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An International Investment Advisory Center: Beyond the WTO Model

Published on July 26, 2019        Author: 

Establishing an international investment advisory center is now a priority for many states.  UNCITRAL Working Group III has put the issue at the top of its agenda for ISDS reform.  The European Commission is considering an advisory center for its proposed Multilateral Investment Court.  The Netherlands government has commissioned a feasibility study.

Thinking about an international investment advisory center naturally starts with the Advisory Centre on WTO Law (ACWL).  Established in 2001, the ACWL is the “first true center for legal aid within the international legal system.”  It seeks to level the playing field by giving developing states the same in-house capacity that developed states enjoy.  The ACWL provides developing states with training, confidential advice on WTO law, and assistance or financial support during WTO dispute-settlement proceedings.  The center receives funding from developed and developing states, including voluntary contributions and (below-market) fees from dispute-settlement proceedings.  Two decades on, the ACWL has established itself as an integral part of the WTO dispute settlement system, playing “a crucial role in maintaining a viable and credible rules-based multilateral trading system.” 

But is the ACWL the right model for an international investment advisory center?  Unlike the WTO regime, the international investment regime is decentralized.  There is no global treaty on investment protection, no global forum for addressing all investment-related issues, and no global institution to help states avoid, manage, and resolve investment disputes efficiently and effectively.  Instead, each State—developing and developed—must devise its own approach to foreign investment and devote the human and financial resources necessary to comprehend, navigate, and develop that regime.

The decentralized nature of the international investment regime has important consequences.  States often struggle to comprehend and comply with their international investment commitments across all levels of government, making it difficult to avoid or settle investment disputes.  Many states lack significant expertise with investment arbitration, making it difficult to defend themselves effectively, or proactively shape the development of international investment law.  States’ frequent reliance on external counsel may hinder the development of in-house government legal capacity essential to establishing coherent and consistent national treaty practice. A cycle of uncertainty, inexperience, and incapacity has bred discontent with the current regime, threatening its legitimacy.  Viewed from that perspective, an international investment advisory center focused primarily on helping developing-state respondents in investment arbitration may fail to address underlying needs and broader concerns.

Broad Participation, Maximum Impact, Minimum Cost

A successful advisory center could help fill six gaps in the international investment regime: Read the rest of this entry…

 
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Life Without the WTO – Part II: Looking to the Everyday

Published on April 26, 2019        Author: 

Editors’ Note: This is the second post of a two part series by EJIL:Talk Contributing Editor Michael Fakhri. Part I can be found here.

In this second post I want to provide two examples of how life might look like without the WTO. One could do this in a myriad of ways and my purpose is to encourage more thinking along these terms and not to define that debate (well, not yet at least). Let’s see what the world looks like when we highlight the everyday practices of procuring food and doing business:

If a central tenet of the WTO is trade liberalization, the Agreement of Agriculture has always been a failure no matter what your definition of liberalization is. Developing countries had, either through the coercion of IMF structural adjustment programs or unilaterally with the aid of World Bank programs, already implemented a small revolution and liberalized their agricultural sectors before 1994. By the late 1980s, they were export-oriented and did little to protect (i.e. support) domestic agricultural production. So, developing countries did not need the WTO to liberalize their agricultural markets.

Instead, the Agreement of Agriculture, took what was an exception under GATT, and turned it into the norm through things like the Green Box (defined in Annex 2 of the Agriculture Agreement). The most popular way that rich countries made exceptions within GATT for their agricultural policy was under GATT Article XII which allowed for quantitative restrictions to be temporarily employed in order to avoid a fiscal crisis caused by a serious balance of payment deficit. In 1955, this temporary exception became the permanent rule when a very generous waiver was granted to the US (BISD 3S/34-5) and a more conditional ‘Hard Core Waiver’ (BISD 3S/39) for the rest of the world but which primarily favored the then EEC. The result was that the GATT now granted countries permission to impose quantitative restrictions for trade in agriculture. The waivers became the rule and were in effect until 1994. With the WTO’s Agreement of Agriculture, the world’s largest markets continued to be closed off to developing countries. Read the rest of this entry…

 
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Life Without the WTO – Part I: Stop all this Crisis-Talk

Published on April 25, 2019        Author: 

Editors’ Note: This is the first part of two posts by EJIL:Talk! Contributing Editor Michael Fakhri.

