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Julia Qin
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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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I assume it would depend on whether the treaty obligations of the UK are honored by Scotland. It is my understanding that when Czechoslovakia broke up, neither Czech nor Slovakia claimed to be its successor, but both agreed to honor its treaty obligations. So soon after the breakup, both Czech and Slovakia became GATT contracting parties (in 1993) without having to go through the accession process. The situation with countries breaking out from the former Yugoslavia, however, is completely different. Each of them has to negotiate accession anew.
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Thanks for the further explanation, very interesting. But I don't seem to be able to find information about "the Vienna conventions on plenipotentiary diplomatic conferences". Any suggestions?
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raghavan, could you explain a bit more about the approved "history of UR" at Marrakesh meeting?
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According to Lee Buchheit, one of the top experts in sovereign debt issues, "the purpose of the pari passu is to ensure that the borrower does not have, nor will it subsequently create, a class of creditors whose claims against the borrower will rank legally senior to the indebtedness represented by the loan agreement." So it is supposed to be about ranking of the loan vis-a-vis other debts of the borrower, not about the repayment to each lenders within the same rank. Of course it all depends on how the pari passu clause is drafted in Argentina's loan agreements. I have not followed the case closely. Does the clause interpreted by the judge explicitly cover repayment to lenders in the same rank?
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@Jari, thanks for making the excellent point re political consequences. This is certainly a major factor to consider in formulating a judicial policy on self-correcting. Back to this particular case however, there was no such risk - making GATT XX available to the accession commitment does not mean China would pass the test of GATT XX. And China only appealed on the issue of availability of Art. XX, and not the application of Art. XX to its accession commitment. So from a practical standpoint, this would be a perfect case to set the precedent of self-correction. @Marc, Hudec was right of course. But many years have passed since Hudec's comment. Today's AB should feel much more secure about its authority. And it has since indicated many times including in this very report that it endorses a holistic interpretive approach, rather than the narrow textualist one. So I am a bit more optimistic about the possibility of changing the policy. @Cathryn, while my observation may sound stereotypical, I do believe that many Chinese intuitively consider face-saving to be of real value in litigation. At the minimum, they don't want to offend the judges, even when their conflict-avoidance tactic might lead to their own side's defeat. Perhaps the next generation of Chinese will be different, given their increasing exposure to Western litigation culture.
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As already pointed out before, there is a fundamental difference between China's appeal in DS449 and the US appeal in Rare Earths. The US tactic is merely a litigation tactic because it is not a sincere appeal, as the US notice of appeal admits itself. One would not expect a party that has won all substantive claims would file an appeal on minor procedural issues with the sole purpose of "preempting" the losing party's appeal. In contrast, China's appeal is a genuine one, because it has lost on a substantive claim on which there is even a dissenting opinion supporting China's position. The US should have anticipated such an appeal and be prepared for it well in advance. What you have pointed out is exactly what we need to be worried about - the potential poisonous effect of the US tactic. By recognizing the US tactic as it is, hopefully other members would not be encouraged to follow suit.
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The prevailing of the US tactic shows "a victory of the rule of lawyers", as opposed to the rule of law, in WTO dispute settlement, a situation warned by Prof. Weiler more than a decade ago. Ironically, China's acceptance of the situation demonstrates "the ethos of diplomats". See J.H.H. Weiler, The Rule of Lawyers and the Ethos of Diplomats, 35(2) JWT 191 (2001).
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BNA WTO Reporter also reported the extensions for appeal in the two cases. So it appears the two cases are related after all, but for procedural reasons. There is, however, a key difference between the two appeals. China's appeal is on the Panel ruling on a substantive issue, whereas the US appeal is, shall we say, frivolous. As the US notice of appeals says, in the event China were not to appeal, AB would not need to consider its appeal. Further, as Atul helpfully pointed out, under Rule 23(5), a party does not have to join the appeal as other appellant, and instead has the right to appeal separately within 60 days. However, if the issues in two separate appeals are related, how should the AB deal with the situation? Consolidation?
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A good reason for DSU reform.
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Thanks very much, Atul. Rule 23(5) makes perfect sense, as AB working procedures are not supposed to diminish the rights provided by DSU.
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Good question. The subject matters of the two cases are not related at all. China seemed ambivalent about appeal in the Rare Earths case. The official Xinhua news reported on March 26 that according to MOFCOM, "China was currently assessing the panel report and would follow the WTO dispute settlement procedures to settle this dispute." Note that "appeal" was not mentioned. http://news.xinhuanet.com/english/business/2014-03/26/c_126320535.htm
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