economic Law (2007) 43, at 49–​50. 121  M. Wu, ‘Free Trade and the Protection of Public Morals: An Analysis of the Newly Emerging Public Morals Clause Doctrine’ 33(1) Yale Journal of International Law (2008) 221. 122 Such as the 2017 Buenos Aires Declaration; Convention on the Elimination of All Forms of Discrimination against Women, Adopted and opened for signature, ratification and accession by United

642    Marcus Gustafsson and Amrita Bahri Hence, a country could invoke the morality exception in a trade dispute that challenges the WTO-​consistency of a support measure or a trade restriction that seeks to protect women’s economic interests, arguing that the protection of women’s economic interests amounts to the protection of its country’s moral interests. These measures might become especially crucial or even indispensable during or in the post-​pandemic world to revive and support certain industries that can have a considerable impact on women employees, entrepreneurs and consumers. These measures could take the shape of government bail-​outs, loans, subsidies, or gender-​responsive government procurement initiatives, and may not be fully compatible with WTO laws. This is an ambitious interpretation of the morality exception, and it could face intense scrutiny.123 However, the adoption of multilateral declarations by WTO Members, such as the WTO’s Joint Declaration on Trade and Women’s Economic Empowerment 2017, shows that the Members may be developing an appetite for protecting these concerns through trade policy instruments. The WTO’s Joint Declaration on Trade and Women’s Economic Empowerment 2017 is an anchoring commitment encouraging women empowerment as it is agreed upon in a multilateral setting.124 It provides that ‘international trade and investment are engines of economic growth for both developing and developed countries, and that improving women’s access to opportunities and removing barriers to their participation in national and international economies contributes to sustainable economic development’.125 This is a promising development in the multilateral trading system as it marks a concrete starting point for future deliberations and discussions on how trade can accommodate gender equality concerns.126 Yet we cannot ignore its limitations. First, it seeks to prepare a framework to guide WTO Members to reformulate their trade policies in a gender-​responsive manner; however, it does not contain any action plan or proposed measures or strategies for doing so. Furthermore, the declaration does not provide any guidance to its signatory members on how to implement the instrument domestically. Second, it has no enforcement or implementation mechanism, and hence is completely left to the good-​will intentions and best endeavours of the signatory Nations General Assembly (resolution 34/​180) (New York, 18 December 1979); 2030 UN Agenda for Sustainable Development, Goal 5. 123 

A. Bahri and D. Boklan, ‘Not Just Sea Turtles, Let’s Protect Women Too: Invoking Public Morality Exception or Negotiating a New Gender Exception in Trade Agreements?’ European Journal of International Law (2022, forthcoming). 124  WTO, ‘Joint Declaration on Trade and Women’s Economic Empowerment on the Occasion of the WTO Ministerial Conference in Buenos Aires in December 2017’, at < https://​www.wto.org/​engl​ish/​ thewt​o_​e/​minis​t_​e/​mc1​1_​e/​gend​erde​clar​atio​nmc1​1_​e.pdf > (last visited 14 June 2021). 125 Ibid. 126  According to UN Women, gender is a socio-​cultural concept defined as ‘the social attributes and opportunities associated with being male and female and the relationships between women and men and girls and boys, as well as the relations between women and those between men’ See H. Bensalem, ‘Gender as Included in Bilateral and Multi-​Party Trade and Integration Agreements’ 2017 CUTS International Research Study 7, at < http://​www.cut​sgen​eva.org/​pdf/​STUDY%20%20Gen​der%20 and%20Tr​ade.pdf > (last visited 12 August 2019).

Progressive Trade: Labour and Gender    643 members. Third, the declaration is not universally accepted, as almost one third of the WTO Membership has not joined this endeavour.127 If WTO Members could not achieve consensus on a completely non-​binding declaration drafted with various best endeavour promises, it is not conceivable that they will agree on an explicit inclusion of gender language in the WTO’s rulebook. These observations show the limitations of WTO’s multilateralism in this respect. However, recent trends show the promising role of FTAs.

C. Bilateral/​Regional Initiatives Currently, of all existing free trade agreements in force, more than 20 per cent include an explicit commitment to gender equality.128 In recent years, we have witnessed a sharp increase in the number of FTAs that mainstream gender considerations.129 The last five years have been phenomenal in this respect. In 2016, Chile signed with Uruguay the very first trade agreement with a standalone chapter on trade and gender, followed by two more agreements with similar chapters, with Argentina in 2017 and Brazil in 2018. In 2018, the European Parliament passed a resolution to include gender equality considerations in all its future trade agreements and the European Commission subsequently endorsed this approach.130 In the same year, the Parties to CETA adopted the CETA Trade and Gender Recommendation, wherein the Parties recognize the importance of making trade policies more gender-​responsive and commit to work on encouraging women’s participation in the economy and international trade through various cooperation activities.131 In 2019, two modernized FTAs (Canada-​Chile and Canada-​Israel) came into force with dedicated chapters on women´s empowerment.132 In 2020, two other agreements were signed with such chapters (Chile-​Ecuador and United Kingdom-​ Japan).133 In the same year, Canada, Chile, and New Zealand signed the Global Trade and Gender Arrangement. Through this Arrangement, the Parties seek to share best 127 

Discussed in A. Bahri, ‘Measuring the Gender-​Responsiveness of Free Trade Agreements: Using a Self-​Evaluation Maturity Framework’ 14 (11) Global Trade & Customs Journal (2019) 517. 128  Author’s own calculations. 129  J.-​A. Monteiro, ‘Gender-​Related Provisions in Regional Trade Agreements’ WTO Economic Research and Statistics Division (18 December 2018), at < https://​www.wto.org/​engl​ish/​res_​e/​rese​r_​e/​ ersd2​0181​5_​e.pdf > (last visited 9 June 2021). 130  European Parliament, ‘Gender equality in EU trade agreements’, 13 March 2018, 2017/​2015(INI), at < https://​www.europ​arl.eur​opa.eu/​doceo/​docum​ent/​TA-​8-​2018-​0066​_​EN.html > (last visited 21 July 2021). 131  CETA Trade and Gender Recommendation, at < https://​trade.ec.eur​opa.eu/​doc​lib/​html/​158​945. htm > (last visited 21 July 2021). 132 Modernized Canada-​ Chile Free Trade Agreement (CCFTA) (enforced, 5 February 2019); Modernized Canada-​Israel Free Trade Agreement (CIFTA) (enforced, 1 September 2019). 133  Chapter 18 of the Chile-​Ecuador Acuerdo de Complementación Económica (not yet enforced); Chapter 21 of the UK-​Japan Agreement for a Comprehensive Economic Partnership.

644    Marcus Gustafsson and Amrita Bahri practices and promote gender equality, including in international organizations such as the WTO.134 Multiple reports and studies have assessed the benefits of these developments and proposed ways to frontload gender equality concerns within the trade policy context.135 These developments affirm that neither international trade nor gender equality is a zero-​sum game and that everyone benefits from making trade fair and inclusive. These developments also show that gender mainstreaming in trade agreements is here to stay.

D. What is gender mainstreaming? Gender mainstreaming is defined as ‘the (re)organization, improvement, development, and evaluation of policy processes so that a gender equality perspective is incorporated in all policies at all levels at all stages, by the actors normally involved in policymaking’.136 Gender mainstreaming is a means to achieve gender equality and entails the inclusion of gender considerations and concerns in the drafting and implementation of FTAs. This is a process by which parties seek to include gender perspectives in its trade liberalization efforts and policies. It should not be confused with gender-​impact assessment of trade agreements, which is a process to assess either ex ante or ex post the impact of trade agreements on women in member countries. The process of mainstreaming affirms a Member’s commitment, understanding and political will to reduce gender inequality through trade policies and agreements. The process also aims to maximize the positive impact and minimize the negative impact of trade agreements on women’s empowerment goals. The term ‘gender responsiveness’ is also used extensively in this chapter. It refers to a process that assesses how sensitive, informed, or committed the provisions of a trade agreement are to issues relating to gender equality. In other words, the way and extent to which an agreement mainstreams gender equality considerations defines how responsive that agreement is to gender equality concerns.

134   Global Trade and Gender Arrangement, at < https://​www.can​ada.ca/​en/​glo​bal-​affa​irs/​news/​2020/​ 08/​minis​ter-​ng-​signs-​new-​glo​bal-​trade-​and-​gen​der-​arra​ngem​ent-​with-​chile-​and-​new-​zeal​and.html > (last visited 21 July 2021). 135  See, e.g., OECD, ‘Trade and Gender: A Framework of Analysis’ OECD Trade Policy Papers (26 March 2021), at < https://​www.oecd.org/​publi​cati​ons/​trade-​and-​gen​der-​6db59​d80-​en.htm > (last visited 21 July 2021); ITC, ‘Mainstreaming Gender in Trade Agreements: A New Approach’, at < https://​ www.intra​cen.org/​publ​icat​ion/​mainst​ream​ing-​gen​der-​FTA/​ > (last visited 21 July 2021); A. Frohmann ‘Gender Equality and Trade Policy’ SECO/​WTI Academic Cooperation Project Working Paper Series 2017/​ 2, at < https://​ssrn.com/​abstr​act=​3113​197 > (last visited 22 July 2021). 136 M. Verloo, ‘Displacement and Empowerment: Reflections on the Concept and Practice of the Council of Europe Approach to Gender Mainstreaming and Gender Equality’ Social Politics: International Studies in Gender, State & Society (2005) 344.

Progressive Trade: Labour and Gender    645

E. Benefits and Best Practice Examples of Gender Mainstreaming in FTAs FTAs can play an important role in reducing gender inequality because countries can encourage their trade partners to create laws and procedures that can reduce barriers and create encouraging conditions for women’s participation in trade and commerce.137 In this manner, countries can use these negotiating instruments to incentivize change at the domestic level in other countries in exchange for enhanced or unfettered market access. In short, the lure of market access to important markets can be used to enhance gender equality through FTAs. For example, the European Union, Canada, Chile and other WTO Members have undertaken commitments to cooperate on increasing women’s access to health services,138 education,139 digital know-​how140 and skill development.141 In the Canada-​ Israel FTA, the parties seek to increase women’s access to finance and other productive resources and encourage conditions for women-​owned businesses to flourish by supporting the creation of business networks and improved infrastructure in relevant sectors and industries.142 In the USMCA, the parties have included waivers and reservations to protect women employees and employers in selected industries.143 In the New Zealand-​South Korea FTA,144 the parties reserve the right to regulate certain health and social services that relate to female professionals and women’s health interests, in particular with respect to maternity deliveries and related services, including services provided by midwives, and with respect to childcare.145 The Australia-​New Zealand Closer Economic Relations Trade Agreement (ANZCERTA)146 contains a similar provision with respect to child care.147 Childcare challenges pose a significant barrier to work, especially for mothers, who disproportionately take on

137 A. Bahri, ‘Measuring the Gender-​ Responsiveness of Free Trade Agreements: Using a Self-​ Evaluation Maturity Framework’ 14 (11) Global Trade & Customs Journal (2019) 517. 138  Article 44 of CEFTA (in Article 44, parties seek to improve maternal health, and address health priority areas such as sexual and reproductive health and the care for and prevention of sexually transmitted diseases and unwanted pregnancies). 139  Ch. N-​ bis of the modernized Canada-​ Chile FTA (contains commitments on improving educational or skill development opportunities in fields that can translate to high-​paid job opportunities for women). 140 Ibid. 141  Ibid.; Article 23.4 of the CPTPP. 142  Chapter 13 of the modernized Canada-​Israel FTA. 143  Article 32.5 of the USMCA (Reservation for indigenous women (cross-​border service), protection of women employees). 144  New Zealand-​Korea FTA. 145  Annex II of the New Zealand-​Korea FTA. 146  Australia-​New Zealand Closer Economic Relations Trade Agreement. 147  Annex II of the Australia-​New Zealand Closer Economic Relations Trade Agreement.

646    Marcus Gustafsson and Amrita Bahri unpaid responsibilities when they cannot find affordable childcare.148 Provision of affordable childcare facilities is therefore vital, as lack of affordable childcare prevents women from progressing in their careers or with their educational aspirations. This right to regulate provision seems to be a women-​favouring commitment as it indicates that trade liberalization under this FTA should not affect the parties’ right to regulate and provide for childcare services in their respective jurisdictions. Another development is the CPTPP, which includes two different types of gender commitments. The first type is a labour provision that seeks to promote gender equality as a labour standard, eliminate discrimination against women and further the interests of women.149 The other type is found in the chapter on development, which includes a provision on women empowerment and their contribution to economic growth and development.150 The provision states that the parties will ‘consider undertaking cooperative activities aimed at enhancing the ability of women, including workers and business owners, to fully access and benefit from the opportunities created by this Agreement.’ However, Article 23.9 stipulates that this chapter (i.e., Chapter 23) does not fall under the ambit of the agreement’s dispute settlement mechanism, leaving the Parties without any recourse to remedies if these commitments are not acted upon. These developments show that the lure of market access to important markets can be used to enhance women’s empowerment through FTAs. However, almost no FTA so far contemplates how gender-​related commitments could be implemented or enforced, and most of the gender equality considerations included in the existing agreements are drafted with non-​mandatory verbs and ‘soft’ permissive grammatical constructions.151 As of today, even the most advanced FTAs incorporating gender equality concerns do not clarify precise procedures for implementation; nor do they identify channels to finance these activities.152 In addition, as seen in the case of CPTPP, almost all FTAs have explicitly and unambiguously excluded gender-​related provisions and chapters from the application of their dispute settlement mechanisms. The absence of applicable dispute settlement procedures implies that a country’s failure to comply with these obligations or commitments or affirmations has no direct consequence. The only exception is the Canada-​Israel FTA that provides, for the very first time, a binding dispute settlement procedure that is applicable to its chapter on trade and gender.153 Unfortunately, this

148   K. Parker, ‘Women More than Men Adjust their Careers for Family Life’ Pew Research Center (1 October 2015), at < http://​www.pewr​esea​rch.org/​fact-​tank/​2015/​10/​01/​women-​more-​than-​men-​adj​ust-​ their-​care​ers-​for-​fam​ily-​life/​ > (last visited 21 July 2021). 149  Article 19.10 of the CPTPP. 150  Article 23.4 of the CPTPP. 151  Bhala et al, above fn 5, at 306 (the authors point out that most gender related commitments in USMCA and CPTPP are aspirational and non-​binding, and hence non-​enforceable, and that they are sometimes drafted with vagueness and ambiguity, and so they are susceptible to myriad interpretations). 152  As per authors’ calculations, using ITC maturity toolkit: ITC, ‘Mainstreaming Gender in Free Trade Agreements’ (8 July 2020), at < https://​www.intra​cen.org/​publ​icat​ion/​mainst​ream​ing-​gen​der-​ FTA/​> (last visited 25 January 2021). 153  Chapter 19 of CIFTA.

Progressive Trade: Labour and Gender    647 also seems to be a cosmetic attempt to provide for an enforcement mechanism because the parties have subjected the binding jurisdiction of this mechanism to their consent, making its jurisdiction non-​compulsory in nature.154 With respect to this agreement’s gender-​related provisions, if Canada was to employ a trade policy measure that Israel believed hindered the participation of women in the workforce, Israel could bring a challenge against that measure. This dispute can be decided by a panel that can issue a legally binding decision as to whether the measure in question violates the terms of the agreement’s trade and gender chapter. However, both countries would have to consent to take the matter through the agreement’s dispute settlement process. It is unlikely that a responding country whose measure is challenged will agree to the binding jurisdiction of such a panel. These discussions show that there is a half-​opened door in FTAs that countries need to push open further by finding different ways of implementing or enforcing their gender-​related commitments.155 Some recent agreements have endeavoured to do so. The CETA investment chapter includes a binding gender-​explicit provision. Article 8.10(d) of the agreement states that a party will breach its obligation to provide fair and equitable treatment to foreign investors if any of its measures constitutes ‘targeted discrimination on manifestly wrongful grounds, such as gender . . .’. Though this is the only gender-​related commitment found in the entire agreement, the parties subsequently adopted a standalone Recommendation on trade and gender.156 In this Recommendation, the parties have created a work plan to gather and analyse gender-​disaggregated data, carry out the agreement’s gender impact assessment, add a gender lens to the implementation of the agreement, conduct webinars on trade and gender, and report on these activities. It remains unclear whether a subsequent adoption of such a recommendation can form part of an FTA per se if they are not mentioned or incorporated by reference into that treaty’s text. Yet such developments allow parties to work together in the trade policy space on activities that may inform future policymaking. Another example is the USMCA, whereby parties have assumed binding and enforceable commitments relating to the protection of labour rights and enhancing trade and investment opportunities for small businesses, including those owned by women.157 One of these binding commitments concerns the elimination of discrimination on the basis of sex in respect of employment, occupation, and wages. The other aspects are the consideration of gender issues related to occupational safety, health and other workplace practices, the prevention of occupational injuries and illnesses, and the prevention of gender-​based workplace violence and harassment. This agreement 154 

Article 13.6 of CIFTA. Originally discussed in, and adapted from, A. Bahri, ‘Women at the Frontline of COVID-​19: Can Gender Mainstreaming in Free Trade Agreements Help?’ 23(3) Journal of International Economic Law (2020) 563. 156  ‘CETA Trade and Gender Recommendation: EU-​Canada Work Plan 2020–​2021’ (16 September 2020), at (last visited 9 June 2021). 157  Articles 25.2 and 23.12 of the USMCA. 155 

648    Marcus Gustafsson and Amrita Bahri is a milestone in the treatment of enforceable gender issues included in the labour chapter; the provisions are made enforceable through the new Facility-​Specific Rapid Response Labour Mechanism that will allow the United States, Mexico and Canada to directly take actions against facilities with labour standards failures.158 In respect of identifying resources and procedures, the African Continent FTA (AfCFTA) provides a best practice example.159 The preamble to the AfCFTA recognizes the importance of gender equality for international trade and development. Including gender equality considerations in the preamble is an effective way of mainstreaming a gender perspective in FTAs, because it can be instrumental in determining the intentions of the negotiators or drafters of the agreement at the time when it was concluded. In Article 27, parties commit to mobilizing resources to improve the export-​capacity of women entrepreneurs and women-​owned SMEs. This provision is a best practice example, because identifying or mobilizing funds for gender-​related commitments is fundamental for their implementation. Identification of funding options alongside these commitments can bring such promises a step closer to their implementation. This legal provision also provides for building the capacity and technical skills of SMEs and women entrepreneurs, which again is a crucial lever for women empowerment. These developments show that the trade community is recognizing that trade policy can be used as a tool to empower women. This represents a drastic change in trade policymaking mindset. Yet, to ensure that the gender commitments included so far in trade agreements can become a ‘game-​changer’ for women in the future, it is crucial to rethink how these commitments might be financed, implemented, and enforced.

IV. Conclusion Labour and gender concerns share a blind spot in WTO law which fails to adequately address them. However, that has not prevented WTO Members from increasingly addressing both labour and gender issues in their FTAs, and often in conjunction. Another commonality shared by gender and labour standards is that they both form part of the UN human rights framework.160 It is perhaps in this sense that we can best understand gender and labour provisions as representing ‘progressive trade’, namely in the way that they both extend access to social rights. In this regard, gender and labour rights are probably the set of human rights most directly related to economic activity and international trade.161

158 

For details, see above fn 42. African Continental Free Trade Agreement (enforced 30 May 2019). 160  See, e.g., UNGA, ‘Universal Declaration of Human Rights’ A/​RES/​217(III) (adopted 10 December 1948), Articles 2, 22, 23. 161  Another human right closely related to trade recently recognized in some FTAs are indigenous rights. See Article 20.13 and Annex 15-​A of the CPTPP; Articles 24.2, 24.15, 25.2 and 32.5 of the USMCA. 159 

Progressive Trade: Labour and Gender    649 A third aspect that unites trade and gender concern is the issue of sustainable development. Both issues are well integrated into the Sustainable Development Goals.162 Indeed, the increased willingness of countries to take the idea of sustainable trade more seriously has likely been a contributing factor to the observed increase in gender and labour clauses in FTAs. There are even tentative signs that changes are emerging at the WTO. In this regard, although gender issues still lag behind labour concerns in uptake among FTAs, gender issues have already advanced as far if not further at the WTO level. In particular, gender issues are not directly implicated by the rejection of a ‘social clause’ in the Singapore Ministerial Declaration.163 Nevertheless, regardless of this important precedent, keeping trade and social issues separate—​and in potential conflict—​looks increasingly at odds with a conception of sustainable trade built on all three pillars of sustainable development: economic, social and environmental. Although there is scant empirical evidence that higher labour standards have led to increased protectionism, the potential misuse of social clauses in FTAs will always remain a risk. Fear of protectionism and loss of comparative advantage are thus justified concerns among many developing countries. Another concern is that the integration of trade, gender and labour issues smacks of moral and cultural imperialism.164 We hope that some of these concerns can be addressed through an inclusive trade agenda directly involving developing countries in negotiations and standard-​setting at both the bilateral and multilateral levels, and on the basis of a continued recognition of UN human rights as universal. Another means to avoid protectionism and misuse is designing narrow and targeted enforcement mechanisms, including with strong procedural safeguards and rapid third-​party arbitration. The USMCA contains some promising steps in this direction.165 We have little doubt that gender, labour, and other potential human rights and social issues will continue to expand their presence across FTAs and throughout global value chains. Given past resistance, how far they will also become integrated into the multilateral trade framework remains to be seen.

Further reading A. Bahri, ‘Measuring the Gender-​Responsiveness of Free Trade Agreements: Using a Self-​ Evaluation Maturity Framework’ 14(11) Global Trade & Customs Journal (2019) 517

162 See

UN SDG 2030, Goals 5 (gender equality) and 8 (decent work and economic growth), at < https://​sdgs.un.org/​goals > (last visited 14 June 2021). 163  See above fn 17 and accompanying text. 164  See, e.g., on labour A. Panagariya, ‘Trade-​Labour Link: A Post-​Seattle Analysis’ in Z. Drabek (ed), Globalisation under threat: the stability of trade policy and multilateral agreements (Cheltenham: Edward Elgar, 2001) 101, at 106-​108, and generally O.A. Hathaway, ‘The Cost of Commitment’ 55 Stanford Law Review (2003) 1821. 165  See above sections II.C and III.E.

650    Marcus Gustafsson and Amrita Bahri A. Bahri, ‘Women at the Frontline of COVID-​19: Can Gender Mainstreaming in Free Trade Agreements Help?’ 23(3) Journal of International Economic Law (2020) 563 M. Bronckers and G. Gruni, ‘Retooling the Sustainability Standards in EU Free Trade Agreements’ 24 Journal of International Economic Law (2021) 25 ILO, Labour provisions in G7 trade agreements (Geneva: ILO, 2019) V.A. Leary and D. Warner (eds), Social Issues, Globalisation and International Institutions (Leiden: Brill, 2006) J.-​M. Monteiro, ‘The Evolution of Gender-​Related Provisions in Regional Trade Agreements’ 2021 WTO Economic Research and Statistics Division, Staff Working Paper ERSD-​2021–​8 ITC, ‘Mainstreaming Gender in Trade Agreements: A New Approach’, at A. Smith, J. Harrison, L. Campling, B. Richardson, and M. Barbu, Free Trade Agreements and Global Labour Governance (Abingdon: Routledge, 2021)

Chapter 24

Ba l a n c i n g M a rk et a n d N on -​M a rk et Ob j e c t i v e s : AC C E S S TO M E DI C I N E S Jayashree Watal

I. II. III. IV. V. VI.

Introduction 651 What are the types of medicines most needed in low and middle-​income countries (LMICs)? 653 Importance of patents/​market exclusivity to pharmaceutical innovation and trade: survey of the literature in economics 656 Negotiating background and outcomes of the TRIPS provisions relevant to access to medicines and the Doha Declaration on the TRIPS Agreement and Public Health 660 Varied implementation by key WTO Members of relevant provisions of TRIPS/​subsequent FTAs and its implications for access to medicines 669 Recommendations of way forward on reconciling incentives for pharmaceutical innovation with access of medicines for all 671

I. Introduction Medicines are essential to meet the basic health priorities of the population. The modern pharmaceutical industry has so far provided the world with most of the innovative medicines that are essential to effectively treat numerous potentially fatal disease conditions that face humanity, using the market economy model. Unfortunately, about a third of the world’s population, concentrated particularly in the poorest regions

652   Jayashree Watal of Africa and South Asia, still lacks adequate access to these medicines.1 Additionally, most low-​income countries and several middle-​income countries do not spend even the minimum of $13 per capita on medicines that has been estimated as being needed to ensure that a basic package of essential medicines is available to all.2 In theory, access to medicines has two distinct aspects, namely availability and affordability. Lack of access to essential, needed medicines can therefore only mean one of two situations: one, that these medicines are not available as they have not yet been introduced into that particular country or market by the originator company or any other entity; or two, that, even when available in the country, they are not affordable to most patients in that country as the price of treatment is disproportionately high compared to the average income levels in the country.3 Some medicines may not be made available by the originator or other sellers/​distributors for valid economic reasons such as the small size of a particular market for those medicines or disproportionately high entry or distribution costs. They may also not be available for reasons of inadequate legal infrastructure such as that necessary to grant speedy and high-​quality regulatory approvals or to provide adequate intellectual property (IP) protection for medicines in the country.4 In such cases, even the rich in that country may have no access unless they travel abroad to receive treatment. However, before COVID-​19, it was the second situation where needed essential medicines are available but are unaffordable to a majority of those who need them that has attracted the most attention in public health policy circles, especially when juxtaposed against the current predominant market-​based model of incentivizing R&D to generate new, innovative medicines, namely intellectual property rights (IPRs) that grant temporary market exclusivity such as patents. The focus of the criticism of the current innovation model is the alleged use (or misuse) of the intellectual property system that allows the originator to control the availability and charge ‘monopoly’ prices for essential medicines during the patent or market exclusivity term. In this context, the WTO TRIPS Agreement is criticized for obliging Members to make available patents for eligible pharmaceutical inventions. While developed country Members have had this obligation from 1996, developing country Members had the option to delay the introduction of pharmaceutical product patents until 2005, and least-​developed country (LDC) Members can now delay such introduction until 2033.5 1  WHO, Access to medicines: making market forces serve the poor, at < https://​www.who.int/​publi​cati​ ons/​10-​year-​rev​iew/​medici​nes/​en/​ > (last visited 17 June 2020). Throughout this chapter medicines are taken to include vaccines and diagnostics. 2 See V.J. Wirtz et al., ‘Essential Medicines for Universal Health Coverage’ 389 The Lancet Commissions (2017) 403–​ 476, at < https://​www.thelan​cet.com/​journ​als/​lan​cet/​arti​cle/​PIIS0​140-​ 6736(16)31599-​9/​fullt​ext > (last visited 17 June 2020). 3  See R. Dai and J. Watal, ‘Product Patents and Access to Innovative Medicines’ 291 Social Science and Medicine (2021) 114479, at < doi: 10.1016/​j.socscimed.2021.114479. Epub 2021 Oct 9. PMID: 34700119 > (last visited 18 May 2022). 4 Ibid. 5 See Fact Sheet: TRIPS and Pharmaceutical Patents, at < https://​www.wto.org/​engl​ish/​trato​p_​ e/​trip​s_​e/​fact​shee​t_​ph​arm0​4_​e.htm > (last visited 25 June 2020), and a WTO news item on the LDC

Food Safety   653 The international community agrees that access to medicines is part of the fundamental right to health.6 In addition, the UN, in its Sustainable Development Goal (SDG) 3, aims to ‘ensure healthy lives and promote well-​being for all at all ages’. Two sub-​paragraphs of this SDG mention essential medicines. Paragraph 3.8 calls for ‘access to safe, effective, quality and affordable essential medicines and vaccines for all’ as an essential element in achieving Universal Health Coverage (UHC), a goal on which the WHO is focussed.7 Paragraph 3.b calls for access to affordable essential medicines and vaccines in accordance with the Doha Declaration on the TRIPS Agreement and Public Health (hereinafter the Doha Declaration),8 which affirms the right of developing countries to use to the full the provisions in the TRIPS Agreement ‘regarding flexibilities to protect public health, and, in particular, provide access to medicines for all’. Thus, the international community represented in the UN agrees that access to medicines is intrinsically linked to intellectual property and advocates the use of policy measures permitted under the TRIPS Agreement. This means that the TRIPS Agreement is perceived to be both the key problem as well as the essential solution to the access to medicines conundrum. This is explained further in Sections IV and V below.

II.  What are the types of medicines most needed in low and middle-​income countries (LMICs)? In order to have a clearer picture of the type of medicines needed in a country, especially in a poorer country, we need to look at the global burden of disease in that country. The Global Burden of Disease database, updated regularly, gives a detailed picture of the causes of death and disability in each country.9 It was once clear that poorer countries mostly suffered from malnutrition and infectious diseases, mainly caused by poverty, poor sanitation, and hygiene, while richer countries grappled more with lifestyle diseases such as cardiovascular and related conditions. However, with globalization, diets and lifestyles have been rapidly pharmaceutical extension of transition period, at < https://​www.wto.org/​engl​ish/​new​s_​e/​news1​5_​e/​tri​p_​ 06​nov1​5_​e.htm > (last visited 25 June 2020). 6  See a brief explanation on this by the UN Office of the High Commissioner for Human Rights, at < https://​www.ohchr.org/​EN/​Iss​ues/​Deve​lopm​ent/​Pages/​Access​ToMe​dici​nes.aspx > (last visited 17 June 2020). 7 See WHO’s own explanation at < https://​www.who.int/​hea​lth-​top​ics/​univer​sal-​hea​lth-​cover​ age#tab=​tab_​1 > (last visited 17 June 2020. 8 See < https://​www.wto.org/​engl​ish/​thewt​o_​e/​minis​t_​e/​min0​1_​e/​mind​ecl_​trip​s_​e.htm > (last visited 17 June 2020). 9  The Institute for Health Metrics and Evaluation, at < http://​www.hea​lthd​ata.org/​gbd > (last visited 17 June 2020).

654   Jayashree Watal changing over time. Leaving aside the current global pandemic of COVID-​19, non-​ communicable diseases (NCDs) became the biggest cause of death worldwide in 2018, accounting for about 70 per cent of all deaths. And, almost three quarters of these deaths occur in low-​and middle-​income countries.10 The majority of such deaths were caused by the four main NCDs, namely: cardiovascular disease (17.9 million deaths; accounting for 44 per cent of all NCD deaths); cancer (9.0 million deaths; 22 per cent); chronic respiratory disease (3.8 million deaths; 9 per cent); and diabetes (1.6 million deaths; 4 per cent). And adults in low—​and LMICs face the highest risks of death from one of these NCDs—​almost double the rate for adults in high-​income countries.11 While it is important to prevent NCDs by controlling key risk factors such as unhealthy diets, tobacco usage, alcohol consumption, and physical inactivity, access to needed medicines that cure or control these chronic disease conditions is also crucial. While many medicines to treat cardiovascular and other NCD conditions are older ones that are now off-​patent, many cancer medicines are newer and are usually covered by patents or other market exclusivity regimes in several key markets, including in some LMICs, and patients face very high prices. Much attention has therefore been paid by the public health community to the prices of cancer medicines. A 2018 WHO technical report on the subject noted that: ‘the costs of research and development and production may bear little or no relationship to how pharmaceutical companies set prices of cancer medicines. Pharmaceutical companies set prices according to their commercial goals, with a focus on extracting the maximum amount that a buyer is willing to pay for a medicine.’12 We still need to pay attention to infectious diseases because these overwhelmingly affect LMICs. Until the pandemic COVID-​19 hit the world in 2020, the four major diseases in this category were HIV/​AIDS, tuberculosis, malaria, and hepatitis. Globally, 37.7 million were living with HIV in 2020, two-​thirds of whom are in sub-​Saharan Africa. Since the start of the pandemic, 36.3 million have died of HIV and related illnesses, with most deaths in sub-​Saharan Africa. The number of HIV-​related deaths were 680,000 in 2020. Access to the relevant anti-​retroviral treatment (ART) played an important role in the sharp decline of 64% in HIV-​related deaths from a peak of 1.9 million in 2004. By mid-​2021, almost 90% of those diagnosed with HIV, approximately 28.2 million people, were receiving ART, up from 7.8 million in 2010.13 10  See the text of the Doha Declaration on the TRIPS Agreement and Public Health, at < https://​www. who.int/​ncds/​en/​ > (last visited 17 June 2020). 11  The information in much of this section is taken from WHO’s 2018 World Health Statistics Report, at < https://​www.who.int/​gho/​publi​cati​ons/​worl​d_​he​alth​_​sta​tist​ics/​2018/​EN_​WH​S201​8_​Pa​rt2.pdf?ua=​ 1 > (last visited 17 June 2020). 12  See the report by the WHO Director General to the 144th session of the Executive Board of the WHO on ‘Medicines, vaccines and health products: cancer medicines’, EB 144/​18 (26 November 2018), at < http://​apps.who.int/​gb/​ebwha/​pdf_​fi​les/​EB144/​B144​_​18-​en.pdf > (last visited 17 June 2020). 13 See the Global HIV and AIDS statistics fact-​ sheet, at < https://​www.una​ids.org/​en/​resour​ces/​ fact-​sheet#:~:text=​GLO​BAL%20HIV%20STA​TIST​ICS&text=​37.7%20mill​ion%20%5B30.2%20mill​ ion%E2%80%9345.1,AIDS%2Drela​ted%20il​lnes​ses%20in%202​020 > (last visited 18 May 2022).

Food Safety   655 Tuberculosis (TB) remains the next most important infectious disease in LMICs. Although a lot has been done to improve the situation, this disease is often the cause of death among HIV-​infected persons—​there were 10 million people infected with TB—​ with most in South Asia—​and 1.5 million deaths in 2020. An estimated 66 million lives were saved through diagnosis and treatment between 2010 and 2020. While there have been effective older drugs like rifampicin that lead to cures for TB, of late, there has been a rise of multi-​drug resistant TB (MDR-​TB). Only one-​third of those infected with MDR-​TB have access to medicines. Additionally, so far, few effective medicines exist for MDR-​TB, which is one of the issues being dealt with by the public health community under the broader umbrella of finding urgent solutions to anti-​microbial resistance.14 Malaria led to 241 million being infected and 627,000 people dying of it in 2020, almost all being children under the age of five in the African region. Most deaths could have been prevented through the use of safer and more effective insecticides, as well as access to needed medicines. Since October 2021, the WHO has recommended the RTS-​ S/​AS01 vaccine in malaria endemic countries. However, its availability is likely to be low in the near future. The search for a more efficacious vaccine continues. Challenges impeding the ability of countries to control and eliminate malaria include the risks posed by mosquito resistance to insecticides, particularly those used for indoor residual spraying, and to medicines, as well as conflict in malaria endemic zones and anomalous climate patterns. Access to patented medicines is not yet an issue in controlling this disease condition.15 Hepatitis B and C viruses cause infections that can be fatal and such infections are extremely common in LMICs. There were 354 million persons living globally with these types of hepatitis infections in 2019, causing an estimated 1.1 million deaths. Two hundred ninety-​six million people were infected with Hepatitis B, including 1.5 million with the chronic condition, causing 820,000 deaths in 2019. There is an effective and affordable Hepatitis B vaccine that has brought down the infection and death rates for this disease condition. In the case of Hepatitis C, an estimated 58 million persons were infected globally in 2019, including 1.5 million chronic cases, causing 290,000 deaths. There have also been effective—​even miraculous—​ medicines that fully cure Hepatitis C. The problem is that such medicines were introduced at very high prices and continue to be unaffordable in some LMICs. However, a majority of LMICs have access to some of these medicines through licensing arrangements entered into by the originator companies. An estimated 9.4 million Hepatitis C patients, or 62% of those who knew their diagnosis, were on treatment in 2019, a nine-​fold jump in just five years.16

14  See key facts on TB at: < https://​www.who.int/​news-​room/​fac​tshe​ets/​det​ail/​tuber​culo​sis#:~:text=​ Key%20fa​cts,with%20t​uber​culo​sis%20(TB)%20wo​rldw​ide > (last visited 18 May 2022). 15  See the WHO factsheet at: < https://​www.who.int/​news-​room/​fac​tshe​ets/​det​ail/​mala​ria#:~:text=​ Dise​ase%20bur​den,dea​ths%20o​ver%20the%20p​revi​ous%20y​ear > (last visited 18 May 2022). 16  See WHO’s fact sheet on Hepatitis C, at < https://​www.who.int/​hea​lth-​top​ics/​hepati​tis#tab=​tab_​1 > (last visited 18 May 2022).

656   Jayashree Watal COVID-​19 has so far caused 520 million infections and 6.3 million death globally since 2020. From 2020, the world was united in its search for new drugs and vaccines to mitigate the adverse effect of the global pandemic COVID-​19, and once again, IPRs and access to medicines came up in the debate on equitable access to the resulting drugs and vaccines. Up to 15 May 2022, almost 12 billion doses of COVID vaccines have been administered globally.17 However, while high and upper-​middle-​income countries administered close to 200 doses per 100 persons, low-​income countries had less than 20 doses.18 Developing countries led by India and South Africa had demanded a waiver of TRIPS obligations on COVID-​related products in October 2020 in order to ramp up manufacturing capacity. A compromise decision is expected on the COVID-​related TRIPS waiver by the WTO Ministerial meeting in mid-​June 2022.19

III.  Importance of patents/​market exclusivity to pharmaceutical innovation and trade: survey of the literature in economics Before delving into the legal intricacies of the effect of the TRIPS Agreement and the Doha Declaration on access to medicines, let us first understand what economists tell us about the link between market exclusivity/​patents and pharmaceutical innovation. Several early multi-​sectoral studies in the United States20 found that patents were important to capturing profits from innovation only in a few sectors, notably chemicals and pharmaceuticals. In other industrial sectors firms preferred secrecy, lead time, and other business or manufacturing methods to appropriate returns to R&D. These results were replicated in many other countries, and again the chemical and pharmaceutical sector stood out in their unique dependence on patents.21 The main reason patents are an effective way to profit from pharmaceutical inventions, unlike in most other sectors, is that, at least in the case of medicines that use new chemical entities, patent claims can be well-​defined and can hold up against

17 

See WHO webpage: < https://​covi​d19.who.int/​> (last visited 18 May 2022). See data on vaccine equity at: < https://​data.undp.org/​vacc​ine-​equ​ity/​> (last visited 18 May 2022). 19  See latest news on the COVID IP waiver here: < https://​www.wto.org/​engl​ish/​new​s_​e/​news2​2_​e/​tri​ p_​06​may2​2_​e.htm >. 20  See WIPO, The Economics of Intellectual Property, 2009, Chapters 1 and 5, at < https://​www.wipo. int/​edocs/​pubd​ocs/​en/​econom​ics/​1012/​wipo_​p​ub_​1​012.pdf > (last visited 18 May 2022). 21  See a summary of research studies on this subject in A. Lopez, ‘Innovation and Appropriability, Empirical Evidence and Research Agenda’ in WIPO, The Economics of Intellectual Property (Geneva: WIPO, 2009). 18 

Food Safety   657 challenges to patent validity. Several studies have shown that the availability of product patents for pharmaceuticals is a significant factor in firms introducing patented medicines in a particular market.22 This would be true for other forms of exclusivity, such as test or regulatory data protection as well, although these are less studied by economists due to lack of global databases. A patent grants its owner the exclusive right to make, use, sell or otherwise distribute the patented product for a period of twenty years from the date of filing of the patent application. It is a common misunderstanding to believe that patents necessarily result in a monopoly. The degree of market power enjoyed by any particular patented medicine would largely depend upon its unique therapeutic advantage compared to substitute medicines available to treat the same disease condition. Such substitute medicines could also enter the market later during the patent term, thus reducing any initial advantage that a medicine may have had upon market entry. It is not surprising that even generic medicines can enjoy periods of market power when there is only one firm in the market, or there are shortages of the same or substitute generics, as it would take time for other firms to enter the market. This was illustrated by the scandal caused in the United States in 2015 by the unprecedented increase in the price of an old, patent-​ expired drug, Daraprim, from $ 13.50 to $ 750 per pill, a price that remained at that level despite the scandal, until the FDA approved another generic equivalent in March 2020.23 Economic studies have found that the average period of market exclusivity conferred by pharmaceutical product patents is far less than the legal duration of twenty years; it is an average of 8–​12 years.24 This is because, while there is a race to be the first to file the patent application on a particular molecule at an early stage, clinical trials are needed to prove the safety and efficacy of the medicine in order to obtain marketing approvals generally take place after such filing. Studies in the United States have also shown that the more successful a medicine is, in terms of sales revenue, the more likely it is that its patents will be challenged for validity, resulting in earlier generic entry and lower periods of market exclusivity.25 When generics enter the market after the patent term has expired, average prices for the same medicine could be a small percentage of the originator price. Moreover, even during this period of exclusivity, limited exceptions allow generic drug producers to make and use the patented product to obtain regulatory approvals and conduct further research based on the invention. Further, most national authorities are permitted by law (and under the TRIPS Agreement) to grant compulsory licences or 22 

See references in Watal and Dai, above fn 3. See the write up on Martin Shkreli, at < https://​en.wikipe​dia.org/​wiki/​Mar​tin_​Shkr​eli > (last visited 17 June 2020). See also N.P. Tallapragada, ‘Off-​patent Drugs at Brand Name Prices: A Puzzle for Policy Makers’ 3(1) Journal of Law and Biosciences (2016) 238–​247. 24  US Congress, Office of Technology Assessment, ‘Pharmaceutical R&D: Costs, Risks and Rewards’ (1993), at < https://​ota.fas.org/​repo​rts/​9336.pdf > (last visited 17 June 2020), at 20. 25 See H.G. Grabowki and M. Kyle, ‘Generic Competition and Market Exclusivity Periods in Pharmaceuticals’ 28(4-​5) Managerial and Decision Economics (2007) 491–​502. 23 

658   Jayashree Watal use patents without authorization of the patent owner, subject only to certain conditions being followed, including adequate remuneration. Thus competition in patented medicine markets could come even before patent expiry—​through challenges to patent validity, the grant of compulsory licences, or government use authorizations. Medical innovation can be a global public good since the entire world can benefit from incentives to innovate given in any one part of the world. This raises the issue of equitable sharing of the burden of R&D in this sector by those who benefit worldwide. However, trying to share this burden through the price mechanism tends to result in highly inequitable results for access to medicines. Several solutions that are compatible with the patent system are advocated and have been attempted around the world, to attenuate the effects of high prices of patented medicines. Among these are price controls, compulsory licensing, and parallel imports. Price regulation can be broadly of two types: one, fixed mark ups allowed over direct costs of production or over import prices at the border and two, limits on price reimbursement based on whatever is considered to be a reasonable price, taking various factors into account. Sometimes, such a price is determined by referring to prices of identical medicines in countries that have similar levels of income or development, called reference pricing. For price regulation to work, the relevant authorities must either have accurate details of costs or some kind of monopsony power to drive a hard bargain. Moreover, final prices have to be worked out carefully in order not to discourage the introduction of new medicines into the market. Compulsory licences or government use authorizations are patent-​use licences permitted by national authorities (commonly patent offices or courts) to third parties, without the consent of the patent owner. Most patent laws around the world permit such licences in one form or another broadly on grounds of public interest. Such licences could reduce prices of patented medicines substantially during the patent term on account of the competition they introduce into the market. However, despite the urging of civil society actors, given the likely non-​co-​operation of patent owners and influence of their host countries, they are unlikely to be deployed widely enough to provide a stable, long-​term solution. Paradoxically, if compulsory licensing were deployed widely in major markets, patents would lose their rationale of providing incentives for R&D. Parallel imports of patented medicines comprise imports from markets where the medicine is sold by, or with the consent of, the patent owner at a lower price. Sale at lower prices in some markets creates an opportunity for such imports into higher priced markets. Such imports are therefore recommended for poorer countries to benefit from lower prices of legitimate products sold elsewhere. However, it has been seen in careful empirical studies that while parallel imports do result in a small reduction in prices, there are considerably higher benefits to parallel traders as compared to consumers, without any convergence in the prices of medicines.26 26  See M. Ganslandt and K.E. Maskus, ‘Parallel Imports of Pharmaceutical Products in the European Union’ 2001 Policy Research Working Paper No 2630. See also M.K. Kyle, ‘Strategic Responses to Parallel Trade’ 11(2) B.E. Journal of Economic Analysis and Policy (2007), 1–​32.

Food Safety   659 One solution put forward by economists to avoid the use of regulation to impact prices directly or indirectly as described above is voluntary differential or tiered pricing by patent owners, i.e., lower prices in poorer countries. Theoretically, a monopolist selling under different market conditions could use a form of price discrimination based on the differing willingness and ability to pay for the product to maximize profits. The counterfactual to differential pricing is uniform pricing wherein the seller sets one price, adjusted for transport, distribution. and other costs, for all consumers and markets. Under such pricing, the seller maximizes his profits against an aggregation of each market’s demand. The seller will continue global sales to the point where the costs of producing and selling an additional unit of the product exceed revenues from such sales anywhere in the world.27 A medicine protected by patents and trade secrets should, in principle, lend itself to differential pricing. In such circumstances, both consumers in poorer countries and patent owning companies would be better off than with uniform prices. It would also seem that, in these circumstances, the market itself could solve the problem of equitable sharing of R&D costs. In the real world, companies are loath to price their products differentially in countries where inter-​country and, more significantly, intra-​country arbitrage cannot be ruled out. This is especially true where medicines are paid out of the pocket—​as is the case in many LMICs—​because of inadequate public health systems and a highly skewed income distribution. Such arbitrage can take place not only through parallel imports but also indirectly through reference pricing or demands to offer lower prices in high-​income markets. Indeed, for these and other reasons, the widespread and systematic use of differential pricing by originator companies has been very limited.28 It is more prevalent in vaccines and contraceptives, and more recently, in HIV/​AIDS and Hepatitis-​C drugs that benefit from patent owners not only directly pricing them lower in low-​income markets but also licensing them directly to generic companies, as well as through the non-​profit entity, the Medicines Patent Pool.29 Despite these difficulties, differential pricing appears to be the only long-​term, viable solution for improving access to medicines within the existing systems of medical innovation. Some practices to prevent diversion to unintended markets, such as different labelling and packaging, effective segregation of public and private markets, contracts to prevent trade diversion, volume discounts and pooled procurement, could enhance the attractiveness of differential pricing to patent owners. It has also been recommended

27  See

Background Paper prepared by the author for the WHO-​WTO Workshop on Differential Pricing and Financing of Essential Medicines in 2001, at < https://​www.wto.org/​engl​ish/​trato​p_​e/​trip​s_​ e/​who_​b​ackg​roun​d_​e.pdf > (last visited 17 June 2020). 28  See Watal and Dai, above fn 3. 29  See more about the work of MPP, at < https://​medi​cine​spat​entp​ool.org/​who-​we-​are/​ > (last visited 17 June 2020). In the interests of full disclosure, the author was a member of the governance board of MPP from 2015 to 2021.

660   Jayashree Watal to prevent or regulate indirect price regulation through the practice of reference pricing or other systems of ‘informational’ price leakages.30 Quite apart from the prices or affordability of patented medicines, concern has been raised about the delays in the availability of these medicines in other countries from the date of first approval in the first country. Economists have found that countries with weak IPRs and aggressive price regulation may face substantial delays in the introduction of new medicines.31 This work has been taken further in work done by others,32 where key developing countries have been shown to have slower diffusion of new drugs even in a post-​TRIPS era. Some countries give incentives to originator companies to introduce their products soon after first marketing anywhere in the world by counting the term of test data exclusivity from the date of first approval globally rather than in that country. Finally, it is important to note that patents and other IPRs are meant to be market-​ based or price-​linked instruments. They play a limited role in providing incentives to develop new drugs for ‘neglected diseases’ or ‘diseases of the poor’ where there are small markets. This has generated a debate on alternative non-​price linked mechanisms for incentivizing innovations such as prizes or other mechanisms to delink price from R&D costs and has spawned new business models such as product development partnerships and advance purchase commitments. It is against this economic background of the importance of patent protection in the current pharmaceutical R&D model, and the importance of generic competition to lower prices that we will broach the legal dimension of access to medicines and trade law.

IV.  Negotiating background and outcomes of the TRIPS provisions relevant to access to medicines and the Doha Declaration on the TRIPS Agreement and Public Health Given the crucial importance of patents to capturing returns to R&D investments in the pharmaceutical sector (see Section III above), it was clearly in the interest of the

30 For

more on this subject, see P.M. Danzon, ‘Differential Pricing of Pharmaceuticals: Theory, Evidence and Emerging Issues’ 36(3) PharmacoEconomics (2018) 1395–​1405. 31  See J.O. Lanjouw, ‘Patents, Price Controls, and Access to New Drugs: How Policy Affects Global Market Entry’ 2005 NBER Working Papers 11321, at < https://​ideas.repec.org/​p/​nbr/​nbe​rwo/​11321.html > (last visited on 17 June 2020). 32  See E. Berndt, N. Blalock and I. Cockburn, ‘Diffusion of New Drugs in the Post-​TRIPs Era’ 18(2) International Journal of the Economics of Business (2011) 203–​224.

Food Safety   661 countries hosting the major pharmaceutical R&D companies, namely the United States, the European Union, Switzerland, and Japan, to demand stronger market exclusivity provisions for pharmaceuticals during the TRIPS negotiations in the Uruguay Round of multilateral trade negotiations under the aegis of the GATT 1947, the predecessor to the WTO. It was equally in the interest of the countries that produced and exported generic versions of patented medicines, notably India, to resist these demands to introduce product patents and test data protection in the pharmaceutical sector and at least try to concede only the minimum necessary. Instead of merely explaining the TRIPS provisions of relevance to access to medicines,33 this chapter has chosen to illustrate these with insights into their negotiating history in the Uruguay Round of Multilateral Trade Negotiations.34 The subject matter of patents and, more importantly, permitted exclusions of patentable subject matter was the most sensitive issue for both the demandeurs of stronger IPR protection for innovative pharmaceuticals and for countries like India, which have a strong, domestic generic drug industry. Since the results of the Uruguay Round were to be accepted as a single package, key Latin American and Asian countries that had interests similar to those of India were prepared to give up the fight for these patent exclusions in return for perceived gains in agriculture or textiles or other areas in the Uruguay Round. African countries, now considered to be worst off in terms of access to patented medicines, were not very active in the TRIPS negotiations. As for the poorest countries, well before the TRIPS Negotiating Group began working on the legal text of the TRIPS Agreement, Bangladesh, on behalf of the group of LDCs, had made it clear that LDCs wanted to be exempt from applying TRIPS obligations and wanted technical assistance to eventually implement them, as well as provisions relating to the transfer of technology, all of which they obtained, to a large extent, in the final Agreement and subsequent extensions of the date of application of the TRIPS Agreement. Thus, India found itself alone in its opposition to product patents in pharmaceuticals and chemicals—​clearly, an unsustainable position in multilateral negotiations. That the term ‘invention’ or the criteria of patentability were left undefined in what is now Article 27.1 of the TRIPS Agreement35 was not due to any major foresight in the negotiations, but because they were considered at the time to be sufficiently clear for 33 For

such an explanation, please see TRIPS and Pharmaceutical Patents, a WTO fact sheet, at < https://​www.wto.org/​engl​ish/​trato​p_​e/​trip​s_​e/​trips​fact​shee​t_​ph​arma​_​200​6_​e.pdf > (last visited 17 June 2020). 34  This section is largely based on the author’s chapter in WTO, see J. Watal, ‘Patents: An Indian Perspective’ in J. Watal and A. Taubman (eds), The Making of the TRIPS Agreement: Personal Insights from the Uruguay Round Negotiations (Geneva: WTO, 2015), also available at < https://​www.wto.org/​engl​ ish/​res_​e/​books​p_​e/​trips_​agre​e_​e/​chapt​er_​1​6_​e.pdf > (last visited 17 October 2020). 35  ‘Subject to the provisions of paragraphs 2 and 3, patents shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application. Subject to paragraph 4 of Article 65, paragraph 8 of Article 70 and paragraph 3 of this Article, patents shall be available and patent rights enjoyable without discrimination as to the place of invention, the field of technology and whether products are imported or locally produced.’

662   Jayashree Watal patent examination purposes. Public health activists strongly advocate a narrow interpretation of the Article 27.1 criteria for the grant of a patent –​such as novelty, inventive step (or non-​obviousness), and industrial applicability (or utility) –​so that pharmaceutical patents are granted only for ‘true’ inventions.36 India used this ‘loophole’ to insert Section 3(d) in its patent law37 to prevent incremental, trivial innovation that is allegedly used to extend the patent term of pharmaceutical products even though this was not anticipated at the time of the negotiations. On the optional exclusion of plant and animal inventions—​of interest to the biotechnology industry for the newer biologics or large molecule medicines of biological origin—​there were considerable intra-​North differences, with Canada in particular, opposing the patenting of multi-​cellular organisms. Canada submitted in October 1989 that it would not be reasonable to oblige all governments to extend patents to multi-​ cellular life forms, as this area required more technical study to determine the most appropriate form of protection. At the time, the (then) European Community had not yet passed its Biotechnology Directive and had difficulties in accepting an immediate obligation to provide patents for plant and animal inventions. The Nordic countries also wanted such exclusions. The Association of Southeast Asian Nations (ASEAN) countries, and even some Latin American countries, had no problem supporting the patentability of microorganisms and microbiological and non-​biological processes for the production of plants and animals, but could not support the patentability of plant and animal inventions. Due to these positions, Article 27.3(b) of the TRIPS Agreement has been drafted the way it is.38 Developing countries also sought, during the Uruguay Round negotiations, the exclusion of methods of treatment for humans and animals from patent protection. One view was that such methods did not need to be especially excluded since they were not susceptible to industrial application, unlike products used for treatment. However, since the TRIPS text held ‘industrial applicability’ to be synonymous with ‘usefulness’, India and others thought it prudent to retain such an exclusion in the TRIPS Agreement.39 Only the United States opposed the optional exclusion of methods of medical treatment in TRIPS negotiations, wanting these to be confined only to surgical methods. In the end, the United States’ view did not prevail. In 1996, the United States amended its 36 See

C. Correa, Guidelines for Pharmaceutical Patent Examination: Examining Pharmaceutical Patents from a Public Health Perspective (New York: UNDP, 2016). 37  See the text of Section 3 of the Indian patent law, at < http://​ipin​dia.nic.in/​writer​eadd​ata/​Por​tal/​ev/​ secti​ons/​ps3.html > (last visited 17 June 2020). 38  Article 27.3(b) states: ‘Members may also exclude from patentability:​ . . . plants and animals other than micro-​organisms, and essentially biological processes for the production of plants or animals other than non-​biological and microbiological processes. However, Members shall provide for the protection of plant varieties either by patents or by an effective sui generis system or by any combination thereof. The provisions of this subparagraph shall be reviewed four years after the date of entry into force of the WTO Agreement.’ 39  Article

27.3(a) states: ‘Members may also exclude from patentability diagnostic, therapeutic and surgical methods for the treatment of humans or animals;’.

Food Safety   663 patent law to exclude the availability of some enforcement remedies for patents on medical or surgical procedures used by medical practitioners to treat humans.40 In recent years, with the emergence of gene therapy to treat diseases, such as CAR-​T for cancer, there has been some discussion as to whether these could be excluded from patent protection, as they are methods of treatment.41 Among developing countries, for reasons mentioned above, India found it the most difficult politically to accept product patents for pharmaceuticals in the Uruguay Round. But by 1993, when the TRIPS text was finalized, India had had two years of successful implementation of economic reforms and was beginning to become rapidly integrated into the global economy. Despite this, it took many more battles in India’s parliament, and India’s loss of two TRIPS dispute settlement cases at the WTO on transitional arrangements before its laws were amended to introduce its TRIPS obligations in these contentious areas. The silver lining for developing countries was that the TRIPS Agreement allowed quite liberal exceptions to patent rights. For one, it was left to WTO Members to decide the regime of exhaustion of IPRs, including for patents. This would include the freedom to allow parallel imports of patented medicines. Thus, if a Member chooses to implement international exhaustion of patents, patented medicines that are being sold at lower prices elsewhere by the originator, or with his consent, can be freely imported, thus attenuating any adverse effects of ‘monopoly’ pricing in its territory. This negotiating battle on exhaustion was led by Hong Kong, China to, ‘an honourable draw’ as recounted by its negotiator in a WTO publication.42 The Doha Declaration on the TRIPS Agreement and Public Health of November 2001 reassures WTO Members that they can choose any regime of exhaustion of IPRs they like without fear of challenge.43 However, some FTAs have plugged this ‘loophole’, especially in relation to patented medicines. For example, the US-​Singapore FTA provides patent holders in either country the means to block the importation of patented drugs into their jurisdictions when such importation violates a distribution agreement abroad (anywhere in the world). Patent holders could thus restrict all distribution agreements territorially with a view to blocking parallel importation into either the United States or Singapore under this provision. The US-​Morocco and US-​Australia FTAs also restrict parallel imports.44 40  U.S. Patent Law, 35 USC § 287(c) states that a medical practitioner’s performance of a medical activity that constitutes an infringement of an issued patent will not be held liable for damages and will not be enjoined from practicing the medical procedure claimed in the patent. 41 See the legal reasoning in L.G. Abinader and J.L Contreras, ‘The Patentability of Genetic Therapies: CAR-​T and Medical Treatment Exclusions Around The World’ Utah Law Faculty Scholarship (2019), at < https://​dc.law.utah.edu/​scho​lars​hip/​160 > (last visited 20 June 2020), at 160. 42 See David Fitzpatrick’s account in J. Watal and A. Taubman (eds), The Making of the TRIPS Agreement: Personal insights from the Uruguay Round negotiations (Geneva: WTO, 2015) 285–​291. 43  See paragraph 5(d), at < https://​www.wto.org/​engl​ish/​thewt​o_​e/​minis​t_​e/​min0​1_​e/​mind​ecl_​trip​s_​ e.htm > (last visited 17 June 2020). 44 Taken from Chapter IV in WHO-​ WIPO-​ WTO, Promoting Access to Medical Technologies and Innovation: Intersections between Public Health, Intellectual Property and Trade, 2nd edition (Geneva: WTO, 2020), at < https://​www.wto.org/​engl​ish/​res_​e/​pub​lica​tion​s_​e/​who-​wipo-​wto​_​202​0_​ e.htm > (last visited on 17 October 2020).

664   Jayashree Watal On limited exceptions to patent rights (other than compulsory licensing and government use), the lack of agreement among the demandeurs on a positive list approach during the TRIPS negotiations led to the alternative language eventually proposed based on limited exceptions to copyright in the Berne Convention, in what is now Article 30 of the TRIPS Agreement.45 This broad language was acceptable to developing countries. In the context of early access to new, innovative medicines, the limits of Article 30 of the TRIPS Agreement were tested under the WTO’s dispute settlement mechanism. Canada allowed generic drug producers to make the patented medicine for proving bioequivalence to obtain regulatory review. Canada also allowed generic producers to stockpile but not sell such patented medicines so that they may be sold promptly upon patent expiry. Both these exceptions were challenged by the European Union as not being permitted under Article 30. The Panel upheld the Canadian regulatory review measure, but the stockpiling measure was rejected.46 Paradoxically, the very same provision that the European Union complained about got adopted as a part of EU law.47 Thus the TRIPS Agreement was interpreted within five years of its existence to ensure that the regulatory review exception—​so important for the timely introduction of generic pharmaceuticals—​became an explicit part of patent laws around the world, where it was not so earlier because doubt had been cast on its legitimacy. One of the most important provisions on access to medicines relates to compulsory licences and government use, which were presented as two separate provisions in the draft TRIPS text of October 1990. Both these provisions were combined in a single provision under Article 31 titled ‘Use without authorization of the right holder’. The eventual outcome was based on a proposal submitted by India, which combined the two provisions.48 To establish credibility, India conceded in its submission that the remuneration should be ‘reasonable’ in all cases—​in other words, while the use would be without the authorization of the right holder, he or she would be reasonably remunerated. Another upfront concession was giving up the demand for exclusive compulsory licences, seen as a major concession in the light of the WIPO Paris Convention’s revision process, which broke down over this point. India scored a major negotiating victory when the Indian non-​paper or room document was accepted as a basis for further negotiations after it gained the support of the European Community and Canada, as well as of Japan. This led to the isolation of the

45  Article 30 states: ‘Members may provide limited exceptions to the exclusive rights conferred by a patent, provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties.’ 46  See Panel Report, Canada –​Pharmaceutical Patents, adopted 7 April 2000, para 8.1. 47  See Article 10 (6) of Directive 2004/​27/​EC of the European Parliament and of the Council of 31 March 2004 amending Directive 2001/​83/​EC on the Community code relating to medicinal products for human use, OJ 2004 L 136, p. 34. 48  See this author’s account, available at < https://​www.wto.org/​engl​ish/​res_​e/​books​p_​e/​trips_​agre​ e_​e/​chapt​er_​1​6_​e.pdf > (last visited 18 May 2022) in J. Watal and A. Taubman (eds), The Making of the TRIPS Agreement: Personal insights from the Uruguay Round negotiations (Geneva: WTO, 2015) 285–​291.

Food Safety   665 US delegation within the Quad49 on this issue. The United States could no longer insist on the restriction of the grounds for compulsory licences to two only: one, for a declared national emergency and two, as a remedy in adjudicated cases of anti-​competitive practices. This explains why there are no restrictions on grounds for use without the authorization of the right holder in Article 31 of the TRIPS Agreement. As anticipated, in the further course of the TRIPS negotiations, the United States attempted to weaken this common text to accommodate US laws on government use of patents.50 It proposed several exceptions to the listed conditions that are reflected in what is now Article 31 of the TRIPS Agreement. The US delegation introduced the text of what is now in Article 31(b) of the TRIPS Agreement, that a compulsory licence applicant would not need to request a voluntary licence from the patent owner on reasonable commercial terms and conditions if it was a case of a national emergency or other circumstances of extreme urgency, or of public non-​commercial use or if the licence was to remedy an adjudicated anti-​competitive practice. The United States also introduced Article 31(k) that allows more liberal conditions, including 100 per cent exports of production under a compulsory licence and zero remuneration to the patent owner, if the compulsory licence is granted to remedy an anti-​competitive practice. Other delegations also helped make the conditions in what is now Article 31 of the TRIPS Agreement even less restrictive. Australia wanted review to reside with a distinct higher authority and not necessarily with a court of law, a provision that India has used to establish the Indian Intellectual Property Appellate Board. This was considered less restrictive as an administrative body could adopt its own procedures. Argentina wanted only the legal validity of the authorization to be subject to higher, independent review, rather than questioning the grounds for the authorization. Canada succeeded in weakening the condition on exports of products under a compulsory licence by proposing that the use of patents ‘shall be authorized predominantly for the supply of the domestic market’, a provision which will be discussed below.51 What India won in the negotiations was that there were no restrictions on the grounds for compulsory licences, a major reason why public health activists advocate the use of this instrument to access patented medicines, including in the context of the COVID-​19 pandemic. Without such restrictions, some of the conditions listed in Article 31 of the TRIPS Agreement become far less strict than they seem. Nevertheless, in light of the HIV/​AIDS pandemic that ravaged many developing countries, WTO Members sought and obtained assurances in 2001 that there were indeed no restrictions on the grounds for compulsory licences and that public health concerns would be taken into account in interpreting TRIPS provisions. In November 2001, WTO Members adopted by consensus the Doha Declaration on the TRIPS

49 

At the time, the United States, European Union, Japan and Canada constituted the Quad. the text of Section 1498 USC 28, at < https://​www.just​ice.gov/​sites/​defa​ult/​files/​civil/​leg​acy/​ 2011/​04/​22/​C-​IP_​28​usc1​498.pdf > (last visited 17 June 2020). 51  Article 31(f) of the TRIPS Agreement. 50  See

666   Jayashree Watal Agreement and Public Health,52 which states in no uncertain terms in its paragraph 5(b) that: ‘Each Member has the right to grant compulsory licences and the freedom to determine the grounds upon which such licences are granted.’ Importantly, this part of the Doha Declaration did not entail any amendment to the text of the TRIPS Agreement because such freedom to determine the grounds for compulsory licences was already part of the original text. In this context, the Declaration served to state expressly what was inherent in the logic of the text. One provision of the TRIPS Agreement that did get amended in the context of access to medicines was Article 31(f), referred to above. During the negotiations of the Doha Declaration, some Members, who did not have the capacity to produce new and improved medicines within their territories, irrespective of whether they had patented the product or not, demanded that they should be allowed to import such medicines as were produced under a compulsory licence by another WTO member. The clause that supply under a compulsory licence shall be ‘predominantly for the supply of the domestic market’ in Article 31(f) was considered to be an obstacle to such exports. In August 2003, after almost 20 months of hard negotiations in the TRIPS Council, just before the Cancun Ministerial Conference, WTO Members agreed to a detailed decision that waived Article 31(f) in certain circumstances to allow 100 per cent exports under a compulsory licence to countries that could not make their own medicines. In December 2005, just before the Hong Kong Ministerial Conference, Members agreed to convert the 2003 waiver into a proposed amendment of the TRIPS Agreement, introducing a new provision, Article 31bis. With the acceptance of this proposal by 2/​ 3rds of the membership of the WTO in January 2017, this amendment became part of the TRIPS Agreement.53 Although WTO Members could have used the system put in place from August 2003 onwards, in reality, it has only been used once when a Canadian generic company exported a triple combination of HIV/​AIDS anti-​retroviral medicines, Apo-​TriAvir®, to Rwanda, at a loss to the Canadian company.54 Even this one use since 2003 was strictly speaking not necessary as Rwanda did have the option to import the same product 52 

See above fn 8. < https://​www.wto.org/​engl​ish/​doc​s_​e/​lega​l_​e/​31bis​_​tri​ps_​0​1_​e.htm > (last visited on 17 June 2020). 54  See IP/​C/​M/​64 (17 February 2011), para 116 where the Canadian delegate noted that: ‘When creating Apo-​TriAvir, Apotex had indicated that it would manufacture and sell a useful made-​in-​Canada AIDS treatment without profit at its production cost of USD 0.39 per tablet. Apotex had said publicly that this price would be competitive with Indian products. However, from 2006 to 2008, Apotex had not been able to sell at that price due to competition from Indian companies who had been selling their own version of TriAvir. Rwanda had at least four alternatives from Indian generic suppliers which had been in a position to offer a lower price than the one which had been offered through CAMR, which would have made the use of CAMR unnecessary. In 2008, as part of this Rwanda tendering process, Apotex had, however, reduced its price by half to USD 0.195 per tablet. Since Apotex had publicly noted that the price of USD 0.39 per tablet would have enabled it to break even, it could be assumed that the sale at the lower price of USD 0.195 implied a loss in this transaction. By accepting Apotex’s new offer, Rwanda had become the first user of the System.’ 53 See

Food Safety   667 from generic companies in India. Nevertheless, in the future, including in the context of COVID-​19, the genuine need to use Article 31bis by WTO Members cannot be ruled out. While most OECD countries opted out of using the system voluntarily, in the case where national security concerns are raised by a health emergency, the use of Article 73 of the TRIPS Agreement55 can come into play.56 The demandeurs for strengthened IPRs in the TRIPS negotiations, notably the United States, have sought in FTA negotiations to restrict the grounds on which compulsory licences can be issued or better yet, to remove any reference to such licences in patent law, as was done in the North American Free Trade Agreement (NAFTA). Other FTAs that include severe restrictions for such licences include US-​Singapore, US-​Jordan, EFTA-​ Jordan, and EFTA-​Morocco. For example, in the US-​Singapore FTA, the use of compulsory licences is limited to three reasons only: a) to remedy anti-​competitive practices, b) for public non-​commercial use, and c) during declared national emergencies. This provision also sets a TRIPS-​plus standard of remuneration for compulsory licensing—​‘reasonable and entire’ rather than ‘adequate’—​and the Parties cannot require the transfer of test data or know-​how in connection with production under the compulsory license, the latter being another failed demand of the US in the TRIPS negotiations. FTAs that signed post-​Doha Declaration almost always have a side letter that reiterates the Parties’ respect for and reaffirmation of the Doha Declaration. However, such side letters do not in any way dilute the legal obligations contained in the text. It was clear in the TRIPS negotiations that extremely short patent terms, such as five years, were not acceptable to the demandeurs. However, not all governments sought a 20-​year patent term either, with the acceptable norm anywhere between 15 and 20 years. While the United States, the European Union, Japan, Switzerland, the Republic of Korea, Hong Kong, and the Nordic countries supported an obligation of 20 years from the date of filing of the patent application, Australia and New Zealand, at least initially, preferred a term of 15 or 16 years only. By taking the position that the term of patents should be left to countries to determine, developing countries might have lost an opportunity to negotiate a shorter length of patent protection. On the other hand, while there may have been some flexibility for some sectors, it was clear that the patent term would have to be at least 20 years from the date of filing for pharmaceuticals. The United States wanted to have patent term extension in this sector to compensate for regulatory delays in the TRIPS negotiations—​a demand that it has successfully achieved through bilateral and plurilateral agreements. For example, the United States obtained this in its FTAs with Central American countries, Chile, Colombia,

55 

Article 73 states inter alia that: ‘Nothing in this Agreement shall be construed: . . . (b) to prevent a Member from taking any action which it considers necessary for the protection of its essential security interests; . . . (iii) taken in time of war or other emergency in international relations . . .’

56 

Indeed, this is the course that has been advocated by the South Centre. See < https://​www.sout​hcen​ tre.int/​wp-​cont​ent/​uplo​ads/​2020/​04/​COVID-​19-​Open-​Let​ter-​REV.pdf > (last visited 17 June 2020).

668   Jayashree Watal Jordan, Morocco, and Oman. While compensating for delays in marketing approvals is the most important term extension demand, in certain FTAs, the patent term is also extended to compensate for delays in patent grant. This is the case, for example, in US FTAs with Central American countries, Colombia, Korea, Bahrain, Morocco, Chile, and Singapore. In contrast, FTAs negotiated with the European Union and EFTA focus on compensation of patent term for marketing approval delays and rarely contain this second obligation.57 Another provision of crucial importance to the R&D pharmaceutical industry is a test or regulatory data protection. The demandeurs in the TRIPS negotiations led by the United States wanted a mechanism for market exclusivity for newly introduced medicines in a market that would not be subject to invalidity proceedings or compulsory licences, unlike patents. What was obtained in Article 39.3 of the TRIPS Agreement was a compromise text that emerged from a hard-​fought negotiation primarily between Argentina and the United States. This text is ambiguous about whether a period of market exclusivity is to be given to the first company that seeks to obtain marketing approval for a new pharmaceutical product approved in a jurisdiction. The twin obligations provide for non-​disclosure under certain conditions and protection against unfair commercial use, a term not further defined in TRIPS. This has led to the United States and others fleshing out their requirements more clearly in FTAs. It is because of uncertainties around the patenting of biologics around the world that the R&D based pharmaceutical industry wants to impose a longer period of data exclusivity through bilateral and plurilateral free trade agreements (FTA), such as the eight-​ year period found in the now defunct Trans-​Pacific Partnership Agreement (TPP) or the ten-​year data protection period found in the draft Canada-​Mexico-​US FTA (USMCA), but now deleted from the final text. The successor agreement to the TPP, the Comprehensive and Progressive Agreement for Trans-​Pacific Partnership (CPTPP), which the United States did not join, deleted many IP provisions pushed through by the United States, including this one. (See Section V below). Despite the massive expansion of FTAs since 1995 with IP chapters in them aimed inter alia at plugging loopholes in TRIPS-​permitted policy options that improve access to patented medicines, led by the United States and followed closely by the European Union, EFTA and Switzerland, there are a few key countries that are not in any FTA with these jurisdictions. These are notably Argentina, Brazil, and India that do not have any TRIPS-​plus obligations so far. One of the principal reasons why the EU-​India FTA negotiations failed was reportedly a lack of agreement on the content of the IP chapter with respect to access to medicines.58 In contrast, the Japan-​India FTA concluded 57 See

Chapter IV in WHO-​ WIPO-​ WTO, Promoting Access to Medical Technologies and Innovation: Intersections between Public Health, Intellectual Property and Trade, 2nd edition (Geneva: WTO, 2020), at < https://​www.wto.org/​engl​ish/​res_​e/​pub​lica​tion​s_​e/​who-​wipo-​wto​_​202​0_​ e.htm > (last visited 18 May 2022). 58  See MSF’s open letter to the European Commission on this subject, at < https://​msfacc​ess.org/​open-​ let​ter-​europ​ean-​commi​ssio​ner-​eu-​india-​free-​trade-​agreem​ent-​and-​its-​imp​act-​acc​ess-​medici​nes > (last visited 25 June 2020).

Food Safety   669 successfully without any IP chapter.59 India did not join the Regional Comprehensive Economic Partnership (RCEP): one reason among many being fear of accepting TRIPS-​plus provisions being pushed by Japan and Korea. Other parties did not have the same problem as they had already accepted most of these provisions in other bilateral agreements.60 The EU-​Mercosur trade agreement has no obligations relating to patents.61 Those major countries that acceded to the WTO post-​1995, including China and Russia, have had to grandfather TRIPS-​plus provisions that were negotiated bilaterally with demandeurs for strong IPR protection, notably the United States. Given the current paralysis in the WTO, it does not appear likely that in the near future the gains made by the United States, the European Union, and EFTA countries in FTAs or in WTO accession negotiations to reduce IPR-​related policy options with respect to access to medicines are likely to be multilateralized through a WTO agreement in the near future.

V.  Varied implementation by key WTO Members of relevant provisions of TRIPS/​subsequent FTAs and its implications for access to medicines Despite the attempts to set higher minimum standards for patent and test data protection in the TRIPS Agreement, as described above, the TRIPS Agreement contains many options in the legal text—​or so-​called flexibilities—​that WTO Members can use to improve access to patented medicines. Members have taken advantage of these flexibilities and have implemented their TRIPS obligations in quite different ways.62 This has resulted in different levels of the strength of patent and test data protection available to the originator pharmaceutical companies in different Member jurisdictions. In light of this, it is not surprising that since 1995, there has been a mushrooming of FTAs with substantive IP chapters in them. One of the key ‘asks’ in FTA negotiations is for strengthened patent and test data protection for pharmaceutical products that go beyond the minimum level of TRIPS obligations. Some of the key provisions included in FTAs are listed below.

59 

See full text here < https://​www.bil​ater​als.org/​?japan-​india-​fta-​2011 > (last visited 25 June 2020). See < https://​www.bil​ater​als.org/​rcep-​ip > (last visited 25 June 2020). 61  See < http://​trade.ec.eur​opa.eu/​doc​lib/​press/​index.cfm?id=​2040 > (last visited 25 June 2020). 62  See Ellen t’Hoen’s database on the implementation of TRIPS flexibilities, at < http://​tri​psfl​exib​ilit​ ies.medici​nesl​awan​dpol​icy.org/​ > (last visited 17 June 2020). 60 

670   Jayashree Watal

i. An explicit requirement is included to grant patents for new uses of known products, new methods of using known products, or new processes of using known products. This allows originator pharmaceutical firms to obtain a new term of patent protection for older repurposed medicines for particular new uses of existing products. Such line-​extension patents may allow originator firms to be sole suppliers in markets that allow such types of patent protection long after the expiry of primary patents on original molecules. The TRIPS Agreement does not oblige such protection explicitly, and many WTO Members do not allow such protection. Nor does the TRIPS Agreement disallow Members from proving the utility of an invention, an issue that was disputed under NAFTA.63 ii. Another common obligation in FTAs is patent term adjustments to compensate for delays in granting pharmaceutical marketing approval, and in some FTAs for delays in patent grant. This extends the length of patent terms from the minimum TRIPS standard of twenty years from the date of patent filing. iii. Market exclusivity of at least five years is explicitly required in most US/​EU/​ EFTA FTAs to implement test data protection for new pharmaceutical products from the date of first marketing approval granted in a jurisdiction, irrespective of whether the submission of undisclosed test data is required in that jurisdiction. This can protect originator firms from competition from generic drugs for this period, irrespective of whether they had applied for or obtained patent protection or submitted undisclosed test data in that jurisdiction. It can also add to the length of market exclusivity if the period of data protection extends beyond the expiration of relevant patents. As stated earlier in this chapter, test data-​ based market exclusivity is often preferred to patents as it cannot be challenged in courts (as in the case with patents) and could even prevent or delay marketing approval of generics produced under a compulsory or government use license, unless otherwise provided in domestic law. Additional obligations to grant separate periods of test data protection for new indications/​formulations/​methods of administration or for combination products containing a new chemical entity that has not previously been approved are often included. Another loophole in Art. 39.3 of the TRIPS Agreement is plugged in FTAs by making such obligations applicable even in countries rely on marketing approvals granted elsewhere. New and longer periods of data protection with market exclusivity for biologics are demanded and have been obtained for a period amounting to eight years in the now-​defunct TPP, and for ten years in the USMCA, before it was rejected 63  Eli

Lilly, a US pharmaceutical company, brought an ISDS case against Canada, claiming that the invalidation of certain patents by Canadian courts violated the investment chapter of NAFTA. These patents had been found to be invalid for lack of meeting the utility requirement in Canada. Eli Lilly alleged that the utility requirement had been changed and was now unpredictable and incoherent, as well as disproportionately advantageous to Canadian patent holders. The arbitrators concluded in essence that there had not been a fundamental change in Canadian patent law, the complainant had not demonstrated that the utility requirement had been unpredictable and incoherent, nor that it had resulted in discrimination against foreign patent holders. The case was decided in favour of the State.

Food Safety   671 by the US Congress. Future FTA negotiations are likely to see such demands re-​surface. iv. Patent linkage mechanisms that oblige countries not to grant marketing approval of generics if there is a patent-​pending serve as an alternate cheaper and simpler method of enforcing originator firms’ patents that could extend periods of market exclusivity for patents of questionable validity. v. Trade secrets protection for pharmaceutical processes and methods of use are included. Unlike a patent, trade secret protection does not expire, so it can potentially exclude competition indefinitely on complex technologies, although independent invention and reverse engineering are permitted. vi. TRIPS-​plus provisions for the enforcement of IPRs include strict enforcement of, and penalties for, suspected violations of IPRs, including seizure of suspected counterfeit goods at the border (i.e., goods suspected of violating IP rules rather than being of deliberately inferior quality), excessive damages, provisional measures, and criminal enforcement of patent infringement. It is clear that jurisdictions that are host to R&D based pharmaceutical companies, notably Japan, the European Union, Switzerland, the United Kingdom, and the United States, will continue to demand a similar or higher level of protection for medical technologies in future FTAs. It is equally clear that jurisdictions that have an interest in maintaining their home-​grown generic industry, such as Argentina and India, will continue to resist such demands, even at the expense of staying isolated in a world with an increasing number of FTAs. With the WTO’s negotiating function being all but dead,64 it is not clear which international forum could effectively serve to bring diverse interests together in this area.

VI.  Recommendations of way forward on reconciling incentives for pharmaceutical innovation with access of medicines for all It would be unrealistic to expect that the current IP system of incentivizing the generation of new, innovative medicines would be fully replaced by another. It is also unlikely that gains made through FTAs to oblige TRIPS-​plus provisions that limit policy options with respect to access to medicines could be extended to certain key jurisdictions, such as Argentina, Brazil, and India, that continue to resist such provisions. It is, indeed, the 64 

The WTO TRIPS waiver for COVID vaccines may be the exception but even in a deadly pandemic consensus is proving elusive.

672   Jayashree Watal need of the hour—​particularly but not only because of COVID-​19—​to ensure that every person in the world who needs new and improved medicines that effectively prevent, or cure diseases should be able to obtain it at affordable prices. The international community will need to co-​ opt the R&D based industry, governments—​particularly those of high and upper middle-​income countries —​ global public health advocates, and other actors to seriously discuss the most practical way to square the circle between innovation and access in a way that would enable all stakeholders to perceive that their interests have been recognized and justice has been done. As was argued in Section III above, differential pricing could be one way forward with respect to ameliorating the affordability of IP-​protected medicines. However, for this to be taken forward globally, a binding international agreement would need to be negotiated and implemented in a credible inter-​governmental organization.65 Governments of high and upper middle-​income countries would need to commit not to allow for parallel imports or any other policies that would directly or indirectly deter patent owners from engaging in differential pricing. Governments in low and lower middle-​income countries would, in their turn, need to commit to ensure that medicines intended for their markets, and certain segments within, are not diverted to markets/​ segments elsewhere and that the poorest patients in their countries actually obtain these medicines at affordable rates.

Further reading I.A. Cockburn, ‘Intellectual Property Rights and Pharmaceuticals: Challenges and Opportunities for Economic Research’ in WIPO, The Economics of Intellectual Property (Geneva: WIPO, 2009), Chapter 5, 150–​179 K.E. Maskus, ‘Intellectual Property Rights and Global Policy Challenges’ in Private Rights and Public Problems: The Economics of Global Intellectual Property Rights in the 21st Century (Washington D: Peterson Institute for International Economics, 2012), 233–​312, at < https://​ www.piie.com/​publi​cati​ons/​chapt​ers_​prev​iew/​5072/​05iie5​072.pdf. > A. Taubman, H. Wager and J. Watal (eds), ‘TRIPS and Public Health’ and ‘TRIPS Agreement and Public Health Beyond the WTO’ in WTO, A Handbook on the TRIPS Agreement, 2nd edition (Cambridge: Cambridge University Press, 2020) Chapters X and XI J. Watal and A. Taubman (eds), The Making of the TRIPS Agreement: Personal insights from the Uruguay Round negotiations (Geneva: WTO, 2015) WHO-​WIPO-​WTO, ‘Medical Technologies: The Access Dimension’ in X. (eds), Promoting Access to Medical Technologies and Innovation: Intersections between Public Health, Intellectual Property and Trade, 2nd edition (Geneva: WTO, 2020) Chapter IV

65  Unfortunately,

at the current juncture WTO may not fit the bill. Perhaps, a strengthened WHO may be a future possibility.

Chapter 25

E n v i ron m e n t Damilola S. Olawuyi

I. II.

Introduction Harmonizing the relationships between free trade and environmental protection: history and progress A. Informal alliance phase (1900–​1991) B. Confrontation and formal recognition phase (1992–​2015) C. Partnership phase (2016–​present) III. Trade and environmental regimes: so close, yet so far? A. Harmonizing existing WTO rules with obligations set out in MEAs B. Advancing coordination and cooperation between trade and MEA institutions C. Reducing or eliminating tariff and non-​tariff barriers to environmental goods and services I V. Promoting coherence and mutual supportiveness on trade and environment A. Develop common and inter-​agency understanding on trade and environment B. Establish focal institutions on trade and environment C. Promote regional cooperation and knowledge sharing on trade and environment V. Conclusion

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674   Damilola S. Olawuyi

I. Introduction This chapter examines the progress made and the key challenges that remain in balancing the objectives of free trade and environmental protection at the international level. First, it explores the key phases in attempts to harmonize free trade and environmental protection. Second, it discusses key unresolved challenges and questions that remain about how to effectively interpret and implement international treaty obligations on free trade and the environment in a coordinated, coherent, and less fragmented manner. Questions about the impact of environmental policies on trade, and the impact of free trade on environmental protection have resulted in some of the most charged debates in international law over the last several decades.1 First is the concern in trade communities that measures, unilateral policies, and rules aimed at protecting the environment from degradation (‘environmental measures’) might act as barriers to trade.2 For example, governments might have introduced a variety of environmental measures, such as energy efficiency standards or eco-​labelling requirements, which might have indirect impacts on international trade and the growth of domestic economies.3 Such measures risk also coming in conflict with the WTO regime, which largely emphasizes the need to prohibit all trade restrictions other than tariffs.4 On the other hand, there is concern in environmental communities that measures, policies, and rules aimed at increasing production and liberalizing multilateral trade (‘free trade measures’) may severely impact or limit domestic environmental policy, especially climate change action.5 This debate originated in the early 1990s when environmentalists compiled the negative implications of the NAFTA for the environment, especially in low-​income communities.6 The debates accentuated concerns over the implications of free trade on the increasing over-​exploitation of plants and animal species.7 Similarly, countries may weaken their domestic environmental policy 1 

For an excellent perspective on the history of free trade and environment issues, see D. Bodansky and J.C. Lawrence, ‘Trade and Environment’ in D. Bethlehem, D. McRae, R. Neufeld and I. Van Damme (eds), The Oxford Handbook of International Trade Law, 1st edition (Oxford: Oxford University Press, 2009) 506, at 513–​515. 2  D. Bodansky, ‘What’s So Bad about Unilateral Action to Protect the Environment?’ 11(2) European Journal of International Law (2000) 339; S. Yamarik and S. Ghosh, ‘Is Natural Openness or Trade Policy Good for the Environment?’ 16(6) Environment and Development Economics (2011) 657–​684. 3  See Bodansky, above fn 2. 4  See Article XI of the GATT 1994. 5  See N. Korves, I. Martínez-​ Zarzoso and A. Monika Voicu ‘Is Free Trade Good or Bad for the Environment? New Empirical Evidence’ Climate Change -​Socioeconomic Effects (2011), at < https://​www. int​echo​pen.com/​chapt​ers/​19627 > (last visited 5 September 2021), at 2–​5. 6  G.M. Grossman, and A.B. Krueger, ‘Environmental Impacts of the North American Free Trade Agreement’ 1991 NBER Working Paper No. 3914. 7  A. Wiersema, ‘Incomplete Bans and Uncertain Markets in Wildlife Trade’ 12 UPA Asian Law Review (2016) 65, at 68. See also K. Winfield, M. Scott, C. Grayson, Global Status of Dalbergia and Pterocarpus

Environment   675 to attract investment and promote foreign trade. Such domestic trade measures have accentuated the relocation of pollution-​intensive industries to countries with lax environmental enforcement—​the so-​called ‘pollution haven hypothesis’—​a key driver of increased global pollution, loss of habitats, livelihoods, and vital economic resources in local communities.8 Considering the intricate connections between trade and environment, some degree of normative integration, harmonization, and mutual supportiveness is necessary to prevent overlap and divergence.9 In recent years, a lot of progress has been made to clarify the legal interactions between, and reconcile the complementary benefits of, these two important areas of international law.10 More than ever, trade and environmental secretariats of relevant international organizations have come together to propose mutually supportive solutions that can help maximize coherence and partnerships between trade and environmental regimes.11 These efforts have assumed greater significance and urgency as the United Nations’ 2030 Agenda for Sustainable Development underscores the need for enhanced partnerships—​globally, regionally, and nationally—​ as a required step for attaining the SDGs, including those on trade and environment issues.12 Taking stock of progress made, as well as examining innovative approaches for further progress, in advancing multilateral coherence and partnerships between trade and environmental regimes can help plot out a better path to further reform. This chapter proceeds in five sections. After this introduction, Section 2 examines the key phases in efforts aimed at harmonizing trade and environmental regimes in international law. Section 3 discusses contentious and unresolved questions in ongoing multilateral and plurilateral trade and environment negotiations, namely: harmonizing existing WTO rules with obligations set out in multilateral environmental agreements (MEAs); advancing coordination and cooperation between trade and MEA institutions; and reducing or eliminating tariff and non-​tariff barriers on trade into environmental goods and services. Section 4 discusses legal and institutional approaches to address these questions. It suggests a wide array of mutually supportive solutions to maximize

Rosewood Producing Species in Trade (Global Eye, 2016) 1–​10, at < https://​www.resea​rchg​ate.net/​publ​icat​ ion/​327617​532 > (last visited 5 September 2021), at 2–​5. 8  C. George, ‘Environment and Regional Trade Agreements: Emerging Trends and Policy Drivers’ 2014 OECD Trade and Environment Working Papers No 2014/​02. 9  See D. Olawuyi, ‘Harmonizing International Trade and Climate Change Institutions: Legal and Theoretical Basis for Systemic Integration’ 7(2) Law and Development Review (2014) 107–​129; R. Pavoni, ‘Mutual Supportiveness as a Principle of International and Law-​Making: A Watershed for the “WTO-​ and-​Competing-​Regimes” Debate?’ 21 European Journal of International Law (2010) 641. 10  See WTO, Trade and Climate Change: A Report by the United Nations Environment Programme and the World Trade Organization (Geneva: WTO/​UNEP, 2009). 11 See CITES and the WTO, Enhancing Cooperation for Sustainable Development (Geneva: WTO Secretariat, 2015). 12  United Nations, ‘Transforming our world: the 2030 Agenda for Sustainable Development’, GA Res. 70/​1 (25 September 2015) (2030 Sustainable Development Agenda).

676   Damilola S. Olawuyi coherence and partnerships between trade and environmental regimes. Section 5 is the concluding section.

II.  Harmonizing the relationships between free trade and environmental protection: history and progress The growing rapprochement between trade and environment regimes has evolved through three important phases: the informal alliance phase (1900–​1991); conflict and confrontation phase (1992–​2015); and currently the formalized partnerships phase (2015–​present).13

A. Informal alliance phase (1900–​1991) As early as 1900s multilateral agreements that recognize how unregulated trade in plant and animal species may impact the environment and its resources began to emerge in trickles. For example, the Convention for the Preservation of Animals, Birds and Fish in Africa, was signed in London on 19 May 1900, becoming the first formal agreement on trade-​related environmental issues.14 Although the Convention never entered into force because most of its signatories did not ratify it, it started an important conversation on how unregulated trade in African elephants and game species may lead to their extinction.15 This impetus led to the adoption of a number of legally binding instruments in the 1930s and 1940s, which placed restrictions on the export of plants and animals.16 By the end of the 1960s, and with more facts and scientific predictions emerging on the need to protect the environment from the impacts of trade liberalization, an environmental movement began to emerge.17 This momentum was intensified in the early 1970s following the adoption of the 1972 Stockholm Declaration on the Human 13 See

Damilola Olawuyi, Environmental Law in Arab States (Oxford: Oxford University Press, 2022) 282–​288. 14 See International Union for Conservation of Nature and Natural Resources (IUCN), An Introduction to the African Convention on the Conservation of Nature and Natural Resources (Gland, Switzerland and Cambridge, UK: IUCN, 2004), at 3–​4. 15 Ibid. 16  See, e.g., The 1933 London Convention Relative to the Preservation of Fauna and Flora in their Natural State, adopted on 8 November 1933, entered into force on 14 January 1936; and the International Convention for the Regulation of Whaling, adopted on 2 December 1946, entered into force on 10 November 1948. 17  This demand was intensified with the publication of Rachel Carson’s Silent Springs in 1962. See R. Carson, Silent Springs (Boston, Houghton Mifflin, 1962).

Environment   677 Environment.18 The Declaration in its preamble, recognized that in industrialized countries, ‘environmental problems are generally related to industrialization and technological development.’19 On the other hand, the rapid evolution of environmental law raised increased concern among trade communities on the implications of environmental regulation on free trade. In the lead-​up to the 1972 Stockholm Conference, the Secretariat of the GATT 1947 released a report that highlighted that environmental policies could become obstacles to trade, and constitute a new form of protectionism.20 Subsequently, GATT Contracting Parties created a Working Group on Environmental Measures and International Trade (or ‘EMIT Group’) in 1971. The implications of environmental measures for trade were again raised during the Tokyo Round of trade negotiations (1973–​1979), which led to the adoption of the Tokyo Round Agreement on Technical Barriers to Trade (or ‘Standards Code’). The Standards Code, amongst other things, called for non-​discrimination by participating parties in adopting and implementing trade-​related environmental measures.21 The Standards Code was further elaborated and modified during the Uruguay Round (1986–​1993). The Uruguay Round produced two agreements, namely the TBT Agreement and the SPS Agreement, which recognized that environmental and health measures could become disguised barriers to trade.22 Article XX of the GATT 1947 also recognized the need to prevent ‘disguised restriction on international trade’. However, these early attempts to recognize the key intersections between trade and environmental regimes remain largely informal with no real mechanism to fully clarify and elaborate on the areas of overlap and tensions and fully address such overlap.

B. Confrontation and formal recognition phase (1992–​2015) In 1991, the US –​Tuna (Mexico) case, a dispute between Mexico and the United States regarding a US embargo on importing tuna from Mexico and other countries, brought global attention to the linkages between environmental protection and trade.23 In this case, Mexico argued that an embargo under the US Marine Mammal Protection Act was inconsistent with GATT rules.24 The panel ruled in favour of Mexico and concluded 18 

Stockholm Declaration on the Human Environment, UN Doc A/​CONF48/​14/​Rev.1 (1972).

19 Ibid. 20 

See WTO Secretariat, Trade and Environment at the WTO (Geneva: WTO, 2004), at < http://​www. wto.int/​engl​ish/​trato​p_​e/​envi​r_​e/​envi​r_​wt​o200​4_​e.pdf > (last visited June 2019), at 2–​5. 21  See S. Charnovitz, ‘The WTO’s Environmental Progress’ 10(3) Journal of International Economic Law (2007) 685. 22  See WTO, Trade and Environment at the WTO, above fn 20, at 2–​5. 23  GATT Panel Report, United States –​Restrictions on Imports of Tuna, DS21/​R, DS21/​R, 3 September 1991, unadopted, BISD 39S/​155, paras 5.15, 5.32. 24  Marine Mammal Protection Act of 1972, 16 USCA 1361 (West 1985 & Supp 1994).

678   Damilola S. Olawuyi that the Act violated Article XX of the GATT 1947.25 Although the panel’s report was not adopted as the case was settled out of court, the ruling drew significant criticisms from environmentalists on the negative implications of free trade rules for domestic environmental policy.26 The issues in the case were again revisited in the US –​Tuna (EEC) case filed in 1992 by the European Economic Community (EEC) and the Netherlands.27 In this case, the complainants argued that the US embargo on intermediary nations was inconsistent with Articles XI and III of the GATT rules. The panel ruled in favour of the EEC and Netherlands and found that the intermediary embargo constituted quantitative restriction and violated of GATT rules.28 The commitment to clarifying the intersections of trade and environment became one of the key focal points of the Doha Ministerial Declaration adopted in 2001.29 The Declaration called on WTO Members to embark on a new round of trade negotiations to clarify the relationship between WTO rules and specific trade obligations set out in MEAs.30 Paragraph 32 of that declaration also mandates the Committee on Trade and Environment (CTE) -​the successor to the EMIT Group –​to, amongst other things, identify win-​win-​win situations in which the elimination or reduction of trade restrictions and distortions would benefit trade, the environment, and development.31 During this phase, the decisions of the WTO Appellate Body have helped clarify and interpret the legal interactions between, and the complementary benefits of trade and environmental regimes.32 For example, in both US –​Gasoline, a case filed by Venezuela which alleged that the United States was applying rules that discriminated against gasoline imports,33 and US –​Shrimp,34 a case brought by India, Malaysia, Pakistan, and Thailand against a ban imposed by the United States on the importation of shrimps and endangered sea turtles, the Appellate Body clarified when trade-​related environmental measures might be eligible for an exception under Article XX (b) and (g) of GATT. In both cases, the decisions of the Appellate Body show that such measures adopted by WTO Members to protect the environment or endangered species will be upheld as long as they do not constitute an ‘arbitrary and unjustified restriction on trade’.35 In a

25 

GATT Panel Report, US –​Tuna (EEC), paras 5.27, 5.39, 6.1. Bodansky and Lawrence, above fn 1. 27 GATT Panel Report, United States –​Restrictions on Imports of Tuna, DS29/​ R, 16 June 1994, unadopted. 28  Ibid., at, para 6.1. 29  Doha Ministerial Declaration, WT/​ MIN (01)/​ DEC/​ 1 (14 November 2001). In paragraph 31 of the declaration, WTO Members reaffirmed their commitments towards ‘enhancing the mutual supportiveness of trade and environment’. 30  Ibid., at para 32. 31 Ibid. 32 For debates on the relevance and future of the WTO Appellate Body, see M. Wagner, ‘The Impending Demise of the WTO Appellate Body: From Centrepiece to Historical Relic?’ in C. Lo (ed), The Appellate Body of the WTO and Its Reform (Singapore: Springer, 2019) 67–​90. 33  Appellate Body Report, US –​Gasoline, adopted 29 April 1996, at 16–​19. 34  Appellate Body Report, US –​Shrimp, adopted 6 November 1998, para 130 ff. 35 Ibid. 26 

Environment   679 ruling against the United States in US –​Shrimp, for example, the Appellate Body found that by providing some Caribbean countries with technical and financial assistance and longer transition periods, and failing to give the same advantages to four Asian countries (India, Malaysia, Pakistan and Thailand), the United States had applied its environmental measure in a manner that discriminates against the complainant WTO Members.36 According to the Appellate Body, although the US measure constituted a legitimate environmental objective under Article XX, this measure had been applied by the United States in a manner ‘which constitutes arbitrary and unjustifiable discrimination between members of the WTO contrary to the requirements of the chapeau of Article XX’.37 More recently in US –​Tuna (Mexico) II, the Appellate Body rejected Mexico’s claims that US labelling rules, which penalize tuna products caught by chasing and encircling dolphins with a purse seine net, unfairly penalized Mexico’s fishing industry.38 The Appellate Body held that the US tuna measure was not applied in a manner that constitutes arbitrary or unjustifiable discrimination and therefore was justified under Article XX of the GATT 1994.39 These decisions show an increased sensitivity of WTO bodies to trade-​related measures aimed at protecting the environment so long as they are applied in an inclusive and consistent manner with WTO rules, such as non-​discrimination.40 However, the narrow exceptions in Article XX and its chapeau can expose viable environmental measures, such as renewable energy programs, with trade impacts to challenge under WTO rules. For example, in the Canada –​Renewable Energy /​ Canada –​Feed-​in Tariff Program, Japan successfully challenged measures adopted by the Canadian Province of Ontario relating to local content requirements (LCR) in the Feed-​in Tariff (FiT) Programme for solar and wind power generation facilities.41 Japan argued that the FiT violated Article III: 4 of the GATT and Article 2.1 of the TRIMs. The Panel agreed with Japan. Similarly, in India –​Solar Cells,42 the Panel adopted a similar reasoning when it declared that India’s LCR measure under its National Solar Mission program violated GATT and TRIMS. Although both parties in the Indian case have submitted an appeal to the Appellate Body, these decisions show that it will be extremely hard, if not impossible, for environmental measures with restrictive trade impacts to survive the scrutiny of the WTO. Furthermore, an important aspect of the trade and environment debate is the ongoing negotiation on fisheries subsidies.43 Launched in 2001 at the Doha Ministerial 36 Ibid. 37 Ibid. 38 

Panel Report, US –​Tuna II (Mexico) (Article 21.5 –​United States), adopted 3 December 2015.

39 Ibid. 40 

WTO, ‘What we stand for’, at < www.wto.org/​engl​ish/​thewt​o_​e > (last visited 4 September 2021). See further Chapter 31 of this handbook. 41  Appellate Body Report, Canada –​Renewable Energy /​Canada –​Feed-​in Tariff Program, adopted 6 May 2013. 42  Appellate Body Report, India –​Solar Cells, adopted 16 September 2016. 43 Doha Ministerial Declaration, above fn 29, paras 28 and 31; WTO, Hong Kong Ministerial Declaration, WT/​MIN(05) DEC/​# (22 December 2005), para 28 and Annex D.

680   Damilola S. Olawuyi Conference, the aim of the negotiations is to prohibit certain forms of harmful fisheries subsidies, such as cash payment, loans, investment grants, or tax reductions, that encourage commercial fishing activities.44 According to the FAO, about 87 percent of the world fish stocks have either been fully exploited or overexploited due partly to subsidies.45 Building on the outcome of the Doha Ministerial Conference,46 the WTO Hong Kong Ministerial Conference of 2005 reaffirmed the need to clarify and improve WTO disciplines on fisheries subsidies that contribute to overcapacity and overfishing.47 Most recently, at the 2017 Buenos Aires Ministerial Conference, WTO Members agreed to continue to engage constructively in the fisheries subsidies negotiations, with a view to adopting an agreement that prohibits certain forms of fisheries subsidies.48 However, the slow pace of the negotiations further demonstrates the complexities of trying to craft subsidies rules that address environmental externalities within the framework of the WTO, which is not an environmental organization. However, despite the slow progress, the negotiations clearly reflect that environmental values on resource conservation have now been squarely placed at the heart of the WTO. The formal recognition of environmental measures and values in the WTO system has clearly moved the linkages between trade and environment from mere cooperation, to a more active search for partnerships and win-​win approaches to promote green growth. Outside of the WTO, the idea of identifying trade opportunities for sustainable growth was reinforced in the outcome document of the 2012 United Nations Conference on Sustainable Development (Rio+​20 conference), The Future We Want, which recognizes greening the world economies as one of the important tools for achieving sustainable development and eradicating poverty.49 The document also noted that green economy policies should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade and that environmental measures addressing transboundary or global environmental problems, as far as possible, should be based on international consensus.50 In furtherance of the idea of removing barriers to trade in environmental goods, there have been efforts amongst some WTO Members to negotiate a plurilateral Environmental Goods Agreement, which aims to eliminate tariffs on a broad range of environmental goods.51 Reducing tariffs and custom duties on environmental goods is

44  See U. Rashid Sumaila, V. Lam, F. Le Manach, W. Swartz and D. Pauly, ‘Global Fisheries Subsidies: An Updated Estimate’ 69 Marine Policy (2016) 189. 45 FAO, The State of World Fisheries and Aquaculture (Rome: FAO, 2018), at 81–​82. 46 Doha Ministerial Declaration, above fn 29, para 28, which instructs Members to clarify and improve WTO disciplines on fisheries subsidies. 47  WT/​MIN(05)/​DEC/​# (22 December 2005). 48  Buenos Aires Ministerial Declaration, WT/​MIN (17)/​DEC/​64 (13 December 2017). 49  Ibid., at para 56. 50  Ibid., at para 58 (h). 51  See ICTSD Draft Background Paper, ‘Environmental Goods and Services at the WTO: Key Issues and State of Play’ (1 June 2005). See also M. Tothova, ‘Liberalization of Trade in Environmentally Preferable Products’ OECD Trade and Environment Working Paper No. 2005–​06, at 5.

Environment   681 an important idea that could drive down the costs of cleaner technologies and goods, making them more attractive to end-​users.52 However, despite the ambitious intentions of the Environmental Goods Agreement, progress towards its adoption has been very slow. One key contention is that the list of environmental goods does not comprehensively reflect the comparative advantages and needs of developing countries.53 Furthermore, questions remain on the scope of tariff reductions, the need to prevent dumping of environmental wastes in developing countries, and the need for a wider negotiation involving more countries, especially major developing countries such as India and Brazil, that are not part of the Environmental Goods Agreement negotiation process.54 Despite the formal recognition of the linkages between trade and the environment, key challenges and questions remain about effectively interpreting and implementing international treaty obligations on free trade and the environment in a coordinated, coherent, and less fragmented manner. These debates have been reinvigorated by the adoption of the 2030 Agenda for Sustainable Development, which contains several goals and targets that underscore the role of free trade in advancing several of the SDGs on the environment, climate change, and conservation of marine and aquatic resources.55

C. Partnership phase (2016–​present) There is now a clear consensus in trade and environmental communities that free trade and environmental protection are inextricably linked. Environmental measures and policies can serve as barriers to international trade and economic growth, while trade measures can stifle environmental protection. Therefore, the discourse has shifted to questions of how global trade and environmental regimes can best partner with each other and work coherently to achieve mutually supportive, shared, and interconnected objectives.56 This search for greater partnership has been reinvigorated after the entry into force of the 2030 Agenda for Sustainable Development in 2016.57 The 2030 Agenda

52 See

ILA, 2018 Report of the Committee on Sustainable Development and the Green Economy in International Trade Law, para 30, at < http://​www.ila-​hq.org/​ima​ges/​ILA/​Draft​Repo​rts/​ DraftReport_​Sust​aina​bleD​ev_​G​reen​Econ​omy.pdf > (last visited June 2019). 53  This is reflected in the decision by China to submit a list of products at later stages of the 2016 negotiation rounds. See J. De Melo, and J.-​M. Solleder, ‘Barriers to Trade in Environmental Goods: How Important they are and what should developing countries expect from their removal’ CEPR Discussion Paper 2018, at 2–​23. 54  See ‘Environmental, Business Groups at Odds Over Green Goods Initiative’ Inside US Trade (23 May 2014). 55  ICTSD Draft Background Paper, above fn 51. 56  See ILA, 2018 Report of the Committee on Sustainable Development and the Green Economy in International Trade Law (fn 52), stating that the principle of mutual supportiveness between trade and environmental policies or agreements may inspire solutions to a conflict of norms. 57 United Nations, above fn 12. See also WTO, Mainstreaming Trade to Attain the Sustainable Development Goals, at < https://​www.wto.org/​engl​ish/​res_​e/​books​p_​e/​sdg_​e.pdf > (last visited 04 September 2021).

682   Damilola S. Olawuyi places great emphasis on the need for enhanced partnership—​globally, regionally, and nationally—​to support the ambitious targets of the 2030 Agenda.58 SDG 17.14 specifically encourages all stakeholders to enhance cooperation and policy coherence for sustainable development. In recognizing the importance of trade to the attainment of the SDGs, SDG 17.10 encourages countries to promote a ‘universal, rules-​based, open, non-​discriminatory and equitable multilateral trading system under the World Trade Organization, including through the conclusion of negotiations under its Doha Development Agenda’.59 Similarly, SDG 14.6 calls on countries to, by 2020, prohibit fisheries subsidies, which contribute to overcapacity and overfishing and refrain from introducing new fishing subsidies.60 These and other SDGs recognize the need to strengthen and advance ongoing efforts to promote partnerships and mutual supportiveness between trade and environment regimes as a prerequisite for achieving the 2030 Agenda. Although the outcome of the multilateral trade and environment negotiations remains pending, since 2016, a number of joint initiatives and projects, such as joint publications, institutional and policy dialogues, and joint technical assistance and capacity building programs, have been cooperatively launched by WTO and MEA secretariats.61 One key initiative is a matrix developed by the WTO in 2017 that compiles a list of MEAs that include trade provisions.62 This matrix provides useful guidance on how trade issues are reflected in environmental regimes. Many of these initiatives build on Paragraph 31(i) of the Doha Ministerial Declaration, which calls for the adoption of ‘procedures for regular information exchange between MEA secretariats and the relevant WTO committees.’63 Institutional harmonization could provide an avenue to package a collection of international obligations under both WTO and MEA into one box to enhance implementation. Similarly, it could provide an avenue to draw upon relevant trade rules to underpin and inform the design and execution of environmental goals in a coordinated, coherent, and less fragmented manner. However, achieving greater partnership and coherence must go beyond just cooperation. There is a need for institutional restructuring that allows for a common platform through which environmental protection objectives may be mainstreamed into the WTO and vice versa. Previous studies have suggested various ways to improve the institutional partnership between WTO and MEA secretariats.64 In addition to advancing 58

 Ibid. United Nations, above fn 12. 60  See further Chapter 31 of this handbook. 61  See WTO, CITES and the WTO: Enhancing Cooperation for Sustainable Development, at < https://​ www.wto.org/​engl​ish/​res_​e/​books​p_​e/​cite​sand​wto1​5_​e.pdf > (last visited 4 September 2021). 62  See Committee on Trade and Environment, Matrix on Trade-​Related Measures Pursuant to Selected Multilateral Environmental Agreements, WT/​CTE/​W/​160/​Rev.8 TN/​TE/​S/​5/​Rev. (6-​9 October 2017). 63  Doha Ministerial Declaration, above fn 29. 64  G. Marceau, ‘Conflicts of Norms and Conflicts of Jurisdiction. The Relationship between the WTO Agreement and MEAs and other Treaties’ 35 Journal of World Trade (2001) 1081; E. Vranes, Trade and the Environment. Fundamental Issues in International Law, WTO Law, and Legal Theory (Oxford: Oxford University Press, 2009) 1–​20. 59 

Environment   683 institutional partnership and coordination between trade and MEA institutions, the ongoing multilateral trade and environment negotiations will need to harmonize existing WTO rules with relevant MEAs.

III.  Trade and environmental regimes: so close, yet so far? As countries elaborate on the modalities for enhancing partnerships between trade and environment regimes, a number of unresolved challenges and questions remain. The key issues are threefold: harmonizing existing WTO rules with obligations set out in MEAs; advancing coordination and partnership between trade and MEA institutions; and reducing or eliminating tariff and non-​tariff barriers to environmental goods and services.

A. Harmonizing existing WTO rules with obligations set out in MEAs Despite the increased focus on the need for coherence and mutual supportiveness of trade and environment institutions, MEAs and trade agreements continue to be negotiated and developed under different regimes and frameworks. While trade obligations are elaborated under the WTO, MEAs are often negotiated under the purview of different UN environmental bodies. The result is the proliferation of potentially fragmented, conflicting, and overlapping obligations and rules.65 Such overlap has resulted in an increased discussion of the need to address the problem of fragmentation and ‘regime complex’ in international law.66 Several of the international obligations on environmental protection, as reflected in treaties such as the United Nations Framework Convention on Climate Change (UNFCCC), Paris Agreement, Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), Convention on Biological Diversity (CBD), as well as obligations on free trade in core international trade instruments, such as the GATT 1994, all establish important principles on sustainable development and the green economy that cannot be implemented in isolation.67Integrating and harmonizing WTO rules with existing 65  D.

Olawuyi, above fn 9; J. Pauwelyn, ‘Bridging Fragmentation and Unity: International Law as a Universe of Inter-​Connected Islands’ 5 Michigan Journal of International Law (2004) 903. 66 K. Raustiala and D.G. Victor, ‘The Regime Complex for Plant Genetic Resources’ 58(2) International Organization (2004) 277, at 279, noting that regime complex alludes to the presence of ‘partially overlapping and non-​hierarchical institutions governing a particular issue’. 67  See D. Olawuyi, The Human Rights Based Approach to Carbon Finance (Cambridge: University Press, 2016), at 156–​162.

684   Damilola S. Olawuyi MEAs is a logical step that could bring about hybrid reasoning in harmonizing and integrating international law obligations, on free trade and environmental protection to make them operate as part of a coherent and meaningful whole. A direct approach to achieving such harmonization is to integrate the negotiations of trade and environment instruments under a green economy framework. Rather than the extant separate and multiple tracks for negotiating and developing trade and environmental obligations, a better approach is to harmonize and merge the negotiating framework through a unified regime. This approach is, however not without debate.68 Some studies have argued for the two systems to be kept separate to avoid dilution of the different styles, cultures, and core principles.69 For example, while the commodification and privatization of goods and services are crucial components of trade regulation, efforts to privatize water, land, and other elements of the environment have generated enormous debates globally, especially in the global South.70 Furthermore, while environmental regulators and lawyers tend to take a rights-​based, moralistic and prescriptive view of regulation, trade lawyers tend to view regulations as anti-​competitive and a barrier to effective pricing.71 The concepts of privatization, and incentive-​based regulation, are therefore, highly charged concepts in environmental law, arguably more so than in trade law. A possible indirect solution is for trade and environmental systems to collaboratively develop a set common understanding or pact that addresses key areas of conflict. A common understanding of key standards, tenets, and principles of a green economy approach to trade and environment can provide a normative basis to express the common intentions or understanding of both sides as to the meaning of key terms and principles.72 The 2017 Matrix of the CTE is a good starting point within the WTO that provides background information on trade-​related measures in extant MEAs. However, it is essential to take this a step further by having a set of commonly negotiated principles between WTO and MEA systems that consider key norms in existing treaties and foster a harmonious interpretation of WTO law and international environmental law. 68 D.C.

Esty, Greening the GATT: Trade, Environment, and the Future (Washington, DC: Institute for International Economics, 1994); C.P. Snow, Two Cultures and the Scientific Revolution (Cambridge: Cambridge University Press, 1959). 69  ‘Environmental Imperialism: GATT and Greenery’ The Economist (15 February 1992), at 78. 70  Due to perceived conflicts between privatization and the rights of the public to water, there have been strong oppositions to the privatization of water services in Argentina, Bolivia, Uruguay, South Africa amongst other countries. See J. Dugard and E. Koeck, ‘Water Wars: Anti-​Privatization Struggles in the Global South’ in, S. Alam, S. Atapattu, C. Gonzalez and J. Razzaque, International Environmental Law and the Global South (Cambridge University Press, 2016) at 469–​70; also M. Childs, ‘Privatising the Atmosphere: A Solution or Dangerous Con?’ 12 (1/​2) Ephemera Journal (2012) 12–​18. 71  See, e.g., BBC News, ‘Energy Industry “Over-​Regulated,” Say Former Regulators’, at < https://​www. bbc.com/​news/​busin​ess-​28736​921 > (last visited 3 September 2021). 72  This approach was also suggested in the Report of the Study Group of the International Law Commission on Fragmentation, para 472. See United Nations, Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law: Report of the Study Group of the International Law Commission (13 April 2006) A/​CN.4/​L.682.

Environment   685

B. Advancing coordination and cooperation between trade and MEA institutions A second unresolved question is how to improve further the existing cooperation between WTO and MEA secretariats at the international level. Despite the increasing rapprochement between WTO and MEA secretariats, the overarching mandate to supervise treaty implementation in each sector remains under the purview of separate institutions, such as the WTO, UNFCCC, CITES amongst others, with distinct mandates, financial and resource allocations, and most times competing and conflicting priorities.73 Consequently, trade and environmental obligations continue to be implemented and articulated in diverse ways.74 For example, the CTE is a mechanism of the WTO and does not include representations from many of the trade relevant MEAs. This makes it complex and difficult to integrate the perspectives of MEA secretariats in the ongoing negotiation processes under the WTO. The value of institutional coordination and cooperation in implementing WEF programs has been emphasized in several studies.75 Institutional coherence and coordination in the design and implementation of green economy programs can help leverage strengths and reduce inconsistencies.76 Many approaches have been suggested for improving the partnerships between WTO and MEA secretariats. One approach is to merge both institutions through the establishment of a global organization for trade and environment.77 However, this idea is not without contention as some have suggested that the merger of trade and environmental institutions may erode the cultures, values, and competing interests at stake in trade and environmental governance.78 Furthermore, establishing new institutions does not leverage existing resources and could result in significant costs, while a positive outcome cannot be assured.79 Other studies have therefore suggested the idea of establishing a World Environmental Organization that could have a similar function to the WTO in the environmental context.80 This, however, has the potential for raising new forms of conflict and tensions rather than increasing cooperation and partnership. A third approach is to integrate environmental functions into the WTO while also integrating trade assessment functions into the mandates and work of MEA secretariats. For example, MEA institutions can have due consideration and recourse to WTO rules when interpreting environmental obligations and vice versa. This proposal has also been the subject of contention. For example, some environmentalists regard

73 

CITES and WTO, above fn 11, 8–​11.

74 Ibid. 75 

Bodansky and Lawrence, above fn 1; Olawuyi, above fn 9; FAO, above fn 45. See Olawuyi, above fn 9. 77  Bodansky and Lawrence, above fn 1. 78  Olawuyi, above fn 9. 79 Ibid. 80  Bodansky and Lawrence, above fn 1. 76 

686   Damilola S. Olawuyi the idea of placing the function of interpreting environmental issues in the hands of trade and economic administrators as dangerous.81 Similarly, the WTO Secretariat has stated that ‘the WTO is not an environmental protection agency and does not aspire to become one’; and that the organization’s ‘competence in the field of trade and environment is limited to trade policies and to the trade-​related aspects of environmental policies which have a significant effect on trade’.82 Furthermore, assessing the environmental implications of trade policies and vice versa would require significant environmental law knowledge and expertise.83 These are complex transformations that could expand the scope of activities of an entity into uncharted areas such as interpreting energy efficiency and making decisions on the environmental standards or implications of trade measures. Given that these respective institutions are currently not constituted or designed to analyse and implement cross-​cutting topics, their ability to carry out functions outside of their core expertise and mandates may be limited. This problem of institutional coordination and coherence can be addressed through regime interplay management approaches that foster cooperation and minimize duplication.84 A necessary starting point will be to carefully examine the extent to which the mandates of existing trade and environment institutions are coherent, conflicting, and/​or duplicative. Developing a matrix of the respective mandates of the existing institutions, including intersections and opportunities for collaboration, can provide a basis for common and concerted action. Furthermore, it is essential to develop linked platforms and mechanisms to support knowledge and information sharing. For example, trade and environment institutions can leverage their respective expertise, facilities and best practices by engaging with staff and experts across sectors to assist with reviewing and assessing multisector projects. Through joint initiatives and knowledge sharing, inter-​agency linkages and partnerships could increase trust and enhance synergic solutions that enhance green economy governance. Furthermore, studies have documented instances of ‘regime bias’ in favor of free trade and against the adoption of domestic measures. This, for example, includes measures for the protection of the environment in economic dispute resolution mechanisms such as the WTO Appellate Body.85 To enhance the ability and potential of trade tribunals 81  M. Childs, ‘Privatising the Atmosphere: A Solution or Dangerous Con?’ 12(1/​2) Ephemera Journal (2012) 12–​18. 82  WTO, Trade and Environment at the WTO, above fn 20, at 6. 83  See Olawuyi, above fn 9. 84  See H. van Asselt, The Fragmentation of Global Climate Governance Consequences and Management of Regime Interactions (Cheltenham: Edward Elgar, 2014), at 1–​15; S. Oberthür and J. Pozarowska, ‘Managing Institutional Complexity and Fragmentation: The Nagoya Protocol and the Global Governance of Genetic Resources’ 13(3) Global Environmental Politics (2013) 100, at 102, stating that ‘[a]‌s the international legal system becomes more and more complex, the need for interplay management increases’. 85 See G. Dimitropoulos, ‘Investor–​ State Dispute Settlement Reform and Theory of Institutional Design’ 9(4) Journal of International Dispute Settlement (2018) 535, at 548–​549; on the issue of ‘free trade bias’ by the WTO panels and the Appellate Body see T. Ginsburg and G. Shaffer, ‘The Empirical Turn in International Legal Scholarship’ 106 American Journal of International Law (2012) 1, at 33–​34.

Environment   687 to balance and integrate environment perspectives and vice versa, there is a need for a more pluralistic court design that balances and integrates expertise from trade and environmental regimes in the constitution and mandates of such panels.86 Pluralistic court design can enhance regime interplay and effectively shape problem solving and harmonization between trade and environment regimes.

C. Reducing or eliminating tariff and non-​tariff barriers to environmental goods and services Paragraph 31 (iii) of the Doha Ministerial Declaration calls for the ‘reduction or, as appropriate, elimination of tariffs and non-​tariff barriers on environmental goods and services’.87 Addressing trade barriers to environmental goods can help promote access to them, which could in turn produce positive environmental, social, and economic benefits. For example, eliminating custom duties on waste management technologies can reduce pollution, reduce exposure to pollution-​induced diseases in local communities, and provide employment opportunities. However, the elimination of tariffs can also result in negative economic, social, and environmental impacts. For example, eliminating custom duties may result in loss of tariff-​revenue that could have been available to finance government programs, the mass importation of dirty technologies, especially when domestic regulation is weak. It may unduly disadvantage or exclude goods that are pivotal to the economies of several developing countries.88 Given these possibilities of overlap, multilateral and plurilateral negotiations, such as the Environmental Goods Agreement negotiations, aimed at reducing or eliminating trade barriers have been slow. Key contentions remain, mostly between developed and developing countries: on the definition of environmental goods; the scope of tariff reductions; addressing the implications of environmental goods to domestic industries; integrating measures to prevent dumping of environmental wastes in developing countries; and the need for a wider negotiation involving more countries, especially major developing countries such as India and Brazil.89 Furthermore, some developing countries have argued for tariff reductions for a wider range of environmentally preferable products (EPPs).90 For example, considering that natural gas is less polluting than coal, it has been suggested that efficient, lower carbon pollution emitting fuels (natural gas to liquid fuels) and

86 

Dimitropoulos, above fn 85, at 564–​568. Doha Ministerial Declaration, above fn 29. 88  De Melo and Solleder, above fn 53. 89 See ‘Environmental, Business Groups at Odds Over Green Goods Initiative’ Inside US Trade (23 May 2014); ICTSD Draft Background Paper, above fn 51; also J. Monkelbaan, Trade Preferences for Environmentally Friendly Goods and Services (International Centre for Trade and Sustainable Development: November 2011), at 1–​5. 90  De Melo and Solleder, above fn 53. 87 

688   Damilola S. Olawuyi related technologies should come within the category of EPPs.91 Several of these contentions highlight the growing and increasing geopolitical divisions in international law which makes the process of consensus building increasingly protracted and near difficult under the multilateral trading system.92 A successful outcome to the ongoing negotiations would be to provide a more inclusive list of environmental goods that encompass the interests and needs of developed and developing countries. Regional trade agreements, including bilateral and plurilateral trade agreements, have been increasingly adopted over the last decade as a more pragmatic approach to navigating the growing complexities and slow pace of multilateral negotiations.93 While there is no consensus on the success or positive impacts of environmental provisions in regional trade agreements, they provide opportunities for two or more like-​minded countries to arrive at workable tariff and non-​tariff measures, as well as a technical cooperation framework on environmental issues, based on shared interests, target areas, and goals.94 For example, the 2018 Agreement on Environmental Cooperation (AEC) among the Governments of the United States of America, the United Mexican States, and Canada specifically calls on the three countries to facilitate actions ‘to remove barriers to trade or investment in environmental goods and services to address global environmental challenges’.95 While the agreement does not include a list of environmental goods, it provides a flexible framework for the three countries to mutually introduce measures at the domestic level to eliminate tariffs on those goods from participating countries to the agreement. Furthermore, regional trade agreements can build on existing institutions and governance structures may eliminate concerns over resource, capacity, and epistemic implications of addressing trade barriers to environmental goods. For example, the Commission for Environmental Cooperation that had been originally established under the NAAEC is entrusted with monitoring the implementation of the ECA.96 The AEC Agreement demonstrates a greater potential for countries

91  See

Submission by the State of Qatar, TN/​TE/​W/​19 (28 January 2003), noting that ‘combined-​ cycle natural gas fired generation systems and advanced gas-​turbines systems, known for their energy efficiency and sustainable development potential, be included in the list of environmental goods’. 92  See S. Alam, S. Atapattu, C.G. Gonzalez and J. Razzaque (eds), International Environmental Law and the Global South (Cambridge: Cambridge University Press, 2015), at 1–​10. 93 See I. Martínez-​ Zarzoso, ‘Assessing the Effectiveness of Environmental Provisions in Regional Trade Agreements: An Empirical Analysis’ 2018 OECD Trade and Environment Working Papers No 2018/​ 02, at 9–​10. 94  L. Baghdadi, I. Martínez-​ Zarzoso and H. Zitouna, ‘Are RTA Agreements With Environmental Provisions Reducing Emissions?’ 90(2) Journal of International Economics (2013) 378–​390; C. George and S. Yamaguchi, ‘Assessing Implementation of Environmental Provisions in Regional Trade Agreements’ 2018 OECD Trade and Environment Working Papers No 2018/​01. 95 Article 10(2)(y). The AEC is a side agreement completed in parallel with the United States–​ Mexico–​Canada Agreement (USMCA). See K. Tienhaara, ‘NAFTA 2.0: What are the Implications for Environmental Governance?’ 1 Earth Systems Governance (2019) 100004. 96 See also Article 8 of the Agreement on Environmental Cooperation between Canada and Chile which creates the Canada-​Chile Commission for Environmental Cooperation to oversee the implementation of the agreement.

Environment   689 to build on existing environmental, trade and social cooperation amongst them to integrate and achieve trade and environmental objectives.97

IV.  Promoting coherence and mutual supportiveness on trade and environment While ongoing negotiations and efforts to promote partnership and mutual supportiveness between trade and environment regimes reflects political commitment towards a green economy approach to international trade—​with its triple goals of economic, social, and environmental development—​multilateral efforts to formalize the partnership have proven difficult. Deep bifurcations, political divisions, and increasingly divergent perspectives between developed, industrialized, and technologically advanced countries (the ‘North’) and the developing, least developed and technologically impoverished countries (the ‘South’) continue to weaken the process of consensus-​ building that is needed to deepen the partnerships between trade and environment institutions.98 Furthermore, lack of clear, comprehensive, and common inter-​agency understanding by WTO and MEA secretariats on the key terms, principles, and practical elements of a green economy approach to trade and environment continue to slow progress in terms of moving from mere cooperation to a more robust partnership. A green economy approach—​a model of economic growth that is both environmentally sustainable and socially inclusive—​can provide a basis for interpreting and implementing trade and environment instruments in a coherent, mutually supportive and less fragmented manner.99 Rather than focus on the more complex question of merging WTO and MEA institutions, a green economy approach will require respective stakeholders in WTO and MEA institutions to deliberately ask in each situation: is this interpretation or application consistent with rules and requirement under the other regime? If not, how can we help it to do so? Managing functional interplays and linkages

97  There are now over 121 regional trade agreements with explicit reference to environmental cooperation. See, e.g., CETA, a trade agreement between Canada, the European Union and its Member States. Chapter 24 of CETA focuses on trade and environment. See also the CPTPP between Australia, Malaysia, Mexico, and Peru. The Environment Chapter of the CPTPP aims to promote mutually supportive trade and environmental policies between the countries. See also Japan-​Mexico Environmental Cooperation Chapter, Singapore-​Korea MOU on CNG Technologies. 98  See the World Economic Forum (WEF) message ‘Creating a Shared Future in a Fractured World’, at < https://​es.wefo​rum.org/​repo​rts/​world-​econo​mic-​forum-​ann​ual-​meet​ing-​2018-​creat​ing-​a-​sha​red-​fut​ ure-​in-​a-​fractu​red-​world > (last visited 3 September 2021). 99  See ILA, above fn 52, paras 105–​108. See also UNEP, Towards a Green Economy: Pathways towards Sustainable Development and Poverty Eradication (2011), at < http://​www.unep.org/​Green​Econ​omy/​ Port​als/​93/​docume​nts/​Full​_​GER​_​scr​een.pdf > (last visited 12 June 2019).

690   Damilola S. Olawuyi is the heart of a green economy approach to trade and the environment. As a starting point, SDG 17 already emphasizes the need for all countries to complete all multilateral trade negotiations to clarify and advance a green economy approach to trade and the environment.100 To move from a mere cooperation approach to a robust partnership and coherence between trade and environment regimes, the following actions points will be important:

A. Develop common and inter-​agency understanding on trade and environment A starting point is for WTO and MEA secretariats to come together to elaborate shared and inter-​agency understanding on common principles, elements, and standards that can underpin and foster a consistent application of extant trade and environment rules. As Pavoni rightly argues, the principle of mutual supportiveness in international law implies a duty to negotiate in good faith when necessary to clarify the relationship between competing regimes.101 This would involve building on the WTO matrix of useful environmental instruments by having a clear matrix of trade-​related environmental instruments. An inter-​agency framework of key issues can promote a shared understanding of key instruments and rules and institutional cross referencing and rule linkage. For example, coming together to evolve core elements of a green economy approach to trade and environment that are WTO-​consistent and compatible with MEAs, can increase the likelihood of synergistic implementation.102 This approach has been previously adopted with some measure of success under the United Nations system. For example, to foster a harmonious understanding of human rights rules across the UN system, a common understanding was agreed to by all UN agencies in 2003.103 Despite debates on the scope and success of this document, it has significantly advanced a harmonious understanding and application of human rights norms in various contexts, including trade and environment.104

100 

United Nations, above fn 12. R. Pavoni, above fn 9, at 641; also S. Oberthür, ‘Interplay Management: Enhancing Environmental Policy Integration Among International Institutions’ 9 International Environmental Agreements: Politics, Law and Economics (2009) 371, at 376. 102 S. Oberthür, ‘Regime Interplay Management’ in K. Blome et al. (eds) Contested Regime Collisions: Norm Fragmentation in World Society (Cambridge: Cambridge University Press 2016) 88, at 98–​99. 103  See United Nations, ‘The Human Rights Based Approach to Development Cooperation: Towards a Common Understanding among UN Agencies’ (2003), at < http://​www.undg.org/​archi​ve_​d​ocs/​6959-​ The_​Human_​Rights_​Based_​Approach_​to_​Development_​Cooperation_​Towards_​a_​Co​mmon​_​Und​erst​ andi​ng_​a​mong​_​UN.pdf > (last visited 12 October 2018). 104  E.​ U. Petersmann, ‘The “Human Rights Approach” Advocated by the UN High Commissioner for Human Rights and by the ILO: Is it Relevant for WTO Law and Policy?’ 7 Journal of International Economic Law (2004) 605–​627; also Olawuyi, above fn 67. 101 

Environment   691 It is also essential to elaborate mechanisms for combined reporting and stocktaking between the secretariats. WTO and MEA secretariats can develop regular stocktaking on how cross-​cutting instruments and rules have been applied in the spheres of their respective operations. Such reports can promote a culture of consistency at the international level. They can also provide significant guidelines to national and regional bodies on how to design and implement promote green economy programs. Another important step is to create further opportunities for inter-​agency dialogue and exchange of experiences between WTO and MEA secretariats. For example, an annual meeting or conference of WTO and MEA institutions and actors can provide opportunities to identify opportunities, challenges, and options to enhance cross-​ sectoral collaboration.

B. Establish focal institutions on trade and environment To promote a consistent application of international instruments on trade and environment under WTO and MEA regimes, it is important to establish focal institutions or administrative units that will coordinate the hybrid and mutually supportive implementation of shared rules and norms. This approach has already been adopted at the WTO level by establishing the CTE as a dedicated forum to discuss and harmonize trade and environment rules. The trade and environment division within the WTO Secretariat also provides technical and knowledge assistance to WTO Members to understand trade and environment linkages. However, several MEAs have not designed similar committees or focal agencies on trade and environment. For example, the UNFCCC does not have a designated committee or unit on trade and environment. It is imperative for the UNFCCC, CITES, CBD and other relevant MEA regimes to develop focal committees and institutions that can promote greater coherence and mutual supportiveness between environment and trade rules. Such committees could be made up of a jointly appointed mix of environment and trade experts who possess the requisite training and knowledge to review and understand trade and environment issues and highlight areas where mutual support is required. By empowering and establishing a focal institution, actors across multiple sectors and disciplines can obtain relevant training and information and develop an institutional understanding of the process and methodology to design and implement environmental measures that do not act as barriers and disincentives to trade.

C. Promote regional cooperation and knowledge sharing on trade and environment The rise in the number of regional trade agreements that contain environmental provisions shows that bilateral and plurilateral negotiations on free trade and environment will remain relevant for the next few years. RTAs can provide further opportunities

692   Damilola S. Olawuyi for two or more countries to arrive at workable tariff and non-​tariff measures, and technical cooperation framework on environmental issues, based on shared interests, target areas, and goals.105 This approach has the potential of circumventing the complex and often protracted process of multilateral negotiations on trade and environment. However, to enhance the efficacy of this approach, participating countries will need to comprehensively clarify their objectives, cooperatively develop measures to eliminate tariff and non-​tariff barriers to trade in environmental goods and services, and establish robust mechanisms for measuring compliance and reciprocity. Regional interaction and knowledge sharing between countries can also help deepen harmonized and coherent implementation of trade and environment instruments at regional and national levels. For example, not only have Asia-​Pacific Economic Cooperation (APEC) countries been able to identify a common list of environmental goods of interest, they have also provided opportunities for member countries to exchange information and best practices on how to eliminate trade barriers to environmental goods.106 Regional knowledge, management platforms, and institutions such as APEC could enable a full exchange of ideas, best practices, and knowledge on addressing trade barriers for environmental goods, and practical steps for planning and implementing such measures. Regional knowledge sharing could also provide a basis for developing and implementing region-​wide instruments that deepen cooperation on trade and environmental issues.

V. Conclusion The relationship between trade and environment has evolved into a leading example of the centrality and inextricable linkages of international trade law to other disciplines of international law. Without a coherent and mutually supportive approach to implementation, environmental measures and policies can serve as barriers to international trade and economic growth, while trade measures can stifle environmental protection. Furthermore, without strong partnerships between trade and environment institutions, it will be difficult to realize several of the SDGs on poverty reduction, environment, climate change, technology transfer, and conservation of marine and aquatic resources.107 Despite the increasing appetite for cooperation and partnerships between trade and environmental regimes, the task of evolving mutually supportive and interlinked rules and procedures on trade and environment remains incomplete at the international 105 

C. George, ‘Environment and Regional Trade Agreements: Emerging Trends and Policy Drivers’ 2014 OECD Trade and Environment Working Papers No 2014/​02. 106  See APEC, ‘List of Environmental Goods’, at < https://​www.apec.org/​Meet​ing-​Pap​ers/​Lead​ers-​ Decla​rati​ons/​2012/​2012_​a​elm/​2012_​aelm​_​ann​exC.aspx > (last visited 2 September 2021) 107  ICTSD Draft Background Paper, above fn 51.

Environment   693 level. A number of important questions on how to harmonize trade and environmental standards, values, and institutional supervision arrangements, remain largely unanswered. Developing a clear, common, and inter-​agency understanding and action plan on the green economy approach to trade and environment can provide a basis for mutually supportive implementation. Given the slow progress at the international level, especially the persistent North-​ South division in multilateral trade negotiations, RTAs have provided and may continue to provide, the platform for countries to integrate trade and environmental objectives. A well-​designed set of horizontal and collaborative policies targeted at addressing barriers to trade in environmental goods and services can allow like-​minded countries to build on existing trade cooperation to promote environmental objectives. While regional trade agreements may not, in terms of predictability and continuity, be effective replacements for multilateral action on trade and environment, they can provide robust platforms for countries to align their aspirations and goals on trade, environment, and the green economy.

Further reading W.W. Chang, ‘World Trade and the Environment: Issues and Policies’ 22(3) Pacific Economic Review (2016) 435–​479 G. Dimitropoulos, ‘Investor–​State Dispute Settlement Reform and Theory of Institutional Design’ 9(4) Journal of International Dispute Settlement (2018) 535–​569 OECD, Developments in Regional Trade Agreements and the Environment: 2012 Update (Paris, France, 2013) OECD, ‘Environment and Regional Trade Agreements: Emerging Trends and Policy Drivers’ 2014 OECD Trade and Environment Working Papers No. 2014/​02 M. Andenas, and E. Bjorge (eds) A Farewell to Fragmentation: Reassertion and Convergence in International Law (Cambridge: Cambridge University Press, 2015) WTO Secretariat, Trade and Environment at the WTO (Geneva: WTO, 2004)

Chapter 26

F o od S a f et y Balancing SPS Scientific Principles and Article XX(b) Sovereignty Marsha A. Echols *

I. II. III. IV.

Introduction Sovereignty and the WTO bargain The SPS Agreement: principal features Risk analysis: assessment, management, and communication A. Risk assessment B. Risk management C. Risk communication V. Annexes B and C A. Annex B: transparency of SPS measures B. Annex C: certification, control, inspection, and approval VI. The administration of SPS measures and other horizontal aspects of the SPS Agreement A. The SPS Committee B. Horizontal aspects: panels and technical experts, technical assistance and special and differential treatment VII. Conclusion

*  The

695 698 698 701 701 703 707 707 707 708 709 710 710 711

assistance of Thomas Darby II, my Legal Research Assistant and World Food Law Institute Research Scholar, was greatly appreciated.

Food Safety   695

I. Introduction The GATT 1994 trade bargain brought agricultural trade rules into the multilateral trading system through two new agreements: the Agreement on Agriculture and the SPS Agreement. The Agreement on Agriculture regulates the use of tariffs and subsidies (among other rules), thereby limiting a WTO Member’s ability to support food and agriculture and the related common good. The SPS Agreement regulates the use of a non-​tariff measure governing food, life, and health, otherwise justified under Article XX(b) of GATT 1994. The preamble to the SPS Agreement, after reaffirming WTO Members’ rights under Article XX(b), points to the major objectives of the SPS Agreement: to improve the human health situation in all Members, to establish a multilateral framework with inter-​related rules and disciplines, to further the use of harmonized measures and to elaborate rules for the application of the GATT 1994 related to the use of sanitary measures, particularly those covered under Article XX(b). These objectives also inform the new SPS structure: ‘a multilateral framework’ with parts that should be understood and read as inter-​related. The SPS Agreement adds a highly structured and ‘science-​based’ framework to each Member’s regulation of the safety of food traded globally. It was created in part to supplement the Agreement on Agriculture’s tariff reductions by constraining the ability of a Member to rely on an Article XX(b) defence and to prevent protectionist sanitary measures. With these agreements, agriculture and food safety were ushered into multilateral trade rules. In international trade agreements, sovereign States enter into a bargain, relinquishing some regulatory authority in exchange for expected commercial benefits and commitments from trading partners: market access for exporting Members and greater product availability for importing Members. The trade benefits should promote economic development and justify any conflicts between the national common good and constraints on sovereign flexibility. This bargain is particularly consequential for Members with developing and emerging markets, who consider trade to be central to their economic development. In that bargain, Members relinquish some of their economic and social sovereignty with respect to food safety, or more precisely human, animal, or plant life and health, as provided in Article XX(b) of the GATT 1994 and the SPS Agreement. The bargain involves sovereignty in two senses.1 First, there is sovereignty in the context of the 1 

There are many definitions of sovereignty and many who discredit the concept. W.P. Nagan and C. Hammer, ‘The Changing Character of Sovereignty in International Law and International Relations’ 43 Columbia Journal of Transnational Law (2004) 141. In explaining various notions of sovereignty, the authors included the approach that rejected the concept of sovereignty in modern international relations. L. Henkin, ‘Law and Politics in International Relations: State and Human Values’ 44 Journal of International Affairs (1990) 183. Professor Henkin suggested that the concept describes essentially, an internal concept, the locus of ultimate authority in a society. The comment is reminiscent of

696   Marsha A. Echols trading relationship between States.2 The balance between its increased food exports and controlling imports for food security reasons might prompt a State to accept SPS obligations and limits on its sovereign right to regulate. At the same time, each WTO Member has a sovereign relationship with its people, which includes the responsibility to respond to their concerns and act to protect their life and health.3 In an unspoken and probably unintended manner, there might be tensions between a State’s participation in a trade agreement and its people’s culture, beliefs and national patterns of thinking. Under the GATT 1947, the rights and resulting tensions around food safety were limited to the application of the exception under Article XX(b), allowing the Contracting Parties to take measures necessary to protect human, animal and plant life, and health. In the SPS Agreement, WTO Members restrict their sovereignty further with respect to food safety, albeit with respect to a closed definition (found in Annex A) of what constitutes a sanitary or phytosanitary measure (SPS measure). That definition includes certain but not all measures applied to protect human or animal life or health, meaning that every SPS measure is, in principle, covered by Article XX(b) of the GATT 1994, but not every Article XX(b) measure is an SPS measure. For the purposes of this chapter, it is important that the definition includes measures to protect life or health ‘from risks arising from additives, contaminants, toxins or disease-​causing organisms in foods, beverages or feedstuffs’.4 Article 2 of the SPS Agreement, like Article XX(b) of the GATT 1994, confirms that, by accepting WTO rules, WTO Members retain their right to protect human health and life. However, the SPS Agreement goes further. It interprets the exception and enlarges Members’ obligations regarding the application of food safety or sanitary measures, centered around scientific principles (as articulated in Article 2) and risk assessments (as articulated in Article 5). As the Appellate Body has made clear, the SPS Agreement adds a science-​based (or objective) focus to food safety regulation, rather than a focus on the food itself. Members agree to the obligations in Articles 2 (basic rights and obligations) and 5 (assessment of risk and determination of the appropriate level of sanitary or phytosanitary protection), obligating them to justify their food safety measures ‘on scientific principles’. Article 5 obliges Members to undertake a ‘risk assessment’ to establish its acceptable level of

Shakespeare’s The Tragedy of Coriolanus, in which the people insist that they are the state. British Library, Discovering Literature: Shakespeare & Renaissance, at < https://​www.bl.uk/​works/​cor​iola​nus > (last visited 15 September 2021). 2 P.

Minkkinen, ‘The Ethos of Sovereignty: A Critical Appraisal’ 8 Human Rights Review (2007) 33, at 51. 3  K. Annan, ‘Two Concepts of Sovereignty’ The Economist (18 September 1999) in which he argues that ‘States are now widely understood to be instruments at the service of their peoples, and not vice versa’. According to modern sovereignty theory international sovereignty protects a collective entity of individuals –​a people. S. Besson, ‘Sovereignty, International Law and Democracy’ 22 European Journal of International Law (2006) 373, at 387. 4  SPS Agreement, Annex A, para 1(b).

Food Safety   697 protection, which cannot be maintained ‘without sufficient scientific evidence’, as EC –​ Hormones made clear.5 A SPS measure must be based on ‘scientific principles’,6 a ‘risk assessment’7 and internationally harmonized standards, guidelines or recommendations or a higher level of protection determined appropriate.8 It may not be maintained without ‘sufficient scientific evidence’.9 In this manner, the SPS Agreement seeks to avoid SPS measures being taken for protectionist purposes. These directions are supplemented by rules about equivalence,10 transparency and enquiry points,11 and by the detailed requirements pertaining to certification, control inspection, and approval found in Annex C. The system constrains a Member’s sovereign ability to consider food traditions when protecting its nationals’ life and health through SPS measures, in spite of centuries of practice around food culture and common beliefs about food, including what is safe to eat. This ‘system’ of constraints on WTO Members’ implementation and application of their food safety laws and regulations is part of a larger international bargain that creates a multilateral framework of rules and disciplines to guide the development, adoption, application, and enforcement of SPS measures to minimize negative effects on food trade. Articles 2 and 5 of the SPS Agreement, considered together, form a foundation largely built on the requirement of a risk assessment—​an objective and scientific justification for a sanitary measure or, more specifically, a ‘scientific’ examination of the evidence to determine the potential effect of the risk. However, that foundation does not specifically include the concepts of risk management and risk communication. In 1997, the Codex Alimentarius Commission (CAC)12 adopted definitions of these concepts, which, as will be shown, are reflected in rights and obligations of the SPS Agreement.13 These concepts have been expressly incorporated in later FTAs, further influencing the balance between sovereignty and a Member’s SPS obligations.

5 

Appellate Body Report, EC –​Hormones (Canada), adopted 13 February 1998, para 177. The Appellate Body, at paras 124–​125, also acknowledged a role for ‘precaution’ and human inclination. Given its policy implications, the dispute underwent several lives at the WTO illustrating the significance of a seemingly technical dispute. See, e.g., Decision of the Arbitrators, EC –​Hormones (US) (Article 22.6 –​EC), 26 July 1999. 6  Article 2 of the SPS Agreement. 7   Article 5 of the SPS Agreement. 8  Article 3 of the SPS Agreement. 9  Article 2 of the SPS Agreement. 10  Article 4 of the SPS Agreement. 11  Annex B to the SPS Agreement. 12  WTO Secretariat, WTO Secretariat Note: Relationship with Codex, IPPC and OIE: The WTO and the FAO/​WHO Codex Alimentarius, G/​SPS/​GEN/​775 (15 May 2007). 13 WTO, Sanitary and Phytosanitary Measures: Workshop on Risk Assessment, Risk Management and Risk Communication (12-​13 July 2021), at < https://​www.wto.org/​engl​ish/​trato​p_​e/​sps_​e/​sps_​wo​ rksh​op_​j​uly2​1_​e.htm > (last visited 28 August 2021); see also the Report of a Joint FAO/​WHO Expert Consultation on 2–​6 February 1998, ‘The Application of Risk Communication to Food Standards and Safety Matters’ (Rome: FAO/​WHO, 1999), Chapter 3.

698   Marsha A. Echols

II.  Sovereignty and the WTO bargain The WTO bargain, including the SPS Agreement, affects sovereignty in two senses. WTO Members might consider that increased food exports or import-​based food security justify the limitations imposed by the SPS Agreement on their right to regulate. At the same time, each WTO Member has a sovereign relationship with its people, which includes a responsibility to respond to their concerns and to their common good related to health and life.14 In an unspoken and probably unintended manner, participation in a trade agreement may interfere with a Member’s national common good, reflected in culture, beliefs and national patterns of thinking about food including what is safe to eat.15 These aspects of sovereignty do not feature easily in a risk assessment, but are less difficult to include in risk management, particularly when suggested during risk communication, because risk management includes the consideration of other legitimate factors related to food production, handling, and dietary practices.16 In FTAs, at the CAC as well as in discussions in the SPS Committee, the focus has shifted from risk assessment, a purely scientific endeavour, to risk analysis, which incorporates the concepts of risk management and risk communication into the implementation and application of food safety measures. The SPS Committee recognized this shift in its 2021 WTO Workshop on Risk Assessment, Risk Management and Risk Communication.17 The addition of these concepts, as will be seen below, allow a WTO Member to consider other factors that promote fair practices in food trade beyond a purely scientific assessment of risk to the health of the consumer.

III.  The SPS Agreement: principal features Article 2 of the SPS Agreement requires a food safety measure to be ‘based on scientific principles’ and not be maintained without ‘sufficient scientific evidence’. Members 14 G. Duke, ‘Sovereignty and the Common Good’ 17 International Journal of Constitutional Law (2019) 66. 15  J. Sebastian, ‘Regional Culture’s Connection to Food Safety Risks’ Food Quality and Safety (16 May 2019), at < https://​www.foodq​uali​tyan​dsaf​ety.com > (last visited 28 August 2021). 16  Sovereignty has been characterized as jurisdictional competence (Pennoyer v Neff, 95 U.S. 714 (1878)) and territorial control (S.S. Lotus France v. Turkey, 1927 PCIJ Ser. A). Neither fits the more humanitarian notion of sovereignty implicated by the food and food safety concerns that must be addressed by Members. See E.T. Hayes, ‘A Comparative Analysis of the Regulation of State and Provincial Governments in NAFTA and GATT/​WTO’ 5(2) Chicago Journal of International Law (2005) 605. 17 WTO, Sanitary and Phytosanitary Measures: Workshop on Risk Assessment, Risk Management and Risk Communication (12–​13 July 2021), at < https://​www.wto.org/​engl​ish/​trato​p_​e/​sps_​e/​sps_​wo​rksh​op_​j​ uly2​1_​e.htm > (last visited 28 August 2021).

Food Safety   699 must ensure that their SPS measures are based on a risk assessment, taking into account ‘available scientific evidence; relevant processes and production methods; relevant inspection, sampling and testing methods; prevalence of specific diseases or pests; existence of pest—​or disease—​free areas; relevant ecological and environmental conditions; and quarantine or other treatment’.18 The SPS Agreement requires Members to act on the basis of an objective evaluation of risk.19 It departs from the longstanding link between food and centuries of food culture and traditions, because the latter were viewed as capable of hiding protectionism and discrimination.20 The right of each WTO Member to take a sanitary measure necessary for the protection of human life or health is thus limited by the nature of the obligations assumed21 (especially their focus on a risk assessment) as interpreted by panels and the Appellate Body.22 The WTO’s focus on a risk assessment contrasts with the notion of a risk analysis found in the Codex Alimentarius and many recent FTAs,23 even if the latter also confirm the parties’ obligations under the SPS Agreement.24 The SPS Agreement also strives for equivalency (Article 4) and harmonization (Article 3). Members must accept the SPS measures of other Members as equivalent even if they differ, provided that they achieve the same level of SPS protection.25 In addition, Members must harmonize SPS measures ‘on as wide a basis as possible’ by basing their measures on international standards, guidelines or recommendations,26 including revisions of those standards reflecting the latest science known to the Members.27 According to the Appellate Body, the ultimate goal of harmonization ‘is to prevent the use of such measures for arbitrary or unjustifiable discrimination between Members or as a disguised restriction on international trade’.28

18

  Article 5(2) of the SPS Agreement.   Annex B to the SPS Agreement refers to risks in the definition of risk assessment. An additive, contaminant, toxin or disease-​causing organism in food, beverages or feedstuffs might be a risk according to section 4. 20 E. Wesley, ‘Free Trade and Protectionism in Food and Agriculture’ in D.M. Kaplan (ed), Encyclopedia of Food and Agricultural Ethics (Dordrecht: Springer, 2014) 1049. 21  See, e.g., Article 2.3 (‘do not arbitrarily or unjustifiably discriminate’) and Article 2.4 (‘measures shall not be applied in a manner which would constitute a disguised restriction on international trade’), as well as the chapeau of Article XX. 22 At least fifty requests for consultations have cited the SPS Agreement. WTO, Disputes by Agreement, Sanitary and Phytosanitary Measures SPS, at < https://​www.wto.org/​engl​ish/​trato​p_​e/​disp​u_​ e/​dispu​_​agr​eeme​nts_​inde​x_​e.htm?id=​A19 > (last visited 28 August 2021). 23  FTAs often refer to ‘science and risk analysis’: see, e.g., Article 9.6 of USMCA and Article 7.9 of the CPTPP. 24  The CPTPP Parties affirm their rights and obligations under the SPS Agreement (Article 7.4.1); see also Article 5.4 of CETA. FTAs also recognize the importance of ensuring that their respective sanitary measures are based on scientific principles; see Article 7.9.1 of the CPTPP. 25  Article 4.1 of the SPS Agreement. 26  Article 3.1 of the SPS Agreement. 27  Panel Report, Australia –​Salmon, adopted 6 November 1998, para 7.11; Panel Report, India –​ Agricultural Products, adopted 19 June 2015, paras 7.209-​7.211. 28  Appellate Body Report, EC –​Hormones, adopted 13 February 1998, para 177. 19

700   Marsha A. Echols Articles 2 and 5, as well as the provisions about standards harmonization29 and equivalence30 are supplemented by the detailed requirements of Annexes B (transparency) and C (control, inspection and approval procedures). Article 13 makes Members ‘fully responsible’ for formulating and implementing positive measures and mechanisms supporting the SPS Agreement, including by taking reasonable measures to ensure that NGOs comply, and the encouragement of local bodies not to act inconsistently with it. Transparency,31 national enquiry points,32 and notification procedures33 are horizontal features of this new food safety system that are closely related to the administration of the SPS Agreement34 and the operation of the SPS Committee. Other horizontal features of the SPS Agreement, essential to the effectiveness of the food safety system, include technical assistance,35 special and differential treatment,36 and consultations and dispute settlement.37 Recent regional and mega-​regional FTAs enlarge the scope of food safety law. They address unresolved or trending commercial,38 technological,39 and legal developments affecting food trade and safety.40 Several FTAs envisage greater regional cooperation, creating regional institutions and possibilities for collaboration that go beyond the operation of the SPS Committee.41 Regional FTAs might incorporate into food safety rules new social or environmental considerations reflecting the parties’ role as sovereigns and their concerns with protecting the common or global good. Although many FTAs confirm the application of obligations under the SPS Agreement, their focus on the notion of risk analysis offers a new perspective on the regulation of food safety.

