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Julia Qin
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Keep in mind that China has never admitted the existence of forced technology transfer in China.
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Thanks Steve. On the necessity test, I would think the less (not "the least") trade restrictive alternative is much more predictable than the "weighing and balancing" process. One can find similar approach to determining necessity in different legal disciplines, because the approach is conceptually sound.
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Thanks so much, Sungjoon! As to why China dropped the Article 23 claim, my guess is that it could be awkward for China to admit that it had committed a WTO violation (forced technology transfer), which was legally necessary to demonstrate that the US violated Article 23 in retaliating against China. But if that was indeed the case, why did China raise the Article 23 claim in the first place? There, my guess is that China did not fully comprehend the applicable scope of Article 23 until it got into the litigation stage. It is not self evident that the Section 301 style of aggressive unilateralism does not necessarily violate Article 23. As for the necessity test, I agree with you that the Panel must have done so out of difficult political balancing considerations. But unlike in the context of national security exception, which was a new territory in case law, the necessity test under GATT XX has been well established. Hence the potential damage. See also my comment in Simon's last post on why the reasonably available alternative test is indispensable for any necessary test as a conceptual matter.
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Thanks for the insight! Very interesting.
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In my understanding, the reasonably available alternative test is a "necessary" element in any necessity analysis, whether it is trade law or constitutional law. That is because, conceptually, whether something is truly "necessary" (in the sense of being indispensable) for a given purpose can be best tested against reasonably available alternatives that can achieve the same purpose without having the undesirable effects - what are the undesirable effects depend on the specific context the necessity test is applied. In the GATT XX context, it is the trade restrictive effect that is undesirable and to be avoided. It is also worth remembering that the weighing and balancing part of the GATT XX necessity jurisprudence was created by the AB. In the GATT days, panels went directly to the reasonably available alternative test under GATT XX. The AB also created the burden-shifting jurisprudence which requires the respondent to put forward possible alternatives.
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On the THAAD crisis, S. Korea did raise the issue to the WTO Services Council and TBT committee. See e.g., https://www.reuters.com/article/us-southkorea-china-thaad-idUSKBN16R03D. Korea wished to lodge a formal WTO complaint against China, but did not make the move mainly due to the concern that it might not be able to provide sufficient evidence, as China had carefully avoided a paper trail. http://english.hani.co.kr/arti/english_edition/e_international/785104.html
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The best thing about tariffs is that they are totally transparent.
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Thanks so much, Steve, for your comments. I completely agree with you that Lighthizer deserves credit in "raising the trade policy debate to a higher level."
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Thanks, Brett, for reminding us of the brilliance of GATT. Its scheme of negative integration provides ample room for diverse national policies. But it is also important to remember that tariffs are lawful tools of protection under GATT. Reciprocity and nondiscrimination are the key principles for maintaining the balance between protection and liberal trade struck by each individual nation. Now the US wants to change its current balance by raising trade barriers, and Lighthizer has just provided a normative value to justify the need for such a change.
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Thanks, Marc. On the issue of symmetry, the Trump administration apparently believes that the US is more open in trade than most other countries, hence either the US should raise its trade barrier or others must lower theirs.
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Thanks, everyone, for your thoughtful comments. General skepticism towards what Lighthizer has to say is understandable. But I do have a few additional thoughts to share and hope to generate more discussion. - Experts used to say that it is not the jobs, but the money (income), that really matters to workers who have lost out to foreign competition. Hence, the mainstream view is that we should focus on how to improve domestic redistribution of the gains from globalized production, through taxation and social welfare. But this view seems incorrect or at least only partially true, as jobs apparently mean more than money to most people (perhaps especially to the male population). Traditional trade theories ignore this aspect entirely. - The main challenge to the traditional theory concerning trade v. jobs is that in the post-industrial society it has become unrealistic to expect that displaced workers (both blue-collar and white-collar) can always be retrained to find meaningful new jobs. An increasing number of mainstream economists have recognized this reality, but no solution has been offered other than redistribution and social welfare, which ignores the issue of personal dignity. - Trade v. technology. Technological development also displaces jobs. Some say that if you like technology you should also favor trade because they have similar economic effects. But none of my students have ever bought that theory - though this is too big a topic to discuss here. - There is an asymmetry between developed countries and developing countries with respect to new job opportunities. Trade tends to create more jobs in developing countries, not only because of the advantage of cheaper labor, but also because there is more room for workers to advance to more sophisticated and better-paying jobs. - Raising labor standards in developing countries has a protective effect on jobs in developed countries because it reduces competition from cheap labor. It is through the reduction of "unfair" competition, which results in fewer imports, that "personal dignity" of jobs in richer countries is protected. - Speaking of "unfair" competition or "leveling the playing field", we are back to the basic question of whether it is legitimate to use trade measures to protect jobs. - Unlike "national security", which is a norm explicitly incorporated in all trade agreements, "employment" is not. The tension between employment and trade is much broader and deeper than that between national security and trade. The need to balance the two was emphasized in the post-WWII era, as evidenced by the Havana Charter. Unlike the Havana Charter, the existing trade agreements do not recognize the value of employment explicitly. Do we have the need to rebalance the two in the post-Covid era?
