Law School Outline- International Trade Law Outline

I. Basic Norms (fundamental underlying principles) of the WTO-GATT System – the WTO is based on principles of economic efficiency and productivity. It has an allocation of resources function based on Comparative Advantage. a. Most Favored Nation Treatment (MFN): found in GATT Article 1, GATS Article 2, and TRIPS Article 4. i. MFN - Each member must treat all other members on an equivalent basis in the granting of trade concessions. ii. GATT, GATS, and TRIPS employ “unconditional MFN” as basic framework. 1. Unconditional MFN – means that concessions passed to one are passed on to all without demand for return concessions. Note that most concessions are passed on during rounds wherein concessions are mutually bargained for. a. Unconditional MFN is foundation of the WTO because it may be the fastest way to reduce tariffs b. Unconditional MFN also levels the playing field; thus, it provides for the interest of smaller countries 2. Conditional MFN – means that concessions are agreed to be passed on, BUT ONLY in exchange for grant of equivalent concessions. In practical effect the GATS round process is a matter of conditional MFN ab initio (from the beginning) a. NOT a principle on which the GATT operates iii. TRIPS agreement Article 4(d) has grandfather clause which already causes controversy. iv. Why MFN? (as foundation of post-WWII trading system) 1. Foundation is to prevent use of trade measures as a basis for political alliances which result in formation of blocs, and which ultimately may result in closing of system or even war a. Should help prevent the strong from taking advantage of the weak. v. How do the EU, MERCOSUR, NAFTA, and other regional arrangements fit in? Through GATT Article 24 and GATS Article 5 which is a major issue in trade relations. 1. The GATT Article 24 provided for formation of FTAs and Customs Unions. So a country can avoid obligation of GATT Article 1 if it follows the criteria in GATT Article 24. b. National Treatment: found at GATT Article 3, GATS Article 17, and TRIPS Article 3 – also referred to as a non-discrimination principle. i. Imported goods must receive at least as favorable treatment as domestically produced goods for purposes of internal sale. This principle applies to a service when a member has made a specific sectoral commitment for that service. ii. Basic idea is the same, BUT treatment in GATT and GATS is decidedly different. 1 1. GATT – imported products will be treated on an equivalent basis as domestically produced products for purposes of internal sale. This applies to all products. a. NOT to afford protection to domestic production (GATT Article 3(1)); taxes (GATT Article 3(2)); regulatory measures and administration (GATT Article 3(4)). b. EXCEPTION for government procurement not for resale (GATT Article 3(8)) c. Critical question is whether products are “like products” (GATT Article 3(2) and (4)) 2. GATS Article 17 – relates to treatment of services and “service suppliers” (enterprises) doing business BUT only when listed in schedule of concessions a. Positive list versus negative list b. Cover regulatory framework c. GATS Article lists basic requirements, but schedule of concessions can include variations on other treatment iii. TRIPS Article 3 carries forward principles embodied in Paris (patent and trademark) and Berne (copyright) conventions, which were precursors to GATT and these principles are NOT a new concept from the standpoint of IP law. iv. Why National Treatment? 1. Because reducing tariffs and other border measures would NOT open markets if governments could substitute discriminatory internal policies for boarder measurers. 2. National Treatment does NOT demand “identical” treatment. E.g. domestic sales taxes (VAT) can be replicated at boarder (equalization taxes on alcohol) and animal inspections can be conducted on different basis. a. What constitutes equivalent treatment may of course be controversial. E.g. US Section 337 and patent procedures. c. Binding Tariffs – GATT Article 2 schedules of concessions. i. A tariff is a duty, tax, or charge imposed at the boarder on imports or exports. ii. Members will maintain tariffs on goods NO higher than as indicated in their respective schedules of concessions. iii. Tariffs NO higher, though may be lower, BUT always MFN 1. Top rate is referred to as “bound rate” 2. Lower rate is referred to as “applied rate” iv. Tariff Rate Quotas may be subject of binding – a lower rate for certain quantity of goods followed by higher, often prohibitive rate – has effect of a quota (which is prohibited by GATT) BUT which may be subject of schedule of concessions. v. GATT Article 8 allows charge of fees in connection with importation. vi. RECALL that GATS requires binding of National Treatment commitments. 2 d. Prohibition of Quotas: GATT Article 11, GATS Article 16; Prohibition of quotas is NOT relevant to TRIPS agreement i. Quotas are limitations based on quantities of imports. Quotas are often referred to as “quantitative restrictions (or measures)” ii. Prohibition against the use of quotas – members will NOT impose quantitative restrictions on imports or exports of goods, or impose measures having the equivalent effect of quotas. This principle applies to services when a specific sectoral commitment is made. iii. GATS treats quotas according to different characteristics of services such as number of suppliers, total value, number of operations, etc. iv. Why prohibit quotas? 1. There is an argument, which economists consider to be sound, as to why tariffs are more efficient trade policy instruments than quotas. Quotas assure that domestic producers capture “rents” from consumers as higher prices, and these rents are in the form of surplus profits with limited social utility. Tariff rents are captured by governments and used for social welfare purposes; Tariff rents limit price increases, producer surplus, and deadweight social loss. a. Quotas are difficult to administer and NOT transparent (this is the fundamental argument against quotas). b. Quotas are susceptible to corruption – customs office could let goods in for payment after quotas are filled. 2. More important basis is that tariffs are transparent and allocate efficiently, whereas quotas are non-transparent and exceedingly difficult to allocate. 3. Tariff is the only acceptable way to protect one’s market. a. As a corollary, GATT Article 11: NO quotas which are a numerical limit on the number of goods that can come in. b. Cannot have an equivalent measure that acts like a quota e. Protection of Intellectual Property Rights – TRIPS Agreement standards of protection and enforcement. i. Members agree to provide the minimum substantive standards of Intellectual Property Rights (IPRs) protection as set forth in the TRIPS Agreement, and to establish adequate internal systems for the enforcement of those standards. f. Principle of Reciprocity i. Application of the principle of reciprocity – members are NOT expected to grant trade concessions in the absence of concessions from other members. ii. WTO functions on basis of Quid Pro Quo – concessions only in exchange for concessions. 1. Fundamental idea is WTO, as was the GATT, that no one is expected to do something for nothing; thus, if a country A opens boarders, then Country B has to open boarders. Thus, each makes concessions but there is no place in the agreement that says this – it is just the way it works. 3 II. g. Special and Differential Treatment for Developing Countries i. Members agree that developing members may receive more favorable treatment than developed members under appropriate circumstances. This may involve a waiver of the reciprocity principle. ii. SEE WTO Agreement Preamble and GATT Chapter 4 1. GATT Chapter 4 provides that developed countries should NOT expect equivalent level of concessions from developing countries. 2. “Enabling Clause” at end of the Tokyo round allowed for implementation of UN-based Generalized System of Preferences (GSP Program) – waiver which allows grant of NON-MFN rate to developing countries. 3. Uruguay Round results favor developing countries largely in context of extended transition periods and lower levels of concessions. iii. Developing Country Status 1. Developing members are NOT expected to offer the same level of concessions in trade negotiations as developed members, and they are eligible to receive more favorable and discriminatory tariff treatment under the so-called “enabling clause” which authorizes the operation of the Generalized System of Preferences. 2. Developing countries have longer to implement agreements and can make less favorable concessions. 3. What is a developing country? a. WTO says countries chose if they are developed or developing countries b. Least Developed Countries (LDC): have longer time than developing countries and developed countries to implement agreements; this status is determined by the UN. Thus, UN has the list of LDC h. Sustainable Development i. Concept that economic development should NOT be at long term expense of the environment. In other words, in making decisions, members will have in view the need to assure that economic development does NOT occur at the expense of the environment. This is controversial as NorthSouth issue because developing countries perceive that environmental regulations are used to restrict their export. 1. SEE reference in Shrimp-Turtles opinion. GATT ARTICLES a. Article 2: How tariffs are bound b. Article 3: National Treatment does NOT apply to government purchases not for resale. i. General Rule is: Government CAN discriminate by buying only goods made in the home country except as provided in the GATT agreement. c. Article 6: Anti-Dumping and Countervailing Duties (AD/CVD) i. Definition of “Dumping”: country exports products into market at below fair market value 4 III. IV. 1. E.g.: Japan sells TVs in USA for less than the cost to produce the TVs in the USA. d. Article 10: deals with transparency. The rules have to be published. e. Article 11: i. From China article: Government mandated technology transfers as a condition for the purchase of goods might be considered a quantitative restriction under GATT Article 11, since such demands serve as an impediment to the import of goods. f. Article 13: how to allocate quotas when a country can actually have quotas. g. Article 16: Subsidies i. Definition of Subsidy: Payment government gives to producer in order to encourage production OR to encourage a company NOT to produce. ii. Article 16 does NOT prevent subsidies; rather this article prevents export subsidies. iii. Definition of export subsidy: paying a business to export something which would distort the market. iv. Note that it does NOT prevent agricultural subsidies for primary products. h. Article 19: emergency provisions - can take action against rapidly increasing products i. Article 20: When government does NOT have to follow the rules. i. E.g.: government will NOT import product X because it is dangerous to human health. j. Article 24: Exceptions for FTAs and customs unions Agreement on Technical Barriers to Trade (TBT Agreement) a. The TBT agreement generally obligates members to use international standards, where available, UNLESS circumstances justify their non-use. b. TBT agreement requires a technical standard to be adopted for a valid reason and NOT to protect market. c. TBT is concerned with STANDARDS approved by a recognized body. d. 2-part Test of whether something is a Technical Barrier i. (1) Does the ban set out both prohibited and permitted characteristics? 1. In other words, determine whether the regulation is a technical regulation. 2 sub-steps: a. Does it regulate a characteristic of the product? b. Are the products containing that characteristic an identifiable group of products? ii. (2) Is the measure included in the applicable administrative provisions with which compliance is mandatory with products with certain characteristics? 