29 

Article 3 of the SPS Agreement. 4 of the SPS Agreement, referred to as ‘Enhancing Compatibility of Sanitary and Phytosanitary Measures’ in Article 9.7 of USMCA. 31  Article 7 of and Annex B to the SPS Agreement. 32  Annex B, sections 3–​4, to the SPS Agreement. 33  Annex B, sections 5–​10, to the SPS Agreement. 34  Article 12 of the SPS Agreement. 35  Article 9 of the SPS Agreement. 36  Article 10 of the SPS Agreement. 37  Article 13(2) of the DSU notes the special role that scientific experts may play in dispute settlement. 38  For example, electronic-​Commerce frequently appears in new FTAs, like CETA Chapter 16, CPTPP Chapter 14, and USMCA Chapter 19 (Digital Trade). The African Continental FTA addresses deceptive practices—​which may conceal unsafe food ingredients—​in Article 26e of its Protocol on Trade in Goods in the Agreement Establishing the African Continental Free Trade Agreement, at < https://​www.tra​lac.org/​ docume​nts/​resour​ces/​cfta/​1998-​afc​fta-​agreem​ent-​lega​lly-​scrub​bed-​sig​ned-​16-​may-​2018/​file.html > (last visited 28 August 2021). 39  New payment technologies like block chain are rapidly becoming used. See, e.g., OECD, OECD Global Blockchain Policy Forum 2021, at < https://​www.oecd.org/​fina​nce/​oecd-​blo​ckch​ain-​pol​icy-​ forum.htm > (last visited 28 August 2021). 40  See Chapter 6 of the Agreement between the United Kingdom of Great Britain and Northern Ireland and Japan for a Comprehensive Economic Partnership Agreement. 41  See, e.g., Articles 6.14 and 26.1 of CETA, which create a Joint Management Committee for Sanitary and Phytosanitary Measures and a Joint Committee. 30 Article

Food Safety   701

IV.  Risk analysis: assessment, management, and communication Although the SPS Agreement is centered around ‘risk assessment’, ‘risk analysis’—​ with its three components or steps—​is becoming the operational structure and logic of the food safety regulatory ‘system’ reflected in the CAC and several recent FTAs, like CPTPP,42 USMCA43 and CETA.44 Risk analysis broadens the regulatory analysis by adding risk management and risk communication. According to the WHO/​FAO Procedural Manual45 and other guidance, each of the three components is ‘integral’ to the overall risk analysis.46 The analysis emphasizes the scientific aspects of food production, but is also open to other legitimate factors for the promotion of fair practices in food trade, which could include cultural aspects of food production, handling, and dietary practices.47 Risk assessment—​the initial step of a risk analysis—​is specifically named in Article 5 of the SPS Agreement. The next step—​‘risk management’—​is partially reflected, although not in name, in Articles 3 and 5.4-​6 of the SPS Agreement, addressing the possible options for choosing a response to the risk. After the risk assessment, no specific sequence of steps is laid down in the SPS Agreement, but risk management and risk communication may follow. Risk communication is partially reflected, but again not in name in the SPS Agreement but is included in Annex B.

A. Risk assessment To accomplish its purpose of prohibiting the use of SPS measures for protectionist purposes, the SPS Agreement makes objectivity and scientific principles (rather than subjective considerations often associated with food and agricultural trade) essential to creating, applying, and implementing sanitary measures. At issue in most SPS disputes is the relationship between Article 2 ‘scientific principles’ and objective scientific evidence in the assessment of risk and the 42 

Article 7.9 of the CPTPP. Article 9.6 of USMCA. 44  Articles 5.7 and 5.11 of CETA. 45 CAC Procedural Manual, Section IV, Risk Analysis (Twenty-​seventh edition 2019), at < http://​www. fao.org/​3/​ca232​9en/​CA232​9EN.pdf > (last visited 11 June 2021). 46 CAC, Working Principles for Risk Analysis for Application in the Framework of the Codex Alimentarius, adopted in 2005, section 5, at < http://​www.fao.org/​3/​a02​47e/​a0247​e04.htm > (last visited 28 August 2021). 47 FAO, Statements of Principle Concerning the Role of Science in the Codex Decision-​Making Process and the Extent to Which Other Factors Are Taken into Account and the Statements of Principle Relating to the Role of Food Safety Risk Assessment, at < http://​www.fao.org/​fao-​who-​codexa​lime​ntar​ius/​codex-​ texts/​pro​cedu​ral-​man​ual/​secti​ons/​appen​dix/​append​ix1/​en/​ > (last visited 31 October 2021). 43 

702   Marsha A. Echols appropriate level of protection. A new food safety measure must be ‘based on scientific principles’ and a ‘risk assessment’—​an objective process that exemplifies the new approach. In EC –​Hormones, the Appellate Body described a risk assessment as a process ‘characterized by systematic, disciplined and objective enquiry and analysis, that is, a mode of studying and sorting out facts and opinions’, with science playing a ‘central role’.48 Yet the Appellate Body cautioned that the approach should not be ‘too narrow’49 and should consider ‘other factors’50 that might not be investigated using ordinary laboratory methods.51 A risk assessment—​a ‘scientific’ examination of the evidence to determine the potential effect of the risk—​is at the heart of the system. A Member’s right to take a food safety measure pursuant to Article 2 is protected, though subject to certain other obligations in Articles 2 and 5. In particular, Article 2.2 makes clear that Members must ensure that any SPS measure is based on sufficient scientific evidence and applied only to the extent necessary to protect human, animal or plant life, or health.52 Annex A defines a risk assessment it as an ‘evaluation’ whose features depend on the type of risk at issue. The definition refers to ‘available scientific evidence; relevant processes and production methods; relevant inspection, sampling and testing methods; prevalence of specific diseases or pests; existence of pest—​or disease—​free areas; relevant ecological and environmental conditions; and quarantine or other treatment’. The factors to be considered will vary depending on the risk being addressed. As emphasized in EC –​Hormones, it is essential to bear in mind that the risk is not only ‘ascertainable in a science laboratory operating under strictly controlled conditions, but also risk in human societies as they actually exist, in other words, the actual potential for adverse effects on human health in the real world where people live and work and die.’53 In contrast to Article 5.1, Article 5.7 (precaution)54 permits the application of a ‘provisional’ measure before there is scientific certainty about the risk. The Appellate Body has acknowledged the limited role that precaution plays,55 not allowing it to override Articles 5.1-​2.56 The Appellate Body later said in Japan –​Agricultural Products II that

48 

Appellate Body Report, EC –​Hormones, adopted 13 February 1998, para 187. Appellate Body Report, United States/​Canada –​Continued Suspension, adopted 16 October 2008. 50  Appellate Body Report, Australia –​Apples, adopted 17 December 2010, para 208. 51  Appellate Body Report, EC –​Hormones, adopted 13 February 1998, para 187 (‘Article 5.2 was not intended to be a closed list. It is ‘essential to bear in mind that the risk that is to be evaluated in a risk assessment under Article 5.1 is not only risk ascertainable in a science laboratory operating under strictly controlled conditions, but also risk in human societies as they actually exist, in other words, the actual potential for adverse effects on human health in the real world where people live and work and die’). 52  Appellate Body Report, Japan –​Agricultural Products II, adopted 19 March 1999, para 82, notes the importance of the Article 2.2 basic right and confirmed that Article 5.1 may be viewed as a specific application of the basic obligations in Article 2.2 (citing Appellate Body Report, EC –​Hormones, adopted 13 February 1998, para 180). 53  Appellate Body Report, EC –​Hormones, adopted 13 February 1998, para 187. 54  Article 5.7. 55  Appellate Body Report, Japan –​Agricultural Products II, adopted 19 March 1999, para 74. 56  Appellate Body Report, EC –​Hormones, adopted 13 February 1998, paras 123–​125. 49 

Food Safety   703 a Member seeking to rely on Article 5.7 must meet each of the four cumulative criteria laid down in that provision.57 A WTO challenge often occurs when the respondent has not conducted a proper risk assessment, e.g., of a non-​traditional product as in EC –​Hormones58 or a new technology as in Russia –​Pigs.59 The EC –​Hormones dispute illustrated the rejection of traditional subjective considerations in favor of an objectively analysed, maybe quantitative, risk assessment when designing and applying a sanitary measure and the new balance created by the SPS Agreement.

B. Risk management Based on its risk assessment, a WTO Member must next decide whether and how to respond to, or manage, that risk. In exercising its risk management options, a Member may choose between, inter alia, harmonization, equivalence, mutual recognition, conformity assessment, an emergency or provisional measure or a simple cooperation agreement. This process is not devoid of policy considerations. Members maintain a degree of flexibility in determining how stringent they want to be in protecting against any given risk. They will be guided by national interests and various policy considerations when they undertake risk management Although not by name, risk management is reflected in Articles 3, which calls for the harmonization of Members’ SPS measures, while Article 5.4–​6 stipulate that Members should seek to minimize negative trade effects, try to achieve consistency in the adoption of an appropriate level of protection, and adopt a measure that is not more trade restrictive than necessary to achieve that level of protection. The Appellate Body has on more than one occasion rejected the idea that there is a rigid distinction between risk assessment and risk management.60 In its view, it is precisely because the term ‘risk management’ is not found in Article 5 or defined in Annex A that the term cannot be used to sustain a more restrictive interpretation of ‘risk assessment’ than is justified by the actual terms of Articles 5.2 and 8 and Annex C to the SPS Agreement.61 According to the CAC, risk management is the process of weighing 57

  Appellate Body Report, Japan –​Agricultural Products II, adopted 19 March 1999, paras 86–​94.   ‘Growth hormones’ for meats were and to some extent remain controversial for reasons of food culture and consumer precaution. 59   Ractopamine is a controversial animal feed additive whose treatment by Russia was raised by the European Union in a dispute with the Russian Federation. As is often the case, the situation had been discussed at the SPS Committee as a ‘Specific Trade Concern’ before a complaint was filed at the WTO (STC 411), paras 2.431-​2.447 and the Russian Federation’s restrictions on beef and swine meat, G/​SPS/​N/​RUS/​145 (6 December 2017) (STC 445). G/​SPS/​GEN/​204/​Rev.19, at < http://​www.pun​tofo​cal.gov.ar/​doc/​msf_​ge​n204​ r19.pdf > (last visited 28 August 2021). Appellate Body Report, Russia –​Pigs (EU), adopted 21 March 2017. 60 Appellate Body Report, EC –​Hormones, adopted 13 February 1998, para 181; Appellate Body Reports, United States/​Canada –​Continued Suspension, adopted 16 October 2008, paras 541-​542. 61  Appellate Body Reports, United States/​Canada –​Continued Suspension, adopted 16 October 2008, paras 541–​542. 58

704   Marsha A. Echols policy alternatives for protecting consumers’ life and health from the identified risk. That process should follow ‘a structured approach’ that includes evaluation of risk management options and monitoring and review of the decision. The CAC further specifies that ‘the decisions should be based on risk assessment, and taking into account, where appropriate, other legitimate factors relevant for the health protection of consumers and for the promotion of fair practices in food trade’.62

1. Harmonization Standards harmonization is the risk management option promoted by the SPS Agreement. Article 3 encourages Members ‘to harmonize sanitary measures on as wide a basis as possible’. Annex A defines harmonization as the ‘establishment, recognition and application of common’ sanitary measures. Three intergovernmental institutions, popularly referred to as the ‘Three Sisters’, are identified in Article 3.4 with key roles in standard-​setting and harmonization: the CAC,63 the World Organisation for Animal Health (OIE),64 and international and regional organizations operating within the framework of the International Plant Protection Convention (IPPC).65 Each institution is involved in standard-​setting. The CAC and the OIE have created policies, interpretations, guidelines, reports, and other documents that detail the meaning and interpretation of food safety rules and how they apply. According to Article 3, Members ‘shall base’ their SPS measures on international standards, guidelines or even recommendations relating to food additives, contaminants, methods of analysis and sampling, and codes and guidelines of hygienic practice. To harmonize, a Member may choose an SPS measure that is ‘based on’66 or ‘conforms to’67 the harmonized standard or that reflects a ‘higher level of protection’ than the harmonized standard.68 An SPS measure must be ‘based on’ a relevant international standard, unless the Member determines that the standard does not offer the appropriate level of protection. The term ‘based on’ offers a looser standard than ‘conforms to’.69 A measure may be based on an international standard even if it affords a different level of protection.70 62 

CAC Procedural Manual, 117. FAO/​WHO’s CAC process includes risk assessments by scientific experts, justifying the ‘deemed’ necessary and ‘presumed’ consistent assumptions. 64 The World Organisation for Animal Health (OIE) is the intergovernmental organization responsible for improving animal health and addressing diseases like African swine fever, see < https://​ www.oie.int/​en/​home/​ > (last visited 15 August 2021). 65  The International Plant Protection Convention is designed to protect the world’s plant resources for biodiversity and from the spread, and introduction of pests and to promote safe trade, see < https://​www. ippc.int/​en/​about/​overv​iew/​ > (last visited 28 August 2021). 66  Article 3.1 of the SPS Agreement. 67  Article 3.2 of the SPS Agreement. 68  Article 3.3. of the SPS Agreement. This option exists when there is a scientific justification or in accordance with Article 5.1–​8. 69  Appellate Body Report, EC –​Hormones, adopted 13 February 1998, para 165. 70  Appellate Body Report, EC –​Hormones, adopted 13 February 1998, para 168. 63 The

Food Safety   705 An SPS measure that ‘conforms to’ a relevant international standard, such as a Codex standard, is ‘deemed’ to be necessary (Article 3.2) and ‘presumed’ to be consistent with the SPS Agreement and the GATT 1994.71 These benefits incentivize WTO Members to ensure that their measures conform to a harmonized standard. A Member may choose to apply a ‘higher level of protection’ than the harmonized standard—​often called the appropriate level of protection or ALOP—​when there is a scientific justification to do so,72 in accordance with Article 5.1-​8. According to the Appellate Body, a scientific justification requires a rational relationship between the measure and the available scientific information.73 In addition, when determining the ALOP, a Member must avoid arbitrary or unjustifiable distinctions in the level it considers to be appropriate in different situations.74 Furthermore, all ‘measures which result in a level of SPS protection different from that which would be achieved by measures based on international standards . . . shall not be inconsistent with any other provision of [the WTO] Agreement.’75 This includes the obligation not to adopt a measure that arbitrarily or unjustifiably discriminates or that is more trade-​restrictive than necessary.76 Given its likely effects on trade, an ALOP might be challenged in dispute settlement proceedings. For example, in Korea –​Radionuclides, Japan challenged Korea’s SPS measures taken in response to a potential contamination from caesium and additional radionuclides in imports from Japan after the Fukushima disaster. The Appellate Body confirmed that the specification of an ALOP is both a prerogative and an obligation of the responding Member under Article 5.6.77 To assess whether a Member has adopted and applied an ALOP that is not more trade restrictive than necessary consequently requires a detailed and complex analysis of the totality of the qualitative and quantitative objective elements of the evidence that the Member relies upon. Similarly complex analyses have been undertaken in several other WTO disputes in which Article 5.6 was at issue, including India –​Agricultural Products,78 Australia –​Salmon79 and Australia –​Apples.80

71 

Article 3.2 of the SPS Agreement. scientific justification exists if, on the basis of an ‘examination and evaluation of available scientific information in conformity with the relevant provisions of this Agreement, a Member determines that the relevant international standards, guidelines, or recommendations are not sufficient to achieve its appropriate level of sanitary or phytosanitary protection’. See Article 3.3, footnote 2, of the SPS Agreement. 73  Appellate Body Report, Japan –​Agricultural Products II, adopted 19 March 1999, para 79. 74  Article 5.5 of the SPS Agreement. 75  Article 3.3 of the SPS Agreement. 76  See, e.g., Articles 2.3 and 5.6 of the SPS Agreement. 77  Appellate Body Reports, United States/​Canada –​Continued Suspension, adopted 16 October 2008, para 523. 78  Appellate Body Report, India –​Agricultural Products, adopted 19 June 2015, paras 5.188-​233. 79  Appellate Body Report, Australia –​Salmon, adopted 6 November 1998, paras 179-​255. 80  Panel Report, Australia –​Apples, adopted 17 December 2010, paras 7-​1096–​7-​1410. 72 A

706   Marsha A. Echols In sum, justifying an SPS measure on the basis that it conforms to an existing international standard seems to be a much less complicated and failsafe way to insulate a measure from challenge. That said, where an SPS measure, such as India’s measures to protect against avian influenza, is not in fact based on the identified standard, in that case the OIE Terrestrial Code, it will be held to be inconsistent with Article 3.1 and it will not benefit from the presumption of consistency in Article 3.2 of the SPS Agreement, which requires conformity with the standard.81

2. Equivalence Equivalence, as set out in Article 4 of the SPS Agreement, is a bilateral risk management alternative to harmonization under which the importing Member recognizes the equivalence of a different safety measure or system of another WTO Member, when supporting data is provided.82 The exporting Member must ‘objectively’ demonstrate that its measure or system achieves the importing Member’s ‘appropriate level’ of sanitary protection. A Decision adopted by the SPS Committee reflects the fundamental understanding that equivalence does not require duplication or sameness of measures and explains the commitments of the importing and exporting Members.83 The Decision specifically calls on Members to actively participate in the ongoing work of the Three Sisters to advance equivalence. It resulted in the adoption of Guidelines of equivalence by the OIE and IPPC and proposed draft guidelines related to equivalence by the CAC.84 Equivalence is included in recent FTAs, where obligations are updated or further elaborated. For example, the EU-​Japan EPA specifically requires that the guidance of the WTO SPS Committee and its equivalence Decision, as well as Codex and OIE standards, be considered in determining the equivalence of measures.85 Other agreements, like USMCA, go 3 parts equivalence and their consideration,86 as well obligations pertaining to the repeal or modification of the equivalence recognition.87 81 

Appellate Body Report, India –​Agricultural Products, adopted 19 June 2015, para 5.112. Equivalence agreements have been in the sector of organic products and, with more difficulty, in the meat sector. Canada and the United States have negotiated a regional mutual recognition agreement to address the harm that could be caused by the spread of African swine fever and recognized the equivalence of each other’s organic regulations; see News Release on the African swine fever protocol: (last visited 4 November 2021), and the US-​Canada Organic Equivalency Arrangement: (last visited 4 November 2021). 83 WTO, Decision on the Implementation of Article 4 of the Agreement on the Application of Sanitary Measures, Revision, G/​SPS/​19/​Rev.2 (23 July 2004). 84  OIE Terrestrial Animal Health Code, 2016, Section 5.3; IPPC Guidelines for the determination and recognition of equivalence of phytosanitary measures, ISPM24, 2017; CAC Proposed Draft consolidated Codex Guidelines related to Equivalence, CX/​FICS 20/​25/​7 (2 December 2020). 85  Article 6.14(3) of the EU-​Japan EPA. 86  Article 9.9(3–​14) of USMCA. 87  Article 9.9(15–​17) of USMCA. 82 

Food Safety   707

C. Risk communication Although no specific sequence of steps is mandated after the risk assessment, the third step is typically ‘risk communication’ among all stakeholders. Risk communication is not defined in Annex A or directly mentioned in the SPS Agreement. However, Article 7 and Annex B of the SPS Agreement contain obligations pertaining to transparency, which is an important aspect of risk communication. In 1997, the CAC Procedural Manual adopted a definition of risk communication as ‘[t]‌he interactive exchange of information and opinions throughout the risk analysis process’ involving ‘risk assessors, risk managers, consumers, industry, the academic community and other interested parties’. Both the CAC and the OIE rely on input from stakeholders. Through the active involvement of observers, the CAC incorporates dozens of non-​governmental stakeholders in its standards setting process. The OIE communicates with civil society and others. For example, its Terrestrial Animal Health Code88 is ‘a reference document for stakeholders, including veterinary authorities, import/​export services, epidemiologists and all those involved in international trade’. By contrast, the SPS Agreement focuses on bilateral and intergovernmental interactions, e.g., as Members communicate their standards to the SPS Committee.

V.  Annexes B and C There are three Annexes to the SPS Agreement. Annex A contains standard definitions in food and agriculture such as SPS measure, requirements and procedures, and risk assessment, several of which were discussed previously in Part IV. As well as new terms like ‘appropriate level of protection’. Annex B, on transparency, and Annex C, on control, inspection and approval procedures, set out newe and additional obligations for WTO Members. Since they require the establishment of certain substantive formalities, like enquiry points and approval procedures, these Annexes point to ways in which the Agreement—​a 1994 text—​could obligate Members to address future developments in food trade and safety.

A. Annex B: transparency of SPS measures Article 7 states that Members ‘shall notify changes in their sanitary . . . measures and shall provide information on their sanitary . . . measures in accordance with the provisions of Annex B.’ Annex B sets out detailed transparency obligations. Transparency is a complement to risk assessment and an essential component to a successful harmonized food safety system. A proposed food safety measure must be published ‘to enable interested Members to become acquainted with it’.89 In certain circumstances, it must 88 

89 

OIE, 2007, at < https://​www.oie.int/​doc/​ged/​D6430.PDF > (last visited 28 August 2021). Appellate Body Report, Japan –​Agricultural Products II, adopted 19 March 1999, para 106.

708   Marsha A. Echols also be publicly available for comments. In such circumstances, an interval is required between publication and entry into force of the measure.90 The appropriate details of the publication was an issue in Korea –​Radionuclides. According to the Appellate Body, the publication must be accessible and give enough information (including in respect of product scope and requirements) for interested persons to become familiar with the measure, with the appropriate amount of detail depending on the measure.91 A feature of Annex B is the requirement that a Member create an enquiry point,92 as a source of answers to enquiries and where to find documents like risk assessments and control and inspection procedures (Annex C documents). Enquiry points can play a pivotal role in relations between importing and exporting Members and between industry and national authorities. As the Panel in Korea –​Radionuclides made clear, ‘compliance with Annex B(3), and thus Article 7, is achieved not only through the formality of creating an enquiry point, but also through the actual provision of information and answers to reasonable questions.’93 Another feature of Annex B is the notification requirement, which requires Members to publish a notice at an early stage and allow for comments.94 It is triggered when a standard does not exist or the content of a proposed sanitary regulation is not substantially the same as the content of an international standard when the standard might have a significant effect on trade. As noted above, with the concept of ‘risk communication’ featuring more prominently in FTAs, they arguably go beyond the WTO’s transparency requirements.95

B. Annex C: certification, control, inspection, and approval As the global food chain evolves, Members introduce new procedures to test and prove food safety. Procedures like product tracing, testing, controls, verification, and certification increasingly result in complex challenges for exporters. Several of these procedures are used to determine food safety and often must precede market access. Trending Annex C issues include testing for antimicrobial resistance and new technologies like block chain technology, CRISPR gene editing and cellular agriculture (e.g. cultured fish and meats). Within its broad scope, and because it ‘does not specify, nor exclude, any types of “procedure” ’,96 Annex C addresses timing and delays, information requirements, confidentiality, product specimens, fees, the siting of facilities,

90 

Panel Report, India –​Agricultural Products, adopted 19 June 2015, paras 7.757–​7.758. Appellate Body Report, Korea –​Radionuclides, adopted 26 April 2019, para 5.147. 92  Annex B, section 3, to the SPS Agreement. 93  Panel Report, Korea –​Radionuclides, adopted 26 April 2019, para 7.510. 94  Annex C(5) to the SPS Agreement. 95  See the Risk Analysis, Section IV above. 96  Panel Report, US –​Poultry (China), adopted 25 October 2010, para 7.363. 91 

Food Safety   709 change in product specifications and review of complaints. Simplicity, speed in customs processing and timeliness of verification are Annex C procedures explained in EC –​ Biotech Products. The Panel made clear that Annex C(1)(A) essentially is ‘ a good faith obligation requiring Members to proceed with their approval procedures as promptly as possible’, ‘from beginning to end’ and ‘without an unjustified loss of time’.97 Annex C procedures like product certification are crucial to the success of businesses. Contracts between importing distributors and exporting suppliers might address testing, verification, confidentiality, and food safety certification—​Annex C issues—​ and market access requirements. Often the exporting Member must provide proprietary commercial information and trade secrets from the exporting business, for example to support a request for equivalence, while allowing for the protection of the information’s confidentiality. Several FTAs also address certification, control, and approval of SPS measures. The ‘Trade Conditions’ stipulated in Article 5.7 of CETA and Article 6.7 of the EU-​Japan EPA, for example, mirror obligations in Annex C, while being specific to the treatment of imports. These Articles contain added specificity on priority imports, authorized facilities for importation and pre-​clearance. Recent FTAs have also gone beyond the SPS Agreement by including audit and inspection mechanisms. Article 7.10 of the CPTPP and Article 9.10 USMCA, for example, contain detailed procedures allowing a Party to assess an exporting Party’s ability to comply with SPS-​related import requirements. These procedures include on-​site inspection of facilities and agriculture production areas.

VI.  The administration of SPS measures and other horizontal aspects of the SPS Agreement Transparency, national enquiry points and notification procedures are horizontal features of this new food safety system. All are closely related to the administration of the SPS Agreement and the role of the SPS Committee. The CAC and the OIE also play an influential role in standards development. The scientific expertise of the CAC, expert bodies like the Joint FAO/​ WHO Expert Committee on Food Additives (JECFA),98 and interactions with observers from the non-​governmental and business communities99—​in ways not possible for the SPS

97  Panel Reports, EC –​Measures Affecting the Approval and Marketing of Biotech Products, adopted 21 November 2006, paras 7.1494–​1501. 98  Joint FAO/​WHO Expert Committee on Food Additives (JECFA), at < http://​www.fao.org/​food-​saf​ ety/​sci​enti​fic-​adv​ice/​jecfa/​en/​ > (last visited 15 August 2021). 99  FAO, Codex Alimentarius Observers, at < https://​www.yout​ube.com/​watch?v=​c7LV​jLAu​PCo > (last visited 1 September 2021).

710   Marsha A. Echols Committee—​give the CAC a critical role in food safety implementation. Other support for effective governance is provided by the national enquiry points. Each has contributed to the understanding of food safety law by adopting or developing decisions (the SPS Committee), guidelines (CAC) and procedures (OIE) specific to their area of responsibility. Together they endeavor to make the system function efficiently and to implement the SPS Agreement.

A. The SPS Committee Article 12.1 of the SPS Agreement establishes the SPS Committee as a forum for regular consultations among Members and the furtherance of the SPS Agreement’s objectives, particularly harmonization and coordination with the relevant international organizations. The SPS Committee’s responsibilities concerning harmonization are set out in Article 12.2–​3. They include the promotion of harmonization, maintaining close contact with the relevant international organizations (especially the Codex) to secure the best available scientific and technical advice (to avoid unnecessary duplication of efforts).

B. Horizontal aspects: panels and technical experts, technical assistance and special and differential treatment Three horizontal features of the SPS Agreement are essential to the food safety system: dispute resolution; technical assistance; and special and differential treatment. The WTO dispute settlement bodies support SPS governance through their interpretation of the SPS Agreement.100 A special SPS feature is the advice that technical and scientific experts may provide to a Panel, including regarding compliance with Article 5. The experts add a layer of science-​based opinion (and time) when scientific and technical issues require specialized expertise. Emerging markets and developing countries continue to face various challenges as regulators and as exporting and/or importing Members. The SPS Agreement is designed to support the participation of developing Members, including with technical assistance under Article 9. The treatment of technical assistance in the SPS Agreement is detailed but is hortatory. Members agree only to ‘facilitate’ that assistance. The examples of assistance noted in Article 9 are extensive, including assistance with processing technologies, research, the establishment of national regulatory bodies, and grants 100 

Article 1 of the DSU.

Food Safety   711 to meet the appropriate level of protection in export markets. Technical Assistance for Africa identified several needed technologies (which could benefit most developing countries), as ‘changes in agricultural management practices, irrigation technologies, alternative crop breeding strategies, drones and satellites that can increase the productivity of existing resources by increasing yields and feeding the population in a sustainable manner.’ Article 10.1-​2 requires Members to ‘take account’ of the ‘special needs’ of developing and, especially, of least-​developed country Members in the preparation and application of SPS measures. Taking into account does not require priority or special consideration in the risk analysis process.

VII. Conclusion To forestall protectionism disguised as a sanitary measure, the SPS Agreement is a multilateral system of rules and disciplines regarding the application and implementation of food safety or sanitary measures. The SPS Agreement changes the pre-​1994 trade bargain by adding a detailed interpretation and elaboration of Article XX(b), requiring an objective assessment of whether a food safety risk exists. It inserts science-​based objectivity (scientific principles, risk assessment, and standards harmonization) into food safety regulation, thereby limiting the sovereign right to regulate to protect human, animal and plant life, and health. Gradualy, food safety analysis has expanded from a single factor emphasis on risk assessment to multi-​factor risk analysis. In many FTAs, in the CAC and elsewhere outside the WTO, the applicable test is risk analysis, with its three components: risk assessment, management, and communication. While the consideration of risk analysis does not lessen the significance of Articles 2 and 5 of the SPS Agreement, it affords equal weight to risk management and risk communication. Since risk management involves choices and may include consideration of legitimate factors relevant for the promotion of fair practices in food trade, regulatory options eventually might be interpreted more flexibly, for example regarding a State’s ALOP. In addition, risk communication will greatly expand possibilities for including and considering the many voices and perspectives interested in food and food safety decision-​making. The interest and influence of consumers in the ‘future of food’ and the common good are likely to influence the balance between sovereignty and a State’s SPS obligations. It is too early to say definitively that the balance will shift. Many other influences that might affect the sovereigntySPS Agreement balance warrant attention. It is likely that new trade agreements and the involvement of developing country Members and observer organizations in the CAC (including the African Union, consumers, and business associations, among others) and input from similar entities to the SPS Committee will influence policies and regulations. The trade and food safety communities also should note any increased attention to Annex C to the SPS Agreement, and a greater role for the SPS Committee. Both might enable a 1994 text to serve this century’s evolving food safety challenges.

712   Marsha A. Echols

Further reading Y. Adiwibowo, ‘The Scientific Principle of Food Safety in the Agreement on Sanitary and Phytosanitary Measures’ 7(2) Lentera Hukum (2020) 171–​188 O. Oluranti Babalola (ed), Food Security and Safety: African Perspectives (New York: Springer, 2021) D.E. McNiela, ‘The First Case Under the WTO’s Sanitary and Phytosanitary Agreement: The European Union’s Hormone Ban’ 39 Virginia Journal of International Law (1998) 89–​134 K.-​J. Ni, ‘Science and Risk Analysis in CPTPP/​SPS-​Plus: Role Model or Unbearable Burden?’ 15(2) Journal of Food Law & Policy (2020) 22–​47 B. Rigod, ‘The Purpose of the WTO Agreement on the Application of Sanitary and Phytosanitary Measures (SPS)’ 24(2) European Journal of International Law (2013) 503–​532 H. Zúñiga Schroder, Harmonization, Equivalence and Mutual Recognition of Standards in WTO Law (The Netherlands: Kluwer, 2011) J. Scott, The WTO Agreement on Sanitary and Phytosanitary Measures: A Commentary (Oxford: Oxford University Press, 2009) J.D. Thayer, ‘The SPS Agreement: Can It Regulate Trade in Nanotechnology?’ 15 Duke Law & Technology Review (2005) 1–​15

Chapter 27

Nat i ona l se c u ri t y Isabelle Van Damme *

I. II.

I II. IV. V.

VI. VII.

* 

Introduction The text of security exception clauses in international economic law A. WTO security exceptions B. Security exception clauses under other agreements in international economic law Classification of security interests Jurisdiction in respect of disputes involving an essential security defence The scope of Article XXI of the GATT 1994 and the applicable standard of review A. Introduction B. Article XXI(a) of the GATT 1994 C. Article XXI(b) of the GATT 1994 D. Article XXI(c) of the GATT 1994 The burden of proof and other consequences resulting from invoking the essential security exception Conclusions

714 716 716 718 719 721 728 728 728 729 738 738 742

The author has acted as counsel in WTO litigation involving essential security exception clauses. No views expressed in this chapter reflect the position of the clients which the author represents.

714   Isabelle Van Damme

I. Introduction Until recently, the WTO legal community paid relatively little attention to security exception clauses in trade agreements. There were no cases to litigate despite the growing number of measures relating to national security,1 ranging from sanctions and export control to embargos of various sorts. In classrooms, the exception was often mentioned in passing. It was understood that WTO Members rely on Article XXI of the GATT 1994 but prefer to keep that provision away from third party adjudication. In addition, the exception was seen as being primarily concerned with trade measures taken in the context of inter-​State conflicts. At best, reference was made to the degree of deference conferred by the provision and the fact that there was some GATT practice but no adopted panel report interpreting the provision.2 Public international lawyers, rather than trade lawyers, seemed to have an academic interest in the matter.3 What has changed today is not the use of trade measures for protecting essential security. Rather, a change can be seen in the openness with which WTO Members are invoking Article XXI of the GATT 1994 and their acceptance of the risk that a third party may review their measures. What is also new is the assertion that essential security interests might also cover, for example, economic interests, public health risks or concerns relating to climate change or cybersecurity.4 As economies become more intertwined, the interest in protecting the nation State has become more visible. Oppositions between trade and other interests also become less pronounced. Indirectly, those developments call into question the relationship between the essential security clause and other exception clauses and thus also the value of the commitments made when acceding to the WTO. Unlike the divide between military and non-​military issues, those developments also help to explain why the line between an interest covered by Article XXI or protected by Article XX is becoming more difficult to define. The recent retreat from multilateralism cannot be ignored in the debate about trade and national security. To some degree, that development and the choice to favour unilateralism over action through multilateral institutions can be related to certain ongoing WTO litigation. At the same time, not all recent or pending cases involving national security are of the same type. Cases have arisen in distinct circumstances and for different 1 

For the purposes of this chapter, ‘essential’ and ‘national’ security interests are used interchangeably. the fact that Article XXI of the GATT 1947 was relevant to US –​Cuban Liberty and Democratic Solidarity Act, DS38 (authority of the panel lapsed on 22 April 1998); Nicaragua –​Measures Affecting Imports from Honduras and Colombia, DS188 (panel not composed, 18 May 2000); Nicaragua –​ Measures Affecting Imports from Honduras and Colombia, DS201 (in consultations, 6 June 2000). 3  See, e.g., D. Akande and S. Williams, ‘International Adjudication and National Security Issues: What Role for the WTO’ 43(2) Virginia Journal of International Law (2003) 365. 4  See also, e.g., J.B. Heath, ‘The New National Security Challenge to the Economic Order’ 129(4) Yale Law Journal (2019) 1020; S. Peng, ‘Cybersecurity Threats and the WTO National Security Exceptions’ 18(2) Journal of International Economic Law (2015) 449. 2 Despite

National security   715 reasons. Certain disputes, such as those involving Ukraine and Russia or concerning Korea and Japan, appear to relate more to the specific circumstances between those individual States. They do not arise out of the tension between the WTO’s rules-​based system and an interest, seen in other cases, to return to a more power-​based model of multilateral trade regulation (as has been exhibited by a certain WTO Member). The relationship between trade and essential security interests is at the intersection of two horizontal questions affecting the WTO (as a whole) as well as other international organizations. The first question relates to the balance of power between international courts and tribunals, on the one hand, and the parties subject to their jurisdiction, on the other. The second concerns the extent to which international law constrains the right to regulate. In the context of the WTO, those questions arise in respect of many provisions but especially exception clauses. The tensions become particularly apparent in the context of national security. The main themes in this debate are jurisdiction and standard of review. Subject to limited exceptions, nearly all WTO Members accept the jurisdiction of WTO panels and the Appellate Body in respect of exception clauses seeking to preserve the right to regulate for essential security purposes. There nonetheless remains some debate as to whether that position must be established on the basis of Article XXI of the GATT 1994 or the DSU as a whole. The primary disagreement today concerns the applicable standard of review. Assuming jurisdiction is accepted, most WTO Members recognise that a third-​party adjudicator, such as a panel or the Appellate Body, may review the good faith use of Article XXI of the GATT 1994 and determine whether there is any abuse of that exception.5 However, the precise standard of review to be applied remains debated, even after the panel reports in DS512 Russia –​Traffic in Transit and DS567 Saudi Arabia –​ Intellectual Property Rights. The standard of review reflects, inter alia, the intensity of a panel’s review in assessing a measure of a WTO Member and the degree of deference due to that WTO Member.6 In this context, the Appellate Body has accepted that ‘the standard of review . . . must reflect the balance established in [the WTO covered agreements] between the jurisdictional competences conceded by the Members to the WTO and the jurisdictional competences retained by the Members for themselves’.7 Given the difference in the wording used in various trade agreements in respect of balancing trade and national security objectives, it has become clear that there is no uniform approach to the main themes of jurisdiction and standard of review. In other words, there is no single standard, under international trade law, for resolving the

5  For

a discussion of State practice in respect of the need for good faith use of Article XXI of the GATT 1994, see R.P. Alford, ‘The Self-​Judging WTO Security Exception’ 3 Utah Law Review (2011) 697, 706–​725. 6  See further J. Bohanes and N. Lockhart, ‘Standard of review in WTO law’ in D. Bethlehem, D. McRae, R. Neufeld and I. Van Damme (eds), Oxford Handbook of International Trade Law, 1st edition (Oxford: Oxford University Press, 2009) 379. 7  Appellate Body Report, EC –​ Hormones, adopted 13 February 1998, para 115.

716   Isabelle Van Damme balance of power between third party adjudicators and States in respect of national security issues. States may decide to exclude the jurisdiction of such an adjudicator or limit the scope of review. Ultimately, those matters depend on treaty interpretation. In exploring national security and trade, various authors have recently focussed on either the specific wording and history of Article XXI of the GATT 19948 or the broader geopolitical implications of the fact that Article XXI is no longer shielded from third party review and of the need to integrate economic and national security concerns.9 The latter strand of literature often also seeks to relate discussions in the trade and investment communities to the reconceptualization of ‘national security’ in other contexts. Gradually, the discussions about national security and trade also focus on the use of those clauses in bilateral and regional free trade agreements. The main element of Article XXI of the GATT 1994 at issue in many ongoing WTO disputes is the basis to take action ‘in time of war or other emergency in international relations’. That subparagraph (iii) is also the part of Article XXI(b) that is gaining attention as a possible vehicle for justifying measures addressing interests that are not evidently covered by Article XX of the GATT 1994 but might, depending on the interpretation of Article XXI(b)(iii), be considered as giving rise to an ‘emergency’. Despite that primary focus of ongoing litigation, many WTO Members actively use other parts of Article XXI. Examples include many forms of export control covered by either subparagraphs (i) and (ii) of Article XXI(b) or trade sanctions authorized by the United Nations. This chapter focusses on the relationship between trade and essential security interests. It does not address investment.

II.  The text of security exception clauses in international economic law A. WTO security exceptions Article XXI of the GATT 1994 consists of an introductory clause and three paragraphs. The introductory phrase states ‘[n]‌othing in this Agreement shall be construed’. The three paragraphs lay down the type of measure that may be justified on the basis of Article XXI. Pursuant to paragraph (a), no WTO Member may be required to furnish any information the disclosure of which it considers contrary to protecting its essential 8 See, for example, G.-​ D. Balan, ‘On Fissionable Cows and the Limits to the WTO Security Exceptions’ 14(1) Global Trade and Customs Journal (2019) 2. 9  Heath, above fn 4; A. Roberts, H. Choer Moraes and V. Ferguson, ‘Geoeconomics: The Variable Relationship Between Trade and Security’ Lawfare (27 November 2018). On how US trade law has ‘exceptionalized security’, see K. Claussen, ‘Trade’s Security Exceptionalism’ 72(5) Stanford Law Review (2020) 1097.

National security   717 security interests. Pursuant to paragraph (b), any WTO Member may take any action which it considers necessary for protecting its essential security interests. That paragraph (b) then enumerates two types of goods or their traffic ((i) relating to fissionable materials or the materials from which they are derived; (ii) relating to the traffic in arms, ammunition and implements of war and to such traffic in other goods and materials as is carried on directly or indirectly for the purpose of supplying a military establishment) and one circumstance ((iii) taken in time of war or other emergency in international relations). Pursuant to sub-​paragraph (c), any WTO Member may take any action in pursuance of its obligations under the UN Charter for the maintenance of international peace and security. Security exception clauses are also found in other WTO covered agreements. Article 1.10 of the Import Licensing Agreement incorporates Article XXI of the GATT 1994. The security exception clauses in the GATS and the TRIPS Agreement correspond in essence with the wording used in Article XXI of the GATT 1994. In Article XIVbis of the GATS, the order of Articles XXI(b)(i) and (ii) of the GATT 1994 is reversed and the wording of the subparagraph corresponding with Article XXI(b)(ii) refers to the ‘provisioning’ of a military establishment instead of the purpose of ‘supplying’ a military establishment. Article XIVbis (2) of the GATS also states that ‘[t]‌he Council for Trade in Services shall be informed to the fullest extent possible of measures taken under paragraphs 1(b) and (c) and of their termination’. In respect of the GATT 1994, the same obligation arguably applies but on a different legal basis. In 1982, the GATT Contracting Parties adopted a ‘Decision Concerning Article XXI of the General Agreement’.10 They decided, inter alia, that ‘[w]hen action is taken under Article XXI, all contracting parties affected by such action retain their full rights under the General Agreement’ and that ‘[t]he Council may be requested to give further consideration to this matter in due course’.11 The text of Article 73 of the TRIPS Agreement is more closely aligned to that of Article XXI of the GATT 1994. Unlike Article XIVbis (2) of the GATS, Article 73 of the TRIPS Agreement does not lay down any notification obligation. The seventh recital in the preamble to the TBT Agreement states that WTO Members recognize that ‘no country should be prevented from taking measures necessary for the protection of its essential security interest’. The list of legitimate objectives in Article 2.2 of the TBT Agreement includes ‘national security requirements’. Finally, Article III:1 of the Government Procurement Agreement states that ‘[n]othing in this Agreement shall be construed to prevent any Party from taking any action or 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 to procurement indispensable for national security or for national defence purposes’. The scope of that provision might need to be read together with the commitments made in respect of covered procurements. 10  GATT, Decision Concerning Article XXI of the General Agreement, Decision of 30 November 1982, L/​5426 (2 December 1982), paras 2 and 3. 11  On the status of such decisions, see Chapter 4 of this handbook.

718   Isabelle Van Damme

B. Security exception clauses under other agreements in international economic law No uniform standard is used for clauses expressing the relationship between trade and security interests in trade agreements. Whilst a complete survey of those types of clause is beyond the scope of this contribution, a selection of agreements illustrates their variety. One variety simply incorporates the security exception clause found in the GATT 1994 and/​or other WTO agreements or generally relies on the text of the security exception clauses in the WTO agreements.12 Because bilateral and regional trade agreements are typically structured differently as compared with the WTO agreements, many contain a generally applicable security exception clause which may apply to both goods and services.13 Those clauses might apply in addition to distinct essential security clauses for certain chapters. For example, Article 16.11 of the EU-​Singapore FTA sets out a generally applicable clause modelled on Article XXI of the GATT 1994 and Article 9.3 contains a clause specific to government procurement. Article 9.3.1 states that Parties are not prevented ‘from taking any action or from not disclosing any information that it considers necessary for the protection of its essential security interests relating to the procurement of arms, ammunition, or war materials, or to procurement indispensable for national security or for national defence purposes’.14 The provision thus merges the action (or lack thereof) covered by paragraphs (a) and (b) of Article XXI. It does not refer to action taken in compliance with parties’ UN obligations. It introduces a necessity requirement also in respect of the refusal to disclose information. Finally, it establishes the required relationship between the essential security interests and types of procurement. An evolution, or possibly a departure, from the text of Article XXI of the GATT 1994 is visible in the security exception clauses found in notably recent US FTAs. For example, Article 23.2 of the US-​Chile FTA (part of a general chapter on exceptions) contains a chapeau that states ‘[n]othing in this Agreement shall be construed’, followed by two subparagraphs. Article 23.2(a) refers to the right of ‘a Party to furnish or allow access to any information the disclosure of which it determines to be contrary to its essential security interests’ (which is the equivalent of Article XXI(a)). Article 23.2(b) protects the right of ‘a Party [to apply] measures that it considers necessary for the fulfilment of its obligations under the United Nations Charter with respect to the maintenance or restoration of international peace and security, or the protection of its

12  See, e.g., Article 14.54 of the EU-​ Japan EPA (in respect of the chapter on intellectual property, incorporating Article 73 of the TRIPS Agreement); Article 1.5(2)(a) of the EU-​Japan EPA (in respect of the chapter on government procurement, incorporating Article III of the GPA); Article 7 of the US-​Israel FTA; Article 16.3 of the China-​Australia FTA; Article 2.7 of the China-​Switzerland FTA. 13  See, e.g., Article 16.11 of the EU-​Singapore FTA. 14  See also, e.g., Article 2.7 of Annex 9 to the EU-​Korea FTA and Article 19.3(1) of CETA.

National security   719 own essential security interests’. A similar clause is found in other later US FTAs15 as well as, for example, Article 29.2 of the CPTPP. Significantly, those clauses omit further qualifying the measures to be taken by specifying either their relationship to (trade or traffic in) types of goods or the circumstances in which those measures are taken. That practice can thus be contrasted with agreements that include limiting clauses similar to Article XXI(b) of the GATT 1994 or make clear that those clauses are not limiting but rather explanatory.16 That difference in the wording of national security provisions in FTAs as compared to that of Article XXI of the GATT 1994 could affect the choice of the forum where measures allegedly taken for national security purposes are challenged.

III.  Classification of security interests Article XXI of the GATT 1994 comprises three parts. The first and second paragraphs concern actions taken by WTO Members individually. The third paragraph addresses the circumstance where a determination is made, in principle multilaterally, pursuant to an obligation under the UN Charter to act for the purpose of maintaining international peace and security. Whereas Articles XXI(b) and XXI(c) relate to action which a WTO Member may not be prevented from taking, Article XXI(a) focuses on action that may not be required.17 Article XXI(a) applies specifically as a defence against any allegation that a provision requiring the communication of information is breached. For the purposes of that provision, it appears sufficient that the WTO Member concerned considers the disclosure of the information to be contrary to its essential security interests. The text of that provision suggests that there is no necessity test to be applied or (possibly) reviewed. Article XXI(b) of the GATT 1994 also relates to action taken by a single WTO Member, in particular any action which that Member ‘considers necessary for the protection of its essential security interests’. Paragraph (b) is followed by three subparagraphs referring to the types of product to which the action relates or the circumstances in which the action is taken. Finally, Article XXI(c) seeks to prevent that the WTO covered agreements would preclude a WTO Member from complying with its UN obligations for the maintenance of international peace and security. It primarily seeks to confirm the obligations resulting from Article 103 of the UN Charter.18 15 

See also, e.g., Article 22.2 of the US-​Australia FTA; Article 23.2 of the US-​Korea FTA; Article 21.2 of the US-​Singapore FTA; Article 32.2 of the USMCA. 16  See, e.g., Article 65.6(2) of the Treaty on the Eurasian Economic Union (in respect of Section XV on trade in services, establishment, activities and investing). 17  Panel Report, Russia –​Traffic in Transit, adopted 26 April 2019, para 7.61. 18  Article 103 of the UN Charter states: ‘In the event of a conflict between the obligations of the Members of the United States under the present Charter and their obligations under any other international agreement, their obligations under the present Charter shall prevail’.

720   Isabelle Van Damme The reference to war, the UN Charter provisions relating to the maintenance of international peace and security and the mention of implements of war and military establishments suggest that the essential security exception is concerned primarily with circumstances in which there is use of force, threats of the use of force, and the need to prevent the use of force, either between State actors or possibly involving non-​State actors. In essence, those elements suggest that essential security interests relate to risks that can affect the integrity and continued existence of a State and the effective operation of the functions of a State. Those risks can result from single or sustained actions but also (and increasingly) from long term threats. Today’s debate regarding essential security is preoccupied with the question of how the notion of national security has evolved and consequently with the question of what the limits to the definition of that type of interest are. Before taking a closer look at panels’ jurisdiction and the standard of review in respect of Article XXI, a few observations about the historical context of Article XXI of the GATT 1994 may help. Both the Panel in DS512 and parties in ongoing WTO proceedings extensively rely on the negotiating history of Article XXI as well as the practice that developed between the entry into force of the GATT 1947 and the establishment of the WTO. The historical context and practice are replete with statements reflecting the fact that national security is unlike any other legitimate interests. However, as is often the case, those records do not conclusively resolve the key question of whether the drafters intended to exclude the jurisdiction and any form of review by a third-​party adjudicator altogether and, if not, what standard of review is to be applied. The negotiating history relating to the ITO Charter shows both an accurate awareness among negotiators regarding the potentially broad scope of the terms used in Article XXI (such as ‘essential security interests’ or ‘emergency in international relations’)19 and an interest in agreeing on wording that would ensure that States maintain the necessary freedom to protect their essential security interests.20 In those materials, the position of the United States is prominent given that it initiated discussions about including essential security as a legitimate objective for adopting or enforcing measures.21 However, that does not necessarily mean that that position is controlling for the purposes of treaty interpretation. Under the GATT 1947, the general practice shows that a majority of GATT Contracting Parties preferred to keep measures taken on alleged security grounds away from third party review and a determination that could result in a binding decision.22 19 See, e.g., Verbatim Record, UN Conference on Trade and Development, Geneva, Preparatory Committee A, 33d mtg, UN Doc E/​PC/​T/​A/​PV/​33 (24 July 1947), UN Doc E/​PC/​T/​A/​PV/​33.Corr.2 (30 July 1947). 20 Ibid. 21 For a detailed assessment of the United States’ position, see M. Pinchis-​ Paulsen, ‘Trade Multilateralism and U.S. National Security: The Making of the GATT Security Exception’ 41(1) Michigan Journal of International Law (2020) 109. 22  See, notably, GATT Council, Summary Record of the Twenty-​Second Meeting, GATT Doc GATT/​ CP.3/​SR. 22 (8 June 1949); Minutes of Meeting held in the Centre William Rappard, GATT Doc. C/​M/​

National security   721 Diplomatic fora were preferred to any form of dispute settlement involving third party review. However, a preferred course of action does not automatically translate into a legal principle. The main guidance, apart from that practice, is found in a 1982 Decision confirming that Contracting Parties have an interest in monitoring and surveilling action taken under Article XXI of the GATT 1947. Paragraph 2 of that decision states that all Contracting Parties ‘retain their full rights under the General Agreement’. Whether or not that statement was intended to refer to the dispute settlement provisions under the GATT 1947 remains contested. It could be argued that the decision offers neither a positive basis for asserting jurisdiction nor a basis for contesting that position.

IV.  Jurisdiction in respect of disputes involving an essential security defence Similar to Article XX of the GATT 1994, Article XXI of the GATT 1994 operates as an affirmative defence. Both types of exception seek to balance trade and non-​trade concerns by laying down the conditions under which measures that are otherwise inconsistent with the GATT 1994 may be justified. In that regard, both Articles XX and XXI cover measures that embody domestic policies that are recognized as important and legitimate and therefore can justify violations of substantive obligations.23 In that sense, exception clauses in general are about both preserving the inherent right to regulate of each State and imposing certain constraints for States in exercising that right.24 Thus, by acceding to the WTO, each WTO Member has accepted that its right to take otherwise WTO-​inconsistent measures for this purpose must be exercised in accordance with the requirements laid down in Articles XX and XXI and within the general framework laid down in the WTO Agreement.

157 (7 May 1982); Meeting held in the Centre William Rappard on 29 May 1985, GATT Doc. C/​M/​188 (28 June 1985) 2–​17; Minutes of Meeting Held in the Centre William Rappard on 17-​19 July 1985 GATT Doc. C/​M/​191 (11 September 1985) 41–​42; GATT Panel Report, US –​Sugar Quota, para 3.10; Panel Report, Russia –​Traffic in Transit, adopted 26 April 2019, appendix. 23 

See, with respect to Article XX of the GATT 1994, Appellate Body Report, US –​Shrimp, adopted 6 November 1998, para 121. See GATT Panel Report, US –​Nicaraguan Trade, para 5.16 (unadopted). 24  See Panel Report, EC –​Tariff Preferences, adopted 20 April 2004, para 7.37, noting that ‘Members are free to choose either to take these measures or to do nothing’ but ‘[i]‌f they decide to take such measures, that are authorized to do so by these provisions, subject to certain conditions’. That panel also described those conditions as ‘only subsidiary obligations, dependent on the decision of the Member to take such measures’. See also, e.g., Appellate Body Report, Thailand –​Cigarettes (Philippines), adopted 15 July 2011, para 176.

722   Isabelle Van Damme Despite that common feature of both types of defence, it is generally understood that any third party must confer considerable deference to a State’s assessment of its essential security interests and the measures taken for their protection. However, that starting point, which appears to be common ground, leaves unresolved the extent of that deference and whether absolute deference implies that there is no scope for review and therefore no jurisdiction for a third party adjudicator. The starting point must be that any dispute regarding the interpretation and application of the WTO covered agreements, just like of any other international agreement, is in principle capable of resolution by a third party. There is no basis in international law for the proposition that matters of national security inherently fall outside the review of any international court or tribunal.25 Although other international and regional courts and tribunals have previously asserted their jurisdiction in respect of essential security exceptions,26 until the Panel report in DS512, there was no binding judicial decision addressing that matter in the context of a bilateral, regional or multilateral trade agreement. In relation to Article XXI of the GATT 1994, it has been argued that a distinction can be made between jurisdiction and justiciability. Justiciability presumes that a panel enjoys jurisdiction but, in its exercise, has nothing to review because the standard of review is absolute deference to the respondent Member. The argument in favour of justiciability is based on the use of the phrase ‘which it considers’ in Article XXI(b) and the character of essential security interests as being intrinsically political.27 However, international courts and tribunals having been asked to review similar exceptions, have not endorsed a legal standard of absolute deference.28 The difficulty with the notion of ‘justiciability’ is that it appears to conflate the distinct concepts of jurisdiction, on the one hand, and standard of review under exception clauses, on the other.29 Defining the standard of review presupposes that a panel enjoys 25  See also, e.g., Akande and Williams, above fn 3, at 366; ICJ, Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America), judgment of 26 November 1984, jurisdiction and admissibility, I.C.J. Reports 1984, 392, paras 98–​101; ICJ, Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America), judgment of 27 June 1986, merits, I.C.J. Reports (1986) 14, paras 222–​223. 26 See, e.g., ICJ, Certain Iranian Assets (Islamic Republic of Iran v. United States of America), preliminary objections, judgment of 13 February 2019, I.C.J. Reports 2019, 7, at paras 45–​47. 27  For a discussion, see, e.g., Akande and Williams, above fn 3, 381–​386. 28  See, e.g., CJEU, Case C-​ 367/​89 Richardt, judgment of 4 October 1991, EU:C:1991:376, paras 19, 22-​25; CJEU, Case C-​70/​94 Werner v Germany, judgment of 17 October 1995, EU:C:1995:328, paras 24-​ 29; Case C-​474/​12 Schiebel Aircraft, judgment of 4 September 2014, EU:C:2014:2139, para 34 and the case-​law cited; ICJ, Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America), judgment of 27 June 1986, merits, I.C.J. Reports 1986, 14, para 222; ECtHR, Smith & Grady v United Kingdom, judgment of 27 September 1999, Applications nos. 33985/​96 and 33986/​96; ICJ, Oil Platforms (Islamic Republic of Iran v United States of America), judgment of 12 December 1996, preliminary objection, I.C.J. Reports (1996), 803, paras 20–​21. 29  On that distinction, see also, e.g., ICJ, Certain Iranian Assets (Islamic Republic of Iran v. United States of America), preliminary objections, judgment of 13 February 2019, I.C.J. Reports (2019), 7, para 45 and the case law cited.

National security   723 jurisdiction. The jurisdiction of the WTO dispute settlement system is grounded in the provisions of the DSU and special and additional dispute settlement provisions in other WTO covered agreements. Assuming that jurisdiction is established, it then becomes necessary to determine, based on the interpretation of the specific provision at issue, the appropriate standard of review of a panel in respect of the measure taken. Non-​ justiciability in essence pretends that there is jurisdiction but that that power operates as an empty shell.30 In DS512 Russia –​Traffic in Transit Ukraine complained about various measures prohibiting or otherwise restricting traffic in transit by means of road and rail transport passing through the territory of Russia and, in particular, traffic in transit from the territory of Ukraine. Russia did not present arguments or evidence in rebuttal of Ukraine’s claims under Articles V and X of the GATT 1994 and Russia’s Accession Protocol.31 Russia’s position was limited to invoking Article XXI. Initially, it appeared that Russia argued that the Panel lacked jurisdiction. However, as the proceedings moved forward, it seemed that Russia (and the United States as a third party) did not contest either the Panel’s jurisdiction to hear the dispute or its right to interpret Article XXI. Instead, the objection raised was that, because Article XXI falls within the absolute discretion of a WTO Member, a panel may not make findings or recommendations. Thus, both Russia and the United States in essence argued that the phrase ‘which it considers’ must be understood as meaning that all the conditions laid down in Article XXI(b)(iii) are self-​judging. Likewise, in DS567 Saudi Arabia –​Intellectual Property Rights, which concerned Saudi Arabia’s alleged failure to provide adequate protection of intellectual property rights held by or applied for entities based in Qatar, Saudi Arabia asked the Panel to decline making any findings or recommendations because the dispute was a ‘political, geopolitical and essential security dispute’ and not a trade dispute.32 The focus of that dispute was on whether an emergency in international relations existed and whether the measures were taken in time of such an emergency.33 The Panel in DS512 nonetheless considered that Russia had raised the question of whether it enjoyed jurisdiction. Logically, the Panel addressed that question before examining (if necessary) the merits of the case.34 The starting point of the Panel’s analysis was the text of Articles 1.1 and 1.2 of the DSU. Those provisions state that the rules and procedures laid down in the DSU apply to disputes regarding the covered agreements subject to any special or additional rules on dispute settlement in those agreements (as listed in Appendix 2 to the DSU). Appendix 2 does not list any such rules in respect of disputes in which a respondent has invoked 30  See

also, e.g., P. Van den Bossche, ‘The National Security Exception in International Trade Law Today: Can We Avoid Abuse?’ in Association Commercial Law, Review of Foreign Investment in Geopolitical and Legal Perspective (2020), 111, at 116. 31  Panel Report, Russia –​Traffic in Transit, adopted 26 April 2019, para 7.23. 32  Panel Report, Saudi Arabia –​Intellectual Property Rights, not adopted, paras 7.8 and 7.9. The United States, as a third party in that dispute, did rely on the notion of justiciability. 33  Ibid., esp. paras 7.246 and 7.256. 34  Panel Report, Russia –​Traffic in Transit, adopted 26 April 2019, para 7.25.

724   Isabelle Van Damme Article XXI.35 That reasoning led the Panel to conclude that Russia’s invocation of Article XXI was within the Panel’s terms of reference.36 The Panel could have ended its assessment of the apparent jurisdictional objection here. Despite its conclusion on jurisdiction based on a brief analysis of the DSU, the Panel nonetheless continued to examine, based on an interpretation of Article XXI(b)(iii), whether that provision and in particular the phrase ‘which it considers’ in the introductory paragraph carves out from its jurisdiction ratione materiae certain actions.37 However, in the absence of any basis in the DSU or the GATT 1994 for such a carve-​out, that phrase expresses a choice of the drafters in respect of the allocation of powers between WTO Members, on the one hand, and between WTO Members and institutional bodies, on the other. Thus, it concerns the standard of review rather than jurisdiction. According to the Panel, three interpretations of the introductory paragraph of Article XXI(b) were available. The phrase ‘which it considers’ could be read to qualify: (i) the necessity of the measures taken for the protection of essential security interests; (ii) the determination of essential security interests; and (iii) also the determination of the matters described in the subparagraphs of Article XXI(b).38 The Panel first considered the third option which it deemed to be the most extensive interpretation.39 The Panel took the view that subparagraphs (i) to (iii) of Article XXI(b) function as ‘limitative qualifying clauses’ meaning that ‘they qualify and limit the exercise of the discretion accorded to Members under the chapeau to these circumstances’.40 That position was based on the ‘logical structure’ rather than the mere meaning of the words and the grammatical construction of Article XXI(b).41 The inclusion of the subparagraphs, describing different subject matters, had to be read as ‘establish[ing] alternative (rather than cumulative) requirements that the action in question must meet in order to fall within the ambit of Article XXI(b)’.42 According to the Panel, the different elements of subparagraph (iii) could be objectively determined.43 Thus, the Panel in essence found that should the phrase ‘which it considers’ be read to mean that a WTO Member enjoys absolute discretion with regard to an action taken for the purpose of protecting essential security interests, there would have been no need to include in the text of Article XXI(b) the conditions laid down in subparagraphs (i) to (iii). Nor would there be any ground to review whether measures allegedly imposed for the protection of essential security

35 

Ibid., para 7.54. Ibid., para 7.56. 37  Ibid., para 7.57. 38  Ibid., para 7.63. 39  Ibid., para 7.64. 40  Ibid., para 7.65. 41  Ibid., para 7.65. 42  Ibid., para 7.68. 43  Ibid., paras 7.69-​7.70 and 7.71. 36 

National security   725 purposes are in fact disguised restrictions on trade or taken for purposes recognized in other exceptions clauses in the GATT 1994. The Panel examined whether the object and purpose of the WTO Agreement and the GATT 1994 supported concluding that the subject matter of the subparagraphs of Article XXI(b) is subject to objective determination. For the Panel, the security and predictability of the multilateral trading system would be put at risk if Article XXI were interpreted ‘as an outright potestative condition, subject the existence of a Member’s GATT and WTO obligations to a mere expression of the unilateral will of that Member’.44 Before resorting to negotiating history, the Panel noted that its extensive survey of the practice of GATT Contracting Parties and WTO Members did not reveal any subsequent practice within the meaning of Article 31(3)(b) of the Vienna Convention.45 In that context, the Panel cautioned that any statements made prior to April 1989 had to be understood in light of the fact that, at that time, a positive consensus applied to the establishment of GATT panels (and thus also for any decision regarding panels’ terms of reference).46 That element of the Panel’s analysis refers to the fact that under the WTO dispute settlement system, unlike what was the case in respect of GATT dispute settlement,47 it is no longer possible for parties to pick and choose what provisions of the WTO covered agreements may be interpreted and applied by WTO panels and/​or the Appellate Body. In respect of the negotiating history,48 the Panel understood the drafters wishing (i) to treat differently the matters covered by Articles XX and XXI of the GATT 1994; (ii) to strike a balance between, on the one hand, leaving some discretion to WTO Members to determine their own essential security interests and the necessity of their action and, on the other, avoiding potential abuse of the exceptions by limiting the circumstances in which the essential security exception could be invoked; and (iii) to ensure that the security exceptions remain subject to consultation and dispute settlement provisions.49 In light of those considerations, the Panel rejected the argument that Article XXI(b) (iii) GATT 1994 is ‘self-​judging’.50 The Panel added that there is also no basis in international law for any ‘political question’ doctrine.51 The focus of this assessment can be questioned. In the absence of any basis in the DSU or special dispute settlement provisions envisaging a carve-​out, the phrase ‘which it considers’ expresses a choice of the drafters in respect of the allocation of powers 44 

Ibid., para 7.79. Ibid., para 7.80 and Appendix. 46  Ibid., para 7.80 and fn 155. 47  GATT Panel Report, US –​Nicaraguan Trade, paras 5.5 and 5.9. 48  Panel Report, Russia –​Traffic in Transit, adopted 26 April 2019, paras 7.84–​7.100. 49  Ibid., para 7.98. 50  Ibid., paras 7.102–​7.103. 51  Ibid., para 7.103, fn 183. See also Panel Report, Saudi Arabia –​Intellectual Property Rights, not adopted, para 7.12. 45 

726   Isabelle Van Damme between WTO Members, on the one hand, and between WTO Members and institutional bodies, on the other. It could be argued that the phrase relates to the standard of review rather than jurisdiction. However, the Panel accepted that, should the phrase ‘which it considers’ qualify the entirety of Article XXI(b), including its subparagraphs, there would be nothing to review and therefore possibly no jurisdiction. The Panel thereby left unresolved, to some extent, the distinction between jurisdiction and the standard of review. Furthermore, the Panel could have strengthened its analysis of the DSU by also referring to the Appellate Body’s recognition that ‘the WTO Agreement, as a whole . . . reflect[s]‌the balance struck by WTO Members between trade and non-​trade-​ related concerns’.52 That balance is reflected in, among others, Articles XX and XXI of the GATT 1994, the TBT Agreement and the SPS Agreement.53 As a general principle, the Appellate Body has found that ‘[m]aintaining, rather than undermining, the multilateral trading system is necessarily a fundamental and pervasive premise underlying the WTO Agreement’.54 That is also consistent with Article 3.2 of the DSU, according to which the WTO dispute settlement system ‘is a central element in providing security and predictability to the multilateral trading system’ and ‘serves to present the rights and obligations under the covered agreements’.55 Furthermore, Article XXI of the GATT 1994 does not provide for an exception to the rules on jurisdiction laid down in the GATT 1994 or the DSU. Conversely, the DSU itself does not contain a security exception clause. Nor does any other part of the GATT 1994 or the other WTO covered agreements offer a basis for excluding Article XXI from the jurisdiction of WTO panels and the Appellate Body. In fact, Article XXII of the GATT 1994 (‘Consultation’) refers to ‘with respect to any matter affecting the operation of this Agreement’ (emphasis added). Article XXIII of the GATT 1994 (‘Nullification and Impairment’) also does not distinguish between provisions of the GATT 1994. Nor does it exclude certain matters.56 The Panel could have also referred to the fact that Russia had not objected to the Panel’s standard terms of reference.57 Those terms of reference meant that the Panel was required ‘to address the relevant provisions in any covered agreement or agreements cited by the parties to the disputes’.58 Furthermore, in discharging its task, Article 11

52  Appellate

Body Report, China –​Raw Materials, adopted 22 February 2012, para 306 (original emphasis). 53  See, e.g., Appellate Body Report, US –​Shrimp, adopted 6 November 1998, paras 185 and 186. 54  Appellate Body Report, US –​Shrimp, adopted 6 November 1998, para 116. 55  Article 3.2 of the DSU. 56  See Appellate Body Report, India –​Quantitative Restrictions, adopted 22 September 1999, para 105. 57 WTO, Russia –​Measures Concerning Traffic in Transit –​Constitution of the Panel Established at the Request of Ukraine –​Note by the Secretariat, WT/​DS512/​4 (7 June 2017). See also Article 7.1 of the DSU. 58  Appellate Body Report, Mexico –​Taxes on Soft Drinks, adopted 24 March 2006, para 49; Appellate Body Report, Mexico –​Corn Syrup (Article 21.5 –​US), adopted 21 November 2001, para 36.

National security   727 of the DSU requires a panel to ‘make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements’. The matter before a panel includes all legal and factual issues regarding the claims of WTO-​inconsistency of the specific measures at issue. As things stand, there are no exceptions to this principal obligation of panels. In addition, the Panel could have taken into account Article 19 of the DSU which provides that, where a panel concludes that a measure is inconsistent with a covered agreement, it ‘shall recommend that the Member concerned bring the measure into conformity with that agreement’. The non-​justiciability of Article XXI would result in the risk that a panel may find that a measure violates another provision of the GATT 1994 but is precluded from making a recommendation that the measure be brought into conformity with the GATT 1994. Such a comprehensive assessment of the question of non-​justiciability from the perspective of the DSU could have conclusively settled the matter of jurisdiction in respect of Article XXI.59 However, due to the Panel’s choice to consider Article XXI as relevant to its jurisdiction, the report in DS512 has resulted in continued uncertainty on this issue. The reasoning of the Panel in DS567 offers an alternative approach that is more grounded in the DSU and the general concept of jurisdiction. That Panel took, as the starting point of its analysis, the consideration that its terms of reference described a dispute about alleged violations of the TRIPS Agreement, which ‘falls within the legal subject-​matter jurisdiction of a WTO dispute settlement panel’ and is a matter subject to WTO jurisdiction in light of Articles 3.4 and 7.1 of the DSU but also Article 19.1 of the DSU.60 In response to the arguments put forward by Saudi Arabia, the Panel also took into account that the GATT Panel Report in US –​Nicaragua Trade had declined to make findings or recommendations in a dispute involving a non-​violation claim, which the Panel deemed to be a distinguishing factor.61 Furthermore, the Panel found it relevant that Qatar had not challenged, before the WTO, Saudi Arabia’s decision ‘to sever diplomatic and economic ties’.62

59  Most authors favour jurisdiction. See, e.g., Akande and Williams, above fn 3, at 378–​379; Balan, above fn 8, at 4; L. Boisson De Chazournes and T. Boutruche, ‘International Trade Law, United Nations Law, and Collective Security Interests’ in D. Bethlehem, D. McRae, R. Neufeld and I. Van Damme (eds), Oxford Handbook of International Trade Law, 1st edition (Oxford: Oxford University Press, 2009), 696; S. Schill and R. Briese, ‘If the State Considers’: Self-​Judging Clauses in International Dispute Settlement’ in A. von Bogdandy and R. Wolfrum (eds), 13 Max Planck Yearbook of United Nations Law (2009), 61, at 105; M.J. Hahn, ‘Vital Interests and the Law of GATT: An Analysis of GATT’s Security Exception’ 12 Michigan Journal of International Law (1991) 558. 60  Panel Report, Saudi Arabia –​Intellectual Property Rights, not adopted, paras 7.16, 7.17, 7.20. 61  Ibid., at para 7.21 and fn 257 (referring to the terms of reference of the GATT Panel in US –​ Nicaraguan Trade). 62  Ibid., para 7.29.

728   Isabelle Van Damme

V.  The scope of Article XXI of the GATT 1994 and the applicable standard of review A. Introduction Any essential security clause needs to be considered according to its own wording and context.63 This chapter focuses on Article XXI of the GATT 1994, but that clause does not set the standard for the relationship between trade interests and essential security interests in all clauses of this type. If a clause confers greater deference, in particular due to the absence of some of the qualifying conditions used in Article XXI(b), it might need to be interpreted differently.

B. Article XXI(a) of the GATT 1994 Article XXI(a) of the GATT 1994 offers a basis for justifying measures that are otherwise contrary to GATT 1994 obligations, such as Article X:1 of the GATT 1994 which requires the publication of certain information. The justification is that the Member considers the disclosure of that information to be contrary to its essential security interests. No necessity condition applies for invoking the defence. Certain FTAs widen the scope of this type of exception to circumstances where the agreement requires a Party to furnish information as well as where access to information must be allowed.64 The use of the phrase ‘which it considers’, which is discussed in greater detail in the next section, suggests a very deferential standard of review. It is primarily for the respondent Member to decide alone what disclosure would be contrary to its essential security interests. Phrases identical or similar to ‘which it considers’ are found in other WTO provisions.65 Caselaw regarding those provisions confirms that the use of such a phrase does not necessarily mean that the entire provision falls within the margin of 63

  Panel Report, Russia –​Traffic in Transit, adopted 26 April 2019, para 7.82, fn 156. See, e.g., Article 28.6(a) of CETA; Article 32.2(1)(a) of the USMCA. 65 See, e.g., Articles II:5, XVIII:7(a), XXIII(1)(c) and XXIII:2 of the GATT 1994; Article 18.7 of the Agreement on Agriculture; Articles 5.5 and 12.4 of the SPS; the sixth recital in the preamble to and Articles 10.8.3 and 14.4 of the TBT Agreement; Articles 6.1, 17.3 and 17.4 of the Anti-​Dumping Agreement; Article 19.2 of the Customs Valuation Agreement; Articles 4.1 and 4.2 of the Agreement on Rules of Origin; Article 5.5 of the Import Licensing Agreement; Article 12.2 of the Safeguards Agreement; Articles II:5, XIVbis 1(a) and (b), XV:2, XXIII:1 and 3, XXIV:1 of the GATS; Articles 12.1, 25.6, 25.9 and 25.10 of the SCM Agreement; Articles 73(a) and (b) of the TRIPS Agreement; Articles 3(3), 4(11), 8(7), 10(4), 22(3)(b) and (c), 26.1 and 26.2 of the DSU; Article 8.7 of the Civil Aircraft Agreement and Articles XXII:2 and XXIII:1 of the Government Procurement Agreement (and Articles III:1 and XX:2 of the Revised Government Procurement Agreement). 64 

National security   729 appreciation of the WTO Member which relies on it.66 Likewise, where WTO Members enjoy a certain prerogative under other provisions (such as determining the appropriate level of protection as regards a certain risk), they must nonetheless exercise that prerogative in good faith and in a manner that is consistent with the WTO covered agreements.67 Thus, the main condition is that a WTO Member assessed and concluded that disclosing information would be contrary to its essential security interests. Evidence of that assessment and conclusion might be sufficient for succeeding under Article XXI(a).68 As a result, a complainant will have a considerable burden of proof to rebut the use of that provision.69 According to this type of process-​based review,70 it would be sufficient that a panel reviews whether the defendant Member has shown that it is not implausible that the disclosure of the information at issue would prejudice its essential security interests.71

C. Article XXI(b) of the GATT 1994 The first two subparagraphs of Article XXI(b) of the GATT 1994 connect the action described in the introductory paragraph to particular categories of goods. The third subparagraph connects the action to specific circumstances in which the action must be taken. In pending disputes, primarily Article XXI(b)(iii) is at issue; one dispute involves export control.

1. Subparagraph (i) Article XXI(b)(i) of the GATT 1994 allows WTO Members to justify measures that constitute an action ‘relating to fissionable materials or the materials from which they are derived’. Unlike the case under the GATT 1994, Article XIVbis(1)(b)(ii) of the GATS and a number of other essential security clauses in bilateral and regional trade agreements72 apply not solely to action relating to fissionable materials but also to ‘fusionable materials’. The application of Article XXI(b)(i) depends in essence on whether the action (i) is relating to (ii) two categories of goods: fissionable materials or the materials from which

66 

Decision by the Arbitrators, EC –​Bananas III (Ecuador) (Article 22.6 –​EC), para 52. Appellate Body Report, India –​Agricultural Products, adopted 19 June 2015, para 5.205. 68  See also Balan, above fn 8, 5. 69  Hahn, above fn 59, 583. 70  On process-​based review and exception clauses, see also I. Van Damme, ‘Procedural Review in WTO law’ in J. Gerards and E. Brems (eds), Procedural review in European fundamental rights cases (Cambridge: Cambridge University Press, 2017) 209–​241. 71  See also, e.g., Schill and Briese, above fn 59, 94–​96. 72  See, e.g., Article 16.11(b)(iii) of the EU-​Singapore FTA; Article 1.5(1)(b)(i) of the EU-​Japan EPA; Article 15.9(b)(ii) of the EU-​Korea FTA; Article 28.6(b)(iii) of CETA; Article 65.6(2) of the Treaty on the Eurasian Economic Union. 67 

730   Isabelle Van Damme they are derived, meaning in essence materials and source materials for producing atomic energy.73 Article XXI(b)(i) does not refer specifically to atomic or nuclear energy for military purposes. However, whether the mere existence of trade in those materials is sufficient to satisfy the burden under Article XXI(b)(i) remains unresolved.

2. Subparagraph (ii) For measures to be justified under subparagraph (ii) of Article XXI(b) of the GATT 1994, two conditions must be satisfied. That action must be: (i) relating to (meaning ‘primarily aimed at’, ‘has a close and genuine relationship’ or is ‘reasonably related’ to the objective pursued);74 (ii) ‘traffic in arms, ammunition and implements of war and to such traffic in other goods and materials as is carried on directly or indirectly for the purpose of supplying a military establishment’. In referring to ‘traffic’, which is also used in other provisions (in particular, Article V of the GATT 1994), the provision seems to refer to any form of cross-​border movement of the goods described in Article XXI(b)(ii). ‘Arms, ammunition and implements of war’ appears to target actual instruments through which armed force can be used as well as a broader category of goods, such as equipment and possibly components used to produce arms and ammunition, that might be useful in case of a conflict involving the use or threat of force. All of those goods may, in case of cross-​border movement to or from a third State, result in risks to the essential security of the respondent Member. If traffic in arms is relevant, it seems likewise necessary to take into account components from which arms can be produced. The broad understanding of the phrase ‘arms, ammunition and implements of war’ also appears to be supported by the second part of the phrase which refers to what seems to be a residual category of ‘other goods and materials as is carried on directly or indirectly for the purpose of supplying a military establishment’. That residual category recognizes that traffic in goods other than ‘arms, ammunition and implements of war’ may affect the essential security interests of WTO Members if those goods are destined directly or indirectly for supplying a military establishment. By not referring specifically to a military establishment of another WTO Member, the clause appears to refer to groupings serving a military purpose which might be State-​organized or not. The potentially broad scope of Article XXI(b)(ii) also results from the use of the phrase ‘directly or indirectly’. That phrase suggests that the immediate recipient of the goods need not be a military establishment if it is known that there is a risk that the ultimate destination is for military use.

73 See, e.g., the definition of ‘special fissionable materials’ in Article XX(1) of the Statute of the International Atomic Energy Agency (‘means plutonium-​239; uranium-​233; uranium enriched in the isotopes 235 or 233; any material containing one or more of the foregoing; and such other fissionable material as the Board of Governors shall from time to time determine’). 74  See Appellate Body Report, US –​Gasoline, adopted 20 May 1996, 19; Appellate Body Report, US –​ Shrimp, adopted 6 November 1998, para 141.

National security   731 One of the main concerns is that the clause covers trade in all goods to be supplied to the military, a possibly very broad set of goods, including clothes, various raw materials or foodstuffs. The negotiating history suggests that the negotiators recognized that the language of subparagraph (ii) has a broad scope in that it covers possibly any commodity, provided that the Member exporting a commodity is satisfied that the purpose of the export transaction is to supply a military establishment, immediately or ultimately, directly or indirectly.75 Moreover, the negotiating history signals that the drafters intended that Members imposing export control measures should be given a certain degree of deference in determining whether the goods in question are destined to supply a military establishment. Article XXI(b)(ii) is most likely to be invoked for justifying export control of military goods but also dual use goods, meaning goods that can have both a civil and military purpose. Many WTO Members rely on a complex system of export controls on goods aimed at prohibiting and/​or monitoring the export of certain goods due to their (military) use and destination. To that effect, many WTO Members operate export licences, have entered into cooperation with other Members and have agreed on best practices. So far, the question of whether those export licence requirements are justified and, if so, under what conditions under Article XXI(b)(ii) has not yet been settled in a DSB report. One pending WTO dispute concerns export licensing.76 Certain WTO Members have settled this issue in their bilateral and regional trade agreements. Article 2.14.4 of the USMCA provides that ‘[t]‌his Article does not require a Party to grant an export licence, or prevent a Party from implementing its obligations or commitments under United Nations Security Council Resolutions, as well as multilateral non-​proliferation regimes, including: the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-​Use Goods and Technologies; Nuclear Suppliers Group; the Australia Group; Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on Their Destruction, done at Geneva, September 3, 1992, and signed at Paris, January 13, 1993; Convention on the Prohibition of the Development, Production and Stockpiling of Bacteriological (Biological) and Toxin Weapons and on Their Destruction, done at Washington, London, and Moscow, April 10, 1972; Treaty on the Non-​Proliferation of Nuclear Weapons done at Washington, London, and Moscow, July 1, 1968; and the Missile Technology Control Regime’. Article 2.13.5 of the CPTPP contains a similar clause.

75 See,

e.g., UN Economic and Social Council, Second Session of the Preparatory Committee, Amendment proposed by the Australian Delegation (Article 37), E/​PC/​T/​W/​264 (6 August 1947); UN Economic and Social Council, Second Session of the Preparatory Committee, Thirty-​sixth meeting of Commission ‘A’, Verbatim Report, E/​PC/​T/​A/​PV/​36 (12 August 1947); UN Economic and Social Council, Second Session of the Preparatory Committee, Summary Record of the 40th (2) Meeting of the Commission A, E/​PC/​T/​A/​SR/​40(2) (15 August 1947), 10–​11. 76 See Japan –​Exportation of Products and Technology to Korea, panel established on 29 July 2020.

732   Isabelle Van Damme

3. Subparagraph (iii) So far, WTO litigation primarily concerns Article XXI(b)(iii) of the GATT 1994. In particular, WTO Members are actively debating what constitutes an emergency in international relations, taking into account also the definition of essential interests in the introductory paragraph of Article XXI(b). Whether or not an emergency in international relations may comprise, apart from circumstances resulting in (a risk of) military action, also, for example, economic or environmental circumstances or public health risks is perhaps not the proper question to ask.77 What constitutes an emergency in international relations, in light of the general description that the action taken is for the protection of a WTO Member’s essential security interests, likely cannot and need not be defined in an exhaustive manner by reference to categories of circumstances. It need not be limited a priori in such a manner. Instead, similar to the case for a situation of war, it could be argued that an emergency in international relations concerns a circumstance in which the continued existence of a State, including its territory and nationals, is under threat.78 In DS512, the Panel interpreted the term ‘war’ to mean international and non-​ international armed conflict.79 In interpreting the term ‘emergency in international relations’, the Panel relied on dictionary definitions, context found in the other subparagraphs of Article XXI(b) and Article XIX of the GATT 1994 and Article 2(4) of the UN Charter to find that the specific security interests arising from the subject matter of the three subparagraphs are ‘all defence and military interests, as well as maintenance of law and public order interests’.80 In considering together the different subparagraphs of Article XXI(b), the Panel found that ‘political or economic differences between Members are not sufficient, of themselves, to constitute an emergency in international relations’.81 As a result, the Panel concluded that an ‘emergency in international relations’ is an objective state of affairs ‘refer[ring] generally to a situation of armed conflict, or of latent armed conflict, or of heightened tension or crisis, or of general instability engulfing or surrounding a state’.82 In DS567, the parties and the majority of third parties agreed with that interpretation. The Panel took a holistic approach in assessing the evidence before it and found that there existed ‘a situation . . . of heightened tension or crisis’ which was related to Saudi Arabia’s ‘defence or military interests, or maintenance of law and public order interests’, meaning essential security interests.83 The Panel considered: (i) the severance of all diplomatic and economic ties with another WTO Member, which signals an ‘exceptional and serious crisis in the relations between two or more States’;84 (ii) that the context in 77 

On the notion of ‘economic security’, see Claussen, above fn 9, 20. See also Balan, above fn 8, 6. 79  Panel Report, Russia –​Traffic in Transit, adopted 26 April 2019, para 7.72. 80  Ibid., para 7.74. 81  Ibid., para 7.75. 82  Ibid., para 7.76. 83  Panel Report, Saudi Arabia –​Intellectual Property Rights, not adopted, para 7.257. 84  Ibid., paras 7.259–​7.262. 78 

National security   733 which ‘a group of States repeatedly accuses another of supporting terrorism and extremism’ which ‘in and of itself reflects and contributes to a “situation . . . of heightened tension or crisis” ’;85 and (iii) that the fact that there were various forms of cooperation between the disputing parties did not call into question the existence of an emergency in international relations, given that it was not contested that the severance of relations between them persisted.86 When examining Russia’s defence, the Panel in DS512 noted that, for the purposes of establishing whether there is a war or other emergency in international relations, ‘it is not relevant . . . which actor or actors bear international responsibility for the existence of this situation to which Russia refers’ or ‘to characterize the situation between Russia and Ukraine under international law in general’.87 The Panel thus placed the use of Article XXI of the GATT 1994 squarely outside the scope of the law of State responsibility and, in particular, the circumstances precluding the wrongfulness of a breach and the law governing countermeasures.88 The fact that an emergency in international relations may result from a domestic emergency is unresolved under Article XXI(b)(iii). That issue was not addressed by the Panel in DS512, even if, on the facts and arguments presented, there could have been some scope to consider this matter. Equivalent clauses under bilateral or regional trade agreements sometimes refer to, apart from ‘war or other emergency in international relations’, ‘domestic emergency’.89 Furthermore, those agreements can further widen the scope of the justification corresponding with Article XXI(b)(iii). For example, Article 16.11(b)(iv) of the EU-​Singapore FTA covers action taken ‘to protect critical public infrastructure (this relates to communications, power or water infrastructure providing essential goods or services to the general public) from deliberate attempts to disable or disrupt it’. The same extended scope is not found in, for example, the equivalent provision in Article 1.5(b)(iv) of the EU-​Japan EPA. By contrast, Article 9(b)(iii) of the ASEAN Trade in Goods Agreement guarantees the right to take action considered necessary for the protection of a Party’s essential security interests ‘taken so as to protect critical public infrastructure, including communications, power and water infrastructures, from deliberate attempts intended to disable or degrade such infrastructure’. The action must be taken ‘in time of ’ war or other emergency in international relations. That qualification establishes at least a type of temporal connection between the action taken and the war or other emergency in international relations. It presupposes a ‘chronological concurrence’, which is an objective fact.90 For example, 85 

Ibid., para 7.263. Ibid., para 7.266. 87  Panel Report, Russia –​Traffic in Transit, adopted 26 April 2019, para 7.121. 88  See further K. Trapp, State Responsibility for International Terrorism (Oxford, Oxford University Press, 2011), 211–​215. 89  See, e.g., Article 9(b)(iv) of the ASEAN Trade in Goods Agreement. 90  Panel Report, Russia –​Traffic in Transit, adopted 26 April 2019, para 7.70; Panel Report, Saudi Arabia –​Intellectual Property Rights, not adopted, para 7.27, see also para 7.269. 86 

734   Isabelle Van Damme if the time of war or other emergency has passed, the conditions in Article XXI(b)(iii) might not be triggered. When reading the entire phrase ‘in time of war or other emergency in international relations’ together with paragraph (b), it also becomes clear that those events must be sufficiently connected to both parties in a dispute so as to result in a genuine and sufficiently serious threat to the respondent Member’s essential security interests, justifying action which it considers necessary to protect those interests.91

4. The introductory paragraph to Article XXI(b) of the GATT 1994 The introductory paragraph to Article XXI(b) of the GATT 1994 offers a general description of the action which may be justified on that basis. The subparagraphs further qualify the action, rather than the interests, that is targeted by that provision. At the same time, the nature of the action might affect the burden of a respondent to show the connection between the action and the protection of its essential security interests. Similar to Article XXI(a), Article XXI(b) refers to action which a WTO Member ‘considers’ is taken for the protection of its essential security interests. However, unlike the former, Article XXI(b) refers to a WTO Member’s consideration of the ‘necessity’ of the action. That qualification too seems to confirm that the use of the phrase ‘which it considers’ does not automatically result in absolute discretion to the Member taking the action. Otherwise there would have been no reason to include a necessity condition in one paragraph of Article XXI of the GATT 1994 but not in another. In DS512, the Panel interpreted the phrase ‘essential security interests’, being narrower than ‘security interests’, as referring to ‘those interests relating to the quintessential functions of the state, namely, the protection of its territory and its population from external threats, and the maintenance of law and public order internally’.92 The Panel added that what those interests are ‘will depend on the particular situation and perceptions of the state in question, and can be expected to vary with changing circumstances’.93 Whilst the Panel recognized that a WTO Member enjoys considerable discretion in determining what are its essential security interests, that discretion is not unfettered.94 According to the Panel in DS512, that discretion has to be exercised in a manner that respects the obligation to interpret and apply the WTO covered agreements in good faith.95 That obligation thus precludes a Member from using Article XXI ‘as a means to circumvent their obligations under the GATT 1994’ which would be the case if a WTO Member were to re-​label trade interests as essential security interests.96 That reading suggests that a Member could be precluded from invoking Article XXI to justify, for example, the adoption of an import ban for protecting its domestic industry or pursuing

91 

See also, e.g., Balan, above fn 8, 8. Panel Report, Russia –​Traffic in Transit, adopted 26 April 2019, para 7.130. 93  Ibid., para 7.131. 94  Ibid., para 7.132. 95  Ibid., para 7.132 96  Ibid., para 7.133. 92 

National security   735 any other policy objective in peace time without there being a possibility of review by a panel. Otherwise, there would be a risk that WTO Members may resort to self-​help without any means of review. This interpretation led the Panel to conclude that a respondent must ‘articulate the essential security interests said to arise from the emergency in international relations sufficiently enough to demonstrate their veracity’.97 The extent of the articulation of those interests will depend on the emergency in international relations or more generally the action covered by one of the subparagraphs. Thus, if the emergency is close to a true war or armed conflict, very little articulation of the essential security interests might be needed.98 The Panel found that Russia’s articulation was ‘minimally satisfactory’ in the circumstances at issue given that, in light of the emergency affecting the security of the border between both countries, ‘the essential security interests that thereby arise for Russia cannot be considered obscure or indeterminate’.99 The Panel thus recognized that there is some scope to review whether the action is taken for the protection of essential security interests. In essence, there is a spectrum of interests that the WTO covered agreements protect. Some interests, such as environmental protection, require strict review. Other interests, such as public morals or essential security interests, require a more deferential standard of review. This is not the say that the standard of review in respect of public morals or essential security interests is the same. More deference is required in respect of the latter. Nonetheless, there is a minimum requirement for a respondent to state the essential security interests at stake.100 The Panel thus focussed on the process through which the use of Article XXI(b) is asserted, possibly at a domestic level and in the context of WTO proceedings. By interjecting a process-​based review, the Panel sought to ensure that it can verify whether Article XXI(b) is used in good faith, meaning that the measures are taken for the reasons invoked by the respondent. The fact that the Panel accepted that it could interpret the phrase ‘its essential security interests’ does not mean that the Panel took the place of the respondent in determining what the latter’s essential security interests are. Instead, the standard of review is more likely to involve a panel giving meaning to the phrase ‘its essential security interests’ in the abstract and then, based on a respondent’s statement of what its essential security interests are, determine whether those interests fall within the definition. At the same time, where a defendant does not put forward any statement of its essential security interests and the protection of those interests is also not evident from the circumstances in which the action is taken, a panel is given no scope for any review and therefore cannot verify the good faith use of the exception. The Panel in DS567, albeit indirectly, signalled that the Panel in DS512 might have overlooked that rule. It underscored that 97 

Ibid., para 7.134. Ibid., paras 7.135–​136. 99  Ibid., para 7.137. 100  See also Panel Report, Saudi Arabia –​Intellectual Property Rights, not adopted, para 7.281, adding that the requirement is not ‘particularly onerous’. 98 

736   Isabelle Van Damme Saudi Arabia had ‘expressly articulated its “essential security interests”, in terms of protecting itself “from the dangers of terrorism and extremism” ’ which is different from ‘the situation that arose in Russia –​Traffic in Transit, in which the respondent appeared not to expressly articulate its essential security interests at all’.101 The use of process-​based review is not novel. Reports interpreting Article XX of the GATT 1994 show that process-​based review has been used to verify the good faith use of an exception as well as legitimate interests. Considerable deference is given to WTO Members in that process.102 This is not unique to the WTO.103 In that regard, the Appellate Body has stressed, in the context of Article XX, that fundamental due process requirements also apply to measures taken in accordance with an exception clause.104 However, there is nonetheless a risk that process-​based review might be insufficient to identify all abuses of Article XXI. That risk is, to some extent, mitigated by the fact that, as the Panel in DS512 rightly observed, the interests allegedly protected must be considered together with the circumstances in which the action is taken. Thus, a statement of a respondent that its action protects its essential security interests without that respondent establishing that the action is sufficiently connected with a war or other emergency might be insufficient to successfully invoke Article XXI(b). According to the Panel in DS512, the good faith obligation also applies to the connection between the measures and the essential security interests. The Panel found that the measures must ‘meet a minimum requirement of plausibility in relation to the proffered essential interests’, meaning that ‘they are not implausible as measures protective of these interests’105 and thus not too remote or unrelated to the protection of the essential security interests.106 In DS567, the Panel confirmed this test.107 It applied the test in a manner showing limitations to what action may be justified under the essential security clause. That Panel found that ‘the non-​application of criminal procedures and penalties . . . does not have any relationship to Saudi Arabia’s policy of ending or preventing any form of interaction with Qatari nationals’.108 That measure was ‘so remote from, or unrelated to, the “emergency in international relations” as to make it implausible that Saudi Arabia implemented these measures for the protection of its “essential security interests” ’.109

101 

Panel Report, Saudi Arabia –​Intellectual Property Rights, not adopted, para 7.280.   See, e.g., Appellate Body Report, EC –​Seal Products, adopted 18 June 2014, paras 5.198-​5.199; Appellate Body Report, US –​Shrimp, adopted 6 November 1998, paras 172-​183. See generally Van Damme, above fn 70. See also Heath, above fn 4; Schill and Briese, above fn 59, 120–​38. 103  See further J. Gerards and E. Brems (eds), Procedural Review in European Fundamental Rights Cases (Cambridge: Cambridge University Press, 2018); K. Lenaerts, ‘The European Court of Justice and Process-​Oriented Review’ 2012 College of Europe Research Paper in Law 01/​2012, 15. 104  Appellate Body Report, US –​Shrimp, adopted 6 November 1998, para 182. 105  Panel Report, Russia –​Traffic in Transit, adopted 26 April 2019, para 7.138. 106  Ibid., para 7.139. 107  Panel Report, Saudi Arabia –​Intellectual Property Rights, not adopted, paras 7.281 and 7.287. 108  Ibid., para 7.293. 109  Ibid., para 7.293. 102

National security   737 In essence, Saudi Arabia could not justify sanctioning right holders of other WTO Members on the grounds of an emergency in the relations between Saudi Arabia and Qatar. This limitation was not considered in DS512, where the Panel did not examine the scope of Russia’s measures, in particular whether they affected also transit from WTO Members other than Ukraine. In respect of the necessity of the measures, the Panel in DS512 found that, because of the phrase ‘which it considers’, the necessity of the action falls within the absolute discretion of the respondent Member.110 Thus, that phrase primarily qualifies the word ‘necessary’. There might be some tension between that conclusion and the finding that all other elements of Article XXI(b) and subparagraph (iii) are subject to objective assessment. Comparing the necessity test under Article XX of the GATT 1994 and the concept of necessity under the security exception clause, one author has observed that the Panel in DS512 ‘interpreted this provision as dispensing a measure (found to be within the scope of one of the subparagraphs and to credibly protect an essential security interest) from fulfilling the second and more demanding part of the necessity test’, namely ‘from conducting a weighing-​and-​balancing analysis or from examining proposed alternative measures that would achieve the same objective while being less trade-​restrictive or less WTO-​inconsistent’.111 That also means, according to that author, that certain elements of the necessity test remain within the review of a panel, namely ‘a threshold examination of whether the measure is ‘not incapable of ’ protecting the Member’s essential security interests, in the sense that there is a rationally ascertainable relationship between the measure and the protection of the interests articulated by the Member’.112 Another commentator has questioned whether ‘[g]‌iven this complex three-​tiered test . . . there is anything left of the self-​judging element explicit in the wording of Article XXI(b)’.113 Those commentaries refer to the fact that the Panel’s conclusion relating to the absolute discretion in respect of the necessity of the action might in fact relate only to one element of the necessity test, namely the weighing and balancing element. In respect of the other elements of the necessity analysis,114 such as the importance of the societal interest or value at stake, the contribution of the measure to the objective it pursued, and the trade-​restrictiveness of the measures, some type of objective review was recognized by the Panel in DS512. In other words, those commentaries suggest that the Panel’s conclusion that a respondent enjoys absolute discretion in respect of the necessity of the action appears to relate only to one aspect of the necessity analysis.

110 

Panel Report, Russia –​Traffic in Transit, adopted 26 April 2019, para 7.146. Vidigal, ‘WTO Adjudication and the Security Exception: Something Old, Something New, Something Borrowed—​Something Blue?’ 46(3) Legal Issues of Economic Integration (2019) 203, at 216. 112  Ibid., 216. 113  Ibid., 215. 114  See, e.g., Appellate Body Report, Colombia –​Textiles, adopted 22 June 2016, para 5.70. 111  G.

738   Isabelle Van Damme

D. Article XXI(c) of the GATT 1994 Article XXI(c) seeks to provide a justification, as a matter of WTO law, for measures taken pursuant to WTO Members’ obligations under the UN Charter in respect of maintaining and restoring international peace and security. In doing so, it also recognizes that, as Article 103 of the UN Charter commands, obligations under the UN Charter prevail over those assumed under other international agreements. By referring specifically to ‘obligations’, Article XXI appears to target action taken pursuant to UN Security Council resolutions requiring such action. That would appear to exclude resolutions calling on UN Members to act without requiring them to do so.115 The relevant obligations under the UN Charter are primarily those set out in Chapter VII. A successful invocation of Article XXI(c) of the GATT depends primarily on proof of an obligation under the UN Charter. Thus, indirectly, in the context of such a defence, questions regarding the scope of those obligations may arise, prompting a panel to interpret those provisions. Whilst Article XXI(c) of the GATT 1994 qualifies the action as taken in pursuance of a Member’s UN obligations,116 that is not the case for all similar clauses in bilateral and regional trade agreements. For example, Article 16.11(c) of the EU-​Singapore FTA, Article 15.9(c) of the EU-​Korea FTA and Article 28.6(c) of CETA simply refer to action taken ‘for the purpose of maintaining international peace and security’.

VI.  The burden of proof and other consequences resulting from invoking the essential security exception Article XXI of the GATT 1994 lays down an affirmative defence of measures which would otherwise be inconsistent with an obligation under the GATT 1994. The introductory paragraph of Article XXI expressly refers to ‘[n]‌othing in this agreement’, meaning the GATT 1994. The same phrase appears in the general exceptions clause in Article XX which immediately precedes the security exception clause in Article XXI. In that context, the Appellate Body has found that ‘[e]ffect is more easily given to the words “nothing in this Agreement”, and Article XX as a whole including its chapeau more easily integrated into the remainder of the General Agreement, if the chapeau is taken to mean that the standards it sets forth are applicable to all of the situations in which an allegation of a violation of a substantive obligation has been made and one of

115 

116 

See further Balan, above fn 8, 5. See also, e.g., Article 1.5(c) of the EU-​Japan FTA.

National security   739 the exceptions contained in Article XX has in turn been claimed’.117 The Appellate Body has added that ‘[i]t is only reasonable that the burden of establishing such a defence should rest on the party asserting it’.118 If Article XXI contains an affirmative defence, then the applicable standard for the burden of proof continues to be reflected in the Appellate Body’s statement in US –​ Wool Shirts and Blouses.119 That means that it is for the complaining party to assert and prove its claim of a violation of the GATT 1994. In turn, the defending party invoking Article XXI bears the burden of showing that the conditions set out in that exceptions clause are met. In DS512, having established jurisdiction, the Panel nonetheless decided to consider whether the measures at issue fell within the scope of Article XXI(b)(iii) instead of first examining whether those measures were inconsistent with the provisions under which Ukraine had presented claims. That reversal of the order of analysis was justified, according to the Panel, because Article XXI(b)(iii) recognizes that ‘a war or other emergency in international relations involves a fundamental change of circumstances which radically alters the factual matrix in which the WTO-​consistency of the measures at issue is to be evaluated’.120 In particular, the Panel deemed it unnecessary to further examine the claims because that would be an inquiry into whether ‘they would be WTO-​inconsistent if they had been taken in normal times, i.e. if they were not taken in time of war or other emergency in internationals relations’ and, under Article XXI(b) (iii), there is no need to consider the necessity of the measures.121 The Panel thus departed from the approach of first establishing whether a complainant has established a violation of the GATT 1994 before determining whether the WTO-​inconsistent element of the measure at issue is justified under the exception.122 Under the existing case law, without first establishing the violation, it not possible to assess what violation can be justified.123 Departing from that approach means, in essence, that the provisions under which claims were made become irrelevant. The WTO-​consistency of the measures becomes entirely dependent on whether the conditions of Article XXI are satisfied regardless of what violation is to be justified. However, the introductory paragraph makes clear that the action to be considered under Article XXI is that which otherwise a WTO Member would be prevented from taking. In that regard, the introductory paragraph appears to confirm that Article XXI 117 

Appellate Body Report, US –​Gasoline, adopted 20 May 1996, 24. Body Report, US –​Wool Shirts and Blouses, adopted 23 May 1997, 16. See also, more recently, Appellate Body Report, Indonesia –​Import Licensing Regimes, adopted 22 November 2017, para 5.42. 119  Appellate Body Report, US –​Wool Shirts and Blouses, adopted 23 May 1997, 14. 120  Panel Report, Russia –​Traffic in Transit, adopted 26 April 2019, para 7.108. 121  Ibid., para 7.108. 122  Appellate Body Report, EC –​Seal Products, adopted 18 June 2014, para 5.185 and the case law cited. 123  Appellate Body Report, Thailand –​Cigarettes (Philippines), adopted 15 July 2011, para 173 and the case law cited. 118  Appellate

740   Isabelle Van Damme is, like Article XX, concerned with the elements of a measure that are found to be inconsistent with other provisions of the GATT 1994. In DS567, the Panel applied the ‘traditional’ approach of first examining the claims of inconsistency before considering, if necessary, whether the measures were justified on the basis of Article 73 of the TRIPS Agreement. Its comments on the different approach taken by the Panel in DS512 were limited to the explanation that this ‘appears to have been influenced by circumstances that are distinguishable from the present dispute’ because of the manner in which Russia had presented its position on the jurisdiction of the Panel in that case.124 Neither party in DS567 apparently opposed applying this ‘traditional’ approach.125 Putting aside this issue regarding the proper order of analysis, the burden of proof becomes relevant only after establishing the proper interpretation of Article XXI which in turn determines the applicable standard of review. Satisfying the burden of proof under Article XXI raises, more than what is typically the case under Article XX, the question of whether a respondent may refuse to provide certain information and whether, in that context, Article XXI(a) may be used. Article XXI(a) offers a justification for a measure violating a provision of the GATT 1994, not of the DSU or any general principle of law governing WTO dispute settlement proceedings. To conclude differently risks undermining the character of Article XXI as an affirmative defence. It would be sufficient to invoke Article XXI(a) to satisfy the burden of proof under any of the other parts of Article XXI. At the same time, that understanding would considerably affect a complainant’s right of defence. The complainant would be put in a position where it could not know what needed to be rebutted. Finally, in respect of a defence under Article XXI, similar to the case where a party is due to substantiate its assertions in dispute settlement, where a party has not satisfied its burden of proof, it is not for a panel to make the case for that party by advancing itself the relevant information126 or second-​guessing the events to which a party appears to refer. A panel may seek information pursuant to Article 13.1 of the DSU ‘in order to evaluate evidence already before it in the course of determining whether the claiming or the responding Member, as the case may be, has established a prima facie case or defence’.127 Although there is a principle according to which courts and tribunals may take judicial notice of certain facts, any power resulting from that principle must be clearly circumscribed, used sparingly in case of an affirmative defence and exercised in a manner that does not negatively affect the due process rights of all parties in the dispute. Especially in respect of an affirmative defence, it cannot be the role of a panel to seek the information which a respondent

124 

Panel Report, Saudi Arabia –​Intellectual Property Rights, not adopted, para 7.6 and fn 215. Ibid., para 7.6. 126  See, e.g., Appellate Body Report, Japan –​Agricultural Products II, adopted 19 March 1999, para 129; Appellate Body Report, US –​Gambling, adopted 20 April 2005, para 282. 127  Appellate Body Report, Canada –​Aircraft, adopted 20 August 1999, para 192; Appellate Body Report, Japan –​Agricultural Products II, adopted 19 March 1999, para 129. 125 

National security   741 failed to provide or to rebut a claim where the respondent itself has not done so.128 In other words, a panel may not make a prima facie case for a party who bears that burden.129 In respect of DS512, some WTO Members have expressed concerns as to whether the Panel, in this regard, made an objective assessment of the facts as envisaged by Article 11 of the DSU.130 The Panel accepted that Russia had satisfied its burden of showing that there was a war or emergency in international relations by referring to a hypothetical situation and (although pretending not to rely on that fact) Ukraine’s 2016 Trade Policy Review in which, according to Russia, Ukraine described its understanding of that hypothetical situation. The Panel also mentioned the fact that Russia had asserted that it was publicly known, also to Ukraine, what circumstances led to the adoption of the measures.131 Although Russia itself had not presented any evidence of the international recognition of an international conflict between both parties, the Panel took notice of two UN General Assembly resolutions regarding relations between Ukraine and Russia involving an armed conflict.132 The condition of ‘taken in time of ’ was satisfied by mere fact that the measures at issue were taken in or after November 2014.133 Sanctions imposed against Russia by other countries were also used by the Panel to find that the situation between Ukraine and Russia satisfied the conditions of subparagraph (b).134 The evidence thereof consisted of countersanctions taken by Russia; no original evidence of the sanctions taken by other countries was mentioned by the Panel.135 Accepting Russia’s position that it matters whether the basis of a measure is publicly available and known would mean that, in dispute settlement proceedings, a defendant WTO Member may argue that a condition for invoking an affirmative defence is met because the complaining WTO Member was (allegedly) aware of the facts causing the defendant to impose certain measures. If that reasoning is applied to, for example, Article XX(b), it would mean that a defendant could satisfy its burden of proof by merely alleging that the complainant knew that the measure was taken for the protection of human, animal, or plant health. The burden would fall on the complainant to show that it did not know what caused the defendant to impose the measure at issue. In any event, the question might be moot because it seems doubtful that the standard of proof under Article XXI(b) or XXI(c) would be interpreted in such a strict manner that, for the purposes of satisfying the burden of proof under those provisions, security information would need to be provided to a WTO panel. Furthermore, should that 128 

See, e.g., Appellate Body Report, US –​ Gambling, adopted 20 April 2005, para 282. Appellate Body Report, US –​Shrimp (Thailand)/​US –​Customs Bond Directive, adopted 1 August 2008, paras 300 (relying on Appellate Body Report, Japan –​Agricultural Products II, para 129). 130  WTO, Dispute Settlement Body, Minutes of Meeting held in the Centre William Rappard on 26 April 2019, WT/​DSB/​M/​428 (25 June 2019), para 8.2. 131  Panel Report, Russia –​Traffic in Transit, adopted 26 April 2019, para 7.118. 132  Ibid., para 7.122. 133  Ibid., para 7.124. 134  Ibid., para 7.122. 135  Ibid., para 7.122, fn 205. 129 

742   Isabelle Van Damme possibility arise, the matter could be resolved by envisaging special working procedures for protecting such sensitive information.136 The practice of WTO dispute settlement shows considerable flexibility in respect of the design by the parties of procedures governing the confidentiality of evidence submitted in panel proceedings. Guidance may be found in the procedural rules developed by other courts and tribunals in seeking to address the same interests.

VII. Conclusions The use of Article XXI of the GATT 1994 in the WTO, including in the context of WTO dispute settlement, has resulted in a wider debate about what this development means for the future of the WTO. Both in WTO submissions and elsewhere, the advent of the first invocation of Article XXI in Russia –​Traffic in Transit has been described as seriously threatening the legitimacy of the WTO and possibly causing at least one WTO Member to retreat from the multilateral trading system. Following the adoption of the report in Russia –​Traffic in Transit and as the other pending cases move forward, it appears that, in particular, the United States is deeply concerned about any form of review by a third party (such as a WTO panel) of measures taken by WTO Members for the purposes of the protection of essential security purposes. At best, it seems open to the possibility of having a panel consider Article XXI as a response to a non-​violation complaint.137 Whilst neither the GATT 1994 nor the DSU precludes bringing a non-​violation complaint in such circumstances, there is also no basis for requiring a complainant to bring a non-​violation complaint which, though legally available to WTO Members, favours a transactional approach to international relations and dispute settlement. Thus, the right of a WTO Member to avail itself of one type of remedy is to be distinguished from the substantive standard under a provision in respect of which that remedy may be used. This is not to say that rebalancing is not an appropriate mechanism for managing the relationship between trade and essential security interests. However, as the rules stand, it is merely an option. Amendment of existing rules would be required to make it the sole means of tackling that relationship.138 136 

Balan, above fn 8, 5. In DS567, the Panel considered the need to adopt additional procedures for the protection of strictly confidential information in light of the defendant’s concerns about the safety of an individual coming forward with a witness statement. Panel Report, Saudi Arabia –​Intellectual Property Rights, not adopted, paras 1.24–​1.41. 137  See N. Lamp, ‘At the Vanishing Point of Law: Rebalancing, Non-​Violation Claims, and the Role of the Multilateral Trade Regime in the Trade Wars’ 22 Journal of International Economic Law (2019) 721; see also Alford, above fn 5, 746–​749; T. Lacerda Prazeres, ‘Trade and National Security: Rising Risks for the WTO’ 19 World Trade Review (2020), 137, 145–​147. 138  See S. Lester and H. Zhu, ‘Closing Pandora’s Box, The Growing Abuse of the National Security Rationale for Restricting Trade’ CATO Policy Analysis No. 874 (25 June 2019).

National security   743 WTO dispute settlement is an important step in resolving a dispute between two or more WTO Members. For certain disputes, that step is sufficient to bring about the desired remedy, namely compliance by withdrawing the measure or the element of the measure found to be in breach. For others, this step is not sufficient. They remain on the agenda of the DSB139 until ultimately a political compromise is found or the same interests become protected by a different measure. For disputes involving essential security interests, it cannot yet be established what the effects of adverse findings of panels or the Appellate Body will be on the resolution of the dispute and whether compliance can be achieved. For a long time, it was assumed that it was in the self-​interest of all WTO Members, either considered individually or as a collective, not to challenge action taken for the protection of essential security interests and subject it to any type of third-​party review. The rationale for that type of restraint was that it is a strategy aimed at preserving maximum flexibility for WTO Members in responding to what they considered to be threats to their national security. The general understanding appeared to be that, as long as there was no binding decision of a third-​party, there was no risk of any decision imposing conditions on their conduct other than the conditions that WTO Members themselves perceived to be laid down in the obligations they assumed by acceding to the WTO (and originally the GATT 1994). This consideration applies together with the fact that a dispute involving essential security interests by definition risks putting both parties in the position, because of that dispute, to avail themselves of Article XXI(b) of the GATT 1994, and especially where a war or other emergency in international relations appears to exist. In other words, the conclusion that the conditions of, in particular, Article XXI(b)(iii) of the GATT 1994 are satisfied arguably means that both parties to the dispute are allowed to take otherwise WTO-​inconsistent measures for the same reasons and thus may be allowed to adopt countermeasures.140 It also means that subjecting the use of that provision to third party review exposes both Members to the risk of restrictions in respect of their actions. This ‘mirror’ effect of the use of Article XXI of the GATT 1994 might also be the factor that eventually results in a retreat from invoking, at least, Article XXI(b) in WTO dispute settlement proceedings.

Further reading D. Akande and S Williams, ‘International Adjudication and National Security Issues: What Role for the WTO’ 43(2) Virginia Journal of International Law (2003) 365 R.P. Alford, ‘The Self-​Judging WTO Security Exception’ 3 Utah Law Review (2011) 697

139  See, e.g., US –​Section 110(5) of the US Copyright Act; EC –​Measures affecting the approval and marketing of biotech products. 140  This effect is to be distinguished from the conceptual distinction between countermeasures under international law and the invocation of Article XXI of the GATT 1994. See Trapp, above fn 88, 210–​218.

744   Isabelle Van Damme M.J. Hahn, ‘Vital Interests and the Law of GATT: An Analysis of GATT’s Security Exception’ 12(3) Michigan Journal of International Law (1991) 558 J.B. Heath, ‘Making sense of security’ 116(2) American Journal of International Law (2022) 289 M. Pinchis-​Paulsen, ‘Trade Multilateralism and U.S. National Security: The Making of the GATT Security Exception’ 41(1) Michigan Journal of International Law (2020) 109 S. Schill and R. Briese, ‘ “If the State Considers”: Self-​Judging Clauses in International Dispute Settlement’ in A. von Bogdandy and R. Wolfrum (eds), 13 Max Planck Yearbook of United Nations Law (2009), 61. G. Vidigal, ‘WTO Adjudication and the Security Exception: Something Old, Something New, Something Borrowed –​Something Blue?’ 46(3) Legal Issues of Economic Integration (2019) 203

Chapter 28

Pri vac y a n d Data Prot e c t i on Mira Burri

I . II.

Introduction: privacy protection in the data-​driven economy Legal frameworks for the protection of privacy A. International rules for the protection of privacy B. Transnational rules for the protection of privacy: the OECD and the APEC frameworks C. National approaches to data protection: the European Union versus the United States III. Privacy under the WTO framework I V. Mapping the regulatory landscape in FTAs A. Introduction B. Overview of data-​related rules in FTAs V. Conclusions

745 748 748 749 750 754 757 757 758 766

I.  Introduction: privacy protection in the data-​driven economy To someone familiar with the origins and the evolution of international trade law, the protection of personal data and privacy would probably be a topic of marginal interest only. Indeed, most trade agreements,1 as well as classic trade law treatises, do not cover 1 

The GATT 1947 makes no reference to privacy and most of the FTAs up to very recently make no mention of it.

746   Mira Burri the topic of privacy.2 Still, it is fair to note that the link between the reality of information crossing borders and the need to protect certain national interests is not new.3 In particular, during the late 1970s and the 1980s, as satellites, computers, and software profoundly changed the dynamics of communications, the trade-​offs between allowing data to flow freely and asserting national jurisdiction became readily apparent. This was reflected in the work under the auspices of the OECD, which led to the formulation of non-​binding principles that sought to balance the free flow of data with national interests in the fields of privacy and security.4 Yet, as the OECD itself points out, while this privacy framework endured, the situation at that time was profoundly different from the data governance challenges we face today.5 Ubiquitous digitization, powerful hardware and the Internet as interconnected networks have changed the volume, the intensity, and indeed, the nature of data flows.6 Data has become so essential to economic processes that it is said to be the ‘new oil’.7 Although the statement is flawed, data has undeniably risen in value. Increasingly much of modern economic activity, innovation, and growth cannot occur without data.8 The implications of the recent phenomenon of Big Data9 are multiple and sometimes far-​ reaching.10 The capacity to handle data increasingly turns into a competitive advantage for companies and countries. It plays out as a power move in the global political

2  See, e.g., J.H. Jackson, The World Trading System: Law and Policy of International Economic Relations (Cambridge, MA: MIT Press, 1989); J.H. Jackson, The World Trade Organization: Constitution and Jurisprudence (London: Royal Institute of International Affairs, 1998); R. Wolfrum, P. Stoll and H.P. Hestermeyer (eds), WTO—​Trade in Goods (Leiden: Martinus Nijhoff Publishers, 2011), 1–​24. 3  See, e.g., C. Kuner, ‘Regulation of Transborder Data Flows under Data Protection and Privacy Law: Past, Present and Future’ OECD Digital Economy Paper 187 (2011); S.A. Aaronson, ‘Why Trade Agreements Are Not Setting Information Free’ 14 World Trade Review (2015) 671, at 672, 680–​685. 4 OECD, Guidelines for the Protection of Personal Information and Transborder Data Flows (OECD, 1980). 5 OECD, The OECD Privacy Framework: Supplementary Explanatory Memorandum to the Revised OECD Privacy Guidelines (OECD, 2013). 6  See J. Manyika et al., Big Data: The Next Frontier for Innovation, Competition, and Productivity (Washington, DC: McKinsey Global Institute, 2011); V. Mayer-​Schönberger and K. Cukier, Big Data: A Revolution That Will Transform How We Live, Work, and Think (New York: Eamon Dolan/​Houghton Mifflin Harcourt, 2013). 7   The Economist, ‘The World’s Most Valuable Resource Is No Longer Oil, but Data’, The Economist (6 May 2017). 8  Manyika et al., above fn 6; N. Henke et al., The Age of Analytics: Competing in a Data-​Driven World (Washington, DC: McKinsey Global Institute, 2016). 9  Manyika et al., above fn 6. Definitions vary with scholars agreeing only that the term Big Data is generalized and slightly imprecise. One common identification refers to Big Data’s ‘3-​Vs’: volume, velocity, and variety. Increasingly, experts add a fourth ‘V’, the veracity or reliability of the data, and a fifth with regard to its value. See Mayer-​Schönberger and Cukier, above fn 6. 10 Mayer-​ Schönberger and Cukier, above fn 6. See further also M. Burri, ‘Understanding the Implications of Big Data and Big Data Analytics for Competition Law: An Attempt for a Primer’ in K. Mathis and A. Tor (eds), New Developments in Competition Behavioural Law and Economics (Berlin: Springer, 2019) 241–​263.

Privacy and Data Protection    747 economy. The ongoing battle between China and the United States with regard to 5G dominance is revealing in this sense.11 The increased dependence on data has brought about a set of new concerns, particularly in the area of privacy protection.12 Big Data analytics put into question the distinction between personal and non-​personal data. This is because anonymization is only of limited utility13 and re-​identification of data subjects by combining datasets of non-​personal data appears possible given that data might be retained indefinitely.14 Big Data equally questions the fundamental elements of existing privacy protection laws, often relying on transparency and user consent.15 These challenges have not been left unnoticed and have triggered the reform of data protection laws worldwide, best exemplified by the EU General Data Protection Regulation (GDPR).16 However, the reform initiatives are not coherent. They are also culturally and socially embedded, reflecting societies’ understandings of constitutional values, relationships between citizens and the State, and the role of the market. With the augmented value of data and the associated risks, governments have also sought new ways to assert control over it, notably by ‘localizing’ the data, its storage, or suppliers within the State’s sovereign space.17 This barrier to data flows impinges directly on trade and may endanger the realization of an innovative data economy.18 The provision of digital products and services, cloud computing applications or if we think in more future-​oriented terms about the Internet of Things (IoT) and Artificial Intelligence (AI), could not function without cross-​border flow of data.19 Data protectionism also comes with a cost for the countries adopting such measures.20 11  See, e.g., H. Sender, ‘US-​China Contest Centres on Race for 5G Domination’, The Financial Times (25 January 2019). 12  P. Ohm, ‘Broken Promises of Privacy: Responding to the Surprising Failure of Anonymization’ 57 UCLA Law Review (2010) 1701–​1777; P.M. Schwartz and D.J. Solove, ‘The PII Problem: Privacy and a New Concept of Personally Identifiable Information’ 86 New York University Law Review (2011) 1814–​1894; The White House, Big Data: Seizing Opportunities, Preserving Values, Executive Office of the President, May 2014; Council of Europe, Guidelines on the Protection of Individuals with Regard to the Processing of Personal Data in a World of Big Data, Strasbourg, T-​PD(2017)01, 23 January 2017. 13  The White House, above fn 12, at 14. 14  Ibid., at 14–​ 15; also Ohm, above fn 12; I.S. Rubinstein, ‘Big Data: The End of Privacy or a New Beginning?’ 3 International Data Privacy Law (2013) 74–​87, at 77. 15  Rubinstein, above fn 14, at 78. 16 Regulation 2016/​ 679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/​46/​EC (General Data Protection Regulation), OJ 2016 L 119, p. 1. 17  See A. Chander, ‘National Data Governance in a Global Economy’ UC Davis Legal Studies Research Paper 495 (2016), at 2; also A. Chander and U.P. Lê, ‘Data Nationalism’ 64 Emory Law Journal (2015) 677–​739. 18 United States International Trade Commission (USITC), Digital Trade in the US and Global Economies, Part 1, Investigation No 332-​531 (Washington, DC: USITC, 2013); USITC, Digital Trade in the US and Global Economies, Part 2, Investigation No 332-​540 (Washington, DC: USITC, 2014). For a country survey, see Chander and Lê, above fn 17. 19  Chander, above fn 17. 20  See, e.g., M.F. Ferracane, ‘The Costs of Data Protectionism’ in M. Burri (ed), Big Data and Global Trade Law (Cambridge: Cambridge University Press, 2021) 63–​82. For an opposing opinion, see S.

748   Mira Burri Against this background, the topic of privacy and data protection has become a central element in many policy debates at the trade negotiation table. This chapter seeks to provide a better understanding and contextualization of data protection and its interfaces with global trade law. It looks at existing international, transnational, and selected national frameworks for privacy protection and briefly sketches their evolution. Next, the chapter explores the application of the WTO rules, which admittedly are in a pre-​Internet state, to situations where privacy concerns are affected. The chapter then looks at the data-​related frameworks that have emerged in free trade agreements (FTAs). The chapter concludes with an appraisal of the current state of affairs and an outlook on the linkages between trade law and data protection in the digital economy.

II.  Legal frameworks for the protection of privacy A. International rules for the protection of privacy The right to privacy is established in international law and is now accepted as a fundamental human right. The core privacy principle is found in Article 12 of the Universal Declaration of Human Rights (UDHR) and Article 17 of the International Covenant on Civil and Political Rights (ICCPR), which guarantee individuals’ protection of their personal sphere. However, the protection has not been robust. In fact, it appears that the right to privacy as an umbrella term almost accidentally found its way into those treaties and was only later enshrined in national constitutions.21 Over the years, the international framework for privacy has expanded. However, the Human Rights Committee has not yet developed a specific set of obligations in the domain of privacy law. It has only recognized some of its core aspects, such as that personal information requires protection against both public authorities and private entities, the need for data security, and some user rights.22 In 1990, the UN General Assembly adopted Guidelines for the Regulation of Computerized Personal Data Files,23 which stipulate minimum guarantees and include certain key principles of data protection, such as lawfulness, fairness, accuracy, purpose-​specification, relevance, and adequacy of data collection. However, the Guidelines are non-​binding. States may also depart

Yakovleva and K. Irion, ‘Pitching Trade against Privacy: Reconciling EU Governance of Personal Data Flows with External Trade’ 10 International Data Privacy Law (2020) 201–​221. 21  O. Diggelmann and M.N. Cleis, ‘How the Right to Privacy Became a Human Right’ 14 Human Rights Law Review (2014) 441–​458. 22  General Comment no. 16 on Article 17 ICCPR (Right to privacy) (1988), para 10. 23  UN General Assembly, Resolution 45/​95 of 14 December 1990.

Privacy and Data Protection    749 from them for reasons of national security, public order, public health, or morality and the protection of the rights of others.24 The Council of Europe (CoE) has endorsed stronger and more enforceable standards of protection by virtue of Article 8 of the 1950 European Convention on Human Rights (ECHR)25 and a rich body of case law of the European Court of Human Rights (ECtHR). This jurisprudence has stressed the obligation of States to protect individual’s privacy and the limitations of the right to privacy imposed either by key public interests or by the rights of others.26 Different aspects of data protection were further endorsed through a number of CoE resolutions and ultimately through Convention 108 for the Protection of Individuals with regard to Automatic Processing of Personal Data, which opened for signature in 1981 and was lastly amended in 2018. The CoE is the first international body to establish legally binding minimum standards for personal data protection.27

B. Transnational rules for the protection of privacy: the OECD and the APEC frameworks The OECD was the first organization to endorse principles of privacy protection, through the 1980 OECD Guidelines on the Protection of Privacy and Transborder Flows of Personal Data, which recognize both the need for and the risks of facilitating trans-​border data flows.28 Those Guidelines contain certain basic principles for national implementation and international cooperation that promote the free flow of data while also allowing legitimate restrictions.29 The OECD Guidelines promote eight principles, applicable in both the public and the private sector, which countries should respect in developing their own privacy protection frameworks: (i) collection limitation; (ii) data quality; (iii) purpose specification; (iv) use limitation; (v) security safeguards; (vi) openness; (vii) individual participation; and (viii) accountability. They have become an essential part of all national data protection regimes developed after 1980, including the EU framework. In trying to keep pace with newer technological advances, the OECD Guidelines were revised in 2013,30 but the core principles remained unaltered.31 24 

Ibid., at para 6. The text of the ECHR, the additional protocols and their signatories are available at < https://​www. echr.coe.int/​Pages/​home.aspx?p=​bas​icte​xts&c=​ > (last visited 10 May 2022). 26  For a comprehensive guide to the jurisprudence, see European Court of Human Rights, Guide on Article 8 of the European Convention on Human Rights: Right to Respect for Private and Family Life, Home and Correspondence (Strasbourg: Council of Europe, 2019). 27  See, e.g., European Union Agency for Fundamental Rights and Council of Europe, Handbook on European Data Protection Law (Luxembourg: EU Publications Office, 2018), at 15–​16. 28  OECD (1980), above fn 4; OECD, The Evolving Privacy Landscape: 30 Years After the OECD Privacy Guidelines, 176 OECD Digital Economy Papers (2011), at 7. 29 Ibid. 30  OECD (2013), above fn 5. 31 Ibid. 25 

750   Mira Burri Likewise, the 2005 APEC Privacy Framework32 contains principles and implementation guidelines aimed at establishing effective privacy protection that avoids barriers to information flows in the APEC region of 21 countries. Building upon the Privacy Framework, APEC has developed the Cross-​Border Privacy Rules (CBPR) system, which has now been formally joined by Australia, Chinese Taipei, Canada, Japan, South Korea, Mexico, Singapore, and the United States. The CBPR system does not displace a country’s domestic law, nor does it demand specific changes. However, the CBPR establishes a minimum level of protection through certain compliance and certification mechanisms. It requires that participating businesses develop and implement data privacy policies and allows APEC Accountability Agents to assess their consistency with the APEC Privacy Framework. In this sense, the CBPR system is similar to the EU-​ US Privacy Shield because it envisages a means for self-​assessment, compliance review, recognition, dispute resolution, and enforcement.33 Although the OECD and APEC privacy frameworks are non-​binding,34 both illustrate the need for international cooperation in the field of data protection, as well as the importance of cross-​border data flows as a fundament of contemporary economies.

C. National approaches to data protection: the European Union versus the United States 1. Privacy and data protection in the European Union The European Union subscribes to a rights-​based, omnibus approach to data protection. The right to privacy is a key concept in EU law. Building upon the Council of Europe’s ECHR,35 the Charter of Fundamental Rights of the European Union36 distinguishes between the right of respect for private and family life in Article 7 and the right to protection of personal data in Article 8. This distinction reflects the heightened concern of the European Union to implement effective protection of personal data and the regulation of the transmission of such data through a positive obligation.37 The 1995

32 APEC, APEC Privacy Framework (Singapore: APEC Secretariat, 2005). The APEC framework endorses the following principles: (i) preventing harm; (ii) notice; (iii) collection limitations; (iv) use of personal information; (v) choice; (vi) integrity of personal information; (vii) security safeguards; (viii) access and correction; and (ix) accountability. 33  N. Waters, ‘The APEC Asia-​Pacific Privacy Initiative’ 6 SCRIPTed: A Journal of Law, Technology and Society (2009) 74–​89. 34  Some scholars have argued that such soft law frameworks are nonetheless far-​reaching, because their implementation depends on the power of reputational constraints. See, e.g., C. Brummer, ‘How International Financial Law Works (and How It Doesn’t)’ 99 The Georgetown Law Journal (2011) 257–​327, at 263-​272. 35  Article 8 of the ECHR. 36  Charter of Fundamental Rights of the European Union OJ 2010 C 83, p. 2. 37 ECtHR, Refah Partisi (The Welfare Party) and others v. Turkey, App Nos. 41340/​98, 41342/​98, 41343/​ 98 and 41344/​98, judgment of 13 February 2003.

Privacy and Data Protection    751 Data Protection Directive formed an important part of this ongoing project.38 As the regulatory environment profoundly changed, particularly around the role of data in the economy but also in broader societal contexts, that Directive urgently required an update. Other reform triggers were a series of seminal decisions of the CJEU, which brought about important changes in existing legal practice, as well as in the overall understanding of individuals’ rights protection on the Internet in Europe. In that context, the Google Spain case39 coined the so-​called ‘right to be forgotten’, giving priority to privacy over free speech and the economic rights of the information intermediaries, such as Google search. Another important case was the Schrems I judgment of 6 October 2015,40 which rendered the EU-​US Safe Harbor Agreement invalid and illuminated the importance of cross-​border data flows, as well as the difficulties in reconciling such data flows with the fundamental right to privacy. The GDPR serves the same purpose as the Data Protection Directive. It seeks to harmonize the protection of fundamental rights and freedoms of natural persons in respect of processing activities and to ensure the free flow of personal data between EU Member States. The GDPR endorses a clear set of principles41 and imposes particularly high standards of protection, including enhanced user rights (such as the mentioned right to be forgotten,42 but also the right to transparent information,43 the right of access to personal data,44 the right to data portability,45 the right to object46 and the right not to be subject to automated decision-​making, including profiling47). Accordingly, the GDPR envisages heightened responsibilities of entities controlling and processing data, including data protection by design and default48 and effective penalties for non-​ compliance.49 Noteworthy is also the territorial reach of the GDPR. Article 3(1) specifies that the GDPR applies to the processing of personal data in the context of the activities of an establishment of a controller or a processor in the European Union, regardless of whether the processing takes place in the EU or not. Furthermore, the GDPR may apply to a controller or processor not established in the European Union. This is when 38  Directive

95/​46/​EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data, OJ 1995 L 281, p. 31. 39  Case C-​131/​12 Google Spain, EU:C:2014:317. 40  Case C-​362/​14 Schrems, EU:C:2015:650 (Schrems I). 41  Article 5 of the GDPR specifies the principle of lawfulness, fairness and transparency; the principle of purpose limitation; the principle of data minimization; the principle of accuracy; the principle of storage limitation; the principle of integrity and confidentiality; and the principle of accountability. 42  Article 17 of the GDPR. 43  Article 12 of the GDPR. 44  Articles 13, 14, 15 and 19 of the GDPR. 45  Article 20 of the GDPR. 46  Article 21 of the GDPR. 47  Article 22 of the GDPR. 48  Article 25 of the GDPR. 49  Depending on the infringement, data protection authorities can impose fines up to 20’000’000 EUR, or in the case of an undertaking, up to 4 per cent of its total worldwide annual turnover of the preceding financial year, whichever is higher. See Article 83(5), (6) of the GDPR.

752   Mira Burri the processing activities are related to (a) the offering of goods or services, irrespective of whether a payment of the data subject is required, to such data subjects in the Union; or (b) the monitoring of their behaviour as far as their behaviour takes place within the Union.50 This substantial extension of the scope of EU data protection law is bound to have a significant impact in its implementation, as it becomes applicable to many foreign companies present in or targeting the EU market.51 In the context of the extraterritorial application of the GDPR, the European Commission can assess whether a third country offers ‘an adequate level of data protection’ with an effect for the entire European Union. This means that transfers of personal data to that third country may take place without the need to obtain any further authorization.52 The test is somewhat strengthened post-​Schrems I.53 In the absence of an ‘adequacy decision’, as a second-​best and certainly more burdensome option, a controller or processor may transfer personal data to a third country only if they provide appropriate safeguards, and on condition that enforceable data subject rights and effective legal remedies for data subjects are available.54

2. Privacy and data protection in the United States The United States has a fundamentally different idea of privacy protection, understood as related to the notion of ‘liberty’.55 In this sense, US privacy protection law ‘focuses more on restrictions, such as the Fourth Amendment, that protect citizens from information collection and use by government rather than by private actors. In fact, private actors are often protected from such restrictions under the First Amendment’.56 In 50 

Article 3(2) of the GDPR. See also European Data Protection Board (EDPB), Guidelines 3/​2018 on the territorial scope of the GDPR (Article 3), version 2.0, 12 November 2019. 51 See, e.g., P.M. Schwartz, ‘Information Privacy in the Cloud’ 161 University of Pennsylvania Law Review (2013) 1623–​ 1662; M. Burri and R. Schär, ‘The Reform of the EU Data Protection Framework: Outlining Key Changes and Assessing Their Fitness for a Data-​Driven Economy’ 6 Journal of Information Policy (2016) 479–​511. 52  Article 45(1) of the GDPR; recital 103 in the preamble to the GDPR. 53  Recital 104 in the preamble to the GDPR and Article 45(2) of the GDPR. 54 Article 46(1) of the GDPR. Such appropriate safeguards may be provided for by: (i) a legally binding and enforceable instrument between public authorities or bodies; (ii) binding corporate rules; (iii) standard data protection clauses adopted by the Commission; (iv) standard data protection clauses adopted by a supervisory authority and approved by the Commission; (v) an approved code of conduct with binding and enforceable commitments; or (vi) an approved certification together with binding and enforceable commitments. 55  See, e.g., J.Q. Whitman, ‘The Two Western Cultures of Privacy: Dignity versus Liberty’ 113 The Yale Law Journal (2004) 1151–​1221; P.M. Schwartz and D.J. Solove, ‘Reconciling Personal Information in the United States and European Union’ 102 California Law Review (2014) 877–​916. 56  L. Downes, ‘The Business Implications of the EU-​U.S. Privacy Shield’ Harvard Business Review (10 February 2016). In addition, policies around Internet freedom in the United States have continuously sought ‘to preserve and expand the Internet as an open, global space for free expression, for organizing and interaction, and for commerce’. This has been confirmed by the White House strategy on AI. See respectively R.A. Clarke et al., The NSA Report: Liberty and Security in a Changing World (Princeton, NJ: Princeton University Press, 2014), at 158 and The White House, Guidance for Regulation of Artificial Intelligence Applications, 2019.

Privacy and Data Protection    753 contrast to free speech, data protection is regulated in a fragmented manner through some federal privacy laws and a great number of state laws.57 These laws either concern the public sector only or they are information-​specific or medium-​specific, regulating for instance health information, video privacy or electronic communications. Although the Federal Trade Commission (FTC) may adjudicate on unfair or deceptive trade practices to discipline companies that fail to implement minimal data security measures or fail to meet privacy policies, the United States does not have an official data protection authority.58 As a result, there is no coherent definition of personal or sensitive data. Self-​regulation and best practices are the common models of privacy protection. Furthermore, data is seen as a transaction commodity, and data exports to other countries are not limited. Overall, there is a clear tendency towards liberal, market-​ based governance in contrast to the socially protective, rights-​based approach of the European Union.59

3. Bridging the EU-​US differences: the Safe Harbor and the Privacy Shield Reconciling these different understandings of privacy between the two major players in the area of data governance has had many implications, including for trade law. Transatlantic data flows are of economic significance for both partners.60 So far, these data flows have been enabled through a specific set of legal mechanisms. First, the so-​ called ‘Safe Harbor’ scheme61 contained in essence a series of principles concerning the protection of personal data to which US undertakings subscribed on a voluntary basis.62 However, the CJEU in the Schrems I judgment found that the Safe Harbor did not provide a level of protection of fundamental rights that is essentially equivalent to that guaranteed within the European Union.63 The CJEU was particularly concerned about the fact that the Safe Harbor scheme did not bind US public authorities64 and that no legal remedies were available.65

57  See, e.g., I. Tourkochoriti, ‘Speech, Privacy and Dignity in France and in the USA: A Comparative Analysis’ 38 Loyola of Los Angeles International and Comparative Law Review (2016) 101–​182. 58 For a great overview of US privacy rules, see S.J. Deckelboim, ‘Consumer Privacy on an International Scale’ 48 Georgetown Journal of International Law (2017) 263–​296. 59  J.R. Reidenberg, ‘Resolving Conflicting International Data Privacy Rules in Cyberspace’ 52 Stanford Law Review (2000) 1315–​1371. 60  See, e.g. M.A., Weiss and K. Archick, ‘US-​EU Data Privacy: From Safe Harbor to Privacy Shield’ Congressional Research Service Report 7-​5700 (2016). 61 Commission Decision 2000/​ 520/​EC of 26 July 2000 pursuant to Directive 95/​46/​EC of the European Parliament and of the Council on the adequacy of the protection provided by the safe harbour privacy principles and related frequently asked questions issued by the US Department of Commerce, OJ 2000 L 215, p. 7. 62 See H. Farrell, ‘Constructing the International Foundations of E-​ Commerce: The EU-​US Safe Harbor Arrangement’ 57 International Organization (2003) 277–​306; Schwartz and Solove, above fn 55. 63  Schrems I, at para 97. 64  Schrems I, at para 86. 65  Schrems I, at paras 93–​95.

754   Mira Burri The Safe Harbor agreement was, after intense negotiations, replaced by the more stringent and detailed EU-​US Privacy Shield.66 While US companies were still to self-​ certify on an annual basis, the new arrangement imposed stronger obligations to protect the personal data of EU citizens according to a set of clearly defined principles.67 In addition, the Privacy Shield envisaged stronger monitoring and enforcement, as well as certain remedies for EU citizens.68 There was also an explicit assurance on the US side that any access of public authorities to personal data will be subject to clear limitations, safeguards, and oversight; US authorities also affirmed the absence of indiscriminate or mass surveillance.69 Despite these additional safeguards, in the 2020 CJEU judgment Schrems II,70 the CJEU invalidated the Privacy Shield arrangement.71 The Schrems II decision, which had an immediate effect, exposed the difficulties in reconciling free data flows and high data protection standards. The US and EU authorities were back at the negotiation table and have recently agreed ‘in principle’ upon a new ‘Trans-​Atlantic Data Privacy Framework’ to enable data transfers, which, until the agreement becomes operational are only possible under a strict application of the standard contractual clauses with supplementary measures.72

III.  Privacy under the WTO framework Privacy and data protection were not discussed during the Uruguay Round. Although the WTO membership recognized early on the implications of digitization for trade by launching a Work Programme on E-​commerce in 1998,73 this initiative to examine and, if needed, adjust the rules in the domains of trade in services, trade in goods, intellectual property protection and economic development did not bear any fruit over 66  European Commission, Commission Implementing Decision of 12 July 2016 pursuant to Directive 95/​46/​EC of the European Parliament and of the Council on the adequacy of protection provided by the EU-​US Privacy Shield, C(2016) 4176 final, 12 July 2016. 67  Ibid., at paras 19–​29, refer to the Notice Principle, Data Integrity and Purpose Limitation Principle, Choice Principle, Security Principle, Access Principle, Recourse, Enforcement and Liability Principle, and Accountability for Onward Transfer Principle. The principles are additionally detailed in Annex II attached to the Commission’s implementing decision. 68   Ibid., at paras 40, 43–​63. 69  Ibid., at paras 64–​90. 70  Case C-​311/​18, Data Protection Commissioner v. Facebook Ireland Limited, Maximillian Schrems (Shrems II), EU:C:2020:559 (Schrems II). 71  The Court found, in particular, serious risks for the rights of EU citizens due to the still persisting primacy of US law enforcement requirements over those of the Privacy Shield; the lack of necessary limitations on the power of the US authorities, particularly in light of proportionality requirements; and the lack of remedies for EU data subjects, including deficiencies in the ombudsman mechanism. See Schrems II, paras 168–​197. 72 See EDPB, Recommendations 01/​ 2020 on measures that supplement transfer tools to ensure compliance with the EU level of protection of personal data, Version 2.0, adopted on 18 June 2021. 73  WTO, Work Programme on Electronic Commerce, WT/​L/​274 (30 September 1998).

Privacy and Data Protection    755 two decades. Indeed, WTO law, despite some adjustments through the Information Technology Agreement (ITA), its update in 2015, and the Trade Facilitation Agreement, which entered into force in 2017, is still very much in its pre-​Internet state.74 WTO law nonetheless applies to online trade.75 It also includes certain mechanisms, such as the ‘general exceptions’ formulated under Article XX of the GATT 1994 and Article XIV of the GATS, that are meant to reconcile economic and non-​economic interests and domestic values, such as privacy protection. Of specific interest is the extent to which Article XIV of the GATS may be used to justify maintaining and adopting data restrictions on the grounds of privacy protection. While Article XIV of the GATS enumerates different grounds as possible justifications,76 those relating to (i) the protection of public order or public morals77 and (ii) the need to act for the purpose of securing compliance with laws or regulations78 are especially relevant. Article XIV(c)(ii) of the GATS specifies that law and regulations related to ‘the protection of the privacy of individuals in relation to the processing and dissemination of personal data and the protection of confidentiality of individual records and accounts’ fall under this category. For the purpose of showing the application of this general exception to privacy laws, we take the EU GDPR as the epitome of strong data protection standards that may impinge on digital trade and assume that the GDPR violates the market access and/​or the national treatment obligations under the GATS.79 Article XIV of the GATS, similarly to Article XX of the GATT 1994, imposes a number of conditions: (i) the measure must fall within the scope of one of the listed objectives in the exception; (ii) the measure must address the relevant public interest at issue, with a sufficient nexus between the measure and the objective pursued;80 and (iii) the measure must satisfy the conditions under the chapeau (the introductory paragraph) of Article XIV of the GATS. With regard to (i), WTO Members enjoy a wide margin of appreciation in their choice of objectives which they seek to protect. The second step is much more complex and triggers the so-​called ‘necessity’ test. The Appellate Body has noted 74 M.

Burri, ‘The International Economic Law Framework for Digital Trade’ 135 Zeitschrift für Schweizerisches Recht (2015) 10–​72; WTO, World Trade Report 2018: The Future of World Trade: How Digital Technologies Are Transforming Global Commerce (Geneva: World Trade Organization, 2018). 75  Panel Report, US –​Gambling, adopted 10 November 2004; Appellate Body Report, US –​Gambling, adopted 7 April 2005. 76  Article XIV(b) of the GATS. 77   Article XIV(a) of the GATS. See M. Wu, ‘Free Trade and the Protection of Public Morals’ 33 Yale Journal of International Law (2008) 215–​250; P. Delimatsis, ‘The Puzzling Interaction of Trade and Public Morals in the Digital Era’ in M. Burri and T. Cottier (eds), Trade Governance in the Digital Age (Cambridge: Cambridge University Press, 2010) 276–​296. 78  Article XIV(c) of the GATS. See further T. Cottier, P. Delimatsis and N. Diebold, ‘Article XIV GATS: General Exceptions’ in R. Wolfrum et al. (eds), Max Planck Commentaries on World Trade Law: Trade In Services, Vol. 6 (Leiden: Martinus Nijhoff Publishers, 2008) 287–​328. 79  See R.H. Weber, ‘Regulatory Autonomy and Privacy Standards under the GATS’ 7 Asian Journal of WTO and International Health Law and Policy (2012) 25–​47; K. Irion, S. Yakovleva and M. Bartl, Trade and Privacy: Complicated Bedfellows? (Amsterdam: Institute for Information Law, 2016), at 27–​33. 80  Appellate Body Report, US –​Gambling, adopted 7 April 2005, para 292; see also Appellate Body Report, Brazil –​Retreaded Tyres, adopted 3 December 2007, paras 119–​124.

756   Mira Burri that there are different degrees of necessity. The Appellate Body has found that a ‘necessary’ measure is located significantly closer to the pole of ‘indispensable’ than to simply ‘making a contribution to’.81 The more important the interest that the measure is designed to protect and the greater the contribution to the objective, the easier it is to accept the measure as being ‘necessary’.82 However, the Appellate Body has also stated that the requirement for measures to ‘relat[e]‌to’ a goal (as is the case with the GATS privacy exception) may simply require a ‘substantial’ or ‘reasonable’ relationship of the measure to the objective pursued.83 Furthermore, in respect of the necessity test, the ‘weighing and balancing’84 of factors should include a comparison of the challenged measure and its possible alternatives.85 In order to show that the measure does not meet the necessity test, a claimant must demonstrate that a less trade-​restrictive alternative to the measure was ‘reasonably available’. The alternative measure cannot impose prohibitive costs or result in substantial technical difficulties to implement.86 A measure that has been provisionally justified under one of the subparagraphs must also meet the condition under the chapeau according to which the measure should not be applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade in services. The chapeau has been interpreted as directed at preventing abuses or misuses of the right to invoke the exception87 and by evaluating the ‘consistency of enforcement’ of the challenged measure.88 Admittedly, this test sets a high hurdle for WTO Members. It is regularly invoked, but the ‘success rate’ in meeting it has been low.89 Scholars have maintained that if the European Union would need to defend the GDPR under the GATS, it might not meet this test. First, Irion et al. have argued that the European Union might not find appropriate evidence on the performance of its data protection law.90 For instance, the now invalidated EU-​US Safe Harbor Agreement was not particularly stringent, as shown 81 

Appellate Body Report, Korea –​Various Measures on Beef, adopted 11 December 2000, para 161. Body Report, US –​Gambling, adopted 7 April 2005, para 6.536; see also Panel Report, Argentina –​Financial Services, adopted 30 September 2015, paras 7.655, 7.685, 7.727. 83  Appellate Body Report, Korea –​Various Measures on Beef, adopted 11 December 2000, para 49, fn 104 (citing Appellate Body Report, US –​Gasoline, adopted 29 April 1996, 19; Appellate Body Report, US –​ Shrimp, adopted 12 October 1998, para 141). 84  See Appellate Body Report, US –​Gambling, adopted 7 April 2005, para 78; Appellate Body Report, China –​Publications and Audiovisual Products, adopted 21 December 2009, para 239. 85  Appellate Body Report, US –​Gambling, adopted 7 April 2005, para 306; Panel Report, Argentina –​ Financial Services, adopted 30 September 2015, para 7.684. 86  Panel Report, Argentina –​Financial Services, adopted 30 September 2015, at para 7.729 referring to Appellate Body Report, US –​Gambling, adopted 7 April 2005, para 308. 87  Appellate Body Report, Argentina –​Financial Services, adopted 9 May 2016, para 7.743. 88  Appellate Body Report, US –​Gambling, adopted 7 April 2005, para 351. In US –​Gambling, the Appellate Body confirmed that the US ban on online gambling did not meet the requirement of the chapeau of Article XIV of the GATS due to ambiguity in relation to the scope of one US statute, which appeared to permit domestic suppliers to have remote betting services for horse racing. 89  Only one case has so far passed all of the conditions. See Appellate Body Report, US –​Shrimp (Article 21.5 –​Malaysia), adopted 22 October 2001. 90  Irion et al., above fn 79, at 36–​39; also D.A. MacDonald and C.M. Streatfeild, ‘Personal Data Privacy and the WTO’ 36 Houston Journal of International Law (2014) 625–​652, at 640–​650. 82  Appellate

Privacy and Data Protection    757 by the Schrems I judgment. It could be maintained that this insufficient performance undermines the strength of a challenged measure’s contribution to securing compliance with EU data protection law. Second, there are arguably fewer trade restrictive measures reasonably available for attaining the EU’s desired level of data protection. The GDPR is in many respects excessively burdensome with sizeable extraterritorial effects.91 Especially if compared with other data protection rules worldwide, it may be difficult to prove that privacy cannot be otherwise protected.92 Third, even if the provisions on the transfer of personal data to third countries were deemed necessary in order to secure compliance with the GDPR, these provisions might not have been consistently implemented and would ultimately fail the chapeau test. Suppose the European Union has denied a third country’s application for an adequacy assessment or a request to negotiate a sectoral scheme similar to that of the US-​EU Safe Harbor or its newer versions. In that case, it seems that the chapeau test requirements are hard to meet. The EU could be found to discriminate between different countries in finding adequate levels of protection there and in cooperating with them.93 Article XIV of the GATS embodies the necessary balancing that permits legitimate protections while prohibiting illegal trade protectionism. Despite the current deadlock at the WTO and the crisis of its dispute settlement system,94 the interpretation of Article XX of the GATT 1994 and Article XIV of the GATS remains of critical importance. This is also because many FTAs and some of the recent proposals under the currently negotiated Joint Statement Initiative (JSI) on Electronic Commerce95 adopt them verbatim or mutatis mutandis.96

IV.  Mapping the regulatory landscape in FTAs A. Introduction As negotiations in the WTO have stalled, States have turned to bilateral and regional agreements to address digital trade and data governance issues. Out of the 370 FTAs 91 

See references above fn 51. L. Bygrave, Data Privacy Law: An International Perspective (Oxford: Oxford University Press, 2014); Arguably, this is not a very strong point, as the sole fact that other States might have less burdensome requirements might not necessarily mean that the EU measures are not necessary, given that the European Union pursues a high level of protection and other States might pursue a different level of protection. 93  Irion et al., above fn 79, at 36–​39. 94 See, e.g., J. Pauwelyn, ‘WTO Dispute Settlement Post 2019: What to Expect?’ 22 Journal of International Economic Law (2019) 297–​321. 95 See, e.g., WTO, Joint Statement on Electronic Commerce, Communication from Brazil, INF/​ ECOM/​27 (30 April 2019). For details on the Joint Statement Initiative, see M. Burri, ‘Towards a New Treaty on Digital Trade’ 55 Journal of World Trade (2021) 77–​100. 96  For instance, the 2020 Digital Economy Partnership Agreement (DEPA) between Chile, Singapore and New Zealand. 92 

758   Mira Burri entered into between 2000 and 2022, 203 FTAs contain digital trade provisions.97 The United States has played a key role in this process and has sought to promote liberal rules under its so-​called ‘Digital Agenda’.98 Since 2002, the United States has reached agreements with Australia, Bahrain, Chile, Morocco, Oman, Peru, Singapore, the Central American countries, Panama, Colombia, Korea, and Japan, and has played a critical role in the formulation of newer templates under the CPTPP, the USMCA and the US-​Japan Digital Trade Agreement. All these treaties contain critical WTO-​plus (by exceeding) and WTO-​extra (by addressing new issues) commitments in the area of digital trade. The emergent regulatory template for digital trade is not limited to US agreements but has diffused and can be found in other FTAs as well. Singapore, Australia, New Zealand, Japan and Chile have been among the major drivers of this diffusion, but the issues covered and the levels of legalization may vary substantially. Many States, such as the EFTA countries, have not yet developed and implemented distinct digital trade strategies. The European Union too has been rather cautious. In general, the European Union has mirrored in its FTAs the level of commitments under the GATS, including only a few and mostly cooperation-​type provisions in the area of digital trade.99 It is only very recently that the European Union has addressed data-​flow issues. In this section, we map the emerging regulatory landscape in particular with regard to data-​relevant norms.100

B. Overview of data-​related rules in FTAs Trade rules are relevant for data and data flows, for at least three reasons: (i) they regulate the cross-​border flow of data by regulating trade in goods and services and the protection of intellectual property; (ii) they may require certain beyond-​the-​ border rules that demand changes in domestic regulation—​for example, with regard to intermediaries’ liability or data protection; and (iii) finally, they can limit the policy space that regulators have at home.101 In this sense, it is useful to take into account the entire set of rules that regulate infrastructure (e.g. rules on communication networks and services, and IT hardware), as well as those rules that apply for applications and 97  For

a review of all digital trade related trends in FTAs, see M. Burri, ‘Data Flows and Global Trade Law’ in M. Burri (ed), Big Data and Global Trade Law (Cambridge: Cambridge University Press, 2021), 11–​41. 98  S. Wunsch-​Vincent, ‘The Digital Trade Agenda of the US’ 1 Aussenwirtschaft (2003) 7–​46. 99  For details, see M. Burri, ‘The Regulation of Data Flows in Trade Agreements’ 48 Georgetown Journal of International Law (2017) 408–​448. 100  This analysis is based on a dataset of all data-​relevant norms in trade agreements (TAPED). See M. Burri and R. Polanco, ‘Digital Trade Provisions in Preferential Trade Agreements: Introducing a New Dataset’ 23 Journal of International Economic Law (2020) 187–​220 and < http://​unilu.ch/​taped > (last visited 10 May 2022). 101  See, in this sense, M. Burri, ‘The Governance of Data and Data Flows in Trade Agreements: The Pitfalls of Legal Adaptation’ 51 UC Davies Law Review (2017) 65–​132; F. Casalini and J. López González, ‘Trade and Cross-​Border Data Flows’ 220 OECD Trade Policy Papers (2019).