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Dear Julio, thanks for your comments. To answer your question, I am not privy to the Chinese government nor the DSB so I have no way of knowing what information was or was not provided in the selection process. However, given Ms Zhao's previous position in Geneva, I believe it is reasonable to assume that DSB members were fully aware of her ties to the Chinese government. If the members chose not to make inquiries about the exact nature of her new post during the selecton process, then it is also reasonable to assume that they were not really concerned with the issue. Legally, I do not think it is a matter of waiver under DSU 17.3. Instead, I see the members' decision to appoint her to the AB as their interpretation of DSU 17.3 in this situation. Hope this clarifies.
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This new attack is serious. The USTR is all but accusing Ms Zhao and the Chinese government of making misrepresentation or lying to the Members in the selection process. This raises constitutional level questions for the WTO. Of course the USTR knew all along about Ms Zhao's background, as she is a veteran WTO lawyer who represented China at the DSB until shortly before being transferred to the MOFCOM-affiliated academy. It is hard to believe that this fact was not considered by the DSB members during the selection process. The legal question therefore is this: whether any potential defect in a candidate's credential can be cured by the fact that the Members knew or should have known when they made the decision that ignored the potential defect. The answer should be yes. In other words, the DSB decision to appoint Zhao to the AB while knowing or should have been knowing her connection with the Chinese government constitutes Members' interpretation of DSU art. 17.3 in this case. The US claims that the recent AB report is invalid because Zhao is not a valid AB member. According to this logic, every AB report in which Zhao participated in judging would be deemed invalid as well. Is that what the US intends to argue next? One wonders why the USTR launched this line of attack now.
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Talk about unintended consequences! Thanks again, Debra, for sharing your unique experience and insights. I am actually re-reading Hudec's articles on Section 301 and cannot help but wonder what he would say about today's WTO crisis.
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Thanks very much, Debra, for this! In retrospect, do you have any insight why the negotiators did not anticipate that members might naturally want to take full advantage of the opportunity of the appellate review?
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The most puzzling phenomenon is that the US economy seems to be doing very well, whereas the same cannot be said about many of the US trading partners. Perhaps it is still too early for the US to feel the self-inflicted pain of its protectionist measures? Or is there something else at work? I hope to hear convincing explanations from economists. The coronavirus disaster in China is threatening the global supply chains in a much more serious manner than the trade wars. More US businesses can be expected to move out of China. What is the lesson there?
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Hi Marc, The few passages I cited from Prof. Van den Bossche's article include the reference to a textual context (the single article on AB v. detailed provisions on panels) and an instrument that might be deemed as part of the "context' under VCLT art. 31.2 or 31.3 (the decision of the members to make the AB job a part time position). In addition, the fact that the appellate review is limited to 60 or 90 days also indicates that the members anticipated the appellate reviews would be limited in scope. As for VLCL 32, it merely provides that recourse "may be had" to negotiating history. It does not prohibit a treaty interpreter from consulting negotiating history in order to better understand the intentions of the parties. As a practical matter, I believe it is only natural that one would like to understand the historical context of a legal provision regardless of whether the formal interpretation would refer to that history. That said, I think the question raised by theoriginalanon99 was an excellent one. It is unclear how the common intentions should be determined today given that there are many acceding members which did not participate in the negotiation of the DSU. However, there should be little doubt that the common intention of the original members was to have a limited appellate review. Hence my question: is it possible to return to that original vision?
