CURRENTS Vol. XXIII, No. 2 | 2019 by Currents: Journal of International Economic Law

Contents 3

Intellectual Property Commercialization & Cross-Border T ransfer P ricing : C hallenges for A pplying an A rm ' s L ength P rinciple to I ntellectual P roperty R elated T r a n s a c t i o n s b y M u l t i n a t i o n a l s a n d P o s s ib l e Solutionsâ&#x20AC;&#x201D;Insights from China, Australia, and Germany George Tian

A Look Back at the Past Quarter Century of International Economic Law: Timeline

Globalization and Economic Integration: What No One Saw Until They Couldn't Help It Sara Dillon

Developing Countries and International Economic Law: The Case of Burma Vincent R. Johnson

Journal of International Economic Law

Twenty-first Century Trade Policy: What the U.S. Has Done What It might Do Cherie O. Taylor

78 The WTO: Challenges Ahead and Cries for Reform Current Events

Currents 23.2 2019

Letter From The Editor

Currents

Dear Readers, The Editorial Board of CURRENTS: Journal of International Economic Law (CURRENTS: JIEL) is proud to present an issue that contains a sub-theme, “A Look Back at the Last Quarter Century of International Economic Law.” Reflections are oftentimes cathartic but can also be revelatory. The ability to pause and assess previous international economic endeavors makes for more informed future outcomes. Our authors in Volume 23.2 reflect on the last quarter century of international economic law by highlighting the consequences of how international trade integration has happened, how international trade affected and will continue to effect a developing country, and how the U.S. has approached trade policymaking throughout the 21st century. This publication also offers something new that will be an ongoing part of the journal. The CURRENT EVENTS features in this issue were researched and written collaboratively by staff members. We are delighted to provide a platform for students to engage collectively on a journal beyond editing. The CURRENT EVENTS in Volume 23.2 focus on the WTO. This year during our relaunch of CURRENTS: JIEL, we are thrilled to be part of the STCLH Institute for International Legal Practice & National Security (IILP & NS). Going forward both the IILP and CURRENTS: JIEL will have more symposiums and publishing issues deriving from them. I would like to take this moment to thank the entire staff and Editorial Board, which worked tirelessly to get this issue ready. We faced unique challenges that the staff did not shy away from but embraced. Further, on behalf of the 2018-2019 Editorial Board, I would like to thank Dean Donald Guter for his constant support of the IILP & NS and CURRENTS: JIEL. The Editorial Board always welcomes article submissions on any topic in the field of International Economic Law. Please visit our website at https:// www.stcl.edu/academics/law-reviews-journals/currents/ for additional information about how to submit and our publication schedule. We hope you enjoy looking back.

CURRENTS is published by South Texas College of Law Houston. Please cite CURRENTS as CURRENTS: JIEL 23.2, 2019. Please direct inquiries and correspondence to: Editorial Board

CURRENTS South Texas College of Law Houston 1303 San Jacinto Street, Suite 219 Houston, Texas 77002-7006 E-mail: currents@stcl.edu

Editorial Board 2018-2019 Editor-in-Chief Johanna Trees Managing Editor Krystal Gage Articles/Notes Editors Justin Click Kaitlin Patterson Editorial Board Assistants Amy Alexander Nicholas Cornor Garreth Smith Members Greta Carlson Jared Douthit Adam Freeland Madison Hastings Jonathan McKinney Layne Miller Yvonne Nguyen Elizabeth Slezak Jordan Sloane Kendra Watson Esther-Sarah Wilmot Faculty Advisors Assistant Dean Elizabeth A. Dennis Professor C. O’Neal Taylor

Johanna Trees Editor-in-Chief

CURRENTS: Journal of International Economic Law

Publications Coordinator Jacob Hubble

Credits Publication Services Jacob Hubble Cover Art Pete Vogel & Jacob Hubble

Currents 23.2 2019

Intellectual Property Commercialization & CrossBorder Transfer Pricing: Challenges for Applying an Arm's Length Principle to Intellectual Property Related Transactions by Multinationals and Possible Solutions—Insights from China, Australia, and Germany G E O R G E —————————————————

Introduction ————————————————— In the current globalized and knowledgebased economy, intellectual property (IP) and intangible assets (IA) abound throughout the business world, and touch nearly all aspects of a company, from product development to human capital, and staff functions to line operations.2 According to a study conducted by Ocean Tomo, in 1975, tangible assets represented 83% of the value of the Standard & Poor 500, and intangible assets only 17%.3 But, in 2015, intangible assets represented 87% of value and tangible assets only 13%.4 As Hervé observed, IP has become the "major value driver in the global value chains" of Multinational Enterprises (MNEs). 5 Correspondingly, given its impact on business profit allocations between affiliates within a MNE group, IP is also the “most controversial transfer pricing issue” in current tax legislation and tax audit practice.6 This article examines the major challenges of implementing the existing international tax laws to IP related crossborder transfer pricing activities by MNEs, particularly the applications of arm’s length

T I A N

Dr. George Yijun Tian is a Senior Lecturer of Faculty of Law at the University of Technolog y Sydney, Research Associate of UNSW Cyberspace Law and Policy Centre at the UNSW Law School, and a UDRP Neutral appointed by World Intellectual Property Organization (WIPO) Arbitration and Mediation Center, Geneva.

major challenges of implementing the existing tax laws in preventing illegal transfer pricing arrangements by IP-related MNEs, particularly focusing on the major challenges for implementing the arm’s length principle ALP to IP-related transfer pricing activities. Part IV explores possible solutions for addressing these challenges by drawing on

principle (ALP)to IP related transactions.

insights from the recent development of the

By drawing on insights from the recent

transfer pricing laws in China, Germany and

development of transfer pricing laws in

Australia, such as the value chain contribution

China, Germany and Australia, and their

approach in China, the hypothetical arm’s

legal responses to the G20/Organisation for

length test (HALT) in Germany, and the

Economic Co-operation and Development's

diverted profit tax (DPT) adopted in

(OECD) Base Erosion and Profit Shifting

Australia. It contends, while the ALP is still

(BEPS) Action Plan7 and the OECD Transfer

the key standards for transfer pricing issues,

Pricing Guidelines, this provides some useful

in order to develop more effective solutions,

suggestions for countries’ to reform their

it is important for each country to adopt a

existing laws to address the IP-related transfer

more open approach to explore all alternative

pricing challenges brought by MNEs.

methods to address the inherent problems of

Part I discusses the significant role of IP

applying ALP to IP related transfer pricing

in current international trade, and the impacts

activities. When conducting law reform,

of IP transfer pricing/profit shifting strategies

it is imperative for individual countries

on MNE’s revenue. Part II introduces major

to critically reflect on other countries’

forms of the IP-related tax avoidance/transfer

experiences, and make sure their transfer

pricing strategies by MNEs, and the potential

pricing laws always suit their own specific

impacts on the fairness of international

economic and social circumstances.

taxation systems. Part III examines the 3

Currents 23.2 2019

Part I: Globaliz ation, Intellectual Property and Transfer Pricing

features, IP has been characterized as “pieces

For example, when Pulitzer Prize-

of information which can be incorporated

winning columnists Duhigg and

into tangible objects at the same time in

Kocieniewski disclosed Apple’s tax avoidance

—————————————————

an unlimited number of copies at different

model “Double Irish Dutch Sandwich” in

1.1. What is intellectual property and the challenges to traditional tax systems

time and at different locations anywhere in

2012, when they made a comparison of

the world.”

In other words, intellectual

the net profits of Apple (tech company)

property rights (IPRs) are “intangible” in

and Wal-Mart (non-tech company). With

—————————————————

nature, and are different from the objects

IP-tax avoidance tactics Apple “paid cash

Intellectual property is a generic term

they embody. The property right is not in

taxes of $3.3 billion around the world on its

that came into regular use during the

those copies but in the information created

reported profits of $34.2 billion” in 2011,

twentieth century.9 The World Intellectual

in them?

a tax rate of 9.8%. By contrast, Wal-Mart

Property Organization (WIPO) defines

—————————————————

“paid worldwide cash taxes of $5.9 billion

artistic and scientific works; performances

Put simply, transfer pricing (TP) relates to “a valuation standard imposed on multinationals by governments to ensure that the amount charged between related parties, when they transact, is fair.”

of performing artists, phonograms, and

—————————————————

at the statutory rate of 35% in the United

broadcasts; inventions in all fields of human

In the current knowledge economy, IPRs

States (U.S.).24 It is clear that the rise and

endeavour; scientific discoveries; industrial

and IA play an increasingly important role

significance of IP has arguably brought new

designs; trademarks, service marks, and

in global economic growth and international

challenges to the current tax systems, which

commercial names and designations;

trade. They have been deemed as “the most

were originally designed for commercial

protection against unfair competition; and

valuable asset class on the planet.”17 WIPO

transaction of tangible assets "based on their

all other rights resulting from intellectual

has noted that “global trade in IP is valued

legal ownership and physical location.”25

activity in the industrial, scientific, literary

at more than $300 billion,” and “more than

—————————————————

or artistic fields.”11

50% of the top companies in the credit

IP as “creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names and images used in commerce.” 10 More specifically, the 1979 Convention Establishing the World Intellectual Property Organization defines IP as including the rights relating to: “literary,

on its booked profits of $24.4 billion, a tax rate of 24%, which is about average for non-tech companies.”23 The main reason behind this is that Apple’s accountants have adopted IP-related transfer pricing measure to allocate about 70% of its profits ($24 billion) to low tax countries overseas (such as Ireland and Luxemburg), rather than

It is also noteworthy that the scope of

rating agency Standard and Poor’s index are

1.2. What is Transfer Pricing and the Rationale Behind it

IP subject matter is expanding all the time.

dependent on intangible assets.”18 IP carries

—————————————————

For example, the protection of computer

tremendous value because it often brings or

Put simply, transfer pricing (TP)

software has been added as part of copyright

has the potential to bring enormous amounts

relates to “a valuation standard imposed on

law;12 the patentability of microorganisms has

of royalties. However, the intangible nature

multinationals by governments to ensure

been added as part of patent law; and new

of IP means that it is easily transferable

that the amount charged between related

systems have been created to protect existing

from one country to another.21 Therefore, an

parties, when they transact, is fair.”26 More

or new subject matter, such as plant varieties

increased number of companies, particularly

specifically, a company that undertakes

and circuit layouts.13 As Professor Drahos

technology-related multinational companies,

business across the world, are often deploys its

noted, the “strongly expansionary nature of

have adopted sophisticated business models

resources across different taxing jurisdictions,

intellectual property systems shows no sign of

to use IP as a powerful instrument to avoid

including both high tax jurisdictions and

changing.”14 Moreover, in relation to general

or minimize their income tax globally.

low tax jurisdictions. The mismatch in rates

Currents 23.2 2019

of income tax in different national taxing

down to 0.005% in 2014.32 It is clear that by

H o w e v e r, t h e t r a d i t i o n a l t a x

jurisdictions is a key reason and driving force

taking advantage of these low tax rates and

systems, including transfer pricing laws,

for MNEs to pursue a planning strategy in

exemptions, MNEs are able to lower their

were established on the basis of physical

order to allocate its resources and assets in

international tax rates and obtain higher

transactions and trade. As such, the intangible

the most tax efficient matter.

profits.33 As a result, Ireland, a nation of less

nature of IP has arguably brought challenges

than five million, became home to more than

for both MNEs and tax authorities to apply

history and is not per se illegal. In fact,

one-third of Apple’s worldwide revenues.

the existing tax laws against illegitimate

transfer pricing rules were first tried in The

It is clear that transfer pricing activities

transfer pricing activates.

Gramophone and Typewriter Ltd v. Stanley

by MNEs may pose a “serious risk” to tax

[1908] 2 KB 89 (CA) in the United Kingdom

sovereignty, international tax fairness, and

(U.K.) in 1915. The UK tax authority lost

the integrity of the corporate income tax in

the case, and had to accept that not all of the

general.35

profits made by a UK-based group could be

—————————————————

taxed in the UK. However, transfer pricing is often looked at with suspicion by tax

1.3. What is the Arm’s Length Principle?

authorities. It is allegedly called as “shifting

—————————————————

of MNEs, IP-related transfer pricing activities

of profits” to relatively low-tax jurisdictions

The tax laws on transfer pricing in most

are “the most significant and susceptible to

through intra-group “transfer pricing,”

countries explicitly provide that the ALP

dispute with tax authorities.” 40 Due to

creating what is called the “transfer pricing

(or standard) should be used to establish

the high value of IP and intangible assets,

problem.”29

the price of transactions between associated

IP-related “transfer pricing” has become a

Under the current globalization

enterprises,36 that is, “requir[ing] MNEs to

major area of commercial practices as well

environment, increased cross-border activities

calculate their taxable profits based on the

as a source of dispute and litigation.41 IP-

have made transfer pricing a real issue as an

transactions and prices that would have been

related transfer pricing strategies adopted by

increased number of companies, particularly

entered into and agreed between unrelated

MNEs, particularly technology companies,

technology companies, seek to use transfer

parties.”

are sophisticated and vary on a case-by-case

pricing as “a tool for tax avoidance.”30 Using

—————————————————

Such a tax efficient method has a long

Part II. Major Forms of IPrelated Transfer Pricing Arrangements and Major Pr o b l e m s o f E x i s t i n g Transfer Pricing Rules Among the transfer pricing transactions

basis. But, generally speaking, there are four

as the U.S.) have to deal with involves legally

[T]ransfer pricing is often looked at with suspicion by tax authorities.

shifting profits out of the high-tax countries

—————————————————

to tax havens (such as Ireland, Singapore,

The economic assumption behind this

and the Cayman Islands).31 These countries

is unrelated parties to a business transaction

2.1. IP Assignment (Transfer of IP Ownership)

have lower corporate tax rates in comparison

will seek to maximize their own profits, and

—————————————————

with the U.S. Some even offer special tax

through this process a deal will be struck,

Most high technology companies rely

exemptions for companies operating in their

and a fair profit achieved by each party. The

on IP or other intangible assets, such as

countries, which pose large financial benefits.

ALP has been regarded as the “gold standard”

software, to create value for their business.43

For example, a recent investigation conducted

for tax authority and taxpayers to use in

MNEs can take advantage of transfer pricing

by the European Commission found that the

the valuation of cross-border transactions

strategies by cross-border IP assignment (i.e.,

“selective treatment” (exemption) offered by

between related parties for tax purposes. It

transferring the ownership of intangible

Ireland allowed Apple to pay a tax rate of 1%

also applies to IP-related transactions within

assets abroad.) 44

on European Union (EU) profits in 2003

a MNE group.

the U.S. as an example, one of the major issues that tax authorities in high-tax countries (such

popular approaches adopted by the MNEs for the efficient tax management or alleged tax evasion.42

A MNE can assign its legal ownership 5

Currents 23.2 2019

of its IP in a high tax country to its related

in the U.S. would then need to pay royalties

licensing and holding company suitably

affiliate in a low tax country. Since the

to its Cayman subsidiary to use that IP. That

located offshore (affiliate in a low-tax

ownership of IA has been shifted to the low-

payment would arguably decrease the profit

jurisdiction) to exploit license or sublicense

tax affiliate, all potential IP royalty incomes

of the U.S. parent company, which faces a

IP rights for the parent company as well as

(such as IP licensing fees) are also shifted

high U.S. tax rate, and boost the profit of

its foreign subsidiaries in other countries

to the low-tax affiliate. In this manner, the

its Caymans subsidiary, which faces a low-

(including countries with high tax rate).53

MNE group’s IP royalty incomes are not

tax rate.47

Instead of transferring the ownership of

subject to the tax rate in the high-tax country

Although this type of arrangement is

IP, which may incur the high-tax payment

anymore, because the income will be derived

not per se illegal,48 it has attracted many

for IP sale in high-tax countries (e.g. in the

from the jurisdiction where the IP assets are

criticisms from tax authorities in many

U.S.),54 the parent company and its foreign

held. In other words, the “additional income”

jurisdictions, including both developing

subsidiaries can simply issue exclusive licenses

(the “tax” that the MNE should have paid

and developed nations.

A key concern

to the IP licensing and holding company

to the tax authority in the high-tax country)

could be sale price of the subject IP —such

offshore and authorize the offshore company

has been successfully shifted to the low-tax

as "low-price sale" or "inflation payment"

to commercialize their IP (including sub-

country, and the MNE group’s overall tax

issues— the tax authorities may raise dispute

licensing arrangements).

base has been lowered. 45

in relation to the "reasonable" sale price

Like the transfer of IP ownership

—————————————————

on the various grounds, such as the nature

strategy (introduced above), profits can

of developed IP, the profit potential for

then be effectively shifted from the foreign

commercial exploitation of the subject IP

subsidiary/affiliate to the offshore IP licensing

and the resultant value of the IP,50 in line

and holding company. It is clear that such

with the ALP.

an arrangement may result in a deductible

—————————————————

royalty payment in the high-tax jurisdictions

2.2. IP Licensing

and income in the low-tax jurisdiction.55

—————————————————

Since the offshore company is set up in a tax-

IP licensing is another important method

haven country, it may end up paying little or

Al t h o u g h t h i s t y p e o f arrangement [IP assignment] is not per se illegal, it has attracted many criticisms from tax authorities in many jurisdictions, including both developing and developed nations.

—————————————————

for avoiding high taxes by MNE groups.

Using the U.Ss as an example, in order

MNEs (taxpayers in high tax jurisdiction)

Inflation payment issues also exist in

to avoid paying the U.S.’s 35% statutory

often take advantage of the fact that IP is

IP licensing arrangements. When a licensor

corporate income tax (21% under Trump’s

intangible in nature and can be easily moved

(parent company in the U.S.) issues an

new tax law)46, companies may artificially

across countries by using “planned licensing

exclusive licence to its foreign affiliate (IP

transfer the ownership of IA (such as patents

structures.”51 Put simply, the licensing of any

licensing and holding company in low-tax

or other IP) to related affiliates/subsidiaries,

IP by a company (parent company) to its

jurisdiction), it may artificially apply a low

which exist only on paper in tax havens or

related affiliate (overseas subsidiary) typically

licensing price. Any licensing agreement

are located in low-tax countries without

involves a commercial arrangement whereby

between a parent company (e.g. root licensor

exercising any substantial business activities.

the licensee (affiliate) pays a royalty, usually

in the U.S.) and its foreign affiliate (IP

More specifically, a U.S. technology company

specified as a percentage of the licensee’s

licensing and holding company—licensee in

(parent company) might transfer its IPRs

sales, to the licensor (parent company) for

a low-tax jurisdiction) always contains terms

(e.g. software patent) to its subsidiary in the

the rights to exploit the associated intangible

for pre-existing IPRs and royalty payments

Cayman Islands (related affiliate), even if its

assets in the designated countries or regions.

in return. These royalty payments (licensing

underlying technology was researched and

For example, a parent company (taxpayer

fees/prices) are taxable income in the U.S.57

developed in the U.S. The parent company

in a high-tax jurisdiction) can establish an IP

In order to avoid paying a high tax, the

Currents 23.2 2019

no tax on the royalties received.56

licensor (IP owner) often artificially reduces

technologies, such as cloud computing,

the offshore affiliate to the parent company.

the licensing fees to licensee (IP licensing and

the use of service agreements for transfer

It is clear, if the parent company is located

holding company offshore.)

pricing by technology companies becomes

in a higher tax jurisdiction than its offshore

Again, like the sale of IP, the key concern

easier and more common. Cloud technology

affiliate and the “developmental costs” of IP

in relation to the licensing of IP is how to

enables an MNE to fragment and move its

are less than “market-based royalty fees,” the

accurately value the transaction. Without an

core IT functions to geographic locations

company can arguably decrease its global tax

accurate value, the appropriate “arm’s length

that are distant from the physical location

liability through a CSA.66 Again, using Apple

payment” or “royalty fees” are difficult to

of its users. For instance, an MNE can

as an example, Apple’s CSA with its offshore

support.

locate its technology support team for

affiliates in Ireland is primarily a conduit for

—————————————————

the IP management, the IT infrastructure

shifting tremendous profits from the U.S. to

2.3. IP Service Agreement

maintenance and software technical support

a low tax jurisdiction. According to Apple’s

—————————————————

services in a low-tax jurisdiction (such as tax

2013 testimony, from 2009 to 2012, this CSA

Due to the implication of the arm's

havens), which may differ from its market

facilitated the shift of $74 billion in worldwide

length principle, the pricing of the license

jurisdiction where its end users live (such

sales income of Apple away from the U.S.(with

or transfer cannot be too low. As introduced

as the U.S. market or the Chinese market).

a tax rate of 35% - now 21%) to Ireland (with

above, the tax laws in most of countries —

As a consequence, the MNE’s profits can be

a negotiated tax rate of less than 2%).67

such as the U.S.59 and Australia60— require

reported in the low-tax jurisdiction, even

—————————————————

the transfer pricing between the affiliated

though the actual business activities related

companies to meet the arm's length principle,

to these profits arguably occur in other

that is, the price of the associated parties

countries.63

should be the same as the price for the

—————————————————

hypothetical neutral third party.