Privacy and Data Protection    759 content (such as computer and audiovisual services), to understand the existing regulatory environment with regard to data flows.102 In addition to this generic trade law framework, the last decade has also witnessed the emergence of entirely new rules that explicitly regulate data flows. This section focuses especially on the latter type of rules. At the outset, it should be noted that despite the widespread rhetoric around the term of data flows and its frequent use in reports and studies,103 in the trade policy discourse and the treaty language, no clear definition can be found. However, despite the fact that different terms are used in various agreements, there seems to be a tendency towards a broad and encompassing definition of data flows. Specifically, (i) where data forms part of the provision of a service or a product and (ii) where this data crosses borders, even if the data flows do not neatly coincide with one commercial transaction and the provision of certain services may relate to multiple flows of data. In addition, it may be noted that so far there has not been a distinction between different types of data—​for instance, between personal and non-​personal data, personal and company data or machine-​ to-​machine data.104 Yet, personal information is commonly included explicitly in the data-​related provisions of FTAs (e.g., the CPTPP and the USMCA speak of the ‘cross-​ border transfer of information by electronic means, including personal information’105), whereby the potential clashes with domestic data protection regimes become evident. Data-​related provisions are a relatively new phenomenon and can be found primarily in the dedicated e-​commerce chapters of FTAs. Relevant provisions on the cross-​border flow of data can also be found in chapters dealing with discrete services sectors, like telecommunications and financial services, as shown in Table 1 below. Table 1. Overview of data-​related provisions in FTAs (2000–​2020)a Provisions in e-​commerce chapters Soft commitments

Financial services

Telecommunication services Data localization

11

0

2

1

8

0

1

0

Hard commitments

14

80

70

16

Total number

33

80

73

17

Intermediate commitments

a

For information on the collected data, see above fn 100. 102 

For a fully-​fledged analysis of these rules, see Burri (2015), above fn 74. See, e.g., Casalini and González, above fn 101; OECD, Trade and Cross-​border Data Flows, Trade Policy Brief, June 2019. 104 For some attempts to classify data, see N. Sen, ‘Understanding the Role of the WTO in International Data Flows: Taking the Liberalization or the Regulatory Autonomy Path?’ 21 Journal of International Economic Law (2018) 323–​348; S. A. Aaronson and P. Leblond, ‘Another Digital Divide: The Rise of Data Realms and its Implications for the WTO’ 21 Journal of International Economic Law (2018) 245–​272; OECD, Data in the Digital Age, Policy Brief, March 2019. 105  Article 14.11 of the CPTPP; Article 19.11 of the USMCA. 103 

760   Mira Burri

3. Rules on data flows There has been a sea change over the years in the number and type of data-​flow provisions in FTAs. Non-​binding provisions on data flows appeared quite early. In the 2000 Jordan-​US FTA, the Joint Statement on Electronic Commerce highlighted the ‘need to continue the free flow of information’, although it fell short of including an explicit obligation. The first agreement having such a provision is the 2006 Taiwan-​ Nicaragua FTA, where as part of the cooperation activities, the parties affirmed the importance of working ‘to maintain cross-​border flows of information as an essential element to promote a dynamic environment for electronic commerce’.106 Similar soft wording is used in the 2008 Canada-​Peru FTA,107 the 2011 Korea-​Peru FTA108 the 2011 Central America-​Mexico FTA,109 the 2013 Colombia-​Costa Rica FTA,110 the 2013 Canada-​Honduras FTA,111 the 2014 Canada-​Korea FTA112 and the 2015 Japan-​Mongolia FTA.113 A more explicit commitment, albeit still of a soft law nature, can be found in the 2007 South Korea-​US FTA, where the parties, after ‘recognizing the importance of the free flow of information in facilitating trade, and acknowledging the importance of protecting personal information’, agreed that they ‘shall endeavor to refrain from imposing or maintaining unnecessary barriers to electronic information flows across borders’.114 More recently, different parties have agreed to consider in future negotiations commitments related to cross-​border flow of information. Such a clause is notably found in the 2018 EU-​Japan EPA and in the modernization of the trade part of the EU-​Mexico Global Agreement, which has signalled the repositioning of the European Union in the data-​flows debates. Within three years of the entry into force of the agreement, the parties pledge to ‘reassess’ the need to include provisions on the free flow of data into the treaty.115 The first binding provision on cross-​ border information flows is in the 2014 Mexico-​Panama FTA. According to this treaty, each party ‘shall allow its persons and the persons of the other party to transmit electronic information, from and to its territory, when required by said person, in accordance with the applicable legislation on the protection of personal data and taking into consideration international practices’.116 A more detailed provision was negotiated in the 2016 TPP—​the text was then replicated 106 

Article 14.05(c) of the Nicaragua-​Taiwan FTA. Article 1508(c) of the Canada-​Peru FTA. 108  Article14.9(c) of the Korea-​Peru FTA. 109  Article 15.5(d) of the Central America-​Mexico FTA. 110  Article 16.7(c) of the Colombia-​Costa Rica FTA. 111  Article 16.5(c) of the Canada-​Honduras FTA. 112  Article 13.7(c) of the Canada-​Korea FTA. 113  Article 9.12.5 of the Japan-​Mongolia FTA. 114  Article 15.8 of the Korea-​US FTA. 115 Article 8.81 of the EU-​ Japan EPA and Article XX of the EU-​ Mexico Modernised Global Agreement. 116  Article 14.10 of the Mexico-​Panama FTA. 107 

Privacy and Data Protection    761 in the amended PAAP117 and the CPTPP and has influenced all subsequent data-​flows provisions.118

4. Data localization In recent years, some FTAs have also included provisions on data localization, either prohibiting the practice or limiting it. Unlike most data-​flows provisions, data localization provisions are binding. The first agreement with data localization provisions is the 2015 Japan-​Mongolia FTA, which included an article prohibiting measures that require computing facilities to be located in a party’s territory.119 In 2016, the TPP included a hard ban on localization. The CPTPP, the PAAP and the USMCA replicated this prohibition in full. The localization ban has diffused and become part of other agreements, such as the 2016 Chile-​Uruguay FTA120 and the 2016 Updated SAFTA,121 closely following the CPTPP template. One of the few non-​binding provisions on data localization is found in the 2017 Argentina-​Chile FTA. In this FTA, the parties recognize the importance of not requiring a person of the other party to use or locate the computer facilities as a condition for conducting business in that territory and pledge to exchange good practices regarding servers’ location.122 The recent Regional Comprehensive Economic Partnership (RCEP), which includes for the first time commitments of China on data-​related issues, provides only for conditional data flows and data localization, while preserving a lot of policy space for domestic policies, which very well may be of data protectionist nature.123

5. Privacy and data protection 103 FTAs so far include provisions on privacy, usually under the concept of ‘data protection’. Yet, the levels of protection vary considerably, including both binding and non-​ binding provisions (see Table 2), which is symptomatic of the different positions of the Table 2. Overview of privacy-​related provisions in FTA e-​commerce chapters

117 

Total N° of provisions

103

Soft commitments

20

Intermediate commitments

73

Hard commitments

10

Article 13.11 of the PAAP (2015). Such as the 2016 Chile-​Uruguay FTA, the Updated Singapore-​Australia FTA, the 2017 Argentina-​ Chile FTA, the 2018 Singapore-​Sri Lanka FTA, the 2019 Australia-​Indonesia FTA and the USMCA. 119  Article 9.10 of the Japan-​Mongolia FTA. 120  Article 8.11 of the Chile-​Uruguay FTA. 121  Chapter 14 Article 15 of the SAFTA. 122  Article 11.7 of the Argentina-​Chile FTA. 123  Articles 12.14 and 12.15 of the RCEP. 118 

762   Mira Burri major actors and the inherent tensions between the regulatory goals of data innovation and data protection. Earlier agreements dealing with privacy issues consist of side declarations that are of a programmatic and non-​binding nature. The 2000 Jordan-​US FTA Joint Statement on Electronic Commerce refers to the need to ensure the effective protection of privacy regarding the processing of personal data on global information networks. However, parties remain flexible and should merely encourage the private sector to develop and implement enforcement mechanisms, recommending the OECD Privacy Guidelines as an appropriate basis for policy development.124 Later agreements include cooperation activities on enhancing the security of personal data to improve the level of protection of privacy in electronic communications and avoid obstacles to trade that require personal data transfers. These activities include sharing information and experiences on domestic data protection frameworks or technical assistance in the form of exchange of information and experts, research and training activities, or joint programmes.125 FTAs have also dealt with personal data protection with reference to the adoption of domestic standards. In several treaties, parties have committed to adopting or maintaining legislation or regulations that protect the personal data or privacy of users.126 Some agreements include qualifications to this commitment that secure some flexibility, in the sense that each party shall take measures it deems appropriate and necessary considering the differences in existing systems for personal data protection,127 or that the parties have the right to define or regulate their own levels of protection of personal data in the pursuit of public policy objectives.128 Some FTAs add that in the development of online personal data protection standards, each party must take into account the existing international standards (often however without mentioning these explicitly),129 and criteria or guidelines of relevant international organizations or bodies130—​ such as the APEC Privacy Framework and the OECD Privacy Guidelines.131 Moreover, in a handful of treaties, the parties commit to publishing information on the persona-​ data protection it provides to users of e-​commerce,132 including how individuals can 124 

Article II of the Jordan-​US FTA, Joint Statement on Electronic Commerce (7 June 2000). See, e.g., Articles 8.7.4 and 8.13(b) of the Chile-​Uruguay FTA; Article 13.7(b) of the Canada-​Korea FTA; Article 13.10.2 of the Australia-​Japan FTA; Article 82.2(a) of the Japan-​Switzerland FTA. 126  See, e.g., Article 13.7.2 of the Australia-​ Indonesia FTA; Article 10.8.2 of the Brazil-​Chile FTA; Article 19.8.1-​2 of the USMCA. 127  See, e.g., Article 12.8.1 of the Australia-​China FTA; Article 11.7.1(j) of the Chile-​Thailand FTA. 128  Articles 18.1.2(h) and 18.16.7 of the EU-​Japan EPA. 129  See, e.g., Article 8.57.4 of the EC-​Singapore FTA. Article 11.5.1–​2 of the Argentina-​Chile FTA notes in a footnote that: ‘For greater certainty, the Parties shall understand that the collection, treatment and storage of personal data will be carried out following the general principles of prior consent, legitimacy, purpose, proportionality, quality, security, responsibility and information’. The EU tends to view the CoE Convention 108 as the relevant international standard. 130  See, e.g., Article 13.7.3 of the Australia-​Indonesia FTA; Article 14.8.2 of the TPP/​CPTPP; Article 19.6 of the Colombia-​Panama FTA; Article 1106 of the Australia-​Thailand FTA. 131  Article 19.8.2 of the USMCA. 132  Article 10.8.4 of the Brazil-​Chile FTA. 125 

Privacy and Data Protection    763 use remedies and how businesses can comply with any legal requirements.133 Certain treaties add that the parties will encourage the use of encryption or security mechanisms for users’ information, and the dissociation or anonymization, in cases where the said data is provided to third parties.134 Yet, FTA parties have also employed more binding options to protect personal information online. A first option is to consider the protection of the privacy of individuals in relation to the processing and dissemination of personal data and the protection of confidentiality of individual records as an exception in specific chapters of the agreement —​ such as for trade in services,135 investment or establishment,136 movement of persons,137 telecommunications,138 and financial services.139 Certain agreements, mostly EU-​led, have special chapters on the protection of personal data, including the principles of purpose limitation, data quality and proportionality, transparency, security, right to access, rectification and opposition, restrictions on onward transfers, and protection of sensitive data, as well as provisions on enforcement mechanisms, coherence with international commitments and cooperation between the parties to ensure an adequate level of data protection.140 The 2018 USMCA is the first (and so far the only141) US-​led FTA to include the key principles of data protection.142 A second option lets countries adopt appropriate measures to ensure privacy protection while allowing the free movement of data, establishing a criterion of ‘equivalence’—​in the sense that personal data may be exchanged only where the receiving party undertakes to protect such data in at least an equivalent way. This has mainly been the EU approach, and to that end, parties commit to inform each other of their applicable rules and negotiate reciprocal, general, or specific agreements.143 This EU approach has been particularly strengthened in its most recent trade deals, best exemplified by the post-​Brexit Trade and Cooperation Agreement (TCA) with the United Kingdom,144 which while permitting free data flows and banning data localization, asserts privacy as a fundamental human right and binds

133  See,

e.g., Article 19.8.5 of the USMCA; Chapter 14, Article 9.4 of the Australia-​Singapore FTA (2016); Article 8.7.3 of the Chile-​Uruguay FTA; Article 14.8.4 of the TPP/​CPTPP. 134  See, e.g., Article 10.8.6 of the Brazil-​Chile FTA; Article 8.7.5 of the Chile-​Uruguay FTA. 135  Article 69.1(c) of the Japan-​Singapore FTA. 136  Article 135.1(e)(ii) of the Chile-​EC AA; Article 83.1(c)(ii) of the Japan-​Singapore FTA. 137  Article 95.1(c)(ii) of the Japan-​Singapore FTA. 138  See, e.g., Article 18.3.4 USMCA; Article 8.44.4 of the EU-​Japan EPA; Article 12.4.4 of the Australia-​ Peru FTA; Article 8.3.4 of the Singapore-​Sri Lanka FTA. 139  See, e.g., Annex 17-​A of the USMCA; Article 8.63 of the EU-​Japan EPA. 140  See, e.g., Chapter 6, Articles 197–​201 of the CARIFORUM-​EC EPA. 141  The subsequent US-​Japan Digital Trade Agreement does not include reference to such principles. 142  Article 19.8.3 of the USMCA. 143 See, e.g., Articles 9.2 and 11.1 of the EC-​ Singapore FTA; Article 10 of Protocol on Mutual Administrative Assistance on Custom Matters, EC-​Ghana EPA. 144 Trade and Cooperation Agreement between the European Union and the European Atomic Energy Community, of the one part, and the United Kingdom of Great Britain and Northern Ireland, of the other part, OJ 2020 L 444, p. 14. Similar templates have been also followed in the current negotiations with Australia, New Zealand and Tunisia.

764   Mira Burri the parties to the high standards of protection under the GDPR.145 A third, but less used option, leaves the development of rules on data protection to a treaty body.146 The following sections look more closely at the most advanced template for digital trade endorsed by the CPTPP and slightly further developed by the USMCA.

6. The CPTPP and the USMCA The Comprehensive and Progressive Agreement for Transpacific Partnership (CPTPP, also known as the TPP11 or TPP 2.0) was agreed in 2017 between eleven countries in the Pacific Rim.147 It entered into force on 30 December 2018. The chapter on e-​commerce created the most comprehensive template in the landscape of FTAs. It included new features, such as provisions on domestic electronic transactions framework, personal information protection, Internet interconnection charge sharing, location of computing facilities, unsolicited commercial electronic messages, source code, and dispute settlement.148 Despite the United States having dropped out of the agreement, the chapter reflects its efforts to secure obligations on digital trade and is a verbatim reiteration of the TPP chapter. The CPTPP explicitly prohibits the parties from requiring a ‘covered person to use or locate computing facilities in that party’s territory as a condition for conducting business in that territory’.149 The soft language on free data flows found in the US-​Korea FTA is framed as a hard rule: ‘[e]‌ach Party shall allow the cross-​border transfer of information by electronic means, including personal information, when this activity is for the conduct of the business of a covered person’.150 The rule has a broad scope, and most data that is transferred over the Internet is likely to be covered, although the word ‘for’ may suggest the need for some causality between the flow of data and the business of the covered person. The prohibition on localization measures is somewhat softened with regard to financial services.151 Furthermore, government procurement is excluded from the scope of the e-​commerce chapter.152 Measures restricting digital data flows, or localization requirements under Article 14.13 CPTPP are permitted only if they do not amount to ‘arbitrary or unjustifiable discrimination or a disguised restriction on trade’. Moreover, they cannot ‘impose restrictions on transfers of information greater than are required to achieve the objective’.153 These non-​discriminatory conditions are similar to the test formulated by 145 

See M. Burri, ‘Interfacing Privacy and Trade’ 53 Case Western Law Review (2021) 35–​88. Article 109(b) of the Colombia-​EC-​Peru FTA. 147  Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. 148  Articles 14.5, 14.8, 14.12, 14.13, 14.14, 14.17 and 14.18 of the CPTPP, respectively. 149  Article 14.13(2) of the CPTPP. 150  Article 14.11(2) of the CPTPP. 151  An annex to the Financial Services chapter has a separate data transfer requirement, whereby certain restrictions on data flow may apply for the protection of privacy or confidentiality of individual records, or for prudential reasons. 152  Article 14.8(3) of the CPTPP. 153  Article 14.11(3) of the CPTPP. 146 

Privacy and Data Protection    765 Article XIV of the GATS and Article XX of the GATT 1994. Still, they differ from the WTO exceptions in that they apply to any ‘legitimate public policy objective’, not just to the objectives enumerated in the WTO general exceptions.154 This permits more regulatory autonomy for the CPTPP signatories. Legal certainty may, however, be compromised. Perhaps a better solution to the reconciliation mechanism dilemma is offered by the more recent Digital Economy Partnership Agreement (DEPA) between Chile, New Zealand and Singapore. The DEPA restates the texts of Article XIV of the GATS and Article XX of the GATT 1994 and parties pledge to apply them mutatis mutandis.155 Article 14.8(2) requires every CPTPP party to ‘adopt or maintain a legal framework that provides for the protection of the personal information of the users of electronic commerce’. No standards or benchmarks for the legal framework have been specified, except for a general requirement that CPTPP parties ‘take into account principles or guidelines of relevant international bodies’.156 Parties are also invited to promote compatibility between their data protection regimes, by essentially treating lower standards as equivalent,157 which seems to give some priority to economic over privacy rights and reflects the US stance on these issues. After the United States’ withdrawal from the TPP, there was some uncertainty as to the direction that the United States would follow in its trade deals in general and on matters of digital trade in particular. The renegotiated NAFTA, which is now referred to as ‘United States Mexico Canada Agreement’ (USMCA), casts the doubts aside. It has a comprehensive electronic commerce chapter, which is now also properly titled ‘Digital Trade’ and follows all critical lines of the CPTPP in ensuring the free flow of data through a clear ban on data localization (Article 19.12), providing a non-​discrimination regime for digital products (Article 19.4) and a hard rule on free information flows (Article 19.11). The USMCA is particularly interesting in two aspects. First, it contains a CPTPP-​ like exceptions clause in Article 19.11 that parties may adopt or maintain a measure inconsistent with the free flow of data provision, if this is necessary to achieve a legitimate public policy objective. However, this is if the measure: (i) is not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on trade; and (ii) does not impose restrictions on transfers of information greater than are necessary to achieve the objective.158 Furthermore, and 154 

Article 14.11(3) of the CPTPP. Article 13.1 of the DEPA. 156  Article 14.8(2) of the CPTPP. Footnote 6 provides some clarification: ‘[f]‌or greater certainty, a Party may comply with the obligation in this paragraph by adopting or maintaining measures such as a comprehensive privacy, personal information or personal data protection laws, sector-​specific laws covering privacy, or laws that provide for the enforcement of voluntary undertakings by enterprises relating to privacy’. 157  Article 14.8(5) of the CPTPP. 158  Article 19.11(2). A footnote attached clarifies: ‘A measure does not meet the conditions of this paragraph if it accords different treatment to data transfers solely on the basis that they are cross-​border 155 

766   Mira Burri departing from the standard US approach, the USMCA signals abiding to some data protection principles. While Article 19.8 USMCA remains soft on prescribing domestic standards, it states that ‘. . . in the development of its legal framework for the protection of personal information, each party should take into account principles and guidelines of relevant international bodies, such as the APEC Privacy Framework and the OECD Recommendation of the Council concerning Guidelines governing the Protection of Privacy and Transborder Flows of Personal Data (2013)’.159 The parties also recognize that key principles of data protection that include: limitation on collection, choice, data quality, purpose specification, use limitation, security safeguards, transparency, individual participation, and accountability,160 and aim to provide remedies for any violations.161 This is interesting because it may go beyond US data protection laws and also because it reflects some of the principles the European Union has advocated in the domain of privacy protection. One wonders whether this is a development caused by the so-​called ‘Brussels effect’, whereby the European Union ‘exports’ its own domestic standards and they become global162 (also because many major US digital companies have in the meantime become GDPR-​compliant) or whether this is triggered by domestic factors driving the US privacy law reform, such as the far-​reaching California Consumer Privacy Act.163

V. Conclusions The era of Big Data has ushered in new challenges for trade law. Policymakers are faced with the difficult task of matching the existing, largely analogue-​based, institutions and rules of international economic law with the dynamic innovation of digital platforms164 and data that flows regardless of State borders. At the same time, and this only makes the task more taxing, the regulatory framework that will be chosen will have immense effects on innovation and the fate of the data-​driven economy, as well as on fundamental rights beyond the province of the economy, such as the protection of citizens’ privacy. Despite the importance and the urgency of finding appropriate governance solutions, in a manner that modifies the conditions of competition to the detriment of service suppliers of another Party’. The footnote does not appear in the CPTPP treaty text. 159 

Article 19.8(2) of the USMCA. Article 19.8(3) of the USMCA. 161  Article19.8(4) and (5) of the USMCA. 162  See A. Bradford, ‘The Brussels Effect’ 107 Northwestern University Law Review (2012) 1–​ 68; A. Bradford, The Brusself Effect: How the European Union Rules the World (Oxford: Oxford University Press, 2020). 163  See A. Chander, M.E. Kaminski and W. McGeveran, ‘Catalyzing Privacy Law’ 105 Minnesota Law Review (2021) 1733–​1802. 164  P.K. Yu, ‘Trade Agreement Cats and Digital Technology Mouse’ in B. Mercurio and N. Kuei-​ Jung (eds), Science and Technology in International Economic Law: Balancing Competing Interests (Abington: Routledge, 2014), 185–​211. 160 

Privacy and Data Protection    767 trade law has not undergone a radical overhaul so far, and legal adaptation has been slow and patchy. FTAs have become the preferred venue for digital trade rules in response to the lack of progress within the WTO. The new rules address trade barriers, such as data localization measures, as well as new and pressing concerns, such as the acute need to interface trade and personal data protection mechanisms. Overall, FTAs provide a regulatory environment with some level of legal certainty for all actors that is conducive to the practical reality of digital trade but hardly optimal. Trade policy can promote trade and innovation despite varying standards for privacy protection, but there is a clear demand for enhanced regulatory cooperation.165 As the complexity of the data-​driven society rises, such regulatory cooperation seems indispensable for moving forward, since data issues cannot be covered by the mere ‘lower tariffs, more commitments’ stance in trade negotiations, but entail the need for reconciling different interests and the need for oversight. In this context, while the paths for engaging in and advancing regulatory cooperation would ideally be followed in the multilateral forum166 and the WTO JSI does give us some promise, preferential trade venues can serve as governance laboratories.167

Further reading M. Burri, ‘The Governance of Data and Data Flows in Trade Agreements: The Pitfalls of Legal Adaptation’ 51 UC Davies Law Review (2017) 65–​132 M. Burri, Big Data and Global Trade Law (Cambridge: Cambridge University Press, 2021) M. Burri, ‘Interfacing Privacy and Trade’ 53 Case Western Law Review (2021) 35–​88 M. Burri and T. Cottier (eds), Trade Governance in the Digital Age (Cambridge: Cambridge University Press, 2010) M. Burri and R. Polanco, ‘Digital Trade Provisions in Preferential Trade Agreements: Introducing a New Dataset’ 23 Journal of International Economic Law (2020) 1–​34 M. Burri and R. Schär, ‘The Reform of the EU Data Protection Framework: Outlining Key Changes and Assessing Their Fitness for a Data-​Driven Economy’ 6 Journal of Information Policy (2016) 479–​511 S.J. Deckelboim, ‘Consumer Privacy on an International Scale’ 48 Georgetown Journal of International Law (2017) 263–​296 K. Irion, S. Yakovleva, and M. Bartl, Trade and Privacy: Complicated Bedfellows? (Amsterdam: Institute for Information Law, 2016) WTO, World Trade Report 2018: The Future of World Trade: How Digital Technologies Are Transforming Global Commerce (Geneva: WTO, 2018)

165 T.J.

Bollyky and P.C. Mavroidis, ‘Trade, Social Preferences, and Regulatory Cooperation: The New WTO-​Think’ 20 Journal of International Economic Law (2017) 1–​30, at 11–​13; also U. Ahmed, ‘The Importance of Cross-​Border Regulatory Cooperation in the Era of Digital Trade’ 18 World Trade Review (2019) 99–​120. 166  Bollyky and Mavroidis, above fn 165, at 21. 167  See, e.g., A. Mattoo and J.P. Meltzer, ‘Data Flows and Privacy: The Conflict and Its Resolution’ 21 Journal of International Economic Law (2018) 769–​789; Burri, above fn 145.

Pa rt V

I N T E R NAT IONA L T R A DE L AW DE V E L OP M E N T B E YON D T H E W TO

Chapter 29

Digital T ra de Shin-​y i Peng

I. II.

Introduction Market access, classification and scheduling A. Digitization of services: technological neutrality B. Classification of ‘new’ services: (re)negotiations needed III. Trade barriers, data governance and regulatory autonomy A. Regulatory barriers to digital trade B. New developments in data governance under the FTAs C. Regulatory autonomy and further disciplines for digital trade I V. Conclusion and outlook

771 774 774 777 779 779 782 784 788

I. Introduction At the time of the Uruguay Round negotiations, mode 1 (cross-​border) trade was considered irrelevant for most of the service sectors. Such an understanding was reflected in the distribution of commitments by mode of supply. 30 per cent of all Market Access commitments on cross-​border are unqualified, i.e., without limitations, as compared to only 15 per cent of the commitments on mode 3 (commercial presence).1 Furthermore, the level of obligations for mode 1 does not differ significantly between developed and developing countries.2 The cross-​border supply of services, however, 1  WTO

Secretariat, Guide to the GATS: An Overview of Issues for Further Liberalization of Trade in Services, 1st edition (London: Kluwer Law International, 2001) at 598, 602. 2  M. Cossy, ‘Cross-​Border Supply of Services—​Pattern of Specific Commitments,’ WTO Symposium on Cross-​Border Supply of Services, Geneva, 28–​29 April 2005, at < https://​www.wto.org/​engl​ish/​trato​p_​ e/​ser​v_​e/​sym_​ap​ril0​5_​e/​coss​y_​e.ppt > (last visited 18 February 2021).

772   Shin-yi Peng has grown rapidly over the past few decades. The capacity of the broadband internet to carry ‘data’ has greatly increased the extent and the types of services that can be traded. Services which once required physical proximity between consumers and suppliers can now be easily traded cross-​border by electronic means.3 This is increasingly becoming the norm for almost all service sectors. At the same time, the explosive volume of data collected and processed today is unprecedented. The technological ability to collect, aggregate, and process an ever-​greater volume and variety of data continues to grow, which in fact means that we are now living in a world of ubiquitous data collection.4 Digital technologies such as the Internet of Things and Artificial Intelligence increasingly influence economy-​wide growth and trade.5 From the perspective of the GATS,6 those economic activities related to the service sectors are far broader and much more varied than was generally perceived in the early 1990s.7 Evidently, electronic delivery has added a significant dimension to the international market. Digital trade, or electronic commerce (e-​commerce), has posed many challenges to our traditional understanding of international trade.8 In particular, there is no single recognized and accepted definition of digital trade.9 The concept is generally understood in a broad sense that encompasses international trade enabled by digital technologies. The term ‘digital trade’ is often used interchangeably with terms

3 See Informal Note by the Secretariat, ‘Electronic Commerce: Related Elements in Secretariat Background Notes,’ Job/​ Serv/​ 78 (17 June 2011). See generally P. Welfens et al., Digital Economic Dynamics: Innovations, Networks and Regulations, 1st edition (New York: Springer, 2010) 1–​23. 4  See Information Commissioner’s Office, ‘Big Data, Artificial Intelligence, Machine Learning and Data Protection,’ September 2017, at < https://​ico.org.uk/​media/​for-​organi​sati​ons/​docume​nts/​2013​559/​ big-​data-​ai-​ml-​and-​data-​pro​tect​ion.pdf > (last visited 8 September 2019). 5  ITU, ‘Setting the Scene for 5G: Opportunities & Challenges,’ 2018, at < https://​www.itu.int/​pub/​ D-​PREF-​BB.5G_​01-​2018 > (last visited 8 September 2019); European Parliament, ‘The Internet of Things: Opportunities and Challenges’, May 2015, at < http://​www.europ​arl.eur​opa.eu/​RegD​ata/​etu​ des/​BRIE/​2015/​557​012/​EPRS_​BRI(2015)557012​_​EN.pdf > (last visited 8 September 2019). J. Manyika, M. Chui, ‘By 2025, Internet of Things Applications Could Have US$ 11 Trillion Impact’ Fortune (22 July 2015), at < https://​fort​une.com/​2015/​07/​22/​mckin​sey-​inter​net-​of-​thi​ngs/​ > (last visited 8 September 2019); see J. Meltzer, ‘Governing Digital Trade’ 18(1) World Trade Review (2019) 23, at 25. 6  This chapter focuses on Articles XVI and VI of the GATS. It should be noted that the GATS Reference Paper on Basic Telecommunications Services, the ITA, the TBT Agreement and the TRIPS Agreement on Trade-​Related Aspects of Intellectual Property Rights are also related to digital trade. 7   S. Peng, ‘Trade in Telecommunications Services: Doha and Beyond’ 41(2) Journal of World Trade (2007) 293, at 318. 8 The Declaration on Global Electronic Commerce adopted by the Second WTO Ministerial Conference on 20 May 1998 urged the General Council to establish a comprehensive work program to examine trade rules arising from e-​commerce, at < https://​www.wto.org/​engl​ish/​trato​p_​e/​eco​m_​e/​eco​ m_​e.htm > (last visited 8 September 2019). See also R. Weber, ‘Digital Trade in WTO-​Law—​Taking Stock and Looking Ahead’ 5 Asian Journal of WTO & International Health Law and Policy (2010) 11, at 24. 9  The WTO Electronic Commerce negotiating text contains definitions on digital trade/​e-​commerce, which, according to the leaked source, may read as: ‘Digital trade/​e-​commerce means the production, distribution, marketing, sale or delivery of goods and services by electronic means.’ See bilaterals.org, at < https://​www.bil​ater​als.org/​IMG/​pdf/​wto_​plurilateral_​ecomme​rce_​draf​t _​co​nsol​idat​ed_​t​ext.pdf > (last visited 18 February 2021).

Digital Trade   773 such as ‘electronic commerce’ or ‘trade aspects of e-​commerce.’10 In addition, underpinning digital trade is the movement of data, which can itself be traded and also serve as a means to deliver services. The term ‘data flow’ is therefore also a closely connected term with digital trade.11 Despite the existence of the WTO Work Programme on Electronic Commerce for more than 20 years,12 Members have been wrestling with questions of how e-​commerce should be addressed in the WTO. Initiatives since January 2019 appear to indicate that WTO negotiations on e-​commerce are back on track. G20 trade negotiators in June 2019 issued a joint statement on digital economic policies that has paved the way for the WTO’s plurilateral e-​commerce talks.13 There have been intensive discussions among WTO Members for and against a plurilateral agreement on e-​commerce. Among others, more than 70 Members—​including the United States, the European Union, China and Japan—​confirmed their intention to launch WTO negotiations on trade-​related aspects of electronic commerce,14 which, according to the United States, would seek a ‘high-​ standard agreement that creates strong, market-​based rules’ and ‘reduces the barriers around the world that threaten to undermine the growth of the digital economy.’15 Members have put forward proposals and positions on a variety of topics.16 At the same time, in an open letter to WTO trade Ministers, business groups called for ‘an ambitious WTO framework’ on e-​commerce that should ‘clarify and improve the existing framework of . . . digital trade,’ and the pursuit of goals with high standards, including commitments to the free flow of data across borders and a ban on data localization.17 10  For

example, despite different chapter titles, the texts of USMCA’s Digital Trade Chapter and the CPTPP’s Electronic Commerce Chapter are overwhelmingly similar. 11  See L. González et al., ‘Digital Trade: Developing a Framework for Analysis’ 2017 OECD Trade Policy Papers No 205 (Paris: OECD, 2017). 12  Work Programme on Electronic Commerce, Progress Report to the 45 General Council, adopted by the Council for the Trade in Services on 19 July 1999, S/​L/​74 (27 July 1999). 13  G20 Information Center, Chair’s Statement (8 September 2019), at < http://​www.g20.utoro​nto.ca/​ 2019/​2019-​g20-​trade-​cha​irs-​statem​ent.html > (last visited 18 September 2021). 14  WTO, Joint Statement on Electronic Commerce, WT/​L/​1056 (25 January 2019) (hereinafter ‘the JSI on E-​Commerce’). China, however, has also put forward its ideas for the e-​commerce talks, in which China did not endorse the provisions sought by the United States and others, but also stressed that the issues of cross-​border data flow and data localization required ‘more exploratory discussions’ before they could be negotiated. Communication from China, Joint Statement on Electronic Commerce, INF/​ ECOM/​19 (24 April 2019). 15   ‘U.S., others call for cross-​border data flow, no localization in WTO e-​commerce talks’ Inside US Trade (3 May 2019); ‘Shea: cross-​border data flows ‘lifeblood’ of digital economy’ Inside US Trade (16 May 2019). 16 The topics are inclusive, ranging from electronic contracts, electronic signatures, consumer protection, commercial messages, unsolicited commercial electronic messages, customs duties on electronic transmissions, source code, cross-​border data flow, privacy protection, net neutrality, the WTO reference paper on telecommunications services, to market access requests on computer and telecommunications sectors. See, e.g., Communication from the European Union, Joint Statement on Electronic Commerce EU Proposal for WTO Disciplines and Commitments Relating to Electronic Commerce, INF/​ECOM/​22 (26 April 2019). 17  ‘Global services group urges WTO Ministers to launch ecommerce talks, forge deal by 2020’ Inside US Trade (24 January 2019).

774   Shin-yi Peng The COVID-​19 crisis has stimulated a surge in the use of digital services and convincingly demonstrated the pressing need to update the WTO rules. The unprecedented demand for online delivery could be a further incentive for regulatory cooperation in e-​commerce.18 Despite the fact that momentum toward reaching a consensus on e-​ commerce rules has yet to emerge, a consolidated text had been distributed to Members in December 2020 and the goal set by ministers in December 2021 is to secure ‘convergence on the majority of issues by the end of 2022’.19

II.  Market access, classification and scheduling A. Digitization of services: technological neutrality Digital trade-​related measures have been repeatedly challenged before the DSB. The first WTO ruling concerning e-​commerce was on US restrictions on internet gambling services. Antigua and Barbuda initiated a case against the United States,20 claiming that US internet gambling restrictions at both the federal and state levels violated its commitments under the GATS. This dispute concerned various US measures relating to gambling and betting services.21 The complaining party argued that all of these ‘measures’ constitute a ‘total prohibition’ on the cross-​border supply of gambling and betting services.22 To be more specific, the complaining party claimed that the United States violated Article XVI:1 of the GATS because, despite having scheduled a ‘full market access’ commitment for the cross-​border supply of gambling and betting services, the United States ‘maintains and enforces measures prohibiting the cross-​ border supply’ of those services.23

18 WTO

Secretariat, E-​Commerce, Trade and the Covid-​19 Pandemic, Information Note, (4 May 2020), at 5. 19  ‘E-​commerce negotiators seek to find common ground, revisit text proposals’ (21 February 2022), at < https://​www.wto.org/​engl​ish/​new​s_​e/​news2​2_​e/​jse​c_​23​feb2​2_​e.htm > (last visited 8 September 2019). 20   See Appellate Body Report, US –​Gambling, adopted 20 April 2005, paras 14–​20; Panel Report, US –​ Gambling, adopted 20 April 2005, paras 6.19–​6.40. 21  In sub-​sector 10.D of the US GATS Schedule of Specific Commitments, the United States inscribed the following entry: ‘Other Recreational Services (except sporting)’. Then, next to that column, in the column titled ‘Limitations on market access,’ the United States listed the four modes of supply, and under category 1, for cross-​border supply, the United States inscribed the word ‘None.’ Based on this entry, Antigua argued that the United States has made a full market access commitment for the cross-​border supply (mode 1) of gambling and betting services. 22  In this case, the Antiguan gambling and betting services at issue were supplied through the online mode, which, as argued by Antigua, is defined in Article I:2(a) of the GATS and involves a service ‘delivered within the territory of the Member, from the territory of another Member.’ 23  Panel Report, US –​Gambling, adopted 20 April 2005, paras 5.21–​5.24.

Digital Trade   775 At stake was whether a prohibition on the cross-​border electronic supply of gambling services is a limitation within the meaning of Article XVI of the GATS. The Panel of US –​Gambling, by citing the ‘Progress Report of the Work Programme on Electronic Commerce,’24 indicated that ‘[it] was the general view that the GATS is technologically neutral in the sense that it does not contain any provisions that distinguish between the different technological means through which a service may be supplied.’25 Noting the principle of ‘technological neutrality,’ which, according to the Panel, ‘seems to be largely shared among WTO Members,’ the Panel stressed that ‘where market access and national treatment commitments exist, they encompass the delivery of the service through electronic means.’26 The Panel therefore concluded that a market access commitment for mode one implies the right of other Members suppliers to supply a service through all means of delivery, including the internet.27 The case of China –​Publications and Audiovisual Products is another compelling example of how digital trade has inevitably caused challenges to international economic law.28 In its GATS Schedule, China made both market access and national treatment commitments regarding sound recording distribution services. In particular, under market access for mode 3 in Sector 2D, China committed to allowing foreign service suppliers to establish contractual joint ventures with Chinese partners to engage in sound recording distribution.29 The Chinese regulations,30 however, prohibit foreign-​ invested enterprises to engage in their digital distribution of sound recordings.31 The United States therefore claimed that China’s measures are inconsistent with Article XVII of the GATS.32 China argued, on the other hand, that the music industry landscape has been undergoing major structural changes since its accession negotiations. China repeatedly pointed out in its written submissions that its GATS commitments do not

24 

Council for Trade in Services, above fn 12, para 4. Panel Report, US –​Gambling, adopted 20 April 2005, fn 836. 26 Ibid. 27  Panel Report, US –​Gambling, adopted 20 April 2005 paras 6.285–​ 6.287. Note that the United States’ appeal focussed on the Panel’s interpretation of sub-​paragraphs (a) and (c) of Article XVI:2. The Appellate Body therefore did not review the Panel’s finding that a WTO Member does not respect its GATS market access obligations under Article XVI:2 if it restricts any means of delivery under mode 1 with respect to a committed sector. Appellate Body Report, US –​Gambling, adopted 20 April 2005, paras 218–​220. 28  Appellate Body Report, China –​Publications and Audiovisual Products, adopted 19 January 2010; Panel Report, China –​Publications and Audiovisual Products, adopted 19 January 2010. 29 Panel Report, China –​Publications and Audiovisual Products, adopted 19 January 2010 paras 7.1300–​7.1311. 30  Ibid at para 3.1. China maintains these restrictions through three measures: (i) the Interim Rules on the Management of Internet Culture; (ii) the Notice of the Ministry of Culture on Some Issues Relating to Implementation of the ‘Interim Rules on the Management of Internet Culture’; and (iii) the Several Opinions on the Development and Management of Network Music. 31  First Written Submission of the United States of America, China –​Publications and Audiovisual Products, para 357, at < https://​ustr.gov/​arch​ive/​Trade​_​Agr​eeme​nts/​Mon​itor​ing_​Enfo​rcem​ent/​Dis​pute​_​ Set​tlem​ent/​WTO/​Disput​e_​Se​ttle​ment​_​Ind​ex_​-​_​Pend​ing.html > (last visited 18 September 2021). 32  Ibid., at paras 140-​155. 25 

776   Shin-yi Peng cover digital-​enabled music services, and that those commitments are strictly limited to the distribution of sound recordings in a ‘traditional’ model, i.e., in physical form.33 The principle of technological neutrality was also central to the United States’ claim against China. The United States relied on the principle to argue that the differences between physical and digital distribution are not relevant to the interpretation of the scope of a GATS commitment unless specified in a Member’s Schedule.34 China took the opposite view. The United States responded that China’s position if accepted, would suggest that GATS commitments must be renegotiated ‘each time a new technology results in a new means of supplying a service.’35 In this context, the Appellate Body stated that: We consider that the terms used in China’s GATS Schedule (‘sound recording’ and ‘distribution’) are sufficiently generic that what they apply to may change over time. In this respect, we note that GATS Schedules, like the GATS itself and all WTO agreements, constitute multilateral treaties with continuing obligations that WTO Members entered into for an indefinite period of time (emphasis added).36

On that basis, the Appellate Body concluded that the Chinese commitments in dispute are generic terms whose content may change over time, namely, from physical to digital. The inscription of ‘sound recording distribution services’ under the heading of Audiovisual Services (Sector 2.D) of China’s services Schedule ‘extends to the distribution of sound recordings in non-​physical form,’ notably through electronic means. To conclude, the position of the GATS Council on Services is that ‘much of e-​ commerce falls within the GATS’ scope’ and that ‘GATS obligations cover measures affecting the electronic delivery of services.’37 The GATS applies even as technology changes a service’s delivery method, namely, from non-​digital to digital means.38 WTO case law, as discussed above, has further confirmed that GATS disciplines and obligations extend to services supplied electronically. The reach of existing GATS commitments applies to digital means of service delivery that have emerged since the GATS was concluded in 1994.

33 

Appellate Body Report, China –​Publications and Audiovisual Products, adopted 19 January 2010, para 43. 34 First Oral Statement of the United States of America, China –​Publications and Audiovisual Products, para 54, at < https://​ustr.gov/​arch​ive/​ass​ets/​Trade​_​Agr​eeme​nts/​Mon​itor​ing_​Enfo​rcem​ent/​Dis​ pute​_​Set​tlem​ent/​WTO/​Disp​ute_​Sett​leme​nt_​L​isti​ngs/​ass​et_​u​ploa​d_​fi​le27​8_​14​895.pdf > (last visited 18 September 2021). 35  Second Oral Statement of the United States of America, China –​Publications and Audiovisual Products, para 56, at < https://​ustr.gov/​arch​ive/​ass​ets/​Trade​_​Agr​eeme​nts/​Mon​itor​ing_​Enfo​rcem​ent/​Dis​ pute​_​Set​tlem​ent/​WTO/​Disp​ute_​Sett​leme​nt_​L​isti​ngs/​ass​et_​u​ploa​d_​fi​le32​8_​14​895.pdf > (last visited 18 September 2021). 36  Appellate Body Report, China –​Publications and Audiovisual Products, adopted 19 January 2010, para 396. 37  Council for Trade in Services, above fn 12. 38  See S. Ariel Aaronson et al., ‘Another Digital Divide: The Rise of Data Realms and its Implications for the WTO’ 21(2) Journal of International Economic Law (2018) 245, at 252.

Digital Trade   777

B. Classification of ‘new’ services: (re)negotiations needed In light of the Appellate Body decisions, the question arises whether the GATS is sufficiently dynamic to cover every new technological innovation affecting trade in services? The real question here may be as follows: To what extent can we rely on concepts such as ‘technological neutrality’ or ‘evolutionary interpretation’ to expand the scope of the GATS in order to cope with the rapidly changing landscape of a digital economy? At the heart of the issue is the classification/​scheduling logic of the GATS. Under the GATS architecture, classification is the foundation of identifying any service a Member wishes to list in its Schedule of Commitments for increasing market access.39 The GATS was introduced as a positive-​list agreement, in which there is no market access for services trade unless it has been listed by name in a Member’s schedule.40 The GATS positive-​ list architecture thus created problems for any digitalized service that now exists but was not explicitly named in the Provisional Central Product Classification (CPC).41 The rapid development of digital technologies has meant that W/​120 classifications (which date back to 1991) have become inadequate, and their correspondence with the CPC is largely out of date.42 Are Google services covered by the existing W/​120 classification? Is WhatsApp already accommodated by the existing CPC? How are Uber services to be classified under the GATS regime? The case of Google represents a striking example in which the W/​120 classification and its corresponding CPC do not clearly match today’s business realities. Much ink has been spilled about whether search engines like Google are covered by GATS commitments since China blocked Google.com and redirected traffic to local search engines. Commentators argued both for and against in respect of the questions of whether the W/​120 and CPC subsectors ‘online information retrieval,’ ‘value-​added telecommunications service,’ ‘data processing services,’ ‘online hosting and publication services,’ ‘advertising services’ and ‘database services’ include search engines such as Google.43 At the crux of the matter is the fact that the CPC definitions of those subsectors, which were drafted in the early 1990s, appear rather ambiguous on the issue. 39 R.

Weber and M. Burri, Classification of Services in the Digital Economy, 1st edition (New York: Springer, 2012), at 17–​20. 40  Ibid., at 45. 41  Note by the Secretariat, MTN.GNS/​W/​120 (10 July 1991). For the purposes of the Uruguay Round negotiations, the WTO Secretariat developed the GATS Services Sectoral Classification List (‘the W/​120’) to enhance the consistency of the commitments undertaken by Members. Although optional, most Members follow the W/​120 classification system, whose 160 sub-​sectors are defined as aggregates of the more detailed categories contained in the United Nations provisional CPC. Thus, CPC categories help clarify the scope of the commitments actually undertaken under the GATS, and most Members list the corresponding CPC numbers when scheduling their GATS commitments. 42  Peng, above fn 7, at 297–​300. 43  See, e.g., H. Gao, ‘Google’s China Problem: A Case Study on Trade, Technology and Human Rights under the GATS’ 6 Asian Journal of WTO & International Health Law & Policy (2011) 349, at 364; T. Wu, ‘The World Trade Law of Censorship and Internet Filtering’ 7(1) Chicago Journal of International Law (2006) 263, at 265. See also R. Weber et al., ‘Tensions between Developing and Traditional GATS Classifications in IT Markets’ 43 Hong Kong Law Journal (2013) 77, at 77–​85.

778   Shin-yi Peng In other words, Google cannot perfectly satisfy any definitions or conditions described in the existing CPC system, and as a result, classifying it in either subsector seems illogical from a legal perspective. Obviously, the GATS drafters could not have been aware of the future existence and features of search engines during the Uruguay Round Negotiations. Similar questions can be raised regarding the classification of endless lists of digital trade activities. Where may virtual meeting services (e.g., Skype, Zoom) be classified? Might these ‘new’ services be a form of ‘data and message transmission service’ covered by CPC 7523?44 Additionally, how about sharing (intermediation) platforms that facilitate peer-​to-​ peer exchanges? To illustrate, at present, Uber’s full market access to several jurisdictions is still being negotiated.45 Uber claims it is an ‘information services supplier,’ but relevant authorities in several jurisdictions have decided to support the position of taxi drivers that Uber’s core business is, in fact, hiring drivers to transport passengers for money—​it is a transportation service. Do Uber services fall within the scope of ‘information services’ under the GATS regime? By the same token, currently, many cities are struggling to regulate Airbnb, with the possibility of passing strict laws banning the services.46 Is market access for Airbnb protected by the GATS commitments? Is Airbnb a real estate broker service? How might the sharing platforms/​intermediaries best be defined under the W/​120 system? As Van den Bossche points out, ‘there has been no evolution in the evolutionary interpretation of WTO law.’47 Although both US –​Gambling and China –​Publications and Audiovisual Products raised the question of how a schedule of commitments is to be interpreted so as to include a new service not in existence at the time of negotiations,48 WTO case law is not entirely clear regarding in what situation and to what extent the ‘state of technology’ that existed at the time of the negotiations is relevant in determining the scope of the commitments. On the one hand, digital technology is organic and technologically innovative, and we must read the existing trade commitments in a dynamic and evolutionary way. On the other hand, judicial interpretation may not be the most appropriate method of clarifying whether the W/​120 and the CPC cover certain digital trade-​ related services. What is covered and what is not covered is an issue that should be (re)

44 

Data and message transmission services. Dickinson, ‘How the World is Going to War with Uber’ The Telegraph, (26 June 2018), at < https://​www.telegr​aph.co.uk/​tra​vel/​news/​where-​is-​uber-​ban​ned/​ > (last visited 9 September 2019). 46  R. Minder, ‘To Contain Tourism, One Spanish City Strikes a Ban, on Airbnb’ The New York Times (23 June 2018), at < https://​www.nyti​mes.com/​2018/​06/​23/​world/​eur​ope/​tour​ism-​spain-​air​bnb-​ban.html > (last visited 8 September 2019). 47  P. Van den Bossche, ‘Is There Evolution in the Evolutionary Interpretation of WTO Law’ in G. Abi-​ Saab et al. (eds), Evolutionary Interpretation and International Law (New York: Hart Publishing, 2019), at 221 and 228 (explaining that the evolution in the evolutionary interpretation of WTO law was ‘neither called for nor desirable.’) 48  See S. Helmersen, ‘The Evolutionary Treaty Interpretation by the WTO Appellate Body in G. Abi-​ Saab et al. (eds), Evolutionary Interpretation and International Law (New York: Hart Publishing, 2019) 210–​212. 45  G.

Digital Trade   779 negotiated by WTO Members.49 At the core of the issue is ‘where treaty interpretation stops’ and ‘where judicial lawmaking begins’ in the digital trade-​related dispute settlement process.50 It has been broadly acknowledged that the GATS commitments are based on business concepts that do not clearly match today’s digital economy. After all, technological innovations have brought about exponential growth in data generation and use. This raises the further question of whether the GATS market access commitments, which were made decades ago, remain tenable in the data-​driven economy.51 Members agreed on the need for the W/​120 scheme to be replaced or revised.52 Negotiating proposals have been submitted to address needed adjustments and to ensure that service classification and scheduling can accommodate modern commercial and technological developments, including technical discussions regarding how to classify platforms for cloud computing services.53 To conclude, the GATS classification/​scheduling system must be reformed in light of innovative advances and trends toward a digital economy.54 Although the GATS recognizes Members’ ‘right to regulate’ even in the services sectors where they have undertaken commitments on market access, the legal certainty of market access for digital trade cannot be ensured until classifications can be unambiguously defined.

III.  Trade barriers, data governance and regulatory autonomy A. Regulatory barriers to digital trade As digital trade expands, governments are facing dilemmas between, on the one hand, maximizing opportunities stemming from digital trade by freeing the flow of data, which 49  S.

Peng, ‘Regulating New Services through Litigation? Electronic Commerce as a Case Study on the Evaluation of “Judicial Activism” in the WTO’ 48(6) Journal of World Trade (2014) 1189, at 1222; Wu, above fn 43, at 283. Gao, above fn 43, at 361–​367. 50  I. Van Damme, ‘The Non-​Politics of Interpreting Silences in the WTO Covered Agreements’ 102 American Society of International Law Proceedings (2008) 420, at 423. 51  See D. Ciuriak, ‘Do WTO Commitments Remain Tenable in the Age of Data? Renegotiating the Rules-​Based System for the Data-​Driven Economy’ Opinion, Centre for International Governance Innovation (July 2, 2021). 52  See, e.g., Communication from Australia and Canada, Understanding on the Scope of Coverage of CPC 84 –​Computer and Related Services, TN/​S/​W/​60, S/​CSC/​W/​51 (26 January 2007). See also Non-​ Paper for the Discussions on Electronic Commerce, Work Programme on Electronic Commerce, JOB/​ GC/​100 (25 July 2016). 53  See, e.g., Communication from the United States, Work Programme on Electronic Commerce: Ensuring that Trade Rules Support Innovative Advances in Computer Applications and Platforms, S/​C/​W/​339 (20 September 2011); Communication from the European Union, An Enabling Environment to Facilitate Online Transactions, TN/​S/​W/​64 (23 May 2017). 54 L. Tuthill and M. Roy, ‘GATS Classification Issues for Information and Communication Technology Services’ in M. Burri and T. Cottier (eds), Trade Governance in the Digital Age (Cambridge: Cambridge University Press, 2012), at 157.

780   Shin-yi Peng is essential for innovation and economic growth, and, on the other, managing the impact of cross-​border data flows for other policy objectives, which include privacy and cybersecurity.55 Domestic regulations regarding the latter have proliferated in recent years, resulting in a complex domestic legal landscape for digital trade. USTR, in its 2021 National Trade Estimate (NTE) Report, continues to focus on barriers to digital trade.56 The key barriers to digital trade identified in the 2021 NTE include China’s cybersecurity law, which restricts routine cross-​border transfers of data; the digital services taxes adopted by a number of the European Union Member States, which levy an interim tax on revenues from digital services; and India’s data localization measures, which require service suppliers to store all information related to electronic payments by Indian citizens within India, to name just a few.57 The alleged digital trade barriers, ranging from personal data protection to data localization measures, and from data flow regulation to cybersecurity standards, from tariffs on digital products to digital tax, indicate that global governance of digital trade is more important to the international economic legal order than ever.58 Regulatory protectionism may impose disadvantages on services in a manner that is not necessary to fulfill a genuine public policy objective. For example, although the value placed on privacy is essentially cultural and privacy legislation reflects fundamental rights, excessive privacy standards or overreaching data protection requirements may seriously restrict trade, just as tariffs, quotas, or other protectionist measures do.59 Service suppliers will confront significant challenges when attempting to comply with diverse ‘behind-​the-​border measures’.60 In practice, a heavily regulated privacy framework may prevent cross-​border trade or consumption abroad altogether, as well as create costly and burdensome tasks for service suppliers that engage in cross-​border data transfer. This is especially so when such data is transferred from a service supplier operating in a country with weaker data protection regulations to one with stronger regulations.61 Moreover, an over-​restrictive data localization measure, which requires personal data to be stored in facilities located within a specific jurisdiction, will most certainly impact cross-​border data flow.62 55 

Meltzer, above fn 5, at 1. USTR, Fact Sheet on 2021 National Trade Estimate: Key Barriers to Digital Trade, at < https://​ustr. gov/​sites/​defa​ult/​files/​files/​repo​rts/​2021/​2021​NTE.pdf > (last visited 18 September 2021). 57 Ibid. 58  A. Porges et al., ‘Data Moving Across Borders: The Future of Digital Trade Policy’ Strengthening the Global Trade and Investment System for Sustainable Development, the E15 Initiative, World Economic Forum (2016), at < https://​www.tra​lac.org/​ima​ges/​docs/​9554/​data-​mov​ing-​acr​oss-​bord​ers-​ the-​fut​ure-​of-​digi​tal-​trade-​pol​icy-​e15-​ini​tiat​ive-​april-​2016.pdf > (last visited 18 February 2021). 59  T. Bollyky, ‘Regulatory Coherence in the TPP Talks’ in C.L. Lim et al. (eds), The Trans-​Pacific Partnership: A Quest for a Twenty-​first Century Trade Agreement (Cambridge: Cambridge University Press, 2012), at 172. 60  M. Krajewski, National Regulation and Trade Liberalization in Services, 1st edition (London: Kluwer Law International, 2003), at 140. 61  A.D. Mitchell and N. Mishra, ‘Regulating Cross-​Border Data Flows in a Data-​Driven World: How WTO Law Can Contribute’ 22(3) Journal of International Economic Law (2019) 389.. 62  While some of these measures generally follow the traditional model of privacy protection, others are more intrusive, requiring the (re)location of computing facilities. S. Peng and H. Liu, ‘The Legality of 56 

Digital Trade   781 Another commonly cited rationale for protectionist digital trade regulations—​ cybersecurity—​is also an outstanding example of the competing interests between digital trade liberalization and domestic public policies. We are now living in a hyper-​ connected world, with myriad devices continuously linked to the internet. Our ever-​ growing reliance upon cyberspace places all governments, businesses, and individual users at the risk of computer-​enabled fraud and vandalism.63 Indeed, cybersecurity has been a central concern, and appropriate domestic regulation should be in place to prevent cyber threats.64 However, unique cybersecurity standards, such as information security testing and certification, may create barriers to international trade. In this regard, business groups from all over the world in recent years have been questioning whether the Cybersecurity Law of China is consistent with WTO obligations.65 China’s complex and strict cybersecurity regime, which restricts data flows, ‘has effectively erected trade barriers and thus adversely impacted cross-​border trade,’ as alleged by the relevant private sector.66 Country-​ specific privacy or cybersecurity measures may violate the Most-​ Favoured-​Nation (MFN) clause, given the fact that competitors of other countries will be the beneficiaries of such restrictions. In addition, privacy or cybersecurity measures may breach the National Treatment (NT) requirement if the domestic service and the banned foreign service are ‘like services’. Moreover, privacy/​ cybersecurity-​ based restrictions could also violate GATS Article XVI market access obligations. In this context, the GATS Council on Services has noted that governments are free to regulate services but must do so in a way that does not constitute unnecessary barriers to trade.67 The key question, however, remains: How can a balance be struck between digital trade liberalization and national policy objectives? When and under what conditions can legitimate policy objectives trump digital trade interests? In part because of the chaotic status of multilateral services trade negotiations, further disciplines for digital trade have been realized in recent FTAs.68 In particular, significant

Data Residency Requirements—​How Can the Trans-​Pacific Partnership Help?’ 51(2) Journal of World Trade (2017) 183, at 194–​204. 63 

ITU, ‘The Global Cybersecurity Index (GCI)’, at < http://​www.itu.int/​cybers​ecur​ity/​ > (last visited 8 September 2019). 64 Ibid. 65  ‘China Issues Draft Regulation Law that Would Restrict Outbound Data Flows’ Inside US Trade (20 June 2019). 66 Ibid. 67  See Aaronson et al., above fn 38, at 525. The GATS preamble and Article VI recognize ‘the right of Members to regulate,’ and to introduce new regulations, on the supply of services within their territories in order to meet national policy objectives. 68  For comprehensive comparison of the e-​commerce/​digital trade provisions under the FTAs, see generally I. Willemyns, ‘Agreement Forthcoming? A Comparison of EU, US, and Chinese RTAs in Times of Plurilateral E-​Commerce Negotiations’ 23(1) Journal of International Economic Law (2020), at 221–​244.

782   Shin-yi Peng and welcome achievements have been shaped by the Comprehensive and Progressive Agreement for Trans-​Pacific Partnership (CPTPP) and the United States–​Mexico–​ Canada Agreement (USMCA). Moreover, the Digital Economy Partnership Agreement (DEPA) between Singapore, Chile and New Zealand represents innovative approaches and collaborations in digital trade issues.69 Furthermore, relevant chapters in other recently concluded FTAs, such as the Electronic Commerce Chapter (Chapter 12) of the Regional Comprehensive Economic Partnership (RCEP) and Part Two—​Title III (Digital Trade) of the EU-​UK Trade and Cooperation Agreement (EU-​UK TCA), are also important indicators for future trade negotiations.70

B. New developments in data governance under the FTAs The CPTPP went into force in December 2018, with ‘state of the art’ digital trade rules found in Chapter 14. The primary goal of the CPTPP Electronic Commerce Chapter is to address potential impediments to both consumers and businesses embracing digital trade.71 As its core functions, parties of the CPTPP have agreed to a set of rules that will facilitate economic growth through the use of the internet and prevent barriers to digital trade. Toward this end, key provisions in the chapter include commitments to protect the free flow of information across borders, to minimize data localization requirements, and to ensure that firms of the CPTPP parties can capitalize on data and digital opportunities on a global scale. More specifically, the chapter contains three disciplines addressing the linkage between digital trade and data flow. Article 14.8 underscores the role of personal data protection by encouraging CPTPP parties to adopt measures in a manner that is in compatibility with one another and consistent with the principle of non-​discrimination. Article 14.11 requires CPTPP parties to ensure free data flow ‘when the activity is for the conduct of the business of a covered person.’72 Finally, Article 14.13 prohibits parties from mandating firms to ‘use or locate computing facilitates’ in their territory ‘as a condition to conduct business’73—​representing the first time that an FTA has explicitly tackled the data localization issue.74 69 

Digital Economy Partnership (DEPA) between Singapore, Chile, and New Zealand, signed in June 2020, at < https://​www.mti.gov.sg/​Improv​ing-​Trade/​Digi​tal-​Econ​omy-​Agr​eeme​nts/​The-​Digi​tal-​Econ​ omy-​Part​ners​hip-​Agreem​ent > (last visited 18 February 2021). 70  The Regional Comprehensive Economic Partnership (RCEP), at < https://​rcep​sec.org/​> (last visited 18 September 2021). The EU-​UK Trade and Cooperation Agreement, at < https://​eur-​lex. eur​opa.eu/​legal-​cont​ent/​EN/​TXT/​PDF/​?uri=​CELEX:220​20A1​231(01)&from=​EN > (last visited 18 February 2021). 71  See Chapter 14 (Electronic Commerce). The Text of the CPTPP is available at, for example, the website of the New Zealand Foreign Affairs and Trade, at < https://​www.mfat.govt.nz/​en/​trade/​free-​ trade-​agr​eeme​nts/​free-​trade-​agr​eeme​nts-​in-​force/​cptpp/​compre​hens​ive-​and-​prog​ress​ive-​agreem​ent-​ for-​trans-​paci​fic-​part​ners​hip-​text-​and-​resour​ces > (last visited 8 September 2019). 72  Article 14.8 of the CPTPP. 73  Article 14.11 of the CPTPP. 74  Article 14.13 of the CPTPP. It should be noted that the Japan-​ Mongolia Economic Partnership Agreement, signed in 2015, also contains similar provisions, although less straightforward. See

Digital Trade   783 The USMCA, which effectively updates NAFTA to reflect changes in trade practices since 1994, is the first US free trade agreement to include a chapter on digital trade.75 The agreement includes a set of relatively advanced digital trade rules, which USTR hopes will ‘serve as a template for similarly strong and comprehensive rules’ in other trade negotiations.76 Building on the framework of the CPTPP e-​commerce chapter,77 The USMCA’s digital trade chapter requires the parties to ensure free movement of data across borders and to prohibit parties from adopting restrictive data measures in the future. More specifically, like the CPTPP, Article 19.8 of the USMCA addresses issues encountered by online consumers and businesses, including protection of consumers’ personal information and data. The most important provisions borrowed from the CPTPP are those that bar data localization—​with Article 19.11 prohibiting discriminatory treatment of cross-​border data transfers and Article 19.12 barring forced localization of computing facilities. Other key provisions include a ban on import duties or other discriminatory measures on digital products.78 USMCA Parties have also agreed to cooperate on cybersecurity threats, including building the capacity to identify and respond quickly to intrusions and strengthen existing collaboration on threats and cybersecurity best practices.79 Overall, despite different chapter titles, the texts of the USMCA’s Digital Trade Chapter and the CPTPP’s Electronic Commerce Chapter are overwhelmingly similar. Nevertheless, minor differences remain. It is fair to say that when compared to the CPTPP version, the USMCA version offers several innovations. First, with respect to data localization, the USMCA version is stronger than the CPTPP’s version in terms of coverage, as the USMCA version does not exclude financial services.80 More importantly, the data localization provision of USMCA is a straightforward ban, whereas the

Agreement Between Japan and Mongolia for an Economic Partnership, 10 February 2015, Article 9.12, at < https://​www.mofa.go.jp/​pol​icy/​econ​omy/​fta/​mongo​lia.html > (last visited 18 September 2021). 75 

See Chapter 19 (Digital Trade). The Text of the USMCA is available at, for example, the website of USTR, at < https://​ustr.gov/​usmca >. 76  USTR Fact Sheet on 2019 National Trade Estimate: Key Barriers to Digital Trade, at < https://​ustr. gov/​about-​us/​pol​icy-​offi​ces/​press-​off​i ce/​fact-​she​ets/​2019/​march/​fact-​sheet-​2019-​natio​nal-​trade-​estim​ ate > (last visited 8 September 2019). The scope of the chapter is relatively comprehensive, covering Customs Duties, Non-​Discriminatory Treatment of Digital Products, UNCITRAL Model Law on E-​ Commerce, Paperless trading, E-​Signature/​E-​Authentication, Cross-​Border Transfer of Information by Electronic Means, Location of Computing Facilities, Internet Interconnection Charge Sharing, Online Consumer Protection, Personal Information Protection, Unsolicited email, Access to and Use of the Internet for Digital Trade, Cybersecurity, Source Code, Interactive Computer Services, Cooperation, Open Government Data. 77 Despite the Trump administration withdrawing from the TPP, NAFTA negotiators used the CPTPP’s electronic commerce chapter as the basis for negotiations. 78  Articles 19.3 and 19.4 of the USMCA. 79  Article 19.15 of the USMCA. 80  The CPTPP adopts a more relaxed approach in Chapter 11 (Financial Services) in the sense that data localization requirements concerning the financial sector fall outside the data localization provision of the CPTPP. This carve-​out has raised concerns about potential trade barriers.

784   Shin-yi Peng CPTPP version is linked to Article XX GATT 1994-​like exceptions, emphasizing ‘legitimate public policy objectives.’81 In this regard, it is worth noticing that the RCEP security exception for data localization measures has an element that goes even further, stating that nothing in a data localization provision shall prevent a Party from adopting or maintaining ‘any measure that it considers necessary for the protection of its essential security interests.’ More importantly, ‘such measures shall not be disputed by other Parties.’82 Putting into context, data localization measures remain at the centre of the digital trade negotiations. Second, the USMCA version has an additional ‘Interactive Computer Services’ provision, under which no Party shall adopt or maintain measures that treat internet platforms, in particular, social media sites, as an information content provider in determining civil liability for harms related to information services supplied by the platforms.83 The language of this provision borrowed from Section 230 of the US Communications Decency Act, which not only removes digital platforms’ liability for the third party content but also offers certain flexibility for digital platforms to exercise good-​faith efforts to moderate third party content.84 Third, the USMCA version includes an ‘Open Government Data’ provision, which stipulates the importance of facilitating public access to and use of government information that fosters economic and social development, competitiveness, and innovation. The Parties also agree to ‘endeavor to ensure that the information is in a machine-​readable and open format.’85 Finally, with respect to cybersecurity, USMCA Parties also agree to ‘encourage enterprises within its jurisdiction’ to adopt risk-​based approaches that rely on consensus-​based standards and risk management best practices to identify and protect against cybersecurity risks.86 There is no counterpart to this provision in the CPTPP.

C. Regulatory autonomy and further disciplines for digital trade Can these ‘new’ digital trade rules and obligations help to reverse the trend of data protectionism? A central, preliminary question is: how significant are the implications of these new developments on digital trade? We must first evaluate the impact of these e-​commerce/​digital trade chapters. How extensive is their strength? The next line of inquiry will then be: To what extent can these new developments serve as a reference for future trade negotiations? In particular, will the ongoing WTO JSI on e-​commerce follow in the steps of these digital trade rules under the

81 

Article 19.12 of the USMCA. Art 12.14 of the RCEP. 83  Article 19.17 of the USMCA. 84  Section 230 of the U.S. Communications Decency Act of 1996, 47 U.S.C. § 230(c). 85  Article 19.18 of the USMCA. 86  Article 19.15 of the USMCA. 82 

Digital Trade   785 FTAs? And, what lessons can be learned from regional experiences? Are there any additional considerations beyond the regional level which should be taken into account in future trade negotiations? First, an obvious challenge is the inherent sensitivity of interfering with other parties’ sovereign rights.87 FTA negotiators have drawn from legal concepts tied to the exceptions language found in the WTO agreements, such as ‘legitimate policy objective’, to manage the tension between the free flow of data and national regulatory autonomy.88 The data localization provision in the CPTPP, for example, is seriously complicated, if not weakened, by the exceptions clause. Article 14.13, which states that ‘[n]‌o Party shall require a covered person to use or locate computing facilities in that Party’s territory as a condition for conducting business in that territory’ is the core provision that specifically confronts typical data localization requirements. However, the same Article also allows parties to maintain a data localization measure in order to achieve a legitimate public policy objective, as long as the measure ‘does not impose restrictions on the use or location of computing facilities greater than are required to achieve the objective.’89 Furthermore, it is worth noting that, unlike the GATT/​GATS general exceptions in which the policy objectives are exhaustively listed, the data localization exceptions under the CPTPP contain an open-​ended list of legitimate objectives and require an initial determination regarding whether an objective is legitimate.90 In fact, without such a ‘flexible’ exception, most CPTPP parties would not have made the commitments on data transfer and computing facilities.91 CPTPP negotiators created ‘constructive ambiguity’ around this politically sensitive issue. The limited reach of the CPTPP’s data localization provision, therefore leaves much ambiguity about how far that article can go to curb national protectionist practices. That being said, Article DIGIT.3 of the EU-​ UK TCA, which reaffirms the Parties’ right to regulate to achieve legitimate policy objectives ‘such as the protection of public health, social services, public education,

87 

See, generally, A. Chander and U. Le, ‘Data Nationalism’ 64(3) Emory Law Journal (2015), at 677. generally, M. Wu, ‘Digital Trade Related Provisions in Regional Trade Agreements Existing Models and Lessons for the Multilateral Trade System’ ICTSD (2017). 89  Article 14.13 of the CPTPP: Location of Computing Facilities 88  See,

1.  The Parties recognize that each Party may have its own regulatory requirements regarding the use of computing facilities, including requirements that seek to ensure the security and confidentiality of communications. 2. No Party shall require a covered person to use or locate computing facilities in that Party’s territory as a condition for conducting business in that territory. 3. Nothing in this Article shall prevent a Party from adopting or maintaining measures inconsistent with paragraph 2 to achieve a legitimate public policy objective, provided that the measure:   (a) is not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on trade; and   (b) does not impose restrictions on the use or location of computing facilities greater than are required to achieve the objective. 90  Peng and Liu, above fn 62, at 195–​196. 91 Ibid.

786   Shin-yi Peng safety, the environment including climate change, public morals, social or consumer protection, privacy and data protection, or the promotion and protection of cultural diversity,’ represents another striking example of safeguarding the cyberspace sovereignty by creating an open and inclusive list of legitimate objectives.92 Second, although binding language obliging the FTA parties to protect personal data can be found in tens of FTAs,93 particular attention should be paid to the soft legal nature of several ‘advanced’ provisions under the digital trade chapters. For the same reason that led to a loose exception, several other key provisions contain imprecise and non-​binding ‘obligations,’ with little institutionalized enforcement for non-​ compliant behaviour.94 For example, USMCA Parties merely ‘recognize the importance’ and ‘endeavor to’ comply with certain rules in the areas of the Domestic Electronic Transactions Framework (Article 19.5), Personal Information Protection (Article 19.8), Paperless Trading (Article 19.9), Cooperation (19.14), Cybersecurity (Article 19.15) and Open Government Data (Article 19.18). Similarly, as another example, relatively ‘soft’ language in terms of enforceability can be found in several key provisions of the Digital Trade Chapter of Free Trade Agreement between the United Kingdom and Australia.95 The softness of these provisions reflects the assertions of ‘digital sovereignty’ of the parties. Data is increasingly considered to be at the heart of the digital economy. While indulging data-​driven activities and the benefits their use brings, necessary infrastructure and policies must be in place for the risks to be mitigated. Indeed, any further digital trade regulatory efforts may face constraints associated with digital sovereignty. As a result, new trade agreements should address digital trade in a modest and flexible way.96 To maintain ‘global’ standards, such as privacy standards, as many countries as possible must accept trade agreements. While not immediately legally binding, soft law provides a useful means of reducing the impact to avoid a political nightmare and hopefully gradually affect the policies of parties. Over-​reliance on the soft law mechanism, however, may substantially reduce the level of ambition and may also swallow overall achievements. The strategic use of hard and soft law in further disciplines will have implications for digital trade. It will be a challenging task for trade negotiators to employ soft law to balance trade and its competing values effectively. Finally, drawing from the experiences of the CPTPP and the USMCA, ‘special and differential treatment’ and ‘developing’ status will eventually be the focal points of the

92 

Article DIGIT.3 ‘Right to regulate’ of the EU-​UK TCA. M. Burri, and R. Polanco, ‘Digital Trade Provisions in Preferential Trade Agreements: Introducing a New Dataset’ 23(1) Journal of International Economic Law (2020), at 187–​200. 94  See, generally, J. Galbraith et al., ‘Soft Law as Foreign Relations Law’ 99 Cornell Law Review (2014) 735, 745. G. Shaffer et al., ‘Hard Versus Soft Law in International Security’ 52 Boston College Law Review (2011) 1147, 1148–​49. 95  See Articles 14.7, 14.9, 14.13, 14.14 and 14.15 of the Australia-​UK FTA Chapter 14 Digital Trade, at < https://​www.dfat.gov.au/​trade/​agr​eeme​nts/​not-​yet-​in-​force/​auk​fta/​offic​ial-​text/​austra​lia-​uk-​fta-​chap​ ter-​14-​digi​tal-​trade > (last visited 8 September 2019). 96  See G. Shaffer, ‘Trade Law in a Data-​Driven Economy: The Need for Modesty and Resilience,’ 20:3 World Trade Review (2021) 259, at 259–​281. 93  See,

Digital Trade   787 WTO JSI on e-​commerce talks. In the CPTPP, Vietnam is given a transition period in which existing data localization measures are not subject to dispute settlement. A similar grace period is also provided to both Vietnam and Malaysia for existing measures concerning the cross-​border transfer of information by electronic means.97 By the same token, under the USMCA, obligations concerning interactive computer services will not apply to Mexico until three years after the date of entry of the Agreement into force.98 In this regard, how to tackle the issue of digital trade and development will continue to be the centre of debate in future trade negotiations. One primary challenge facing the ongoing WTO plurilateral e-​commerce talks is the allegation that the proposed trade rules will benefit ‘Big Tech’ companies at the expense of workers and small businesses, and hurt developing countries.99 Civil society groups have been pressing for ‘development-​ focused digital industrialization’, indicating that instead of digital liberalization, the most important is the need to ensure the universal benefits of the digital economy.100 At the same time, China has urged WTO e-​commerce talks to ‘take into account the special constraints that developing countries faced’101 in a way to echo the position expressed by India and South Africa that developing countries need to be able to impose customs duties on electronic transmissions to protect infant domestic industries.102 The asymmetrical nature of the global digital economy points to the need to strike a balance between trade efficiency and digital inclusion. As revealed in Brazil –​Taxation, the Panel was reluctant to draw a firm conclusion on how ‘digital divide’ should be dealt with within the context of Article XX of the GATT.103 Although, in the Panel’s view, Brazil had not demonstrated that the measures at issue were ‘necessary’ to achieve social inclusion and access to information, within the meaning of Article XX(a) of the GATT 1994,104 the Panel, by recognizing that Brazil’s concern regarding the need to bridge the digital divide and promote social inclusion may fall within the scope of public moral exceptions, has stretched the scope of public morals rather far in this dispute.105 In this

97 

Article 14.18 of the CPTPP. Chapter 19 ANNEX 19-​A to the USMCA. 99  See, e.g., Non-​ Paper from Brazil, Work Programme on Electronic Commerce, JOB/​GC/​98 (20 July 2016). Communication from the African Group, Report of Panel Discussion on ‘Digital Industrial Policy and Development,’ Work Programme on Electronic Commerce, JOB/​GC/​133 (21 July 2017). Communication from the African Group, Report of Panel Discussion on ‘Digital Industrial Policy and Development,’ Work Programme on Electronic Commerce, JOB/​GC/​133 (21 July 2017). 100  ‘Civil Society Letter Against Digital Trade Rules in the World Trade Organization’, 1 April 2019, at < http://​www.ourwo​rldi​snot​fors​ale.net/​2019/​Dig​ital​_​tra​de_​2​019-​04-​01-​en.pdf > (last visited 8 September 2019). 101 Communication from China, Joint Statement on Electronic Commerce, INF/​ ECOM/​ 19 (24 April 2019). 102  Communication from India and South Africa, The E-​Commerce Moratorium and Implications for Developing Countries, Work Programme on Electronic Commerce WT/​GC/​W/​774 (4 June 2019). 103  Panel Report, Brazil –​Taxation, adopted 11 January 2019, paras 7.544–​7.568. 104  Ibid., at paras 7.618–​7.622. 105 The finding of the panel in this case raised a critical question as to what constitutes public morals and how to distinguish public policies which fall under public morals and which do not. 98 

788   Shin-yi Peng regard, the module on Digital Inclusion in the DEPA between Singapore, Chile and New Zealand establishes new collaborations in the area of digital divide, including reduced disparities between developed and developing countries.106 Such approaches may serve as a useful reference for how to balance digital trade liberalization and digital inclusion.

IV.  Conclusion and outlook Digital technology has transformed the way trade is conducted, and the need to modernize trade agreements to reflect this reality is long overdue. Moving ahead, plurilaterally seems to be necessary to facilitate digital trade. It remains to be seen whether the WTO JSI on e-​commerce will be economically attractive enough to achieve a credible ‘critical mass’ of major players in the digital economy, whether China, which has opted in on the talks, will eventually stay on board, and whether there will be a sufficient level of ambition to yield a high-​standard broad agreement with relatively deeper commitments for digital trade.

Further reading Burri, M., ‘The Governance of Data and Data Flows in Trade Agreements: The Pitfalls of Legal Adaptation’ 51 U.C. Davis Law Review (2017) 65 Chander, A. and Le, U., ‘Data Nationalism’ 64(3) Emory Law Journal (2015) 677 Gao, H., ‘Across the Great Wall: E-​commerce Joint Statement Initiative Negotiation and China’ in S. Peng et al. (eds), Artificial Intelligence and International Economic Law (Cambridge University Press, 2021) 295 Meltzer, J.P., ‘Governing Digital Trade’ 18(1) World Trade Review (2019) 23–​48 Mitchell, A.D. and Mishra, N., ‘Regulating Cross-​Border Data Flows in a Data-​Driven World: How WTO Law Can Contribute’ 22(3) Journal of International Economic Law (2019) 389 Peng, S., ‘Regulating New Services through Litigation? Electronic Commerce as a Case Study on the Evaluation of “Judicial Activism” in the WTO’ 48(6) Journal of World Trade (2014) 1189 Peng, S. and Liu, H., ‘The Legality of Data Residency Requirements—​How Can the Trans-​ Pacific Partnership Help?’ 51(2) Journal of World Trade (2017) 183

Unfortunately, in the appeal, while the European Union and Japan each appealed certain issues of law and legal interpretations developed in the Panel Reports, both parties did not appeal the issue of Article XX(a). The key questions remain unanswered. Appellate Body Report, Brazil –​Taxation, adopted 11 January 2019. 106  See Module 11 Digital Inclusion of the DEPA. The parties acknowledge ‘the importance of digital inclusion to ensure that all people and businesses have what they need to participate in, contribute to, and benefit from the digital economy.’ The parties also recognize ‘the importance of improving access for women, rural populations, and low socio-​economic groups.’

Digital Trade   789 Tuthill, L. and Roy, M., ‘GATS Classification Issues for Information and Communication Technology Services’ in M. Burri and T. Cottier (eds), Trade Governance in the Digital Age (Cambridge University Press, 2012) 157 Willemyns, I., ‘Agreement Forthcoming? A Comparison of EU, US, and Chinese RTAs in Times of Plurilateral E-​Commerce Negotiations’ 23(1) Journal of International Economic Law (2020) 221

Chapter 30

State-​O wned E nt e rpri se s (SOEs) : A Tra ns - ​P ac i fi c Partnersh i p ( T PP) Agreement E x pe ri e nc e in Devel opi ng New Dis ciplines i n t h e New World Order Juliana Nam *

I. II.

Introduction Pre-​TPP disciplines on SOEs A. International trade rules on SOEs are not new B. International trade rules specifying state enterprises may not be new, but they have been difficult to enforce: Canada –​Wheat Exports and Grain Imports case C. The SCM Agreement may not be used for challenging SOEs subsidizing other enterprises III. TPP SOEs negotiations: background A. A TPP SOE chapter was a US must-​have but not without controversy . . . B. All TPP countries have a history of government involvement in the marketplace

791 794 794 795 796 799 799 800

*  The author wrote this chapter in her personal capacity and it does not reflect the views of the Australian Government. Juliana thanks her husband, parents and her colleagues, especially Justin Brown and Elizabeth Ward, for their support.

State-Owned Enterprises   791 C. Each TPP country had its own experience of reform and governance of SOEs 801 IV. Defining a SOE for the purposes of Chapter 17 of the TPP 802 A. TPP rules apply to activities within the free trade area, and in some circumstances, beyond 802 B. Chapter 17 of the TPP only applies to enterprises that are ‘controlled’ by a TPP Party 803 C. Only ‘commercial’ SOEs are covered by Chapter 17 of the TPP 804 D. Exemptions from obligations in Chapter 17 of the TPP 804 V. Main obligations under Chapter 17 of the TPP 806 A. The rules of attribution apply to SOEs delegated with authority 806 B. SOEs must act commercially except for their ‘public service mandate’ 807 C. SOEs must respect the obligation of non-​discriminatory treatment 808 D. An agreement to ensure foreign SOEs can’t rely on sovereign state immunity for civil claims concerning their commercial activities in the Party’s territory 809 E. An agreement to ensure that their administrative bodies are impartial 810 F. An agreement not to cause ‘adverse effects to’ or ‘injury to a domestic industry of ’ another Party through the use of unfair benefits provided to its SOEs 810 G. The need for transparent SOEs 813 VI. Exceptions to the obligations in Chapter 17 of the TPP 813 VII. Post-​TPP developments on SOEs disciplines 814 A. The TPP is dead. Long live the TPP 814 B. We can expect more ‘TPP Plus’ SOEs provisions 814 VIII. Conclusion 815

I. Introduction This chapter outlines the developments on international disciplines concerning state-​ owned enterprises (SOEs) with a particular focus on the outcomes in the Trans-​Pacific Partnership (TPP) Agreement since this was the most advanced treaty with respect to SOEs. Despite the uncertainty of the TPP’s future, its provisions live on in the Comprehensive and Progressive Trans-​Pacific Partnership (CPTPP), and they served as the template for SOE disciplines in NAFTA renegotiations (i.e., USMCA).

792   Juliana Nam Expectations of the TPP’s stand-​alone chapter on SOEs were high among US stakeholders who saw the growing role of SOEs in the global marketplace as a threat.1 Many anticipated the TPP to be a key manifestation of President Barak Obama’s ‘pivot to Asia’.2 They expected that through the TPP, the United States would lead the charge in establishing significant and robust rules on SOEs that would ‘contain’ the rise of China as an economic and strategic power in the world.3 State ownership of business enterprises is not new, but the role of SOEs in international trade and investment has expanded significantly since the GATT 1947. Even in 1995, when the WTO Agreement entered into force, SOEs tended not to venture outside their home territory. The world’s most prominent SOEs were national petroleum or resource enterprises such as Saudi Aramco, Kuwait Petroleum Corporation, and Petronas. However, this has been changing.4 Today’s SOEs play a role in every sector of the economy, from manufacturing to financial services, to construction. As found in a 2018 OECD study: SOEs play an important role in the world economy . . . While Chinese companies feature prominently, this must be seen in the context of China’s rapid growth and its centrally-​planned economic structure starting point.5

The rapidly increasing global footprint of SOEs, particularly from China, has given rise to concerns regarding their impact on competition. Extensive studies have sought to ‘demystify’ the impact of SOEs in the global marketplace, but there is no denying that in the marketplace, businesses and consumers are guided by their perceptions.6 Ten 1 For

a comprehensive summary, see USITC, Trans-​Pacific Partnership Agreement: Likely Impact on the U.S. Economy and on Specific Industry Sectors, Publication Number: 4607, Investigation Number: TPA-​105-​001, May 2016 (Washington DC, 2016), at 454–​458 and Appendix D Summary of the Views of Interested Parties. 2  Obama Administration, The White House Office of the Press Secretary, ‘FACT SHEET: Advancing the Rebalance to Asia and the Pacific’ (16 November 2015), at < https://​obam​awhi​teho​use.archi​ves.gov/​ the-​press-​off​i ce/​2015/​11/​16/​fact-​sheet-​advanc​ing-​rebala​nce-​asia-​and-​paci​fic > (last visited 9 September 2021); H. Clinton, ‘America’s Pacific Century’, Foreign Policy (11 October 2011), at < https://​foreig​npol​icy. com/​2011/​10/​11/​ameri​cas-​paci​fic-​cent​ury/​ > (last visited 9 September 2021) 3 J. McBride and A. Chatzky, ‘What is the Trans-​ Pacific Partnership (TPP)?’ Council on Foreign Relations (4 January 2019), at < https://​www.cfr.org/​backg​roun​der/​what-​trans-​paci​fic-​part​ners​hip-​tpp > (last visited 9 September 2021). 4  In 2017, 15 per cent of the Fortune 500 companies were considered to be SOEs. This proportion has grown from just under 2 per cent in 2000. See, e.g., OECD, OECD Business and Finance and Outlook 2018 (Paris: OECD, 2018), at 108. 5 Ibid. 6 OECD, State-​Owned Enterprises as Global Competitors: A Challenge or Opportunity? (Paris: OECD, 2016); M. Kim, ‘Regulating the Visible Hands: Development of Rules on State-​Owned Enterprises in Trade Agreements’ 58(1) Harvard International Law Journal (2017) 225; M. Wu, ‘The “China, Inc.”: Challenge to Global Trade Governance’ 57(2) Harvard International Law Journal (2016) 261; M. Du, ‘When China’s National Champions Go Global: Nothing to Fear but Fear Itself?’ 48(6) Journal of World Trade (2014) 1127.

State-Owned Enterprises   793 years after the establishment of the WTO, the WTO system was already under pressure from the United States, who openly criticized its capacity to apply the existing rules to the new economic powers.7 It was not envisaged even during the Uruguay Round that such a diversity of economies would become members of the post-​World War II international trading order in a post-​Cold War world.8 The assumption back then was that ‘the members of the GATT would be free markets’.9 It did not mean that the GATT turned away centrally planned economies (i.e., the ‘non-​market economies’).10 Rather, ‘the hope was that they would abandon the centrally planned character of their economies once they had joined the GATT’.11 Indeed several former Communist-​bloc countries did so.12 The GATT 1947 has obligations on ‘state trading enterprises’. As explained by Mastromatteo, ‘[s]‌everal provisions of the GATT specifically regulate the extent to which a State may participate in the market as a trader, with the core rules set out in Article XVII (State trading), Article II:4 (mark-​ups applied by import monopolies) and the Interpretative Notes Ad Articles XI-​XIV and XVIII (restrictions made effective through State trading operations)’.13 Subparagraph XVII.1(a) of the GATT 1947 provides that Parties are obliged to ensure that their ‘state enterprises’ conduct purchases or sales operations involving either imports or exports ‘in a manner consistent with the general principles of non-​discriminatory treatment in the [GATT] for governmental measures affecting imports or exports by private traders’. Subparagraph XVII.1(b) also provides that subparagraph (a) ‘shall be understood’ to require that ‘such enterprises shall . . . make any such purpose or sales solely in accordance with commercial considerations . . .’. Nonetheless, the language of Article XVII ‘gives rise to a number of legal and practical questions’,14 including its scope and the substantive requirements of the general principles of non-​discrimination. When 124 nations joined the WTO in 1994, many were not market economies.15 The WTO agreements do not force any Members to adopt a certain economic model. Existing Members’ concerns about a new entrant’s state enterprises were dealt with on an ad hoc basis, specifically through the accession protocols (e.g., Vietnam). The 7 Ibid. 8  P.C.

Mavroidis and M.E. Janow, ‘Free Markets, State Involvement, and the WTO: Chinese State-​ Owned Enterprises in the Ring’ 16(4) World Trade Review (2010) 571. 9  Ibid., at 571. 10 Ibid. 11  Ibid.; M. Kostecki, East-​West Trade and the GATT System (London: Macmillan, 1979). 12  See, e.g., Romania in 1971; Hungary in 1973; Czech Republic in 1993; Slovakia in 1993; and Slovenia in 1994. 13  A. Mastromatteo, ‘WTO and SOEs: Article XVII and Related Provisions of the GATT 1994’ 16(4) World Trade Review (2017) 601 for an excellent overview of the historic development of Article XVII of the GATT 1994. 14  Ibid., at 604. 15  See Mavroidis, above fn 8, at 575.

794   Juliana Nam only Uruguay Round update to the obligations applying specifically to state trading enterprises, Article XVII of the GATT 1947, was to strengthen the transparency obligations.16 However, the Uruguay Round also remarkably concluded several other agreements with relevance to SOEs, including the SCM Agreement. This chapter provides a perspective on Chapter 17 of the TPP on ‘State-​owned Enterprises and Designated Monopolies’ in the context of negotiations among 12 disparate economies in the Indo-​Pacific. It explains how that chapter ‘evolved’ existing international trade obligations and governance guidance on SOEs that compete with privately-​owned enterprises. This chapter does not evaluate whether the big expectations for the TPP have been met. Only time can judge the normative value of the TPP, which may never enter into force. However, Chapter 17 of the TPP is already influencing other international trade agreements in and out of the Pacific realm.

II.  Pre-​TPP disciplines on SOEs A. International trade rules on SOEs are not new International trade obligations on SOEs are not new. Article XVII of the GATT 1994 demonstrates that the Contracting Parties envisioned back in 1947 that State enterprises could pose ‘barriers to trade’, with Article XVII:3 explicitly recognizing that such enterprises ‘might be operated so as to create serious obstacles to trade’. The proposal for Article XVII was made by the United States, which had singled out the potentially distorting impact of State trading as a ‘governmental barrier to trade’ that needed to be addressed in the new regime to liberalize international trade after WWII.17 However, Article XVII merely requires Contracting Parties to ensure that their State enterprises ‘act in a manner consistent with’ the Parties’ obligation of ‘non-​ discriminatory treatment’. Arguably, this is already required by WTO rules when read together with the customary international law on the state responsibility. Thus, Article XVII is, in essence, an ‘anti-​circumvention’ provision.18 The introduction of the SCM Agreement in 1995 was also aimed at adjusting trade law disciplines in light of contemporary needs. Theoretically, the SCM Agreement also applies to SOEs, but as discussed below, it does so under limited circumstances.

16  In the Understanding on the Interpretation of Article XVII of the General Agreement on Tariffs and Trade 1994. 17 Ibid. 18 Ibid.

State-Owned Enterprises   795

B. International trade rules specifying state enterprises may not be new, but they have been difficult to enforce: Canada –​Wheat Exports and Grain Imports case Very few disputes involving Article XVII have been brought. The Appellate Body’s findings in Canada –​Wheat Exports and Grain Imports19 illustrate that such complaints are not straightforward, and may help to explain the Members’ refrain. The United States complained that Canada’s grant of exclusive rights to the Canadian Wheat Board (CWB) to purchase, sell, and export western Canadian wheat was inconsistent with Article XVII. The United States also complained that the Canadian grain handling rail transport systems advantaged Canadian-​produced wheat contrary to the ‘general principles of non-​discriminatory treatment’. The United States claimed that Canadian laws effectively prohibited imported wheat to be mixed with Canadian domestic grain, capped the maximum revenues that railroads may receive for domestic grain shipments but not for imported grains and provided a preference for domestic grain through the allocation of government-​owned railcars. The United States’ failure to establish its Article XVII case boils down to three challenges. First, ‘State enterprises’ is not defined, making it difficult to determine which ones are caught by Article XVII of the GATT 1994.20 Although the Uruguay Round Understanding introduced a ‘working definition’ of State Trading Enterprises, it was ‘without prejudice to the substantive provisions of the article’.21 The Appellate Body in Canada –​Wheat Exports and Grain Imports avoided providing much guidance on what types of enterprise would be covered. Instead, it focused on the extent to which the importing and exporting activities of enterprises that are granted ‘exclusive or special privileges’ are comparable to ‘discriminatory government measures affecting imports and exports by private traders’.22 Without guidance on what constitutes a ‘State enterprise’, it is difficult to determine the scope of Article XVII, making it difficult to challenge discriminatory conduct by a state enterprise. Second, there is uncertainty regarding what ‘general principles of non-​ discriminatory treatment prescribed in this Agreement . . .’ means in the context of State enterprises. The focus of the Canada-​Wheat panel and the Appellate Body in identifying the discriminatory ‘measure’ was misaligned in the context of State enterprises. Commercial state enterprises do not necessarily impose ‘measures’, nor

19 

Appellate Body Report, Canada –​Wheat Exports and Grain Imports, adopted 27 September 2004. Mastromatteo, above fn 13. 21  Preambular paragraph 3 of Understanding on the Interpretation of Article XVII of the General Agreement on Tariffs and Trade 1994. 22  Appellate Body Report, Canada –​Wheat Exports and Grain Imports, adopted 27 September 2004, paras 84–​100. 20 

796   Juliana Nam themselves constitute a ‘measure’. More so, the types of ‘measure’ covered by Articles I and III of the GATT 1994 tend to concern taxes, other internal charges, laws, regulations, and requirements affecting the internal marketing and sale of imported products.23 In the narrow confines of Article XVII, the Appellate Body seemed to have difficulties extending the notion of a ‘measure’ to the State enterprises’ ‘purchases or sales’.24 This is not surprising as activities of enterprises, such as ‘purchases or sales’ are in most cases commercial transactions. Third, the failure of a State enterprise to accord commercial consideration alone is not enough to establish a breach of Article XVII. The United States tried to argue that the CWB was in an unfair position of being able to act ‘uncommercially’ by being favoured by its government owner. Therefore, it could undercut competition in a manner that was trade distortive.25 The Appellate Body agreed with the Panel that, where there is no evidence of discriminatory conduct by a State enterprise, it is not possible to establish a breach of Article XVII.26 Both the Panel and the Appellate Body found that the mere failure to ensure that a State enterprise accorded ‘commercial consideration’ in itself was insufficient.27 While the references to non-​discriminatory treatment and commercial consideration are in two separate subparagraphs in Article XVII:1, the Appellate Body found that the subparagraphs were ‘closely interrelated’.28 As a result, the Appellate Body held that ‘panels must identify the differential treatment alleged to be discriminatory under subparagraph (a) in order to ensure that they are undertaking a proper inquiry under subparagraph (b)’.29

C. The SCM Agreement may not be used for challenging SOEs subsidizing other enterprises For the biggest liberal economies, GATT/​WTO rules are not suited to new world realities. WTO disputes among the major powers predominantly involve China. According to Wu, ‘[b]‌etween 2009 and 2015, China-​related cases accounted for 90 per cent of the cases brought by the four largest economies against each other’.30 Many of these cases invoke the SCM Agreement, including those brought by China and others against the United States for imposing countervailing duties on their SOE-​made exports

23 

See, in particular, the scope of Article III:1 of the GATT 1994. Appellate Body Report, Canada –​Wheat Exports and Grain Imports, adopted 27 September 2004, paras 84–​100. 25  Ibid., at paras 21–​27. 26  Ibid., at para 89. 27  Ibid., at paras 91 and 145. 28  Ibid., at para 110. 29  Ibid., at paras 110–​112. 30  See Wu, above fn 6, at 263–​264. 24 

State-Owned Enterprises   797 or alleged ‘subsidies’ from SOEs to exporters. In these cases, China (and India) has successfully used the WTO system. Privately-​owned businesses perceive SOEs as ‘agents of the state’ to be used by their government shareholders to tilt the playing field and circumvent the rules on State actors. Against this backdrop, the WTO has been forced to confront the question of which SOEs are an extension of the State and thereby subject to the SCM Agreement.31 The question is whether a WTO Member’s ownership or control of an enterprise is enough for the enterprise to constitute a ‘public body’ capable of making a ‘financial contribution’ caught by the definition of subsidy in Article 1 of the SCM Agreement. If not, is ownership or control of an enterprise sufficient to find that that Member has ‘entrusted’ or ‘directed’ a private body to ‘carry out’ the functions listed in Article 1 of the SCM Agreement? Cases brought against the United States by China32 and India33 in response to US countervailing duties demonstrate the ‘static boundary’ of the SCM Agreement.34 The United States Department of Commerce (USDOC) ruled in trade remedy investigations that Chinese state-​owned banks, SOEs, and Indian SOEs were ‘public bodies’ by applying a per se majority ownership test. Their determination led to the imposition of countervailing duties (CVD) on certain imports from China and India. China and India filed separate complaints against the United States. While panels had initially found in favour of the US, the Appellate Body overturned the earlier decisions, declaring that ‘the precise contours and characteristics of a public body are bound to differ from entity to entity, State to State and case to case’.35 Although US –​Anti-​Dumping and Countervailing Duties (China) focused on the legality of simultaneous imposition of anti-​dumping duties and countervailing duties as a ‘double remedy’, it has become the authority on the meaning of ‘public body’.36 The Appellate Body found that ownership holding alone was not enough to determine whether an entity is a ‘public body’. Instead, the test is whether it is ‘an entity that possesses, exercises or is vested with governmental authority’.37 The US –​Carbon Steel (India) dispute was an opportunity to elaborate on the meaning of ‘public body’. In this dispute, the United States imposed CVD on Indian-​made hot-​ rolled steel products on the basis that the 98 per cent State-​owned National Mineral 31 

Ibid., at 301.   Appellate Body Report, US –​Anti-​Dumping and Countervailing Duties (China), adopted 25 March 2011; and Appellate Body Report, US -​Countervailing Duties (China), adopted on 16 January 2015. 33  Appellate Body Report, US –​Carbon Steel (India), adopted 19 December 2014. 34  See Kim, above fn 6, at 234. 35  Appellate Body Report, US –​Anti-​ Dumping and Countervailing Measures (China), adopted 25 March 2011, para 317. 36  For a comprehensive analysis, see T. Prusa and E. Vermulst, ‘United States –​Definitive Anti-​ Dumping and Countervailing Duties on Certain Products from China: Passing the Buck on Pass-​ Through’ 12(2) World Trade Review (2013) 197–​234; T. Chiang, ‘Chinese State-​Owned Enterprises and WTO’s Anti-​Subsidy Regime’ 49 Georgetown Journal of International Law (2018) 845–​886. 37  Appellate Body Report, US –​Anti-​ Dumping and Countervailing Measures (China), adopted 25 March 2011, para 317. 32

798   Juliana Nam Development Corporation (NMDC) supplied to Indian manufacturers below market-​ priced high-​grade iron ore. The panel upheld the USDOC determination that the NMDC was a ‘public body’. On appeal, the United States defended its ‘public body’ determination on the basis that the Government of India had ‘meaningful control’ over NMDC as the Government of India had ‘near-​total ownership of NMDC’ and ‘governed’ NMDC by being heavily involved in the selection of NMDC’s directors and NMDC was under ‘administrative control’ of the Government of India.38 It further submitted that the Government of India had the ‘formal right to appoint board members, like any shareholder with a significant stake in an entity, and the government actually exercising that right in a given situation’.39 The United States also sought the Appellate Body’s clarification that the term ‘public body’ includes ‘an entity that is controlled by the government such that the government can use that entity’s resources as its own’, irrespective of whether the entity also possesses governmental authority or exercises this authority in the performance of governmental functions.40 The Appellate Body in US –​Countervailing Duties (India) disagreed with the United States. It found that the Panel erred by analysing meaningful control instead of analysing whether the Government of India had actually exercised control over the NMDC and its conduct.41 The Appellate Body confirmed the US –​ Anti-​Dumping and Countervailing Duties (China) finding that ‘the substantive legal question’ is whether ‘an entity . . . possesses, exercises or is vested with governmental authority’.42 The Appellate Body concluded that this standard should not be confused with ‘evidentially standards’.43 In the confines of the ‘government authority’ test, the WTO complaints against the US CVDs highlight the pitfalls of having to establish State intervention to demonstrate that a SOE is providing an ‘actionable subsidy’. SOEs are legally distinct from government. The mere fact that an entity is a SOE does not mean that it has or exercises government authority. To some WTO members, having to prove that a particular SOE is ‘an entity that possesses, exercises or is vested with government authority’ would defeat the point of extending the SCM rules on public bodies.44 To them, the Appellate Body’s findings in US –​Carbon Steel (India) and US –​Anti-​Dumping and Countervailing Measures (China) substantiate the challenges of proving government authority of a SOE in opaque regimes.

38 

Appellate Body Report, US –​Carbon Steel (India), adopted 19 December 2014, para 2.164.

39 Ibid. 40 

Ibid., at para 2.294. Ibid., at para 4.37. 42  Ibid. (original emphasis). 43 Ibid. 44 For in-​ depth analysis, see G. Vidigal, ‘Attribution in the WTO: The Limits of “Sufficient Government Involvement” ’ 6 Journal of International Trade and Arbitration Law (2017) 133–​160. 41 

State-Owned Enterprises   799

III.  TPP SOEs negotiations: background A. A TPP SOE chapter was a US must-​have but not without controversy . . . The United States made clear from the outset of the TPP negotiations that robust disciplines on SOEs were a ‘must-​have’. Congress, industry stakeholders, and trade unions were united in demanding that the alleged unfair advantages of SOEs in the United States and third-​country markets be curtailed.45 US stakeholders raised concerns over: –​ SOEs not having to act ‘commercially’ in their business dealings to the detriment of their privately-​owned competitors, e.g., undercutting prices without a commercial imperative; –​ SOEs being used to by-​pass WTO non-​discriminatory treatment obligations, e.g. offering cheaper goods or services to home consumers than for foreign consumers or procuring goods and services only from home-​grown enterprises that compete with foreign enterprises; –​ the tendency of SOEs to raise foreign State immunity before domestic courts; –​ the partiality of administrative tribunals and regulators in favouring SOEs over other enterprises; –​ governments subsidizing SOEs unfairly, or just as unfairly using SOEs to provide cheaper financing and in-​kind goods and services to other SOEs; and –​ the paucity of information on enterprises’ ownership structure and the scope of their operations.46 The US demand was not embraced by all other TPP countries for some time. It took considerable effort by the United States initially, and then jointly with Australia, to convince the others to engage.47

45 

See USITC, above fn 1.

46 Ibid.

47  See, e.g., ‘Australian Principles-​ Based SOE Approach Includes Sub-​Central Entities’ Inside U.S. Trade (11 March 2013), at < https://​insi​detr​ade.com/​daily-​news/​aus​tral​ian-​pri​ncip​les-​based-​soe-​appro​ ach-​inclu​des-​sub-​cent​ral-​entit​ies > (last visited 9 September 2021); ‘TPP Countries Face Challenges on SOEs, Including Focus on Ownership’ Inside U.S. Trade (11 March 2013), at < https://​insi​detr​ade. com/​daily-​news/​tpp-​countr​ies-​face-​cha​llen​ges-​soes-​includ​ing-​focus-​owners​hip > (last visited 9 September 2021).

800   Juliana Nam

B. All TPP countries have a history of government involvement in the marketplace The 12 TPP countries are remarkably diverse in their economic models. They comprise the world’s leading free-​market economy, developing economies that remain deeply dependent on SOEs to drive growth, Latin American economies that manage national energy and resources with SOEs, and advanced economies that continue to use SOEs to serve public policy objectives. All TPP partners have SOEs. For example, the United States owns major lenders Federal National Mortgage Association48 (i.e., ‘Fannie Mae’) and Federal Home Loan Mortgage Corporation49 (i.e., ‘Freddie Mac’). New Zealand owns enterprises supplying a range of services, including air services (i.e., Air New Zealand) and banking (i.e., Kiwi Bank).50 Brunei, Chile, Malaysia, Mexico, Peru, and Viet Nam each has state-​ owned enterprises in the energy resources sectors (i.e., PetroleumBrunei,51 Codelco,52 Petronas,53 Petromex,54 Petroperu55 and Petrovietnam,56 respectively). The OECD’s 2017 analysis of State ownership featured a number of TPP countries,57 including Malaysia, Singapore, and Viet Nam, which each hold respectively 33 per cent, 10 per cent, and 14 per cent share of equity market capitalization.58 While there is little publicly available analysis of Brunei, the state-​owned oil and gas sector accounts for over half of its GDP,59 90 percent of government revenue, and 90 percent of its exports. Further, the subsidiaries of these SOEs tend to be more internationally active than those from the OECD members in the TPP. Also, these are countries where SOEs are ‘national champions’. Singapore and Malaysia, for instance, each has sovereign wealth funds 48  Official Guide to Government Information and Services, at < https://​www.usa.gov/​fede​ral-​agenc​ ies/​fede​ral-​natio​nal-​mortg​age-​asso​ciat​ion-​fan​nie-​mae > (last visited 9 September 2021); Fannie Mae, < http://​www.fannie​mae.com/​por​tal/​index.html > (last visited 9 September 2021). 49  Official Guide to Government Information and Services, at < https://​www.usa.gov/​fede​ral-​agenc​ ies/​fede​ral-​home-​loan-​mortg​age-​corp​orat​ion-​fred​die-​mac > (last visited 9 September 2021); Freddie Mac, at < http://​www.fre​ddie​mac.com > (last visited 9 September 2021). 50 New Zealand Department of Prime Minister and Cabinet, Ministerial Portfolios State owned Enterprises, at < https://​dpmc.govt.nz/​cabi​net/​por​tfol​ios/​state-​owned-​ent​erpr​ise s> (last visited 9 September 2021). 51  Brunei National Petroleum Company (PetroleumBrunei), at < http://​www.petr​oleu​mbru​nei.com. bn > (last visited 9 September 2021). 52  Codelco, at < https://​www.code​lco.com > (last visited 9 September 2021). 53  Petroliam Nasional Berhad (Petronas), at < https://​www.petro​nas.com > (last visited 9 September 2021). 54  Petromex, at < https://​sindic​atop​etro​mex.com/​tag/​petro​mex/​ > (last visited 9 September 2021). 55  PETROPERÙ SA, at < https://​www.petrop​eru.com.pe > (last visited 9 September 2021). 56 Vietnam Oil and Gas Group (Petrovietnam), at < https://​www.pvn.vn > (last visited 9 September 2021). 57  See OECD, above fn 6, at 109. 58 Ibid. 59  Heritage Foundation, Index of Economic Freedom (2019), at < https://​herit​age.org > (last visited 9 September 2021).

State-Owned Enterprises   801 (i.e., GIC60 and Temasek61 and Khazanah,62 respectively) which are entrusted with overseeing the government holdings of commercial enterprises.

C. Each TPP country had its own experience of reform and governance of SOEs All TPP countries have particular experiences in respect of their objectives for and their use and management of SOEs. As elaborated in Section D.2 below, Annex IV of the TPP—​ the Party-​specific annexes for Chapter 17—​provides insight into each TPP country’s SOEs. Annex IV shows that the national interests in establishing and maintaining SOEs are varied, covering favourable treatment for Indigenous persons (e.g. Australia), socio-​economic development (Malaysia); autonomy over natural resources (e.g. Brunei); or the provision of affordable and reliable infrastructure across the nation (e.g. Canada). The TPP does not seek to harmonize the different corporate governance regimes for SOEs. Nor does the TPP seek to determine the legitimacy of SOEs. Rather, the domestic experience of individual governments informed their negotiating positions. Given the diversity of experience, seeking harmonization would not have been attainable. In negotiating the TPP, Australia drew on its extensive experience of past SOE reform.63 The OECD had singled out Australia as an economy with one of the most complete ‘competitive neutrality’ models (CN models) in terms of pursuing additional policies that identify and neutralize the competitive advantage of SOEs in the market.64 In Australia, the principle of competitive neutrality requires governments at all levels to ensure that they do not provide a competitive advantage to any government-​owned businesses in their business activities by virtue of their government ownership.65 A business activity must: (i) involve the charging of fees for goods and services; (ii) have actual or potential competitors; and (iii) allow the management of the enterprise to have a degree of independence in relation to the supply of the good or service.66 CN models 60 

GIC, at < https://​www.gic.com.sg > (last visited 9 September 2021). Holdings, at < https://​www.tema​sek.com.sg/​en/​index.html > (last visited 9 September 2021). 62  Khazanah Nasional Berhad, at < http://​www.khaza​nah.com.my/​Home > (last visited 9 September 2021). 63 M. Rennie and F. Lindsay, ‘Competitive Neutrality and State-​ Owned Enterprises in Australia: Review of Practices and their Relevance for Other Countries’ 2011 OECD Corporate Governance Working Papers No. 4 (Paris: OECD, 2011). 64  See, e.g., OECD, Competitive Neutrality: Maintaining a Level Playing Field Between Public and Private Business (Paris: OECD Publishing, 2011). 65 Australian Government, Competitive Neutrality Policy Statement (1996) and Australian Government, Competitive Neutrality Guidelines for Managers (2004), at < https://​cons​ult.treas​ury.gov. au/​mar​ket-​and-​comp​etit​ion-​pol​icy-​divis​ion/​comp​etit​ive-​neu​tral​ity-​rev​iew/​suppo​rtin​g_​do​cume​nts/​ 2004%20Comp​etit​ive%20Neu​tral​ity%20Gui​deli​nes%20for%20M​anag​ers%20AG​CN_​g​uide​_​v4.pdf > (last visited 9 September 2021). 66 Ibid. 61  Temasek

802   Juliana Nam do not apply to non-​business, non-​profit activities.67 While Australia’s CN model is applied at a domestic level, its core principles could be drawn on to neutralize unfair advantages to the extent that they affect trade and investment.

IV.  Defining a SOE for the purposes of Chapter 17 of the TPP When they signed the TPP agreement on 4 February 2016, the TPP partners concluded the world’s first standalone chapter on SOEs in a trade agreement. Chapter 17 seeks to fill the vacuum in the WTO agreements by targeting SOEs that operate in the commercial space and compete with private businesses.

A. TPP rules apply to activities within the free trade area, and in some circumstances, beyond Article 17.2.1 of the TPP provides that: This Chapter shall apply with respect to the activities of state-​owned enterprises and designated monopolies of a Party that affect trade or investment between Parties within the free trade area.68

Footnote 9 adds that ‘[t]‌his chapter applies with respect to the activities of a Party that cause adverse effects in the market of a non-​Party as provided in Article 17.7 (Adverse Effects)’.69 The chapter covers TPP Parties’ SOE activities that concern trade or investment interests of other TPP Parties within the free trade area established pursuant to Article 1.1 of the TPP. That means that the chapter does not apply to the SOE activities of a TPP Party that have an impact on a non-​Party’s interests. However, the chapter may apply where a TPP Party’s SOE activities cause ‘adverse effects’ in a non-​Party’s market,70 for example if a TPP Party provides financial assistance to its SOE, which has the effect of displacing another TPP Party’s like export to a third market outside the free trade area. 67 Ibid. 68 

Emphasis added. Emphasis added. 70  Hypothetically, a Party’s SOE receiving ‘non-​commercial assistance’ is causing ‘adverse effect’ to the interests of a non-​TPP country is not within Chapter 17’s scope regardless of whether the SOE’s activities are taking place within the TPP free trade area or not. However, should a Party’s SOE receive ‘non-​ commercial assistance’, which causes ‘adverse effects’ to the interests of another Party for activities taking place outside the TPP free trade area, such activities would be within Chapter 17’s scope. 69 

State-Owned Enterprises   803

B. Chapter 17 of the TPP only applies to enterprises that are ‘controlled’ by a TPP Party Article 17.1 of the TPP defines an SOE as: . . . an enterprise that is principally engaged in commercial activities in which a Party: (a)  directly owns more than 50 per cent of the share capital; (b) controls, through ownership interests, the exercise of more than 50 per cent of the voting rights; or (c) holds the power to appoint a majority of members of the board of directors or any other equivalent management body.

This was a key hurdle in the TPP negotiations. Existing US ‘NAFTA-​style’ FTAs already contained disciplines on broadly defined ‘state enterprises’, most notably the US-​Singapore FTA, which employs the concept of ‘effective influence’ in defining Singapore’s government enterprises.71 Nonetheless, the provisions in those agreements were not far-​reaching enough for the United States in the TPP.72 As a first step, it was important to establish the meaning of ‘control’. Control is the determining factor in establishing the link between the TPP Party and the enterprise and in demonstrating that a Party has responsibility over the conduct of the enterprise. While it is clear that a government could control an enterprise through majority ownership, the notion of control by other means has yet to set under international law.73 Domestic corporate law has long ago resolved this issue, defining ‘control’ in situations without majority ownership.74 This occurs when one entity determines the outcome of another entity’s financial and operating policies.75 The TPP does not seek to harmonize or find convergence among the TPP Parties on this matter. Instead, the negotiated outcome is a definition that seeks to make clear

71  See definition of ‘government enterprises’ in Chapter 12 of US-​Singapore Free Trade Agreement, signed on 6 May 2003, entered into force on 1 January 2004, at < https://​ustr.gov/​trade-​agr​eeme​nts/​free-​ trade-​agr​eeme​nts/​singap​ore-​fta/​final-​text > (last visited 9 September 2021). 72  Chapter 14 of the Australia-​US FTA defines a state enterprise as ‘an enterprise owned or controlled through ownership interests by any level of government of a party’. The US-​Singapore FTA defines ‘government enterprise’ for Singapore as an enterprise in which that Party has ‘effective influence’. Annex 12-​1 to the US-​Singapore FTA illustrates how the analysis of effective influence should proceed. 73  Draft Articles on Responsibility of States for Internationally Wrongful Acts 2001, Text adopted by the International Law Commission at its fifty-​third session, in 2001, and submitted to the General Assembly (A/​56/​10). The report, which also contains commentaries on the draft articles, appears in the Yearbook of the International Law Commission, 2001, vol. II, Part Two, as corrected at < http://​legal. un.org/​ilc/​texts/​inst​rume​nts/​engl​ish/​comme​ntar​ies/​9_​6_​2​001.pdf > (last visited 9 September 2021) (ILC Articles on State Responsibility). 74  See K. Hopt, ‘Groups of Companies: A Comparative Study of the Economics, Law, and Regulation of Corporate Groups’ in G.J. Ringe and K. Hopt (eds), The Oxford Handbook of Corporate Law and Governance (Oxford: Oxford University Press, 2015), Chapter 23. 75  See, e.g., section 50AA of Corporations Act 2001 (Commonwealth) of Australia.

804   Juliana Nam which enterprises are covered. The agreed definition accordingly relies on three relevant factors: (i) direct majority ownership; (ii) exercise of a majority of voting rights; and (iii) power to appoint a majority of board members.

C. Only ‘commercial’ SOEs are covered by Chapter 17 of the TPP The TPP covers ‘commercial’ SOEs. Government agencies can also charge for goods or services. For instance, a traffic authority charges a fee for car registration, and a post office sells stamps within its universal service obligation. As a result, it is not always easy to distinguish SOEs from other government bodies or authorities. To distinguish, the definition of SOEs refers to ‘an enterprise that is principally engaged in commercial activities’. The term ‘commercial activities’ is defined as: activities which an enterprise undertakes with an orientation toward profit-​making1 and which result in the production of a good or supply of a service that will be sold to a consumer in the relevant market in quantities and at prices determined by the enterprise;2 1 For greater certainty, activities undertaken by an enterprise which operates on a not-​for-​profit basis or on a cost-​recovery basis are not activities undertaken with an orientation toward profit-​making. 2 For greater certainty, measures of general application to the relevant market shall not be construed as the determination by a Party of pricing, production, or supply decisions of an enterprise.

The definition of ‘commercial activities’ draws on the scope of the CN model, namely that the enterprise conducts ‘significant business activities’ which involve the selling of goods or services in the market, and thus in competition with other enterprises, for the purposes of earning a commercial return. It is important that in the relationship of the SOE vis-​à-​vis a statutory body, the enterprise’s management has independence over the decisions on the enterprise’s pricing, production or supply.

D. Exemptions from obligations in Chapter 17 of the TPP 1. General carve-​outs As a negotiated outcome, Chapter 17 contains carve-​outs. Some exclude the operation of the entire chapter, and others exclude specific provisions. Under Article 17.2: –​ government procurement is excluded from the application of Chapter 17 (Article 17.2.7);

State-Owned Enterprises   805 –​ monetary policy (Article 17.2.2), regulatory or supervisory activities of central banks and financial regulatory bodies (Article 17.2.3), and activities related to the resolution of a failing or failed financial institutions (Article 17.2.4) are carved-​out of the entire chapter. Some of these may be ‘services supplied in the exercise of governmental authority’, but unlike the GATS, Chapter 17 also imposes obligations on services supplied in the exercise of governmental authority; –​ SOEs that provide goods or services ‘exclusively’ for governmental functions are not covered by the chapter (Article 17.2.8). For instance, to improve the efficiency of a government agency by ‘corporatizing’ its services, the government may transform the agency into a corporation. In this scenario, the government may wish to ensure that the new corporation is not caught up in any conflicts of interests by having the government and a non-​government entity as clients; –​ sovereign wealth funds (Article 17.2.5) and independent pension funds (Article 17.2.6) meeting the definitions in Chapter 17 of the TPP are excluded, except in relation to the obligations on the provision of non-​commercial assistance (Article 17.6); –​ any services supplied in the exercise of governmental authority are excluded from the application of Articles 17.4, 17.6 and 17.10 (Article 17.2.10), but they still must comply with Article 17.3 (Delegated Authority) and Article 17.5 (Courts and Administrative Bodies); –​ TPP Parties’ Annex I, II, and III reservations take against the national treatment and most-​favoured nation obligations in Chapter 9 (Investment), Chapter 10 (Cross-​Border Trade in Services), and Chapter 11 (Financial Services) are preserved pursuant to Article 17.2.11. This means that, if a Party uses a SOE to make a purchase or sale of a good or service as a ‘Non-​Conforming Measure’ scheduled in the Party’s Annex I, II or III, then such discriminatory purchase or sale would not be inconsistent with Article 17.4. In addition, Article 17.6 (Non-​commercial Assistance) does not cover a Party’s ‘non-​ commercial assistance’, provided for services supplied by that Party’s SOE within that Party’s territory.76

2. Country-​specific carve-​outs Article 17.9.1 of the TPP allows each TPP Party to list ‘non-​conforming activities’ of its SOEs in relation to the application of Article 17.4 (Non-​discriminatory Treatment and Commercial Considerations) and Article 17.6 (Non-​commercial Assistance). The non-​conforming activities are scheduled in Annex IV of the TPP Agreement. Annex IV is similar in style to NAFTA-​style reservations for investment and cross-​ border trade in services chapters. Like TPP Annexes I, II, and III, these Party-​specific carve-​outs are intended to maintain future policy space for certain policy goals or economic sectors described in TPP Annex IV. Most TPP negotiating partners sought

76 

See section V.F below for further analysis.

806   Juliana Nam to make reservations for their SOEs’ activities in respect of ‘WTO-​plus’ obligations contained in Chapter 17. Regardless of whether the activities are inconsistent with Article 17.4 (Non-​discriminatory Treatment and Commercial Considerations) and Article 17.6 (Non-​commercial Assistance), some negotiating partners would have sought such reservations for optics, that is, due to domestic political sensitivities. Only Japan refrained from scheduling any Annex IV reservations. Singapore and Malaysia each have an additional country-​specific annex in relation to the coverage of their sovereign wealth funds.77 Pursuant to Article 17.9.2, each TPP Party carved out the application of certain obligations at the sub-​central level of government as specified in Annex 17-​D. Annex 17-​ C provides a built-​in negotiation agenda for the Parties within five years from the TPP’s entry-​into-​force.

V.  Main obligations under Chapter 17 of the TPP A. The rules of attribution apply to SOEs delegated with authority Article 17.3 of the TPP (‘Delegated Authority’) provides: Each Party shall ensure that when its state-​owned enterprises, state enterprises, and designated monopolies exercise any regulatory, administrative or other governmental authority that the Party has directed or delegated to such entities to carry out, those entities act in a manner that is not inconsistent with that Party’s obligations under this Agreement.12 12 Examples of regulatory, administrative, or other governmental authority include the power to expropriate, grant licences, approve commercial transactions, or impose quotas, fees, or other charges.

Arguably, Article 17.3 is already enshrined under customary international law. As stated by the ILC Articles on State Responsibility: . . . in application of the lex specialis principle, in general states are free to agree that different rules should apply to specific obligations in force between then as regards, inter alia, attribution of conduct, when an obligation in breached, the content of any responsibility that rises, and questions of invocation.78

77  78 

See Annex 17-​E (Singapore) and Annex 17-​F (Malaysia) of the TPP. Article 55 of the ILC Articles on State Responsibility.

State-Owned Enterprises   807 In the TPP negotiations, it was important for the negotiating partners to make explicit that the customary international law on state responsibility applies to SOEs. It was equally important to reflect the clear understanding that each Party has an obligation to ensure that SOEs delegated with government authority carry out their duties in accordance with that Party’s TPP obligations.

B. SOEs must act commercially except for their ‘public service mandate’ Article 17.4.1(a) of the TPP provides that, ‘[e]‌ach Party shall ensure that each of its state-​ owned enterprises, when engaging in commercial activities acts in accordance with commercial considerations in its purchase or sale of a good or service, except to fulfil any terms of its public service mandate that are not inconsistent with subparagraph (c) (ii)’ (emphasis added). Of note, Chapter 17 includes definitions on: commercial considerations means price, quality, availability, marketability, transportation, and other terms and conditions of purchase or sale, or other factors that would normally be taken into account in the commercial decisions of a privately owned enterprise in the relevant business or industry; public service mandate means a government mandate pursuant to which a state-​ owned enterprise makes available a service, directly or indirectly, to the general public in its territory;6 6 For greater certainty, a service to the general public includes: (a)  the distribution of goods; and (b)  the supply of general infrastructure services.

As discussed above, a big hurdle in pursuing an Article XVII GATT 1994 claim is that evidence of ‘uncommercial’ behaviour by a commercial SOE does not on its own establish a prima facie violation. The converse inference is that WTO obligations do not prevent Members from using their commercial SOEs to act ‘uncommercially’ in their business dealings to the detriment of their privately-​owned competitors. Such behaviour could over time become trade distortive and affect investment interests. Further, this is contrary to CN principles. Article 17.4.1 establishes a distinct obligation on Parties to ensure that their SOEs act ‘commercially’. To bring greater clarity, Chapter 17 includes a definition of ‘commercial consideration’, which draws on Article XVII.1(b) of the GATT 1994, providing that: such enterprises shall . . . make any such purchases or sales solely in accordance with commercial considerations, including price, quality, availability, transportation and other conditions of purchase or sales . . . in accordance with customary business practice . . .

808   Juliana Nam The TPP’s definition adds to the scope of commercial consideration ‘other factors that would normally be taken into account in the commercial decisions of a privately-​owned enterprise in the relevant business or industry’. That is, ‘other factors’ expand on the reference in Article XVII:1(b) of the GATT 1994 to ‘customary business practice’. Article 17.4.1(a) also makes clear that a Party may use SOEs to meet community service obligations. This is in line with CN principles, which do not apply to a SOE’s ‘public service mandate’. All TPP negotiating partners have or had SOEs that provide public services, including postal services, public utilities, public transport, and infrastructure. For that purpose, Article 17.4.1(a) carves out a ‘public service mandate’. The carve-​out is confined to a Party’s SOE services available to the general public in the Party’s home territory. Such services must have been subject to a government mandate, which usually is legislated or inscribed in a government policy directive. It is difficult to see how a SOE’s services supplied outside of its territory (and therefore not for the residents of SOE’s home country) could be anything other than ‘commercial’. Further, it is difficult to see how a SOE producing goods in actual or potential competition with other market players could be anything other than ‘commercial’.

C. SOEs must respect the obligation of non-​ discriminatory treatment The relevant excerpts of Article 17.4 of the TPP provide: 1. Each Party shall ensure that each of its state-​owned enterprises, when engaging in commercial activities:





. . . (b)  in its purchase of a good or service: (i) accords to a good or service supplied by an enterprise of another Party treatment no less favourable than it accords to a like good or a like service supplied by enterprises of the Party, of any other Party or of any non-​Party; and (ii) accords to a good or service supplied by an enterprise that is a covered investment in the Party’s territory treatment no less favourable than it accords to a like good or a like service supplied by enterprises in the relevant market in the Party’s territory that are investments of investors of the Party, of any other Party or of any non-​Party; and (c)  in its sale of a good or service: (ii)  (i)  accords to an enterprise of another Party treatment no less favourable than it accords to enterprises of the Party, of any other Party or of any non-​Party; and accords to an enterprise that is a covered investment in the Party’s territory treatment no less favourable than it accords to enterprises in the relevant market in the Party’s territory that are investments of investors of the Party, of any other Party or of any non-​Party.13

State-Owned Enterprises   809 13

Article 17.4.1 (Non-​discriminatory Treatment and Commercial Considerations) shall not apply with respect to the purchase or sale of shares, stock or other forms of equity by a state-​owned enterprise as a means of its equity participation in another enterprise.



. . . 3. Paragraphs 1(b) and 1(c) and paragraphs 2(b) and 2(c) do not preclude a state-​ owned enterprise or designated monopoly from:

a. purchasing or selling goods or services on different terms or conditions including those relating to price; or b. refusing to purchase or sell goods or services, provided that such differential treatment or refusal is undertaken in accordance with commercial considerations. The purpose of subparagraphs (b) and (c) of Article 17.1 is two-​fold. First, the subparagraphs seek to clarify what was meant by the following reference in Article XVII of the GATT 1994: ‘the general principles of non-​discriminatory treatment prescribed in this Agreement for governmental measures affecting imports and exports of private traders’. Second, they expand the coverage beyond Article XVII of the GATT 1994, which applies only in the context of ‘purchases or sales’ of goods ‘involving either imports or exports’. Unlike Article XVII, the non-​discrimination obligation in Article 17.1 of the TPP would also apply in the context of: –​ a Party’s SOEs’ purchases or sales of services supplied by another Party’s enterprise; and –​ another Party’s enterprise that is a covered investment in the Party’s territory. Importantly, Article 17.3 distinguishes the non-​discrimination obligation from a ‘normal’ commercial decision not to purchase or sell to a particular enterprise. This Article recognizes that in order for a SOE to accord commercial considerations, it may accord ‘differential treatment’ in its business decisions related to purchases and sales. For instance, a Party’s SOE may refuse to sell to another Party’s enterprise because it has a history of late payments or refuse to purchase from another Party’s enterprise with a reputation for producing unreliable goods.

D. An agreement to ensure foreign SOEs can’t rely on sovereign state immunity for civil claims concerning their commercial activities in the Party’s territory As raised in OECD reports, there is a strong perception held by businesses and regulators in OECD countries that foreign SOEs will invoke sovereign state immunity

810   Juliana Nam for civil claims brought against them.79 Article 17.5.1 seeks to appease concerns over perceptions of an abusive invocation of sovereign immunity by commercial SOEs. All TPP signatories’ courts may exercise jurisdiction over civil claims against foreign SOEs based on their commercial activities carried out on their territory.

E. An agreement to ensure that their administrative bodies are impartial Article 17.5.2 seeks to address concerns over the apparent impartiality of administrators and regulators. A core concern raised by stakeholders is the perceived unfair treatment of local SOEs by the administrators and regulators of host governments. Article 17.5.2 does not seek to cover ‘one-​off ’ cases of unfair treatment. Instead, it considers a pattern or practice over time.

F. An agreement not to cause ‘adverse effects to’ or ‘injury to a domestic industry of ’ another Party through the use of unfair benefits provided to its SOEs The biggest complaint about SOEs has been that WTO Members were circumventing their obligations under the SCM Agreement by using SOEs to provide uncompetitive advantages to other SOEs that compete with privately-​owned businesses. Governments subsidizing SOEs is unfair, but it is just as unfair for SOEs to provide cheaper financing and in-​kind goods and services to other SOEs. The concern was exacerbated by the Appellate Body’s finding in the India –​US CVD and China –​US CVD cases. Favouring a SOE by virtue of their government ownership is also contrary to CN principles. In effect, Article 17.6 (Non-​commercial Assistance) seeks to draw on the SCM Agreement and address the concerns over uncompetitive advantages provided to SOEs, whether provided directly or indirectly by a Party. Article 17.6 of the TPP prohibits a Party from causing ‘adverse effects’ to another Party’s interests through the use of ‘non-​commercial assistance’ to its SOE, whether the assistance is provided: –​ directly or indirectly by the Party (Article 17.6.1). [Footnote 18 draws the phrase ‘entrusts or directs’ from SCM Article I (iv)]; or –​ by the Party’s SOE (Article (17.6.2).

79 

See D. Gaukrodger, ‘Foreign State Immunity and Foreign Government Controlled Investors’ 2010 OECD Working Papers on International Investment, No. 2 (Paris: OECD, 2010).

State-Owned Enterprises   811 More than the SCM Agreement, Article 17.6 of the TPP applies to: (a) ‘adverse effects’ caused by a Party to the interests of another Party with respect to: • the production and sales of goods of the SOE; • the supply of a service by the SOE from the territory of the Party into the territory of another Party (GATS Mode 1); or • the supply of a service in the territory of another Party through an enterprise that is a covered investment in the territory of that other Party or any other Party (GATS Mode 3); (b) ‘injury’ caused by a Party to domestic industry of another Party through the use of non-​commercial assistance that the Party provides to a SOE that is a covered investment in the territory of the other Party. For instance, this circumstance could arise where a Party’s manufacturing SOE has set up a factory in another Party’s territory.

This is the first time that an international trade agreement has disciplined subsidization of services, although Article 17.6.4 makes clear that the obligation does not apply to a Party’s SOE’s supply of services within the Party’s domestic territory. Most TPP Parties have SOEs that fulfil a public service mandate in their home territories and receive some form of grant or differential treatment from their government-​owners to meet their mandate. Such SOEs are often established because there are no actual or potential competitors to supply ‘like services’ in the relevant market. As a negotiated outcome, the Parties have decided to deem such services as not causing ‘adverse effects’. While the TPP delivered the world’s first disciplines on services subsidies, they may prove difficult to enforce. The complexity of WTO disputes shows that evidence on subsidization of goods is tough to gather. Arguably, it is even more difficult for services. Chapter 17 tries to address such challenges by adapting the SCM Agreement Annex V (Procedures for Developing Information concerning Serious Prejudice) into Annex 17-​B (Process for Developing Information Concerning State-​Owned Enterprises and Designated Monopolies). Paragraph 6 of Annex 17-​B provides that ‘the panel should draw adverse inferences from instances of non-​cooperation by a disputing Party in the information gathering process’. The term ‘non-​commercial assistance’ is defined in Chapter 17 as: non-​commercial assistance4 means assistance to a state-​owned enterprise by virtue of that state-​owned enterprise’s government ownership or control, where:



(a) ‘assistance’ means:

(i) direct transfers of funds or potential direct transfers of funds or liabilities, such as: (A)  grants or debt forgiveness; (B) loans, loan guarantees or other types of financing on terms more favourable than those commercially available to that enterprise; or (C) equity capital inconsistent with the usual investment practice, including for the provision of risk capital, of private investors; or

812   Juliana Nam

(ii) goods or services other than general infrastructure on terms more favourable than those commercially available to that enterprise; (b) ‘by virtue of that state-​owned enterprise’s government ownership or control’5 means that the Party or any of the Party’s state enterprises or state-​owned enterprises: (i) explicitly limits access to the assistance to the Party’s state-​owned enterprises; (ii) provides assistance which is predominately used by the Party’s state-​ owned enterprises; (iii) provides a disproportionately large amount of the assistance to the Party’s state-​owned enterprises; or (iv) otherwise favours the Party’s state-​owned enterprises through the use of its discretion in the provision of assistance; 4 For greater certainty, non-​commercial assistance does not include: (a) intra-​ group transactions within a corporate group including state-​owned enterprises, for example, between the parent and subsidiaries of the group, or among the group’s subsidiaries, when normal business practices require reporting the financial position of the group excluding these intra-​group transactions; (b) other transactions between state-​owned enterprises that are consistent with the usual practices of privately owned enterprises in arm’s length transactions; or (c) a Party’s transfer of funds, collected from contributors to a plan for pension, retirement, social security, disability, death or employee benefits, or any combination thereof, to an independent pension fund for investment on behalf of the contributors and their beneficiaries. 5 In determining whether the assistance is provided ‘by virtue of that state-​owned enterprise’s government ownership or control’, account shall be taken of the extent of diversification of economic activities within the territory of the Party, as well as of the length of time during which the non-​commercial assistance programme has been in operation.

Part (a) of the definition draws on Article 1.1(a) of the SCM Agreement. Unlike the ‘deemed’ definition in the SCM Agreement of a ‘subsidy’, it does not require the additional element of ‘conferred benefit’ to be satisfied separately. Nonetheless, like the SCM Agreement, the TPP’s definition of non-​commercial assistance includes a ‘specificity’ element. The assistance must have been provided ‘by virtue of that state-​owned enterprise’s government ownership or control’. This element is elaborated in part (b) of the definition, and it builds on Article 2 of the SCM Agreement. The phrase ‘by virtue of that state-​owned enterprise’s government ownership or control’ comes from CN principles whereby the competitive advantage of interest had been conferred because of the SOE’s government ownership. Article 17.7 (Adverse Effects) and Article 17.8 (Injury) draw on the following provisions of the SCM Agreement: Article 5 (Adverse Effects), Article 6 (Serious Prejudice), Article 15 (Determination of Injury) and Article 16 (Definition of Domestic Injury).

State-Owned Enterprises   813

G. The need for transparent SOEs Another major issue with SOEs is the paucity of information about them, including whether they are state-​owned. Whether a prospective client or business partner is publicly owned is the basic information that would assist any business’ decision-​making. The ineffectiveness of Article XVII:4 of the GATT 1947 was highlighted by United States negotiators to Congress in their 1995 ‘letter’ on the outcomes of the Uruguay Round: Some information on state trading in GATT member countries has been obtained through the notification process, but compliance with the reporting requirement has generally been poor. From 1980 to 1994, the highest annual response rate to article XVII’s reporting requirement was about 21 percent of GATT members.80

The Uruguay Round’s Understanding on the Interpretation of Article XVII of the General Agreement on Tariffs and Trade 1994 sought to improve transparency on the import and export activities of WTO Member States’ State Trading Enterprises, but it is for a limited category of SOEs. Article 17.10 goes further to ensure transparency. Article 17.10.1 requires each TPP Party to make public or provide its list of entities meeting the definition of ‘SOE’ within six months of the entry into force of the TPP and update the list annually. For some, this has been a straightforward process. For others, it will not be so easy. Brunei, Malaysia, and Viet Nam have negotiated transitional periods beyond six months.81 The remaining subparagraphs of Article 17.10 establish the right of a TPP Party to request another Party for information about its SOE.82

VI.  Exceptions to the obligations in Chapter 17 of the TPP In addition to Chapter 29 of the TPP (Exceptions and General Provisions), Article 17.13 contains the exceptions to Chapter 17 obligations. These circumstances fall within the chapter’s scope, but Parties raise them as defences, for instance:

80 United States Government, State Trading Enterprises: Compliance with the General Agreement on Tariffs and Trade (Letter Report, 08/​30/​95, GAO/​GGD-​95-​208), at < https://​www.govi​nfo.gov/​ cont​ent/​pkg/​GAO​REPO​RTS-​GGD-​95-​208/​html/​GAO​REPO​RTS-​GGD-​95-​208.htm > (last visited 9 September 2021). 81  Chapter 17 of the TPP, fn 28 (concerning Brunei) and fn 29 (concerning Vietnam and Malaysia). 82  For a critical analysis, see R. Wolfe, ‘Sunshine over Shanghai: Can the WTO Illuminate the Murky World of Chinese SOEs?’ 16(4) World Trade Review (2017) 713.

814   Juliana Nam –​ national or global economic emergencies (Article 17.13.1) –​ export credit financing institutions (Articles 17.13.2 and 17.13.3). Further, Article 17.13.5 and Annex 17-​A (Threshold Calculation) provide that Articles 17.4, 17.6, 17.10, and 17.12 do not apply to SOEs with an annual revenue of less than SDR 200 million (derived from commercial activities). This ‘monetary threshold’ is adjusted at three-​year intervals in accordance with the formula set out in Annex 17-​A.

VII.  Post-​TPP developments on SOEs disciplines A. The TPP is dead. Long live the TPP On 30 January 2017, the United States advised other TPP signatories that it did not intend to ratify the TPP. Without the United States, the TPP cannot enter into force pursuant to Article 29.5. This left in doubt the operation of the TPP’s commitments and obligations, including on SOEs. After intensive discussions among the remaining 11 TPP signatories, those parties signed the Comprehensive and Progressive Agreement for Trans-​Pacific Partnership (CPTPP) on 8 March 2018 in Santiago. The CPTPP incorporates by reference the entire TPP commitments as applicable among the 11. Under the CPTPP, 22 original TPP provisions are suspended. Of the suspensions, none change the text of Chapter 17 of the TPP. On 30 December 2018, Chapter 17 came into force among the six original parties to the CPTPP. This means that the world’s first stand-​alone chapter on SOEs is now binding under international law. The TPP’s influence is already apparent. The EU-​Japan EPA, which entered into force on 1 February 2019, includes a chapter on SOEs, enterprises granted special rights or privileges, and designated monopolies. Subject to a few structural differences, the provisions of Chapter 17, in terms of scope, definitions, and obligations concerning commercial consideration, non-​discriminatory treatment, and impartiality of administrative authority are replicated or adapted in the EU-​Japan EPA. Arguably, the European Union and Japan take the obligations to a higher level by applying the disciplines to all levels of government. Interestingly, the key omission in this agreement is the obligations concerning non-​commercial assistance.

B. We can expect more ‘TPP Plus’ SOEs provisions The USMCA, which replaced NAFTA on 1 July 2020, also contains a SOE chapter modelled on TPP Chapter 17. Chapter 22 (State-​Owned Enterprises and Designated Monopolies) of the USMCA nonetheless differs in some significant respects.

State-Owned Enterprises   815 A notable change from the TPP is the USMCA definition of ‘State-​owned Enterprise’, since it contains an explicit reference to ‘indirect’ ownership. An enterprise constitutes a SOE if the Party owns indirectly 50 per cent of the share capital or controls indirectly 50 per cent of the voting rights. Chapter 22 Footnote 7 also defines ‘indirectly’ through a reference to ‘situations on which a Party holds an ownership interest in an enterprise through one or more state enterprises of that Party’. The USMCA definition also provides that an enterprise is a SOE if the Party ‘holds the power to control the enterprise through any other ownership interest, including indirect or minority ownership’. Also, Article 22.6 (Non-​Commercial Assistance) the USMCA introduces a category of prohibited non-​commercial assistance, evoking the SCM’s concept of prohibited subsidies. Article 22.6.1 provides that the Parties are prohibited from providing assistance to uncreditworthy or insolvent SOEs. Article 22.6.1(c) also prohibits a Party from converting an outstanding debt of its SOE to equity ‘in circumstances where this would be inconsistent with the usual investment practice of a private investor’. While such prohibitions also apply to SOEs’ services supplied within their home territory, unlike the TPP, Article 22.6.1 does not apply to electricity SOEs. Should negotiations such as those for the Trade in Services Agreement and the United States-​EU Trans-​Atlantic Trade and Investment Partnership Agreement ever get taken out of the deep freeze, we can be certain that they will further the development of TPP’s SOEs provisions. As the CPTPP Parties have intentions to ‘promote the principles underlying [Chapter 17] in relevant regional and multilateral institutions’, we can also expect discussions on SOEs to take place globally as major economies are intent on finding a common ground.83

VIII. Conclusion Chapter 17 of the TPP, like the rest of the agreement, is the sum of the concerns and interests of 12 wide-​ranging economies. It seeks a balance between the differing interests. This outcome is an example of how the TPP sought to evolve the existing international trade obligations to fit the needs of contemporary business and society. As the high hopes for the WTO Doha Round dissipated, the TPP was a pathway to ensure relevance and respect for free trade and the rule of law. The TPP has yet to eventuate. Nonetheless, the TPP’s achievements are already replicated and have evolved further in other trade agreements.

83  Joint Statement of the Trilateral Meeting of the Trade Ministers of Japan, the United States and the European Union of 14 January 2020, at < https://​ustr.gov/​about-​us/​pol​icy-​offi​ces/​press-​off​i ce/​press-​relea​ ses/​2020/​janu​ary/​joint-​statem​ent-​tri​late​ral-​meet​ing-​trade-​minist​ers-​japan-​uni​ted-​sta​tes-​and-​europ​ ean-​union > (last visited at 9 September 2021).

816   Juliana Nam

Further reading Chiang, T., ‘Chinese State-​ Owned Enterprises and WTO’s Anti-​ Subsidy Regime’ 49 Georgetown Journal of International Law (2018) 845–​886 Du, M., ‘When China’s National Champions Go Global: Nothing to Fear but Fear Itself?’ 48(6) Journal of World Trade (2014) 1127 Kim, M., ‘Regulating the Visible Hands: Development of Rules on State-​Owned Enterprises in Trade Agreements’ 58(1) Harvard International Law Journal (2017) 225 Mastromatteo, A. ‘WTO and SOEs: Article XVII and Related Provisions of the GATT 1994’ 16(4) World Trade Review (2017) 601 Mavroidis, P.C and M.E. Janow, ‘Free Markets, State Involvement, and the WTO: Chinese State-​Owned Enterprises in the Ring’ 16(4) World Trade Review (2010) 571 OECD, State-​ Owned Enterprises as Global Competitors: A Challenge or Opportunity? (Paris: OECD, 2016) Vidigal, G., ‘Attribution in the WTO: The Limits of “Sufficient Government Involvement”’ 6 Journal of International Trade and Arbitration Law (2017) 133 Wu, M., ‘The “China, Inc.”: Challenge to Global Trade Governance’ 57(2) Harvard International Law Journal (2016) 261

Chapter 31

Fisheri e s Margaret A. Young

I. Introduction II. Fisheries as historical exemplar for international law III. Negotiating to clarify rules on fisheries subsidies A. Disciplining production B. Regime interaction and the concept of IUU fishing C. Regional trade agreements IV. Implementing trade measures to address IUU fishing V. Adjudicating fisheries disputes VI. Conclusion

817 818 822 822 826 829 831 833 835

I. Introduction Globalization and trade have major impacts on the marine environment, in economic, social and environmental terms, including in the fisheries sector. Almost 35 per cent of fish stocks are fished at biologically unsustainable levels,1 while some 38 per cent of global fisheries output enters international trade.2 The exposure to, and reliance upon, global trade has been manifest during the COVID19 pandemic, where a slow-​down in fishing effort has been useful for stocks that are overfished, but where the disruption to international supply chains has affected workers and country revenue. The lessons 1 

The percentage of stocks fished at biologically unsustainable levels was 34.2 per cent in 2017: FAO, The State of World Fisheries and Aquaculture 2020: Sustainability in Action (Rome: FAO, 2020), at 47, at < www.fao.org/​publi​cati​ons/​sofia/​2020/​en/​ > (last visited 19 October 2020). 2 Ibid., at 73; See also UNCTAD, Advancing Sustainable Development Goal 14: Sustainable Fish, Seafood Value Chains, Trade and Climate (Geneva: UN, 2019), UNCTAD/​DITC/​TED/​2019/​3.

818   Margaret A. Young learned for the hoped-​for ‘blue economy’, which promotes the use of ocean resources for economic growth while preserving the marine environment, are still to be distilled. Trade law will no doubt play an important role, especially in negotiating new rules, countenancing appropriate trade restrictions and providing a venue for the resolution of disputes between countries. This chapter provides an overview of the relevance of international trade law to the global and regional regulation of fish production and consumption. It aims to cover new developments as well as analyzing the foundations of trade law in modern international governance. It begins, in Section II, by demonstrating that the utilization of marine living resources is an historical exemplar for much of the context and content of international law. In Section III, it examines the negotiation of new trade rules in the context of the fisheries subsidies that distort trade and devastate sustainability. An assessment is given of the ongoing multilateral negotiations at the WTO, and a comparison is offered of the completed rules in the Comprehensive and Progressive Agreement for Trans-​Pacific Partnership (CPTPP).3 Section IV moves to implementation of trade measures on fisheries, such as import bans for fish implicated in ‘illegal, unreported and unregulated’ fishing. The seminal case remains the Appellate Body’s acceptance of the need to impose measures relating to the conservation of exhaustible natural resources—​in that context, the prevention of bycatch of sea turtles—​while ruling that the implementation of the measure was unjustifiable.4 In Section V, the chapter considers the settlement of trade disputes over fisheries, which are dominantly heard by panels and the Appellate Body, and demonstrates the broader context of international adjudication within the law of the sea. With its focus on treaties and case law, the chapter prioritizes the role of the State in building fishing industries, seeking export markets and accepting imports of fish products. The background context, of course, is the private actors (both corporate and small-​scale) and the individuals (people concerned about the environmental crisis, including consumers). Moreover, the study of fisheries is constantly benefiting from interdisciplinary research,5 and the views of scientists, economists and other experts inform the analysis in this chapter.

II.  Fisheries as historical exemplar for international law Fisheries are often selected by public international lawyers as the paradigmatic resource that exposes the foundations of the discipline governing the relations between

3 Comprehensive

and Progressive Agreement for Trans-​ Pacific Partnership (CPTPP), done at Santiago, signed 8 March 2018, entered into force 20 December 2018; [2018] A.T.S. 23. 4  Appellate Body Report, US –​Shrimp, adopted 6 November 1998. 5  As vividly depicted by O. Thébaud et al., ‘Managing Marine Socio-​Ecological Systems: Picturing the Future’ 74 ICES Journal of Marine Science (2017) 1965.

Fisheries   819 States: sovereignty, jurisdiction, rights and obligations and the duty to cooperate.6 The same selection might be made by trade lawyers. In international trade law, fisheries disputes rest on all of the main legal developments—​the WTO’s US –​Shrimp7 case is perhaps the key exploration of what GATT 1994 rules of non-​discrimination mean for the design and implementation of trade measures, but even early GATT 1947 tuna cases were influential for the general application of disciplines.8 In the context of the WTO-​covered agreements, a formative consideration of technical barriers to trade was delivered in EC –​Sardines,9 and the prohibition on imports of salmon based on a quarantine regulation was assessed according to sanitary and phytosanitary disciplines in Australia –​Salmon.10 Anti-​dumping and safeguards disputes involving fish products are regularly heard by WTO panels. Some cases, such as the Chile –​Swordfish11 and Faroes –​Herring12 disputes, arose amidst parallel proceedings before other international tribunals. The presence of fisheries disputes reveals much about changing economic and geopolitical conditions around the world. The commodification of fisheries, the industrialization of fishing techniques, the massive building of capacity among both ‘distant water fishing nations’ and ‘coastal States’ and the globalization of supply chains has meant that trade in fish has often seemed to define international trade law.13 Thirty-​eight per cent of all fish caught or farmed worldwide are traded between borders.14 With recognition

6  Award between the United States and the United Kingdom Relating to the Rights of Jurisdiction of United States in the Bering’s Sea and the Preservation of Fur Seals (US v UK) XXVIII RIAA 263 (Perm Ct Arb 1893); Anglo–​Norwegian Fisheries Case (United Kingdom v Norway) (Judgment) (1951) ICJ Rep 116; Whaling in the Antarctic (Australia v Japan: New Zealand Intervening) (Judgment) (2014) ICJ Rep 226; In the Matter of the South China Sea Arbitration before an Arbitral Tribunal Constituted under Annex VII to the 1982 United Nations Convention on the Law of the Sea (Philippines v China) (Award) (Perm Ct Arb, Case No 2013-​19, 12 July 2016), at para 757 (note that China did not accept the jurisdiction of the tribunal in this case). For the overarching legal framework for the delimitation of boundaries and access and the protection and preservation of the marine environment, see United Nations Convention on the Law of the Sea (UNCLOS), done at Montego Bay, 10 December 1982, opened for signature 4 June 1992, entered into force 16 November 1994; 1833 U.N.T.S. 396. 7  Appellate Body Report, US –​Shrimp, adopted 6 November 1998. 8  GATT Panel, US –​Tuna (Mexico), not adopted; GATT Panel, US –​Tuna (EEC), not adopted. See further M.A. Young, ‘Principle 12: Trade and the Environment’ in J. Viñuales (ed), The Rio Declaration on Environment and Development. A Commentary (Oxford: Oxford University Press, 2015) 325, at 327. 9   Appellate Body Report, EC –​Sardines, adopted 23 October 2002. 10  Appellate Body Report, Australia –​Salmon, adopted 6 November 1998. 11  Chile –​Measures Affecting the Transit and Importation of Swordfish: Request for Consultations by the European Communities (Chile –​Swordfish), WT/​DS193/​1, G/​L/​367 (26 April 2000), settled 13 December 2007. 12  EU –​Measures on Atlanto-​Scandian Herring: Request for Consultations by Denmark in Respect of the Faroe Islands, WT/​DS469/​1 (7 November 2013), settled 21 August 2014. 13 See generally M.A. Young, Trading Fish, Saving Fish (Cambridge: Cambridge University Press, 2011). 14  The FAO states that, in 2018, 67 million tonnes of fish were traded internationally, equating to almost 38 per cent of all fish caught or farmed worldwide: FAO, above n 1, at 73. This also depends on rules of origin of marine fish, which are not discussed further here: see R. Churchill, ‘International Trade

820   Margaret A. Young of the need for sustainable development of the ‘blue economy’, attention is increasingly on how to balance equitable access to marine fisheries resources with the rebuilding of fish stocks.15 The United Nations Sustainable Development Goal 14, ‘Life Below Water’, provides a non-​binding set of ambitions that includes: implementing urgent targets to effectively regulate harvesting and an end to overfishing; IUU fishing and destructive fishing practices; prohibiting certain forms of fisheries subsidies; and conserving at least 10 per cent of coastal and marine areas, consistent with national and international law.16 The connection between market structures, fisheries exploitation, and ocean governance has perhaps been recognized earlier by international civil servants than legal scholarship. Trading Fish, Saving Fish was published by Cambridge University Press in 2011, but the Food and Agriculture Organization of the United Nations established its ‘Sub-​ Committee on Fish Trade’, which continues to meet every two years, as early as 1985.17 Historically, laws relating to fisheries were developed in isolation from environmental principles,18 and were focussed on divvying up and utilizing living resources. An emerging environmental consciousness became apparent as the new millennium approached.19 The United Nations Fish Stocks Agreement, which implements conservation and management aspects of UNCLOS and recognizes the problems of over-​ capitalization and excessive fleet size, entered into force in 2001.20 The Convention on Biological Diversity, among other approaches, endorsed an ‘ecosystem approach’ to the promotion of the conservation and sustainable use of biodiversity.21

Law Aspects of Measures to Combat IUU and Unsustainable Fishing’ in R. Caddell and E.J. Molenaar (eds), Strengthening International Fisheries Law in an Era of Changing Oceans (Oxford: Hart Publishing, 2019) 319, at 323. 15 

D. Pauly, ‘A Vision for Marine Fisheries in a Global Blue Economy’ 87 Marine Policy (2018) 371. General Assembly, UNGA Res 70/​1, 25 September 2015, UN Doc A/​RES/​70/​1 (Goal 14: Life Below Water). 17  FAO, ‘Sub-​ Committee on Fish Trade: Seventeenth Session’, at < http://​www.fao.org/​about/​meeti​ ngs/​cofi-​sub-​commit​tee-​on-​fish-​trade/​en/​ > (last visited 2 December 2020). 18 For a thought-​ experiment on how law on fisheries would have developed differently with an earlier consolidation of environmental principles, see R.A. Barnes, ‘Alternative Histories and Futures of International Fisheries Law’ in R. Caddell and E.J. Molenaar (eds), Strengthening International Fisheries Law in an Era of Changing Oceans (Oxford: Hart Publishing, 2019) 25. 19 Appellate Body Report, US –​Shrimp, adopted 6 November 1998, paras 129–​ 131, 152–​155, 168. The US –​Shrimp dispute was brewing at the same time as the Rio Declaration of Environment and Development was negotiated by States, and influenced the final document: see Young, ‘Principle 12’, above n 8, at 337. 20  Agreement for the Implementation of the Provisions of the United Nations Convention on the Law of the Sea of 10 December 1982 relating to the Conservation and Management of Straddling Fish Stocks and Highly Migratory Fish Stocks (UNFSA), done at New York, 4 August 1995, opened for signature 4 December 1995, entered into force 11 December 2001; 2167 U.N.T.S. 3. 21  Convention on Biological Diversity (CBD), done at Rio de Janeiro, 5 June 1992, UNEP/​Bio.Div./​ N7-​INC5/​4; 31 I.L.M. 818, Article 2; CBD, COP5 Decision, ‘Ecosystem Approach’, Nairobi, 15–​26 May 2000 (Decision V/​6); CBD, COP7 Decision, ‘Ecosystem Approach’, Kuala Lumpur, 9–​20 February 2004 (Decision VII/​11). See also Jakarta Mandate on Marine and Coastal Biological Diversity, Indonesia, 6–​17 November 1995. On UNCLOS obligations relating to rare and fragile ecosystems, see South China Sea Award, above fn 6, para 945. 16  UN

Fisheries   821 At the World Summit on Sustainable Development in 2002, States were called upon to complete the efforts undertaken at the WTO, formalized by the Doha Declaration of 2001,22 to clarify and improve disciplines on fisheries subsidies.23 The FAO is the ‘custodian’ agency for four of the targets of Sustainable Development Goal 14: end overfishing; curtail harmful subsidies; increase economic benefits from sustainable fisheries; and ensure access to resources and markets for small scale fishers.24 The United Nations Division of Ocean Affairs and Law of the Sea (DOALOS) is overseeing a set of negotiations to conserve and sustain marine biological diversity in areas beyond national jurisdiction.25 Meanwhile, in developments that are yet to make legal impacts, human health-​focussed studies about optimum diets for sustainability point to plant-​ based protein sources that are alternative to, or at least proportionately more important than, fish.26 Yet while the awareness of a crisis in marine fisheries has influenced the setting of goals for new trade rules, this awareness is often sidelined by other goals of States. As is evident from the current impasse over fisheries policy in the context of the United Kingdom’s exit from the European Union, new trade rules on fisheries are highly politicized and scientific insights into risks of fisheries collapse do not always guide the negotiators. Moreover, negotiations in a trade context are often limited in the substance of legal reforms: trade liberalization is by-​and-​large a deregulatory rather than regulatory project, so new rules are less likely to lead to agreed legal requirements for market actors, in contrast to other treaties. Instead, established trade law disciplines seek to redress the actions of a State in distorting trade, leading to a focus on subsidy rules. In the next section, I discuss two sets of negotiations: first, multilateral, and secondly, regionally based. The WTO negotiations on fishing subsidies have encountered success and failures over a twenty-​year period that is yet to reach agreement, although 2020 was a much hoped for goal. The CPTPP, by contrast, entered into force in 2018, and includes disciplines on subsidies as well as other new trading arrangements for fisheries. 22 

WTO Ministerial Declaration, done at Doha, adopted on 14 November 2001, WT/​MIN(01)/​DEC/​1 (20 November 2001), para 28. 23  UN, ‘Plan of Implementation of the World Summit on Sustainable Development’, A/​CONF.199/​20, 4 September 2002, para 31. 24  FAO, above fn 1, at 29. For details of the eLearning course supporting countries in the collection and analysis of statistical information for SDG Indicator 14.4.1, see 130. 25   International Legally Binding Instrument under the United Nations Convention on the Law of the Sea on the Conservation and Sustainable Use of Marine Biological Diversity of Areas Beyond National Jurisdiction, GA Res 72/​249, 72nd sess, Agenda Item 77, UN Doc A/​RES/​72/​249, adopted on 24 December 2017; the fourth and final session of the Intergovernmental Conference has been postponed by decision 74/​543 of 11 March 2020: UN General Assembly, 11 March 2020, UN Doc A/​74/​L.41. 26  W. Willett et al., ‘Food in the Anthropocene: The EAT–​ Lancet Commission on Healthy Diets from Sustainable Food Systems’ 393 The Lancet (2019) 447, especially at 481–​482. The implications are outside of the scope of this chapter, but can at least be hinted at by providing a historical contrast: the objective of the Convention on Fishing and Conservation of the Living Resources of the High Seas, done at Geneva, opened for signature 29 April 1958, entered into force 20 March 1966; 559 U.N.T.S. 285 was that conservation programs should be formulated with a view to securing in the first place a supply of food for human consumption (Article 2).