We hear a lot today about the WTO being in crisis. Some people have focused on institutional changes are imagining life without the DSU if it is not reformed. Others are proposing that the WTO consider life without the US. I think, however, we’re at a moment when it’s worth imagining life without the WTO (or at least radically reimagining the WTO). It is actually not too difficult a task if you look at one place the WTO should not have gotten into in the first place – agriculture – and one place where people conduct cross-border business and the WTO is nowhere in sight – the informal economy. I’ll address those in my second blog post.

But first, all this new talk of a WTO crisis is overblown. The WTO was born into a crisis. In light of the Marrakesh Agreement’s 25th birthday this month, it is worth recounting some living memory surrounding the WTO. In the final years of the Uruguay round, farmers in India argued with each other in the streets and in the newspapers over whether they would benefit from a freer market. Environmentalists around the world re-energized their protest efforts having learned some lessons in trade law from the GATT Tuna-Dolphin cases. And labor unions worried about a regulatory race to the bottom. The food sovereignty movement was galvanized by the advent of the WTO and continues strong to this day. Read the rest of this entry…

 

Lack of Certification of the WTO Schedules of the United Kingdom: A Way for Frictionless Trade under a No-deal Brexit Scenario?

Published on March 7, 2019        Author: 

The departure of the United Kingdom (“UK”) from the European Union (“EU”) without any agreement, the so-called no-deal Brexit, seems more likely to happen after the House of Commons voted against Theresa May’s Brexit deal by a record margin of 230 votes (432-202) on 15 January 2019. Under a no-deal scenario, World Trade Organization (“WTO”) rules will govern the UK’s trading relationship with both the EU and other countries. The UK’s trade in goods and services will be subject to most-favoured nation (“MFN”) tariff rates.

However, the UK, as a member State of the EU, does not have its own schedules of concessions under the WTO – for now – because the EU, as a single customs union, has consolidated schedules for goods and services. Accordingly, to conduct its post-Brexit trade, the UK submitted draft schedules on goods and services for certification in 2018. The UK is currently negotiating its schedules with other WTO Members, but time is running short ahead of the UK’s scheduled exit from the EU on 29 March 2019. If the UK fails to certify its schedules before March 2019 – a highly likely scenario – the question becomes whether the UK could unilaterally establish its new schedules and conduct trade based on “uncertified” schedules that have not been agreed by all WTO Members. Read the rest of this entry…

 
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WTO Dispute on the US Human Rights Sanctions is Looming on the Horizon

Published on January 31, 2019        Author: 

At the turn of the year, Venezuela initiated a WTO dispute with the United States. In a nutshell, Venezuela questions WTO-consistency of a number of coercive trade-restrictive measures (economic sanctions) imposed by the United States. Some of those restrictions were allegedly imposed on the human rights grounds.

US sanctions against Venezuela

The United States has been consistently imposing trade-restrictive measures against Venezuela, yet none of them has ever been challenged at the WTO. Most likely, the last wave of such restrictions is a spark that lit the fuse. In recent years, the Trump Administration introduced additional restrictions on Venezuela’s financial sector, leaving the country’s finances in shambles, as well as sanctions directed against the country’s gold sector. According to the media reports published in January 2019, the United States considers even tougher sanctions, particularly the ones that can impede Venezuela’s oil industry.

Human rights sanctions against Venezuela

The United States is notorious for its practice of economic coercion, which has been debated at length within the international community. Economic measures imposed to promote human rights entered the US foreign policy agenda under President Carter. In the following decades, the US has made ample use of them. 

In December 2014, the US Congress enacted the Venezuela Defense of Human Rights and Civil Society Act of 2014. The enactment of the act was triggered by a number of events, particularly by the deteriorated living standards and the violent crackdown on the anti-government protesters. The act authorizes the President to impose various targeted sanctions, – sanctions against current or former government officials responsible for acts of violence or serious human rights abuses against protesters. The ambit of such sanctions includes blocking of assets of the designated individuals as well as travel restrictions. In pursuit of its authority, President Obama declared the national emergency in respect of the situation in Venezuela and issued an Executive Order 13692 of March 8, 2015, which implements the aforesaid human rights sanctions.