One way for MNEs to justify the low

2.4. Cost Sharing Agreement

A cost sharing agreement (CSA) is another important method for IP-related transfer pricing by MNEs. ————————————————— Nonetheless, CSAs also have to face the

pricing for IP sale or licensing and to avoid

—————————————————

arm’s length principle test by tax authorities.

the arm's length principle test is to sign

A cost sharing agreement (CSA) is

It is often alleged that MNEs are shifting cost

an IP service agreement between affiliated

another important method for IP-related

and risks under transactions to violate the arm’s

companies, which not only covers the sale/

transfer pricing by MNEs. In a CSA, related

length principle. 68

licensing of patents (or other intellectual

companies agree upon how the research and

property), but also covers related technical

development costs for creating intangible

services (software/infrastructure maintenance

assets/IP (such as software patent) are to

and management). For example, the contract

be allocated between them.64 For example,

between Apple and its Irish subsidiary not

under a CSA, if a software patent was

Part III: Major Difficulties for Applying an Arm’s Length Principle to IP Valuation

only covers the sale of Apple patents, but also

produced by the parent company in a

As discussed above, the Arm’s Length

covers related technical services. It is clear

high-tax jurisdiction (such as an innovation

Principle has been the “gold standard” for

that bundling the IP with related support

company in the U.S.), the related affiliate/

tax authority and taxpayers to examine

services makes the transaction price difficult

subsidiary in a low-tax jurisdiction (such

MNEs’ compliance of transfer pricing

to be estimated, and it becomes more difficult

as an IP licensing/holding company in tax

rules,69 and to evaluate whether the pricing

for the tax authority to review in accordance

havens) has the right to use that patent for a

for alleged transactions, including IP-related

with the arm’s length principle.

portion of developmental costs it has covered.

transactions, between related parties is

It is also noteworthy that due to the

This may result in a significantly low licensing

appropriate.70

development and broad use of Internet

fee (potentially even zero royalty charges) from

The key element for successfully

Currents 23.2 2019

implementing ALP is to conduct an accurate

the uniqueness of their invention.78

a MNE group as a whole.82 Therefore, it may

valuation of IP related transactions between

More specifically, in order to claim the

related parties. However, this is not an easy

uniqueness of the invention in a standard

task. As the OECD TP Guidelines observed,

patent, the applicant must prove the patent

On the other hand, increasingly

"transfer of intangible assets raise difficulty

is: (1) new, (2) involves an inventive step,

complicated IP business models make IP

questions both as to the identification

and (3) is able to be made or used in an

transactions hard to specifically identify and

of the assets transferred and as to their

industry.

In other words, the invention

value. Traditionally, there are two ways to

valuation" The economic value of IP can

must differ from existing technology, and this

leverage the commercial value of IP rights:

be affected by various factors, such as the

difference must be “something more than the

IP license and IP assignment.83 Today, IP

general economic and legal environment for

simple application of published information

rights are often transferred in combination

IP enforcement, the market demand for the

or standard background knowledge.”80 As

with tangible assets or services. 84 When

IP, the commercial life of the IP, 72 as well as

a consequence, it is almost impossible to

commercializing IP, instead of providing a

the existence or absence of close substitutes

find an appropriate comparable, similarly

sole product or service, the IP holder often

in relevant markets.

patented technology, for the patent involved

provides an “IP package” which relies on

—————————————————

in the alleged transaction.81 Otherwise, the

a combination of IP and other assets and

patent applicant may have failed in its patent

services. For example, when Australian users

application in the first place.

purchase a Microsoft Office 365 Home

—————————————————

software package (with AU$129 yearly auto renewal), the package they acquire not only

In practice, IP valuation has also

3.2. Difficulty 2: Complexity of IP Business Model vs Identification of Specific IP Transaction

represented an important reason for various

—————————————————

updates (including excusive updates and new

disputes between the MNEs and tax

On the one hand, the cross-border nature

features), and Microsoft support via chat or

authorities. Major difficulties for accurate

of TP arrangements makes the valuation of

phone at no extra cost.85 In addition to basic

valuation of IP-related transactions between

IP transactions difficult. It is hard for any

software service, a registered Office 365 user

related parties may include four aspects.75

domestic tax authority, in a single country,

can enjoy 1TB of OneDrive cloud storage.86

—————————————————

to obtain reliable and sufficient information

It is clear that the Office 365 Software

3.1. Difficulty 1: Unique quality of IP vs Availability of Comparable Transactions

to understand a MNE group’s entire business

Package relies on IP rights as well as other

structure at the international level, including

assets and service, that are, a combination

both IP-related product transactions and IP-

of software patents, IT infrastructure (e.g.,

—————————————————

related service transactions. As China stated

storage service) and technical support services

As Lester observed, “[the] arm’s length

in its report to the United Nations (UN). in

(e.g. phone and online support services).87

principle will generally fail to achieve a

2014, because most MNE groups have their

Therefore, it is difficult to break down the

comparable market price for ‘intangible’

parent companies or service centers overseas,

package, and to identify an accurate value

transactions because they are unique.” 76

a local taxpayer —domestic subsidiary

for the subject IP asset (e.g., the value of

Given the uniqueness of IP, the potentially

company—often only has information in

Office 365 Home software in the alleged

comparable transactions between unrelated

relation to their own operations in its resident

transaction.)

parties are often not available. Using patents

country, rather than an overall understanding

Moreover, as introduced above, when

as an example, in order to get a patent

of the entire intra-group business structure,

making transfer pricing arrangements,

registered successfully, applicants must prove

as well as, its role in the global value chain of

many MNEs adopted sophisticated IP

Given the uniqueness of IP, the potentially comparable transactions between unrelated parties are often not available. —————————————————

Currents 23.2 2019

not be able to provide all of the information that a tax authority needs.

includes a license to use the software for 5 devices(i.e., PCs, Macs or tablets), but also includes associated services on software

Service Agreements (Strategy 3) or Cost

statements.95 The preparation of reports

First, unlike developed countries that

Sharing Agreements (Strategy 4). And most

on intangible assets only is treated as “a

usually have a much larger number of public

of intra-group services are charged through

supplement to the financial statements of

companies, developing countries usually have

an indirect charge method.88 For example,

the company.”96 Most royalties, licenses,

a smaller number of public companies, and

if one company significantly contributes to

and management fees in relation to IP and

information on domestic private companies

the development of a new patent, it may not

intangible assets are intra-group payments

is lacking or inadequate. This directly limits

need to pay (or pay less) for the royalty fee

flowing from foreign affiliate MNEs to the

the availability of public information on

when using/commercializing that patent. As

parent company MNE.

Therefore, they

“domestic companies which can be used for

a consequence, this makes the valuation of

are generally not recorded or disclosed in

TP analysis.100 As a consequence, in practice,

relevant IP transaction even harder.89

a MNE Group’s financial statements or its

foreign companies (“foreign comparables”)

—————————————————

footnotes.

3 . 3 . D i f f i c u lt y 3 : I P Accounting Standard vs Information Disclosure Obligation

are often used as an alternative to “domestic

—————————————————

comparables.”101 In its submission to the

scheme, it is difficult for tax authorities to

Most countries’ accounting standards allow internallygenerated intangible assets (such as IP) to be expensed rather than capitalized as investments.

obtain sufficient and relevant information

—————————————————

such a pre-condition does not really exist due

in relation to a company's IP and intangible

As a consequence, it is very hard for

to the existence of foreign exchange controls

The 2012 EU Industrial R&D

both the public and tax authorities to

in many developing countries.102 As such,

Scoreboard shows that “the world's top 1500

find the pricing information in relation

it is necessary to conduct “comparability

companies by research and development

to comparables of relevant IP. The lack

adjustments” when companies in developed

(R&D) expenditure jointly invested more

of relevant information on IP related

countries are used as comparables for

than €511,155 million in R&D in 2011,

transactions in the financial statements

companies in developing countries. 103

which represents over 50% of the world’s

has arguably limited the capability of tax

Nevertheless, it does not seem to be an easy

total R&D expenditure.”

According to

authorities to assess proper value of the

task to identify an appropriate method for

statistics, more than 75% of all private R&D

suspicious IP transactions and to examine the

“comparability adjustment,” which can be

expenditures worldwide are accounted for

legitimacy of any specific IP related transfer

accepted by all stakeholders.

by MNEs. However, IP is generally not

pricing arrangements.

recorded or disclosed in an MNE group’s

—————————————————

financial statements or its footnotes. Even disclosure about IP is required in the financial

3.4. Difficulty 4: Location, Special Local Advantages and Market Dynamic

statement footnotes.

—————————————————

when performing TP analyses in developing

Most countries’ accounting standards

The location (along with different

countries.104 In relation to “location savings”

allow internally-generated intangible assets

development status of residential countries)

and “country premiums,”105 these include

(such as IP) to be expensed rather than

and market dynamics also bring challenges

both the profits generated due to the

capitalized as investments. IP other than

for the application of an arm’s length

efficiencies of labor force, and more broadly,

patents (such as trade secret, know-how)

principle, particularly for MNE’s affiliates

advantages resulting from government

are not usually reported in MNEs’ financial

in developing countries.

preferential policies, such as tax incentives

————————————————— Under the current financial reporting

assets.

if an MNE group measures its IP, very little 93

United Nations Practical Manual on Transfer Pricing for Developing Countries, the Chinese tax authority, State Administration of Tax (SAT), explicitly pointed out, the precondition for using foreign comparables is “globalisation and free capital mobility,” but

Second, location-specific advantages (LSAs), such as the so-called ‘location savings’ and ‘market premiums’, may also affect the TP analysis. These bring other challenges for the application of ALP, particularly

Currents 23.2 2019

and governmental investment. For example,

—————————————————

based on the information provided by the

3.5. Summary and Remark

State Council of China, in order to “reduce

—————————————————

the cost for innovation and entrepreneurship,

Most of the difficulties of implementing

energize small and micro businesses, and spur

ALP to IP-related transactions are common

4.1. Insights from China: D e ta i l e d R e g u l at i o n s R e f l e c t i n g N at i o n a l Interests

job creation,” China has decided to make

for tax authorities in both developing and

—————————————————

“further tax cuts worth over sixty billion yuan

developed countries. In order to explore

Although China is not an OECD

(about $9.5 billion) to drive innovation and

possible solutions, this article next examines

member, China’s transfer pricing regulations

entrepreneurship and boost the development

and draws on lessons from the recent

are generally consistent with the Organization

of small and micro businesses.”106 Moreover,

development of transfer pricing laws in

for Economic Co-operation and Development

the annual taxable income threshold of small

China, Germany, and Australia.

(OECD) and the Transfer Pricing Guidelines

and micro businesses eligible for halved

(TPG).113 The OECD’s TP Country Profile 2018 explicitly stated “China respects OECD

policies will arguably help MNEs to reduce

Part IV: Possible Solutions & Insights from China, Australia and Germany

their operational costs, and enable them

The OECD issued the BEPS Action

—————————————————

to provide lower prices in relation to the

Plans in 2014 and amended the OECD

A. Three Major Changes

provision of their high technology products

TP Guidelines in 2015 and 2017 in order

—————————————————

or services. Again, it does not seem to be an

to reduce tax evasion and tax avoidance

As one of the early movers for

easy task to have an agreement among all

globally.109 The OECD’s recommendations

implementing the OECD BEPS Action

stakeholders in relation to how to factor in

on TP law reform, including OECD

Plan and the OECD TPG, the Chinese

these LSAs when conducting TP analysis.

Action Plans on TP activities in relation to

State Administration of Taxation (SAT)

—————————————————

intangibles,

have been widely accepted

has enacted three new regulations: Public

worldwide. Based on the information

Notice 42 and Public Notice 64 in 2016,

provided by the OECD, by May 2018, 116

and Public Notice 6 in 2017. Over the past

countries have joined the Inclusive Framework

three years, these regulations implemented

for BEPS Implementation,111 representing

special tax adjustments in order to strengthen

more than 90% of the global economy and

the regulatory framework for transfer pricing

112

more than 75% of the world’s population.

in China.115 These three regulations have

creates another challenge for accurate TP

However, each country eventually needs to

had profound impacts on TP activities in

analysis. The commercial life of most forms

reform its own specific laws to address TP

relation to IP.

of IP can last many years.108 Therefore, it

issues, including TP arrangements in relation

First, China formally adopts the “three-

seems necessary to reevaluate the pricing

to IP transactions. The article next examines

tiered” transfer pricing documentation

arrangements for “old” IP developed by MNE

how China, Australia, and Germany have

approach under the OECD BEPS Action

affiliates to ensure that the transactional price

creatively implemented the OECD TP

Item 13: Transfer Pricing documentation

for “old” IP matches the current market

recommendations to make their own TP

and Country-by-Country reporting (CbC

dynamic. The market dynamic would

rules.

reporting), and requests the MNEs to

income tax will be raised from 500,000 to one million yuan.

107

These preferential

Lastly, change in IP values over the years creates another challenge for accurate TP analysis. ————————————————— Lastly, change in IP values over the years

110

TPG and incorporates the basic aspects of OECD TPG in the domestic legislation.” 114

arguably further increase the difficulty of the

provide more specific information in relation

implementation of the arm’s length principle

to intangibles.116 In 2016, the SAT issued

on IP-related transactions.

the Public Notice Regarding Refining the Reporting of Related-Party Transactions 10

Currents 23.2 2019

and Administration of Transfer Pricing

information requirements would arguably

interpretation of Public Notice 64 is that it

Documentation (“Public Notice 42”).

This

facilitate the transfer pricing analysis of tax

provides an enterprise intending to apply for

requires MNEs to meet specific reporting

authorities both within and outside the cloud

an APA must clear the pre-filing, analysis, and

criteria which include preparing (1) a

environment.

evaluation stages, in addition to obtaining an

117

master file, (2) a local file, and/or (3) a CbC

Second, China has affirmed a value

approval from the tax authorities before it

reporting. Moreover, Public Notice 42

chain analysis approach recommended by

can submit the letter of intent and formal

obligates MNEs to disclose more information

the OECD TP Action Plan. Public Notice

application.124 In other words, the new rules

in relation to intangible-related transactions

42 explicitly requires taxpayers to include a

have moved the analysis and evaluation

and transfer pricing arrangements.

It has

value chain analysis into the transfer pricing

stage before the formal application stage.

a specific section focused on intangibles.

documentation.121 It requires the taxpayers

Moreover, the new rules require enterprises

Article 12 section III explicitly requires the

who meet the criteria for Master File to

to agree to negotiate with the SAT and adjust

MNE to disclose the following intangible-

disclose information in relation to the “value

their proposed transfer pricing methods to

related information in Master File format,

chain analysis” which includes: (1) the flows

the most appropriate method, when it is

including:

of business, goods and materials, and capitals

necessary, during the analysis and evaluation

(1) a general description of the MNE’s

within the group; (2) the annual financial

stage or their APA applications may be

overall strategy for the development,

statements of each of the aforementioned

declined.125 As some commentators have

ownership and exploitation of intangibles;

parties for the immediately preceding fiscal

observed, these new procedures arguably

(2) a list of intangibles or groups

year; (3) the measurement and attribution

strengthen the tax authority’s control over

of intangibles of the group that are

of value creation contributed by location

the APA process, and “set[s] higher standards

important for transfer pricing purposes

specific factors; and (4) the allocation

on the enterprise’s compliance, cooperation,

and which entities own them;

policies and actual allocation results of the

and information disclosure during the APA

(3) a list of important agreements entered

group’s profits in the global value chain.

application process.”126

between constituent entities and their

However, Public Notice 42 has not provided

On the other hand, Public Notice 64 has

related parties relating to intangibles;

a clear explanation on basic procedures for

updated the requirements on analysis to be

(4) a description of the group’s transfer

implementing this approach to transfer

included in an APA application package,127

pricing policies related to research,

pricing analysis.

notably to include analysis on location-

development, and intangibles; and

—————————————————

specific advantages (LSAs), such as location

118

(5) a description of any important transfers of interests in intangibles among related parties during the fiscal year concerned.119

120

China has affirmed a value chain analysis approach recommended by the OECD TP Action Plan.

savings, market premiums, and the value chain analysis128 or supply chain analysis. This revision arguably has significant implications on MNEs, particularly IP-related MNEs.

It is clear that through these provisions,

—————————————————

As introduced above, many IT giants, such

Public Notice 42 not only requires MNEs

Nevertheless, on October 11, 2016,

as Microsoft, have R&D centres in various

to disclose their overall strategies for

right after Public Notice 42 was published,

countries such as the US, China and India.

commercializing intangibles and transfer

the SAT issued new regulations, Public

These centers may work together on the same

pricing policies, but also obligates them to

Notice 64, to improve the administration of

project, and contribute to the value of the

provide specific intra-group agreements in

Advance Pricing Arrangements (APAs).

122

final intelligible products created together.

relation to intangible-related transactions.

Public Notice 64 provides the process and

For this reason, the specific location where

It also requires a disclosure of business

requirements for an enterprise to apply for an

the exploitation of the intangibles takes place

intentions of each major transaction in

APA

as well as specific criteria for an APA

is not easily identifiable. For example, the

relation to intangibles. These detailed

application to be prioritized or declined. One

locations for manufacturing, marketing, and

123

Currents 23.2 2019

distributing iPhones are not same. Although

of value.”134

contributions.139 It contends that the profit

the R&D of new iPhones may happen in

—————————————————

split methods may be viewed as a means of

the US, most iPhones are manufactured in China, but they are marketed and distributed globally. It is not fair to simply credit tax benefits to any single tax jurisdiction. Therefore, the inclusion of location-specific advantages and value chain analysis would arguably place more obligations for MNEs to provide accurate global value chain information, and would facilitate transferpricing assessment by SAT.

In other words, through Public Notice 6, China has reaffirmed the adoption of a very important OECD principle for international tax jurisdiction justification, that is, “profits are taxed where the economic activities take place and value is created.”

achieving “a closer alignment between profits and value creation.”140 Article 21 further provides some profit-splitting factors, which show strong correlation with value creation, such as value contribution related incomes, cost, expense, capital, and employee number, to facilitate the implementation of the profits split method in determining the arm’s length price.141 In relation to IP-related MNEs, the

Third, China reaffirmed the importance

—————————————————

adoption of the profit split method would

of the “profit split method” for TP analysis,

This is clearly in line with the OECD’s

arguably increase the SAT’s ability to prevent

which is in line with the recent position

recent position on transfer pricing. The

a MNE from engaging in tax planning that

of the OECD. 129 On March 17, 2017,

OECD BEPS Action Plan obligates member

results in BEPS. When a profit split method

the SAT issued new regulations Public

countries to adopt “a co-ordinated and

is used, a taxpayer is obliged to prove that

Notice 6 to improve the administration

comprehensive manner” to address aggressive

its “allocation of residual profits” is in line

of “Special Tax Investigation Adjustments

international tax planning, and to provide

with the “substantive functions” that created

and Mutual Agreement Procedures.” 130

countries with “instruments that will better

the MNE’s residual profits. This means that

Public Notice 6 further amended the

align rights to tax with economic activities.”135

the taxpayer cannot allocate a significant

transfer pricing framework set out in the

In other words, through Public Notice 6,

portion of its profits to a low-tax affiliate,

previously issued Public Notice 42 and

China has reaffirmed the adoption of a very

if the affiliate provides non-routine services

Public Notice 64. Public Notice 6 clarified

important OECD principle for international

and owns the non-routine intangibles. For

some key transfer pricing issues, as well as

tax jurisdiction justification, that is, “profits

example, if an IP holding company cannot

the methodology and procedures for special

are taxed where the economic activities take

explain how its entity operating in a tax

tax audits and adjustments by incorporating

place and value is created.” 136 This principle

haven has functionally contributed to the

some important recommendations arising

arguably sets up a foundation for the SAT to

creation of residual profits, i.e. the IP holding

from the OECD's BEPS Actions 8-10 and

conduct transfer pricing analysis within and

company registered in the tax haven did not

Action 14. It emphasised a risk-oriented tax

outside the cloud environment.

have any substantive business functions there,

administration system and a more diverse

Moreover, in line with the recent

it would receive zero allocation.142 Public

transfer pricing method. More importantly,

position of the OECD,137 Public Notice

Notice 6 has arguably increased the burden of

in addition to five traditional transfer pricing

6 also reaffirmed the importance of the

proof of MNEs in justifying its cloud-related

methods under Circular 2

and the OECD

profit split method by introducing detailed

transfer pricing arrangements.

Public Notice

provisions on the implementation of profit

—————————————————

6 permits other asset valuation methods

split method—Article 21, and asserts that it

B. Remarks & Limits

that comply with the arm's length principle,

is feasible to use the value chain analysis and

—————————————————

such as cost method, which looks at cost and

transactional profit split method to determine

It is clear that, through these three

market

the arm’s length price.

131

transfer pricing guidelines,

132

This is particularly

TP-related Public Notices, China has

apply any other methods that could “align

true in situations where both parties to

converted the recommendations under

profit with economic activity and the creation

the transaction make unique and valuable

the OECD Action Plans and the OECD

133

and allows the tax authorities to

138

Currents 23.2 2019

TPG into domestic regulations. Through

the difficulty of understanding the operation

Multinational Tax Avoidance Act 2015

the introduction of new TP assessment

of MNE’s business structure and global

provides detailed enforcement measures in

approaches, such as value chian analysis,

value chain, and (3) the lack of information

relation to the implementation of Australia's

and profit split method, China’s new TP

on MNE’s transactions on intangibles.

CbC reporting regime. 145 Moreover, in

regulations better reflect the special needs

These arguably limit the effects of China’s

response to the OECD BEPS Action Items

of developing countries as IP importing

new transfer pricing rules in minimizing

8, 9 and 10: Transfer Pricing and Value

countries, as well as its national interests

BEPS both within and outside of the IP

Creation, Australia has amended the existing

in the global taxation regime. As some

context. This article next examines alternative

laws to adopt the revised Transfer Pricing

commentators observed, China has “a clear

approaches for addressing transfer pricing

Guidance issued by the OECD in 2015.146

focus on identifying transactions where the

challenges in relation to IP transactions

The Treasury Laws Amendment in the

Chinese company has not been adequately

by drawing on lessons from the recent

Combating Multinational Tax Avoidance Act

remunerated for its contribution to value

development of TP rules in Australia and

2017 has successfully updated the relevant

creation, intangible development, or service

Germany.

provisions in Division 815 of the Income

provision.”

—————————————————

Tax Assessment Act in order to achieve

143

national group’s global valuation chain,

4.2. Insights from Australia – Reverse of Burden of Proof by Diverted Profit Tax

and to accurately locate the value drivers.