822   Margaret A. Young

III.  Negotiating to clarify rules on fisheries subsidies Clarifying and improving WTO disciplines on fisheries subsidies has been an aim of WTO Members since the launch of the Doha Development Agenda in 2001.27 Over time, this ambition has narrowed to a quest to adopt an agreement to prohibit certain forms of fisheries subsidies that contribute to overcapacity and overfishing, and to eliminate subsidies that contribute to IUU fishing.28 The year 2020 was heralded as the deadline for the conclusion of the WTO negotiations.29 Like many other urgent goals—​most notably, within climate,30 oceans,31 and marine biodiversity32—​this deadline has slipped, in part due to the burdens of the COVID19 pandemic. But it is not only the diversion of attention and resources that has forestalled agreement. Nor is it the straightjacket of the ‘single undertaking’ ambition of the Doha Development Round, according to which agreement is contingent on the conclusion of all negotiations.33 In this section, I provide a short overview of the negotiations, pointing to their successes (especially in the multilateral recognition of the need to limit production) and the challenges that they continue to face, especially with respect to crafting laws that depend on standards from other regimes of international law.

A. Disciplining production The propensity of States to provide financial support to their fishing sectors has long been observed. It can be traced to the national building of maritime strength over history 27   WTO 2001, see above fn 22. As this chapter was going to press, the Twelfth Session of the WTO Ministerial Conference agreed the text of a new ‘Agreement on Fisheries Subsidies’ (Ministerial Decision of 17 June 2022, WT/MIN(22)/33). This chapter’s observations are consistent with the new agreement, but there is no scope to provide detailed analysis. 28  WTO, Ministerial Decision of 13 December 2017, Fisheries Subsidies, WT/​MIN(17)/​64, WT/​L/​1031 (18 December 2017). 29 SDG 14.6 target to ‘by 2020, prohibit certain forms of fisheries subsidies which contribute to overcapacity and overfishing, and eliminate subsidies that contribute to IUU fishing, and refrain from introducing new such subsidies . . .’: 2017 Buenos Aires Ministerial Conference (MC11). Ministers decided on a work program to conclude the negotiations by aiming to adopt, at the next Ministerial Conference, an agreement on fisheries subsidies which delivers on Sustainable Development Goal 14.6. This aimed for the adoption of an agreement by 2019. 30  The UNFCCC Conference of the Parties (COP26) in Glasgow, Scotland, was postponed by a year and held in 2021. 31  The anticipated 2020 Oceans Conference, one of the first milestones of UN Secretary General’s Decade of Action for the Sustainable Development Goals, was postponed by a year: see UN, ‘About the 2020 UN Ocean Conference’, at < https://​www.un.org/​en/​conf​eren​ces/​ocean2​020/​about > (visited 2 December 2020). 32  See above fn 25. 33  The single undertaking model has been successful in forcing negotiators to make trade-​offs and compromises among linked issues—​not just in the WTO, but also in other contexts, such as UNCLOS—​ but also causes delay due to the need for resolution of all issues, including hotly contested concerns such as agriculture policy.

Fisheries   823 as well as established rules and understandings about the shared uses of the oceans, now codified in the Law of the Sea Convention (UNCLOS).34 It is by now clear that State ‘aid’ or ‘allocation’ for the building of vessels (providing the ‘capacity’ to fish) and support for operational costs, including fuel, is highly distorting in economic terms.35 Globally, it has led to too many boats fishing for too few fish.36 However, tax-​payer dollars have also been essential in providing for sustainable livelihoods and other worthwhile goals, meaning that the classification of ‘good’ and ‘bad’ fisheries subsidies is a highly contextual and sensitive one.37 Moreover, the focus on reforms within the State should not lose sight of the structures and choices made by private actors within the fishing industry, which themselves hold obligations for responsible fishing practices.38 In seeking to formulate standards and recommended practices, proxies such as ‘IUU’ fishing and ‘overfishing’ have become important, as I will describe. Efforts to address fisheries subsidies predate the 2001 inclusion of the topic on the WTO’s Doha Development Round.39 In its 1995 agreement on a code of conduct for responsible fishing for both State and private actors, the FAO recognized that States should take measures ‘to ensure that fishing effort is commensurate with the productive capacity of the fishery resources and their sustainable utilization’.40 This was not simply a belated recognition of the need to modify existing practices: the Code recognizes that excess fishing capacity needs to be ‘eliminated’.41 States’ management measures are to provide that ‘the economic conditions under which fishing industries operate promote responsible fisheries’.42 As an aside, I note that to devise hard legal and institutional constraints on production is relatively unusual within the discipline of international law, and a crucial development for sustainability. More commonly, States are permissive about production of

34 

UNCLOS, above fn 6. Bank and the FAO, Sunken Billions: The Economic Justification for Fisheries Reform (Washington, DC: World Bank, 2009). See also D. Schorr, Towards Rational Disciplines on Subsidies to the Fishery Sector: A Call for New International Rules and Mechanisms (WWF, 1998); World Bank, The Sunken Billions Revisited: Progress and Challenges in Global Marine Fisheries (Washington: World Bank, 2017); R. Martini and J. Innes, ‘Relative Effects of Fisheries Support Policies’ OECD Food, Agriculture and Fisheries Papers No. 115 (Paris: OECD, 2018). 36  C. Stone, ‘Too Many Fishing Boats, Too Few Fish: Can Trade Laws Trim Subsidies and Restore the Balance in Global Fisheries?’ in K. Gallagher and J. Werksman (eds), The Earthscan Reader on International Trade and Sustainable Development (London: Routledge, 2002) 286, at 293–​94. 37 See M.A. Young, ‘Energy Transitions and Trade Law: Lessons from the Reform of Fisheries Subsidies’ 17 International Environmental Agreements: Politics, Law and Economics (2017) 371, at 376 (‘[T]‌he goal of moving towards a low-​carbon (or sustainably fished) economy should not be elided with a goal of reducing all interventions in the free operation of markets’). 38  For the background and elaboration of the Code of Conduct, see FAO, ‘Code of Conduct for Responsible Fisheries’, at < http://​www.fao.org/​DOC​REP/​005/​v98​78e/​v9878​e00.htm#BAC > (last visited 2 December 2020). 39  WTO 2001, see above fn 22. 40  FAO Code of Conduct, above fn 38. 41  Ibid., at Article 6.3. See also Article 7.4.3. 42  Ibid., at Article 7.1.8. See also Article 7.6.3. 35 World

824   Margaret A. Young natural resources and focus instead on managing harm after the resource is extracted or obtained.43 The latter approach can be observed, for example, in the United Nations Framework Convention on Climate Change44 and the Paris Agreement.45 It is also apparent in emerging attempts to address the problem of plastics pollution in the ocean: recycling and waste storage is a focus, while the industries that produce and export plastics products are currently avoiding accountability.46 By contrast, a focus on fishing capacity and subsidies intervenes in the methods and financial incentives behind production, and promises to be proactive rather than reactive to the fishing crisis. Reducing capacity aligns with the recognition of the need for large-​scale protection of marine ecosystems, a long-​held aim of fisheries scientists and conservation biologists.47 It is also consistent with proposals to enlarge the number of marine protected areas as currently negotiated by the United Nations in the context of the Marine Biodiversity of Areas Beyond National Jurisdiction ‘BBNJ’ negotiations,48 as well as more radical proposals to close the high seas to fishing.49 The FAO’s efforts to eliminate overcapacity were endorsed by the World Summit in 2002, but the United Nations also pointed to the relevance of the WTO.50 This is because the WTO SCM Agreement already disciplines subsidies in a variety of situations. The SCM Agreement prohibits subsidies that are contingent on export performance or the use of local content.51 Other ‘actionable’ subsidies, which must also be specific to a particular enterprise or industry, are assessed according to their adverse effects on the trade interests of WTO Members.52 Notwithstanding the potential for a dispute to be brought against trade-​distorting and ecologically-​harmful fisheries subsidies under the SCM Agreement, no challenge has been made.53 Given the law was not leading to much-​ needed change in State behaviour, the WTO, in 2001, sought to ‘clarify and improve its

43

  Young, ‘Energy Transitions’, above fn 37, at 384.  Done at New York, opened for signature 9 May 1992, entered into force 21 March 1994; 1771 U.N.T.S. 107. 45  Done at Paris, 12 December 2015, opened for signature 22 April 2016, entered into force 4 November 2016; 55 I.L.M. 740. 46  E. Mendenhall and E.M. Baron Lopez, ‘Solving the Oceans’ Plastic Problem’ 119 Current History (2020) 22, at 27–​28. 47  B. Worm et al, ‘Rebuilding Global Fisheries’ 325 Science (2009) 578. 48  The acronym is used a shorthand for ‘biodiversity beyond national jurisdiction’ in the context of the negotiations, see above fn 25. See further M.A. Young and A. Friedman, ‘Biodiversity Beyond National Jurisdiction: Regimes and Their Interaction’ 112 American Journal of International Law Unbound (2018) 123. 49  U.R. Sumaila et al., ‘Winners and Losers in a World where the High Seas Is Closed to Fishing’, 5 Scientific Reports (2015). See also J. Green and B. Rudyk, ‘Closing the High Seas to Fishing: A Club Approach’ 115 Marine Policy (2020). 50  UN World Summit, above fn 23. 51  Article 3 of the SCM Agreement; see also Articles 2 and 1.2. 52  Articles 1.2 and 3 of the SCM Agreement. 53  M.A Young, ‘Fragmentation or Interaction: The WTO, Fisheries Subsidies, and International Law’ 8 World Trade Review (2009) 477, 487–​488. 44

Fisheries   825 disciplines on fisheries subsidies, taking into account the importance of this sector to developing countries’.54 This was a Doha Development Round negotiating commitment as part of a wider scale reform of the SCM Agreement and the Anti-​Dumping Agreement. WTO Members have continued to acknowledge the environmental dimension to the fisheries subsidies negotiations by referring to the mutual supportiveness of trade and environment.55 A notable divergence in positions has been on whether States could rely on their management of the resource or should also address perverse production incentives. An informal grouping of WTO Members self-​named ‘Friends of Fish’56 was convinced of the need for enhanced subsidy disciplines. Another position taken by a group that included Japan, Korea and Taiwan, and others contested the inevitability of the link between subsidies and environmental damage, and instead asserted that inadequate fisheries management is the main cause of unsustainable fishing.57 Over the course of the negotiations, the prevailing view has been that fisheries management is unlikely to be an effective restraint on incentives for increased production in practice.58 In 2013, at the WTO Ministerial Conference in Bali, the Friends of Fish reiterated its commitment to ‘ambitious and effective disciplines on fisheries subsidies’ and pledged to ‘work within the WTO and other fora to improve fisheries subsidies reform and transparency.59 This was followed in 2015 by submissions proposing multilateral prohibitions on subsidies for certain activities, such as subsidies on activities affecting overfished stocks and subsidies provided to any vessel engaged in IUU fishing.60 There were suggestions that subsidy reform should leap-​frog other Doha topics, with some Members departing from a reaffirmation of the Doha mandates at the 2015 Ministerial, preferring to support ‘new approaches’ to the multilateral negotiations.61 In September 2016, a group of WTO Members reiterated their desire to achieve reform at the WTO to prohibit harmful fisheries subsidies, but intimated that they wished to work with each other and like-​minded participants to conclude an agreement, presumably in

54 

WTO 2001, above fn 22. 2001, above fn 22, para 31. See also WTO Ministerial Declaration, done at Hong Kong, adopted on 18 December 2005, WT/​MIN(05)/​DEC, Annex D, para 9. 56   Membership varies according to time and the content of submissions. Members have included Australia, Chile, Ecuador, Iceland, New Zealand, Peru, Philippines and the United States. See generally Young, ‘Fragmentation or Interaction’, above fn 53. 57 Ibid. 58  A. Tipping, ‘Building on Progress in Fisheries Subsidies Disciplines’ 69 Marine Policy (2016) 202. 59  Ministerial Statement on behalf of Argentina, Australia, Chile, Columbia, Costa Rica, Ecuador, Iceland, New Zealand, Norway, Pakistan, Peru, Philippines, United States, WT/​ MIN(13)/​ 49 (18 December 2013). 60 WTO, Negotiating Group on Rules, Communication from Argentina, Iceland, New Zealand, Norway, Peru, and Uruguay, TN/​RL/​W/​258 (19 June 2015); WTO, Negotiating Group on Rules, ACP Proposal, TN/​RL/​W/​267 (13 November 2015). 61  WTO Ministerial Declaration, done at Nairobi, adopted on 19 December 2015, WT/​MIN(15)DEC. 55  WTO

826   Margaret A. Young plurilateral form.62 The influence that this position has had on contemporaneous bilateral and regional negotiations is difficult to prove, but the next section will discuss the position that was agreed by CPTPP countries in 2018. In 2020, WTO negotiations continued. In the middle of the year, Members agreed on a text-​based phase for negotiations, drawing on a draft consolidated document circulated by the Chair of the Negotiating Group.63 In June 2021, this draft document was revised and released as a consolidated Chair’s text, and a draft agreement was then provided to ministers in November 2021 ahead of the 12th Ministerial Conference (MC12).64 While some parts of this draft agreement were settled at MC12 with the Agreement on Fisheries Subsidies, other parts were postponed until the next Ministerial Conference. Proposed prohibitions on certain forms of subsidies that contribute to overcapacity and overfishing were deferred for further negotiations.65 The new agreement contains prohibitions on subsidies granted for fishing overfished stocks. It also contains a prohibition on subsidies to illegal, unreported and unregulated fishing (IUU).

B. Regime interaction and the concept of IUU fishing While a detailed examination of the proposed clarification of the SCM Agreement is outside the scope of this chapter, it is important to consider how the anticipated disciplines on subsidies might rest upon other concepts and laws. To that end, the acronym that has become familiar in fisheries scholarship and practice becomes important to understand: IUU or illegal, unreported, and unregulated fishing. IUU fishing is a major problem in oceans governance, both within the high seas and within coastal States’ ‘exclusive economic zones’.66 IUU fishing accounts for between 13 per cent and 31 per cent of catches and more than 50 per cent in some regions.67 Yet determining whether fishing is illegal, and indeed whether it is unreported or unregulated, depends on rights and duties that have been established under the law of the sea, including under cooperative arrangements such as Regional Fisheries

62  Joint Statement regarding Fisheries Subsidies by Argentina, Australia, Canada, Chile, Colombia, New Zealand, Norway, Papua New Guinea, Peru, Singapore, Switzerland, Uruguay, and the United States, 14 September 2016 at < https://​ustr.gov/​sites/​defa​ult/​files/​09142016_​STATEMENT_​joint_​stateme​ nt_​f​i she​ries​_​par​tner​s_​FI​NAL.pdf > (last visited 3 September 2021). 63  WTO, ‘WTO Members Set Work Programme for Text-​Based Phase of Fisheries Subsidies Talks’, at < https://​www.wto.org/​engl​ish/​new​s_​e/​news2​0_​e/​fis​h_​21​jul2​0_​e.htm > (last visited 2 December 2020). 64  WTO, Negotiating Group on Rules - Revised Draft Consolidated Chair Text, TN/RL/W/276/ Rev.1 (30 June 2021). WTO, ‘Agreement on Fisheries: Draft Text’ WT/MIN(21)/W/5 (24 November 2021). 65  ‘Agreement on Fisheries Subsidies’ (Ministerial Decision of 17 June 2022, WT/MIN(22)/33). As noted in fn 27, the text was agreed as this chapter was going to press and a detailed description is not possible. 66  K.-​H. Wang, ‘In Combating and Deterring IUU Fishing: Do RFMOs Work?’ in C.H. Schofield, S. Lee and M.-​S. Kwon (eds), The Limits of Maritime Jurisdiction (Leiden: Brill, 2014) 431. 67  D.J. Agnew et al., ‘Estimating the Worldwide Extent of Illegal Fishing’ 4 PLoSONE (2009).

Fisheries   827 Management Organisations (RFMOs).68 The category of IUU fishing has become central in discussions about prohibited subsidies. It is also used as a basis for import bans, which I consider later in this chapter. Although there is general consensus on the need to prohibit subsidies supporting IUU fishing, there is continuing disagreement on how to determine that vessels or operators are engaging in IUU fishing.69 This is in part an institutional question of the WTO’s capabilities and expertise. It generates further questions that commonly arise in the context of the fragmentation of international law,70 a selection of which includes: Which international organization has the mandate and what difference, if any, applies to determinations that are made against States that are not WTO Members or that otherwise dispute the process? How can the difficulties in bringing together dense areas of professional specialization be overcome? Can WTO Members be confident that the process by which binding determinations made in a regime exogenous to the trade regime is legitimate? For the WTO to rely on a determination of IUU fishing made by a RFMO might appear straightforward. One of the key management tools of RFMOs is to establish lists of vessels active in the relevant fishery. These can take the form of negative lists—​ or ‘black lists’ of vessels implicated in IUU fishing—​or positive ‘white lists’ of vessels deemed to be of good standing.71 Lists of vessels implicated in IUU fishing can also be shared between RFMOs.72 Yet the reliance on RFMOs has been controversial in WTO negotiations. RFMOs have their own rules and practices relating to members (also known as participants for some of the relevant regional arrangements), new entrants and non-​members. Just as the reliance on standards promulgated by listed groups, such as the Codex Alimentarius Commission, has been controversial for the operation of the TBT and SPS Agreements, so too might be determinations of IUU fishing.73

68 

RFMOs are part of a broader group of intergovernmental bodies often known as regional fishery bodies. These bodies include ‘regional fisheries management arrangements’ (RFMAs), which, while not establishing organizations, also adopt conservation and management measures. See, e.g., < http://​www. fao.org/​in-​act​ion/​vul​nera​ble-​mar​ine-​eco​syst​ems/​bac​kgro​und/​regio​nal-​fish​ery-​bod​ies/​en/​ > (last visited 21 September 2021). For the purposes of this chapter, there is no attempt to differentiate between RFMOs and RFMAs, and the acronym RFMOs is used throughout. 69  See M.A. Young, The ‘Law of the Sea’ Obligations Underpinning Fisheries Subsidies Disciplines (Geneva: International Centre for Trade and Sustainable Development, 2017); I. Van Damme, Reflections on the WTO Negotiations on Prohibiting IUU Fishing Subsidies (Winnipeg: International Institute for Sustainable Development, 2020). For the latest proposal, see Revised Draft Consolidated Chair’s Text, above fn 65, Article 3. 70  See generally Young, Trading Fish, Saving Fish, above fn 13. 71  See further M.A. Young, ‘International Trade Law Compatibility of Market-​Related Measures to Combat Illegal, Unreported and Unregulated (IUU) Fishing’ 69 Marine Policy (2016) 209. 72  See further Van Damme, above fn 69; C.-​C. Schmidt, Issues and Options for Disciplines on Subsidies to Illegal, Unreported and Unregulated Fishing (Geneva: International Centre for Trade and Sustainable Development, 2017). 73  Young, ‘Fragmentation or Interaction’, above fn 53, at 499ff.

828   Margaret A. Young As occurred in the TBT and SPS contexts, attention has turned to the openness and transparency of the RFMO. If WTO Members entrust the function of IUU determination to an appropriate international organization (even absent parallel membership), the different organizations can work towards the goal of addressing IUU fishing. The legitimacy of such interaction can be assessed according to different (but broadly consistent) frameworks: (i) a procedural guarantee of appropriate regime interaction;74 (ii) policy coordination that ensures ‘authority and contestability go hand in hand’75 and (iii) a ‘thick stakeholder consensus’ within informal international law.76 At this level of theory, it is entirely consistent with sovereignty for WTO subsidy disciplines to draw on the work and management of RFMOs in seeking to enforce rules on fisheries subsidies.77 On a practical level, it might be said that RFMOs are highly variable in operation and constitution. Participation in RFMOs is not always granted, nor is always sought, given that new entrants may have weak claims for quotas.78 Some commentators even consider the IUU concept to be illegitimate in the way it seeks to apply to States that are not party to a relevant RFMO, notwithstanding its legitimate goal.79 In response, it might be noted that the voluntary FAO plan of action describes IUU fishing with reference to maritime zones, as well as the governance arrangements of RFMOs,80 a description which was taken up in many textual proposals on subsidy disciplines.81 The UN Fish Stocks Agreement also provides guidance here, by requiring RFMOs to operate in a transparent and non-​discriminatory way.82 About half of the WTO membership is party to the Fish Stocks Agreement.83 Of the top ten exporters and importers of fish and fish products in terms of value, only China is not a party.84

74 Young, Trading Fish, above fn 13, at 267–​87. 75 

J. Scott, ‘International Trade and Environmental Governance: Relating Rules (and Standards) in the EU and the WTO’ 15 European Journal of International Law (2004) 307. 76 J. Pauwelyn, R.A. Wessel and J. Wouters, ‘When Structures Become Shackles: Stagnation and Dynamics in International Lawmaking’ 25 European Journal of International Law (2014) 733. 77  Young, ‘Energy Transitions’, above fn 37, at 384 78 E.J. Molenaar, ‘Participation in Regional Fisheries Management Organizations’ in R. Caddell and E.J. Molenaar (eds), Strengthening International Fisheries Law in an Era of Changing Oceans (Oxford: Hart Publishing, 2019) 103. 79 A. Serdy, ‘Pacta Tertiis and Regional Fisheries Management Mechanisms: The IUU Fishing Concept as an Illegitimate Short-​Cut to a Legitimate Goal’ 48 Ocean Development and International Law (2018) 345. 80 FAO, International Plan of Action to Prevent, Deter, and Eliminate Illegal, Unreported and Unregulated Fishing (IPOA-​IUU) (Rome: FAO, 2001), para 3. 81  See Young, The ‘Law of the Sea’ Obligations, above fn 69, at 3. 82  See also FAO Code of Conduct, above fn 38, paras 78–​84 relating to the operation of RFMOs, such as the requirement that RFMOs ‘should address the issue of access to the resource in order to foster cooperation and enhance sustainability in the fishery, in accordance with international law’ (para 83). 83  At the current time, of the 164 WTO Members, 89 are not party to the UNFSA. See Young, The ‘Law of the Sea’ Obligations, above fn 69, 20–​23. 84  FAO, above fn 1, at 76 (Figure 29: Top Exporters and Importers of Fish and Fish Products in Terms of Value, 2018).

Fisheries   829 A further development within the FAO attests to the utility of the IUU concept. The FAO has also overseen the recently in force Agreement on Port State Measures to Prevent, Deter and Eliminate Illegal, Unreported and Unregulated Fishing (PSMA).85 The PSMA seeks to harmonize the measures undertaken by port States against foreign vessels, including in blocking the flow of IUU-​caught fish into national and international markets, and allows for any vessel engaged in IUU fishing to be denied entry into ports.86 Subsidy rules could strengthen these existing arrangements by providing an enforceable prohibition against the provision of any financial support by WTO Members to IUU fishing activities. The new agreement by WTO Members to prohibit subsidies for IUU fishing is an important development at the WTO, but regional trade agreements have already started rely upon the concept, as I discuss in the following section.

C. Regional trade agreements The proliferation of regional trade agreements has impacted fisheries around the world, just as it has done for other commodities and markets.87 Increasingly, these agreements contain sector-​specific provisions or environmental chapters,88 which address fisheries, forests, agriculture, and other areas. The CPTPP89 contains far-​reaching provisions addressing fisheries depletion, whose influence is beginning to be observed in other regional trade agreements.90 Adding to the CPTPP’s relevance for fisheries is the fact that many of the world’s most significant producers and consumers of fish are parties. Of the 11 parties to the CPTPP,91 Vietnam and Chile rank third and fourth biggest exporters by volume (after China and Norway),92 while Japan is the second biggest importer (after the United States).93 Japan is in the top five of the world’s highest subsidizing nations or political entities

85 On

the Port State Measures Agreement (PSMA), see further FAO, ‘Agreement on Port State Measures (PSMA)’, at < http://​www.fao.org/​fish​ery/​psm/​agreem​ent/​en > (last visited 2 December 2020). 86  Article 9(4) of the PSMA. This depends on the compilation of lists of vessels implicated in IUU: see further Young, The ‘Law of the Sea’ Obligations, above fn 69, at 3. 87  See WTO, ‘Preferential Trade Arrangements’, at < http://​www.wto.org/​engl​ish/​trato​p_​e/​regio​n_​e/​ rta_​pt​a_​e.htm > (last visited 2 December 2020). See also RTA Exchange, ‘Home’, at < http://​www.rtae​ xcha​nge.org > (last visited 2 December 2020). 88  J.-​F. Morin, Andreas Dür, and Lisa Lechner, ‘Mapping the Trade and Environment Nexus: Insights from a New Dataset’ 18 Global Environmental Politics (2018) 122. 89  See above fn 3. 90  The Canada-​Mexico-​United States Agreement (CUSMA), also known as the USMCA or T-​MEC (entry into force 1 July 2020), expands on the CPTPP rules on fisheries subsidies. See further M.A. Young, ‘Protection of the Marine Environment: Rights and Obligations in Trade Agreements’ 9 Korean Journal of International and Comparative Law (2021) 196. 91  The 11 CPTPP parties are Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The United States participated in all the negotiations but did not ratify. 92  FAO, above fn 1, at 76. 93 Ibid.

830   Margaret A. Young (after China, the European Union, the United States, and the Republic of Korea).94 Its subsidies are said to amount to 19.7 per cent of the world total.95 The CPTPP also includes parties whose implementation of fisheries law is weak.96 As such, its ambitions for fisheries management and subsidy disciplines will influence significant actors whose compliance is not otherwise assured. The CPTPP parties have agreed to prohibit certain subsidies and have included an extensive section on marine capture fisheries. Parties are to seek to operate a fisheries management system that is designed inter alia to prevent overfishing and overcapacity.97 The agreement also recognizes that participating nations may use measures to prevent trade in fish products that result from IUU fishing. These measures may include catch documentation schemes and port access restrictions, which are part of the trade measures I consider later in the chapter. Under the CPTPP, the following subsidies are prohibited: (a) subsidies for fishing that negatively affect fish stocks that are in an overfished condition; and (b) subsidies provided to any fishing vessel while listed by the flag State or a relevant Regional Fisheries Management Organisation or Arrangement for IUU fishing in accordance with the rules and procedures of that organisation or arrangement and in conformity with international law.98

Apart from these subsidies, parties are to make best efforts to refrain from introducing and extending other subsidies, although this must take into consideration ‘a Party’s social and developmental priorities, including food security concerns’.99 The CPTPP environment chapter includes a range of mechanisms for enforcement. For example, it establishes an Environment Committee to oversee the implementation of the chapter.100 It also allows for environment consultations, which, if ineffective, may lead to the establishment of a dispute settlement panel.101 As such, the fisheries subsidies provisions are subject to compulsory dispute settlement. By implication, a future panel may seek to rely on determinations of RFMOs and other standards or practices outside the trade sphere. Open interaction between the trade regimes and fisheries management organizations is potentially significant, as it is in the multilateral context I described above.

94  U.R.

Sumaila, et al., ‘Updated Estimates and Analysis of Global Fisheries Subsidies’ 27 Marine Policy (2019), at < https://​doi.org/​10.1016/​j.mar​pol.2019.103​695 > (last visited 21 September 2021). 95  U.R. Sumaila, C. Bellman, and A. Tipping, Fishing for the Future: Trends and Issues in Global Fisheries Trade (Geneva: International Centre for Trade and Sustainable Development, 2014), at 25. 96  See further Young, ‘Energy Transitions’, above fn 37, at 381. 97  Article 20.16.3 of the CPTPP. 98  Article 20.16.5 of the CPTPP 5 footnotes omitted). 99  Article 20.16.7 of the CPTPP. 100  Article 20.19 of the CPTPP. 101  Article 20.23 of the CPTPP.

Fisheries   831 The way in which CPTPP negotiating parties sought to coordinate their various interests in trade and fisheries is not possible to evaluate, given that the negotiations were largely in secret. However, it is likely that the multilateral proposals before the WTO influenced the development of this agenda for CPTPP parties (it is also possible that for some CPTPP negotiating countries, their time and resources were diverted away from the Doha Round). The CPTPP provisions on marine capture fisheries continue to influence negotiating proposals at the WTO. Moreover, CPTPP-​like language is now found in the environment chapter of the Canada-​Mexico-​United States Agreement (CUSMA).102 In these ways, the CPTPP might assist in addressing the SDG goals more generally. While the CPTPP’s overall environmental credentials are rated as modest,103 and while subsidy reform is only one aspect of the needed actions on fisheries sustainability, this regional development is undoubtedly important to all.

IV.  Implementing trade measures to address IUU fishing Trade measures are used in various ways that impact on fisheries markets, as discussed in my reference to the GATT 1994, the TBT Agreement, the SPS Agreement, and anti-​dumping violations at the beginning of this chapter.104 This includes trade bans on the import of IUU fish products and catch documentation schemes to verify the source of production.105 States imposing these measures may have significant impact on the policies of exporting States, especially if they are large import markets. As such, they can help to achieve policy objectives such as the SDG’s goal to end IUU fishing and destructive fishing practices by 2020, but they must also be implemented with sensitivity to trade law and other issues. What is perhaps distinctive about the recent measures is that they are an accepted intervention among States, some of whom have expressly recognized their utility (and implicit lawfulness) vis-​ à-​vis one another in trade agreements. In this section, I discuss the trade law compatibility of the measures, demonstrating once again the connection between the international trade regime and other international organizations, including the FAO. The European Union has led the way in using trade measures of this kind. In its Regulation on IUU Fishing,106 the European Union prohibits imports of fish products

102  Article 24.17 of the CUSMA, see further above fn 90. But note that the updated China-​Singapore FTA, which contains an environment chapter, does not reproduce provisions for marine wild capture fisheries. 103 E. Meidinger, ‘TPP and Environmental Regulation’ in B. Kingsbury et al. (eds), Megaregulation Contested: Global Economic Ordering after TPP, 1st edition (Oxford: Oxford University Press, 2019) 175, at 195. 104  Young, ‘International Trade Law compatibility’, above fn 71. See also Churchill, above fn 14. 105  For a list of trade-​related measures or initiatives, see Young, above fn 71, at 216 (Appendix). 106  Council Regulation (EC) No 1005/​2008 of 29 September 2008 establishing a Community system to prevent, deter and eliminate illegal, unreported and unregulated fishing, OJ 2008 L 286, p. 1 (as amended).

832   Margaret A. Young from IUU fishing. The European Commission works with EU Member States, third States and other bodies to identify fishing vessels suspected of carrying out IUU fishing. If these enquiries lead to a finding that a competent flag State has failed to act against an identified vessel to which it has granted ‘flag’ registration, the Commission may adopt trade measures. This begins with a formal warning (‘yellow card’) before an ultimate exclusion of fish imports into the EU market (‘red card’). This process has led to import measures against offending countries including some of the world’s top fish exporters, such as Thailand (whose yellow card was removed in 2019 after successful legal reforms) and Vietnam (a yellow card process is ongoing).107 Relevant FTAs record the Parties’ acceptance of these type of measures in the fight against IUU fishing.108 The use of trade measures is not restricted to IUU fishing. Amidst proposals for more drastic protection and preservation of the marine environment, fisheries scientists and lawyers have proposed a closure of the high seas to fishing.109 Proponents emphasize that benefits provided by the oceans will be more equitable with such a closure, and marine fisheries will have better chance for replenishment.110 If the major fish consuming nations clubbed together to refuse imports from the high seas, behaviour of the main producers would undoubtedly change.111 Alternatively, countries with highly sought-​after markets, such as the United States, could take unilateral measures.112 The approaches rely on processes for catch certification in similar ways as the IUU fishing trade bans. International trade law scholars and practitioners will be familiar with the potential violations of the GATT 1994 from the use of trade measures for policy goals. Issues may be briefly described here. First, on whether there is discrimination that potentially violates Article III of the GATT 1994, the ‘likeness’ of fish caught illegally or in marine reserves might reinvigorate a discussion of production and processes methods (PPMs).113 The increasing discernment of consumers, whose product differentiation already shapes

107  See further IUUWatch, ‘Map of EU Carding Decisions’, at < https://​www.iuuwa​tch.eu/​map-​of-​eu-​ card​ing-​decisi​ons/​ > (visited 16 May 2022). 108  Article 13.9 of the EU-​Vietnam FTA (‘each Party shall . . . facilitate the exchange of information on IUU activities and implement policies and measures to exclude products resulting from IUU from trade flows’); Article 12.8 of the EU-​Singapore FTA (‘the Parties undertake to . . . facilitate the elimination of IUU products from trade flows and the exchange of information on IUU activities’). 109  C. White and C. Costello, ‘Close the High Seas to Fishing?’ 12 PLoS Biol (2014), at < https://​doi. org/​10.1371/​jour​nal.pbio.1001​826 >; C.M. Brooks et al., ‘Challenging the Right to Fish in a Fast-​Changing Ocean’ 33 Stanford Environmental Law Journal (2014) 289, at 323–​24. For a different conception on the need for preservation of the oceans based on the rights of nature, see, e.g., Global Alliance for the Rights of Nature, ‘What Is Rights of Nature?’, at < https://​therig​htso​fnat​ure.org/​what-​is-​rig​hts-​of-​nat​ure > (visited 2 December 2020) (recognizing the rights of ecosystems—​including trees, oceans, animals and nations—​to have ‘the right to exist, persist, maintain, and regenerate its vital cycles’). 110  Rashid Sumaila et al., ‘Winners and Losers’, above n 49. 111  Green and Rudyk, above n 49. 112  K.M. Wyman, ‘Unilateral Steps to End High Seas Fishing’ 6 Texas A&M Law Review (2018) 259. 113 See further M.A. Young, ‘Trade Measures to Address Environmental Concerns in Faraway Places: Jurisdictional Issues’ 23 Review of European Comparative and International Environmental Law (2014) 302, at 309.

Fisheries   833 private governance in fisheries,114 is ripe for fuller inclusion within the standard criteria establishing likeness. Moreover, a market construction that respects the policy choices of governments115 may begin to incorporate the ‘where’ and ‘how’ fish are caught in a likeness determination. Second, if a violation is found, the justification of the measure will be sought under Articles XX (b), (g) and even (a) of the GATT 1994.116 The likely focus on Article XX(g) provides scope to assess the design and implementation according to guidance from earlier fisheries disputes. Of particular relevance is the need for a respondent State to demonstrate that any discrimination is not ‘unjustifiable’ according to the chapeau of Article XX, including through concerted and cooperative efforts, just as outreach on the protection and conservation of sea turtles became important in US –​Shrimp.117 Interaction between regimes will be similarly important in disputes over the use of sanitary measures, which are predicted to grow as a result of the awareness of zoonotic diseases post-​COVID19. Disease outbreaks have disrupted trade in the past, including in the shrimp sector,118 and the SPS Agreement’s reliance on risk assessments and other scientific processes will feature heavily in fisheries issues. Relevant too are regional trade agreements, just as for other issues described in this chapter. The CPTPP, for example, recognizes that parties may use measures to prevent trade in fish products that result from IUU fishing.119 Other provisions in its environment chapter require each party to seek to operate a science-​based fisheries management system, and promote the long-​term conservation of sharks, marine turtles, seabirds, and marine mammals.120 Though not as extensive as apparent attempts by some parties to negotiate bans on shark finning and whaling,121 the extent of the provisions is novel for a trade agreement. The prospect of compulsory dispute settlement between CPTPP parties relates to broader challenges for adjudicative bodies, which I address next.

V.  Adjudicating fisheries disputes Dispute settlement in fisheries is complex, as is already clear from the cases cited at the beginning of this chapter. The background context of international adjudication 114  G. Auld, Constructing Private Governance: The Rise and Evolution of Forest, Coffee, and Fisheries Certification (New Haven: Yale University Press, 2014). See also S. Renckens and G. Auld, ‘Time to Certify: Explaining Varying Efficiency of Private Regulatory Audits’ 2020 Regulation and Governance, at < https://​doi.org/​10.1111/​rego.12362 > (last visited 21 September 2021). 115  As was done in the different context of the SCM Agreement: see S. Charnovitz and C. Fischer, ‘Canada–​Renewable Energy: Implications for WTO Law on Green and Not-​So-​Green Subsidies’ 14 World Trade Review (2015) 177. 116 Since the decision in Appellate Body Report, EC –​Seal Products, adopted 16 June 2014, and a surging set of ethics relating to non-​human personhood, Article XX(a) of the GATT 1994 could be appropriate in a fisheries dispute. 117  US –​Shrimp, adopted 6 November 1998, paras 166, 173–​176. 118  FAO, above fn 1, at 77 (noting that Thailand, the sixth major exporter, experienced a decline in shrimp exports due to disease outbreaks). 119  Article 20.16(14) of the CPTPP. 120  Article 20.16(3) of the CPTPP. 121  See further Young, ‘International Trade Law Compatibility’, above fn 71, at 214.

834   Margaret A. Young is important to consider, especially noting that the two major international regimes that feature compulsory dispute settlement are trade and the law of the sea.122 Under UNCLOS and the UN Fish Stocks Agreement, obligations relating to fisheries may be enforced through adversarial cases at the International Tribunal for the Law of the Sea (ITLOS), the International Court of Justice (ICJ) or other tribunals.123 Adjudication of disputes outside of the UNCLOS framework, by contrast, is subject to the separate acceptance of jurisdiction by States.124 While much could be said about jurisdictional issues, standing and applicable law in fisheries disputes,125 this chapter is focussed on the significance for enforcement of the proposed rules on fisheries subsidies.126 How to craft rules to enforce fisheries subsidies disciplines has been a dominant concern of negotiators. States need to consider not only how to ensure obligations are binding, how to provide an appropriate standard of review, and so on, but also how the new rules might disrupt or cohere with established rules on dispute settlement in other fields of international law. Consistently with other topics considered in this chapter, issues of fragmentation and regime interaction come to the fore. Under UNCLOS, fisheries disputes may be subject to the dispute settlement procedures under Part XV, with some exceptions including for resource management decisions of coastal states.127 A dispute between parties to the UN Fish Stocks Agreement concerning the interpretation or application of a relevant RFMO agreement, including any dispute concerning the conservation and management of such stocks, is also subject to Part XV procedures.128 However, if States have chosen to settle their disputes by alternative means, such as in a general, regional or bilateral agreement, such dispute settlement procedures under UNCLOS might be displaced.129 Disputes that mix UNCLOS and other issues (involving, for example, contested IUU determinations) may therefore escape enforcement prospects by ITLOS or other tribunals established according to the Part XV UNCLOS procedures. WTO negotiators have become keenly aware of these UNCLOS intricacies. On the one hand, the WTO system of dispute settlement provides a strong prospect for 122  The challenges facing the trade regime given uncertainties over Appellate Body appointments are well-​covered in this handbook and are not considered further here. See especially Chapters 5, 7 and 34 of this handbook. 123  UNCLOS, above fn 6, Part XV. 124  For example, the acceptance of jurisdiction under Article 36 of the Statute of the International Court of Justice, done at San Francisco, 24 October 1945, entered into force 31 August 1965; 33 U.N.T.S. 993. 125  See also fisheries disputes under the CPTPP, discussed in n 101 above and accompanying text. 126  See also Young, The ‘Law of the Sea’ Obligations, above fn 69. 127  Article 297(3) of the UNCLOS; Article 32 of the UNFSA. See further Young, The ‘Law of the Sea’ Obligations, above fn 69. 128  Article 30(2) of the UNFSA. 129 Articles 280–​ 82 of the UNCLOS. See further Southern Bluefin Tuna (New Zealand v Japan, Australia v Japan) (Jurisdiction and Admissibility) (2000) 119 ILR 508. For critique, A. Boyle, ‘The Southern Bluefin Tuna Arbitration’ 50 International and Comparative Law Quarterly (2001) 447, at 448. See further N. Klein, Dispute Settlement in the UN Convention on the Law of the Sea (Cambridge: Cambridge University Press, 2005) 149.

Fisheries   835 enforcement against violations of subsidy rules, including the potential for retaliatory action in cases of non-​compliance by the country that has been found to be providing the subsidy to an IUU activity. On the other hand, the disciplines on subsidies have been carefully crafted so they do not create alternative means to resolving disputes concerning the interpretation or application of UNCLOS or the UNFSA.

VI. Conclusion This chapter has demonstrated the centrality of trade law to the production and consumption of fish products. Just as the foundational conception of the freedom of the seas among modern States rewarded maritime nations with extensive fishing fleets, notions of trade liberalization and an aversion to discrimination between products based on production and process methods has supported international supply chains. Yet the law of the sea has evolved to constrain the freedom of States to fish, and international trade law has more consistently recognized the utility of trade measures for public policies such as the conservation of exhaustible natural resources or the protection of human, animal or plant life or health. An important part of this evolution is the interaction between the trade regime and other areas of international law. This is best understood by scholars willing to understand the systemic aspects as well as the detailed technicalities—​even to the point of familiarization with acronyms such as IUU and other complex issues. Just as trade law is central to fisheries, an understanding of fisheries will reward any scholar or practitioner of international law and international trade law.130 Fisheries, as a topic of study, provides insights into the structures and limitations of legal attempts to govern the relations between States. The chapter has shown how crafting disciplines on trade-​distorting and ecologically destructive subsidies reveals a willingness of States to limit production, in ways that might prove useful in other areas of natural resource exploitation. Certainly, the growing global environmental crisis demands this of states. Negotiations for a new instrument on marine biological diversity follows similar conceptual commitments and will hopefully lead to new rules once law-​making resumes after the pandemic confinement. Such willingness of States, of course, cannot be assessed in isolation from the private activities of fishing fleets and corporations,131 which may be calling for increasing country support to overcome the economic hardships wrought by the COVID19 pandemic, including for fisheries subsidies.

130 

On this observation I claim agreement with leading trade lawyer Deborah Cass: see M.A. Young, ‘A Quiet Revolution: The Exclusivity of Exclusive Economic Zones’ in K Rubenstein (ed), Traversing Divides: Honouring Deborah Cass’s Contribution to Public and International Law (Canberra: ANU Press, 2021) 59, at < http://​press-​files.anu.edu.au/​downlo​ads/​press/​n7864/​pdf/​05_​yo​ung.pdf > (last visited 21 September 2021). 131  See further relating to vessels, ITLOS, Request for Advisory Opinion Submitted by the Sub-​Regional Fisheries Commission, Advisory Opinion, 2 April 2015, ITLOS Reports 2015, 4, paras 102–​40.

836   Margaret A. Young The chapter has shown how rules on fisheries subsidies, and the use of trade measures to address IUU fishing, throw open the challenge of how the WTO achieves its objectives without becoming an international fisheries organization. New approaches require respect for the considerable intellectual, political, and human investment in established international organizations as well as a readiness to adapt—​in the lingo of the highly disrupted years since 2020, an ability to ‘pivot’. The chapter has shown, moreover, that establishing rules for fisheries trade incorporates both multilateral and regional or bilateral trade forums, in ways that are apparent in other areas of trade policy. While trade measures to prevent bycatch led to the important WTO case of US-​Shrimp, now several FTAs include relevant provisions.132 The chapter also discussed the adjudication of fisheries trade disputes. In particular, the proposed resolution of subsidy disputes makes for arresting reading for those well-​ versed in the jurisprudence of the law of the sea. The chapter described how compulsory dispute settlement under UNCLOS can be nullified by bilateral or regional agreements. The prospect of subsidy rules creating arrangements that usurp the hard-​won UNCLOS dispute settlement provisions is one example among many of the need for inter-​regime legal expertise. This review of issues relating to the fisheries trade reveals much about the place of international law in the current global economy. The crisis of overfishing is dire for everyone, especially the three billion people who depend upon marine and coastal biodiversity for their livelihoods.133 The Sustainable Development Goals, with targets for prohibiting certain forms of fisheries subsidies that contribute to overcapacity and overfishing, have provided a useful sense of the necessary pathways to better protect and preserve the marine environment. But as we continue, in 2022, to experience the abrupt societal-​level changes that began in 2020, predictions about reaching these goals are difficult to make. There are arguments that a blue economy requires a reversal of the expansion of industrial fleets of the twentieth century and an endorsement of small-​scale fisheries.134 Disruptions from the COVID19 pandemic have enabled some fisheries to replenish, but have also made more acute the current human dependencies on globalized supply chains. A reduction of trade barriers, and a need to avoid protectionism, are goals with considerable legal backing, but so too are national tools to reduce unsustainable production, reduce unsustainable consumption, and encourage consumption based on provenance and methods of production. The responsiveness of States to the need to conserve marine living resources relies in part on new and existing frameworks of trade law.

132 

See, e.g., Article 20.16 of the CPTPP; Article 24.18 of CUSMA. See facts and figures at UN, ‘Goal 14: Conserve and Sustainably Use the Oceans, Seas and Marine Resources’, < https://​www.un.org/​sus​tain​able​deve​lopm​ent/​oce​ans/​ >(last visited 3 December 2020). 134  Pauly, above fn 15. 133 

Fisheries   837

Further reading Caddell, E. and E.J. Molenaar (eds), Strengthening International Fisheries Law in an Era of Changing Oceans (Oxford: Hart Publishing, 2019) Harrison, J., Saving the Oceans through Law: The International Legal Framework for the Protection of the Marine Environment (Oxford: Oxford University Press, 2017) Klein, N., Dispute Settlement in the UN Convention on the Law of the Sea. (Cambridge: Cambridge University Press, 2005) Tanaka, Y., The International Law of the Sea, 3rd edition (Cambridge: Cambridge University Press, 2019) Young, M.A., Trading Fish, Saving Fish: The Interaction between Regimes in International Law (Cambridge: Cambridge University Press, 2011) Young, M.A., ‘International Trade Law Compatibility of Market-​Related Measures to Combat Illegal, Unreported and Unregulated (IUU) Fishing’ 69 Marine Policy (2016) 209

Chapter 32

Investm en t L aw ’ s Monstrous Re form Rodney Neufeld *

I. II. III. IV.

Introduction What are investment treaties? Criticism of investment agreements, particularly ISDS National approaches A. Europe B. North America C. Asia, Oceania and Russia D. Africa and the Middle East E. Latin America and the Caribbean F. Summary of national approaches V Procedural reforms at ICSID and UNCITRAL A. ICSID B. UNCITRAL VI. Conclusion

* 

839 840 842 846 846 849 852 855 857 858 861 861 863 865

All views expressed in this chapter are those of the author. They do not purport to reflect the official policy or views of the Government of Canada.

Investment law’s monstrous reform    839

I. Introduction In 2018 and 2019, UNCTAD reported that investment treaty making1 had reached a turning point, with the number of terminations exceeding the number of new treaties for the first time.2 The constant growth in the number of investment treaties since 1959, including the spike in the 1990’s, was over. The warning that ‘winter is coming!’ hailed by certain commentators appeared to have materialized.3 Like the character of Ned Stark in the Game of Thrones, Gary Born cautioned that those outside the wall of his kingdom wanted to tear it down to bring an end to the golden age of investment treaty relations, ushering in a long and brutal winter. Other well-​known arbitrators, like Yves Fortier, agree that there is a ‘real threat’ to the ad hoc arbitral system.4 Campbell McLachlan and Brigitte Stern refer to ‘an existential risk’ facing international arbitration, identifying NGOs and the European Commission as its principle attackers.5 The battering ram that they fear the most, ironically, is not a tool of destruction at all. Rather, it the European Union’s drive to establish a multilateral investment court (MIC), or what Charles Brower refers to as a ‘15-​headed hydra’ that is ‘advancing slowly but unhindered with no Heracles to fight it off ’.6 Besides the European Union and NGOs, the other ‘foe’ of investment arbitration identified by Charles Brower is the United Nations Commission on International Trade Law (UNCITRAL). In this typically sleepy forum, over a hundred States and many observers have been meeting, in person and virtually, to eagerly discuss reform.7 Participants discuss various issues, including the inconsistency of arbitral decisions, the lack of diversity and independence of arbitrators, and the duration and cost of proceedings. Proposed solutions include new rules of procedure and a code of conduct, but also the establishment of a MIC and an appellate mechanism. This chapter will consider these proposed procedural reforms to Investor-State dispute settlement (ISDS) and the problems they seek to address, but before doing so, it will take a closer look at the concern that States have grown cold towards investment 1  For

the purpose of this chapter, ‘Investment Treaties’ refers to bilateral or multilateral investment agreements as well as free trade agreements that contain investment provisions. 2  UNCTAD IIA Issues Note, ‘Fact Sheet on Investor–​State Dispute Settlement Cases in 2018’ (May 2019), at 2; UNCTAD IIA Issues Note, ‘The Changing IIA Landscape: New Treaties and Recent Policy Developments’ (July 2020), at 1. 3 A. Ross, ‘ “Game of Tribunals”—​ Winter is coming, warns Born’ Global Arbitration Review (15 July 2016). 4  ‘Fortier on the Cola Wars’ Global Arbitration Review (18 October 2019). 5  C. McLachlan, ‘The Assault on International Adjudication and the Limits of Withdrawal’ 68(3) International and Comparative Law Quarterly (2019) 499, Section D; T. Jones, ‘The Pendulum Has Swung Back’ Global Arbitration Review (6 December 2019). 6  ‘Brower Warns Against Monstrous Court Proposal’ Global Arbitration Review (12 January 2018); Brower views the 15-​member standing tribunal in Article 8.27 of the Comprehensive Economic and Trade Agreement (CETA) as the template for the monstrous MIC. 7 Ibid.

840   Rodney Neufeld protections. It will show that although investment treaty making has slowed, this is due more to saturation than discontent. Recent State practice shows that the only governments repudiating investment treaties or ISDS have protectionist tendencies, and that most seek correction or calibration of the rules, both substantive and procedural. Modernized approaches have emerged in regional free trade agreements (FTAs) that embrace investment rules as part of international trade law, applying them within a web of partners, like CETA, which Canada entered into with the 28 Member States (now 27) of the European Union, or the 11-​member Comprehensive and Progressive Transpacific Partnership (CPTPP). The evolution in practice of States, like the negotiations in UNCITRAL and the International Centre for the Settlement of Investment Disputes (ICSID), shows that most States want to see better dispute settlement. States desire a system in which rules are interpreted accurately, not a weakened process that allows them to abuse the rules. Disputes run on too long and are too costly. More troubling is that there are too many inconsistent tribunal decisions leading to a lack of predictability of the rules. In too many instances, the arbitral claim, rather than the project, becomes the focus of investment, with awards in the hundreds of millions, even billions of dollars. Some claims are backed by third-​party funders that throw tens of millions of dollars into creative advocacy with the hopes of much bigger returns. These are the principle issues that States seek to address. Despite the hyperbolic outcry of approaching winters and multi-​headed hydras, investor protections are here to stay. States are merely searching for more consistent interpretation and application of the protections. This is evident in the wave of substantive changes to treaties as well as to the wide support for procedural reform. Whether such efforts result in the creation of a new institution remains to be seen, but what is clear is that, unlike WTO law, investment law is currently undergoing a building and improvement process, not paralysis or implosion.

II.  What are investment treaties? Investment treaties promote investment and enhance investor protection through substantive obligations enforceable on the States that are party to them. They come in two principal forms: the bilateral investment treaty (BIT) and economic or trade agreements containing investment provisions.8 Examples of treaties in the latter category are the Energy Charter Treaty, and the growing number of free trade agreements with an investment chapter, like the North American Free Trade Agreement (NAFTA) and its successor, CUSMA.9 8  By January 2021, 3312 agreements had been signed, approximately 90 percent of which are BITs; see UNCTAD Investment Policy Monitor (February 2021), 7. 9 Note that each Party refers to the new agreement differently: CUSMA by Canada, T-​ MEC by Mexico and USMCA by the United States.

Investment law’s monstrous reform    841 In contrast to WTO rules, which apply to measures affecting investors through their effect on trade in goods or services,10 the obligations in investment agreements apply directly to the State’s treatment of the investor or its investment, irrespective of whether it is engaged in the trade of goods, services, or intellectual property. Whether the treaty defines ‘investment’ using an open or closed list, its coverage is typically broad, for example extending to all ‘interests arising from the commitment of capital or other resources in the territory of a Party to economic activity in such territory’.11 Stretching across thousands of treaties, investment obligations lack universality. However, investment agreements share a high degree of similarity in that they typically include national and most-​favoured nation treatment (MFN) provisions, similar to the standards that exist in the GATS, as well as customary international law obligations not found in trade agreements. These include the prohibition against unlawful expropriation and a guarantee to accord fair and equitable treatment (FET), full protection and security and compensation for losses during armed conflict or civil strife. These frequently occurring core elements show up in as many as 90 per cent of agreements.12 Other obligations contained in many agreements, particularly newer agreements, include provisions on performance requirements, monetary transfers, and board of directors selections, as well as environmental protection, labour and human rights, and corporate social responsibility. A major difference between investment law and other trade law lies in their enforcement. Rules on trade in goods, services and intellectual property are enforceable through State-​to-​State dispute settlement, whereas investment agreements also typically allow for ISDS. Granting a standing right to a foreign investor to bring a claim directly against a State breaks from the traditional mechanisms of dispute settlement in international law, including diplomatic protection, whereby the investor’s claim is espoused by the home State. ISDS procedures vary by treaty, but they generally allow an investor to make claims before an ad hoc arbitral tribunal that it has a hand in constituting, along with the State. Although the claimant and respondent State may agree to a one-​or a five-​person tribunal, three-​person tribunals are most common, with each disputing party selecting one arbitrator and the president appointed by agreement, the other arbitrators or an appointing authority. Unlike in the WTO, there is no single DSU for investment law, but investment treaties commonly provide standing consent to use at least two sets of procedural rules: ICSID and UNCITRAL rules. The vast majority of investment treaty cases are administered by ICSID, an autonomous institution created by convention drafted by the World Bank’s Executive Directors

10  For a more detailed discussion, see R. Neufeld, ‘Trade and Investment’ in D. Bethlehem, D. McRae, R. Neufeld, and I. Van Damme (eds), The Oxford Handbook of International Trade Law, 1st edition (Oxford: Oxford University Press, 2009) at 624–​629. 11  Article 1139 of NAFTA. 12  W. Alschner and D. Skougarevskiy, ‘Mapping the Universe of International Investment Agreements’ 19(3) Journal of International Economic Law (2016) 561.

842   Rodney Neufeld in 1965 to which 154 States have become party.13 The ICSID Secretariat administers arbitrations brought pursuant to the ICSID Rules, the ICSID Additional Facility Rules, but other rules as well. In 2020, 53 of 72 known investment disputes were brought to ICSID.14 UNCITRAL is a subsidiary body of the UN General Assembly responsible for helping facilitate trade and investment. Like ICSID, it also created Arbitration Rules, which the General Assembly first adopted in 1976,15 as part of its mandate to further the progressive harmonization and unification of international trade law. They were intended for commercial entities but have been used to resolve a broad range of disputes, and are the second-​most common set of procedures to apply in ISDS. Unlike the ICSID Rules, they are not tied to a Secretariat, but administered by the tribunal, sometimes with the help of an arbitral authority, such as the Permanent Court of Arbitration (PCA) or ICSID. Unlike under the DSU, the remedy typically provided by investment treaties is monetary damages, rather than bringing a measure into conformity with the rules. These awards have a high rate of compliance since they are enforceable in the domestic courts of parties to the New York and ICSID conventions, through which an order can be sought allowing the investor to seize commercial assets of the non-​compliant State.16 Cost awards against claimants,17 particularly shell corporations, have proven more difficult to enforce.

III.  Criticism of investment agreements, particularly ISDS Investment treaties have been subject to widespread criticism. Some of the critique focusses on procedural issues, including lengthy delays, mounting costs, lack of diversity and independence of arbitrators, insufficient transparency, and funding of claims by third-​parties. Such procedural matters are of concern to the disputing parties, although more so to States than investors, and are under negotiation at UNCITRAL and ICSID, as will be discussed near the end of the chapter.

13  Convention on the Settlement of Investment Disputes between States and National of other States, 575 UNTS 159; membership as of 12 April 2019. 14  D. Charlotin and L.E. Peterson, ‘2020 was a record year for cases filed under the ICSID Convention’ IA Reporter (6 January 2021). 15  General Assembly Resolution, A/​RES/​31/​98 (15 December 1976). 16  See generally, C.B. Lamm and E.R. Hellbeck, ‘Chapter 15: The Enforcement of Awards’ in C. Giorgetti (ed), Litigating International Investment Disputes (Leiden: Brill Nijhoff, 2014). 17  To date, awards against claimants have been limited to costs, since there have been no successful counterclaims. See Y. Kyrvoi, ‘Counterclaims in Investor-State disputes: time for the system change?’ (8 November 2019), at < http://​kry​voi.net/​blog/​counte​rcla​ims-​in-​inves​tor-​state-​dispu​tes-​is-​it-​time-​for-​ the-​sys​tem-​to-​cha​nge/​ > (last visited 1 December 2020).

Investment law’s monstrous reform    843 A different type of critique comes from civil society, which has shown distrust, even distain for investment treaties. This critique attacks the ability of investors to challenge public policy such as environmental or public health measures, focussing in particular on the power granted to them through ISDS mechanisms.18 Often, complaints cite a ‘perceived lack of legitimacy, consistency and predictability’.19 They allege that ad hoc tribunals are given too much discretion under the vague rules contained in traditional, bare bones OECD-​style treaties, and that the State’s regulatory powers are unduly restricted in the name of protecting foreign investment. While there is no doubt a perception of bias that investment treaties accord a priority to investors over the public, many cries of illegitimacy ring hollow, since States have every right to exercise their sovereign right to enter into investment treaties. Besides, many States, like Canada, Costa Rica, Chile, Japan, and Mexico, maintain that their agreements do not prevent them from regulating in the public interest. Some have taken action to ensure that they never will cede such power. For example, Australia decided in 2011 to reject any provision ‘that would confer greater legal rights on foreign business than those available to domestic businesses’.20 The US Congress instructed negotiators to apply the ‘no greater rights’ principle first laid down in the Trade Act of 2002.21 The European Parliament voted unanimously in favour of EU investment treaties granting ‘the same high level of protection as Union law and the general principles common to the laws of the Member States to investors from within the Union, but not a higher level of protection’.22 In the case of Colombia, its Constitutional Court ruled that the treaties being negotiated with France and Israel could not provide more favourable treatment to foreign investors over national investors.23 Despite these concerted efforts, or perhaps because of them, the public perception of bias towards investors remains prevalent. With ever-​growing damages awards, it is no wonder that ISDS is getting increased public attention. Although treaties often prohibit punitive damages,24 the amounts awarded have occasionally been punishing. At least ten tribunals have granted awards of more than $1 billion, against Russia, Ecuador, Venezuela, Pakistan, Egypt and most recently India. UNCTAD reported in 2017 that, in cases decided in favour of the investor, 18  See,

e.g., an Open Letter from 65 academics to the Chair of UNCITRAL Working Group III (13 February 2019), at < https://​www.eur.nl/​en/​news/​eras​mus-​instit​ute-​pub​lic-​knowle​dge > (last visited 14 November 2021). 19   A. Joubin-​Bret and J. Kalicki (eds), Reshaping the Investor-​State Dispute Settlement System: Journeys for the 21st Century (Leiden: Brill Nijhoff, 2014), 1. 20  L. Peterson, ‘In Policy Switch, Australia Disavows Need for Investor-​State Arbitration Provisions in Trade and Investment Agreement’ IA Reporter (14 April 2011). 21 Section 2102(b)(3) requires that investment provisions ‘ensur[e]‌that foreign investors are not accorded greater substantive rights with respect to investment protections than United States investors in the United States’. 22  Recital 4 in the preamble to Regulation (EU) No. 912/​2014 establishing a framework for managing financial responsibility linked to investor-​ to-​ state dispute settlement tribunals established by international agreements to which the European Union is party, OJ 2014 L 257, p. 121. 23  Sentencia C-​252/​19, 6 June 2019; Sentencia C-​254/​19, 6 June 2019. 24  See, e.g., Article 1135(3) of NAFTA and Article 8.39(4) of CETA.

844   Rodney Neufeld the average amount claimed was $1.35 billion and the average amount awarded was $522 million.25 Investment agreements typically provide wide discretion to tribunals to decide whether and how much damages to award. So, tribunals turn to rules of customary international law and the theories of damage experts whose expertise cost the disputing party millions of dollars. Not surprisingly, awards lack consistency, providing unclear guidance to disputing parties. For example, it has become commonplace for experts to advance theories to justify claims of lost future profits based on economic simulations or other valuations, at times totally unhinged from the amount that has been invested in the first place. A discounted-​cash flow analysis or a Monte Carlo simulation, for example, can lead to an investment loss being valued significantly higher than the amount invested. For example, in Gold Reserve v. Venezuela, the claimant was awarded over $700 million despite having invested less than $300 million.26 Even though most tribunals grant drastically lower damages (typically under $20 million)27 and despite how costly it is to bring an ISDS claim (which averages $8 million but rises as high as $30 million),28 the possibility of massive reward encourages a gambling mentality. With dollar signs in their eyes, investors who have made a comparatively small investment may be reluctant to settle in the hopes of much bigger rewards. For example, in Bear Creek v. Peru, the claimant allegedly rejected an offer to settle the dispute, going on to see its request for $522 million in lost profits rejected. The tribunal awarded it $18 million,29 an amount apparently similar to a settlement offer that had been made. In addition, with third-​party funders stepping up to cover the high costs of litigation, claimants have little to lose, gambling on their claim as though it is an investment that might gain a high return. The problems associated with damage awards suggests that it might be worth considering alternative remedies, including the common trade law remedy to oblige the State to bring its measure into conformity with the agreement. However, compelling compliance is arguably more intrusive and less efficient than awarding damages, particularly if it allows an investor to halt or reverse a State’s regulatory course of action.30 That said, few would dispute that when compensation grows into the hundreds of millions of dollars, it risks becoming just as intrusive and creating just as great a regulatory chill.

25 UNCTAD IIA Issues Note, ‘Special Update on Investor–​ State Dispute Settlement: Facts and Figures’ (November 2017), Issue 3, at < https://​unc​tad.org/​sys​tem/​files/​offic​ial-​docum​ent/​diaep​cb20​17d7​ _​en.pdf > (last visited 14 November 2021), 5. 26  Gold Reserve Inc. v. Venezuela, Award, ICSID Case No ARB(AF)/​09/​1, 22 September 2014, para 226. 27  UNCTAD reports the median amount to be $19 million, above fn 25, at 5. 28 D. Gaukrodger and K. Gordon, ‘Investor-​ State Dispute Settlement: A Scoping Paper for the Investment Policy Community’ OECD Working Papers on International Investment 2012/​03, at < http://​ dx.doi.org/​10.1787/​5k46b​1r85​j6f-​en > (last visited 14 November 2021), 24. 29  Bear Creek Mining Corp. v. Peru, Award, ICSID Case No. ARB/​14/​21, 30 November 2017, para 738. 30  For a discussion of the sensitivities around enforcement in a State-​ to-​State dispute settlement context, see Chapter 37 of this handbook.

Investment law’s monstrous reform    845 Awards are not just costly, they are also inconsistent, which, in turn, contributes to a lack of predictability. The late Judge James Crawford has cautioned that investment ‘tribunals have produced an erratic pattern of decisions, with reasoning often impressionistic and displaying a certain disregard for state regulatory prerogatives’.31 Examples of inconsistencies abound. The ‘ultimate fiasco’ in investment arbitration occurred when two tribunals came to opposite results on the same facts and nearly identical law in the Lauder and CME awards against the Czech republic.32 Another example of divergence is the interpretation of MFN clauses, with some tribunals using, and other tribunals refusing to use MFN to transfer in better dispute settlement protection from a provision of another investment treaty.33 An equally troubling example is the FET clause, which has produced ‘judicial creations of new elements like “legitimate expectations” to add texture to the clause’ and has generally been interpreted in a more sovereignty-​ intrusive manner than States had originally envisaged.34 Although some of the interpretative differences may relate to differently worded FET clauses, it is also true that certain arbitrators see the clause as a catch-​all. As Brower contends, FET ‘represents the exemplification of an intentionally vague term, designed to give adjudicators a quasi-​ legislative authority to articulate a variety of rules necessary to achieve the treaty’s objective and purpose.’35 Although inconsistencies will be endemic to any system of ad hoc adjudication, it is problematic that some of the inconsistent interpretations seem to demonstrate an eagerness by tribunals to disregard the very words of the treaty before them, the concordant views of the Parties to that treaty, or the regulatory prerogatives that they exercise. Whether it is on account of an award’s amount, the sensitivity of measures being challenged, or its incorrect reasoning, almost every State has its ISDS horror story, and they are all relatively recent. Of the 1000+​known ISDS cases, only 44 were brought prior to 2000.36 The recent surge in investment claims has garnered public attention, which 31 J. Crawford, ‘Foreword’ in Z. Douglas, The International Law of Investment Claims (Cambridge: Cambridge University Press, 2009). 32 A. Reinisch, ‘The Proliferation of International Dispute Settlement Mechanisms: The Threat of Fragmentation vs. the Promise of a More Effective System? Some Reflections from the Perspective of Investment Arbitration’ in I. Buffard, J. Crawford, G. Hafner and A. Pellet (eds), International Law Between Universalism and Fragmentation: Festschrift in Honour of Gerhard Hafner (Leiden: Brill, 2008), 116. 33   One line of cases follows Maffezini v. Spain, ICSID Case No. ARB/​97/​7, Decision of the Tribunal on Objections to Jurisdiction, 25 January 2000, para 64, whereas another follows Plama Consortium Ltd v. Republic of Bulgaria, ICSID Case No. ARB/​03/​24, Decision on Jurisdiction, 8 February 2005, paras 184, 223, 227; Salini v. Jordan, ICSID Case No. ARB/​02/​13, Decision on Jurisdiction, 29 November 2004, para 119. 34  W. Alschner, ‘Locked-​in Language: Historical Sociological and the Path Dependency of Investment Treaty Design’ (March 2017), at < https://​pap​ers.ssrn.com/​sol3/​pap​ers.cfm?abst​ract​_​id=​2929​762 > (last visited 14 November 2021), 21–​22. 35  C.H. Brower, ‘Structure, Legitimacy, and NAFTA’s Investment Chapter’ 36 Vanderbilt Journal of Transnational Law (2003) 37, 88. 36  UNCTAD Investment Policy Hub, at < https://​inves​tmen​tpol​icy.unc​tad.org/​inv​estm​ent-​disp​ute-​ set​tlem​ent/​advan​ced-​sea​rch > (last visited 14 November 2021).

846   Rodney Neufeld has had an influence on the actions of States. The response of States has ranged from defending the status quo, to clarifying the meaning of provisions in new treaties or the renegotiation of old ones, to total abandonment of its treaties. Given the lack of universality, and no single forum for debating substantive rules on investment, it is worth looking at national trends.

IV.  National approaches Despite a relatively short 60-​year history of investment treaties and ISDS, State practice exhibits some wild swings in substantive rule-​making and enforcement. Reform efforts are now prevalent, by developed and developing countries alike.37 The summary below demonstrates a significant evolution in the behaviour of States, including those that have driven negotiations, like the European Union, the United States and China. While reforms show that States are looking for greater precision in the rules, confirmation that they may still regulate in the public interest, and control over the discretion of tribunals, their practice does not show a general rejection of either ISDS or the rules it seeks to enforce.

A. Europe By the early 1980s, twenty-​five years after Germany negotiated the world’s first BIT, European States had already negotiated over 150 treaties,38 largely based on the bare bones model of the OECD.39 Today, the number is greater than 1,650 agreements,40 with few European States opting out. Norway is one such State. After negotiating 14 OECD-​style BITs by 1997,41 its programme came to a crashing halt due to concerns about the compatibility of such agreements with its constitution. The agreements that Norway and its European Free 37 

UNCTAD World Investment Report, 2019, at 104. J. Salacuse, ‘BIT by BIT: The Growth of Bilateral Investment Treaties and Their Impact on Foreign Investment in Developing Countries’ 24 International Law (1990) 655, at 657. 39 OECD Draft Convention on the Protection of Foreign Property, 1962, 2 ILM 241, adopted 12 October 1967, 7 ILM 117; the OECD model was based on the Abs-​Shawcross model treaty. See H. Abs and H. Shawcross, ‘Draft Convention on Investments Abroad’ in ‘The Proposed Convention to Protect Private Foreign Investment: A Round Table’ 1 Journal of Public Law (now Emory Law Journal) (Spring 1960), 115–​118. 40  At the time of writing, most Member States have at least 50 agreements in force, with the United Kingdom, France, Switzerland around 100 each, and Germany 127: 91; see UNCTAD Investment Policy Hub, at < https://​inves​tmen​tpol​icy.unc​tad.org/​intern​atio​nal-​inv​estm​ent-​agr​eeme​nts/​by-​coun​try-​group​ ing > (last visited 15 October 2021). 41  UNCTAD Investment Policy Hub, at (last visited 14 November 2021). 38 

Investment law’s monstrous reform    847 Trade Association (EFTA) partners have negotiated since then offer limited protection and do not provide for ISDS. Ireland is another. In 2011, it terminated its sole BIT, but has since participated in the negotiation of new agreements led by the European Union, with which responsibilities over investment are shared.42 To date, the European Union has negotiated treaties with Canada, Vietnam and Singapore, which once fully in force, will replace 41 bilateral treaties. These agreements provide numerous clarifications to substantive rules. In some instances, as in the example of the MFN provision, the rule remains the same, but a subparagraph clarifies that substantive obligations in other investment agreements ‘do not in themselves constitute “treatment” and thus cannot be taken into account when assessing a breach of this Article’.43 In other instances, like FET, the rule has been completely re-​written.44 The European Union, like many other investment treaty partners, maintains that its investment agreements preserve the right of governments to regulate in the public interest. Indeed, the European Union’s agreements with Canada, Vietnam, and Singapore explicitly provide that ‘the Parties reaffirm their right to regulate within their territories to achieve legitimate policy objectives.’45 However, by reaffirming this right, the Parties’ view is that their other treaties do not interfere with such right even if they do not contain such an explicit statement. Interestingly, the Joint Interpretative Note with Canada further pronounces that CETA ‘will not result in foreign investors being treated more favourably than domestic investors’,46 which may be less certain in other investment agreements whose interpretation is left to ad hoc tribunals. Also, the EU agreements reject ad hoc arbitration in favour of a permanent tribunal and a standing appellate tribunal.47 Once fully (as opposed to provisionally) in force, the FTAs with Canada, Singapore and Vietnam will continue to allow investors to bring disputes against the State, but within a court-​like structure that guarantees transparent dispute resolution by State-​appointed tribunal members with the option of appellate review. At the same time, the Court of Justice of the European Union (CJEU) has declared that ad hoc ISDS arbitration between two Member States incompatible with EU law.48 A long complicated debate over compatibility raged on until Members States agreed in January 2019 to cancel their intra-​EU BITs. The Termination Agreement reached by the Member States will end 130 intra-​EU BITs,49 a process that Poland began in

42 

See Hestermeyer’s discussion of mixed agreements in Chapter 11 of this handbook. See, e.g., Article 8.7(4) of CETA. 44  Article 8.10 of CETA. 45  Article 8.9 of CETA, Articles 2.2 of the EU-​Singapore and the EU-​Vietnam Investment Protection Agreements. 46  OJ 2017 L 11, p. 3. 47  See, e.g., Articles 3.38 and 3.39 of the EU-​Vietnam Investment Protection Agreement. 48  Case C-​284/​16 Slovak Republic v. Achmea B.V., EU:C:2018:158.​ 49  Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union, OJ 2020 L169, p. 1. 43 

848   Rodney Neufeld 2017,50 and one that the United Kingdom avoided.51 Interestingly, in its free trade negotiations with the European Union, the United Kingdom proposed no ISDS, FET, or prohibition of expropriation provisions.52 It is not clear whether the exclusion of these provisions from the EU-​UK Trade and Cooperation Agreement (TCA) marks a new path on investment protection for the United Kingdom. Perhaps it comes down to wanting to maintain its old BITS with each of the Member States, agreements that have almost not changed over 35 years.53 Or perhaps, the United Kingdom modelled its approach on the recent UK-​Japan Comprehensive Economic Partnership Agreement (CEPA). This agreement, like the EU-​ Japan Economic Partnership Agreement (EPA), rejects FET and the prohibition on expropriation, as well as ISDS. The CEPA gives the opportunity to either Party, in the event that its partner has entered into an agreement containing ISDS, to request a review with a view to its possible inclusion in the CEPA.54 The January 2021 EU-​China Comprehensive Agreement on Investment (CAI), like the investment chapters of the EU-​Japan EPA and UK-​Japan CEPA contain provisions on national treatment and MFN, but not FET or expropriation. In addition, these agreements clarify that MFN does not include ISDS procedures provided for in other agreements.55 The CAI appears to merely confirm existing WTO commitments, but importantly, for the European Union, it replaces existing BITs between Member States and China, and it includes a commitment to negotiate within two years of signature ‘state of the art’ investment protection and dispute settlement that takes into account progress on structural reform in the context of UNCITRAL.56 What the European Union has in mind when referring to ‘state of the art’ provisions is likely what is contained in its agreements with Canada, Singapore, and Vietnam. These agreements show a marked evolution from the early OECD models, both in terms of investor protection standards and enforcement. Certain European countries have also made radical changes in their practice. For example, besides also reaffirming the State’s right to regulate in the public interest, the 2018 Dutch and the 2019 Slovak and Belgian model BITs rewrite the FET standard and clarify the MFN and expropriation provisions. In addition, although it maintains the ad hoc 50 To date, Poland has terminated treaties with 19 EU Member States, as well as with Serbia, Montenegro, the United Kingdom, and India. 51   Intra-​EU BITs: Commission urges Finland and the United Kingdom to terminate their Bilateral Investment Treaties with other EU Member States, at < https://​ec.eur​opa.eu/​com​miss​ion/​pres​scor​ner/​ det​ail/​en/​INF​_​20_​859 > (last visited 14 November 2021). 52  Draft Working Text for a Comprehensive Free Trade Agreement Between the United Kingdom and The European Union, at < https://​ass​ets.pub​lish​ing.serv​ice.gov.uk/​gov​ernm​ent/​uplo​ads/​sys​tem/​uplo​ ads/​atta​chme​nt_​d​ata/​file/​886​010/​DRAFT​_​UK-​EU_​Compreh​ensi​ve_​F​ree_​Trad​e_​Ag​reem​ent.pdf > (last visited 24 February 2021). 53  Alschner, above fn 34, at 12. 54  Article 8.5(3) of the Japan-​UK CEPA. 55  Article 8.9(4) of the Japan-​UK CEPA; Article 8.9(4) of the EU-​Japan EPA; Article 2.4(4) of the EU-​ UK TCA; Article 5(3), Section II, of the China-​EU CAI. 56  Article 3, Section VI, of the China-​EU CAI.

Investment law’s monstrous reform    849 arbitral process, the Dutch model removes the right of disputing parties to appoint the tribunal members.57 In sum, recent European practice has shown a desire to reaffirm the State’s regulatory flexibility through re-​written and clarified obligations, while diminishing the discretion available to arbitrators. In contrast to EFTA, which has never embraced ISDS, the European Union continues to promote it, but preferably with much greater control over who may sit in judgement of a State’s measures through a standing tribunal with an appellate mechanism.

B. North America The US BIT programme began considerably later than in Europe, with the first US BIT entering into force under President Reagan in 1982.58 By 1990, when the Uruguay Round negotiations were supposed to have finished, the US had concluded just eight bilateral treaties,59 as well as Chapter 16 of the Canada-​US Free Trade Agreement, which contained only basic protections for investors and no ISDS. That agreement was replaced by the NAFTA in 1992, granting US, Canadian and Mexican investors access to ISDS. NAFTA negotiators were of the view that if Chapter 11 were invoked, it would only be against Mexico,60 but this view was shattered by the early cases lodged against all three parties. The aggressive argumentation by claimants, detailed responses by States and careful consideration by tribunals have shown what works well in NAFTA Chapter 11, while also exposing its weaknesses. Some weaknesses are procedural, like the fact that NAFTA States have no power to remove or cancel the many abandoned notices of intent to bring a claim.61 For example, a $4.8 billion dollar notice against Canada by a prospective cannabis maker has lingered since 2015. Some weaknesses are substantive, like the lack of clarity around certain treaty language, like the minimum standard of treatment in Article 1105, which has led to inconsistent interpretations. Since 1992, NAFTA Parties have made numerous attempts to address these issues. They three have commonly expressed a shared view on the correct interpretation of an obligation through their pleadings and non-​disputing party submissions under Article 1128, and less commonly, through binding interpretations.62 They have also negotiated ‘for greater certainty’ clarifications in later agreements, which set out interpretative guidance on key 57  Netherland Model Investment Agreement, at < https://​inves​tmen​tpol​icy.unc​tad.org/​intern​atio​nal-​ inv​estm​ent-​agr​eeme​nts/​tre​aty-​files/​5832/​downl​oad > (last visited 14 November 2021). 58  Egypt-​US BIT. 59  Salacuse, above fn 38, 658. 60  S. Puig and M. Kinnear, ‘NAFTA Chapter Eleven at Fifteen: Contributions to a Systemic Approach in Investment Arbitration’ 25 ICSID Review (2010) 225, at 229–​230. 61  Article 1119 of NAFTA. 62  Notes of Interpretation of Certain Chapter 11 Provisions (NAFTA Free Trade Commission, 31 July 2001).

850   Rodney Neufeld concepts like indirect expropriation63 and ‘in like circumstances’ in national treatment and MFN.64 As former US and Canadian officials recognize, NAFTA has had ‘enduring influence’ and served as a ‘benchmark for the design of other investment agreements’.65 Many of its elements have been picked up in later treaties, as have its lessons learned, particularly on transparency for which NAFTA Chapter 11 practice sets the trend. Each of the NAFTA Parties have brought over 40 treaties into force, all modelled on NAFTA, including FTAs with Peru and Panama. In addition, Mexico and Canada joined US-​led TPP negotiations, another agreement modeled on NAFTA. In contrast to the consistent and enduring influence that the United States has had on investment treaties, the Trump administration brought uncertainty and insecurity to the country’s longstanding policy on investor protection. Donald Trump campaigned on the promise to kill the TPP and redo or rip up the NAFTA and the Korea-​US FTA (KORUS), treaties he derided as ‘horrible’ and ‘the worst deal ever’. Once elected, he immediately withdrew from the TPP, albeit symbolically, given that the US was not yet a party. However, to his surprise, the Executive Order failed to scupper the deal, as the remaining TPP partners, including Mexico and Canada, brought the treaty into force on their own. KORUS was renegotiated within a matter of a few months, with very little change. Despite Korea’s demands to revise the investment chapter, something that US Trade Representative (USTR) Lighthizer would presumably have desired, the United States agreed only to a few TPP-​equivalent clarifications around ISDS.66 In contrast, NAFTA negotiations dragged on for months under Trump’s threats of unilateral termination and his administration’s imposition of sanctions. Investment negotiations started especially slowly, but sped up considerably after Mexico and Canada rejected the US proposal for an ISDS opt-​in/​opt-​out mechanism.67 At that point, the Parties agreed to maintain substantive rules closely mirroring the TPP with the knowledge that their enforcement through State-​to-​State arbitration would avoid misinterpretation encouraged by the aggressive argumentation of investors. Canada and the United States kept their agreement to abolish ISDS between them, but after further twists and turns, the United States gave in to domestic pressure and Mexico’s request for limited ISDS. The debate outside the negotiations exposed the United States’ new position that ISDS offers risk-​free foreign investment based on a guarantee from government. According to 63 

See Annex 9-​B to the CPTPP and Annex 14-​B to CUSMA. See footnote 14 to Articles 9.4 (National Treatment) and 9.5 (MN) of the CPTPP; Articles 14.4(4) and 14.5(4) of CUSMA. 65  L.M. Caplan and J. Sharp, ‘Chapter 18: United States’ in C. Brown (ed), Commentaries on Selected Model Investment Treaties (Oxford: Oxford University Press, 2013) 758; Puig and Kinnear, above fn 60, at 267. 66 S. Lester, I. Manak, ‘Trump’s First Trade Deal: The Slightly Revised Korea-​ U.S. Free Trade Agreement’ Cato Institute, Free Trade Bulletin No. 73 (13 June 2019). 67 ‘Canada Loses under ISDS in NAFTA, Should let Trump Get Rid of it’ Inside US Trade (17 January 2018). 64 

Investment law’s monstrous reform    851 Lighthizer, ISDS allows business to avoid making decisions to invest based on market risks68 and it promotes ‘outsourcing’ of production to Mexico where companies don’t have to take ‘the political risk that AMLO is going to win in Mexico and change my bargain.’69 The difference in views in the United States, even within the Republican Party, was on full display in a letter sent by more than 100 Republican members who argued that their support for ‘the continuation of robust investor protections including ISDS . . . has not changed and is as strong as ever’.70 The letter cited to the ‘significantly diminished Republican support’ for the TPP, which was caused by the exclusion of the tobacco sector from ISDS, and it urged USTR not to exclude any sector from ISDS. The debate was also in full display in the Ways and Means Committee of Congress, where USTR Lighthizer was accused of leaving Americans’ property unprotected against discrimination, foreign seizure, regulatory abuses and other forms of unfair action.71 Congressman Brady challenged USTR’s opinion that ISDS threatened sovereignty, since ‘foreign investors have no more rights than American investors because in our country, you have the greatest standards and protections for property rights and investment rights in the world, bar none.’72 Ultimately, the United States did not entirely abandon ISDS in CUSMA. Under Annex 14-​E, US and Mexican investors who have contracts with the other State or who operate in oil and gas, power generation, transportation, infrastructure and telecommunications, have access to ISDS. Any other US and Mexican investor may bring an ISDS claim under Annex 14-​D, but only for breaches of national treatment, MFN, and direct expropriation provided that they have first pursued a remedy in the other State’s legal system. Canada is party to neither of these annexes, but ISDS remains available to Canadian and Mexican investors through the CPTPP. With the end of the Trump administration, all eyes are on the United States to see whether it returns to its long-​held positions on investment law. In the least, one might expect a more honest approach that avoids the illogical premise that it is the enforcement tool of ISDS divorced from the substantive protections that amounts to political risk insurance and causes outsourcing to Mexico. A key indicator for the United States will be whether it seeks to re-​enter the Transpacific Partnership, which the United Kingdom, Taiwan and China wish to join. Mexico can be expected to continue to rely on CPTPP as its model, an agreement enforceable through ISDS that contains clarifications on many of the common provisions,

68  ‘In His Own Words: Lighthizer Lets Loose on Business, Hill Opposition To ISDS, Sunset Clause’ Inside US Trade (9 October 2017). 69  ‘Lighthizer, Brady Square Off over ISDS at Ways & Means Trade Agenda Hearing’ Inside US Trade (21 March 2018); ‘AMLO’ refers to Andrés Manuel López Obrador who became President of Mexico on 1 December 2018. 70  Letter to Ambassador Lighthizer (20 March 2018), at < https://​www.fina​nce.sen​ate.gov/​imo/​media/​ doc/​ISDS%20Let​ter%20to%20Amb.%20Ligh​thiz​er1.pdf > (last visited 24 February 2021). 71  Inside US Trade, above fn 69. 72 Ibid.

852   Rodney Neufeld like national treatment, MFN, expropriation, and to a lesser extent the minimum standard of treatment. After having been pulled in different directions by the CPTPP and the CETA, Canada has undertaken a review of its approach to future negotiations, adopting a model investment agreement that borrows clarifications from both of those agreements.73 CETA and the CPTPP contain many of the same clarifications, but with respect to the minimum standard of treatment, Canada’s model looks more like CETA, which lists the following customary international law prohibitions: a) denial of justice in judicial proceedings; b) a fundamental breach of due process; c) manifest arbitrariness; d) targeted discrimination on the grounds of race, religion or gender; d) abusive treatment; and e) the failure to provide full protection and security.74 In addition, the provision clarifies that a breach of another treaty provision or of domestic law does not establish a breach of the minimum standard of treatment.75

C. Asia, Oceania and Russia Having entered into 127 investment treaties, China is second only to Germany in the number of treaties entered into by a country. However, China’s early treaties had far less reach than its recent treaties. Its 1970s agreements exclude national treatment, and restrict dispute settlement to expropriation claims before State-​to-​State tribunals.76 China’s policy changed in the late 1990s, after which it has pursued treaties with further-​reaching obligations and full enforcement through ISDS. For example, China and Singapore replaced their 1985 BIT with a modern investment FTA chapter in 2019, which contains many CPTPP-​like clauses. Although ISDS was dropped from the China-​led Regional Comprehensive Economic Partnership (RECP) agreement, China remains committed to ad hoc arbitral ISDS, and has signaled a desire to join the CPTPP.77 As noted above, the CAI that it reached with the EU in December 2020 does not currently include ISDS, but commits China to negotiate ‘state of the art’ ISDS provisions that take UNICTRAL work into account,78 which

73  Canada’s 2021 Model FIPA, at < https://​www.intern​atio​nal.gc.ca/​trade-​comme​rce/​trade-​agr​eeme​ nts-​acco​rds-​comm​erci​aux/​agr-​acc/​fipa-​apie/​2021​_​mod​el_​f​i pa-​2021_​mode​le_​a​pie.aspx?lang=​eng#arti​ cle-​8 > (last visited 14 November 2021). 74  Article 8(1) of the Canada 2021 Model FIPA. 75  Article 8(2) and (3) of the Canada 2021 Model FIPA. 76  C. Brown (ed), Commentaries on Selected Model Investment Treaties (Oxford: Oxford University Press, 2013), 9 and 132. 77 President Xi Jinping stated at the November 2020 APEC summit that China will ‘favorably consider’ joining the CPTPP, at < https://​www.glob​alti​mes.cn/​cont​ent/​1207​536.shtml > (last visited 20 January 2021). 78  Article 3, Section VI, of the CAI.

Investment law’s monstrous reform    853 for China, includes the creation of a standing appellate mechanism to deal with the lack of predictability and stability.79 Japan has entered into considerably fewer agreements than China, but it embraced a new generation investment treaty program in 2002 with ISDS and significantly more pro-​investor clauses.80 What speaks loudest for Japan’s continued enthusiasm for investor protection and ISDS is its active role in TPP talks following the withdrawal of the United States, when it helped steer the negotiations out of a deadlock. The investment chapter in the CPTPP is identical to the TPP chapter, except that Parties suspended the ‘umbrella clause’ provisions, which would have allowed a company to bring a contract dispute against a Party.81 On the other hand, it is noteworthy that Japan could not reach agreement on ISDS with the European Union or the United Kingdom, nor did it give in to the European Union’s push for a standing tribunal. Korea has similarly embraced ISDS. Its BIT programme began in 1964 and throughout the 1970’s it concluded treaties with a number of European countries, accepting for the most part their standard models,82 then the US model in 2012, with KORUS. Amending the ISDS provisions was one of the few key Korean interests when bilateral talks with the United States were recently relaunched. ISDS had met strong political opposition since negotiations with the US began in 2007, and continues to be criticized, including by the Prime Minister who stated in 2019 that it amounted to a ‘tyranny of the strong’ and should be abolished.83 Nevertheless, despite USTR Lighthizer’s equally strong opposition to ISDS, it survived the amendment. Ultimately, the hastily negotiated KORUS amendment provided only a few clarifications taken from the TPP on frivolous claims, the right to regulate in the public interest, and a statement that the frustration of an investor’s expectations does not on its own breach the FET obligation. In the end, Korea seems to have maintained an openness to ISDS, and as its proposal for reform in UNCITRAL suggests, it will continue to live with it provided there are controls placed on third party funders including multinational hedge funds.84 ISDS is notably absent from the RCEP, signed in November 2020. The 15-​member deal has been hailed as the world’s largest trading bloc, comprising almost 30 percent of world GDP, and the first agreement to include China, Japan and Korea, in addition to Australia, New Zealand and the ASEAN countries.85 That said, it is more important in its 79 

Possible reform of Investor-State dispute settlement (ISDS), Submission from the Government of China (19 July 2019), pp. 2-​4, A/​CN.9/​WG.III/​WP.177. 80  S. Hamamoto and L. Nottage, ‘Japan’ in C. Brown (ed), Commentaries on Selected Model Investment Treaties (Oxford: Oxford University Press, 2013), 352. 81  Article 9.1 of the TPP (‘investment agreement’ and ‘investment authorisation’) and Articles 9.19.1(a) (i) B and C and chausette, 9.19.2, 9.22.5, 9.25.2, Annex 9-​L to the TPP. 82  Brown, above fn 76, at 397. 83  ‘Prime Minister Lee Nak-​ yeon “Abolishment of ISDS” ’, at < http://​www.hani.co.kr/​arti/​polit​ics/​ polit​ics_​gene​ral/​901​653.html#csidxc555​3290​cbac​f749​0f01​48d0​2681​d0b > (last visited 20 January 2021). 84 Possible reform of Investor-State dispute settlement (ISDS), Submission from the Republic of Korea, at < https://​uncit​ral.un.org/​sites/​uncit​ral.un.org/​files/​wp179_​new.pdf > (last visited 14 November 2021). 85  See Chapter 9 of this handbook.

854   Rodney Neufeld symbolic heft than its scope given that it largely formalizes existing trade commitments. It is rumoured that RCEP negotiations dragged on since 2012 in part because of ISDS, which was described as the ‘near intractable sticking point’.86 Even though China, Korea, and Japan likely supported ISDS, Australia, New Zealand, Indonesia, and Malaysia have blown hot and cold on ISDS, while India has adopted a firm stance against it. Australia famously rejected ISDS with the United States in their FTA, and in 2012 adopted a blanket decision to exclude ISDS from its agreements, but it later reversed that decision. New Zealand’s reticence towards ISDS is evident from the side letters that it signed with its CPTPP partners, which either exclude access to ISDS (as with Australia and Peru) or put in a filter mechanism requiring the consent of the investor’s State (as with Brunei, Malaysia and Vietnam).87 Indonesia announced in 2014 that it would be phasing out of ISDS,88 and has terminated 31 of its 56 functioning BITs. Yet, despite their reticence about ISDS, Indonesia and Australia have shown recently that they can live with it, within a modern investment agreement that contains the necessary clarifications.89 RECP Parties committed in Article 10.18 to commencing discussions on ISDS within two years of entry into force. However, even with India’s withdrawal from the agreement, the eventual inclusion of ISDS will likely remain elusive as long as Indonesia and other Parties remain dubious. India’s backlash on ISDS began in 2011.90 Up until then, following a balance of payments crisis in 1991, India got swept up in the golden age of investment treaty-​ making, negotiating over 80 treaties between 1994–​ 2011. However, it has since terminated 60 of those treaties during a decidedly more protectionist phase. It has also tried to push through joint interpretative notes and to negotiate new agreements based on a 2015 model BIT. However, it has had limited success, with only Bangladesh and Colombia agreeing to adopt notes, and only Kyrgyzstan, Belarus, and Brazil entering into new agreements. India’s radically revised model BIT in 2015 scales back substantive obligations as well as access to ISDS.91 For example, before an investor can bring 86 P. Ranald, ‘Suddenly, the World’s Biggest Trade Agreement Won’t Allow Corporations to Sue Governments’ (16 September 2019), at < https://​thec​onve​rsat​ion.com/​sudde​nly-​the-​wor​lds-​ bigg​est-​trade-​agreem​ent-​wont-​allow-​corpo​rati​ons-​to-​sue-​gove​rnme​nts-​123​582 > (last visited 27 November 2020). 87  The Side Letters with Peru and Australia remove recourse to Chapter 9, Section B of the CPTPP, while filter mechanisms are found in Side Letters with Brunei Malaysia and Vietnam, at < https://​www. mfat.govt.nz/​en/​trade/​free-​trade-​agr​eeme​nts/​free-​trade-​agr​eeme​nts-​in-​force/​cptpp/​compre​hens​ive-​ and-​prog​ress​ive-​agreem​ent-​for-​trans-​paci​fic-​part​ners​hip-​text-​and-​resour​ces/​#side > (last visited 2 December 2020). 88  L. Peterson, ‘Indonesia Ramps up Termination of BITs—​And Kills Survival Clause in One Such Treaty—​But Faces New $600 Mil. Claim from Indian Mining Investor’ IA Reporter (20 November 2015). 89  The Comprehensive Economic Partnership Agreement between Australia and Indonesia entered into force on 5 July 2020. The Australia-​Hong Kong Investment Agreement, 2019, is another example of a modern treaty that contains ISDS. 90  P. Rajan, India and Bilateral Investment Treaties (Oxford: Oxford University Press, 2019). 91  Model Text for the Indian Bilateral Investment Treaty, at < https://​dea.gov.in/​sites/​defa​ult/​files/​ Model​BIT_​Anne​x_​0.pdf > (last visited 24 February 2021).

Investment law’s monstrous reform    855 an ISDS claim, it must first seek to exhaust domestic remedies for a period of up to five years. Afterwards, it has a very narrow window to pursue a claim and tribunals have no ability to review the merits of a decision made by a judicial authority. In addition, India’s model contains no MFN provision, and replaces the FET standard with a list of State obligations, and broad exception clauses. Despite Russia’s active case load, it remains supportive of ad hoc ISDS and resists the permanent tribunal. When the Soviet Union collapsed in 1991, it had just entered into its first eight BITs, with Australia, Korea, and European States. Although these treaties include ISDS, they contain weak national treatment guarantees. Today, Russia is party to 70 investment agreements, and has faced a barrage of at least 26 known disputes. It has lost 11 of these disputes, settled two others, with nine awards still pending. Perhaps it is the heavy case load that caused it to revise its model treaty in 2016, which sets clearer nationality requirements, qualifies the MFN standard, drops the guarantee of full protection and security, and rejects the application of the UNCITRAL transparency rules. In sum, the Asia-​Pacific is witnessing the greatest growth in treaty-​making, but also some of the strongest backlash to ISDS. That said, even States that have been highly reticent about ISDS, like Indonesia and Australia, have shown that with the right treaty language, they can live with it. For most, the CPTPP seems to contain the necessary clarifications, and as a result will likely continue to provide the template for future negotiations.

D. Africa and the Middle East African States are party to over 1,000 investment agreements and have faced about 10 percent of ISDS claims, almost half of those disputes being brought against Egypt. On the other end of the spectrum is South Africa, which has faced only one investment dispute but has since largely turned its back on ISDS. Although South Africa has negotiated over 50 bilateral investment treaties, only twelve are in force. Like India, it experienced a backlash against ISDS, and consequently has terminated many of its BITs. The agreements it has negotiated through its membership of the Southern African Customs Union and the Southern African Development Community (SADC) have grown cold to ISDS and contain only aspirational clauses on investment protection. For example, the 2016 Agreement Amending Annex 1 of the SADC Protocol on Finance and Investment, which regulates intra-​SADC investments, carves out policy space that traditional models do not. It provides the right of the State to regulate to ensure development and other legitimate social and economic objectives,92 and it provides numerous clarifications. For instance, under the obligation to accord non-​discriminatory treatment, it requires consideration of an investment’s effects on the local community, and it states that the obligation does not prevent the State from

92 

Article 12 of the SADC FIP Annex 1 Amendment.

856   Rodney Neufeld according better treatment to domestic investors for the purposes of national development objectives.93 Similarly, the 2012 SADC Model Bilateral Investment Treaty is a ‘new generation’ template that encourages States to enter into agreements that contain greater policy space for host States and that limit tribunals’ discretion.94 In terms of enforcement, the Amending Agreement revoked the ISDS provisions before the SADC Tribunal,95 and the SADC Model BIT indicates a preference for State-​to-​State dispute settlement over ISDS.96 Another interesting intra-​African agreement is the 2016 Morocco-​Nigeria BIT, which includes clarifications on the FET and expropriation provisions and provides limited ISDS by requiring negotiations by the State Parties’ joint committee as well as the exhaustion of local remedies. These and other innovations are repeated in the 2019 Moroccan model BIT.97 The floodgate of cases against Egypt began in 2011, after the ‘Arab Spring’. ‘This predicament could have easily tempted Egyptian policymakers to . . . withdraw from international commitments’98 but it did not terminate its investment treaties and it remains a party to ICSID. Instead, it attempted to mitigate the economic impact of the claims, which amounted to more than $20 billion, by settling 14 of the disputes,99 and it has not taken steps towards reforming its treaties. The only treaty that it has renegotiated was with Switzerland in 2010, and although it mentions ‘sustainable development’ in the preamble and provides for modern ISDS, it provides few if any of the clarifications or limitations on far reaching provisions like FET and national treatment. Its attitude towards investment protection appears to be shaped much less by its African neighbours than those in the Middle East. The United Arab Emirates, Qatar, Kuwait, Jordan, Saudi Arabia, and Oman have all been actively negotiating investment treaties over the past decade. Driven by ‘lower for longer’ oil prices, the Gulf States have been steadily reducing barriers on foreign investment while at the same time negotiating protections through increasingly modernized treaties. Turkey has adopted a similarly aggressive policy to enter into investment agreements, signing 29 treaties since 2014, although only one of these (with the Ukraine) has entered into force. While many of the treaties entered into by Middle Eastern States, like the BITs that Turkey and United Arab Emirates have negotiated with Mali, contain

93 

Article 6 of the SADC FIP Annex 1 Amendment. See Chapter 15 of this handbook 95  Article 26 of the SADC FIP Annex 1 Amendment. 96  See Chapter 15 of this handbook. 97 2019 Model Treaty, at < https://​inves​tmen​tpol​icy.unc​tad.org/​intern​atio​nal-​inv​estm​ent-​agr​eeme​ nts/​tre​aty-​files/​5895/​downl​oad > (last visited 24 February 2021). 98 K.A. Youssef, ‘Investment Treaty Arbitration: Egypt’ Global Arbitration Review (28 September 2020), at < https://​glob​alar​bitr​atio​nrev​iew.com/​insi​ght/​know-​how/​inv​estm​ent-​tre​aty-​arbi​trat​ion/​rep​ ort/​egypt > (last visited 23 January 2021). 99 Ibid. 94 

Investment law’s monstrous reform    857 clarifications on certain provisions, like FET and MFN, they fully embrace ISDS without any of the procedural innovations common to other recent agreements, like the CPTPP. In sum, while practice in Africa has shown a high degree of reticence about ISDS and a modern approach to substantive obligations, Middle Eastern States have actively pursued treaties with fewer modern features, while continuing to embrace traditional ISDS.

E. Latin America and the Caribbean Latin Americas States were slow to embrace investment agreements, given their leaning towards the Calvo doctrine requiring investors to seek domestic remedies, and their general rejection of the application of minimum standards of customary international law, including FET. Like India, it wasn’t until the 1990s that States adopted investment treaties and became ICSID members. Today, Argentina, Bolivia, Ecuador, and Venezuela are often identified as examples of States that have turned cold to investment treaties with ISDS, along with Brazil, a country that has never warmed to them. Brazil has rejected ISDS in all of its investment agreements and has ensured that ISDS has not crept into Mercosur.100 The actions of these States appear to stand in contrast to those of Chile, Peru, Costa Rica, Columbia and others that continue to negotiate new investment agreements enforceable through ISDS. In reality most Latin American and Caribbean States are engaged in modernization efforts, even if some approaches are more drastic. According to Bolivia, Ecuador, and Venezuela, their investment agreements and the claims brought under them have impeded the social and political change that their citizens desire.101 They have withdrawn from the ICSID Convention and have been terminating investment agreements. After terminating its agreements between 2009 and 2017, Ecuador rejoined ICSID in 2021 and has been renegotiating new treaties based on a new model text that clarifies the meaning of the definition of ‘investment’ and most obligations, like FET. The text remains confidential, but Ecuador shared it with 30 State representatives in March 2018 with a view to (re)establishing investment treaty relations.102 The big question is whether Ecuador will accept ISDS, since its 2013 model did not. The answer may be different based on each negotiating partner. Bolivia’s intentions are not as apparent. After terminating 23 treaties in 2009, it has not re-​engaged in negotiations, focusing instead on an investment promotion law, but it has 100 The

2017 Mercosur Protocol on Investment Cooperation and Facilitation between Argentina, Brazil, Paraguay and Uruguay does not contain a FET provision or one that prohibits indirect expropriation, and it does not provide for ISDS. The EU-​Mercosur FTA does not contain an investment chapter. 101  A. De Mestral, ‘The Impact of Investor-​State Arbitration on Developing, Countries’ (22 November 2017), at < https://​www.cig​ionl​ine.org/​artic​les/​imp​act-​inves​tor-​state-​arbi​trat​ion-​dev​elop​ing-​countr​ies > (last visited 24 January 2021). 102  ‘Ecuador Model BIT Gives State Space to Regulate’ Global Arbitration Review (18 March 2018).

858   Rodney Neufeld also very recently ratified the Mauritius Convention on Transparency in Treaty-​Based Investor State Arbitration. Likewise, Venezuela has focussed on its domestic law, but unlike the other two States, it has not terminated its investment agreements, with the exception of its treaties with the Netherlands and Ecuador. Argentina has faced over 60 ISDS claims, of which more than 40 arose out of the measures responding to the financial crisis of 2002. When it resisted honouring these awards, Argentina was forced out of the international financial market until it reached a settlement a decade later. Overall, Latin America and the Caribbean have faced a disproportionate number of disputes in relation to the foreign investment they bring compared to other regions, and the outcomes of the awards are significantly less favourable to States than elsewhere.103 After a 15-​year hiatus, Argentina has entered into investment treaties with Japan and United Arab Emirates in 2018, and with Qatar in 2016. Chile, Peru, Colombia and Costa Rica have not withdrawn from ICSID or adopted a policy to terminate their treaties. However, this does not mean they have not been undertaking modernization efforts. Domestically, they have faced their own challenges. For example, Colombia’s constitutional court issued two judgements conditioning the ratification of international agreements with France and Israel on the treaties not providing more favourable treatment to foreign investors over national investors. Also, through their membership in the Pacific Alliance, Colombia, Chile, Peru, and Mexico brought into force a modernized investment agreement, in some cases replacing the older bilateral treaty that used to apply. FTA negotiations are ongoing between the Pacific Alliance members (Colombia, Chile, Mexico and Peru) and Australia, Canada, New Zealand and Singapore, in which the scope of engagement on investment and access to ISDS are under consideration. CARICOM States have entered into 82 BITs, with the majority being old-​generation agreements signed in the 1990s or just after. They typically contain an unqualified MFN, expropriation, and FET obligations, and an umbrella clause as well. In contrast to its continental neighbours, Caribbean States have been slow to embark on a process to modernize these treaties, but CARICOM recently developed a template agreement to serve as a model for future negotiations.

F. Summary of national approaches The investment treaty originated in Europe as an instrument to protect investments in the developing world, but it has been embraced by almost all States, particularly in the 1990s, with treaties between developing countries, particularly with China, now common. In 1989, only 385 BITs existed, but 100–​200 BITs were negotiated every

103 

K.L. Remmer, ‘Investment Arbitrations in Latin America’ 54(4) Latin American Research Review (2019) 795–​811.

Investment law’s monstrous reform    859 year that followed. By 1999, 1,857 BITs were in existence.104 Since 2000, the number of negotiated BITS has been steadily slowing, with only a total of 75 BITs having been negotiated over the past five years, and others being terminated or replaced. Some argue that the rise of treaty arbitration is a cause of the slowdown in negotiation.105 With disputes hitting the 1,000 mark in 2020,106 arbitral awards have undoubtedly brought heightened attention. However, the above review shows that arbitration has not caused a mass exodus of treaties. A few developing countries, including Ecuador, India, Indonesia, South Africa, and Venezuela have pursued termination, but they have also been engaged in (re)negotiation. If anything, the results of arbitration are causing States to negotiate different treaties, not to back out of them. Lessons learned from inconsistent interpretations by ISDS tribunals and aggressive arguments by claimants have created an incentive in States to seek clarifications and impose limitations.107 UNCTAD concludes that, besides being friendlier to sustainable development, modernized investment treaties ‘include elements that aim more broadly than ever at preserving regulatory space and/​or at minimizing exposure to investment arbitration’.108 When it comes to ISDS, UNCTAD concludes that nearly all new investment agreements contain reform elements.109 As noted above, some new treaties have dropped ISDS. Other treaties have imposed limits on ISDS, whether through a subject-​matter scope, by circumscribing the provisions that may be brought to ISDS, by including a filter mechanism that requires the State’s consent or by requiring the exhaustion of local remedies first. The European Union has preferred to keep access to ISDS, but with a standing tribunal of arbitrators appointed by States. Finally, many agreements contain fixes to existing ISDS procedures, which aim to increase States’ control over the proceedings, opening them up to the public, enhancing suitability and impartiality of arbitrators, increasing efficiencies, and limiting remedial power.110

104  M.

Malik, ‘Recent Developments in Regional and Bilateral Investment Treaties’ (3-​4 November 2008), at < https://​www.iisd.org/​pdf/​2008/​dci_​rece​nt_​d​ev_​b​its.pdf > (last visited 1 August 2020), 2. 105 See, e.g., J. Bonnitcha, L.N. Skovgaard Poulsen, and M. Waibel, The Political Economy of the Investment Treaty Regime (Oxford: Oxford University Press, 2017), at 21. 106  UNCTAD Investment Policy Hub, at < https://​inves​tmen​tpol​icy.unc​tad.org/​inv​estm​ent-​disp​ute-​ set​tlem​ent > (last visited 1 December 2020). 107 Examples include: (i) the clarification of the term ‘in like circumstances’ common to the investment and cross-​border trade in services chapters: Article 9.4 n.14 of the CCPTPP, Articles 14.4(4) and 14.5(4) of CUSMA; (ii) the provisions in other treaties do not constitute treatment for the sake of an MFN analysis: Article 8.9(5) of the EU-​Japan EPA; and (iii) the clarification of the meaning of indirect expropriation: Annex 9-​B to the CPTPP. 108  UNCTAD World Investment Report 2019, at 105, at < https://​unc​tad.org/​en/​Publ​icat​ions​Libr​ary/​ wir​2019​_​en.pdf > (last visited 14 November 2021). 109 UNCTAD IIA Issues Note, ‘Reforming Investment Dispute Settlement: A Stocktaking’ (March 2019). 110  Ibid., at 6.

860   Rodney Neufeld Saturation is the more likely reason for the slowdown of BIT negotiation, since there are only so many BITs that can be negotiated. The other cause of the slowdown is the shift away from bilateralism towards regional agreements.111 While BIT negotiation has tailed off, this is not the case for FTAs. Regional agreements cover trade and investment between a number of parties, and they can also result in the termination of older bilateral agreements between the same parties. For example, intra-​EU BITs are being terminated, and FTAs are replacing BITs between individual EU Member States and those FTA partners. Some argue that mega-​regional trade agreements like the CPTPP are reshaping and locking in the investment treaty regime.112 Prior to 2000, only a handful of FTAs existed, but their numbers began to grow in the 2000s. Of the 101 investment agreements negotiated since 2016, 26 are FTAs or economic agreements.113 Unlike BITs, one FTA can create a web of investment rules applying between numerous States, like the ‘CETA’ that Canada entered into with the 27 Member States of the European Union, or the CPTPP, which applies between 11 treaty partners and any future party that joins.114 In bilateral terms, the CETA and CPTPP investment chapters are equivalent to 27 and 55 BITs, respectively. The proliferation of FTAs shows that trade law is becoming increasingly fragmented in the way that investment law has always been. Instead of joining the ‘apogee of multilateralism’ that marked the 1990s,115 investment rule-​making continued on a path of bilateralism. More recently though, investment rules have evolved together with trade rules, within the ‘plurilateralist’ or ‘mega-​ regionalist’ rule development currently underway.116 With investment rules being increasingly part of free trade agreement negotiations, investment obligations are traded off against commitments elsewhere in the agreement. Trade-​offs might include market access commitments but also enforcement rights, such as the deal struck by Canada and the US to keep traditionally worded investor protections in exchange for dropping ISDS in the renegotiated NAFTA. In addition, issue linkages have become common, particularly between investment and cross-​border trade in services, financial services, temporary entry, and State-​owned enterprises. The question for investment law going forward is whether it will continue to fragment, or whether we are beginning to see growing convergence. Ongoing developments in ICSID and particularly UNCITRAL appear to be the key to future convergence.

111 

Bonnitcha et al., above fn 105, at 21.

112 Ibid.

113  UNCTAD Investment Policy Hub, at < https://​inves​tmen​tpol​icy.unc​tad.org/​intern​atio​nal-​inv​estm​ ent-​agr​eeme​nts > (last visited 1 December 2020). 114  For an analysis of these agreements, see Chapters 9 and 10 of this handbook. 115  See Chapter 2 of this handbook. 116 Ibid.

Investment law’s monstrous reform    861

V  Procedural reforms at ICSID and UNCITRAL Both sets of arbitral rules have undergone updates and improvements over the years. ICSID Rules have been amended three times to date, and the UNCITRAL 1976 Rules were revised in 2010, and again in 2013 to incorporate rules on transparency. Despite all of these revisions, both UNCITRAL and ICSID have experienced an impressive groundswell of support for further reform. Although focus is necessarily on procedural reform, the heightened attention underlying the groundswell suggests that States and non-​State actors are eager to achieve more than minor technical changes to the arbitral rules. The thrust is part of an effort of States to take back control of ISDS.

A. ICSID ICSID launched its latest round of rule changes in October 2016, intended as a technical tweak to the rules rather than a comprehensive re-​write.117 The invitation to the public for suggestions stated that the goal was ‘to simplify the dispute settlement procedure to make it increasingly cost and time effective’ with the guiding principle of ‘maintain[ing] the balance between the interests of investors and States to ensure continued integrity of the process.’118 Unlike the previous review, in 2006, the Secretary-​General had no intention of the latest reform lasting two years or more. Proposals from members and the public soon flooded the ICSID Secretariat. In the end, almost 50 States provided detailed proposals and recommendations, as have law firms, organizations and the public.119 Five years after the review’s launch, the ICSID Secretariat has produced six Working Papers,120 thousands of pages that painstakingly incorporate recommended changes to nearly every provision of every ICSID arbitral rule, as well as to other rules and regulations.121 The Secretary-​General no longer refers to the review as a technical tweak, but as the ‘most comprehensive amendment process’ 117 

ICSID News Release, 50th Annual Meeting of ICSID’s Administrative Council (7 October 2016), at < https://​icsid.worldb​ank.org/​en/​Pages/​News.aspx?CID=​196 > (last visited 14 November 2021). 118  ICSID News Release, Invitation to File Suggestions for Rule Amendments (25 January 2017), at < https://​icsid.worldb​ank.org/​en/​Pages/​News.aspx?CID=​213 > (last visited 14 November 2021). 119  Compendium of Comments of State and Public on Working Papers, at < https://​icsid.worldb​ank. org/​resour​ces/​rules-​and-​regu​lati​ons/​icsid-​rules-​and-​regu​lati​ons-​amendm​ent-​work​ing-​pap​ers > (last visited 20 January 2021). 120  Working Paper 1–​6, at < https://​icsid.worldb​ank.org/​resour​ces/​rules-​ame​ndme​nts > (last visited 14 November 2021). 121 ICSID has five sets of rules and regulations, which include Administrative and Financial Regulations and its Institution Rules. However, the bulk of the document contends with the ICSID Arbitration Rules and the Additional Facility Rules, the arbitral rules available to non-​ICSID members.

862   Rodney Neufeld that ICSID has ever undertaken.122 It is not limited to simplifying procedures and improving efficiencies, but seeks to modernize the rules based on case experience while addressing procedural issues.123 The proposed amendments bear witness to the desire of Members to address problems experienced and lessons learned from the more than 700 arbitrations to date,124 but also to exert greater control over the process. Far from the quick technical review first envisaged, the review process finally wrapped up in January 2022. Member States approved the package of amendments on 21 March 2022, allowing the updated rules to go into effect on 1 July 2022. The proposed amendments include the formalization and clarification of certain practices, like an express rule for bifurcation of arbitrations into jurisdictional and merits phases, and guidance on circumstances justifying an award of costs. They also include the revision of other rules, such as an enhanced declaration of arbitrator independence and impartiality, as well as an expedited process for challenging and disqualifying arbitrators. New timelines have been proposed for issuing awards, with an outer limit of 240 days, and an optional expedited process features even shorter timelines. The proposals also include new obligations, such as the requirement to disclose the name of any third-​party funder of a dispute as well as a rule on security for costs. Some countries, like Argentina, wanted to go further by banning the practice altogether, but its proposal has not been taken up, criticized by other commentators, like Charles Brower who sees no ‘evil’ in third-​party funding and believes that the disclosure of a claim’s funder is relevant only to avoid conflicts of interest.125 In its latest draft, Rule 14 does not ban the practice, but it makes disclosure of the funder mandatory and gives the tribunal the discretion to compel the disclosure of other information, including the extent that the funder controls the claim. A new, stand-​alone rule on security for costs has also been negotiated, calling on tribunals to consider whether a party will be able to comply with an adverse decision on costs and to decide whether that party must put money in trust to be used later to satisfy an order on costs. Attempts have also been made to enhance transparency, but since certain rules, like the publication of Awards, are found in the ICSID Convention, which is not being opened for amendment, the disputing parties will continue to control what is published or kept confidential. However, nothing stands in the way of such an amendment to the ICSID Additional Facility Arbitration Rules, which can be applied in a dispute involving a non-​member of ICSID.

122  ‘Continuity

and Change in the ICSID System: Challenges and Opportunities in the Search for Consensus,’ a presentation delivered by M. Kinnear World Bank Vice-​President and ICSID Secretary-​ General at the Brierly Lecture, Montreal, Canada (2 October 2019), 9 (on file with the author). 123  Ibid., at 10. 124  ‘About the ICSID Rule Amendments’, at < https://​icsid.worldb​ank.org/​resour​ces/​rules-​and-​regu​ lati​ons/​ame​ndme​nts/​about > (last visited 14 November 2021). 125  Compendium of Comments of State and Public on Working Paper No 1, above fn 119, 117.

Investment law’s monstrous reform    863 Some will argue that the reforms do not go far enough, and the ICSID Members that share this view will push for further-​reaching reforms in UNICTRIAL.

B. UNCITRAL In 2017, UNCTRAL provided a broad mandate to Working Group III to identify concerns and consider reform.126 The UN rooms that host the Working Group in Vienna and New York, which consists officially of UNCITRAL’s 60-​State rotating membership, repeatedly burst at the seams with over one hundred States commonly in attendance, as well as dozens of governmental and non-​governmental organizations. The ever-​ growing number of participants far exceeds UNCITRAL’s former 36-​member composition which adopted the 1976 Arbitral Rules. The Working Group identified significant, diverse concerns, including over inconsistent and incorrect arbitral decisions, regulatory chill, exhaustion of local remedies, third-​party participation in proceedings, the right to bring a counterclaim against the investor for its failure to respect human rights or the environment, and the calculation of damages.127 The concerns raised echo the long held concerns of civil society, which are rooted in the underlying belief that ISDS is asymmetric in that it promotes the interests of investors above the protection of human rights and the environment, while leaving investors largely unaccountable for any misconduct.128 With its mandate limited to procedural reforms, the Working Group recognized that it could not take up any concerns around investor obligations, damages principles, or other substantive law. It has focused on the following areas of reform: (i) inconsistent and incorrect arbitral decisions; (ii) lack of diversity and independence of arbitrators; (iii) the duration and cost of ISDS proceedings; and (iv) third-​party funding of ISDS claims.129 The identification of issues has now given way to slower progress in finding solutions to these issues, with the Working Group identifying the following reform options: the establishment of an advisory centre; a code of conduct for adjudicators; the regulation of third-​party funding; appellate and multilateral court mechanisms; the selection and appointment of ISDS tribunal members; dispute prevention and mitigation as well as other means of alternative dispute resolution; multiple proceedings and counterclaims, including shareholder claims and reflective loss; security for costs and frivolous claims; interpretation of investment treaties by treaty parties; and a multilateral instrument on ISDS reform.130 126 

Report of Working Group III, A/​CN.9/​Rev.1 (19 December 2017), at 7. Report of Working Group III, A/​CN.9/​970 (9 April 2019), at 7. 128  See, e.g., an Open Letter from 65 academics to the Chair of UNCITRAL Working Group III (13 February 2019), at < https://​www.eur.nl/​en/​news/​eras​mus-​instit​ute-​pub​lic-​knowle​dge > (last visited 14 November 2021). 129  Report of Working Group III, A/​CN.9/​964 (6 November 2018). 130  Report of Working Group III, A/​CN.9/​1004 (23 October 2020). 127 

864   Rodney Neufeld A work plan has been negotiated, which stretches out to 2025. At the point of writing, all options remain on the table, with certain participants championing procedural reforms, like a code of conduct for arbitrators and the regulation of third party funding, while others push for institutional reform, namely a multilateral investment court. Japan, Israel, Chile, Mexico and Peru have proposed a ‘suite approach’. 131 They prefer that reform options be pursued independently of one another, leaving it to each State to determine whether to incorporate that reform option into its treaties. They support piggy-​backing on reforms already undertaken in modern investment treaties and the work of other institutions. In this regard, the ICSID and UNCITRAL Secretariats joined forces to produce a draft code of conduct for arbitrators.132 The draft demonstrates that, although there might be broad agreement on the importance of a code,133 difficult issues remain, with Brigitte Stern referring to it jokingly as ‘a set of police regulations whose purpose is to fight a mafia of arbitrators, who are considered as dishonest, unreliable and biased’.134 In contrast to the ‘incrementalists’, the European Union supports institutional ISDS reform. In its view, and in the views of its Member States, the problems with ISDS stem mostly from the ad hoc nature of the tribunals as well as the lack of appellate review. Accordingly, the best means of preventing inconsistencies, guaranteeing independence, and addressing other issues is through creation of a two-​tiered permanent standing body.135 Switzerland, Mauritius and Singapore have engaged constructively with this approach, as have others, even if they are uncertain that they will ultimately sign up to it. However, many delegations express doubt about a MIC, particularly with respect to how much it will cost and whether it will lead to greater consistency in decision-​making. Despite the questions around a MIC, even the most pessimistic States have engaged with the idea of an appellate mechanism,136 which received a boost from China’s proposal. 137 In China’s view, an appellate mechanism would help to correct legal errors, improve predictability, regulate the conduct of arbitrators, while ‘fostering further

131  Submission

from the Governments of Chile, Israel, Japan, Mexico and Peru, A/​CN.9/​WG.III/​ WP.182 (2 October 2019). 132  The third version of the draft code was released in September 2021, at < https://​icsid.worldb​ank. org/​sites/​defa​ult/​files/​docume​nts/​Cod​e_​of​_​Con​duct​_​V3.pdf > (last visited 14 November 2021). 133  Possible reform of Investor-State dispute settlement (ISDS), ‘Ensuring Independence and Impartiality on the Part of Arbitrators and Decision Makers in ISDS’, Note by the Secretariat, A/​CN.9/​ WG.III/​WP.151 (30 August 2018), para 72. 134  ‘Comments by State/​Commentator on the Draft Code of Conduct for Adjudicators in Investor-​ State Dispute Settlement’ (14 January 2021), at < https://​uncit​ral.un.org/​sites/​uncit​ral.un.org/​files/​media-​ docume​nts/​uncit​ral/​en/​code_​of_​c​ondu​ct_​-​_​co​mmen​ts_​b​y_​st​ate-​com​ment​er_​-​_​upd​ated​_​01.14.21.pdf > (last visited 17 February 2021), at 151. 135  Submission from the European Union, A/​CN.9/​WG.III/​WP.145 (12 December 2017). 136  Comments from the Russian Federation, November 2020, at < https://​uncit​ral.un.org/​sites/​uncit​ ral.un.org/​files/​media-​docume​nts/​uncit​ral/​en/​comments_​on_​appellate_​mechanism_​and​_​app​oint​ment​ _​of_​arbi​trat​ors.pdf > (last visited 14 November 2021). 137  Submission from the Government of China, A/​CN.9/​WG.III/​WP.177 (19 July 2019).

Investment law’s monstrous reform    865 standardization and clarification of procedures, thus reducing the abuse of rights by parties to disputes.’138 Where the UNCITRAL negotiations will land is anybody’s guess, even with the momentum that has been created for an appellate mechanism as well as numerous procedural fixes. Unless the negotiations amount to nothing at all, which is doubtful, they will serve to show that while the WTO languishes in its indecision, States are coming together in large numbers in an open forum to air their concerns about ISDS and discuss options for redress. As one observer points out, this has marked the ‘clear arrival of the South,’ since developing States, alongside the EU and others, treat the ISDS concerns seriously and want to consider a range of responses.139 They are resistant to attempts to thwart serious discussions of a full range of options and attempts to railroad them into accepting a single solution.140 Comments made during the negotiations demonstrate that participants are driven by the need for clarity and predictability rather than institution-​building in its own right. This is in deep contrast to the comments made outside the forum by seasoned arbitrators like Brower and Stern who describe the EU’s proposal as monstrous. More recently, Born compared the MIC proposal to the Nazi Star Chamber in that it will allow States to pack the court with its own adjudicators and control the result.141 For others, the European Union’s proposal marks a response to the criticisms of the existing ad hoc ISDS system rather than a push for its radical reconfiguration.142

VI. Conclusion This chapter began and ended with the hyperbolic cries of certain arbitrators that their beloved system is under attack. For Charles Brower, the proposal of a major reform, like a MIC, is reflective of States’ increasing hostility to ISDS and even the ‘whole notion of investor protection’.143 In his view, it represents a ‘sell out’ of States of their own nationals who invest abroad to protect their treasuries at home. He and others caution of long winters, 15-​headed hydras, and Nazi trials. He rails against Gabrielle Kaufmann-​Kohler, another leading arbitrator, whose reports have informed UNCITRAL participants,144 138

  Ibid., at 4. Langford, ‘UNCITRAL and ISDS Reforms: Hastening slowly’, at < https://​www.ejilt​alk.org/​ uncit​ral-​and-​isds-​refo​rms-​hasten​ing-​slo​wly/​ 29 April 2019 > (last visited 14 November 2021). 140 Ibid. 141  G. Born, Keynote Speech, EFILA Conference (14 January 2021), at < https://​efila.org/​ann​ual-​con​ fere​nce-​2021/​> (last visited 14 November 2021). 142  Bonnitcha et al., above fn 105, at 30. 143  ‘Brower Warns Against Monstrous Court Proposal’ Global Arbitration Review (12 January 2018). 144  G. Kaufmann-​Kohler and M. Potestà, ‘The Composition of a Multilateral Investment Court and of an Appeal Mechanism for Investment Awards’ CIDS Supplemental Report (15 November 2017), at < https://​lk-​k.com/​wp-​cont​ent/​uplo​ads/​2017/​11/​CIDS_​Supp​leme​ntal​_​Rep​ort.pdf > (last visited 14 November 2021). 139  M.

866   Rodney Neufeld asking ‘[w]‌hy do these acknowledged leaders of investment dispute arbitration as we know it bring termites into our wooden house of investor state dispute settlement? Why are they putting themselves out there to tear down what made them what they are?’145 However, reform discussions are anything but destructionist. The practice of States outlined above demonstrates clearly that investment protection is not being jettisoned. At the same time, it demonstrates a clear recognition by the users of the system, including arbitrators, that improvements can and should be made. Kaufmann-​Kohler recognizes this, as does Zachary Douglas who cautions against engaging in ‘the perils of a siege mentality’ and argues that arbitrators, counsel, and arbitral institutions should focus on procedural renovation, including reducing costs and delays, since these threaten the continued viability of investment arbitration.146 States are faced with numerous reform options, but what appears to be emerging from practice to date is that few are willing to leave vaguely worded references to customary international law principles like FET and expropriation to be filled with meaning by arbitrators. For most States, greater clarity is necessary, whether that pertains to how the provision is interpreted, who is tasked with interpreting it, or both. When it comes to negotiations in UNCITRAL, it will be interesting to see whether this motivation will result in the creation of investment appellate mechanism at the same time that the WTO has witnessed the paralysis of its Appellate Body.

Further reading Bonnitcha, J., L.N. Skovgaard Poulsen, and M. Waibel, The Political Economy of the Investment Treaty Regime (Oxford: Oxford University Press, 2017) Bishop, D., J. Crawford and W.M. Reisman, Foreign Investment Disputes: Cases, Materials, and Commentary, 2nd edition. (The Hague: Kluwer Law International, 2014) Brown, C. (ed), Commentaries on Selected Model Investment Treaties (Oxford: Oxford University Press, 2013) Douglas, Z., J. Pauwelyn, and J.E. Viñuales (eds), The Foundations of International Investment Law: Bringing Theory into Practice (Oxford: Oxford University Press, 2014) Kalicki, J.E. and A. Joubin-​ Bret (eds), Reshaping the Investor-​ State Dispute Settlement System: Journeys for the 21st Century (Leiden: Brill Nijhoff, 2014) Legum, B., Investment Treaty Arbitration Review, 4th edition. (London: Law Business Research Ltd., 2018) P. Muchlinski, F. Ortino, and C. Schreuer (eds), The Oxford Handbook of International Investment Law (Oxford: Oxford University Press, 2013)

145  Hon. Charles N. Brower Delivers Keynote Address at International Arbitration Conference (17 November 2017), at < https://​news.law.ford​ham.edu/​blog/​2017/​11/​27/​hon-​char​les-​n-​bro​wer-​deliv​ers-​ keyn​ote-​addr​ess-​intern​atio​nal-​arbi​trat​ion-​con​fere​nce/​ > (last visited 9 November 2021). 146  ‘Douglas warns against siege mentality’ Global Arbitration Review 16 December 2019.

Chapter 33

F ina ncial Serv i c e s L aw Rosa Lastra and Marco Bodellini

I. II. III.

IV. V.

VI.

VII.

Introduction Financial services law, financial services, financial products, financial intermediaries, and financial markets The rationale of banking and financial regulation A. Financial stability B. Depositor and investor protection C. Market efficiency and transparency, prevention of financial crime and fraud D. Competition The internationalization of financial institutions and of financial services provision Financial services liberalization and prudential supervision under GATS A. The goals of prudential supervision and the goals of trade liberalization in financial services B. How to reconcile these two (potentially) conflicting goals? The law-​making process at the international level and the pivotal importance of soft-​law standards A. The main standard-​setters B. The different types of soft-​law rules C. Pros and cons of soft law D. From soft law to hard law E. The incentives to make soft law effective Conclusion

868 868 870 870 871 872 874 875 876 878 881 882 883 885 887 887 888 890

868    Rosa Lastra and Marco Bodellini

I. Introduction This chapter deals with financial services law. Following a section in which we discuss the legal meaning of financial services law, financial services, financial products, financial intermediaries, and financial markets, we analyse the rationale(s) of banking and financial regulation, focusing on financial stability, depositor and investor protection, market efficiency and transparency, prevention of financial crime and fraud as well as competition. The chapter also considers the internationalization of financial institutions and services and their liberalization and how the latter interacts with prudential supervision. In doing so, we look at GATS provisions and other trade agreements and conclude with a discussion of the law-​making process at the international level, with particular attention to soft law.

II.  Financial services law, financial services, financial products, financial intermediaries, and financial markets Financial services law can be understood as the set of rules or the normative framework that governs the financial sector.1 Based on the activities carried out, the financial sector, in turn, has been traditionally subdivided into three sub-​sectors, namely banking, securities, and insurance, according to the so-​called ‘silos’ partition. Financial services law provisions comprise both those relating to the transactional aspects of the relationship between the financial intermediary and the investor(s) and/​or customer(s) and the ones concerning the regulatory aspects affecting both the operations and the structure of financial institutions. This means that financial services law has a private-​commercial law dimension, on one side, and a public-​administrative law dimension referred to as financial regulation, on the other side. This chapter will primarily focus on the public-​administrative dimension of financial services law, that is financial regulation. Financial services, being the target of financial services law, have been grouped in five categories depending on their economic-​financial function, namely: (i) services addressed to savers to store their savings; (ii) services addressed to borrowers to fund their projects; (iii) payment services; (iv) services for managing and protecting against 1 

See J. Benjamin, Financial Law (Oxford: Oxford University Press, 2007), who argues that financial law is the law and regulation of the insurance, derivatives, commercial banking, capital markets and investment management sectors. See generally R. Lastra, Central Banking and Banking Regulation (London: LSE, 1996) and R. Lastra, International Financial and Monetary Law (Oxford: Oxford University Press, 2015).

Financial Services Law    869 risks; and (v) advice and management services for investors to efficiently invest their wealth.2 Financial products, in turn, will fall into the same sub-​categories on the basis of the economic-​financial need that they are meant to satisfy.3 In contrast, it is more difficult to draw precise lines amongst financial intermediaries, since institutions that operate under a universal banking business model are authorized to carry out an extensive array of services beyond traditional commercial banking activities ranging from securities and insurance to other new forms of financial intermediation. (We leave aside in this contribution the study of financial conglomerates, since under the structure of a bank holding company or financial services holding company in the US and other corporate structurers in other parts of the world, the regulation of the various subsidiaries and affiliates within the group or conglomerate varies across jurisdictions). Yet, it is also worth noting that financial markets enable, on their own, savers-​investors and borrowers to connect directly with each other. On the basis of the volume of traded assets, the most important financial markets are equity markets, bond markets, commodity markets, derivative markets, and currency markets.4 Derivatives, i.e., financial instruments whose value derives from the value of an underlying asset (the most common underlying assets are stocks, bonds, commodities, currencies, interest rates, and market indexes) have been the subject of much controversy in recent decades. Historically, such financial instruments had been purchased to hedge against risks, for example to protect against currency fluctuations. Over time, nonetheless, they have been increasingly employed for speculative purposes, mostly by hedge funds searching for returns disconnected from markets. Their excessive (and speculative) use was considered to be one of the reasons for the global financial crisis of 2007–​2008 and indeed in the aftermath of that crisis, new regulatory measures have been put in place to restrict risky practices and to increase transparency. Over the last few years, the provision of financial services has been significantly affected also by the use of new technologies, which have (re)shaped how financial intermediaries operate. Payment services, in particular, have been the ones that have benefited the most from the creation of new technologies allowing them to be provided more quickly, more efficiently, and more cheaply. Technology (FinTech) is contributing to the creation of new products and new regulatory techniques (RegTech). The increasingly widespread use of FinTech in the area of financial services has been welcomed as a great achievement since it is regarded as (potentially) able to permit a growing number of users to have access to financial products (financial inclusion).

2 

See R. Grosse, The Future of Global Financial Services (Oxford: Basil Blackwell, 2004). J.A. Marchetti, ‘Financial Services Liberalization in the WTO and in PTAs’ in J.A. Marchetti and M. Roy (eds), Opening Markets for Trade in Services: Countries and Sectors in Bilateral and WTO Negotiations (Cambridge: Cambridge University Press, 2009), 301. 4  In this regard, another important distinction is the one between primary markets where securities are issued for the first time and secondary markets where securities, after being issued, are traded among investors. 3  See

870    Rosa Lastra and Marco Bodellini However, this new phenomenon is not without risks and challenges. In this regard, crypto-​assets have been repeatedly associated with the risk of cyber-​attacks, money laundering, and terrorist financing. Private digital currencies competing with government fiat currencies can compromise the conduct of monetary policy by central banks and potentially create systemic risk. In response, central banks are embarking on their proposals to create central bank digital currencies (CBDCs) A lively debate is also on-​going with regard to the regulatory framework which should apply to FinTech companies offering banking-​like services (but not regulated nor licenced as banks) as well as the regulatory framework that should apply to BigTech offering financial services. The wisest approach, it seems to us, is to balance the need to facilitate the development of technical innovations with the need to keep risk(s) under control, focusing on the nature of the services provided. This functional approach means that when a FinTech company offers a substantially equivalent service to a financial service, it should be regulated and thus supervised in the same way as the financial intermediary authorized to perform that financial service. Whether a FinTech company should be regulated as a bank (and be subject to a bank charter or authorization) is part of the regulatory agenda for bank supervisory authorities around the world.

III.  The rationale of banking and financial regulation Financial services law pursues a number of goals, including financial stability, depositor/​ investor protection, market efficiency and transparency, prevention of financial crime, and fraud and—​in some jurisdictions—​fair competition among financial players.

A. Financial stability The pivotal importance of the stability of the financial system as a whole has been brought to the forefront by the global financial crisis.5 Systemic instability results from the possibility that the failure of one institution provokes a ‘domino effect’ dragging down many other institutions financially linked to it, thereby impacting the entire financial sector and possibly provoking repercussions for the real economy as well.6 Financial stability has recently become ex se one of the main goals of financial regulation. Before the global financial crisis there was widespread consensus in thinking that prudential regulation 5  See R. Lastra, International Financial and Monetary Law, above fn 1, c ­ hapters 3 and 4. See also D. Arner, Financial Stability, Economic Growth, and The Role of Law (Cambridge: Cambridge University Press, 2007), at 72, who defines financial stability as ‘the primary target in preventing financial crises and reducing the severe risks of financial problems which do occur from time to time’. 6  See R. Lastra, ‘Systemic Risk, SIFIs and Financial Stability’ 6(2) Capital Markets Law Journal (2011) 197–​213 and M. Bodellini, ‘From Systemic Risk to Financial Scandals: The Shortcomings of U.S. Hedge Fund Regulation’ 11(2) Brooklyn Journal of Corporate, Financial and Commercial Law (2017) 436.

Financial Services Law    871 designed to minimize the probability of an institution’s default was also apt to safeguard the stability of the entire system.7 Accordingly, from the regulatory perspective, capital requirements for individual institutions, designed to minimize the risk of their failure, were thought to be an effective tool also to maintain the stability of the whole system. Yet, the wrongness of such belief, shown by the global financial crisis, was mainly the result of the high level of interconnections among financial institutions (the fallacy of composition, believing, for example, that the whole system was well capitalized if individual banks met their bank capital regulatory requirements: the whole did not equal the sum of its parts). The advent of macro-​prudential policy8 (in response in part to this fallacy of composition), the wide adoption of resolution frameworks (characterized by a paradigm change from bail out to bail in9) and the need for adequate cross-​border insolvency rules have triggered a regulatory revolution.

B. Depositor and investor protection Depositor protection is a major rationale of banking regulation. The potential for bank runs and the unsophisticated nature of depositors are behind many banking laws and safety net arrangements, including inter alia deposit guarantee schemes. Investor protection is an important goal of securities/​capital markets regulation. It generally refers to the regulatory mechanisms commonly deployed to provide investors with the safeguards they need in dealing with financial institutions.10 There should be full, accurate and timely disclosure of financial results, risk and other information which is material to investors’ decisions. Securities laws should be enforced to hold wrongdoers accountable and to deter future misconduct.11 Economic arguments for financial regulation encompass inter alia externalities and asymmetric information, since financial institutions typically have the full range of information concerning a given financial transaction or a given financial product, whereas investors typically do not have the same amount of information. This issue, which can create adverse selection problems, is typically tackled by financial regulation by mandating financial institutions to provide investors with the 7  See J. Armour, D. Awrey, P. Davies, L. Enriques, J. N. Gordon, C. Mayer, and J. Payne, Principles of Financial Regulation (Oxford: Oxford University Press, 2016), 65. 8 See R. Lastra, ‘Systemic Risk and Macro-​ Prudential Supervision’ in E. Ferrán, J. Hill, and N. Moloney (eds), Oxford Handbook of Financial Regulation (Oxford: Oxford University Press, 2015), Chapter 11, 309–​333. See also Armour et al., above fn 7, at 66. 9  See Key Attributes of Effective Resolution Regimes for Financial Institutions, FSB, 2011, at < https://​ www.fsb.org/​work-​of-​the-​fsb/​pol​icy-​deve​lopm​ent/​effect​ive-​res​olut​ion-​regi​mes-​and-​polic​ies/​key-​att​ ribu​tes-​of-​effect​ive-​res​olut​ion-​regi​mes-​for-​financ​ial-​insti​tuti​ons > (last visited 28 December 2020); see R. Lastra, Cross-​Border Bank Insolvency (Oxford: Oxford University Press, 2011); M. Bodellini, ‘To Bail-​ In, or to Bail-​Out, That is the Question’ 19 European Business Organization Law Review (2018) 370; C.W. Calomiris and G. Gorton, ‘The Origin of Banking Panic Models: Facts and Bank Regulation’ in R. Glenn Hubbard (ed), Financial Markets and Financial Crises (Chicago: University of Chicago Press, 1991), 109. 10  Among the goals that the Dodd-​Frank Act pursues is the protection of consumers from abusive financial services practices; see Bodellini, above fn 6, at 417. 11  See < https://www.sec.gov/files/enforcement-annual-report-2019.pdf > (last visited 14 June 2022)

872    Rosa Lastra and Marco Bodellini information they need to make sound investment decisions.12 Accordingly, in the case of securities issuances, investor protection is mainly provided by requesting the issuers to disclose every piece of relevant information. The underlying assumption is that without this information, investors, who would consider investing, would be unable to fully and properly assess the risks embedded in the securities to be issued. Consequently if they were to do so, they might end up being misled.13 Similar issues could originate when an investor makes investment decisions relying on the advice provided by a financial intermediary, or when the latter has been empowered to discretionarily invest the investor’s wealth, as well as when the investor’s financial assets are held by an intermediary acting as a custodian. In these cases, the investor might be damaged by poor quality (or intentionally misguided) advice or investment choices made by the financial institution as well as by the failure to properly safeguard the assets or, even worse, in the event of their misappropriation.14 These situations can take place because investors are typically unable to monitor the financial institution’s operations, due to asymmetries of information, in turn, also giving rise to the so-​called agency problem. They result from the way in which financial intermediaries operate and hold true for banks, insurance companies, and mutual funds, as their clients transfer funds to them in return for claims against their balance sheet.15 A number of regulatory mechanisms are usually deployed to tackle these issues, the most significant of which are licensing requirements, custodial requirements, and measures to control conflicts of interest. Most of these measures relate to how the intermediary is requested to conduct its business, and therefore, they are referred to as conduct of business rules. Additionally, further rules aimed at governing the risks associated with the business model of a financial intermediary, referred to as prudential regulation, are adopted.

C. Market efficiency and transparency, prevention of financial crime and fraud Financial markets play a pivotal function to the benefit of the real economy, as they channel funds from those who have an excess of resources and need to find profitable ways to invest to those who need to finance their projects. For this reason, financial markets must be efficient, and in this regard, financial regulation is meant to make them 12  On the adverse selection problem, see G. Akerlof, The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism’ 84(3) Quarterly Journal of Economics (1970) 488. 13  See Armour et al., above fn 7, at 62, also emphasizing that in the US, the Securities Act of 1933 and the Securities Exchange Act of 1934 were adopted in order to provide investors with an adequate level of protection from fraud and other malpractices which had been repeatedly perpetrated in securities issuances and trading during the bubble of the 1920s. 14 Ibid. 15  Ibid., also emphasizing that this situation is made even worse by the fact that the business model of financial firms is rather opaque and money is particularly prone to abuse.

Financial Services Law    873 function effectively. This is certainly true for primary markets, which are the ones where new securities are issued for the first time and the issuer, in so doing, raises financial means. In contrast, the situation is slightly more complicated with regard to secondary markets, which are the markets where financial instruments, already issued, are traded between investors, and therefore issuers are not directly involved. If, on the one side, primary markets enable issuers of securities to raise capital from investors, on the other side, secondary markets allow for these securities to keep on being traded by moving them to the investors who give them the highest value. Thus, both have an important function: the former channel funds thereby supporting the development of the economy, the latter provide investors with liquidity by allowing them to quickly sell their securities to other investors. There is also a close interaction within these two markets, since the effective functioning of primary markets also relies on the existence of developed secondary markets. In other words, investors will be more inclined to buy securities on primary markets if they know that they will be able to sell them easily on the secondary markets. The most obvious example is the US Treasury securities market, which is the most liquid (as well as the largest and most active) debt market in the world. The value of financial assets is influenced by the information available to market participants. That is to say that the release of new information impacts the price at which securities are traded. The speed and accuracy with which the market price responds to the release of new information are said to be its informational efficiency.16 Informationally efficient markets are typically more liquid, and liquidity, in turn, makes markets efficient and thus able to support the economy. Corporate information has been, accordingly, qualified as a public good, and regulation is meant to facilitate the production and disclosure of relevant facts.17 The prevention of financial crime is also an extremely important goal of financial regulation. Yet, it is not fully clear whether this is actually an independent goal of financial regulation or just a means to achieve its other goals.18 In broad terms, financial crime is associated with any criminal act conducted through the financial system. But in more precise terms it can be said that financial regulation also aims at preventing the use of the financial system for purposes which are regarded as socially despicable, such as: 1) money laundering and terrorist financing conducted through the financial sector; 2) bribery and corruption perpetrated through payments; 3) payments ordered to trade in prohibited goods or with countries placed under economic sanctions; 4) tax evasion performed through schemes relying on financial services-​products. With regard to all these activities, financial regulation reacts by imposing a number of prohibitions and

16 Ibid.

17  Ibid., emphasizing that there is empirical evidence supporting the assertion that ‘increasing the scope of mandatory disclosure is associated with more accurate pricing of securities in public equity markets’. 18 Ibid.

874    Rosa Lastra and Marco Bodellini other mechanisms expected to reduce the risk of the financial system being used for such purposes.

D. Competition Financial regulation can also aim to increase competition in the financial sector on the grounds that competition is expected to benefit investors, or more generally users of financial services. For example, the UK’s regulatory framework acknowledges the difference between safeguarding competition and safeguarding competitiveness. In addition to the competition or antitrust rules (the preferred name in the EU is competition whilst in the US it is antitrust law) that apply to every sector of the economy, there are some specific competition-​related regulations affecting financial institutions. The European Single Market represents a relevant legislative attempt to promote competition in the financial sector. This has over time taken place by removing barriers to the cross-​border operations of financial institutions. To make the Single Market work, Member States are prohibited from limiting access to their national markets by financial institutions established in other Member States. Contextually, the legislation on financial services and financial intermediaries has been harmonized at the Union level, and a new legal mechanism, referred to as ‘European passport’ (a single licence for banks and other financial institutions), has been introduced to enable financial intermediaries to freely operate on a cross-​border basis without having to be authorized by the authorities of the so-​called host Member State.19 This regulatory technique has been labelled as mutual recognition and is at the core of the reliance on Directives as legislative instruments that harmonize financial services law in the EU. Mutual recognition presupposes the equivalence of the objectives of national legislations and the existence of similar public-​ interest goals, although such goals can be reached in different ways. In this regard, the directives dealing with the cross-​border provision of financial services have focussed on the establishment of branches (legally dependent entities) as opposed to subsidiaries (legally independent entities, that as such would need to be authorized) and on the provision of services without establishment. This achievement can be fully appreciated by comparing these rules with those applying to branches of third-​country financial institutions intending to operate in the Union. The latter are in fact required to obtain an authorization by the supervisor of the Member State where they intend to operate.20 In the European Union, therefore, the driving force for the creation of the Single Market in financial services has been the principle of mutual recognition on the basis of prior minimum harmonization. 19  See Lastra, Central Banking and Banking Regulation, above fn 1, ­chapter 3; M. Bodellini, ‘Does it Still Make Sense, from the E.U. Perspective, to Distinguish between UCITS and Non-​UCITS Schemes?’ 11(4) Capital Markets Law Journal (2016) 528–​539. 20  See Lastra, Central Banking and Banking Regulation, above fn 1, at 225–​230.

Financial Services Law    875 With the adoption of Banking Union, the European Central Bank has exclusive competence over the prudential supervisory tasks that have been conferred upon it by the Single Supervisory Mechanism Regulation. In this regard, Regulations rather than Directives are the main legislative instrument in the context of Banking Union.

IV.  The internationalization of financial institutions and of financial services provision Financial institutions have over the last decades grown significantly and expanded their operations at the international level; this process of internationalization has been facilitated by financial innovation and new technologies, which have enabled them to overcome geographic borders. Even though the internationalization of the financial industry should be welcomed as a positive achievement, it presents some issues as well. This mostly results from regulation remaining nationally applicable and usually constrained by the domain of domestic jurisdictions.21 As financial institutions increasingly move from one national market to another and the volume of their cross-​border activity proportionally grows, harmonization of rules and international coordination of financial supervisory practices becomes more urgent. Ideally, a set of common rules on the supervision of financial institutions engaged in transnational financial activities and on the provision of financial services also on a cross-​border basis should be agreed upon by each country’s competent authorities. In this regard, the soundness of financial institutions (and thus the protection of investors), the prevention of fraud, and the promotion of fair competition should be the major focus of such common rules.22 Furthermore, the broad set of different services offered by financial institutions increases the need for closer cooperation between regulatory authorities (bank, securities, and insurance regulators). Over time, there has been a blurring of boundaries among different financial intermediaries, particularly with the advent of the so-​called universal banks. In order to achieve a level playing field in a new competitive environment where complex financial conglomerates operate, closer regulatory cooperation is necessary, which will also assure the solvency of the institutions involved.23 In this regard, it is worth noting that international financial regulation is a relatively recent phenomenon, born out of the increasing internationalization of finance. Although different in scope from national regulation, it is, by contrast, not so different 21 

See R. Lastra, ‘Cross-​Border Trade in Financial Services’ in I. Fletcher, M. Cremona and L. Mistelis (eds), Foundations and Perspectives of International Trade Law (London: Sweet & Maxwell, 2001), at 428–​436. 22 Ibid. 23 Ibid.

876    Rosa Lastra and Marco Bodellini in nature (i.e., as regards the elements which need to be regulated) and in causality (i.e., as regards the factors that trigger it). The demand for international financial regulation is typically very high in the aftermath of crises, when the limitations and/​or loopholes of the legal framework, allowing for regulatory arbitrage, become more evident. Nevertheless, international financial services law is not exempt from the main weakness affecting international law, that is its effective enforceability.24 As a consequence, despite being global in ambitions and often in international presence, financial institutions remain primarily subject to the control of national supervisors. This results from banking and finance being sectors at the core of nations’ concerns, where privileges allocated on the basis of the domestic interests and the maintenance of the national public confidence in the system justify the utmost attention on the part of the domestic authorities. Regardless of how much a financial institution expands its operations internationally, it is typically regarded as a legal entity under the domestic laws of the place of incorporation. Hence, constitutional differences, national habits, and national oligopolies often obstruct international coordination of supervisory practices and harmonization of widely agreed rules.25 Nonetheless, the unrelenting integration of national markets and the new possibilities offered by technical innovations encourage the development of a common set of rules with a view to replacing the existing diversity of national regulations with internationally accepted standards. Hence, if regulators are to prevent the run towards the weakest regulatory regime, they must act in a coordinated manner.26 At the European level, some positive outcomes in this direction have already been achieved through the creation of the so-​called Banking Union, as briefly discussed above.

V.  Financial services liberalization and prudential supervision under GATS At the international level the GATS is a significant initiative since it represents the first multilateral agreement to provide legally enforceable rights to trade in all services, including financial services.27 The GATS, which is part of the WTO Agreement, has three major components: a framework agreement, various annexes (one of which deals with financial services), and

24  Ibid., underlining that the rules adopted by the Basel Committee on Banking Supervision, for instance, are only binding insofar as they are incorporated into national legislation. 25  See R. Lastra, ‘Cross-​Border Trade in Banking Services’ in G. Alpa and F. Capriglione (eds), Diritto Bancario Comunitario, Le Leggi Commentate (Turin: UTET, 2002), at 433–​455. 26 Ibid. 27  Ibid. See also Chapter 18 of this handbook.

Financial Services Law    877 schedules for each country of specific commitments and lists of MFN exemptions. In addition, for financial services, there is a unique additional element: the ‘Understanding on Commitments in Financial Services’, which provides for a higher level of minimum obligations than the basic GATS provisions.28 The GATS recognizes—​in its Article I—​four modes of supply of services: -​ Mode 1: cross-​border supply or cross-​border provision of services. This is the supply of a service from the territory of one Member to a consumer/​user in the territory of another Member (regardless of whether such a financial service supplier has or has not a commercial presence in the territory of the Member in which the financial service is supplied); -​ Mode 2: consumption abroad, which, for financial services, is often difficult to distinguish from the cross-​border provision of services. In this case, the focus seems to be placed on the recipient of the service who is based in a country other than the financial service provider’s country; -​ Mode 3: commercial presence, which refers to the establishment of a legal entity (foreign direct investment) for the supply of financial services and includes wholly or partly owned subsidiaries, joint ventures, partnerships, franchising operations, branches, agencies, representative offices, or other organizations; -​ Mode 4: presence of natural persons. With respect to financial services, this mode of supply refers to the temporary presence of natural persons including the non-​ local staff of a branch of a foreign bank. The following activities are listed as ‘financial services’ under the GATS: -​ banking and other financial services, including: acceptance of deposits; lending of all types including consumer credit, mortgage credit, factoring and financing of commercial transactions; financial leasing; all payment and money transmission services; guarantees and commitments; trading in money market instruments, foreign exchange, derivatives, exchange rate, and interest rate instruments such as swaps and forward rate agreements, securities, other negotiable instruments and other assets, such as gold; participation in issues of new securities; money broking; asset management such as portfolio management or pension fund management; settlement and clearing services for financial assets; provision and transfer of financial information and financial data processing; advisory and other auxiliary financial services; -​ insurance and other related life and non-​life insurance services; reinsurance and retrocession; insurance intermediation, such as broking and agency services; services auxiliary to insurance.29

28 Ibid. 29 

This itemized list of financial services is included in the Annex on Financial Services annexed to the GATS, para 5.