Read the rest of this entry…

 
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Justiciability of Security Exceptions in the US Steel (and other) Disputes: Some Middle-Ground Options and the Requirements of Article XXI lit. b (i)-(iii)

Published on November 20, 2018        Author: 

The US – Certain Measures on Steel and Aluminium Products case (US Steel Dispute) has aroused numerous comments in the blogosphere (see e.g. here, here, here, here, here and here) which already give a very good impression of the legal questions involved and of what is at stake at the WTO these days. One of the most controversial legal issues brought up by the case (and by two other recent cases: Russia – Measures Concerning Traffic in Transit (Russia – Transit) and United Arab Emirates – Measures Relating to Trade in Goods and Services, and Trade-Related Aspects of IP Rights; for comments see: here and here) is the justiciability of Article XXI GATT (security exceptions). The question of justiciability, however, has sometimes been portrayed as an either/or question by bloggers: Either justiciability or complete discretion for States. Moreover, commentators have scarcely elaborated on the further requirements of Article XXI para. b (i)-(iii) GATT with regard to the US steel dispute.

The following post shows that there are more options on the table than to allow States full discretion (option 1), or declaring security exceptions justiciable under a limited good faith standard of review (option 2), and that under all but the first option Panels are likely to declare Trump’s tariffs on steel and aluminium imports not to be covered by security exceptions. Still, finding some middle-ground position on justiciability could be useful (politically) to avoid the impression of judicial overreach.

Judicial Review: Several Options

Article XXI GATT (in the case at hand lit. b) seems to allow a Member State to self-judge what it “considers necessary for the protection of its essential security interests”. Security exceptions have scarcely been used in the GATT and earlier WTO era, and unfortunately the meaning of “considers necessary” in Article XXI GATT so far has not been authoritatively elucidated by a Panel or the Appellate Body (AB). Read the rest of this entry…

 
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Global Pact for the Environment: Defragging international law?

Published on August 29, 2018        Author: 

A ‘defrag’ computer program that consolidates fragmented files on a hard drive holds metaphorical attraction for international lawyers. Our encounters with international law often seem to be specific to particular legal regimes, which have a functional orientation and professional sensibility that, in the words of the International Law Commission, may be self-contained. International environmental law and human rights, for example, were developed at different times and are supported by different international and domestic institutions. Now, the United Nations is considering a proposal that promises to integrate various parts of international law, thereby improving its performance: the Global Pact for the Environment.

The draft preliminary text for the Global Pact for the Environment entrenches a right to an ecologically sound environment (Article 1), sets out a duty of states and other actors to take care of the environment (Article 2) and requires parties to integrate the requirements of environmental protection into their planning and implementation, especially to fight against climate change, and to help protect the ocean and maintain biodiversity (Article 3). These and other clauses provide a framework that follows the existing international human rights covenants – on civil and political rights and on economic, social and cultural rights – to promote a ‘third generation’ of fundamental rights. On 10 May 2018, a resolution adopted by the United Nations General Assembly established an ad hoc open-ended working group to analyse possible gaps in international environmental law and, if deemed necessary, to consider the scope, parameters, and feasibility of an international instrument (which could include, but is not limited to, a legally binding agreement along the lines of the Global Pact). Two co-chairs were appointed the following month. An accompanying White Paper outlines the Pact’s antecedents, which include the Rio Declaration on Environment and Development. In this short post, I consider three ways in which the Pact impacts upon the interaction between regimes and ‘defragments’ international law. Read the rest of this entry…

 

Moving Trade into the 21st Century: Towards a More Inclusive Trade Agenda?

Published on April 21, 2017        Author: 

International organizations sometimes publish general reports – in addition to the usual annual versions – about their work and the future of their remit. Such reports invariably have a theme and are done when these organizations or the work they carry out has come under challenge. In 2005, on the occasion of the WTO’s so-called Sutherland report, Armin von Bogdandy and I found that:

“[a] perception of institutional crisis is pervading international organizations. One evermore fashionable response by the administration of an affected organization is to entrust a group of eminent persons to consider its future. Perhaps not surprisingly the resulting report calls for a politically feasible strengthening of that organization for which it provides good grounds.”

