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Flexibility or Gridlock? The Promises and Perils of Popularizing Plurilateral Agreements at the WTO

Published on October 1, 2015        Author: 

Editor’s Note: This post responds to Bernard Hoekman and Petros Mavroidis’ article in the current issue of EJIL Vol. 26 (2015), No. 2, titled “WTO ‘à la carte’ or ‘menu du jour’? Assessing the case for more Plurilateral Agreements”. For a post by the authors of the article, introducing their piece, see here. For other comments see here and here . For the authors’ concluding response, see here.

Professors Bernard Hoekman and Petros Mavroidis’ EJIL article WTO ‘a la carte’ or ‘menu du jour’? Assessing the Case for More Plurilateral Agreements provokes much thought on opportunities for achieving better flexibility and neutralizing gridlocks at the WTO. The article was published soon after WTO Director General Roberto Azevedo lamented the organization’s failure to reach a work programme under the Doha Development Agenda (DDA) under its 31 July 2015 deadline, which could conceivably impede trade negotiations at the next WTO Ministerial Conference at Nairobi in December 2015. Professors Hoekman and Mavroidis provide a brilliant exposition of the factors to be considered in using the plurilateral agreement (PA) route while attempting to build multilateral agreement on more frontiers of world trade.

While I completely agree with Professors Hoekman and Mavroidis that more ‘variable geometry’ is needed now to breathe life into the trade negotiations mandate of the WTO, I do wonder whether devoting organizational resources at this stage to develop a PA ‘code of conduct’ with transparent terms on the mode of negotiating issue-specific PAs, is something that the WTO can politically afford at this stage of institutional stagnation and negotiations inertia over the DDA. A PA duly approved by the WTO membership under Art. X.9 of the WTO Agreement could indeed be a viable path to achieve harmonization and discipline over non-tariff measures, but how could this be harnessed to incentivize reaching a multilateral agreement among WTO members? If the two remaining PAs to date – on civil aircraft and government procurement – have not been universally ratified or widely opted into by WTO members to date, how can this be done under a strategically-crafted PA (as Hoekman and Mavroidis appear to suggest in proposing more usage of this route under an upfront code of conduct addressing the scope of coverage, e.g. an issue for WTO Plus, or a WTO Minus X issue on regulatory policy cooperation)?

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Feasibility and desirability of ‘clubs’ within the WTO: A critical comment on Hoekman/Mavroidis’ case for plurilateral agreements (PAs)

Published on September 30, 2015        Author: 

Editor’s Note: This post responds to Bernard Hoekman and Petros Mavroidis’ article in the current issue of EJIL Vol. 26 (2015), No. 2, titled “WTO ‘à la carte’ or ‘menu du jour’? Assessing the case for more Plurilateral Agreements”. For a post by the authors of the article, introducing their piece, see here. For other comments see here and here. For the authors’ concluding response, see here.

Two phenomena characterize the contemporary world trading system, namely, the deadlock of the Doha Development Agenda (DDA) and the proliferation of preferential trade agreements (PTAs), in particular, mega-FTAs such as Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP). The former illustrates the difficulty of the 161-member WTO in reaching consensus in trade negotiations, and this may have been one of the driving forces for the latter. Proliferation of PTAs has both pros and cons for the world trading system. On the one hand, PTAs facilitate trade liberalization between the parties, and they may be an incubator of new rules governing global trade and investment. On the other hand, PTAs may have trade diverting effects for non-parties. Their proliferation may result in the fragmentation of rules for global trade and investment. To sum up, the contemporary world trading system is suffering from the decay of the multilateral trading system and the disorderly proliferation of PTAs. Hoekman and Mavroidis’ recent article, titled “WTO ‘à la carte’ or ‘menu du jour’?”, published in the latest issue of the EJIL (Vol.26, No.2), tries to find a breakthrough in the world trading system by advocating the use of plurilateral agreements (PAs).