—————————————————

A successful application of the profit split

—————————————————

method for arm’s length pricing assessment MNE group, rather than a cooperation of

A. Combating Multinational Ta x Av o i d a n c e A c t & Diverted Profit Tax

a taxpayer of the MNE’s affiliated company

—————————————————

Like China, Australia is also an early mover for implementing the recommendations in the OECD BEPS Action Plan into its domestic tax laws.

within a single tax jurisdiction. It is clear

L i k e C h i n a , Au s t r a l i a i s a l s o

—————————————————

that, through detailed provisions, these three

an early mover for implementing the

On the other hand, it is noteworthy that

Public Notices have arguably strengthened

recommendations in the OECD BEPS

Australia is going beyond the requirements

the investigation and enforcement power

Action Plan into its domestic tax laws.

of the OECD BEPS Action Plan.148 Australia

of the SAT combating against BEPS, and

Building on its existing anti-avoidance

recently introduced a special tax, Diverted

have helped to at least minimize some

rules, which are already strong, Australia

Profit Tax also known as the Google Tax,149

of the current transfer pricing strategies

has been aggressively introducing new laws

as an important supplement to the current

for artificially shifting profits related to

to implement the recommendations of

OECD’s approach to combat against transfer

intangibles.

the OECD and G20 BEPS Action Plan,

pricing activities by MNEs. The Diverted

and in some respects has gone beyond the

Profits Tax Act 2017 has been passed by

requirements of the OECD.

Australian Parliament, and became effective

It is not an easy task for tax authorities to understand the operation of a multi-

arguably requires full cooperation of a

Nevertheless, instead of offering a complete alterative solution, to a large

144

consistency with the latest OECD Transfer Pricing Guidelines.147 —————————————————

extent, the SAT continues to rely on the

On the one hand, in response to OECD

starting July 1, 2017.150 The new Diverted

long-standing arm’s-length principle. As a

BEPS Action Item 13: Transfer Pricing

Profits Tax (DPT) law makes Australia

result, some inherent problems/challenges

documentation and CbC reporting, Australia

become the second country in the world

for tax authorities to implement the arm’s

amended its legislation to implement the

to apply the tough DPT regime to combat

length principle remain unchanged. These

OCED's new Transfer Pricing documentation

transfer-pricing activities by MNEs after

challenges include: (1) the difficulty of

standards CbC reporting in December 2015.

the DPT in the U.K.151 This tax may have

identifying appropriate comparables, (2)

The Tax Laws Amendment Combating

profound impacts on the Australian Transfer

Currents 23.2 2019

Pricing landscape. 152

rate applies to the profits of significant

Australian Federal Court within sixty days of

The Australian DPT is a penalty tax

global entities that are found to have been

the end of the review period.168 Additionally,

of forty percent that will be imposed to

diverted to low taxed countries, countries

for any information that the taxpayer has not

eligible taxpayers in circumstances where the

with an effective tax rate below twenty-four

provided to the Commissioner before the

amount of Australian tax paid is reduced by

percent, because the Australian Taxation

end of the review period, the Federal Court

diverting profits offshore through related-

Office (ATO) finds the principal purpose

will generally not consider it as evidence.169

party arrangements.153 More specifically, the

of the arrangement of related parties was to

In other words, the DPT regime enables

DPT will apply to a taxpayer where:

obtain an Australian tax benefit.

The U.K.

the Commissioner to form a reasonable

the taxpayer is a significant global entity

DPT targets transactions with foreign related

conclusion without being prevented by a lack

with Australian revenue of more than

parties that have a tax rate less than sixteen

of information or incomplete information

A$25 million;154

percent, but the Australian DPT will apply

provided by the taxpayer. The Commissioner

the taxpayer obtained a DPT tax benefit

where the foreign related party has a tax rate

is also not required to actively seek further

according to the “sufficient economic

of less than twenty-four percent. This means

information from the taxpayer to reach a

substance test”

related parties in many countries, such as

reasonable conclusion.170

foreign tax test”156;

the U.K. and many OECD countries may

—————————————————

the taxpayer entered into a scheme with

become potential targets of the Australian

a principal purpose of obtaining a tax

DPT.

benefit, or both obtaining a tax benefit

arguably have much further reach and greater

and reducing a foreign tax liability, the

commercial impact than the UK DPT.163

•

155

or “the sufficient

161

Third, and most importantly, the

[T]he Diverted Profits Tax Act 2017 adopts a pay first and argue later approach, which is similar with the U.K. DPT.

a foreign entity that is an associate/

Diverted Profits Tax Act 2017 adopts a pay

—————————————————

affiliate of the taxpayer is one of the

first and argue later approach, which is similar

In short, as commentators from the

persons who entered into, carried out,

with the U.K. DPT. If the DPT applies to

Corporate Tax Association summarized, the

or is otherwise connected with the

a scheme, the Tax Commissioner may issue

DPT “changes the onus of proof by requiring

scheme; and

a DPT assessment to the relevant taxpayer.

payment up front” and “significantly limits

the taxpayer is not a type of entity that

When this occurs, the taxpayer must pay

taxpayer's appeal rights.”171 It places the

is excluded from the DPT.157

the amount set out in the DPT assessment

onus on taxpayers to provide the ATO with

In comparison with the counterpart in

within twenty-one days.

After the initial

relevant and timely information on offshore

the UK, some key features of the Australian

DPT assessment, the Commissioner then

related-party transactions in order to prove

DPT stood apart. First, the potential scale of

enters a twelve-month review period which

why the DPT should not apply.172

the DPT coverage is very broad,158 and the

can be shortened in certain circumstances165

As a result, the introduction of the DPT

exemption is narrow. Unlike the U.K. DPT

whereby the taxpayer will be able to provide

may arguably help address some inherent

which only covers financial arrangements,

the Commissioner with further information

problems or difficulties for enforcing the

the Australian DPT applies to both financing

explaining why the DPT assessment should

current OECD Transfer Pricing rules.173 The

and non-financing arrangements, and a

be reduced, including to nil.166

DPT not only creates stronger incentives

•

principal purpose test; •

•

162

As a result, the Australian DPT may

164

significant number of multinational groups

Moreover, the upfront payment of a

for large MNEs to comply with their tax

will be affected.159 It is estimated that “almost

taxpayer’s DPT liability can only be adjusted

obligations in Australia, such as complying

50% of related party transactions undertaken

following a successful review of the DPT

with Australia's Transfer Pricing rules, but

by companies operating in Australia are

assessment.

If the taxpayer is dissatisfied

also increases the enforcement power of

potentially covered by the DPT.”

with the result of the DPT review, the

the Commissioner, and allows for quicker

taxpayer may object and appeal to the

resolution of tax disputes.174 As introduced

160

Second, a punitive forty percent tax

167

Currents 23.2 2019

above, the global value chain of MNE

has proposed significant changes to the

scale of SGEs, they should arguably have the

groups can be very sophisticated and hard

Australian Transfer Pricing landscape.

capacity to provide relevant transfer pricing

to decipher.

Although the BEPS Action

brings both benefits and risks. On the one

documentations, and the capability to clearly

Plan introduced specific requirements on

hand, it may address some inherent problems

explain the operations of their global value

Transfer Pricing documentations, which

or difficulties for enforcing the current

chain and cross-border transfer pricing

obligate MNEs to disclose in full regarding

OECD Transfer Pricing rules, particularly the

planning strategies.182

their global value chain, it is still not an

implementation of an arm’s length principle

Second, the DPT may discourage foreign

easy job for tax authorities to understand

for transfer pricing assessment both within

investment to Australia,183 and decrease

the operation of a MNE’s global value

and outside the cloud environment.

Australia’s international competitiveness.184

in practice. 176 In fact, collecting more

—————————————————

There is a possibility that the DPT may push

175

180

OECD BEPS Guideline on Transfer Pricing

In other words, most small and medium size MNEs in developed nations and even some major MNEs may not be the potential targets of the DPT at all.

Documentations, some MNEs may even

—————————————————

transfer pricing law reform cannot be

provide more information, although some

On the other hand, it has attracted

achieved without the support of the broad

irrelevant information, on purpose in order

some suspicion and criticism. The concerns

to confuse tax authorities.

mainly relate to two aspects. First, the DPT

In summary, although it may be

Therefore, by reversing the onus of

places too many obligations on MNEs in the

too early to tell the effectiveness of the

proof to taxpayers, the DPT arguably has

process of the transfer pricing assessment.

Australian DPT, Australia has arguably

significantly changed the passive position

More specifically, the coverage of the DPT

made an important attempt to creatively

of tax authority. Empowered by the DPT,

is too broad, and the punitive penalty tax

transplant the OECD transfer pricing rules,

ATO may even impose a DPT punitive

imposed by the DPT is too harsh, and in

and addressed the limits of the OECD

tax without completely understanding

particular, the “pay first and argue later”

approach. When adopting the OECD

the business and value chain structure of

approach completely reverses the onus of

BEPS recommendations, it is important for

MNEs.

It is estimated that by arming

proof to taxpayers. However, the impacts

individual countries to be more careful and

the Australian Taxation Office with “some

of the DPT should not be overstated. As

creative by taking into account the limits

of the world's strongest powers to fight

introduced above, the DPT only applies to

of the current OECD transfer pricing rules

multinationals,” Australia would be able to

the taxpayer who is a significant global entity

as well as their own specific economy and

“recoup $2 billion in revenue” from some of

(SGE) with Australian revenue of more than

social circumstances. Although subject to its

the nation's biggest MNEs, such as Apple,

A$25 million. This means that the taxpayer

own limits, Australia may arguably serve as a

BHP Billiton, Chevron, and Crown.

Some

must be a member of a MNE group/SGE,

fine example of innovatively implementing

commentators even estimates that the DPT

which has annual global income of at least

the OECD recommendations to address

will be “the most expansive cross-border tax

A$1 billion, and has at least a $25 million

the complicating transfer pricing issues in

change in generations.”

Australian annual turnover.

relation to IP and intangible assets in general.

—————————————————

words, most small and medium size MNEs

B. Remarks and Limits

in developed nations and even some major

—————————————————

MNEs may not be the potential targets of the

The introduction of the DPT arguably

DPT at all. Moreover, given the economic

value chain information alone may not be sufficient to help tax authority to detect all potential illegal Transfer Pricing activities by MNEs. For example, in addition to providing the required information under the

177

178

179

181

In other

MNEs to move their business operations to more tax-friendly countries. This is why international cooperation on BEPS and transfer pricing law enforcement is essential. Under the current globalization environment, the success of domestic

international community.

Currents 23.2 2019

—————————————————

intercompany/intragroup agreements, such

and management company. It is clear that

4.3. Insights from Germany – Risk vs Value & Hypothetical Arm's-Length Test

as arm’s length transactions. The arm's

only the economic owner of IP disposes of

length test for cross-border intergroup

the rights against the licensee or the buyer,

transactions has a focus on “the analysis of

the assignee, the licensed or transferred IP

—————————————————

relevant intercompany agreements in view of

economically. A clear distinction of the legal

—————————————————

functions performed, risks borne and assets

owner and the economic owner of intangible

A. Combating Multinational Ta x Av o i d a n c e A c t & Hypothetical Arm's-Length Test

employed.”

In other words, the traditional

assets would arguably facilitate the TP

TP analysis for justifying the transaction

analysis by tax authority, and help to properly

price mainly focuses on how/where the risk

identify the entity MNE affiliate, which

has been allocated rather than where the value

made actual contribution to the creation/

—————————————————

has been created.

realization of the value of the IP.

187

Like other OECD countries, Germany

Nevertheless, it is also noteworthy

has also progressed in implementing the

that, it seems that Germany has developed

recommendations in the OECD BEPS

its unique approach in relation to the

Action Plan and the OECD TP Guidelines.

implementation of Arm’s Length Principles

Through the enactment of the first BEPS

to intellectual property related transactions

Implementation Act in December 2016,

even before the OECD BEPS Action Plan

and the enactment of the recently signed

in 2014.

—————————————————

multilateral agreement in June 2017,

First, German transfer-pricing rules

Germany has developed its own legal approach to identify reasonable transfer price comparable for IP related transactions called the hypothetical arm'slength test (HALT).

Germany formally adopted the three-tiered

traditionally make a clear distinction between

—————————————————

transfer pricing documentation scheme

the legal owner and the “economic owner”

Second, Germany has developed its own

and other TP rules recommended by the

of intangible assets, including intellectual

legal approach to identify reasonable transfer

OECD.

property.

Generally speaking, the economic

price comparable for IP related transactions

However, it seems that Germany still

owner of IP is the entity that develops an IP

called the hypothetical arm's-length test

needs to do some further work to reform

intangible asset and decides on the nature of

(HALT). The German Enterprise Tax Reform

its domestic TP law in relation to the

the development of IP. The IP is developed

Act in 2008 provides a clear instruction for

implementation of an arm’s length principle.

under its name, and the entity undertakes all

the application manner of transfer-pricing

As mentioned above, the BEPS Action

the risks and expenses during the period of

methods to transactions involving both

Plans 8-10, which resulted in the revisions

IP development. The “legal owner” of IP is

tangible and intangible assets.190 In general,

of section D of chapter 1 of the OECD

the one who owns the actual legal power of

the German law recognized all five-transfer

Transfer Pricing Guidelines on the arm's

disposal, and is not necessarily obliged to bear

pricing analysis methods in the OECD TP

length principle, sets up the overriding

the risk or expenses of the IP development.189

Guidelines.191 In relation to the priority

principle that “ensure[s] transfer pricing

Although the economic owner and the legal

for applying these methods, it effectively

outcomes to be in line with value creation,

owner can be the same entity, for the tax

provides that:

the taxation should occur where economic

avoidance purposes, the legal owner might

•

activity and resulting value creation takes

be a separate entity, which usually does

be based on three major methods: (1)

place.”186 However, generally speaking, the

not undertake any risks or expenses of IP

the comparable uncontrolled price

existing TP law in Germany, including both

development. For example, it might be the

method (CUP), (2) the resale price

the relevant German tax law and the German

MNE affiliate that is responsible for the

method, or (3) the cost-plus method;

Administrative Principles, has a particular

management and administration of all the

focus on the allocation of risks through

intangibles of a MNE group, an IP holding

185

188

Currents 23.2 2019

•

Priority 1 is the transfer price that should

Priority 2 is the two other transferpricing methods, (1) the profit split

method and (2) the transactional net

managers of both parties will perform as

business development associated with

margin method (TNMM), should be

“profit maximisers” on behalf of their own

the transferred IP intangibles assets, and

used only in exceptional cases.

entities respectively.

In other words, it seems that the German

conducting business negotiations, the buyer/

on a price-adjustment clause.

TP laws traditionally value the application of

distributor/service recipient/licensee of IP will

Let us use some examples to show how

the CUP method higher than the profit split

seek for a minimum price below a maximum

these principles may work in practice. We

method and the TNMM. Nevertheless,

threshold, while the seller/manufacturer/

assume there is a patent licensing agreement

the profit split method has traditionally

service provider/licensor of IP will seek

between Apple Ireland, the licensor, and

been deemed as a powerful instrument for

for a maximum price beyond a minimum

Apple China, the licensee. Taxpayers, Apple

determining the appropriateness of transfer

threshold.200

Ireland and tax authorities, SAT in China,

pricing for IP transactions in Germany. In

—————————————————

need to know whether the licensing fee in

192

199

This means, when

(FTA) in 2008 introduced the concept of

The circumstances for applying this approach depends mainly on the availability of unrelated prices or data.

the HALT,

order to overcome the inherent challenge for identifying an appropriate price comparable for IP transactions as noted above,

193

the

amendment of the German Foreign Tax Act

•

Second, a prudent manager would insist

the patent licensing agreement complies with the ALP. Suppose that Apple Ireland does not have a patent licensing agreement with any unrelated party, any non-Apple affiliates, for deterring the transfer prices. Partly

194

which is in line with the profit

—————————————————

comparable patent licensing agreements

split method.

The FTA effectively provided

The circumstances for applying this

can be used if the information in relation

that if all types of inter-company transactions

approach depends mainly on the availability

to the licensing fee that Samsung, the third

for which the traditional transfer pricing

of unrelated prices or data. Put simply, there

party, has charged to Samsung affiliates/non-

methods: CUP method, resale price method,

are two general principles to follow:

affiliates for a similar patent is available. Such

cost plus method and TNMM method, are

•

195

Principle 1: If unrelated prices or data

pricing information/data of the third party

deemed inappropriate for testing the arm's-

are not available for determining the

can be used for the price determination,

length nature of the pricing The Hypothetical

transfer price, third-party data that is

in accordance with Principle 1. If the

Arm's-Length test is to be applied for

only partly comparable can be used for

information in relation to the licensing

analysing the appropriateness of the transfer

the price determination, and taxpayers

fee that Samsung or any other third party

prices.

The HALT is applicable especially

may make appropriate adjustments in

has charged for a similar patent, partly

when it comes to document transactions

accordance with the specific facts and

comparable is not available, the HALT is to

involving intangible assets.

circumstances.

be used for the transfer price determination,

Principle 2: If no third-party data is

in accordance with Principle 2.

196

197

What is the hypothetical arm's-length

201

•

test (HALT)? How does the HALT apply?

available for determining the transfer

The application of the HALT usually includes

price, the hypothetical arm's-length

Step 2: Identification of the potential range

three steps:

tests (HALT) is to be used for the price

of Arm’s Length Price

Step 1: Justification of applicability of the HALT

determination. Again, appropriate

Once it has been decided that Step 1,

adjustments by taxpayers are mandatory

the HALT is to be applied, the next step,

where necessary.202

Step 2 of the TP analysis is to determine the

The HALT is based on the German tax

In other words, the law assumptions/

minimum price from t h e perspective of

concept of the prudent and diligent business

preconditions for applying a HALT method

the seller and the maximum price from the

manager.198 When pricing an inter-company

to IP related TP activities are two-fold:203

perspective of the buyer in accordance with

transaction, the underlying arm's-length

•

assumption is that the responsible business

First, the parties to the transaction do not have complete knowledge of the future

all economic facts and circumstances.204 Since the test is hypothetical in nature,

Currents 23.2 2019

because the transacting parties are related

circumstances.”209 The German HALT is

the appropriateness of the transfer price for IP

parties rather than unrelated parties, it is

primarily “a legal definition of how and when

transactions. It may serve as a sound example

a legal requirement that all the qualitative

profit split analysis is to be conducted when

for other countries to creatively apply PSM

and quantitative parameters related to

a German transacting party is involved.”210 It

and value chain analysis recommended by

the economic circumstances are shared

is clear that the German HALT is consistent

the OECD.

in a transparent manner for the analysis

with the position of the new OECD BEPS

—————————————————

transparency requirement.

Actin Plans and TP Guidelines,

Once the minimum price from the seller

emphasize the significance of applying

4.4. Remarks Recommendations

and the maximum price from the buyer

the profit split method and value chain

—————————————————

have been identified, the difference between

analysis for transfer pricing investigations

—————————————————

minimum and maximum price would form

arrangement, particularly to determine the

a potential range of arm's-length prices.

proper AL price for intangibles.

A . R e c o m m e n d at i o n 1 : Detailed Regulations & LSA

205

206

211

which

212

—————————————————

the analysis, Step 3, to determine the most

It is clear that the German HALT is consistent with the position of the new OECD BEPS Actin Plans and TP Guidelines

likely agreement value within the defined AL

—————————————————

domestic TP schemes. Future regulators

price. If there is a lack of a sound economic

Although the OECD affirmed the

need to explicitly indicate how, in detail, the

analysis to justify a particular value, the

significance of the Profit Split Method

value of IP can be determined in accordance

German tax authorities by law adjust to the

(“PSM”) for TP analysis on intangibles,

with anticipated benefits. For example,

arithmetic median of the minimum and

it has not provided detailed guidelines

as explained above, the Chinese SAT has

maximum price, known as the midpoint

in relation to how the PSM can be used

provided a clear documentation checklist

principle.

for IP particularly when relevant pricing

in relation to TP arrangements involving

If taxpayers do not meet these

data is not available. The German’s HALT

intangibles. In doing so, China not only

requirements, such as transparency

method arguably provides a direct solution

increased the legal certainty for taxpayers,

requirements, and sound economic analysis to

for the determination of the transfer price

but also facilitated the applications of the

justify a specific AL price, the tax authorities

when all price comparable information is

TP rules to IP related transactions by tax

will have ample discretion powers to

not available, including price information

authorities.

impose severe adjustments in favour of the

of unrelated parties and price information

On the other hand, it is important to

government.

of third parties. As mentioned previously,

make sure the TP policies suit the special

IP Service Agreements and CSAs have been

social and economic circumstances of

frequently used as TP strategies on IP related

individual countries. For example, the

—————————————————

transactions, in which relevant parties often

introduction of location-specific advantages

As some commentators observed, “the

all contribute to the global value chain of

(LSAs) assessment to the existing TP

HALT implies that, … the transfer pricing

MNEs.213 They bear similar risks as well as

regulation scheme is arguably good for

analysis must in fact constitute an effective

share benefits brought by developed IPs. The

developing countries and IP net importing

profit split analysis in consideration of profit

HALT method would serve as a powerful

countries, such as China, to obtain a fair share

expectations of both parties and a common

instrument for applying the PSM to value

in accordance with their true contribution to

understanding of all underlying fact and

chain analysis,

IP-related global value chain.