878    Rosa Lastra and Marco Bodellini CUSMA contains a similar definition of financial services, as Article 17.1 states that ‘financial service means a service of a financial nature. Financial services include all insurance and insurance-​related services, and all banking and other financial services (excluding insurance), as well as services incidental or auxiliary to a service of a financial nature’.30 Similarly, financial services are grouped into two main categories: i) Insurance and insurance-​related services and ii) Banking and other financial services (excluding insurance). Interestingly, the definition previously contained in NAFTA was slightly different in that ‘financial service means a service of a financial nature, including insurance, and a service incidental or auxiliary to a service of a financial nature’. The GATS Annex on Financial Services also lists activities excluded from its coverage, namely: -​ activities conducted by a central bank or monetary authority or by any other public entity in pursuit of monetary and exchange rate policies; -​ activities, forming part of a statutory system of social security or public retirement plans; and -​ other activities conducted by a public entity for the account or with the guarantee or using the financial resources of the Government.31 Similar exclusions are provided by Article 17.2(3) of CUSMA, stating that ‘This Chapter does not apply to a measure adopted or maintained by a Party relating to: (a) an activity or a service forming part of a public retirement plan or statutory system of social security; or (b) an activity or a service conducted for the account or with the guarantee or using the financial resources of the Party, including its public entities, except that this Chapter applies to the extent that a Party allows an activity or service referred to in subparagraph (a) or (b) to be conducted by its financial institutions in competition with a public entity or a financial institution.32

A. The goals of prudential supervision and the goals of trade liberalization in financial services Trade negotiations in financial services (under the umbrella of the GATS) have typically focussed on (non-​discriminatory) market access, rather than on supervisory issues such as prudential measures.33

30 

Note that the United States refers to this agreement as USMCA and Mexico as T-​MEC. GATS Annex on Financial Services, Paragraph 1(b). 32  Additionally, Article 17.2(4) of the CUSMA provides that ‘This Chapter does not apply to government procurement of financial services’ and Article 17.2(5) states that ‘This Chapter does not apply to a subsidy or a grant provided by a Party, including a government supported loan, guarantee, and insurance, with respect to the cross-​border supply of financial services by a cross-​border supplier of another Party’. 33  See Lastra, above fn 20, at 428–​436, arguably this is the case even for other FTAs. 31 

Financial Services Law    879 Whereas the ultimate goal of prudential supervision is the protection of confidence in the financial system, trade liberalization aims to promote free trade by reducing (or eliminating) tariffs and other barriers to trade and eliminating discriminatory treatment in international commerce, thereby facilitating the cross-​border movement of goods and services.34 The freedom to enter, compete within, and exit a market without government interference, discrimination, distortions, or other barriers are thus key elements of free trade.35 The banking and financial industries have typically been highly regulated and protected by governments. Protectionism in these sectors, however, is much more subtle than in other industries. In fact, a number of policy justifications can be advanced to hide the real protectionist aim of a given regulation. Some supervisory policies and techniques as well as some financial regulations imply restrictions or limitations of competition, which can be justified on the basis of ‘safety and soundness’ arguments or on the grounds of depositor protection or other investor protection considerations. This is the case for the historical separation in the US between commercial banks (depository institutions) and investment banks (registered broker-​dealers) and the lending limits and deposit insurance premiums imposed onto banks that restrict their risk-​taking policies.36 Furthermore, restrictions can also apply based on some sort of public good justification. Yet, many banking prudential supervisory and regulatory standards can be considered as anti-​competitive and discriminatory. Interestingly, such discriminations sometimes work in favour and sometimes against banks. They work in favour of banks in the case of crises, when the lender of last resort function of central banks, the deposit insurance fund, or the government, directly or indirectly, protect these institutions. The benefits for banks are evident in that non-​bank institutions are outside the scope of application of such measures. They work against banks when the restrictions on activities place a regulatory burden upon them vis-​à-​vis other institutions providing similar products or services but subject to less strict regulation. This is the case of higher capital requirements and liquidity buffers which apply to banks and not also to non-​bank institutions. The GATS acknowledges the possibility of conflicting goals in its Annex on Financial Services. This Annex includes the so-​called prudential carve-​out in Paragraph 2(a), according to which a country may take prudential measures to ensure the integrity and stability of the financial system or to protect depositors, investors, or policy-​holders regardless of any other provision of the GATS.37 This specific exception for prudential regulation

34 

Under the theory of comparative advantage, unilateral liberalization would be most advantageous for countries; a country would profit most by pursuing a free trade policy whether its trading partners were free-​traders or protectionists. 35  See Lastra, above fn 20, at 428–​436, emphasizing that the opposite of free trade is protectionism. 36  See Lastra, above fn 24, at 433–​455, also noting that other restrictions, such as reserve requirements, cannot be justified on prudential grounds but rather on monetary considerations, although many bankers argue that reserve requirements are an implicit tax on the banking system. 37  Paragraph 2(a) states that ‘Notwithstanding any other provision of the Agreement, a Member shall not be prevented from taking measures for prudential reasons, including for the protection of depositors, investors, policy holders or persons to whom a fiduciary duty is owed by a financial service

880    Rosa Lastra and Marco Bodellini and supervision was introduced due to persistent requests by financial regulators, who were concerned that a trade agreement (liberalizing financial services) could interfere with their ability to effectively regulate and supervise financial institutions. One significant implication of this broadly formulated prudential carve-​out is that priority is given to the goals of financial regulation over the demands of competition and financial liberalization.38 It is worth noticing that similar carve-​outs are also included in other FTAs, including Article 17.11 of CUSMA,39 Article 13.16 of the CETA,40 and Article 11.11 of the CPTPP.41 Despite some differences in the language of these articles, the rationale behind them is equivalent; namely, in the attempt to balance two potentially conflicting interests (i.e., supplier, or to ensure the integrity and stability of the financial system. Where such measures do not conform with the provisions of the Agreement, they shall not be used as a means of avoiding the Member’s commitments or obligations under the Agreement’. 38 

See Lastra, above fn 24, at 433–​455. reads as follows: ‘. . . a Party is not prevented from adopting or maintaining a measure for prudential reasons, including for the protection of investors, depositors, policy holders, or persons to whom a fiduciary duty is owed by a financial institution or cross-​border financial service supplier, or to ensure the integrity and stability of the financial system. If the measure does not conform with the provisions of this Agreement to which this exception applies, the measure must not be used as a means of avoiding the Party’s commitments or obligations under those provisions’. Footnote 6 adds that ‘The Parties understand that the term “prudential reasons” includes the maintenance of the safety, soundness, integrity, or financial responsibility of individual financial institutions or cross-​border financial service suppliers as well as the safety, and financial and operational integrity of payment and clearing systems’. 40 The Canada-​ EU Comprehensive Economic and Trade Agreement (CETA) provision reads as follows: 39  It

‘1. This Agreement does not prevent a Party from adopting or maintaining reasonable measures for prudential reasons, including: (a) the protection of investors, depositors, policy-​holders, or persons to whom a financial institution, cross-​border financial service supplier, or financial service supplier owes a fiduciary duty; (b) the maintenance of the safety, soundness, integrity, or financial responsibility of a financial institution, cross-​border financial service supplier, or financial service supplier; or (c) ensuring the integrity and stability of a Party’s financial system. 2. Without prejudice to other means of prudential regulation of cross-​border trade in financial services, a Party may require the registration of cross-​border financial service suppliers of the other Party and of financial instruments. 3. Subject to Articles 13.3 and 13.4, a Party may, for prudential reasons, prohibit a particular financial service or activity. Such a prohibition shall not apply to all financial services or to a complete financial services sub-​sector, such as banking’. 41  The Comprehensive and Progressive Agreement for the Transpacific Partnership provision reads as follows: ‘. . . a Party shall not be prevented from adopting or maintaining measures for prudential reasons, including for the protection of investors, depositors, policy holders, or persons to whom a fiduciary duty is owed by a financial institution or cross-​border financial service supplier, or to ensure the integrity and stability of the financial system. If these measures do not conform with the provisions of this Agreement to which this exception applies, they shall not be used as a means of avoiding the Party’s commitments or obligations under those provisions’. Footnote 10 adds that ‘The Parties understand that the term “prudential reasons” includes the maintenance of the safety, soundness, integrity, or financial responsibility of individual financial institutions or cross-​border financial service suppliers as well as the safety, and financial and operational integrity of payment and clearing systems’.

Financial Services Law    881 financial regulation and supervision, on one side, and liberalization, on the other side), the former should, in the end, be preferred. This balance was equally recognized by the Panel and Appellate Body in the WTO’s first ruling on such prudential exception(s) in Argentina –​Financial Services. The ruling of the Panel recognizes the prerogative for countries to set their own prudential measures as well as their own reasons for doing so.42

B. How to reconcile these two (potentially) conflicting goals? These (potential) conflicts can be prevented through enhanced harmonization of prudential rules, which set a minimum common denominator for international financial institutions, thereby creating a level playing field. The GATS Annex on financial services contains a clause which explicitly authorizes WTO Members to recognize the prudential standards (achieved through harmonization or otherwise) applied by other Members, thereby facilitating access to each others’ markets for service suppliers originating in any of them.43 This critical aspect has been dealt with by the Appellate Body in Argentina –​ Financial Services, in which it held that ‘[t]‌he “national policy objectives” referred to in the preamble could be pursued through various means, including through measures taken pursuant to paragraph 2(a) of the Annex on Financial Services, provided that the measures “affect[] the supply of financial services”, are taken “for prudential reasons”, and are not “used as a means of avoiding” the Member’s GATS commitments or obligations. An interpretation limiting the types of measures that could fall under paragraph 2(a) would not be in consonance with the balance of rights and obligations that is expressly recognized in the preamble of the GATS’.44 Greater transparency is also needed to help prevent the occurrence of conflicts. Transparency is indeed an essential pillar of a market economy, recognized as a ‘general obligation’ for Members in Article III of the GATS. However, secrecy and confidentiality in banking often hinder the pursuit of transparency. The GATS Annex on Financial

42  Interestingly, in Appellate Body Report, Argentina –​Financial Services, adopted 9 May 2016, the Appellate Body upheld the decision of the Panel at para 7.878, on prudential measures which touched upon the concept of prudential measures by holding ‘[i]‌n our view, it is important to understand that “systemic” problems may be incubating or gestating over the course of time and erupt rapidly; hence the importance of being prepared for them in advance . . .’. It also pointed out that ‘in the particular case of the insurance sector, a situation of failure—​and, ultimately, the possibility of contagion and financial instability, together with a threat to the protection of the consumers of these services—​might be slow to emerge’. On this see A.D. Mitchell, J.K. Hawkins, N. Mishra, ‘Dear Prudence: Allowances under International Trade and Investment Law for Prudential Regulation in the Financial Services Sector’ 19(4) Journal of International Economic Law (2016) 787–​820. 43  Paragraph 3 of the Annex on Financial Services. 44  Appellate Body Report, Argentina –​Financial Services, adopted 9 May 2016, para 6.260.

882    Rosa Lastra and Marco Bodellini Services, in this regard, permits the non-​disclosure of information.45 Thus, secrecy laws and confidentiality provisions prevail over GATS requirements.46 The harmonization of rules, in turn, can help prevent conflicts but cannot bring in and of itself a solution to a conflict.47 Therefore, dispute resolution is also necessary, as provided in Paragraph 4 of the GATS Annex on Financial Services.48 Prudential supervision and regulation need to be shaped or reformed to facilitate trade in financial services, promote fair competition, and boost innovation.49 Nobel laureate Ronald Coase convincingly argued that private, competitive markets depend on a comprehensive legal structure.50 Interestingly, prudential supervision is shifting from a lending-​ based system characterized by mandatory rules and government intervention to a trading-​based system, which increasingly relies upon voluntary restrictions, fiduciary rules, disclosure requirements, and other market mechanisms.51 This change should help reconcile the goals of financial liberalization with those of prudential supervision. Trade negotiators in financial services must address supervisory and regulatory issues in a multilateral context to ensure that financial services users and providers fully benefit from trade liberalization.52

VI.  The law-​making process at the international level and the pivotal importance of soft-​l aw standards There are instances when soft law should be regarded as law. In the area of international financial law it has become the most frequently adopted form of law,53 due to the

45 

Paragraph 2(b) of the Annex on Financial Services states that ‘Nothing in this Agreement shall be construed to require a member to disclose information relating to the affairs and accounts of individual customers or any confidential or proprietary information in the possession of public entities’. 46  See Lastra, above fn 24, at 433–​455. 47   See Lastra, above fn 20, at 428–​436. 48  Paragraph 4 of the GATS Annex on Financial Services states that ‘Panels for disputes on prudential issues and other financial matters shall have the necessary expertise relevant to the specific financial service under dispute’. 49  See Lastra, above fn 20, at 428–​436. 50  See R. Coase, The Firm, the Market and the Law (Chicago: University of Chicago Press, 1988), at 9–​10; see also more recently and more critically, K. Pistor, The Code of Capital: How the Law Creates Wealth and Inequality (Princeton: Princeton University Press, 2019). 51  See Lastra, above fn 24, at 433–​455. 52  See Lastra, above fn 20, at 428–​436. 53  See C. Brummer, Soft Law and the Global Financial System (Cambridge: Cambridge University Press, 2015), 120.

Financial Services Law    883 difficulties involved in treaty and other hard-​law making.54 Accordingly, soft law has played a significant function in filling this vacuum55 and in coordinating the regulatory process.56 Although soft-​law rules do not create legal obligations, they have legal effects.57 Soft law has been defined as rules that are not legally binding but which in practice are adhered to by those to whom they are addressed or by those who subscribe to that set of rules for various reasons, such as moral suasion, fear of adverse action, and other incentives.58 It thus comprises ‘a variety of non-​legally binding instruments used in contemporary international relations’.59 A key feature of soft law is its informality.60 Informality distinguishes soft law from hard law.61 As regards the origins of soft law, some argue that its ancestors can be found in the medieval lex mercatoria, i.e. the mercantile codes and customs which reflected the usages of trade, the maritime and commercial practice at the time, whilst others think that they stem from ‘the early 20th century theories of social law and legal pluralism’.62

A. The main standard-​setters With regard to the institutions that create international financial soft law, there are many entities and groupings involved in the process, including the International Monetary Fund (IMF), the International Bank for Reconstruction and Development (IBRD), the G7, G10, and G20, the Basel Committee on Banking Supervision (BCBS), the International Organization of Securities Commission (IOSCO), the Financial Stability Board (FSB), and others. Amongst the standard-​setters, there are intergovernmental entities whose rules have a ‘top-​down’ nature,63 and there are professional associations or market entities whose 54  See R. Lastra and M. Bodellini, ‘Soft Law and Sovereign Debt’, background paper prepared for the Intergovernmental Group of Experts on Financing for Development (7–​9 November 2018), United Nations Conference on Trade and Development, at < https://​unc​tad.org/​sys​tem/​files/​non-​offic​ial-​ docum​ent/​SOFT%20LAW%20AND%20SO​VERE​IGN%20D​EBT.pdf > (last visited 28 December 2020), at 3. 55  See Lastra, International Financial and Monetary Law, above fn 1, at 502. 56  See Brummer, above fn 52, at 120. 57   See Lastra and Bodellini, above fn 53, at 4. 58  See R. Goode, Commercial Law (London: Penguin Books, 1995), at 20–​21. 59 See A. Boyle, ‘Soft Law in International Law-​ Making’ in M.D. Evans (ed), International Law (Oxford: Oxford University Press, 2006), at 142; see also C. Chinkin, The Making of International Law (Oxford: Oxford University Press, 2007), 212. 60  See Lastra and Bodellini, above fn 53, at 3. 61  See Lastra, International Financial and Monetary Law, above fn 1, at 502. 62  See A. Di Robilant, ‘Genealogies of soft law’ 54(3) The American Journal of Comparative Law (2006), at 499. 63 Particularly relevant in the field of sovereign debt are: UNCTAD, ‘Principles on Promoting Responsible Sovereign Lending and Borrowing’ (10 January 2012), at < https://​unc​tad.org/​en/​Publ​icat​ ions​Libr​ary/​gds​ddf2​012m​isc1​_​en.pdf > (last visited 28 December 2020); G20, ‘Operational Guidelines

884    Rosa Lastra and Marco Bodellini rules have a ‘bottom-​up’ character, such as the International Swaps and Derivatives Association (ISDA).64 The presence of a significant number of standard-​setters involved in various ways in adopting general principles, guidelines, and best practices poses a problem of coordination and creates risks of inconsistency. To tackle these issues, the G20 leaders at the London Summit in 2009 committed themselves ‘to establish much greater consistency and systematic cooperation between countries . . .’65 and the FSB has a key role in this regard.66 In the area of banking law, one of the most relevant standard-​setters is certainly the BCBS, established in 1974 by the central banks and the supervisory authorities of the G10 Countries under the aegis of the Bank for International Settlements (BIS). The Committee does not have any supranational status, being just a forum of experts who get together periodically with the aim of enhancing the effectiveness of banking regulation. It mainly creates standards (i.e., soft-​law principles) that then are transposed into domestic legislation and/​or regulation through the adoption of laws and/​or regulations, thereby becoming binding rules.67 Although its standards lack a direct legally binding force, the BCBS has become a de facto international regulatory body.68 It is argued that the informality and independence of the Committee have served well in the design of international banking rules, as it has acted with a fair degree of ‘depoliticization’ and a considerable amount of technical expertise and competence.69 Even though there is no international legal obligation to implement BCBS standards, for most countries, both incentives and sanctions are stronger than generally recognized. This is why the most important jurisdictions across the world have transposed into their domestic banking regulations the soft-​law principles designed over time by BCBS.70 The BCBS is mainly committed to the promotion of best practices in banking supervision. The most significant examples of these best practices are the Basel Capital Accords, the first of which was published in 1988 (Basel I). Capital regulation before this for Sustainable Financing’ (March 2017); UN General Assembly, ‘Resolution 69/​319’ (10 September 2015), at < https://​dig​ital​libr​ary.un.org/​rec​ord/​804​641/​files/​A_​RES​_​69_​319-​EN.pdf > (last visited 30 August 2021). 64 

See Lastra, above fn 5, at 504.   G20, ‘London Summit-​Leaders’ Statement’ (2 April 2009). 66  See Lastra and Bodellini, above fn 53, at 4. 67  See M. Bodellini, ‘The Long ‘Journey’ of Banks from Basel I to Basel IV: Has the Banking System Become More Sound and Resilient than it Used to Be?’ 20(1) ERA Forum (2019), at 85. 68  Since January 2013 it has had its own ‘charter’, at < http://​www.bis.org/​bcbs/​char​ter.htm > (last visited 30 August 2021). As stated in the Charter, the internal organizational structure of the BCBS comprises: (a) the Committee; (b) Groups, working groups and task forces; (c) the Chairman; (d) the Secretariat. The Committee’s Secretariat is provided by the Bank for International Settlements (BIS) in Basel. 69  See Lastra and Bodellini, above fn 53, at 7. 70  See E. Jones and A.O. Zeitz, ‘The Limits of Globalizing Basel Banking Standards’ 3 Journal of Financial Regulation (2017) 89. 65

Financial Services Law    885 initiative was often informal and adopted just at a domestic level. Some countries were also missing specific rules on bank capital since it was not deemed necessary to have such rules in force. The underlying assumption was that banks were able to set their own optimal level of capital without rules telling them the exact amount to hold.71 However, at the end of the 1980s this perception changed, and the BCBS issued the so-​called Basel I package. Extremely important is the FSB, which represents a by-​product of the Global Financial Crisis of 2007–​2008 and was established in April 2009 as the successor to the Financial Stability Forum (FSF). It is an international body that monitors and makes recommendations about the global financial system, mostly focusing on the promotion of financial stability at the international level. The FSB pursues its institutional goals by coordinating national financial authorities and international standard-​setting bodies as they work toward developing strong regulatory, supervisory, and other financial sector policies. It fosters a level playing field by encouraging the coherent implementation of these policies across sectors and jurisdictions.72 In securities regulation, a major role is played by the IOSCO, the international body that brings together the world’s securities regulators and is recognized as the global standard-​setter in this sector. IOSCO develops, implements, and promotes adherence to internationally recognized standards for securities regulation. It works intensively with the G20 and the FSB on the global regulatory reform agenda.73

B. The different types of soft-​law rules There are different types of soft-​law rules which can be classified on the basis of their (i) effect, (ii) scope, (iii) degree of specificity, (iv) source and nature, and (v) contents. In terms of their effect, soft-​law rules can vary from simple professional practices (such as best practices or gentlemen’s agreements) to uniform rules, codes, and guidelines.74

71 

See Bodellini, above fn 66, at 85. M. Bodellini, ‘L’intervento pubblico nella crisi delle banche e la contraddittoria inefficienza dell’azione delle istituzioni europee: appunti da Veneto e Toscana’ 1 Rivista di Diritto dell’Impresa (2019) 47. 73 IOSCO members have resolved to cooperate in developing, implementing and promoting adherence to internationally recognized and consistent standards of regulation, oversight, and enforcement in order to protect investors, maintain fair, efficient and transparent markets, and seek to address systemic risks; to enhance investor protection and promote investor confidence in the integrity of securities markets, through strengthened information exchange and cooperation in enforcement against misconduct and in supervision of markets and market intermediaries; and to exchange information at both global and regional levels on their respective experiences in order to assist the development of markets, strengthen market infrastructure and implement appropriate regulation; at < https://​www.iosco.org/​about/​?sub​sect​ion=​abou​t_​io​sco > (last visited 28 December 2020). 74  See Lastra, International Financial and Monetary Law, above fn 1, at 511. 72  See

886    Rosa Lastra and Marco Bodellini With regard to their scope, it is possible to distinguish between sectoral standards (for instance, banking, securities, and insurance standards) and functional standards (for instance, disclosure, governance, accounting standards). In relation to their degree of specificity, an interesting example is the distinction drawn by the FSB among principles, practices, and methodologies/​guidelines, where the first ones give flexibility in the implementation, the second ones are more detailed and therefore offer less flexibility, and the third ones provide either specific guidance or precise requirements thereby offering very little flexibility. From a practical perspective, their different level of specificity determines that national authorities will have more or less discretion in implementing them in their domestic jurisdictions. Concerning their source, as mentioned, there are ‘top-​down’ rules adopted by official entities and ‘bottom-​up’ rules usually emanated by market associations in the form of self-​regulation. From the point of view of their contents, there are substantive rules and rules that allocate regulatory jurisdiction.75 According to Brummer, soft-​law instruments can be divided into (i) best practices, (ii) regulatory reports and observations, and (iii) information sharing and enforcement cooperation agreements.76 Best practices aim at promoting ‘sound regulatory supervision’.77 They concern areas, such as ‘capital adequacy, optimal disclosure rules, or due diligence techniques for preventing money laundering and terrorist financing. These practices may be promulgated by coalitions of wealthy regional bodies or even by organizations of private actors blessed by national authorities’.78 Differently, ‘reports create an official record of fact drawn on by financial authorities to regulate and supervise markets’.79 Sometimes, such records only collect data; other times, ‘they record official opinions and institutional perspectives’ concerning both financial data and their implications for the global economy.80 Information-​sharing agreements are international agreements that ‘spell out the procedural means by which greater information sharing and enforcement cooperation can be achieved’.81 Usually, they are promulgated through memoranda of understanding. ‘National regulators of the banking and securities industries routinely enter into these agreements whereby the regulators commit to better coordination with one another in order to enhance their prudential oversight and monitoring at home’.82 Boyle notes that ‘while the legal effect of these different soft law instruments is not necessarily the same, it is characteristic of all of them that they are carefully negotiated, and often carefully

75 

Ibid., at 511–​512. Brummer, above fn 52, at 120. 77  Ibid., at 121. 78  Ibid., at 121. 79  Ibid., at 122. 80 Ibid. 81  Ibid., at 123. 82 Ibid. 76 

Financial Services Law    887 drafted statements, which are in some cases intended to have some normative significance despite their non-​binding, non-​treaty form. There is at least an element of good faith commitment, and in many cases, a desire to influence state practice and an element of law-​making intention and progressive development. In this sense non-​binding soft law instruments are not fundamentally different from those multilateral treaties which serve much the same law-​making purposes. In this respect they may be both an alternative to and a part of the process of multilateral treaty-​making’.83

C. Pros and cons of soft law The main advantages of soft law are its flexibility, dynamism, informality, and pragmatism.84 Soft law rules are also characterized by a high level of sophistication and technical detail. The modus operandi of many ‘international standard-​setters’ (the technical expertise of those involved, the commonality of knowledge and interests, and the relatively small size of the working groups) fosters pragmatism and mutual trust. In contrast, international treaty-​making is a lengthy, slow, rigid, and, at times politically motivated process. While this formality provides legitimacy and accountability, it also leads to a rather ‘static output’. Once a treaty is agreed and adopted, it is complicated to amend since it requires—​by unanimity or qualified majority—​the consensus of the signatory States. The main drawbacks of soft law relate to its non-​binding character and concerns about legitimacy and accountability. As regards the latter, of particular relevance is the country ‘ownership’ problem given the under-​representation of developing countries within the international standard-​setting bodies. This under-​inclusiveness, together with the level of sophistication of some standards, may provide a challenge in the pursuit of regulatory convergence.85 The proliferation of standards may also lead to complexity, inconsistency, overlaps, or gaps. Over time the number of entities and bodies adopting soft law rules has significantly increased.86

D. From soft law to hard law The evolution of law provides evidence of the formalization of rules over time. Many legal rules that are today binding were at some point customs, usages, or practices. Since

83 

See A. Boyle, ‘Some Reflections on the Relationship of Treaties and Soft Law’ 48 International and Comparative Law Quarterly (1999) 902. 84 See M. Giovanoli, ‘A New Architecture for the Global Financial Markets: Legal Aspects of International Financial Standard Setting’ in M. Giovanoli (ed), International Monetary Law. Issues for the New Millennium (Oxford: Oxford University Press, 2000), at 39. 85  See Lastra, International Financial and Monetary Law, above fn 1, at 513–​514. 86  Ibid., at 513.

888    Rosa Lastra and Marco Bodellini financial law and, in particular, international financial law is a rather novel field of law, its dynamic and evolving character is unsurprising. Formal law has often been born out of the development of informal law. This is not a new phenomenon; it is a recurrent feature in the history of law. The relation between soft law and legally binding rules often appears to be an evolutionary process. The evolution of international law and commercial law provides clear evidence in this regard.87 We referred above to the lex mercatoria when talking about the origins of soft law. Many of the uncodified usages of trade, and maritime and commercial practice eventually became formal law. The primary sources of international law are conventional law (treaty law), customary law, and the general principles of the law, as recognized by Article 38 of the Statute of the International Court of Justice. Customary international law, however, can evolve into conventional law. For example, important principles of customary international law have become codified in the Vienna Convention of the Law of the Treaties, thus acquiring the characteristic of ‘conventional law’. After the adoption of soft law rules, their implementation is typically done at the national level through the passage of law. Due to such a formal legislative or regulatory act, the soft law rules become hard law rules at the national level. The fact that they are binding and enforceable is what mainly distinguishes them from non-​coercive soft law rules that are merely an ‘expression of cooperation’.88 The strength of the latter is dependent on the willingness of the involved parties to comply with them. Such a willingness can sometimes be stimulated by regulatory competition, in the sense that States might want to comply with the latest internationally adopted soft-​law rules to show that they are a safe legal environment in which global financial players are comfortable to do business. Concerning the relationship between soft law and hard law, it is worth noting that sometimes the former complements or supplements the latter. For instance, in the context of the law of the IMF, a number of international guidelines, recommendations, codes of conduct, standards, and policies have been developed to interpret, supplement, or implement the Articles of Agreement.89 It has been argued that while lawyers express a preference for hard law (legally binding, legitimate, and enforceable treaties), economists acknowledge the advantages of soft law rules, which include speed, flexibility, and pragmatism.90

E. The incentives to make soft law effective There are incentives to promote observance of soft law rules. Indeed, in the absence of formal enforcement mechanisms, ‘incentives’ compel those to whom they are addressed 87 

Ibid., at 521. See Brummer, above fn 52, at 132. 89  See J. Gold, Interpretation: The IMF and International Law (London: Kluwer, 1996), at 299–​401. 90  See T. Padoa-​Schioppa and F. Saccomanni, ‘Managing a Market-​Led Global Financial System’ in P. K Kenen (ed), Managing the World Economy Fifty Years After Bretton Woods (Washington DC: Institute of International Economics, 1994), 266. 88 

Financial Services Law    889 to observe the rules.91 These incentives function as a substitute for formal enforcement mechanisms.92 The official sector has developed a number of policies and measures to promote observance of soft law rules. The ‘name and shame’ practice associated with the list prepared by the Financial Action Task Force on Money Laundering (FATF) regarding non-​cooperating jurisdictions93 or the OECD list of offshore financial centres responsible for harmful tax competition94 act as deterrents against ‘non observance’. Institutionalized peer review is another official incentive to promote observance, often as a complement to financial sector surveillance. In 2010, the FSB launched a regular programme of peer reviews comprising: thematic reviews and country reviews. These reviews are focussed on the implementation and effectiveness of international financial standards developed by standard-​setting bodies and of policies agreed within the FSB. The FSB’s Standing Committee on Standards Implementation oversees the functioning of the peer review programme that is mandatory for its members.95 An indirect incentive for countries to comply with soft law rules is the monitoring process carried out mostly by the main standard-​setters themselves. The IMF and the World Bank have developed a framework for assessing member countries’ observance of standards and codes (the ‘Standards and Codes Initiative’), working in cooperation with national authorities, standard-​setting agencies, and other international bodies.96 The standards relate to data and policy transparency, financial sector regulation and supervision, and market integrity.97 Assessments of the degree of implementation of these standards by countries result in the Reports on the Observance of Standards and Codes (ROSCs), which are discussed below. The Financial Sector Assessment Programme (FSAP) provides in-​ depth examinations of countries’ financial sectors and constitutes a powerful official incentive to promote the observance of soft law rules. FSAPs are done jointly by World Bank

91 

Though the word ‘compliance’ is a term typically used in the case of hard law and ‘observance’ (or adherence to) in the case of soft law, sometimes the word compliance is also used in references to soft law. 92  See Lastra, International Financial and Monetary Law, above fn 1, at 516. 93 See Financial Action Task Force on Money Laundering, ‘Non-​ Cooperative Countries and Territories’ (Paris: OECD Financial Action Task Force, 2004), at < http://​www1.oecd.org/​fatf/​NCCT​ _​en.htm#List > (last visited 28 December 2020); see also S. De Vido, Il contrasto del finanziamento al terrorismo internazionale: profili di diritto internazionale e dell’Unione europea (Padova: Cedam 2012). 94  See OECD, ‘List of Uncooperative Tax Havens’? at < https://​ www.oecd.org/​tax/​harm​ful/​list-​of-​ unco-​operat​ive-​tax-​hav​ens.htm > (last visited 28 December 2020). 95  The objectives and guidelines for the conduct of FSB peer reviews are included in the ‘Handbook for FSB Peer Reviews’, at < http://​www.fina​ncia​lsta​bili​tybo​ard.org/​publi​cati​ons/​r_​140​106.pdf > and for more information see < http://​www.fina​ncia​lsta​bili​tybo​ard.org/​act​ivit​ies/​peer_​revi​ews.htm > (last visited 28 December 2020). 96  See generally IMF, ‘Standards and Codes: The Role of the IMF—​Factsheet’ (Washington DC: IMF, 2014), at < http://​www.imf.org/​exter​nal/​np/​exr/​facts/​sc.htm > (last visited 28 December 2020). 97 See IMF, ‘IMF Executive Board Concludes Review of Standards and Codes Initiative’, Public Information Notice (PIN) No. 11/​38, (22 March 2011), at < http://​www.imf.org/​exter​nal/​np/​sec/​pn/​2011/​ pn1​138.htm > (last visited 28 December 2020).

890    Rosa Lastra and Marco Bodellini and IMF staff in developing and emerging market countries (IBRD countries) and by the IMF alone in advanced economies. FSAPs have two main components: the financial stability assessment and—​in developing and emerging market countries—​the financial development assessment. These components may be assessed at the same time during a joint IMF-​World Bank mission or at different times in separate stability and development modules conducted by the Fund and the Bank, respectively.98 The FSAP helps identify financial system vulnerabilities and develop appropriate policy responses and provides countries with an opportunity to measure their compliance with financial sector standards and codes and, therefore, to benchmark their regulatory and supervisory systems against internationally-​accepted practices.99

VII. Conclusion This chapter has provided a legal definition of a number of key concepts, such as financial services law, financial services, financial products, financial intermediaries, and financial markets, which is instrumental to a clear understanding of the rationale(s) lying behind banking and financial regulation. In this regard, this chapter has focused on financial stability, depositor and investor protection, market efficiency. and transparency, prevention of financial crime and fraud as well as competition. In dealing with the internationalization of financial institutions and services, their liberalization and prudential supervision, this chapter has mostly looked at the provisions of GATS and other trade agreements and discussed the importance of soft law in the law-​making process at the international level.

Further reading Benjamin, J., Financial Law (Oxford: Oxford University Press, 2007) Bodellini, M., ‘From Systemic Risk to Financial Scandals: The Shortcomings of U.S. Hedge Fund Regulation’ 11 Brooklyn Journal of Corporate, Financial and Commercial Law (2017) 417–​467 Brummer, C., Soft Law and the Global Financial System (Cambridge: Cambridge University Press, 2015) Chinkin, C., The Making of International Law (Oxford: Oxford University Press, 2007)

98 

See IMF, ‘Financial Sector Assessment Program: Frequently Asked Questions’, at < http://​www.imf. org/​exter​nal/​np/​fsap/​faq/​index.htmMa​rch 2013 > and ‘Financial Sector Assessment Program (FSAP)—​ Factsheet’, at < http://​ www.imf.org/​exter​nal/​np/​fsap/​fsap.asp > (last visited 28 December 2020). 99 See The World Bank, ‘Financial Sector Assessment Program (FSAP)’, at < http://​web.worldb​ ank.org/ ​ W BS ​ I TE/​ E XTER​ NAL/​ T OP​ I CS/​ E XT​ F INA ​ N CIA ​ L SEC ​ T OR/ ​ 0 ,,con ​ t ent ​ M DK:22142​ 161~men​uPK:6459​396~pag​ePK:210​058~piPK:210​062~theSit​ePK:282​885,00.html > (last visited 28 December 2020).

Financial Services Law    891 Grosse, R., The Future of Global Financial Services (Oxford: Basil Blackwell, 2004) Lastra, R., Central Banking and Banking Regulation (London: LSE, 1996) Lastra, R., ‘Cross-​Border Trade in Financial Services’ in I. Fletcher, M. Cremona and L. Mistelis (eds), Foundations and Perspectives of International Trade Law (London: Sweet & Maxwell, 2001) 428–​436. Lastra, R., International Financial and Monetary Law (Oxford: Oxford University Press, 2015) Lastra, R. and M. Bodellini, ‘Soft Law and Sovereign Debt’, background paper prepared for the Intergovernmental Group of Experts on Financing for Development, 7-​9 November 2018, United Nations Conference on Trade and Development, at < https://​unc​tad.org/​sys​tem/​ files/​non-​offic​ial-​docum​ent/​SOFT%20LAW%20AND%20SO​VERE​IGN%20D​EBT.pdf > Marchetti, J. A. ‘Financial services liberalization in the WTO and in PTAs’ in J. A. Marchetti and M. Roy (eds), Opening Markets for Trade in Services: Countries and Sectors in Bilateral and WTO Negotiations (Cambridge: Cambridge University Press, 2009) 300–​339 Mitchell, A. D., J. K. Hawkins, N. Mishra, ‘Dear Prudence: Allowances under International Trade and Investment Law for Prudential Regulation in the Financial Services Sector’ 19 Journal of International Economic Law (2016) 787–​820

Pa rt V I

T H E SE T T L E M E N T OF T R A DE DI SP U T E S I N T H E W TO A N D B I L AT E R A L /​ R E G IONA L T R A DE AG R E E M E N T S

Chapter 34

Institu ti ons David Unterhalter and Erika Schneidereit

I. II. III. IV.

Introduction Origins The elements of the WTO dispute settlement system The institutional composition of the WTO dispute settlement system V. Alternative dispute settlement solutions VI. Panel establishment VII. Scope of measures that may be challenged and applicable law VIII. The Appellate Body A. Selection B. Procedure C. The scope and standard of appellate review D. The binding effect of Appellate Body findings IX. The reform of the system of dispute settlement or its demise X. Dispute settlement mechanisms in RTAs XI. Interaction with WTO dispute settlement system XII. Conclusion

895 896 898 899 901 901 903 907 909 911 913 914 916 918 921 921

I. Introduction Though now contested, much is made of the value to be gained from a rule-​based order that governs the common interests of States. Such an order has become a central feature of international trade, reflected in the universe of multilateral, regional, and bilateral agreements. What the rules mean, how they should be applied and the consequence of

896    David Unterhalter and Erika Schneidereit a failure to comply are all matters that may give rise to dispute. How such disputes are resolved by institutions established under the rule-​based order of international trade is the subject of this chapter. Much of the chapter considers the WTO dispute settlement because of its centrality. We trace its origins; describe the institutions that comprise the system; identify the disputes to which the system is of application; consider the progression of a dispute through the system; and reflect upon the debate that is now so prominent as to the reform of the system and its future. We then consider dispute settlement mechanisms in regional and bilateral trade agreements.

II. Origins The origins of the WTO dispute settlement system and its institutions are not a matter of historical curiosity. Rather, this subject serves a three-​fold purpose. It assists to understand features of the present system that bear the imprint of what came before. It places in context why it is that the system of dispute settlement that resulted from the Uruguay Round of Multilateral Trade Negotiations was more robust than its predecessor. Finally, it offers a long view as to why the attributes of the system that some have thought to be its virtues, others would cast aside with a backward glance to the past. The multilateral trading system, prior to the Uruguay Round, was based on the GATT 1947. It did not lack a system of dispute settlement. Its basic rule was that the Contracting Parties should resolve any dispute that arose. As the system evolved, disputes were referred to panels of experts, unrelated to the parties. These panels wrote reports, with recommendations to resolve the dispute. However, the GATT Council would only refer a dispute to a panel by way of positive consensus. So too, positive consensus was required to adopt a panel report and, if required, to authorize countermeasures. In effect, the respondent Contracting Party enjoyed a veto. That may have seemed an unpromising foundation upon which to construct a dispute settlement system. Yet many disputes were referred to panels, and their reports were quite frequently adopted. The system developed a significant jurisprudence based on reasoning that was of systemic guidance to the Contracting Parties at large. It also resolved many disputes for the parties. Procedural decisions and understandings were adopted to govern the conduct of a dispute. The GATT dispute settlement system had deficiencies. The reticence of a Contracting Party to use its power to block a referral or the adoption of a report, which had enjoyed a significant measure of adherence for many decades, was supplanted in the 1980s with the more frequent use of the power of veto. More States, and in particular the United States, considered the dispute settlement system, in consequence, to be in need of reformation. The result of this was, ultimately, the negotiation of a much-​strengthened dispute settlement system, one of the significant outcomes of the Uruguay Round.

Institutions   897 A number of reflections upon the GATT dispute settlement system are warranted. The GATT system, as indicated, rested upon consent. While consent is the foundation of arbitral dispute resolution, the distinctive feature of the GATT system was that consent was required both to refer the dispute to a panel, and then to have its report and recommendations adopted. Party control of this kind requires a high degree of reciprocity to be workable. A respondent may consent to an adverse outcome because it apprehends that it has been or might be a complainant in other disputes requiring redress. It might also be of systemic benefit to encourage other Contracting Parties to use the system. But whether a system can durably maintain a practice of reciprocal consent is highly contingent. Such a system is likely to break down in circumstances in which an increasing number of disputes occur, arising from far reaching multilateral agreements, governing the trade relationships of a more diverse membership.1 As will become plain, features of the GATT dispute settlement system are recognizably part of the Understanding on rules and procedures governing the settlement of disputes (DSU) that forms the basis of the WTO dispute settlement system. The function of the panel, preferably chosen with the consent of the parties, to make recommendations has an obvious provenance in the GATT system. There is also procedural continuity as to how parties engage a dispute before a panel under the DSU and did so under the GATT system. The differences are also important. Three features of the DSU have particular salience. First, a party cannot block the establishment of a panel, nor the adoption of a panel’s report. Second, the introduction of the Appellate Body, as the standing institution of appellate review, was a central innovation. An appeal as of right, to secure a further consideration and an authoritative pronouncement on the law, was an institutional commitment to the avoidance of error. This provided an additional institutional safeguard, given that the reports of the Appellate Body also require adoption with automaticity. Third, a regime of implementation was created, upon the adoption of a report, as to how the measure of a Member found to be inconsistent with its obligations should be brought into conformity. In sum, a regime of consent predicated upon practice was replaced with a regime of dispute settlement that rests upon the rights of a party to the resolution of the dispute and the implementation of the recommendations of the panel or the Appellate Body. Just as with the GATT system of dispute settlement, the DSU, and the Appellate Body in particular, once much praised, has suffered disenchantment and withdrawal. The United States, one of the principal original promoters of the system, has become the staunchest critic of the Appellate Body, bringing about its demise, at least until agreement is achieved as to the reform of the Appellate Body. What reforms should be introduced is a matter to which we will come and has occasioned much debate. Part of that debate is a nostalgia on the part of certain WTO Members for what the GATT

1 

On the notion of ‘consent’ in general, see also Chapter 5 of this handbook.

898    David Unterhalter and Erika Schneidereit system of dispute settlement is said to have represented: a party-​centered form of dispute settlement, resolutive of particular disputes, with enhanced party control and without the institutionalized entrenchment of authoritative interpretations by the Appellate Body. Where then the WTO dispute settlement system ends up will draw as much from its history as from its Members’ ability to agree upon its future.

III.  The elements of the WTO dispute settlement system The WTO dispute settlement system has four overarching and distinctive elements.2 First, the WTO dispute settlement system is compulsory. When Members accede to the WTO, they accept the jurisdiction of the WTO dispute settlement system. There is accordingly no requirement that Members who are parties to a dispute must consent to the jurisdiction of the dispute settlement system in respect of that dispute. Article 6.1 of the DSU gives effect to this attribute of the system: if a complaining party requests that a panel be established to adjudicate the dispute, the Dispute Settlement Body (DSB) must do so. Second, the dispute settlement system is exclusive. Article 23.1 of the DSU precludes a Member that seeks redress for WTO inconsistency from taking unilateral action. Such a Member is required to have recourse to the dispute settlement system and abide by the rules and procedures of the DSU. The prohibition against unilateral action is an important attribute of a rule-​based system that is enforced by a compulsory system of dispute settlement. It is the resolution of the dispute by recourse to the system that determines the merits of a dispute and not a party’s conviction that its complaint justifies unilateral action. Third, the jurisdiction of the dispute settlement system is contentious and not advisory. Although the DSU requires that the parties to a dispute must first engage in formal consultations and settle their dispute through a mutually agreed solution,3 as a preferred outcome, if the dispute proceeds to adjudication, the system is there to uphold the rights and obligations of the parties so as to resolve their particular dispute. Although Article 3.2 of the DSU recognizes that the dispute settlement system serves to preserve the rights and obligations of Members under the covered agreements and to clarify the existing provisions of those agreements, this takes place in the context of a dispute that requires determination.

2 See also Chapter 36 of this handbook and I. Van Damme, ‘Jurisdiction, Applicable Law and Interpretation’ in D. Bethlehem, D. McRae, R. Neufeld and I. Van Damme (eds), The Oxford Handbook of International Trade Law, 1st edition (Oxford: Oxford University Press, 2009) 298–​343. 3  Article 3.7 of the DSU.

Institutions   899 Fourth, as discussed below, the substantive jurisdiction of the dispute settlement system is widely framed. The DSU is of application to disputes between WTO Members brought pursuant to the provisions of ‘the covered agreements’. The covered agreements are those listed in Appendix 1 of the DSU. They include the GATT 1994, multilateral agreements on trade in goods, the GATS, the TRIPS Agreement, and the DSU and the WTO Agreement. Although there are particular covered agreements that specify special or additional rules and procedures pertaining to dispute settlement, which prevail over the DSU rules and procedures, the system is nevertheless aptly described as a coherent and integrated4 system of dispute settlement.

IV.  The institutional composition of the WTO dispute settlement system The WTO is a Member-​driven organization. At its summit, the Ministerial Conference is the WTO’s highest decision-​making body. The General Council discharges the functions of the Ministerial Conference between Ministerial Conferences.5 The WTO dispute settlement system, in turn, is made up of several key institutions, which are governed by specific rules and procedures for the settlement of disputes. The DSU sets out these rules and therefore functions as the WTO’s dispute settlement constitution. WTO dispute settlement is administered by the General Council meeting as the Dispute Settlement Body, a body composed of representatives of all WTO Members.6 The DSB’s responsibilities include overseeing various aspects of the dispute settlement system, including the establishment of panels, the adoption of panel and Appellate Body reports, the surveillance of implementation of rulings and recommendations, and the authorization of suspension of concessions and other obligations under the covered agreements.7 In contrast to the ineffective decision-​making model under the GATT system, the DSB is bound by a ‘negative’ consensus rule for decision-​making when establishing panels, adopting panel or Appellate Body reports, and authorizing countermeasures.8 Under this inverse rule, one of the hallmarks of the WTO dispute settlement system, all Members must formally object in order to block a decision. To date, such negative consensus has never been achieved at the DSB, leading to the description of the body’s decision-​making approach as ‘quasi-​automatic’ for certain matters.9

4 

Appellate Body Report, Guatemala –​Cement I, adopted 25 November 1998, para 64. On the international trade law institutions, see also Chapter 5 of this handbook. 6  Article IV:3 of the WTO Agreement. 7  Article 2.1 of the DSU. 8  See Articles 6.1, 16.4, 17.14, 22.6 of the DSU. 9  WTO Secretariat, A Handbook on the WTO Dispute Settlement System (Cambridge: Cambridge University Press, 2017), at 26. 5 

900    David Unterhalter and Erika Schneidereit Importantly, the Ministerial Conference and General Council have the exclusive authority to adopt interpretations of the multilateral trade agreements,10 although this mechanism has not been used to date. It is also the function of the dispute settlement system to clarify the provisions of these agreements, in accordance with customary rules of interpretation of public international law.11 The scope of this competence has not been without controversy. We discuss this further below. Although administered by the DSB, the functioning of the dispute settlement system relies heavily on the WTO Secretariat, which is headed by a Director-​General. While the Secretariat has no decision-​making powers, it provides important administrative support and legal assistance to WTO dispute settlement panels.12 The Appellate Body has its own Secretariat. Although staff of the WTO Secretariat have generally been praised for their expertise, independence, and institutional knowledge, lending efficacy to the system, questions have been raised as to the influence of the Secretariat in the determination of disputes.13 When a WTO Member decides to bring forward a complaint for dispute settlement at the WTO, prior to the establishment of any panel, the member must first make a formal request for consultations.14 The aim of these consultations is for both (or all) disputing parties to achieve a better understanding of the facts and legal issues and to resolve the matter, if possible, at an early juncture, without the need to proceed further in the dispute settlement process.15 The process must be entered into in good faith, although the disputing parties will have considerable flexibility in how to structure and engage in these consultations. Despite this flexibility, parties are bound to certain timelines, including a requirement that consultations be held within 30 days of the complaining party’s request. If the dispute is not settled within 60 days, the complaining party may request the establishment of a panel.16 In 2020, Members filed just five such requests for consultations –​the lowest number of disputes initiated in a calendar year since the inception of the WTO, and a significant decrease from the 20 requests for consultations brought before the WTO in 2019.17

10 

Article IX:2 of the WTO Agreement. See also Chapter 4 of this handbook.   Article 3.2 of the DSU. See also Chapter 35 of this handbook. 12  Article 27.1 of the DSU. 13  See, e.g., J. Pauwelyn, and K. Pelc, ‘Who Writes the Rulings of the World Trade Organization? A Critical Assessment of the Role of the Secretariat in WTO Dispute Settlement’ (26 September 2019), at < https://​ssrn.com/​abstr​act=​3458​872 > (last visited 4 September 2021). 14  See Article 4 of the DSU. In line with the system’s emphasis on resolving disputes in a cooperative manner, consultations must be engaged in prior to more formal adjudication (e.g., a panel). 15  J. Pauwelyn, A. Guzman and J.A. Hillman, International Trade Law (New York: Wolters Kluwer, 2016), at 131. 16  Article 4 of the DSU. 17  WTO Annual Report 2021, at < https://​www.wto.org/​engl​ish/​res_​e/​pub​lica​tion​s_​e/​anrep2​1_​e.htm > (last visited 4 September 2021), at 138. 11

Institutions   901

V.  Alternative dispute settlement solutions The panel system and the Appellate Body are undoubtedly the most prominent features of the WTO dispute settlement system. However, the DSU also offers parties a range of alternative options to resolve disputes, including through good offices, conciliation, arbitration, and mediation, which may be requested by any party to a dispute at any time.18 In contrast to the compulsory and binding nature of panel and Appellate Body adjudication, participation in these alternative processes is voluntary and may be entered into with relative flexibility.19 The DSU does not, for example, set out in detail the procedures to be followed for good offices, conciliation, and mediation, although they will generally include the involvement of an independent third party who assists the disputing parties to reach a mutually agreed solution.20 While use of these alternative dispute settlement mechanisms is relatively infrequent, both good offices and mediation have been used by WTO Members in the past.21 Parties to a dispute may also choose to opt for binding arbitration rather than panel adjudication under the DSU. Historically, WTO Members did not take advantage of arbitration as an alternative to dispute settlement22 (it is more frequently used in relation to determining implementation periods). However, as we shall explain, the first appeal is soon to be heard under the Multiparty Interim Appeal Arbitration Agreement (MPIA), a form of appellate arbitration within the scheme of the DSU.

VI.  Panel establishment If parties are unable to resolve their dispute during the consultations, the dispute settlement process moves to the next phase of proceedings, in which the complaining party requests the establishment of a panel by the DSB. In practice, the characterization of this procedural step as a request is a formality, as the DSB must agree to establish the panel

18 

See also Chapter 40 of this handbook. Articles 5 and 25 of the DSU. 20  While the distinctions between good offices, conciliation, and mediation are somewhat blurred, good offices consists primarily of providing logistical support without making recommendations, whereas conciliation and mediation typically result in recommendations. All three mechanisms are confidential and allow the parties to discuss issues and propose compromise solutions without prejudicing future positions. WTO Secretariat, above fn 9, at 171–​172. 21 See General Council, Request for Mediation by the Philippines, Thailand, and the European Communities, Communication from the Director-​General, WT/​GC/​66 (16 October 2002); and see the use of good offices in EC - Bananas III dispute, requested under Article 3.12 of the DSU. 22  Article 25.1 of the DSU. 19 

902    David Unterhalter and Erika Schneidereit unless all WTO Members object.23 The establishment of a panel in a dispute is relatively common, occurring in almost 60 per cent of all disputes (365 in total) initiated at the WTO as of 31 December 2021.24 Only seven panels were established in 2020, a decrease from the 11 panels established in the previous year.25 In a departure from the absence of timelines established under the former GATT system, the DSU requires panels to issue a final report within six months of their composition.26 In practice, however, this deadline is rarely met and the failure to adhere to these timelines has been a point of criticism. Unlike the selection process for the Appellate Body, detailed below, panels are composed on an ad hoc basis. This means that in each dispute, a different group of three, or exceptionally, five,27 individuals will be selected to serve as panellists. Parties may either choose to draw panellists from an indicative list maintained by the WTO Secretariat, or they may opt to select non-​listed individuals.28 In the event that parties are unable to agree on the composition of a panel within 20 days, they may also request that the panellists be appointed by the WTO Director-​General.29 This practice, which eliminates a potential source of conflict between parties by allowing a ‘neutral’ party to select panellists, has become increasingly common over time.30 While the DSU provides parties with relatively broad discretion in selecting panellists, it restricts those eligible to serve to individuals in certain categories, broken down generally into current or former government officials, former Secretariat officials, and trade academics or lawyers.31 In practice, many panellists are trade delegates of WTO Members or other trade officials, but academics, retired government officials, and former Secretariat officials also serve regularly on panels.32 Importantly, panellists serve independently and in their individual capacities, not as representatives of a particular government.33 As of 2016 December 1, 276 individuals had served as panellists.34

23 

Article 6 of the DSU. Settlement Activity—​Some Figures’, at < https://​www.wto.org/​engl​ish/​trato​p_​e/​disp​u_​e/​ dispu​stat​s_​e.htm > (last visited 14 May 2022). 25  It would perhaps be misguided to draw any significant conclusions from this downwards trend, given that, since 2000, there have been six other years when fewer than ten panels were established. In 2008, for example, only three panels were established—​suggesting that the number of panels established in 2020 is not necessarily an outlier. See WTO Annual Report 2021, above fn 17. 26  Article 12.8 of the DSU. 27   Article 8.5 of the DSU. 28  Article 8.4 of the DSU. 29  This appointment will be done in consultation with the parties, the chairperson of the DSB, and the relevant Council or Committee. Article 8.7 of the DSU. 30  See Pauwelyn, Guzman and Hillman, above fn 15, at 133. 31  Article 8.1 of the DSU. 32  ‘The process—​Stages in a typical WTO dispute settlement case’, at < https://​www.wto.org/​engl​ish/​ trato​p_​e/​disp​u_​e/​disp_​s​ettl​emen​t_​cb​t_​e/​c6s3p​2_​e.htm > (last visited 4 September 2021). 33  Article 8.9 of the DSU. 34  Of the 276 individuals selected to serve as panelists from 1995–​2016, 40 (14 per cent) were women. ‘Women and the WTO Gender Statistics (1995–​2016)’, at < https://​www.wto.org/​engl​ish/​new​s_​e/​news1​ 7_​e/​gende​r_​st​ats_​marc​h201​7_​e.pdf > (last visited 4 September 2021). 24  ‘Dispute

Institutions   903 Once a panel is composed, proceedings unfold in a quasi-​judicial manner, with some notable particularities. Parties will be able to make written submissions on facts and legal arguments on the case and submit these arguments before a panel meeting, which is similar to an oral hearing before a court. Such meetings (or oral hearings) are typically held in-​person (and in private) at the WTO headquarters in Geneva. As a result of the lockdowns and travel restrictions brought on by the COVID-​19 pandemic, however, a number of panels have relied exceptionally on written procedures or remote technology to facilitate their work.35 Given the wide range of subjects that may be relevant to a dispute, the DSU does not require panellists to hold in-​depth technical knowledge on all matters in a dispute. It does, however, provide panellists with the power to seek information or technical advice from any individual or body in order to assist them in their deliberations, as well as setting out various applicable rules and procedures when establishing expert review groups.36 Provisions of certain of the covered agreements go further, setting out explicit recommendations or requirements that panels seek expert advice.37 Panellists are also supported by the WTO Secretariat, which may provide assistance to panels on legal and procedural aspects of disputes.38 In a departure from more traditional forms of adjudication, following deliberations, panels provide a descriptive report (i.e. a report without any findings) to disputing parties for their comment prior to producing a final report.39 Once the report (rather than decision) has been finalized, the report will be circulated to all members of the DSB. Despite this deliberate aversion to the word ‘decision’ in WTO dispute settlement terminology, in practice, reports are difficult to overturn given that there must be a negative consensus for a report not to be adopted. Once adopted, the ‘losing’ party to the dispute must state their intention to comply with the report’s recommendations within 30 days or may be provided with a ‘reasonable period of time’ to comply with the report’s recommendations and rulings.40

VII.  Scope of measures that may be challenged and applicable law Only WTO Members may act as parties to proceedings in the WTO dispute settlement process. While international or non-​governmental organizations, regional or local

35 

WTO Annual Report 2021, above fn 17, at 138. Article 13 of the DSU; see Appendix 4 to the DSU. 37  See, e.g., Article 11.2 of the SPS Agreement or Article 24.3 of the SCM Agreement. 38  Article 27.1 of the DSU. 39  Article 15.1 of the DSU 40  Article 21.3 of the DSU. 36 

904    David Unterhalter and Erika Schneidereit governments, and private individuals may have a stake in the outcome of a particular trade dispute, they are not entitled to initiate complaints under the WTO system.41 The overarching aim of the WTO dispute settlement system is to ‘secure a positive solution to a dispute’.42 Therefore, Members are required under the DSU to determine whether proceeding under the dispute settlement system ‘would be fruitful’ prior to bringing a claim.43 Once a party has determined that they wish to move forward, they must then establish whether the dispute settlement system is of application to the dispute. In essence, this will depend on whether the claim relies upon the ‘covered agreements’—​i.e., agreements listed in Appendix 1 of the DSU.44 In many disputes, complainants will invoke provisions of more than one of the covered agreements. Should a dispute pertain to obligations imposed outside of the covered agreements, however, parties will not have access to the WTO dispute settlement system. Assuming that a dispute falls under one of the covered agreements, a complaining party’s next step is to establish a claim that ‘measures taken by another member’45 fall into one of three general categories: ‘violations’, ‘non-​violations’ and ‘situations’.46 To establish a claim under any of these categories, the measures at issue must lead to a ‘nullification or impairment of a benefit’ or have impeded the attainment of an objective of the relevant Agreement. Notably, it is not necessary for there to have been an actual violation of a covered agreement or for a WTO Member to fail to carry out its obligations in order for a claim to be successfully established. While the DSU does not define the ‘measures taken by another Member’ that may form the basis for a claim, WTO reports indicate that such measures can take the form of both acts or omissions (e.g. failures to take prescribed actions)47 attributable to a WTO Member.48 This includes acts or omissions not only by the central government of Members, but also by regional or local government bodies within a Member. Attributable measures can take various forms, including laws, regulations,49 administrative policies, the application of administrative policies, and the failure to take certain

41 

Although they may exert pressure over governments or may file amicus curiae submissions. Article 3.7 of the DSU. 43  Article 3.7 of the DSU. 44   Article 1.1 of the DSU. 45  Article 3.3 of the DSU. 46  WTO Secretariat, above fn 9, at 47. 47  Whether the basis for the claim will be an ‘act’ or an ‘omission’ will depend on the nature of the provision at issue. For example, a provision that prohibits certain activities may be violated through certain positive actions (e.g., introducing a law). In contrast, provisions requiring positive action may be violated through inaction. See WTO Secretariat, above fn 9, at 41–​42. 48  WTO Secretariat, above fn 9, at 40. 49  Laws may be challenged either ‘as such’ (i.e. the law has not been applied) or ‘as applied.’ The Appellate Body has cautioned that complainants should be ‘especially diligent’ in setting out ‘as such’ challenges. Appellate Body Report, US –​Oil Country Tubular Goods Subset Reviews, adopted 17 December 2004, para 173; WTO Secretariat, above fn 9, at 43. 42 

Institutions   905 actions.50 Unwritten measures may also be challenged, although in practice it might be difficult for complainants to establish the precise content of such measures.51 It may also be possible for a complaining party to challenge ongoing conduct by a member, rather than pointing to a specific policy or regulation.52 The most common form of complaint, violation complaints, are invoked where a benefit has been nullified or impaired as a result of the failure of another member to carry out its obligations under GATT 1994. This is the case where, for example, a Member imposes a tax in a manner that discriminates between its trading partners. Where a complainant has established that a measure violates an obligation under the covered agreements, the measure is prima facie considered to be a nullification or impairment.53 By contrast, non-​violation complaints may be brought where measures have been imposed which, even if they do not conflict with a provision of GATT 1994, similarly result in a nullification or impairment of a benefit or impede the attainment of an objective. There have been relatively few non-​violation complaints pursued, and the Appellate Body has noted that such complaints ‘should be approached with caution and should remain an exceptional remedy’.54 Finally, situation complaints cover any other situation that results in a nullification or impairment of a benefit or where the attainment of an objective has been impeded. To date, no situation complaint has resulted in a panel report at the WTO.55 Having established that a particular complaint may be challenged, the next matter to be determined is the law of application to the dispute. While WTO Members may bring disputes concerning the interpretation and application of provisions of the covered agreements, it is perhaps less clear how wide a range of legal principles and interpretative tools WTO adjudicators may rely upon to determine how these provisions should be interpreted and applied. As a starting point, Article 3.2 of the DSU explicitly confirms that WTO agreements are to be interpreted ‘in accordance with customary rules of interpretation of public international law’. In practice, these rules of interpretation (reflected in Articles 31 to 33 of the Vienna Convention on the Law of Treaties or VCLT) direct that any interpretation of the WTO Agreement must take into account ‘any relevant rules of international law applicable in the relations between the parties’. As the

50 

For example, failing to adhere to notification and transparency or consultation requirements. See, e.g., Articles 12.2 and 12.3 of the Safeguards Agreement, Article X:1 of the GATT 1994; WTO Secretariat, above fn 9, at 41–​42. 51  WTO Secretariat, above fn 9, at 42. 52  E.g. zeroing methodology used by the United States. See Appellate Body, US –​Continued Zeroing, adopted 19 February 2009, para 181. 53  Article 3.8 of the DSU. 54  Appellate Body Report, EC –​Asbestos, adopted 5 April 2001, para 186; WTO Secretariat, above fn 9, at 47–​48. 55  Although a few situation complaints were raised under the GATT 1947.

906    David Unterhalter and Erika Schneidereit Appellate Body put it succinctly in its first report, this means that the WTO agreements should not be read in ‘clinical isolation’ from public international law.56 Beyond this general principle, however, the Appellate Body has adopted a relatively restrictive attitude towards the law that may be applied in any given dispute.57 While it is ‘by now beyond doubt’ that WTO adjudicators may refer to non-​WTO rules so as to interpret the provisions of the covered agreements, the extent of such reliance remains limited.58 In US –​Shrimp, the Appellate Body drew on a wide range of international legal materials to interpret the term ‘exhaustible natural resources’ under GATT Article XX(g).59 However, more recent decisions have clarified that the role non-​ WTO materials may play in a dispute is fairly limited. In EC –​ Approval and Marketing of Biotech Products,60 for example, the Panel noted that Article 31(3)(c) of the VCLT only required it to take into account ‘those rules of international law which are applicable in the relations between all parties to the treaty which is being interpreted’. Given that there are few (if any) treaties to which all WTO Members are parties, this was considered a significantly limiting move by the Panel. The Appellate Body in EC and certain member States –​Large Civil Aircraft61 has since signalled a willingness to depart from Biotech’s approach in certain circumstances, although its decision has been described as ‘cryptic and cautious, to say the least.’62 The Appellate Body has also been cautious about recognizing the role general principles of international law may play in WTO dispute settlement. For example, the Appellate Body declined to decide whether the ‘clean hands’ doctrine was part of WTO law in Mexico –​Taxes on Soft Drinks, nor to decide an issue related to the doctrine of estoppel in WTO law in EC—​Sugar.63 The Appellate Body has also adopted the position on the principle of good faith that it only formally enters WTO law to the extent that it is incorporated through the texts of the covered agreements themselves.64 However, the Appellate Body has noted that the principle of good faith ‘informs the provisions of the 56 Appellate Body Report, US—​Gasoline, adopted 20 May 1996, 17. See also Chapter 35 of this handbook. 57  A. Lang, ‘Twenty Years of the WTO Appellate Body’s “Fragmentation Jurisprudence” ’ 14(3) Journal of International Trade Law and Policy (2015), at 117. 58 J. Pauwelyn, ‘The Application of Non-​ WTO Rules of International Law in WTO Dispute Settlement’ in P.F.J. Macrory, A.E. Appleton, M.G. Plummer (eds), The World Trade Organization: Legal, Economic and Political Analysis (New York: Springer, 2005) 1404, at 1424. 59  These materials included the United Nations Law of the Sea Convention, the Convention on Biological Diversity, and the Convention on International Trade in Endangered Species. See Appellate Body Report, US –​Shrimp, adopted 6 November 1998, paras 128–​132. 60  Panel Reports EC – A ​ pproval and Marketing of Biotech Products, adopted 21 November 2006, para 7.70. 61  Appellate Body Report, EC and certain Member States –​Large Civil Aircraft, adopted 1 June 2011, para 845. 62  Lang, above fn 57 , at 119. 63  Ibid., at 118; Appellate Body Report, Mexico –​Taxes on Soft Drinks, adopted 24 March 2006; Appellate Body Report, EC –​Export Subsidies on Sugar, adopted 19 May 2005, paras 310, 312. 64  Lang, above fn 57, at 118. See, e.g., Appellate Body Report, Peru –​Agricultural Products, adopted 31 July 2015).

Institutions   907 Anti-​Dumping Agreement, as well as other covered agreements’65 and has referred to the ‘pervasive’ general principle of good faith underlying all treaties.66

VIII.  The Appellate Body The DSU brought about two central innovations. First, the institutional creation and installation of the Appellate Body. Second, as described above, although the general rule for decision-​making by the DSB is consensus, the establishment of panels, the adoption of panel and Appellate Body reports, and the authorization of retaliation requires that the DSB approves these decisions, unless there is a consensus against doing so—​a decision-​making procedure by recourse to negative consensus.67 These two innovations were connected. If dispute settlement was no longer to be subject to the requirement of a positive consensus both as to the referral of a dispute and the adoption of a panel’s report, parties to a dispute should enjoy the institutional benefit of appellate review, by a permanent body that would render final conclusions and recommendations, and thereby reduce the risk of error. That body was the Appellate Body, established in 1995. The Appellate Body is a standing body, composed of seven members, appointed by the DSB to serve a four-​year term. Members of the Appellate Body may be reappointed once.68 The Appellate Body must comprise persons of recognized authority, with demonstrated expertise in law, international trade, and the subject matter of the covered agreements generally.69 Members of the Appellate Body must be unaffiliated with any government, and the membership of the Appellate Body must be broadly representative of the membership of the WTO.70 Members may not participate in the consideration of any disputes that would create a direct or indirect conflict of interest.71 All persons serving on the Appellate Body are required to be available at all times and on short notice. The negotiating history indicates that those who conceived of the Appellate Body as an institution thought it would be used infrequently to correct errors of law in the occasional case that might be taken on appeal. It would operate as a safeguard in the institutional reordering that required the DSB to adopt panel reports. Those expectations, as we shall see, proved considerably too modest. The rather spare provisions of Article 17

65 

Appellate Body Report, US –​ Hot-​Rolled Steel, adopted 23 August 2001, para 101. Appellate Body Report, US –​Cotton Yarn, adopted 5 November 2001, para 81. 67  Articles 6.1, 16.4, 17.14 and 22.6 of the DSU. 68  Article 17.2 of the DSU. 69  Article 17.3 of the DSU. 70  Article 17.3 of the DSU. 71  Article 17.3 of the DSU. 66 

908    David Unterhalter and Erika Schneidereit of the DSU that govern the establishment and functioning of the Appellate Body, nevertheless contain rules of importance. First, the members of the Appellate Body are not representatives of the Members of the WTO, nor of any particular Member. The Appellate Body must discharge its institutional mandate, and to do so, its members must adjudicate with independence. That is in part captured by the ethical norm in Article 17 that participation by members of the Appellate Body must be free of conflicts of interest. It is also affirmed by the requirement that members of the Appellate Body shall be unaffiliated with any government. The Appellate Body must be afforded appropriate administrative and legal support, and its expenses must be met. The attribute of independence of the Appellate Body is foundational and has proved durable in practice. Second, the Appellate Body is given procedural autonomy to regulate its own working procedures.72 The working procedures, amended from time to time, set out the detailed procedural rules for the conduct of appeals. The rules set out the duties and responsibilities of the members of the Appellate Body, including the rules of conduct, the governing principles of which are that members shall be independent and impartial, and respect confidentiality. The rules also detail the procedures and time periods of application to an appeal before the Appellate Body. We shall return to aspects of these procedures. The procedures adopted and practised by the Appellate Body, though not always free of criticism, have ensured that appeals are heard, considered, and resolved with ample regard for fairness. In an appeal, the Appellate Body must render an authoritative interpretation and application of the covered agreements. This is a competence of great importance to the parties. That the parties may fully set out their cases, that they are heard and that their submissions are properly considered, these are the attributes of fair process integral to appeals before the Appellate Body. Third, the DSU demarcates what the dispute settlement system of the WTO is intended to secure and the remit of the Appellate Body is an important part of that system. Article 3 states the purpose of the system: to provide security and predictability to the multilateral trading system; to preserve the rights and obligations of members under the covered agreement, and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law. The remit of the Appellate Body is limited to issues of law covered in the panel report and legal interpretations developed by the panel.73 This might be thought an anodyne statement of purpose and function. But these provisions have given rise to debate, of increasing intensity, as to the mandate of the Appellate Body and whether it has respected the limits of its authority. Over the course of its institutional life, the WTO dispute settlement system became the preeminent choice used by Members to resolve their trade disputes, in preference to dispute settlement under bilateral or regional trade agreements. The Appellate Body has rendered reports in appeals that engage diverse areas of the covered 72  Article 17.9 of the DSU, the power is exercised in consultation with the Chairman of the DSB and the Director General. 73  Article 17.6 of the DSU.

Institutions   909 agreements. In so doing, the Appellate Body developed a considerable body of WTO law that cumulatively came to represent an indispensable point of reference in later appeals. It also gave authoritative guidance as to how Members of the WTO should interpret and apply the covered agreements. For some Members of the WTO, and the multiple constituencies with interests in the multilateral trading system, the dispute settlement system in general, and the Appellate Body in particular, has indeed provided security and predictability. For them, the system is a dependable way to resolve trade disputes, with outcomes that secure the rights of Members and provide authoritative interpretations of the covered agreements that are of systemic value to the members of the WTO. For others, the Appellate Body has trespassed well beyond its mandate. Their criticisms, to which we will return, are wide-​ranging. The Appellate Body is said to have given interpretations of the covered agreements well beyond what was negotiated; it has added to the rights and obligations of the covered agreements under the interpretative cover of ambiguity; it has sought to impose a jurisprudence of precedential authority that was never envisaged; and it has strayed far from what was originally intended—​an expeditious appeal, on well-​defined questions of law, that would resolve a specific issue for the parties to the dispute. With these general reflections upon the Appellate Body in mind, we turn to a more detailed treatment of certain specific institutional features of the Appellate Body.

A. Selection We commence with the selection of the Appellate Body. The DSB appoints persons to serve on the Appellate Body. The decision to make an appointment is taken by consensus. A decision by consensus is deemed to take place if no Member present at a meeting of the DSB when the decision is taken formally objects to the proposed decision.74 In practice, Members nominate persons for consideration. A selection committee, composed of the Director-​General and the chairpersons of several WTO committees, interviews the nominees and makes a recommendation to the membership of the WTO. Candidates will often have informal meetings with Members to canvass support and allow Members to make their own assessment of a candidate, ahead of the meeting of the DSB. Historically, there has been a consensus reached by Members on the basis of the recommendation made by the DSB Chair. That consensus was achieved as a result of the informal discussions that took place between Members before the formal meeting of the DSB. For much of the existence of the Appellate Body, this system of appointment worked with considerable efficacy. Appointments to the Appellate Body have been responsive to the fact that certain Members of the WTO account for a significant proportion of global trade. Appointments have also reflected the need for broader representativity, both as to

74 

Article 2.4, read with footnote 1, of the DSU.

910    David Unterhalter and Erika Schneidereit region and the diversity of the WTO’s membership. The Appellate Body has always had appointees from the United States and the European Union, and more recently China has secured the appointment of its nominees. Other appointments, over the years, have been drawn from a more diverse range of Members of the WTO. The appointments to the Appellate Body have, by most estimations, been persons of expertise who have lent stature to the institution. However, every institution that rests upon consensus requires on-​going adherence by the Members it serves. And most especially its most influential members. In this, the dispute settlement system, so often described as the greatest achievement of the Uruguay Round, has begun to falter. The United States, historically one of the principal promoters of the WTO dispute settlement system, has become ever more critical of the system, and in particular the Appellate Body. We shall consider this further when we examine the possible reformation of the system. In brief, the United States had for many years voiced concern that the Appellate Body had failed in its interpretative task in respect of trade remedy appeals concerning zeroing.75 That criticism broadened into a more wide-​ranging dissatisfaction with the Appellate Body. The basis for this is said to be judicial over-​reach, delay, and the Appellate Body’s impermissible treatment of its past reports as having precedential value. Indications of the disaffection of the United States were made manifest when it declined to support the reappointment of successive members of the Appellate Body who had been nominated by the United States and secured appointment. These distinguished members of the Appellate Body had apparently failed to steer the Appellate Body in a direction that cured its defects. Then, for two years the United States blocked appointments to the Appellate Body when vacancies arose. On 10 December 2019, the terms of office of two of the three remaining members of the Appellate Body came to an end. With further appointments blocked, there is no quorum to hear new appeals. The dispute settlement system was thrown into disarray. Panel reports may be appealed as of right to an institution that cannot function. This unhappy state of affairs gives rise to a number of observations. First, institutions constructed upon consensus, no matter their utility for the majority of Members, may be derailed by a powerful Member whose disenchantment hardens into disengagement. Second, the international rules-​based order, of which the WTO dispute settlement system has been an exemplar, has become increasingly vulnerable and fragile in the face of inward-​turning policies predicated upon assertions of sovereignty. Third, ever more problems require a solution of the global commons that must take place at the supra-​ national level. The survival of the WTO dispute settlement system, if it is achieved, offers a litmus test as to whether there is a model to enforce an international rule-​based order.

75  The practice of zeroing to calculate dumping margins in anti-​dumping disputes was the subject of serial cases before the Appellate Body in which it found the practice to be incompatible with the Anti-​ Dumping Agreement. See Appellate Body Report, US –​Zeroing (EC), adopted 9 May 2006; Appellate Body Report, US –​Zeroing (Japan), adopted 23 January 2007.

Institutions   911

B. Procedure We turn to consider some of the distinctive procedural features of the Appellate Body. Three of the seven Appellate Body members hear an appeal. The three members selected to serve are called a ‘division’. Selection takes place under a confidential system ‘on the basis of rotation, while taking account of random selection, unpredictability and the opportunity for all Members to serve regardless of their national origin.’76 This permits of no possibility that members of the Appellate Body are selected to hear an appeal as a result of any design or influence. In addition, this supports the independence of the Appellate Body and, as a permanent body, allows an appeal involving a WTO Member to be heard by a division comprising a member who is a citizen of that state. The DSU does not specify how the division is to decide an appeal. The Appellate Body Working Procedures77 specify that decisions relating to an appeal shall be taken solely by the division assigned to that appeal. This unremarkable rule has a more unusual companion. Rule 4 of those working procedures requires that the division responsible for deciding each appeal shall exchange views with the other members of the Appellate Body before the division finalizes its report. This is done ‘to ensure consistency and coherence in decision-​making’.78 Following the oral hearing in an appeal, all seven members of the Appellate Body meet to discuss the issues raised in the appeal. This constitutes a particular institutional commitment to collegiality that has been a marked feature of the Appellate Body from its inception. It is unusual in that the views of members who do not sit on the division will be heard by the division, but without the parties to the appeal having any knowledge of these views or any ability to make submissions in respect of such views. This might be thought unfair. It is a practice that allows for sequestered influence. However, the practice also reflects a strong commitment that the Appellate Body should make authoritative decisions for the benefit of the Members of the WTO, and do so, wherever possible, by speaking with one voice. The exchange of views is one important way in which coherence and continuity of decision-​making can be secured. It is the very antithesis of decision-​making where the position of every Member of the WTO should be articulated and identified. Rather, the Appellate Body has engaged in decision-​making that places a premium on consensus; it privileges reasoning and interpretation that articulates a singular authoritative position, and dissents are a great rarity. For many WTO Members, over many years, these features of the Appellate Body were considered a strength. They allowed for definitive decision-​making, resolutive of disputes for the benefit of the parties to the dispute, but also for the guidance of the membership of the WTO at large. Coherence, consistency, and continuity were considered the very institutional virtues that the dispute settlement system was meant to secure so as to provide the security and predictability that the DSU sought to achieve. 76  Rule 6 of WTO, Working Procedures for Appellate Review, WT/​AB/​WP/​6 (10 April 2003) (Appellate Body Working Procedures). 77  Rule 3(1) of Appellate Body Working Procedures. 78  Rule 4(1) of Appellate Body Working Procedures.

912    David Unterhalter and Erika Schneidereit However, over the years, for some Members of the WTO, these virtues came to be seen as vices. In their view, the Appellate Body has assumed a lofty and unwarranted preeminence, using its position to insist upon a jurisprudence of WTO law. That law has gone beyond the preservation of rights and obligations. It has sought an institutional role beyond the resolution of a particular dispute and has claimed a lawmaking function that was never intended. In short, on this view, the Appellate Body should, much like an arbitration, resolve the dispute, modestly, economically, and timeously. These opposed views of the Appellate Body will now play themselves out as the focus turns to the reform of the dispute settlement system—​a topic we consider below. We have observed that the Appellate Body enjoys a significant measure of power to draw up the working procedures for appellate review.79 The greater part of the Appellate Body’s Working Procedures and its procedural rulings have occasioned little controversy. They have sought to secure fairness and due process and have been widely thought to have done so. A WTO Member that was a party in panel proceedings enjoys the right of appeal. An appeal is initiated by way of a notice of appeal. A third party to the panel proceedings has no right of appeal. Such a party may take steps to participate as a third party in the appeal by filing a written submission or notifying the Appellate Body that it wishes to attend the oral hearing of the appeal. The Working Procedures set out rules for the filing of submissions by the parties to an appeal. Oral hearings are convened. Participants and third participants make their submissions before the division of the Appellate Body selected to hear the appeal. Much of the oral hearing is taken up with questions posed by the division and the responsive submissions of the participants. These engagements are robust and thorough, leaving little doubt that the issues have been systematically probed. After the oral hearing, in the exchange of views, the division hears the views of the members of the Appellate Body not forming part of the division on the issues in the appeal. It is then for the division to decide the appeal and render its report. Two aspects of procedure have given rise to greater controversy. First, the Appellate Body considered whether it might accept and consider written submissions from a natural or legal person, with an interest in the dispute, but who, not being a WTO Member, cannot be a party to the dispute. A variant of this issue has also arisen as to whether a State party, not a Member of the WTO, may make a written submission, or indeed whether a WTO Member may do so when it has not participated in the panel proceedings. The Appellate Body has decided these matters on the basis that it has the authority to receive these submissions, as an amicus curiae brief, and enjoys a discretion to exercise as to whether to do so in a particular case, depending upon their utility, relevance and timing.80 Although submissions of this kind have, ultimately, played a modest role in the substantive decision-​making of the Appellate Body, the position taken by the Appellate Body, that it enjoys broad authority to adopt procedural rules not in conflict with the

79 

80 

Article 17.9 of the DSU. Appellate Body Report, US –​Lead and Bismuth II, adopted 7 June 2000.

Institutions   913 DSU or the covered agreements, constitutes an assumption of procedural autonomy. Its exercise in favour of non-​State actors, though circumscribed, was considered by some WTO Members to be bold, and perhaps incautious. To like effect, the Appellate Body authorized the public observation of the oral hearing in US –​Continued Suspension81 upon the request of the participants (the United States, Canada and the European Community) and over the objections of the third participants. It was long assumed that the provision in Article 17.10 of the DSU, that the proceedings of the Appellate Body shall be confidential, was of invariable application. The Appellate Body interpreted Article 17.10 to mean that it afforded protection to participants that was capable of being lifted if the participants so wished, provided that third participants continued to enjoy the benefit of Article 17.10. Here too, the Appellate Body asserted its procedural autonomy over its own proceedings, with a net gain to the transparency of the system that the participants had sought to secure. Welcomed by Members of the WTO who consider transparency in the dispute settlement system an augmentation of its legitimacy, other Members thought the institutional principle of confidentiality unwarrantably compromised.

C. The scope and standard of appellate review We turn next to the scope of appellate review and the standard of review applied by the Appellate Body. As we have observed, the Appellate Body was conceived of as a permanent body of appellate review to correct errors of law made by panels. It was thought that recourse to the Appellate Body would be infrequent. Article 17.6 of the DSU gives expression to the scope of appellate review: an appeal shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel. While the limitation of appellate review to legal issues having a sufficient nexus to those covered in the panel report may appear to be a straightforward question of identification, the distinction between issues of law and those of fact is not always clear cut. The Appellate Body has taken the position that the application of a legal rule to specific facts is itself a legal issue, and hence reviewable on appeal.82 However, the Appellate Body has also found that not every statement made by a panel when it considers a legal issue is properly to be understood as a legal finding. The Appellate Body, when it has reversed a legal finding made by a panel, does not enjoy the power of remand, that is, to send a matter back to the panel to again determine facts relevant to the Appellate Body’s holding on the law. So as to resolve the dispute in these circumstances, the Appellate Body has ‘completed the analysis’ in a number of cases. It has done so where it considers there to be sufficient factual findings made by the panel or undisputed facts on the record to permit of such a determination by the Appellate Body. 81 Appellate Body Report, US –​Continued Suspension, adopted 14 November 2008, Annex IV procedural ruling. 82  Appellate Body Report, EC –​Hormones, adopted 13 February 1998.

914    David Unterhalter and Erika Schneidereit Closely related to the scope of appellate review is the standard of review on appeal. On questions of legal interpretation, the Appellate Body determines what it considers to be the correct interpretation. A panel’s factual findings are, in principle, beyond the scope of appellate review. However, the Appellate Body has been willing to exercise its powers of review to determine whether a panel’s factual findings meet the standard set out in Article 11 of the DSU, that is, whether the panel made an objective assessment of the matter before it. A failure to do so by the panel will constitute an error of law. An Article 11 review does not permit the Appellate Body to correct an error of the panel on the basis that it would have reached a different finding on the facts, but rather because the panel’s treatment of the facts was not objective. Although the central mandate of the Appellate Body is to decide the issues of law covered in the panel reports that are raised on appeal, there is inevitably some complexity of characterization as to what is law and what is fact. Over time, the appeals brought to the Appellate Body have increasingly involved cases of considerable factual and legal complexity. The appeals have come, almost standardly, to include Article 11 grounds of appeal. The result has been that the Appellate Body has not only often been required to understand a large body of evidence, both factual and expert, so as to apply the law, but has had to engage the findings of fact made by panels so as to determine whether they comply with the standard of objective assessment. This has meant that the crisp, clear questions of legal interpretation that remain at the heart of what the Appellate Body is required to do are by no means all that falls within its remit. Whether this should be so is a matter to which we will come.

D. The binding effect of Appellate Body findings Finally, we consider what binding effect the Appellate Body’s findings and recommendations may have. An Appellate Body report must, in terms of Article 17.4 of the DSU, be adopted by the DSB and accepted by the parties to the dispute unless the DSB decides by consensus not to adopt the report. Under this negative consensus rule, in effect, it is for the party that prevails in an appeal to forego the benefits of adoption. Article 17.4 gives expression to the important principle of res judicata in public international law. The adoption of an Appellate Body report binds the parties to the dispute in respect of that particular case. The question is then whether the reports of the Appellate Body have binding effects beyond the recognition in Article 17.4 of res judicata. Unsurprisingly, the large number of Appellate Body reports83 are frequently referenced by Members of the WTO so as to understand their rights and obligations under the covered agreements. These reports are also cited extensively in the submissions made by parties before panels and the Appellate Body. But beyond practice, do the Appellate Body reports have any binding

83 

As of June 2020, 234 panel reports and 146 Appellate Body reports have been adopted by the DSB.

Institutions   915 force? The WTO dispute settlement system has no doctrine of precedent of the kind recognized in common law countries. Article 3.2 of the DSU, however, reads as follows, ‘(t)he dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system. The members recognize that it serves to preserve the rights and obligations of members under the covered agreements, and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law. Recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements.’ We cite this provision in full because its different components have given rise to much debate. If a hierarchical system of dispute settlement is to bring stability and predictability to the multilateral trading system, it might be thought that the interpretations given to the covered agreements by the Appellate Body would have some binding force beyond the resolution of a particular dispute. But what if the Appellate Body has failed to adhere to the strictures of Article 3.2 and interpreted the covered agreements so as to do more than preserve the rights and obligations of members. Are WTO Members nevertheless required to adhere to such interpretative excess? The difficulty in reading these provisions in a coherent fashion is further complicated by Article IX.2 of the WTO Agreement which accords to the Ministerial Conference and the General Council (and not the Appellate Body) ‘exclusive authority to adopt interpretations of this Agreement and of the Multilateral Trade Agreements . . .’. It was perhaps inevitable that these issues would crystalize around the question as to what duty, if any, panels have to follow the past decisions of the Appellate Body. This is a familiar problem of any two-​tiered structure of binding dispute resolution. In a much-​analysed report,84 the Appellate Body had to examine the decision of a panel that had interpreted the Anti-​Dumping Agreement, and in particular the use by the United States of ‘zeroing’ in the calculation of dumping margins, in a manner contrary to previous Appellate Body reports. Mexico contended that the panel’s refusal to follow the Appellate Body’s decisions was a violation of Article 11 of the DSU. The Appellate Body found that the legal interpretations embodied in adopted panel and Appellate Body reports had become part of the acquis of the WTO dispute settlement system, ensuring security and predictability in the system. Ultimately, the Appellate Body held that ‘Ensuring “security and predictability’ in the dispute settlement system, as contemplated in Article 3.2 of the DSU, implies that, absent cogent reasons, an adjudicatory body will resolve the same legal question in the same way in a subsequent case.’85 The Appellate Body thereby adopted a position of soft precedent. Without some adherence to past decisions, the system would lack security. Consistency is a perquisite for a stable system so that Members of the WTO may understand their rights and

84  85 

Appellate Body Report, US –​Stainless Steel (Mexico), adopted 20 May 2008. Ibid., at para 160.

916    David Unterhalter and Erika Schneidereit obligations. However, authoritative decision-​making by an adjudicative body should not be understood to be free of the risk of error. Hence, the adoption of the formulation by the Appellate Body that a departure from its past legal interpretations, whether by a panel or the Appellate Body itself, requires cogent reasons. This holding is considered incendiary by the Appellate Body’s detractors. For it would appear to accord to the Appellate Body a power to give authoritative interpretations to the covered agreements, requiring adherence by the Members of the WTO beyond the parties to a particular dispute. And it would usurp, so it is argued, the exclusive competence of the Ministerial Conference and the General Council to adopt authoritative interpretations of the covered agreements. The provisions of the DSU that specify the objects and functions of the dispute settlement system do not pull in the same direction. Without the recognition of some kind of binding force it is hard to see how the Appellate Body can lend stability and predictability to a system based on multilateral agreement. Yet, the DSU also perpetuates its origins in the GATT system of dispute settlement, predicated upon the resolution of a particular dispute for the benefit of the parties to that dispute. Those who negotiated the DSU probably considered these tensions to be amply capable of resolution within the institutional structures of the WTO. As we shall see, however, they have given rise to such discord, that the Appellate Body as from December 2020 has not been able to function. Whether this will cause the temple of WTO dispute settlement to fall down, is the subject of the next section.

IX.  The reform of the system of dispute settlement or its demise The review of the DSU was a project that commenced at the inception of the WTO dispute settlement system. These discussions were not successful, and reform of the DSU came to form part of the Doha Round of trade negotiations. Many of the issues raised, though important, concerned adaptations to the system that would make it more efficient and responsive to the needs of members of the WTO. So, for example, giving the Appellate Body a power of remand to a panel found to be in error was broadly considered to be a reform that would enhance the efficacy of the system. There have been debates of a broader structural nature as well. Should the panel as the first tier of adjudication be changed and constituted as a permanent body, with the possibility of ad hoc appointments, where special expertise is required? In addition, questions of compliance, flexibility and Member control, the protection of confidential information, third-​party rights, transparency, and the amicus curiae brief have been placed on the agenda for reform. However, as with many other efforts to secure agreement through negotiation since the conclusion of the Uruguay Round, the members of the WTO have failed to do so

Institutions   917 in respect of DSU reform. For many years, this failing, though regrettable, was not considered to be essential for the on-​going operation of the system. The WTO system of dispute settlement was widely used by the Members of the WTO, in many different kinds of disputes. The reports and recommendations of the panels and the Appellate Body, though not generally welcomed by Members whose measures were found to be inconsistent with the covered agreements, were generally acknowledged to be carefully reasoned, after a fair process had been followed. The general tenor of institutional criticism was that dispute resolution should be quicker, simpler and less costly. However, there was a widespread regard for the dispute settlement system as one that served the Members of the WTO and played a role of importance so as to secure adherence to the WTO as a rule-​based order. What has happened, as we observed, is that the escalating criticisms by the United States of the dispute settlement system hardened into a decision to veto new appointments to the Appellate Body. The United States considers the Appellate Body to have overreached its mandate. Among the particular criticisms are these: the Appellate Body has disregarded the 90-​day deadline to decide appeals; it has issued opinions on matters that are unnecessary to resolve a dispute; it has treated its prior reports as precedent; and it has engaged in the interpretation of the covered agreements beyond its proper remit. The validity of these criticisms has been much debated. But what was not generally anticipated was that the United States, whose efforts were so prominent in supporting the creation of the Appellate Body, would bring the functioning of the Appellate Body to an end. On 10 December 2019, only one member of the Appellate Body remained in office. There was no quorum. Panels continue their work. But appeals, as of right, cannot be taken forward. The result is that disputes may continue to be referred under the system; panels are established and render their reports; but as soon as an appeal is brought, the dispute cannot be resolved because no appeal can be pursued, and hence no adoption of an Appellate Body report by the DSB can take place. The viability of the WTO dispute settlement system under these constraints is much questioned. As a practical matter, before the Appellate Body was rendered dysfunctional, an informal process was followed, under the facilitation of Ambassador Walker of New Zealand, to address concerns and permit Appellate Body appointments to take place. A number of points of convergence arising from this process were placed before the WTO General Council in December 2019. These included the 90-​day time frame for appeals, the meaning of municipal law, advisory opinions and precedent. But no agreement was reached. The European Union proposed and has secured the agreement of 24 other WTO Members to the MPIA. The MPIA is styled as an interim regime, pursuant to Article 25 of the DSU, to select from a panel of agreed arbitrators three arbitrators to decide appeals from panels, in large measure, replicating the procedures and functioning of the Appellate Body. The MPIA will soon hear its first appeal. It provides an interim solution where the appeal concerns signatories to the MPIA. The ultimate fate of the Appellate Body and the WTO dispute settlement system raises larger issues. The WTO is a rule-​based order, of which the institutions of dispute

918    David Unterhalter and Erika Schneidereit settlement are an integral part. That order was, in turn, an important part of the rise of global trade that has transformed markets. The expansion of global trade has had profound implications for the ordering of global economic power, and hence for the distribution of political power. The rise of China, and its rivalry and interdependence with the United States, is but the most profound manifestation of these changes. What had once seemed an ineluctable progression of global trade under a rule-​based order is now beset by doubts, as the costs of globalization are counted, and the unilateral assertions of sovereign power now command an ever-​greater prominence. These are the forces that will decide whether the WTO and its dispute settlement system will ultimately endure, in some form. Or whether the WTO will be looked upon as a historical experiment whose promise could not survive the centrifugal forces of great power rivalry.

X.  Dispute settlement mechanisms in RTAs Of course, international trade regulation is not confined to the treaties that fall under the auspices of the WTO. Nor is the WTO dispute settlement system the only mechanism for resolving disputes in this domain, despite its prominence. Regional trade agreements (RTAs),86 or preferential trade agreements between two or more partners, frequently contain their own procedures for resolving disputes. It is therefore important to consider the dispute settlement model adopted by these agreements, given the 354 such agreements in force as of 1 March 2022.87 The proliferation of such agreements, containing dispute settlement provisions, raises two important questions. First, to what degree do dispute settlement mechanisms in regional trade agreements diverge from the WTO system of dispute settlement? Second, how does dispute settlement under RTAs cohabit with WTO dispute settlement? This second question is particularly relevant, given that there is not a single Member of the WTO that has not notified its participation in at least one RTA, with some members party to over 20 agreements.88 Perhaps most significantly, the infrequent use of dispute settlement in a regional context and the availability of WTO dispute settlement89 raises the question as to why parties feel compelled to include these mechanisms in RTAs in the first place.

86 

For the purpose of this section, the term ‘regional trade agreements’ will be used as a shorthand to refer to any bilateral, multi-​country, or cross-​regional trade agreement. 87  This number represents regional trade agreements notified to the WTO. For figures, see ‘Regional trade agreements’, at < https://​www.wto.org/​engl​ish/​trato​p_​e/​regio​n_​e/​regio​n_​e.htm > (last visited 14 May 2022). 88 Ibid. 89  M.D. Froese, ‘Regional Trade Agreements and the Paradox of Dispute Settlement’ 11(3) Manchester Journal of International Economic Law (2014), at 367.

Institutions   919 As with WTO dispute settlement, dispute settlement mechanisms in RTAs have evolved over time. Of the very few RTAs signed between 1947 and 1980, for example, at least half contained no dispute settlement provisions.90 Over the decades that followed, the number of RTAs that included a dispute settlement mechanism increased. From 1980 to 1995, for example, mechanisms for dispute resolution in RTAs were largely restricted to the realm of political consultations.91 Unsurprisingly, this reliance on diplomatic means for dispute resolution often proved inadequate, as was the case in the previous dispute settlement model under the GATT.92 This significant limitation, as well as the growing success and legitimacy of the WTO’s dispute settlement system, led to a significant shift in dispute settlement arrangements from 1995 onwards, at which point RTAs began to move increasingly towards including fully articulated dispute settlement mechanisms based on the WTO model, i.e., a structure involving consultations, third party adjudication, and implementation.93 Despite the growing number of RTAs and increasing sophistication of dispute settlement mechanisms included in these agreements, these mechanisms have not often been used.94 While dispute settlement in RTAs is largely based on the WTO dispute settlement model, this does not mean that all dispute settlement mechanisms are identical. Rather, the specific design of these mechanisms varies. This depends on various factors, including the nature of the relationship between the parties, the number of parties, the depth and breadth of the substantive obligations of the agreement, and regional preferences on matters such as the degree of flexibility or control parties wish to exert over dispute settlement.95 Despite these variations, it is possible to identify certain characteristics that are found in the majority of RTAs containing dispute settlement mechanisms. For example, RTAs generally provide only for state-​to-​state dispute settlement and provide options for parties to resolve their disputes through non-​adversarial means before proceeding to compulsory and binding adjudication by a third party.96 While adjudication tends to follow the WTO process in terms of format, that is to say, an adversarial process involving specific timelines for the presentation of arguments and

90 

Froese, above fn 89, at 378. Ibid at 379. The other category of dispute settlement mechanism in use at the time was the standing tribunal model, although the breadth of institutional arrangements and surrender of sovereignty necessary under the approach likely negated its appeal: R. McDougall, ‘Regional Trade Agreement Dispute Settlement Mechanisms: Modes, Challenges and Options for Effective Dispute Resolution’ RTA Exchange 2018 (Geneva: International Centre for Trade and Sustainable Development and the Inter-​ American Bank, 2018), at 2. 92  McDougall, above fn 91, at 4. 93 However, this is not the only model. Marc D. Froese divides dispute settlement mechanisms into four categories: agreements without a dispute settlement provision in the text of the agreement, agreements with political dispute settlement only (i.e., consultations with no recourse to judicial mechanisms), agreements with basic arbitral mechanisms, and agreements with fully articulated dispute settlement mechanisms. See Froese, above fn 89, at 376–​378; McDougall, above fn 91, at 4. 94  McDougall, above fn 91 , at 1. 95  Ibid., at 1, 5. 96  Ibid., at 6. 91 

920    David Unterhalter and Erika Schneidereit evidence, models vary in relation to features such as transparency and the role of non-​ parties in dispute proceedings. In contrast to the approach of the WTO, for example, it is becoming more common for RTAs to allow for open hearings or otherwise make at least some of their proceedings open to the public. The number of dispute settlement mechanisms in RTAs allowing for amicus curiae briefs to be submitted by third parties or non-​state actors is also increasing, although this practice is not yet widespread.97 Perhaps the most notable feature distinguishing dispute settlement mechanisms in RTAs from the resolution of disputes at the WTO is the former’s lack of institutional arrangements, in contrast to those which underpin WTO dispute settlement . Very few RTAs have established standing tribunals or Secretariats to support their dispute settlement mechanisms. This is most likely due to a reluctance to establish new international institutions or concerns regarding the ongoing costs of maintaining such institutional structure. There is a consequent lack of permanency. Dispute settlement under these arrangements must be administered and funded on a case-​by-​case basis, lessening the appeal of such fora.98 Despite the proliferation of dispute settlement mechanisms in RTAs and the opportunity they offer parties to tailor such mechanisms to their specific preferences, dispute settlement mechanisms in regional trade agreements have been used relatively infrequently. Various theories have been offered to explain this trend, including the argument of Marc D. Froese that countries view dispute settlement in RTAs as further insurance against the breakdown of trade relations, rather than a preferable (or even equal) alternative to WTO dispute settlement. Rather, when a dispute does occur, States prefer to rely on a dispute settlement model with a high degree of legitimacy and compliance from parties, providing a strong inventive to take disputes to the WTO.99 By this reasoning, the relative lack of use of dispute settlement mechanisms in the regional context should not be seen as an indicator of their ineffectiveness, but rather a reflection of an intent that such mechanisms serve a more passive role in deterring future transgressions. Of course, if the impetus for including dispute settlement provisions in regional agreements over the last thirty years has, in fact, been reassurance, this should become exceedingly evident in the next several years as Members continue to grapple with the dispute settlement deadlock at the WTO.

97  Other variations in regional trade agreements include the ability to review panel reports prior to public issuance (available in only about one-​third of agreements) and variations on available remedies. For example, the most common remedy available in regional trade agreement dispute settlement systems is the authorization of retaliatory tariffs, but some also allow for monetary sanctions or compensation. In addition, very few dispute settlement mechanisms in regional trade agreements provide for appeals. McDougall, above fn 91, at 8–​9. 98  Ibid., at 9–​10. 99  Dispute settlement at the WTO also offers advantages in terms of the existence of a large pool of neutral panellists and the ability of the WTO Director-​General to become involved in panel selection, and the informal tradition of adhering to precedent at the WTO, providing a degree of certainty to disputing parties. McDougall, above fn 91, at 11; Froese, above fn 89, at 368, 383.

Institutions   921 It is also plausible that these regional mechanisms of trade dispute settlement are intended to provide a level of assurance so as to protect rights and enforce obligations not found in the covered agreements (WTO-​extra) or secure more onerous versions of existing WTO disciplines (WTO-​plus).100 Finally, it has been suggested that there may, in fact, be more dispute settlement that has taken place at the regional level than commentators tend to think, given that these agreements lack the institutional support to widely track and publish results in various languages.101

XI.  Interaction with WTO dispute settlement system Despite the WTO’s twenty-​five-​year existence and the hundreds of regional trade agreements signed during that time, the law governing the relationship between the WTO DSU and dispute settlement under regional trade agreements remains unclear. While regional trade agreements may interact with the WTO dispute settlement mechanism in numerous ways, three issues are central: preliminary and jurisdictional issues in the adjudication process (e.g., whether a WTO panel should dismiss a dispute previously litigated in a RTA forum or should defer to relevant provisions in a regional trade agreement), the role WTO adjudicators should afford to regional trade agreements in interpreting obligations under the WTO, and the approach that should be adopted by WTO adjudicators where obligations under a regional trade agreement conflict with those under the WTO.102 The same questions may also be asked by adjudicators under RTAs in determining interactions with the WTO. These questions remain unsettled and while further discussion is beyond the scope of this section, they are explored in greater detail in Part II of this handbook. However, these issues will continue to be of significant importance to WTO Members as States continue to enter into regional trade agreements and, in particular, as the WTO dispute settlement system is faced with ongoing challenges.

XII. Conclusion The settlement of disputes arising from trade agreements is at a crossroads. The WTO system of dispute settlement has enjoyed a position of pre-​eminence. Whether that can

100 

Froese, above fn 89, at 387. McDougall, above fn 91, at 10. 102  M.Q. Zang, ‘When the Multilateral Meets the Regionals: Regional Trade Agreements at WTO Dispute Settlement’ 18(1) World Trade Review (2019), at 34. 101 

922    David Unterhalter and Erika Schneidereit continue is open to doubt. Much depends upon whether WTO Members can agree upon the reformation of the system, and more generally, the invigoration of multilateralism. If they cannot, the achievements of the WTO dispute settlement are likely to wither. Whether dispute settlement and the evolution of its institutions can then flourish within the framework of regional trade agreements remains to be seen.

Further reading Van den Bossche, P. and W. Zdouc, The Law and Policy of the WTO, 4th edition (Cambridge: Cambridge University Press, 2017) Lang, A., ‘Twenty Years of the WTO Appellate Body’s “Fragmentation Jurisprudence”’ 14(3) Journal of International Trade Law and Policy (2015) 116 Froese, M.D., ‘Regional Trade Agreements and the Paradox of Dispute Settlement’ 11(3) Manchester Journal of International Economic Law (2014) 367 McDougall, R., ‘Regional Trade Agreement Dispute Settlement Mechanisms: Modes, Challenges and Options for Effective Dispute Resolution’ 2018 RTA Exchange (Geneva: International Centre for Trade and Sustainable Development and the Inter-​American Development Bank, 2018) 1–​15 Marceau, G. (ed), The History of Law and Lawyers in the GATT/​WTO (Cambridge: Cambridge University Press, 2015) WTO, Annual Report 2021, at . WTO Secretariat, A Handbook on the WTO Dispute Settlement System (Cambridge: Cambridge University Press, 2017)

Chapter 35

Interpretat i on Peter Van den Bossche and Parika Ganeriwal

I. II.

Introduction 923 Interpretation of the WTO agreements 924 A. Article 3.2 of the DSU 924 B. Article 17.6(ii) of the Anti-​Dumping Agreement 925 C. Article IX:2 of the WTO Agreement 925 III. Rules of interpretation pursuant to the VCLT 926 A. Article 31 of the VCLT 927 B. Supplementary means of interpretation 935 C. Multiple authentic languages 937 I V. Other principles of or approaches to treaty interpretation 938 A. The principle of effectiveness (ut res magis valeat quam pereat) 938 B. Evolutionary approach to interpretation 939 C. In dubio mitius or restrictive interpretation 940 V. Interpretation of RTAs 940 I. Concluding remarks V 943

I. Introduction This chapter addresses the relevant principles of and the jurisprudence on the interpretation of WTO agreements and regional trade agreements. The chapter begins with an exploration of the provisions of the WTO agreements that provides guidance on the interpretation of WTO law. Next, the chapter discusses the codified rules on treaty interpretation as comprised in the Vienna Convention on the Law of Treaties (VCLT) and

924    Peter Van den Bossche and Parika Ganeriwal examines the application of these rules by the WTO Appellate Body in its interpretation of provisions of the WTO agreements. This chapter also explores the non-​codified principles of and approaches to treaty interpretation that have been applied by the WTO Appellate Body. The final section of this chapter examines the rules applicable to the interpretation of provisions of regional trade agreements.

II.  Interpretation of the WTO agreements Three specific provisions of the WTO agreements offer guidance on how these agreements are to be interpreted, namely: Article 3.2 of the DSU; Article 17.6(ii) of the Anti-​Dumping Agreement; and Article IX:2 of the WTO Agreement.

A. Article 3.2 of the DSU Article 3.2 of the DSU states that the provisions of the covered agreements are to be clarified ‘in accordance with customary rules of interpretation of public international law’. Panels and the Appellate Body have been guided by this provision in interpreting the WTO covered agreements. Customary rules of interpretation of public international law include codified rules of treaty interpretation (to be found in the VCLT) as well as non-​codified rules of treaty interpretation (emanating from general principles of international law). In its very first report, the Appellate Body observed that the general rule of interpretation set forth in Article 31 of the VCLT has ‘attained the status of a rule of customary or general international law’, which is to be applied in clarifying the provisions of the WTO agreements.1 In Japan –​Alcoholic Beverages II, the Appellate Body added that Article 32 of the VCLT (concerning the role of supplementary means of interpretation) has attained the same status.2 In US –​Softwood Lumber IV the Appellate Body made a similar statement in respect of Article 33 of the VCLT.3 Accordingly, the interpretative principles codified in Articles 31 to 33 of the VCLT can usefully guide panels and the Appellate Body in clarifying the provisions of the WTO agreements.

1  Appellate Body Report, US –​Gasoline, adopted 20 May 1996, 16. See also Appellate Body Report, US –​Carbon Steel, adopted 19 December 2002, para 61. 2  Appellate Body Report, Japan –​Alcoholic Beverages II, adopted 1 November 1996, 104. 3  Appellate Body Report, US –​Softwood Lumber IV, adopted 17 February 2004, para 59.

Interpretation   925

B. Article 17.6(ii) of the Anti-​Dumping Agreement Article 17.6(ii) of the Anti-​Dumping Agreement states as follows: [T]‌he panel shall interpret the relevant provisions of the Agreement in accordance with customary rules of interpretation of public international law. Where the panel finds that a relevant provision of the Agreement admits of more than one permissible interpretation, the panel shall find the authorities’ measure to be in conformity with the Agreement if it rests upon one of those permissible interpretations.

Whilst the first sentence of Article 17.6 is similar to Article 3.2 of the DSU, the second sentence provides additional guidance on how to interpret provisions of the Anti-​Dumping Agreement.4 In the Appellate Body’s view, Article 17.6(ii) of the Anti-​ Dumping Agreement contemplates a sequential analysis, with the first step requiring the application of the customary rules of interpretation. It is only after having engaged in an interpretative exercise in accordance with the first sentence of Article 17.6(ii) that one can determine whether the second sentence of Article 17.6(ii) applies.5 If a conscientious application of the customary rules of interpretation yields an interpretative range, then ‘an interpretation falling within that range is permissible and must be given effect by holding the measure to be in conformity with the covered agreement’.6 A treaty interpreter must defer to the interpretation accorded by national authorities, if and when such interpretation falls within the range of permissible interpretations. As noted by the Appellate Body, the function of the second sentence is ‘to give effect to the interpretative range, rather than to require the interpreter to pursue further the interpretative exercise to the point where only one interpretation within that range may prevail’.7 However, as the purpose of interpretation is to determine the proper meaning of a provision, i.e. a meaning that ‘fits harmoniously with the terms, context, and object and purpose of the treaty’, the range of permissible interpretations cannot include conflicting or competing interpretations.8

C. Article IX:2 of the WTO Agreement Interpretations adopted by the WTO Ministerial Conference or the WTO General Council pursuant to Article IX:2 of the WTO Agreement are commonly referred as ‘authoritative interpretations’.9 These are distinct from judicial interpretations which 4 

It is pertinent to note that Article 17.6(ii) of the Anti-​Dumping Agreement is a special and additional rule under Article 1.2 and Appendix 2 of the DSU. 5  Appellate Body Report, US –​Continued Zeroing, adopted 19 February 2009, para 271. 6  Ibid., at para 272. 7  Ibid., at para 272. 8  Ibid., at para 273. 9  See Article 3.9 of the DSU.

926    Peter Van den Bossche and Parika Ganeriwal concern clarifications offered by WTO dispute settlement panels and the Appellate Body pursuant to Article 3.2 of the DSU and Article 17.6 of the Anti-​Dumping Agreement. While judicial interpretations are confined to particular treaty provisions at issue in a dispute and bind only the parties to the dispute, multilateral interpretations pursuant to Article IX:2 bind the entire WTO membership. The Appellate Body in US –​Clove Cigarettes noted that ‘[m]‌ultilateral interpretations under Article IX:2 of the WTO Agreement provide a means by which Members—​acting through the highest organs of the WTO—​may adopt binding interpretations that clarify WTO law for all Members’ and that ‘[s]uch interpretations are binding on all Members, including in respect of all disputes in which these interpretations are relevant’.10 In the Appellate Body’s view, interpretations pursuant to Article IX:2 are ‘meant to clarify the meaning of existing obligations, not to modify their content’.11 This is also made clear by the express wording of Article IX:2 that ‘[t]‌his paragraph shall not be used in a manner that would undermine the amendment provisions in Article X.’12 Thus, these interpretations serve the purpose of clarifying existing obligations and not to create new or amend existing obligations.

III.  Rules of interpretation pursuant to the VCLT Commenting on the justification to codify certain principles and maxims of interpretation, the International Law Commission (ILC); in its Report on the draft Articles on the Law of Treaties, stated that: [the principles and maxims of interpretation] are, for the most part principles of logic and good sense valuable only as guides to assist in appreciating the meaning which the parties may have intended to attach to the expressions that they employed in a document. Their suitability for use in any given case hinges on a variety of considerations which have first to be appreciated by the interpreter of the document; the particular arrangement of the words and sentences, their relation to each other and to other parts of the document, the general nature and subject-​matter of the document, the circumstances in which it was drawn up, etc.13

10 

Appellate Body Report, US –​Clove Cigarettes, adopted 24 April 2012, para 257. Body Reports, EC –​Bananas III (Article 21.5 –​Ecuador II) /​EC –​Bananas III (Article 21.5 –​US), adopted 11 December 2008, para 383. 12  Article IX:2 of the WTO Agreement. 13  Report of the International Law Commission on the Work of its 18th Session, Geneva, 4 May–​19 July 1966, (ILC Yearbook 1966), Vol. II, 218, para 4. 11  Appellate

Interpretation   927 Thus, the ILC codified those principles of interpretation that it considered general and whose appropriateness in any given case did not depend upon the particular context or on a subjective appreciation of varying circumstances.14 The ILC in its Report noted three basic approaches to treaty interpretation classified according to the relative weight given by jurists: a. to the text of the treaty as the authentic expression of the intentions of the parties Proponents of this approach emphasize the primacy of the treaty text as the basis of interpretation, but also give some weight to ‘extrinsic evidence of the intentions of the parties and to the objects and purposes of the treaty as means of interpretation’.15 b. to the intentions of the parties as a subjective element distinct from the text Advocates of this approach consider the intentions of the parties as the primary basis for interpretation and accordingly often resort to ‘the travaux preparatoires and other evidence of the intentions of the contracting States as means of treaty interpretation’.16 c. to the declared or apparent objects and purposes of the treaty. Exponents of this approach give considerable weight to the object and purpose of a treaty and especially in the case of general multilateral treaties that ‘admit teleological interpretations of the text which go beyond, or even diverge from, the original intentions of the parties as expressed in the text’.17 The ILC leaned in favour of approach (a) stated above and, as is evident in the next section, the Appellate Body has also emphasized the primacy of the treaty text as the foundation for interpretation of WTO agreements.18

A. Article 31 of the VCLT Article 31 of the VCLT states: Article 31 General rule of interpretation

1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.

14 

Ibid., at para 5. Ibid., at para 2. 16  Ibid., at para 2. 17  Ibid., at para 2 (emphasis original). 18  Ibid., at para 2. 15 

928    Peter Van den Bossche and Parika Ganeriwal 2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes: (a) any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty; (b) any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty. 3. There shall be taken into account, together with the context: (a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions; (b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation; (c) any relevant rules of international law applicable in the relations between the parties. 4. A special meaning shall be given to a term if it is established that the parties so intended. The ILC confirmed in its Report that all three elements in paragraphs 1 through 3 of Article 31 are of an obligatory character and by their very nature cannot be considered to be norms of interpretation inferior to those which precede them.19 Thus, the successive paragraphs of Article 31 do not lay down a hierarchical order but rather form a ‘single, closely integrated rule’ intended to be applied as a ‘single combined operation’.20

1. Ordinary Meaning In explaining the structure of Article 31 the ILC considered that as a matter of logic, ‘the starting point of interpretation is the elucidation of the meaning of the text, not an investigation ab initio into the intentions of the parties’.21 Treading along similar lines, the Appellate Body has also emphasized the importance and role of the text of the treaty noting that ‘the words of the treaty form the foundation for the interpretive process’22 and that ‘interpretation must be based above all upon the text of the treaty’.23 A treaty interpreter must read and interpret the words actually used in the treaty and not words that the interpreter may feel should have been used.24 In

19 

Ibid., at para 9. Ibid., at para 8. 21  Ibid., at para 11. 22  Appellate Body Report, Japan –​Alcoholic Beverages II, adopted 1 November 1996, 105. 23  Ibid., at 105 (quoting Territorial Dispute (Libyan Arab Jamahiriya/​ Chad), Judgment, (1994) ICJ. Reports, 6, at 20 and Maritime Delimitation and Territorial Questions between Qatar and Bahrain, Jurisdiction and Admissibility, Judgment, (1995) ICJ. Reports, 6, at 18. See also Appellate Body Report, US –​Carbon Steel, adopted 19 December 2002, para 62. 24  Appellate Body Report, EC –​Hormones, adopted 13 February 1998, para 181. 20 

Interpretation   929 the Appellate Body’s view, the duty of a treaty interpreter is to examine the words of the treaty to determine the common intentions of the parties.25 As an initial step to decipher the ordinary meaning of a treaty term, an interpreter often relies upon dictionary definitions of such terms. However, the Appellate Body has been explicit in stating that the ordinary meaning of treaty terms cannot simply be equated to their dictionary definitions or meanings, and interpreted in a mechanical fashion divorced from the context of such treaty terms and the treaty’s object and purpose.26 For instance in China –​Publications and Audiovisual Products, the Appellate Body stated that although dictionaries could be useful as a starting point, they ‘are not necessarily capable of resolving complex questions of interpretation because they typically catalogue all meanings of words’ and the ordinary meaning of a treaty term can be ascertained only in its context and in the light of the object and purpose of the treaty.27 The Appellate Body’s clarification is also in consonance with the views of the ILC that the ordinary meaning of a treaty term is not to be determined in the abstract but in the context of the treaty and in light of its object and purpose.28 In US –​Continued Zeroing, the Appellate Body observed that the purpose of an interpretative exercise is ‘to yield an interpretation that is harmonious and coherent and fits comfortably in the treaty as a whole so as to render the treaty provision legally effective’.29 The Appellate Body further noted that ‘[a]‌word or term may have more than one meaning or shade of meaning, but identification of such meanings in isolation only commences the process of interpretation . . . [A] treaty interpreter is required to have recourse to the context and object and purpose to elucidate the relevant meaning of the word or term’.30 In the Appellate Body’s view, although the logical progression (from text to context and object and purpose) provides a framework for proper interpretative analysis, it must be borne in mind that ‘treaty interpretation is an integrated operation, where interpretative rules or principles must be understood and applied as connected and mutually reinforcing components of a holistic exercise’31 and not ‘mechanically subdivided into rigid components’.32

25 

Appellate Body Report, India –​Patents (US), adopted 16 January 1998, para 45.   See Appellate Body Reports, US –​Gambling, adopted 20 April 2005, para 166; and US –​Softwood Lumber IV, adopted 17 February 2004, para 59. See also Appellate Body Report, EC –​Chicken Cuts, adopted 27 September 2005, para 175. 27  Appellate Body Report, China –​Publications and Audiovisual Products, adopted 19 January 2010, para 348. See also Appellate Body Report, Japan –​Alcoholic Beverages II, adopted 1 November 1996, 104. 28  ILC Yearbook 1966, above fn 13, para 12. 29  Appellate Body Report, US –​Continued Zeroing, adopted 19 February 2009, para 268. 30  Ibid., at para 268. See also Appellate Body Report, US –​Line Pipe, adopted 8 March 2002, para 251. 31  Appellate Body Report, US –​Continued Zeroing, adopted 19 February 2009, para 268. 32 Appellate Body Reports, EC –​Chicken Cuts, adopted 27 September 2005, para 176. See also Appellate Body Report, China –​Publications and Audiovisual Products, adopted 19 January 2010, para 348. 26

930    Peter Van den Bossche and Parika Ganeriwal

2. Context Context includes not only the immediate words, article, or section of the treaty in which a treaty term occurs, but the treaty as a whole.33 In EC –​Chicken Cuts, the Appellate Body considered the immediate context of the treaty term ‘salted’ in heading 02.10 in EC’s schedule to consist of the other terms of the product description contained in Heading 02.10 and the broader context to include all other headings in Chapter 2 of EC’s Schedule, as well the Schedules of other WTO Members.34 In the same dispute, the Appellate Body found that the consensus among the GATT Contracting Parties to use the Harmonized Commodity Description and Coding System (Harmonized System) as the basis for their WTO Schedules, prior to, during, and after the Uruguay Round negotiations constituted an ‘agreement’ between WTO Members ‘relating to’ the WTO Agreement which was ‘made in connection with the conclusion of ’ the WTO Agreement.35 Accordingly, the Appellate Body considered that the Harmonized System constituted ‘context’ under Article 31(2)(a) of the VCLT for the purposes of interpreting tariff commitments in the WTO Members’ Schedules. Also, a particular provision, agreement or instrument may constitute relevant context in a given situation but may not be considered so relevant in another situation. In China –​Auto Parts, the Appellate Body clarified that ‘for a particular provision, agreement or instrument to serve as relevant context in any given situation, it must not only fall within the scope of the formal boundaries identified in Article 31(2), it must also have some pertinence to the language being interpreted that renders it capable of helping the interpreter determine the meaning of such language’.36 In this dispute, the Appellate Body found that although the Harmonized System is relevant context for interpreting tariff commitments in the WTO Members’ Schedules, it cannot be said to be relevant to assess the scope of ‘ordinary customs duties’ in the first sentence of Article II:1(b) and ‘internal charges’ in Article III:2 of the GATT 1994.37 If the same treaty term appears at multiple places in a treaty, then the meaning attributed to such term in respect of a provision could be relevant context to interpret the same term in another provision of the treaty. However, the treaty term need not have identical meanings in all the places that it appears. For instance, in EC –​Asbestos, the Appellate Body noted that ‘while the meaning attributed to the term “like products” in other provisions of the GATT 1994, or in other covered agreements, may be relevant context in interpreting Article III:4 of the GATT 1994, the interpretation of “like products” in Article III:4 need not be identical, in all respects, to those other meanings.’38

33 

ILC Yearbook 1966, above fn 13, para 12. The ILC referred to the Advisory Opinion in Competence of the ILO to Regulate Agricultural Labour, (1922) PCIJ Reports, Series B, Nos 2 and 3, p. 23. 34  Appellate Body Report, EC –​Chicken Cuts, adopted 27 September 2005, para 193. 35  Ibid., at para 199. 36  Appellate Body Reports, China –​Auto Parts, adopted 12 January 2009, para 151. 37  Ibid., at para 166. 38  Appellate Body Report, EC –​Asbestos, adopted 5 April 2001, para 89.

Interpretation   931 Examining the relevance of sources extrinsic to the treaty itself as context, the Appellate Body in US –​Gambling considered whether certain GATT Secretariat documents could serve as context to interpret a Member’s GATS Schedule. The Appellate Body clarified that a document can only be characterized as context ‘where there is sufficient evidence of their constituting an ‘agreement relating to the treaty’ between the parties or of their ‘accept[ance by the parties] as an instrument related to the treaty’.39 In this dispute, the Appellate Body noted that the GATT Secretariat documents were drafted by the GATT Secretariat rather than the parties to the negotiations and there was no evidence of the parties having accepted these documents as agreements or instruments related to the treaty.40 Thus, the Appellate Body did not consider GATT Secretariat documents to serve as context to interpret the United States’ GATS Schedule.

3. Object and purpose The Appellate Body has considered the reference to the words ‘its object and purpose’ in Article 31(1) of the VCLT to include the object and purpose of the treaty as a whole.41 However, commenting on the relevance of the object and purpose of particular treaty terms, the Appellate Body stated that it did not believe that Article 31(1) excludes consideration of the ‘object and purpose’ of particular treaty terms, ‘if doing so assists the interpreter in determining the treaty’s object and purpose on the whole’.42 The Appellate Body added that ‘to the extent that one can speak of the “object and purpose of a treaty provision”, it will be informed by, and will be in consonance with, the object and purpose of the entire treaty of which it is but a component’.43 This statement of the Appellate Body is well illustrated in Thailand –​Cigarettes (Philippines), where the Appellate Body discerned the object and purpose of the GATT 1994 by referring to the object and purpose of one of the provisions of this agreement, i.e. Article X:3(b), which was at issue in that dispute.44 Further, the object and purpose of the treaty is to be assessed in light of the common intentions of the parties. The Appellate Body has cautioned that such common intentions ‘cannot be ascertained on the basis of the subjective and unilaterally determined “expectations” of one of the parties to a treaty’.45

39

  Appellate Body Report, US –​Gambling, adopted 20 April 2005, para 175. Ibid., at para 176. 41  Appellate Body Report, EC –​Chicken Cuts, adopted 27 September 2005, para 238. The Appellate Body emphasized the use of the singular word ‘its’ preceding the term ‘object and purpose’ and not the use of the plural ‘their’ in Article 31(1) of the VCLT. 42 Ibid. 43 Ibid. 44  Appellate Body Report, Thailand –​Cigarettes (Philippines), adopted 15 July 2011, para 202. The Appellate Body observed that ‘[a]‌basic object and purpose of the GATT 1994, as reflected in Article X:3(b), is to ensure due process in relation to customs matters.’ 45 Appellate Body Report, EC –​Chicken Cuts, adopted 27 September 2005, para 250 (emphasis original). 40 

932    Peter Van den Bossche and Parika Ganeriwal

4. Subsequent agreement Article 31.3 of the VCLT mandates that together with context, a treaty interpreter must also take into account any (a) subsequent agreement; (b) subsequent practice; and (c) relevant rules of international law. For an act, instrument or agreement to fall within the meaning of ‘subsequent agreement’ under Article 31(3)(a) of the VCLT the Appellate Body has proposed a two-​prong test:46 a. firstly, in a temporal sense, such an act, instrument or agreement must be adopted subsequent to the relevant covered agreement; and b. secondly, the terms and content of such an act, instrument or agreement must express an agreement between Members on the interpretation or application of a provision of WTO law. In the Appellate Body’s view, Article 31(3)(a) refers to agreements bearing specifically upon the interpretation of a treaty47 or ‘relat[ing] to situations where an agreement specifies how existing rules or obligations in force are to be applied’.48 In Peru –​ Agricultural Products, the Appellate Body found that the free trade agreement between Peru and Guatemala did not constitute a ‘subsequent agreement’ as the agreement did not concern the same subject matter as the provisions of the Agreement on Agriculture and the GATT 1994 that were at issue in the dispute and therefore did not bear specifically on the interpretation of the provisions concerned.49 In clarifying whether a ministerial decision could qualify as a ‘subsequent agreement’ in US –​Clove Cigarettes, the Appellate Body noted that firstly, paragraph 5.2 of the Doha Ministerial Decision50 was adopted subsequent to the TBT Agreement, satisfying the first requirement of the two-​prong test; and secondly, that paragraph 5.2 of the Doha Ministerial Decision set forth a definition of ‘reasonable interval’ which is a treaty term 46 

See Appellate Body Reports, US –​Clove Cigarettes, adopted 24 April 2012, para 262; and US –​Tuna II (Mexico), adopted 13 June 2012, paras 371-​372. 47  Appellate Body Reports, EC –​Bananas III (Article 21.5 –​Ecuador II) /​EC –​Bananas III (Article 21.5 –​US), adopted 11 December 2008, para 390 (referring to ILC Yearbook 1966, above fn 13, para 14 where the ILC described a subsequent agreement as a further authentic element of interpretation to be taken into account together with the context). 48  Ibid., at para 391. 49 Appellate Body Report, Peru –​Agricultural Products, adopted 31 July 2015, para 5.103. In this dispute, the provisions at issue were Article 4.2 of the Agreement on Agriculture and Article II:1(b) of the GATT 1994. To interpret these provisions, it was necessary to determine the meaning of the terms in Article 4.2 and footnote 1 of the Agreement on Agriculture and find whether additional duties resulting from Peru’s Price Range System could be characterized as ‘variable import levies’, ‘minimum import prices’ or ‘similar border measures’ rather than ‘ordinary customs duties’ within the meaning of footnote 1. The free trade agreement did not provide any relevant guidance to make such a determination. See ibid., at paras 5.102–​104. 50  Paragraph 5.2 of the Doha Ministerial Decision on Implementation-​Related Issues and Concerns of 14 November 2001 (WT/​MIN(01)/​17) stated as follows: Subject to the conditions specified in paragraph 12 of Article 2 of the Agreement on Technical Barriers to Trade, the phrase “reasonable interval” shall be understood to mean normally a

Interpretation   933 appearing in Article 2.12 of the TBT Agreement. As paragraph 5.2 specifically bore upon the interpretation of the term ‘reasonable interval’ in Article 2.12 of the TBT Agreement, it satisfied the second requirement of the test as well.51 Accordingly, the Appellate Body concluded that paragraph 5.2 of the Doha Ministerial Decision constituted a ‘subsequent agreement’ between the parties on the interpretation of the term ‘reasonable interval’ in Article 2.12 of the TBT Agreement.52 In US –​Tuna II (Mexico), the Appellate Body clarified that a decision adopted by the WTO Committee on Technical Barriers to Trade (TBT Committee) could be a ‘subsequent agreement’ within the meaning of Article 31(3)(a) of the VCLT. The Appellate Body reasoned that, firstly, the decision of the TBT Committee was adopted by consensus subsequent to the conclusion of the TBT Agreement, and secondly the decision was adopted to ‘clarify and strengthen’ the concept of international standards in the TBT Agreement, implying that the terms and content of the decision expressed an agreement between Members on the interpretation or application of a provision of WTO law.53 In EC –​Bananas III (Article 21.5 –​Ecuador II) /​EC –​Bananas III (Article 21.5 –​US), the Appellate Body clarified that waivers adopted pursuant to Articles IX:3 and IX:4 of the WTO Agreement do not qualify as ‘subsequent agreement’ within the meaning of Article 31(3)(a) of the VCLT. In the Appellate Body’s view, the purpose of a waiver is not to modify the interpretation or application of existing provisions in the covered agreements, but only to relieve a Member for a specific period of time from a particular obligation under WTO law, which is subject to the terms, conditions, justifying exceptional circumstances or policy objectives described in the waiver decision.54

5. Subsequent practice Referring generally to international law, the Appellate Body in Japan –​Alcoholic Beverages II noted that ‘the essence of subsequent practice in interpreting a treaty has been recognized as a “concordant, common and consistent” sequence of acts or pronouncements which is sufficient to establish a discernible pattern implying the agreement of the parties [to a treaty] regarding its interpretation’.55

period of not less than 6 months, except when this would be ineffective in fulfilling the legitimate objectives pursued. 51 

Appellate Body Report, US –​Clove Cigarettes, adopted 24 April 2012, paras 263–​265. Ibid., at para 268. 53  Appellate Body Report, US –​Tuna II (Mexico), adopted 13 June 2012, paras 371–​372. 54  Appellate Body Reports, EC –​Bananas III (Article 21.5 –​Ecuador II) /​EC –​Bananas III (Article 21.5 –​US), adopted 11 December 2008, paras 382 and 389. 55  Appellate Body Report, Japan –​Alcoholic Beverages II, adopted 1 November 1996, 106. In this dispute the Appellate Body ruled that panel reports adopted by the GATT Contracting Parties did not constitute subsequent practice within the meaning of Article 31(3)(b). The Appellate Body reasoned that the decision to adopt a panel report under the GATT 1947 does not constitute an agreement by the Contracting Parties on the legal reasoning in that panel report, which is understood to bind only the parties to the dispute. 52 

934    Peter Van den Bossche and Parika Ganeriwal The Appellate Body in US –​Gambling explained that ‘for [a]‌“practice” within the meaning of Article 31(3)(b) to be established: (i) there must be a common, consistent, discernible pattern of acts or pronouncements; and (ii) those acts or pronouncements must imply agreement on the interpretation of the relevant provision’.56 In this dispute the Appellate Body found that the 2001 Guidelines, adopted by the Council for Trade in Services, in and of themselves, did not constitute ‘subsequent practice’ as they did not as such, constitute evidence of Members’ understanding regarding the interpretation of existing commitments under the GATS. This was so, as the 2001 Guidelines were explicitly adopted in the context of the negotiation of future commitments (and not existing commitments) and these Guidelines explicitly stated that they were ‘non-​binding’ and did not modify any rights or obligations of the Members under the GATS.57 In EC –​Chicken Cuts, the Appellate Body observed that it would be ‘difficult to establish a “concordant, common and discernible pattern” on the basis of acts or pronouncements of one, or very few parties to a multilateral treaty, such as the WTO Agreement’. In the same dispute, the Appellate Body also clarified, however, that ‘not each and every party must have engaged in a particular practice for it to qualify as a “common” and “concordant” practice’.58

6. Relevant rules of international law According to the Appellate Body, for a treaty or an agreement to fall within the ambit of Article 31.3(c) of the VCLT, it must be: (a) a ‘rule [] of international law’; (b) a rule which is ‘relevant’; and (c) a rule ‘applicable in the relations between the parties’.59 The Appellate Body in US –​Anti-​Dumping and Countervailing Duties (China) explained that ‘reference to “rules of international law” corresponds to the sources of international law in Article 38(1) of the Statute of the International Court of Justice and thus includes customary rules of international law as well as general principles of law’.60 In US –​Anti-​Dumping and Countervailing Duties (China), the Appellate Body also clarified that for a rule of international law to be ‘relevant’ within the meaning of Article 31.3(c) the rule must ‘concern the same subject matter as the treaty terms being interpreted’.61 The requirement that a treaty or an agreement is a rule ‘applicable in the relations between the parties’ has been the subject of much debate. Does the term ‘the parties’ refer to the parties to the treaty or agreement to be interpreted or does it refer to the 56 

Appellate Body Report, US –​Gambling, adopted 20 April 2005, para 192 (emphasis original). See also Appellate Body Report, Chile –​Price Band System, adopted 23 October 2002, paras 213 and 214. 57  Appellate Body Report, US –​Gambling, adopted 20 April 2005, para 193. 58  Appellate Body Report, EC –​Chicken Cuts, adopted 27 September 2005, para 259. 59  Appellate Body Report, EC and certain Member States –​Large Civil Aircraft, adopted 1 June 2011, para 841. 60  Appellate Body Report, US –​Anti-​Dumping and Countervailing Duties (China), adopted 25 March 2011, para 308. 61  Ibid., at para 308. See also Appellate Body Report, Peru –​Agricultural Products, adopted 31 July 2015, para 5.101.

Interpretation   935 parties to the dispute which gives rise to the interpretative question? In EC and certain member States –​Large Civil Aircraft, the Appellate Body stated that the interpretation of the term ‘the parties’ should be guided by the fact that ‘the purpose of treaty interpretation is to establish the common intention of the parties to the treaty’.62 According to the Appellate Body, this suggests that ‘one must exercise caution in drawing from an international agreement to which not all WTO Members are party’. The Appellate Body however acknowledged that Article 31(3)(c) expresses the ‘principle of systemic integration’, which according to the ILC ‘seeks to ensure that “international obligations are interpreted by reference to their normative environment” ’.63 The Appellate Body thus stated that in a multilateral context such as the WTO, when recourse is had to a non-​WTO rule for the purposes of interpreting provisions of the WTO agreements, ‘a delicate balance must be struck between, on the one hand, taking due account of an individual WTO Member’s international obligations and, on the other hand, ensuring a consistent and harmonious approach to the interpretation of WTO law among all WTO Members’.64 In US –​Anti-​Dumping and Countervailing Duties (China), the Appellate Body noted that Articles 4, 5, and 8 of the ILC Articles on State Responsibility ‘insofar as they reflect customary international law or general principles of law . . . are applicable in the relations between the parties’.65

B. Supplementary means of interpretation Article 32 of the VCLT states: Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31: ( a)  leaves the meaning ambiguous or obscure; or (b)  leads to a result which is manifestly absurd or unreasonable.

Explaining the logic for positioning Article 32 after Article 31, the ILC commented that it was of the view that authentic means of interpretation (set forth in Article 31) must

62 

Appellate Body Report, EC and certain Member States –​Large Civil Aircraft, adopted 1 June 2011, para 845 (original emphasis). 63  Ibid., at para 845. 64  Ibid. The Appellate Body did not need to decide on the meaning of the term ‘the parties’ in Article 31.3(c), since it considered the provision of the non-​WTO agreement invoked not to be ‘relevant’ for the interpretative question before it. 65  Appellate Body Report, US –​Anti-​Dumping and Countervailing Duties (China), adopted 25 March 2011, para 308.

936    Peter Van den Bossche and Parika Ganeriwal be distinguished from the supplementary means of interpretation (set forth in Article 32) because: The elements of interpretation in [Article 31] all relate to the agreement between the parties at the time when or after it received authentic expression in the text. Ex hypothesi this is not the case with preparatory work which does not, in consequence, have the same authentic character as an element of interpretation, however valuable it may sometimes be in throwing light on the expression of the agreement in the text.66

Further, the ILC explained that the use of ‘[t]‌he word “supplementary” emphasizes that [Article 32] does not provide for alternative, autonomous, means of interpretation but only for means to aid an interpretation governed by the principles contained in [Article 31]’.67 The Appellate Body explained in EC –​Chicken Cuts, that the means of interpretation listed in Article 32 are ‘to be resorted to when interpretation in the light of Article 31 leaves the meaning of a treaty provision ambiguous or obscure, or, in order to confirm the meaning resulting from the application of the interpretation methods listed in Article 31.68 In subsequent disputes such as US –​Upland Cotton, China –​Publications and Audiovisual Products and EC –​Fasteners (China), the Appellate Body reiterated its view that it is not necessary to resort to the supplementary means of interpretation, if the meaning of the treaty terms could be ascertained by applying Article 31 of the VCLT.69 The Appellate Body has found it particularly useful to resort to Article 32 of the VCLT when interpreting the GATT and GATS Schedules of WTO Members.70 Pointing to the broad scope of Article 32 of the VCLT, the Appellate Body has observed that this provision does not exhaustively define the supplementary means of interpretation thus offering an interpreter ‘a certain flexibility in considering relevant supplementary means in a given case so as to assist in ascertaining the common intentions of the parties’.71 The Appellate Body has indicated that an ‘event, act or instrument’ could be relevant as supplementary means of interpretation if it has actually influenced a specific aspect of the treaty text in the sense of a relationship of cause and effect or helped

66 

ILC Yearbook 1966, above fn 13, at para 10. Ibid., at para 19. 68  Appellate Body Report, EC –​Chicken Cuts, adopted 27 September 2005, para 282. 69  Appellate Body Reports, US –​Upland Cotton, adopted 21 March 2005, para 623; EC –​Fasteners (China), adopted 28 July 2011, para 353; and China –​Publications and Audiovisuals Products, adopted 19 January 2010, para 411. 70  See Appellate Body Reports, US –​Gambling, adopted 20 April 2005, para 195; EC –​Bananas III (Article 21.5 –​Ecuador II) /​EC –​Bananas III (Article 21.5 –​US), adopted 11 December 2008, paras 442–​ 452; EC –​Chicken Cuts, adopted 27 September 2005, para 319; and EC –​Computer Equipment, adopted 22 June 1998, paras 92–​95. 71  Appellate Body Report, EC –​Chicken Cuts, adopted 27 September 2005, para 283. 67 

Interpretation   937 discern the common intentions of the parties at the time of the conclusion of the treaty or specific provision.72

C. Multiple authentic languages Article 33 of the VCLT applies when a treaty has been authenticated in more than one language. The ILC has stressed that even though the authentic texts may exist in two or more languages, ‘in law there is only one treaty–​one set of terms accepted by the parties and one common intention with respect to those terms–​even when two authentic texts appear to diverge’.73 Thus, a treaty may be plurilingual in expression but it nonetheless remains a single treaty with a single set of terms that are intended to have the same meaning in each language of the text. The task of an interpreter is to make every effort to find a common meaning for the texts in accordance with the rules of interpretation set forth in Articles 31 and 32 before preferring one over another.74 In line with the ILC’s views, the Appellate Body has also emphasized that a treaty interpreter should ‘seek the meaning that gives effect, simultaneously, to all the terms of the treaty, as they are used in each authentic language’ and find a common meaning for the treaty terms in each of the authentic texts.75 Accordingly, in several cases the Appellate Body has taken into consideration the French and Spanish texts in interpreting the meaning of certain treaty terms appearing in the English text.76 For instance, in EC –​Bed Linen (Article 21.5 –​India), the Appellate Body referred to the French and Spanish texts of Article 9 of the Anti-​Dumping Agreement to ascertain the temporal meaning of the terms ‘have been fulfilled’ and ‘have limited’ in the English text and noted in this respect that ‘the Spanish terms (“se han cumplido” and “hayan limitado”), in paragraphs 1 and 4 of Articles 9, have the same temporal meaning as the English terms (“have been fulfilled” and “have limited”)’ and that ‘[t]‌he French terms (“sont remplies” and “auront limité”) can also accommodate this temporal meaning’.77 Similarly, in US –​Upland Cotton, the Appellate Body confirmed the ordinary meaning of the term “price suppression” in Article 6.3(c) of the SCM Agreement by reference to the French and Spanish versions of that provision.78

72 

Ibid., at para 289. ILC Yearbook 1966, above fn 13, para 6. 74  Ibid., at para 7. 75  Appellate Body Report, US –​Softwood Lumber IV, adopted 17 February 2004, para 59. 76  See Appellate Body Reports, US –​Countervailing Duty Investigation on DRAM, adopted 20 July 2005, para 111; and EC –​Tariff Preferences, adopted 20 April 2004, para 147. 77  See Appellate Body Report, EC –​Bed Linen (Article 21.5 –​ India), adopted 24 April 2003, para 123 and fn 153. 78  Appellate Body Report, US –​Upland Cotton, adopted 21 March 2005, para 424 and fn 510. 73 

938    Peter Van den Bossche and Parika Ganeriwal

IV.  Other principles of or approaches to treaty interpretation A. The principle of effectiveness (ut res magis valeat quam pereat) The Appellate Body has described the principle of effectiveness as ‘[a]‌fundamental tenet of treaty interpretation flowing from the general rule of interpretation set out in Article 31 of the Vienna Convention’, requiring that an ‘interpretation must give meaning and effect to all the terms of the treaty’ and ‘not result in reducing whole clauses or paragraphs of a treaty to redundancy or inutility’.79 In Japan –​Alcoholic Beverages II, the Appellate Body construed the concept of ‘like products’ in Article III:2, first sentence of the GATT 1994 narrowly in order to render the concept of ‘directly competitive or substitutable products’ in Article III:2, second sentence meaningful.80 Too broad a construction of the term ‘like products’ in Article III:2, first sentence would have inevitably included a large range of products falling within the scope of ‘directly competitive or substitutable products’ in Article III:2, second sentence, rendering the latter redundant and devoid of any meaning and effect. In India –​Agricultural Products, the Appellate Body relied on the principle of effectiveness to clarify that a finding of a violation of Articles 5.1 and 5.2 of the SPS Agreement ‘might not invariably lead to a finding of inconsistency with Article 2.2’ of the SPS Agreement.81 The Appellate Body has also drawn attention to an important corollary of the principle of effectiveness which is that ‘a treaty should be interpreted as a whole, and, in particular, its sections and parts should be read as a whole’.82 Particularly, the Appellate Body has noted that ‘the provisions of the WTO Agreement and the Multilateral Trade Agreements included in its Annexes 1, 2 and 3 must be read as a whole’.83

79 Appellate Body Reports, Japan –​Alcoholic Beverages II, adopted 1 November 1996, 106; and US –​Gasoline, adopted 20 May 1996, 21. In Argentina –​Footwear (EC), the Appellate Body expressed the principle of effectiveness as requiring a treaty interpreter to read all applicable provisions of a treaty in a way that gives meaning to all of them, harmoniously, Appellate Body Report, Argentina –​Footwear (EC), adopted 12 January 2000, para 81. See also Appellate Body Reports US –​Upland Cotton, adopted 21 March 2005, para 549; and US –​Continued Zeroing, adopted 19 February 2009, para 268. 80  Appellate Body Report, Japan –​Alcoholic Beverages II, adopted 1 November 1996, 114. 81  Appellate Body Report, India –​Agricultural Products, adopted 19 June 2015, para 5.24. The Appellate Body took note of the textual differences between Article 2.2 of the SPS Agreement on the one hand and Articles 5.1 and 5.2 on the other as well as the nature of the obligations envisaged under these provisions, clarifying that there could be circumstances in which an SPS measure that violates Articles 5.1 and 5.2 of the SPS Agreement could nonetheless be consistent with Article 2.2 of the SPS Agreement. 82  Appellate Body Report, Korea –​Dairy, adopted 12 January 2000, para 81. 83 Ibid.

Interpretation   939

B. Evolutionary approach to interpretation In US –​Shrimp, the Appellate Body adopted an evolutionary approach to interpret the concept of ‘exhaustible natural resources’ in Article XX(g) of the GATT 1994. The complainants in this case argued that the term ‘exhaustible’ referred to ‘finite resources such as minerals, rather than biological or renewable resources’.84 The Appellate Body did not agree and noted that ‘the generic term “natural resources” in Article XX(g) is not “static” in its content or reference, but is rather “by definition, evolutionary” ’.85 According to the Appellate Body, it was therefore ‘pertinent to note that modern international conventions and declarations make frequent references to natural resources as embracing both living and non-​living resources’.86 The Appellate Body also had recourse to evolutionary interpretation in China –​ Publications and Audiovisual Products. In this case, China contended on appeal that the panel had erred in interpreting the entry ‘Sound recording distribution services’ in China’s GATS Schedule of Specific Commitments according to the contemporary meaning of that term, and thus also covering the electronic distribution of sound recordings (i.e., a distribution service that did not exist in 2001 when China joined the WTO and when its GATS Schedule was agreed on). According to the Appellate Body, however, the terms used in China’s GATS Schedule, ‘sound recordings’ and ‘distribution’, were sufficiently generic such that what they may apply to may change over time.87 It should be noted that in US –​Shrimp and China –​Publications and Audiovisual Products, the Appellate Body set out to establish the ordinary meaning of the generic, non-​static terms and concepts at issue, in their context (broadly understood) and in light of the object and purpose of the WTO agreement at issue. Evolutionary interpretation, as endorsed and applied by the Appellate Body, is not a distinct rule of, or approach to, interpretation but the result of a proper application of the VCLT rules of interpretation. It was the generic, non-​static nature of the terms and concepts at issue that allowed for an evolutionary interpretation. The use of such terms and concepts reflect the intention of the parties to allow the rights and obligations at issue to evolve with the changing circumstances and situations in which they are applied.88

84 

Appellate Body Report, US –​Shrimp, adopted 6 November 1998, para 128. Ibid., at para 130. 86 Ibid. 87  Appellate Body Report, China –​Publications and Audiovisual Products, adopted 19 January 2010, para 396. 88  P. Van den Bossche, ‘Is there Evolution in the Evolutionary Interpretation of WTO Law?’ in G. Abi-​Saab, K. Keith, G. Marceau and C. Marquet (eds), Evolutionary Interpretation and International Law (London: Bloomsbury, 2019) 228. 85 

940    Peter Van den Bossche and Parika Ganeriwal

C.  In dubio mitius or restrictive interpretation The Appellate Body first referred to the interpretative principle of ‘in dubio mitius’ in EC –​Hormones, expressing it as follows: The principle of in dubio mitius applies in interpreting treaties, in deference to the sovereignty of states. If the meaning of a term is ambiguous, that meaning is to be preferred which is less onerous to the party assuming an obligation, or which interferes less with the territorial and personal supremacy of a party, or involves less general restrictions upon the parties.89

In this dispute, the Appellate Body applied the principle of in dubio mitius to support its clarification that Article 3.1 of the SPS Agreement did not mandate conformity or compliance of an SPS measure with international standards, guidelines, and recommendations, but rather only recommended such compliance. The Appellate Body was reluctant to ‘assume that sovereign states intended to impose upon themselves the more onerous, rather than the less burdensome, obligation by mandating conformity or compliance with [international] standards, guidelines and recommendations’90 and considered that sustenance of such an assumption called for a far more specific and compelling treaty language than found presently in Article 3 of the SPS Agreement.91 The principle of in dubio mitius has been used once by the Appellate Body, with China –​Publications and Audiovisual Products being the only other dispute where the Appellate Body mentioned this principle but did not apply it.92

V.  Interpretation of RTAs In WTO parlance, regional trade agreements (RTAs) are defined as reciprocal trade agreements between two or more partners, and include free trade agreements as well as agreements establishing custom unions.93 As on 2019, 355 RTAs were in force.94 Varied in scope, some RTAs are quite comprehensive containing detailed rules on investment,

89  Appellate Body Report, EC –​Hormones, adopted 13 February 1998, fn 154 to para 165 (quoting from R. Jennings and A. Watts (eds), Oppenheim’s International Law, 9th edition, Vol. I (Longman, 1992), 1278). 90  Ibid., at para 165. 91  Ibid., at para 165. 92  Appellate Body Report, China –​Publications and Audiovisual Products, adopted 19 January 2010, para 411. 93  See < https://​www.wto.org/​engl​ish/​trato​p_​e/​regio​n_​e/​rta_​pt​a_​e.htm > (last visited 31 August 2021). 94  See WTO Regional Trade Agreements Information System (RTA-​IS) at < http://​rtais.wto.org/​UI/​ Public​Main​tain​RTAH​ome.aspx > (last visited 14 June 2022).

Interpretation   941 e-​commerce, and intellectual property rights, as well as labour and environment issues.95 In 2013, the WTO Secretariat conducted a study classifying the dispute settlement mechanisms (DSMs) of 226 RTAs that were in force at the end of 2012 into three models, namely96: a. the political/​diplomatic model comprising RTAs with no dispute settlement provision; RTAs providing exclusively for a negotiated settlement among disputing RTA members and/​or referral of a dispute to a political body for resolution; and RTAs according members right to veto a referral to a third-​party adjudicator. Of the 226 RTAs, 69 RTAs belonged to this category.97 b. the quasi-​judicial model comprising RTAs providing for third-​party adjudication (mostly on ad hoc basis) at some stage of the dispute settlement process. Of the 226 RTAs, 147 RTAs were classified in this category.98 c. the judicial model comprising RTAs providing for a more institutionalized, independent and a permanent judicial body. Only 10 of the 226 RTAs DSMs were classified in this category.99 This study also concluded that ‘the number of RTA-​DSMs that have been active is very small’ with only a few RTAs showing more activity than the others.100 With regard to the rules of interpretation, some RTAs expressly stipulate that the agreement is to be interpreted in accordance with Articles 31 and 32 of the VCLT101 some RTAs generally refer to ‘applicable rules of international law’102 or ‘customary rules of

95  See, e.g., the CPTPP, a trade agreement between Canada and 10 other countries in the Asia Pacific region (Australia, Brunei Darussalam, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam) covering subjects such as labour, e-​commerce, intellectual property rights, environment, competition policy etc. 96  C. Chase, A. Yanovich, J.-​ A. Crawford, and P. Ugaz, Mapping of dispute settlement mechanisms in regional trade agreements: Innovative or variations on a theme? 2013 WTO Staff Working Paper No. ERSD-​2013-​07. 97   Ibid., at 11 and 58. For example, South Asian Free Trade Agreement (SAFTA) and the Asia Pacific Trade Agreement (APTA). 98  See ibid., at 11 and 58. For example, the United States’ FTAs with Colombia, Oman, Panama, and Peru. 99  See ibid., at 12 and 58. For example, Eurasian Economic Union and Common Market for Eastern and Southern Africa (COMESA). 100  Ibid., at 46. The authors explicitly recognized that due to informational deficiencies there are limits to what can be said about the level of activity in RTA-​DSMs, see ibid. 101  See, e.g., Article 28.12, paragraph 3 of the CPTPP; Article 29.17 of CETA; and Article 22.11 of the KORUS FTA. 102  See, e.g., Articles 50(1) and 50(4) Annex 2 of the EaEU Treaty; Article 137 of the India –​Japan FTA; and Article 142 of the Japan–​Switzerland FTA.

942    Peter Van den Bossche and Parika Ganeriwal interpretation of public international law’103 or like formulation104 to guide the interpretation of their provisions; and other RTAs such as ASEAN-​Japan,105 GCC-​Singapore,106 Japan-​Australia etc., do not explicitly prescribe any specific rules to govern the interpretation of the provisions in the agreement. From a public international law perspective, RTAs concluded between States107 that are also parties to the VCLT108 squarely fall within the scope of that Convention provided that the RTA was concluded after the Convention’s entry into force in 1980.109 In such a case, the provisions of the VCLT concerning interpretation of treaties (Articles 31–​33) apply to interpret the provisions of the RTAs. For States that are not a party to the VCLT, it is generally accepted that the rules of interpretation set out in Articles 31 and 32 of that Convention have attained the status of rules of customary international law110 and thus applicable to interpret the provisions of the RTA in question.111 NAFTA is a good illustration of this point. Note that the United States, one of the NAFTA parties is not a party to the VCLT. Article 102(2) of NAFTA states that:’[t]‌he Parties shall interpret and apply the provisions of this Agreement in the light of its 103  See, e.g., Article 322 of the EU–​Central America FTA; Article 10 of the Agreement on Dispute Settlement Mechanism under the Framework Agreement on Comprehensive Economic Co-​operation between India and the ASEAN; and Article 29 of the EFTA–​Canada FTA. 104  See, e.g., Article 61 of the FTA between the EFTA States and Singapore. 105 ASEAN, comprising Indonesia, Thailand, Malaysia, Singapore, Philippines, Vietnam, Brunei, Cambodia, Myanmar, and Laos entered into an FTA with Japan in 2008. 106  The Gulf Co-​ operation Council (GCC) comprising the United Arab Emirates, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait entered into a free trade and economic integration agreement with Singapore in 2008. 107  Article 1 of the VCLT provides the material scope of the Convention stating that it ‘applies to treaties between States’. Further, Article 2(1)(a) of the VCLT defines a treaty to mean:

an international agreement concluded between States in written form and governed by international law, whether embodied in a single instrument or in two or more related instruments and whatever its particular designation. 108 

The VCLT has been ratified by 116 States so far, for a complete list see < https://​treat​ies.un.org/​Pages/​ Vie​wDet​ails​III.aspx?src=​TRE​ATY&mtdsg​_​no=​XXIII-​1&chap​ter=​23&Temp=​mtd​sg3&clang=​_​en > (last visited 31 August 2021). 109  See Article 4 of the VCLT. 110 See, e.g., Sovereignty over Pulau Ligitan and Pulau Sipadan (Indonesia/​ Malaysia), Judgment, I.C.J. Reports 2002,645, para 37. In this case whilst acknowledging that one of the parties to the dispute, Indonesia had not ratified the VCLT, the ICJ affirmed that Articles 31 and 32 of the VCLT reflected customary international law, and that the Court would proceed with the interpretation of the treaty provisions at issue in light of the rules in Articles 31 and 32 (the ICJ refereed to the following cases: Case Concerning the Territorial Dispute (Libyan Arab Jamahiriya v Chad) Judgment, I.C.J. Reports 1994, 21–​22, para 41; Maritime Delimitation and Territorial Questions between Qatar and Bahrain (Qatar v. Bahrain), Jurisdiction and Admissibility, Judgment, (1995) I.C.J. Reports, 18, para 33; Oil Platforms (Islamic Republic of Iran v. United States of America), Preliminary Objection, Judgment, I.C.J. Reports 1996 (II), 812, para 23; and KasikililSedudu Island (Botswana/​Namibia), Judgment, (1999) ICJ. Reports (I), 1059, para 18). 111  See Appellate Body Reports, US –​Gasoline, adopted 20 May 1999, 16; US –​Carbon Steel, adopted 19 December 2002, para 61; Japan –​Alcoholic Beverages II, adopted 1 November 1996, 104; and US –​ Softwood Lumber IV, adopted 17 February 2004, para 59.

