Busy Summer for WTO Trade Cases — Especially for the US & Other Major Countries — Why?

                      wto-litigation
This summer has been extremely busy for litigation before the WTO disputes resolution system. Why is that?
Just look at a sampling of cases ranging from those brought by and against the Russian Federation, by and against the United States and China, by and against the US and the EU, as well as other including cases by India and Korea concerning the US. They indicate the nature of the parties involved. And the critical importance of WTO litigation to trade and foreign policy today.
To me the reason for such increase in volume of litigation involving billions of dollars of trade is because the WTO remains the premier forum for settling and litigating state-state trade disputes. Also because of its great success.
These recent disputes have involved the largest countries such as the US, China, India and Russia, among others. And as global trade grows, with newer members, the number of transactions grow. It is only natural that more commercial friction will arise and thus more trade cases. But this is natural.
More transactions, more friction, more cases. It isn’t the absence of cases but the way they are resolved that marks the success of the global trading system and its resolution  system under the WTO. This has all been done peacefully within a global institutional framework that has provided a model of global governance in this ever-expanding field. That’s good for everybody.

 

 

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First two WTO Panels Against Russia — Now What?

                      Russia and WTO

    For the first time since the Russian Federation’s accession to the WTO four years, in 2012, cases were decided this August by two WTO panels involving Russia. The Russian Federation was a respondent in both cases and both decisions were against it. These decisions now set the stage in the near future to assess Russia’s compliance with global trade law.

 

     The first case decided on August 12, 2016, determined that Russia’s custom duties on certain agricultural and manufacturing products, including paper and refrigerators, violated its Schedule of Concessions within in its Accession Agreement. This notwithstanding custom duties authorized by Russia’s membership in the Eurasia Economic Union. (DS 485Tariff Treatment of Certain Agricultural and Manufacturing Products.)

 

     The second case decided on August 19, 2016, assessed Russia’s EU-wide ban and EU member-state bans on pig products, because of concerns over the African swine fever. They were deemed to violate the SPS Agreement, in part, for not being based on scientific measures. (DS 475Measures on the Importation of Live Pigs, Pork from the European Union.)

 

    Of course, Russia has the right to appeal and then time to implement these decisions. So the international community will need to wait a bit longer to see how Russia will respond.

 

   It should be noted that there are four more cases pending where Russia is the Respondent. Brought by the EU, Japan and the Ukraine. They involve primarily fees on autos and railway equipment. (Cases DS 462, 463, 479, 499.)

 

    Just as interestingly, there are four cases pending where Russia is the Complainant. They involve the EU’s methodologies concerning dumping and subsidy determinations, the EU energy sector, and a complaint against the Ukraine concerning antidumping duties. (Cases DS 474, 476, 493, 494.) 

 

     Time will tell about the Russian Federation’s compliance with the decisions of the WTO dispute resolution system and its compliance with global trade law generally. But this will not be too long.

 

    Russia’s compliance with the decisions of the WTO panels will tell us much about the way the Russian government views compliance with international norms in the global trading system generally and the role it sees itself  playing in the global trading and political systems.

     Are trade rules to be observed or to be ignored? We’ll see, shortly.

 

 

 

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GLOBAL TRADE — An All Too Easy Drive-By-Target — We Need To Get Real.

Trade Anger

     Four good articles appeared this week on global trade and the presidential campaign. The following points were made:

 

  • Trade isn’t the main force destroying good jobs. But it serves as a good target (New York Times editorial).
  • Manufacturing jobs have increased significantly since 1972. It’s just a different mix. The numbers of workers needed have declined. Policy should focus on training and support of workers. (Washington Post)
  • Trump gets it wrong. Trade is a winner for Americans. Focusing on exports alone is misleading. (Wall Street Journal Op-Ed by Robert Zoellick).
  • Unlike global markets no self-organizing force is at work in geopolitics. (Wall Street Journal by Richard Haas).

     My take. Trade is an easy drive-by-target for widespread popular discontent. Trump’s blaming of the World Trade Organization and trade agreements is wrong. The same can be said for Hilary Clinton to a certain extent.

    The underlying factors creating a ‘rage against trade’ are technology and global trends. These are not reversible. Better government policies of investing in infrastructure and better corporate policies of reinvesting their massive capital accumulation, often tax free overseas, into the U.S. economy are required. Political isolationism and protectionism are real threats in the U.S. and globally.