They are not the pioneers of advocating PAs. For instance, Richard Baldwin, in his article in 2012 (Richard Baldwin, “WTO 2.0: Global governance of supply chain trade”, Centre for Economic Policy Research Policy Insight No.64, December 2012), advocated a ‘WTO2.0’, which is practically a PA with limited membership, consisting of those WTO members who accept high-level rules that secure the well-functioning of global supply chains, without the special and differential treatment (S&D) to developing countries which is incorporated in the current WTO Agreements, or WTO1.0. A similar proposal was made by Michitaka Nakatomi in his article in 2012 [Michitaka Nakatomi, “Exploring Future Application of Plurilateral Trade Rules: Lessons from the ITA and the ACTA”, RIETI (Research Institute for Economy, Trade and Industry) Policy Discussion Paper 12-P-009, May 2012]. These proponents of PAs and Hoekman/Mavroidis share the common view of the contemporary world trading system. First, they regard the stalemate of the DDA as a result of the incapacity of the WTO in meeting the needs of the 21st century global trade, characterized by the globalization of value chains. Secondly, they regard the proliferation of recent RTAs, in particular mega-FTAs, as attempts by major trading countries to meet such needs. Thirdly, however, they don’t think of the proliferation of RTAs as an optimal solution to the challenges of the 21st century global trade, mainly because it might result in the fragmentation of rules for global trade and investment.

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WTO ‘à la carte’ or ‘menu du jour’? Assessing the case for more Plurilateral Agreements

Published on September 30, 2015        Author: 

Editor’s Note:  This is the first in a series of posts discussing the article in the current issue of EJIL Vol. 26 (2015) No 2, by Bernard Hoekman and Petros Mavroidis. See also the  posts  discussing the article by Junji Nakagawa, Diane Desierto, and Geraldo Vidigal. For the authors’ concluding response, see here.

The WTO and … ‘clubs’

The long-running Doha Round deadlock illustrates how difficult it has become to get agreement on new rules of the game among 161 WTO Members. The Agreement on Trade Facilitation that was negotiated at the 2013 WTO Ministerial meeting in Bali demonstrated that this is possible, but the proliferation of preferential trade agreements (PTAs) illustrates that many countries have been moving away from using multilateral trade agreements to liberalize international commerce and agree to new policy disciplines. Recent examples of PTAs that involve major trading nations include the agreements signed by Korea with the EU and the US and the ongoing Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP) negotiations. It may be that one of the consequences of the Doha deadlock has been to give countries greater incentives to engage in PTAs. But there may be a reverse causality effect as well: the existence of the PTA option may reduce the incentive to agree on rules on a multilateral basis. Whatever the case may be, the proliferation of PTAs results in fragmentation of the global trading system and generates substantial information and transactions costs for traders.

There has been some action in the WTO on market access issues. This has taken the form of so-called critical mass agreements, under which concessions negotiated among a subset of countries are extended to all WTO Members a nondiscriminatory, most-favoured-nation (MFN) basis. Examples include ongoing negotiations to liberalize trade in environmental goods and the effort to extend the coverage of sectoral initiatives to liberalize trade, most notably the 1997 Information Technology Agreement (ITA). Critical mass agreements have always been an important mechanism in the GATT/WTO setting: if enough large players participate in a liberalization exercise they need not worry about free riding by other countries that do not want to participate.

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Anti-Fragmentation Strategies: the Curious Case of the EU and World Trade Law

Published on February 20, 2015        Author: 

The investor-State dispute settlement provisions of the EU’s proposed new free trade agreements with the US (the Transatlantic Trade and Investment Partnership – TTIP), Canada (the Comprehensive Economic and Trade Agreement – CETA) and Singapore (the EU – Singapore Free Trade Agreement) are receiving considerable coverage in the popular media as well as within academic circles (note the recent EJIL: Talk! posts here and here). However, these agreements include not only investor-State dispute settlement but also inter-State dispute settlement provisions which should be equally interesting to international lawyers. On the one hand these provisions provide incentives to resolve trade disputes involving big trading players bilaterally, outside the WTO’s multilateral system, while on the other hand their provisions also reflect an attempt to address problems of fragmentation within the international legal system.

As with many areas of international law, world trade law has historically been concerned with the dangers of fragmentation. While the WTO may be viewed as a ‘fragment’ of the international legal system, within the WTO there is particular worry over the role of new free trade agreements. Why, when you have a multilateral institution with a comparatively clear set of obligations and relatively effective dispute system, would you conclude free trade agreements which contain substantively similar (though often wider ranging) obligations? The fear here is of what Jagdish Bhagwati called the ‘spaghetti bowl’ – a mass of regional or bilateral agreements concluded without consideration for each other or their implications for trade, potentially increasing costs, regulation and distorting conditions of competition for traders.