1. Is the technical regulation a Barrier to trade? In other words, is the regulation justifiable? Jackson-Vanik Amendment to the Trade Act of 1974 a. The Jackson-Vanik Amendment requires the USA President to deny MFN status to non-market economy countries which deny their citizens emigration rights. The President may grant MFN status if he determines and reports to Congress that 5 V. VI. VII. the subject country is permitting emigration, or the president may grant MFN status based on annual waiver of the otherwise applicable restriction. Notes: a. Generally speaking, the U.S. follows a “last in time” rule in respect of the relationship between treaties and ordinary federal legislation. To the extent of an inconsistency, a later in time treaty will supersede a federal statute, and vice versa. b. USTR Statement of Administrative Action (SAA) – an authoritative statement of what is binding from standpoint of USA domestic law; in other words it is a definitive, binding interpretation from standpoint of USA domestic law. Local Content and Technology Transfers and Price Controls a. Local content: certain percent of the components of a product must be from local producers. i. Problem with local content is it goes against GATT Article 3, which deals with national treatment, because it discriminates against foreign produced goods. b. Technology transfer: When a foreign nation says to foreign company if you want to build a manufacturing plant and produce goods in this country you must let us provide certain parts and give us the technology to do so, that is, teach us how to make those parts. i. Technology transfers allow a country to discriminate against foreign companies. ii. It is NOT clear if technology transfers violate the GATT. c. Price controls: i. Price controls are NOT illegal under GATT ii. Price control agreement is NOT required by other WTO members; that is, WTO members do NOT have to do away with price controls. d. When technology transfer demands are conjoined with a local production requirement, they are a clear violation of GATT Article 3 because they represent a preference for local production. These demands are problematic when they occur in the context of government procurement because GATT Article 3:8 provides an exception from the obligation to provide national treatment in respect of government purchasing. Dispute Settlement Understanding under the GATT a. The WTO is exclusive forum for resolving disputes under the WTO and it has DSU. b. Objective of system is NOT to award damages; the objective is to get offender to correct its practices. i. Most scholars say that offender has to bring actions into conformity c. If offender does NOT bring actions into conformance, then the harmed party can suspend concessions given to the offender. i. The debate is does offending party have legal right to permanently ACCEPT suspended concessions (e.g. EU/USA beef hormones case) OR does the offender have to conform their behavior because of the panels decision. d. DSU Articles 6 i. DSU ARTICLE 3 1. DSU Article 3(2) a. AB has been directed to apply “customary rules of interpretation of public international law” in seeking clarification of the provisions of the GATT. ii. DSU Article 4 says that parties must go through consultation BEFORE going through the rest of the process iii. DSU Article 6: establishes the panel iv. DSU Article 8: governments will agree who the panelists are v. DSU Article 10: interests of 3rd parties should be taken into account. vi. DSU Article 13: parties can get information from 3rd parties/individuals/other bodies. vii. DSU Article 19 gives panel and AB power to provide or make nonspecific recommendation to offending country to bring actions into compliance. viii. Dispute Settlement procedure in GATT Articles 22 and 23 ix. GATT Article 22(2): if party CANNOT get satisfactory resolution from consultation then they can have contracting parties investigate and recommend action. e. GATT Article 23 – whole system is based on “nullification” or “impairment” i. Article 23 was the centerpiece for dispute settlement in GATT. It also provided for consultation as a prerequisite to invoke the multilateral GATT processes. Three features of these processes can be stressed: (1) they were usually invocable on grounds of 'nullification or impairment' of benefits expected under the Agreement, and did not depend on actual breach of legal obligation; (2) they establish the power for the Contracting Parties not only to investigate and recommend action, but also to 'give a ruling on the matter'; and (3) they gave the Contracting Parties the power in appropriately serious cases to authorize a contracting party or parties' to suspend GATT obligations to other Contracting Parties. Each of these features has important interpretations and implications, and although Article 23 does not say much about them, the procedures followed to implement these principles have evolved over the four decades of practice into a rather elaborate process. ii. An early case in GATT defined the nullification or impairment (N or I) phrase as including actions by a Contracting Party which harmed the trade of another, and which 'could NOT reasonably have been anticipated ...' by the other at the time it negotiated for a concession. Thus the concept of 'reasonable expectations' was introduced, which is almost a 'contract' type concept. But even this elaboration is ambiguous. iii. The language of the DSU largely copied from the 1979 Understanding on Dispute Settlement still states that the prima facie N or I creates a presumption so that then 'it shall be up to the Member against whom the complaint has been brought to rebut the charge'. This may lead panels to back away from some of the implications of the oil fee panel under GATT. f. 3 types of complaints under the GATT 7 VIII. i. Violation complaints ii. Non-violation complaints iii. Situation complaints g. Dispute Settlement Body (DSB or Panel) i. Objective of DSB is ONLY to restore balance of obligations; NOT to assess damages ii. Panel does fact-finding and decides questions of law, then can be appealed to AB iii. Blocking adoption of report requires a negative consensus (every member must vote for NOT adopting a report) 1. Essentially adoption of panel report would be automatic h. Appellate Body (AB) i. Either party to a dispute can appeal to the appellate body. ii. Appeals can only be on questions of law because AB deals with questions of law NOT fact. USA – Reformulated Gasoline (Important because it gave new method to deal with Article 20 chapeau) a. De facto discrimination: not saying discrimination between A and B, BUT when the law operates, there is a discrimination between A and B b. De jure discrimination: say you are discriminating between A and B c. Principle points of the AB i. Having found that measure falls within GATT Article 20(g), the appropriate test becomes conformity with terms of the chapeau 1. Vienna Convention says that all terms must be given a meaning, and that when chapeau uses different terms this must have been intended. 2. Critical point is that chapeau CANNOT be read to have same meaning as GATT Article 3(4). ii. 2 step procedure for Article 20 1. In order for the justifying protection of Article 20 may be extended to it, the measure at issue must not only come under one or another of the particular exceptions - paragraphs (a) to (j) - listed under Article 20; it must also satisfy the requirements imposed by the opening clauses (chapeau) of Article 20. The analysis is twotiered: a. First, provisional justification by reason of characterization of the measure under Article 20 exceptions in paragraphs (a) – (j), i. Ask whether the measure qualifies under any of the exceptions to Article 20; IF yes, then go to step 2. b. Second, further appraisal of the same measure under the introductory clauses (chapeau) of Article 20. i. Determine whether the measure is permissible under the chapeau. 8 IX. iii. The chapeau prohibits such application of a measure at issue (otherwise falling within the scope of Article 20’s exceptions in (a)-(j)) as would constitute 1. (a)"arbitrary discrimination" between countries where the same conditions prevail; 2. (b)"unjustifiable discrimination" between countries where the same conditions prevail; or 3. (c)"disguised restriction" on international trade. iv. The Chapeau of GATT Article 20 makes it clear that it is the “measures” which are to be examined under GATT Article 20 (a)-(j), and NOT the legal finding of “less favorable”. v. AB says “relating to” means “primarily aimed at” SPS agreement a. What does SPS Agreement cover? Compare to TBT Agreement i. SPS agreement - To protect animal and plant life and health from risks from transported pests and diseases, from additives and contaminants, diseased animals, etc. In essence, relating to foodstuffs and agriculture BUT NOT drugs and pharmaceuticals. 1. Sanitary measures refer to measures like health, and quality and safety of animal products; phytosanitary refers to quality and safety of plant products. ii. TBT Agreement covers other technical regulations and standards (e.g. safety measures). Technical regulations are product characteristics or their related processes and production methods including packaging and labeling with which compliance is mandatory, that is, legal rules. Standards are approved by recognized body and compliance is NOT mandatory. b. Structure and Operation of SPS Agreement i. SPS Article 2 1. Article 2:1 right to take measures “necessary for protection”, provided NOT inconsistent. 2. Article 2:2 applied ONLY to the extent necessary, based on scientific principles, with sufficient scientific evidence, except per article 5:7 3. Article 2:4 measures meeting this Agreement presumed to comply with GATT 1994 and GATT Article 20(g). ii. SPS Article 3 1. Article 3:1 Members shall base their measures on international standards. a. The Appellate Body decided that “based on” meant that a measure could adopt some, but not necessarily all elements of an international standard. b. It noted that a Member imposing such a measure does not benefit from the presumption of consistency provided in Article 3.2 for measures which “conform to” international standards. 9 X. 2. Article 3:3 a Member may establish measures which result in a higher level of protection IF “scientific justification” OR in accord with SPS Article 5:1-8 a. A measure will only be consistent with Article 3.3 if it meets, inter alia, the requirements of Article 5 regarding risk assessment. iii. SPS Article 5 1. Article 5.1: deals with risk assessment a. AB says Article 2:2 and 5:5 should be constantly read together so that 5:1 will require scientific evidence, even though text does not expressly state. 2. Article 5:2 available scientific evidence, relevant processes, and methods. 3. Article 5:3 relevant economic factors 4. Article 5:4 minimizing negative trade effects 5. Article 5:5 avoid discrimination and take into account health risks to which humans voluntarily expose themselves 6. Article 5:6 NOT more restrictive than required, taking into account technical and economic feasibility – reasonable availability and significantly less restrictive on trade. 7. Article 5:7 where science insufficient, may adopt a measure provisionally, and seek additional information. Embodies Precautionary Principle. 