    Both the Bush and Obama administrations should have been focusing on making reinvestment possible as well as adopting serious trade adjustment programs. This is required for our economic and political well being, both domestically and globally. A sound trade policy is essential to our national security.

      Too bad there was no presidential leadership for these domestic economic policies and a totally ineffectual Congress. Hopefully, the present presidential candidates have time to sing a different tune.  Not very likely. But stay tuned.

 

The Rage Against Trade.” Lead Editorial, NEW YORK TIMES (August 7, 2016).
 “What Republicans and Democrats Get Wrong About Manufacturing.” WASHINGTON POST (August 7, 2016).
Trump Gets it Wrong: Trade Is a Winner for Americans.” Robert Zoellick, WALL STREET JOURNAL (August 8, 2016).
The Isolationist Temptation.” Richard Hass, WALL STREET JOURNAL (August 7, 2016).

 

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TRUMP, SUMMERS, CHINA & U.S. TRADE ENFORCEMENT — Know-Nothingism & International Law.

                                      Trump and Trade

            TRUMP, SUMMERS,  CHINA & U.S. TRADE ENFORCEMENT [1]

 

Dr. Stuart S. Malawer, J.D., Ph.D., Diploma (Hague Academy of International Law), is the Distinguished Service Professor of Law and International Trade (George Mason University).

  

INTRODUCTION.

 Recently Donald J. Trump vowed to rip up international trade deals and start an unrelenting offensive against Chinese trade practices.[2] No surprise there. But two weeks later Larry Summers, former President of Harvard University, former Secretary of the Treasury under President Clinton, and former Director of President Obama’s National Economic Council, went further and argued, “It adds insult to injury when governments reach agreements that further cede control to international tribunals of one sort or another.”[3]

 

Really. Let us have a look at the record, as lawyers, and let us assess what role international tribunals have played in international economic relations, in particular involving the United States and China. Specifically, this means we need to look at the record of U.S.–China litigation in the World Trade Organization’s dispute resolution system. This has been given heightened importance by the recent filing of yet another action by the Obama administration against China in the WTO over China’s newest export restrictions on minerals.[4]

 THE DISPUTE SETTLEMENT SYSTEM 

The WTO came into existence on January 1, 1995, when the Uruguay Round of trade agreements entered into force. China acceded to the WTO in 2001. The dispute resolution system is a part of the WTO. The original member countries of the WTO and those that joined subsequently now number 162. All member states are subject to the dispute resolution system.

The system provides for compulsory jurisdiction and binding decisions that may lead to sanctions.[5] The procedure is simple and quick. If one member has a trade dispute with another, it may request formal consultations. Such consultations are required before the complainant may request the formation of a panel to litigate the full matter. Panel members are selected from a list compiled by the WTO’s Director-General of experts in international trade law and policy. They serve in their individual capacities and cannot serve on a panel involving their country unless there is an agreement by the parties to the dispute.

The panel issues a recommendation, which may be appealed to the Appellate Body which is composed of persons of recognized authority in international trade and law and serving four-year terms. Once there is a final decision, which is automatically approved by the Dispute Settlement Body, the losing member is required to bring its trade restrictions into conformity with its obligations under the WTO agreements. If the member state does not do so, the winning state may request “sanctions,” which are normally tariff surcharges on products coming into it until the offending measures are lifted.

 In the 25-year history of the WTO, over 500 trade disputes have been submitted. The dispute settlement system experienced its busiest year in 2015, with an average of 30 active panels per month.[6] Most of the referred requests involved trade remedy issues regarding dumping, subsidies, and safeguards, among others.  

The United States is the leading user of the dispute resolution system,[7] though many countries use it. Developing countries now file about one-half of the cases each year. Out of the 500 cases filed, only about one-third of them wind up in full litigation before a panel. Most are settled in the diplomatic consultation stage that precedes the panel hearing. The United States has won the most of the large number of cases it litigated in the WTO as both a complainant and respondent. There have only been a handful of requests for sanctions generally, and even fewer have been authorized. However, only three or four of those requests for sanctions were actually implemented.

 U.S.–CHINA TRADE LITIGATION IN THE WTO (2001-2016). 

The United States has filed more cases against China than any other country. Interestingly, China has tended to promptly implement all adverse decisions that the United States has made against it.  

Recently the Obama administration claimed that since President Obama entered office in 2009, his administration had filed 22 WTO cases and won every one that was decided.[8] There have been 13 filings against China.