The concern is not only economic (i.e. that free trade agreements will undermine the non-discriminatory backbone of the current trade settlement), it is also legal: the ‘spaghetti bowl’ can distort the coherence of a legal system and its attendant expectation of certainty as much as it can distort the conditions of competition in trade. Nonetheless, institutional deadlock at the WTO has led to a number of free trade agreements being concluded globally. Until now, cases which have involved overlapping free trade agreement and WTO obligations have been resolved on the system in question’s own terms: for example, the Argentina v Brazil, Pork Subsidies MERCOSUR tribunal using more detailed WTO provisions to interpret a Decision (para. 57) or the Appellate Body in Mexico – Soft Drinks acknowledging NAFTA obligations but not seeing any basis for adjudicating upon them directly (paras. 54-56). Read the rest of this entry…

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The EU/US v. Russia Trade Wars: Revisiting GATT Article XXI and the International Law on Unilateral Economic Sanctions

Published on September 22, 2014        Author: 

The EU, US, and Russia are far from reaching any détente in the economic warfare waged between some of the world’s economic powerhouses. On 11 September 2014, the US and EU announced a deepening of their current joint economic sanctions over Russian actions in the Ukraine, this time imposing sanctions targeting Russian banks and oil companies. The new EU September 12 sanctions exclude Russian banks from raising long-term loans in the EU, ban any exports of dual-use equipment for military use in Russia, ban future EU-Russia arms deals, and prohibit EU export of oil industry technology to Russia. The United States has also announced that it would likewise deepen and broaden sanctions against Russia’s financial, energy, and defense industries. In response, Russia announced a “full embargo” on food imports from the United States, the European Union, Canada, Australia, and Norway, which it subsequently expanded in September to include used cars, clothes, and consumer products, in retaliation for the latest round of EU and US sanctions. On 12 September 2014, Russian Economy Minister Aleksey Ulyukaev announced that the latest round of US and EU sanctions “provides grounds for appeal to the WTO..and [Russia] will appeal.”

Does Russia have a plausible case against the US and the EU at the WTO?

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Keep Calm and Call (no, not Batman but …) Articles 31-32 VCLT: A Comment on Istrefi’s Recent Post on R.M.T. v. The UK

Published on June 19, 2014        Author: 

Panos MerkourisPanos Merkouris, LL.M (Athens) 2004; LL.M (UCL, London) 2005; Dr. iur. (Queen Mary, London) 2010 is Lecturer in Public International Law in the Faculty of Law at the University of Groningen.

In a recent post on R.M.T. v. The UK: Expanding Article 11 of the ECHR Through Systemic Integration’ Kushtrim Istrefi raises important issues with respect to the application and content of Article 31(3)(c) of the Vienna Convention on the Law of Treaties (VCLT). Although I agree with the general conclusion that Article 31(3)(c) is not a panacea and should not be used as a backdoor for judicial activism, I think it pertinent to highlight certain issues as to the manner in which this conclusion is reached and in particular regarding the presumed content of Article 31(3)(c).

Firstly, let me clarify that this post is not about evolutive interpretation to which the ECtHR seems to be partial. Nonetheless, I agree with Eirik Bjorge’s comment to the above post, that this idea of ECHR as a living instrument is included in the preamble (‘…further realisation of human rights and fundamental freedoms’). Furthermore, the connection of evolutive interpretation with Article 31(3)(c) is particularly evident in ‘generic terms’. A ‘generic term’ can be understood either as ouverture du texte or renvoi mobile (Georgopoulos (2004) 108 RGDIP 132-134). In the former case, the openness of the term allows the content of the norm to change alongside the factual situation contemplated (‘evolution of fact’). Such an interpretation probably falls under Article 31(1). In the case of renvoi mobile, the norm, whenever interpreted, reflects the ‘evolution of the law’. As the law changes so does the content of that norm. In this case, evolutive interpretation could be understood as also being based on Article 31(3)(c).

Kushtrim’s main argument is that because ILO Convention No. 87 and the European Social Charter (ESC) are not binding on all member States of the Council of Europe (CoE), they probably do not fall within the scope of Article 31(3)(c). This conclusion is based on a restrictive interpretation of Article 31(3)(c), which holds that the Article should be read as ‘any relevant rules of international law applicable in the relations between the parties to the treaty’ and not expansively, as ‘…between the parties to the dispute’. This restrictive interpretation allegedly finds support in EC-Biotech:

7.68… This understanding of the term “the parties” leads logically to the view that the rules of international law to be taken into account in interpreting the WTO agreements at issue in this dispute are those which are applicable in the relations between the WTO Members…

7.69 … Accordingly, based on our interpretation of Article 31(3)(c), we do not consider that in interpreting the relevant WTO agreements we are required to take into account other rules of international law which are not applicable to one of the Parties to this dispute.