8. Article 5:8 an explanation may be requested from others. EC – Beef Hormones a. Prima facie case for violation of SPS i. Two prongs: 1. Standard deviates from international standard; AND 2. That country on its face has failed to carry out appropriate risk assessment. b. GATT the Burden of Proof i. Once the prima facie case has been established, the burden shifts to other party to justify the measure. c. PANEL Standard of Review i. Panel makes “an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements”. d. Precautionary Principle i. In absence or NOT in absence of convincing scientific evidence, Members have right to establish their own appropriate level of sanitary protection, which level may be higher (i.e., more cautious) than that implied in existing international standards, guidelines and recommendations. ii. AB says that the Precautionary Principle does NOT override the provisions of SPS Articles 5.1 and 5.2. e. Relationship Between SPS measure and Risk Assessment 10 XI. i. SPS Article 5.1, when read in conjunction with and informed by SPS Article 2.2, requires that the results of the risk assessment must sufficiently warrant - that is to say, reasonably support - the SPS measure at stake. The requirement that an SPS measure be "based on" a risk assessment is a substantive requirement that there be a rational relationship between the measure and the risk assessment. ii. SPS Article 5.1 does not require that the risk assessment must necessarily embody only the view of a majority of the relevant scientific community. In some cases, the very existence of divergent views presented by qualified scientists who have investigated the particular issue at hand may indicate a state of scientific uncertainty. Sometimes the divergence may indicate a roughly equal balance of scientific opinion, which may itself be a form of scientific uncertainty. EC – Measures Affecting Asbestos and Asbestos Containing Products a. Definition of a "technical regulation" in Annex 1.1 of the TBT Agreement i. The definition of a technical regulation states that compliance with the product characteristics laid down in the document must be mandatory. In other words, the technical regulation must regulate characteristics of products in a binding or compulsory fashion. ii. With respect to products, a "technical regulation" has the effect of prescribing or imposing one or more "characteristics" -- "features", "qualities", "attributes", or other "distinguishing mark". "Product characteristics" may be prescribed or imposed with respect to products in either a positive or a negative form. That is, the document may provide, positively, that products must possess certain "characteristics", or the document may require, negatively, that products must not possess certain "characteristics". b. “Like Products” and GATT Article 3(4) i. AB says that GATT Article 3(2) is DIFFERENT from GATT Article 3(4) because Article 3(2) has two sentences. 1. Although the obligations in Articles 3(2) and 3(4) both apply to "like products", the text of Article 3(2) differs in one important respect from the text of Article 3(4). Article 3(2) contains two separate sentences, each imposing distinct obligations: the first sentence lays down obligations in respect of "like products", while the second sentence lays down obligations in respect of "directly competitive or substitutable" products. By contrast, Article 3(4) applies ONLY to "like products" and does not include a provision equivalent to the second sentence of Article 3(2). 2. A determination of “likeness” under GATT Article 3(4) is a determination about the nature and extent of a competitive relationship between and among products. 3. The scope of "like" in Article 3(4) is broader than the scope of "like" in Article 3(2), first sentence. Nonetheless, Article 3(2) extends not only to "like products", but also to products which are 11 "directly competitive or substitutable", and that Article 3(4) extends ONLY to "like products". 4. Evidence relating to the health risks associated with a product may be pertinent in an examination of "likeness" under GATT Article 3(4). ii. Four general criteria for analyzing "likeness": 1. The properties, nature and quality of the products; 2. The end-uses of the products; a. Key elements relating to the competitive relationship between products. The extent to which products are capable of performing the same, or similar, functions. 3. Consumers' tastes and habits - more comprehensively termed consumers' perceptions and behavior - in respect of the products; and a. Key elements relating to the competitive relationship between products. The extent to which consumers are willing to use products to perform these functions. 4. The tariff classification of the products. iii. These four criteria comprise four categories of "characteristics" that the products involved might share: 1. The physical properties of the products; 2. The extent to which the products are capable of serving the same or similar end-uses; 3. The extent to which consumers perceive and treat the products as alternative means of performing particular functions in order to satisfy a particular want or demand; and 4. The international classification of the products for tariff purposes. iv. Relationship between GATT Article 23(1)(a) “Non-Violation” and Article 23(1)(b): 1. Article 23(1)(a) sets forth a cause of action for a claim that a Member has failed to carry out one or more of its obligations under the GATT. A claim under Article 23(1)(a) lies when a Member is alleged to have acted inconsistently with a provision of the GATT. 2. Article 23(1)(b) sets forth a separate cause of action for a claim that, through the application of a measure, a Member has "nullified or impaired" "benefits" accruing to another Member, "whether or not that measure conflicts with the provisions" of the GATT. 3. Thus, it is not necessary, under Article 23(1)(b), to establish that the measure involved is inconsistent with, or violates, a provision of the GATT. Cases under Article 23(1)(b) are, for this reason, sometimes described as "non-violation" cases. 4. A claim may succeed under Article 23(1)(b) even if the measure conflicts with some substantive provisions of the GATT. It follows that a measure may, at one and the same time, be inconsistent 12 XII. with, or in breach of, a provision of the GATT AND nonetheless, give rise to a cause of action under Article 23(1)(b). 5. Article 23(1)(b) applies to measures which simultaneously fall within the scope of application of other provisions of the GATT. US - Shrimp – Turtles a. Chapeau of GATT Article 20 by its express terms addresses, NOT so much the questioned measure or its specific contents as such, BUT RATHER the manner in which that measure is applied. b. The purpose and object of the introductory clauses of Article 20 is generally the prevention of abuse of the exceptions of Article 20. c. Method for Applying GATT Article 20 i. In order that the justifying protection of Article 20 may be extended to it, the measure at issue must not only come under one or another of the particular exceptions - paragraphs (a) to (j) - listed under Article 20; it must also satisfy the requirements imposed by the opening clauses of Article 20. The analysis is two-tiered: 1. Provisional justification by reason of characterization of the measure under Article 20(a)-(j) (that is, See if the measure falls within the exceptions); AND THEN 2. Further appraisal of the same measure under the introductory clauses (Chapeau) of Article 20. d. The precise language of the chapeau requires that a measure NOT be applied in a manner which would constitute a means of "arbitrary or unjustifiable discrimination between countries where the same conditions prevail" or a "disguised restriction on international trade." There are three standards contained in the chapeau: i. Arbitrary discrimination between countries where the same conditions prevail; ii. Unjustifiable discrimination between countries where the same conditions prevail; and iii. A disguised restriction on international trade. e. In order for a measure to be applied in a manner which would constitute "arbitrary or unjustifiable discrimination between countries where the same conditions prevail", 3 Elements must exist. i. First, the application of the measure must result in discrimination. ii. Second, the discrimination must be arbitrary or unjustifiable in character. iii. Third, this discrimination must occur between countries where the same conditions prevail. f. NOTES: i. Exhaustible natural resources include living and non-living species and both may fall under GATT Article 20(g). ii. Article 20(g) requires that the measure sought to be justified be one which "relates to" the conservation of exhaustible natural resources. In making this determination, the treaty interpreter essentially looks into the relationship between the measure at stake and the legitimate policy of conserving exhaustible natural resources. 13 XIII. General Agreement on Trade in Services (GATS) a. The GATS requires that member accept certain general obligations in respect to their services sectors. Most important is the application of general MFN treatment, pursuant to GATS Article 2 (subject to very limited exceptions). Each member is obligated to treat service providers of other embers on an equivalent basis, that is, no favoritism among third country providers. In addition, requirements such as transparency and the availability of remedial processes are applicable to all service sectors. However, the main substantive obligation under GATS, that of providing national treatment to foreign service providers, arises ONLY when a members has made a specific sectoral commitment in its schedule of commitments. These schedules may include exceptions from a general national treatment obligation. 1) GATS Scope of Coverage / Subject Matter a. Which services are covered? 2 options: b. Negative listing approach: broader; open everything and specifically list the thing that are exceptions c. Positive Listing Approach: operates on an individual member basis, member will list what would be included. This is narrower; country only opens up trade in sectors and subsectors listed in its schedule of commitments; This is the approach used in GATS i. Member only commits to open up its services market with respect to sectors listed in schedule of commitments, often revised; 1. Members not obliged to make commitments on all services; 2. Tariffs are bound: schedules agree to bind existing level of service provision and not backslide from that. ii. Problem is that member could of course miss some things or restrict future inclusion of services; iii. Further, No assurance of commercial presence – everything that a country agrees to in its Schedule is subject to particularization, commitments can be made both broader and more limited at discretion. d. Recognizes Member’s Rights: i. To regulate and introduce regulations on supply of services in pursuit of policy objectives ii. To specify which services they wish to open to foreign supplies and under which conditions e. Sensitive to public policy concerns such as health care and cultural industries; f. Promotes principle of flexibility for developing and least developing countries; g. Promotes liberalization but does not force members to deregulate; h. Does not prevent members from creating preferential regional service agreements; i. Governmental Services are explicitly not subject to GATS. 2) So What Is A Service?: a. Specific Sectors: accounting, architecture, construction, data processing, financial, legal, medical, telecommunications, tourism related, and some air and maritime transport b. GATS does NOT define services; rather GATS defines services in 4 ways (modes)of trading services in Article 1:2 14 i. Mode 1 Cross Boarder Supply: provision of services of one member into territory of any other member. That is, from one territory into another – cross boarder movement of the service itself. E.g.: Arthur Anderson Consulting sends fax from NY to Frankfurt; international telephone calls. ii. Mode 2 Consumption Abroad: Nationals of one country being supplied services in another country. That is, in territory of one to consumer of another. E.g.: Hilton provides lodging for Frankfurt visitor to NY who sees Arthur Anderson, which also locally provides service; tourism. iii. Mode 3 Commercial Presence: supply of service by a service supplier of one member through commercial presence in the territory of any other member. E.g.: Arthur Anderson opens branch office in Frankfurt. iv. Mode 4 Presence of Natural Persons: individual person travels to another country to provide a service in another member country. That is, by supplier of one, through presence of natural person in another. E.g.: Arthur Anderson sends partner to Frankfurt for discussion; fashion models or consultants. c. Services do not include exercise of government authority. 