Step 3: Determination of the most likely agreement value as Arm’s Length price Since the potential range is usually wide, the German law requires a thirdelement of

207

208

—————————————————

B. Summary & Remark

214

and effectively determine 18

Currents 23.2 2019

When reforming the TP regulatory scheme, it is important to use detailed regulations or policy guidelines to incorporate the OECD’s recommendations, particularly the value chain analysis method, into the

In addition, future regulators need to

need to first determine if a market price

Australian DPT law in order to strengthen

take into account the dynamics of market

for intangibles exists and if not, determine

the enforcement of TP rules, including IP

value for IP. It is necessary to revisit/revaluate

whether the German HALT method can

related TP activities. As discussed above, the

the pricing arrangements for the old IP

be used to support the determination of

OECD has provided tax authorities with

developed by a MNE affiliate in order to

transfer prices on IP related transactions.218

more power in relation to TP documentations

ensure that the transfer price is consistent

Second, if a country decides to adopt the

such as the three-tiered documentation and

with the current market dynamics—current

German HALT method, it needs to provide

reporting scheme, but it has not been an

value of that IP. It would be helpful if future

a clear checklist/guideline in relation to key

easy task to accurately understand the

regulators would clarify how often the value

elements of assessment. At least three aspects

operation of the MNE’s global value chain.

of the IP should be re-assessed, including “in

need to be assessed:219

By reversing the burden of proof back

what way the likelihood of transfer prices

1) consideration of the value of an IP

to MNEs, the Australian DPT law has

later having to be adjusted as a result of

asset for the seller/transferor/licensor

significantly improved the enforcement

new developments should play a part in the

derived from the future anticipated

capability of tax authorities.

calculation of the transfer price at the time

benefits generated from the use of the

—————————————————

when the transaction is carried out.”215 It is

developed IP;

principle of the OECD to provide countries

3) determining the final transfer price on

with “instruments that will better align rights

which both parties would agree in this

to tax with economic activities,”

context. 220

[W]hen conducting law transplant, individual countries may need to interpret the DPT law critically in order to improve the effectiveness of the law transplant, and to strike a better balance of different stakeholders.

contributes to fairness and the balancing of

In addition, it would be desirable if

—————————————————

interests between developing and developed

future regulators could provide a more

However, as discussed above, the

countries in the international trade.

detailed guideline in relation to specific

Australian DPT has its own limits. Therefore,

—————————————————

elements/circumstances should be taken

when conducting law transplant, individual

B . R e c o m m e n d at i o n 2 : Creative Method & HALT

into account when determining these

countries may need to interpret the DPT law

minimum or maximum prices, such as the

critically in order to improve the effectiveness

—————————————————

taxes payable on any related capital gain,

of the law transplant, and to strike a better

When dealing with the difficulties

and the tax amortization benefits associated

balance of different stakeholders.

for applying ALP to intangibles, future

with the assets acquired, including the

First, future regulators may consider

regulators should face the problem more

benefits generated from location-specific

expanding the scope of the Australia-style

directly and develop an effective legal

advantages

Diverted Profit Tax law by lowering the

or policy instrument, particularly where

policy.

unrelated price comparables do not exist. The

—————————————————

DPT in Australia only applies to SGE, which

German HALT method may arguably serve

C. Recommendation 3: DPT & Multi-Tiered Punitive Tax Rate

have Australian revenue of more than A$25

When future regulators deal with the

—————————————————

If the threshold for the DPT can be reduced,

transfer pricing aspect of intangibles, they

Future regulators may draw on the

or reduce to Australian revenue of more than

necessary to reward the local affiliates in each

2) taking into account the minimum

country, including developing countries,

price a seller/transferor/licensor would

“with addition profits” which contribute to

require, and the maximum price a

the improvement of the MNEs’ original IP.

buyer/transferee/licensee would be

216

This practice is not only in line with the key

217

but also

as a sound example for regulators in other countries to help to solve such a problem.

prepared to pay; and

221

such as special tax preferential

threshold for the law application. The current

222

million. This means that many small and medium size companies will not be covered.

Currents 23.2 2019

A$2.5 million, this would arguably expand

the existing international tax laws, with a

achieve an effective result. It is imperative

the scope of law application as well as the

particular focus on the difficulties associated

to ensure that the law reform fits in the

enforcement power of tax authorities.

with applying an Arm’s Length Principle to IP

special economic and social circumstances

Second, future regulators may consider

related cross-border transfer pricing activities

of individual countries.

setting up a multi-tiered penalty scheme,

by MNEs. By drawing on lessons from

and apply a low penalty to suspicious/

the recent development of transfer pricing

aggrieved SMEs. Instead of a punitive forty

laws in China, Germany, and Australia and

percent tax rate applying to the profits of

comparing these laws to implementations

SGE, a regulator may consider applying a

of the OECD TP recommendations, some

lower punitive tax rate to SMEs, such as a

insight has been provided on practical

ten percent punitive tax rate for medium

suggestions and considerations for future

enterprises, or only requiring them to

TP law reforms.

repay the tax they have avoided for small enterprises.

Although

the

OECD

recommendations have provided a sound

In doing so, the advantages of DPT

regulatory foundation for addressing TP

can be expanded to widen the scope, and

problems, including IP related TP activities,

the capacities of small and medium size

individual countries eventually need to

enterprises can be reflected in the TP rule

reform their domestic laws to implement

enforcement process.

them. China may serve as a sound example of

—————————————————

implementing the OECD recommendations

Conclusion

through its detailed TP regulations, such as the

—————————————————

provisions on three-tiered TP documentation

Within the current globalization

scheme and value chain analysis. China has

and digital convergence environment, all

also taken into account of its own domestic

countries have to address the legal challenges

situations and comparative competitiveness,

of TP activities by MNEs, particularly

such as LSA analysis and IP market value

IP related TP activities. Due to the cross-

dynamic analysis. Germany may serve as a

border nature of the TP issues, it is clear

sound example to provide a practical and

that no single country can address these

rigid method for implementing the arm’s

challenges independently. It is important to

length principle and profit split method to

adopt a more systemic approach, and make

IP related transactions such as the HALT

domestic and international approaches work

method. Australia’s DPT is also a sound

collectively to address all potential challenges.

example of creatively developing a practical

This not only requires good international

way to improve the TP law enforcement

cooperation, such as CbC reporting scheme

capability of tax authorities.

which the OECD recommends, but also

Nevertheless, when conducting law

requires regulators to draw on lessons from

transplants, each country needs to fully

the experiences of other countries.

understand both advantages and potential

This article has explored the major forms

problems of TP laws in other countries.

of IP related transfer pricing activities as

Each country must conduct law reform

well the main challenges of implementing

in a critical, creative, and practical way to 20

Currents 23.2 2019

End Notes 1.

4. 5.

6. 7.

Dr. George Yijun Tian is a Senior Lecturer of Faculty of Law at the University of Technology Sydney (UTS), Research Associate of UNSW Cyberspace Law and Policy Centre at the UNSW Law School, and a UDRP Neutral appointed by WIPO Arbitration and Mediation Center, Geneva. The author is grateful to Professor Jill McKeough, former Law Dean of UTS and Commissioner for Australian Law Reform Commission (ALRC), inquiry into copyright law, for her valuable comments throughout the writing process. The author also would like to thank Professor Jason Harris for providing useful comments and help in relation to copy editing and Mr. Cyrus Thistleton, Tax Specialist, Australian Taxation Office (ATO) for providing him with useful materials on Australian Transfer Pricing Law and Policies in the writing process. Pa u l Fl i g n o r & Da v i d Orozco, Intangible Asset & Intellectual Property Valuation: A Multidisciplinary Perspective, WIPO (June 2006), http://www. wipo.int/sme/en/documents/ ip_valuation_fulltext.html [http://perma.cc/Z7W5-UEFY] (stating, “[i]ntellectual property (IP) and intangible asset (IA) issues abound throughout the business world, touching nearly all aspects of a company, from product development to human capital, and staff functions such as legal, accounting, finance to line operations such as R&D, marketing and general management.”). Annual Study of Intangible Asset Market Value from Ocean Tomo, LLC, Ocean Tomo (Mar. 4, 2015), http://www.oceantomo. com/2015/03/04/2015intangible-asset-market-valuestudy/ [http://perma.cc/KEG3TLED]. Id. Yves Hervé & Susann van der Ham, Germany: Hypothetical arm’s-length testing and intellectual property, Int’l Tax Rev. (June 27, 2012), http://www.internationaltaxreview. com/Article/3052205/GermanyHy p o t h e t i c a l - a r m s - l e n g t h testing-and-intellectual-property. html [http://perma.cc/4KAPXYY6] [hereinafter Germany: Hypothetical]. Id. In 2013, the OECD published

10.

11.

12.

13. 14. 15.

16. 17.

18.

its BEPS Action Plan in order to better regulate the global capital flow and harmonize international tax regimes. The plan contains 15 measures to harmonize international corporate tax regulations. See Elizabeth Shi, China’s New Transfer Pricing Regulations, ECOVIS Beijing (Nov. 15, 2016), http://www. ecovis-beijing.com/en/blog-en/ articles/762-china-s-new-transferpricing-regulations [http://perma. cc/D5VG-7HSB] [hereinafter Shi]. OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2017, OECD (2017), http://www.oecd. org/tax/transfer-pricing/oecdtransfer-pricing-guidelines-formultinational-enterprises-andtax-inistrations-20769717.htm [http://perma.cc/AS33-5AKF]. P e t e r D r a h o s , Th e Universality of Intellectual Property Rights: Origins and Development, 13- 41 (1999). What is Intellectual Property? WIPO, http://www.wipo.int/ about-ip/en/ [http://perma. cc/5ZQE-49MM]. Convention Establishing the World Intellectual Prop. Org., art. II (viii), July 14, 1967 (amended on Sept. 28, 1979), http://www. wipo.int/treaties/en/text.jsp?file_ id=283854 [http://perma.cc/ Z9X4-TME7] [hereinafter World Intellectual]. TRIPS: Agreement on TradeRelated Aspects of Intellectual Property Rights, as amended Jan. 21, 2017, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, https:// www.wto.org/english/docs_e/ legal_e/31bis_trips_e.pdf [http:// perma.cc/GL7J-TXNW]. World Intellectual, supra note 11. Id. S ay e e d R a a s M a s wo d , Intellectual Property Law of Bangladesh in a Nutshell 13 (LULU, 1st ed. 2010). Id. John P Ogier, Intellectual Prop., Finance and Economic Dev., WIPO Magazine, Feb. 2016, http:// www.wipo.int/wipo_magazine/ en/2016/01/article_0002.html [http://perma.cc/2N5P-BF5D]. Wi l l i a m Ne w, U N C I T R A L Team Up On IP And Finance, Intell. Prop. Watch (Mar. 20, 2009), http://www.ip-watch.

19.

20.

21.

22.

23.

24. 25.

26. 27.

28.

org/2009/03/20/wipo-uncitralteam-up-on-ip-and-finance/ [http://perma.cc/NL4ZWWCD]. Manish Jain, Transfer Pricing Issues in Intangibles (Intellectual Property): An Analysis of Problems and Possible Solutions, 1 RGNUL Student L. Rev. 10, 10 (2014) [hereinafter Jain]. I n t a n g i b l e s B l a c k ’s L aw Dictionary 811 (7th ed. 1999) (defining intangibles as property lacking physical substance and existing merely on paper. Tax law considers patents as common types of intangibles. Intangibles are often defined slightly differently for different purposes, even in tax law. R o n a l d W u , Tr a n s f e r Pricing: Current Problems and Solutions, 4 (2010), https://scholarship.claremont. edu/cgi/viewcontent. cgi?article=1089&context=cmc_ theses [http://perma.cc/K9C8NZK7]. Rachel Griffith, Multinational firms, intellectual property and corporate income taxes, Inst. For Fiscal Studies (June 2014), https://taxpolicy.crawford.anu. edu.au/sites/default/files/events/ attachments/2014-07/140701_-_ rachel_griffith_01_july_2014.pdf [http://perma.cc/566Z-LWVK]. Charles Duhigg & David Kocieniewski, How Apple Sidesteps Billions in Taxes, N.Y. Times (Apr. 28, 2012), http://www.nytimes. com/2012/04/29/business/applestax-strategy-aims-at-low-taxstates-and-nations.html [http:// perma.cc/92US-4LGV]. Id. Sarah Churton, Ellis Lambert & Ian Dennis, The Impact of BEPS on Intangible Assets, Int’l Tax Rev. (Mar. 8, 2016), http:// www.internationaltaxreview.com/ Article/3535797/The-impact-ofBEPS-on-intangible-assets.html [http://perma.cc/E2WT-K22T]. John Henshall, Global Transfer Pricing: Principles and Practice, 1 (3rd ed. 2016). Jain, supra note 19, at 10 (explaining that “[a] multinational enterprise (MNE) is a company that is part of a ‘MNE Group.’ An MNE Group consists of related corporations or similar entities operating in more than one country.”). Henshall, supra note 26, at 3.

29. Jain, supra note 19, at 10; Jane G. Gravelle, Cong. Research Serv., R40623, Tax Havens: International Tax Avoidance and Evasion 19 (2015) (stating “study conducted by the US Congressional Research Service in 2015 indicates a significant increase in corporate profit shifting over the past several years, and estimates losses from income shifting by multinational corporations are estimated at nearly $100 billion USD per year.”); UNCTAD, World Investment Report 2015 – Reforming I n t e r n at i o n a l I n v e s t m e n t Governance, 200, http://unctad. org/en/PublicationsLibrar y/ wir2015_en.pdf [http://perma. cc/CTV7-U6DX] (“Further, a study conducted by the UN C o n f e r e n c e o n Tr a d e a n d D e v e l o p m e n t ( U N C TA D ) in 2015 shows the amount of corporate profits shifted from developing countries is about $450 billion USD, and tax avoidance practices result in a significant leakage of development financing resources and an estimated $100 billion USD tax revenue loss per year for developing countries.”). 30. Raymond Wong &Tony Dong, Overview of Transfer Pricing in Hong Kong and China, 201, KWM (Nov. 27, 2015), https://www. chinalawinsight.com/2015/11/ articles/global-network/overviewof-transfer-pricing-in-hongkong-and-china/ [http://perma. cc/L24H-NKGN]. 31. Jain, supra note 19, at § 2. 32. Commission says Ireland Granted Undue Tax Benefits of up to €13bn to Apple, RTE, (Aug. 30, 2016, 23:55), https://www.r te.ie/ news/2016/0830/812819-appletax-ireland/ [http://perma.cc/ VG5P-FSAL]. 33. MNE Groups can minimize their taxes through three types of activities: tactical (profit shifting activities), operational (financial restructuring), and tax planning (MNE Group structure reorganization). Jain, supra note 19 (citing Russ O’Haver et al., Improving Deals with Transfer Pricing (Dec. 2004)). 34. Jesse Drucker & Brian Bowers, After a Tax Crackdown, Apple Found a New Shelter for its Profits, N.Y. Times (Nov. 6, 2017), http:// www.sciedu.ca/journal/index.php/ jms/article/viewFile/4744/2749

Currents 23.2 2019

35.

36.

37. 38. 39.

40. 41.

[http://perma.cc/H3X3-N8AZ] (explaining Apple has not released more recent estimates). About the Inclusive Framework on BEPS, OECD (May 2018), http://www.oecd.org/tax/beps/ beps-about.htm [http://perma. cc/FM6G-4ZPM] (“BEPS refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity. Although some of the schemes used are illegal, most are not. This undermines the fairness and integrity of tax systems because businesses that operate across borders can use BEPS to gain a competitive advantage over enterprises that operate at a domestic level. Moreover, when taxpayers see multinational corporations legally avoiding income tax, it undermines voluntary compliance by all taxpayers.”). OECD, Transfer Pricing Guidelines 2010 (2010), https:// www.ilsole24ore.com/pdf2010/ SoleOnLine5/_Oggetti_Correlati/ Documenti/Norme%20e%20 Tributi/2011/02/istruzioni-usosocieta-perdite-fiscali/ocse-lineeguida-2010-prezzi-trasferimento. pdf?uuid=3d4ba2c4-3c0b%3B%26gt%3BParagraph%20 1.63%20of%20the%20 OECD%20Guidelines%20 2 0 1 0 % 2 6 l t % 3 B / core:url%26gt%3B [http://perma. cc/5T78-U4FN]; see also OECD, Transfer Pricing Guidelines 2016 (2016), https://www. oecd-ilibrary.org/taxation/oecdtransfer-pricing-guidelines-formultinational-enterprises-and-taxadministrations-2017_tpg-2017en [http://perma.cc/68PT-U8T9]. Henshall, supra note 26, at 5, ¶1.18. Id. at ¶ 1.18-19. United Nations Practical Manual on Transfer Pricing for Developing Countries, ST/ESA/347, 374 (2013), http://www.tpostwal. in/downloads/UN_Transfer_ Pr i c i n g _ M a n u a l _ 2 0 1 3 . p d f [http://perma.cc/CGJ8-YBCM] [hereinafter United Nations Practical Manual on Transfer Pricing for Developing Countries]. Jain, supra note 19, at 11. Id. at 10 (stating “IP-related financial problems widely exist in commercial practices, valuation, and accounting as well as in attribution of income for tax purposes’, ‘transfer pricing of IP is a major area of dispute and litigation.’”); see also Davis

42. 43.

44. 45. 46.

47.

48. 49.

50. 51.

Tax Committee, Addressing Base Erosion and Profit Shifting in South Africa Davis Tax Committee Interim Report—Action 8: Assure Transfer Pricing Outcomes are in line with Value Creation with regard to Intangibles 2, http:// www.taxcom.org.za/docs/New_ Folder/6%20DTC%20BEPS%20 Interim%20Report%20on%20 Action%20Plan%208%20 -%20Transfer%20Pricing%20 of%20Intangibles,%202014%20 Deliverable.pdf [http://perma. cc/BC9Q-F3QT] (stating “ [p]rofit shifting which involves the use of IP has two important characteristics: Firstly, it is a driver of value creation in multinational firms. Secondly, because IP is highly mobile, it plays an important role in international profit shifting.”). Jain, supra note 19, at 12. Orly Mazur, Transfer Pricing Challenges in the Cloud, 57 B.C. L. Rev. 643, 675 (2016) [hereinafter Transfer Pricing Challenges in the Cloud]. Id. Id. Thomas Kaplan & Alan Rappeport, Republican Tax Bill Passes Senate in 51-48 Vote, N. Y. Times (Dec. 19, 2017), https://www.nytimes. com/2017/12/19/us/politics/taxbill-vote-congress.html [http:// perma.cc/9B82-J7TH]. Broken at the Top: How America’s D y s f u n c t i o n a l Ta x S y s t e m Costs Billions in Corporate Tax Dodging 3, Oxfam Am. (2016), https://www.oxfamamerica. org/static/media/files/ Broken_at_the_Top_FINAL_ EMBARGOED_4.12.2016.pdf [http://perma.cc/ZLK9-CK9K]; see also Annual Reports, Oxfam Int’l, https://www.oxfam.org/ en/annual-reports [http://perma. cc/9Y5N-QE2W]. See supra note 35. BEPS 2015 Final Reports - Final BEPS Package for Reform of the International Tax System to Tackle Tax Avoidance, OECD (2015), http://www.oecd.org/ctp/beps2015-final-reports.htm [http:// perma.cc/AX66-CLRP]. Jain, supra note 19, at 12. Walter Diamond, et. al., Tax Havens of the World 1 at Intro – 2 (1974); Paul E.W. Roper & Julian Ware, Offshore Pitfalls 9 (2010); Lynette Olivier & Michael Honiball, International Tax: A South African Perspective (5th ed. 2011) [hereinafter Olivier & Honiball]; see also Sarah Churton et al., The Impact

52. 53. 54.

55.

56.

57. 58. 59.

60.

Currents 23.2 2019

of BEPS on Intangible Assets, EY Tax Insights (Apr. 21, 2016), https://taxinsights.ey.com/archive/ archive-articles/the-impact-ofbeps-on-intangible-assets.aspx [http://perma.cc/UW8F-7TK8]. Jain, supra note 19, at 12. See generally Olivier & Honiball, supra note 51. Memorandum: Offshore Profit Shifting and the U.S. Tax Code – Part 2 (Apple Inc.): Hearing Before the Permanent Subcomm. on Investigations of the Comm. on Homeland Sec. and Gov’t Aff. U.S. S., 103rd Cong. (2013), https://www.gpo.gov/ fdsys/pkg/CHRG-113shrg81657/ pdf/CHRG-113shrg81657.pdf [http://perma.cc/JYN5-9PAX ] [hereinafter Memorandum: Offshore Profit Shifting]. Mark P. Keightley & Jeffrey M. Stupak, Cong. Research Serv., R44013, Corporate Tax Base Erosion and Profit Shifting (BEPS): An Examination of the Data 9 (2015), https://fas.org/ sgp/crs/misc/R44013.pdf [http:// perma.cc/E4QH-H3KL]. C a r o l i n e D o g g a rt , Ta x H av e n s a n d Th e i r U s e s : Spec. Rept. No. 1191, 36-37 (1990); see also Brian J. Arnold, The Taxation of Foreign Controlled Corporations: An International Comparison, 121 (1986) (stating “[f ]ees derived by the licensing and patent holding company from the exploitation of the intellectual property will be either exempt from tax or subject to a low tax rate in the tax-haven jurisdiction.”). Jain, supra note 19, at 12. Id. Present Law And Background Related To Possible Income Shifting And Transfer Pricing: Before the H. Comm. on Ways and Means, 111th Cong. 23 (2010), https:// w w w. j c t . g o v / p u b l i c a t i o n s . html?func=startdown&id=3692 [http://perma.cc/8MRB-RRD2] (stating “[t]reasury regulations issued in 1994 sets forth the basic rules for determining income in connection with a transfer of intangible property. These regulations generally provide that the arm’s length consideration for the transfer of an intangible in a controlled transaction (i.e., a transaction between related entities) must be commensurate with the income attributable to the intangible, and it requires taxpayers to apply one of four methods to meet this requirement.”). Ap p l y i n g t h e Ar m ' s L e n g t h Principle, Austl. Taxation Off. (July 24, 2018), https://www.

61.

62.

63.

64. 65. 66.

67.