Interpretation   943 objectives set out in paragraph 1 and in accordance with the rules of international law’. In the matter of Tariffs Applied by Canada to Certain US-​Origin Agricultural Products, a NAFTA arbitral panel understood the reference to ‘applicable rules to international law’ to include Articles 31 and 32 of the VCLT, which according to the panel were ‘generally accepted as reflecting customary international law’.112 Applying the basic proposition in Article 31 of the VCLT, the panel noted that it must commence the interpretation process by identifying the plain and ordinary meaning of the words used. For this purpose, as the panel explained, it will consider ‘the meaning actually to be attributed to the words and phrases looking at the text as a whole, examining the context in which the words appear and considering them in the light of the object and purpose of the treaty’, also taking account of subsequent agreements and subsequent practice together with the context.113 Note that some RTAs explicitly stipulate that interpretations developed by WTO panels and the Appellate Body may be taken into account to interpret RTA provisions, where relevant. For instance, the CPTPP stipulates that in respect of provisions of the WTO Agreement that are incorporated in the CPTPP ‘the panel shall also consider relevant interpretations in reports of panels and the WTO Appellate Body adopted by the WTO Dispute Settlement Body’.114 Similar provisions can be found in, for example, CETA115 and the EU-​Central America Association Agreement.116 Thus, so far as interpretation of RTA provisions is concerned, the rules of interpretation comprised in the VCLT serve as the first and foremost guide to interpretation. In addition, if the RTA stipulates other rules or incorporates provisions of the WTO Agreement, then to that extent the interpretations rendered in WTO panel and Appellate Body reports, adopted by the Dispute Settlement Body may also usefully guide the interpretation of RTA provisions.

VI.  Concluding remarks While it was always subject to some criticism from various quarters, in recent years the interpretation by the Appellate Body of provisions of the WTO agreements has been strongly criticized in particular by the United States. According to the United States, on several issues of great importance to it, the Appellate Body ‘engaged in impermissible 112  NAFTA Panel Report, Tariffs Applied by Canada to Certain US-​Origin Agricultural Products, para 119. See also NAFTA Panel Report, In the Matter of Cross-​Border Trucking Services, issued February 06, 2001, paras 220–​222 where the Panel made similar observations. 113  NAFTA Panel Report, Tariffs Applied by Canada to Certain US-​Origin Agricultural Products, paras 120 and 121. 114  Article 28.12 of the CPTPP. 115  See Article 29.17 of CETA. 116  See Article 322(2) of the EU-​Central America Association Agreement. These Central American States are Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama.

944    Peter Van den Bossche and Parika Ganeriwal gap-​filling, and read into the WTO agreements rules that are simply not there’.117 The United States referred specifically to the interpretation of: (1) the term ‘public body’ in Article 1.1 of the SCM Agreement allegedly favouring non-​market economies; (2) the ‘fair comparison’ test of Article 2.4 of the Anti-​Dumping Agreement and the prohibition of ‘zeroing’; (3) the ‘unforeseen developments’ requirement of Article XIX of the GATT 1994 making it more difficult to impose safeguard measures; and (4) the term ‘treatment no less favourable’ in Article 2.1 of the TBT Agreement introducing the ‘legitimate regulatory distinction’ test.118 The United States argued that the Appellate Body has added to US obligations and diminished US rights by interpreting provisions of the WTO agreements in ways it was explicitly prohibited from doing. While the United States had also other concerns regarding the functioning of the Appellate Body, its disagreement with the latter’s interpretation in a number of cases led the United States to block, as of mid-​2017, the process of appointment of Appellate Body Members. In spite of determined efforts by other WTO Members to address the US concerns, the US blockage of the appointment process resulted in the paralysis of the Appellate Body on 11 December 2019, when only one Appellate Body Member remained in function. At the time of writing, this paralysis continues in spite of repeated requests by 120-​plus WTO Members to unblock the appointment process. As to whether the United States is correct in alleging that the Appellate Body systematically erred in its interpretation of WTO provisions, note that the US criticism of the interpretations referred to above is not widely shared by Members. Also, in its criticism of these interpretations, the United States does not elaborate on how exactly they are inconsistent with the customary rules of interpretation codified in Articles 31 and 32 of the VCLT, i.e., the rules which the Appellate Body is called upon to apply, and did apply.

Further reading Abi-​Saab, G., ‘The Appellate Body and Treaty Interpretation’ in M. Fitzmaurice, O. Elias and P. Merkouris (eds), Treaty Interpretation and the Vienna Convention on the Law of Treaties: 30 years on (Leiden: Martinus Nijhoff Publishers, 2010) 453–​464 Van Damme, I., ‘Treaty Interpretation by the WTO Appellate Body’ 21(3) European Journal of International Law (2010) 605–​648 Merkouris, P. and M. Fitzmaurice, ‘Canons of Treaty Interpretation: Selected Case Studies from the World Trade Organization and the North American Free Trade Agreement’ in M. Fitzmaurice, O. Elias and P. Merkouris (eds), Treaty Interpretation and the Vienna Convention on the Law of Treaties: 30 years on (Leiden: Martinus Nijhoff Publishers, 2010) 153–​238

117  United States Trade Representative, Report on the Appellate Body of the World Trade Organization, February 2020, 8. 118  Ibid., at 912.

Chapter 36

J urisdicti on a nd Applicable L aw i n t h e W TO and Fre e T ra de Agreem e nts Lorand Bartels

I.

Jurisdiction A. Introduction B. Jurisdiction in trade agreements C. Facts D. Applicable law II. Overlapping jurisdictions A. Exclusive jurisdiction in the WTO B. Exclusive jurisdiction in FTAs III. Conclusions

946 946 948 950 953 962 962 963 964

946   Lorand Bartels

I. Jurisdiction A. Introduction The jurisdiction1 of any judicial tribunal2 to determine the merits of an issue typically comprises at least one or more of the following functions: (i) to establish relevant facts, (ii) to identify and interpret the law applicable to those facts, and (iii) to apply the law, as interpreted, to the established facts,3 resulting in a binary conclusion that the established facts meet the description set out in the applicable law or they do not. In addition, international tribunals are presumed to have certain inherent and incidental powers4 concerning the exercise of their primary jurisdiction, including the power to determine their jurisdiction and the power to regulate their proceedings. International tribunals may be granted jurisdiction with respect to all three of these matters, but they may also be granted a more limited jurisdiction.5 A common

1  In its broadest and simplest sense, the ‘jurisdiction’ of an organ (including a tribunal) is synonymous with its ‘powers’. The definition of the term becomes complicated when distinguishing jurisdiction from pre-​jurisdictional issues (eg the validity of the tribunal or seisin), merits, remedies, and admissibility. See, e.g., C. Amerasinghe, The Jurisdiction of International Tribunals (The Hague: Kluwer, 2003). 2  This chapter does not consider non-​binding FTA dispute settlement systems. For a full survey, see C. Chase et al., ‘Mapping of Dispute Settlement Mechanisms in Regional Trade Agreements—​Innovative or Variations on a Theme?’ in R. Acharya (ed), Regional Trade Agreements and the Multilateral Trading System (Cambridge: Cambridge University Press, 2016), at 608–​702. 3  This approach recasts the common (but, it is submitted, misguided) terminological distinction between jurisdiction, seen in terms of resolving claims, and applicable law, seen in terms of the law applicable in the exercise of that jurisdiction. See, e.g., M. Wood, ‘The International Tribunal for the Law of the Sea and General International Law’ 22 International Journal of Marine and Coastal Law (2007) 351, at 356–​358 (using the subheading ‘[j]‌urisdiction versus applicable law’). The term ‘jurisdiction’, in this sense, is used as a synonym for the claims at issue in a dispute, as distinct from other legal questions. This is unproblematic, but the terminology makes it seem that jurisdiction can be exercised over claims without the application of any law. In private international law, it is clear that ‘jurisdiction’ simply refers to the forum in which a claim is determined, and ‘applicable law’ includes the law applicable to those claims. It is unclear why scholarship in public international law has adopted such confusing terminology on this point. 4  The difference is that inherent powers are presumed to exist unless rebutted, whereas incidental powers depend on an express conferral. See C. Brown, ‘Inherent Powers in International Adjudication’ in C. Romano, K. Alter, and Y. Shany (eds), The Oxford Handbook of International Adjudication (Oxford: Oxford University Press, 2013), 845. On the inherent powers of WTO panels and the Appellate Body see, e.g., I. Van Damme, ‘Jurisdiction, Applicable Law, and Interpretation’ in D. Bethlehem, D. McRae, R. Neufeld and I. Van Damme (eds), The Oxford Handbook of International Trade Law, 1st edition (Oxford: Oxford University Press, 2009), 304–​315. 5  At least in contentious matters, international tribunals are only able to exercise jurisdiction over States, even if this is non-​binding, on the basis of consent: Eastern Carelia, Advisory Opinion (1923) PCIJ Rep Ser. B, No 5, at 27. For an insightful analysis of the often misunderstood scope of this judgment, see R. Kolb, The International Court of Justice (Oxford: Hart, 2013), at 1058–​9.

Jurisdiction and Applicable Law    947 and sometimes problematic limitation is with respect to fact finding. Thus, tribunals with an interpretative, advisory jurisdiction or appellate jurisdiction, as well as tribunals determining their jurisdiction, must exercise their functions on the basis of assumed or previously established facts, which can create difficulties when those facts are not properly established.6 This is also true in the WTO system, where WTO panels have the power to make factual and legal determinations, and apply the law to the facts, while the WTO Appellate Body may only make legal determinations and apply the law to facts already established by panels or agreed by the parties. Finally—​although this chapter does not consider these matters7—​international tribunals are also presumed to have powers with respect to the consequences of their findings, including a determination of secondary rights and obligations, such as reparations.8 In contrast, WTO and FTA panels are granted only limited powers to make recommendations to the parties to bring their measures into compliance with their obligations,9 and, optionally, to make suggestions on how this might be done.10 The WTO agreements and FTAs also have special rules on secondary obligations, including obligations to comply, obligations to report on actions taken to comply, and secondary rights, such as the right to suspend concessions and other obligations.11

6 

The problem is illustrated by Nuclear Weapons, Advisory Opinion (1996) ICJ Rep 226, para 97, where the ICJ determined, in part, that it lacked the facts to give a definitive legal interpretation. Arguably, the Court should have declined jurisdiction on this basis. A related problem is where an appellate tribunal overturns the legal findings of a first instance tribunal but lacks relevant facts to which it can apply its legal findings. This is usually addressed by a power to remand a dispute to a lower instance fact finding tribunal, or as the Appellate Body has done, by ‘completing the analysis’ on the basis of established or agreed facts. This practice has however come under pressure: see WTO General Council, Draft Decision –​Functioning of the Appellate Body, WT/​GC/​W/​791 (28 November 2019), para 11, stating that ‘[t]‌he DSU does not permit the Appellate Body to engage in a “de novo” review or to “complete the analysis” of the facts of a dispute.’ 7  See Chapter 37 of this handbook. 8 In Chorzow Factory, Indemnity, Jurisdiction (Germany v Poland) (1927) PCIJ Rep Ser A, No 9, at 21, the PCIJ said that a power to determine a dispute concerning the ‘application’ of a treaty included a power to determine rights and obligations arising as a consequence of a party’s failure to ‘apply’ a treaty. This treats ‘application’ as synonymous with a party’s ‘observance’ or ‘performance’ of a treaty (as this is termed by Article 26 of the VCLT), but this is no longer common usage. 9  Article 19.1 of the DSU. In the case of prohibited subsidies, a WTO panel must recommend ‘that the subsidizing Member withdraw the subsidy without delay’ (Article 4.7 of the SCM Agreement). Unusually, in the case of actionable subsidies the subsidizing Member comes under an automatic secondary obligation to ‘take appropriate steps to remove the adverse effects or [to] withdraw the subsidy’ (Article 7.10 of the SCM Agreement). 10  Article 19.1 of the DSU. See R. Babu, Remedies under the WTO Legal System (Leiden: Martinus Nijhoff, 2012), at 141–​147. 11  Because of these limitations WTO panels are sometimes termed ‘quasi-​judicial’. By the same token, however, the CJEU in the exercise of its preliminary rulings jurisdiction and the ICJ in the exercise of its advisory jurisdiction could be termed ‘quasi-​judicial’. The term is not used here.

948   Lorand Bartels

B. Jurisdiction in trade agreements There are several traditional ways that treaties grant jurisdictional functions to tribunals. A common method is to give a tribunal jurisdiction to determine ‘disputes’ with respect to ‘the application and interpretation’ of an instrument; it is often added that, in the exercise of this function, they are to apply law from a specified set of ‘sources’.12 The WTO deviates from this model, more for historical reasons to do with the evolution of dispute settlement in the GATT 1947 system than for any doctrinal or theoretical reasons. It gives WTO panels jurisdictional powers in two distinct forms: first, by way of a generic provision on the ‘functions’ of panels, and, second, by means of dispute-​specific ‘terms of reference’ adopted by the WTO Dispute Settlement Body. The generic provision, Article 11 of the DSU, states that: A panel should make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements.

It will be noticed that this sentence does not make complete grammatical sense. It is straightforward enough that a ‘matter’ should include ‘the facts of the case’, but it is not clear what noun should follow ‘conformity’. FTAs generally improve on this language by adding that the main facts to be legally appraised are ‘the measures at issue’. For example, the EU-​ UK Trade and Cooperation Agreement states that: The arbitration tribunal . . . shall make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of, and conformity of the measures at issue with, the covered provisions [of the agreement]13

Article 7.1 of the DSU sets out the following standard terms of reference for any given panel: To examine, in the light of the relevant provisions in (name of the covered agreement/​ s cited by the parties to the dispute), the matter referred to the DSB by (name of party) in document DS/​. . . and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in that/​those agreement/​s.14 12 

For a critique of the term ‘sources’, see P.E. Corbett, ‘The Consent of States and the Sources of the Law of Nations’ 6 British Yearbook of International Law (1925) 20. 13  Article 742 of the EU-​UK Trade and Cooperation Agreement (TCA) (emphasis added). Article 19.12.1 of the RCEP is similar. 14   Under Article 7.3, a complainant may also request the establishment of a panel with non-​standard terms of reference. If the parties agree, a panel with non-​standard terms of reference will be established. In addition, Article 7.3 states that ‘the DSB may authorize its Chairman to draw up the terms of reference of the panel in consultation with the parties to the dispute subject to the provisions of paragraph 7.1 above.’ This may mean that the Chairman may impose terms of reference on parties in the absence of agreement. See WTO DSB, Australia –​Salmonids, Communication from the Chairman of the DSB, WT/​ DS21/​5 (23 July 1999), para 3.

Jurisdiction and Applicable Law    949 Despite some differences in scope, to be discussed below, this wording generally covers the same ground as Article 11. In particular, under both provisions a panel is to focus on the ‘matter’ before it and this, in both cases, is constituted by the complainant’s request for a panel.15 As such, the factual and the legal terms of trade disputes lie solely in the hands of the complainant. This arrangement is notably different from jurisdictional clauses based on a ‘dispute’, which is traditional in many treaties establishing tribunals. The International Court of Justice has said that the term ‘dispute’ depends only in part on the claims of a complainant, other evidence also being admissible.16 In contrast, a complainant controls the legal and factual nature of a ‘matter’. The difference can be illustrated by Ukraine –​ Wood Products, a dispute arising under the EU-​Ukraine Association Agreement.17 The European Union had requested a Chapter 14 panel to determine the compatibility of Ukraine’s export restrictions on wood products with an obligation prohibiting export restrictions. Ukraine objected, arguing that the dispute concerned a ‘matter’ arising under the trade and sustainability chapter (Chapter 13), and needed to be resolved by the Trade and Sustainable Development Sub-​Committee, which would presumably be more favourable to Ukraine’s position. For the Panel, what was decisive was ‘the “matter” . . . as raised and defined by the complaining Party’. It emphasized that it ‘cannot question the identification of the matter raised by the Complainant, as long as the Respondent has not made a timely objection to that identification’.18 This emphasis on a ‘matter’ also has implications for certain FTA dispute settlement systems that are set out in broader terms reminiscent of non-​trade dispute settlement. For example, the USMCA provides for dispute settlement not only for situations involving measures that violate the agreement or that otherwise nullify or impair benefits under the agreement,19 but also for situations ‘with respect to the avoidance or settlement of disputes between the Parties regarding the interpretation or application of this Agreement.’20 Even so, a USMCA panel will be limited by its terms of reference, which are based on a request with respect to a ‘matter’.21 Thus, even if the relevant ‘matter’ involves a dispute regarding the interpretation or application of 15  Appellate Body Report, Canada –​Wheat Exports and Grain Imports, adopted 27 September 2004, para 176. A request for a panel is made under Article 6.2 of the DSU, which requires a complainant to ‘identify the specific measures at issue and provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly.’ 16  Fisheries Jurisdiction (Spain v Canada) (1998) ICJ Rep 432, paras 29–​35. This is different from the question of whether a dispute exists. 17  Restrictions applied by Ukraine on exports of certain wood products to the European Union—​ Final Report of the Arbitration Panel established pursuant to Article 307 of the EU-​Ukraine Association Agreement, 11 December 2020, at < https://​trade.ec.eur​opa.eu/​doc​lib/​html/​159​181.htm > (last visited 15 November 2021). 18  Ibid., at para 132. 19  Such ‘non-​violation’ claims are possible under Article XXIII:1(b) of the GATT 1994 and Article XXIII:3 of the GATS, and regulated by Article 26.1 of the DSU, but are rare. Most but not all FTAs dispense with these non-​violation claims. 20  Article 31.2 of the USMCA. 21  Article 31.6.3 of the USMCA.

950   Lorand Bartels the agreement,22 the precise definition of that dispute will still lie in the hands of the complaining party.

C. Facts WTO and FTA obligations typically require the parties to refrain from conduct of a particular type.23 In the WTO, this conduct, termed a ‘measure’, must be set out in a request for a panel. This measure consequently forms part of the terms of reference of the panel, and therefore constitutes the primary factual basis for the dispute.24 It is the same for most FTAs, although, interestingly, US and Canadian FTAs, as well as EFTA FTAs, permit panels to consider not only an existing measure, but also a ‘proposed measure’25 Several other FTAs refer to proposed measures, but limit the parties’ obligations in respect of proposed measures to notifications or at most, in the case of CPTPP, consultations and alternative dispute resolution.26 Trade panels must be satisfied that the impugned ‘measure’ (or proposed measure) exists,27 or existed at the relevant time,28 that it is attributable to the respondent,29 and that it meets the description set out in the rules at issue. Depending on those rules, this last task can entail an analysis of the legal nature of the measure (for example, whether it is an ‘ordinary customs duty’), its effects (for example, whether it discriminates against foreign imports, or contributes to the protection of public health, or, in the case of 22 

Article 31.6.3 of the USMCA by analogy with Article 31.4. Such conduct may be an act or an omission: Appellate Body Report, US –​Corrosion-​Resistant Steel Sunset Review, adopted 9 January 2004, para 81. There are also some obligations that can be considered ‘positive’, in the sense that a party is obliged to take positive action. Intellectual property obligations are an example. 24  In the theoretical (and probably obsolete) case of a ‘situation’ complaint under Article XIII:1(c) of the GATT 1994 not involving a ‘measure’, Article 26(a) of the DSU provides that ‘the complaining party shall present a detailed justification in support of any argument made with respect to issues covered under this paragraph’. 23 

25  Article 31.2 of the USMCA. This provision also provides for jurisdiction to consider ‘other matter[s]‌ at issue’. 26  Article 28.7(7) of the CPTPP states that ‘[a]‌panel shall not be established to review a proposed measure’. 27  Measures may also be ‘unwritten’, in which case it is more difficult to establish whether there is any relevant conduct attributable to the respondent, and whether any such conduct rises to the level of a ‘measure’ for the purposes of WTO dispute settlement. See WTO Appellate Body Report, Russia –​ Railway Equipment, adopted 5 March 2020, para 5.234 and, generally, C. Valles et al., ‘Challenging Unwritten Measures in the World Trade Organization: The Need for Clear Legal Standards’ 22 Journal of International Economic Law (2019) 459. 28  Panels and the Appellate Body may exercise jurisdiction in respect of expired measures in certain circumstances: see Appellate Body Report, EU –​Fatty Alcohols (Indonesia), adopted 29 September 2017, paras 5.175–​5.185 and Appellate Body Report, EU –​PET (Pakistan), adopted 28 May 2018. 29  In some cases, respondents have sought to deny responsibility on the grounds that any relevant conduct was not attributable to them, but rather to private actors or, in some cases, to a customs union. See G. Vidigal, ‘Attribution in the WTO: The Limits of “Sufficient Government Involvement” ’ 6 Journal of International Trade and Arbitration Law (2017) 133.

Jurisdiction and Applicable Law    951 non-​violation claims, nullifies or impairs benefits), its purpose (for example, whether it was adopted to protect human or animal life or health) and even other matters (such as, in the case of non-​violation claims, whether the measure was anticipated by the complainant at the time the relevant benefits accrued30). Factual findings to this end will often require evidence of various types, including econometric and scientific evidence.31 In addition, in determining the nature or effects of a ‘measure’ a panel may need to ascertain the meaning of a domestic legal instrument (most obviously when the measure is established in this instrument). The starting point is that, in carrying out this interpretive task, a panel is not bound by the respondent party’s own interpretation of that instrument, or indeed any other domestic legal issue. The matter is, once again, simply one of evidence. Thus, the Appellate Body has said: The party asserting that another party’s municipal law, as such, is inconsistent with relevant treaty obligations bears the burden of introducing evidence as to the scope and meaning of such law to substantiate that assertion. Such evidence will typically be produced in the form of the text of the relevant legislation or legal instruments, which may be supported, as appropriate, by evidence of the consistent application of such laws, the pronouncements of domestic courts on the meaning of such laws, the opinions of legal experts and the writings of recognized scholars. The nature and extent of the evidence required to satisfy the burden of proof will vary from case to case.32

This makes sense from the perspective of legal theory. Whether or not a respondent has engaged in a certain conduct, relevant for determining a legal question, is for those purposes a question of fact. For this purpose, it does not matter whether the legal question is one of international law, or one of domestic law. On the other hand, in order to establish that fact, it may be necessary for a tribunal to engage in an analysis of a party’s domestic law. For example, a tribunal might need to analyse the legality of the adoption of an instrument under domestic law, or to interpret an instrument in accordance with domestic law rules of interpretation. That analysis will produce a result that, for the purpose of the original legal question, operates as a fact. However, this does not mean that the tribunal is not engaging in an ordinary legal operation involving the identification, interpretation, and application of domestic law (to a given fact) to establish a fact for the purposes of the question under international law. For example, a tribunal may need to determine whether a domestic instrument has been validly enacted, because only valid laws violate an international obligation. In that event, the tribunal will need to identify and interpret the relevant domestic law (for example, 30 

Panel Report, Japan –​Film, adopted 22 April 1998, para 10.26. On the standard of review of facts established by domestic authorities, see Appellate Body Report, EC –​Hormones, adopted 13 February 1998, paras 116–​119. 32  Appellate Body Report, US –​Carbon Steel, adopted 19 December 2002, para 257. See also Appellate Body Report, Thailand –​Cigarettes (Philippines), adopted 15 July 2011, para 159, fn 253. The Panel in US –​Section 301 Trade Act, adopted 27 January 2000, para 7.18, said that where there are conflicting interpretations, a panel may choose an interpretation most in conformity with domestic law (citing Brazilian Loans (France v Brazil) (1929) PCIJ Rep Ser A, Nos 20/​21, at 124). 31 

952   Lorand Bartels the constitution) and apply that law to facts described in that law (the adoption of the domestic instrument). The result will be either positive (the measure is valid) or negative (the measure is invalid). And that positive or negative result will operate as a fact for the purpose of a violation of the international obligation (again, positive or negative). These considerations can assist in understanding two issues that have arisen in connection with domestic law in the trade law context. The first concerns the Appellate Body’s determination that WTO panel findings on domestic law are ‘legal characterizations’, not factual findings, and that they are therefore amenable to appellate review.33 It might well be true (though it is not in all legal systems) that a legal conclusion resulting from the application of a law to a fact—​namely, whether there is a violation or not—​can be considered a ‘legal characterization’. But that does not mean that the establishment of a fact for the purposes of this legal operation is also a ‘legal characterization’, even when the fact is the result of a determination about domestic law. This is the case even though a panel may engage in legal operations under that domestic law to obtain that determination; the end result is still, for the purposes of WTO law, a factual finding. The Appellate Body’s approach to this issue has rightly been challenged by WTO Members, most recently in a draft WTO General Council Decision that includes the statement that ‘[t]‌he “meaning of municipal law” is to be treated as a matter of fact and therefore is not subject to appeal.’34 This restores the traditional position, albeit for reasons that have less to do with doctrinal correctness than concerns with the role of the Appellate Body. The second issue is, in a sense, the opposite, and concerns the European Union’s practice of limiting the ability of first instance tribunals established under its FTAs to make determinations about municipal law. In this case, the reason is to address objections of the EU Court of Justice (CJEU) to international tribunals making determinations about EU law.35 In particular, the CJEU has consistently rejected agreements empowering an international tribunal to determine the allocation of international responsibility under the treaty at issue as between the European Union and the Member States.36 These objections, among others, have led the European Union to include provisions in its FTAs in the following terms: 33 

Appellate Body Report, US –​Section 211 Appropriations Act, adopted 1 February 2002, para 105. WTO General Council, Draft Decision, above fn 9, para 10. 35 In Opinion 1/​91 (EEA), EU:C:1991:490, para 46, the CJEU said that the European Union cannot conclude agreements containing obligations that resemble EU law, unless the tribunal is able to request the CJEU to make a binding interpretation on such provisions. As a result, subsequent agreements closely tracking EU law have contained a preliminary rulings procedure so that the CJEU can issue a binding interpretation. In Opinion 1/​17 (CETA), EU:C:2019:341, para 118, the CJEU understood that this is logically unnecessary: ‘since those Tribunals stand outside the EU judicial system, they cannot have the power to interpret or apply provisions of EU law other than those of the CETA or to make awards that might have the effect of preventing the EU institutions from operating in accordance with the EU constitutional framework.’ 36  Opinion 2/​ 13 (ECHR), EU:C:2014:2454, paras 220–​225. For criticism of this objection, see P. Eeckhout, ‘Opinion 2/​13 on EU Accession to the ECHR and Judicial Dialogue: Autonomy or Autarky’ 38 Fordham International Law Journal (2015) 955, 979–​985. For the CJEU, this problem can be solved by a 34 

Jurisdiction and Applicable Law    953 The Tribunal shall not have jurisdiction to determine the legality of a measure, alleged to constitute a breach of this Agreement, under the domestic law of a Party. For greater certainty, in determining the consistency of a measure with this Agreement, the Tribunal may consider, as appropriate, the domestic law of a Party as a matter of fact. In doing so, the Tribunal shall follow the prevailing interpretation given to the domestic law by the courts or authorities of that Party and any meaning given to domestic law by the Tribunal shall not be binding upon the courts or the authorities of that Party.37

In Opinion 1/​17 (CETA), the CJEU referred to this provision, stating that while a tribunal may have to ‘undertake, on the basis of the information and arguments presented to it by that investor and by that State or by the Union, an examination of the effect of that measure’, ‘that examination cannot be classified as equivalent to an interpretation, by the CETA Tribunal, of that domestic law, but consists, on the contrary, of that domestic law being taken into account as a matter of fact’.38 Actually, in ‘taking into account’ the domestic law, the CETA Tribunal would be identifying, interpreting and then applying relevant rules of domestic law to the facts at issue.39 But nonetheless, the CJEU is correct in determining, finally, that the result of that operation functions as a fact from the perspective of the FTA. It is just that this legal provision is no more than declaratory of the ordinary position.40

D. Applicable law 1. Claims, non-​application rules and exceptions In order to review the legality of a measure, a tribunal will need to identify a rule potentially applicable to that measure, to interpret that rule (which means determining the class of measures it applies to, by reference to the measure at issue), to establish the measure, and finally to apply the rule to the measure. In trade disputes, because a panel’s jurisdiction is defined by the ‘matter’ before it, and that ‘matter’ is defined provision expressly giving this power to the European Union. See, e.g., Article 8.21 of CETA, considered effective in Opinion 1/​17 (CETA), EU:C:2019:341, para 132. 37 

Article 8.31(2) of CETA. Opinion 1/​17 (CETA), EU:C:2019:341, para 131. 39  C. Rapoport, ‘Balancing on a Tightrope: Opinion 1/​17 and the ECJ’s Narrow and Tortuous Path for Compatibility of the EU’s Investment Court System (ICS)’ 57 Common Market Law Review (2020) 1725, 1747. In addition, the CJEU is wrong to say that it is just the ‘effects’ of a measure that will need to be determined; as noted above, it could also be its characterization (e.g., if a customs duty) and purposes. 40  Other parts of Article 8.31(2) of CETA are also redundant. To state that a tribunal has no jurisdiction to determine the legality of a measure under domestic law is meaningless: there could never be such a claim under an international agreement. And to state that a tribunal cannot bind domestic authorities is obviously redundant: the CJEU even admitted as much in Opinion 1/​17, EU:C:2019:341, para 117. The only statement in this provision with legal effect is that which requires a tribunal to follow existing domestic legal interpretations. This overrides the ordinary rule considered above (see above fn 33). 38 

954   Lorand Bartels by the complainant’s request for a panel, it is the claimant that initially identifies the rule that is potentially applicable to the measure. For example, a complainant’s claim that a measure violates the most favoured nation obligation in Article 2.1 of the TBT Agreement identifies that rule as the relevant rule potentially applicable to the measure. The main functions of the panel are subsequent. One is to interpret Article 2.1 of the TBT Agreement to see whether it covers the measure described in the complainant’s request for a panel. Once this is done, the application of Article 2.1 to the actual measure (and those actual facts) is a foregone conclusion: either they meet the respective descriptions in Article 2.1, and the respondent WTO Member has violated Article 2.1, or they do not, and the respondent WTO Member has not.41 But this is only one part of a tribunal’s analysis. It may also be necessary to determine whether there is a reason, external to Article 2.1, why this rule cannot be applied to the measure at issue.42 Such reasons exist in the form of supervening rules that render it non-​applicable when certain other facts are satisfied. For example, Article 1.5 of the TBT Agreement states that the provisions of the TBT Agreement ‘do not apply’ to measures that are defined in the SPS Agreement. In this case, a panel will need to determine whether the SPS Agreement describes the measure at issue. If it does, Article 1.5 of the TBT Agreement applies to the ‘measure’ with a positive result, meaning that Article 2.1 cannot be applied to that measure. Article 32.12 of the USMCA provides another example: ‘[a]‌decision by Canada following a review under the Investment Canada Act . . . with respect to whether or not to permit an investment that is subject to review, shall not be subject to the dispute settlement provisions of Chapter 31 (Dispute Settlement).’ In this case, a panel will apply Article 32.12 of the USMCA to a ‘decision by Canada’ to determine whether the conclusion follows that Chapter 31 can (or cannot) be applied to that decision. In these examples, the effect of the disabling rule (Article 1.5 of the TBT Agreement; Article 32.12 of the USMCA) is to preclude the application of the original rule (Article 2.1 of the TBT Agreement and Chapter 31 of the USMCA) to the facts of the matter. But this is only one type of disabling rule. There is another type that operates not by precluding the application of an original rule, but rather by rendering its results legally meaningless. Such rules are usually termed ‘exceptions’. Unlike ‘non-​application’ rules, exceptions do not preclude the application of the original rule to the facts at issue, and indeed they may even presuppose that it has been so applied, with a positive result (for the complainant).43 Thus, Article XX of the GATT 1994 states that ‘nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures’; Article XXI(b) of the GATT 1994 likewise states that ‘[n]‌othing in this Agreement shall be construed . . . to prevent any contracting party from taking [certain 41  This

is a simplification. Some rules also describe facts beyond a ‘measure’ that also need to be established. But the legal operations are the same. 42  J. Hage, Studies in Legal Logic (Vienna: Springer, 2005), at 88. 43 More technically, while an absolving rule (an exception) negates the legal relevance of the conclusion of a legal syllogism; a non-​application rule disables the application of its legal premise.

Jurisdiction and Applicable Law    955 actions]’.44 If a measure meets the conditions described in these exceptions, the result is that it does not matter how it is treated by other GATT rules. Whether or not it violates those rules is irrelevant. With one qualification, moreover, it makes no logical difference whether this is determined before or after applying the primary rule. It may be that for reasons of judicial efficiency, judicial economy and perhaps also judicial diplomacy45 a particular order of analysis has generally been preferred. However, given that it is the same set of rules and conditions that apply, the answer cannot differ depending on which comes first. It is the same, naturally, for different parts of the same rule.46 The qualification concerns the burden of proof, which as a rule falls on the party seeking to rely on a given fact. Where a fact is relevant under more than one rule, and where the burden of establishing that fact might shift between the parties, depending on the characterization of the rule as an obligation, a non-​application rule or an absolving rule (an exception),47 it might make a difference which party has first to establish the existence of that fact. But if each party depends on the establishment of such a fact, its existence is unlikely to be controversial.

2. The power to apply a rule So far, what has been said concerns the interaction of different rules within a given legal system in the abstract. But it is a particular feature of international law, more than domestic law, that tribunals cannot be presumed to have the power to apply all of these potentially applicable rules. To determine this requires an analysis of the powers of a tribunal, which are often (but not always) set out in clauses termed, as short-​hand, jurisdictional and applicable law clauses. In terms of WTO law, Article 1.1 of the DSU states that ‘[t]‌he rules and procedures of this Understanding shall apply to disputes brought pursuant to the consultation and dispute settlement provisions of the [WTO ‘covered agreements’ set out in Appendix 1].’ Those provisions are all limited to claims based on the respective WTO covered agreements. Article 11 of the DSU also requires panels to make an objective assessment of the conformity of [the measure at issue] with the covered agreements. 44 

In fact, the references to ‘construed’ in these rules means that they are rules of interpretation, but this is not how they have been treated in WTO jurisprudence. 45  In Panel Report, Russia –​Traffic in Transit, adopted 26 April 2019, para 7.108, the Panel considered the security exception in Article XXI(b) of the GATT 1994 prior to any claims that GATT obligations had been violated. 46  See Appellate Body, Indonesia –​Import Restrictions, adopted 22 November 2017, paras 5.91-​5.101, concerning the order of analysis between the subparagraphs and the chapeau of Article XX of the GATT 1994. See similarly on Article XXI of the GATT 1994, with reference to Article 11 of the DSU, Appellate Body Report, Russia –​Traffic in Transit, adopted 26 April 2019, para 5.235. 47  See J. Pauwelyn, ‘Defences and the Burden of Proof in International Law’ in L. Bartels and F. Paddeu (eds), Exceptions in International Law (Oxford: Oxford University Press, 2020), Chapter 6. The characterization of a rule that, ambiguously, could be either a non-​application rule or an exception may itself depend on a tribunal’s desire to allocate the burden of proof to a particular party: L. Duarte d’Almeida, ‘Defences in the Law of State Responsibility: A View from Jurisprudence’ in Bartels and Paddeu, ibid., Chapter 10.

956   Lorand Bartels This is reinforced by the standard terms of reference set out in Article 7.1 of the DSU, which require panels ‘to examine, in the light of the relevant provisions in (name of the covered agreement(s) cited by the parties to the dispute), the matter referred to the DSB by (name of party)’.48 But even non-​standard terms of reference cannot override Articles 1.1 and 11 of the DSU. In short, WTO panels are limited to determining claims based on the WTO covered agreements. A separate question concerns the identity of the disabling rules applied by WTO panels to determine the applicability of those rules. The concrete question is whether these disabling rules are limited to those found in the WTO covered agreements (for example, Article 1.5 of the TBT Agreement or Article XX of the GATT 1994) or whether they can extend to other rules of public international law.49 It might be thought that panels operating under standard terms of reference are only able to apply disabling rules found in the covered agreements, based on the fact that Article 7.1 terms of reference refer to them considering a matter ‘in the light of the relevant provisions of the covered agreements cited by the parties’. But that reference might equally well be taken as a minimum, and not exhaustive.50 And in any event, any such restriction would not apply to panels operating with non-​standard terms of reference under Article 7.3 of the DSU. What seems more determinative is Article 19.2 of the DSU, which states that ‘[i]‌n their findings and recommendations, the panel and Appellate Body cannot add to or diminish the rights and obligations provided in the covered agreements’. This has been interpreted by the Appellate Body as meaning that WTO rules must be given effect unless this is for a reason specified in the covered agreements themselves. Thus, in Mexico –​Soft Drinks, the Appellate Body said that Article 19.251 meant that a panel had no implied power to decline to exercise a validly established jurisdiction (based inter alia on Article 23 of the DSU) if ‘appropriate’.52 The Appellate Body has on several occasions applied the 48  Defects in a panel request cannot be cured, even if subsequent submissions and statements may be consulted to the extent that they may confirm or clarify the meaning of the words used in the panel request. See Appellate Body Report, US –​Countervailing and Anti-​Dumping Measures (China), adopted 22 July 2014, para 4.9. 49 For a comprehensive analysis of this debate, with references, see Van Damme, above fn 5, at 315–​320. 50  As the United States explained in EC –​Hormones, the idea was ‘to make it possible for a defending party to “cite” agreements additional to those cited by the complaining party, and to have the panel apply all agreements cited by both sides’. See Panel Report, EC –​Hormones (US), adopted 13 February 1998, para 4.268. In other words, the intention was to add to the applicable law, not to diminish it (even if this objective could never be met, as the ‘matter’ is determined by the complainant, not the respondent). Interestingly, until 2009 the practice of the DSB in adopting standard terms of reference was to replace ‘parties to the dispute’ solely with the name of the complainant and its request for a panel. 51  The Appellate Body also referred to the panel’s obligations under Article 3.2 of the DSU, but this (identically worded) provision imposes obligations on the DSB, not panels, even if it is indirectly relevant to a panel’s duty to make findings that will assist the DSB in its tasks. 52  The argument was that, by an illegal act, the United States was responsible for Mexico’s breach and therefore the United States was precluded from exercising its dispute settlement rights in respect of that breach (based on Chorzów Factory (Germany v Poland) (Jurisdiction), (1927), PCIJ Ser A, No 9, p 31) quoted in Mexico –​Soft Drinks, adopted 24 March 2006, para 55, fn 114.

Jurisdiction and Applicable Law    957 same reasoning, even though without specifically referencing Article 19.2 of the DSU. Thus, in EC –​Hormones, it said that ‘the precautionary principle does not override the provisions of Articles 5.1 and 5.2 of the SPS Agreement’,53 in Peru –​Agricultural Products it denied the applicability of Article 41 of the VCLT on the basis that WTO law contains its own relevant rules on treaty modification,54 and in EC –​Export Subsidies on Sugar, the Appellate Body said the following on the principle of estoppel: [T]‌he notion of estoppel . . . would appear to inhibit the ability of WTO Members to initiate a WTO dispute settlement proceeding. We see little in the DSU that explicitly limits the rights of WTO Members to bring an action; WTO Members must exercise their ‘judgement as to whether action under these procedures would be fruitful’, by virtue of Article 3.7 of the DSU, and they must engage in dispute settlement procedures in good faith, by virtue of Article 3.10 of the DSU. This latter obligation covers, in our view, the entire spectrum of dispute settlement, from the point of initiation of a case through implementation. Thus, even assuming arguendo that the principle of estoppel could apply in the WTO, its application would fall within these narrow parameters set out in the DSU.55

Peru –​Agricultural Products also clarified another question that remained outstanding after Mexico –​Soft Drinks. In that earlier dispute, the Appellate Body expressly refused to rule on the possibility that there might be a ‘legal impediment’ to a panel’s exercise of jurisdiction. The term ‘legal impediment’ had been used earlier in that report to refer to ‘legal obligations under the NAFTA or any other international agreement to which Mexico and the United States are both parties’,56 and the relevant legal obligation was a choice of forum clause in NAFTA. The Appellate Body might therefore have been hinting that an effective choice of forum clause might be a reason for declining to exercise jurisdiction in the future. In Peru –​Agricultural Products, the Appellate Body confirmed that a choice of forum or exclusive jurisdiction clause in another agreement could only be relevant under Article 3.10 of the DSU. In other words, in accordance with Article 19.2 of the DSU, a panel can only rely upon a WTO rule to disable another WTO rule. A final point concerns the ability of panels to raise legal issues independently of the parties. On merits questions, the Appellate Body has read Article 11 of the DSU as meaning that a panel can only rely on defences (and rebuttals to those defences) cited by the parties to a dispute. It said in US –​Gambling: In the context of affirmative defences . . . a responding party must invoke a defence and put forward evidence and arguments in support of its assertion that the challenged measure satisfies the requirements of the defence. When a responding 53 

Appellate Body Report, EC –​Hormones, adopted 13 February 1998, para 125. Appellate Body Report, Peru –​Agricultural Products, adopted 31 July 2015, para 5.112. 55  Appellate Body Report, EC –​Export Subsidies on Sugar, adopted 19 May 2005, para 312. 56  Appellate Body Report, Mexico –​Soft Drinks, adopted 24 March 2006, para 54, referring to para 44. 54 

958   Lorand Bartels party fulfils this obligation, a panel may rule on whether the challenged measure is justified under the relevant defence, relying on arguments advanced by the parties or developing its own reasoning. The same applies to rebuttals. A panel may not take upon itself to rebut the claim (or defence) where the responding party (or complaining party) itself has not done so.57

It is not clear why the Appellate Body has read Article 11 so narrowly, contrary to the common principle jura curia novit. At any rate, this stands in sharp contrast with the Appellate Body’s approach both to jurisdictional questions and to its own powers. In relation to the former, it has said: [P]‌anels have to address and dispose of certain issues of a fundamental nature, even if the parties to the dispute remain silent on those issues. . . . [P]anels cannot simply ignore issues which go to the root of their jurisdiction —​that is, to their authority to deal with and dispose of matters. Rather panels must deal with such issues—​if necessary, on their own motion—​in order to satisfy themselves that they have authority to proceed.58

In relation to its own powers, some WTO Members have shown discomfort at what they perceive to be the Appellate Body’s practice of raising legal issues not mentioned by either of the parties59 and this has led to a draft Decision of the General Council stating that ‘[i]‌ssues that have not been raised by either party may not be ruled or decided upon by the Appellate Body.’60

3. Free trade agreements FTAs generally follow the same approach as the WTO, though sometimes in a slightly different way. As noted, FTAs routinely define the jurisdiction of a panel as being with respect to a ‘matter’ defined by reference to the FTA itself, thereby confining any claims to rules contained in that FTA.61 On the other hand, while many FTAs prohibit panels from ‘adding to or diminishing’ their rights and obligations, this is not true of all FTAs. 57 Appellate

Body Report, US –​Gambling, adopted 20 April 2005, para 282 (emphasis added). Subsequent reports have reinforced this ruling, indicating that defences (and presumably also rebuttals) would need to be invoked before the interim review stage of proceedings. Appellate Body Report, US –​ COOL (Art 21.5 –​Canada), adopted 29 May 2015, paras 5.379–​5.380. 58  Appellate Body Report, Mexico –​Corn Syrup (Art 21.5 –​US), adopted 21 November 2001, para 36. 59 See United States Trade Representative, Report on the Appellate Body of the World Trade Organization, February 2020, 52–​54, at < https://​ustr.gov/​sites/​defa​ult/​files/​Report_​on_​the_​Appellate_​ Body_​of_​t​he_​W​orld​_​Tra​de_​O​rgan​izat​ion.pdf > (last visited 15 November 2021). 60  WTO General Council, Draft Decision, above fn 9, para 13. 61 In United States –​Cross-​Border Trucking Services, NAFTA Secretariat File No USA-​MEX-​98-​2008-​ 01a, a NAFTA panel’s terms of reference were based on a letter dated a year and a half before the coming into effect of one of the provisions considered by the panel. It is possible therefore that this aspect of the panel’s findings was ultra vires unless the view is taken that the terms of reference could legitimately include provisions that were not in force at the relevant time, provided that they came into force before the panel was established (which was the case).

Jurisdiction and Applicable Law    959 In such cases, an FTA panel might be permitted to apply a disabling rule not set out in the FTA that either displacing the application of an FTA rule or rendering its application legally irrelevant. Finally, there is slightly more flexibility in that not all FTAs limit themselves to issues ‘cited’ by the parties to the dispute,62 thereby giving panels greater leeway to consider the applicability of a rule set out in a claim of their own motion.

4. Other uses of international law Not all uses of international law (aside from WTO law) are unauthorized applications of rules set out above.63 Several can be distinguished.

a. Inspiration Panels and the Appellate Body may use international law as inspiration and support for the development of new rules in the exercise of their powers, especially in context of dispute settlement practice and procedure.64 This use of international law does not amount to an application of international law, as such, to any given fact.

b. Interpretation Another use of international law is in the context of interpreting the rules at issue. In the WTO, Article 3.2 of the DSU states that the WTO dispute settlement system ‘serves . . . to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law’, and this will be done regardless of the arguments of the parties on any given interpretation.65 The Appellate Body has long said that these rules are reflected in Articles 31, 32, and 33 of the VCLT.66 Article 31 refers to certain instruments, agreements and, in Article 31(3) (c), ‘relevant rules of international law’ which can, in certain circumstances, be used to interpret the treaty at issue. Specifically in relation to Article 31(3)(c), the Appellate Body has indicated that ‘one must exercise caution in drawing from an international agreement to which not all WTO Members are party.’67 In practice, the Appellate Body has only referred in this context to rules that are binding on all WTO Members, such as customary international law and general principles of international law.68

62  There

is no reference to ‘cited’ provisions in the EU-​UK TCA, or in the USMCA, but there is in Article 21.13.1 of the EU-​Japan Economic Partnership Agreement (EPA) (and in Art 19.12.1(b) RCEP). 63  G. Cook, A Digest of WTO Jurisprudence on Public International Law Concepts and Principles (Cambridge: Cambridge University Press, 2014). 64  Examples are rules of evidence or the notion of a compound acts constituting breach. 65  The Appellate Body has cited the principle jura curia novit as a basis for not being bound by the parties’ agreed interpretations of an applicable WTO rule: Appellate Body Report, EC –​Tariff Preferences, adopted 20 April 2004, para 105. See also Appellate Body Report, Indonesia –​Iron or Steel Products, adopted 27 August 2018. 66  See also Chapter 35 of this handbook. 67  Appellate Body, EC and certain Member States –​Large Civil Aircraft, adopted 1 June 2011, para 845. 68  Appellate Body, US –​Anti-​Dumping and Countervailing Duties (China), adopted 25 March 2011, para 308.

960   Lorand Bartels FTAs frequently replicate this language. In addition, they often expressly recognize the interpretative relevance of WTO law and sometimes also WTO jurisprudence. Thus, Article 320 of the EU-​Ukraine Association Agreement states: Any arbitration panel shall interpret the provisions referred to in Article 304 of this Agreement in accordance with customary rules of interpretation of public international law, including those codified in the Vienna Convention on the Law of Treaties of 1969. Where an obligation under this Agreement is identical to an obligation under the WTO Agreement, the arbitration panel shall adopt an interpretation which is consistent with any relevant interpretation established in rulings of the WTO Dispute Settlement Body (hereinafter referred to as ‘DSB’). The rulings of the arbitration panel cannot add to or diminish the rights and obligations provided for in this Agreement.69

The italicized provision was applied in Ukraine –​Wood Products in relation to a provision of the EU-​Ukraine Association Agreement that was held to incorporate, by reference, Article XI:1 of GATT 1994. This enabled the Panel straightforwardly to apply WTO jurisprudence on this provision,70 and this would have been the case even if the objectives of the FTA had been relevantly different (which they were not).71 Without such wording, at a minimum a panel will need to consider why it is referring to WTO law. Thus, the panel in Guatemala –​Labour considered WTO rules and interpretations to be relevant to similar rules in the FTA,72 but it declined to interpret the phrase ‘in a manner affecting trade’ in a labour standards obligation to match a much broader interpretation that had been given to the same phrase in an unrelated WTO context.73

c. Establishing facts A third use of international law is to establish a legal fact to which a rule in the treaty at issue is then applied. Conceptually, this is the same legal operation as that discussed above in the context of domestic law. In the international law context such factual findings have come to be known as ‘incidental determinations’.74

69  This language is sometimes softened. The EU-​ Japan EPA requires a panel merely ‘to take into account relevant interpretations in panel and Appellate Body reports adopted by the DSB.’ Unlike the EU-​Ukraine provision, this language excludes any rulings of arbitration tribunals established under the DSB, but its scope is however broader, as it could apply also to provisions that are not necessarily identical. 70  Panel Report, Ukraine –​Wood Products, paras 203–​205, 437. 71  Panel Report, Ukraine –​Wood Products, para 203. 72  Panel Report, Guatemala –​Labour, para 80 (concerning the form of a panel request). 73  Panel Report, Guatemala –​Labour, paras 181-​189. 74 Eg C. Harris, ‘Incidental Determinations in Proceedings under Compromissory Clauses’ 70 International and Comparative Law Quarterly (2021) 417. The phrase originates in Certain German Interests in Polish Upper Silesia (Preliminary Objections) (1925) PCIJ Rep Ser A No 6, at 18.

Jurisdiction and Applicable Law    961 For example, in EC –​Bananas III, the Panel (and the Appellate Body) determined that a certain EU measure (‘the allocation of tariff quota shares to ACP States exporting non-​ traditional ACP bananas’) was ‘required’ under the Lomé Convention, a non-​WTO agreement, and hence justified by a WTO waiver which protected such measures.75 FTAs often create similar carveouts based on other legal instruments, which would likewise require an FTA panel to interpret and apply those instruments to a given measure. For example, Article 1.3.1 the USMCA states that: In the event of any inconsistency between a Party’s obligations under this Agreement and its respective obligations under [seven named] multilateral environmental agreements (‘covered agreements’) . . . a Party’s obligations under this Agreement shall not preclude the Party from taking a particular measure to comply with its obligations under the covered agreement, provided that the primary purpose of the measure is not to impose a disguised restriction on trade.

This would require a USMCA panel to determine, in the first instance, whether the measure at issue complies with one of the seven named environmental agreements. There are also alternative ways to deal with such a situation which would limit the power of a panel to make a determination based on another treaty. For example, the question of whether a measure falls under another instrument could be reserved for determination by the party at issue, which reduces but does not entirely avoid the role of dispute settlement, and it is also possible that a treaty state that such a determination is excluded from dispute settlement altogether.76 On the other hand, in Mexico –​Soft Drinks, the Appellate Body said that it could not entertain an argument that would ‘entail a determination whether the United States has acted consistently or inconsistently with its NAFTA obligations’ or would permit ‘panels and the Appellate Body to adjudicate non-​WTO disputes’,77 as ‘the WTO dispute settlement system could [not] be used to determine rights and obligations outside the covered agreements.78 This wording, which also appears in a number of FTAs, is clearly too broad, and in practice it is routinely ignored by panels and the Appellate Body itself when they determine the rights and obligations of parties under non-​WTO agreements. The point of distinction seems rather to be that the incidental determination in Mexico –​Soft Drinks would have directly implicated the international legal responsibility of one of the parties, in this case the claimant, which had not given its consent to such a determination. In this respect, one might draw an analogy to the indispensable third party rule in international law (the Monetary Gold principle), which prohibits tribunals from considering questions implicating the responsibility of states that are not

75 

Appellate Body Report, EC –​Bananas III, adopted 25 September 1997, paras 183 and 255(i). For an example of both, see Article 17.16 (‘Treaty of Waitangi’) of the RCEP. 77  Appellate Body Report, Mexico –​Soft Drinks, adopted 24 March 2006, para 56. 78  Ibid., at para 56 and fn 115. 76 

962   Lorand Bartels party to the dispute without their consent. Determinations on sovereignty appear to be in the same category, although this remains a controversial issue.79

II.  Overlapping jurisdictions Jurisdiction to determine certain matters, whether defined in terms of the law or the facts, and whether for all cases or when an election is made, may be exclusive to a particular forum. This raises a question as to how a second forum treats claims that would be subject to the exclusive jurisdiction of the first jurisdiction.80

A. Exclusive jurisdiction in the WTO Jurisdiction in the WTO is exclusive for matters arising under the WTO covered agreements. Article 23.1 of the DSU states: When Members seek the redress of a violation of obligations or other nullification or impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements, they shall have recourse to, and abide by, the rules and procedures of this Understanding.

The Appellate Body described this provision as establishing ‘the WTO dispute settlement system as the exclusive forum for the resolution of such disputes’.81 The Panel in EC –​Commercial Vessels specified that ‘[Article 23.1] is violated when Members submit a dispute concerning rights and obligations under the WTO Agreement to an international dispute settlement body outside the WTO framework.’82 However, ‘rights and obligations under the WTO Agreement’ do not include FTA rights and obligations. This is the case 79 

Harris, above fn 68. issue has been discussed in various forums. See, e.g., V. Donaldson and S. Lester, ‘Dispute Settlement’ in S. Lester et al. (eds), Bilateral and Regional Trade Agreements: Commentary and Analysis (Cambridge: Cambridge University Press, 2015), 396–​399 and K. Kwak and G. Marceau, ‘Overlaps and Conflicts of Jurisdiction between the World Trade Organization and Regional Trade Agreements’ in L. Bartels and F. Ortino (eds), Regional Trade Agreements and the WTO Legal System (Oxford: Oxford University Press, 2006), Chapter 20. 81  Appellate Body Reports, US/​Canada –​ Continued Suspension, adopted 14 November 2008, para 371. 82  Panel Report, EC –​Commercial Vessels, adopted 20 June 2005, para 7.195. An interesting question, for which I thank the editors, is whether this precludes a dispute based on WTO law between the EU and its Member States, as happened in Case C-​66/​18 Commission v Hungary, EU:C:2020:792. The answer probably depends on whether the matter involves rights which the EU holds vis-​à-​vis its Member States. In the case of services, at least, there are no such rights, as the EU’s GATS schedule, in GATS/​SC/​157 (7 May 2019), (which is shared by the EU Member States) states that ‘[t]‌hese commitments apply only to the relations between the Communities and their Member States on the one hand, and non-​Community countries on the other.’ 80  This

Jurisdiction and Applicable Law    963 even if those FTA rules use the same words as the equivalent WTO rules (whether by repetition or incorporation by reference). It follows that submitting a dispute concerning such a rule to FTA dispute settlement does not violate Article 23.1 of the DSU.83 For the same reason, a respondent party in the WTO cannot claim, without benefit of an exclusive jurisdiction clause, that the dispute should be heard under an FTA.84

B. Exclusive jurisdiction in FTAs Unlike the WTO, modern FTAs do not typically provide for exclusive jurisdiction per se.85 At most, they establish a choice of forum clause which enables an FTA party to choose whether to bring a dispute to the FTA or the WTO. To be effective, however, such clauses need to acknowledge that it is technically impossible for the same ‘matter’ to be brought to both forums, for the reasons just given.86 Article 31.3.1 of USMCA does this by focussing on a ‘dispute regarding a matter’ rather than on the ‘same matter’. It states: If a dispute regarding a matter arises under this Agreement and under another international trade agreement to which the disputing Parties are party, including the WTO Agreement, the complaining Party may select the forum in which to settle the dispute.

For such a provision to be effective, it would be necessary to interpret the two potential ‘disputes’ as having the same facts but different legal claims. It is preferable to state this openly, acknowledging the formal distinction between FTA and WTO obligations. This can be done in a broad way, so as to cover disputes about the same measure regardless of the obligations cited,87 or more narrowly, covering disputes on the same measure but only in respect of a ‘substantially equivalent obligation’.88 In short, given the fact that a dispute under an FTA and in the WTO can never be identical, because a different

83 

J. Flett, ‘Referring PTA Disputes to the WTO Dispute Settlement System’ in A. Dür and M. Elsig (eds), Trade Cooperation: The Purpose, Design and Effects of Preferential Trade Agreements (Cambridge: Cambridge University Press, 2015) 557. By the same token, it is unnecessary for FTAs to stipulate, as some do, that ‘[a]‌rbitration bodies set up under this Agreement shall not adjudicate disputes on [the parties’] rights and obligations under the Agreement establishing the WTO’. See, e.g., Article 222(1) of the EC-​Cariforum EPA. 84  Such arguments were made and then abandoned by the respondents in Panel Report, Dominican Republic –​Safeguards, adopted 23 February 2012, paras 7.92 and 7.94 and Panel Report, US –​Tuna II, discussed in DSB, Minutes of Meeting (held on 20 April 2009), WT/​DSB/​M/​267, paras 77 and 79. See A. de Mestral, ‘Dispute Settlement under the WTO and RTAs: An Uneasy Relationship’ 16 Journal of International Economic Law (2013) 777, at 802–​3, for discussion of both examples. 85  Exclusivity is however established in Article 344 of the TFEU. 86  This is overlooked by several EFTA FTAs containing choice of forum clauses triggered by ‘disputes on the same matter’. 87  For example, Article 222(2) of the EC-​Cariforum EPA. 88  Article 21.27.1 of the EU-​Japan EPA; Article 29.3.2 of CETA.

964   Lorand Bartels obligation will by definition always be involved, choice of forum clauses are most effective when they focus on the identity of the facts underlying the two disputes. But even when a choice of forum clause of an FTA is effective in its own forum, the question arises whether they would be respected in WTO proceedings. The key provision in this respect is Article 3.10 of the DSU, which, as noted above, requires WTO Members to engage in WTO dispute settlement proceedings in good faith. The argument would be that it would not be in good faith to commence WTO dispute settlement proceedings if this would contradict a prior undertaking not to do so. The WTO’s jurisprudence on this issue is however not entirely clear. The Appellate Body has indicated that a clear waiver of a Member’s rights in respect of an existing dispute will be respected.89 But whether that extends to future disputes is open to doubt. This question arose in Peru –​Agricultural Products, where the Appellate Body rejected the argument that an FTA choice of forum clause could constitute a valid waiver of WTO dispute settlement rights.90 It said: Aside from the fact that Peru and Guatemala negotiated the FTA before the initiation of the present dispute, the DSU emphasizes that ‘[a]‌solution mutually acceptable to the parties to a dispute’ must be ‘consistent with the covered agreements’. As we have found elsewhere in this Report, the additional duties resulting from the PRS are inconsistent with Article 4.2 of the Agreement on Agriculture and Article II:1(b) of the GATT 1994.91

This is unconvincing. A breach of a mutually agreed solution to an existing dispute is only one way to engage the good faith condition in Article 3.10. In particular, there is no reason why a waiver cannot extend to future disputes, an option that was excluded by the Appellate Body for no good reason. The reasoning in this passage is so poor that the question whether WTO Members can waive their dispute settlement rights by means of choice of forum clauses must therefore be considered to remain open. What is clear, though, is that any such clauses need to be clear, and applicable to the matter at issue, and that means being drafted so as to respect the mutual exclusivity of legal claims under the WTO and FTAs.

III. Conclusions This chapter has focused on certain issues relating to jurisdiction and applicable law before WTO and FTA panels (and, where relevant, the Appellate Body). In particular, it 89 

Appellate Body Report, EC –​Bananas III (Art 21.5 –​Ecuador II), adopted 11 December 2008, para 217. Such a waiver is a ‘legal impediment to the exercise of a panel’s jurisdiction’ at which the Appellate Body hinted in Mexico –​Soft Drinks, adopted 24 March 2006, para 54. 90  Appellate Body Report, Peru –​Agricultural Products, adopted 31 July 2015, paras 5.26–​5.28. 91  Ibid., at para 5.26.

Jurisdiction and Applicable Law    965 has drawn a distinction between the facts (including the ‘measure’ at issue) and the law comprised in a ‘matter’ before such tribunals. In considering the jurisdictional functions of these tribunals, this distinction is important in several respects. First, the identity of the facts and law in a ‘matter’ before WTO and FTA panels depends entirely on the complaining party. Such panels are therefore relieved of the need to determine the nature of the ‘dispute’ before them, as other international tribunals are sometimes required to do, and they are also free to dismiss objections that, because of its inherent nature, the ‘dispute’ should be heard in another forum. The tasks of these panels are rather different. They must establish, as a matter of fact, that the ‘measure’ exists, and that it meets the description of the identified rule. This may involve various forms of reasoning, including the interpretation of the rule, and, when the measure takes the form of domestic law, the identification, interpretation and application of domestic law to establish relevant legal facts concerning the measure (for example, its validity, purpose or effects). Some FTAs have sought to regulate these legal operations, but for the most part they have done little other that declare what would need to be done anyway. An additional task for a trade panel is to determine whether the identified and interpreted rule is able to be applied to the measure, and, if so, whether the result of doing so will have legal effect. This depends upon the application of an external ‘disabling’ rule, either a ‘non-​application’ rule (such as Article 1.5 of the TBT Agreement), which precludes the application of the identified rule, or an exception (such as Article XX of the GATT 1994 or Article 1.3.1 of the USMCA), which renders any results of applying the identified rule to the facts of the matter legally irrelevant. However, trade panels do not necessarily have the power to apply all potential ‘disabling’ rules. On the merits, a WTO panel will be limited to disabling rules set out in a covered agreement and cited by a party in good time. It will also be limited by the stipulation in Article 19.2 of the DSU that panels (and the Appellate Body) may not add to or diminish the rights and obligations in the covered agreements, which would be the case if they failed to give them proper effect. Again, most FTAs follow this model. It is different with jurisdictional questions. In principle, panels and the Appellate Body are able to determine whether they have jurisdiction, and the extent of that jurisdiction, by applying any relevant and applicable WTO or international law rule. However, this is subject to the same proviso in Article 19.2 of the DSU that they may not contravene any existing WTO rules. Given the automaticity of dispute settlement proceedings flowing from Article 6 of the DSU, and reflected in Article 23 of the DSU, in practice this tends to reduce the reasons why a panel or the Appellate Body might not exercise jurisdiction to those set out in Article 3.10 of the DSU, which requires WTO Members to engage in dispute settlement proceedings in good faith, and it is similar for FTA disputes. This does not mean that WTO and FTA panels (and the Appellate Body) are not able in any way to use the rules of public international law. First, they inspire and support these tribunals in developing rules, especially of practice and procedure, in the exercise of their powers to regulate their proceedings. Second, they are directly and indirectly

966   Lorand Bartels applicable in the course of interpreting WTO and FTA provisions, and in particular FTA provisions are frequently required to be interpreted in accordance with relevant WTO law. And third, panels and the Appellate Body are able to make legal determinations based on international law outside of the applicable WTO or FTA provisions if this is required for the application of those provisions. The one limitation appears to be if, in so doing, this entails a legal determination that implicates the international responsibility of a party contrary to its consent. A remaining set of questions concerned the potential for overlap of WTO and FTA jurisdictions. The distinction between fact and law is also relevant in this respect. First, it is important that there can never be the same ‘matter’ under the two systems, as the legal component in each case will be different. Thus, while Article 23 of the DSU gives the WTO dispute settlement system exclusive jurisdiction with respect to WTO law, this has no bearing on FTA disputes, even if these involve identically worded obligations. Second, however, FTA choice of forum clauses will only be effective if they focus on the identity of the facts at issue in two parallel disputes, and, if they refer to legal provisions, recognize that an FTA and a WTO provision will always be formally distinct. But even then, there is a question whether WTO law will respect an FTA choice of forum clause, even one that is effective in its own terms. The Appellate Body’s report in Peru –​Agricultural Products indicates that this can never be the case. However, for reasons given, it is very much arguable that this result is unsound, and that FTA choice of forum clauses can be properly respected under WTO law.

Further reading Amerasinghe, C., The Jurisdiction of International Tribunals (The Hague: Kluwer, 2003) Chase, C. et al, ‘Mapping of Dispute Settlement Mechanisms in Regional Trade Agreements –​ Innovative or Variations on a Theme?’ in R. Acharya (ed), Regional Trade Agreements and the Multilateral Trading System (Cambridge: Cambridge University Press, 2016) 608–​702 Donaldson, V. and S. Lester, ‘Dispute Settlement’ in S. Lester, B. Mercurio and L. Bartels (eds), Bilateral and Regional Trade Agreements: Commentary and Analysis (Cambridge: Cambridge University Press, 2015) 396–​399 Kwak, K. and G. Marceau, ‘Overlaps and Conflicts of Jurisdiction between the World Trade Organization and Regional Trade Agreements’ in L. Bartels and F. Ortino (eds), Regional Trade Agreements and the WTO Legal System (Oxford: Oxford University Press, 2006), Chapter 20 Pauwelyn, J., ‘The Role of Public International Law in the WTO: How Far Can We Go?’ (2001) 95 American Journal of International Law (2001) 535–​578 Van Damme, I., ‘Jurisdiction, Applicable Law, and Interpretation’ in D. Bethlehem, D. McRae, R. Neufeld and I. Van Damme (eds), The Oxford Handbook on International Trade Law, 1st edition (Oxford: Oxford University Press, 2009), 304–​315

Chapter 37

Rem edies and C ompl ia nc e Geraldo Vidigal

I. II.

Introduction 967 International adjudicators and compliance-​oriented remedies 970 A. Judicial remedies under international law 970 B. Remedies in international trade law: the DSU system 972 C. Compliance-​oriented remedies in context: from reciprocal agreements to mega-​regionals 975 III. Compliance-​oriented remedies in practice: compliance over ‘rebalancing’ 979 A. Usage of dispute settlement and compliance 979 B. Employing retaliation: compliance, settlement, stalemate 981 I V. Remedies in international (trade) agreements: compliance, transaction, retaliation 984 A. Three forms of remedies: unilateral, bilateral, judicial 984 B. Three functions of judicial remedies 988 V. Conclusion 991

I. Introduction Traditionally in international law, the topics of ‘remedies’ and ‘compliance’ appear as fundamentally separate. Remedies—​usefully defined as ‘anything a court can do for a litigant who has been wronged or is about to be wronged’1—​are often only sketched in the instruments that establish international courts and tribunals, 1 

D. Laycock, Modern American Remedies, 3rd edition (New York: Aspen, 2002), cited in B.A. Garner et al. (eds), Black’s Law Dictionary, 9th edition (St. Paul, MN: West, 2004), 1407. Note that this chapter

968   Geraldo Vidigal and therefore are largely left for adjudicators to determine in their own decisions.2 Compliance, on the other hand, is often considered a matter for States and political bodies rather than adjudicators.3 In case of non-​compliance with a judgment of the ICJ, for example, the Charter of the United Nations directs aggrieved parties to the Security Council, which may (or may not) ‘make recommendations or decide upon measures to be taken to give effect to the judgment’.4 The European Convention of Human Rights similarly entrusts a political body—​the Committee of Ministers—​ with monitoring the execution of judgments of the European Court of Human Rights.5 In her monograph on compliance with ICJ judgments, Constanze Schulte finds that compliance, in fact, belongs in a ‘post-​adjudicative’ phase, whose ‘efficacy . . . will not be determined by another judicial examination, but by immediate political action’.6 In international trade law, by contrast, adjudication and compliance are fundamentally intertwined. Addressing questions of compliance—​ and providing remedies for non-​ compliance—​ is perceived as a natural extension of the adjudicator’s function. As regards WTO dispute settlement, an assessment of the DSU informed by the practice of WTO Members over the years leads to the conclusion expressed by Piet Eeckhout in the first edition of this handbook: ‘the basic function of [WTO] dispute settlement must be inducing compliance’.7 The key outcome of a successful WTO claim is not an award of damages for breach but a determination that measures found to be WTO-​inconsistent must be brought into conformity with WTO rules.8 And, rather than putting an end to the adjudication process, a ruling of WTO-​inconsistency opens a new stage in the dispute—​the compliance stage—​focused on settling disputes over compliance and establishing consequences in case of non-​compliance. This system of remedies is found in the vast majority of agreements governing international trade relations. The same overall objective pursued under WTO dispute settlement—​ substantive performance of obligations—​ guides the dispute settlement mechanisms set up by all RTAs of an intergovernmental

does not deal with the issue of ‘trade remedies’, a term used to refer collectively to anti-​dumping duties, countervailing duties and safeguard measures. See Chapter 21 of this handbook. 2 

C. Gray, ‘Remedies in International Dispute Settlement’ in C. Romano, K. Alter and Y. Shany (eds), The Oxford Handbook of International Adjudication (Oxford: Oxford University Press, 2013) 871, at 896. 3  Northern Cameroons, (1963) ICJ Rep, p. 15, 37. 4  Article 94(2) of the Charter of the United Nations. 5  Article 46(2) of the European Convention on Human Rights. 6 C. Schulte, Compliance with Decisions of the International Court of Justice (Oxford: Oxford University Press 2004), at 19. 7 P. Eeckhout, ‘Remedies and Compliance’ in| D. Bethlehem, D. McRae, R. Neufeld, and I. Van Damme (eds), The Oxford Handbook of International Trade Law, 1st edition (Oxford: Oxford University Press, 2009) 437, at 448. 8  Article 19.2 of the DSU.

Remedies and Compliance    969 character, including the North American Free Trade Agreement (NAFTA)9 and its successor, the United States-​Mexico-​C anada Agreement (USMCA),10 the EU-​ Canada Comprehensive Economic and Trade Agreement (CETA),11 the Regional Comprehensive Economic Partnership (RCEP),12 the agreements underpinning the Common Market of the South (MERCOSUR)13 and the African Continental Free Trade Agreement (AfCFTA).14 With respect to trade obligations (chapters on sustainable development or investment often feature different provisions and different logics), the dispute settlement provisions of all of these agreements feature this system of remedies, which may be termed ‘prospective’, ‘forward-​looking’ or ‘compliance-​oriented’.15 Thus, it is possible to speak of a law of remedies in international trade adjudication, not in the sense that interpretations developed within one treaty system can or should be automatically transposed to a different treaty system but in the sense that a common logic underpins these systems. On the one hand, these systems of remedies focus on securing future performance over providing redress for past injury; on the other, in case of non-​ compliance with the original ruling, they provide for an authorized and controlled use of the threat of trade-​restrictive and other otherwise agreement-​inconsistent measures as a means of securing compliance with adjudicatory decisions. This common logic leads to the striking similarity observable among the systems of remedies that exist within the various trade agreements, while also making the compliance-​oriented system of remedies difficult to replicate outside of trade agreements. Following this introduction, this chapter examines how compliance-​ oriented remedies differ from the remedies usually provided by international courts and tribunals (Section II). It then discusses how these remedies operate and have been used in practice (Section III). Finally, it explores why remedies in international trade law differ from those that prevail in other fields of international law. Rather than aiming at the correction of past injustices, judicial remedies in international trade agreements seek to provide parties to a dispute with an objective basis on which to renegotiate their relations in case of a violation. Their ultimate objective is not to restore the status quo that existed before violations but to prevent trade disputes from escalating, through uncontrolled tit-​for-​tat retaliation, into broader conflicts with more serious economic or political consequences (Section IV). Section V concludes. 9 

Article 2018 of NAFTA, signed 17 December 1992, entered into force 1 January 1994. Article 31.19 of USMCA (updated text signed 10 December 2019, not yet entered into force). 11 Article 29.12 of CETA (signed 30 October 2016, entered into force provisionally on 21 September 2017). 12  Articles 19.15–​19.17 of RCEP. 13  Articles 27, 29.1 of MERCOSUR Olivos Protocol, signed 18 February 2002, entered into force 1 January 2004. 14  Articles 24.7, 25.1 of AfCFTA, Protocol on Rules and Procedures on the Settlement of Disputes. 15  See G. Vidigal, ‘Re-​Assessing WTO Remedies: The Prospective and the Retrospective’ 16 Journal of International Economic Law (2013) 505–​534, and the literature cited therein. 10 

970   Geraldo Vidigal

II.  International adjudicators and compliance-​oriented remedies A. Judicial remedies under international law In international law, third-​party adjudication always depends on the consent of states. As a result, the scope of judicial remedies available to international courts and tribunals is closely related to the text of each adjudicator’s constitutive instrument and applicable law.16 Where constitutive instruments and the applicable procedural rules provide little or no guidance, courts and tribunals have inferred their own powers from a combination of skeletal provisions, vague references to general international law, legal principles inferred from domestic legal systems, and shared lawyerly intuition. It was this combination that the PCIJ invoked in Chorzów Factory to infer from its jurisdiction over a dispute a consequential power to ‘lay down the conditions for the re-​establishment of the treaty rights affected’.17 In LaGrand, the ICJ provided even thinner grounds for its finding of a seemingly unqualified judicial freedom to determine remedies. ‘Where jurisdiction exists over a dispute on a particular matter’, the ICJ stated, ‘no separate basis for jurisdiction is required by the Court to consider the remedies a party has requested for the breach of the obligation’.18 The absence of regularity in providing remedies has not prevented courts and tribunals from rationalizing and classifying the remedies they did grant. This rationalization has now been codified to an extent by the ILC in its work on State responsibility. An entire section of the ILC Articles on the Responsibility of States for Internationally Wrongful Acts (ILC Articles on State Responsibility) is devoted to the legal consequences of State responsibility.19 While the ILC Articles do not use the term ‘remedies’, the term is employed interchangeably with ‘consequences of internationally wrongful acts’ in the official commentary to the ILC Articles on State Responsibility20 and has been used in the same manner in subsequent jurisprudence21 and scholarship.22

16  On

remedies in international law more broadly, see C. Gray, ‘Is There and International Law of Remedies?’ 56 British Yearbook of International Law (1985) 25; C. Gray, Judicial Remedies in International Law (Oxford: Clarendon, 1987); C. Gray, ‘Remedies’ in C. Romano, K. Alter and Y. Shany (eds), The Oxford Handbook of International Adjudication (Oxford: Oxford University Press, 2014), 871–​898. 17  Chorzów Factory (Jurisdiction) (1927) PCIJ Ser. A No 9, p. 25. See, in the same judgment, pp. 22–​24, as well as the discussion in Vidigal, above fn 15, at 521. 18  LaGrand, ICJ Reports 2001, p. 466, 485. 19  ILC Articles on State Responsibility, 86 ff. 20  Ibid., at 90, 99–​100, 105–​107, 125, 127, 131. 21  Whaling in the Antarctic (Australia v. Japan: New Zealand intervening), Judgment, (2014) ICJ, p. 226, 298. 22  J. Crawford, State Responsibility –​The General Part (Cambridge: Cambridge University Press, 2013), at 506.

Remedies and Compliance    971 While not a comprehensive code of remedies,23 the classification laid down in the ILC Articles on State Responsibility usefully describes the different remedies issued by international courts and tribunals, providing a convenient starting point for a discussion of potentially available remedies and helping to explain the specific character of the remedies available to trade adjudicators. Judicial remedies awarded as consequences of findings of breach may fall into two broad categories. First are ‘forward-​looking’ or prospective remedies, which concern the prospect that the conduct found to be a violation will continue in the future or be repeated. The main prospective remedy is a judicial determination that the illegal conduct must cease, sometimes accompanied by instructions regarding specific acts that a wrongdoer must perform (or refrain from performing) or legal instruments that it must repeal to achieve cessation.24 Additionally, courts sometimes add to the remedy of cessation statements that aim to give effect to the duty of States to provide ‘guarantees of non-​repetition’ of the unlawful conduct.25 ‘Retrospective’ remedies address not the wrongful conduct but the injury caused by this conduct, aiming to secure reparation for injured parties and determining its appropriate form and level. The PCIJ affirmed the general principle in Chorzów Factory: reparation must as far as possible ‘wipe out all the consequences of the illegal act’.26 This translates into the three possible forms of reparation: restitution, compensation, and satisfaction.27 A court that opts for restitution may require the wrongdoing State to return assets seized unlawfully or release persons imprisoned illegally.28 Awards for compensation usually cover financial or non-​financial losses incurred due to the illegal conduct, seeking to offset material damage and make injured individuals whole.29 Satisfaction is often presented as a self-​executing remedy: by recording and publicizing the unlawful act, the adjudicator is directly providing reparation for moral injury caused by the illegality.30 23 The division codified by the Commission does not always match the names used by courts themselves. The European Court of Human Rights, for one, has interpreted its power to award ‘just satisfaction’ as a power to award financial damages. See Article 41 of the European Convention on Human Rights. Additionally, the focus on final remedies overlooks an important remedy available to many international courts and tribunals, and usually absent in international trade adjudication: provisional measures. 24  Article 30(a) (cessation) of the ILC Articles on State Responsibility. 25  Article 30(b) (assurances and guarantees of non-​ repetition) of the ILC Articles on State Responsibility. 26  Factory at Chorzów (Merits) (1928) PCIJ Ser. A No. 17, p. 47. 27  See Articles 34–​37 of the ILC Articles on State Responsibility. 28  See, e.g., Arctic Sunrise Arbitration (Netherlands v. Russia), PCA Case No. 2014-​02, Award on the Merits (14 August 2015), para 401(H); ECtHR, Ilaşcu v Moldova and Russia (App No 48787/​99) (2004), para 490. 29  Arctic Sunrise Arbitration, above fn 28, para 401(F); ECtHR, Ilaşcu v Moldova and Russia, above fn 21), para 494(20-​21). To follow the language of the Convention it applies, the ECtHR labels monetary awards ‘just satisfaction’. 30  Manouba (France v Italy) (1913) 11 RIAA 463, 475; Carthage (France v Italy) (1913) 11 RIAA 449, 460; Pawlowski AG and Project Sever s.r.o. v. Czech Republic, ICSID Case No. ARB/​17/​11, Award, 1 November

972   Geraldo Vidigal The overall purpose of what can be called the ‘remedy toolbox’ of international law remains the one expressed by the PCIJ in Chorzów Factory: to ‘wipe out all the consequences of the illegal act and reestablish the situation which would, in all probability, have existed if that act had not been committed’.31 As Dionisio Anzilotti, the first great systematizer of the law of responsibility, put it, ‘every act carried out by a subject that is contrary to the rule creates as its consequence the obligation to re-​establish, in some form, the legal order troubled by such act’.32 Under general international law, for this legal order to be re-​established, the wrongdoer must both cease the unlawful conduct and offset, through restitution, compensation, or satisfaction, the material and moral injury its conduct has caused to others.

B. Remedies in international trade law: the DSU system The system of remedies established in the DSU provides the best starting point for an analysis of remedies in international trade adjudication. The DSU establishes a three-​ stage procedure. An original dispute settlement stage is followed by a compliance stage and, in case of persistent non-​compliance, by a retaliation stage. At the original stage, a WTO panel is tasked with making an objective assessment of the facts of the dispute and of the conformity of the challenged measures with a Member’s WTO obligations.33 A panel report can be appealed to the Appellate Body, which can uphold, modify, or reverse the panel’s findings.34 Findings made by the panel (as modified by the Appellate Body) are converted into rulings of the DSB upon adoption,35 producing full legal effects and requiring compliance.36 At this original stage, the remedies available to adjudicators are established in Article 19.1 of the DSU, which provides: Where a panel or the Appellate Body concludes that a measure is inconsistent with a covered agreement, it shall recommend that the Member concerned bring the measure into conformity with that agreement. In addition to its recommendations,

2021, paras. 738–​741. But see the approach adopted by the Inter-​American Court of Human Rights, e.g. in Mack Chang v Guatemala (Merits, Reparation and Costs), 25 November 2003, Ser. C No 101, para 269. 31

  Factory at Chorzów (Merits) (1928) PCIJ Ser. A No. 17, p. 47. Anzilotti, ‘La responsabilité des États à raison des dommages soufferts par des étrangers’ 13 RGDIP (1906) 5 (‘tout acte accompli par un sujet contrairement à la règle entraîne en conséquence l’obligation de rétablir, sous une forme quelconque, l’ordre juridique troublé par lui’). 33  Article 11 of the DSU. 34  Articles 17.6 and 17.13 DSU. 35  Adoption takes place by negative consensus, which means a consensus among the Members is required for the DSB not to adopt the report (Articles 16.4 and 17.14, together with footnote 1, of the DSU). Such negative consensus has never taken place. Given that the Appellate Body became non-​ operational at the end of 2019, a number of appealed panel reports are currently ‘in limbo’, their recommendations being somewhat authoritative but non-​binding. 36  Article 21.1 of the DSU. 32 D.

Remedies and Compliance    973 the panel or Appellate Body may suggest ways in which the Member concerned could implement the recommendations.37

At the original stage of WTO adjudication, a complainant may thus obtain three types of remedies. First, determinations (‘findings’, ‘rulings’ or ‘conclusions’) that the respondent’s measures are WTO-​inconsistent. Second, recommendations, compulsory for the adjudicators when they conclude that there are ongoing breaches, for the wrongdoing Member to restore the conformity of its measures with WTO rules.38 Third, at the discretion of the panel or Appellate Body, suggestions of means by which their recommendations can be implemented.39 No other remedy—​in particular, no remedy of reparation—​is provided for.40 The sole obligation that arises for a party found in breach at this stage is to ‘bring the measure into conformity’ with its WTO obligations.41 The adoption of the original report triggers the second phase of WTO dispute settlement, the compliance stage. The existence of a legally structured compliance stage differentiates WTO adjudication (and trade adjudication more broadly) from most international adjudication procedures, in which a final decision puts an end to the procedure and compliance is perceived as being beyond the scope of the adjudicator’s regular functions. In trade adjudication, the compliance stage is part of the core of the dispute settlement procedure. Following a determination that a measure is inconsistent with WTO rules, the wrongdoing Member is accorded a reasonable period of time (RPT) to comply, a period that can be determined by agreement between the parties or by compulsory arbitration.42 Three situations may occur at the end of the RPT. First, all violations found in the adjudicators’ reports may have been successfully eliminated, in which case the procedure ends without further legal consequences. Second, the violations may not have been eliminated, either because the Member found in breach has not changed the challenged measures at all or because its changes have been insufficient to achieve full compliance with its obligations. Third, the parties may disagree as to whether the changes made to the measure originally challenged thorough adjudication have been sufficient to eliminate the breaches found and achieve compliance with the Member’s obligations. In the latter case, Article 21.5 of the DSU provides that the parties must (‘shall’) bring the dispute on compliance before a new panel.43 Under Article 21.5, the 37

  Footnotes omitted. the same token, if the WTO-​inconsistent measures have expired and there is no prospect for their re-​enactment, a finding/​ruling is not accompanied by a recommendation. See Appellate Body Report, China –​Raw Materials, adopted 22 February 2012, paras 263–​265, and the discussion in Vidigal, above fn 15, at 527–​530. 39  Article 19.1 of the DSU. 40  On the issue of reparation under WTO law, see Vidigal, above fn 15, at 517–​523. 41 Ibid. 42  Article 21.3 DSU. The RPT is provided whenever prompt compliance is impracticable (Article 21.1 of the DSU). 43  Pursuant to Article 9.3 of the DSU, ‘wherever possible’ parties should ‘resort to the original panel’, i.e. the same individuals should compose the original panel and the compliance panel. 38  By

974   Geraldo Vidigal compliance panel determines (in findings that may again be reviewed by the Appellate Body) whether measures taken to comply have been taken at all and, in the affirmative, whether these measures are consistent with the recommendations and rulings made at the original stage.44 The remedy that a complainant can obtain at this stage is a new DSB ruling, determining that the measures taken to comply were not sufficient to attain compliance. The third stage of the dispute settlement procedure—​the compensation-​or-​retaliation stage—​is opened if, at the end of the reasonable period of time, the wrongdoer has failed to bring its measures into compliance with WTO rules. In this case, Article 22.2 permits complainants to request that the violator enter into negotiations with them to agree on mutually acceptable compensation. If no compensation is agreed on within 20 days, the complainant may request before the DSB an authorization to retaliate, suspending its WTO obligations towards the violator at a level equivalent to the injury (‘nullification or impairment’) caused by the violation. This ‘suspension of concessions or other obligations’45 is what is usually referred to as trade retaliation. It consists in the non-​fulfilment by an injured Member of its WTO obligations towards the non-​complying party. The DSU provides that trade retaliation should, in principle, take place under the same area of the violation (goods, services, or intellectual property rights).46 Given that the majority of WTO disputes concern trade in goods, retaliation usually amounts to the complainant suspending tariff concessions, i.e., raising tariffs towards products exported by the wrongdoer. However, if such retaliation is not ‘practicable or effective’ and circumstances are ‘serious enough’, the DSU permits so-​called ‘cross-​retaliation’, i.e., non-​fulfilment of commitments in agreements different from the one originally violated.47 Additionally, retaliation must be of a ‘level . . . equivalent to the level of the nullification or impairment’ caused by the breach.48 The compliance-​oriented character of this system of remedies can be inferred from the fact that both compensation and trade retaliation are intended as ‘temporary’.49 Compensation aims to secure a degree of relief for an injured Member when, and for as long as, the wrongdoer is unable to implement the recommendation to cease its wrongful measure.50 Suspension of concessions is described as the ‘last resort’ available under the DSU,51 not ‘preferred to full implementation’ of the original ruling.52 It can only be applied for as long as the WTO-​inconsistency persists.53 Retaliation is thus not 44 

The reports of the compliance panel and Appellate Body must be adopted by the DSB. Article 22 (Compensation and the Suspension of Concessions) of the DSU. 46  Articles 22.3(a) and 22.3(b) DSU. The DSU makes a distinction among ‘sectors’ that is not relevant for trade in goods. 47  Article 22.3(c) of the DSU. 48  Article 22.4 of the DSU. 49  Article 22.1 of the DSU. 50  Article 3.7 of the DSU. 51 Ibid. 52  Article 22.1 of the DSU. 53  Article 22.8 of the DSU. 45 

Remedies and Compliance    975 a solution to the dispute alternative to compliance but the ultimate remedy available within the WTO dispute settlement process to induce compliance, in cases in which a wrongdoer (i) fails to comply with the original rulings and recommendations within a reasonable period of time and (ii) fails to provide the complainant with acceptable compensation. Once retaliation is authorized, the complainant may apply it, within the terms of the DSB’s authorization, until the wrongdoer either implements the rulings and recommendations or reaches a mutually satisfactory solution with the complainant.54

C. Compliance-​oriented remedies in context: from reciprocal agreements to mega-​regionals The structure of prospective remedies codified in the DSU can be found, with minor changes, in virtually every inter-​ state trade agreement in force. Modern trade agreements descend from the agreements signed by the United States following the enactment of the 1934 Reciprocal Trade Agreement Act (RTAA).55 The RTAA sought to lower barriers applied to United States exports by other States, by offering to its trade partners the reciprocal elimination of barriers by the United States, with the corollary that imposition of new barriers by either side could lead the other party to respond—​ unilaterally—​by re-​imposing some of the lowered barriers. The 1938 Anglo-​American Trade Agreement, for example, listed a number of circumstances under which a party was permitted, following a mere notification to the other party, ‘to terminate the Agreement in its entirety’, ‘to withdraw or to modify any concessions’ or ‘to impose quantitative regulations on the importation’ of certain goods.56 The agreement also established a broad duty of parties to seek to respond to each other’s representations with a view to achieving a ‘mutually satisfactory adjustment’. The GATT 1947, which superseded these reciprocal agreements, featured a novel element: remedies were to be administered by the GATT Contracting Parties acting collectively. Article XXIII of the GATT 1947 permitted any contracting party to refer a dispute with another contracting party to the whole of the Contracting Parties, which would ‘investigate’ the matter and make ‘appropriate recommendations’ or ‘give a ruling’. Under ‘serious enough’ circumstances, the Contracting Parties could authorize the suspension of GATT concessions vis-​à-​vis a wrongdoing party.57 This arrangement incorporated the unilateral remedy of retaliation into the system of collectively

54 

Ibid. See Appellate Body Report, Canada/​US –​Continued Suspension, adopted 14 November 2008, para 374 (noting that the three hypotheses under Article 22.8 are meant to achieve the same result, i.e., substantive compliance). 55  Reciprocal Trade Agreements Act (12 June 1934, 48 Stat. 943, 19 U.S. Code § 1351). 56 Reciprocal Trade Agreement between the United States and the United Kingdom, signed 17 November 1938, entered into force, 25 December 1939, 54 Stat 1897, Articles XVIII–​XX. 57  Article XXIII:2 of the GATT 1947.

976   Geraldo Vidigal administered remedies, submitting the adoption of otherwise unilateral measures to the prior pursuit of a multilaterally administered procedure. It was not the text of the GATT 1947, but the practice of the Contracting Parties in the 1950s and 1960s that developed this set of remedies into a system of forward-​ looking remedies. Rather than employing the authorization to retaliate as a means of reacting to particularly grave breaches, the GATT Contracting Parties (guided by the Chair or by panels) employed rulings as the primary remedy and the authorization to retaliate as a back-​up remedy, to be employed solely in case of non-​compliance with the original ruling. Early on, in US –​Dairy, the Contracting Parties found that the United States was in breach of its GATT commitments, but counselled the complainants to afford to the United States a ‘reasonable period of time . . . to rectify the situation’.58 Only after the United States had failed to comply with the original ruling was a complainant (the Netherlands) authorized to retaliate by imposing quantitative restrictions on US imports.59 In Uruguayan Recourse to Article XXIII, after finding that the defendants were violating a number of GATT provisions, the panel established what it called a ‘two-​ stage procedure’, under which it issued a recommendation for the removal of the GATT-​ inconsistent measures. The recommendation was accompanied by a statement that it could be followed by ‘the possibility of further action, in case of non-​fulfilment’. Failing compliance within a reasonable period of time, Uruguay would ‘be entitled immediately to ask for the authorization of suspension of concessions or obligations’.60 This two-​stage procedure came to dominate international trade adjudication. Despite retaliation never having been authorized again during the GATT years,61 this system was consolidated in Notes drafted by the GATT Secretariat,62 codified in the 1979 Tokyo Round Understanding on Dispute Settlement,63 and finally transformed into the three-​stage 58 GATT, United States Import Restrictions on Dairy Products –​ Resolution, 26 October 1951 (GATT/​ CP/​130 -​BISDII/​16), 14-​15. See also GATT Panel Report, French Assistance to Exports of Wheat and Wheat Flour, adopted 21 November 1958 (L/​924, 7S/​46), 12. 59 GATT Working Party Report, Netherlands Action under Article XXIII:2, 7 November 1952 (L/​ 61), 6–​7. 60  GATT Panel Report, Uruguayan Recourse to Article XXIII, adopted 16 November 1962 (L/​1923 –​ 11S/​95), 19–​21. 61  Retaliation was applied without GATT authorization by the United States against the European Economic Communities (EEC) in EEC –​Oilseeds and was requested by the EEC and Canada, but not authorized, in US –​Superfund. See Communication from the United States, DS28/​4 (5 November 1992); Communication from the European Communities, United States –​Taxes on Petroleum and Certain Imported Substances: Follow-​Up on the Panel Report, C/​W/​540 (14 March 1988); GATT Council of Representatives, Minutes of Meeting, C/​M/​236 (11 October 1989), at 20. 62  See, e.g., Working Party IV on Organization and Functional Questions, Report of Review, L/​327/​ Reb.1 (4 April 1955), at 64; Committee on Trade and Development, Note by the Secretariat: Compensation to Less-​Developed Contracting Parties for Loss of Trading Opportunities Resulting From the Application of Residual Restrictions, COM.TD/​5 (2 March 1965), at 8; Decision of 5 April 1966 on Procedures under Article XXIII (BISD 14S/​18), paras 9–​10. 63 Understanding Regarding Notification, Consultation, Dispute Settlement and Surveillance, adopted 28 November 1979 (L/​4907).

Remedies and Compliance    977 procedure now found in the DSU. It appears in virtually every modern RTA. The 1988 Canada-​United States Free Trade Agreement (CUSFTA),64 in a system largely reproduced in NAFTA and USMCA, as well as in the dispute settlement protocols of MERCOSUR,65 adopted the two-​stage procedure, merging adjudication on compliance and on retaliation. Trade agreements of the 2000s, such as the Dominican Republic-​Central America-​ United States Free Trade Agreement (CAFTA-​DR), maintained it.66 The same procedure appears in recent RTAs, sometimes called ‘mega-​regionals’ for their wide and cross-​ continental membership, such as CETA, the 11-​party Agreement for Comprehensive and Progressive Trans-​Pacific Partnership (CPTPP),67 RCEP,68 and the EU-​Southern African Development Community (SADC) Economic Partnership Agreement.69 The systems of remedies established by these agreements all follow the same, compliance-​ oriented logic. Adjudicators may be called upon, first, to determine whether a party is violating its obligations. In the affirmative, the party is granted a reasonable period of time to implement the ruling. In case of non-​compliance, the wronged party is authorized to adopt trade retaliation against the non-​complying party, subject to an assessment by the adjudicator of whether this retaliation is proportional and appropriate under the rules of the agreement. A violator is not required to remedy the injury caused by its wrongful conduct but merely to put an end to the violation, i.e., to change its conduct to conform to the relevant rules as interpreted by the adjudicator. All legal consequences of the violations, and in particular the entitlement to apply retaliation, cease once compliance with the original rulings is achieved, which justifies the term ‘prospective’. Minor variations to the DSU procedure exist, especially to address the perceived excessive length afforded to wrongdoers in WTO law before retaliation is authorized. Most RTAs feature periods for compliance far shorter than the standard 15 months afforded to wrongdoers under the DSU. In many RTAs, a complainant may apply retaliation measures at the end of the period allotted for compliance based on its unilateral assessment of non-​compliance. It is then up to the party originally found in breach to initiate proceedings to claim that the retaliation being applied is excessive (including, presumably, because subsequent compliance with the original ruling led to the expiry of the entitlement to retaliate).70 Such a post-​retaliation procedure was pursued in 64  Article 1807:8-​9 of the Free Trade Agreement between Canada and the United States of America, 27 ILM 281 (1988). 65  Prior to the Olivos Protocol, MERCOSUR dispute settlement was governed by the Brasília Protocol, signed 17 December 1994. 66  Article 20.15 Dominican Republic-​Central America-​United States Free Trade Agreement, signed 5 August 2004, entered into force 1 March 2006. 67  Articles 28.17–​28.19 of the CPTPP, signed 8 March 2018, entered into force 30 December 2018. The CPTPP incorporates the text of the Trans-​Pacific Partnership (TPP), signed 4 February 2016. 68  Articles 19.15–​19.17 of RCEP. 69 Articles 82–​ 88 of the Economic Partnership Agreement between the European Union and its Member States, of the one part, and the SADC EPA States, of the other part, signed 10 June 2016, applied since 10 October 2016, OJ 2016 C 250, p. 3. 70  Article 2019(3) of NAFTA, 17 December 1982, 32 ILM 289 (1993), 32 ILM 605 (1993). The time for compliance was increased to 45 days in the USMCA. See Article 31.19 of the USMCA, above fn 10.

978   Geraldo Vidigal the Mercosur dispute on Remoulded Tyres, leading the Mercosur Permanent Review Court to issue an award concerning the proportionality of Uruguay’s retaliation against Argentina. The Court stated that retaliation should be ‘sufficiently persuasive for the recalcitrant state, in order to induce it to adjust its conduct to the Mercosur legal order’.71 This award was followed by an award on compliance, in which the Court confirmed that the original ruling (rather than an assessment ex novo) should provide the benchmark for subsequent compliance assessments.72 Of course, nothing prevents parties to a trade agreement from devising different systems of remedies, either for the agreement as a whole or for specific obligations within it. In RTAs, chapters on investment and on sustainable development often feature chapter-specific remedies systems. In CETA, the Investment Chapter provides that arbitral tribunals may only award monetary remedies or restitution of property; in the latter case, the wrongdoing party may choose to pay damages instead.73 The Chapters featuring labour and environmental obligations provide that a panel’s findings of violation give way to bilateral ‘discussions’ among the parties, which are to ‘take into account’ the panel’s determinations, and do not provide for regulated retaliation.74 Among trade agreements, those that do not feature a compliance-​oriented system of remedies for any obligations are generally those that go beyond the inter-​state paradigm and establish a community. In these cases, community institutions can often hear complaints from private parties and make determinations that prevail over those of domestic institutions. These communitarian agreements include the treaties of the European Union and European Free Trade Association, the Andean Community, and the East African Community, for example. In these cases, enforcement is expected to be largely carried out directly by domestic institutions without governmental implementation, obviating (in theory) the need for the kind of targeted pressure for compliance that an authorization to retaliate permits.

Article 32(2) Olivos Protocol for the Solution of Controversies in the Mercosur, 18 February 2002, 2251 UNTS 244. 71 

Mercosur Court, Award No 1/​2007, 8 June 2007, p. 9 (my translation). Mercosur Court, Award No 1/​2008, 25 April 2008, p. 14. 73  Article 8.39(1) of CETA. 74  Articles 23.9–​23.11, 24.15–​24.16 of the CETA. Note that the absence of regulated retaliation may mean that no retaliation is permissible for violation of these provisions but might also mean that unregulated countermeasures remain permissible. CETA Articles 23.11 and 24.16 suggest the former; the CJEU has suggested the latter. CJEU, Opinion 2/​15, EU:C:2017:376, para 161. 72 

Remedies and Compliance    979

III.  Compliance-​oriented remedies in practice: compliance over ‘rebalancing’ A. Usage of dispute settlement and compliance Judging by the number of disputes, WTO adjudication was highly successful for as long as it operated as intended. Between 1995 and 2019, the vast majority of inter-​State trade litigation took place before WTO panels. During this time, the WTO dispute settlement system issued 205 original reports, 38 compliance reports, and 16 arbitration awards on retaliation. By contrast, RTA adjudication was very limited. In the 1990s and early 2000s, there was some significant litigation75 within CUSFTA (8 reports) then NAFTA (3 reports) as well as within Mercosur (10 disputes under the original 1991 dispute settlement protocol, plus two disputes under its 2002 version), as well as episodic litigation under regional agreements in Latin America.76 But between 2007 and 2016, while the number of RTAs almost doubled,77 RTA dispute settlement systems recorded very little new activity. Two disputes were brought under CAFTA-​DR, one by Costa Rica against El Salvador,78 another by the United States against Guatemala concerning labour rights.79 The United States also filed one request for consultations under the US–​Bahrein FTA.80 All other disputes, including between parties to regional blocs such as NAFTA and MERCOSUR, were taken to the WTO. This pattern appears to have changed more recently. On the one hand, uncertainty surrounding the operation of WTO dispute settlement following the phasing out of the Appellate Body in late 2019 has brought uncertainty to procedures at the WTO. On the other hand, the multiplication of RTAs has led to a number of new disputes under RTAs, especially in areas such as environmental conservation and protection of labour rights. Besides the US–​Guatemala dispute under CAFTA–​DR,81 over the past few years,

75 

Information on RTA disputes can be found in Porges Law Trade PLLC, RTA Dispute Infopage, at < https://​www.porges​law.com/​rta-​dispu​tes > (last visited 21 February 2020). 76  See A. Porges, RTA Disputes –​Latin America, at < https://​www.porges​law.com/​rta-​ds-​latin-​amer​ica > (last visited 21 February 2020). 77 WTO, Regional Trade Agreements Database, at < https://​rtais.wto.org/​UI/​Public​Main​tain​RTAH​ ome.aspx > (last visited 21 February 2020). 78  Final Report of the Panel, Costa Rica vs El Salvador –​Tratamiento Arancelario a Bienes Originarios de Costa Rica, 18 November 2014 (CAFTA-​DR/​ARB/​2014/​CR-​ES/​18). 79  Final Report of the Panel, Guatemala –​Issues Relating to the Obligations Under Article 16.2.1(a) of the CAFTA-​DR, 14 June 2017. 80 Joint Letter from the Acting Secretary of Labor and the US Trade Representative, request for consultations under the US-​Bahrein FTA, 6 May 2013. 81 Ibid.

980   Geraldo Vidigal disputes were announced under the US-​Peru82 and US-​Korea FTAs,83 the EU-​Ukraine DCFTA,84 the EU-​SADC EPA,85 the EU-​Korea FTA,86 and NAFTA itself.87 While it may be soon to claim that RTA adjudication has become the new norm, it has certainly taken off once more as an avenue for dispute settlement. The past two years notwithstanding, the overall numbers relating to WTO adjudication under the DSU are far higher and indicate success in settling disputes. By the end of 2019, out of 535 requests for consultation filed, 205 had led to original panel reports being issued, meaning that more than half of the disputes initiated were settled at the consultations stage or during the panel stage prior to the report being issued.88 Compliance adjudication was proportionately more limited and had only led to panel reports in 34 disputes (some disputes led to more than one round of compliance adjudication). Only 14 disputes had reached the stage of arbitration on retaliation. Given that every dispute in which there is non-​compliance can in principle be taken to the stage of arbitration on retaliation by a dissatisfied complainant,89 the small number of such arbitrations—​fewer than 10 per cent of original panel reports and fewer than 5 per cent of requests for consultations—​suggests that the remedies provided at the original stage led to a satisfactory resolution of the dispute, through compliance or a settlement, in over 90 per cent of cases.

82 USTR,

‘USTR Requests First-​ Ever Environment Consultations Under the U.S.-​ Peru Trade Promotion Agreement (PTPA)’, Press Release (1 April 2019). 83 USTR, USTR Requests First-​ Ever Consultations Under the U.S.-​Korea Free Trade Agreement (KORUS), 15 March 2019; USTR, ‘USTR to Request First-​Ever Environment Consultations Under the U.S.-​Korea Free Trade Agreement (KORUS) in Effort to Combat Illegal Fishing’, Press Release (19 September 2019). 84  European Commission, Note Verbale on restrictions applied by Ukraine on exports of certain wood products to the European Union, 20 June 2019. 85  European Commission, Southern African Customs Union –​Safeguard measure imposed on frozen bone-​in chicken cuts from the European Union, Request for the establishment of an arbitration panel by the European Union, 21 April 2020. 86  European Commission, Republic of Korea –​compliance with obligations under Chapter 13 of the EU-​ Korea Free Trade Agreement, Panel Request, 4 July 2019. 87 Global Affairs Canada, Request for Consultations with Respect to the Imposition of a Global Emergency Action (or Safeguard Measure) by the United States on Certain Solar Goods, 23 July 2018. 88  The number 535 corresponds to the amount of requests for consultations filed by 31 December 2017. The difference of two years in the counting serves to control for the time it takes between consultations and panel reports. The sole panel composed after the end of 2017 that was able to issue its report before the end of 2019 was the panel in India –​Export Related Measures (DS541). The report was under appeal at the time of writing and remains under appeal, now in ‘appeals limbo’, in 2022. 89  This claim is more problematic in relation to trade remedies, since they may expire prior to or shortly after being found WTO-​inconsistent, the question of WTO-​inconsistency therefore becoming moot while the measure has achieved its purpose. Additionally, the wrongdoing party may initiate a new investigation, including for a different trade remedy, and the complainant may believe the new form of WTO-​inconsistent measure prevents it from requesting a compliance panel and requires a new original complaint.

Remedies and Compliance    981

B. Employing retaliation: compliance, settlement, stalemate Despite the effectiveness of the primary remedies, it is sometimes considered that the real remedy offered by trade agreements is the back-​up possibility of retaliation in case of non-​compliance.90 In the summaries of disputes drafted for the WTO website, the WTO Secretariat itself labels the section on the authorization to retaliate ‘Proceedings under Article 22 of the DSU (remedies)’.91 Prior to the inquiry on whether this terminology is conceptually accurate (see Section 4 below), this section reviews the uses that have been made of the authorization to retaliate. Since the establishment of the WTO until June 2022, the DSB has issued authorizations to retaliate in 16 disputes, always preceded by an arbitration on the level and scope of the authorization.92 Table 1 summarizes key aspects of these arbitrations. From this summary, a few patterns emerge. First, with a few exceptions (Antigua, Ecuador, and Chile), the only Members whose disputes have reached the retaliation stage are the economically largest ones, which are members of the G20 group of largest economies. Second, other than for the disputes between Brazil and Canada over subsidies to aircraft manufacturers, the only Members against whom retaliation has been authorized were the United States and the European Union. Third, while a variety of Members have obtained authorization to retaliate against the United States, in every dispute in which retaliation was authorized against the European Union, the United States was a complainant. Fourth, in more than 70 per cent of disputes in which retaliation was authorized, it was not applied. The only Member that consistently applies retaliation when authorized to do so is the United States. Without making a full assessment of the facts of each dispute, it is useful to consider the different scenarios that have taken place. Some authorizations led to a change in conduct accepted by the complainant as compliance. This change took place prior to the application of retaliation in US –​COOL, US –​Tuna II (Mexico) and US –​1916 Act, and following this application in US –​FSC, US –​Byrd Amendment, and EC –​Bananas. Other authorizations led to settlements alternative to compliance, before application in US –​ Cotton and after (a long period of) application in EC –​Hormones. In US –​Gambling, no change of conduct ensued, and no retaliation was applied, while in US –​Washing 90 See, e.g., R. Brewster, ‘The Remedy Gap: Institutional Design, Retaliation, and Trade Law Enforcement’ 80 George Washington Law Review (2011) 102, at 104; W.F. Schwartz and A.O. Sykes, ‘The Economic Structure of Renegotiation and Dispute Resolution in the World Trade Organization’ 31 The Journal of Legal Studies (2002) S179. 91  See, e.g., the summary of the dispute in EC and certain member States —​Large Civil Aircraft, at < https://​www.wto.org/​engl​ish/​trato​p_​e/​disp​u_​e/​case​s_​e/​ds31​6_​e.htm > (last visited 25 February 2020). The French and Spanish versions employ the terms ‘mesures correctives’ and ‘medidas correctivas’ respectively. As discussed below, the practice of retaliation does not justify using these terms either. 92  The total number of awards is 24, with eight awards having been issued in US –​FSC and two in EC –​Bananas, in EC –​ Hormones, and US –​Cotton. A single award was issued in US –​COOL, assessing permissible retaliation for both Mexico and Canada.

982   Geraldo Vidigal Table 1 DSB Authorizations to Retaliate and their Usea Requesting Member

Award Date

Level authorized (millions/​year)

US–Countervailing Measures (China)

China

26 Jan 2022

US$645.121 m/y

353

US –​Large Civil Aircraft (2nd complaint)

EC

13 Oct 2020

USD 3,993.2 m/​y

Yes

471

US –​ Anti-​Dumping Methodologies (China)

China

1 Nov 2019

USD 3,579.1 m/​y

No

316

EC –​Aircraft

US

2 Oct 2019

USD7, 496.6 m/​y

Yes

464

US –​Washing Machines

Korea

8 Feb 2019

USD84.81 m/​y +​ formula

No

381

US –​Tuna II (Mexico)

Mexico

25 Apr 2017

USD163.23 m/​y

No

384

US –​COOL

Canada

7 Dec 2015

CAD1,054.7 m/​y

No

DS#

Short Title

437

386 267

Mexico

Applied?

USD 227.8 m/​y

US –​Cotton Subsidies

Brazil

31 Aug 2009

USD147.4 m/​y (for FY 2006) +​ US$147.3 m/​y

No

21 Dec 2007

285

US –​Gambling Services

Antigua

USD21 m/​y

No

217, 234

US –​Byrd Amendment

Brazil, Chile, 31 Aug 2004 Canada, EC, India, Japan, Korea, Mexico

Disbursements Multiplied by Coefficient

Yes

136

US –​1916 Act

EC

24 Feb 2004

Amount of Final Judgments and Settlement Awards

No

222

Canada –​Commercial Aircraft

Brazil

17 Feb 2003

USD 247.7 m

No

108

US –​FSC

EC

30 Aug 2002

USD 4,043 m/​y

Yes

46

Brazil –​Aircraft

Canada

28 Aug 2000

CAD 344.2 m/​y

No

27

EC –​Bananas

Ecuador

24 Mar 2000

USD 201.6 m/​y

Yes

US

9 Apr 1999

USD191.4 m/​y

Canada

12 Jul 1999

CAD11.3 m/​y

46 26

EC –​Hormones

US

Yes

USD116.8 m/​y

a Sources: relevant arbitral awards; G. Shaffer and D. Ganin, ‘Extrapolating Purpose from

Practice: Rebalancing or Inducing Compliance’ in C. P. Bown and J. Pauwelyn (eds), The Law, Economics and Politics of Retaliation in WTO Dispute Settlement (New York: Cambridge University Press, 2010), at 73–​91; M. Limenta, WTO Retaliation: Effectiveness and Purposes (Oxford: Hart, 2017); and assessment by the author.

Remedies and Compliance    983 Machines, the ‘as applied’ measure was removed, but the ‘as such’ change of conduct did not take place.93 In US –​Anti-​Dumping Methodologies (China) and US - Countervailing Duties (China), the authorizations to retaliate intervened within the context of the reciprocal raising of tariffs between the United States and China that made them of little practical value. Finally, in the aircraft subsidies disputes, Brazil and Canada reached an implicit truce after both were authorized to retaliate against each other (in Brazil –​ Aircraft and Canada –​Commercial Aircraft). By contrast, the application of retaliation by the United States in EC –​Large Civil Aircraft was not met with compliance, but resulted in the European Union imposing its own retaliation measures once this was authorized in US –​Large Civil Aircraft (2nd Complaint). This suggests that the authorization to retaliate is of real if limited use for complainants in obtaining compliance or an alternative settlement. At the same time, to the extent that the authorization to retaliate can be called a remedy, this authorization does not perform, even potentially, the retrospective portion of the function of remedies, that is, ‘wip[ing] out all the consequences of the illegal act’ or ‘reestablish[ing] the situation which would, in all probability, have existed if that act had not been committed’.94 After all, retaliation does not involve a transfer of funds or assets to the affected industries but the imposition of measures that are harmful both to the party suffering them and to the party imposing them. This has been referred to as ‘shooting yourself in the foot’ to hit the other party.95 Likewise, WTO compensation is not aimed at making the injured party whole. While it carries the same name as compensation under the ILC Articles on State Responsibility, it does not require compensating the injured party by offsetting the injury it suffered. Rather, WTO compensation amounts to any form of settlement that the disputing parties agree to. The very label of ‘compensation’ is justified only by the presumption that, for the complainant to tolerate continued non-​compliance, the wrongdoing Member will have to provide it with something in return. However, this compensation may benefit sectors and industries entirely unaffected by the WTO-​ inconsistent measure. Both retaliation and compensation are ‘temporary measures’ that cease as soon as compliance is achieved. Additionally, an assessment of the practice surrounding the disputes indicates that no WTO Member initiating a WTO dispute considers the authorization to retaliate to be the purpose of bringing a dispute. Complaining Members, and the private parties whose

93  The question arises whether retaliation can be applied for ‘as such’ WTO-​ inconsistent conduct when the ‘as applied’ measure causing nullification or impairment has disappeared. The issue is more complex if there is new conduct whereby the ‘as such’ conduct manifests itself in a different applied measure. On non-​compliance without nullification or impairment, see Vidigal, above fn 15, at 531–​533. 94  Factory at Chorzów (Merits) (1928) PCIJ Ser. A No. 17, p. 47. See also Arbitral Award in Lusitania (1923) 7 RIAA 32, 39; D. Shelton, Remedies in International Human Rights Law, 2nd edition (Oxford: Oxford University Press, 2005), 10–​21. 95  See, e.g., P.C. Mavroidis, ‘Remedies in the WTO Legal System: Between a Rock and a Hard Place’ 11 European Journal of International Law (2000) 763, 763–​764

984   Geraldo Vidigal interests they are defending, seek performance by other Members of their obligations.96 Rather than seeking to obtain the authorization to retaliate as quickly as the rules allow, complainants agree to all forms of delays in the process that could lead to an authorization to retaliate. They provide wrongdoers with multiple opportunities to negotiate even after being awarded an authorization to retaliate. And, when they do apply retaliation, it is not to increase revenues, which could best be done by raising a variety of tariffs slightly and seeking a stable ‘rebalancing of obligations’. Rather, retaliating states seek to maximize the compliance-​inducing effect of their retaliation, targeting with quasi-​ prohibitive additional tariffs the wrongdoer’s most symbolic and politically powerful industries and those which it expects will most effectively exert pressure domestically for the wrongdoer to comply. Therefore, both conceptually and empirically, few commonalities exist between an authorization to retaliate and an award for damages. While it is true that the authorization to retaliate and the remedy of monetary compensation are calculated to be commensurate with the harm caused by the breach, and may (in the case of retaliation, only if applied) cause harm to the wrongdoer’s interests, this is where the analogy stops. The function of these two types of remedies is entirely different. There is little sense in seeking to apply directly to the field of international trade law theories with respect to the function of remedies developed within the domestic legal context and having in mind judicial awards for damages.

IV.  Remedies in international (trade) agreements: compliance, transaction, retaliation A. Three forms of remedies: unilateral, bilateral, judicial One way to understand the function of judicial remedies in international law in general, and international trade law in particular, is to place them within the broader framework of a tripartition of remedies: unilateral remedies (self-​help); bilateral remedies (compensation and transactions more broadly); and judicial remedies (third-​party adjudication).97 These three remedies are alternative courses of action available to a State that believes that another State has breached or is breaching its international obligations. They are remedies in that they are means to induce a wrongdoer to provide voluntarily 96 

See G. Vidigal, ‘Why Is There So Little Litigation under Free Trade Agreements? Retaliation and Adjudication in International Dispute Settlement’ 20 Journal of International Economic Law (2017) 927, 945–​949; Shaffer and Ganin, above fn 93. 97  In the domestic context, this classification dates back to Blackstone. W. Morrison (ed), Blackstone’s Commentaries on the Laws of England (London: Cavendish, 2013/​1765), Vol 3, 4.

Remedies and Compliance    985 the solution that the aggrieved State is ultimately seeking—​usually, performance of the original obligation. Within this framework, resort to adjudication appears as a means of obtaining performance of breached obligations. It is a means alternative to what would, in its absence, be the sole options available to an aggrieved State: purely bilateral negotiations with the wrongdoer and, in its absence or as a means to incentivize it, a unilateral determination that commitments have been violated and unilateral adoption of remedial (self-help) measures. Permissible unilateral remedies under international law range from retortions (which are unfriendly but lawful acts taken in response to a breach)98 to countermeasures (which consists of reciprocal non-​performance of certain obligations to induce cessation and retaliation)99 to its extreme form: self-​defence in response to an armed attack.100 Recent trade agreements have reincorporated unilateral remedies as an authorized means of response. The entirety of the US-​China ‘Phase One’ Agreement is to be enforced via diplomatic escalation of disputes to higher authorities and, where this fails, through unilateral retaliation.101 In the Trade and Cooperation Agreement between the European Union and the United Kingdom, parties may unilaterally adopt ‘rebalancing measures’ as a response to significant divergences from the other party with respect to labour and social protection, environmental or climate protection, and subsidy control.102 These developments amount to a significant deviation from the rule in international trade agreements that requires parties to resort to adjudication before proceeding to retaliate, suggesting the continued appeal of unilateral remedies, which can be delivered immediately by a party that feels aggrieved by another party’s conduct.103 Unilateral remedies are problematic in at least three ways. First, in adopting such measures, the aggrieved State almost invariably causes harm to a plurality of actors. Increased tariffs, which are the most common form of retaliation, are famously disruptive for the State adopting them, harming either its consumers or its industries as the retaliating State ‘shoots itself in the foot’ in order to harm the wrongdoer.104 And, 98 

ILC Articles with Commentary, above fn 19, 128. Articles 49–​54 of the ILC Articles on State Responsibility. 100  Article 51 of the Charter of the United Nations. 101  Article 7.4 of the Economic and Trade Agreement between the Government of the United States of America and the Government of the People’s Republic of China, signed 15 January 2020. 102 Article 9.4 of the Trade and Cooperation Agreement Between the European Union and the European Atomic Energy Community, of the One Part, and the United Kingdom of Great Britain and Northern Ireland, of the Other Part (EU-​UK TCA), signed 24 December 2020 entered into force 1 May 2021. Rebalancing measures are subject to a variety of strict substantive conditions, must be preceded by a procedure, and can be taken to adjudication by the affected party prior to their adoption. In case adjudication takes too long, the complaining party is entitled to adopt the measures while adjudication is pending. 103  The WTO Agreements do admit of unilateral measures in the form of trade remedies. Of the three types of trade remedies, only countervailing measures exist to respond to WTO-​inconsistent measures, i.e. prohibited and actionable subsidies, and are thus a ‘remedy’ in the sense of this chapter. In case of safeguards, the unilateral suspension of equivalent concessions by affected Members under Article 8.3 of the Safeguards Agreement may also be considered a unilateral remedy (against a failure by the Member imposing safeguards to provide adequate compensation for their adverse effects). 104  See above fn 87. 99 

986   Geraldo Vidigal while some have sought to devise wealth-​enhancing retaliation, especially to increase the ability of developing countries to retaliate (for example, through the suspension of intellectual property obligations),105 these attempts have had limited success in inducing WTO compliance. Besides practical issues, like the aggrieved State’s ability to implement such a measure,106 these proposals ignore the fact that imposing costs on the sanctioning party is not a defect of sanctions but a feature. In adopting such measures, a State is signalling to the violator that it feels sufficiently aggrieved by its breach that it will adopt costly measures to respond to it and demand redress.107 A second issue affecting the enforcement of rules through unilateral remedies is that these remedies are, by their very nature, adopted based solely on the perception of the aggrieved State that there has been a violation and that the violation has caused a certain level of injury. In case the alleged wrongdoer disagrees with this view, it may reject the label of ‘unilateral remedy’ to the measures adopted and interpret them as violations themselves and the allegation of a prior violation, a mere pretext. In response to what it perceives as an original violation rather than a sanction, the purportedly sanctioned state may seek to adopt its own unilateral remedies. The State that saw itself as originally aggrieved may well interpret the new harmful measures as an aggravation of the original violation. This may lead to a new dispute in which, given the two parties’ sovereign equality, the alternatives to a settlement are either the prolongation of the dispute and the persistence of the harmful measures adopted by both parties or the escalation of the dispute into an ever more serious conflict. The scenario of multiple unilateral and mutually contradictory assessments took place in the 2018–​2019 ‘Trade Wars’. A first ‘trade war’ was started when the United States unilaterally adopted what it labelled retaliatory tariffs to respond to measures maintained by China negatively affecting American exporters and investors in China. The United States argued that it was not required to go through WTO adjudication because the alleged measures were not violations of WTO law. A second trade war emerged following the adoption of increased tariffs on steel and aluminium by the United States on the grounds of national security. Many WTO Members responded by retaliating unilaterally, based on their own interpretation that the steel and aluminium tariffs amounted to WTO-​inconsistent safeguards. In both cases, unilateral retaliation was met with escalation by the party retaliated against and, in the case of the US-​China dispute, with further rounds of escalation. The various rounds of escalation and additional tariffs meant that when, in US –​Anti-​Dumping Methodologies (China), arbitrators calculated 105 A. Subramanian and J. Watal, ‘Can TRIPS Serve as an Enforcement Device for Developing Countries in the WTO?’ 3 Journal of International Economic Law (2000) 403–​416. 106 Among the developing countries that threatened to suspend intellectual property rights (in particular, Ecuador in EC –​Bananas and Antigua and Barbuda in US –​Gambling), the only Member to have used the threat of intellectual property protection successfully was Brazil in US –​Cotton. See Communication from Brazil, US –​Cotton, WT/ DS267/ 43 (12 March 2010); Joint Communication from Brazil and the United States, US –​Cotton, WT/ DS267/ 45 (31 August 2010). 107 See D.W. Drezner, The Sanctions Paradox: Statecraft and Economic International Relations (Cambridge: Cambridge University Press, 1999).

Remedies and Compliance    987 that China should be authorized to adopt retaliation against the United States over USD 3.5 billion of trade –​the third largest award on authorized retaliation in WTO history –​ this amount constituted a small fraction of the hundreds of billions of dollars of trade affected by the bilateral tariffs. Third, the evidence from unilateral remedies in practice suggests that they are most effective at the threat stage. When threatened, retaliation may be effective in leading economic and political actors to press decision-​makers either to withdraw the harmful measure or to reach an agreement with the affected party. If the dispute reaches the stage where a party applies retaliation, however, this means that the political and economic system of the wrongdoing party has concluded that retaliation is an acceptable price to pay to maintain the harmful measure. Additionally, political actors seen to be modifying their conduct not as part of a negotiation but owing to unilateral demands and retaliation by others are likely to be perceived not as reasonable but as weak, which creates a disincentive for them to agree to remove the harmful measure. Evidence from WTO retaliation, political negotiations outside of adjudication systems, and regional trade agreements in which institutionalized dispute settlement was replaced with retaliation-​ based dispute settlement all suggest that retaliation is at its most effective when it is credibly threatened, not when it is applied.108 These considerations shed light on an important function of the prohibition of unilateral retaliation under Article 23 of the DSU. Article 23(1) requires WTO Members to have recourse to DSU procedures whenever they ‘seek the redress of a violation of obligations or other nullification or impairment of benefits’ under WTO law. Article 23(2) specifies that this obligation precludes Members from making unilateral determinations of violation as well as from adopting unilateral responses as remedies.109 As a result, Members must seek judicial remedies before WTO adjudicators and follow the three-​stage procedure in the DSU prior to adopting retaliatory remedies.110 While ordinarily a credible threat of retaliation would require the threatening party to at least go some way towards imposing actual retaliation, the Article 23 prohibition allows WTO Members to credibly threaten retaliation while claiming that the reason they do not apply it for the time being is that, as law-​abiding WTO Members, they are pursuing authorization from the DSB. In other words, Article 23 allows Members to benefit from the threat of retaliation without having to pay the cost of actual retaliation. Article 23 in fact allows smaller Members, which would not ordinarily be able (economically or politically) to adopt actual retaliation measures, to employ the threat strategy nonetheless. 108 

Drezner, above fn 108; Vidigal, above fn 97. The Panel in EC –​Commercial Vessels concluded that Article 23 prohibits all unilateral remedies, whether they imply reciprocal non-​ compliance with existing obligations (countermeasures) or constitute simply unfriendly conduct taken in response to an alleged violation of WTO rules (retorsions). Panel Report, EC –​Commercial Vessels, adopted 20 June 2005, para 7.207. 110 As discussed below, when applied lawfully, WTO retaliation is no longer entirely unilateral. Although its application remains a matter for the state adopting the measure (and therefore depends for effectiveness on its ability and willingness to retaliate meaningfully), WTO retaliation is the implementation of a multilateral determination. 109 

988   Geraldo Vidigal It also creates a period of negotiation in which no retaliation is being applied, allowing Members to reach a mutual understanding without any of them having to concede to be bowing to retaliation.111 Although Article 23 is unique in its explicit prohibition of unilateral retaliation, other adjudicators in the field of trade have similarly connected the availability of judicial remedies within an institutional setting with the impermissibility of adopting unilateral remedies.112 It should be noted that WTO law also imposes limits on the bilateral remedies available to the parties. Although the DSU suggests that a mutually agreed solution is ‘to be preferred’ over a solution determined by adjudication, it also requires such a mutually agreed solution to be consistent with WTO rules.113 And, while Article 22.8 establishes that a mutually satisfactory solution puts an end to the dispute as well as to an aggrieved party’s entitlement to maintain unilateral retaliation, in Canada/​US –​ Continued Suspension the Appellate Body suggested that the conditions in Article 22.8 are met only when there is ‘substantive resolution of the inconsistency found by the DSB’.114 A bilateral settlement could thus be set aside within WTO adjudication if it is found to be inconsistent with WTO law. Although the Member-​driven structure of the WTO dispute settlement system offers significant negotiating space for governments, as a matter of law, the DSU subjects (or seeks to subject) both unilateral and bilateral remedies to multilateral adjudication, judicial remedies, and the requirement of WTO-​consistency.

B. Three functions of judicial remedies Judicial remedies intervene within the array of remedies otherwise available to States to enforce international obligations on three levels. First, they allow a State to respond to perceived unlawful conduct through a means beyond day-​to-​day negotiations and protests by launching a formal dispute. Second, they provide an impartial assessment of the relevant obligations and the conduct of the alleged wrongdoer in light of these obligations. Third, they permit a controlled and authorized use of unilateral remedies, whose legitimacy is not disputed by the parties due to it being based on their previous consent to the system as well as on the determination made by the adjudicator.

111 In US –​Gambling, the United States was ready to compensate Antigua and Barbuda for losses equivalent to those it suffered from the United States’ WTO-​inconsistent measures. It was Antigua and Barbuda’s insistence that it was entitled to more benefits than those adjudicated by the DSB (i.e., to host online poker servers accessible from the United States) that prevented the renegotiation of benefits, leaving Antigua with an authorization to retaliate that it was never able to use. See Minutes of DSB Meeting of 17 December 2012, WT/​DSB/​M/​327 (4 March 2013), at 28-​30. 112 Mercosur Ad Hoc Arbitral Tribunal, Award No IX, 4 April 2003, 240; Joined Cases 90/63 and 91/63 Commission v Luxembourg and Belgium, EU:C:1964/80 Arbitral Award, Air Service Agreement Arbitration (1978) 18 RIAA 417, 443. 113  Articles 3.5, 3.7 of the DSU. 114  Appellate Body Report, Canada/​US –​ Continued Suspension, adopted 14 November 2008, para 304.

Remedies and Compliance    989 On the first level, dispute initiation is typically viewed by WTO Members and the public more broadly as a form of news-​worthy escalation of bilateral discussions. When a Member raises a trade tension in a WTO committee other than the DSB, such as the Trade Policy Review Body or the TBT or SPS Committee, it does not expect this to make the news. Its action results in increased pressure on the wrongdoer through the WTO membership but not necessarily the public. Launching a dispute mounts further pressure still since it does make the news.115 At the same time, bringing a dispute remains a relatively low-​cost option compared to using unilateral remedies both economically, since it does not involve disrupting industries, threatening livelihoods or harming consumers, and politically, since it remains within the scope of friendly relations among trade partners. The fact that half of the requests for consultations at the WTO do not reach the stage of a panel report indicates significant bargaining at the pre-​adjudication stage, which in turn makes initiating a dispute itself a remedy in the broadest sense. On the second level, judicial findings, conclusions, and recommendations secure for the complainant an objective assessment of the dispute by a disinterested third party. While it may be that a Member whose conduct allegedly violates its WTO obligations adopts this conduct in the knowledge that it is a violation, there is often genuine disagreement with respect both to the interpretation of obligations and to whether the conduct constitutes a violation. This disagreement may not only exist between Members but within the Member adopting the conduct. A Member’s agency or body may adopt a stance on the basis of an interpretation of its WTO obligations that is not shared by its own legislators, for example. Third-​party adjudication allows the complaining Member to re-​enter into bilateral talks with the wrongdoer to re-​discuss the issue, having an impartial body’s assessment that a violation has occurred, and the overall expectation among Members that it is required to comply with this assessment. Within the Member found in breach, political and other actors could have difficulties facing up to domestic constituencies based on their own assessment of what the rules require. Once it becomes widely known that a foreign government has taken up the issue at the highest level and that the adjudicator has sided with the complainant, complying becomes politically more acceptable.116 Moreover, a WTO panel’s findings are not limited to a binary assessment of whether there has been a violation. These findings identify the specific aspects of the measure that contravene WTO obligations as well as the nature of the violation. This aspect may be more relevant than the answer to the binary question of whether there has been a 115  H. Horn, P.C. Mavroidis, E.N. Wijkström, ‘In the Shadow of the DSU: Addressing Specific Trade Concerns in the WTO SPS and TBT Committees’ 47 Journal of World Trade (2013) 729–​759. 116  It could be added that the adjudicator’s decision allows the government and other political actors to deflect towards the international organization the blame for unpopular policies or removal of benefits of specific categories, often at the expense of the rest of society. While this deflective effect is sometimes presented as an advantage of international dispute settlement, it only works in the short term and in low doses. If used extensively, this deflection of blame engenders backlash against the organization, as if the state’s obligations originated in the decision of a small group of international civil servants rather than in negotiations between states and the resulting reciprocal commitments.

990   Geraldo Vidigal violation. Arguably, this is where the intervention of the Appellate Body has been most relevant. In disputes such as US –​Shrimp, Brazil –​Tyres, and EC –​Seals, the Appellate Body has made sure to clearly distinguish its conclusion regarding the permissibility of the broad policy in question from the conclusion that the measure had been applied in a discriminatory manner. As a result, the conduct expected from the party found in breach was not the elimination of the challenged legitimate policy or measure but the elimination of its unjustifiable discriminatory aspects. This nuanced outcome would not necessarily have resulted from a purely bilateral negotiation in which one party seeks to protect its national policies while the other protests against lost economic opportunities for its nationals. Finally, the system of remedies set up by trade agreements permits controlled resort to the type of measure that could be expected to emerge in a bilateral context in case of fruitless negotiations: trade retaliation. This retaliation can take the form of any non-​performance of trade obligations. Retaliation has in some cases been authorized to take the form of suspension of protection of intellectual property rights and of commitments in services, but so far it has only been concretely applied in the field of goods, i.e., through the imposition of vastly increased tariffs on imports from the wrongdoing party. Judicial remedies legitimize retaliation. While still implemented solely by the complaining party, authorized trade retaliation is no longer unilateral in the sense of being based on one party’s individual perception that its rights are being violated. Instead, it is based on the assessment, by an institution entrusted with making this assessment impartially, that a violation has taken place. This legitimation by the institution, and at the same time by the rules agreed upon by all parties, reduces the likelihood that parties will challenge the permissibility of the retaliation. In the case of the WTO, the very act of imposing retaliation is preceded by the possibility of an adjudicator’s assessment that the form of retaliation chosen is warranted and proportionate to the level of injury (‘nullification or impairment’) caused by the violation, as well as by a multilateral decision by a collective political body (the DSB) authorizing the application of retaliation. This judicialization of the remedy of retaliation, often perceived as a burden on an injured complainant, becomes useful for two reasons. First, the retaliation itself is legitimized and can be applied with reduced scope for legitimate counter-​retaliation. Second, the very series of perceived ‘delays’ within the WTO dispute settlement procedure provides opportunities for compliance to occur without retaliation, allowing the complainant to attain its objectives while avoiding having to apply costly retaliation. In fact, a significant and underrated bonus of the multi-​stage procedure that precedes WTO retaliation is that it allows Members to credibly threaten to retaliate, without being required to act and pay the costs of retaliation, on the credible grounds that they are waiting until retaliation becomes permissible. Given the low record of retaliation as a compliance-​inducing tool once it becomes permissible, is authorized, and is applied, the ability to threaten it allows complainants to engage in a threat strategy, which is often successful, without having to incur the costs of a retaliation strategy, which is less often so.

Remedies and Compliance    991

V. Conclusion Uniquely, remedies in international trade agreements are aimed at securing performance by States of their obligations rather than at the provision of reparation for injury caused by breach. In pursuit of this goal, trade agreements leave aside the remedy of reparation and entrust adjudicators merely with establishing whether and why commitments have been violated. The first focus of judicial remedies in trade is producing an impartial assessment of the dispute, with a final determination of the scope and content of obligations and a clear identification of violations. If breaches are identified, the focus of remedies shifts to mobilizing political and economic resources to induce compliance by the party found in breach with its obligations. These resources include political pressure in collective organs, mandatory periodic surveillance over cases in which breaches are found, proceedings to determine compliance with earlier determinations, and the possibility for an aggrieved party to employ, as a remedy of last resort, regulated trade retaliation. This complex system of compliance-​oriented remedies seeks to address what is often perceived as a deficiency of international adjudication: its inability to produce, against the will of a party, the outcome required by treaty commitments as interpreted by the adjudicator. While problematic from the viewpoint of the implementation of commitments, this perceived deficiency is what defines international adjudication and the international legal system more broadly. If non-​compliance with obligations were met with an overwhelming response, the question would be whether the system within which this response operates remains international in the sense we understand it. An international system permits States to retain the ultimate power to determine their own policies (which one might call their sovereignty) while still preserving the legal character of the commitments each state makes to its counterparts. While this system of remedies may not always secure compliance as desired by complainants, a relatively low degree of enforceability can also be thought of as the mirror image of the freedom of States to remain the ultimate decision-​makers within their own jurisdiction. Within an international adjudication system, a well-​designed system of remedies may facilitate the pursuit of compliance and constitute an instrument to induce compliance, but it is unable to replace the determination of States with respect to how and when to achieve it. Judicial remedies constitute the least costly means of seeking compliance among the available ones. The recent rise in interest in unilateral remedies, perceived as a more efficient approach than resort to adjudication, may be due in part to a failure to consider in-​ depth the implications of the different courses of action available to an aggrieved State in international relations. States are permanently adjusting their reciprocal conduct to match the state of their relations, whether visibly (for example, by loudly announced trade retaliation) or invisibly (for example, by suspending cooperation in ostensibly unrelated fields or by failing to process otherwise simple requests from another State or its nationals). Rather than being a creation of the DSU or international trade agreements,

992   Geraldo Vidigal unilateral remedies are structurally embedded in the international legal regime, where they always constitute the last resort States have against violations of commitments by other States. What the DSU and other international trade agreements create is thus not the right to retaliate but the right to seek judicial remedies, and with it, the ability to press for compliance without employing the economically disruptive and politically hazardous instrument of unilateral retaliation.

Further reading Bown, C. and J. Pauwelyn (eds), The Law, Economics and Politics of Retaliation in WTO Dispute Settlement (Cambridge: Cambridge University Press, 2010) Brewster, R., ‘The Remedy Gap: Institutional Design, Retaliation, and Trade Law Enforcement’ 80 George Washington Law Review (2011) 102–​158 Bronckers, M. and F. Baetens, ‘Reconsidering Financial Remedies in WTO Dispute Settlement’ 16 Journal of International Economic Law (2013) 281–​311 Charnovitz, S., ‘The WTO’s Problematic “Last Resort” Against Noncompliance’ 57 Aussenwirtschaft (2002) 407–​440 Hudec, R.E., ‘Broadening the Scope of Remedies in WTO Dispute Settlement’ in F. Weiss and J. Wiers (eds), Improving WTO Dispute Settlement Procedures (London: Cameron May 2000) 345–​376 Mavroidis, P.C., ‘Remedies in the WTO Legal System: Between a Rock and a Hard Place’ 11 European Journal of International Law (2000) 763–​813 Schwartz, W.F. and A.O. Sykes, ‘The Economic Structure of Renegotiation and Dispute Resolution in the World Trade Organization’ 31 The Journal of Legal Studies (2002) S179 Soprano, R., WTO Trade Remedies in International Law—​Their Role and Place in a Fragmented Legal System (Abingdon, UK /​New York, NY: Routledge 2018) Vidigal, G., ‘Re-​Assessing WTO Remedies: The Prospective and the Retrospective’ 16 Journal of International Economic Law (2013) 505–​534 Zimmermann, C.D., ‘Toleration of Temporary Non-​Compliance: The Systemic Safety Valve of WTO Dispute Settlement Revisited’ 3 Trade, Law and Development (2011) 382–​406

Chapter 38

Pro cedura l a nd Ev identiary I s su e s Andreas Sennekamp and Federico Ortino

I. II.

Introduction Procedural issues A. Preliminary rulings B. Transparency and confidentiality III. Evidentiary issues A. Administration of proof B. Expert evidence I V. Conclusions

993 997 997 1001 1009 1009 1013 1015

I. Introduction This chapter focuses on the practice of dispute settlement in international economic law, describing some of the key procedural and evidentiary issues that have emerged in the litigation of international trade and investment disputes. At the outset, it is important to recall that there is no integrated system for the settlement of disputes in international economic law. Rather, two main processes have emerged. For international trade, States referred disputes to third-​party decision-​makers in an ad hoc manner under the GATT. This developed into a more formalized two-​tier review with the inception of the WTO dispute settlement system, while in parallel, referral in an ad hoc manner to third-​party decision-​makers under an FTA is still and may increasingly be an option where such FTAs exist. By contrast, for international investment, a State or an investor may refer a dispute to ad hoc arbitration under an international (mostly bilateral) investment treaty. However, in the context of the work being carried out since 2017 by

994    Andreas Sennekamp and Federico Ortino the UNCITRAL Working Group III on possible reforms of ISDS,1 the establishment of a standing multilateral investment tribunal or appeal mechanism has been considered as a possible future reform.2 At the same time, the very features of the WTO dispute settlement system that have long inspired negotiations of an institutional structure for the settlement of international investment disputes are in decline and at risk of decomposition since the WTO Appellate Body became inquorate. The immediate impact may seem limited to a (provisional) absence of appellate review. However, significant systemic implications for the operation of the WTO dispute settlement system are likely to occur.3 There is uncertainty regarding the adoption of panel reports since nothing prevents a WTO Member from appealing a panel report pursuant to Article 16.4 of the DSU to the non-​functioning Appellate Body, thus indefinitely deferring the adoption of the panel report.4 Because Members’ compliance obligations attach to DSB recommendations and rulings based on adoption,5 appealing a panel report into the void also prevents the emergence of compliance obligations, and it forestalls potential remedies. The fear is that the WTO dispute settlement system may thus lose some or much of its predictability and its teeth. It remains to be seen to what extent WTO Members will be willing to spend considerable resources on litigation at the panel level when there is little prospect of a proper remedy.6 Debilitation of remedies, in turn, may generate a ‘domino effect’ for future trade negotiations at the WTO, as the value of negotiated outcomes also depends on the ability of signatories to enforce them.7 As a stopgap measure intended to serve until the return of the Appellate Body, to date, 25 WTO Members8 have joined a ‘multi-​party interim appeal arbitration 1  Official

Records of the General Assembly, Seventy-​second Session, Supplement No. 17 (A/​72/​17), paras 263–​64. 2 UNCITRAL Working Group III, Thirty-​ eighth session, Vienna, 20–​24 January 2020, ‘Possible reform of Investor-State dispute settlement (ISDS): Appellate and multilateral court mechanisms’, Note by the Secretariat (29 November 2019). See also the ‘Investment Court System’ introduced in recent FTAs concluded by the European Union such as in the case of CETA, Chapter 8, Section F. See also Chapter 32 of this handbook. 3  M. Wagner, ‘The Impending Demise of the WTO Appellate Body: From Centrepiece to Historical Relic?’ in C. Lo, J. Nakagawa, and T. Chen (eds), The Appellate Body of the WTO and Its Reform (Singapore: Springer, 2020), 67, at 85. 4  One of several examples is the appeal by Saudi Arabia of the Panel Report in Saudi Arabia –​IPRs, (not yet adopted), filed on 28 July 2020 to an inquorate Appellate Body (WT/​DS567/​7), effectively blocking indefinitely the adoption of that panel report. 5  Article 22.1 of the DSU. 6  With five new requests for consultations in 2020, Members have filed fewer such requests than in any other year since the inception of the WTO dispute settlement system, see < https://​www.wto.org/​ engl​ish/​trato​p_​e/​disp​u_​e/​dispu​stat​s_​e.htm > (last visited 5 August 2021). 7  B. Hoekman and P. C. Mavroidis, ‘Preventing the Bad from Getting Worse: The End of the World (Trade Organization) As We Know It?’ (1 January 2020), 2020 Robert Schuman Centre for Advanced Studies Research Paper No. RSCAS 2020/​06. 8  At the time of notification on 30 April 2020, these were: Australia; Brazil; Canada; China; Chile; Colombia; Costa Rica; the European Union; Guatemala; Hong Kong, China; Iceland; Mexico; New Zealand; Norway; Pakistan; Singapore; Switzerland; Ukraine; and Uruguay. These WTO Members made clear that additional members may join the MPIA at any time, and that inclusiveness was an

Procedural and Evidentiary Issues    995 arrangement’ (MPIA) for disputes arising between the participating WTO Members.9 The arrangement seeks to ensure that participating WTO Members will continue to benefit from the availability of an independent and impartial appeal stage. Operating within the WTO framework and based on Article 25 of the DSU, the MPIA relies on the usual DSU rules applicable to appeals, but also contains some novel elements aspiring to enhance procedural efficiency. The mechanism envisages the constitution of a pool of 10 arbitrators from which individual arbitrators could be drawn randomly to serve on specific appeals.10 About two years after the notification of this mechanism, no MPIA proceedings have been initiated. However, in a number of disputes, participants have agreed upfront to use the MPIA as a framework for an Arbitrator to decide on any appeal of any final panel report that would be issued in the respective disputes.11 Overall, it appears that while the reform of dispute settlement in international investment law has been seeking to build convergence around certain elements inspired by key features of the WTO dispute system, some of those very elements have been practically eliminated from WTO dispute settlement as it stands, and, if anything, the two systems are moving in opposite directions. In addition to those developments concerning the multilateral framework for settling trade disputes, there is a trend for bilateral and plurilateral trade agreements to include agreement-​specific dispute settlement chapters. So far, there is little practice of actual dispute settlement under bilateral or plurilateral trade agreements. The reasons for this are manifold,12 including those relating to the kind of remedy available. As the paralysis of the WTO Appellate Body might call into question the potential for obtaining, through litigation at the WTO, authorization for retaliation, it remains to be seen whether WTO

important feature of the MPIA. See European Commission, ‘Interim Appeal Arrangement for WTO Disputes Becomes Effective’, at < https://​trade.ec.eur​opa.eu/​doc​lib/​press/​index.cfm?id=​2143 > (last visited 5 August 2021). Subsequently, the following WTO Members notified their decision to join the MPIA: Ecuador (15 May 2020); Nicaragua (19 May 2020); Benin (22 June 2020); Montenegro (24 July 2020); Macao, China (18 September 2020); and Peru (10 February 2021). See JOB/​DSB/​1/​Add.12/​Suppl.1–​ 7 (11 February 2021). 9  Members

participating in the MPIA expressed their intention to bring appeals to the Appellate Body as soon as it was back in operation. See European Commission, ‘Interim Appeal Arrangement for WTO Disputes Becomes Effective’, at < https://​trade.ec.eur​opa.eu/​doc​lib/​press/​index.cfm?id=​2143 > (last visited 5 August 2021). 10  The text of the MPIA as notified is accessible at JOB/​ DSB/​ 1/​ Add.12 (30 April 2020). The composition of a pool of 10 standing arbitrators for the purposes of the MPIA was announced on 3 August 2020, JOB/​DSB/​1/​Add.12/​Suppl.5 (3 August 2020). 11  Canada –​Wine (Australia), Costa Rica –​Avocados (Mexico), Canada –​Commercial Aircraft, Colombia -​Frozen Fries, China —​AD/​CVD on Barley (Australia), China —​Canola Seed (Canada). In Turkey –​Pharmaceutical Products (EU), albeit not in the framework of the MPIA, the parties agreed to ‘enter into arbitration under Article 25 of the DSU to decide any appeal from any final panel report’ issued to the parties in that dispute. Turkey initiated such proceedings on 25 April 2022, WT/​DS583/​12 (28 April 2022). 12  See G. Vidigal, ‘Why Is There So Little Litigation under Free Trade Agreements? Retaliation and Adjudication in International Dispute Settlement’ 20(4) Journal of International Economic Law (2017) 927–​50.

996    Andreas Sennekamp and Federico Ortino Members continue to prefer WTO dispute settlement over litigation under FTAs, where that option is available. Where Members do engage in litigation under an FTA, they are likely to also encounter in that context some of the key procedural and evidentiary questions described in this chapter based on the practice of litigation of international trade and investment disputes. This is so because, even if formally separate, the various trade and investment dispute settlement mechanisms are part of the same international system and epistemic community and are thus influencing each other, whether directly or indirectly, on various fronts, and in particular on matters of procedure.13 This can be seen not just in the interrelation between WTO dispute settlement and ISDS but also in other dispute settlement systems established in the context of FTAs.14 Accordingly, while the focus of our analysis is on WTO dispute settlement, we aim to supplement such analysis with that of other relevant dispute settlement systems, in particular ISDS. With this in mind, we turn to consider some of the key procedural and evidentiary questions of relevance both in the context of international trade and investment litigation. It is not our aim to describe step by step the procedures in WTO dispute settlement and in Investor-State arbitration.15 Rather, we focus on several cross-​cutting procedural and evidentiary issues and assess differences and similarities in the way they have been addressed in judicature, and we seek to identify commonalities in procedural and evidentiary issues in international trade and international investment litigation. At the same time, we are mindful of structural differences in the frameworks for settling international trade and international investment disputes. For instance, while foreign investors and thus private entities have standing to initiate an international investment dispute, access to dispute settlement under the WTO or other trade regimes is 13  C. Brown, A Common Law of International Adjudication (Oxford: Oxford University Press, 2007), at 262: ‘This, then, suggests that while international courts might not form part of a formal system with structural relations and complete normative coherence, there is a distinct community of international courts, all of which exercise broadly similar functions in settling disputes and ensuring the proper administration of international justice’. 14  See, e.g., the Dominican Republic-​Central America-​United States Free Trade Agreement, Arbitral Panel Established Pursuant to Chapter 20, Guatemala –​Issues Relating the Obligations Under Article 16.2.1(a) of the CAFTA-​DR, where the panel made plenty of references to both WTO and investment decisions with regard to treaty interpretation, standards of review, panel establishment, due process, interim relief, and redaction of documents. For a comprehensive overview of the practice of references, see N. Ridi, ‘Approaches to External Precedent: The Invocation of International Jurisprudence in Investment Arbitration and WTO Dispute Settlement’ in S. Gáspár-​Szilágyi, D. Behn and M. Langford (eds), Adjudicating Trade and Investment Disputes: Convergence or Divergence? (Cambridge: Cambridge University Press, 2020) 121–​148. 15  For a step-​by-​step description of the WTO dispute settlement procedures, we refer to the chapter on procedural and evidentiary issues of the first edition of this handbook: A. Yanovich and W. Zdouc, ‘Procedural and Evidentiary Issues’ in D. Bethlehem, D. McRae, R. Neufeld and I. Van Damme (eds), The Oxford Handbook of International Trade Law, 1st edition (Oxford: Oxford University Press, 2009). For a more detailed description of these procedures, please refer to: WTO Secretariat, A Handbook on the WTO Dispute Settlement System (Cambridge: Cambridge University Press, 2017). For an overview of the procedures of investment arbitration, we refer to C. Schreuer et al., The ICSID Convention: A Commentary, 2nd edition (Cambridge: Cambridge University Press, 2009; 3rd edition forthcoming 2022); Borzu Sabahi et al., Investor-​State Arbitration, 2nd edition (Oxford: Oxford University Press, 2019).

Procedural and Evidentiary Issues    997 typically limited to States or customs territories.16 Differences also exist with regard to the remedies available. While remedies in the WTO system are prospective and focused on re-​establishing the balance of concessions, remedies in Investor-State arbitration are awarded typically in the form of damages, retrospective from the time of the breach.17

II.  Procedural issues A. Preliminary rulings Preliminary rulings have become common practice in WTO dispute settlement even though, unlike rules of other fora,18 the DSU does not envisage them. Parties have requested rulings on various issues, including a panel’s terms of reference, the protection of confidential information, public observation of hearings, the admissibility of amicus curiae briefs, and many other questions.19 Panels and the Appellate Body have not consistently used the term ‘preliminary ruling’ when responding to these requests. Sometimes such rulings are referred to as ‘procedural rulings’, on other occasions, procedural requests by the parties have been addressed in a simple letter from the Panel or Appellate Body Division hearing the case responding to the party’s request. Panels have entertained such requests on the basis of Article 12.1 of the DSU, which provides them with flexibility to adapt their working procedures. Over time, it has become standard practice to include in panel working procedures a provision on the early filing of requests for preliminary rulings.20 On appeal, requests for preliminary rulings have been entertained based on Rule 16(1) of the Working Procedures for Appellate Review,21 which allows the Appellate Body to 16 Regarding the significance of this, see J. Kurtz, The WTO and International Investment Law: Converging Systems (Cambridge: Cambridge University Press, 2016) at 229. 17  Ibid., at 230. 18  For instance, Article 79 of the Rules of Court of the ICJ on ‘Preliminary Objections’. 19 For a comprehensive list of issues raised in requests for preliminary rulings in WTO dispute settlement, see I. Van Damme, ‘Preliminary Challenges and Rulings’ in M. Molina-​Tejeda (ed), Practical Aspects of WTO Litigation (The Hague: Kluwer Law International, 2020), 257–​300, 263. 20  Typically, such clauses stipulate as follows:

Any request for a preliminary ruling (including rulings on jurisdictional issues) to be made by the Panel shall be submitted no later than in a party’s first written submission. If the complaining party requests any such ruling, the respondent shall submit its response to such a request in its first written submission. If the respondent requests any such ruling, the complaining party shall submit its response to such a request prior to the first substantive meeting of the Panel. The complaining party shall submit this response at a time to be determined by the Panel after receipt and in light of the respondent’s request. Exceptions to this procedure will be granted upon a showing of good cause. (See, for example, Rule 11 of the Working Procedures of the Panel in US –​ Gambling (Panel Report, US –​Gambling, Annex A). In some proceedings more elaborate clauses have been included, see: ibid., at 268. 21  WT/​AB/​WP/​6 (16 August 2010).

998    Andreas Sennekamp and Federico Ortino adopt, in the interest of fairness and orderly procedure, additional procedures for procedural questions that are not covered in the Working Procedures for Appellate Review. Given the absence of a procedural framework for preliminary rulings in the DSU, the lack of a uniform procedural practice and consistent terminology is not surprising. Differences in procedural practice relate to a number of issues, including the extent to which parties may express views in the process leading up to a preliminary ruling, the role of third parties in that process, as well as its timing and whether it is circulated to the entire Membership or only issued to the parties to the dispute.22 While such rulings are always issued to the parties and third parties in the particular dispute, in the majority of cases, the wider WTO Membership and the public are informed about them only when the panel or Appellate Body report is circulated to the public.23 However, in a number of cases, panels have circulated procedural rulings before the issuance of the final panel report. A strong argument for the circulation of preliminary rulings to the WTO Membership can be made based on considerations of transparency and the potential interest of other WTO Members that may be affected by the measure at issue in the dispute.24 Given the weight attributed by Article 3.2 of the DSU to the objective of securing security and predictability, an even stronger argument can be made for a consistent practice by panels and the Appellate Body in this regard. The issue has not gone unnoticed. In 2013, then Deputy Director-​General Jara noted general agreement among WTO Members to develop a harmonized, transparent, and consistent process by which panels should decide preliminary matters.25 However, efforts have not born fruit, despite the fact that this would not require a rule change. Since the DSU does not stipulate rules for preliminary rulings, a more consistent approach does not require a change to the DSU, but coordination and exchange of information in the practice of WTO dispute settlement.26 Finally, it is important to highlight that, in principle, WTO panels and the Appellate Body have not engaged with the substance of the dispute in preliminary rulings. For instance, the Panel in China –​Rare Earths refused to issue a preliminary ruling regarding the question of whether a defence under Article XX of the GATT 1994 was available in relation to a violation of the obligation in paragraph 11.3 of China’s Accession Protocol. The Panel explained that the request for this preliminary ruling concerned a complex issue of substance as opposed to an issue of procedure or jurisdiction, and that therefore

22  For an illustration of differences in the practice relating to preliminary rulings, see Van Damme, above fn 18, at 281–​88. 23 G. Cook, ‘Confidentiality and Transparency in the WTO’s Party-​ Centric Dispute Settlement System’ in M. Molina-​Tejeda (ed), Practical Aspects of WTO Litigation (The Hague: Kluwer Law International, 2020) 351, at 374. 24  For instance, the question whether certain claims fall within the terms of reference of a panel may be very relevant information for a WTO Member affected by the measure at issue and pursuing separately a challenge of that measure. 25  A. Jara, ‘Enhancing the Efficiency of the Panel Process at the WTO’ 9(3) Global Trade and Customs Journal (2014) 88–​93. 26  For elements of such a more standardized approach, see Van Damme, above fn 18, at 296–​99.