 The cases filed against China that have been won by the United States have concerned, among other issues, Chinese duties or restrictions on U.S. high-tech steel exports (DS414), violation of intellectual property rights (DS362), dumping of Chinese tires into the U.S. marketplace (DS399), restrictions on imports of autos to China (DS340), and restricted use of electronic payment systems (credit cards) in China (DS 413). They have also involved Chinese restrictions on exports of rare Earth elements (DS431) and other raw materials from China (DS394).

 The United States has lost a number of cases. For example, a 2012 case was decided against the United States that involved the use of “zeroing” as a method for calculating antidumping duties (DS422). Another case was decided in 2014 against the United States regarding its application of non-market status in calculating dumping and countervailing duties for certain Chinese imports (DS449). Yet another case decided in 2015 involved the wrongful determination that a state-owned enterprise is a public body and thus capable of providing illegal government subsidies (DS437). Indeed, just this May, China requested a compliance procedure against the United States for its failure to implement a decision involving countervailing duties on Chinese exports by state-owned enterprises (DS437).

 Newer cases that have been brought by the United States involving Chinese taxation on aircraft (DS501) and “demonstration bases” (special manufacturing zones) are pending and seem to be in the process of settling before litigation (DS489). Both involve issues of subsidies. The 12th case filed by the Obama administration against China was filed in June. It involves Chinese compliance with a prior decision regarding the dumping and countervailing duties imposed on the import of U.S. broiler chickens (DS427). The only other compliance case ever filed by a WTO member was also filed by the United States, and it was decided last year (DS414). The most recent case filed this July, the 13th by the Obama administration, contests China’s export restriction on nine minerals (DS508). As was recently observed, “[I]t is becoming clear that the US and its geopolitical rival are already skirmishing ahead of what could be a combative summer.”[9]

 Perhaps the most important metric to look at when determining a member’s compliance with the WTO’s decisions is whether it has authorized sanctions against a country for not implementing its panel or Appellate Body recommendations. China has never been sanctioned, and no such sanctions have ever been authorized in U.S.China disputes.

 CONCLUSIONS.

 What are my conclusions? 

  • The Obama administration has been very active in WTO litigation and successful in WTO litigation against China specifically.

  • The United States has lost only a few cases brought against it by China.

  • China has implemented adverse WTO decisions. This shows a positive aspect of China’s engagement in the global trading system and its acceptance of and role in developing rules of the road.

My take is that as the primary architect of the WTO, its dispute resolution system, and its judicial and rules-based approach to global trade relations, the United States should be proud of its role in promoting global governance in trade relations utilizing a unique judicial mechanism. This has been the most successful international tribunal in the post-war era.

 The system has served U.S. national interests well in resolving trade disputes in general and those between the United States and China in particular. It is not the absence of litigation that makes a system successful. Rather, it is how the cases are resolved when commercial disputes arise, as they do when more international commercial transactions occur. So far they have been successfully resolved within the system.

 Hopefully, the judicial and diplomatic approach developed in the WTO can be expanded to apply to non-commercial disputes between China and the United States, other countries and indeed to both international economic relations and international political relations in general. After all, the commercial and political relationships between China and the United States and other countries are critically interrelated and are the utmost important as the 21st century rolls along.

For example, the Permanent Court of Arbitration’s recent decision against China concerning the South China Sea, a waterway which carries $5 trillion in annual trade, only highlights the importance of international tribunals’ attempting to clarify the rules of international relations in a volatile area of high global politics.[10] Such decisions provide a basis for renewed diplomatic negotiations.

In this case the decision provides China with an opportunity to focus upon its observance of established international legal rules and whether it wants to become a responsible member of the international system. A recent editorial in the Financial Times stated, “Failure to do so would damage its [China’s] credibility in a host of international forums that use treaty agreements to govern behavior in commerce, the environment, politics and defense.”[11]

Trade enforcement strategy, including the use of the WTO’s dispute resolution system, is an important trade policy and foreign policy issue. Above all else, it has huge geopolitical implications for U.S. national security. This is especially true in the context of U.S.–China relations as well as international relations in general.  

I am not surprised about Donald Trump’s know-nothingism. But Larry Summers’s is very, very disconcerting. He ought to take a course in international law.

…………………………………………………………………………………..