1) Not All Treated The Same: a. Financial Services: governments given wide discretion to take measures for protection of investors, depositors and insurance policy holders and to ensure integrity and stability of financial system. Central Banks are also not included. b. Telecommunications: comprehensive multilateral agreement to open up voice telephony markets. GATS Annex provides that govts must ensure that foreign service providers are given access to public telecommunications network. c. Air Transport Services: covered by other bilateral agreements. Traffic rights and other activities not in GATS. d. Movement of Natural Persons: GATS does not apply to people seeking permanent employment, permanent residence or citizenship. 2) GATS Articles a. Article 2: MFN i. Agree to treat Foreign Service providers the same as you treat domestic service providers. Under GATS, if a country allows foreign competition in a sector, equal opportunities in that sector should be given to service providers from all other WTO members (this applies even if the country has made no specific commitment to provide foreign companies access to its markets under the WTO). So treat all service providers the same, UNLESS country listed exceptions to it under Annex 2. ii. A country can NO longer make exceptions to MFN; thus there should be MFN extended to all members iii. Note that in general MFN is NOT as central to GATS as it is to GATT since services generally are provided within the territory and, if they enjoy National Treatment, then they likely also enjoy MFN 1. So, National Treatment must be provided on MFN basis. b. Article 5: Economic Integration (regional services agreement exception) i. Allows opening up of service markets of regions without extending it to some other member countries 15 c. d. e. f. g. h. i. j. k. l. m. n. o. p. q. 1. E.g. can give national treatment to Mexico and Canada in certain regions but you do not have to give the same to other members Article 6: Fairness of Domestic Regulation i. Provide reasonable, objective, and impartial regulation to foreign service providers Article 7: Encouragement of Mutual Recognition i. Countries will enter into negotiations regarding recognition of degrees, licenses of professionals from other countries. Article 8: i. State monopolies should supply MFN and, when committed, National Treatment basis. Article 10: i. Safeguards rules to be determined by negotiation Article 13: Government Procurement Exception i. Governmental procurement NOT covered by GATS; BUT NOTE it is covered by a separate agreement on government procurement Article 14: General Safeguards based on GATT Article 20 i. Similar to GATT article 20 ii. The heart of GATS is Articles 16-18 Article 15: Future Work Program on Subsidies Article 16: Market Access i. If limit access to market must do so in the schedule ii. Article 16 defines content of National Treatment in terms of modes of supply, with NO commitment on across the board or commercial presence (except per Financial Services Annex). iii. Article 16 precludes use of numerical limitations (quotas) on services provision, as stated in various ways – UNLESS set forth in a schedule. Article 17: National Treatment i. National Treatment: Give the same legal rights to foreign service providers and nationals. ii. States NO less favorable standard – with identical treatment NOT required. 1. Remember under GATS National Treatment is more important than MFN because national treatment is the best you can get. Article 19: i. Future negotiations called for Article 20: i. Schedules are mapped out. Article 21 i. Withdrawal and rebalancing permitted Article 23: i. Dispute settlement – consistent with GATT 1994 and DSU, BUT does NOT include “situation complaints”. Article 24: i. Council on Trade in Services established Article 27: 16 3) 2) 3) 4) 5) i. Denial of benefits – Anti-Circumvention Rule. r. Article 28: Definitions GATS Principles: a. MFN Treatment-Art. II: Principle of nondiscrimination. If country allows foreign competition in a sector, equal opportunities in that sector should be given to service providers from all other WTO members. i. Not really a principle concern of GATS (see National Treatment); ii. Services generally provided within member’s territory so if country enjoys NT then likely to enjoy MFN, So national treatment must be provided on MFN basis; iii. Fact that member opens markets does not mean you are going to have same level of market participation because countries will have to meet domestic requirements for providing the service. Commitments on Market Access & National Treatment-Art. XVI and Art. XVII: a. Market Access: i. Member commitments to open market in specific sectors and how open they will be are the outcome of negotiations; ii. Result is Schedule of Commitments: lists sectors being opened, extent of market access being given, restrictions on foreign ownership, and limitations on national treatment. iii. Market Access Commitment: E.g.: If US commits to allow foreign banks to operate in domestic market; iv. Market Access Limitation: E.g.: US limits number of licenses it will issue b. National Treatment: member agrees to give foreign nationals equivalent legal treatment as domestic companies, generally assumed that they are not going to be treated better. i. Only means that same regulations apply to foreign suppliers as to nationals. Foreign providers still have to meet those standards. ii. Technically means giving foreign companies best treatment available so MFN has less relevance, countries don’t have to worry about whether they are preferred over another as long as they have national treatment; iii. Art. XVI defines content of NT in terms of modes of supply but not commitment across the board on commercial presence. Also precludes use of quotas on services provision unless set forth in Schedule of Commitments; iv. Art. XVII promotes “no less favorable” standard of treatment, not identical treatment. v. Exception to National Treatment: US says foreign banks only allowed to open one branch while domestic banks can open ten. Article III – Transparency: Governments must publish all relevant laws and regulations and notify the WTO of changes. Article V – Economic Integration: regional services arrangement exception. Allows countries to open their services market within a region without extending it to other countries. Similar to Article IV in GATT. Article VI – Domestic Regulation: provide reasonable, objective and impartial administration of domestic regulation standards, still can have differential treatment 17 6) 7) 8) 9) a. No requirement that any service be deregulated or liberalized b. Governments have right to set levels of quality, safety or price or other regulations. Article VII – Recognition: countries can enter into negotiations regarding recognition of qualifications, do not have to commit to do this but if they do enter into an agreement with one country, obligated to attempt to do so with other countries if they have comparable standards. Art. XIII - Government Procurement is not Covered: permitted to discriminate in their favor unless country has made an agreement not to do that in a specific sector. Article XIV: General Exceptions for General Safeguards Based on Gatt Art. XX Relevant Case Law: a. Canada Split Run Periodicals: US magazine publishes a US edition and a Canadian edition. Sold advertisements to advertising markets for each. Canada objected and adopted rules saying that one could not sell advertising to Canadian enterprises unless specific percentage of magazine was original Canadian content. Rationale was that US magazine publishers had an unfair advantage over Canadian ones because they essentially had the content for free. Just cutting and pasting content into new magazine and add Canadian adds, undercuts Canadian magazine producers who would have to incur the whole costs of production before they could make their magazine. i. Held: Panel found against Canada: discriminatory on national treatment bounds, treating US and Canadian publishers differently. b. Telmex Case: claim by US that Mexican national telephone company was discriminating against US value added service providers such as ISPs by charging higher rates to connect to Telmex network than it was charging to Mexican service providers i. Held: Violated GATS Annex on Telecommunications, need mechanism for nondiscriminatory treatment. US won, required Mexico to open up Telmex to US service providers c. Internet Gambling: Antigua and Barbados challenged US for allowing US gambling regulatory system which prohibits foreign gaming services to be provided over internet in US but allows same US forms of gambling. Arguing that foreign service providers are being discriminated against in US domestic gambling market. i. US argued that they were trying to protect public morals, protect against fraudulent practices ii. Held: US was discriminating against foreign providers, US has not yet taken action. iii. If US is not going to change the law, Antigua and Barbados have a remedy under WTO law to withdraw concessions from US. iv. But does US care? Not likely. Conversely if US wins case, their threat to withdraw concessions is much more compelling. Weak parties in WTO system have a remedies problem. v. Maybe could withdraw concessions in other areas. 1. ex. Ecuador won case against EC on bananas. First option would have been to withdraw tariff concessions, but would have hurt 18 Ecuadorian manufacturers who refinish European parts. Instead decided to withdraw copyrights on CDs. XIV. Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) a. TRIPS agreement does 3 things i. Provides minimum substantive standards of IP protection ii. Provides minimum standards of enforcement iii. Dispute settlement: WTO DS leads to countries that lose to have to choose between bringing conduct in line or face losing trade concessions. b. Forms of Intellectual Property Protected under TRIPS: i. Patent: form of legal instrument; set of rights granted to an inventor of a new useful and non-obvious product or process. Rights given are to exclude others from making, using, offering for sale, selling, or importing the product or a product made on the basis of the product. It lasts for 20 yrs from the application date. Once you have a patent and one person crates invention like yours, you can exclude them from the market. 1. TRIPS agreement said (1) patents must be available in all fields of technology and this is important because other agreements prior to TRIPS did not tell, e.g. not patents on pharmaceuticals and food products; (2) harmonize period of protection (20yrs); (3) patent laws could not discriminate among fields of technology; (4) criterion of patent protection. 2. Compulsory license allows 3rd party to use patent without consent of the patent holder. ii. Copyright: right granted to an author or artist to protect expressive works. It protects against reproduction or distribution. It lasts for the life of the author plus 70 yrs; under TRIPS it is life of author plus 50 years. TRIPS extended rights to performances and phonograms iii. Trademark: sign or symbol that distinguishes the goods or services of one enterprise from others. TRIPS says any sign, symbol including shapes and colors, scents (smells), and sounds. Trademarks last for an indefinite duration. TRIPS said there was a minimal 7 year renewal period. TRIPS also protects well-known marks – something many people know about, it means that your mark is in a particular field and is well-known and says a country must protect a well known mark even it if is not registered in that country. 1. Trademarked goods: e.g. Coke identified products, Sony on radio 2. Service marks: e.g. Amex or Citibank. iv. Geographic Indication: a sign or symbol that associates a product with a place based on qualities or reputation or characteristics. Protected for an indefinite duration; TRIPS provides for special protection on things such as wine and spirits (e.g.: Kentucky bourbon, scotch whiskey) and cheeses. There is a question as to whether agriculture products should be protected under geographic indications. 