Early April saw the release of a – much less frequent – joint report by the World Bank, the International Monetary Fund, and the World Trade Organization, entitled Making Trade an Engine of Growth for All. The motive for the report is best interpreted as responding to a problem that is fundamental enough to warrant such an unusual step: the increasing calls for and a turn to more inward-looking economic policies. The Trump administration’s protectionist rhetoric and actions (see here, here and here) are the prime example for this development, with Brexit – despite assertions to the contrary: think Global Britain – serving as another.

The circumstances surrounding the release of the report also lead to the conclusion that it is designated to respond to the growing trend of inward-looking economic policies: it took place a) just prior to the 2017 Spring Meetings of the IMF and the World Bank Group, and b) in Berlin which the Financial Times’ Shawn Donnan called the “new capital of global free market liberalism”. The policy differences between the proponents and opponents of multilateralism are now clearly at display: Chancellor Merkel and the leaders of the IMF, the World Bank, the ILO, and the WTO have called for increasing trade policy cooperation and coordination, with the stated goal to not only curb protectionism, but also in order to reduce inequality and combat climate change. US Commerce Secretary Wilbur Ross on the other hand denied that US policies were protectionist (calling warnings of protectionism – ostensibly geared towards the US and other countries – “rubbish”).

The Trump administration policies and Brexit are the most visible manifestations of perceived political solutions to the discontent with the current globalized and interdependent economic system. The report itself recognizes that the public attitude towards trade is not as favorable as they used to be (paras 21-23). While it does not explicitly say so, it is worth noting that the three institutions have recognized that economic inequality is one of the main drivers of this discontent and that their past policies were – or at the very least were seen to be – partially responsible for this discontent.

The report touches on a number of issues, ranging from the long-term trends and benefits of trade, the interplay between trade and (domestic) adjustment (policies), to the need for a stronger rules-based trade regime. It is this last part that this post will focus on by analyzing the sometimes subtle, but important changes in direction that the report advocates as well its shortcomings.

The overall narrative of the report is such that the policies of trade liberalization championed by the three institutions since the end of WW II have resulted in a period of expansion of world trade at an “unprecedented historical pace” (para. 5). The institutions’ policies, indeed their very raison d’être, such as open markets, increased trade integration and competition, efforts to curb protectionist policies, “good governance” and fiscal discipline have come under intense scrutiny. But the report also contains remarkable language – at least for the institutions involved: it recognizes that globalization provides positive effects only where the appropriate domestic policies, including “social protection policies” (page 33), are in place so as to lead to a more equal distribution of gains.

The section entitled “Building Stronger Rules-Based Trade” (page 37 et seq.) reiterates the centrality of a strong WTO as opposed to a more fragmented trading system characterized by preferential/regional trade agreements or bilateral arrangements. By doing so, it picks up ideas put forth by Robert Hudec & John Jackson that the “power-based” GATT has been replaced by a “rules-based” WTO system. It rightly points out that a “core set of rules, a strong enforcement mechanism, and a common forum for cooperating on policy and sharing information” assists in “[reducing] overall levels of trade distortions, including conventional trade measures, subsidies, and other forms of state support” (para. 72). This echoes long-standing WTO principles: reducing tariff and non-tariff barriers (para. 69), promoting competition, “reassuring the public that international trade is evenhanded” and that “rules-based trade integration is critical to share trade benefits more widely” (para. 64). Such statements are a direct response to efforts of the Trump administration to pursue a more protectionist trade and fiscal agenda.

But beyond the orthodox ideas discussed above, the report broaches – although it may not break – new ground. It mentions new forms of services (mainly in conjunction with digitization) without however stating what reforms – beyond a need for rules to be clarified or enhanced – would be needed (para. 70). An area that is marked as a “frontier area” for trade reform is investment. The report explicitly argues for linking trade and investment more closely and for a more coherent policy approach in light of global supply chains (para. 71). The report would have benefited from further clarification of this point: should efforts be made to bring investment genuinely (beyond the TRIMS Agreement) under the purview of the WTO? The report does not provide any details about the extent to which, or how, this could happen. It does not mention a range of PTAs that have incorporated both trade and investment chapters over the last years and whether these developments were the impetus for the renewed effort of integrating trade and investment policies. In addition, there has been considerable debate about the current state of investment law in general, and investor state dispute settlement in particular (see here, here, here and here). It is also worth noting that there is considerable pushback by developing countries at the moment against recent efforts within the WTO to develop rules on investment facilitation.