68.

ato.gov.au/print-publications/ international-transfer-pricing--introduction-to-concepts-andrisk-assessment/?page=3 [http:// perma.cc/WVD6-ZGHH]. Ar m’s-Length Principle , US Transfer Pricing, http://www. ustransferpricing.com/arms_ length_principle.html [http:// perma.cc/W7RE-PCD2] (last visited July 14, 2018) (“The ‘arm'slength principle’ of transfer pricing states that the amount charged by one related party to another for a given product must be the same as if the parties were not related.”); see also LB&I International Practice Service Transaction Unit, I.R.S. 20 (Sept. 3, 2014), https://www. irs.gov/pub/int_practice_units/ ISI9422_09_06.PDF [http:// perma.cc/9RS7-XVP4]. Haining Song, et al., IP Solutions to Multinationals’ Tax Avoidance Strategy, PatentExpressO (July 25, 2014), http://www.patentexp. com/?p=547 [http://perma.cc/ ET3H-BEZC]. Transfer Pricing Challenges in the Cloud, supra note 43, at 673; see also Addressing Base Erosion and Report Shifting, OECD 20 (2013) (“Increased segregation between the location where actual business activities and investment take place and the location where profits are reported for tax purposes.”). Jain, supra note 19, at 12. Id. at 13. Id. at 12 (citing Ronald A. Dye, Cost-Sharing Agreement A taxsaving device of multi-nationals, Kellogg Insight (Apr. 1, 2008), https://insight.kellogg. northwestern.edu/article/cost_ sharing_agreements [http://perma. cc/WW48-R7VS]. Connie Guglielmo, Apple, Called A U.S. Tax Dodger, Says It's Paid ‘Every Single Dollar’ of Taxes Owed, Forbes (May 21, 2013), https://www.forbes.com/sites/ connieguglielmo/2013/05/21/ apple-called-a-tax-dodger-bysenate-committee-apple-sayssystem-needs-to-be-dramaticallysimplified/#555a2f6b3384 [http://perma.cc/BQ4U-4GS5]; see also Memorandum: Offshore Profit Shifting, supra note 54. Jain, supra note 19 at 13 (Transfer pricing is also the most significant tax issue in many developing countries, such as China.); see Jingyi Wang, The Chinese Approach to Transfer Pricing: Problems Faced and Paths to Improvement, Issue 1 Brit. Tax Rev. 89 (2016) (University of Hong Kong Faculty of Law Research Paper No. 2016/016), https://ssrn.com/

69. 70. 71.

72. 73.

74. 75. 76.

77. 78.

79.

80. 81. 82.

83.

abstract=2778450 [http://perma. cc/C7FX-8RG4] ("China has suffered heavy revenue loss from transfer pricing manipulation.”). United Nations Practical Manual on Transfer Pricing for Developing Countries, supra note 39, at 374. Jain, supra note 19, at 12. See OECD Transfer Pricing Guidelines, OECD 262 (2010), https://www.ilsole24ore.com/ pdf2010/SoleOnLine5/_Oggetti_ Correlati/Documenti/Norme%20 e%20Tributi/2011/02/istruzioniu s o - s o c i e t a - p e rd i t e - f i s c a l i / ocse-linee-guida-2010-prezzitrasferimento.pdf [http://perma. cc/6Z7T-Q5Z2]. Jain, supra note 19, at 15. Id. at 14-15; see also Michelle Wills, The Tax Treatment of Intangibles in the Context of Transfer Pricing, 9 Revenue L. J. 12 (1999) (stating “The OECD recognizes that the value of marketing intangibles depends on many factors, such as the historical quality and services provided under the name or the mark, the degree of quality control and ongoing R & D, the availability of the goods or services being marketed as well as the extent and success of promotional expenditures.”). Jain, supra note 19 at 14-15. Id. Eugene E. Lester, International Tr a n s f e r P r i c i n g R u l e s : Unconventional Wisdom, 2 ILSA J. of Int’l & Comp. L. 283, 296 (1995). Germany: Hypothetical, supra note 5. International Type Search, IP Austl. (May 30, 2016), https:// www.ipaustralia.gov.au/patents/ applying-patent/provisionalapplication-what-include/ international-type-search [http:// perma.cc/VZ9V-Q5MW]. Decide if you have a standard patent, IP Austl. (May 30, 2016), https:// www.ipaustralia.gov.au/patents/ applying-patent/standard-patentapplication-process [http://perma. cc/W9M9-CX9E]. Id. Id. U.N. Transfer Pricing Manual, State Administration of Taxation (“SAT”) People’s Republic of China Views on Service Fees and Management Fees (2014), https://www.un.org/esa/ffd/ wp-content/uploads/2014/10/ t a - t p - C o m m e n t s P RC . p d f [http://perma.cc/SA9C-VDNN] [hereinafter SAT, Views on Service Fees]. Sophie Glover, What is the Difference Between an IP Licence

84.

85.

86. 87. 88.

89. 90.

91.

92.

and an Assignment?, Legal Vision (Apr. 12, 2018), https:// legalvision.com.au/what-is-thedifference-between-an-ip-licenceand-an-assignment/ [http://perma. cc/E4JG-3HWG] (Explaining an IP holder/owner is the licensor and has the right to licence its IP to a licensee. IP Licensing ensures that the IP ownership remains with the licensor. Unlike IP licensing, an IP assignment is an irrevocable and permanent transfer of IP ownership. It is the sale or transfer of IP ownership from an owner (assignor) to the purchaser (assignee)). See generally Richard L. Doernberg, Ta x a t i o n S i l o s : E m b e d d e d Intangibles and Embedded Services Under U.S. Law, 41 Tax Notes Int’l 561 (2006); see also Jain, supra note 19, at 15. See Microsoft, https://www. microsoft.com/en-au/store/d/ office-365-home/CFQ7TTC0K5 DM/007R?OCID=AID620866_ SEM___EFID_&s_kwcid=AL!4 249!3!189010908626!!!g!432148 445447!&ef_id=WPcwLgAAAbi HMny5%3a20180207070506% 3as&activetab=pivot:overviewtab [http://perma.cc/ZC3E-DCYB]. Id. See discussion supra §3.2. U.N., Econ. & Soc. Council, Comm. of Experts on Int’l Cooperation in Tax Matters on its Tenth session, U.N Doc. E/C.18/2014/6, at 10 (Dec. 15, 2014), http://www. un.org/ga/search/view_doc. sp?symbol=E/2014/45&Lang=E [http://perma.cc/KT53-CFJL]; see also SAT, Views on Service Fees, supra note 82, at 5. See discussion infra §4.1. Jovan Krstić & Milica Đorđević, Financial Reporting on Intangible Assets – Scope and Limitations, 7 (3) F.U. Econ. and Org., 335-36 (2010), http://facta.junis.ni.ac. rs/eao/eao201003/eao20100308.pdf [http://perma.cc/DE3UHNZR] [hereinafter Krstić & Đorđević, Intangible Assets]. Multinational enterprises ( M N Es ) , Th e I n n ovat i o n Policy Platform, https://www. innovationpolicyplatform.org/ content/multinational-enterprisesmnes [http://perma.cc/W64VWEQF] (last visited Nov. 5, 2018). L o r r a i n e Ed e n e t a l . , T h e Production, Transfer and Spillover of Technology: Comparing Large and Small Multinationals as Technology Producers, 9(1) Small Bus. Econ. 53, 53-66 (1997); Reprinted in Small and Medium-sized

Enterprises in the Global Economy 121 (Zoltan J. Acs & Bernard Yeung eds., U. of Mich. Press, 1999) [hereinafter Eden, Technology Producers]. 93. Jain, supra note 19, at 16. 94. Thomas C Pearson, Proposed International Legal Reforms for Reducing Transfer Pricing Manipulation of Intellectual Property, 40(2) N.Y.U. J. Int’l L. & Pol. 541, 546 (2008) (referring to ‘IP’ recording in particular); see also John T. VanDenburgh, Closing International Loopholes: Changing the Corporate Tax Base to Effectively Combat Tax Avoidance, 47(1) Val. U. L. Rev. 313, 313-55 (2012) (discussing financial records in relation to intangibles). 95. Eden, Technology Producers, supra note 92, at 122 96. Krstić & Đorđević, Intangible Assets, supra note 90, at 336. 97. Eden, Technology Producers, supra note 92, at 122. 98. Jain, supra note 19, at 16. 99. Krstić & Đorđević, Intangible Assets, supra note 90, at 335. 100. See also Krstić & Đorđević, Intangible Assets supra note 90, at 335 (“Lack of relevant information on intangible assets (intellectual capital and the like) in the financial statements disables the possibility for external users to perceive real value of the company and adequate decision making.”). 101. United Nations Practical Manual on Transfer Pricing for Developing Countries, supra note 39, at 36882, ¶ 10.3.2.3. 102. Id. at 376. 103. Id. 104. International Transfer Pricing 2013/14, PWC, 344-45, https://www.pwc.com/gx/en/ international-transfer-pricing/ assets/china.pdf [http://perma.cc/ ZWD2-DS3G]. 105. Id. 106. Xinhua, China announces tax cuts worth 60 bln yuan for innovative, small businesses, China Daily (Apr. 26, 2018), http://www. chinadaily.com.cn/a/201804/26/ WS5ae0aa70a3105cdcf651a7cc. html [http://perma.cc/AR8QUUBJ]. 107. Id. 108. Types of Patents, IP Austl. (May 30, 2016) (explaining the term of protection for standard patent is 20 years in many countries), https://www.ipaustralia.gov.au/ patents/understanding-patents/ types-patents [http://perma.cc/ QFP4-Y9KV]. 109. OECD, About the Inclusive Framework on BEPS, (May 2018), http://www.oecd.org/tax/

beps/beps-about.htm [http:// perma.cc/T8DC-RHH5]; see also OECD, Aligning Transfer Pricing Outcomes with Value Creation, Actions 8-10 - 2015 Final Reports, (Oct. 5, 2015), http://dx.doi. org/10.1787/9789264241244-en [http://perma.cc/4JJS-SAFZ] or http://www.oecd.org/ctp/aligningtransfer-pricing-outcomes-withvalue-creation-actions-8-10-2015final-reports-9789264241244en.htm [http://perma. cc/9423-PCWX] [hereinafter OECD Aligning Transfer]; see also OECD, Transfer Pricing Documentation and Country-byCountry Reporting, Action 13 - 2015 Final Report, (Oct. 5, 2015), http://www.oecd.org/tax/ transfer-pricing-documentationand-country-by-countryreporting-action-13-2015-finalreport-9789264241480-en.htm [http://perma.cc/U8NL-4XXL]. 110. O E C D , B E P S A c t i o n 8 Implementation Guidance on Hard-to-Value Intangibles, 1 (2017), https://www.oecd. org/ctp/transfer-pricing/BEPSimplementation-guidanceon-hard-to-value-intangiblesdiscussion-draft.pdf [http:// perma.cc/G5UC-SGBS] 111. OECD Members of the Inclusive Framework on BEPS, 1-2 (2018), http://www.oecd.org/tax/beps/ inclusive-framework-on-bepscomposition.pdf [http://perma. cc/A5GL-BSKA]. 112. Sissie Fung, The Questionable Legitimacy of the OECD/G20 BEPS Project, 2 Erasmus L. Rev. 76 (2017), http:// w w w. e r a s m u s l a w r e v i e w. n l / tijdschrift/ELR/2017/2/ ELR_2017_010_002.pdf [http:// perma.cc/86ZL-AXMW]. 113. Raymond Wong & Tony Dong, Overview of Transfer Pricing Issues in Hong Kong and China, KWM (Nov. 26, 2015), http://www. kwm.com/en/knowledge/insights/ overview-of-transfer-pricing-inhk-and-china-20151126 [http:// perma.cc/2LD9-66NA] (“[T]he Chinese tax authorities have made reference to certain principles under the OECD Transfer Pricing Guidelines” in an increasing number of TP investigations in recent years.). 114. The People’s Republic of China Transfer Pricing Country Profile, OECD, https://www.oecd.org/ tax/transfer-pricing/transferpricing-country-profile-china.pdf [http://perma.cc/2TRA-XRVG] (last visited Feb. 2018); see also SAT Public Notice [2017] No. 6, http://www.chinatax.gov.cn/

Currents 23.2 2019

download/pdf/20171122.pdf [http://perma.cc/CP6R-Q6B5] [hereinafter Public Notice 6]. 115. China’s SAT issues new rules to improve administration of special tax investigations and Mutual Agreement Procedures, Deloitte 1 (Apr. 6, 2017), https://www2. deloitte.com/content/dam/ Deloitte/global/Documents/Tax/ dttl-tax-global-transfer-pricingalert-17-012-6-april-2017.pdf [http://perma.cc/R4Y3-YQFZ] [hereinafter Deloitte China’s SAT issues]; see also Ernst & Young, Administration Measures for Special Tax Adjustments: Trial Implementation, Guoshuifa No. 2 (Jan. 8, 2009) (the SAT sets out more detailed transfer pricing rules); see generally Li, Jinyan, Tax Transplants and Local Culture: A Comparative Study of the Chinese and Canadian GAAR, 11(2) Theoretical Inquiries In L. 655-686 (2010), https:// digitalcommons.osgoode.yorku. ca/scholarly_works/430/ [http:// perma.cc/7MQD-GFZF]. 116. OECD Aligning Transfer, supra note 109. 117. SAT Public Notice [2016] No. 42 (June 26, 2016), http://www. tax.sh.gov.cn/pub/xxgk/zcfg/ ssxd/201607/t20160713_425681. html [http://perma.cc/Q5CY3WLX] (see in Chinese国家税务总局关于完善关联申报和同期资料管理有关事项的公告) [hereinafter Public Notice 42]. 118. Id. at 6 (stating that article 12 explicitly requires that any enterprise that meets the criteria for preparing a Master File needs to provide “an overview of the global business operations of the MNE group to which the ultimate holding company belongs.”). 119. Id. 120. OECD, Base Erosion and Profit Shifting Action 8-10: Revised Guidance on Profit Splits, Part I, 15 (Sept. 8, 2016), http://www. oecd.org/ctp/transfer-pricing/ Comments-on-discussiondraft-beps-action-8-10-revisedguidance-on-profit-splitsP1.pdf [http://perma.cc/JH29-PM3B] [hereinafter BEPS Action 8-10]; see also OECD, BEPS Action Plan 10 Revised Guidance on Profit SplitsPart I, (Oct. 4, 2017), https:// www.oecd.org/ctp/transferpricing/Compilation-revisedguidance-profit-splits-2017.pdf [http://perma.cc/E6SK-4ZB3]. 121. Public Notice 42, supra note 117, at 11. 122. SAT Public Notice [2016] No. 64 (Oct. 18, 2016), http:// www.chinatax.gov.cn/n810341/

n810755/c2292979/content.html [http://perma.cc/JT5H-DFX2] (explaining the Announcement on the Improvement of Matters Related to the Management of the APA) (see in Chineses关于完善预约定价安排管理有关事项的公告) [hereinafter Public Notice 64]; see also Eunice Kuo et al., SAT Issued New Rules to Improve Administration of Advance Pricing Arrangements Tax Analysis Issue P248/2016, Deloitte (Oct. 18, 2016), https://www2.deloitte. com/content/dam/Deloitte/cn/ Documents/tax/ta-2016/deloittecn-tax-tap2482016-en-161018. pdf [http://perma.cc/P2S8LZQF]. 123. PWCCN, SAT’s New Rules on Advance Pricing Arrangements Reflect its New Thinking on Tax Administration, News Flash: China Tax and Bus. Advisory 29 (Oct. 11, 2016), https://www.pwc. com.au/tax/taxtalk/assets/alerts/ sat-advance-pricing-arrangementsoct16.pdf [http://perma.cc/ RHN4-TAGG] [hereinafter PWCCN SAT’s New Rules]. 124. Public Notice 64, supra note 122; see also Matthew Mui, Tax Legislation-China, PWC Int’l Tax News 46 (Dec. 2016), https://www.pwc.com/gx/en/tax/ newsletters/international-taxservices/assets/pwc-internationaltax-news-december-2016.pdf [http://perma.cc/F3QL-P95G]. 125. Id. 126. PWCCN SAT’s New Rules, supra note 123 (further stating “[t]his change may have limited impact on unilateral APA applications. For bilateral or multilateral APA applications, however, the impact may be more significant, as changes to an enterprise’s applications in China will affect its related parties’ application in other countries.”). 127. Public Notice 64, supra note 122, at art. 6. 128. Id. at 6.2,vii. (“Value chain or supply chain analysis, as well as consideration of regional special advantages such as cost savings and market premiums…”) (“…价值链或者供应链分析，以及对成本节约、市场溢价等地域特殊优势的考虑..”). 129. A ction 1 on T ax C hallenges of the Digital Economy -2015 Final Report, OECD/G20 BEPS Project 92 (2015), http://www. oecd.org/tax/addressing-thetax-challenges-of-the-digitaleconomy-action-1-2015-finalreport-9789264241046-en.htm [http://perma.cc/3DQN-PZUE] [hereinafter OECD Action 1]; see also OECD Aligning Transfer,

supra note 109, at 55, 57-58. 130. Public Notice 6, supra note 114 (explaining the Public Notice of the State Administration of Taxation on Issuing the Administrative Me a s u r e s f o r Sp e c i a l Ta x Investigation and Adjustment and Mutual Agreement Procedures) ( 为深入贯彻落实《深化国税、地税征管体制改革方案，进一步完善特别纳税调查调整及相互协商程序管理工). 131. Shi, supra note 7. 132. Transfer Pricing Method, Centre for Tax and Policy Administration, OECD 2 (2010), http:// www.oecd.org/ctp/transferpricing/45765701.pdf [http:// perma.cc/82WB-JKD5]. 133. See Public Notice 6, supra note 114, at 21 (“Other methods that satisfy the arm’s length principle include asset valuation methods applying cost approach, or income approach, and methods that reflect the basic principle that profit attribution aligns with economic substance and value creation.”). ( 第二十二条其他符合独立交易原则的方法包括成本法、市场法和收益法等资产评估方法，以及其他能够反映利润与经济活动发生地和价值创造地相匹配原则的方法). 134. Deloitte China’s SAT issues, supra note 115, at 4. 135. Action Plan on Base Erosion and Profit Shifting, OECD 1-11 (2013), http://www.oecd. org/ctp/BEPSActionPlan.pdf [http://perma.cc/R8R4-WAVZ] [hereinafter OECD BEPS Action Plan]; see also Transfer Pricing Challenges in the Cloud, supra note 43, at 646. 136. Transfer Pricing Challenges in the Cloud, supra note 43, at 679; see also OECD Aligning Transfer, supra note 109, at 20-21. 137. See OECD Action 1, supra note 129, at 92; see also OECD Aligning Transfer, supra note 109, at 55, 57-58. 138. Public Notice 6, supra note 114, at 19. 139. Id.; see also OECD Aligning Transfer, supra note 109, at 57. 140. OECD Aligning Transfer, supra note 109, at 55 (“Action 10 of the BEPS Action Plan invites clarification of the application of Transfer Pricing methods, in particular the transactional profit split method, in the context of global value chain.”); see also Christiana HJI Panayi, Advanced Issues in International and E uropean T ax L aw 12129 (2015) (“It was conceded in the Profit Split Discussion Draft that transactional Profit 24

Currents 23.2 2019

split methods may be viewed as a mean of achieving closer alignment between profits and value creation.”). 141. Public Notice 6, supra note 114, at 19 (“Where it is difficult to obtain information on comparable transactions but reasonably easy to determine the consolidated profit, factors relevant to value contribution such as income, cost, expenses, assets, and employee headcount can be used, taking into account the circumstances, to analyse value contribution made by each party and allocate profits accordingly.”) (“…当难以获取可比交易信息但能合理确定合并利润时，可以结合实际情况考虑与价值贡献相关的收入、成本、费用、资产、雇员人数等因素，分析关联交易各方对价值做出的贡献，将利润在各方之间进行分配…”). 142. Bret Wells & Cym Lowell, Tax Base Erosion: Reformation of Section 482’s Arm’s Length Standard, 15 Fla. Tax Rev. 737, 761 (2014); see also Transfer Pricing Challenges in the Cloud, supra note 43, at 680. 143. Deloitte China’s SAT issues, supra note 115, at 8. 144. TaxTalk—Insights, Roundup of Australia’s BEPS developments, PCW1 (Apr. 12, 2017), https:// www.pwc.com.au/tax/taxtalk/ assets/alerts/taxtalk-roundupof-australia-beps-developmentsapril-2017.pdf [http://perma. cc/ZP7S-F7NN] [hereinafter TaxTalk—Insights Roundup]. 145. Combating Multinational Tax Avoidance Act 2015 (Cth) sch 4— Tax Laws Amendment (Austl.). 146. Strengthening transfer pricing rules, Australian Taxation Office, https:// www.ato.gov.au/General/Newlegislation/In-detail/Other-topics/ International/Strengtheningtransfer-pricing-rules/ [http:// perma.cc/9MXY-KYDG] (last modified May 2, 2017)[hereinafter ATO ] ; s e e a l s o C o m b a t i n g Multinational Tax Avoidance Act 2017 (Cth) sch 3—Treasury Laws Amendment (Austl.). 147. See ATO, supra note 146 (arguing that moreover, ATO has “begun work on similarly updating ATO guidance so that it now refers to the latest guidelines” and reviewed its “[t]ransfer pricing simplification measures to ensure that the two will align with the updated guidelines.”); see also Lara Bullock, ATO issues update on BEPS progress, Accounts Daily (May 19, 2017), https:// www.accountantsdaily.com.au/ tax-compliance/10253-ato-issuesupdate-on-beps-progress [http://

perma.cc/JLZ3-9TFR] (stating “[t]he ATO delivered an update on its progress in implementing the 15 action items stipulated under the OECD’s Base Erosion and Profit Shifting program.”). 148. David Byers, Flawed Diverted Profits Tax is Bad Law, Minerals (Mar. 23, 2017), https://www. minerals.org.au/flawed_diverted_ profits_tax_is_bad_law [http:// perma.cc/6AF8-DQRZ] (stating, “[t]he Committee has effectively endorsed Australia ‘going it alone’ on a unilateral measure outside the OECD’s Base Erosion and Profit Shifting (BEPS) project.”). 149. Na s s i m K h a d e m , Au s t ra l i a now officially has a ‘Google tax’: Diverted Profits Tax law passed Parliament, Sydney Morning H e r a l d , h t t p : / / w w w. s m h . com.au/business/the-economy/ australia-now-officially-has-agoogle-tax-diverted-profits-taxlaws-pass-parliament-20170328gv83va.html [http://perma.cc/ DPB5-CFBF] (Last updated Mar. 28, 2017) [hereinafter Khadem]. 150. Combating Multinational Tax Avoidance Act 2017 (Cth) Treasury Laws (Austl.); see also Diverted Profits Tax Act 2017 (Cth) (Austrl.) [hereinafter Combating Multinational Tax Avoidance Act 2017]; see also Hon S. Morrison, Turnbull Government continues crackdown on multinational tax avoiders’ Media Release, Austl. Gov’t (Feb. 9, 2017), http://sjm. ministers.treasury.gov.au/mediarelease/009-2017/ [http://perma. cc/P426-BPFD]. 151. TaxTalk—Insights Roundup, supra note 144, at 4-5. 152. Zara Ritchie, Technical Updates: Australian Transfer Pricing Alert - Diverted Profits Tax, BDO (Dec. 22, 2016), https://www.bdo.com. au/en-au/insights/tax/technicalupdates/australian-transferpricing-diverted-profits-tax [http://perma.cc/4KC4-4AMF] [hereinafter Ritchie Technical Updates]. (“[T]he introduction of the DPT is the biggest change in Australia’s GAAR since their introduction 35 years ago.”) 153. TaxTalk—Insights, Multinationals faced with new tax measures introduced into Parliament, PCW 1 (Feb. 10, 2017), https://www.pwc. com.au/tax/taxtalk/assets/alerts/ taxtalk-alert-multinationals-facedwith-new-tax-measures-feb17. pdf [http://perma.cc/CW8RSQUK] (last visited Feb. 10, 2017) [hereinafter PWC Multinationals]. 154. Zara Ritchie, Australian Transfer Pricing Alter: Diverted Profits Tax Bill Now in Parliament, BDO 2