With respect to this restrictive interpretation I would like to raise the following three issues: Read the rest of this entry…

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Mackerel War Called Off?

Published on April 9, 2014        Author: 

In November 2013 we wrote about a remarkable WTO dispute initiated by Denmark against the EU (The ‘Mackerel War’ Goes to the WTO). The case is remarkable because it has pitted one EU Member state against the other 27. Denmark, a member of the EU, brought the case “in respect of the Faroe Islands” which are part of Denmark, but not of the European Union.

The dispute concerns fishing quotas jointly managed by the Faroes, Iceland, Norway, Russia, and the EU under the Atlanto-Scandian Herring Management Arrangements. In annual negotiations, the parties decide on the division of the total allowable catch (TAC). In 2013 parties were unable to reach agreement, largely due to refusal to accommodate the Faroe Islands request for a larger part of the Total Allowable Catch (TAC).

When the Faroe Islands unilaterally decided to increase their catch, the EU responded by prohibiting import of herring and mackerel from the Faroe Islands. Denmark then brought a WTO dispute as well as arbitration proceedings under Annex VII of UNCLOS. In its request for consultations to the WTO, Denmark claimed the EU’s response to be in breach of GATT Article I:1, V:2 and XI:1. Denmark also reserved its rights under UNCLOS.

The parties have recently settled their dispute in respect of mackerel. On 12 March 2014, the Faroe Islands, Norway and EU concluded a joint arrangement for the conservation and management of the North East Atlantic mackerel stock for the next five years. The arrangement allocated 13% of the TAC between the parties (not including Russia and Iceland) to the Faroe Islands. This is a sizeable increase compared with the 5% that had been previously allocated to the Faroese, and the proportion is set to increase again next year.

The WTO dispute, however, is centered on herring, whereas the new agreement only deals with mackerel. Pending an agreement on herring, the WTO complaint and the UNCLOS Annex VII arbitration continue, and EU Regulation 793/2013, establishing sanctions against the Faroe Islands, remains in force. Read the rest of this entry…

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Evidence in Environmental/Scientific Exceptions: Some Contrasts between the WTO Panel Report in China-Rare Earths and the ICJ Judgment in Whaling in the Antarctic

Published on April 7, 2014        Author: 

Rare earths imageTwo significant international decisions involving environmental protection claims were issued within the last few days of March 2014.  On 26 March 2014, a World Trade Organization (WTO) Panel issued its Report in China-Measures Related to the Exportation of Rare Earths, Tungsten, and Molybdenum (hereafter, China-Rare Earths), which held, among others, that “China may not seek to justify the export duties it applies to various forms of rare earths, tungsten, and molybdenum [pictured above left, credit] pursuant to Article XX(b) [exception for measures “necessary to protect human, animal or plant life or health”] of the GATT 1994.” (Panel Report, para. 8.11b)  On 31 March 2014, the International Court of Justice issued its Judgment in Whaling in the Antarctic (Australia v. Japan: New Zealand intervening) (hereafter, the Whaling case) where the Court held, among others, that “the special permits granted by Japan in connection with JARPA II [Japanese Whale Research Programme under Special Permit in the Antarctic Phase II] do not fall within the provisions of Article VIII, paragraph 1 [, of the International Convention for the Regulation of Whaling.” [Judgment, para. 247(2)].  In China-Rare Earths, China sought to justify export duties that facially violated Paragraph 11.3 of China’s Accession Protocol to the WTO, by essentially alleging that these duties were justifiable as measures “necessary to protect human, animal, or plant life or health” within the purview of Article XX(b) of GATT 1994.  In the Whaling case, Japan sought to justify JARPA II as a programme “undertaken for purposes of scientific research and is therefore covered by the exemption provided for in Article VIII, paragraph 1, of the [International Convention on the Regulation of Whaling].” (Judgment, para. 49).  While both decisions contain rich analyses of numerous issues of treaty interpretation, one can also look at significant methodological contrasts between the ICJ and the WTO Panel on the treatment of scientific evidence and assignment of evidentiary burdens for the environmental/scientific issues in each case.