[1] An earlier version of this article was printed as an Op-Ed in the RICHMOND TIMES-DISPATCH (June 19, 2016).
[2] “Trump Takes Aim at Trade Pacts and ‘Globalism’.” NEW YORK TIMES (June 29, 2016).
[3] Summers, “How to Embrace Nationalism Responsibly.” WASHINGTON POST (July 10, 2016).
[4] “Obama Launches Trade Complaint amid Growing Tension with China.” FINANCIAL TIMES (July 14, 2016); “United States Challenges China’s Export Duties on Nine Key Raw Materials to Level Playing Field for American Manufactures.” USTR NEWS (July 14, 2016).
[5] Malawer, “World Trade Organization after 10 Years: Litigation, Consultation.” 232 NEW YORK LAW JOURNAL (N0. 10) (December 8, 2004).
[6] “Chapter — Dispute Settlement Activity in 2015” in WTO ANNUAL REPORT FOR 2016. https://www.wto.org/english/res_e/booksp_e/anrep_e/anrep16_chap6_e.pdf
[7] Malawer, “U.S.-China Trade Relations – Litigation in the WTO 2001-2014.”
INTERNATIONAL LAW PRACTICUM (Spring 2014) Vol. 27, No. 1.
[8] “United States Challenges China’s Export Duties on Nine Key Raw Materials to Level Playing Field for American Manufactures.” USTR NEWS (July 14, 2016).
[9] Donnan, “US and China Skirmish as Trade Clash Looms.” FINANCIAL TIMES (March 11, 2016).
[10] Press Release, “The South China Sea Arbitration (Republic of the Philippines v. the People’s Republic of China).” PERMANENT COURT OF ARBITRATION (July 12, 2016).
[11]Lead Editorial, “A Big Test for Beijing over the South China Sea.” FINANCIAL TIMES (July 13, 2016).
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Calls for Trade Reform — Recent Proposals …… Are They Sufficient?

           Trade (Trump and Hillary)

 

     As a result of the acrimonious trade debate among presidential candidates a number of suggestions have been made how to rebalance U.S. trade laws and regulations as we go forward. Here’s a few that have been made recently to increase public support for trade and to make the rules of the game fairer:

 

  • More aggressive use of U.S. antidumping provisions.
  • Increase the investigation authority of the Trade Representative’s Office (USTR).
  • Expand enforcement tools of the International Trade Commission (USITC).
  • Authorize the ITC to issue advisory opinions on private enforcement claims.
  • Bolster the Trade Adjustment Assistance program, for example, by providing limited wage insurance when jobs are lost due to imports.

 

     To me these are sensible proposals but they only go to the margins of the problem. The loss of manufacturing jobs is a driver in the trade debate today in the US and abroad. But it is by no means the whole story.

     It is clear to me that the answer in rebalancing the domestic trade debate is that a broader discussion is required of the nature of global trade, the global geopolitical system and the benefits for us.

     This newer dialogue involves discussing the grave failure of the US to invest in infrastructure that would make us more competitive.

     It also involves interlocking issues of global taxation, the role of foreign investment, regulating multinationals, multilateral institutions and their dispute resolution systems, among others. 

      The following issues also need to be discussed: dark (secret) money, bank secrecy and corruption. They are unwelcomed hitchhikers on global economic transactions. They hinder economic development and reduce popular support for the trading system worldwide.

     Sometimes one event doesn’t really tell us much. But the rough discourse over trade today does tell us that there is huge discontentment with U.S. global trade policy. This needs to be addressed by addressing the broad range of core issues.

 

 

……………… “Rethinking the Politics of Trade.” Wall Street Journal (May 5th, 2016).

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TRUMP AND TRADE AND FOREIGN POLICY — Mercantilism and Isolationism?

         Trump and Foreign Policy

     Trump’s essentially mercantilist trade policy and his America first foreign policy has its roots in the 1930s. This is not a good place to go back to. Here are some thoughts …………….

Back to the Future for Foreign Policy and Global Trade — “America First” (Lindbergh) & Isolationism (Hoover). Not good ideas. The 1930s were horrible. Trade wars and actual wars leading up to the big one.  The US was the architect of the post-war global political and trade institutions and rules. These multilateral institutions and global rules have served our values and national interests well.

… Trump’s ramblings on U.S. trade & China could greatly damage global trade and settlement of trade disputes. China has been a responsible partner in the global trading system. China has implemented all the decisions rendered against it in the WTO. (By the way the US has not.) China has brought its trade disputes to the WTO against both the US and the EU. This is how trade disputes should be settled. More trade, more disputes, more litigation, more settlements.