166. Australia Releases Draft, supra note 164. 167. McCormack et al., supra note 156, at 6. 168. Id. 169. Id. at 1, 6. 170. Australia Releases Draft, supra note 164. 171. Joanna Mather, Diverted profits tax ‘draconian’, Austl. Fin. Rev. (Jan. 17, 2017), http://corptax.com.au/ wp-content/uploads/2017/01/ Diverted-profits-tax-AFR-17Jan-2017.pdf [http://perma. cc/57YE-5C86] [hereinafter Mather Diverted Profits Tax]. 172. Nielson, supra note 160. 173. See discussion supra § 4.1 B. 174. Combating Multinational Tax Avoidance Act 2017, supra note 150. 175. See generally discussion supra § 3.2. 176. See discussion supra § 4.1 B. 177. Chris Berg, Diverted Profits Tax Will Go Nowhere, Austl. Fin. Rev. (Mar. 28, 2017), http://chrisberg. org/2017/03/diverted-profits-taxwill-go-nowhere/ [http://perma. cc/EP2J-XXGY]. 178. See Khadem, supra note 149. 179. TaxTalk—Insights, Diverted Profits Tax: Australia passes new law to combat multinational tax avoidance, PWC (Mar. 29, 2017), http://www.pwc.com.au/tax/ taxtalk/assets/alerts/dpt-australiacombat-multinational-taxavoidance29mar17.pdf [http:// perma.cc/D54R-5DKH]. 180. Ritchie Technical Updates, supra note 152, at 1. 181. Julian Pinson & Graeme Cooper, Australia’s 2016-17 Budget Tax Brief, Greenwoods 5 (May 4, 2016), http://www.greenwoods. com.au/media/1776/australias-2016-17-budget.pdf [http:// perma.cc/4EWN-87P3]. 182. See discussion supra Part IV 4.2. 183. Tony Frost et al., Submission on Proposed Diverted Profits Tax Discussion Paper, Greenwoods 28 (June 24, 2016), http://www. greenwoods.com.au/media/1794/ dpt-submission.pdf [http://perma. cc/GK77-42MF] (“The DPT is likely to be viewed as a strongly negative factor for investment in Australia.”). 184. See TaxTalk—Insights, Submission – Exposure Draft Legislation Implementing the Diverted Profits Tax, PWC 6 (Dec. 23, 2016), http://www.pwc.com.au/tax/ assets/365/pwc_submission_dpt_ ed_2016.pdf [http://perma.cc/ THK7-TGN2]. 185. S t e p h a n S c h n o r b e r g e r , L a r a H a v e r k a m p , & Je n s Rubart, Sweeping Changes of German Tax Rules on Transfer

(Feb. 2017) [hereinafter Ritchie Diverted Profits]. 155. Id. at 2. 156. Jock McCormack et al., Tax Update: The Australian Government s i g n i f i c a n t l y e x p a n d s ATO powers to fight multinational tax avoidance: Legislation introduced for 40 per cent Diverted Profits Tax (DPT), DLAPiper (Mar. 31, 2017), https://www.dlapiper. com/en/australia/insights/ publications/2017/02/legislationintroduced-for-40-per-cent-dpt/ [http://perma.cc/5EX7-NZWU] [hereinafter McCormack et al.] 157. Id. 158. E r n s t & Yo u n g , Ta c k l i n g Multinational Tax Avoidance: Implementing a Diverted Profits Tax Submission – Discussion Paper, Static Treasury 3 (May 3, 2016), https://static.treasury. gov.au/uploads/sites/1/2017/06/ C2016-018_EY.pdf [http:// perma.cc/7WXM-MQG4] [hereinafter Ernst & Young Tackling Multinational Tax]. 159. TaxTalk—Insights, supra note 153, at 1. 160. Joanna Mather, Diverted profits tax will have serious implications, Austl. Fin. Rev. (May 4, 2016), http://www.afr.com/news/policy/ budget/diverted-profits-taxwill-have-serious-implications20160504-golsj8#ixzz4orLjCyft [http://perma.cc/K3FT-28AD] [hereinafter Mather Diverted Profits Will]; see also Les Nielson, Diverted profits tax ‘Google tax’ Budget Review 2016–17 Index, APH (May 2016), http://www. aph.gov.au/About_Parliament/ Parliamentary_Departments/ Parliamentary_Library/pubs/ rp/BudgetReview201617/ ProfitTax#_ftnref10 [http:// perma.cc/9MH5-ZGQH] [hereinafter Nielson]. 161. Ritchie Diverted Profits, supra note 154, at 2. 162. E r n s t & Yo u n g Ta c k l i n g Multinational Tax, supra note 158, at 3. 163. Mather Diverted Profits Will, supra note 160, 164. Amrit MacIntyre and Dixon Hearder, Australia Releases D ra f t D i ve r t e d Pro f i t s Ta x Legislation, LEXOLOGY (Nov. 2 9 , 2 0 1 6 ) , h t t p s : / / w w w. lexology.com/librar y/detail. aspx?g=22e772d7-07c5-459a98b0-036b907569ff [http:// perma.cc/9FQG-VS98] [hereinafter Australia Releases Draft].[hereinafter Australia Releases Draft]. 165. McCormack, et al., supra note 156, at 6.

Pr i c i n g , Ba k e r M c K e n z i e (Dec. 1, 2016), https://www. bakermckenzie.com/-/media/files/ insight/publications/2018/01/ a l _ g e r m a n y _ sweepingchangestprules_jan18. pdf?la=en [http://perma.cc/E8R8PXZG]; see also Axel Eigelshoven & Gerrit Halbach, German Transfer Pricing Developments in Light of BEPS Implementation, Germany PWC (July 13, 2017), https://www.expertguides.com/ articles/german-transfer-pricingdevelopments-in-light-of-bepsimplementation/ARISNBNQ [http://perma.cc/PB3G-4F4S] [hereinafter Eigelshoven & Halbach]; see also Germany Transfer Pricing Country Profile, OECD (Oct. 2017), https://www.oecd. org/tax/transfer-pricing/transferpricing-country-profile-germany. pdf [http://perma.cc/3YA6RML5] [hereinafter OECD Germany Transfer]. 186. Eigelshoven & Halbach, supra note 185. 187. Id. 188. Andreas Köster-Böckenförde & Alexa Clauss, Germany: Transfer Pricing Of Intangibles, Mondaq (Oct. 16 2009), http://www. mondaq.com/germany/x/87748/ Tr a n s f e r + P r i c i n g / Transfer+Pricing+Of+Intangibles [http://perma.cc/MNR4-CH78] [hereinafter Köster-Böckenförde & Clauss]. 189. Id. 190. Id. 191. OECD Germany Transfer, supra note 185. 192. Köster-Böckenförde & Clauss, supra note 188. 193. Id. 194. Germany: Hypothetical, supra note 5. 195. Id. (“[T]he hypothetical arm'slength test implies that, …the transfer pricing analysis must in fact constitute an effective profit split analysis in consideration of profit expectations of both parties and a common understanding of all underlying fact and circumstances.”). 196. Id.; see also Transfer Pricing Country Profile – Germany, OECD 1 (Jan. 2018), https://ec.europa.eu/ taxation_customs/sites/taxation/ files/ttpprofile-de.pdf [http:// perma.cc/649G-5TU3]. 197. Germany: Hypothetical, supra note 5. 198. Id. 199. Id. 200. Id. 201. Köster-Böckenförde & Clauss, supra note 188; see also Andreas Oestreicher, Comment on the

Currents 23.2 2019

Scoping of a Future Croject on the Transfer Pricing Aspects of Intangibles - Special considerations for Intangible Property According to the Current OECD Transfer Pricing Guidelines, 5 (OECD), h t t p : / / w w w. o e c d . o r g / t a x / transfer-pricing/46224097.pdf [http://perma.cc/9N2J-5ZVM] [hereinafter Oestreicher]. 202. See Köster-Böckenförde & Clauss, supra note 188; see also Oliver Rosenberg, Florian Lechner & Kirsten Placke, Transfer pricing in Germany, Lexology (June 5 2018), https://www.lexology. com/navigator#!results/612/view [http://perma.cc/28LC-VFCQ]. 203. Köster-Böckenförde & Clauss, supra note 188. 204. Andreas Bullen, Arm’s length transaction structures: Recognizing and restructuring controlled transactions in transfer pricing – Summary, Europa 21-22 (2011), http://ec.europa.eu/taxation_ customs/sites/taxation/files/ resources/documents/taxation/ gen_info/conferences/andreas_ bullen_summary.pdf [http:// perma.cc/7C9C-P5QC]. 205. Germany: Hypothetical, supra note 5. 206. Id. 207. Id. 208. Id. 209. Id. 210. Id. 211. Id. 212. OECD Aligning Transfer, supra note 109, at 57. 213. See generally Germany: Hypothetical, supra note 5. 214. Id. 215. Oestreicher, supra note 201, at 11. 216. United Nations Practical Manual on Transfer Pricing for Developing Countries, supra note 39, at 380 ¶ 10.3.4.2. 217. OECD BEPS Action Plan, supra note 135, at 10-11; see Transfer Pricing Challenges in the Cloud, supra note 43, at 646. 218. See generally Oestreicher, supra note 201, at 10. 219. Id. 220. See discussion supra § 4.3.A ¶5. 221. See generally discussion supra § 4.1.A. 222. Oestreicher, supra note 201, at 10.

Currents 23.2 2019

A Look Back at the Past Quarter Century of International Economic Law The last quarter century of international economic law (1993-2018) was crucial for creating our current international trading system. During this period, there was a vast increase in legal rulemaking and in technological innovation. First, this period saw the establishment of international organizations and legal arrangements that dictated the rules of the global system. Second, many of the ways companies, consumers, governments, and institutions share information as well as buy and engage in commerce altered during this time. A new digital platform via the Internet developed during this period that transformed daily personal and commercial transactions. Finally, this same period also saw, with the Financial Crisis, the greatest disruption in economic activity and trade since the Great Depression of the 1930s. Most of the world has taken a decade struggling with austerity measures to recover. Consequently, this period of great change produced what many see as an inevitable backlash. International trade and investment rules, arrangements, and instiutions have come under attack and/or been put under strain. No countryâ&#x20AC;&#x201C;developed, developing or least-developedâ&#x20AC;&#x201D;has been left unaffected. Our authors explore the developments and shifts noted above and how they affected different countries and constituencies. It is our hope that these article offer some views of the last quarter century of international economic law and some insight into how it may continue to alter moving forward.

Currents 23.2 2019

*Image attributions on page 86

Currents 23.2 2019

Globalization and Economic Integration: What No One Saw Until They Couldn't Help It S A R A

D I L L O N

human rights, the public interest and job

North American Free Trade Agreement

Sara Dillon is a Professor of Law, Co-Director International Law Concentration and Director of International Programs at Suffolk University Law School

(NAFTA) and the World Trade Organization

workers in lower wage countries, a fight they

a par with sovereign governments. That more

(WTO), I was asked to construct a course

could not possibly win. That was inherent in

and more free trade might also impact the

in International Trade Law, something I did

the logic of deep cuts to tariff and non-tariff

global environment in frightening ways was

with enthusiasm and also a certain degree

barriers for goods. Along with this, the ability

dismissed as alarmist, with commentators

of horror. As the European Union’s own

of countries to set their own product standards

arguing that these two values, trade and

Maastricht Treaty was brand new at the time,

and keep out items deemed dangerous or

environmental protection (or the preferred

the issues of regional and global integration,

unhealthy would be adversely affected. The

“sustainable development”) could be easily

single markets, rules-based trading systems

extension of intellectual property rights would

reconciled.

and inevitable progress towards prosperity

be involuntarily purchased by the poor in

—————————————————

were everywhere being discussed. 1 The

favor of globally dominant corporations. It

undisputed theme of the day was more

was also impossible to see how this constant

trade, freer trade, unfettered trade. Morphing

transport of goods could fail to harm a global

into the WTO, the General Agreement

environment already under severe pressure. It

on Tariffs and Trade (GATT) system had

is true that for the first five years or so after

grown more complex and, crucially, had

the creation of the WTO, there were citizen

There seemed, indeed, to be a rare but unmistakable consensus around the idea of free trade and globalization, at least on the part of national governments.

become enforceable. Extending the power

movements calling for greater labor and

—————————————————

of multinational corporations and the

environmental protection.3 These initiatives

In the five years or so from the coming

reach of corporate investors was everywhere

were ultimately drowned out by the rise of

into force of the WTO agreements until

recognized as worthy of protection. There

the “war on terror” after September 11, 2001.

September 11, 2001, there was a burgeoning

seemed, indeed, to be a rare but unmistakable

The contradictions inherent in the new system

anti-globalization movement.4 The audacious

consensus around the idea of free trade and

did not disappear, however, and many years

drive towards a world dominated by corporate

globalization, at least on the part of national

later came back to bite those who believed

needs and interests was apparent to those who

governments.

free trade to be the part of the permanent

gave it serious thought, and demonstrators

human agenda.

tracked gatherings designed to further

In 1994, I had just begun a new job as lecturer in the Law Faculty at University College Dublin. At the very inception of

It was immediately apparent to me that

security in the same old “unenforceable” zone. Investment arbitration was all the rage, with corporate investors operating on

this approach to globalization would create

In general, I saw a gross disproportion

this agenda at the expense of other, more

as many problems as it purported to solve.

between the level of seriousness and

humanistic and environmental, interests. It

For one thing, workers in wealthier countries

enforceability the new economic laws would

was not a mindless return to nationalism that

would find themselves competing with

grant corporate interests, while leaving

the demonstrators sought: rather, a pause in

Currents 23.2 2019

the forward motion of a global constitution

had not thought through, these potential

disputes, most missed the big picture entirely,

of sorts, bent on the homogenizing effects of

disasters waiting down the road. This is not

and left the backlash to be exploited by

freewheeling global capital.

a new discovery of mine; I was speaking out

charlatans. In fact, as the years passed and

Back in those days, I began to attend

on these matters from the very first post-

the trade rules remained as they had been

conferences featuring trade law scholars. I

WTO conferences of the 1990s, entirely to

conceived in 1995, I was especially amazed by

cannot say I ever enjoyed these; in fact, I

no effect, as no one had much interest in

the fact that so few outside specialists actually

generally frequently found them shocking in

my observations. Of course, commentators

understood how these rules worked, or why

their insensitivity to what was likely ahead for

in global non-governmental organizations,

they had been adopted. Pro-labor politicians,

the global trading system. Like most branches

in the labor unions, and the occasional

for instance, knew they did not much care for

of scholarship, but markedly so in legal

economist would raise the problem of

free trade, but seemed to have no idea what

academia, most trade law specialists grabbed

corporate domination and the weakening of

sort of critique to adopt.

onto the newly legalized trade system with

the global public interest, but most trade law

To compress a long story into a very short

gusto and total acceptance, especially with

academics remained focused on the technical

version, it seems to me that it would have

respect to the disputes that were generated.

details of the trade disputes and their beloved

been relatively easy for political progressives

Where concerns were raised about global

hypotheticals.

to have done better than stand by and watch

environmental degradation, they offered the

I longed to see global sustainability

the faux populists among us reject trade

remedy of swords and shields and GATT

measures and indicators by which to measure

in the name of the “real people”. Hillary

Article XX. It should have been obvious that

the success or otherwise of the trade system;

Clinton’s complete lack of a coherent message

such issues as national regulatory freedom,

I imagined that the nice theory of “trade

on free trade was one of the most striking,

vast shifts in the location of manufacturing,

and the environment” would eventually be

and least reported on, political realities of

transport of goods everywhere and the closure

exposed as unfeasible; I felt sure that the

2016.9 And just as the 1990s and its raft of

of factories in developed countries—all of

workers were not eager to share their settled

free trade rules changed the work, failure of

these matters would inevitably “catch up

employment with people in other parts of

most leaders to understand the rules and their

with” the global trading system at some stage.

the world—but the irrational aspects of the

effects also changed the world—significantly

How could all of this just “happen,” with no

newly-constructed system did not seem to

for the worse.

popular reaction?

bother most.7 As specialists, they spoke of

Here is how I see that unnecessary

Of course, professionals of all kinds

new forms of “discourse” being created by

tragedy in a nutshell: Global trade law

are generally accepting of systemic changes

the WTO, new modes of informal interaction

did change lives, often in negative ways,

that do not adversely affect themselves. In

globally, and of course, the technical means of

it disrupted people, it failed to live up

that sense, what looks like analysis is often

ensuring “sustainable development”.

to the prosperity hype with which it was

just a resume-boosting convenience. In free

—————————————————

presented, and many were left behind—

of review in WTO disputes, would not be

I longed to see global sustainability measures and indicators by which to measure the success or other wise of the trade system...

asked to opine on the internal contradictions

—————————————————

of this new international system, or the

There is hardly a more vivid case of

Yet, there were amazingly positive

attendant social fallout. And to that extent,

intellectuals and professionals letting down

aspects to the enforceable, legalized model

they often acted as if they did not see, or

the global public. While focusing on trade

of trade integration that was brought

trade, they said, there would be “winners and losers,” and national governments were meant to deal with the losers. Trade law 6

scholars making presentations on such topics as investor-state arbitration or the standards

culturally, socially and economically. 10 Obvious though it may sound, everyone needs to feel important, to feel that they are part of a context and a person of drama. Being a service worker without hope, in a grim and generic landscape, is not part of the human plan.

Currents 23.2 2019

to life in the 1990s. For one thing,

painful, did tend to peaceful international

manipulative fashion. Instead of the public

public international law is notoriously

relations, no small thing. In any event, it

seeing that free trade had been grossly

unenforceable. Most international law classes

certainly made little sense to gamble this

over-weighted in favor of multinational

begin with the question, is this really law?11

feature of free trade away.

companies, and that national governments,

Rules aimed at national governments are

So how might things have been dealt

the US government especially, had failed

often ignored. When they are ignored, no

with? Not fatalistically; not with obsessive

to pass laws protective of labor and other

one ever knows quite what to do, beyond

devotion to the trade disputes. Rather, with

non-trade values, the manipulators blamed

expecting the powerful to put pressure on

a care to workers and societies. With strong

other countries, other peoples, nations

the weak to comply, in instances where

national laws that could penalize outsourcing.

that supposedly wanted to “rip us off”.16

this is in the interests of the powerful.

With strong economic support to launch

But trade rules are not “deals” per se.

Human rights law is largely unenforceable;

sub-groups into newer areas of employment,

They are restrictions placed on national

international environmental law is more or

meaningfully. So many imaginative remedies

governments, preventing them from giving

less unenforceable—except as these rules

might have been articulated—but they were

in to protectionist impulses in the name of a

might coincide with the wishes of a particular

not. Instead, clichés about the need to have

larger set of global goals. The rules are not like

nation’s government.12 Say what you like

“labor clauses” in the trade agreements,

contracts—they are rather broad collections

about the seriousness of the obligation to

“high environmental standards” and so

of well-established principles, to be adhered

honor treaty commitments—it is not all that

forth—meaningless rhetoric that did little

to by all as best they can. If the US was largely

hard to walk away from these as the sovereign

to prove to people that their nations could

behind the 1990s project to multi-lateralize

mood takes us.

derive the benefits without excessive pain.

and render enforceable pre-existing trade

So, with the new trade rules here was a

Needless to say, in some nations, whole new

principles, how can it be said that other

subset of public international law, remarkably

middle class populations were created—India

countries got the better of us for purposes

enforceable, treated as law, seen as capable

and China are the most obvious examples of

of “ripping us off”?17 The entire notion is

of getting attention of nation states and

countries that were literally transformed by

preposterous and designed to destroy the

commanding their obedience! A remarkable

WTO membership and inward investment.

global system of economic alliances to suit

achievement in itself—of course, attributable

But for people in the American rust belt,

the purposes of malign global actors. Such

to the fact that the interests and needs of

participation in a globalized trade regime

demagoguery has further confused the

multinational corporations were behind the

about which they understood little was far

public, and its purveyors are responsible for

whole project, and because a great deal of

less than appealing. And so, the anger built

smashing apart what took decades to achieve.

money was at stake—nevertheless, this was a

up.

potential model for enforceable international

—————————————————

And yet, the intense and extreme

elimination of barriers to trade, the reduced

side of trade law was aimed directly at the

If the US was largely behind the 1990s project to multil a t e r a l i z e a n d re n d e r enforceable pre-existing trade principles, how can it be said that other countries got the better of us for purposes of “ripping us off”?

tendency of states to involve themselves in

—————————————————

money, avoid taxes and corrupt political

pointless conflict. There was a lot to this

And the issue of “bad trade deals” was

systems everywhere.18 There was much that

argument. Integration, while occasionally

stolen by someone to be used in a most

was good, there was a great deal that was

law. And free trade had long, perhaps always, been premised on two aspects: prosperity, yes, but also peaceful integration and coexistence. It was believed that nations trading with one another would also establish a peaceful means of settling disputes.13 This

Currents 23.2 2019

reach of national regulatory freedom, the bowing to corporate needs around the world without similar regard for human need—it all came at a steep price. It could have been improved, made more nuanced, and far more protective of labor. There should have been a corresponding regulation of the financial system, to head off the global rush to hide

destructive. But most people had no idea how the trade system actually worked, and so its defects were manipulated by people and forces who have even less regard for human needs than those they were so disingenuously criticizing. The free trade regime of the 1990s went a few steps beyond what earlier trade agreements had attempted—applying similar principles, some new subject matter (intellectual property, trade in services) and an enforceable dispute resolution system.19 It was American corporations who sold out American workers, and elected representatives who were strikingly apathetic about these effects. Of course, over time, new types of employment were created, and complex supply chains guaranteed that the agreements would enjoy some degree of permanence. Donald Trump’s campaign arrived as a rhetorical tornado, denouncing other nations and our own leaders who had been their victims.20 For an angry and confused subset of the public, this must have sounded great: Maybe a better “deal maker” could do things better. Except that these were not “deals”, and demagoguery is no substitute for a plan to retain the benefits of free trade, while confronting its damage. There is still a chance that when we move past this time of outrages and shocks, we will see how to maintain what has brought the world’s nations so remarkably together, and find the will to make equally enforceable rules that will once and for all deal with climate change, loss of species, human rights and grotesque levels of inequality. We cannot live without the agreements, and we cannot live with the trade regime as it has been.