1. E.g. champagne, parmesan cheese, Parma ham 2. Swiss chocolate is unique. 19 a. Swiss cheese though is not covered by Geographic indication v. Industrial Design Rights: protects shape of a product that is aesthetic as opposed to functional. The design that is protected is presumed to be not useful to consumers; rather they are aesthetics that appeal to consumers. This protection is important in automobiles and clothes (textiles). TRIPS says there is 9 years of protection and requires that the protection should be fast, easy and cheap to obtain. 1. Designs can be protected by register, trademarks, copyrights, and design patents BUT for different reasons that those stated above for industrial design rights. vi. Trade Secretes: it is information that is kept secret and has value; in other words, it is valuable non-disclosed information that person has taken reasonable steps to protect. They are for indefinite duration because as long as you keep it secret it is protected. Customer lists are also trade secrets. Restaurant recipes are trade secrets, so is manufacturing processes. The main thing is it has to be kept secret. 1. As a subset of trade secrets is Regulatory Data, Article 39.3 of TRIPS: Government is required to protect undisclosed data with regard to chemicals in pharmaceuticals. vii. Integrated Circuit Layout Design Protection: basically the maps that are used to make semiconductor chips. There is 10 year protection under TRIPS. c. TRIPS Articles i. Article 6: Exhaustion of Property Rights (see Article 6 of TRIPS) 1. Exhaustion is a trademark law principle that says that a trademark holder’s right to block people from selling an item with their trademark on it is exhausted when they make a sale. 2. “First sale” tells when an IP holder has sold to a consumer. After “first sale”, IP holder loses its right to control subsequent selling of the product. Thus, selling it to A means that COKE has exhausted its IP rights. This is the “Exhaustion Doctrine”. Now if you buy it from someone in Thailand and want to bring it back to the USA, can Coke prevent the importation? Can Wal-Mart get Coke from Thailand and send to USA? It depends on the question of what kind of exhaustion doctrine the USA adopts. 3. 3 Types of Exhaustion Doctrine: a. National: Exhausted in the country where it is put on the market. If USA adopts this, then USA is saying that when Coke is sold in USA, Coke only exhausts right in USA, and when sold in Thailand, it exhausts rights there. So, CANNOT ship to USA because the rights have NOT been exhausted in the USA. b. Regional: when put product on the market, for example in NAFTA region, the right is exhausted in that region BUT NOT anywhere else. 20 c. International: the right is exhausted in whatever country the good is first put on the market. 4. USA uses: a. In Trademarks, USA uses Common Control Doctrine: if company puts goods on market anywhere in the world and it is part of a controlled corporate entity (it is subsidiary, affiliate, etc.), then it has exhausted right in USA, and can import it. BUT IF it is a licensee, then can block the import. b. In Patents: Do NOT exhaust patent rights when put goods on market abroad. So this means if you are Pfizer, and have Pfizer USA and Pfizer Canada, if USA person goes to Canada to buy drugs, that person CANNOT bring the pharmaceuticals back. Thus, can block the import because the patent right has NOT been exhausted. i. Note: there is drug re-importation where drug sold in to Canada, person goes to Canada and buys drug and brings back; thus company has exhausted its rights. ii. Article 31: 1. Permits all WTO members to grant compulsory patent licenses, that is, licenses to another producer to make the patented product without the patent holder’s consent. iii. Article 33: the term of patent protection available shall not end before the expiration of a period of 20 years counted from the filing date of the application against which the patent was granted. iv. Article 64: Dispute Settlement (see the TRIPS agreement) 1. Ordinary GATS DSU applies; BUT paragraphs 1b and 1c do not apply for 5 years, which dealt with non-violation complaints; the moratorium was extended till next ministerial conference. Prof. says there is a problem, the agreement cannot be reconciled with this provision: If do not agree on any scope and modality, how can you bring a non-violation complaint? d. Canada - Patent Protection of Pharmaceuticals Products i. Issue: whether Canada can justify its Regulatory Review Exception under Article 30 of the TRIPS agreement. 1. Canada’s "Regulatory Review Exception" applies to patented products such as pharmaceuticals whose marketing is subject to government regulation in order to assure their safety or effectiveness. The purpose of the regulatory review exception is to permit potential competitors of the patent owner to obtain government marketing approval during the term of the patent, so that they will have regulatory permission to sell in competition with the patent owner by the date on which the patent expires. 2. USA’s “Bolar exception” – basically it legitimizes the regulatory review (it is a regulatory review provision) AND extend the years 21 on the patent – to extent the originator of a drug is delayed to put drug on market because of regulatory rule, USA will give them up to five year extension on the end of the patent term. ii. TRIPS Article 30 (limited exception provision) establishes 3 criteria (three part test) that must be met in order to qualify for an exception to the exclusionary patent rights laid down in TRIPS Article 28 (which confers rights to patentee’s) 1. The exception must be limited; a. Panel decides to use the definition of “limited” that is narrower. The term “limited exception” must be read to connote a narrow exception – one which makes only a small diminution of the rights in question. b. Panel says that the limited exception prong does NOT include economic interests. 2. The exception must not unreasonably conflict with normal exploitation of the patent; AND a. Panel says that patent holder can prevent making, using, and etc. of the patented product during the patent period, BUT the producer (patent holder) does NOT have the right to block others from entering the market. 3. The exception must not unreasonably prejudice the legitimate interests of the patent holder, taking account of the legitimate interests of third parties. a. Prof. asks: Is patent exception required to legitimate a “Bolar” exception – Panel says NO, because there are a substantial number of countries adopting regulatory review exception and there are some countries that give patent extension and some do not. Thus, Panel says it is not up to the country to decide what is legitimate iii. “What do we mean by discrimination?” 1. “De Jure Discrimination”: says as a matter of law on its face discriminates a. "De jure discrimination": Discrimination may arise from explicitly different treatment. 2. “De Facto Discrimination”: the law on its face does not discriminate, but the law sets up a situation where it discriminates in its effects. a. "De facto discrimination": Discrimination may arise from ostensibly identical treatment which, due to differences in circumstances, produces differentially disadvantageous effects. b. De facto discrimination is a general term describing the legal conclusion that an ostensibly neutral measure transgresses a non-discrimination norm because its actual effect is to impose differentially disadvantageous 22 consequences on certain parties, and because those differential effects are found to be wrong or unjustifiable. e. Parallel Import i. Dramatic difference in price between countries. Nothing in TRIPs speaks to exhaustion - brand name producer gets a monopoly over sales, but does NOT have control over sale of subsequent product. ii. Parallel importing is where a product sold more cheaply in one country is imported into another without the patent holder’s permission. Countries’ laws differ on whether they allow parallel imports. The TRIPS Agreement simply states that governments CANNOT bring legal disputes to the WTO on this issue. f. Compulsory Licenses i. Doha Declaration stated that each member has the right to grant compulsory licenses and the freedom to determine the grounds upon which such licenses are granted. ii. What do Compulsory Licenses do? 1. Lets a country manufacture a drug at a low price. 2. On the other hand, it can be used as a bargaining chip; e.g. country tells Drug Company to lower prices or the country will just grant a compulsory license. NAFTA a. What is difference between Customs Union and Free Trade Area? i. Customs Union - country gets rid of internal tariffs but it establishes a common outer tariff wall. ii. Free Trade Area (FTA) - removes internal tariffs but does NOT establish common outer tariff wall; thus each country retains its outer tariff walls. In other words, countries eliminate tariffs on trade between the countries BUT do NOT eliminate tariffs on trade coming in from outside the countries. b. Fast Track Procedure for Trade Agreements (see pg 21-22 of article) i. Because Congress can regulate foreign trade, Congress approves trade agreements. Fast in exchange for the president agreeing to consult with Congress during course of negotiation, Congress will do 2 things. (1) Congress agrees to consider the agreement expeditiously (either 60 or 90 days), and (2) Congress agrees to vote only yes or no, thus will not try to attach amendments. 1. Note: that with agreements the president will submit implementing legislation and Congress considers both during the fast track. c. How does NAFTA work? i. There is a Free Trade Commission which oversees the implementation and supervision of NAFTA, and oversees the working committees and they appoint the arbitrators, YET the Commission is NOT given any power to act. They CANNOT adopt any type of legislation or regulations. Must be cautious in saying NAFTA commission has NO power because trade minister of each country (they make up the commission) has some express XV. 23 or inherent powers. BUT that is different from saying the Trade Commission has power. d. What is the relation between NAFTA and the WTO? Which rules are superior? i. NAFTA Article 103 says that the rules of NAFTA take priority over the rules of the GATT. 1. The problem is that the GATT effectively disappeared in 1995 and was replaced by the WTO. Note that the WTO is a later agreement in that it was formed after NAFTA. So need to ask if WTO is a successor (or revision) to the GATT? a. This is complicated. The WTO agreement says that GATT 1947 and GATT 1994 are legally distinct. Thus, they are different. So NAFTA referred to GATT 1947 and now it is gone and there is GATT 1994 that is legally distinct. But one could argue that WTO is a successor to GATT 1947, yet this is problematic once you think about GATS and TRIPS. 2. How can NAFTA say it is superior to agreements that were never in effect when it was signed? a. As a practical matter you have to assume that NAFTA drafters wanted to have NAFTA superior to WTO. The panels that have dealt with the issue have said it is a case by case type thing to look at when the rules of GATT and NAFTA conflict. e. Regional Integration Agreements (RIA) in the WTO and GATT Article 24 Trade in Goods i. Provided that the members of a prospective RIA notify WTO members and agree to eliminate tariffs and other restrictive regulations of commerce on “substantially all the trade” in products originating in their territories within a reasonable time, they are permitted under GATT Article 24 to ignore that agreement’s MFN principle and to grant each other tariff preferences which need NOT be extended to non-RIA members. ii. Tariffs and other regulations of commerce affecting non-members of a Free Trade Area (FTA) shall be NO higher or more restrictive than those existing in the same constituent countries prior to its formation. iii. GATT Article 24 specifies ONLY that tariffs must be substantially eliminated on “products originating in” the constituent territories of an RIA. There is NO requirement that goods imported from outside the RIA will benefit from preferential tariff treatment once they have entered the territory of the RIA. iv. NAFTA establishes strict rules of origin intended to prevent imported third country goods from obtaining preferential tariff treatment within the NAFTA territory. f. GATS and NAFTA: Does GATS allow for the setting up of a regime that allows giving favorable treatment to USA, Mexico and Canada services BUT NOT other GATS members’ services? 