… Will Trade Anger Lead to the White HouseYes, it is clear that anger about trade and calls for protectionism have become the hallmarks of the Trump campaign. But political strategies relying upon them are not going to succeed. The fury over lost jobs is primarily coming from workers in the manufacturing sector. No doubt about it. But when we come to the general election millions of voters from the service sectors and others, who like lower prices, will becoming to the polls.

… While in Germany recently President Obama spoke against Trump’s vision of mercantilism and argued geopolitical advantages flow out of trade agreements. US also wants to write rules for new trade issues in this newer era of trade. These fundamentals are the essence of the Transatlantic Trade and Investment Partnership (TTIP) and the Transpacific Partnership (TTP). 18th century mercantilism is not going to cut it for us or anyone.

     What’s the conclusion? …………. Trade and foreign policy is too important to leave to a real estate developer that has no idea that the bottom line in these fields are rarely based upon a monetary calculation.

 

 Trump and Hoover

 

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Trade Anger and Protectionism — Not Going to Win the White House.

Trade (Empty City)

   

     Yes, it is clear that anger about trade and calls for protectionism have become the hallmarks of this campaign. But political strategies relying upon them are not going to succeed.

     The fury over lost jobs is primarily coming from workers in the manufacturing sector. No doubt about it.

     But job losses have not only been caused by China and its accession to the WTO in 2001. This was going on for years before China entered the WTO. The movement from manufacturing to services, the rise of a broad range of other markets after World War II, containerization, ever larger cargo ships, revolutions in supply chain management and communications, reliance on information technology and the Internet—these have been going on for decades. 

     The loss of manufacturing jobs also involves, to a great extent, U.S. tax rules that allow for the deferral of income tax on the overseas profits of U.S. multinationals. It involves a host of other misguided U.S. tax rules, such as, for example, those allowing overseas affiliates to lend back overseas profits (an insidious form of repatriation). It allows U.S. parent companies to deduct the very low interest payments to its overseas affiliates. Needless to say, it also entails the global development of offshore shell companies, bank secrecy, and a general failure to police the international tax environment by the U.S. and others.

     Technology and structural changes both domestically and internationally are more long-lasting than China’s surge over the past decade or so. China itself today is going through a change away from its reliance on exports, low wages, and currency devaluation. The U.S. economy is primarily service based and increasingly online. There is a digital revolution going on in global trade relations.

     The problem for former workers is the lack of reabsorption back into the workforce. I’m just not sure this is really ever going to happen to a great extent. Younger workers who are familiar with technology and different work structures are much more employable and competitive. But they have challenges too in this new economy such as finding meaningful employment after paying steep university tuition and graduating without very marketable skills.

    Greater foreign investment in the U.S. is part of the answer on how to promote more economic development and greater employment. The federal government and states need to work harder on this despite some populist blowback.

     We’re not going to repeal the law of comparative advantage and the idea workers will retrain and relocate. In the real world there is real friction between being able to retrain workers and what economic theory said in the eighteenth century. Our Trade Adjustment Assistance program can be beefed up but it’s simply not going to solve the problem.

     U.S. consumers—and I’m including large industries—like the low prices of imports. Imports themselves are a huge industry with their own interest-group supporters.

     The bottom line is this: When we get into the general election a whole range of voters will come out. Those who loudly participated in the primaries are going to be swamped by many others. They like the low prices.

     What we need to do is provide assistance to U.S. manufacturing firms for innovation. Whether or not there is going to be trickle down to the formally employed is somewhat doubtful. But better public policy must address – and hopefully resolve – the plight of the former manufacturing employee. Massive new construction projects to update our lousy infrastructure would be a good start, if a few decades late. This would include our ports.

     Hopefully, new policies can be developed without the debilitating and dysfunctional anger that surrounds the issue of trade today.

     There are many good geopolitical and national security considerations for actively engaging in global trade beyond trade itself and promoting full and stable employment. Active engagement in trade promotes U.S. national interest, the rule of law, our values in the global system, and upholds U.S. leadership in the global community.

 

 ….. “Furious Voters on Both Sides.” New York Times (April 26, 2016).

…..  “Where Pain is Felt Most from Free Trade, Voters Seek Extremes.” New York Times (April 26, 2016).

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