Currents 23.2 2019

End Notes 1.

See generally Treaty on European Union (Feb. 7, 1992), https:// europa.eu/european-union/ sites/europaeu/files/docs/body/ treaty_on_european_union_en.pdf [http://perma.cc/UL2L-3V96]. 2. The GATT years: from Havana to Marrakesh, Understanding the WTO: Basics, WTO, https:// www.wto.org/english/thewto_e/ whatis_e/tif_e/fact4_e.htm [http://perma.cc/6V4F-5UXM] (last visited Feb. 20, 2019). 3. Jill Lynn Nissen, Achieving a Balance Between Trade and the Environment; the Need to Amend the WTO/GATT to Include Multilateral Environmental Agreements, 28 Law & Pol’y. Int’l. Bus. 901 (1997). 4. See Joel Solomon, Trading Away Rights: The Unfulfilled Promise of NAFTA’s Labor Side Agreement 2 (Joanne Mariner & José Miguel Vivanco eds., 2001), https://www.justice. gov/sites/default/files/eoir/ legacy/2013/06/14/mexico_0401. pdf [http://perma.cc/6CP5L6MJ]. 5. See generally Article XX: General Exceptions, WTO, https://www. wto.org/english/res_e/booksp_e/ gatt_ai_e/art20_e.pdf [http:// perma.cc/M8KD-8CAG]. 6. Dani Rodrik, Too Late to Compensate Free Trade’s Losers, Project Syndicate (Apr. 11, 2017), https://www.projectsyndicate.org/commentary/ free-trade-losers-compensationtoo-late-by-dani-rodrik-201704?barrier=accesspaylog [http:// perma.cc/57YH-88RU]. 7. See Kevin Kolben, Integrative Linkage: Combining Public and Private Regulatory Approaches in the Design of Trade and Labor Regimes, 48 Harv. Int’l L.J. 203 (2007). 8. See Jeff Faux, The Global Class War: How America’s Bipartisan Elite Lost Our Future – and What It Will Take to Win It Back 59 (2006). 9. Kellan Howell, Hillary Clinton’s Outsourcing Problem With Union Workers, CIRCA (Jul. 25, 2016, 02:39 pm), https://www.circa.com/ story/2016/07/25/politics/hillaryclintons-outsourcing-problemwith-union-workers [http://perma. cc/B49P-HYE5]. 10. See David H. Autor, David Dorn & Gordon H. Hanson, The China Syndrome: Local Labor Market Effect of Import Competition in the United States,

11.

12. 13.

14. 15.

16.

17.

18.

19.

20.

103 Am. econ. rev., 2121, 215559 (2013), https://seii.mit.edu/ wp-content/uploads/2013/11/ Autor-Dorn-Hanson-The-ChinaSyndrome-Local-Labor-MarketEffects-of-Import-Competitionin-the-United-States-AmericanEconomic-Revi.pdf [http://perma. cc/T8EB-ERMY]. See e.g. Chantell Taylor, NAFTA, GATT and the Current Free Trade System: A Dangerous Double Standard for Workers’ Rights, 28 Denv. J. Int’l. l. & Pol’y. 401 (2000). See Solomon, supra note 4. See generally Jonathan Schell, The Unconquerable World: Power, Nonviolence, and the Will of the People 36 (2004). David H. Autor, David Dorn & Gordon H. Hanson, supra note 10. See Heather Long & Patrick Gillespie, Why Americans Are So Angry in 2016, CNN Money (Mar. 9, 2016), https://money.cnn. com/2016/03/09/news/economy/ donald-trump-bernie-sandersangry-america/index.html [https:// perma.cc/T2HY-RZWA]. See Vicki Needham, Trump Vows to Overhaul “Horrible” Trade Deals, The Hill (July 21, 2016), https://thehill.com/policy/ finance/288812-trump-vow-tooverhaul-us-trade-policy [https:// perma.cc/5MRA-MHTV]. See Robert E. Scott, Unfair Trade Deals Lower Wages of US Workers, Econ. Pol’y Inst. (Mar. 13, 2015), https://www.epi.org/ publication/unfair-trade-dealslower-the-wages-of-u-s-workers/ [https://perma.cc/8WZL-ZQEA]. See generally David M. Driesen, What is Free Trade?: The Real Issue Lurking Behind the Trade and Environment Debate, 41 Va. J. Int’l. L. 279 (2001). See Rachel Brewster, Rule-Based Dispute Resolution in International Trade Law, 92 Va. L. Rev. 251 (2006). See Beverly Gage, Who Is the Forgotten Man?, N.Y. Times: What Happened On Election Day (Nov. 9, 2016), https://www. nytimes.com/interactive/projects/ cp/opinion/election-night-2016/ who-is-the-forgotten-man [http:// perma.cc/R4UZ-UNY7].

Currents 23.2 2019

Developing Countries and International Economic Law: The Case of Burma V I N CE N T

—————————————————

I. Introduction ————————————————— Roughly a quarter of a century ago, developing countries, in large numbers, 1

signed on to the 1994 revision of the General Agreement on Tariffs and Trade3 (“GATT 1994”) and to membership in its umbrella institution, the World Trade Organization (“WTO”). Notwithstanding their erstwhile 4

reluctance to do business with and compete against developed countries that in many instances had been colonial oppressors, they took on substantial obligations under the WTO agreements. Developing countries did so, in part, because they feared being left behind economically in a world where free trade prospered.

Importantly, developing countries had been assured, over the course of many years,

that they would be provided with appropriate assistance to ease their transition toward full standing in the international trading community. As Michael Trebilcock explains these accommodations under the current WTO structure: An extensive legal framework has been established to provide a basis for the special and differential treatment (“SDT”) of developing countries under WTO law. This encompasses both import-branch SDT by providing greater flexibility

R .

J O H N S O N

Vincent R. Johnson is the South Texas Professor of Law at St. Mary’s University School of Law. He has been a Fulbright Scholar in China, Romania, and Burma, a U.S. Supreme Court Fellows Program alumnus and a member of American Law Institute. B.A., Saint Vincent College; J.D., University of Notre Dame; LL.M., Yale University; Executive LL.M., London School of Economics and Political Science. and exemptions for developing countries in implementing WTO disciplines and export-branch SDT by enabling Members to offer preferential market access to developing countries without violating the WTO’s cornerstone Most Favored Nation (“MFN”) obligation.7 In some instances, assistance meant that developing countries were given longer periods of time to achieve compliance with international trade obligations.8 In other occurrences, developed countries promised— or seemed to promise—economic assistance.9 For many developing countries, those assurances were important. However, the ultimate reality was that developing countries took “on many mandatory obligations in exchange for non-binding and ‘best endeavour’ concessions from the developed countries.” 10 Not surprisingly, some developing countries felt seriously aggrieved when they realized that they had given more, in terms of intellectual property obligations,

than they had gained in terms of economic trade assistance.11 There is some evidence that developing countries have enjoyed greater prosperity as a result of modernizing their legal systems to comply with WTO obligations. 12 Nevertheless, the recent Doha Round of trade talks, which ended in December 2015, after fourteen years of unproductive negotiations,13 failed to successfully address many issues of importance to developing countries.14 As the New York Times opined, the failure of the Doha Round’s “ambitious agenda . . . undermined the credibility of the multilateral trading system and hurt the least-developed countries, which are desperate to export more of their goods to richer countries.”15 In this context, it is not surprising that the developed world’s lack of progress in furnishing assistance to developing countries has left many WTO members disappointed and disillusioned.16 During the next 25 years, the concerns of developing countries are certain to remain a subject of importance in international economic law. Indeed, these issues are likely to be so weighty, so arguably legitimate,17 and so difficult to address, that in the current climate which often favors economic protectionism 18 they may threaten the viability of the modern free trade regime. This is particularly true because developing countries comprise a large section of the

Currents 23.2 2019

international trading community19 and are

loss of good jobs.28 Social activists condemn

—————————————————

“an increasingly powerful force both in the

free trade for spawning inhumane work

II. Burma Today

global economy and in the WTO bargaining

conditions and environmental degradation.

—————————————————

process through which multilateral rules are

Some developing countries now complain,

It is impossible to think clearly about

crafted.”20

as did Progressives in the early twentieth

what Burma needs from international

This article will consider some of the

century Britain, that free trade exacerbates

economic law without knowing the country’s

many international economic law issues

differences in income and wealth, favoring

recent history and current economic and

that are important to developing countries.

those who already have wealth over those

social conditions. This section addresses

However, it will do so with a special focus

who do not. Today’s producers of goods

those matters.34

on Burma, and what Burma needs as it

and services, like those in the 1920s and

Nobel Peace Prize laureate, 35 Aung

rebuilds its economy. Burma had once been

1930s, are often more interested in enacting

San Suu Kyi, has served as state counsellor

prosperous and oriented towards free trade.

protectionist measures to insulate them from

of Burma since 2016.36 Although she is

Indeed, Burma had been a party to the

foreign competition rather than proving that

essentially the prime minister, the country’s

1947 GATT, the agreement which formed

they can compete by offering goods and

struggle to build a democracy seems to have

the cornerstone of the modern liberal trade

services in a “flattened” world.32 Multilateral

stalled. There is only bad news out of Burma,

regime.22 Then, beginning in the early 1960s,

trade liberalization is a subject that remains

according to Western media reports. Endless

almost 50 years of inept military rule

“highly contentious.”

sobering articles tell about the persecution of

destroyed the Burmese economy, blocked off

Part II of this article surveys the political,

the Rohingya minority,37 the flight of refugees

the outside world, and isolated the country,24

economic, and social conditions in Burma

to Bangladesh,38 the recruitment of child

which was re-named “Myanmar” by its

today. Part III considers the international

soldiers,39 corruption and incompetence in

dictators. Officially, the United States still

trade issues faced by Burma. Part IV discusses

the courts,40 ethnic cleansing,41 repression

refers to the country as Burma.25 Today, as

issues that are of concern to developing

of journalists,42 violence by Buddhists,43 and

Burma begins to recover economically, it has

countries generally, then focuses on two

the murder of a top Muslim adviser to the

to think deeply about what type of economic

issues that are especially important. The first

Burmese government.44

policies are best for the fragile state,26 free

issue is building the kind of educational

Critics argue that Suu Kyi lacks the

trade or protectionism?27 If free trade is the

capacity that makes it possible for a country

conviction to do what is required to create

better path, how can trade liberalization most

to make sound decisions on trade-related

a modern, stable progressive democracy.45

effectively be promoted, and how can threats

issues. The second issue involves establishing

However, that is almost surely wrong.46

to Burma’s economic viability be minimized?

an effective anti-corruption infrastructure

Suu Kyi’s life story paints a wholly different

—————————————————

that builds public confidence in international

picture. Her character was forged by the

trade and minimizes the costs of competing

assassination of her father,47 by her work at the

in the global marketplace. Part V offers

United Nations, by her house confinement

concluding thoughts on what is really

for fifteen years as a political prisoner, and

at stake in developing countries, such as

by the assassination attempt on her that left

Burma, and in the broader world economic

countless supporters dead or injured.

Today, as Burma begins to recover economically, it has to think deeply about what type of economic policies are best for the fragile state, free trade or protectionism?

community, relating to the ongoing struggle

For thirty years, Suu Kyi has led the fight

—————————————————

between defenders of liberal trade policies

for democracy in Burma. What she lacks is

The answers to these questions are

and the proponents of protectionist regimes

not courage or commitment to democratic

not obvious. Many observers of the global

that would insulate the sellers of goods and

values, but the institutional capacity to move

economy are hostile to trade liberalization.

services from international competition.

the country faster toward such goals. By law,

Workers hold free trade responsible for the

the military still holds one-fourth of the seats 36

Currents 23.2 2019

in Parliament,48 and can block legislation that

through dusty classrooms even when courses

is the wisdom, experience, and courage that

it does not favor.

are in session, and that almost the entire

come from getting a strong basic education,

middle tier of law faculty is missing.

attending excellent colleges and universities,

More than a half-century of dictatorial misrule by the military took a heavy toll

There are a few experienced, older

on Burma. What was once one of the best-

law professors who survived many decades

educated nations in Asia is now one of the

of military rule and who are reassuringly

There is nevertheless some good news

least educated. What was once one of the

intelligent, future-minded, and prudent.

from Burma. The work to build stronger

richest nations in Asia is now one of the

There are also many very young law faculty

political and civic institutions in Burma

poorest.51 What was once a colony brave

members—newly minted Ph.D.s who are

continues in many ways.

enough to demand its independence from

bright and eager but inexperienced.

reading a free press, 66 and living in a democratic society.

Interested students and activists regularly

the British Empire is now a timid country

Between these two extremes, there are

gather in the U.S.-funded Jefferson Center67

terrorized by decades of repression. The

almost no other qualified faculty members at

in Mandalay and the American Center in

risk that the country’s military might again

the school. There is a missing generation that

Yangon68 to hear speakers, read books, use

assert full control over the government seems

grew up when the universities were closed

the internet and meet other reform-minded

to hover just off-stage.53 Ever “[s]ince the

and the teaching of dangerous subjects was

people. Recently, a team of my former

country's independence in 1948, [Burma]

forbidden.

students, under the supervision of Professor

has been politically unstable and has engaged

The absence of the faculty middle tier

Myint Zan, participated in an international

means that much of the professional wisdom

criminal law moot court competition in

Suppose that, in a fledgling democracy,

and courage that comes with experience is

Nuremberg, Germany, commendably placing

for a majority of the past three decades the

missing from the law school. There is no

in the third quartile.

universities were closed, 55 government-

easy way to fill that void. It will simply

In the anti-corruption classes I taught

perpetrated violence was common, the

take time to develop the strengths that are

at the University of Mandalay, students

teaching of political science was forbidden,

lacking.

That includes many skills that are

studied the importance of ethics in public

and vast numbers of children were denied even

indispensable to a strong democracy, such

life and discussed threats to democracy

a basic education.58 What would that mean?

as independent thought, free expression,

around the world. They also wrote papers

One would expect democratic impulses to

passionate advocacy, and insistence on honest

about the opportunities for building strong

be stunted and for it to be very difficult to

practices.

democracies, and made class presentations

pursue democratic ideals effectively. That is

—————————————————

about how to use law to fight corruption

in civil conflict.”

teaching as a Fulbright scholar60 at the

Burma lacks the institutional capacity to move faster toward full democracy.

University of Mandalay, in Burma’s second

—————————————————

largest city. Mandalay is a city composed of

Experienced Western observers of the

Young Burmese faculty members

about 1.2 million people in a country the

Burmese government say that Suu Kyi

recently presented papers at a conference

size of Texas, but with more than twice its

faces the same problem. The middle tier of

celebrating the twenty-fifth anniversary of the

population, nearly 54 million.64

governmental talent is missing. There are no

University of Mandalay’s law school. There

The University of Mandalay law school

experienced cohorts of potential leaders that

they addressed important topics: human

is ranked the best in Burma. However,

have grown up under even a weak democratic

rights, shareholder remedies, environmental

a visitor cannot help but notice that the

regime.

law, the status of women, legal research, and

precisely what has happened in Burma.

In 2017-2018, I spent four months 61

library is meager and poorly lit, that parts of

Burma lacks the institutional capacity

the campus crumble in ruins, that birds fly

to move faster toward full democracy. Absent

in government, 69 education, 70 and the professions.71 In my international economic law classes, students discussed the comparative merits of free trade and protectionism.

the rights of children. In Naypyidaw, Burma’s capital, I

Currents 23.2 2019

conducted training sessions for roughly three

phones and riding often two, three, or four

Order 13,742, which ordered the

dozen progressive members of Parliament

to a scooter, it is clear that they are happy.

termination of sanctions. . . .

about critical issues facing their country.

They know how far they have come in the

On June 16, 2017, the Department

The topics included the rule of law,72 judicial

past few years, and they want the future,

of the Treasury's Office of Foreign

independence,73 and international trade law.

not the past. However, there is no quick fix

Assets Control issued a final rule

Rather than skip these evening programs

for the harm that was done by fifty years of

terminating sanctions.80

sponsored by the National Democracy

oppressive military rule.

In the past eight years, international

Institute, which is funded by the USAID,

—————————————————

treatment of Burma has begun to normalize and Burma has begun to create a modern legal

to my translated talks and attentively studied

III. International Trade Issues Relating to Burma

my PowerPoint slides, which had been

—————————————————

to William J. Schulte and Matthew H. Baird:

converted into Burmese. They peppered me

Burma was cut off from international

In January 2012, the United

with questions to make sure they understood

trade for a long period of time. The isolation

States formally restored diplomatic

my arguments.

of the country from foreign influences that

relations with Myanmar and

Building an effective democracy and

was imposed by Burma’s military dictators

officially lifted the majority

a vibrant economy takes time, especially

was matched by the sanctions other countries

of economic sanctions against

when anti-democratic forces are strong and

imposed on Burma to punish the military

Myanmar. Many other Western

recent history has been brutal. The United

regime. The American sanctions had a

nations lifted sanctions as well.

States and other developed countries need to

negative impact on Burma’s economy, and

In turn, in 2012 the Hluttaw,

continue to engage with the people of Burma

caused exports from Burma to the United

Myanmar Parliament, enacted

and to support their best hopes for the future.

States to drop to zero.79

the Foreign Investment Law as

the parliamentary members listened carefully

—————————————————

framework for international trade. According

According to a recent article:

an attempt to attract foreign

The twenty-year histor y of

investment and help the country

previous American sanctions can

develop. . . . and for the most

be summarized briefly. In 1997,

part, the strategy seems to be

President Clinton issued Executive

paying off. Myanmar has since

Order 13,047, which ordered

grown its economy steadily at over

the imposition of sanctions on

6 percent per year, and the Asian

Burma partly in response to “large-

Development Bank projects that to

—————————————————

scale repression of the democratic

rise above 8 percent in 2018. . . .81

Those hopes are real. One can see that

opposition in Burma.” These

A quartet of new intellectual property

hope on the faces of the Burmese people

sanctions were further developed by

laws will soon enter into force, enabling

on the vibrant streets, on the university

the George W. Bush administration

Burma to protect the rights of its citizens in

campuses, and in the market. They know that

in 2003, 2007, and 2008. In July

copyrights, industrial designs, patents, and

democracy is much better than dictatorship

2012, the Obama administration

trademarks82—as well as to comply with its

and prefer global connections to isolation.

eased, but did not remove, sanctions

GATT obligations related to such interests.

At least in the cities in Burma, nearly

on Burma in recognition of the fact

“The long-awaited Myanmar Investment Law

everyone has a cellphone and a Facebook

that the Burmese government had

was passed on 18 October 2016 . . . [as]

account. While cars are too expensive for

made “progress towards reform in a

part of the government's efforts to continue

most people, electric and gas scooters are

number of areas.” Then on October

to attract foreign investment.”83 Of course,

ubiquitous. Looking at the people using their

7, 2016, Obama signed Executive

more legal reforms are needed to deal with a

Bu i l d i n g a n e f f e c t i v e democracy and a vibrant economy takes time, especially when antidemocratic forces are strong and recent history has been brutal.

Currents 23.2 2019

myriad of issues, such as foreign investment

important to developing countries. Those

on imports at the border; how domestic

in Burmese agriculture.

issues relate to education and corruption.

regulations related to public morals, health,

—————————————————

safety, and the environment can impinge

IV. Issues of Special Concern to Developing Countries

A. Education

upon the efficiencies of trade;94 and how

—————————————————

there must be a venue, such as the WTO,

—————————————————

In order for a developing country to

for reconciling competing state interests in

During the next twenty-five years,

prosper in a world of globalized trade, its

a manner that is principled, consistent, and

scholars of international economic law

politicians and businesses must be able to

capable avoiding economic chaos in times of

should, of course, study the full range of

make sound decisions. Sound decisions

global crisis. The champions of developing

legal issues that are important to developing

must rest on a strong educational foundation

countries must also understand that the

countries. Among many others, these issues

that makes it possible for decision makers

interests of such states can sometimes be

include: facilitation of electronic commerce,

to ask good questions, gather information,

more effectively advanced through collective

the operation of the Generalized System

understand and evaluate alternatives, chart an

action and coalition building within a WTO-

of Preferences,

compliance with trade-

intelligent course, and implement decisions

like entity,95 rather than by individually

related intellectual property obligations,87

in a way that prepares for foreseeable

bargaining with developed countries for tariff

human rights-based trade sanctions, 88

obstacles and effectively deals with problems

reductions or preferential trade agreements.

protectionist tariffs, the transparency and

that cannot be anticipated.

predictability of WTO decisions,

Developing countries have often

the

Government decision makers must

prepared for modernizing their economies

effectiveness of laws designed to protect

possess a great array of knowledge. They

and doing international business by sending

domestic industries, the limitations that

must understand the international economic

scholars abroad to study in developed

international trade agreements impose on

law framework within which international

countries. When those scholars return

domestic legislative options,

bilateral

business transactions take place. They must

home, they sometimes play a leading role

and regional alternatives to the WTO’s

appreciate complex interaction between

in reforming legal institutions and business

multilateral trading regime, and how to

international agreements and domestic

operations. For example, the young scholars

offer foreign investors “one-stop shopping”

legislation. They must also comprehend the

who were sent by China to the United States

by setting up simplified, convenient, and

operation of markets, the role of international

in late 1800s eventually led the efforts to

consistent regulatory processes related to the

supply chains, and the way in which

modernize the industrial operations of the

approval and operation of joint ventures and

international trade affects not only persons

late Qing dynasty.96 Similar stories have

wholly foreign-owned enterprises.

who engage in international trade, but also

played out many times all over the globe.