Procedural and Evidentiary Issues    999 it would address this issue in the panel report, in light of the argumentation of the parties and third parties in their submissions to the Panel.27 As far as dispute settlement under FTAs is concerned, it remains to be seen whether or what practice might eventually develop, as several recent FTAs are as silent on the issue as the DSU.28 The practice of preliminary rulings is also very common in investment arbitration.29 Arbitration rules, however, formally employ the relevant terminology for a narrow set of issues. For example, Article 41 of the ICSID Convention refers to any objection that the dispute ‘is not within the jurisdiction of the Centre, or for other reasons is not within the competence of the tribunal’ as preliminary questions. Similarly, Article 23 of the 2013 UNCITRAL Arbitration Rules refers to any jurisdictional objections as preliminary questions. Both sets of rules grant discretion to the tribunal on how to deal with such issues.30 For example, when an objection to jurisdiction is raised in an ICSID proceeding, the tribunal may: (i) ‘bifurcate’ the preliminary question from the merits; (ii) overrule the objection and resume the proceeding on the merits; or (iii) join the objection to the merits of the dispute.31 A decision on bifurcation is a critical procedural moment in investment arbitration and is essentially based on the goal of procedural efficiency. To determine whether bifurcation would be efficient, investment tribunals focus on whether: (i) the jurisdictional objection is serious and substantial; (ii) the jurisdictional objection, if sustained, will result in a material reduction (or complete elimination) of the merits phase of the proceedings; and (iii) the jurisdictional objection is so intertwined with the merits that bifurcation is impractical.32 In the case of bifurcation, the ensuing decision will be referred to as either a ‘decision on the preliminary objection to jurisdiction’ or a (final) award, depending on whether the objection is rejected 27  Panel

Reports, China –​Rare Earths, adopted 29 August 2014, para 1.14. For further examples, see Panel Report, Canada –​Aircraft, adopted 20 August 1999, para 9.87; Panel Report, EC and certain member States –​Large Civil Aircraft, adopted 1 June 2011, para 7.117. 28  Neither the USMCA, nor CETA, nor the CPTPP contain provisions to that effect. 29  For the different topic of ‘preliminary rulings’ involving mechanisms to clarify substantive legal questions, see C. Schreuer, ‘Preliminary Rulings in Investment Arbitration’ Transnational Dispute Management (2008) 6; K. Diel-​Gligor, Towards Consistency in International Investment Jurisprudence: A Preliminary Ruling System for ICSID Arbitration (Leiden: Brill, 2017). 30  ‘The Tribunal . . . may deal with the objection as a preliminary question or join it to the merits of the dispute’, Rule 41.4. 31  See ICSID secretariat. In practice, the tribunal may also decide to consider certain objections as preliminary and join other objections to the merits. See Libananco Holdings Co. Limited v. Republic of Turkey, ICSID Case No. ARB/​06/​8, where the tribunal issued an Order concerning the bifurcation of jurisdiction from the merits and it selected certain issues to be heard as preliminary questions pursuant to Rule 41(4) of the ICSID Arbitration Rules. The tribunal noted that its selection was based on the fact that the issues are ‘genuinely preliminary, discrete and capable of bringing the proceedings to an end, and can be properly disposed of in summary proceedings without causing undue delay to the substantive disposal of the case if none of the objections was upheld’. See Libananco v Turkey, Award, 2 September 2011, para 33. 32  See M. Carlson and P. Childress, ‘Bifurcation in Investment Treaty Arbitration’ in Barton Legum (ed), The Investment Treaty Arbitration Review, 4th edition (The Law Reviews, 2019), at 48 ff. For a critical view on bifurcation, see L. Greenwood, ‘Revisiting Bifurcation and Efficiency in International Arbitration Proceedings’ 36 Journal of International Arbitration (2019) 421.

1000    Andreas Sennekamp and Federico Ortino (at least in part) or the claim is dismissed for lack of jurisdiction.33 In 15 per cent of the roughly 500 concluded ICSID arbitration proceedings, the tribunal issued an award declining jurisdiction.34 In addition, ICSID Arbitration Rules permit a claim to be dismissed if it is manifestly without legal merit.35 The 2006 rule change was meant to allow an ‘early dismissal by arbitral tribunals of patently unmeritorious claims’.36 So far, ICSID tribunals have set a high standard for determining whether a claim manifestly lacks legal merit, requiring the requesting party ‘to establish its objection clearly and obviously, with relative ease and dispatch’.37 This objection may be raised no later than 30 days after the constitution of the tribunal and before the first session, and the tribunal is required to issue a decision on the objection at the first session or promptly thereafter. This rule has been applied to both merits and jurisdictional issues.38 Only 1 per cent of the roughly 500 concluded ICSID arbitration proceedings have been dismissed on this ground.39 Investment tribunals may also be called upon to take preliminary decisions beyond those expressly set out in the applicable rules. For example, in Libananco v Turkey, the Tribunal issued a ‘Decision on Preliminary Issues’ to address the claimant’s request for summary judgment, and the respondent’s application for an order for the production of the original share certificates in the claimant’s companies and an order for security for costs.40 In its Decision on Preliminary Issues, the Tribunal in Saba Fakes v Turkey considered the claimant’s request for ‘provisional measures’ as well as the respondent’s

33 

Article 23.3 of the UNCITRAL Arbitration Rules: ‘The arbitral tribunal may rule on a [plea as to the jurisdiction of the arbitral tribunal] either as a preliminary question or in an award on the merits. The arbitral tribunal may continue the arbitral proceedings and make an award, notwithstanding any pending challenge to its jurisdiction before a court’. 34 ICSID, ICSID Caseload –​Statistics 2020, 13. 35  Rule 41(5) of the ICSID Arbitration Rules. 36 A.R. Parra, ‘The Development of the Regulations and Rules of the International Centre for Settlement of Investment Disputes’ 41 International Lawyer (2007) 47, at 56. 37  Trans-​Global Petroleum, Inc. v. Hashemite Kingdom of Jordan, ICSID Case No. ARB/​07/​25, Decision on the Respondent’s Objection Under Rule 41(5) of the ICSID Arbitration Rules, 12 May 2008, paras 88, 92. See ICSID, ‘Objections that a Claim Manifestly Lacks Legal Merit (ICSID Convention Arbitration Rule 41.5)’, March 2021, at < https://​icsid.worldb​ank.org/​sites/​defa​ult/​files/​publi​cati​ons/​In%20Fo​ cus%20-​%20R​ule%2041.5_​fi​nal.pdf > (last visited 26 April 2021). 38  Brandes Investment Partners, LP v. Venezuela, ICSID Case No. ARB/​ 08/​03, Decision on the Respondent’s Objection under Rule 41(5) of the ICSID Arbitration Rules, 2 February 2009, para 52 (‘There exist no objective reasons why the intent not to burden the parties with a possibly long and costly proceeding when dealing with such unmeritorious claims should be limited to an evaluation of the merits of the case and should not also englobe an examination of the jurisdictional basis on which the tribunal’s powers to decide the case rest’.) 39  See ICSID, above fn 33, at 13. 40  Libananco Holdings Co. Limited v. Republic of Turkey, ICSID Case No. ARB/​ 06/​8, Decision on Preliminary Issues, 23 June 2008, para 53. Interestingly, the Libananco Tribunal explained its reference to the ‘preliminary stage in its procedure’ when it was confronted with the above-​mentioned applications as follows: ‘before it has seen the terms either of the Respondent’s substantive defence to the Applicant’s claims or of any preliminary objection that the Respondent may lodge to jurisdiction etc’. Libananco v Turkey, Decision on Preliminary Issues, 23 June 2008, para 53.

Procedural and Evidentiary Issues    1001 request for ‘production of documents’ and for ‘security for costs’.41 More often, however, there is no express reference to the decision involving ‘preliminary’ issues. For example, a tribunal’s decision on a request for provisional measures may be referred to as such42 or more simply as one of the several ‘procedural orders’ that an arbitral tribunal takes in the course of the arbitral proceedings.43

B. Transparency and confidentiality Out of several different issues that can be grouped under this heading, we focus on two procedural matters particularly relevant in practice and arising frequently in trade and investment litigation, namely the protection of confidential information and the observation by the public of oral hearings. Both issues concern the promotion of confidence in the litigation process. In particular, transparency in the form of public hearings can help prevent or reveal abuses like corruption and incompetence, and it may strengthen trust and confidence in fair justice.44 In turn, measures protecting confidential information promote confidence in the litigation process by the litigants, providing them with safeguards to ensure that sensitive information will be adequately protected if it is submitted in the context of a dispute.45

1. Protection of confidential information The issue of protection of business confidential information (BCI) well illustrates a trend over time in WTO dispute settlement towards greater formality of proceedings. The DSU does not contain specific rules regarding the protection of BCI. However, it does contain rules on confidentiality at a more general level. In particular, Article 18.2 of the DSU stipulates that written submissions to the panel or the Appellate Body ‘shall be treated as confidential’, and Article 17.10 provides that the proceedings of the Appellate

41 

Saba Fakes v Turkey, Award, 14 July 2010 (referring to an earlier ‘Decision on Preliminary Issues’ dated 1 October 2008), para 13. 42  For example, Caratube International Oil Company LLP and Devincci Salah Hourani v Republic of Kazakhstan (II), ICSID Case No. ARB/​13/​13, Decision on the Claimants’ Request for Provisional Measures, 4 December 2014. 43  For example, Nova Group Investments, B.V. v Romania, ICSID Case No. ARB/​16/​19, Procedural Order No. 7, 29 March 2017. See also Gerald International Limited v. Republic of Sierra Leone, ICSID Case No. ARB/​19/​31, Procedural Order No. 2, Decision on the Claimant’s Request for Provisional Measures, 28 July 2020. 44  L. Ehring, ‘Public Access to Dispute Settlement Hearings in the World Trade Organization’ 11(4) Journal of International Economic Law (2008), 1023. 45  The absence of such arrangements could compromise a WTO Member’s ability to pursue and defend its rights and interests in WTO dispute settlement and could have an impact on a panel’s ability to make a complete and objective assessment of the matter, see Appellate Body Report, EC and certain Member States –​Large Civil Aircraft, adopted 1 June 2011, Annex III, para 12.

1002    Andreas Sennekamp and Federico Ortino Body ‘shall be confidential’. Additional rules concerning confidentiality are contained in the Rules of Conduct46, which require that dispute settlement deliberations and proceedings and any information identified by a party as confidential be kept confidential. In keeping with these provisions, traditionally, submissions to panels and the Appellate Body have not been publicly accessible. Over time, several WTO Members decided to forgo the protection of Article 18.2, making all or a selection of their own submissions in WTO dispute settlement proceedings publicly available. However, this has not changed the default of submissions having to be treated as confidential by panels and the Appellate Body, as well as the litigants.47 In the early years of dispute settlement under the DSU, some panels declined and others agreed to adopt additional procedures on BCI.48 When participants requested the adoption of such procedures on appeal for the first time in Brazil –​Aircraft, the Appellate Body declined that request. The Appellate Body considered that Articles 17.10 and 18.2 were sufficient to ensure protection of information, since they apply to all WTO Members obliging them to ensure that confidentiality is respected by any person a Member selects to act as its representative, counsel, or consultant.49 Over time, the jurisprudence evolved. At the request of at least one party, panels and the Appellate Body now adopt additional procedures for the protection of BCI as a matter of course. Referring to the very provisions at the basis of the findings in Brazil –​Aircraft declining the request for adoption of additional procedures, the Appellate Body noted about a decade later that the confidentiality requirements in the DSU and the Rules of Conduct are stated at a ‘high level of generality that may need to be particularized in situations in which the nature of the information provided requires more detailed arrangements to protect adequately the confidentiality of the information’.50 The evolution in the approach towards additional rules for the protection of confidentiality is the result of years of litigation and incremental change driven also by change in the characteristics of disputes brought before panels and the Appellate Body.51 It should also be mentioned that this evolution in the practice relating to the protection of confidential information is not based on ex officio decisions by panels or the Appellate 46 WT/​ DSB/​RC/​1

(11 December 1996). In addition, Panel Working Procedures and the Working Procedures for Appellate Review (WT/​AB/​WP/​6 (16 August 2010)) contain provisions relating to confidentiality. 47   With regard to the limits of the right of a litigant to forgo the protection of Article 18.2 when, by publishing its own submission, disclosing positions taken by another litigant, see WTO Panel Report, Russia –​Traffic in Transit, adopted 26 April 2019, paras 5.6–​5.35. 48  Panel Reports, Indonesia –​Autos, adopted 23 July 1998, paras 14.5–​14.8; Korea –​Alcoholic Beverages, adopted 17 February 1999, paras 10.31-​10.32; Australia –​Automotive Leather II, adopted 16 June 1999, para 4.1; and Brazil –​Aircraft, adopted 20 August 1999, para 1.10. See also Arbitration Award, EC –​Bananas (US) (Article 22.6), paras 2.2–​2.7. 49  Appellate Body Report, Brazil –​Aircraft, adopted 20 August 1999, paras 103–​25. 50  Appellate Body Report, EC and certain Member States –​Large Civil Aircraft, adopted 1 June 2011, Annex III, para 8. 51  In this regard, see Communication from the Appellate Body, The Workload of the Appellate Body, Annex I to Appellate Body Annual Report 2013, WT/​AB/​20 (14 March 2014), at 32.

Procedural and Evidentiary Issues    1003 Body. Rather, each time additional procedures for the protection of confidential information have been adopted, they occurred in response to a request by at least one of the litigants in the dispute. Regardless of whether additional procedures were adopted by a panel, a separate request and adoption of additional procedures is necessary on appeal.52 The decision to adopt them is based on an assessment of whether additional protection is necessary. The agreement of the parties is not required, and disagreement on whether additional protection is necessary does not prevent a panel or the Appellate Body from adopting additional procedures. While there are no template procedures governing the protection of BCI, typically such procedures contain provisions regarding criteria and process to be followed for the redaction of information in the official version of the panel or Appellate Body report. The decision of whether information qualifies for additional protection and what level of additional protection may be appropriate is to be taken by the adjudicator relying on objective criteria, such as: (i) whether the information is proprietary; (ii) whether it is in the public domain or protected; (iii) whether it has a high commercial value for the originator of the information, its competitors, customers, or suppliers; (iv) the degree of potential harm in the event of disclosure; (v) the probability of such disclosure; (vi) the age of the information and the duration of the industry’s business cycle; and (vii) the structure of the market.53 In several cases more detailed additional procedures for the protection of BCI were adopted.54 Finally, it is worth noting that recent FTAs tend to contain rules codifying elements of the practice regarding the protection of confidential information that has evolved in WTO dispute settlement.55 With regard to investment arbitration, a similar evolution has occurred in the last 20 years leading to greater attention to and specification of the rules protecting confidential information. While arbitration has traditionally been understood as a ‘private’ and ‘confidential’ form of dispute settlement, investment treaties and key arbitration rules used for investment arbitration (such as ICSID and UNCITRAL 1976) were for the most part silent on the confidentiality of arbitral proceedings. Thus, in the absence of an agreement between the disputing parties, it was for tribunals to ‘decide on the matter on a case by case basis and, instead of tending towards imposing a general rule in favour or against confidentiality, try to achieve a solution that balances the general interest for transparency with specific interests for confidentiality of certain information and/​or documents’.56 Some tribunals identified the terms of the careful balancing exercise as 52  In several appeals, absent a request from the participants, no additional procedures were adopted, even though such procedures had been adopted in the related proceedings before the panel: Appellate Body Reports, Thailand –​Cigarettes (Philippines), adopted 15 July 2011, para 10; US –​Tuna II (Mexico) (Article 21.5 –​Mexico), adopted 3 December 2015, para 5.5. 53  Appellate Body Report, EU –​Fatty Alcohols (Indonesia), adopted 29 September 2017, para 3.2. 54  For examples of what has been covered in more detailed BCI procedures, see Cook, above fn 22, 351–​81, 357. 55  See, e.g., Article 31.11 of the USMCA, and Article 28.13 of the CPTPP. 56  Abaclat and Others v. Argentine Republic, ICSID Case No. ARB/​07/​5 (formerly Giovanna A Beccara and Others v. The Argentine Republic), Procedural Order No. 3 (Confidentiality Order) dated 27 January 2010, para 73.

1004    Andreas Sennekamp and Federico Ortino between ‘the need for transparency in treaty proceedings such as these, and the need to protect the procedural integrity of the arbitration’.57 Demand for greater transparency in investment arbitration led to investment treaties and arbitration rules which allow and, increasingly, require greater transparency of various aspects of Investor-State dispute settlement proceedings.58 A key aspect of recent disciplines protecting confidential information in the context of investment arbitration is the definition of ‘protected information’. For example, following the United States’ approach since the 2001 NAFTA Note of Interpretation and its 2004 Model BIT, the CPTPP defines ‘protected information’ to mean ‘confidential business information or information that is privileged or otherwise protected from disclosure under a Party’s law, including classified government information’ (Article 9.1). Similarly, Article 7.2 of the UNCITRAL Rules on Transparency in Treaty-​based Investor-​State Arbitration provides that ‘confidential or protected information’ consists of several categories including: (i) BCI; (ii) information that is protected against being made available to the public under the treaty; or (iii) information that is protected against being made available to the public, in the case of the information of the respondent State, under the law of the respondent State, and in the case of other information, under any law or rule determined by the arbitral tribunal to be applicable to the disclosure of such information. Recent disciplines tend to charge the tribunal, often in consultation with the disputing parties, with the task of developing appropriate procedures to ensure that the information remains confidential once it has been submitted59, and for deciding upon any objection that the information is in fact confidential information.60 In line with previous arbitral practice, Article 1(4) of the UNCITRAL Rules on Transparency provides that the arbitral tribunal, in exercising discretio , ‘shall take into account: (a) The public 57 See, e.g., Biwater Gauff v. Tanzania, ICSID Case No. ARB/​ 05/​22, Procedural Order No. 3, 29 September 2006, para 112: ‘It is self-​evident that the prosecution of a dispute in the media or in other public I, or the uneven reporting and disclosure of documents or other parts of the record in parallel with a pending arbitration, may aggravate or exacerbate the dispute and may impact upon the integrity of the procedure. This is all the more so in very public cases, such as this one, where issues of wider interest are raised, and where there is already substantial media coverage, some of which already being the subject of complaint by the parties’. (para 136). 58  See, e.g., the 2004 United States Model BIT (Article 29 Transparency of Arbitral Proceedings); Rule 48(4) of the ICSID Arbitration Rules as modified in April 2006 (requiring the Centre to publish ‘excerpts of the legal reasoning of the Tribunal’); UNCITRAL Rules on Transparency in Treaty-​based Investor-​State Arbitration (effective date: 1 April 2014). See N. Bernasconi-​Osterwalder and L. Johnson, ‘Transparency in the Dispute Settlement Process: Country Best Practices’ (IISD, 2011), at < https://​ www.iisd.org/​sys​tem/​files/​publi​cati​ons/​transparency_​d​ispu​te_​s​ettl​emen​t_​pr​oces​ses.pdf > (last visited 5 August 2021); E. Shirlow, ‘Three Manifestations of Transparency in International Investment Law: A Story of Sources, Stakeholders and Structures’ 8 Goettingen Journal of International Law (2017) 73; J. Lam and G. Ünüvar, ‘Transparency and Participatory Aspects of Investor-​State Dispute Settlement in the EU ‘New Wave’ Trade Agreements’ 32 Leiden Journal of International Law (2019) 781. 59 See Article 7.3 of the UNCITRAL Rules on Transparency in Treaty-​ based Investor-​ State Arbitration; Article 26.2-​3 of the 2009 ASEAN-​New Zealand-​Australia FTA. 60  See Article 9.24.4(d) of the CPTPP; Article 7.3 of the UNCITRAL Rules on Transparency.

Procedural and Evidentiary Issues    1005 interest in transparency in treaty-​based Investor-State arbitration and in the particular arbitral proceedings; and (b) The disputing parties’ interest in a fair and efficient resolution of their dispute’. Moreover, Article 1(6) of the UNCITRAL Rules on Transparency requires tribunals to ensure that the transparency objectives prevail in the presence of any conduct, measure, or other action having the effect of wholly undermining such objectives.61 Where the tribunal determines that information should not be redacted from a document or that a document should not be prevented from being disclosed to the public, the party that introduced the document into the record is normally permitted to withdraw all or part of the document from the record of the proceedings.62

2. Observation of hearings Traditionally, GATT and WTO hearings were not open to observation by the public. GATT hearings were closed without exception, a practice that was codified in Appendix 3 to the DSU, which states that panels must meet ‘in closed session’, as well as in Article 17.10 of the DSU, which states that ‘the proceedings of the Appellate Body shall be confidential’. Accordingly, WTO panel meetings and oral hearings before the Appellate Body were not open to public observation for the first decade. In 2002, in the context of the negotiations on the reform of the DSU, the United States proposed an amendment to allow for open hearings.63 The fact that this was introduced as a change to the existing rules demonstrates that, generally, WTO Members considered the existing rules to foreclose this possibility. This proposal, like other DSU reform proposals, was discussed at length by generations of WTO delegates but was never adopted.64 In 2005, at the request of the parties (the United States, Canada, and the European Union), the Panel in US /​Canada –​Continued Suspension authorized the public to observe the panel meeting. The Panel relied on the language in Article 12.1 of the DSU, which stipulates that ‘panels shall follow the Working Procedures in Appendix 3, unless the panel decides otherwise after consulting the parties to the dispute’. In addition, the Panel based itself on the second sentence of Article 18.2, which stipulates that nothing in the DSU shall preclude a party to a dispute from statements of its own position to the public.65 In response to a request by the participants on appeal, the Appellate Body authorized observation by the public of the oral hearing as well. The Appellate Body reasoned that Article 18.2 of the DSU suggested that the confidentiality rule in Article 17.10 was not to 61  BSG Resources Limited (In Administration), BSG Resources (Guinea) Limited and BSG Resources (Guinea) SARL v. Republic of Guinea (ICSID Case No. ARB/​14/​22), Procedural Order No. 19 Objections to Publication, 15 August 2018. 62  Article 7.4 of the UNCITRAL Rules on Transparency; Article 9.24.4(d) of the CPTPP. 63  TN/​DS/​W/​13 (22 August 2002). 64  While in addition to the United States, Canada, the European Union, and Australia were generally in favour of allowing public observation of oral hearings, several other WTO Members, including Brazil, India, China, Mexico, and the Republic of Korea, were opposed to it. 65  Panel Report, US/​Canada –​Continued Suspension, adopted 14 November 2008, paras 7.46–​7.50.

1006    Andreas Sennekamp and Federico Ortino be understood as absolute, but rather as operating in a ‘relational manner’, comprising the following relationships: (i) between the participants and the Appellate Body; and (ii) between the third participants and the Appellate Body. For the Appellate Body, the participants’ request to open the hearing did not affect the relationship between the third participants and the Appellate Body. Considering that the modalities allowing for public observation proposed by the participants safeguarded the confidentiality protection enjoyed by the third participants, and that it had no adverse impact on the integrity of the adjudicative functions performed by it, the Appellate Body authorized observation by the public of the oral hearing.66 Subsequently, joint requests by the parties to allow for public observation of the oral hearing in other disputes have been granted almost as a matter of course based on the same reasoning.67 One may agree or disagree with the legal reasoning that has served as the basis for allowing public observation of panel meetings and Appellate Body hearings.68 However, irrespective of whether one is in favour of additional transparency in WTO dispute settlement, one must acknowledge that while panel meetings and Appellate Body hearings used to be closed, public observation thereof has become available as a matter of course when it is requested jointly by the disputing parties. This may be seen as an instance in which certain WTO Members obtained in dispute settlement what they failed to achieve through negotiations. It is telling that those Members that have been most vocal in criticizing WTO panels and the Appellate Body for overstepping their mandate (whether with regard to Rule 15 of the Working Procedures for Appellate Review or in certain decisions relating to the application of trade remedies) have found nothing wrong with the jurisprudence concerning observation by the public of panel meetings and Appellate Body hearings. It stands to reason that, ultimately, the issue with regard to Rule 15 or in the trade remedies jurisprudence is less about an overstepping of the mandate of panels and in particular the Appellate Body, and rather a disagreement on substance with those decisions. As a matter of practice, panels and the Appellate Body usually adopt additional working procedures governing the conduct of open hearings when deciding to allow observation by the public. Such additional procedures typically comprise a registration requirement for the observation of the hearing. In most cases observation by the public takes place in a separate viewing room at the WTO via simultaneous audio/​video broadcast. The audience attending such open meetings is composed primarily of students 66 

Appellate Body Report, US/​Canada –​Continued Suspension, adopted 14 November 2008, Annex IV, paras 6–​10. 67  A list of panel hearings in which requests for public observation were granted is available in the online WTO Analytical Index at: < https://​www.wto.org/​engl​ish/​res_​e/​pub​lica​tion​s_​e/​ai1​7_​e/​dsu_​ar​ t18_​jur.pdf > (last visited 5 August 2021). For the relevant Appellate Body oral hearings, see: < https://​ www.wto.org/​engl​ish/​res_​e/​pub​lica​tion​s_​e/​ai1​7_​e/​wpa​r_​ru​l27_​jur.pdf > (last visited 5 August 2021). 68  With regard to allowing public observation of a panel meeting at the request of one party despite the objection of the other, see Appellate Body Report, US –​Tuna II (Mexico) (Article 21.5 –​US) /​US –​ Tuna II (Mexico) (Article 21.5 –​Mexico II), adopted 11 January 2019, paras 6.314–​6.320; and Cook, above fn 22, at 364.

Procedural and Evidentiary Issues    1007 and academics; non-​governmental organization (NGO) representatives’ attendance has been rather limited.69 Finally, it should be noted that several recent FTAs contain specific rules addressing the issue of public hearings. Pursuant to Article 31.11 of the 2020 Agreement between Canada, the United Mexican States and the United States of America (CUSMA) and Article 28.13 of the Comprehensive and Progressive Agreement for Trans-​Pacific Partnership (CPTPP), hearings are generally open to the public, unless the disputing parties decide otherwise. The same approach is pursued in Annex 29-​A of the Comprehensive Economic and Trade Agreement (CETA), which stipulates, in addition, that parties shall make their submissions publicly available. However, the trend towards open hearings is not universal. For instance, the Regional Comprehensive Economic Partnership Agreement (RCEP) contains no provision for opening hearings for public observation. When it comes to investment arbitration, the last 15 years have similarly witnessed a trend towards allowing greater transparency and participation in arbitral proceedings, including with regard to the attendance at hearings by non-​parties.70 As generally in arbitration, hearings in investment arbitration were traditionally conducted behind closed doors and in the presence of only the disputing parties, their agents, counsel, advocates, witness, and experts. However, in principle nothing would preclude the disputing parties from agreeing to allow for the attendance of any non-​disputing parties. For example, the former ICSID Arbitration Rule 32 did envisage the possibility of allowing ‘other persons’ at the hearings but only subject to the ‘consent of the parties’. In 2003, in the context of NAFTA, the United States and Canada (but not Mexico) agreed to open hearings for Chapter 11 disputes and to request the consent of disputing investors to such open hearings.71 In 2006, ICSID introduced certain amendments to its Arbitration Rules, including one with regard to Rule 32 on ‘The Oral Procedure’. While the former Rule 32(2) specified that the tribunal would decide, with the consent of the parties, which other persons may attend the hearings, the new Rule 32(2) slightly 69 

G. Marceau and M. Hurley, ‘Transparency and Public Participation in the WTO: A Report Card on WTO Transparency Mechanisms’ 4 Trade, Law and Development (2012) 19. 70  Other key transparency issues have included the publication of various relevant documents relating to the arbitral proceedings including the final decision of the arbitral tribunal, and the possibility of amicus curiae briefs submission. See J. Lam and G. Ünüvar, ‘Transparency and Participatory Aspects of Investor-​State Dispute Settlement in the EU “New Wave” Trade Agreements’ 32 Leiden Journal of International Law (2019) 781; J. Nakagawa (ed), Transparency in International Trade and Investment Dispute Settlement (Abingdon: Routledge, 2013); United Nations Conference on Trade and Development (UNCTAD), Transparency, UNCTAD Series on Issues in International Investment Agreements II (2012); OECD, ‘Transparency and Third Party Participation in Investor-​State Dispute Settlement Procedures’ 2005 OECD Working Papers on International Investment 2005/​1. 71 Office of the United States Trade Representative, ‘NAFTA Commission Announces New Transparency Measures’, 7 October 2003, at < https://​ustr.gov/​about-​us/​pol​icy-​offi​ces/​press-​off​i ce/​press-​ relea​ses/​archi​ves/​2003/​octo​ber/​nafta-​com​miss​ion-​announ​ces-​new-​tra​nspa​ren > (last visited 5 August 2021). One of the first instances of a public hearing was the 2004 merits hearing in the NAFTA dispute Methanex Corporation v. United States of America. While the dispute was governed by the UNCITRAL Arbitration Rules, the disputing parties had requested ICSID to administer the hearing. See ICSID, ‘Updated Methanex Corporation v. United States of America: Hearing Open to Public—​New Room for

1008    Andreas Sennekamp and Federico Ortino strengthened the tribunal’s discretion. The new Rule 32(2) grants the tribunal the authority to allow other persons to attend or observe the hearings ‘unless either party objects’.72 Another key turning point was the adoption of the UNCITRAL Rules on Transparency in Treaty-​based Investor-​State Arbitration in July 2013, which came into effect on 1 April 2014. Article 6.1 of the 2014 UNCITRAL Rules states that ‘hearings for the presentation of evidence or for oral argument shall be public’, Article 6.3 entrusts the arbitral tribunal with the authority to ‘make logistical arrangements to facilitate the public access to hearings (including where appropriate by organizing attendance through video links or such other means as it deems appropriate)’. In order to protect confidential information or the integrity of the arbitral process, Article 6.2 allows the tribunal to ‘make arrangements to hold in private that part of the hearing requiring such protection’.73 The impact of the 2014 UNCITRAL Rules has been mixed. On the one hand, the new rules have not had the widespread use that some had hoped, as they apply only to Investor-State arbitration initiated under the UNCITRAL Arbitration Rules pursuant to an investment protection treaty concluded on or after 1 April 2014 (while most existing investment treaties were concluded before that date). On the other hand, the new rules have had an impact. First, for investment arbitrations based on earlier investment treaties, the new Rules will apply: (i) when the disputing parties agree to their application in respect of that arbitration; or (ii) when the parties to the underlying treaty have agreed after 1 April 2014 to their application.74 Second, the new Rules are also available for use in any Investor-State arbitration even if initiated under rules other than the UNCITRAL Arbitration Rules.75 Third, the mere existence of the new Rules has changed the way in which investors and host States perceive the public interest in the arbitration process and thus encourage disputing parties to consent to open hearings.76 Live Broadcast’, at < https://​icsid.worldb​ank.org/​news-​and-​eve​nts/​news-​relea​ses/​upda​ted-​metha​nex-​ corp​orat​ion-​v-​uni​ted-​sta​tes-​amer​ica-​hear​ing-​open > (last visited 5 August 2021). Even if it did not sign the 2003 declaration, Mexico has normally accepted the practice of open hearings. 72 

The continued role of disputing parties’ consent to open hearings appears to be linked to a mixed reaction from some stakeholders to the proposal to make hearings more widely open to the public. See A. Antonietti, ‘The 2006 Amendments to the ICSID Rules and Regulations and the Additional Facility Rules’ 21 ICSID Review (2006) 432–​33. 73  See D. Euler, M. Gehring, and M. Scherer (eds), Transparency in International Investment Arbitration: A Guide to the UNCITRAL Rules on Transparency in Treaty-​Based Investor-​State Arbitration (Cambridge: Cambridge University Press, 2015). 74 See Article 1.1–​ 2 of the UNCITRAL Transparency Rules. The first case to apply the 2014 UNCITRAL Rules was based on the agreement of the disputing parties: Iberdrola, S.A. and Iberdrola Energia. S.A.U. v. Bolivia, PCA Case No. 2015-​05, Procedural Order, 7 August 2015. 75 See Article 1.9 of the UNCITRAL Transparency Rules. The second case to apply the 2014 UNCITRAL Rules was an Investor-State arbitration initiated under the ICSID Convention and where the disputing parties had decided to opt for the new UNCITRAL transparency rules: BSG Resources Limited v. Republic of Guinea, ICSID Case No. ARB/​14/​22, Procedural Order No. 2, 17 September 2015. 76 In Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No. ARB/​12/​12, the parties agreed to make the hearing on jurisdiction, merits, and quantum (10–​21 October 2016) open to the

Procedural and Evidentiary Issues    1009

III.  Evidentiary issues A. Administration of proof Any litigation requires rules about which party bears the burden of proof and the standard to which facts at issue must be proved. With respect to WTO dispute settlement, the DSU sets out detailed procedures for panel and appeal proceedings, however, it contains no rules concerning the administration of proof. Over time, certain principles concerning the allocation of the burden of proof and the standard of proof have crystallized through litigation practice. In US –​Wool Shirts and Blouses, the Appellate Body noted that various international tribunals, including the International Court of Justice, have generally and consistently accepted and applied the rule that the party who asserts a fact, is responsible for providing proof thereof. Moreover, having regard to generally accepted canons of evidence in civil law and common law, the Appellate Body held that the burden of proof rests upon the party, whether complaining or defending, who asserts the affirmative of a particular claim or defence. Accordingly, a party alleging that a measure is inconsistent with a positive rule or obligation must discharge the burden of proving this claim.77 At the same time, a party alleging that a measure is justified despite its non-​conformity with a positive rule or obligation must discharge the burden of proof with regard to the elements of the relevant defence. Provisions containing such defences include the general exceptions of Article XX of the GATT 199478 and Article XIV of the GATS.79 More specific examples include Article XVIII:11 of the GATT relating to balance of payments obligations. Accordingly, the application of the burden of proof may involve an assessment of whether a provision that potentially justifies a measure taken by the respondent represents an exception to a rule, an autonomous right excluding the application of the rule, or a limitation of the scope of application of the rule. In the case of an exception, the burden rests with the respondent to prove that the exception applies. In the event of an autonomous right, the complainant is charged with proving the non-​application of the right, in addition to proving a violation of the rule.80 With respect to provisions limiting the scope of an obligation such as, public (except for those parts involving confidential or sensitive information) through a video of the hearing streamed online with a four-​hour delay. Recording of the first and last days of the hearing are still available online. See ICSID, ‘Vattenfall AB and others v. Federal Republic of Germany (ICSID Case No. ARB/​12/​12) -​Public Hearing’, at < https://​icsid.worldb​ank.org/​news-​and-​eve​nts/​news-​relea​ses/​vat​tenf​ all-​ab-​and-​oth​ers-​v-​fede​ral-​repub​lic-​germ​any-​icsid-​case-​no > (last visited 5 August 2021). 77 

Appellate Body Report, US –​Wool Shirts and Blouses, adopted 23 May 1997, at 14. Ibid., at 16. 79  Appellate Body Report, US –​Gambling, adopted 20 April 2005. 80  See Appellate Body Reports, EC –​Hormones, adopted 13 February 1998, para 104 (Article 3.3 is an autonomous right in relation to Article 3.1 of the SPS Agreement); and EC –​Tariff Preferences, adopted 20 April 2004, paras 104–​18 (the Enabling Clause is a qualified exception to the MFN obligation, such that the complainant bears the responsibility to raise the defence, but the ultimate burden of proving that defence rests with the respondent). 78 

1010    Andreas Sennekamp and Federico Ortino for instance, Articles XI:2(a)81 and III:8(a) of the GATT 1994, the Appellate Body has held that the characterization of a provision as a limitation in scope or derogation does not predetermine the question as to which party bears the burden of proof.82 In any event, the burden of proof is not static. If one party adduces evidence sufficient to raise a presumption that what is claimed is true, the burden shifts to the other party, who will fail unless it adduces sufficient evidence to rebut the presumption.83 The burden of proof can thus shift several times over the course of a proceeding and parties will not know where the burden lies at any specific point in the proceedings. Accordingly, it has been suggested that considerations relating to the burden of proof must not alone determine the strategic approach to what evidence is submitted by the parties.84 For instance, parties should not refrain from adducing evidence on the basis of an assumption about which party bears the burden of proof, as such an assumption may turn out to be incorrect, and evidence other than that relating to rebuttal may no longer be admissible late in the proceedings.85 Related to the question of the burden of proof (which party must provide evidence in order to establish a certain fact) is the issue of standard of proof (what threshold of probability must be achieved in order for the adjudicator to find certain facts to have been proven). In certain municipal law systems, a different standard of proof may apply depending on the type of legal claim (for example, ‘balance of probabilities’, ‘clear and convincing evidence’, and ‘beyond a reasonable doubt’). Panels and the Appellate Body have been less articulate regarding the standard of proof than concerning the burden of proof applicable in WTO dispute settlement. Albeit often only implied and not stated expressly, the default in WTO dispute settlement is proof on a balance of probabilities. One of the few instances in which the standard of proof was addressed more directly is when the Appellate Body upheld a finding by the Panel in US –​Upland Cotton (Article 21.5 –​Brazil) concluding that the Panel had a sufficient evidentiary basis to conclude that it was ‘more likely than not’ that the United States export credit programme operated at a loss.86 Another related issue concerns the amount of evidence required to satisfy a given standard of proof (the ‘quantum of proof ’). In this respect, no abstract standard has been 81 

Appellate Body Reports, China –​Raw Materials, adopted 22 February 2012, para 334. However, no such distinction was made in this respect to the identically phrased Article XI:2(c) in Appellate Body Report, US –​Wool Shirts and Blouses, at 16. 82  Appellate Body Reports, Canada –​Renewable Energy /​Canada –​Feed-​in Tariff Program, adopted 24 May 2013, para 5.56. 83  Appellate Body Report, US –​Wool Shirts and Blouses, adopted 23 May 1997, at 14. 84 K. Connolly, D. Coppens, T. Friedbacher, and N. Lockhart, ‘Evidence in WTO Dispute Settlement: From the Burden of Proof to Invisible Experts’ in M. Molina-​Tejeda (ed), Practical Aspects of WTO Litigation (The Hague: Kluwer Law International, 2020) 301, at 306. 85  See Appellate Body Report, Thailand –​Cigarettes (Philippines), adopted 15 July 201, paras 149–​50. 86  Appellate Body Report, US –​Upland Cotton (Article 21.5 –​Brazil), adopted 20 June 2008, para 321. See also D. Unterhalter, ‘The Burden of Proof in WTO Dispute Settlement’ in M. E. Janow, V. Donaldson, and A. Yanovich (eds), The WTO: Governance, Dispute Settlement, and Developing Countries (Huntington: Juris Publishing, 2008), 543–​52.

Procedural and Evidentiary Issues    1011 articulated. Rather, the Appellate Body emphasized the need for flexibility, stating that the amount and kind of evidence required depended on the circumstances of the case.87 However, the Appellate Body also held in one case that the minimum a party needs to demonstrate in order to satisfy a prima facie burden with regard to the existence of a measure is evidence and arguments sufficient to identify the challenged measure and its basic import. It must identify the relevant WTO provision and obligation contained therein, and explain the basis for the claimed inconsistency of the measure with that provision.88 At the same time, a lesser quantum is required, for instance, with respect to an alternative measure identified by a complainant in the context of a necessity analysis. In that event, the quantum of proof required is determined in light of the consideration that the proposed alternative measure serves as a conceptual tool to assist in the assessment of the trade-​restrictiveness of the measure at issue. Even where, exceptionally, such alternative measure in fact exists in the municipal legal order of the respondent, this has no impact on the quantum of proof required.89 Nearly all investment tribunals have adopted the same approach to the (legal) burden of proof, requiring each party to prove the facts upon which it relies in support of its case,90 an approach that is at times expressly recognized in the applicable arbitration rules.91 Moreover, investment tribunals have at times referred to WTO jurisprudence regarding the allocation of the burden of proof (in particular to the Appellate Body in US –​Wool Shirts and Blouses) as representing the relevant ‘international law standard’.92 Similarly, investment tribunals have also recognized that the burden to produce evidence (sometimes called the ‘evidential burden of proof ’) may shift to the other party when the party bearing the initial evidential burden has adduced sufficient evidence to support its allegation.93 Tribunals have referred, in this instance, to the party 87 

Appellate Body Report, US –​Wool Shirts and Blouses, adopted 23 May 1997, at 14. Appellate Body Report, US –​Gambling, adopted 20 April 2005, para 141. 89  Appellate Body Report, Russia –​Railway Equipment, adopted 5 March 2020, paras 5.199–​5.200. 90 A. Redfern and M. Hunter, Redfern and Hunter on International Arbitration (Oxford: Oxford University Press, 2009), at 387. 91  Article 27.1 of the UNCITRAL Arbitration Rules: ‘Each party shall have the burden of proving the facts relied on to support its claim or defence’. However, the ICSID Convention and the Arbitration Rules therein do not contain any provisions with respect to the burden of proof or standard of proof, as it was recognized in Continental Casualty Company v. Argentine Republic, ICSID Case No. ARB/​03/​9, Decision on Annulment, 16 September 2011, para 135. 92   Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/​99/​1, Award, 16 December 2002, para 177. Also Canfor Corporation v. United States of America and Tembec et al. v. United States of America and Terminal Forest Products Ltd. v. United States of America, Order of the Consolidation Tribunal, 7 September 2005, para 93; Canfor Corporation v. United States of America and Tembec et al. v. United States of America and Terminal Forest Products Ltd. v. United States of America, Decision on Preliminary Question, 6 June 2006, para 176. More generally, Azurix Corp. v. Argentine Republic (ICSID Case No. ARB/​01/​12), Decision on Annulment, 1 September 2009, para 215. 93  Churchill Mining and Planet Mining Pty Ltd. v. Republic of Indonesia, ICSID Case No. ARB/​12/​40 and 12/​14, Decision on Annulment, 18 March 2019, para 215, describing the shifting burdens of proof as an ‘acceptable principle of international law’. See Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/​99/​1, Award, 16 December 2002, para 177, where the tribunal refers to the WTO Appellate Body Report in US –​Wool Shirts, emphasizing in particular the shifting burden of proof. 88 

1012    Andreas Sennekamp and Federico Ortino establishing a ‘presumption’ or a ‘prima facie case’.94 This approach has been applied to any claims or motions made within the arbitral proceedings, including those relating to the jurisdictional, merits, and damages phases, as well as with regard to challenges of arbitrators, requests for interim measures, security for costs applications, and annulment proceedings.95 Similar to what appears to be the practice in WTO dispute settlement, the ordinary standard of proof in investment arbitration is the ‘balance of probability’ or ‘preponderance of evidence’,96 requiring a showing that the factual allegation is ‘more likely than not true’.97 It is somewhat controversial whether there are exceptions to the standard of proof in certain circumstances. For example, some tribunals appear to have applied a heightened standard of ‘clear and convincing evidence’ for allegations of wrongdoing, such as corruption or fraud,98 while others have applied the ordinary standard of proof but required more persuasive evidence.99 In the determination of damages (in particular for lost future profits), investment tribunals have applied the ordinary standard

94 

Marvin Roy Feldman Karpa v. United Mexican States, above fn 92, para 177: ‘Here, the Claimant in our view has established a presumption and a prima facie case that the Claimant has been treated in a different and less favorable manner than several Mexican owned cigarette resellers, and the Respondent has failed to introduce any credible evidence into the record to rebut that presumption’. 95  F.G. Sourgens, K.A.N. Duggal and I.A. Laird, Evidence in International Investment Arbitration 2.22 (Oxford: Oxford University Press, 2018). 96  Ioannis Kardassopoulos v. The Republic of Georgia, ICSID Case No. ARB/​05/​18, Award, 3 March 2010, para 229: ‘The Tribunal finds that the principle articulated by the vast majority of arbitral tribunals in respect of the burden of proof in international arbitration proceedings applies in these concurrent proceedings and does not impose on the Parties any burden of proof beyond a balance of probabilities’. 97 N. O’Malley, Rules of Evidence in International Arbitration: An Annotated Guide, 2nd edition (Abingdon: Routledge, 2019), Section 7.28, at 208. See Reinhard Hans Unglaube v. Republic of Costa Rica, ICSID Case No. ARB/​09/​20, Award, 11 November 2009, para 34: ‘The degree or standard of proof is not as precisely defined. Whichever party bears the burden of proof on a particular issue and presents supporting evidence “must also convince the Tribunal of [its] truth, lest it be disregarded for want, or insufficiency, of proof.” The degree to which evidence must be proven can generally be summarized as a “balance of probability”, “reasonable degree of probability” or a preponderance of the evidence. Because no single precise standard has been articulated, tribunals ultimately exercise discretion in this area’. 98  Lao Holdings N.V. v. Lao People’s Democratic Republic (I), ICSID Case No. ARB(AF)/​12/​6, Award, 6 August 2019, paras 109-​10: ‘. . . given the seriousness of the charge, and the severity of the consequences to the individuals concerned, procedural fairness requires that there be proof rather than conjecture . . . In the Tribunal’s view there need not be ‘clear and convincing evidence’ of every element of every allegation of corruption, but such “clear and convincing evidence” as exists must point clearly to corruption’. See also Chemtura v. Canada, 2010, para 137: ‘the standard of proof for allegations of bad faith or disingenuous behaviour is a demanding one’. 99  Libananco Holdings Co., Limited v. Republic of Turkey, ICSID Case No. ARB/​ 06/​08, Award, 2 September 2011, para 125: ‘the Tribunal accepts that fraud is a serious allegation, but it does not consider that this (without more) requires it to apply a heightened standard of proof. While agreeing with the general proposition that ‘the graver the charge, the more confidence there must be in the evidence relied on’, this does not necessarily entail a higher standard of proof. It may simply require more persuasive evidence, in the case of a fact that is inherently improbable, in order for the Tribunal to be satisfied that the burden of proof has been discharged’. See Redfern and Hunter, above fn 89, at 388.

Procedural and Evidentiary Issues    1013 of proof with regard to the existence of a loss (‘sufficient certainty’), but a ‘reasonable basis’ for purposes of calculating the quantum of the loss.100

B. Expert evidence Different questions arise with respect to the use of expert evidence in different fora. However, the underlying challenge international litigation is facing in all fora is similar, namely increasing complexity, in particular with respect to technical and scientific questions requiring arbitrators and adjudicators to rely on expert testimony. Expert knowledge and the ability to explain technical or scientific facts to adjudicators have become indispensable in certain disputes. While the challenges are similar, the ways in which they have been addressed differ from forum to forum. In a dissenting opinion of the International Court of Justice (ICJ), Judges Al-​Khasawneh and Simma referred to the practice of various international fora and noted that WTO dispute settlement had perhaps contributed most to the development of a best practice of readily consulting outside sources in order better to evaluate the evidence submitted to it.101 To a large extent, this practice seems to stem from an application of the rules. Article 11.2 of the SPS Agreement provides that in SPS disputes involving scientific or technical issues, a panel ‘should’ seek advice from experts and relevant international organizations chosen by the panel in consultation with the parties. This provision complements the panel’s general authority under Article 13.2 of the DSU to appoint independent experts. Other WTO agreements, however, contain no provision corresponding to Article 11.2 of the SPS Agreement. This might explain why ex curia scientific experts have been appointed more frequently in SPS disputes than in other disputes,102 even though complex scientific questions have arisen under various other WTO Agreements as well. In any event, while the absence of a clause corresponding to Article 11.2 of the SPS Agreement may explain why scientific experts have been appointed less frequently in other disputes, the absence of such a clause is no impediment to the appointment of ex curia experts in disputes under WTO Agreements other than the SPS Agreement. It is

100   Watkins Holdings S.à r.l. and others v. Kingdom of Spain, ICSID Case No. ARB/​15/​44, Award, 21 January 2020, paras 684-​85: ‘Proving the amount of damages is a notoriously difficult task and it cannot be right that, once liability has been established, the Claimants should be deprived of compensation caused by a State’s wrongful acts. Other tribunals have come to similar conclusions . . . In light of the above, the Tribunal’s considers that the Claimants must prove the existence of the fact of damage with sufficient certainty and then provide a reasonable basis for the Tribunal to determine the amount of loss’. See Gemplus S.A. et al v. Mexico, ICSID Cases No. Arb(AF)/​04/​3, Award, 16 June 2010, 13–​91. 101  Pulp Mills on the River Uruguay (Argentina v. Uruguay), Joint Dissenting Opinion of Judges Al-​ Khasawneh and Simma, I.C.J. Reports 2010, p. 115. See also Chapter 6 of this handbook. 102  See also, Connolly et al., above fn 83, at 325, arguing that the ‘best practice’ referred to in the ICJ dissenting opinion has so far been limited, with only a few exceptions, to litigation under the SPS Agreement.

1014    Andreas Sennekamp and Federico Ortino quite the contrary, as the Appellate Body held that the complexity of evidence before a panel is no reason for it to remain ‘agnostic’ about that evidence.103 Regardless of whether or not a panel appoints experts, parties may name experts and include their testimony in submissions to the panel, and they may include the expert in their delegation at the hearing. No prior approval by the panel is required, and as it stands, party-​appointed experts are not required to confirm their independence or the absence of conflicts of interest.104 In investment arbitration, the use of experts has similarly become commonplace in particular with regard to specific technical issues such as the quantification of damages and the determination of domestic law.105 While experts are often appointed by disputing parties (as expert witnesses), experts can also be appointed by the arbitral tribunal based on a specific power expressly granted in the applicable investment treaty106 and/​or arbitration rules,107 or based on the arbitral tribunal’s broad procedural powers.108 Article 29 of the 2010 UNCITRAL Arbitration Rules, for example, provides that, ‘[a]‌fter consultation with the parties, the arbitral tribunal may appoint one or more independent experts to report to it in writing, on specific issues to be determined by the arbitral tribunal’. Article 29 also requires experts to submit their qualifications and a statement of their impartiality and independence, and the arbitral tribunal shall decide promptly upon any objection as to an expert’s qualification, impartiality, or independence raised by the disputing parties. Experts generally produce written expert reports (together with the documents and information upon which they rely)109 and are often called for cross-​examination to clarify and defend their expert statements.110 103 

Appellate Body Report, US –​Upland Cotton (Article 21.5 –​Brazil), adopted 20 June 2008, para 357. ability to appoint experts, whether upon the request of a disputing party or ex officio, is provided in the general dispute settlement procedures of several FTAs, although it is normally subject to the agreement of both disputing parties. See Article 2014 of NAFTA and Article 31.15 of the USMCA. 105  F.G. Sourgens, K. Duggal, and I. Laird, Evidence in International Investment Arbitration (Oxford, Oxford University Press, 2018), 225 ff. 106  See Article 1133, NAFTA, which provides as follows: ‘Without prejudice to the appointment of other kinds of experts where authorized by the applicable arbitration rules, a Tribunal, at the request of a disputing party or, unless the disputing parties disapprove, on its own initiative, may appoint one or more experts to report to it in writing on any factual issue concerning environmental, health, safety or other scientific matters raised by a disputing party in a proceeding, subject to such terms and conditions as the disputing parties may agree’. See Windstream Energy LLC v Canada, PCA Case No 2013–​22, Procedural Order No 1, 16 November 2013, section 11. 107  See Article 29 of the 2010 UNCITRAL Arbitration Rules; Article 27 of the 1976 UNCITRAL Arbitration Rules. 108  See C. Schreuer et al., The ICSID Convention: A Commentary, 2nd edition (Cambridge: Cambridge University Press, 2009), Article 43, paras 11 and 97. See, e.g., Abaclat v Argentina, ICSID Case No ARB/​ 07/​05, Procedural Order No 15, 20 November 2012, para 12: ‘The majority of the Arbitral Tribunal considers that, based on Articles 43 and 44 of the ICSID Convention and Rules 19 and 34 of the ICSID Arbitration Rules and on past practice of various ICSID tribunals, it has competence to appoint an independent expert. In this respect, it should be noted that neither Party has contested the Arbitral Tribunal’s competence to appoint an independent expert’. [footnote omitted] 109  See Articles 5(2)(c) and 6(4)(c) of the IBA Rules on the Taking of Evidence 2010. 110  On the methods employed to cross-​examine experts, see further: Sourgens, et al., above fn 104, at 230–​32. 104  The

Procedural and Evidentiary Issues    1015 The 2020 IBA Rules on the Taking of Evidence include specific provisions on party-​ appointed experts (Article 5) and tribunal-​appointed experts (Article 6), which are designed as supplementary rules that parties or the arbitral tribunal may adopt irrespective of the substantive or procedural laws governing proceedings.111

IV. Conclusions Despite certain differences in the approach to procedural and evidentiary issues in international trade and investment dispute settlement as described above, clearly there are common threads, for instance concerning the allocation of the burden of proof (each party is to prove the facts upon which it relies in support of its case) and the standard to which facts at issue must be proved (principally, the preponderance of evidence). Similarly, the use of experts (whether appointed by the disputing parties or by the panel or tribunal) has become commonplace in trade and investment proceedings in particular with regard to technical issues (i.e. quantification of damages in ISDS) or scientific issues (i.e., in the context of SPS measures in the WTO). Moreover, whether expressly provided for in the applicable rules or not, preliminary rulings have become a common practice in both trade and investment dispute settlement as an indispensable instrument to address a variety of issues that arise during proceedings, such as jurisdictional objections, interim measures, or the protection of confidential information. Similarly, given the relevance of the outcomes of trade and investment disputes, demands for greater transparency of dispute settlement proceedings have led to important evolutions in the relevant dispute settlement practices and rules, such as, for example, the ability of the wider public to be present (even virtually) during panel or arbitral hearings. Greater transparency has also led to the need in WTO dispute settlement and in investment arbitration to protect certain confidential or sensitive information at times on the basis of a delicate balancing of competing interests. Thus, while the way in which procedural and evidentiary issues have been addressed in international trade and investment disputes is not identical and each forum applies its proper set of rules and practices, our review of the way in which several of such issues have been resolved in different fora reveals a number of common threads across different fora, which may, understood in this rather informal way, be referred to as the evolution of a ‘common law of international adjudication’.112

111  The

IBA Rules on the Taking of Evidence were promulgated for the first time in 1999 and in February 2021, the IBA formally released its revised (third) edition of the rules, the 2020 IBA Rules on the Taking of Evidence (see < www.iba​net.org >). 112  C. Brown, A Common Law of International Adjudication (Oxford: Oxford University Press, 2007).

1016    Andreas Sennekamp and Federico Ortino

Further reading Brown, C., A Common Law of International Adjudication (Oxford: Oxford University Press, 2007) Euler, D., M. Gehring, and M. Scherer (eds), Transparency in International Investment Arbitration: A Guide to the UNCITRAL Rules on Transparency in Treaty-​Based Investor-​State Arbitration (Cambridge: Cambridge University Press, 2015) Gáspár-​Szilágyi, S., D. Behn and M. Langford (eds), Adjudicating Trade and Investment Disputes: Convergence or Divergence? (Cambridge: Cambridge University Press, 2020) Molina-​Tejeda, M. (eds), Practical Aspects of WTO Litigation (The Hague: Kluwer Law International, 2020) Schreuer, C. et al., The ICSID Convention: A Commentary, 2nd edition (Cambridge: Cambridge University Press, 2009, 3rd edition forthcoming 2022) Sourgens, F.G., K. Duggal, and I. Laird, Evidence in International Investment Arbitration (Oxford: Oxford University Press, 2018) Van den Bossche, P. and W. Zdouc, The Law and Policy of the World Trade Organization, 5th edition (Cambridge: Cambridge University Press, 2021) WTO, A Handbook on the WTO Dispute Settlement System, 2nd edition (Cambridge: Cambridge University Press, 2017)

Chapter 39

Stakeholde rs i n I n ternational T ra de L aw Di spu te Set t l e me nt Katherine Connolly and Todd Friedbacher *

I. II.

III. IV. V. VI.

VII.

* The

Introduction WTO Member States A. How can WTO Members participate in WTO dispute settlement? B. How do WTO Members make decisions in WTO dispute settlement? Industry Adjudicators A. Panels B. The Appellate Body The Secretariat Experts A. Panel-​appointed experts B. Party-​appointed experts C. In-​house experts Conclusion

1018 1018 1018 1024 1025 1027 1028 1033 1035 1037 1037 1039 1039 1040

authors wish to acknowledge Antigoni Matthaiou and Guillermo Giralda Fustes for their assistance in preparing this article. The authors practice WTO law with Sidley Austin LLP. The views expressed in this article are exclusively those of the authors and do not necessarily reflect those of Sidley Austin LLP, its partners, or its clients. This article has been prepared for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, a lawyer-​client relationship. Readers should not act upon this without seeking advice from professional advisors.

1018    Katherine Connolly and Todd Friedbacher

I. Introduction A variety of different entities participate in the settlement of international trade disputes. Actors regularly involved in international trade disputes include States or customs unions; commercial industry and private companies; adjudicators (both first instance and appellate); Secretariat staff supporting the adjudicators; and individuals serving as technical and scientific experts. Each of these stakeholders participates in WTO disputes in different ways, and for different reasons, and makes a different contribution to the system. In this chapter, we address the role of each type of stakeholder. In doing so, we focus primarily on the WTO dispute settlement system, as this is where the majority of international trade disputes are litigated. That said, we also touch regularly on dispute settlement provisions of free trade agreements (FTAs), which often develop innovations on the DSU procedures. In Section II, we begin, naturally, with States: in the WTO, and under FTAs, these are the only entities which may directly participate, as parties and third parties. In Section III, we address industry. While private actors cannot participate in dispute settlement as parties, they play an important ‘shadow’ role, as the entities that actually engage in the activities that international trade law regulates: international trade. In Section IV, we address the role of the adjudicator. Amongst other points, we examine the issues that have arisen in recent years regarding the appropriate boundaries of an adjudicator’s role in international dispute settlement. In Section V, we address the nature and boundaries of the role of permanent secretariats, who assist adjudicators in resolving disputes. Finally, in Section VI, we address the role of experts, who have become an often-​essential participant, as international trade disputes increase dramatically in their size and complexity.

II.  WTO Member States A. How can WTO Members participate in WTO dispute settlement? WTO Members have taken on the rights and obligations in the WTO-​ covered agreements, and it is only WTO Members that can participate as parties in WTO dispute settlement. Members can participate in dispute settlement in one of three ways: complainant; respondent; or third party. Finally, Members also participate indirectly in WTO dispute settlement by virtue of participation in the work of the Dispute Settlement Body (DSB). As a general point, Members may decide how they are to be represented in WTO dispute settlement, including which constituent elements of the Member (be it a State or

Stakeholders in International Trade Law Dispute Settlement    1019 Customs Union) can participate in that representation. For example, the Appellate Body has found that Members have an absolute right to compose their delegations at hearings as they wish, including seeking advice from (and sharing confidential information with) outside advisors and experts.1 From the complainant side, there are procedural requirements to observe, but no ‘standing’ requirements for initiating a WTO dispute. Article 3.7 of the DSU provides that, ‘before bringing a case, a Member shall exercise its judgment as to whether action under these procedures would be fruitful’. In the Appellate Body’s words, Members are presumed, upon submitting a request for establishment of a panel, to have taken ‘recourse to WTO dispute settlement in good faith, having duly exercised judgement as to whether recourse to that panel would be “fruitful” ’.2 Article 3.7 therefore ‘neither requires nor authorizes a panel to look behind that Member’s decision and to question its exercise of judgment’.3 In this sense, WTO dispute settlement, as well as State-​to-​State dispute settlement in FTAs, differs from most other judicial systems, which have some form of ‘standing’ requirement. In other words, in other judicial systems, a complainant must demonstrate some kind of interest in a matter in order to be able to access dispute settlement. In these systems, the ‘right’ to access is not presumed, but must be established by those who wish to use the system. WTO dispute settlement, by contrast, is a system created by and for WTO Members, existing solely to secure the prompt and effective settlement of trade disputes between those Members. It is, to use the cliché, a ‘Member-​driven organisation’, and the Members have a right to access the organization’s dispute settlement system by default. Further, as sovereign States, Members benefit under international law from the presumption of good faith, both in the decision to bring a dispute, and during the course of litigation.4 Of course, the corollary of a sovereign’s ‘right’ to enjoy a presumption of good faith, is the ‘obligation’ to act in good faith.5 Thus, a Member’s right to dispute settlement is not entirely unbound. As one panel explained, ‘a right will be exercised abusively when its assertion unreasonably interferes with the sphere covered by an obligation arising out of a treaty. This would occur when a Member initiates a dispute settlement procedure in

1  See Appellate Body Report, EC –​Bananas III, adopted 25 September 1997, para 10; Panel Report, Korea –​Certain Paper, adopted 28 November 2005, para 7.15; Panel Report, Brazil –​Aircraft (Article 21.5 –​ Canada II), adopted 23 August 2001, paras 3.5–​3.10. 2  See Appellate Body Report, Mexico –​Corn Syrup (Article 21.5 –​US), adopted 21 November 2001, para 74. 3 Ibid. 4  See Appellate Body Report, US –​Anti-​ Dumping and Countervailing Duties (China), adopted 25 March 2011, paras 326–​327. 5  See Appellate Body Report, US –​Shrimp, adopted 6 November 1998, para 158: ‘Good faith’, ‘at once a general principle of law and a general principle of international law, controls the exercise of rights by states. One application of this general principle, the application widely known as the doctrine of abus de droit, prohibits the abusive exercise of a state’s rights’.

1020    Katherine Connolly and Todd Friedbacher a manner contrary to good faith’.6 A WTO panel has yet to find that a Member has failed to resort to WTO dispute settlement in good faith; commentators have suggested that a Member might do so where it requests the establishment of a Panel for the express purpose of nullifying the substantive rights of another Member.7 For a ‘measure’ (act or omission) to be subject to WTO dispute settlement, it must be attributable to the respondent Member.8 Claims cannot be brought against a Member in respect of acts or omissions by, for example, a private company. The DSU is, however, silent on this point. WTO adjudicators, as a result, have made frequent recourse to the customary rules of international law on state attribution.9 This is a complex body of law in its own right, and outside the scope of this chapter. That said, some basic principles bear emphasis. First, like public international law, WTO law operates on the principle of the unity of the State: it does not distinguish between different State organs or branches of government. A measure adopted under a Member’s criminal law, and executed by police authorities;10 or adopted by a local authority;11 or, imposed as a result of a judicial decision,12 are all treated as ‘measures’ attributable to the Member and are all equally subject to the Member’s WTO obligations.13 Second, there can be instances in which actions of ‘private’ entities are attributable to States, for example where acts are carried out at the direction of the State. In Japan –​ Film, for example, the Panel found that private action could be deemed to be conduct of a Member where there was ‘sufficient government involvement’ in the action.14 There has been particular focus on the question of State attribution in the context of the SCM Agreement: in what circumstances does an entity constitute a ‘public body’ under Article 1, for the purposes of determining whether the Member has provided a ‘subsidy’?

6  Panel

Report, Peru –​Agricultural Products, adopted 31 July 2015, para 7.95, referring to Appellate Body Report, US –​Shrimp, adopted 6 November 1998, para 158. 7  L. Bartels, ‘The Separation of Powers in the WTO: How to Avoid Judicial Activism? 53 International and Comparative Law Quarterly (2004) 861–​890. 8  ‘Any act or omission attributable to a WTO Member can be a measure of that Member for the purposes of dispute settlement’. See Appellate Body Report, US –​Corrosion-​Resistant Steel Sunset Review, adopted 9 January 2004, para 81. 9 See, e.g., referring to the International Law Commission’s Draft Articles on the Responsibility of States for Internationally Wrongful Acts: Panel Report, US –​Coated Paper (Indonesia), adopted 22 January 2018, paras 7.175–​7.180; Appellate Body Report, US –​Anti-​Dumping and Countervailing Duties (China), adopted 25 March 2011, paras 304–​316; Panel Report, Turkey –​Textiles, adopted 19 November 1999, paras 9.42–​9.43. 10  See, e.g., Panel Report, Thailand –​Cigarettes (Article 21.5 –​Philippines), circulated 12 November 2018, paras 7.633–​7.644. The Panel Report remains unadopted; Thailand appealed on 9 January 2019, and the division handling the appeal suspended its work on 10 December 2019. 11  See, e.g., Panel Report, Brazil –​Retreaded Tyres, adopted 17 December 2007, paras 7.397–​7.400. 12  See, e.g., Panel Report, US –​Tuna II (Mexico), adopted 13 June 2012, para 2.1. 13  See, e.g., Panel Report, US –​Gambling, adopted 20 April 2005, paras 6.127–​6.130; Panel Report, Brazil –​Retreaded Tyres, adopted 17 December 2007, para 7.400. 14  Panel Report, Japan –​Film, adopted 22 April 1998, para 10.56.

Stakeholders in International Trade Law Dispute Settlement    1021 The Appellate Body has, with some controversy, found that ‘mere ownership or control over an entity by a government, without more, is not sufficient to establish that the entity is a public body’.15 Decisive factors can include: whether the functions or conduct of the entity are of the kind that are ordinarily classified as government in the Member’s legal order;16 whether the government has power to appoint or nominate directors to the board of an entity;17 and whether the government exercises ‘meaningful control’ over the entity.18 In sum, this is a complex question to be decided on a case-​by-​case basis: as the Appellate Body explained, ‘just as no two governments are exactly alike, the precise contours and characteristics of a public body are bound to differ from entity to entity, State to State, and case to case’.19 We note that, outside of the WTO, a number of FTAs have adopted specific rules on state-​owned enterprises (which are addressed further in a different chapter of this book).20 For example, Chapter 22 of the USMCA and Chapter 17 of the CPTPP all contain ‘WTO-​plus’ SOE disciplines, which adopt definitions of SOEs that, in different ways, expand upon the definition of ‘public body’ adopted by the Appellate Body.21 Members can also opt to participate in proceedings as a third party. Article 10.2 of the DSU provides that ‘any Member having a substantial interest in a matter before a panel and having notified its interest to the DSB’ may participate in a dispute as a third party. Most FTAs also provide for third party participation, since an overriding concern of negotiators is that the State parties maintain an ability, within dispute settlement, to ensure the correct interpretation of the agreement. Indeed, many FTAs provide for greater default third party rights than Article 10.2 of the DSU, allowing third parties to attend any hearing;22to receive all the disputing parties’ written submissions;23 to make statements at any feasible time during the proceedings;24 and to take part in 15 

Appellate Body Report, US –​Carbon Steel (India), adopted 19 December 2014, para 4.10. We note, however, the recent dissenting opinion of one Appellate Body Member in US –​Countervailing Measures (China), adopted 16 January 2015, (paras 5.242–​4.248), on the criteria for determining whether an entity is a public body. 16 

Appellate Body Report, US –​Carbon Steel (India), adopted 19 December 2014, para 4.17. Report, US –​Pipes and Tubes (Turkey), circulated 18 December 2018, para 7.39. The Panel Report remains unadopted; the United States appealed on 25 January 2019; the division handling the appeal suspended its work on 10 December 2019. 18   Appellate Body Report, US –​Anti-​Dumping and Countervailing Duties (China), adopted 25 March 2011, para 318. 19 Ibid. 20  See Chapter 30 of this handbook. 21  For example, Article 17 of the CPTPP defines SOEs as enterprises engaging in commercial activities and in which a State Party (a) directly owns 50 per cent or more of the share capital; (b) controls, through ownership interests, the exercise of more than 50 per cent of the voting rights; or (c) holds the power to appoint a majority of the board of directors or any other equivalent management body. 22  See Article 10.4(5) of the EFTA-​Hong Kong FTA; Article 28.14 of the CPTPP. 23  See Article 13.5(8) of the EFTA-​Philippines FTA; Article 28.14 of the CPTPP. 24  See Article 13.5(8) of the EFTA-​Philippines FTA. 17  Panel

1022    Katherine Connolly and Todd Friedbacher consultations.25 Other FTAs provide for the standard default rights in Article 10.2, and allow for the granting of enhanced rights by consensus of the parties.26 In deciding which Members will be granted third-​party rights, WTO adjudicators will presume the existence of a substantial interest in a particular matter (just like under Article 3.7 of the DSU);27 legally, notification to the DSB is all that is required to participate as a third party. Once a Member has opted to participate as a third party, it is guaranteed certain rights in dispute settlement. Article 10.2 grants third parties the right to ‘be heard by the panel and to make written submissions to the panel’, and provides that third parties’ submissions ‘shall be reflected in the panel report’. Article 10.3 provides that third parties ‘shall receive the submissions of the parties to the dispute to the first meeting of the panel’, i.e., the parties’ first written submissions and opening statements at the first hearing. Articles 10.2 and 10.3 guarantee minimum rights; there are no corresponding obligations for third parties. In practice, third parties have on occasion been afforded enhanced rights. Practice has not always been consistent on this point: panels faced with seemingly similar circumstances have taken different approaches. In general, the overarching consideration for panels must be balancing the due process rights of the parties and third parties, which requires ensuring that third parties are ‘able to exercise their right to participate in [the] proceedings “in a full and meaningful fashion” ’.28 With these considerations in mind, panels have, for example, enhanced the rights afforded third parties to include: access to the parties’ rebuttal submissions;29 early access to an unreleased panel report;30 and, the right to be present for the entirety of the substantive meeting between the parties.31 There are clear benefits to participation as a third party. First, third party participation can give Members a real opportunity to influence the interpretation of WTO rules. As the Appellate Body has pointed out, ‘the third participants’ interests lie mainly in the correct legal interpretation of the provisions of the WTO agreements’.32 Panels have explained that ‘meaningful third-​party participation . . . is instrumental to the Panel’s own function of making an objective assessment of the matter before it, and in particular to ensuring that the Panel arrives at the correct legal interpretation of the WTO

25 See

Article 31.4.4 of the USMCA; Article 17.5.10 of the Framework Agreement of the Pacific Alliance. 26  See Article 10(4) of Chapter 17 of the ASEAN-​Australia-​New Zealand Agreement. 27  See Appellate Body Report, EC –​Bananas III, adopted 25 September 1997, para 132. 28  See Appellate Body Report, US –​FSC (Article 21.5 –​EC), adopted 29 January 2002, para 249; Panel Report, Thailand –​Cigarettes (Article 21.5 –​Philippines), circulated 12 November 2018, para 4.6 (the Panel Report remains unadopted; Thailand appealed on 9 January 2019, and the division handling the appeal suspended its work on 10 December 2019). 29  Panel Report, Australia –​Tobacco Plain Packaging, adopted 29 June 2020, paras 1.42–​1.45. 30  See Panel Report, Thailand –​Cigarettes, adopted 15 July 2011, Add. 1, para 4.5. 31  See Panel Report, EC –​Bananas III, adopted 25 September 1997, para 1.5. 32  Appellate Body Report, EC and certain Member States –​Large Civil Aircraft, adopted 1 June 2011, Annex III, Procedural Ruling and Additional Procedures to Protect Sensitive Information, para 23.

Stakeholders in International Trade Law Dispute Settlement    1023 agreements’.33 Consistent with the broader systemic interest of third parties, third party submissions tend to be high-​level and focused on interpretive, rather than factual, issues in dispute. In the authors’ experience, third party support can be invaluable in WTO litigation. Third parties will often come up with effective alternative ways of presenting interpretive arguments, or raise helpful broader systemic points. Where the interests of third parties are driven by principle, rather than direct commercial interest in the outcome of a dispute, they are seen by WTO adjudicators as bellwethers for the views of the Membership on a given issue. For these reasons, panels regularly refer to, and incorporate, third party arguments in their reasoning. Second, third party participation gives Members useful insight into, and experience with, dispute settlement. Not all Members regularly participate in dispute settlement; litigation is resource-​ intensive, and when participating as a complainant, discretionary. Yet, the outcomes of disputes—​ DSB-​ adopted interpretations of the covered agreements—​will affect all Members. It is important, therefore, for Members to stay abreast of developments in dispute settlement. Third party participation is a good way to do this, even without ever making any submissions to the Panel. Third parties have access to early written submissions34 in panel proceedings, and are permitted to attend a third party session of the first meeting of the panel with the parties, which itself can be a valuable informational resource. Moreover, participating as a third party in panel proceedings preserves a Member’s right to be a third participant on appeal, at which stage the legal issues are sharpened, and the outcome more consequential. On appeal, third participants receive all submissions, and the right to attend and participate in the entirety of the Appellate Body hearing. Finally, all WTO Members indirectly participate in dispute settlement by virtue of their membership in the DSB. The DSB is established under Article 2 of the DSU to ‘administer [the] rules and procedures’ of the DSU, and the ‘consultation and dispute settlement provisions of the covered agreements’. The DSB has the authority to ‘establish panels, adopt panel and Appellate Body reports, maintain surveillance of implementation of rulings and recommendations, and authorize suspension of concessions and other obligations under the covered agreements’.35 Thus, the DSB is involved at the most important stages of dispute settlement: a panel is established by negative consensus of the DSB and a negative consensus DSB vote is required to adopt a final panel report. To the extent that a responding Member has compliance obligations following a dispute, these are imposed not on the authority of the panel, but on the basis of the DSB’s ‘recommendations and rulings’. And, to the extent a panel report develops particular

33 

See Panel Report, Thailand –​Cigarettes, adopted 15 July 2011, Add. 1, para 4.7. Specifically, the standard rights provide third party access to the parties’ first written submissions and opening statements at the parties’ substantive meeting. 35  Article 2.1 of the DSU. 34 

1024    Katherine Connolly and Todd Friedbacher interpretations of the covered agreements, these are adopted, again, on the DSB’s authority, not the panel’s.

B. How do WTO Members make decisions in WTO dispute settlement? In theory, States participate in trade law dispute settlement as unified entities; in practice, a government is made up of multiple stakeholders representing different interests. For example, most governments comprise different ministries or departments, each with assigned competencies. A number of these ministries have competencies for which issues raised in trade disputes can be highly relevant: foreign affairs, justice/​attorney-​general or equivalent, commerce, agriculture, fisheries, defence, and so-​on. Each of these ministries will have views on when and how to pursue dispute settlement. And, these views will often not always align. State A’s commerce ministry may wish to aggressively pursue dispute settlement against State B for the sake of a domestic industry, while their foreign affairs counterparts may be concerned about geopolitical implications for the bilateral relationship with State B. Or, there may be ‘glass house’ concerns; one regulatory agency may not wish to pursue dispute settlement against State B out of concern that its own measures may come under increased scrutiny. Different views can also exist within organs or agencies. One branch of the same commerce ministry may be in favour of a ‘broad’ interpretation of a given WTO obligation, to increase market access for one domestic industry; another branch may be concerned about the implications of increased imports on another domestic industry. Members are, in the context of dispute settlement, continually required to balance these interests. This is not always an easy task; trade disputes involve large, complex and fast-​moving litigation. To effectively participate requires centralised and efficient decision-​making. In other words, someone needs to be able to ‘call the shots’ when necessary. Exactly who gets to make these decisions, and how effectively they are made, will depend on the particular institutional structure adopted by a Member when setting up dispute settlement functions. Thus, even before initiating a given dispute, the institutional structure adopted by a Member to manage the litigation process involves implicitly making decisions about how and when the dispute will be pursued. There are a variety of different possible approaches to structuring a Member’s participation in dispute settlement, each with its own benefits and trade-​offs. Many Members give a single ministry competency over WTO disputes, usually foreign affairs, commerce or justice/​Attorney-​General. This approach allows for efficient decision-​ making, but necessarily prioritizes the lead ministry’s particular interests (foreign affairs versus commerce, economics versus law) over the interest of other ministries.

Stakeholders in International Trade Law Dispute Settlement    1025 Some Members create a ‘bridging’ body to conduct disputes, made up of two or more ministries represented equally. This allows for wider input, but can make decision-​ making difficult if a hierarchy with clear lines of authority is not established. Other Members may switch the lead role in WTO dispute settlement between ministries depending on the nature of the dispute; this has the benefit of flexibility, but risks losing institutional knowledge. In the authors’ view, an especially effective model could be described as a ‘hub and spoke’ model: a single body operates as the central decision-​maker (the ‘hub’); but maintains well-​developed connections to other identified stakeholders (the ‘spokes’). This way, streamlined decision-​making is ensured (the ‘hub’ ultimately calls the shots), while still ensuring competing interests are taken into account (the ‘spokes’ maintain lines of communication during the decision-​making process). Once a dispute is launched, the deadlines for submissions are short and the demands of the process rigorous. In the authors’ experience, a well-​defined and streamlined decision-​making process is critical to effective participation.

III. Industry Industry plays a unique role in trade law dispute settlement. On the one hand, in contrast to other international fora (e.g., international investment arbitration), private entities cannot participate as parties. Domestic industries rely on their governments to initiate disputes; if industry wishes to pursue WTO dispute settlement, it must convince a WTO Member to do so on its behalf. This may involve an offer to finance the litigation costs of the dispute. Often, governments may appreciate the benefits that a successful dispute would bring to industry but the interests of other stakeholders might override or at least offset some of the benefits. On the other hand, WTO law by definition implicates private entities, as these are the actors that engage in the activities that WTO law regulates: international trade. While governments understand the content of the rules, they may not always appreciate fully how the rules apply in the marketplace. Industry brings insight into how the rules work in practice, and the ways in which competition is impacted when the rules are not observed. A Member’s decision to bring or defend a WTO dispute is often directly motivated by the interests of one or more identifiable industries or commercial stakeholders. For this reason, industry will inevitably be involved in most disputes, providing resources and information in support of the government’s litigation efforts on its behalf. The nature and degree of commercial stakeholders’ interest will vary depending on the dispute. At one end of the scale, a single company may be the focus of the dispute, for example as the recipient of an alleged subsidy. This is seen clearly, for example, in the large civil aircraft cases, in which the European Union and the United States allege the

1026    Katherine Connolly and Todd Friedbacher provision of subsidies to Airbus and Boeing, respectively.36 At other times, one or more specific industries will be the focus of the dispute, for example a Member’s beef industry in an SPS case. In other cases, the commercial stakeholders’ interests may be more diluted, for example when a Member challenges a normal value calculation methodology that is applied routinely across dumping determinations for a variety of different products. Whatever the degree of industry involvement in a specific dispute, it is good practice to have close cooperation between industry, on the one hand, and a government’s dispute settlement functions, on the other. This is the case even when a Member is not actively involved in any ongoing dispute. Government and industry’s knowledge bases are complementary. A Member’s government knows the rights and obligations to which the Member and its trading partners have committed under the covered agreements. However, this knowledge is often highly theoretical. Industry, by contrast, knows the conditions ‘on the ground’. For example, industry will know which markets present access challenges for particular products or services, but is naturally less well-​versed in the legal remedies available under WTO law. In other words, from the perspective of WTO law, industry knows the problems, while government knows the solutions. Close cooperation helps Members to make the most of their WTO rights. Finally, from a practical perspective, effective cooperation with industry is often needed to properly build a litigating Member’s case. Like any judicial system, factual assertions in WTO dispute settlement must be supported by evidence. Oftentimes, it is industry that is in sole possession of that evidence. For example, a complaining Member may bring claims that a Member has failed to adhere to the procedural obligations in the Customs Valuation Agreement when valuing the goods of a specific importer. The complaining Member will likely only be able to substantiate this claim by submitting to a panel the record of communication between the importer and the foreign customs authority. This correspondence can likely only be admitted as evidence if the importer willingly provides it to the complaining Member for this purpose. Cooperation between a government and industry on evidentiary issues can be challenging. A good example is the situation faced by the complainants in Argentina –​Import Measures. There, the complainants challenged unwritten measures requiring importers and other economic actors to undertake certain trade-​related commitments as a condition of importing into Argentina.37 According to the complainants, these measures were evidenced by agreements between the Argentine government and the respective importer, or in letters addressed by importers to the Argentine government.38 These documents were exclusively in the possession of the importers and the Argentine government. This created an evidentiary problem for the complainants. As the Panel explained, the importers—​themselves members of the complainants’ domestic industries—​had provided 36  See Appellate Body Report, EC and certain Member States –​Large Civil Aircraft (Article 21.5), adopted 28 May 2018; Appellate Body Report, US –​Large Civil Aircraft (Article 21.5 –​EU), adopted 11 April 2019. 37  Panel Report, Argentina –​Import Measures, adopted 26 January 2015, para 6.44. 38 Ibid.

Stakeholders in International Trade Law Dispute Settlement    1027 the relevant documents to the complainant governments. However, the importers were reluctant to authorize the complainant governments to use the material in dispute settlement, because ‘given the discretionary nature of Argentina’s import system, the importers fear[ed] retaliatory actions . . . if their identities are disclosed’.39 In the end, using its authority under Article 13 of the DSU, the panel requested Argentina to provide the documents.40 Otherwise, it would have been difficult for the panel to pursue a positive solution to the matter on the basis of objective evidence, the existence of which was without dispute between the parties. This case well illustrates how important industry’s participation in the preparation of a dispute can be. When bringing a dispute, governments must take into account that the evidentiary material required to do so successfully may be in the possession of the domestic industry; and, that there may be sensitivities for the industry in using that material in dispute settlement. These sensitivities may even make industry reluctant to fully cooperate in litigating the dispute.41 These are all issues that a Member should explore with the relevant commercial stakeholders when deciding whether to bring a dispute.

IV. Adjudicators Unlike most FTAs,42 WTO dispute settlement involves two stages: the first-​instance panel proceedings, decided by panellists nominated on an ad hoc basis for individual disputes; and appellate proceedings, decided by a standing Appellate Body. Below, we first discuss WTO panels, and, second, the Appellate Body. At the outset, we recall that all WTO adjudicators are subject to the WTO’s Rules of Conduct. The Rules of Conduct establish critical principles that support the legitimacy of WTO dispute settlement: an overarching obligation to be ‘independent and impartial’, to ‘avoid direct or indirect conflicts of interest’, and to ‘respect the confidentiality of proceedings pursuant to the dispute settlement system’.43 While these principles have, in recent times, been put to the test, they are essential to the role that WTO adjudicators play in ensuring a system of dispute settlement governed by the rule of law.

39 

Panel Report, Argentina –​Import Measures, adopted 26 January 2015, para 6.45.   Article 13 of the DSU. 41 WTO dispute settlement procedures regularly provide for procedures to protect information designated as confidential. Typically, this involves designating certain information as ‘business confidential’ (BCI) or ‘highly sensitive business information’ (HSBI), limiting the means and extent of access to such information, and ensuring that no such information appears in public versions of the reports. See, e.g., Panel Report, US –​Supercalendered Paper, adopted 5 March 2020, Annex A-​2, para 1.10; Panel Report, EC and certain member States –​Large Civil Aircraft, adopted 1 June 2011, Annex A-​3, para 1.23. 42  Annex 10-​F of CAFTA provides for an ‘appellate body or similar mechanism to review awards’; Article 18 of the 2002 Protocol of Olivos (MERCOSUR) provides for a ‘Permanent Tribunal of Revision’. 43  A number of FTAs have further developed the rules of conduct for adjudicators, adding detail to the umbrella requirements of independence and impartiality. See, e.g., the CPTPP Code of Conduct (Articles 4 and 5) and the CETA Code of Conduct. 40

1028    Katherine Connolly and Todd Friedbacher

A. Panels 1. Who are WTO panellists? A WTO panel is made up of three panellists composed on an ad hoc basis. One of the three panellists will serve as Chair of the panel. Panel composition begins after a panel has been established by the DSB under Article 6 of the DSU. Article 8.1 of the DSU provides that panellists shall be ‘well-​qualified governmental and/​or non-​governmental individuals’. Unlike Appellate Body Members, therefore, panellists may be acting governmental officials; however, the overarching obligations of independence and impartiality nonetheless require panellists in this situation to leave their nationalities at the door. Relevant qualifications are broad and undefined by the DSU, and panellists can be drawn from a variety of different disciplines and pools: prior panellists; advocates before a panel; current or former government officials resident at Missions in Geneva, with roles as representatives to the various WTO councils and committees; former Secretariat staff; academics in international trade law or policy, or other relevant disciplines; or Members’ senior trade policy officials. As noted, the WTO’s Rules of Conduct require that panellists be ‘independent and impartial’, and ‘shall avoid direct or indirect conflicts of interest’. Selected panellists serve in their individual capacity, and not as representatives of their national governments, or any other interest. In practice, panel composition generally proceeds as follows. First, consistent with Article 8.4 of the DSU, the Secretariat maintains an ongoing ‘indicative list of governmental and non-​governmental individuals possessing the qualifications outlined in paragraph 1’. In practice, the Secretariat (and Director General) do not limit themselves to the indicative list, and draw from a much broader and deeper pool of potential panellists with knowledge and profiles on international trade matters. Shortly after the establishment of a panel, the Secretariat communicates to the parties a slate of panellist candidates. Parties can oppose nominations, although under Article 8.6 of the DSU, are instructed not to ‘oppose nominations except for compelling reasons’. In practice, parties frequently reject proposed candidates for reasons that are not second-​guessed by the Secretariat. One of the most frequently cited reasons for rejecting panellists is that they do not have prior panel experience. This can make the Secretariat’s task of preparing a slate of candidates difficult. In the authors’ view, an effective panel need not be wholly comprised of panellists with prior experience. While it is important for at least one panellist, preferably the Chair, to have prior experience, the key panellist qualities are, in our view, simply diligence and independence, which can be demonstrated by means other than specific WTO-​dispute settlement experience. The prior experience requirement has also contributed in large part to serious diversity issues in the Secretariat’s pool of panellist candidates. While 46 percent of WTO panels have included women panellists, only 14 percent of all selected panellists are women.44 In other words, a relatively small handful of women are serving as repeat 44 

Data collected as of 2016. See Women and the WTO, Gender and Statistics (1995–​2016), at < https://​ www.wto.org/​engl​ish/​new​s_​e/​news1​7_​e/​gende​r_​st​ats_​marc​h201​7_​e.pdf > (last visited 7 September

Stakeholders in International Trade Law Dispute Settlement    1029 panellists, while the overall numbers of women selected remain very low. The insistence on the part of Members that panellists have prior WTO experience perpetuates the historical under-​selection of women candidates. As a positive development, a number of Members have now begun to identify diversity as a criterion for panellist selection during the composition phase. Second, if the parties cannot agree on a slate of proposed candidates within 20 days of panel establishment, then, under Article 8.7, either party may request the Director-​ General to ‘determine the composition of the panel by appointing panellists whom the Director-​General considers most appropriate’. The decision to request Director-​General composition is a strategic decision for the parties, and one that is much more frequently taken by the complainant than the respondent. A respondent may (unlike the complainant) have an incentive to use extensive back-​and-​forth communications on panel composition to delay the proceedings. On the one hand, composition by the Director-​General means less input by the parties on the panellists, and certainly no veto power, unlike when the Secretariat proposes candidates. On the other hand, reaching agreement on composition can take some time, comprising an iterative process that requires multiple back-​and-​forth meetings between the parties and the Secretariat. A complainant, in particular, may wish to prioritize having the panel composed quickly, so that the parties can proceed to the briefing phase of the dispute. Some FTAs have included provisions for appointing authorities as a successful fall-​ back method. For example, under the CPTPP, the Secretary-​General of the International Centre for the Settlement of Investment Disputes (ICSID) serves as the appointing authority for arbitrations under the CPTPP’s investment chapter.45 Elsewhere, however, provisions for appointing authorities have been controversial; this is dealt with further in a chapter addressing the recent NAFTA negotiations.

2. What is the role of panellists? The standard of review for a panel is set out in Article 11 of the DSU: A panel should make an objective assessment of the matter before it, including an objective assessment of the facts and of the case and the applicability of and conformity with the relevant covered agreements.

The terms of Article 11 set out the legal boundaries of a panel’s review: a panel must make an ‘objective assessment’ of the matter. The basic standards of objectivity require a panel to ‘consider all the evidence presented to it, assess its credibility, determine its weight, and ensure that its factual findings have a proper basis in that evidence’.46

2021), at 15. 45 

46 

Article 9.22.1 of the CPTPP. Appellate Body Report, Brazil –​Retreaded Tyres, adopted 17 December 2007, para 185.

1030    Katherine Connolly and Todd Friedbacher Included in the obligation to make an objective assessment of the ‘matter’ is, of course, the requirement to make findings of fact in an objective manner. Panels have the exclusive authority to weigh the evidence and make factual findings on the basis of that evidence; the Appellate Body does not make its own factual findings, in any circumstance.47 The Appellate Body has explained that it will not ‘interfere lightly’ with a panel’s fact-​ finding authority.48 However, the Appellate Body will undertake review to determine whether a panel’s factual findings resulted from an objective assessment of the matter before it. The Appellate Body finds error under Article 11 where a panel has exceeded the ‘bounds’ of its discretion to assess the matter objectively.49 In reviewing whether a panel has acted consistently with Article 11, the Appellate Body has set out the requirements inherent in an ‘objective’ assessment. Panels must base their findings on evidence in the record;50 provide coherent and consistent reasoning that can be reconciled with the evidence;51 treat similar evidence in an even-​ handed manner;52 and ensure due process is respected.53 Failure to do so is grounds for finding error under Article 11. Of course, the panel’s role is not confined to making factual findings. The panel also interprets the relevant provisions of the covered agreements; and applies its interpretation to the facts at hand. These are not factual findings, but legal findings. They are subject to appeal, not under Article 11, but under the legal provision that the panel is interpreting/​applying. In sum, there are three possible grounds of error on which a panel’s findings can be appealed: an error under Article 11 (concerning the panel’s assessment of the facts); an error regarding the application of the law to the facts (under the relevant provision of the covered agreements); and an error regarding the interpretation of the law (also under the relevant provision of the covered agreements). In practice, it is not always easy to draw a line between factual and legal findings. Take a much-​contested example: the meaning of municipal law. The Appellate Body has explained that the meaning of municipal law is to be established as a matter of fact, using

47 

The Appellate Body may only complete the analysis where there are existing factual findings from the Panel allowing it to do so. The Appellate Body cannot fill ‘gaps’ in the factual findings, even if the consequence is that the dispute is not resolved. See Appellate Body Report, Canada –​Autos, adopted 19 June 2000, para 133. 48   See Appellate Body Report, EC and certain member States –​Large Civil Aircraft, adopted 1 June 2011, para 881; Appellate Body Report, US –​Wheat Gluten, adopted 19 January 2001, para 151. 49  Appellate Body Report, US –​Wheat Gluten, adopted 19 January 2001, para 151. 50  See Appellate Body Report, Brazil –​Retreaded Tyres, adopted 17 January 2007, para 151; Appellate Body Report, EC and certain Member States –​Large Civil Aircraft, adopted 1 June 2011, para 1317. 51  See Appellate Body Report, US –​Upland Cotton (Article 21.5 –​Brazil), adopted 20 June 2008, para 292; Appellate Body Report, Argentina –​Import Measures, adopted 26 January 2015, fn 543; Appellate Body Report, EC and certain member States –​Large Civil Aircraft, adopted 1 June 2011, para 894. 52  See Appellate Body Report, US –​Upland Cotton (Article 21.5 –​Brazil), adopted 20 June 2008, para 292; Appellate Body Report, Argentina –​Import Measures, adopted 26 January 2015, fn 543. 53  See Appellate Body Report, US –​Gambling, adopted 20 April 2005, para 273; Appellate Body Report, Thailand –​Cigarettes, adopted 15 July 2011, para 150.

Stakeholders in International Trade Law Dispute Settlement    1031 evidence.54 But, a panel’s enquiry into municipal law does not end with establishing its meaning as a matter of fact. The panel must also characterize municipal law as a matter of WTO law. In other words, while the meaning of municipal law is determined by a panel as a matter of fact, the significance of that municipal law under the WTO covered agreements is a legal question. Thus, a panel’s finding that, for example, a municipal legal instrument grants a ‘prohibited subsidy’ entails both factual findings (the factual content of the instrument); and legal findings (whether the instrument falls under Articles 1 and 3 of the SCM Agreement). An error in establishing the factual content of the measure would be subject to review under Article 11 only; whereas an error in the legal characterization of the measure would be subject to review under Article 3 of the SCM Agreement. This distinction can be consequential—​under Article 11, the Appellate Body affords greater deference to a panel’s findings, than it does to findings involving the legal characterization of a measure under a given provision of the covered agreements. In practice, it can be difficult to untangle whether a given finding is strictly one of fact, or instead of law. As the Appellate Body has explained, ‘we recognize that the boundary between an issue that is purely factual and one that involves mixed issues of law and fact is often difficult to draw’.55 Some controversy has grown up around this point, with commentators accusing the Appellate Body of expanding the scope of its review of panel findings, by improperly conflating ‘purely factual’ issues with legal issues. In the authors’ view, the hand-​ wringing on this point is somewhat overwrought. Many—​if not most—​legal systems have a process of appellate review of first-​instance decisions. Within these systems, the scope of appellate review is often limited to the initial decision-​makers’ errors of law; but, errors of fact of sufficient severity can amount to errors of law. This inevitably requires the appellate adjudicator to identify the ‘line’ at which a ‘purely factual’ issue becomes a legal issue. Different legal systems draw this ‘line’ in different places.56 But, a common theme is that there will inevitably be grey areas between fact and law, where reasonable minds can differ. In the authors’ view, the Appellate Body generally provides coherent reasoning explaining why it considers a particular issue is a legal one (i.e., relating to the interpretation and application of the covered agreements) versus a factual one. In making legal findings, a panel is not legally required to follow interpretations adopted by the Appellate Body. At the same time, Article 3.2 of the DSU provides that the dispute settlement system ‘is a central element in providing security and predictability to the multilateral trading system’. Given this, both panels and the Appellate Body have explained that Members have ‘legitimate expectations’ that, going forward, 54 

See Appellate Body Report, US –​Carbon Steel (India), adopted 19 December 2014, para 4.445, citing Appellate Body Report, India –​Patents (US), adopted 16 January 1998, para 66. 55  Appellate Body Report, US –​Upland Cotton (Article 21.5 –​Brazil), adopted 20 June 2008, para 385. 56  See, e.g., Associated Provincial Picture Houses, Limited v Wednesbury Corporation [1948] 1 KB 223, 231; see also C-​486/​15 P France and Orange v Commission, EU:C:2016:912, para 98 and the case-​law cited.

1032    Katherine Connolly and Todd Friedbacher the same treaty provisions will be interpreted in the same way as in previously adopted panel and Appellate Body reports.57 Thus, while there is no formal doctrine of stare decisis in WTO law, in practice a working norm has developed in which panels routinely refer to, and rely on, prior jurisprudence to confirm conclusions reached following the application of the rules of treaty interpretation. It is also commonplace in the course of litigation for the parties to cite existing jurisprudence liberally in support of their legal arguments. For the vast majority of disputes, this practice occurs without controversy, and indeed contributes to the strength of the WTO dispute settlement system. The practice also does not compromise the key function of panels, which is to act with independence in making their own objective assessment of the matter before it. A cursory review of reports shows that panels do not follow jurisprudence mechanistically, but thoughtfully, and with accompanying reasoning.58 As one Member put it, ‘the suggestion that each case stands on its own and should be decided without regard to the recommendations and rulings of the Dispute Settlement Body in other cases would deny the major achievement of a coherent body of WTO case-​law’.59 In recent years, however, certain Members have criticized what has been described as ‘the Appellate Body’s insistence that its reports must serve as precedent “absent cogent reasons” ’.60 In the authors’ view, these criticisms are misdirected. Disputes in which panels’ reliance on (or rejection of) ‘precedent’ has been controversial are limited to a few ‘hot-​button’ issues: for example, the permissibility of ‘zeroing’ under the Anti-​ Dumping Agreement; or, the definition of a ‘public body’ under the SCM Agreement. These are issues on which there are rifts in the Membership itself as to what the substantive content of the rules should be in the first place. They go deeper than the dispute settlement system and will not be resolved by attempts to redesign the respective roles of WTO adjudicators, including through, for example, attempts to identify the precise boundaries of ‘cogent reasons’ for departing from existing jurisprudence. Ultimately,

57  See

Appellate Body Report, Japan –​Alcoholic Beverages II, adopted 1 November 1996, para 108; Appellate Body Report, US –​Shrimp (Article 21.5 –​Malaysia), adopted 21 November 2001, para 109; Panel Report, India –​Patents (US), adopted 16 January 1998, para 7.30. 58  See, e.g., Panel Report, EU –​Biodiesel (Indonesia), adopted 28 February 2018, para 7.32; Panel Report, Canada –​Welded Pipe, adopted 25 January 2017, para 7.7–​7.37; Panel Report, US –​Countervailing and Anti-​Dumping Measures (China), adopted 22 July 2014, paras 7.369–​7.630; Panel Report, Thailand –​ Cigarettes (Article 21.5 –​Philippines II), circulated 12 July 2019, paras 7.441–​7.449 (the Panel Report remains unadopted; Thailand appealed on 9 January 2019, and the division handling the appeal suspended its work on 10 December 2019); Panel Report, EU –​Footwear (China), adopted 22 February 2012, paras 6.4–​6.5, 7.22–​7.24, and 7.82–​7.83. See also Panel Report, Indonesia –​Iron or Steel Products, adopted 27 August 2018, para 7.30; Panel Report, Peru –​Agricultural Products, adopted 31 July 2015, para 6.8. 59  Appellate Body Report, US –​Softwood Lumber V, adopted 31 August 2004, para 110. 60 Statements by the United States at the Meeting of the WTO Dispute Settlement Body, (18 December 2019), at < https://​gen​eva.usmiss​ion.gov/​wp-​cont​ent/​uplo​ads/​sites/​290/​Dec18.DSB_​.Stmt_​ .as-​deliv.fin_​.pub​lic-​1.pdf > (last visited 7 September 2021) at 10.

Stakeholders in International Trade Law Dispute Settlement    1033 responsibility for the resolution of these issues are in the hands of the Membership, not the adjudicators.

B. The Appellate Body The Appellate Body was established by Article 17 of the DSU. Article 17.1 provides that the Appellate Body ‘shall be composed of seven persons, three of whom shall serve on any one case’. Appellate Body Members (ABMs) ‘shall comprise persons of recognised authority, with demonstrated expertise in law, international trade and the subject matter of the covered agreements generally’. Unlike panellists, ABMs ‘shall be unaffiliated with any government’. ABMs must also be ‘broadly representative of membership in the WTO’. Article 17.2 provides that ‘the DSB shall appoint persons to serve on the Appellate Body for a four-​year term, and each person may be reappointed once’. This brings us, of course, to the elephant in the room: the blockage of appointments by the United States. To briefly recap, in recent years, the United States has blocked appointments to the Appellate Body, with the result that, as of the date of writing, there are no remaining ABMs. As a result, the Appellate Body is now unable to hear appeals. Different solutions to the situation have been floated by the Membership. One much-​ discussed idea is the use of the arbitration process provided for under Article 25 of the DSU, as a temporary avenue to ensure the availability of appeals of panel reports.61 Article 25 is drafted so as to allow considerable flexibility; if the parties agreed, appellate proceedings could be largely replicated, and binding on the parties, including through recourse to Articles 21 and 22 of the DSU. In March 2020, a group of frequent users of dispute settlement announced the Multiparty Interim Appeal Arbitration Agreement (MPIA). To date, the participating Members are: Australia, Brazil, Benin, Canada, China, Chile, Colombia, Costa Rica, Ecuador, the EU, Guatemala, Hong Kong (China), Iceland, Macao (China), Mexico, Montenegro, New Zealand, Nicaragua, Norway, Pakistan, Peru, Singapore, Switzerland, Ukraine and Uruguay. Pending reform and the restoration of a functioning Appellate Body, the participating Members have agreed that, in disputes among themselves, they will appeal to a standing arbitrator appointed under Article 25, rather than to the Appellate Body. The Agreement provides that the arbitrator will, in essence, follow the Appellate Body’s usual procedures. This is a welcome development, showing the continued commitment from important WTO Members to the resolution of international trade disputes by independent adjudication under the rule of law. The United States has provided various reasons for blocking the nomination of new Appellate Body Members. They range from the somewhat anodyne and procedural 61  See, e.g, S. Anderson, T. Friedbacher, N. Lockhart et al., ‘Using arbitration under Article 25 of the DSU to ensure the availability of appeals’, at < https://​rep​osit​ory.gradua​tein​stit​ute.ch/​rec​ord/​295​745?ln=​ en > (last visited 7 September 2021).

1034    Katherine Connolly and Todd Friedbacher (Appellate Body Members’ improper reliance on ‘Rule 15’ to complete work on outstanding appeals;62 and failure to complete reports within 90 days63), to substantial legal issues (use of ‘precedent’; and the treatment of municipal law).64 These reasons are not always internally consistent; for example, concerns over queues caused by a failure to adhere to the 90-​day rule (‘not enough Appellate Body’) seem to run counter to concerns over Rule 15 (‘too much Appellate Body’). At its heart, however, the United States’ grievance is most frequently described as one of Appellate Body ‘overreach’ or ‘gap filling’.65 The Appellate Body is tasked with interpreting the text of the covered agreements. For the Appellate Body, therefore, the overarching question is relatively simple: what is the proper interpretation of a given word or provision of the treaty? Under Article 3.2 of the DSU, the proper interpretation results from applying the rules of treaty interpretation contained in Articles 31–​33 of the VCLT. By adhering strictly to the rules of treaty interpretation, the Appellate Body avoids creating law, or in other words, adding to, or diminishing, the rights and obligations contained in the covered agreements, as required by Articles 3.2 and 19.2 of the DSU. Members identified the rules of treaty interpretation as the ‘rules of the road’ for discerning the meaning of a given word or provision precisely to avoid ‘overreach’ or ‘gap filling’. Loyal application of the rules of treaty interpretation results, not in illegitimate gap filling, but instead in the proper interpretation of the word or provision at issue. Nonetheless, some Members object to the interpretive exercise in circumstances in which they believe the negotiators left the covered agreements ambiguous or incomplete. In such circumstances, those Members consider that application of the rules of treaty interpretation to the words on the page involves filling ‘gaps’ left intentionally unfilled by the negotiators. Caught up in these criticisms are complaints of ‘overreach’ in answering questions considered unnecessary to the resolution of a given dispute, in reviewing the objectivity of panels’ findings of facts, and in examining panels’ characterizations of domestic law.

62 The

Appellate Body has developed Working Procedures for Appellate Review. Rule 15 of these Working Procedures provides that: ‘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 continue to be a Member of the Appellate Body’. 63  Article 17.5 of the DSU provides that ‘as a general rule, the proceedings shall not exceed 60 days from the date a party to the dispute formally notifies its decision to appeal to the date the Appellate body circulates its report’. 64 See 2018 Trade Policy Agenda, Chapter 1: The President’s Trade Policy Agenda, at < https://​ustr. gov/​sites/​defa​ult/​files/​files/​Press/​Repo​rts/​2018/​AR/​2018%20Ann​ual%20Rep​ort%20FI​NAL.PDF > (last visited 7 September 2021). 65  See, e.g, ‘U.S. continues Appellate Body block, reiterates concerns’, Inside US Trade (25 February 2019); T. Payosova, G.C. Hufbauer and J.J. Schott, ‘The Dispute Settlement Crisis in the World Trade Organization: Causes and Cures’ Peterson Institute for International Economics, March 2018; E. Fabry and E. Tate, ‘Saving the WTO Appellate Body or Returning to the Wild West of Trade?’ Jacques Delors Institute Policy Paper, 7 June 2018.

Stakeholders in International Trade Law Dispute Settlement    1035 A full reckoning with these criticisms is outside the scope of this chapter. Ultimately, however, they raise a question about the proper role of adjudicators within the confines of the tools made available to them: specifically, when does an adjudicator overstep his or her judicial function? In the authors’ view, much of the debate surrounding this issue in the context of WTO dispute settlement has become rather sterile and circular. What a commentator may describe as ‘judicial activism’, or ‘gap filling’, an adjudicator will simply describe as the necessary execution of its task, which is to interpret the treaty provision on its terms. In WTO dispute settlement, as in any judicial system governed by the rule of law, adjudicators are tasked with deciding the question put to them by the parties. Article 3.7 of the DSU, for example, calls upon WTO adjudicators to assist in finding a ‘positive solution’ to each dispute, including through loyal application of the rules of treaty interpretation.

V.  The Secretariat The WTO Secretariat consists of around 625 staff and is tasked with providing ‘top-​ quality, independent support to WTO Member governments on all of the activities that are carried out by the Organization, and to serve the WTO with professionalism, impartiality and integrity’.66 Under Article 27.1 of the DSU, ‘the Secretariat shall have the responsibility of assisting panels, especially on the legal, historical and procedural aspects of the matters dealt with, and of providing secretarial and technical support’. Practically, this includes assisting in the preparation and drafting of reports. Secretariat staff involved in dispute settlement are located under three separate umbrellas within the Organization. The first two—​the Rules Division and the Legal Affairs Division, both part of the WTO Secretariat—​assist in panel proceedings. Specifically, the Rules Division assists in disputes under the ‘trade remedies’ agreements (i.e., the Anti-​ Dumping Agreement, the SCM Agreement and the Safeguards Agreement), whereas the Legal Affairs Division assists in disputes under the remaining covered agreements. However, in practice this division is applied flexibly; for example, in times when one division is particularly busy, lawyers from the other division will step in and take on, or assist in, cases that would ordinarily not be assigned to them. The third ‘Division’ is the Appellate Body, which has its own dedicated Secretariat, under Article 17.7 of the DSU. Secretariat staff from other speciality divisions may also assist as and when needed, for example in disputes requiring particular subject-​matter expertise (e.g., intellectual property, agriculture, services, etc.). Any system in which adjudicators receive ‘behind the scenes’ support from permanently appointed staff will inevitably raise questions as to their respective roles. Indeed,

66 

See ‘Overview of the Secretariat’, at (last visited 7 September 2021).

1036    Katherine Connolly and Todd Friedbacher we explore this question more fully in the next section, when discussing the due process implications of Secretariat experts’ involvement in dispute settlement. But, as one commentator put it, in principle ‘there is nothing strange or exceptional’ about secretariat/​adjudicator support: in a number of jurisdictions, including the Court of Justice of the European Union and the French Cours de Casssation, and many other final instance courts, adjudicators are also substantively assisted by anonymous, permanently-​ appointed civil servants.67 One recent paper has taken particular aim at the WTO Secretariat for an allegedly outsized role in dispute settlement. The paper argues that the Secretariat’s assistance in (among others) drafting reports ‘may have an impact on substantive outcomes’, including ‘an increased (some would say excessive) reliance on precedent’, and ‘expansive scope and ambition of rulings’.68 The Pauwelyn and Pelc paper concludes that the Secretariat’s ‘influence’ over dispute settlement has ‘consequences’ which ‘overlap with the very US concerns that are now threatening to sink the [Appellate Body]’.69 The paper suggests that ‘correcting ‘overreach’ may require ‘a reduced role for the Secretariat’.70 Others take a different approach; as one former Director of the Legal Affairs Division explained: [Secretariat staff] are loyal to the WTO and its objectives, one of those being high quality dispute settlement without any preference for any Member. Being such a civil servant means that you have to be worried about consistency between panels among themselves (something I was constantly worried about when serving as LAD director in order to avoid the impression that like cases were not treated alike) and between panels and the Appellate Body (for the obvious reasons of hierarchy). It means that you have to be elaborate in explaining the reasons for a certain outcome of the report and that you want to err on the safe side in your reasoning so that the party that loses will fully understand why.71

From this perspective, the Secretariat’s role is a feature, not a bug, of the system. Most FTAs do not provide for a permanent Secretariat like that of the WTO; in this respect, the WTO Secretariat is a key source of institutional knowledge and continuity; there is no denying its impact over time. To ensure proper balance and accountability, however,

67   See P.J. Kuijper, ‘Some Remarks on ‘Who writes the Rulings of the World Trade Organization? A Critical Assessment of the Role of the Secretariat in WTO Dispute Settlement’ by Joost Pauwelyn and Krysztof J. Pelc”, Blogpost Worldtradelaw.net (2019), at < https://​ielp.worldt​rade​law.net/​2019/​10/​guest-​ post-​some-​rema​rks-​on-​who-​wri​tes-​the-​ruli​ngs-​of-​the-​world-​trade-​organ​izat​ion-​a-​criti​cal-​asse​ssm. html?utm​_​sou​rce=​fee​dbur​ner&utm​_​med​ium=​feed&utm_​c​ampa​ign=​Feed%3A+​ielpb​log+​%28In​tern​ atio​nal+​Econo​mic+​Law+​and+​Pol​icy+​Blog%29 > (last visited 5 August 2021). 68  J. Pauwelyn and J. Pelc, ‘Who Writes the Rulings of the World Trade Organization? A Critical Assessment of the Role of the Secretariat in WTO Dispute Settlement’ (26 September 2019), at (last visited 7 September 2021). 69 Ibid. 70 Ibid. 71  See Kuijper, above fn 70.

Stakeholders in International Trade Law Dispute Settlement    1037 the lines of authority and accountability must remain unambiguously clear—​it is the responsibility of the DSB-​appointed adjudicator to ‘call the shots’. To the extent there is a perception that it is the Secretariat, and not the adjudicator, that is calling the shots, it is problematic, and the Membership should remain alert to such concerns. At the end of the day, any discontent with the ‘substantive content’ of reports must be directed at the adjudicators, and is ultimately the responsibility of the Members, via the DSB.

VI. Experts The final group of stakeholders we address are experts.72 As trade disputes increasingly involve more complex, technical, and scientific issues, expertise is often essential to enable parties to make their cases, as well as to guide panels in making an objective assessment of the matter before them. Experts are, therefore, an important although often overlooked stakeholder. There are three possible categories of experts in WTO dispute settlement: panel-​appointed experts, party-​appointed experts, and in-​house experts (from the Secretariat). We discuss each type in turn.

A. Panel-​appointed experts Article 13 of the DSU gives panels the authority to ‘seek information and technical advice from any individual or body which it deems appropriate’. This provides broad authority to a panel to appoint experts on any subject matter, under any type of dispute. In practice, however, Panels only appoint experts under the SPS Agreement; very rarely have experts been appointed in disputes under other covered agreements.73 We begin, therefore, with a brief explanation of the typical procedures in an SPS case. Early in an SPS dispute, a panel will request the parties’ views on whether experts should be appointed and, if so, how many experts, and covering which areas of expertise. Taking into account the parties’ comments, if the panel determines experts are necessary, it will contact relevant international organizations to solicit a list of potential individuals. The panel will then forward an initial list of experts, with accompanying information (curriculum vitae, publication lists etc.) to the parties for comment.

72  The

authors note our recent publication on evidence in WTO dispute settlement; this chapter draws on that paper’s discussion of expert evidence. See K. Connolly, D. Coppens, T. Friedbacher and N. Lockhart, ‘Evidence in WTO Dispute Settlement: From the Burden of Proof to Invisible Experts’ in M. Tulio Molina Tejeda (ed), Practical Aspects of WTO Litigation (Alphen aan den Rijn: Kluwer Law International, 2020). 73  The Panel in US –​Shrimp appointed experts to assist in making factual findings concerning the link between shrimp fishing and sea turtle drownings. See Panel Report, US –​Shrimp, adopted 6 November 1998, para 5.5ff.

1038    Katherine Connolly and Todd Friedbacher Like the adjudicators, panel-​appointed experts are subject to the WTO’s Rules of Conduct, which require that they be ‘independent and impartial’ and avoid ‘direct or indirect conflicts of interest’. These are concrete obligations and can affect the outcome of a dispute. For example, in US –​Continued Suspension, the panel was tasked with assessing the WTO-​consistency of a risk assessment prepared, in part, by the Joint FAO/​WHO Export Committee on Food Additives (JECFA), a scientific committee administered jointly by the World Health Organization and the Food and Agriculture Organization.74 The JECFA’s work was ‘at the centre of the dispute’ between the parties.75 However, two of the panel-​appointed experts had ‘close institutional links with JECFA’ and were ‘directly involved in the JECFA’s evaluation’.76 On appeal, the Appellate Body found that the experts were not sufficiently independent, and the panel could not ‘ensure impartiality and cannot be said to ensure fairness in the consultations with the experts’.77 Once experts are appointed, a panel’s working procedures will provide for both written and oral consultation. At the written stage, experts respond to an extensive list of questions issued by the panel, with contributions from the parties. Experts are expected to comment on the parties’ existing evidence, rather than provide additional evidence of their own. Each party is able to comment on the experts’ responses in writing. At the oral stage, the panel conducts a ‘joint meeting’ of the parties and the experts, at which the experts respond further to questions, and can address the parties’ comments on their written responses. The panel then moderates an extensive discussion at a meeting with the experts and the parties, with back-​and-​forth exchanges between the panel, the parties, and the experts. The panel, again with contributions from the parties, can pose written follow-​up questions. This is a highly effective way for an adjudicator to understand and digest complex scientific evidence while still respecting the parties’ due process rights. Indeed, the WTO’s SPS case procedures have been described as ‘best practice’ amongst international tribunals in engaging with expertise in dispute settlement.78 In the authors’ view, however, there is no good rationale for the marked absence of similar engagement in disputes other than those under the SPS Agreement and in trade disputes under FTAs. Undoubtedly, there is a need for expertise in disputes arising under the SPS Agreement, as such disputes raise complex scientific and technical questions. But the SPS Agreement is far from unique in this respect; disputes under other agreements frequently invoke similarly complex questions—​including econometric analysis—​which is beyond the expertise of the panel. In cases like these, adjudicators perform their own roles most effectively when they transparently seek expert assistance.

74 

Appellate Body Report, US –​Continued Suspension, adopted 14 November 2008, para 458.

75 Ibid. 76 

Ibid., at paras 459–​460. Ibid., at para 469. 78  Pulp Mills on the River Uruguay (Argentina v Uruguay), Joint Dissenting Opinion of Judges Al-​ Khasawneh and Simma, (2010) ICJ Rep 108 (at 115). 77 

Stakeholders in International Trade Law Dispute Settlement    1039

B. Party-​appointed experts Parties in WTO dispute settlement are entitled to appoint experts to give evidence on whatever topic they consider appropriate. When disputes involve scientific or other complex, technical issues, testimony from party-​appointed experts can be a crucial, often necessary, means of making a party’s case. At times, however, panels, the Secretariat, and commentators seem to be sceptical of the independence and objectivity of party experts.79 While healthy scepticism is appropriate and warranted for any form of party-​submitted evidence, the authors would caution against reflexively dismissing expert testimony merely because it is submitted by a party. In practice, the appropriate weight given to an expert’s evidence depends on the expert’s reputation and relevant expertise, as well as the relevance of the issues addressed to the disposition of the dispute. In the authors’ experience, a well-​qualified expert attaches great importance to his or her own professional reputation, built over a career, and is unwilling to sacrifice that reputation in presenting expert testimony. Experts will, for example, insist on their independence and objectivity and are, therefore, unwilling to adopt positions with which they disagree. The key when faced with party experts is, in our view, active testing of the evidence, through panel/​expert engagement. A panel can, for example, pose written or oral questions to the expert (just like an SPS panel-​appointed expert); or even appoint an expert of its own, to facilitate engagement. A panel cannot, however, be ‘agnostic’ towards a party’s expert evidence because it feels it cannot, on its own, resolve difficult technical questions.80 This would amount to failing to engage with a party’s evidence, in violation of Article 11 of the DSU.

C. In-​house experts Our final topic connects back to the role of the Secretariat. It is not unusual for panels to rely on assistance from the WTO Secretariat, to evaluate the parties’ evidence and argument. This includes individuals from, for example, economic specialists, or specialists from the Trade in Services or Intellectual Property, Government Procurement and Competition Divisions. These experts can be a very useful resource in helping panels digest complex evidence. In disputes where panel-​appointed experts are involved, in-​ house experts could also play a valuable role in assisting the panel in its selection of and engagement with experts.

79  J.

Pauwelyn, ‘The Use of Experts in WTO Dispute settlement’ 51 International and Comparative Law Quarterly (2002) 325, at 340–​342 (‘even if [party-​appointed experts] are presented as “neutrals”, it is difficult not to see them as “hired guns” ’). 80  See Appellate Body Report, US –​Upland Cotton (Article 21.5 –​Brazil), adopted 20 June 2008, para 357.

1040    Katherine Connolly and Todd Friedbacher That said, there are good reasons for adjudicators to exercise caution in relying on in-​ house experts. Information provided to the panel by in-​house experts is not disclosed to the parties, and does not become part of the panel record. Indeed, because such in-​house experts are not formally appointed by the tribunal, and are unknown to the parties, they are sometimes called ‘phantom’, ‘invisible’, or ‘ghost’ experts.81 Two judges of the International Court of Justice have warned against that Court’s practice of relying on ‘invisible experts’ in complex cases, and the same considerations apply to WTO panels: [Reliance on ‘invisible’ experts] deprive[s]‌the Court of the . . . advantages of transparency, openness, procedural fairness, and the ability for the Parties to comment upon or otherwise assist the Court in understanding the evidence before it. These are concerns based not purely on abstract principle, but on the good administration of justice.82

This is not to say that WTO adjudicators should avoid relying on in-​house experts altogether; they remain a valuable resource. There should, however, be clear procedures in place. In-​house experts should not, for example, be used to adduce their own evidence—​in contrast to party-​appointed experts. In-​house experts are most useful in helping panels digest complex evidence, or explaining and evaluating evidence. Within the confines of this role, panels must ensure due process interests are served. For example, if in-​house experts identify a perceived shortcoming in a parties’ case, the parties should be asked a question on this issue. Otherwise—​as is often the case in existing practice—​panels simply do not disclose whether recourse to in-​house experts has been made; the identity of any experts with whom the panel has consulted; or, the weight given to the experts’ views. This makes it impossible for the parties to know if the experts have verified the evidence in an even-​handed manner, or made the case for either party, in violation of Article 11 of the DSU.

VII. Conclusion It is clear, in sum, that there is a diversity of stakeholders participating in international trade dispute settlement. Each participates in dispute settlement in a different way, for different reasons, and each makes its own contribution to the effective functioning of the various systems. Member states are the most obvious users of dispute settlement functions, as these are the entities that participate as parties. At the same time, industry necessarily plays an important, albeit background role. Adjudicators also a play a key

81  See e.g., J. G. Devaney, Fact Finding Before the International Court of Justice (Cambridge: Cambridge University Press, 2016), 220; Pulp Mills Case, above fn 83, Joint Dissenting Opinion of Judges Al-​Khasawneh and Simma, at 115. 82  Above fn 83.

Stakeholders in International Trade Law Dispute Settlement    1041 role, as the individuals that carry out the independent and impartial review of the cases before them that is crucial to the resolution of disputes based on the international rule of law. And, in the context of the WTO especially, the Secretariat is an important source of long-​term institutional knowledge to assist adjudicators; it is important, though, to be mindful that the adjudicator, rather than the Secretariat, is both responsible and accountable for decision-​making. Finally, as international trade disputes become increasingly complex and technical, experts also have an increasingly important role to play in assisting all stakeholders—​parties as well as adjudicators—​in present and digesting complex evidence.

Further reading Baetens (ed), Legitimacy of Unseen Actors in International Adjudication (Cambridge: Cambridge University Press, 2019) J. Hillman, ‘Three Approaches to Fixing the World Trade Organization’s Appellate Body: The Good, The Bad and the Ugly?’ Georgetown University Law Center Institute of International Economic Law, 2018 at < https://​www.law.geo​rget​own.edu/​wp-​cont​ent/​uplo​ads/​2018/​12/​ Hillman-​Good-​Bad-​Ugly-​Fix-​to-​WTO-​AB.pdf > M. Molina-​Tejeda (ed), Practical Aspects of WTO Litigation (Alphen aan den Rijn: Kluwer Law International, 2020) I. de la Rasilla. ‘The Turn to the History of International Adjudication’ in I. de la Rasilla and J.E. Viñuales (eds), Experiments in International Adjudication—​Historical Accounts (Cambridge: Cambridge University Press, 2019) 32–​52 X, ‘Special Issue on Experts in the International Adjudicative Process’ 9(3) Journal of International Dispute Settlement (2018) 339–​553 F.

Chapter 40

Alternativ e Di spu t e Set tlement i n t h e G AT T and th e W TO Amy Porges *

I. Introduction II. Alternative to what? III. The GATT background A. ADR in the GATT 1947 era IV. ADR in the Uruguay Round and the WTO Agreement A. ADR under WTO rules B. ADR and non-​panel settlement of WTO disputes in practice C. Filling the post-​2019 gap V. Conclusion: The path not taken? A. The record of the past B. What makes an ADR process a success? C. And the MPIA?

1042 1043 1045 1046 1050 1051 1053 1057 1061 1061 1061 1062

I. Introduction Most analyses of WTO dispute settlement focus on formal disputes, characterizing the ideal as binding adjudication of rights. But GATT and WTO Members’ revealed

*  The

author thanks Sergio Puig, Scott Andersen, Rufus Yerxa, and Secretariat officials and others interviewed who preferred to remain anonymous.

Alternative Dispute Settlement in the GATT and the WTO    1043 preferences show two separate trends. These governments first improvised a method to settle trade disputes, then sought more formality and more structure, ultimately agreeing on the rules in the WTO Dispute Settlement Understanding (DSU). But they also saw the need for alternative paths for dispute resolution. This chapter discusses what these alternatives were and are, and how they have employed ‘alternative dispute resolution’ (ADR) methods such as arbitration, mediation, good offices, conciliation, and structured negotiation. ADR in the form of negotiation is built into WTO dispute settlement. Governments bring formal WTO disputes after negotiation has failed to settle a dispute on mutually agreeable terms, and they litigate to improve the terms of settlement. After the litigation ends, they negotiate to determine the outcome, as the WTO cannot compel its Members to act. The WTO now faces a new challenge, with the Appellate Body’s dormancy since December 2019. Members have responded through another alternative, the new Multi-​ Party Interim Appeal Arbitration Arrangement (MPIA); they may also take their trade disputes to other fora. This chapter discusses these trends and their potential.

II.  Alternative to what? The ADR idea first arose in the United States, where the norm is trial in court even though trials are rare.1 Judges, litigators and scholars in the United States urged use of ADR for reasons also worth consideration in international dispute settlement. First, mediation and arbitration can save time and costs in resolving disputes in a domestic setting, and the same should be true in the WTO, particularly since the WTO provides no compensation for damage caused by illegal trade barriers before or during dispute settlement. The time and cost of WTO litigation has steadily escalated since the 1990s. The time between WTO panel establishment and circulation of the panel report now averages 556 days and increases every year;2 legal fees may reach $1.5–​$2 million per case.3 It is natural for governments and stakeholders to want to get to the outcome faster if they can. Negotiation and mediation also offer domestic litigants greater flexibility, more party control, and solutions based on mutual accommodation of interests. Public 1  L. Amsler, J. Martinez and S. Smith, Dispute System Design: Preventing, Managing and Resolving Conflict (Stanford: Stanford University Press, 2020), 9, at fn 13, and 336 (noting how few US disputes go to trial). 2  Table on timing of establishment, composition, issuance and circulation of WTO panel reports, at < https://​WorldT​rade​Law.net > (last visited 16 May 2022). 3  Interview, November 2021; see also conservative 2008 $500,000 estimate in H. Nordstrom and G. Shaffer, ‘Access to Justice in the WTO: A Case for a Small Claims Procedure?’ 7 World Trade Review (2008) 587. Most WTO disputes still cost much less than ISDS disputes (average cost $8 million, peak $30 million: see Chapter 32 of this handbook).

1044   Amy Porges interest lawyers praised ADR as a path for ‘solving problems rather than winning cases’: addressing issues head-​on through negotiation, instead of scoring a win in ‘impact litigation’ followed by changes not useful for the stakeholders.4 Susan Franck points out that mediation of investment treaty disputes can allow the parties to take control of the process. If a State is concerned about jurisprudence limiting its policy space, it can use mediation to focus on mutually acceptable outcomes; parties can use mediation ‘as a way of avoiding substantive legal outcomes with which they disagree.’5 Means of dispute resolution that are ‘alternative’ in a domestic context are firmly in the mainstream in international dispute settlement. Article 33 of the UN Charter lists a range of peaceful means of settlement of disputes: ‘negotiation, enquiry, mediation, conciliation, arbitration, judicial settlement, resort to regional agencies or arrangements, or other peaceful means of [a party’s] own choice.’ Negotiation, the most common form of resolving differences, gives the disputing parties maximum control over outcomes. Negotiations may take place in an established bilateral channel, in a plurilateral group, at summits, on the side of a formal dispute settlement process or anywhere that the parties choose. Negotiation, mediation, conciliation or good offices do not necessarily require a solution based on rule application and the fact that they do not generate legal precedents may make them particularly attractive.6 In mediation or conciliation, the parties voluntarily involve a third party to help unblock a negotiation or facilitate an agreement. In mediation, the third party can participate in negotiations and make proposals for solution, typically based on information the parties have supplied. When parties do not pre-​commit to accept these proposals, they retain control over the outcome, but the mediator’s involvement can let the parties accept a face-​saving compromise and give them an additional exit strategy from the dispute.7 The third party may simply shuttle between the parties, assist communication and facilitate efforts at solution—​referred to as good offices. Or the third party may be asked to investigate independently and provide formal proposals for solution to the parties: this is conciliation. Arbitration is the most formal of alternatives to litigation. It is an alternative in the sense that the parties choose the rules of procedure, the applicable law and the arbitrators. The terms of reference are agreed in advance in a written compromis. Referral of a dispute to arbitration involves commitment not to unilaterally withdraw from the procedure, and consent to be bound by the arbitrators’ award.

4 C.

Menkel-​ Meadows, ‘Introduction: What Will We Do When Adjudication Ends? A Brief Intellectual History of ADR’ 44 UCLA Law Review (1997) 1613, at 1614–​1615. 5 S. Franck, ‘Using Investor-​ State Mediation Rules to Promote Conflict Management’ 29 ICSID Review (2014) 66, at 78–​79. 6  P. Behrens, ‘Alternative Methods of Dispute Settlement in International Economic Relations’ in E.U. Petersmann (ed), Adjudication of Disputes in International and Economic Law (Fribourg: University Press 1992), at 26–​27. 7  J.G. Merrills, International Dispute Settlement, 2nd edition (Cambridge: Grotius, 1991), at 27–​28.

Alternative Dispute Settlement in the GATT and the WTO    1045 In an enquiry or fact-​finding process, the disputing parties agree to accept a determination regarding disputed facts by a neutral third party or commission. The fact-​finding process must be based on agreed terms of reference; the output is limited to a statement of facts and is not a determination of law.8

III.  The GATT background Resolution of disputes in GATT 1947 began as an informal process, founded on Article XXIII consultations and referral to the collective membership for examination, recommendations and/​or rulings. Decisions were made by positive consensus and could be vetoed by any contracting party.9 The process was not considered as judicial or ‘court-​like’. Article XXII also provided for bilateral consultations ‘with respect to any matter affecting the operation of this Agreement’, even without any legal claim.10 These consultations could also provide the basis for a panel request.11 Initially, disputes were referred to working parties—​described by Robert Hudec as negotiating bodies that included the principal interested parties—​which could involve face-​to-​face bargaining, and in which ‘the essential target is always agreement among the principals’.12 Beginning in the 1950s, the bodies handling disputes were limited to neutrals and labeled as panels. Negotiation remained present in the background. Before circulating its report, a panel consulted with the parties to identify changes that would facilitate its acceptance.13 Creation of the GATT Legal Affairs Division in 1982 led to greater formal consistency, but the positive consensus rule remained. Panels focused on phrasing legally correct decisions in a manner that would provide the losing party with an exit strategy from non-​compliance.14 In the 1980s, frustration with the panel process increased. GATT disputes were fast and inexpensive by 2021 standards but delays and blocking of panel reports were seen as a serious problem.15 8 

Behrens, above fn 6, at 19–​22. See Chapter 2 of this handbook. 10  Until 1957, Article XXII mentioned a range of specific border and behind-​the-​border measures. See GATT Analytical Index, at 621, at < https://​www.wto.org/​engl​ish/​res_​e/​pub​lica​tion​s_​e/​ai1​7_​e/​gat​t199​4_​ e.htm > (last visited November 2021). 11  GATT Analytical Index, above fn 10, at 617. 12  R. Hudec, The GATT Legal System and World Trade Diplomacy (New York: Praeger, 1975), at 69. The format of a working party report persisted in GATT panel reports and (in dilute form) in WTO panel reports. 13  Ibid., at 77. 14 A. Porges, ‘The Legal Affairs Division and Law in the GATT and the Uruguay Round’ in G. Marceau (ed), A History of Law and Lawyers in the GATT and WTO (Cambridge: Cambridge University Press, 2015), 227. 15  See recollections by A. Stoler, ‘The WTO Dispute Settlement Process: Did the Negotiators Get What they Wanted?’ 3 World Trade Review (2004), 99–​118. 9 

1046   Amy Porges The Uruguay Round participants then agreed to further formalize dispute settlement. They did so because the major users of the system agreed that informality did not deliver the results they needed. The new DSU rules nevertheless built in a place for ADR, and WTO Members have improvised more non-​DSU ADR as they needed.

A. ADR in the GATT 1947 era Multi-​party consultations: Beginning in the 1950s, the GATT membership created additional channels to address trade conflicts: they added Article XXII:2 in 1955,16 opened up Article XXII consultations in 1957, and created other dispute settlement fora. Opening up Article XXII: In late 1957, the GATT came to a standstill over the Treaty establishing the European Economic Community (EEC). The EEC raised MFN tariffs while eliminating tariffs on most imports from its member states’ preferential partners—​a costly result for Latin, Commonwealth, and other MFN suppliers. The membership was riven.17 The solution was to provide a forum by opening Article XXII consultations. A GATT decision required Article XXII consultation requests to be notified to all; allowed other contracting parties with a ‘substantial trade interest’ to ask to participate; and required the consulting parties to tell the Secretariat about the outcome.18 The first plurilateral consultations focused on the effect of Part IV of the Treaty on trade in six tropical products and two metals.19 In the Uruguay Round, negotiators folded these procedures into Article 4.11 of the DSU, under which this practice continues today.20 Article XXXVII: Article XXXVII:2 of the GATT permits any Member to report to the GATT membership that another Member is failing to give effect to specific policies opening markets for developing countries; the membership may then consult with the party concerned. No such consultations have ever been held.21 The 1966 Procedures: In the mid-​1960s, Brazil and Uruguay were frustrated by the persistence of developed-​country import restrictions affecting their exports. They sought—​ unsuccessfully—​GATT dispute settlement help, a GATT prosecutor for developing country complaints, financial compensation for violations, and collective retaliation as 16 

Added in 1955 and used only a few times, see GATT Analytical Index, above fn 10 at 618–​619 and 621–​622. 17  G. Patterson, Discrimination in World Trade, the Policy Issues 1945–​1965 (Princeton: Princeton Univ. Press, 1966), at 233–​243; GATT, ‘The Treaties Establishing the European Economic Community and the European Atomic Energy Community’ BISD 6S/​68-​109 (1958), IC/​SR.38, L/​822 and Add.1 (1958). 18  ‘Procedures under Article XXII on Questions Affecting the Interests of a Number of Contracting Parties’, adopted 10 November 1958, BISD 7S/​24 (1959). 19  Bananas, tobacco, sugar, cocoa, coffee, tea, lead and zinc, aluminum (bauxite/​alumina/​metal). See list of Article XXII consultations 1958–​1994 in GATT Analytical Index, above fn 10, at 623–​628. 20  103 Article XXII consultations were notified under the GATT 1947. After the early 1960s, in most cases there was no notified request for joinder in consultations. 21  GATT Analytical Index, above fn 10, at 1065 (status as of 1996); no WTO documents reference such consultations. This consultation function has not been allocated to any WTO body.

Alternative Dispute Settlement in the GATT and the WTO    1047 a last resort. In 1966, the membership agreed to adopt procedures for good offices by the Director-​General coupled with expedited dispute settlement.22 These ‘1966 Procedures’ let a developing country refer a complaint against a developed country to the good offices of the Director-​General, who would consult to promote a mutually acceptable solution. If no settlement emerged within two months, either side could request the Director-​General to report on the good offices; this report would trigger appointment of a panel, to report in 60 days with findings and recommendations. The decision’s addressee was required to report back in 90 days on the actions it had taken to comply. Failure to comply in full could lead to authorization of suspension of concessions against the non-​complying party.23 Developing countries requested good offices under the 1966 Procedures six times between 1978 and 1993.24 Expedited panel procedures were invoked only once, in February 1993, in a dispute over EEC Member States’ banana import regimes.25 Later GATT decisions on dispute settlement in 1979 and 198926 cross-​referenced the 1966 Procedures. Article 3.12 of the DSU also cross-​references them, to give developing countries the option of a 60-​day panel procedure.27 Good offices, mediation, conciliation: Emerging from a period of anti-​legalism, the GATT launched the Tokyo Round. According to Hudec, the negotiators sought to improve rule compliance but they worried that ‘wrong cases’ could weaken GATT as an institution. ‘Wrong cases’ included enforcement of GATT rules that no longer matched actual practice, and disputes that overtaxed what panels could do and/​or resulted in non-​compliance flowing from domestic pressures.28 The 1979 Understanding on 22  Report

of Committee on Trade and Development, ‘Decision on Procedures to be followed in consultations between a less-​developed and a developed contracting party’, BISD 14S/​129, 140–​141, 143–​ 144, adopted 5 April 1966. 23 Ibid. 24  (i) Chile, on EEC refunds on exports of malted barley, C/​M/​125 (30 May 1978). (ii) India, on Japan import quotas on leather, settled in Secretariat-​initiated consultations 1980 (L/​5623, 2 March 1984, para 38). (iii) Mexico, on US Superfund taxes, L/​6114 (27 January 1987), complaint consolidated with EEC and Canada complaints in single panel report. (iv) Brazil, on US Section 301 tariffs in 1987, L/​6274/​Add.1 (23 December 1987). (v) Colombia, Costa Rica, Guatemala, Nicaragua and Venezuela, on EEC member state import restrictions on bananas, DS32/​3 (29 September 1992); good offices requested 21 September 1992, conducted until December 1992 by Ake Lindén of Secretariat, suspended until 15 January 1993 for consultations on settlement, reconvened 14 January–​10 February 1993; C/​M/​261 (12 March 1993), 34–​49. (vi) Brazil, on US textile import restrictions imposed contrary to Textile Surveillance Body recommendations, C/​M/​261 (12 March 1993), 11–​16, C/​M/​262 (8 April 1993), 5–​6. 25  See DS32/​4 (8 February 1993), C/​M/​261 (12 March 1993), DS32/​R (unadopted panel report dated 3 June 1993); panel report was submitted within the 60-​day deadline. 26  Understanding on Notification, Consultation, Dispute Settlement and Surveillance, 28 November 1979, GATT BISD 26S/​ 210 (1979 Understanding), Annex, para 2; Decision on Improvements to the GATT Dispute Settlement Rules and Procedures, 12 April 1989, GATT BISD 36S/​ 61 (1989 Improvements), para 4. 27  In 1993, Mexico pushed for including the 1966 Procedures in the DSU and prevailed by assembling a developing country coalition. 28  R. Hudec, ‘GATT Dispute Settlement After the Tokyo Round: An Unfinished Business’ 13 Cornell International Law Journal (1980) 145. Hudec listed as ‘inoperative’ (and widely violated), agricultural

1048   Amy Porges dispute settlement that emerged from the Tokyo Round promoted access to panel-​based dispute settlement, but (in Hudec’s analysis) also communicated that ‘the primary objective of the dispute-​settlement procedure is to resolve disputes, not to have impressive lawsuits.’29 The 1979 Understanding included procedures on good offices, mediation and conciliation. If a dispute were not resolved through consultations, the ‘contracting parties concerned’ could ‘request an appropriate body or individual to use their good offices with a view to the conciliation of the outstanding differences between the parties’. A developing country complainant could request the good offices of the Director-​ General and the Chairs of the principal GATT bodies.30 In July 1982, when the United States sought a panel for its claim against EEC trade preferences for Mediterranean citrus, the Mediterranean beneficiaries used the 1979 Understanding to ask for good offices by the Director-​General and conciliation between the United States and EEC. The Director-​General reported back that he had met with the parties and proposed a basis for negotiations, but good offices were unsuccessful; the panel went forward.31 Informal Secretariat good offices happened often in the GATT, to resolve blocking of panel establishment. Trade rounds relied on mediation by chairs such as Julio Lacarte, chair of the Uruguay Round Institutions Group.32 As another example, the European Economic Community and Japan used conciliation by the Secretariat in 1987–​88 to address a dispute over trade in copper concentrates. Responding to their request, the Director-​General appointed a conciliator (ex-​Deputy Director-​General Gardner Patterson) and hired a copper market expert. Patterson’s Good Offices Report found that Japan had not violated its GATT obligations, but there was a commercial problem that affected EEC smelters. He advised that the parties resolve the dispute by negotiating an MFN cut in Japan’s refined copper tariff in the Uruguay Round.33 Surveillance: The Multi-​ Fibre Arrangement agreed in 1973 included a Textiles Surveillance Body (TSB) chaired by a senior Secretariat official. The TSB supervised textile trade on a standing basis, and made recommendations, observations or findings on bilateral negotiations, textile agreements, and the MFA. Its eight members interacted repeatedly including on their own governments’ actions. The TSB was balanced between

import restrictions, Article XIX, and MFN. His list of ‘too big’ wrong cases included the Uruguayan Recourse of 1961 and the GATT cases on income tax rules. 29 

Ibid., at 177. 1979 Understanding, above fn 26, para 8. 31  C/​M/​160 (24 September 1982), at 17–​23; C/​M/​161 (29 October 1982), at 6–​9; C/​M/​162 (19 November 1982), at 12–​15. On this dispute, see R. Hudec, Enforcing International Trade Law: The Evolution of the Modern GATT Legal System (Oxford: Butterworth, 1993), at 157–​161. 32  See J. Odell, ‘Chairing a WTO Negotiation’ 8 Journal of International Economic Law (2005) 425 with many examples, including Lacarte’s 1993 compromise on the WTO amendment and waiver provisions. 33  L/​6456, BISD 36S/​199-​202 (1989). 30 

Alternative Dispute Settlement in the GATT and the WTO    1049 importers, exporters and geographic areas.34 Hudec described it as functioning in textile disputes as ‘conciliator, honest broker, conveyor of community political sentiment, or legal authority. Its task is simply to settle the dispute in a satisfactory manner. When the TSB speaks, the authority behind its words is a mixture of all the political, legal, and personal leverage its members possess.’35 The Tokyo Round negotiators considered the surveillance body model for the Tokyo Round codes, but in the end they chose to use ad hoc panels. They borrowed from the 1966 Procedures, with time limits, for the Code panel procedures. Each of the Codes also required that any panel request would have to be preceded by a conciliation meeting of the Code committee.36 Arbitration: The parties to the GATT also used arbitration for a few tariff disputes, notably the ‘chicken war’ of 1963. When the European Economic Community applied variable levies on poultry imports after withdrawal of prior tariff bindings, the United States sought compensatory tariff cuts, then announced a list of counter-​ withdrawals under GATT Article XXVIII:3. Amid front-​ page headlines on trade war, the United States offered to submit the amounts to arbitration with the European Economic Community. An arbitration panel chaired by Director-​General Wyndham-​White provided a compromise advisory ruling to the parties in under one month, both sides accepted it, and the United States then followed the ruling in its tariff withdrawals.37 Another arbitration dealt with EEC tariffs on wheat. The European Economic Community had withdrawn member state tariff bindings for ‘quality wheat’ and ‘ordinary wheat’ in 1962 and concluded two agreements with Canada. Nearly 30 years later, Canada sought to know its rights to compensation under Article XXVIII and those agreements. Canada and the European Economic Community invoked arbitration procedures in 1989 (see below) and chose Gardner Patterson as their arbitrator. Patterson’s brief award found that Canada still had rights in respect of quality wheat but had relinquished its rights in respect of ordinary wheat through prolonged silence.38

34  G.H. Perlow, ‘The Multilateral Supervision of International Trade: Has the Textiles Experiment Worked’ 75 American Journal of International Law (1981) 93; N. Blokker, International Regulation of World Trade in Textiles (Dordrecht: Nijhoff, 1989), at 194–​211. 35  Hudec, above fn 28, at 168. 36  Ibid., at 170. 37 L/​ 2088 (21 November 1963), ‘Panel on Poultry’; L/​2092 (12 December 1963), US list of tariff concessions suspended; G. Daleiden, ‘Agricultural Policy and the Import of Poultry-​Meat from the United States’ 1 Common Market Law Rev (1963-​64) 339. See separately C/​M/​225 (19 October 1988), record of Secretariat advisory opinion on tariff concessions on wet salted cod. 38  ‘Canada/​European Communities: Article XXVIII Rights, Award by the Arbitrator’ (1990), DS12/​R, BISD 37S/​80.

1050   Amy Porges

IV.  ADR in the Uruguay Round and the WTO Agreement The Uruguay Round negotiations on dispute settlement began with considerable interest in providing alternative settlement methods as part of new dispute settlement rules. ADR was attractive for those who stressed the diplomatic elements of dispute settlement. It was also attractive for those who sought faster, more effective dispute settlement, because ADR could shortcut blocking and foot-​dragging in GATT disputes. Early proposals called for an enhanced mediation role for the Director-​General or designee; for mediation or good offices as a voluntary option for disputants; for mediation that would provide special and differential assistance to developing countries; and even for compulsory conciliation.39 Formalizing access to arbitration was also popular. Multiple proposals suggested arbitration as an alternative to the panel process which might go forward without GATT Council approval, or could be subject to Council supervision to safeguard the rights of third parties. A Secretariat note explored arbitration in general public international law, discussing the arbitration agreement between the parties, arbitrator selection, terms of reference, governing law, and effect of the award.40 In 1987–​88, the negotiating group on dispute settlement quickly converged on points with wide support, including improvements in panel procedures, as well as provisions on arbitration, good offices, conciliation and mediation. These were included in a decision on Improvements to the GATT Dispute Settlement Rules and Procedures, adopted in April 1989 as part of an Uruguay Round ‘early harvest’. The ADR provisions later became Articles 5 and 25 of the DSU.41 Article 5 of the DSU provides for good offices, conciliation and mediation as voluntary procedures undertaken if the parties to the dispute agree, at any time during the dispute including during the panel process. Article 5.6 authorizes the Director-​General to offer good offices, conciliation or mediation ex officio. Article 24.2 adds that in cases involving a least-​developed country Member (as a complaining or defending party), if an LDC requests, the Director-​General or the DSB Chair must offer good offices, 39   See, e.g., MTN,GNG/​NG13/​2 (15 July 1987) and MTN.GNG/​NG13/​W/​6 (25 June 1987) (United States: Director-​General mediation); MTN.GNG/​NG13/​W/​10 (18 September 1987), MTN.GNG/​NG13/​ W/​13 (24 September 1987), MTN/​GNG/​NG13/​W/​12 (24 September 1987) (Nordics, Canada, European Economic Community: optional mediation); MTN.GNG/​NG13/​8 (5 July 1988) and MTN.GNG/​NG13/​ W/​26 (23 June 1988) (Mexico: option for active mediation with S&DT); MTN.GNG/​NG13/​W/​11 (24 September 1987) (Australia: compulsory conciliation). 40 See MTN.GNG/​ NG13/​W/​20, Secretariat note, “Concept, Forms and Effects of Arbitration”, 22 February 1988 (also summarizing proposals). 41  1989 Improvements, above fn 26. Article 24:2 of the DSU was added later. On the dispute settlement negotiations, see J. Croome, Reshaping the World Trading System: A History of the Uruguay Round (Geneva: WTO, 1995), at 147–​154 (on 1987–​88), 262–​267 and 284 (1988–​1990), 320–​327, 333–​334 (1991–​ 92), 358–​361 (late 1993).

Alternative Dispute Settlement in the GATT and the WTO    1051 conciliation and mediation to help the parties settle the dispute before a panel request. The negotiators rejected compulsory conciliation, to avoid adding time to the panel process. Article 25 was the DSU’s largest step toward ADR, however, because it establishes arbitration as a direct alternative to other DSU proceedings and makes awards enforceable through Articles 21 and 22 of the DSU. Arbitration is triggered by the parties with no multilateral DSB decision required. The text of Article 25 gives the disputing parties the power to define by agreement what their dispute is, who will arbitrate, what procedures will be used, and what the governing law will be. The only limitation on an Article 25 arbitration is in DSU Article 3.5: ‘All solutions to matters formally raised under the consultation and dispute settlement provisions of the covered agreements, including arbitration awards, shall be consistent with those agreements and shall not nullify or impair benefits accruing to any Member under those agreements . . .’.42 As discussed below, Article 25 has become the vehicle for the MPIA; it could also be used for disputes regarding tariff renegotiation, like arbitration under Article XXI of the GATS. The negotiators of the Agreement on Textiles and Clothing and the Agreement on Preshipment Inspection also agreed on separate dispute mechanisms for those agreements.

A. ADR under WTO rules Good offices and mediation: As of late 2021, no Member has formally invoked DSU Article 5, even though the Director-​General proposed procedures in 2001 to operationalize Article 5.43 Mediation and settlement negotiations have taken place through other channels, as discussed below. The Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement) calls on its administering Committee to ‘encourage and facilitate ad hoc consultations or negotiations among Members’ on specific SPS issues. The Committee adopted procedures for such consultations in 2014, which have not yet been used.44 The Committee and its counterpart Committee on Technical Barriers to Trade each have an active docket of Specific Trade Concerns (STCs) concerning Members’ SPS or TBT measures. This chapter does not examine these STCs, or the large literature on STCs, due to lack of space.

42 

Emphasis added. See WTO, Article 5 of the Dispute Settlement Understanding –​Communication from the Director-​ General, WT/​DSB/​25 (17 July 2001) (noting non-​use, proposing procedures). 44  Procedure to Encourage and Facilitate the Resolution of Specific Sanitary or Phytosanitary Issues Among Members in Accordance with Article 12.2, G/​SPS/​61, adopted 9 July 2014; annual reports show no use yet as of 12 November 2021. 43 

1052   Amy Porges Arbitration: The only completed Article 25 arbitration as of mid-​2022 took place in US –​Section 110(5) Copyright Act (Article 25). A panel decision had found the US law inconsistent with the TRIPS Agreement. The parties agreed to arbitration to determine the level of nullification or impairment of EU interests. They agreed that the award would be final and that they would accept it also for purposes of Article 22.6 of the DSU. The arbitrators provided their award to the parties in 60 days.45 Fact-​finding: Panel practice concerning the use of experts could be analogized to an ADR fact-​finding process.46 Whenever a panel has consulted experts, it has used them as fact-​finders and has not asked experts to rule on legal issues. Other ADR: The WTO Agreement on Textiles and Clothing phased out textile restrictions and expired on 1 January 2005. The ATC established the Textiles Monitoring Body (TMB), a ten-​member standing surveillance body to review and issue recommendations on textile restraints and agreements. The TMB operated like the former TSB, but excluded disputing parties from its consensus decisions.47 The TMB supervised compliance with its recommendations and could demand explanations; dissatisfied parties could and did take their disputes to DSU proceedings. As called for by the Agreement on Preshipment Inspection, the Council on Trade in Goods established an Independent Entity (IE) to settle disputes between exporters and preshipment inspection entities. Since it handles disputes between private parties, not between governments, the IE presented unusual problems for the WTO.48 The IE handled two independent review procedures in 2005–​06,49 and none since then.50

45 

US –​Section 110(5) Copyright Act, WT/​DS160/​15 (arbitration agreement, 23 July 2001); US –​Section 110(5) Copyright Act (Article 25), WT/​DS160/​ARB25/​1 (award, 9 November 2001). After the European Union invoked Article 22.2 and the United States invoked Article 22.6, the US government later made a lump-​sum payment covering a three-​year period, equal to the amount determined by the arbitrator times three, to a fund set up by European performing rights societies for general assistance to their members and promotion of authors’ rights. WT/​DS160/​23 (26 June 2003). 46  Behrens, above fn 6. 47  Article 8 of the Agreement on Textiles and Clothing. 48  Operation of the Independent Entity Established under Article 4 of the Agreement on Preshipment Inspection, decision of 13 December 1995, WT/​L/​125/​Rev.1. See also Secretariat background notes on IE-​ related issues, PC/​IPL/​W/​8 (4 October 1994) and G/​PSI/​W/​1 (20 July 1995). Roster of experts, G/​PSI/​IE/​ 1/​Rev.1 (26 April 1997). 49  Both disputes were brought by Alcatel CIT against Société Générale de Surveillance concerning preshipment review of a mobile telephony tender in Mauritania. The 2005 review took 31 days and concluded with a settlement: Independent Review Procedure (PSI/​ IE/​ 2005/​ 1) –​Decision of the Panel, G/​PSI/​IE/​R/​1 (2 November 2005). The 2006 review concerned customs valuation of the goods concerned. The Panel applied the Customs Valuation Agreement to the facts at issue and ruled in 39 days: Independent Review Procedure (PSI/​IE/​2006/​1) –​Decision of the Panel, G/​PSI/​IE/​R/​2 (14 November 2006). 50  PSI is a diminishing issue. As of 2022, only two countries still use PSI for customs purposes (Somalia, Uzbekistan): G/​VAL/​W/​63/​Rev.28 (6 May 2022).

Alternative Dispute Settlement in the GATT and the WTO    1053

B. ADR and non-​panel settlement of WTO disputes in practice Governments have settled WTO disputes informally throughout the WTO period: during the consultation process, during panel composition, during panel proceedings before51 or after52 the interim panel report, after a panel or Appellate Body report,53 during an Article 21.5 proceeding,54 or after authorization to suspend concessions.55 In 2021, the parties to the long-​running disputes on subsidies to large civil aircraft reached a settlement after exhausting all WTO litigation possibilities. Settlement is the moment at which governments and stakeholders identify the outcome that matches their interests, all things considered. What cash or symbolic value do governments and stakeholders place on a legal win, including future use of a win’s consequences? Will the stakeholder be better off with rule compliance, or with a compromise outcome that provides better or faster market access? What market access will compliance produce and when? Has the commercial context changed since the original complaint? Each settlement has a different story. Some settlements consist of a complaining party abandoning its claims—​because the underlying facts have changed, the measure no longer exists, the legal arguments no longer look solid, the legal arguments would conflict with defensive interests, or the complaint has lost commercial relevance and the stakeholder has lost interest.56

1. Brazil/​Canada Aircraft—​a failed mediation In June 1996, Canada brought a WTO complaint concerning Brazil’s Proex export finance subsidies for Embraer regional aircraft and in March 1997, Brazil brought its own complaint concerning Canadian subsidies to competing Bombardier aircraft. During a January 1998 visit to Brazil, Canadian Prime Minister Chrétien committed to attempt settlement of these disputes through mediation. Brazil appointed Prof. Luiz Olavo Baptista, and Canada appointed ex-​trade minister Marc Lalonde.57 In May 1998 the mediators agreed on a six-​page proposal for the governments to negotiate an agreement

51  See, e.g., Japan –​Quotas on Laver; US –​Anti-​Dumping Measures on Cement; Korea –​Bovine Meat (Canada); Canada –​Aircraft (Brazil); Canada –​Wine (Australia); China –​Intellectual Property Rights II. 52  See, e.g., EC –​Scallops (Canada); EC –​Scallops (Peru and Chile); EC –​Butter; EU –​Price Comparison Methodologies. 53  See, e.g., EC –​Approval and Marketing of Biotech Products; US –​Clove Cigarettes; US –​Shrimp (Viet Nam); EU –​Poultry Meat (China). 54  See, e.g., US –​DRAMS (antidumping order revoked in sunset review); Japan –​DRAMS (Korea); Russia –​Pigs (Article 21.5). 55  See, e.g., US –​Upland Cotton; EC –​Hormones (Canada). 56  A. Porges, ‘Settling WTO Disputes: What do Litigation Models Tell Us?’ 19 Ohio State Journal of Dispute Resolution (2003) 141, at fn 83. 57 ‘Canada, Brazil plan talks on aerospace dispute’ Reuters (16 January 1998); ‘Canadian special envoy to analyse commercial dispute’ Reuters (31 January 1998). Prof. Baptista later served on the Appellate Body.