24 g. h. i. j. i. YES, under GATS Article 5. A RIA (here, NAFTA members) can do so if the regime has substantial sectoral coverage AND the regime eliminates substantially all tariffs in the sector in a reasonable amount of time. ii. Here is the critical point: a country can overcome discrimination in NAFTA by establishing domestic presence in one of the member countries. NAFTA Rule of Origin i. Rules of Origin address the question what goods are entitled to the duty free treatment. ii. Regional Origin: General Rule – to qualify as an originating good, the good must be wholly obtained or produced entirely in the territory of one or more of the NAFTA parties to enjoy duty free status within all of the NAFTA countries. iii. Regional Transformation: At what point do the parts for goods from other countries become a good within the domestic country? 1. General Rule used in agreements OTHER THAN NAFTA: Substantial Transformation Rule – evaluates on a subjective basis when a good goes from being a good of one country to the good of another country. So we ask questions like does it perform different functions. 2. NAFTA General Rule: To qualify as an originating good, and thus receive duty free treatment, the good must undergo a change in tariff classification as a result of production occurring entirely in the territory of one or more parties; OR in situations in which a foreign-produced part(s) is included in a regionally-produced good and for technical reasons may NOT satisfy the change in tariff classification requirement, the regional value content of the whole good must exceed a set percentage. iv. There are Local Content Rules related to Automobiles. The rule requires the automobile to consist of 62.5% of local content coming from the NAFTA territories in order to get duty free treatment within the NAFTA territory. Duty Drawbacks: NAFTA did away with duty drawbacks and remissions. Customs Users Fees: are eliminated under NAFTA BUT still apply to other countries outside of NAFTA. Technical Standards and SPS Measures i. NAFTA members expressly disapply GATT Article 20(b) as it may relate to SPS measures. ii. In the Technical Barriers to Trade (TBT) chapter of the NAFTA, the parties do NOT expressly disapply GATT Article 20(b). The parties affirm their existing obligations relating to standards-related measures (SRMs) under the GATT TBT Agreement. iii. The NAFTA allows adoption of SPS and technical standards measures MORE stringent than international standards, while prohibiting the adoption of measures creating an unnecessary obstacle to trade between the NAFTA parties. 25 k. l. m. n. iv. NAFTA expressly places on the complaining party the burden of proof when challenging the scientific basis or risk assessment methodology used in establishing a technical or SPS measure. 1. Note: Whereas under the GATT, parties adopting the technical or SPS measure have to prove the scientific justification for the measure. The General Framework of NAFTA Services Measures i. The scope of NAFTA liberalization measures in respect to trade in services is far more extensive that the scope of GATS liberalization measures. NAFTA services agreement is of the “negative listing” type whereas GATS is principally of the “positive listing” type. Thus, NAFTA measures are generally extended to all service sectors with specific exceptions carved out by the parties in the Annexes. ii. Service providers of the NAFTA members are NOT required to establish a presence within the territories of one another in order to enjoy the right to provide services. iii. The NAFTA provides liberal treatment to service providers of non-Party countries (countries not in NAFTA) through the mechanism of establishment. Thus, a business organization which is established in the territory of a NAFTA Party qualifies for the benefits of the services chapter (MFN and National Treatment) regardless of the ultimate country of ownership of the organization. NAFTA Investment Measures i. NAFTA extends National Treatment and MFN status to all investments EXCEPT those listed in the annexes (remember it is a negative list), e.g. basic voice telephone telecom, and airlines. NAFTA IP: IP chapter of NAFTA is essentially the same as the TRIPS agreement. NAFTA Dispute Settlement i. Note: USA Congress has denied the NAFTA Self executing effect: Neither USA nationals, NAFTA territory nationals, or third country nationals can bring a suit in the USA courts directly on the basis of the NAFTA agreement. 1. E.g.: NAFTA implementation provisions deny USA citizens to bring claim in USA court for another violating NAFTA. ii. Chapter 20 1. General mechanism for the settlement of disputes regarding interpretation and application of the NAFTA 2. It is a dispute settlement mechanism available ONLY to the NAFTA Parties, that is, it is government to government. 3. Note that a party could bring a claim under GATT or NAFTA, and this will dictate which dispute mechanism is chosen. E.g.: Canada could force a dispute to be resolved under NAFTA even if USA wanted to resolve it at GATT. 26 4. There is no appellate body in the NAFTA; it is clear that a party can accept the withdrawal of concessions rather than strict compliance. iii. Chapter 19 1. Mechanism for resolving anti-dumping and countervailing duty (AD/CVD) disputes. 2. The Parties may initiate claims based upon final AD/CVD determinations by national administrative authorities. Additionally, private parties to adverse AD/CVD final determination may require their governments to initiate claims under the NAFTA AD/CVD dispute settlement procedure. 3. Decisions of the arbitral panels with respect to appeals of AD/CVD final determinations are binding on the parties as to the matter at issue. In other words, decisions’ of chapter 19 panels are binding under the national laws of the country that was found to be in breach of the NAFTA provisions; the decision has same effect as a ruling by the domestic court. 4. There is an appellate procedure under Chapter 19, specifically the Extraordinary Challenge Committee, but it is limited to considering issues such as excess of power and arbitrator misconduct. iv. Chapter 11 1. Mechanism for resolving Investor to Government (3rd government) disputes. Thus, private party investors within NAFTA have recourse against the NAFTA governments under 3rd party arbitration provisions. For example, USA national investor cannot challenge action by USA government that it alleges is in violation of NAFTA, RAHTER USA investor can only sue another NAFTA party (Mexico or Canada). 2. The parties are expected to provide for recognition and enforcement of the arbitral awards resulting from this process. o. Reconciling NAFTA and WTO Dispute Settlement Systems i. Relationship between GATT and NAFTA are governed by article 103 of the NAFTA which says the NAFTA prevails over the GATT with regard to any inconsistencies. We presume as a general rule that NAFTA prevail over GATT to the extent of inconsistencies; it is less clear if NAFTA prevails over GATS or TRIPS because these were made after NAFTA. ii. It would be very unusual that the WTO panel or AB would make a decision to interpret and apply NAFTA because GATT DSU mandates that DSB resolves disagreements under GATT. iii. There are possibilities for inconsistent rulings between the two systems. p. NAFTA Labor Side Agreement (NAALC) i. Establishes for the parties a general obligation to maintain high labor standards. The parties are also obligated to promote compliance with and to effectively enforce their labor laws. 27 q. r. s. t. ii. The agreement makes clear that each party is entitled to adopt and maintain its own labor laws and standards. NAFTA Environmental Side Agreement (NAAEC) i. The supplemental agreement principally obligates the NAFTA parties to maintain high levels of environmental protection and to implement and enforce their environmental laws through the use of a variety of measures. ii. Under the agreement, implementation and enforcement measures must permit access to courts and administrative proceedings to compel compliance, provide remedies, and be transparent. iii. Private parties, including interest groups, have a right to initiate proceedings before the Secretariat, alleging that a party is failing to effectively enforce its environmental laws. The primary difference between the Labor and Environmental side agreements is that under the Labor agreement private parties do NOT have a right to petition the Secretariat for the preparation of a factual report as they do under the Environmental agreement. Methanex case (NAFTA Chapter 11 dispute) i. This case is somewhat loosely tied to USA-Reformulated Gas case. ii. Methanex claims that California’s related environmental regulations constituted a discriminatory taking of Methanex’s investment. 1. Panel says that Methanex is not an investor within meaning of NAFTA Article 1101. Panel then says even if Methanex were, the environmental regulatory measures were not discriminatory. iii. Claim under NAFTA Article 1102: Panel has to decide if ethanol and methanol were “like” products. Panel rejects like products argument of Methanex. 1. Panel notes that there is a difference between “like products” and “in like circumstances” (which is used in NAFTA). Panel finds that California treated all producers the same because Methanex did not show that producers were treated differently because they were either investors of Canada or USA. So, Methanex failed to carry burden of proof. iv. Methanex claim under NAFTA Article 1105: 1. Debate over meaning of 1105. FTC gave an interpretation of it in the middle of the arbitration, which was binding on the Panel. Panel says there is nothing to prevent NAFTA parties to change law after the fact to prevent a claim from succeeding. Loewen v. US i. The US federal government is allegedly responsible for the unfairness of the Mississippi trial below. ii. Customary international law states that in a federal/state system the federal government is responsible at the international level for the actions that have been taken by the states, not the state (i.e. Mississippi). 1. Thus, the defendant is the USA federal government because it bears the responsibility for all government subdivisions within the state. 28 iii. Question of exhaustion -- in order for the Mississippi trial action to be considered an international ruling on behalf of the US. 1. Before an alien may bring a claim against a state in an international tribunal, it must have exhausted all of its local remedies. In other words (paragraph 168), there is an obligation to exhaust remedies which are effective and adequate and are reasonably available to the complaint in the circumstances in which it is situated. 