Finally, the report puts forward pathways for the WTO to retain its relevancy as a negotiating forum. It proposes conducting negotiations on narrower issues similar to the Trade Facilitation Agreement or the Information Technology Agreement (para. 74). Beyond that, it recommends thinking further about a more plurilateral approach to negotiations (aka variable geometry) within the WTO, without however suggesting areas in which this may be fruitful (para. 75).

While there are a number of positive elements in the report, it contains shortcomings and omissions. The first is its economics-centered focus. While impressive, the bibliography contains only a very small number of sources that are from non-economists. Eg, the only identifiable legal academic’s work cited is one that deals with political economy rather than law. This wouldn’t be an issue – and could quite easily be shrugged off as a quibble by a member of an academic community yearning for greater recognition – if the report made suggestions of, or at least hint at, how trade and investment policies could be intertwined (never mind rules implemented); how health, the environment, and equality could be reconciled with trade or investment liberalization (para. 67 of the report is – to use the words of the Appellate Body in EC – Hormones – “not a model of clarity in drafting and communication”); what the extent of regulatory autonomy of governments should be without losing sight of a minimum degree of universality of rules; how consumer or citizen welfare can become more of a direct focus for the WTO rather than producers or exporters; or whether the structural design of the current system of international economic governance could be enhanced/reformed to contribute to achieving these goals. It is rather unfortunate – and a missed opportunity – that the report relegates the important discussion on poverty and developing countries to an annex. The five paragraphs devoted to Annex A reiterate the potential positive role of trade to assist in reducing poverty (paras 82-95, see eg para. 84: “Although causality is hard to establish, this fact pattern suggest (sic) that openness promotes poverty reduction by accelerating growth.” Emphasis in original.) and the need for sound domestic institutional arrangements (para. 86). What is missing is an acknowledgement of the obstacles developing countries are facing when trying to compete with developed country producers in eg the agricultural sector.

Both political science and legal literature are replete with discussions of these issues. Given the interdisciplinary nature of international economic relations it would be more useful in the future to include a broader set of disciplines in the formulation of such important reports. Overall, Making Trade an Engine of Growth for All is a cautious step in the right direction, away from well-trodden orthodoxy. In that sense, it serves the purpose of preserving the importance of the three institutions involved in its drafting. The report recognizes that the trade (and investment) liberalization paradigm can function for a wider swath of the global population only if cushioned by domestic policies (and even that is contested, see here). This is evidenced by statements such as “[t]rade and trade-related policies have a role to play not just in promoting growth and prosperity, but helping to share that prosperity more widely” (para. 81). But it stops short of recognizing that the institutions of global economic governance themselves have opportunities to do more to achieve greater equality.

 

The USA and Re-Appointment at the WTO: A ‘Legitimacy Crisis’?

Published on May 27, 2016        Author: 

In recent weeks, it has been reported (for example, here, here, here and here) that the WTO faces a ‘legitimacy crisis’ in the wake of US opposition to the re-appointment to a second, four-year term of Mr Seung Wha Chang (South Korea) to the Appellate Body. In a joint statement of 12 May, US Permanent Representative to the WTO, Ambassador Michael Punke, and USTR General Counsel Tim Reif declared:

The United States is strongly opposed to appellate body members deviating from their appropriate role by restricting the rights or expanding trade agreement obligations […] The United States will not support any individual with a record of restricting trade agreement rights or expanding trade agreement obligations.

In their view, the Appellate Body member exceeded his powers during his mandate, and breached Art. 3(2) of the Dispute Settlement Understanding, which states that ‘[the] Appellate Body cannot add to or diminish the rights and obligations provided in the [agreements of the WTO].’ In other words, Mr Chang is accused of undue judicial activism.

In response, South Korea has reportedly declared its opposition to the re-appointment of any Appellate Body members. As a result, their number would fall from seven to five by June, since another member, Ms Yuejiao Zhang (China), finishes her second term on 31 May, and the Selection Committee has been unable to propose a candidate that would enjoy the membership’s consensus. All six sitting members of the Appellate Body have publicly supported Professor Chang (see here) praising his ‘independence and integrity’ and voicing their disquiet about the implications of the US position. The USA has chastised this move as another instance of undue judicial interference.

This standoff raises questions of general interest on procedures for the appointment of ‘judges’ Read the rest of this entry…

 
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