1054   Amy Porges to follow WTO and OECD subsidies rules, with annual consultations and an independent monitor. The proposal leaked and accusations flew back and forth. Each side argued that its own subsidies were legal, and the other’s were illegal and larger. Embraer admitted it continued using Proex subsidies, but the Canadian side asserted Brazil had agreed informally to stop.58 The governments then negotiated directly. Brazil rejected a nine-​point Canadian proposal; Brazil refused to roll back its ProEx export financing on hundreds of back orders, and Bombardier refused to consider repaying C$500 million in Canadian government funding. On 9 July 1998, the talks broke down entirely and both sides submitted their panel requests at the WTO.59 This mediation began with a major asset: commitment at the highest level to settling the complaint, to advance larger objectives including a Canada-​MERCOSUR trade agreement. But in a successful mediation, the parties need to be focused on their interests, not on vindicating legal claims. That did not happen. The two rival stakeholders continued to insist on pursuing WTO litigation as a better alternative to negotiated settlement.60 Each continued to fight for aircraft sales, backed by its government. Because the WTO could not undo contracts won with subsidies, there was no incentive to settle.

2. Philippines/​Thai/​EC Tuna tariffs—​a successful mediation but outside DSU Article 5 In 2002–​03, the only successful WTO mediation to date settled a dispute by the Philippines and Thailand on EC preferential tariffs on canned tuna. Factors that converged for success included the complainants’ use of leverage to obtain EC commitment to mediation; skill and hard work by the Secretariat mediator and his staff; the Commission’s goodwill efforts to promptly implement the solution increasing the complainants’ market access; and above all, the fact that the problem was necessarily framed not in terms of legal rights but as a question of impairment of interests. The dispute arose from the EC-​ACP Cotonou Agreement, which made ACP-​origin canned tuna duty-​free, with Thai or Philippine tuna subject to a high MFN tariff. In 2001, Thailand held up a WTO waiver for the Agreement until the European Communities agreed to consult on undue impairment of Thailand’s legitimate interests, and if there were no settlement, to engage in mediation.61 Thailand, the Philippines and the EC then 58  ‘Bilateral treaty urged’ The Globe and Mail (8 May 1998); ‘Mediators urge Canada aviation change’ Financial Times (26 May 1998); ‘Stikeman, Elliott -​Statement by the two envoys’ Canada NewsWire (27 May 1998); ‘Brazil aerospace firm admits to subsidies’ The Globe and Mail (28 May 1998); ‘Noise levels rise as Canada and Brazil seek aircraft peace’ Financial Times (29 May 1998). 59  ‘Canada and Brazil take dogfight to WTO’ Financial Post (11 July 1998). 60  According to Brazilian press reports, Brazil’s mediator advised the government and Embraer that the Proex subsidies were WTO-​consistent: see ‘Disputa entre Embraer e Bombardier pode ir à OMC’ Jornal do Commércio do Rio de Janeiro (16 April 1998). 61  Communication from Thailand, G/​C/​W/​344 (27 November 2001) (text of European Commission agreement to consultations to be completed by 30 April 2002 and mediation ‘as provided under Article 5 of the WTO’s DSU’).

Alternative Dispute Settlement in the GATT and the WTO    1055 consulted and requested mediation. On 10 October 2002, Director-​General Supachai accepted and appointed Deputy Director-​General Rufus Yerxa to mediate. The terms of reference framed the mediation as adjustment of interests: to examine undue impairment to the legitimate interests of the Philippines and Thailand caused by EC preferential tariff treatment for ACP canned tuna, and to consider means by which any such undue impairment might be addressed.62 Thailand and the Philippines had no legal right to a less-​than-​MFN tariff, and the waiver eliminated any possibility of an MFN-​based legal claim. They needed a non-​rights-​based process that was based on finding an equitable outcome. Neither side could improve its position by litigating; they had to mediate. The mediator then listened to the parties, and assisted them to understand their options and interests. This job was easier because it was non-​zero-​sum in nature, and scalable: to determine the interests of the parties in terms of market access, and to propose a tariff rate that would provide the level of market access desired.63 The mediation was completed on 20 December 2002. On 5 June 2003 the European Community adopted a regulation implementing the proposed solution: a tariff-​rate quota for non-​preferential imports of tuna at an in-​quota duty rate of 12 per cent.64

3. The end of the Banana Wars: solving problems through arbitration, mediation and negotiation The European Community and trading partners also successfully used arbitration and mediation to resolve the long-​standing dispute on discriminatory access to the EC market for bananas. In the wake of the WTO ‘Bananas III’ litigation, the WTO authorized the United States and Ecuador to suspend concessions against the European Community. In April 2001, the European Community agreed separately with Ecuador and the United States, that the EC banana regime would become a tariff-​only system by 1 January 2006, and in return, the United States and Ecuador would refrain from retaliation and would unblock a WTO waiver for the Cotonou Agreement.65 The Cotonou waiver provided any MFN banana supplier to the European Community a right to arbitration concerning whether a proposed new EC tariff on bananas would maintain MFN banana suppliers’ market access.66 The parties then exhausted their arbitration and litigation options. In 2005, the European Union proposed a MFN tariff, Latin exporters requested arbitration, and the Director-​General appointed arbitrators, who determined that the proposed tariff would 62  Request for Mediation by Philippines, Thailand and the European Communities, WT/​GC/​66 (16 October 2002). 63  Interviews with Secretariat staff concerned. 64 Council Regulation (EC) No. 975/​ 2003 of 5 June 2003 opening and providing for the administration of a tariff quota for imports of canned tuna covered by CN codes 1604 14 11, 1604 14 18 and 1604 20 70, 2003 OJ L 141, p. 1; 99 % of this TRQ was allocated to Thailand, the Philippines, and Indonesia based on past imports. 65  Notification of Mutually Agreed Solution, WT/​DS27/​58 (2 July 2001). 66  EC –​The ACP-​EC Partnership Agreement (Annex), WT/​MIN(01)/​15 (14 November 2001).

1056   Amy Porges decrease MFN market access.67 After the arbitrators again rejected a second EU proposal,68 the European Union implemented a lower MFN tariff plus ACP duty-​free TRQ, and the waiver was suspended.69 In 2006–​07, Norwegian Foreign Minister Jonas Store, appointed as a facilitator, conducted an 18-​month good offices process. Meanwhile, Ecuador and the United States pursued Article 21.5 proceedings to a panel and an appeal, completed in November 2008. In March and June 2007, Colombia and Panama again requested consultations on the new EC banana import regime, to obtain good offices under the 1966 Procedures as incorporated by Article 3.12 of the DSU.70 In late 2007, Colombia and Panama referred the matter to Director-​General Lamy for his good offices in facilitating a solution. Colombia wanted a high-​level intermediary to get the EC to the negotiating table, as litigation had failed to deliver compliance or market access.71 From then until July 2008, Lamy or his Secretariat representative72 held six formal meetings in the good offices processes and many other formal and informal meetings with other WTO groups concerned with the banana issue.73 The Secretariat tabled a series of options for an EC tariff, then a final proposal for a banana agreement, but after a majority of the MFN suppliers rejected it, Lamy ended the good offices process. The parties reached a tentative deal on 28 July 2008, but the European Union would not sign off due to ACP opposition.74 The talks restarted in February 2009, when the European Union re-​approached the MFN suppliers in connection with FTA negotiations. Reaching the final agreement involved juggling multiple factors: MFN tariffs, ACP and FTA preferences, Doha Round talks, and substantial EU aid to the ACP countries (conditional on cooperation with the settlement). The European Union also negotiated a separate, parallel agreement with the United States. On 15 December 2009, the European Union and eleven MFN suppliers initialed a Geneva Agreement on Trade in Bananas (GATB),75 the European Union and United States initialed their bilateral agreement, the EU, ACP and MFN suppliers signed letters

67 Arbitrators:

ex-​Canadian ambassador John Weekes (chair), ex-​Appellate Body members John Lockhart and Yasuhei Taniguchi. ‘WTO Director-​General Appoints Three Arbitrator Panel in Banana Fight’ Inside US Trade (6 May 2005). Arbitration award rejecting first EC proposed banana tariff, WT/​L/​ 616 (1 August 2005). 68  Arbitration award rejecting second EC proposed banana tariff regime, WT/​ L/​ 625 (27 October 2005). 69  E. Guth, ‘The End of the Bananas Saga’ 46 Journal of World Trade (2012) 1. 70  EC –​Regime for the Importation of Bananas, Report by Director-​General on Good Offices, WT/​ DS361/​2 and WT/​364/​2 (22 December 2009). Colombia’s proposed settlement was rejected: Guth, above fn 66, at 9–​10. 71 ICTSD Programme on International Trade Law, ‘Practical Considerations in Managing Trade Disputes’, December 2012, at 5. 72  Gabrielle Marceau, Counsellor for Legal Affairs and member of Lamy’s cabinet. 73  Lamy report on good offices process, WT/​DS361/​2 (22 December 2009); lists meetings. 74  Guth, above fn 66, at 12–​18. 75  Geneva Agreement on Trade in Bananas, WT/​L/​784 (15 December 2009).

Alternative Dispute Settlement in the GATT and the WTO    1057 on Doha Round integration of the tariff cuts, and the European Union confirmed its aid offer to the ACP bananas coordinator. When the new EC tariff was certified in the WTO, the deal was final and the 50-​year bananas dispute was finally history.76 Litigation was essential to reaching the settlement; without it, the European Union would never have abandoned its 1994 banana regime. The arbitrations in 2005 provided objective clarity about the market access effect of tariffs, and helped move the parties toward a single-​tariff solution. Colombia’s initiative in 2006 to invoke good offices was a key turning point. Lamy devoted personal energy and staff resources to the good offices process. The European Union decided that the banana regime was a costly trade irritant, and that solving the banana issue would help build its FTA network; the result was an EU-​ACP-​MFN supplier negotiation on an exit strategy. Good offices could not deliver a solution on their own, but they provided a basis for the Commission to push forward on the final agreement.

C. Filling the post-​2019 gap WTO Members have used the ADR mechanism of arbitration as a work-​around for the DSU’s failure to anticipate what would happen if the Appellate Body ceased operations.77 The DSU text lets any disputing party appeal a panel report; precludes adoption of the report until the appeal is completed; and precludes enforcement of non-​adopted reports. With no Appellate Body, any party could appeal a panel report ‘into the void’ and cut off DSB enforcement of that report. Members have responded to the Appellate Body’s 2019 loss of quorum by bringing fewer new WTO disputes: five in 2020 and nine in 2021. Members have also responded by agreeing on an interim alternate appeals forum, the Multi-​Party Interim Appeal Arbitration Arrangement (MPIA). They have also taken disputes to other fora in free trade agreements.

1. Arbitration: the MPIA and otherwise The MPIA was announced on 27 March 2020 by 16 WTO Members, after a negotiating process of over a year,78 and formally notified to the WTO on 30 April 2020.79 As of late November 2021 it had 25 participants, and others could join at any time.80 The MPIA

76 

Guth, above fn 66, at 18–​27. See also Chapter 5 of this handbook. 78  EU Commission press release, 27 March 2020, at < https://​trade.ec.eur​opa.eu/​doc​lib/​press/​index. cfm?id=​2127 > (last visited 12 November 2021). Initial list: Australia; Brazil; Canada; China; Chile; Colombia; Costa Rica; the European Union; Guatemala; Hong Kong, China; Mexico; New Zealand; Norway; Singapore; Switzerland; and Uruguay. 79  JOB/​DSB/​1/​Add.12 (30 April 2020). 80  List as of 12 November 2021: same as above plus Benin, Ecuador, Iceland, Macao, Montenegro, Nicaragua, Pakistan, Peru, Ukraine. JOB/​ DSB/​ 1/​ Add.12/​ Suppl.7 (22 February 2021). For MPIA documents see < https://​www.worldt​rade​law.net/​sta​tic.php?type=​pub​lic&page=​dispu​tete​xts > (last visited November 2021) 77 

1058   Amy Porges consists of framework commitments regarding use of arbitration for appeals; model appeal arbitration procedures; and procedures for selecting a slate of arbitrators. The MPIA arrangement (which is not a formal agreement) commits participants to refrain from ‘appeals into the void’ in disputes with other MPIA participants,81 and instead arbitrate appeals under DSU Article 25, based on WTO appellate procedures. Appeals are to be heard by three arbitrators randomly selected from a standing list of 10.82 The participants ‘envisage’ that appeal arbitrators will be provided with a ‘support structure’ in the Secretariat, separate from Secretariat staff that support panels. The participants commit that in future disputes with each other, they will enter into appeal arbitration agreements following a standard template. The model procedures provide that a party in a panel proceeding which wants to do an appeal arbitration can ask the panel to suspend the proceedings after the panel report is final but before it is circulated. That party then files a notice of appeal. The arbitrators are selected, consider the appeal and are requested to issue the award within 90 days after the notice. The parties agree to abide by the award, which is notified to the DSB (not adopted), and may then be enforced under DSU Articles 21 and 22. The model procedures respond to past criticisms of the Appellate Body. The 90-​day deadline can only be extended by the disputing parties, not by the arbitrators. The award is to be limited to issues that were raised by the parties and that are necessary for resolution of that dispute (no obiter dicta). The arbitrators are explicitly authorized to streamline the proceedings through page limits, time limits, deadlines and limits on hearings, and they can propose exclusion of claims based on Article 11 of the DSU. The MPIA has no standing secretariat. The MPIA package does not mention ‘precedent’ at all. As of mid-​May 2022, parties had entered into MPIA appeal arbitration agreements in six disputes, of which one was settled, one withdrawn and in one, the panel report has been adopted.83 These agreements specify the arbitral procedures and governing law; they commit the parties to enter into arbitration under Article 25 to resolve any appeal, 81 

Some of the MPIA participants have already appealed at least one panel report ‘into the void’. Arbitrator list: JOB/​DSB/​1/​Add.12/​Suppl.5 (31 July 2021). 83  Agreements dated 29 May 2020: (i) Canada –​Commercial Aircraft, Canada/​Brazil (WT/​DS522/​ 20; complaint later withdrawn by Brazil, 18 February 2021); (ii) Costa Rica –​Measures Concerning the Importation of Fresh Avocados from Mexico, Costa Rica/​Mexico (WT/​DS524/​5, Panel report circulated 13 April 2022, adoped 31 May 2022); (iii) Canada –​Wine (Australia), Canada/​Australia (WT/​DS537/​ 15; dispute settled, see Panel report, WT/​DS537/​R, 25 May 2021); (iv) Agreement dated 20 April 2021: Colombia –​Frozen Fries, WT/​DS591/​3/​Rev.1, Colombia/​EU (panel report expected after 2021); (v) Agreement dated 27 July 2021: China –​AD/​CVD on Barley (Australia), Australia/​China, WT/​DS598/​ 5; (vi) Agreement notified 28 September 2021: China—​Canola Seed (Canada), Canada/​China, WT/​ DS589/​5. In five other disputes, parties have agreed or offered to arbitrate appeals without reference to the MPIA. (i) Australia –​Anti-​dumping Measures on A4 Copy Paper, Australia/​Indonesia, WT/​DS529/​ 18 (agreement on sequencing and to arbitrate appeal under Article 25 DSU if the AB is not operational); (ii) Brazil –​Taxation, Brazil/​EU, WT/​DS472/​17 (sequencing agreement stating parties will endeavour to agree to preserve right to appeal via Article 25 arbitration); (iii) US –​OCTG (Korea), Korea/​US, WT/​ DS488/​16 (sequencing agreement; commitment to amend it if parties agree to Article 25 arbitration for review of Article 21.5 panel decision); (iv) EU –​Cost Adjustment Methodologies II (Russia), WT/​DS494/​ 7 and 8 (both sides appealed into the void, EU offered to arbitrate appeal under MPIA-​type procedures) 82 

Alternative Dispute Settlement in the GATT and the WTO    1059 and provide that if neither party initiates such an appeal arbitration, the parties will be deemed to have agreed not to appeal. Henry Gao suggests that a losing party in an MPIA arbitration under such an agreement could nevertheless appeal ‘into the void’, leading the MPIA to ‘fall apart’.84 The WTO’s practical reaction to such an appeal remains to be seen. Turkey initiated the WTO’s first appeal arbitration on 25 April 2022, in the Turkey –​ Pharmaceutical Products dispute, invoking arbitration procedures agreed with the EU a month before. The WTO’s press release described this action as use of ‘an alternative means of dispute resolution foreseen by the DSU’. The arbitrators were chosen on 28 April.85 The agreed procedures are almost identical to the MPIA, though Turkey is not an MPIA party. As this is a test drive for the MPIA idea, there will be much interest in how this arbitral panel manages the case and meets its deadlines. Arbitration also features in the October 2021 EU-​US settlement regarding US Section 232 tariffs on EU steel and aluminum. The EU and US have terminated the pending WTO disputes related to their bilateral tariff measures and have replaced them with two arbitrations under DSU Article 25. The arbitrations have been suspended indefinitely, but can be resumed if a party believes the EU-​US settlement is not providing the benefits envisioned.86 Arbitration is a creature of the parties to the arbitration agreement. WTO Members using Article 25 can use MPIA or non-​MPIA procedures, or any procedures they mutually agree, to resolve the dispute as they define it. They could adopt any approach to precedent they prefer; in some types of arbitration, arbitrators consistently follow prior cases, in others they follow precedent on procedural issues but not substance, and some are in the middle.87 Because Members can agree to arbitrate and do not need DSB authorization to do so, the disputants could even agree to include issues outside the four (v) Saudi Arabia –​IPRs, WT/​DS567/​8 (after Saudi appeal, Qatar proposed appeal arbitration; appeal later suspended, dispute terminated 21 April 2022, WT/​DS567/​11). 84 

H. Gao, ‘Finding a Rule-​Based Solution to the Appellate Body Crisis: Looking Beyond the MPIA’ 24 Journal of International Economic Law (2021) 534, at 544. 85  Turkey –​Pharmaceuticals, WT/​DS583/​12 (notice of appeal disclosing complete text of panel report, 28 April 2022); WT/​DS583/​10 (arbitration procedures, 25 March 2022); ‘Turkey initiates arbitration procedure in pharmaceuticals dispute, discloses panel report’, WTO press release, 28 April 2022; WT/​ DS583/​13 (constitution of arbitrator, circulated 4 May 2022). 86   “Steel & Aluminium: EU-​US Joint Statement 31 October 2021”, text at < https://​trade.ec.eur​opa. eu/​doc​lib/​docs/​2021/​octo​ber/​tradoc​_​159​890.pdf > (last visited 16 May 2022). US –​Steel and Aluminum Products (EU): parties announce termination of dispute (WT/​DS548/​20); panel announces it has ceased work (WT/​DS548/​21), parties announce agreement to arbitrate, and request Secretariat to constitute arbitrator, upon which the arbitration will be suspended (WT/​ DS548/​ 19); Secretariat announce arbitration panel composed of same panelists as in earlier dispute (WT/​DS548/​22). EU –​Additional Duties: parallel set of documents (WT/​ DS559/​ 8, WT/​ DS559/​ 9, WT/​ DS559/​ 7, WT/​ DS559/​ 10. All documents circulated 21 January 2022. 87 G. Kaufmann-​ Kohler, ‘Arbitral Precedent: Dream, Necessity or Excuse?’ 23 Arbitration International (2007) 357 (sports and domain name arbitrators follow precedent to create consistent rules; international commercial arbitrators decide substantive issues without following precedent; investment arbitration is evolving in between).

1060   Amy Porges corners of the WTO. The only limits are those in DSU Article 3.5 and 25: the arbitration agreement must be notified to the WTO before the arbitration starts, and the parties to the arbitration must agree to abide by the results. The arbitration award must be consistent with the covered agreements, may not nullify or impair benefits to any Member under those agreements, may not impede the attainment of any objective of those agreements, and must be notified to the WTO. DSU Article 25.4 allows enforcement via DSU Articles 21 and 22 for ‘arbitration awards’, not limited to arbitration awards under Article 25 (or the MPIA).

2. Taking trade disputes to regional trade agreements Governments have also begun to take more disputes to the regional trade agreement dispute settlement mechanisms. RTA disputes have been rare in the WTO era: the WTO has been the forum of choice, and almost all RTA disputes since 1995 have concerned RTA-​specific obligations such as preferential market access.88 Moreover, the most politically difficult (and valuable) RTA concessions have often been backloaded and may not yet be binding, and RTAs seldom deal with trade remedies, the source of many WTO disputes. But RTA disputes have surged recently, with 13 RTA disputes brought by Canada, the European Union, the United States, or New Zealand since 2018.89 Many of these cases reflect interest in enforcing rights created by bilateral trade agreements, but in some cases, the use of FTA dispute settlement correlates with frustration with the state of the WTO. In December 2019, when the Appellate Body lost its quorum, the European Union responded by amending its Enforcement Regulation to reinforce bilateral trade agreement enforcement.90 The European Union’s four recent bilateral trade disputes91 include a dispute that could have been brought in the WTO, on Ukraine’s wood export ban. Canada-​US FTA disputes in 1989–​1993 provide another example of governments choosing to use the FTA forum when multilateral dispute settlement was slow or blocked. As of mid-​2023, Canada, Mexico and the US had each started at least one USMCA dispute, New Zealand had started a CPTPP dispute, and others appeared very likely. The EU’s first trade agreements enforcement report emphasized the EU’s interest in continuing ‘assertive use’ of FTA dispute settlement when needed.92

88  A. Porges, Designing Common but Differentiated Rules for Regional Trade Disputes, paper for E15 Initiative/​RTA Exchange, May 2018, at < http://​e15ini​tiat​ive.org/​publi​cati​ons/​design​ing-​com​mon-​but-​ dif​f ere​ntia​ted-​rules-​for-​regio​nal-​trade-​dispu​tes/​ > (last visited 12 November 2021). 89  See RTA dispute list, at < https://​www.porges​law.com/​rta-​dispu​tes > (last visited 16 May 2022). 90  Press release, Commission reinforces tools to ensure Europe’s interests in international trade, 12 December 2019 (with attachments), at < https://​ec.eur​opa.eu/​com​miss​ion/​pres​scor​ner/​det​ail/​en/​ip_​19_​ 6​748 > (last visited 16 May 2022). 91  See list of cases, at < https://​pol​icy.trade.ec.eur​opa.eu/​enfo​rcem​ent-​and-​pro​tect​ion/​disp​ute-​set​tlem​ ent/​bilate​ral-​disp​utes​_​en > (last visited 16 May 2022). 92  Press release, 27 October 2021, at < https://​ec.eur​opa.eu/​com​miss​ion/​pres​scor​ner/​det​ail/​en/​ip_​21_​ 5​545 > (last visited 16 May 2022).

Alternative Dispute Settlement in the GATT and the WTO    1061

V.  Conclusion: The path not taken? A. The record of the past The examples in this chapter show that the members of the GATT and the WTO have never been satisfied with limiting themselves to one method to resolve disputes. The panel-​based dispute settlement rules in the DSU came from many years of effort by multiple parties in the GATT, seeking more formality and more rule enforcement. During the same period, the same parties created plurilateral consultations under Article XXII, good offices under the 1966 Procedures, ad hoc arbitration in tariff disputes, conciliation and surveillance in the Tokyo Round Codes, and the ADR provisions in the DSU including good offices, mediation and arbitration. Members created ADR rules in the DSU, but they have seldom used them. Drafting unused rules has not been a waste, however, because Members have used them to create ad hoc procedures that addressed their problems. In resolving their dispute through alternative means, they have not felt constrained to follow Articles 5 or 25 of the DSU as written; instead, they have invented similar but different mechanisms as in the banana negotiations discussed above. The fact that parties have not used good offices under Article 5 of the DSU does not mean that the DSU needs to be revised, or that extra procedures for good offices need to be invented. If Members perceive a need, they will find a way to meet it. The MPIA, and the similar non-​MPIA arbitration brought by Turkey, are the most recent examples of Members’ response to a perceived need. With the door to Article 25 now opened, Members are free to negotiate other arbitration-​ based solutions to settle their disputes.

B. What makes an ADR process a success? The ADR literature teaches that the essence of the ADR approach is to change dispute resolution from a process focused on legal wins to a process based on adjustment of interests. To find a ‘win set’ that improves the situation of both or all disputing parties, the parties must know what their interests are. The successful mediation stories in this chapter feature mediators who were able to listen to the parties and help them achieve the fullest possible understanding of their interests in the short and long run. For the parties, the appropriate skill set for trade-​related ADR may reside in gifted negotiators and communicators, but not necessarily litigators. Also, for an ADR process to deliver an outcome that will be stable over time, each side must consult with its own significant actors and so must any mediator or neutral decision-​maker. The process needs to be driven by governments, or negotiators for governments.

1062   Amy Porges

C. And the MPIA? With the example of the nascent MPIA, ADR in the form of arbitration has come to the rescue of WTO Members that still want two-​stage review of disputes or at least that possibility. The first arbitrations will be essential to whether arbitration gains credibility as a viable work-​around and ad hoc institution. Will the arbitrators manage the claims presented to them so that they can meet deadlines? Will they be able to deliver decisions that are well-​built, relevant, grounded in commercial reality and widely respected among the membership? Will the parties support the MPIA or other arbitrators when moments of fragility arrive? The decentralized nature of the arbitration agreements facilitates improvisation and adjustment if aspects of the scheme are not working. In that sense, the MPIA or other appeal arbitration is a return to the GATT past. Will it eventually stand on its own, and provide a permanent alternative to the Appellate Body? Only time will tell.

Further reading S. Andersen et al., ‘Using Arbitration under Article 25 of the DSU to Ensure the Availability of Appeals’ Graduate Institute Geneva CTEI Working Paper CTEI-​2017-​17 (2017) R. Bilder, ‘The Role of Apology in International Law and Diplomacy’, 46 Virginia Journal of International Law and Diplomacy (2006) 433 H. Gao, ‘Finding a Rule-​Based Solution to the Appellate Body Crisis: Looking Beyond the MPIA’ 24 Journal of International Economic Law (2021) 53 R. Hudec, The GATT Legal System and World Trade Diplomacy (New York: Praeger, 1975) R. Hudec, Enforcing International Trade Law: The Evolution of the Modern GATT Legal System (Oxford: Butterworth, 1993) C. Menkel-​Meadow, ‘Introduction: What Will We Do When Adjudication Ends—​A Brief Intellectual History of ADR’, UCLA Law Review 44(6) (August 1997) 1613–​1630 S. Smith and J. Martinez, ‘An Analytic Framework for Dispute Systems Design’, 14 Harvard Negotiation Law Review (Winter 2009) 123. W. L. Ury et al., ‘Designing an Effective Dispute Resolution System’ 4(4) Negotiation Journal (1988) 413 WTO Secretariat, Analytical Index of the GATT (1996; republished online 2013)

Pa rt V I I

C ON C LU SION

Chapter 41

The Internat i ona l Tr adi ng System —​L o ok i ng to 2 10 0 Daniel Bethlehem and Donald McRae

The present volume, 14 years after the first edition, goes to press in the midst of the Russian invasion of Ukraine, a conflict that poses fundamental and likely enduring challenges to the post-​World War II rules-​based international order. It will be the task, in due course, of a third edition to evaluate if and how those challenges, and the economic responses to them have been weathered and whether the trajectory of the international trading system, as an important component of the rules-​based international order more generally, is consistent with, or has departed from, the values that informed the post-​ World War II legal order. In the midst of the conflict in Ukraine, when outcomes and consequences are still uncertain, the present volume can do no more than register the seismic shock that is being witnessed in real-​time and signal the careful evaluation that will be needed in the period to come. In this, though, it performs an important benchmark function, quite apart from the searching scholarship that will provide an elevated platform for the enquiries to come. The present volume was from the outset intended to be a critical evaluation of the many facets of the international trading system and, in some cases, proposals for reform. It is focussed on what we have, how it works, and how it may be bettered. It tracks the rapidly enlarging domain of international trade, issue interconnectedness, and multilateral economic interdependence. Valerie Hughes’ preface to the volume elegantly and succinctly draws key elements together, musing on the challenges hampering the ability of the WTO to modernize its rules ‘with the result that the WTO continues to risk waning influence, perhaps irreversibly’. The volume, a credit to its many thoughtful and expert contributors, is a snapshot from a fast-​moving train, grasping the image of a quickly receding landscape and projecting to the coming vista with the purpose of achieving a stability of purpose and of means that will, through the engine of the world trading system, carry the global community forward to common advantage.

1066    Daniel Bethlehem and Donald McRae The notion of a ‘rules-​based international order’ has for decades been the cornerstone of efforts to shape the international trading system—​broadly conceived to include not only trade in goods and services, and their associated legal framework, but also monetary and development policy, investment, and everything more that oils transnational economic interaction across sovereign boundaries. Our rules-​based international order, however, remains an accommodation to Westphalia, even as it endeavours to shrink and ameliorate the effects of segmenting national policies, to manage disputes that arise between them, and to address the challenges that are perceived, even if still debated, on the approaching horizon. The Charlevoix G7 Summit, in the Summer of 2018, shone a light onto an overlooked but relevant aspect of the debate over the rules-​based international order. The final Communique records the G7 commitment ‘to promote a rules-​based international order’—​the indefinite article ‘a’ replacing the definite article ‘the’.1 The Communique went on to record the reaffirmation of the leaders of the world’s largest economies to aspects of the existing rules-​based international order—​‘[w]‌e reaffirm our existing exchange rate commitments’; ‘[w]e will work together to enforce existing international rules . . .’—​as well as speaking of commitments to make the WTO ‘more fair as soon as possible.’ But the ‘a’, rather than the ‘the’—​for all of its purported vision of change—​felt more like disavowal than the pursuit of higher idealistic endeavours. Diplomatic communiques that follow international conferences are statements of intent, painted with a broad brush, not binding commitments. Taking it at its highest, the Charlevoix Communique, divorced from the politics of its moment, expressed laudatory commitment to a better rules-​based international order. While the gap between aspiration and outcome will often be laid at the doorstep of both over-​ambitious aspiration and under-​performing outcome, the Communique’s agenda, but for the intervening politics and the inevitable challenges of operationalizing objectives, appealed as a good script of commitment into the future. There is, however, a question lurking in the shadows that must be asked. The international trading system, a subset of the international legal order, remains in large measure as Westphalian today as it was at its mid-​1940s origins. The institutional and regulatory evolutions along the way, notably with the WTO in 1995, brought significant changes that held, and hold, great promise. But the vision of the world on which they were built was the vision of a half-​century earlier—​of Bretton Woods, of the Havana Charter and the stillborn International Trade Organisation, and of the provisional application of the GATT. The focus on tariff reduction, on monetary stability, on development (even if limited in scope), through the intermediation of inter-​governmental institutions that manage and enforce rules addressed to Member States, has changed 1 

The Charlevoix G7 Summit Communique, < https://​www.docume​ntcl​oud.org/​docume​nts/​4500​111-​ Cha​rlev​oix-​G7-​Sum​mit-​Com​muni​que-​FINAL >, at para 1 (last visited 2 February 2022). An insight into the Summit and the Communique negotiations was given by Larry Kudlow, one of the US participants, in an extended CNN interview on 10 June 2018, at < https://​edit​ion.cnn.com/​vid​eos/​polit​ics/​2018/​06/​10/​ sotu-​kud​low-​full.cnn > (last visited 2 February 2022).

The International Trading System—Looking to 2100    1067 little in the last 75 years, even as global interaction has become more complex and moved increasingly beyond the realm of nation States. In his closing address to the Bretton Woods conference in July 1944, the US Secretary of the Treasury, and President of the Conference, Henry Morgenthau, Jr., framed the conference achievements in the following words:2 The actual details of a financial and monetary agreement may seem mysterious to the general public. Yet at the heart of it lie the most elementary bread and butter realities of daily life. What we have done here in Bretton Woods is to devise machinery by which men and women everywhere can exchange freely, on a fair and stable basis, the goods which they produce through their labor . . . . . . . . . the only genuine safeguard for our national interests lies in international cooperation. We have come to recognize that the wisest and most effective way to protect our national interests is through international cooperation—​that is to say, through united effort for the attainment of common goals.

The Bretton Woods’ participants had a visionary purpose. When it came to the granular rules of international trade, however, that purpose floundered, with the Havana Charter failing to attract the necessary support. The General Agreement on Tariffs and Trade of 1947, without institutional structure and with only partial support, was left to enter into force provisionally on 1 January 1948. It was, even so, a product of the same mid-​war vision of a post-​war world in which the barriers that States had erected to the trade between their peoples would be progressively removed. States were the legislators. A liberalized multilateral trading system, for the benefit of ‘men and women everywhere’ to ‘exchange freely, on a fair and stable basis, the goods which they produce,’ was the goal. Great strides have been made since then, though not enough—​as the essays in this volume cogently attest. The question, though, is whether the architecture, and the climate within, not simply of international trade law and international economic law, but of the rules-​based international system more generally, is adequate to carry us forward for the next 75 years. The contemporary events in Ukraine accentuate and make urgent this enquiry. Is the legal and institutional framework of international trade fit for purpose to carry the international community through to the turn of the next century? Will a tinkering with the rules, or even the realization of the objectives that are now on the forward agenda, and a re-​energizing of existing institutions, see the international community safely through to 2100? In a 2014 paper by one of the present authors of this Conclusion, entitled ‘The End of Geography: The Changing Nature of the International System and the Challenge to

2 Henry Morgenthau, Jr., US Secretary of the Treasury, and President of the Bretton Woods Conference, Closing Address, July 1944, at < https://​fra​ser.stl​ouis​fed.org/​files/​docs/​his​tori​cal/​mar​tin/​ 17_​07_​1​9440​701.pdf >, at 3-​4 (last visited 2 February 2022).

1068    Daniel Bethlehem and Donald McRae International Law’,3 the question was posed whether international law is fit for purpose. One of the prisms through which this was addressed was what Thomas Friedman called the era of ‘Globalization 3.0’, namely, a period—​this moment in time—​in which the force that gives it its unique character ‘is the new-​found power for individuals to collaborate and compete globally’.4 This enquiry is equally, if not more, apposite in respect of international trade law and the international trading system. In this area, quintessentially, States have increasingly become the intermediators of private transactions rather than actors in their own right. While States are still the legislators of international trade law, they are ever less the direct focus and ultimate subjects of this globalized, and globalizing, law. Tariffs, non-​tariff barriers and other constraints on trade are the tools of States, and it is the use of these tools that is the subject of international trade law. But we are ever more distant from a mercantilist trading system, even if there remain potent examples of State actors in the economic space. The international trading system today is one in which private actors are adept at finding ways to engage across boundaries, either with the blessing of States or without it. A cogent example of this, and of the shortcomings of the mid-​war conception of the post-​war international trading system, came on 15 August 1971, with the United States’ announcement of the suspension of the convertibility of the dollar into gold.5 With this act, the United States laid to rest Article IV of the IMF Articles of Agreement, the cornerstone of the Bretton Woods monetary system that was designed to underpin the stability of the framework of international trade. Within two years, the Bretton Woods system of fixed exchange rates was gone. The United States’ decision was not driven by a strategic reappraisal of what had been agreed 27 years previously, of a considered vision of what should better take its place. It was because the government of the world’s largest economy was unable to buck the trend of market speculation. Global financial flows had found their way around the strictures of the Bretton Woods regulatory and institutional framework and had by-​passed the intervention of States. Signalling the end of Bretton Woods, the United States pressed also for ‘the necessary reforms to set up an urgently needed new international monetary system’,6 pushed not so much by a vision of the future than by the imperative to move beyond the past. And, in succumbing to the tide of private sector monetary intervention, the United States in parallel imposed a 10 per cent tax on all goods imported into the United States. Currency liberalization was paralleled by trade constraint.

3 

D. Bethlehem, ‘The End of Geography: The Changing Nature of the International System and the Challenge to International Law’ 25(1) European Journal of International Law (2014), 9–​24. 4 T.L. Friedman, The World Is Flat: The Globalized World in the Twenty-​ First Century (New York: Picador, 2005), at 10. 5  President Richard M. Nixon, Televised Public Address, 15 August 1971, at < https://​youtu.be/​iRzr​ 1QU6​K1o >; see also < https://​hist​ory.state.gov/​mil​esto​nes/​1969-​1976/​nixon-​shock > (last visited 2 February 2022). 6 Ibid.

The International Trading System—Looking to 2100    1069 The events of 1971, and their simmering causes, should give us pause when considering the global trading system today. It is less that there are parallels of detail then with what we face now, although there are some. It is more that the institutional and regulatory framework writ large, that stood at the very heart of the international financial system, came to be dramatically out of step with the realities of the market, driven by private sector speculation, and the needs of the global economy. Trade in money had to be liberalized. What was required was an arrangement that was more in tune with the market, with the cost of money, with the changing role and power of governments, with the needs of a global trading community. It is no part of this Conclusion to suggest that the current institutional or regulatory edifice of international trade should be torn down. The heavy economic storms of the past decade-​and-​a-​half, still continuing, let alone their wider causes and human cost—​the international financial crisis of 2007–​8, the global COVID pandemic in which we still find ourselves, as well as other buffeting economic winds—​have not been, and will not be, easily weathered without the harbour walls that come with a robust institutional and regulatory framework and a high degree of consensus and willingness to make them work. The anticipated systemic, regulatory and economic challenges that will follow the Russian invasion of Ukraine are bound to test, and perhaps severely so, those harbour walls. But, we must husband what we have. The shape of things to come in the longer term, though, will also require attention, today, not tomorrow, together with an informed resolve to timely action. And bigger steps require a vision that is framed beyond the trenches. There are other considerations, too, that should inform an inclination to test and rethink the international trading system. The simplified notions of comparative advantage and embedded liberalism that provided the intellectual underpinnings of the GATT 75 years ago no longer provide adequate explanation for the complexities of contemporary trade policies. Chapter 3 of this volume demonstrates that the economic rationale for international trade is much more complex than was understood in 1947. The international trading regime—​essentially, in its origins, a US–​European endeavour—​ has consistently failed to address adequately the claims of developing countries. Beyond this, the significant rise in regional and mega-​regional trading arrangements, taking such trade outside the framework of the WTO, materially diminishes the multilateral trading system even if it has the potential to deepen regional trade integration. And WTO dispute settlement, with its highly distinctive features, including the selection of panel members largely from government representatives and the increasing centrality of the WTO Secretariat at both the panel and Appellate Body levels, has become more akin to a form of international administration than to an independent adjudicatory system. True dispute settlement reform requires more than just re-​instating an appellate body. Broader strategic assessment also gives pause for thought. Amongst such assessments is the influential Global Trends 2040: A More Contested World published in March 2021 by the US National Intelligence Council,7 influential as it is likely to inform 7  Global Trends 2040: A More Contested World, U.S. National Intelligence Council, March 2021, at < https://​www.dni.gov/​files/​ODNI/​docume​nts/​asse​ssme​nts/​Global​Tren​ds_​2​040.pdf > (last visited 2 February 2022).

1070    Daniel Bethlehem and Donald McRae decision-​makers in what is still, by some margin, the world’s largest economy. Its assessment is of a world of increasing fragility, interdependence and contestation but one in which the dynamics of ‘a variety of plausible outcomes’ are ‘not fixed in perpetuity’ but rather subject to influence by ‘human choices along the way’.8 What then is warranted by the shape of things to come? Viewed with hindsight, the possibility that, standing at the foothills of the twentieth century, in 1922, it would have been possible to anticipate the world of 2000 seems laughable. The 78 years in between saw changes of an order of magnitude across every sector and walk of life that, projecting forward from 1922 to the turn of the next century, would have been an endeavour of science fiction. But, also in hindsight, building blocks of 1922 provided a foundation for recognizable, even if different, structures in 2000. The League of Nations had been recently established, creating for the first time a structural edifice for global organization and law. The Permanent Court of International Justice met for the first time in 1922, resting on emerging appreciations of the place of international law in relations between States and institutional mechanisms for the adjudication of international disputes. Those systemic innovations became the foundation of the institutional framework of the rules-​based international system that stood tall in 2000, and that we still have today. The point is crude, but important. We may not be able to do more than guess about the world in 2100. But there may nonetheless be scope for beginning to identify transitional innovations of institutions and of law that will begin to lay a foundation for a time to come. A robust rules-​based international system, including in the field of international trade, nimble and well calibrated to the global community it is designed to address, will be essential to navigation in the choppy waters that are evident now and may increase. If choices influence outcomes, and the international system, and international trading system, is not fit for purpose, changes must be made. The challenges of the COVID pandemic and the return of geopolitical confrontation has serious consequences for the multilateral trade order. These events have been catalogued throughout this volume, including the fragmentation of the international order through an expansion in protectionist policies, a WTO that is increasingly seen as ineffective, and the continuing expansion of bilateral and regional trade agreements. The systemic challenge to multilateralism posed by the contemporary events in Ukraine are likely to be significant, assuming that there are no significant changes in the leadership postures of the key States engaged. Already, mechanisms for international cooperation, including in the trade and economic spheres, are being unwound or by-​passed. Whether broad-​based ‘multilateralism’ will have a meaningful role to play in the coming period, as opposed to regionalism or sectoral cooperation, is an open question.

8 

Ibid., at 1.

The International Trading System—Looking to 2100    1071 At the same time, seen from the perspective of developing countries, international trade and investment law are already under the harness of global capital and developed country markets. As B.S. Chimni argues,9 the analysis of trade agreements is technical in nature, abstracted from the human costs involved. Similarly, the factors of inequality and power in intra-​group relations, both within and across nations, are not taken into account; the impact of the global class divide on trade agreements is rarely considered.

This critique of world trade regulation, found more broadly in Third World Approaches to International Law (TWAIL) scholarship, has an equal claim to consideration in any rethinking on an international trade regime. There is an agenda of action throughout this edition, of revision and development, structural, institutional, and regulatory. Action across this agenda is necessary if Valerie Hughes’ anticipation of perhaps irreversible risk of waning influence on the part of the WTO is to be avoided. But even more fundamental change will be necessary to lay the foundations for the world to come and shape the spectrum of possible outcomes that today’s soothsayers predict. Law-​making and legal reform—​how we go about making and changing law—​in the international trade-​law space, requires urgent attention. This is an acute challenge that is reflected across the rules-​based international system, touching on both the form and substance of multilateral engagement in the rulemaking and revision process and on national negotiating mandates and the ability of governments to pursue visionary international commitments with any prospect of success. The issue of the subjects of international trade law also needs to be addressed. The current framework turns on States championing private actors. While this preserves the Westphalian character of the system, and keeps the adjudicatory ring small, it does not reflect the reality of global economic engagement. States, through subsidies and protectionist barriers, have a thumb on the scale of private sector competitiveness, and such policies and practices will need to be addressed with renewed resolve. But the world trading system today is overwhelmingly driven by private actors, not by States. The rules-​based international trading system needs to reflect and accommodate this. This, too, is a challenge for the wider system of international law, which should make efforts to reconceive this aspect of the international legal order more urgent rather than less. Having a considered trade-​law voice in this debate will not just be important but, with its harder here-​and-​now commercial edge, has the capacity to be the engine of change in this aspect of the international system. International organizational reform is perhaps the most immediately acute systemic issue on the agenda. The tension between the global, WTO trading regime and an 9  B.S. Chimni, ‘Power and Inequality in Megaregulation: The TPP Model’ in B. Kingsbury et. al. (eds), Megaregulation Contested: Global Economic Ordering After TPP (Oxford: Oxford University Press, 2019), at 139.

1072    Daniel Bethlehem and Donald McRae ever-​growing network of regional and mega-​regional arrangements, is increasingly difficult to reconcile. As the debates around Brexit showed, the WTO is a floor rather than an aspiration. It reflects the lowest common denominator. Now more than a quarter of a century old, it is becoming increasingly antiquated. The WTO has not been able to come to terms with what was contemplated in Article XXIV of the GATT 1994. WTO dispute settlement has not found a suitable reconciliation between the international and the regional. While the multilateral trading system giving way to regional trading systems might be a transitional step to deeper liberalization across regional arrangements, the auguries are different, the portents being of fragmentation rather than of deepening across a smaller number of actors. The glue that holds a/​the rules-​based international system together is the law. Law-​ making and legal reform are fundamental. So, too, though, will be a re-​conceptualization of the sources of international trade law. And here, perhaps more than in other areas of international law, there may be scope for real innovation. One attempt to conceptualize this10 builds on the notion of a lex mercatoria, combined with more traditional appreciations of customary international law and a layered conception of a lex congregato—​a law of society—​in which different tiers of law-​making instruments, with different authors, addressees, and levels of granularity, would combine to provide a framework for the mutual recognition of minimum standards of content and conduct that would apply to economic operators. Whatever the format, the new and coming reality suggests that we should be thinking about a common law of international trade, and how this may be operationalized. The fairy-​dust in all this, both elusive and enabling, will be leadership. There is an absence of conceptualizing voices on these issues, in the way in which John Maynard Keynes, Cordell Hull and others conceptualized the vision that led to Bretton Woods and the GATT. We are, it appears, some way from a new Bretton Woods moment at present. It took a great depression followed by a world war to galvanize visionary action in 1944. The economic shock of the global financial crisis of 2007–​8, followed by the acute economic challenges posed by the COVID pandemic, which will be testing for some time to come, might have provided the impetus for a re-​conceptualization of the international trading system. The resort to populist national agendas, however, including in the field of international trade, and the challenges of a ‘more contested world’, suggest that the conditions are not quite so auspicious now for such an endeavour. Despite this, or because of it, there is work to be done, with the international trade law community amongst the first conscripts in this endeavour.

10 

Bethlehem, above fn 4, at 23–​24.

Index

For the benefit of digital users, indexed terms that span two pages (e.g., 52–​53) may, on occasion, appear on only one of those pages. Tables and figures are indicated by t and f following the page number AANZFTA (ASEAN-​Australia-​New Zealand FTA)  244, 622 ABMs see Appellate Body Members access, market see market access access to medicines see medicines accession  74, 96–​97, 101–​2, 131–​32, 154–​56, 182–​83, 285–​86, 342–​50, 352, 377, 381, 386 commitments  348, 350, 485 negotiations  96, 346, 347, 352, 378, 385–​86, 775–​76 packages  347, 350–​51, 372 process  312, 347, 349–​50, 381, 610 protocols  49, 71, 74, 83–​85, 96–​97, 131–​32, 344, 349, 353, 360–​61, 386, 793–​94, 998–​99 voting  131–​32 accountability and legitimacy  887 ACP (African, Caribbean, and Pacific)  412–​14, 1055–​57 actionable subsidies  456–​57, 590, 591, 798, 824–​25 adjudication  12, 85, 129, 140, 145, 836, 845, 898, 903, 916, 919–​20, 968, 973–​74, 985, 988, 991–​92 compulsory and binding  919–​20 independent  87–​88, 1033 international  161, 818, 833–​34, 969, 972, 973, 976–​77, 991, 1015 RTA  979–​80 third-​party  12, 199, 235–​36, 714, 715–​16, 720–​21, 722, 743, 919, 941, 970, 984–​85, 989 WTO  139, 190, 973, 979, 980, 986–​87, 988

adjudicators  103, 112–​13, 116–​17, 142, 148, 186, 235–​36, 278, 279, 290–​91, 336, 443–​44, 445, 448–​49, 457–​58, 459, 462–​63, 464, 465–​66, 467–​68, 473–​74, 715–​16, 720, 722, 833, 845, 863, 865, 906, 915–​16, 921, 941, 967–​68, 970, 971, 972, 973–​74, 977, 987–​88, 989, 991, 1003, 1010, 1013, 1018, 1020, 1022, 1023, 1027–​37, 1038, 1040–​41 ADR (alternative dispute resolution)  1041, see also MPIA Brazil/​Canada Aircraft  1053–​54 end of Banana Wars  1055–​57 and GATT 1947  1045–​49 and non-​panel settlement of WTO disputes  1053–​57 Philippines/​Thai/​EC Tuna tariffs  1054–​55 and RTAs  1060 in Uruguay Round and WTO Agreement  1050–​60 AEC (ASEAN Economic Community)  240, 242–​45, 246, 260–​61, 398, 407, 688–​89 AEC Blueprint 2025  243–​44 AfCFTA (African Continental Free Trade Area)  143, 152, 154, 157, 399–​400, 408–​ 11, 426, 428, 647–​48, 968–​69 Dispute Protocol  426 and dispute settlement  426 Africa  326, 356–​57, 394, 395, 551, 607, 676, 710–​11, 857 AfCFTA see AfCFTA AGOA (African Growth and Opportunity Act)  417–​19, 607 COMESA see COMESA

1074   Index Africa (cont.) EAC see EAC economic integration  396–​97, 398–​99 basic framework  397–​411 challenges  406–​8 ECOWAS see ECOWAS EU-​Africa Economic Partnership Agreements  412–​17 Pan-​African Investment Code  411 participation in WTO dispute settlement  427–​28 RECs (Regional Economic Communities)  397, 398–​99, 400–​1, 402–​3, 404, 406–​7, 408, 420–​21 regional dispute settlement mechanisms  420–​25 regional integration  406–​7, 411–​12, 428 relationships with European Union and United States  411–​19 SADC see SADC Sub-​Saharan  411–​12, 417–​18, 419, 654 TFTA (Tripartite Free Trade Area)  408 trade and investment dispute settlement  420–​28 trade and investment liberalization  396–​419 African, Caribbean, and Pacific see ACP African Common Market  398–​99 African Continental Free Trade Area see AfCFTA African Growth and Opportunity Act see AGOA African States  179–​80, 407, 411, 414–​16, 420–​21, 426, 855 African Union  144, 394, 711 Agenda for Sustainable Development  614–​15, 639, 642–​43, 675, 681–​82 AGOA (African Growth and Opportunity Act)  417–​19, 607 Agreement on Agriculture  47–​48, 67, 68, 72–​73, 77, 250, 557–​58, 559, 560–​62, 564, 565–​66, 567, 695 agricultural markets  247, 264–​65, 554, 558, 562–​63, 566, 571–​72 agricultural products  70, 77, 249–​50, 267, 275–​ 76, 370, 476, 553–​54, 556–​57, 559, 560, 561, 563–​64, 567–​68, 569, 579, 606, 705, 932, 938, 956–​57, 964, 966

agriculture  350–​51, 398–​99, 553, 556–​58, 559–​64, 565–​66, 568–​69, 570–​71, 572–​73, 695 domestic support  563–​66 export competition  567–​68 and GATT 1947  568–​70 and ITO  570–​72 market access  559–​63 North America  225–​26 subsidies  349–​51 WTO legacy  557–​68 AIIB (Asian Infrastructure Investment Bank)  357–​58, 359 ALOP (appropriate level of protection)  471–​72, 701–​2, 703, 704, 705, 707, 711, 728–​29 alternative dispute resolution see ADR Andean Community  85, 152, 153, 157, 320, 323, 327, 330, 331–​32, 334, 978 anti-​competitive practices  510, 511–​12, 526–​27, 529, 577, 664–​65, 667 anti-​dumping  10, 12–​13, 19–​20, 59, 218, 458, 459, 463, 575–​76, 577–​85, 596, 597, 798 definition  582–​85 dumping margin  582, 585, 915 duties  10, 59, 382, 427, 459, 462, 463, 483, 575, 577–​78, 580–​81, 797, 934, 935, 968–​69 export prices  583 history  577–​82 laws  575–​76, 577–​79 measures  387, 427, 447, 584 normal value  583–​85 Anti-​Dumping Agreement  105–​7, 459, 461–​ 63, 575–​76, 580–​84, 924, 925–​26 APEC (Asia-​Pacific Economic Cooperation)  155–​56, 240, 241, 260–​61, 353–​54, 692, 750 Privacy Framework  750, 762–​63, 765–​66 appeal  113–​14, 141, 235–​36, 427, 451, 908–​9, 911, 912, 913–​14, 917, 994–​95, 1033, 1057–​59 rights of  275, 451, 912 Appellate Body  16–​17, 110–​15, 197–​99, 444–​45, 678–​79, 795–​96, 907–​18, 928–​31, 932–​ 35, 937–​40, 1001–​03, 1005–​07, 1033–​35 binding effect of findings  914–​16 procedure  911–​13 scope and standard of appellate review  913–​14 selection  909–​10

Index   1075 Appellate Body Members (ABMs)  113–​14, 135, 198–​99, 242, 364–​65, 943–​44, 1028, 1033–​34 appellate jurisdiction  20, 424, 946–​47 appellate mechanisms  185–​86, 278, 279, 425, 839, 849, 852–​53, 864–​65, 866 appellate review  113–​14, 138, 141–​42, 188, 847, 864, 897, 907, 912, 913–​14, 994, 997–​98, 1031 scope and standard  913–​14 working procedures  113–​14, 141–​42, 912, 997–​98, 1006 appropriate level of protection see ALOP Arab Maghreb Union (UMA)  400, 407, 420 arbitration  110–​11, 113, 336–​37, 980, 981, 1003–​ 04, 1044, 1049, 1050, 1051, 1052, 1055–​ 60, 1061, 1062, see also ADR agreements  901, 1033, 1050, 1058–​60, 1062 awards  979, 1051, 1059–​60 investment  170–​7 1, 839, 845, 859, 866, 999–​ 1000, 1003–​04, 1007, 1008, 1012–​13, 1014, 1015 rules  392, 842, 999–​1000, 1004, 1007–​08, 1014 tribunals  84–​85, 110–​12, 113, 133, 170–​74, 178–​79, 181–​82, 335, 336–​37, 416, 421, 423, 634, 841, 948, 960, 978, 1000–​01, 1004–​05, 1008, 1014, 1015, 1049 arbitrators  839, 841, 859, 863, 864–​66, 994–​95, 1011–​12, 1013, 1044, 1057–​58, 1059–​60, 1062 Argentina  100, 323, 325, 331, 338, 495, 496, 668–​69, 671–​72, 756–​57, 857, 858, 880–​ 81, 1026–​27 armed conflict  732, 735, 741, 841 ARSIWA (Articles on Responsibility of States for Internationally Wrongful Acts) 190 Articles on Responsibility of States for Internationally Wrongful Acts see ARSIWA ASEAN (Association of Southeast Asian Nations)  143, 152, 153, 154, 157, 240, 241–​45, 246, 260–​61, 352, 353–​56, 662 countries  241, 242–​43, 245–​46, 353, 853–​54 ASEAN Economic Community see AEC ASEAN Trade in Goods Agreement see ATIGA

ASEAN-​Australia-​New Zealand FTA (AANZFTA)  244, 622 ASEAN-​China FTA  244–​45, 355–​56 Asian Infrastructure Investment Bank see AIIB Asia-​Pacific, regional integration  241–​46 Asia-​Pacific Economic Cooperation see APEC association agreements  154–​55, 263–​64, 296, 307–​8, 310–​11 Association of Southeast Asian Nations see ASEAN ATIGA (ASEAN Trade in Goods Agreement)  243, 244, 733 audiovisual products  756–​57, 775–​76, 778–​79, 929, 936, 939, 940 Australia  201–​2, 241, 244, 249, 250, 353–​54, 578–​79, 581–​82, 705, 757–​58, 801–​2, 853–​54, 855 authoritative interpretations  74, 77–​79, 127–​ 29, 130, 144–​45, 148–​49, 897–​98, 908, 909, 915–​16, 925–​26, see also binding decisions/​interpretations authorization to retaliate  974, 976, 978, 981, 982t, 983–​84, 995–​96 automotive products  214, 217, 221–​22, 252–​53 autonomy, domestic policy  556–​57, 558, 559–​ 60, 561, 562, 564, 567, 568, 570, 571–​72 availability of judicial remedies  987–​88, 991     Basel Committee on Banking Supervision (BCBS)  883, 884–​85 BCI (business confidential information)  1001–​03, 1004 behind-​the-​border policies/​measures  37–​38, 44, 46–​48, 780 Belt and Road Initiative (BRI)  202, 205, 356–​ 59, 360, 592–​93 best practices  168, 330, 499, 515, 622, 640, 645–​ 48, 686, 692, 731, 783–​84, 884–​85, 886 bilateral agreements  18, 19, 22, 24, 26, 28, 60, 80, 86, 142–​43, 155–​56, 202–​3, 235–​36, 246, 249, 253, 285, 326–​28, 419, 542–​46, 579–​80, 586–​87, 668–​69, 834, 860, 895–​ 96, 1056–​57, 1060 bilateral investment treaties see BITs bilateral negotiations  192–​93, 346, 372, 551, 985, 989–​90, 1048–​49

1076   Index BITs (bilateral investment treaties)  86–​87, 389, 390–​91, 394, 397, 840, 846–​47, 848, 852, 854, 855–​57, 858–​59, 860, see also investment border measures  27, 37–​38, 46, 47–​48, 146, 274, 277, 315–​16, 437, 537 bound duties  480–​81 Brazil  19, 100, 187, 193–​94, 320–​21, 323, 325, 338, 495, 786–​88, 857, 981, 982t, 1002–​ 03, 1053–​54 Bretton Woods  2, 580, 1066–​67, 1068, 1072 Brexit  201–​2, 204, 292, 311–​18, 414, 574, 592, 635, 1071–​72 legal framework for leaving European Union  312–​14 regulation of trade between European Union and United Kingdom  314–​16 regulation of trade with third countries  316–​18 BRI see Belt and Road Initiative burden of proof  17, 112–​13, 438, 442, 452, 458, 466, 729, 739, 740–​42, 951, 955, 1009–​ 10, 1011–​12 essential security  738–​42 business confidential information see BCI     CAC (Codex Alimentarius Commission)  697, 698, 701, 703–​4, 706, 707, 709–​10, 711, 827 CAI (Comprehensive Agreement on Investment)  848, 852–​53 Canada  213–​14, 225–​26, 233–​34, 235–​37, 263–​66, 268–​70, 272–​73, 275–​76, 277–​79, 286–​87, 362, 577–​79, 795–​96, 849–​50, 982t Canada-​Israel FTA  621–​22, 645, 646–​47 Canada-​US FTA  19, 221–​22, 225, 227–​28, 235–​ 37, 263, 581, 849, 1060 CARICOM (Caribbean Community)  19, 143, 146, 152, 153, 154, 156, 157, 320, 616–​17, 858 CCIA Agreement  402, 403, 421 CEMAC (Central African Economic and Monetary Union)  400–​1 Central Africa  400–​1, 414–​16 Central African Economic and Monetary Union (CEMAC)  400–​1

CEPA (Closer Economic Partnership Arrangements)  352, 619–​20, 848 CEPEA (Comprehensive Economic Partnership for East Asia)  241, 354 CETA (Comprehensive Economic and Trade Agreement)  23–​24, 143, 150–​52, 201–​2, 254–​55, 256, 632–​33, 634, 852, 953–​54, 968–​69, 976–​77, 1006–​07 copyright and related rights  275 core services disciplines  267–​69 dispute settlement  282–​83 domestic regulation of licensing and qualification requirements  270–​7 1 e-​commerce  272 financial services  271 general and final provisions  285–​86 GIs (geographical indications)  275–​77 government procurement  272–​74 implementation  287, 291 institutional provisions  283–​85 intellectual property (IP)  274–​77 international maritime transport services  271–​72 investment protection and investment dispute settlement  277–​79 Joint Committee  148, 156, 279, 284–​86, 290–​91 mutual recognition of qualifications for professionals 270 negotiation  267, 272–​73 pharmaceutical products  275 provisional application  264–​65, 286 ratification  263, 286–​91 telecommunications services  272 temporary entry of business persons  269 trade and sustainable development (TSD)  279–​82 and trade in goods  266–​67 and trade in services and investment  267–​72 and Trans-​Atlantic trade agreements  263–​66 child labour  151, 280–​81, 629–​30 Chile  178–​79, 246–​47, 248, 249, 323, 331–​32, 352, 353, 643–​44, 667–​68, 757–​58, 857, 858, 981, 982t Chile-​Uruguay FTA  335, 761

Index   1077 China  9, 192–​94, 202–​4, 205–​6, 234, 240–​41, 257, 341, 411–​12, 775–​76, 796–​97, 852–​ 53, 939, 982t, 986–​87 and Doha Round  350–​51 exports  350–​51, 360 FTAs  352–​56, 359–​60 FTZs (free trade zones)  359–​60 GATS Schedule  776, 939 and GATT  342–​44 and legitimacy  203–​5 resumption of GATT Contracting Party status  344–​46 state capitalism  361, 367 and United States  26–​27, 81, 193, 196, 203–​6, 846, 982t trade war  366–​70, 371 WTO accession  139, 342, 346–​50, 363–​64, 371 and WTO reform  360–​66 CJEU (Court of Justice of the European Union)  139–​40, 152, 154–​55, 288, 290, 295, 296, 750–​51, 753–​54, 847–​48, 952, 953, 1035–​36 classification, customs  381–​82, 477, 478–​79 climate protection  315, 634, 985 Closer Economic Partnership Arrangements see CEPA Codex Alimentarius Commission see CAC COMESA (Common Market for Eastern and Southern Africa)  400, 401–​2, 407, 408, 421, 617–​18 dispute settlement  420–​22 commercial transactions  304, 476–​77, 759, 795–​96, 806, 877 commitments scheduled  359–​60, 440, 505–​6, 509 tariff  73, 266, 930 Committee on Services and Investment  150, 279 Committee on Trade and Development see CTD Committee on Trade and Environment see CTE commodity markets  571–​72, 869 common commercial policy  296, 297, 300–​1, 307, 308, 326, 389–​90 common customs tariff  299, 300–​1, 381, 386 common external tariff  298, 325, 380, 398–​99, 403, 404, 452–​53 Common Market for Eastern and Southern Africa see COMESA

Common Market Group  154, 325 Communist Party of China see CPC exclusive competence  177, 285–​86, 288–​89, 297, 308–​9, 875, 915–​16 shared competence  285–​86, 288, 297 competition  24, 39–​40, 154–​55, 272, 353, 355–​ 56, 489, 597, 657–​58, 670–​7 1, 874, 878, 879–​80, 890 export  77, 558, 567–​68, 572 fair  870, 875, 882 and financial regulation  874–​75 foreign  498–​99, 508–​9 import  45–​46, 459, 488, 575, 596, 597 regulatory 888 unfair  176, 535–​37, 539–​40 complaints  15, 110, 229, 231–​33, 387, 388–​89, 795, 797, 898, 900, 903–​4, 905–​6, 982t, 1053–​54 non-​violation  16, 742, 905 situation  113, 905 compliance panels  110–​12, 283, 973–​74 and remedies  968–​92 review  283, 750 stage  428, 968, 972, 973 Comprehensive Agreement on Investment see CAI Comprehensive and Progressive TPP see CPTPP Comprehensive Economic and Trade Agreement see CETA Comprehensive Economic Partnership for East Asia see CEPEA compulsory jurisdiction  87–​88, 177–​79, 186–​ 87, 188–​89, 424–​25, 919–​20 compulsory licensing  657–​58, 664–​66, 667, 668 computer services, interactive  231, 783–​84, 786–​88 concessions  10, 11–​12, 54, 55–​56, 69–​70, 83, 478–​79, 480, 567, 593–​94, 598, 974–​75 erosion  57, 59–​60 market access  36–​37, 46, 49, 54, 61 reciprocal  137–​38, 492 suspension  133, 217–​18, 337, 947, 1053, 1055 tariff  11–​12, 53–​54, 70, 83, 84–​85, 345, 494, 591, 593–​94, 598, 974

1078   Index conciliation and mediation  1050–​51, see also ADR confidential information  94, 112–​13, 499, 916, 997, 1001–​05, 1008, 1015 confidentiality  112–​13, 708–​9, 741–​42, 755, 763–​64, 881–​82, 908, 913, 1001–​08, 1027 consensus  100, 106, 119–​27, 129–​34, 135, 150, 156, 157, 184, 909 building  126–​27, 687–​88, 689 decisions by  106, 119, 121, 125–​26, 133–​35, 156, 909, 1052 explicit 127 negative  110–​11, 118, 124, 125–​26, 133–​35, 426, 899, 903, 907, 914, 1023–​24 positive  725, 896, 907, 1045 as principle of general application  122–​23 reverse  103, 133–​34 rule  91–​92, 106, 120–​22, 124, 125–​28, 130, 131–​32 veto  121, 124, 126–​27, 184, 198, 286, 896, 917, 941, 1029 consultations  280, 281, 335–​36, 416, 426, 427, 900, 979, 980, 1045, 1046, 1051 consumer protection  230–​31, 255–​56, 326–​27, 469, 507, 641–​42, 703–​4, 785–​86 COOL (Country of Origin Labelling)  450–​51, 981–​82t cooperation  267, 315, 330, 331, 375, 376, 396–​97, 403–​4, 621–​22, 633–​34, 635, 681–​82, 685–​87 agreements  307–​8, 314, 315–​16, 455, 703–​4, 763–​64, 781–​82, 848, 886, 948 customs  149, 499 development  307–​8, 412–​13, 615–​16, 619 enforcement  886–​87 regulatory  86, 149, 150–​51, 265, 290–​91, 329, 330–​31, 335, 339, 517, 523–​24, 767, 774, 875 technical  621–​22, 688–​89, 691–​92 copyright  227, 542, 551–​52, 664, 1052, see also intellectual property CETA 275 corporate social responsibility  21, 26, 841 Cotonou Agreement  412–​13, 1055 Council for Trade in Goods see CTG countermeasures  190, 283, 634, 733, 743, 896, 899, 985

countervailing duties  460, 463, 483, 484, 575–​ 76, 577–​78, 580, 581, 585–​93, 796–​97, 798, 934, 935 countervailing measures  82, 327–​28, 384–​85, 575–​76, 592–​93 countries of export  461, 582, 583–​84, 594–​95 countries of origin  462, 487–​88, 546–​47, 548–​ 49, 585 Country of Origin Labelling see COOL Court of Justice of the European Union see CJEU covered agreements  18, 78–​79, 103, 129, 726–​ 27, 898–​99, 904, 905–​7, 908–​9, 914–​15, 955–​57, 962, 1023–​24, 1030–​31, 1034 covered investments  278–​79, 808, 809, 811 COVID-​19 pandemic  264–​65, 338–​39, 408–​9, 410, 476, 498, 500, 502–​3, 652, 653–​54, 656, 665, 666–​67, 835, 836 CPC (Communist Party of China)  343, 345, 777–​79 CPTPP (Comprehensive and Progressive TPP)  150, 240, 246–​61, 529, 631–​32, 764–​65, 781–​84, 814, 829–​30 agricultural goods  250 automobiles and automobile parts  252–​53 currency manipulation  240, 259–​60 e-​commerce  254–​56 labour  257–​59 market access and rules of origin  249–​54 negotiations  246–​49 parties  155–​56, 255, 500–​1, 765, 782, 785–​86, 815, 830, 831, 833 pharmaceutical patents  253–​54 privacy and data protection  764–​66 SOEs (State-​owned enterprises)  256–​57 WTO-​plus commitments and rules  249–​60 cross-​border data flows  230–​31, 272, 525–​26, 747, 750–​51, 758–​59, 779–​80 cross-​border services  224, 268, 270–​7 1, 272, 525–​26, 771–​72, 774, 805, 860, 877 cross-​border trade  160–​61, 227–​28, 267, 268, 270–​7 1, 365, 476, 780, 805–​6, 860 cross-​retaliation  337, 974 CTD (Committee on Trade and Development)  108–​9, 614, 976–​77 CTE (Committee on Trade and Environment)  108–​9, 678, 684–​85, 691

Index   1079 CTG (Council for Trade in Goods)  100, 105–​ 8, 109, 123, 124, 132–​33 cultural industries  236–​37, 269, 270–​7 1, 273–​74 exception  236–​37 North America  236–​37 currency manipulation  240, 259–​60 currency markets  259, 869 CUSMA see United States, USMCA customary international law  162–​63, 177–​79, 222–​23, 277–​78, 794, 806, 807, 844, 857, 866, 888, 935, 942, 959 customary rules of interpretation of public international law  16, 17, 72, 96–​97, 111–​ 12, 128–​29, 900, 905–​6, 908–​9, 914–​15, 924, 925, 959, 960 customs  266, 300–​1, 380, 403–​4, 408, 414, 498, 883, 887–​88 administrations/​authorities  266, 403, 448–​ 49, 451, 497–​502 agreements 176 classification  381–​82, 477, 478–​79 cooperation  149, 499 duties  101–​2, 253, 255, 299, 300–​1, 398–​99, 401–​2, 403–​4, 479, 481, 483, 484, 500–​1, 687 ordinary  435, 483, 930, 950–​51 Eurasian Economic Union (EAEU)  380–​82 procedures  86, 405, 498 territories  96, 155–​56, 179–​80, 246, 298, 299–​300, 376, 381, 996–​97 unions  18–​19, 164, 298–​302, 313–​14, 337, 375–​76, 379–​80, 384, 385–​86, 400–​2, 403–​4, 452–​53 European Union  298–​301 valuation  12–​13, 300–​1, 451, 478, 499, 500–​1, 608–​9 Customs Valuation Agreement  67, 73, 448–​49, 451, 1026     dairy products  226, 250, 383–​84, 976–​77 data exclusivity  254, 668 data flows  745–​46, 747, 750–​51, 753, 758–​59, 760–​ 61, 764, 772–​73, 779–​80, 781, 782–​84 cross-​border  230–​31, 272, 525–​26, 747, 750–​ 51, 758–​59, 779–​80

free  255, 365, 745–​46, 749, 754, 760, 764, 765, 773, 785–​86 provisions 760–​61   data governance  745–​46, 753, 782–​84 data localization  255, 256, 525–​26, 759, 764–​65, 767, 773, 779–​80, 783–​84, 785–​86 under FTAs  761 data protection  254, 670–​7 1, 746–​49, 750–​53, 754–​55, 756–​57, 758–​59, 761–​64, 761t, 765–​67, see also privacy adequate level  752, 763–​64 CPTPP and USMCA  764–​66 European Union  750–​52 key principles  748–​49, 763–​64, 765–​66 personal data  745–​46, 749, 750–​51, 753, 760–​61, 762–​64, 779–​80, 782 under FTAs  757–​66 United States  752–​53 de minimis provisions  349–​50, 491, 500–​1 decentralization, policed  509, 517–​20 decision-​making  2, 3, 25, 120–​21, 131–​32, 137–​38, 143, 144, 156–​57, 183–​84, 187–​88, 196–​97, 517–​18, 911 bodies  101, 284, 899 powers  84, 106, 115, 148–​49, 150–​51, 900 procedures  84, 119, 121, 123, 183–​84, 195–​96, 199, 448–​49, 907, 1025 decisions administrative  449–​50, 519 commercial  807, 808 by consensus  106, 119, 121, 125–​26, 133–​35, 156, 909, 1052 investment  42–​43, 490, 592–​93, 872 judicial  144, 176–​77, 197–​98, 722, 1020 ministerial  15, 77, 99, 560–​61, 566, 640, 932–​33 procedural  198, 896 waiver  130, 933 WTO  20, 74–​80, 137–​38, 169, 1024–​25 democratic legitimacy  3, 24–​25, 137–​38, 193–​ 98, 199–​203, 204–​7 DEPA (Digital Economy Partnership Agreement)  352, 764–​65, 781–​82, 786–​88 developed countries  329, 330, 364, 365–​66, 454–​55, 560, 561, 563, 564, 606–​7, 609, 622, 623

1080   Index developing countries  196–​97, 349–​50, 365–​66, 454, 562, 605–​9, 610, 613–​14, 615–​17, 618–​22, 662–​63, 687–​88, 786–​88 major/​large  350–​51, 364, 680–​81, 687–​88 self-​declared  611 tariff preferences for  383 development see also S&DT cooperation  307–​8, 412–​13, 615–​16, 619 industrial  403, 408, 410 objectives  137, 404, 530, 855–​56 policy  307–​8, 322–​23, 543–​44, 608–​9, 621, 762, 1066 rules  591, 592, 763–​64, 860 differential treatment see S&DT Digital Economy Partnership Agreement see DEPA digital products  230–​31, 272, 747, 765, 779–​80, 783 digital services  440, 774–​76, 779–​80 digital trade  230–​31, 256, 525–​26, 757–​58, 764, 765, 771, 774–​76, 777–​88, see also e-​commerce direct effect  142, 158, 242–​43, 298, 304 discrimination  57, 58, 88–​89, 163–​64, 233–​34, 267, 271–​72, 280–​81, 304, 305, 437, 438, 442, 443, 446, 453, 455, 494–​95, 508–​9, 626, 646, 647–​48, 699, 795, 796, 832–​33, 835, 850–​51, 852, 879 price  577, 582, 659 unjustifiable  445, 467–​68, 678–​79, 680, 699, 755–​56, 764–​66 disguised restrictions  304, 467–​68, 677, 680, 699, 724–​25, 755–​56, 764–​66, 961 dispute setlement, fisheries  819–​20, 832–​34, 836 dispute settlelement, rules of procedure  100, 105, 123, 125–​26, 132–​33, 148, 219, 1044 dispute settlement  3, 15–​16, 20, 24, 27–​28, 117, 184–​86, 277–​79, 426, 452–​53, 523–​24, 897–​98, 918–​21, 979–​80, 1017, 1023–​25, 1035–​36, see also Appellate Body; DSB and AfCFTA (African Continental Free Trade Area)  426 African country participation  427–​28 Appellate Body see Appellate Body appellate review see appellate review CETA  282–​83

COMESA 421 and compliance  979–​84 concerning trade and environmental objectives  167–​70 CPTPP 1060 DSB see DSB EAC  422–​23 ECOWAS  420, 423–​24 EU-​SADC  417 fisheries  833–​35 intra-​EAEU investor-​to-​State  392 investor-​State  86–​87, 271, 421 labour  332, 420–​21 Latin American RTAs  334–​37 mechanisms (DSMs)  85, 88, 153, 177, 179, 184–​85, 226, 231–​32, 244, 333, 334–​37, 918–​20, 941 NAFTA  19–​20 Pan-​African Investment Code  411 preliminary objections  165–​66, 999–​1000 preliminary rulings  112–​13, 997–​1001, 1015 procedures  16, 17–​18, 20, 27–​28, 81–​83, 103, 108, 170, 834, 900, 901–​2, 965, 973, 974, see also procedural issues reasonable period of time for compliance  104, 110–​11, 283, 417 SADC  420, 424–​25, 856 scope of measures that may be challenged and applicable law  903–​7 situation complaints  113, 905 stakeholders 1017 standard of proof  741–​42, 1009, 1010–​11, 1012–​13 State-​State  19–​20, 86–​87, 421, 424–​25 systems  16, 78–​80, 116–​17, 197–​99, 896, 898–​900, 904, 908–​9, 910, 911–​12, 915, 916–​17 USMCA  949–​50, 961, 1060 Dispute Settlement Understanding see DSU Doha Declaration  77–​78, 123, 609, 612–​13, 653, 656, 663, 665–​66, 667, 678, 682, 687, 821 and access to medicines  660–​69 Doha Development Agenda  622, 681–​82, 822 Doha Round  21, 109–​10, 240, 350–​51, 609, 815, 831, 916, 1056–​57

Index   1081 domestic law  137–​38, 183, 213–​14, 254, 285, 287, 451, 555–​56, 626, 632–​33, 637, 951–​52, 953, 955, 965 domestic markets  48, 345, 437–​38, 450, 456–​ 57, 461, 507, 559, 577–​78, 583–​84, 665, 666 domestic policy autonomy  556–​57, 558, 559–​ 60, 561, 562, 564, 567, 568, 570, 571–​72 domestic prices  34, 41, 349, 577–​78, 582, 583, 584, 585 domestic producers  34, 39–​40, 51, 463, 482–​ 83, 498–​99, 578, 593, 596 domestic production  34, 35, 52–​53, 446, 596–​97 domestic products  172, 300, 437, 443, 444, 584 domestic regulation  24–​25, 38–​39, 82, 107–​8, 270, 509–​10, 511–​14, 516–​24, 687, 758–​ 59, 779–​80 disciplines on  270, 510, 512–​13, 517–​24 of licensing and qualification requirements  270–​7 1 domestic support  70, 201, 203, 350, 558, 561, 563–​64, 565–​66, 567, 569, 572 agriculture  563–​66 rules  565, 567 drawback schemes  484 DSB (Dispute Settlement Body)  16, 102–​4, 110–​11, 113–​14, 124, 133–​34, 135, 426, 898, 899, 907–​8, 909, 914–​15, 987–​88, 1023–​24 authorization  369, 982t, 1059–​60 decision-​making  69, 103, 133–​35, 1051 meetings  104, 125–​26, 133–​35, 138 DSMs see dispute settlement, mechanisms DSU (Dispute Settlement Understanding)  102–​3, 110–​15, 129, 133–​34, 723–​24, 725–​ 27, 898–​99, 901–​2, 916, 955–​57, 965, 998–​99, 1005–​06, 1028, 1061 interpretation 924 objective assessment  436, 464, 465–​66, 471–​72, 473, 711, 726–​27, 737, 741, 914, 948, 955–​56, 1029–​30, 1032 procedures  977–​78, 987–​88, 1018 dumping margins  582, 585, 915 duties  113–​14, 115, 298, 299–​300, 414–​16, 434, 435, 479, 480–​81, 483, 484, 500–​1, 502, 577–​78, see also tariffs additional  416, 460, 461, 964

antidumping  10, 59, 382, 427, 459, 462, 463, 483, 575, 577–​78, 580–​81, 797, 934, 935, 968–​69 bound  480–​81 deferral programs  484 definition 479 export  37–​38, 49–​50, 82, 299–​300, 436, 485 import 33f, 34, 35–​36, 37–​38, 40, 46, 47, 49–​ 50, 82, 230, 386, 479, 483–​84 other charges  165, 434, 435, 483, 806

    EAC (East Africa Community)  400, 401, 402–​3, 406, 408, 414–​16, 421, 423, 425 Common Market Protocol  403–​4 Customs Union Protocol  403, 422 dispute settlement  422–​23 Treaty  402–​3, 422 EAEU (Eurasian Economic Union) bodies  379, 387–​88 Court  375, 379, 381–​83, 386, 387 Customs Tariff  381, 386, 387–​88 Member States  378–​79, 380, 381, 383–​84, 385, 386, 387, 388–​90, 391, 392, 393–​94 and RTAs  389 Treaty  376–​80, 381, 383, 384–​85, 386, 387–​ 91, 392, 393 EAFTA (East Asian Free Trade Area)  241 East Asia Community see EAC East Asian Free Trade Area (EAFTA)  241 Eastern and South Africa (ESA)  414–​16 ECCAS (Economic Community of Central African States)  400 ECGLC (Economic Community of Great Lakes Countries)  400–​1 e-​commerce  272, 353, 365, 408–​9, 513–​14, 515, 526, 760, 762–​63, 764, 765, 772–​75, 776, 784–​85, 786–​88, see also digital trade CETA 272 electronic delivery  515, 772–​73, 776 electronic transactions  526, 764, 786 Pacific trade  254–​56 plurilateral talks  773, 786–​88 trade in services  525–​26 work programme on  101–​2, 754–​55 Economic Community of Central African States see ECCAS

1082   Index Economic Community of Great Lakes Countries see ECGLC Economic Community of West African States see ECOWAS economic development  321, 323, 371, 394, 408, 411–​12, 453–​54, 570–​7 1, 695, 754–​55 economic integration  81, 107–​8, 144, 202, 203–​4, 241, 310–​11, 320, 356, 375–​76, 377, 394, 397, 398, 408, 417, 490 African  396–​411 Asian 240 economic models  32, 53–​54, 793–​94, 800 Economic Partnership Agreements see EPAs ECOWAS (Economic Community of West African States)  400, 401, 403–​4, 407, 414–​16, 421, 423–​24, 617 Common Investment Code see ECOWIC dispute settlement  420, 423–​24 intra-​ECOWAS investments  404, 423–​24 ECOWIC (ECOWAS Common Investment Code)  404, 424 ECT (Energy Charter Treaty)  87, 392, 393, 840 ECtHR (European Court of Human Rights)  174–​75, 176, 181, 189, 749, 967–​68 effective legal remedies  632–​33, 752 EFTA (European Free Trade Association)  19, 84–​85, 200–​1, 213, 668–​69, 670–​7 1, 758, 846–​47, 849, 950, 978 electronic commerce see e-​commerce electronic delivery  515, 772–​73, 776 electronic transactions  526, 764, 786 Energy Charter Treaty see ECT environment 673, see also MEAs coherence and mutual supportiveness  689–​92 environmental protection  231–​33, 457, 673 history and progress  676–​83 informal alliance phase  676–​77 inter-​agency understanding  690–​91 marine  817–​18, 832, 836 negotiations  675–​76, 682–​83 North America  231–​33 reducing/​eliminating tariff and non-​tariff barriers to environmental goods and services  687–​89

regional cooperation and knowledge sharing  691–​92 environmental goods  264–​65, 675–​76, 680–​ 81, 683, 687–​89, 691–​92, 693 definition  687–​88 lists  680–​81, 688–​89, 692 reducing/​eliminating tariff and non-​tariff barriers to  687–​89 EPAs (Economic Partnership Agreements)  152, 254–​55, 310, 412–​17, 619–​20, 848, 976–​77, 979–​80 equitable treatment  167, 277–​78, 391, 404, 647, 841 equivalence  49, 697, 700, 703–​4, 706, 709, 763–​64, 874 essential medicines  651–​52, 653 essential security interests  166–​67, 714, 715, 716–​17, 718–​19, 720, 721–​27, 728–​29, 730, 733–​37, 738–​43 time of war  468, 716–​17, 733–​34, 739 war materials  717, 718 Eurasian Economic Commission  153, 154, 157, 375, 378, 379, 380–​83, 387–​88 Eurasian Economic Community (EurAsEC)  375–​77, 386, 390 Court  375–​76, 386, 387 Customs Union  376–​77, 380, 382, 383–​84, 385–​86 Member States  375–​76 Eurasian Economic Union (EAEU)  143, 152, 153, 157, 374, 377–​78 customs regulation  380–​82 historical background  375–​77 internal market  384–​85 regulation of foreign investments  389–​93 sources of law  378 tariff preferences for developing countries 383 technical regulation  383–​84 trade defence measures  382–​83 trade in services with third countries  384 and WTO (World Trade Organization)  385–​87 European Court of Human Rights see ECtHR European Free Trade Association see EFTA European Single Market  240, 874 European Union Brexit see Brexit

Index   1083 competence for the common commercial policy, EU-​only, and mixed agreements  297, 308–​9 customs union  298–​301 history 299 exclusive competence  177, 285–​86, 288–​89, 297, 308–​9, 875, 915–​16 EU-​Japan EPA  148, 151, 310, 560, 706, 709, 733, 760, 814 EU-​Korea FTA  620, 621, 632–​33, 636, 637–​ 38, 738, 979–​80 EU-​SADC EPA  416–​17, 979–​80 EU-​Singapore FTA  243, 288, 718, 733, 738 EU-​US Privacy Shield  750, 753–​54 external trade  307–​11 FTAs  148, 151, 243, 310–​11, 335, 338, 560–​61, 620–​21, 632–​33, 636, 637, 733, 738 history and fundamentals of legal order  294–​98 institutions  295–​96 internal market  299–​307 definition  302–​3 four freedoms  303–​5 history 302 legislative measures  306–​7 privacy and data protection  750–​52 regulation of trade with United Kingdom  314–​16 shared competences  285–​86, 288, 297 sources and effect of EU law  297–​98 evidence  167–​68, 438–​39, 740–​41, 931, 951, 987, 1009–​15, 1026, 1029–​30, 1038–​39, 1040–​41 empirical  608–​9, 649 expert see experts scientific see scientific evidence     evolutionary interpretation  777, 778–​79, 939 exceptions  59–​61, 276, 434, 452–​53, 465–​66, 467–​69, 540, 714, 715, 721, 735–​36, 738–​ 39, 785–​86, 953–​55, 1009–​10 cultural industries  236–​37 general  82–​83, 231, 236–​37, 273–​74, 446, 467, 474, 562, 615, 738–​39, 755, 764–​65, 785–​ 86, 1009–​10 for Indigenous persons  234, 801

for preferential treatment  434, 452–​55 security see essential security interests exclusive jurisdiction  957, 962–​64, 966 expertise  281, 686–​87, 710, 827, 900, 907, 909–​ 10, 1033, 1035, 1037, 1038 legal 836 technical  154, 428, 884, 887 experts  26, 107, 280, 281, 571–​72, 1013–​15, 1018–​19, 1037–​41, 1052 categories 1037 ghost 1040 in-​house experts  1037, 1039–​40 independent  1013–​14 in-​house  1037, 1039–​40 invisible 1040 legal  117, 951 panel-​appointed  1037–​38, 1039 panels  280, 281, 621, 633–​34 party-​appointed  1014, 1015, 1037, 1039, 1040 scientific  710, 1013–​14, 1018 testimony  1013, 1039 export competition  77, 558, 567, 572 agriculture  567–​68 export duties  37–​38, 49–​50, 82, 299–​300, 436, 485 prohibition 485 export performance  455, 484, 567, 590, 824–​25 export prices  461, 496, 577–​78, 583, 584, 585 export restrictions  2, 266, 468, 477, 492–​93, 502, 553–​54, 569, 595–​96, 949 export subsidies  37–​38, 40, 43, 47, 50–​52, 70, 350, 567–​68, 569, 592–​93 exportation  165, 299, 437, 438, 444, 456, 479, 493, 495, 496, 499, 500–​1, 579, 586     fact-​finding  168–​69, 170, 1052 factual findings  913–​14, 946–​62, 1029–​30, 1031 fair and equitable treatment (FET)  167, 222–​ 23, 277–​78, 391, 404, 841, 845, 847, 848–​ 49, 853, 854–​55, 856–​58 financial compensation  224, 1046–​47 financial contributions  256–​57, 455–​56, 460, 586, 588–​89, 590, 797 financial institutions  268, 271, 272, 357–​58, 868, 870–​7 1, 872, 874, 875, 876, 878, 879–​80, 890 financial markets  868–​70, 872–​73, 890

1084   Index financial products  868–​70, 871, 890 financial sector  868, 870–​7 1, 873–​75, 889–​90 Financial Sector Assessment Programme see FSAP financial services  70, 107–​8, 149, 268, 271, 273–​74, 289, 513–​15, 526–​28, 756–​57, 759, 763–​64 CETA 271 commitments  70, 527–​28 competition  874–​75 definition 878 depositor and investor protection  871–​72 financial stability  868, 870–​7 1, 885, 890 GATS Annex  527–​28, 878, 881, 882 goals of liberalization and prudential supervision  876–​81 internationalization  875–​76 market efficiency and transparency, prevention of financial crime and fraud  872–​74 rationale of banking and financial regulation  870–​75 standard-​setters  883–​85 financial stability  868, 870–​7 1, 885, 890 Financial Stability Board see FSB fisheries  149, 315, 571, 617–​18, 638, 817, 1024 disputes  819–​20, 832–​35, 836 history  818–​21 IUU see IUU fishing management  825, 829–​30, 833 products  266, 497, 498–​99, 818–​19, 828, 830, 831–​32, 833, 835 regime interaction  826–​29, 834 and RTAs  829–​31 scientists  823–​24, 832 subsidies  351, 604–​5, 679–​80, 681–​82, 818, 819–​20, 821, 822–​31, 833–​34, 835–​36 sustainable  266, 821, 831 food  264–​65, 275–​76, 370, 497, 557, 562, 565–​ 66, 573, 695, 696–​97, 698, 699, 701 aid  565–​66, 567, 608–​9 security  554, 561, 562, 565–​66, 567, 571–​72, 830 trade  557–​58, 697, 698, 700–​1, 703–​4, 707, 711 food safety  174–​75, 469–​70, 557–​58, 694, 696–​ 97, 698–​99, 700, 702, 707–​8, 710, 711 risk analysis  698, 699, 701–​7 SPS Agreement see SPS Agreement foreign direct investment  41, 264, 308, 324–​25, 389–​90, 406, 515, 877

foreign investors  172, 173–​74, 222–​23, 390–​91, 647, 841, 843, 847, 850–​51, 858, 996–​97 foreign markets  359, 360–​61, 577, 586 foreign services  507, 508 free trade agreements see FTAs Free Trade Area of the Asia-​Pacific (FTAAP) 241 Free Trade Commission  147, 148–​49, 152 free trade zones  359, 481 see FTZs FSAP (Financial Sector Assessment Programme)  889–​90 FSB (Financial Stability Board)  883, 884, 885, 886, 889 FTAAP (Free Trade Area of the Asia-​Pacific)  241 FTAs (free trade agreements)  2–​4, 20–​23, 244–​45, 260–​61, 310–​11, 516–​22, 525–​30, 542–​46, 615–​17, 618–​22, 629–​31, 635–​37, 645–​48, 667–​69, 757–​66, 860, 958–​59 ASEAN-​China  244–​45, 355–​56 bilateral  19, 24, 142–​43, 155–​56, 246, 249, 419 Canada  236–​37, 282, 626, 668, 760, 950 China  352–​56, 359–​60 EFTA  670–​7 1, 950 European Union  148, 151, 243, 310, 335, 338, 560–​61, 620–​21, 632–​33, 636, 637, 733, 738, 979–​80 jurisdiction  958–​59 panels  637–​38, 947, 958–​59, 961, 964–​66 plurilateral  148–​49, 155–​56, 541 privacy and data protection  757–​64, 782–​84 proliferation  22–​23, 145, 243, 860 regional  260, 626, 700 south-​south  605, 617, 618 United States  21, 225, 231–​32, 245–​46, 251, 257–​58, 353, 630–​31, 663, 667–​68, 718–​ 19, 763–​64 FTZs (free trade zones)  481     GATS (General Agreement on Trade in Services)  108–​9, 439–​40, 505–​15, 517–​ 20, 521–​22, 527–​28, 717, 755–​57, 774–​77, 876–​82, 890 Annex on financial services  527–​28, 878, 881, 882 commitments  270, 511–​12, 515, 519, 775–​76, 777–​79

Index   1085 Council  105–​9 and financial services  876–​82 Schedules  439, 509, 775–​76, 931, 936, 939 GATT 1947  7–​8, 10–​15, 18–​19, 43, 70–​7 1, 568–​7 1, 572–​73, 593–​94, 606–​7, 720–​21, 793–​94, 975–​76 and ADR  1046–​49 and agriculture  568–​70 1994  58–​59, 61, 386–​87, 444–​45, 446, 452–​ 53, 458–​59, 465–​66, 492–​93, 494–​95, 716–​17, 718–​19, 726, 728–​39, 743 emergency in international relations  468, 716–​17, 723, 732–​34, 735, 736–​37, 739, 741, 743 essential security interests  166–​67, 714, 715, 716–​17, 718–​19, 720, 721–​27, 728–​29, 730, 733–​37, 738–​43 exceptions  467–​69, 728–​38 military establishments/​interests  468, 716–​17, 720, 730–​31, 732–​33 background to ADR  1045–​49 and China  342–​44 Council  896, 976–​77 panels  71, 498–​99, 721, 725, 727, 976–​77 GDP (gross domestic product)  239–​40, 264, 324–​25, 326, 353, 408, 504–​5, 800–​1 GDPR (General Data Protection Regulation)  747, 751–​52, 755, 756–​57, 763–​64, 765–​66 gender  233–​34, 621–​22, 626–​27, 628, 630–​31, 632–​33, 634, 636–​37, 638–​39, 640–​41, 642–​43, 644, 646–​47, 648–​49 bilateral/​regional initiatives  643–​44 commitments  331, 618, 621–​22, 626–​27, 646–​48 equality  604, 626–​27, 639, 640, 641–​45, 646, 647–​48 inequality  331, 644–​45 and labour  626–​27, 628, 630–​31, 632–​33, 634, 636–​37, 638, 640–​41, 642–​43, 644, 646–​47, 648 multilateral initiatives  639–​43 General Agreement on Trade in Services see GATS General Council  18–​19, 66, 74, 94, 97, 98, 101–​2, 105, 108–​10, 115, 124, 127–​31, 899–​900 meetings  612, 899

General Data Protection Regulation see GDPR Generalized System of Preferences see GSP generic drug producers  657–​58, 664 geographical indications see GIs GIs (geographical indications)  75–​76, 86, 108, 149, 227, 274, 291, 487–​88, 532, 552 CETA  275–​77 international protection  533–​34, 546–​47, 551–​52 pre-​TRIPS protection  535–​38 protection  275–​76, 534, 536–​38, 539–​41, 543–​44, 546–​48, 549–​50 under TRIPS  539–​41 global value chains  22, 26, 40–​41, 47, 476, 489, 490, 502, 649 good faith, obligation  708–​9, 736 good governance  307–​8, 447–​51 good regulatory practices  514–​15, 517, 522–​24 goods  8–​9, 266, 303–​4, 305, 306–​7, 380, 381, 476–​77, 485–​87, 488, 499–​501, 536–​37, 539–​40, 586–​87, 729–​31 accumulation 491 agricultural  249–​50, 476, 561, 569, 579, 606 categories of  729–​30 and CETA  266–​67 criteria for determining origin of goods  485–​87 customs administration and trade facilitation  497–​98 drawback or duty deferral programs  484 environmental  264–​65, 675–​76, 680–​81, 683, 687–​89, 691–​92, 693 expedited release  266, 499 imports  39, 46–​47, 264, 304, 381–​82, 434, 441, 448–​49, 458, 469, 577–​78, 586–​87, 628, 631 licences  495–​96 origin quotas  491, 492 other charges  483 performance requirements  484 prohibition on export duties  485 quotas  494–​95 rules of origin see rules of origin and services  44, 70, 264, 273–​74, 302, 326, 339, 346, 347, 406–​7, 428–​29, 530, 533, 684 trade  201, 352–​53, 355–​56, 359, 502, 841 government ownership see SOEs

1086   Index government procurement  12–​13, 83, 149, 220–​ 21, 227–​29, 273, 330, 355–​56, 367, 512, 640–​41, 718, 764, 804 agreements  227–​29, 316, 717 CETA  272–​74 markets  272–​73, 274, 592–​93 North America  227–​29 governmental authority  256–​57, 460–​61, 797–​ 98, 805, 806, 807 exercise of  506–​7, 798, 805 test 798 gross domestic product see GDP GSP (Generalized System of Preferences)  307–​8, 414–​16, 455, 606–​ 7, 618, 628, 630, 632–​33 beneficiaries  414–​16, 455 United States  417–​18, 607–​8     harmonization  300–​1, 302, 328, 330–​31, 534, 535–​36, 538, 684, 686–​87, 699, 704–​6, 710, 875, 876, 881, 882 institutional 682 international  75–​76, 537–​38 standards  304, 697, 700, 704, 711 Harmonized System see HS HIV/​AIDS pandemic  665–​66 HS (Harmonized System)  73, 300–​1, 477, 478–​79, 930 human rights  137–​38, 161–​62, 174, 180–​81, 189, 201–​2, 325, 411, 423, 556–​57, 641–​42, 648, 649, 841, 863     ICITO (Interim Committee for the International Trade Organization)  11 ICJ (International Court of Justice)  161–​62, 164–​70, 177–​78, 179–​80, 181–​82, 186–​87, 188–​89, 833–​34, 967–​68, 970, 1013 ICSID (International Centre for the Settlement of Investment Disputes)  27–​28, 840, 841–​42, 856, 857–​58, 860–​62, 999–​1001, 1003–​04, 1007–​08, 1009–​10, 1029 Additional Facility Rules  393, 841–​42, 862 Convention  393, 402, 842, 857–​58, 862, 999–​1001

ILC (International Law Commission)  72, 190, 554–​55, 926, 927, 928, 929, 934–​36, 937, 970–​7 1 Articles on State Responsibility  179, 806, 935, 970–​7 1, 983 illegal, unreported and unregulated fishing see IUU ILO (International Labor Organization)  257–​ 58, 280–​81, 626–​27, 628, 629 implied powers  100–​1, 112–​14, 956–​57 import bans  31–​32, 418–​19, 734–​35, 818, 826–​27 import competition  45–​46, 459, 488, 575, 596, 597 import duties 33f, 34, 35–​36, 37–​38, 40, 46, 47, 49–​50, 82, 230, 386, 479, 483–​84, 497, 561, 783 import licensing  12–​13, 67, 413, 444, 493, 495–​ 96, 562, 608–​9 import quotas  225, 594 import restrictions  266, 492–​93, 497, 553–​54, 559, 569, 596, 638, 1046–​47, 1048–​49 import substitution  322–​23, 606 India  240, 241, 244, 245, 350–​51, 355–​56, 565–​66, 615, 660–​63, 664–​65, 678–​79, 797–​98 Indigenous persons, exceptions for  234, 801 Information Technology Agreement (ITA)  70, 109, 754–​55 intellectual property (IP)  41–​42, 533, 534–​35, 536–​37, 538–​39, 540–​42, 544, 549–​50, 652, 653, 668–​69, 841, see also TRIPS CETA  274–​77 GIs see GIs negotiations  541, 550 North America  227 rights (IPRs)  82, 108, 175–​76, 253, 277, 533–​ 36, 539–​40, 549, 551–​52, 652, 660, 663, 671, 723 and trade agenda  538, 540–​41, 546, 549–​50, 551–​52 Inter-​Governmental Authority on Development 400 Interim Committee for the International Trade Organization (ICITO)  11 internal markets, European Union see European Union, internal market

Index   1087 internal regulations  27, 437, 441, 465 internal tariffs  299, 300, 410 international adjudication  161, 818, 833–​34, 969, 972, 973, 976–​77, 991, 1015 International Centre for the Settlement of Investment Disputes see ICSID International Court of Justice see ICJ international courts and tribunals  27–​28, 161, 176–​77, 181–​82, 183–​84, 715, 722, 818–​19, 833–​34, 946–​62, 965, 967–​68, 969–​7 1, 1009, 1038, see also individual tribunal names International Labor Organization see ILO International Law Commission see ILC international standards  72, 77–​78, 106–​7, 332, 472, 523, 630, 699, 704, 705, 762–​63, 933, 940 international standard-​setting bodies  885, 887 International Trade Organization see ITO International Tribunal for the Law of the Sea see ITLOS interpretation  16–​17, 72, 77–​79, 111–​13, 127–​29, 142, 173–​74, 478–​79, 724, 905–​6, 908–​9, 913–​15, 923, 959–​60 context  930–​31 customary rules of interpretation of public international  16, 17, 72, 96–​97, 111–​12, 128–​29, 900, 905–​6, 908–​9, 914–​15, 924, 925, 959, 960 DSU 924 effectiveness principle  938 evolutionary  777, 778–​79, 939 general rule  927 multiple authentic languages  937 object and purpose  931 ordinary meaning  927, 928–​29, 937, 939, 942 relevant rules of international law  934–​35 restrictive  703–​4, 940 RTAs  940–​43 rules  128–​29, 905–​6, 929, 941–​42, 943 subsequent agreement  932–​33 subsequent practice  933–​34 supplementary means of  924, 935–​37 treaty  77–​78, 88–​89, 170–​7 1, 176, 440, 554–​55, 715–​16, 923–​24, 927, 938–​40, 1031–​32, 1034–​35

and VCLT see VCLT WTO Agreements  924–​26 intra-​African trade  397, 410–​11 intra-​SADC investments  405–​6, 855–​56 investment  21, 41–​42, 172–​74, 267–​72, 277–​79, 287–​88, 389–​90, 391, 402–​3, 404–​6, 840–​41, 842–​46 activities  524–​25 Africa and Middle East  855–​57 agreements  241–​42, 244, 310–​11, 423, 424, 841, 844, 847, 850, 855, 856–​58, 860, see also BITs arbitration  170–​7 1, 839, 845, 859, 866, 999–​ 1000, 1003–​04, 1007, 1008, 1012–​13, 1014, 1015 Asia, Oceania and Russia  852–​55 claims  223, 224, 393, 845–​46 courts  186, 290 disputes  185–​86, 277, 278–​79, 392, 393, 418, 420–​28, 993–​94, 995–​96, 1015 CETA  277–​79 facilitation  365, 514, 515, 523–​24 foreign  41, 264, 308, 324–​25, 337, 339, 359–​ 60, 389–​93, 406, 418, 515, 856–​57, 858, 877 intra-​SADC  405–​6, 855–​56 Latin America and Caribbean  857–​58 law  161–​62, 170–​72, 174, 180–​81, 185–​86, 213, 425, 838, 840, 841, 851, 860, 1071 liberalization  350–​51, 352–​53, 354, 356–​57, 358–​59, 360–​61, 362, 364–​65, 368–​69, 370, 396–​97, 404–​5, 408–​9, 410–​11, 414–​16 North American approaches  222–​24, 849–​52 procedural reforms at ICSID and UNCITRAL  861–​65 promotion  244, 402, 857–​58 protection  222–​23, 267–​68, 277–​79, 286, 289, 291, 390–​91, 405–​6, 411, 848, 855–​56 CETA  277–​79 treaties  839–​43, 856, 857, 858–​59, 863, 864, 1003–​04, 1008, see also BITs tribunals  170–​73, 174, 1000–​01, 1011–​13 investors  173–​74, 223–​24, 267–​68, 277–​78, 391, 393, 405–​6, 411, 841, 842–​44, 863, 868–​ 69, 871–​73 domestic  172, 847, 855–​56

1088   Index foreign  172, 173–​74, 222–​23, 390–​91, 647, 841, 843, 847, 850–​51, 858, 996–​97 protection  277–​78, 840, 850, 853, 865–​66, 868, 870, 871–​72, 875, 890 investor-​State dispute settlement see ISDS invisible experts  1040 IP see intellectual property IPRs see intellectual property (IP), rights ISDS (investor-​State dispute settlement)  223, 277–​79, 289, 425, 839–​40, 846, 848, 849, 850–​58, 859, 865, 995–​96 claims  223–​24, 844, 851, 854–​55, 858, 863 criticism  842–​46 procedures  841, 848, 859 reform  278, 291, 863, 864, 993–​94 ITA (Information Technology Agreement)  70, 109, 754–​55 ITLOS (International Tribunal for the Law of the Sea)  178–​79, 833–​34 ITO (planned International Trade Organization)  10, 11, 12, 342, 557, 568, 570–​73, 580, 628, 720 IUU (illegal, unreported and unregulated) fishing  818, 819–​20, 822–​23, 826–​29, 830, 831–​33, 835, 836     Japan  201–​2, 240–​41, 244, 245–​46, 247–​48, 249, 250, 252–​53, 352–​54, 679, 853–​54, 982t, 1048 EU-​Japan EPA  148, 151, 310, 560, 706, 709, 733, 760, 814 JARPA II  168–​70 joint committees  84, 85, 147–​49, 150, 151, 152, 154–​55, 156, 276, 284–​85, 290–​91, 856 judicial remedies  969, 970–​72, 984–​85, 987–​ 88, 991–​92 judicial review  110, 153, 168–​69, 179 jurisdiction  165–​67, 177–​79, 186–​87, 424–​25, 670–​7 1, 715–​16, 721–​27, 946–​64, 970, 998–​1000     Korea  201–​2, 240–​41, 244, 352, 353–​54, 495, 543–​44, 545, 636–​37, 667–​68, 707–​8, 756–​57, 853–​54, 982t EU-​Korea FTA  620, 621, 632–​33, 636, 637–​ 38, 738, 979–​80

KORUS (US-​Korea Free Trade Agreement)  143, 147, 148, 149, 150, 850, 853

    labour  199–​202, 231–​33, 245–​46, 257–​58, 279–​ 81, 315, 334, 502–​3, 626–​27, 632–​33, 634, 635, 637–​38, 649 chapters  627–​28, 629–​31, 632–​33, 635, 637 child  151, 280–​81, 629–​30 clauses  630, 635–​36, 649 disputes  332, 420–​21 emerging trade-​labour linkage  637–​38 enforcement  232–​33, 332, 502–​3, 632–​33, 635–​37 and gender  626–​27, 628, 630–​31, 632–​33, 634, 636–​37, 638, 640–​41, 642–​43, 644, 646–​47, 648 North America  231–​33 Pacific trade  257–​59 rights  19–​20, 83, 257–​59, 280–​81, 626–​27, 628–​36, 647–​48, 979–​80 trade-​labour relationship  627–​38 LAIA (Latin American Integration Association)  83–​84, 320 Latin America  24, 83–​84, 264, 319, 356–​ 57, 662, 800, 858, 979, see also MERCOSUR; Pacific Alliance RTAs  326, 327–​28, 329 core principles  321–​29 new elements  329–​32 regulation of dispute settlement mechanisms  334–​37 Latin American Integration Association see LAIA LCR (local content requirements)  361, 679 LDCs (least-​developed countries)  72–​73, 87, 96, 383, 414–​16, 428, 511–​12, 605–​6, 607, 608–​9, 612, 614, 616–​17, 652 least-​developed countries see LDCs legal experts  117, 951 legal findings  913, 1030–​32 legitimacy  3, 24–​25, 26, 137–​38, 192, 193–​98, 199–​203, 204–​7, 550, 555–​56, 664, 742, 801, 828, 843, 887, 913, 919, 920, 988, 1027 and accountability  887 and China  203–​5

Index   1089 legitimate expectations  79–​80, 172–​73, 845, 1031–​32 legitimate objectives  140, 222–​23, 255, 445, 457, 465, 473, 562, 717, 764–​66, 781, 783–​84, 785–​86, 847, 933 licensing see compulsory licensing; import licensing requirements  509–​10, 525, 529, 872 like products  172, 582–​83, 930, 938 likeness  58–​59, 171–​72, 441–​43, 444–​45, 582–​ 83, 832–​33 Lisbon System  534, 537–​38, 539–​40, 546–​49 LMICs (low and middle-​income countries)  653–​56, 659 local remedies  223–​24, 424–​25, 856, 859, 863 localization see data localization low and middle-​income countries see LMICs     Madrid Agreement  534, 537 majority voting  91–​92, 119–​27, 132, 133, 135, 157, 184 market access  21, 46–​47, 272, 414–​16, 434, 439, 508–​11, 557–​58, 560–​61, 645, 775–​76, 778–​79, 1053, 1055 agriculture  559–​63 barriers to  434, 439 commitments  61, 199–​200, 224, 248–​49, 347–​ 48, 370, 434–​41, 515, 775, 778–​79, 860 concessions  36–​37, 46, 49, 54, 61 CPTPP  249–​54 to ISDS  851, 854–​55, 858, 859 non-​tariff barriers  436–​39 quota-​free  307–​8, 607 restrictions  267–​68, 508, 560–​61, 569 tariff barriers  434–​36 trade in services  439–​41 MEAs (multilateral environmental agreements)  83, 281, 333, 339, 620, 623, 675–​76, 678, 682, 683–​84, 690, 691, 961 harmonizing WTO rules with obligations  683–​84 institutions  339, 675–​76, 682–​84, 685–​87, 689–​90, 691 mediation  116–​17, 184–​85, 279, 422, 423–​24, 426, 901, 1041, 1043–​44, 1048, 1050–​51, 1053–​55 and conciliation  1050–​51

medicines  149, 253, 651 cancer 654 essential  651–​52, 653 implementation of TRIPS/​FTA provisions  669–​7 1 importance of patents/​market exclusivity  656–​60 patented  275, 655, 656–​57, 658, 660–​61, 663–​64, 665, 668–​69 and TRIPS  660–​69 types most needed in low and middle-​ income countries  653–​56 medium-​sized enterprises  272, 321, 324, 329, 504–​5, 519–​20 mega-​regional agreements  22, 23–​25, 202, 240, 245, 355–​56, 550, 860, 975–​78 mega-​regulation  22, 23–​25, 26, 27 membership  96–​97, 155–​56, 182–​84, 248, 249, 311–​12, 407, 512, 513, 907, 1023–​24, 1032–​ 33, 1046–​47 MERCOSUR  320–​21, 322–​23, 324–​27, 328–​29, 330–​32, 334, 336–​38, 976–​77, 978–​79 Trade Commission  325 Mexico  213–​1 4, 220–​2 4, 225–​26, 227–​29, 234, 235–​36, 246–​4 7, 249–​50, 263–​64, 323, 481–​82, 677–​7 8, 850–​52, 957, 982t and United States  225, 228–​29, 232–​33, 234, 235–​37, 263, 264, 275–​76 MFN (most-​favoured-​nation)  9–​10, 12, 22, 54, 56–​59, 82, 441, 492, 508, 543, 597–​98, 845, 848–​49, 854–​55, 1055–​57 MIC (multilateral investment court)  278, 839, 864–​66 military establishments/​interests  468, 716–​17, 720, 730–​31, 732–​33 Ministerial Conferences  18, 66, 74, 96–​97, 100, 101–​2, 108–​9, 115, 124, 129–​30, 131–​32, 361–​62, 825–​26, 899–​900 ministerial decisions  15, 77, 99, 560–​61, 566, 640, 932–​33 mixed agreements  263, 286, 288–​90, 296, 308–​9, 310 most-​favoured-​nation see MFN MPIA (Multi-​Party Interim Appeal Arbitration Arrangement)  138, 142, 198–​99, 901, 917, 994–​96, 1033, 1043, 1051, 1057–​60, 1061, 1062

1090   Index MRAs (mutual recognition agreements)  86, 270, 521 Multi-​Party Interim Appeal Arbitration Arrangement see MPIA mutual recognition  82, 149, 150–​51, 244, 267, 270, 285, 302, 304, 523, 703–​4, 874, 1072 agreements see MRAs CETA 270 mutual supportiveness  675, 681–​82, 683–​84, 689–​92, 825     NAFTA (North American Free Trade Agreement)  19–​20, 212–​17, 218–​19, 220–​26, 227–​33, 234–​38, 263, 618–​19, 850, 942, 979–​80 2.0 see United States, USMCA and beyond  212–​14 model 146 renegotiations  201, 214, 215–​16, 221–​22, 765, 791, 860 national courts  296, 297–​98, 421–​22, 423–​24 national treatment  56–​59, 171–​72, 222–​24, 441, 508–​10, 775–​76, 851–​52 natural persons  82, 244, 389–​90, 421, 422, 439, 506–​7, 513, 516–​17, 524–​25, 751–​ 52, 877 NCDs (non-​communicable diseases)  653–​54 negative consensus  110–​11, 118, 124, 125–​ 26, 133–​35, 426, 899, 903, 907, 914, 1023–​24 negative list approach  268–​69, 328, 359–​60, 439, 516 NEPAD (New Partnership for Africa’s Development) 398 New Partnership for Africa’s Development see NEPAD New Zealand  23, 169–​70, 240, 241, 244, 246–​ 48, 249, 352, 353–​54, 491, 578–​79, 581–​ 82, 853–​54, 1060 NGOs see non-​governmental organizations NMDC  797–​98 non-​actionable subsidies  590, 591 non-​communicable diseases see NCDs non-​discrimination  9–​10, 18–​19, 56–​59, 267–​ 69, 278–​79, 441–​46, 507, 509–​11, 793, 795–​96, 808–​9, see also discrimination

non-​governmental organizations (NGOs)  92, 96, 101–​2, 114, 136, 183–​84, 197–​98, 333, 839, 863, 903–​4, 1006–​07 non-​market economies  203, 349, 353, 793 non-​market objectives  652, 654, 656–​57, 658, 660–​61, 662–​63, 664–​65, 666–​67, 668–​ 69, 670–​7 1 non-​preferential rules of origin  487–​88 non-​tariff barriers  12–​13, 44, 47, 67, 70, 82, 86, 250, 252–​53, 265, 300, 304, 322, 326, 345, 347, 398–​99, 410, 434, 436–​39, 559–​60, 562, 580, 675–​76, 683, 687–​89, 691–​92, 695, 1068 non-​trade values  434, 465–​74, 556–​57, 558–​60, 561, 562, 563, 564, 565–​66, 567–​68, 570, 571–​73 non-​violation complaints  16, 742, 905 normal value  461–​63, 582, 583–​85 North America  211, see also Canada; Mexico; United States bi-​national review of trade remedies  235–​36 cultural industries  236–​37 digital trade  230–​31 environment  231–​33 intellectual property  227 investment  222–​24 labour  231–​33 SOEs  229–​30 structural innovations  234–​35 temporary entry  236 North American Free Trade Agreement see NAFTA notification  18–​19, 74, 75, 107–​8, 247, 365–​66, 447–​48, 451, 540–​41, 613–​14, 950, 975, 994–​95, 1022 obligations  365–​66, 447–​48, 717 procedures/​mechanisms  275–​76, 700, 709 requirements  183–​84, 363–​64, 451, 708 subsidies  363–​64, 365–​66     OACPS (Organisation of African, Caribbean and Pacific States)  412–​13 OAU (Organisation for African Unity)  397, 398

Index   1091 objective assessment  436, 464, 465–​66, 471–​ 72, 473, 711, 726–​27, 737, 741, 914, 948, 955–​56, 1029–​30, 1032 objective criteria  270, 488, 529, 589–​90, 610, 613, 623, 1003 objectives domestic policy  522, 565 environmental  164–​65, 167–​70, 682–​83, 688–​89, 693 legitimate  140, 222–​23, 255, 445, 457, 465, 473, 562, 717, 764–​66, 781, 783–​84, 785–​ 86, 847 national policy  507, 512–​13, 781, 881 public policy  465, 522, 762–​63, 800 security see essential security interests OECD  563, 568, 610, 666–​67, 745–​46, 749–​50, 792, 800–​2, 809–​10, 846 ordinary customs duties  435, 483, 930, 950–​51 ordinary meaning  927, 928–​29, 937, 939, 942 Organisation for African Unity (OAU)  397, 398 Organisation of African, Caribbean and Pacific States (OACPS)  412–​13 origin countries of  462, 487–​88, 546–​47, 548–​49, 585 national  39–​40, 535–​36, 911 quotas  491, 492 rules of see rules of origin     Pacific Alliance  320–​21, 323–​25, 326–​27, 328, 330–​32, 336–​39, 858 Pacific trade  239, see also ASEAN agricultural goods  250 Asia-​Pacific regional integration  241–​46 automobiles and automobile parts  252–​53 CPTPP see CPTPP currency manipulation  240, 259–​60 e-​commerce  254–​56 labour  257–​59 pharmaceutical patents  253–​54 RCEP see RCEP SOEs (State-​owned enterprises)  256–​57, 790 textiles and apparel  251–​52 PAFTA (Peru-​Australia FTA)  621–​22

Pan-​African Investment Code  411 pandemics COVID-​19  264–​65, 338–​39, 408–​9, 410, 476, 498, 500, 502–​3, 652, 653–​54, 656, 665, 666–​67, 835, 836 HIV/​AIDS  665–​66 panel-​appointed experts  1037–​38, 1039 panels  110–​13, 492–​93, 636–​37, 710–​11, 722–​27, 732–​33, 734–​36, 740–​41, 900–​3, 913–​14, 998–​99, 1001–​03, 1013–​14, 1021–​24, 1029–​31, 1037–​39 compliance  110–​12, 283, 973–​74 dispute settlement  100, 110–​15, 219, 591, 830, 1028–​33 establishment  16, 283, 426, 455, 899, 901–​3, 907, 1029, 1048 of experts  280, 281, 621, 633–​34 FTA  637–​38, 947, 958–​59, 961, 964–​66 GATT  71, 498–​99, 721, 725, 727, 976–​77 meetings  903, 1005, 1006 panellists  116–​17, 219, 417, 902, 903, 1027, 1028–​29, 1033 proceedings  16, 20, 24, 114, 741–​42, 912–​13, 1023, 1035, 1045, 1050–​51, 1053 role  1029–​33 WTO  178–​79, 181–​82, 186–​87, 387, 388, 725, 726, 741–​42, 943, 946–​47, 948, 955–​56, 1027, 1028–​29 parallel imports  658, 659, 663, 672 party-​appointed experts  1014, 1015, 1037, 1039, 1040 patented medicines  275, 655, 656–​57, 658, 660–​61, 663–​64, 665, 668–​69 access to  655, 661, 668–​69 parallel imports  658, 663 patents  253–​54, 535–​36, 652, 656, 657–​58, 659, 660–​63, 665, 667, 668–​69, 670–​7 1 applications  657, 667 laws  658, 661–​63, 664, 667 owners  254, 657–​60, 665, 672 pharmaceutical  253, 274, 652, 657, 661–​62 rights  42, 253–​54, 275, 535, 660, 662–​63, 664, 667, 670–​7 1 term  254, 275, 657, 658, 661–​62, 667–​68, 670 PCIJ (Permanent Court of International Justice)  161–​62, 164, 970, 971–​72, 1070 People’s Republic of China (PRC) see China

1092   Index Permanent Court of International Justice see PCIJ personal data  513–​14, 745–​46, 749, 750–​52, 753–​54, 756–​57, 760–​61, 762–​64, 765–​ 66, 780, 786 Peru  170, 247, 249–​50, 257–​58, 323, 327, 330, 332, 857, 858, 932, 956–​57, 964, 966 Peru-​Australia FTA see PAFTA pharmaceutical industries  253, 254, 651–​52, 668 pharmaceutical patents  253–​54, 274, 652, 657, 661–​62 pharmaceutical products  267, 661–​62, 668, 669, 670–​7 1, 1059, see also medicines CETA 275 plurilateral agreements  14–​15, 26, 30, 69, 73, 76, 99–​100, 109, 124, 143, 146, 155–​56, 995–​96 plurilateral bodies  109 positive consensus  725, 896, 907, 1045 postal services  273–​74, 808 preference schemes  87, 414–​16, 418, 419 preferential rules of origin  419, 488–​90 preferential tariffs  343, 1054 preferential trade agreements see PTAs preliminary objections  165–​66, 999–​1000 preliminary rulings  112–​13, 997–​1001, 1015 price discrimination  577, 582, 659 privacy  745–​46, 748–​49, 750–​51, 753, 756–​57, 761–​64, 765–​67, 779–​80, 781, 785–​86, see also data protection framework  745–​46, 750, 780 laws  748–​49, 752–​53, 755, 780 protection  745–​67 CPTPP and USMCA  764–​66 European Union  750–​52 OPEC and APEC  749–​50 United States  752–​53 right to  748, 749, 750–​51 under WTO framework  754–​57 procedural issues  997–​1008 observation of hearings  997, 1005–​08 preliminary objections  165–​66, 999–​1000 preliminary rulings  112–​13, 997–​1001, 1015 protection of confidential information  1001–​05 transparency and confidentiality  1001–​08

process-​based review  729, 735, 736 procurement see government procurement products  165, 275–​76, 300, 417–​18, 441, 442, 443, 461, 494–​95, 582–​85, 591, 594–​95, 596, 670, see also goods audiovisual  756–​57, 775–​76, 778–​79, 929, 936, 939, 940 automotive  214, 217, 221–​22 competitive  463, 596–​97 dairy  226, 250, 383–​84, 976–​77 digital  230–​31, 272, 747, 765, 779–​80, 783 domestic  172, 300, 437, 443, 444, 584 financial  868–​70, 871, 890 fisheries  266, 497, 498–​99, 818–​19, 828, 830, 831–​32, 833, 835 food  275–​76, 330–​31, 385, 443 industrial  86, 266, 350–​51, 355–​56, 587 like  172, 582–​83, 930, 938 primary  569, 587 processed 590 steel  481–​82, 495 subsidized  456–​57, 460 substitutable 938 wood  949, 960 professional services  269, 273–​74, 512–​13, 521 progressive liberalization  403–​4, 505–​7, 511–​12 progressive trade  626–​27, 628, 630–​31, 632–​33, 634, 636–​37, 638, 640–​41, 642–​43, 644, 646–​47, 648 prohibited subsidies  456, 457, 815, 826–​27, 1031 protection GIs  275–​76, 534, 536–​38, 539–​41, 543–​44, 546–​48, 549–​50 investment  277–​79, 286, 289, 405–​6, 1008 investors  277–​78, 840, 850, 853, 865–​66, 868, 870, 871–​72, 875, 890 non-​trade values see non-​trade values patents  42, 275, 535, 660, 662–​63, 667, 670–​7 1 personal data  745–​46, 749, 750–​51, 753, 760–​61, 762–​64, 779–​80, 782 personal information  256, 526, 764, 765–​ 66, 786 privacy  745–​54, 755, 762, 763–​64, 765–​66, 767 test data  656–​57, 660–​61, 668, 669, 670–​7 1

Index   1093 provisional application  11, 264–​65, 276, 283–​84, 286, 287, 288–​89, 290–​91, 309, 310–​11, 316–​17, 342, 414–​16, 1066–​67 provisional measures  470–​7 1, 597, 671, 702–​4, 1000–​01 prudential supervision  868, 876–​82, 890 PTAs (preferential trade agreements)  19, 26, 27–​28, 59–​61, 87, 177–​78, 192, 193, 199–​ 204, 206–​7, 401, 411–​12, 413, 607 and legitimacy  199–​203 non-​reciprocal preferential treatment  325, 455 preferential treatment under the ‘enabling clause’  454–​55 public entities  456, 878 public health risks  714, 732 public interest  658, 749, 843, 846, 847, 848–​49, 853, 1008 public order  615, 732–​33 public services  265–​66, 274, 513–​14, 807, 811 public telecommunications services  528–​29     quantitative restrictions  31–​32, 37–​38, 48–​49, 82, 110, 224, 299, 300, 304, 434–​35, 436–​ 39, 476, 492 measures not covered  497 quota rents  48 quotas  10, 46, 47–​49, 219–​20, 250, 436–​37, 438, 481–​82, 493, 495, 500–​1, 502, 569 import  225, 594 origin  491, 492 quota-​free access  307–​8, 607 tariff  494–​95, 560–​61     RCEP (Regional Comprehensive Economic Partnership)  24, 240, 245–​46, 260–​61, 352, 353–​56, 452–​53, 529, 544, 581–​82, 668–​69, 781–​82, 968–​69 negotiations  240, 244–​45, 853–​54 reasonable period of time for compliance  104, 110–​11, 283, 417 reciprocal agreements  413, 593–​94, 940–​41, 975–​78 reciprocal concessions  137–​38, 492

recognition  116, 234, 255, 353, 508–​9, 511, 513–​14, 515, 517, 521, 629–​30, 819–​20, 823–​24, 914–​15, 916 formal  680, 681 international  604–​5, 741 mutual  82, 149, 150–​51, 244, 267, 270, 285, 302, 304, 523, 703–​4, 874, 1072 RECs (Regional Economic Communities)  397, 398–​99, 400–​1, 402–​3, 404, 406–​7, 408, 420–​21 reforms  92, 801–​2, 821, 822–​23, 825–​26, 861, 863, 864, 897–​98, 916–​18, 993–​95, 1071, 1072 institutional  31, 137–​38, 258–​59, 864 ISDS  278, 291, 863, 864, 993–​94 procedural  839–​40, 861–​65 structural  189, 848 WTO  23, 204, 360–​66, 369, 372, 447–​48, 610 regional agreements  22–​23, 88–​89, 142–​43, 213, 260, 390, 534, 553–​54, 563, 580–​81, 626, 700, 757–​58, 836, 860, 920, 979 Regional Economic Communities see RECs regional economic organizations see REOs regional fisheries management organisations see RFMOs regional human rights courts, International trade law before  174–​76 regional integration  263, 292, 318, 320, 337, 353–​54, 375, 377, 394, 405–​7, 691–​92, 700 Africa  406–​7, 411–​12, 428 Asia-​Pacific  241–​46 processes  322–​23, 325, 337 regional negotiations  3, 213, 825–​26 regional trade agreements see RTAs regional value chains  324, 337 regulatory competition  888 regulatory cooperation  86, 149, 150–​51, 265, 290–​91, 329, 330–​31, 335, 339, 517, 523–​ 24, 767, 774, 875 regulatory practices, good  514–​15, 517, 522–​24 regulatory standards  457, 879 remedies  188, 189, 575–​76, 577–​78, 593, 664–​ 65, 667, 742–​43, 762–​63, 765–​66, 842, 844, 967, 994, 995–​97 bilateral  984–​85, 988

1094   Index remedies (cont.) and compliance  968–​92 DSU system  972–​75, see also DSU local  223–​24, 424–​25, 856, 859, 863 primary  976, 981 prospective  186, 188–​89, 971, 975 trade see trade remedies unilateral  219–​20, 457, 975–​76, 984–​86, 987–​89, 991–​92 bilateral and judicial  984–​88 renegotiations  54–​55, 71, 235–​36, 317, 845–​46 REOs (regional economic organizations)  93, 143, 146, 152–​55, 156–​57 retaliation  26–​27, 31–​32, 188, 236–​37, 634–​35, 972, 974–​79, 981–​84, 985–​88, 990, 991–​92 application of  977–​78, 981–​84, 982t, 990 retaliatory tariffs  369–​70, 481–​82, 986–​87 unilateral  985, 986–​88, 991–​92 reverse consensus  103, 133–​34 RFMOs (regional fisheries management organisations)  826–​28, 830 risks see also SPS Agreement analysis  698, 699, 700–​1, 707, 710–​11 assessment  169, 470–​7 1, 696–​99, 701–​4, 707–​8, 711, 833, 1038 communication  697–​98, 701, 707, 708, 711 management  266, 498, 697–​98, 701, 703–​6, 711, 783–​84 public health  714, 732 RTAs (regional trade agreements)  80–​84, 85–​ 86, 322–​23, 327–​28, 329–​30, 333, 493–​ 94, 554–​57, 572–​73, 918–​22, 940–​43 and ADR  1060 dispute settlement  918–​21 and fisheries  829–​31 Latin America see Latin American, RTAs and trade facilitation  500–​2 and WTO  483, 485, 494, 502 rule of law  136, 140, 199, 216–​20, 372, 481–​82, 815, 1027, 1033, 1035, 1040–​41 rules of conduct  103, 113–​14, 908, 1001–​03, 1027 rules of interpretation see interpretation rules of origin  243, 249–​54, 260–​61, 408–​10, 475, 476, 485–​92, 502 applicable  488, 490, 502

for automobiles/​automotive products  221–​22, 252 CPTPP  249–​54 non-​preferential  487–​88 preferential  419, 488–​90 rules-​based system  92–​93, 199, 502–​3, 554–​55, 714–​15, 1065, 1066 Russia  1–​2, 375–​76, 382, 384, 387–​88, 389–​90, 393, 562–​63, 723, 733, 741, 742, 852–​55 Russian investors  392–​93     SACU (Southern African Customs Union)  400–​1, 416, 855–​56 SADC (Southern African Development Community)  200–​1, 400, 401, 405–​6, 407, 408, 421, 424–​25, 855–​56, 976–​77 dispute settlement  420, 424–​25, 856 EU-​SADC EPA  416–​17, 979–​80 FIP  405–​6, 425 Trade Protocol  405, 425 safe harbor  591, 753–​54 safeguards  140, 348, 382, 416, 447, 463–​64, 575–​76, 593–​98, 870–​7 1, 872 and compensation  598 definition and key elements  596–​98 duration and industry adjustment  597 history  593–​96 import surges  596–​97 non-​discriminatory application  597–​98 security  749, 765–​66 special  562–​63 Safeguards Agreement  47–​48, 61, 62, 67, 107, 123, 327–​28, 348, 458, 459, 463–​64, 575–​ 77, 597–​98 safety, food see food safety sanitary measures  487–​88, 502, 695, 696, 697, 699, 701, 703, 704, 711, 833 scheduled commitments  359–​60, 440, 505–​6, 509 schedules  13, 69–​70, 76, 83–​85, 107–​9, 439, 440, 508–​9, 511–​12, 514–​15 modifications  83–​84, 107–​8, 131 scientific evidence  167–​68, 169, 470–​7 1, 696–​ 97, 698–​99, 702, 951 available  169, 698–​99, 702 complex  167–​68, 1038

Index   1095 scientific experts  710, 1013–​14, 1018 scientific principles  696–​97, 698–​99, 701–​2, 711 SCM (Subsidies and Countervailing Measures) Agreement  256–​57, 459, 460–​61, 575–​76, 582–​83, 587–​89, 591, 592–​93, 615, 794, 796–​97, 810, 812, 824–​ 25, 1031 and SOEs  796–​98 SDGs (Sustainable Development Goals)  324, 333, 411, 458, 604–​5, 614–​15, 619, 621–​22, 639, 649, 653, 681–​82, 817–​18, 819–​20, 821 S&DT  88–​89, 96, 137–​38, 243, 364, 366, 434, 452, 453, 454, 458, 499, 500, 543, 599, 605–​12, 613, 615–​18, 619–​20, 622, 623, 700, 710–​11, 786–​88, 796, 809, 811 agreement-​based approaches  613–​14 effectiveness and eligibility of provisions  608–​12 FTAs between developed and developing countries  618–​22 between developed countries  622 between developing countries  616–​18 recent initiatives and WTO case law  614–​15 vulnerability-​based approaches  612–​13 at WTO  605–​8 security see essential security interests service providers  270, 272, 506–​7, 511, 516, 517–​18, 521, 524 service suppliers  224, 271–​72, 413, 439, 444–​ 45, 506–​8, 511–​12, 514–​15, 517–​18, 766–​ 67, 779–​80, 881 services  41–​42, 224–​25, 267–​72, 273–​74, 384, 439–​41, 504–​7, 509–​10, 511–​13, 516–​18, 519–​20, 530, 687–​89, 758–​59, 771–​73, 774–​78, 808, 868–​70, 877, 878, 890, see also GATS built-​in agendas  511–​13 classification of new services  777–​79 commitments  244–​45, 355–​56, 408–​9, 439, 440, 509 cross-​border  224, 268, 270–​7 1, 272, 525–​26, 771–​72, 774, 805, 860, 877 e-​commerce/​digital trade  525–​26 delivery  225, 526–​27, 529

digital  440, 774–​76, 779–​80 digitization  774–​76 discriminatory measures  508–​9 domestic regulation  514–​15, 517–​24 existing framework  506–​7 financial see financial services foreign  507, 508 free movement  303, 305 good regulatory practices  522–​24 liberalization  82, 315–​16, 439, 440–​41, 511 market access  439–​41 non-​discriminatory measures  509–​11 plurilateral initiatives  506, 513–​15 policed decentralization  509, 517–​20 postal  273–​74, 808 professional  269, 273–​74, 512–​13, 521 public  265–​66, 274, 513–​14, 807, 811 recognition 521 sectors  82, 224, 318, 347, 507, 508–​9, 516–​17, 519–​20, 771–​73, 778–​79 sector-​specific rules  526–​29 social  269, 270–​7 1, 273–​74, 645–​46, 785–​86 subsidies  530, 811 telecommunications  24, 27, 70, 223–​24, 272, 337–​38, 346, 504–​5, 509, 510, 513–​14, 515, 526–​29, 759 temporary entry of business persons  524–​25 Services Chapter  270–​7 1, 272, 805–​6 Singapore  242, 244, 246–​47, 249, 337–​38, 352, 353, 354, 543–​44, 545, 757–​58, 781–​82, 800–​1, 847, 848 EU-​Singapore FTA  243, 288, 718, 733, 738 US-​Singapore FTA  663, 667, 803 Small Vulnerable Economies see SVEs SMEs  150, 274, 290–​91, 321, 326–​27, 329–​30, 335, 339, 519–​20, 647–​48 socialist market economy  344–​45, 347 SOEs (State-​owned enterprises)  240, 245–​46, 256–​57, 329, 360–​61, 363, 365, 367, 371, 513–​15, 516–​17, 591–​92, 815, 1021 commercial  804, 807, 809–​10 country-​specific carve-​outs from TPP  805–​6 definition  257, 802–​6, 1021 disciplines  592, 791, 814–​15 enforcement difficulty  795–​96

1096   Index SOEs (State-​owned enterprises) (cont.) exercise of governmental authority see governmental authority general carve-​outs from TPP  804–​5 government ownership  811, 812 North America  229–​30 Pacific trade  256–​57, 790 post-​TPP developments  814–​15 pre-​TPP disciplines  794 reform and governance  801–​2 and SCM Agreement  796–​98 and sovereign state immunity  809–​10 and transparency  813 and United States  799 use of unfair benefits  810–​12 soft law  241, 260–​61, 786, 882–​90 sources of international trade law  64, see also individual instruments bilateral and regional trade agreements  80–​85 RTA body decisions  84–​85 RTA chapters  82–​84 clarifications provided by dispute settlement system  78–​80 in Eurasian Economic Union (EAEU)  378 instruments contemporaneous with establishment of WTO  72–​73 instruments developed in international fora other than WTO/​GATT  71–​72 multilateral rules  2–​3, 65–​81, 82, 88–​89, 372, 487–​88, 554, 556–​57, 568, 572–​73 preferential trade arrangements  87 sources from GATT 1947 framework  70–​7 1 terminated and expired rules  73 WTO agreements  65–​73 constitutive  66–​67 plurilateral 69 procedural 68 schedules  69–​70 substantive  67–​68 WTO decisions/​actions  74–​80 special decisions/​actions  74–​76 under ordinary decision-​making procedure  76–​78 South Africa  357–​58, 408–​9, 411–​12, 417–​18, 425, 427, 545, 578, 656, 786–​88, 855–​56, 859

South Korea see Korea Southern African Customs Union see SACU Southern African Development Community see SADC south-​south FTAs  605, 617, 618 sovereignty  92, 179–​80, 204, 315, 339, 695–​96, 698, 711, 818–​19, 828, 910, 961–​62, 991 special and differential treatment  88–​89, 96, 137–​38, 243, 349–​50, 364, 434, 452, 453–​ 54, 458, 499, 500, 511–​12, 561, 611, 612–​ 13, 617, 618, 622, 623, 700, 710, 786–​88 specialized committees  84, 146, 147, 148, 149–​ 52, 154, 290–​91 SPS (Sanitary and Phytosanitary) Agreement  106–​7, 469–​74, 695–​700, 701, 704–​5, 706, 707–​8, 709, 710–​11, 940, 1013–​14, 1038, see also risks administration  709–​11 equivalence 706 harmonization  704–​6 horizontal aspects  710–​11 risk analysis  701–​7 risk assessment  701–​3 risk communication  707 risk management  703–​6 transparency of measures  707–​8 SPS (Sanitary and Phytosanitary) Committee  106–​7, 124, 151, 154, 698, 700, 706, 707, 709, 710, 711, 989 standard of proof  741–​42, 1009, 1010–​11, 1012–​13 standards  161–​62, 163–​64, 167, 328, 542, 551, 629, 631–​32, 634, 765, 767, 822–​23, 887, 888, 889, 913–​14 domestic  762–​63, 765–​66 environmental  46–​47, 333, 339, 457, 686, 692–​93 global  547, 786 harmonization  304, 697, 700, 704, 711 international  72, 77–​78, 106–​7, 332, 472, 523, 630, 699, 704, 705, 762–​63, 933, 940 labour  19–​20, 83, 257–​58, 626–​27, 628–​35, 637–​38, 647–​48, 649 minimum  449, 509–​10, 535, 669, 857, 1072 product  37–​38, 150–​51, 306–​7 regulatory  457, 879 social  315, 371–​72

Index   1097 technical  358, 509–​10, 518–​19, 525 state aid see subsidies state responsibility  179, 181–​82, 369–​70, 733, 794, 806, 807, 935, 970–​7 1, 983 state-​led development model  360, 363 state-​owned enterprises see SOEs steel products  481–​82, 495 Sub-​Saharan Africa  411–​12, 417–​18, 419, 654 subsidies  50–​53, 455–​58, 460, 569, 585–​86, 587–​91, 592–​93, 821–​22, 823–​27, 829–​30 actionable  456–​57, 590, 591, 798, 824–​25 agricultural  349–​51 control  315, 516–​17, 985 definitions  586, 587–​90, 797 disciplines  229–​30, 455, 456, 457, 513–​14, 587, 592, 595–​96, 821, 824–​25, 828, 829–​ 30, 834–​35 domestic production  52–​53 export  37–​38, 40, 43, 47, 50–​52, 70, 350, 567–​68, 569, 592–​93 fisheries  351, 604–​5, 679–​80, 681–​82, 818, 819–​20, 821, 822–​31, 833–​34, 835–​36 history  586–​87 non-​actionable  590, 591 notifications  363–​64, 365–​66 production  31–​32, 51, 52, 586–​87 prohibited  456, 457, 815, 826–​27, 1031 services  530, 811 sustainable development  99, 149, 150–​51, 279–​82, 288, 307–​8, 315, 335, 402, 404, 405–​6, 411, 604, 605, 614–​15, 617–​18, 619, 620, 621, 623, 632–​33, 636, 637–​39, 642–​43, 649, 675, 680, 681–​82, 683–​84, 819–​20, 821, 856, 859, 968–​69, see also trade and sustainable development Sustainable Development Goals see SDGs SVEs (Small Vulnerable Economies)  612–​13     tariff preferences  383, 487, 488, 489–​90 tariff-​rate quotas see TRQs tariffs  33–​34, 35, 48–​49, 217–​18, 252, 264–​65, 266, 300–​1, 434–​37, 476, 479, 481–​83, 492–​93, 502, 559–​60, 982t, see also duties additional  251, 368–​70, 986–​87 bindings  54, 283, 434–​35, 480–​81, 1049

classification  266, 441, 485, 486, 491–​92, 499, 500–​1 commitments  73, 266, 930 concessions  11–​12, 53–​54, 70, 83, 84–​85, 345, 494, 591, 593–​94, 598, 974 definition 479 disciplines applicable to  483–​85 elimination  144–​45, 146, 243, 251, 687 import 33f, 34, 35–​36, 37–​38, 40, 46, 47, 49–​ 50, 82, 497 internal  299, 300, 410 MFN  492, 1046, 1054–​56 negotiations  10, 46–​47, 71, 94 preferential  343, 1054 quotas  494–​95, 560–​61 reductions  10, 12–​13, 21, 146, 284–​85, 414, 494, 560, 580, 680–​81, 687–​88, 1066–​67 retaliatory  369–​70, 481–​82, 986–​87 TRQs (tariff-​rate quotas)  250, 316–​17, 494, 499, 1055–​56 unilateral  39–​40, 214, 216–​18 TBT (Technical Barriers to Trade), Agreement  71–​72, 328, 384, 444–​45, 446, 448, 465, 469–​70, 472–​74, 677, 717, 932–​33, 953–​55, 1051 TCA see Trade and Cooperation Agreement Technical Barriers to Trade see TBT technical cooperation  621–​22, 688–​89, 691–​92 technical expertise  154, 428, 884, 887 telecommunications services  24, 27, 70, 223–​ 24, 272, 337–​38, 346, 504–​5, 509, 510, 513–​14, 515, 526–​29, 759, 763–​64 CETA 272 public  528–​29 temporary entry  149, 269, 270, 524–​25, 860 of business persons  149 CETA 269 trade in services  524–​25 North America  236 textile goods  491, 492 textiles  73, 100, 149, 249, 251–​52, 417–​18, 419, 492–​93, 607–​8, 661, 1051, 1052 TFA (Trade Facilitation Agreement)  68, 454, 498–​500, 513, 613–​14, 623, 640–​41, 754–​55 TFTA (Tripartite Free Trade Area)  408

1098   Index third party adjudication  12, 199, 235–​36, 714, 715–​16, 720–​21, 722, 743, 919, 941, 970, 984–​85, 989 third party rights  422, 426, 916, 1021–​22 Third Regionalism  240, 241, 242–​43, 246, 260–​61 time of war  468, 716–​17, 733–​34, 739 TNC (Trade Negotiations Committee)  14–​15, 109–​10, 116 TPA (trade promotion authority)  247, 256, 257–​58, 259 TPP (Trans-​Pacific Partnership)  23–​24, 213–​ 14, 215–​16, 241–​42, 246–​60, 791–​92, 794, 800–​2, 804–​13, 814, 815, 850–​51 countries  799–​801 negotiations  230, 232–​33, 236–​37, 241–​42, 246–​47, 249, 251, 252–​53, 367, 799, 803, 807, 850 and US withdrawal  246–​48 and SOEs  790 TPRB see Trade Policy Review Body TPRM see Trade Policy Review Mechanism Trade and Cooperation Agreement (TCA)  314–​16, 455, 529, 592, 634–​35, 637, 763–​64, 848, 985 trade and sustainable development (TSD)  149, 265–​66, 282, 289–​90, 315, 335, 620, 949, see also sustainable development CETA  279–​82 trade disciplines see disciplines trade facilitation  109–​10, 149, 243, 265, 266, 324, 366, 388–​89, 398, 475, 476, 478, 497–​502, 513 and RTAs  500–​2 Trade Facilitation Agreement see TFA trade in agriculture see agriculture trade in goods see goods trade in services see services trade interests, balancing against non-​trade interests  465–​74 GATT 1994 exceptions  467–​69, 728–​38 SPS Agreement  470–​72 TBT Agreement  472–​74 trade liberalization  242–​43, 558, 559–​60, 562–​ 65, 567–​68, 571–​72, 627, 629, 635–​36, 878–​81

Trade Negotiations Committee see TNC Trade Policy Review Body (TPRB)  94, 104–​5, 989 Trade Policy Review Mechanism (TPRM)  68, 76–​77, 100, 104–​5, 131, 640–​41 trade promotion authority see TPA trade remedies  82, 149, 235–​36, 327–​28, 346, 401–​2, 403–​4, 405, 422, 434, 452, 458–​ 64, 574, 968–​69, 1006, 1035, 1060 anti-​dumping see anti-​dumping bi-​national review  235–​36 common features  458–​60 countervailing duties  585–​93 safeguards see safeguards subsidies see subsidies trade wars  1, 367, 369–​70, 986–​87, 1049 trademarks  227, 274, 276, 466–​67, 487–​88, 535–​36, 538, 539–​40, 542, 548–​49, 551–​52 trade-​related intellectual property rights see TRIPS Transatlantic Trade and Investment Partnership see TTIP Trans-​Pacific Partnership see TPP transparency  44–​45, 94–​95, 183–​84, 259–​60, 447–​49, 509–​10, 512–​15, 517–​18, 527–​28, 700, 707–​8, 813, 872–​74, 881–​82, 890, 1001–​08 obligations  106–​7, 447, 448–​49, 707–​8, 793–​94 regulatory  271, 517 and SOEs  813 at WTO  94–​95 TRIMS (Trade-​Related Investment Measures) Agreement  68, 77–​78, 106–​7, 108, 123, 653, 663 TRIPS (Agreement on Trade-​Related Aspects of Intellectual Property Rights) Agreement  68, 175–​76, 533, 534, 538–​41, 544–​45, 548, 549, 653, 656, 661–​63, 664–​67, 669–​70, 717 Council  105, 108, 123, 666 GIs (geographical indications)  539–​41 and medicines  660–​69 negotiations  660–​61, 662–​63, 664, 665, 667–​68 TRQs (tariff-​rate quotas)  250, 316–​17, 494, 499, 1055–​56

Index   1099 Trump administration  98, 138–​39, 140, 141–​ 42, 192–​93, 198, 199, 200–​1, 203–​4, 218, 219–​20, 610, 611, 850, 851 and rule of law  216–​20 TPP withdrawal and NAFTA renegotiation  215–​16 TSD see trade and sustainable development TTIP (Transatlantic Trade and Investment Partnership)  2–​3, 23–​24, 185–​86, 263–​ 64, 287, 355–​56 negotiations  265–​66, 277–​78, 287     UCC (Union Customs Code)  299–​300, 301 UMA (Arab Maghreb Union)  400, 407, 420 UNCITRAL (United Nations Commission on International Trade Law)  278, 291, 392, 839, 840, 842, 848, 853, 860–​61, 863, 866, 1003–​04 Arbitration Rules  421, 999–​1001, 1008, 1014 procedural reforms  863–​65 UNCLOS (United Nations Convention on the Law of the Sea)  178–​79, 820, 822–​23, 833–​35, 836 Understanding on Commitments in Financial Services  70, 527–​28 unfair competition  176, 535–​37, 539–​40 Union Customs Code see UCC United Kingdom  10, 162, 263–​64, 292, 295, 311–​12, 313–​14, 316–​18, 411–​12, 414, 592, 847–​48, 851, 853 Brexit see Brexit UK-​EU TCA  523–​24, 526, 529 United Nations Commission on International Trade Law see UNCITRAL United Nations Convention on the Law of the Sea see UNCLOS United States  165–​66, 212–​16, 219–​22, 225–​30, 235–​37, 247–​48, 251–​53, 411–​19, 543–​44, 569–​70, 578–​80, 629–​32, 667–​69, 750–​ 54, 850–​51, 982t AGOA (African Growth and Opportunity Act)  417–​19, 607 and China  26–​27, 81, 193, 196, 203–​6, 846, 982t Free Trade Commission  147, 148–​49, 152

FTAs  21, 225, 231–​32, 245–​46, 251, 257–​58, 353, 630–​31, 663, 667–​68, 718–​19, 763–​64 Government  247, 259, 368–​69, 418–​19 GSP (Generalized System of Preferences)  417–​18, 607–​8 KORUS (US-​Korea Free Trade Agreement)  143, 147, 148, 149, 150, 850, 853 and Mexico  225, 228–​29, 232–​33, 234, 235–​ 37, 263, 264, 275–​76 privacy and data protection  752–​53 and SOEs  799 tariffs  10, 217–​18, 369 Trade Representative (USTR)  217–​18, 361–​62, 363–​64, 367–​68, 611, 779–​80, 783, 850–​51, 853 undermining enforceability of NAFTA and WTO agreements  218–​20 US-​China trade war  366–​70, 371 USMCA (United States-​Mexico-​Canada Agreement)  143, 148–​49, 214, 217, 219, 220–​38, 252, 481, 500–​1, 631–​32, 764–​ 66, 783–​84, 786–​88 agriculture  225–​26 data protection  668, 670–​7 1, 759, 761, 763–​64 digital products  231, 256, 757–​58, 781–​82, 783 dispute settlement  85, 226, 232–​33, 635–​36, 949–​51, 954, 963, 965, 968–​69 government procurement  228–​29 intellectual property  227–​28 labour  487, 637, 638, 645, 647–​48, 649 risk analysis  701, 709 rules of origin  486 secretariat 152 services  522–​23, 527–​28, 529 SMEs 233 SOEs  229–​30, 814, 815 US-​Singapore FTA  663, 667, 803 withdrawal from TPP negotiations  246–​48 universal service obligations  510, 529, 804 Uruguay Round  7–​8, 13, 14–​15, 18–​20, 345, 594–​96, 660–​61, 677, 793–​94, 896, 1050–​60 negotiations  18, 196–​97, 345, 662–​63, 771–​ 72, 777–​78, 849, 930, 1050

1100   Index US-​Korea Free Trade Agreement see KORUS USTR see United States, Trade Representative     valuation, customs  12–​13, 300–​1, 451, 478, 499, 500–​1, 608–​9 value chains global  22, 26, 40–​41, 47, 476, 489, 490, 502, 649 regional  324, 337 VCLT (Vienna Convention on the Law of Treaties)  17, 72, 113–​14, 369–​70, 478–​ 79, 554–​55, 905–​6, 923–​24, 943–​44, 956–​57, 959, 960, 1034 rules of interpretation pursuant to  926–​37 VERs (voluntary export restraints)  47–​48, 49, 495, 594–​95, 598 veto  121, 124, 126–​27, 184, 198, 286, 896, 917, 941, 1029 Vienna Convention on the Law of Treaties see VCLT Vietnam  242, 243, 245–​46, 247, 249, 251–​52, 256, 543–​44, 545, 786–​88, 847, 848 voluntary export restraints see VERs voting  66, 88, 93, 119–​22, 123–​24, 125–​26, 127, 130–​33, 135 accessions  131–​32 amendments 131 budget 132 majority  91–​92, 119–​27, 132, 133, 135, 157, 184 provisions excluding  125 rights  257, 357–​58, 803–​4, 815 waivers  129–​30     WAEMU (West African Economic and Monetary Union)  400–​1 waivers  71, 74, 87, 101–​2, 123, 124, 130, 219–​20, 414, 417, 454, 933, 1054–​56 voting  129–​30 war materials  717, 718 time of  468, 716–​17, 733–​34, 739 Washington Consensus  322–​23 WCO (World Customs Organization)  73, 380, 477, 478, 500–​1 West Africa  400–​1, 414–​16

West African Economic and Monetary Union (WAEMU)  400–​1 WIPO (World Intellectual Property Organization)  71–​72, 534–​35, 547, 550 Working Party on Domestic Regulation see WPDR World Bank  100, 216, 364, 504–​5, 610, 613–​14, 628, 889–​90 World Customs Organization see WCO World Intellectual Property Organization see WIPO World Trade Organization see WTO WPDR (Working Party on Domestic Regulation)  512–​13, 514–​15, 519–​20, 525 WTO (World Trade Organization)  767, see also Introductory Note accession see accession acts  118, 183–​84 adjudication  114, 139, 190, 219–​20, 428, 714–​ 15, 732, 973, 979, 980, 986–​87, 988, 1023, 1043, 1053, 1054 adjudicators  112–​13, 142, 448–​49, 457–​58, 459, 462–​63, 464, 468, 906, 1020, 1022, 1023, 1027, 1032–​33, 1035 agriculture  557–​68 Appellate Body see Appellate Body bodies  65, 72–​73, 94, 96, 117–​18, 119, 137–​38, 478, 614, 678–​79 budget  97–​98 decision-​making  118–​35 dispute settlement see DSU; dispute settlement DSB see DSB and Eurasian Economic Union (EAEU)  385–​87 exclusive and compulsory jurisdiction  177–​79 framework  21, 22–​23, 65, 88, 142–​43, 150–​51, 188, 580–​81, 754–​57, 773, 962–​63, 994–​95 General Council see General Council institutional crisis  139–​42 institutional entities  99–​118 institutional structure and proposals for change  136–​38 interpretation of Agreements  924–​26 jurisprudence  168–​70, 176, 422–​23, 588, 640, 960, 1011–​12

Index   1101 legal status  95 and legitimacy  196–​99 Members  197–​99, 363–​64, 470–​72, 480–​81, 513–​15, 539–​41, 610, 665–​67, 669–​7 1, 715, 716–​17, 731–​32, 734–​35, 742–​43, 824–​26, 912–​13, 994–​95 membership  1, 59, 61, 96–​97, 182–​83, 414, 637, 642–​43, 754–​55, 828, 926, 989, 998 Ministerial Conferences  18, 66, 74, 96–​97, 100, 101–​2, 108–​9, 115, 124, 129–​30, 131–​ 32, 361–​62, 825–​26, 899–​900 negotiations  77, 105–​6, 239–​40, 260, 365, 366, 440–​41, 540–​41, 610, 611–​12, 614, 822, 826, 827 objectives and functions  99–​100 origins 93 panels  1, 178–​79, 181–​82, 186–​87, 387, 388, 725, 726, 741–​42, 943, 946–​47, 948, 955–​ 56, 1027, 1028–​29

establishment  16, 283, 426, 455, 899, 901–​ 3, 907, 1029, 1048 members 1028 privacy  754–​57 reform  23, 204, 360–​66, 369, 372, 447–​48, 610 and RTAs  483, 485, 494, 502 S&DT  605–​8 Secretariat  66, 117, 137–​38, 283, 440, 614, 640, 685–​86, 691, 900, 902, 903, 1035–​37 security exceptions  716–​17 system  48, 53, 60, 62, 158, 186, 190, 198–​99, 455, 680, 792–​93, 796–​97, 916–​17, 918, 921–​22 Trade Policy Review Body (TPRB)  94, 104–​5, 989 transparency  94–​95 WTO-​inconsistency  453, 721, 726–​27, 739, 743, 968, 974–​75, 983