2. Another rule at play in the NAFTA: when an investor wants to bring a claim against a government, the investor has a choice of proceeding in the local courts OR going before the NAFTA panel. iv. Paragraph 154 – there is NO instance in which an international tribunal has held a State responsible for a breach of international law constituted by a lower court decision where there was available an effective and adequate appeal within the State’s legal system. v. Paragraph 161 – Although the precise purpose of NAFTA Article 1121 is NOT altogether clear, it requires a waiver of domestic proceedings as a condition of making a claim to a NAFTA tribunal. vi. Paragraph 217 – Panel concludes that Loewen failed to pursue its domestic remedies, notably the Supreme Court option and that, in consequence, Loewen has NOT shown a violation of customary international law and a violation of NAFTA for which Respondent is responsible. vii. Other grounds for the decision against Loewen: 1. According to NAFTA, a USA company CANNOT bring a claim against the USA federal government. XVI. Trade Policy Review Report a. Trade Policy Review Body - established as part of the trade policy review mechanism. It reviews and reports on the trade policies of the member governments and makes recommendations for compliance with the WTO system; not binding on the recipient government; one of the principle ways of transparency at the WTO - each government required to spell out developments in its laws/policies. XVII. Crosby v. National Foreign Trade Council, 120 S. Ct. 2288 a. In 1996, Massachusetts passed a law barring state entities from buying goods or services from companies doing business with Burma. Subsequently, Congress imposed mandatory and conditional sanctions on Burma. Respondent (hereinafter Council), which has several members affected by the state Act, filed suit against petitioner state officials (hereinafter State) in federal court, claiming that the state Act unconstitutionally infringes on the federal foreign affairs power, violates the Foreign Commerce Clause, and is preempted by the federal Act. b. S. Ct. Held: The state Act is preempted, and its application unconstitutional, under the Supremacy Clause. c. What is the State arguing? (footnote 24) i. Massachusetts argues that federal law implementing GATT foreclosed suits by private persons and foreign governments challenging a state law 29 on the basis of GATT in federal or state courts. In short, no private action against federal or state governments based on the WTO agreement. ii. State says that this is just an indirect way of relying on WTO rules. iii. S. Ct. says that it is just a conflict between state and federal law and has nothing to do with the WTO dispute except that the law is evidence of harm to foreign relations. The NFTC (respondent) is not invoking the Uruguay round agreements to challenge the sate law. XVIII. Biret International v. Council of the European Union, European Court of Justice a. Issue in Biret: Does the WTO agreements, in effect the GATT, have direct effect in the EU community (that is, can an individual citizen go to court and say that the EU has adopted WTO agreements and thus breaches his rights as a EU citizen) – very similar question to the one in Crosby. b. Prof.’s point of the case: Not directly effective (GATT and WTO agreement does NOT provide causes of action UNLESS the EC has said that it is intending to give effect to a specific WTO provision); BUT if EC specifically adopts rules to give it effect, one can directly challenge the rules. i. Thus, Direct Effect law in EU and USA is the same. XIX. Anti-Dumping and Countervailing Duties a. Dumping (remedy is Anti dumping laws) i. Dumping - selling in the export market at prices below those prices charged in the home market. b. Prohibited subsidization (remedy is countervailing duty) i. Subsidization is something the government does; however, we do not want to subsidize producers in one country so they have advantage over producers in another country. 1. 2 types of subsidization a. Prohibited subsidization b. Permitted subsidization c. Example: Japan wants to sell TVs in USA for $1000 (this is the “export price”) although Japan sells TVs in Japan for $2000 (Japan’s price is the “normal value”). USA puts a 100% duty on the TVs and this is the anti-dumping duty. d. If cannot find a domestic price in the economy (maybe because market is too small) Department of Commerce comes up with a “constructed price” (what Commerce decides the goods should be sold at). e. USA uses two different agencies when investigating Dumping claims i. International Trade Commission (ITC) 1. Determines whether there is material injury or a threat of material injury to the domestic market. ii. Department of Commerce (DOC) 1. Determines the “Dumping Margin” (difference between export price and market price) on the petition from a company. f. Once an anti-dumping duty is imposed, it is reviewed every 5 years or at request of complained against party. XX. Nation Ford Chemical Company v. USA (3rd Cir.) a. Starts with the idea of the NME (Non-Market Economy) country – where market forces do not determine domestic price of the products because the government 30 intervenes in the market to set the price; economy in which market forces do not establish prices. i. Have to choose a surrogate country that best represents the situation in the NME for purposes of that product. ii. So the USA Department of Commerce asks what the normal price of the product in India is (it does research on it) and this gets Commerce to a “hypothetical surrogate market price”. 1. Commerce needs to value the factors of production in India 2. Done using the “best available information” b. HELD: While a surrogate value must be as representative of the situation in the non-market economy country as was feasible, the DOC need not duplicate the exact production experience of the non-market economy manufacturers at the expense of choosing a surrogate value that most accurately represented the fair market value of aniline in a hypothetical market-economy. XXI. Concept of the Prohibited Subsidy a. E.g.: The Japanese government says for every TV Japanese company exports it will pay the Japanese company $200. This is to encourage exports and will make goods more attractive because the product will be more price competitive. b. Agriculture, however, is dealt with in its own regime of tariffs and subsidizations. WTO negotiates it as a separate matter from everything else. In AK Steel, we are dealing with something else. c. Agricultural Subsidy does not have to be in the form of the Government writing Farmers a check; RATHER subsidies can be low cost loans, reduction of transport costs, specific tax that is greater or lesser depending on the export performance. d. As with dumping, there are two determinations with regard to subsidies i. Department of Commerce determines 1. The fact of and level of subsidy ii. ITC 1. Material injury or threat of material injury e. AK Steel case i. Department of Commerce found that there was a prohibited export subsidy using Specificity Test 1. Specificity Test: used to determine if there are prohibited subsidies; IF government subsidy program is targeted to a specific industry then it is prohibited as an export subsidy a. In short, is the government providing a specific advantage/benefit to a particular industry? If yes, then the remedy is Countervailing Duty. f. USA – Continued Dumping and Subsidy Offset Act of 2000 (WTO case) i. Two conditions precedent must be met in order for a measure to be governed by Article 18.1 of the Anti-Dumping agreement and Article 32.1 of the SCM Agreement: 1. A measure must be “specific” to dumping subsidization a. An action is “specific” to dumping (or a subsidy) when it may be taken ONLY when the constituent elements of 31 dumping (or a subsidy) are present. In other words, when a measure is inextricably linked to, or strongly correlates with, the constituent elements of dumping (or a subsidy). 2. A measure must be “against” dumping or subsidization a. AB lays out a test to determine if something is “against” a subsidy: i. IF a transfer of financial resources is effected from the producer/exporters of dumped or subsidized goods to their domestic competitors, then it is “against” a subsidy. ii. There is NO need to look at the “intent” pursued by the legislators in enacting the statute. 3. IF it is established that a measure meets these two conditions, and thus falls within the scope of the prohibitions in those provisions, it would THEN be necessary to move to a further step in the analysis and to determine whether the measure has been taken in accordance with the provisions of GATT. ii. The AB rejects the USA thesis that it can use an antidumping measure to collect antidumping duties and then transfer the money to those in the injured domestic industry. iii. The WTO is designed as an intergovernmental arrangement that provides remedies but the remedy is the withdrawal of concessions against the offending countries. Thus, the producers do not have a remedy or do not receive any compensation. E.g.: the remedy for the beef hormones case where EU will not accept USA hormone fed beef is that the USA removes concessions and collects penalty duties. The treasury does not distribute the money to those hurt. Thus, the producers have no effective remedy. This is a very general problem. iv. The bigger problem with WTO remedies – (1) strongly favor the big, powerful countries over small countries, and (2) the remedies disadvantage the country who takes the action. g. USA – Sections 301-310 of the Trade Act of 1974 (WTO case) i. The overall result of the panel’s analysis is summarized as follows. Panel found that the statutory language of Section 304 constitutes a serious threat that determinations contrary to Article 23.2(a) may be taken and, in the circumstances of this case, is prima facie inconsistent with Article 23.2(a) read in the light of Article 23.1. Panel then found, however, that this threat had been removed by the aggregate effect of the SAA and the US statements before the Panel in a way that also removes the prima facie inconsistency and fulfils the guarantees incumbent on the US under Article 23. ii. What may be the subject of a WTO dispute? 1. An act by government that is inconsistent with WTO law can be brought to a DSB proceeding. iii. Could the mere adoption of legislation constitute a violation because the legislation involves a prescription in violation of WTO law? (That is, 32 without the government doing anything, it has adopted rules that indicate that it would do something that violates WTO.) 1. WTO says YES, a member can bring a claim for rules that are inconsistent with WTO law even before another member actually does something that violates the WTO. In short, if the law is on the books and it violates WTO law, another party can bring a claim. iv. Can you bring a WTO violation if you authorize a government official to do something that violates WTO law? 1. The GENERAL RULE (this is not codified rule, it is just a rule that comes from the interpretation of cases) is that the WTO adopted a mandatory and discretionary distinction: if the legislation tells the government authority to violate WTO law (mandatory), then it is a violation; BUT if the law only authorizes an authority to act in violation of WTO law, but does not require it (discretionary), then it is not a violation. The reason for this is that much of regulatory law is drafted to permit certain conduct that may or may not be consistent with WTO law. a. In sum, only legislation that requires (mandatory) a WTO violation is immediately prosecutable. XXII. Remedies Against Unfair Trade Practices: Remedies against Dumping (Antidumping) and Prohibited Subsidization (Counterveiling Duties) a. *Note: antidumping and countervailing duties are NOT safeguards! Rationale for safeguards is that foreign country is being too successful. For remedies below, not arguing that a country is illegally subsidizing or dumping, only that we need to temporarily impose import restrictions to keep domestic industries from getting harmed. 1) What is Dumping?: a. Done by private actors not governments. b. Violates Art VI of GATT c. The selling of a product in export market at a price that is below foreign market value. Sometimes difficult to determine what a representative home market price actually is. d. For some reason a manufacturer decides to sell its products more cheaply abroad than at home. Perhaps to capture more market share, to get rid of overstock, or put domestic producers out of business. 