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The Right to Regulate for Public Morals Upheld (Somewhat): The WTO Panel Report in EC-Seal Products

Published on January 27, 2014        Author: 

Whitecoat Seal PupThere have been few interpretations of Article XX(a) of the General Agreement on Tariffs and Trade (GATT 1994) – the  specific exception that justifies what would ordinarily be a State’s GATT-inconsistent measure, unless such measure is deemed “necessary to protect public morals”.  As with any of the ten enumerated exceptions under Article XX of GATT 1994, a State invoking GATT Article XX(a) must first meet the requirements of the specific exception (e.g. demonstrating that the challenged measure is indeed “necessary to protect public morals”), and thereafter show that the challenged measure also complies with the overall requirements of ‘good faith’ (Brazil – Measures Affecting Imports of Retreaded Tyres, Appellate Body Report of 3 December 2007, at para. 215) as contained in the chapeau to Article XX (e.g. demonstrating that the challenged measure is not being applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade).  The 25 November 2013 Panel Report in European Communities – Measures Prohibiting the Importation and Marketing of Seal Products [hereafter, “EC-Seal Products“] issued the very first decision upholding a State’s right to regulate for public morals as an exception under Article XX(a) of GATT 1994, in relation to ongoing trade arising from seal hunting (pictured above left,) and seal products.

It may be recalled that the 2009 Panel Report in China- Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products [hereafter, “China – Publications and Audiovisual Products“] was the first occasion for a WTO panel to directly interpret the scope and meaning of measures “necessary to protect public morals” under GATT Article XX(a). China had invoked the “public morals” exception in GATT Article XX(a) to justify a set of measures that regulated the entry of foreign publications, audiovisuals and other media forms.  China argued that its regulations were designed to protect public morals in China by reviewing the content of foreign cultural goods and forms of expression that could potentially collide with significant values in Chinese society.  The China – Publications and Audiovisual Products Panel had little trouble accepting the interpretation of “public morals” (China-Publications and Audiovisual Products, para. 7.759) already laid down in the 2004 Panel Report in United States- Measures Affecting the Cross-Border Supply of Gambling and Betting Services [hereafter, “US-Gambling“], which had defined “public morals” in Article XIV of the General Agreement on Trade in Services (GATS), as “standards of right and wrong conduct maintained by or on behalf of a community or nation” (US – Gambling, para. 6.465).  However, the Panel ultimately rejected China’s assertion of GATT Article XX(a) exception (China-Publications and Audiovisual Products, para. 7.911), finding that China had failed to show the “necessity” of its challenged measures for the supposed purpose of protecting public morals.  The Appellate Body upheld these findings in its December 2009 Report.

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The ‘Mackerel War’ Goes to the WTO

Published on November 13, 2013        Author: 

Faroe_Islands_in_its_regionIn a typical David and Goliath story, the Faroe Islands – a small archipelago situated northwest of Scotland, halfway between Iceland and Norway, and inhabited by less than 50,000 people – have  requested consultations with the European Union under the WTO’s Dispute Settlement Understanding. The dispute, which concerns fishing rights in the North Atlantic, has been dubbed the ‘mackerel war’ although it primarily concerns herring – mackerel being described as an ‘associated’ species.

Atlanto-Scandian herring is the largest herring stock in the world. Heavy exploitation due to overfishing led the stock to collapse and to the cessation of all fishing from the early 1970s to the 1990s. Atlantic herring is highly migratory and during its life cycle it migrates between the 200-miles EEZs of several States. Today, fishing quotas are jointly managed by the Faroes, Iceland, Norway, Russia, and the EU under the Atlanto Scandian Management Arrangements. In recent years, the Faroes have been catching about 17 percent of the entire quota, although their allocated share is approximately five percent. The Faroes have justified the higher quota arguing, together with Iceland, that rising sea temperatures have led to an increase in fish stocks.

On 28 August 2013 the EU introduced ‘trade measures’ against the Faroe Islands. The measures include a prohibition on imports of herring and mackerel into the EU, as well as the prohibition of use of EU ports by Faroese vessels. The Faroes has condemned the EU sanctions and declared the measures a ‘contravention of… international obligations to cooperate on the management of shared fish stocks.’

The dispute has left the Danish Government in a difficult position. Read the rest of this entry…

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