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Hi Marc, The issue seems to be how "the common intentions" of the parties should be determined. The standard approach is to follow the VCLT interpretive rules. That is, to read the text of DSU article 17 in the textual context, as well as the historical context (negotiating history) of the DSU. Many experts have written on the origin and evolution of the AB. I found Peter Van den Bossche's piece "From Afterthought to Centerpiece"(2005) a great source to consult. So here are some excerpts from that wonderful article (footnotes omitted): "During the Uruguay Round negotiations, the two main trading powers, the United States and the European Communities had both been exposed to a few panel reports which they, and others, regarded as ‘serious legal errors’. As a safety measure against such ‘bad’ panel reports, the negotiators provided for an appellate review mechanism. The European Communities proposed the creation of an appeals mechanism for parties who believed that panel decisions are ‘erroneous or incomplete’. The United States supported appellate review for ‘extraordinary cases where a panel report contains legal interpretations that are questioned formally by one of the parties’. Canada viewed the appellate review mechanism as a way to correct errors of ‘fundamentally flawed decisions’. Not all countries participating in the negotiations supported the introduction of appellate review. Some participants feared extra delays and further procedural complication in the settlement of disputes." "When they agreed to the establishment of a standing Appellate Body to which parties could appeal from panel reports, the ambitions of the participants to the negotiations were, however, quite modest. They certainly did not intend to create a strong international court at the apex of the new dispute settlement system. On the contrary, they only wanted to ensure that their biggest innovation, namely the quasi-automatic adoption of panel reports by the DSB, would not have the undesirable side-effect to be without protection against an occasional ‘bad’ panel report. The decision to establish a standing Appellate Body to provide such protection was an inspired afterthought, rather than the reflection of a grand design to create a strong, new international court." "Compared with the wealth of provisions on the panel process, the paucity of provisions on appellate review is indicative for the importance given by the negotiators to appellate review in the WTO dispute settlement system." "The most revealing part of the Decision on the Establishment of the Appellate Body concerns the conditions of employment of the Members of the Appellate Body. While the DSB explicitly stated that ‘the contractual basis of members of the Appellate Body should reflect the overriding concern that candidates are of a high enough calibre’, it decided to appoint the Members on a part-time basis." "From the above analysis of the relevant provisions of the DSU and the Decision of the DSB of 10 February 1995, it follows that the decision to establish a standing Appellate Body was certainly not the reflection of a grand design to create a strong, authoritative court that would be at the epicenter of the new WTO dispute settlement system." The article then cited the following as the contributing factors to the rise of the AB: "the first and subsequent compositions of the Appellate Body; the Working Procedures for Appellate Review; the early embracement and consistent application of the rules of interpretation of the Vienna Convention; the frequent and broad recourse to appellate review; the manner in which the Appellate Body used its authority of appellate review; and, finally, the case law of the Appellate Body to date, and in particular the case law balancing free trade and other societal values and interests and the case law ensuring the fairness and effectiveness of the WTO dispute settlement system."
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It seems to me that the US would have little reason, morally or legally, to reject a proposal to return to the original vision of the AB. By now, many other members probably also realize the danger of a litigation-centered WTO. The challenge is how to re-design a binding panel system with a limited appellate review, as originally envisioned. In this regard, I thought the recent blog post by Anthea Roberts and Taylor John on UNCITRAL negotiations over ISDS reform is instructive. https://ielp.worldtradelaw.net/2020/02/uncitral-and-isds-reforms-what-makes-something-fly.html . Instead of endlessly debating over the big picture questions, more fruitful discussions can be had on the technical details for each approach which will then shed more light on the big picture questions. Perhaps a similar approach can be used in the discussion of DSU reforms, such as important specifics on how to limit the number of appeals, and how to correct legal errors of appellate judges. In the end, it might be impossible to obtain consensus on any DSU amendment, and a plurilateral agreement might be inevitable. But the members should have an opportunity to discuss whether it is desirable as well as technically feasible to return to an appellate review system as originally envisioned.
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A good question. But how would the "as such" challenge work, given that Section 301 covers any act or policy of a foreign country that the US finds "unreasonable" and "burden or restrict US commerce", regardless of whether such act or policy falls within the scope of WTO agreements?
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Dear Marc, You are of course right that the AB opinions do not mention the term "special difficulties". That term appears only in Section 15(b) of China's Accession Protocol, and is used there to authorize a departure from the normal methodologies in benefit determinations under SCM 14. In this case the AB was applying SCM 14 and building upon its prior SCM 14 jurisprudence, not the departure from it. In my opinion, however, the fact that the benchmarking issue has generated a strong dissent in this case highlights the "special difficulties" presented by the situation in China. What are such "special difficulties"? There is no textual explanation in China's accession protocol. But it is commonly understood that it refers to the non-market economy conditions remaining in China. Although the state also plays an important role in India's economy, I believe most people would recognize that there are some fundamental differences between the two economies that matter to other countries. Finally, it is also fascinating to realize that because China did not object to the permanency of this provision during its accession negotiations (likely due to its lack of sophistication at the time), Section 15(b) may eventually become a very useful tool in dealing with one of the most difficult problems in contemporary international trade relations. Hope this helps to clarify my post. Best, Julia
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It seems analogous to export subsidy in the form of export credit - SCM Annex I(k).
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What does economic theory have to say on the pricing of publicly owned water?
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Simon and Andrew, I think this line of discussion should take into account the AB benefit jurisprudence in the context of government and SOE prices. The AB used to define the market under SCM 14 as "undistorted market", which was based on the simple/artificial dichotomy of government v. market. Significantly, the AB changed its approach in DS436 (US-CVD (India) and DS437 (US-CVD (China)) when it began to mention market competition, recognizing that government and government-related (SOE) prices may form part of market benchmarks, depending on the market conditions in a given case. At least in this context, it seems clear that how to define benefit/market is not a neutral matter, but necessarily determines the balance under SCM.
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As Simon mentioned, each EU member is a WTO member in its own right. So, Scotland's WTO membership does not depend on its EU membership.
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