2) How do we know Dumping When We See It?: a. Look at the price of a good sold in domestic market and compare it to price sold in foreign producer’s market. Assumption is normal value of a good is its price at home. So, If Domestic Price>Export Price = Dumping b. Or look at how much product cost to produce and then look to see if product is being sold below that cost. If so, Dumping. c. Ex: Thai normal value of TV is $2000 but sends it to US for $1000. US would place 100% tariff on TV as an antidumping duty. 3) What if you cant find a normal market price in foreign economy?: a. U.S. TWO AGENCY PROCESS: Prescribed by GATT but most countries just have one agency: 33 i. Int. Trade Admin @ Department of Commerce: Determines “Dumping Margin” on petition from an interested party. Asks: What is the difference b/w export price and normal market? 1. US company makes a petition requesting antidumping duty 2. DOC tries to calculate preliminary and final dumping margins=the difference b/w foreign country’s export price and domestic price that country charges for the same good. 3. DOC is trying to determine the proper amount of tariff to offset the cost of dumping. 4. Can “Construct the price” by trying to calculate fair price of product. 5. Ask producer for costs of inputs so DOC can figure out what normal price should be – construct it. Ussually rebuffed. 6. DOC can use most comparable market price from another market economy in calculations 7. Export price can then be determined wit a look towards currency rates ii. International Trade Commission: Determines whether there has been a Material Injury or a Threat of Material Injury to the Domestic Market: 1. Asks: Is the alleged dumping hurting US business or threatening the establishment of business? 2. If not, then actually helps consumers and not dumping. iii. A Negative determination by either agency terminates the proceeding iv. Once Antidumping or Countervailing Duty is imposed, subject to review every 5 years. 4) What is Rationale for Antidumping: a. Economists: i. Skeptical of dumping claims on grounds that a rational market enterprise would not price its goods below where it would make a profit. ii. Also feel if a firm dumps for anticompetitive reasons, the proper remedy is found in competition or antitrust law not antidumping. b. Politicians: i. Want to protect industries from being targeted and taken over by foreign producers ii. Anti-trust measures are not easy to use because difficult to litigate against foreign company, cant compel discovery. 5) Nation Ford Chemical Co.: Surrogate country (India) used to calculate Dumping Margin for China a. What to do when Dumping is From Non Market Economy (NME)?: concept that country does not allow market forces to determine the true market value, govt intervenes. i. All cases against NMEs must be brought as Antidumping! ii. China fits the bill under the Antidumping and WTO laws iii. “When China is Paraguay”: To determine normal value of product DOC will choose a surrogate country which is supposed to be the market 34 economy country that best replicates the situation in the NME for purposes of the product in question i. DOC asked what is normal value of product in India? 1. arrives at a hypothetical surrogate market price in India – what the price in India would be if DOC knew what price in India was 2. DOC could just look at domestic price of sulfanilic acid in India but difficult to do because domestic producers refused to cooperate and share their prices 3. DOC looks at costs of factors of production in India by using the best available information 4. Finally looked at import price of aniline to Indian manufacturers who export sulfanilic acid since they get exemption from tarriff, so DOC figures out price of aniline by looking at price of input ex tariff and then constructing what the Indian price. ii. NFC challenges method on grounds that DOC end up with a lower price by using this method where the domestic price is higher. Statute says to use domestic price not exception. NFC wants to show that hypothetical Chinese price is higher to show bigger spread between that and US price to more easily prove dumping iii. HOLDING: DOC not limited to any one method of determining pricing in a specific case. DOC can even use more than one country. Objective at end of day is to determine what the real free-market price to Chinese producers of producing that product is. Not rational to use a distorted domestic market price from India, better to use world market price based on costs of imported raw materials. DOC is looking for best available information and can pick and choose. iv. CRITICISM: hard to vouch for accuracy of simulated costs. 1. Is there a clearer formula? Take an average or use lowest cost? China would not want to use that because they would want to argue that they would be more efficient or cheaper. 6) Subsidization: a. What is Subsidization?: Govt. actor. i. Govt subsidizes exports, allows company to reduce the price on the market and sell more. ii. Different ways to subsidize: access to low cost loans, reductions in transport costs, money, special taxes, check list in Subsidies Agreement iii. Major problem in agriculture with export subsidies. iv. Eg: US subsidizes corn producers, promotes US goods because they become competitive with developing country goods. Abbott: Subsidization of efficient producers kills poor countries. v. Note: Agriculture has its own regime of tariffs and subsidizations. WTO is negotiating it separately from other issues. b. But don’t all govts subsidize? i. Difficult to draw lines. Economists suggest being careful distinguishing between prohibited and ordinary subsidization. What govts. do is subsidized by nature. Substituting govt intervention for the marketplace 35 either on its own or by funding private individuals to do something for the public. ii. Idea is don’t want govts to perform those function in way that distorts international trading system. c. So, How do we know Subsidization When We See It And Know When to use Countervailing Duties to Stop It? i. U.S. Two Step Determination: 1. Department of Commerce: Finds Fact of and Level of Subsidies a. Specificity Test: if govt subsidy program is specific to an industry then it may be prohibited as an export subsidy. b. However Its Hard to Prove: i. Assumption if govt is targeting specific industry it is doing so to artificially boost competitive position in the market. Contrary to letting supply and demand determine capital. ii. But, also assumption that expensive for govt to use general tax or other policies for sole purpose of stimulating exports. Those appear more likely to be directed to general social welfare. Intent to boost exports hard to show. iii. Few exceptions: 1. govt can subsidize research. 2. Self Sufficiency is never a good reason for subsidies 3. Some national security exceptions. c. Next Question: What level is it at? 2. International Trade Commission Asks: Is Subsidy Causing A Material Injury or Threat of One? a. Ask: Is the subsidy target specific industry and does it result to material injury or threat of injury to US industry? If so, remedy is countervailing duties. d. Steel Case: Korean steel producer challenged by US producers on grounds that they are receiving unfair subsidy. Shows difficulty in proving case. i. Preferential Loans: Did Korea target steel industry to receive low cost financing in preference to other domestic industries through control over central bank? 1. DOC said yes. Found this to be prohibited export subsidy because it was specific to steel industry 2. Korea concedes that it was doing it but then stopped. DOC said that banks are still giving loans. 3. Held: DOC did not produce any evidence that it was going on during specified period. a. Test is: Is govt providing a specific benefit to an industry – access to loans. If so then yes, subsidy. 36 ii. Foreign Loans Approved By Govt.: Did Korea only allows certain industries to get foreign loans? 1. DOC said yes and argued that it was a form of subsidization 2. Held: NO a. Must be a below-market loan and not specific. DOC could not show loan preference. iii. Govt built Industrial Port steel company could use for free.: 1. Held: Specific enough. Prohibited subsidy providing port facilities for one industry. e. CDSOA (2000): Congress passed act to distribute duties to domestic producers obtained from countervailing duty orders. i. US argument: 1. Provides incentive to bring antidumping claims 2. CDSOA not specific to dumping or subsidies because not about punishing dumpers but about putting domestic producers on equal footing 3. However, ordinarily dumping case remedy enures the enforcing agency, Customs collects duty which goes to treasury. Does not directly help the domestic producer, theory is that they benefit indirectly by causing dumper’s product to rise making domestic producers product more competitive on domestic market. Protects domestic producer by restoring fair domestic producer v. import market. ii. Analysis of Whether Action is in Violation of Article 18.1 of Dumping Agreement and Article 32.1 of Subsidization and Countervailing Duties Agreement: 1. Ask: Is the action Specific to dumping/subsidization?: a. Is there a clear, direct and unavoidable connection b/w determination of dumping/subsidization and the specific action taken. If Yes then specific. b. Doesn’t have to be explicit. c. Held: CDSOA is specific to dumping because that is what payments are intended to counteract. 2. Ask: Is the action directed against dumping/subsidization?: a. Does not have to be hostile or come into direct contact with the good b. Just ask if it the measure is intended to dissuade dumping/subsidization c. Held: CDSOA is against dumping because it creates opposition to dumping so that it dissuades practices 3. If both then the action must be taken in accordance with GATT or will be inconsistent. iii. So What is Permissible? 1. GATT Permissible Responses to Dumping: 18.1 of Dumping Agreement a. Antidumping duties 37 b. Price undertakings: get agreement form foreign companies on the price they will charge c. Provisional measures 2. GATT Permissible Responses to Subsidization: 32 of SCM a. Countervailing duties b. Provisional measures c. Price undertakings d. Multilaterally sanctioned countermeasures iv. Held: 1. Art 1 of Anti-dumping Agreement prohibits specific action against dumping by another member not contained in GATT 2. US Remedy does not fall within permissible grounds 3. Member can’t use an antidumping measure to collect duties and transfer them to the domestic industry like damage recovery. AB had already rejected direct subsidization under 1916 case. Just trying to get around earlier decision f. No Method in Trade Law Providing Direct Damage Recovery For Domestic Injuries: i. True of antidumping and countervailing duties but also feature of WTO law generally. Intergovernmental arrangement which provides remedies against govt. measures and actions against agreement; ii. Proper Remedy is member withdrawal of trade concessions against other member. Anti-Dumping is limited remedy against foreign producer action; iii. Remember remedy in Beef-hormones is that US withdraws concessions so essentially imposes duties on EU imports and collects revenues in US treasury. Treasury does not distribute these directly to US beef producers so they are left affected by EU ban. g. Rationale?: i. Players in international trading system are countries; ii. Should US beef industry have direct coa against EU? 1. No right to sell beef in EU. 2. No private right of action under WTO. iii. Trading system lacks capacity to deal with private claims so task of straightening out system responsibility falls to members. iv. Still measure of sovereignty which WTO AB can not override. v. Also, would allowing private companies to collect antidumping revenue be double-dipping? Get both the price of foreign imports raised and financial benefit. h. Last word on WTO remedies: i. Obviously favour stronger over weaker members. Larger member can more effectively collect duties, and can absorb disadvantages of withdrawing concessions. ii. How could we make it more fair? 38 1. Maybe have remedial actions be multilaterally imposed. Instead of El Salvador unilaterally withdrawing concessions from US which hurts them and does not effect US much. 39