—————————————————

persons who do not, who must nevertheless

The knowledge gap that places developing

compete against products imported from

countries at a disadvantage in competing in

other countries in a world that is “flat.”93

international trade can also be addressed if

Government decision makers must possess a great array of knowledge. They must understand the international economic law framework within which international business transactions take place.

These intellectual challenges are

developed countries send scholars abroad to

formidable. They require decision makers

teach at foreign universities. For example,

to understand how tariffs distort both the

over the past seventy years, the Fulbright

production and consumption of products,

Scholar Program has facilitated the exchange

protecting inefficient producers and

of 370,000 scholars.97 In hundreds, if not

penalizing the efficient. Decision makers

thousands, of cases, American professors have

—————————————————

must also appreciate how nontariff barriers,

been posted to developing countries, often

In addition, there are two other issues

such as those relating to product standards or

to teach in fields related to law, business,

that, while perhaps less obvious, are equally

content, can be as pernicious as tariffs charged

and international trade. 98 Those efforts

Currents 23.2 2019

have helped to minimize the educational

may have in producing certain types of

under criminal laws. Adequate compensation

deficiencies that often handicap developing

goods, and makes such goods less attractive

and benefits can be paid to public employees

countries.

to foreign buyers.103

to reduce the likelihood of bribery. Laws can

With the current rise of nationalism

Second, corrupt practices which

penalize foreign corrupt practices, forbid

and protectionism in countries around the

distort the distribution of profits from

the awarding of government contracts

world, these types of educational exchange

international trade undermine public

to entities in which public officials hold

programs are at risk. For example, students

confidence in the legitimacy of liberal

interests, or prohibit gifts to public servants

from developing countries find it more

trade practices. This is a serious problem

or closely related persons. Open-meetings

difficult today to obtain educational visas

because if the international trading system

and open-records laws can fight corruption

to study in the United States than was true

is perceived to be rigged, businesses and

by increasing government transparency.

just a few years ago. Early in his presidency,

even ordinary citizens are likely to demand

Defamation laws can protect critics from libel

Donald Trump proposed drastically reducing

protection from foreign competition.

104

and slander actions when they expose and

the budget for the Fulbright Scholar Program

They will argue that “mercantilism”—the

discuss issues related to the performance of

by 47%, which would have eliminated

promotion of domestic manufacturing and

public duties.112 Ethics codes can be adopted

numerous grants and crippled working

restrictive import policies 105—is a more

and enforced to set standards of conduct for

relationships with educational partners in

sensible government position than “trade

key public actors, such as lawyers, judges,

other countries.

liberalism”

public officials, state employees, lobbyists,

100

Fortunately, the allies of

106

or its more extreme variation

the Fulbright program in Congress did not

“neo-liberal trade,”

allow that to happen.101

links efforts to promote international

107

the latter of which

government contractors, and educational personnel.

Scholars of international economic law

trade with aggressive deregulation and

The problem is not that there are too few

must be attentive to efforts that threaten

protection of intellectual property, as well

tools for fighting corruption in public life,

to undermine the important role that

as free movement of capital and rejection of

nor even that there are too many. Rather, the

international educational exchange plays

Keynesian monetary policies.

problem is that such tools are often poorly

in supporting developing countries that are

—————————————————

articulated and haphazardly employed.

seeking to compete in a world of globalized trade. Without such educational support, it is unlikely that developing countries such as Burma will have a fair chance to prosper. —————————————————

B. Corruption

108

Co r r u p t i o n u n d e rc u t s a developing countr y’s participation in international trade in at least two ways.

International law has begun to play an important role in fighting corruption within states that are parties to international trade agreements. Numerous anti-corruption conventions have been enacted, including:

—————————————————

the United Nations Convention Against

—————————————————

Burma has a long history of corrupt

C o r r u p t i o n ; 1 1 3 t h e In t e r - A m e r i c a n

Corruption undercuts a developing

business practices.109 Similar challenges exist

Convention Against Corruption of the

country’s participation in international

in all countries.

If in Burma, ordinary

Organization of American States; 114 the

trade in at least two ways. First, corruption

citizens were deprived of their fair share of

Civil Law Convention on Corruption of

in the production and marketing of goods

the profits that follow from international

the Council of Europe;115 the Criminal Law

distorts the pricing of those goods, making

trade,111 it would be perfectly understandable

Convention on Corruption of the Council of

them more expensive than they should

for them to oppose the types of foreign

Europe;116 the African Union Convention on

be, and therefore less able to compete

competition and investment that are likely

Preventing and Combatting Corruption;117

successfully in international markets. This

to cause the loss of Burmese jobs.

and the Organization for Economic Co-

110

type of corruption threatens to waste the

Corruption can be fought in many ways.

operation and Development (OECD)

“comparative advantage”102 that a country

Malefactors can be vigorously prosecuted

Convention on Combatting Bribery of

Currents 23.2 2019

Foreign Public Officials in International

quarters of a century ago.

Business Transactions.118 These anti-corruption instruments are creating a widening web of legal tools that can be used to fight corruption related to international trade. They must increasingly be seen as a crucial element of international economic law. These agreements must be studied by scholars and implemented at the state level, particularly by developing countries, in order to ensure that corrupt practices do not undermine public confidence in international trade or otherwise handicap the ability of developing countries to compete in world markets. —————————————————

V. Conclusion ————————————————— In the field of international economic law, the stakes for developing countries are great. At issue is not merely the question of whether such countries will prosper, but what type of world they will live in. Former U.S. Secretary of State Cordell Hull 119 believed that “unhampered trade dovetailed with peace; high tariffs, trade barriers and unfair economic competition with war.”120 That was not an uncommon view. Many believed that the protectionist trade policies that preceded the Second World War set the stage for that conflict.121 The reformers who were determined after the War to build a better, more peaceful world—through the establishment of the United Nations,122 the World Bank,123 the International Monetary Fund, 124 the Marshall Plan, 125 and the Fulbright Scholar Program 126—believed that the free trade principles reflected in the 1947 GATT had an important role to play in minimizing international conflicts.127 This idea may be as valid today as it was three41

Currents 23.2 2019

End Notes 1.

Who are the developing countries in the WTO?, WTO, https://www. wto.org/english/tratop_e/devel_e/ d1who_e.htm [http://perma.cc/ LH2Z-K6BK] (last visited Oct. 27, 2018) [hereinafter Who are the developing countries in the WTO] (“Developing countries comprise a majority of the WTO membership. They are grouped as ‘developing countries’ and ‘least developed countries’. . . . [However, there] are no WTO definitions of ‘developed’ and ‘developing’ countries. Members announce for themselves whether they are ‘developed’ or ‘developing’ countries. However, other members can challenge the decision of a member to make use of provisions available to developing countries.”); see also Chiedu Osakwe, Developing Countries and GATT/WTO Rules: Dynamic Transformations in Trade Policy Behavior and Performance, 20 Minn. J. Intl. L. 365, 376 (2011) (“The composition and role of developing countries in the Multilateral Trading System is complex and evolving. The group is heterogeneous. It is neither a monolith nor is it unitary. Its interests are mixed, uncertain, and in some cases, divergent.”). Members and Observers, WTO, https://www.wto.org/english/ thewto_e/whatis_e/tif_e/org6_e. htm [http://perma.cc/A5CJ87AF] (last visited Nov. 3, 2018) (explaining since July 29, 2016, there have been 164 members of the WTO). John M. Vernon, Mexico's Accession to the GATT: A Catalyst at Odds with the Outcome?, 24 St. Mary's L.J. 717, 720 (1993) (“The GATT is the framework that establishes the parameters for the trading policies and trading activities of its contracting parties. The GATT freezes tariffs at agreed levels and sets forth certain international trading rules including the ‘mostfavored-nation principle,’ which requires each contracting party to afford every other country the lowest rates available to the products of any country.”). Matthias Herdegen, Principles of International Economic Law 202-06 (2d ed. 2016) (discussing the World Trade Organization); see also Robert P. Deyling, Free Trade Agreements and the Federal Courts: Emerging

Issues, 27 St. Mary's L.J. 353, 381 (1996) (“Under the WTO regime, the trade dispute resolution system created by the General Agreement on Tariffs and Trade (GATT) . . . [was] strengthened to provide for binding decisions by WTO dispute settlement panels.”); see generally Who We Are, WTO, https://www.wto.org/english/ thewto_e/whatis_e/who_we_ are_e.htm [http://perma.cc/ LH2Z-K6BK] (last visited Nov. 4, 2018). See Daniel K. Tarullo, The Hidden Costs of International Dispute Settlement: W TO Review of Domestic Anti-Dumping Decisions, 34 L. & Policy Intl. Bus. 109, 176–77 (2002) (“Practically speaking, a smaller state . . . faced . . . the choice of either signing on to the new agreements . . . or risk being left behind by the world trading system. This was quite literally true in the Uruguay Round, which substituted the ‘GATT 1994’ for the original GAT T and thus ended the obligations of GATT members under the original agreement.”); Michael Trebilcock et al., The Regulation of International Trade 655 (4th ed. 2013) (“It is no longer contentious that active participation in the global economy is essential to economic development.”); see also Robert E. Hudec, GATT and the Developing Countries, 1992 Colum. Bus. L. Rev. 67, 74 (1992) (indicating that between 1980 and the early 1990s, there was “a radical change in the internal policies of many developing countries. Confronted with debt crises, pressure from international lending agencies, and economic stagnation under the old system, many developing countries . . . slashed trade barriers and moved towards a more modern market-oriented economic policy.”). See Trebilcock et al., supra note 5, at 607-15 (discussing the history of developing countries in the multilateral trading system); Herdegen, supra note 4, at 216 (discussing provisions on trade and development that were added to the GATT in 1965 which created preferences for developing countries). See Trebilcock et al., supra note 5, at 634; see also Herdegen, supra note 4, at 213 (“Most-favoured-

nation treatment essentially means that trade advantages granted to one contracting party must be granted to all other parties.”). 8. See Who are the developing countries in the WTO?, supra note 1 (“There are . . . provisions in some WTO Agreements which provide developing countries with longer transition periods before they are required to fully implement the agreement and developing countries can receive technical assistance.”); Vernon, supra note 3, at 723 (“Because Mexico acceded to the GATT as a developing country, it was eligible for special treatment accorded such countries in terms of compliance with GATT rules. By acceding to the GATT, Mexico became eligible for all benefits resulting from the application of the GATT's basic principles, such as the mostfavored-nation principle which contracting parties are bound to respect. However, the contracting parties did not compel Mexico in certain circumstances to comply strictly with its obligations under the basic GATT principles.”). 9. See Trebilcock et al., supra note 5, at 613-14 (“Paragraph 57 of the 2005 Hong Kong Ministerial Declaration stated: Aid for Trade should aim to provide help developing countries, particularly LDCs [least developed countries], to build the supply-side capacity and trade-related infrastructure that they need to assist them to implement and benefit from WTO Agreements and more broadly to expand their trade [emphasis added].”). 10. T. Ademola Oyejide, G-24 d i s c u s s i o n pa pe r s e r i e s : interests and Options of Developing and Leastdeveloped Countries in a New Round of Multilateral Trade Negotiations, United Nations vii (No. 2, May 2000), http://www.g24.org/wp-content/ uploads/2016/01/02.pdf [http:// perma.cc/64E7-MKU4]. 11. See, e.g., Trebilcock et al., supra note 5, at 613 (“Finger asserts that for many developing countries, ‘the new obligation to pay for intellectual property that the old rules allowed them to use without paying is several times larger than the gains they will enjoy from the entire Uruguay Round package of trade liberalization.’”). 42

Currents 23.2 2019

12. See Osakwe, supra note 1, at 366 (“The analysis of developing country recently-acceded Members (RAMs) indicates extensive trade reforms and optimization of WTO-rule compliance. This trade policy behavior has resulted in stronger trade performance and resilience, relative to founding Members. In addition, a positive relationship exists between domestic reforms complying with WTO rules and trade performance.”); but see Trebilcock et al., supra note 5, at 622 (indicating the record on openness to international trade and growth has been “contradictory or ambiguous”); see also Trebilcock et al., supra note 5, at 613 (“Studies on the economic impact of the Uruguay Round Agreements have suggested that developing countries in the aggregate gained substantially, but that their gains were unevenly distributed.”). 13. See Editorial, Global Trade After the Failure of the Doha Round, N.Y. Times, (Jan. 1, 2016), https://www. nytimes.com/2016/01/01/opinion/ global-trade-after-the-failure-ofthe-doha-round.html?_r=0 [http:// perma.cc/V3K6-EU9B][hereinafter Editorial] (“[I]t became clear that the talks . . . were paralyzed because neither developed economies like the United States and the European Union nor developing countries like China and India were willing or able to make fundamental concessions.”). 14. See Stephen Kim Park, Talking the Talk and Walking the Walk: Reviving Global Trade and Development After Doha, 53 Va. J. Intl. L. 365, 366 (2013) (“Doha is dead. In its aftermath, the relationship between development and international trade has never been more compelling, contentious, and confused.”); Trebilcock et al., supra note 5, at 804-05 (discussing why the Doha Round failed). 15. Editorial, supra note 13. 16. See Peter K. Yu, Trips and Its Discontents, 10 Marq. Intell. Prop. L. Rev. 369, 379–80 (2006) (“Although developed countries promised to reduce tariffs and subsidies in the agricultural and textile areas in exchange for stronger intellectual property protection and wider market access, they failed to honor these promises. This failure was highlighted in the recent WTO debacle in Cancún, in which less developed countries were disillusioned from the process and became unwilling to negotiate other issues, such as investment,

17.

18.

19.

20. 21.

22.

competition policy, government procurement, and trade facilitation.”). See Herdegen, supra note 4, at 19 (“[T]he obvious legitimacy of many concerns of developing countries has considerably influenced the evolution of international economic law.”). Osakwe, supra note 1, at 430 (“Always at risk of inertia, rollback, or protectionist encroachment, the Multilateral Trading System has relied on successive rounds of trade negotiations to inject momentum, sustain further trade liberalization, or keep protectionism at bay.”). Approximately 75% of the WTO membership is made up of developing countries. See Sonia E. Rolland, Developing Country Coalitions at the WTO: In Search of Legal Support, 48 Harv. Intl. L.J. 483 (2007); Jennifer L. Stamberger, The Legality of Conditional Preferences to Developing Countries Under the GATT Enabling Clause, 4 Chi. J. Intl. L. 607 (2003). See trebilcock et al., supra note 5, at 634. See The 128 countries that had signed GATT by 1994, WTO, https://www.wto.org/english/ thewto_e/gattmem_e.htm [http:// perma.cc/6DMP-GDBL] (last visited Nov. 3, 2018)(listing the Union of Myanmar as a GATT Contracting Party since 29 July 1948). See also Kele Onyejekwe, Inter national Law of Trade Preferences: Emanations from the European Union and the United States, 26 St. Mary's L.J. 425, 444 (1995) (explaining “in 1947 and 1948, representatives of fifty-three nations drafted the Havana Charter, which would have established the International Trade Organization (ITO). The ITO would have been a sister organization to both the International Bank for Reconstruction and Development, also known as the World Bank, and the International Monetary Fund. The United States, however, then leader of world trade, withdrew from the ITO, effectively killing the organization. During the Havana Charter negotiations, the United States and twenty-five other countries signed a stopgap agreement that put many of the Havana Charter's provisions into operation. The stop-gap measure became a permanent trade organization called the General Agreement on Tariffs and Trade (GATT). The GATT became

23.

24.

25.

26.

27.

28.

29.

the central body of substantive international trade law.”). See Nepal and Burma Delay, Dilute and Deny justice, Nepali Times, Sept. 11, 2018, 2018 WLNR 28188168 (“Burma (Myanmar) was ruled by notorious military regimes for nearly half a century up until 2011.”). See William J. Schulte & Matthew H. Baird, Myanmar's Nascent Environmental Governance System: Challenges and Opportunities, 33 Nat. Res. & Env. 21 (2018) (“[N]early half a century of military rule and isolation.”). Se e Bu r m a Ma rc h e r s De c r y Intervention, Ark. Democrat Gazette, Oct. 15, 2018, 2018 WLNR 31905600 (“Burma is often called Myanmar, a name that military authorities adopted in 1989. Some nations, such as the United States and Britain, have refused to adopt the name change.”). Cf. Myanmar (Burma): Myanmar Official Says 'Totally Underestimated' Economic Impact of Rohingya Crisis, Thai News Serv., Sept. 7, 2018 (“Approved foreign investment into Myanmar has fallen in 2016 and 2017, according to data issued by the DICA, which operates under the Ministry of National Planning and Economic Development, and last year was the lowest since 2013.”). See Trebilcock et al., supra note 5, at 620-24 (discussing “[the] case for openness to international tra de” an d “[t] he case for protectionism.”). See, e.g., James T. Madore, LI Factories Have High Hopes in Trade War, Newsday, Nov. 3, 2018, 2018 WLNR 34120764 (“Anxiety in the industrial Midwest over job losses since the North American Free Trade Agreement went into effect 25 years ago helped Trump win the White House. Among his first acts as president was to withdraw the United States in January 2017 from the proposed 12-nation Trans-Pacific Partnership free-trade agreement, or TPP.”). Cf. Anne Zoltani, Desertification in the Mediterranean: Environmental Risks of a Mediterranean Free Trade Agreement, 17 Colo. J. Intl. Envtl. L. & Policy 385, 388 (2006) (“[R]regional trade agreements made between members with different levels of economic growth, such as North American Free Trade Agreement (NAFTA), demonstrate that environmental problems will develop unless precautions are

taken to avoid them.”). 30. Se e Ma r t i n D a u n t o n , T h e Inconsistent Quartet: Free Trade Versus Competing Goals, The Oxford Handbook on the WTO 40, 46 (May 2012). 31. Michael S. Knoll, Perchance to Dream: The Global Economy and the American Dream, 66 S. Cal. L. Rev. 1599, 1617 (1993) (“Globalization threatens to further erode living standards and exacerbate wealth differences.”). 32. See generally Thomas L. Friedman, The World is Flat: A Brief History of the Twenty-First Century (2005). 33. Daunton, supra note 30, at 40. 34. Vincent R. Johnson, Why is Democracy Stalled in Myanmar?, San Antonio Express-News, Apr. 7, 2018. 35. The 1991 Nobel Peace Prize was presented to Aung San Suu Kyi “for her non-violent struggle for democracy and human rights.” All Nobel Peace Prizes, Novel Media AB (Dec. 30, 2018), https:// www.nobelprize.org/prizes/lists/ all-nobel-peace-prizes/ [http:// perma.cc/X37V-MCNA]. 36. See Schulte & Baird, supra note 24, at 21 (“In March of . . . [2011], President U Thein Sein was sworn in as the first head of the new civilian government. Daw Aung San Suu Kyi's National League for Democracy (NLD) was permitted to reengage in Myanmar politics. In nationwide elections in 2015, the NLD won 225 out of 330 seats available for election, and as a result was able to elect U Htin Kyaw as the president and appoint Daw Aung San Suu Kyi (who is constitutionally barred from becoming president) to the position of state counsellor.”). 37. See, e.g., Paul Mozur, Genocide Across Myanmar, Incited on Facebook, N.Y. Times, Oct. 16, 2018, at A1 (discussing “a systematic campaign on Facebook that stretched back half a decade and that targeted the country’s mostly Muslim Rohingya minority group”); Michael Schwirtz, The Civil Servant Who Turned A Village Into a Torture Chamber, N.Y. Times, Aug. 25, 2018, at A1, A9 (detailing victims’ accounts of horrendous violence and noting that “[h]uman rights groups documented similar accounts.”). 38. See Mozur, supra note 37, at A10 (“More than 700,000 Rohingya have fled Myanmar in what U.N. officials have called ‘a textbook example of ethnic cleansing.’”). 39. Prajakta Gupte, Child Soldiers in Myanmar: Role of Myanmar

Government and Limitations of International Law, 6 Penn St. J.L. & Int'l Aff. 371, 372 (2018) (“Myanmar is the only Asian country that comes up in almost every list of countries recruiting child soldiers globally.”). 40. See Joshua Carroll, Phone Calls, Facebook and the Odd Nap: Life as a Judge in Myanmar, The Guardian, Jan 9, 2018, 2018 WLNR 774171 (discussing “poorly trained and unprofessional judges.”); see also John M. Epling, How Far Have We Come and Where Do We Go from Here? A Culturally Sensitive Strategy for Judicial Independence in Myanmar, 27 Duke J. Comp. & Intl. L. 107, 138 (2016) (“[T]he Myanmar judiciary lacks sufficient prestige or legitimacy to counter unconstitutional encroachments by the military.”); Rachel E. Ryon, Foreigners in Burma: A Framework for Responsible Investment, 23 P. Rim L. & Policy J. 831, 833 (2014) (“The UN Special Rapporteur for Human Rights in Myanmar stated, ‘[t]here is no independent and impartial judiciary system [in Burma].’”). 41. See Editorial, Too Many are Looking Away from Burma’s Ethnic Cleansing Campaign, Wash. Post, (Apr. 7, 2018), https://www. washingtonpost.com/opinions/ too-many-are-looking-awayfrom-burmas-ethnic-cleansingmpaign/2018/04/07/3706a83c39ba-11e8-acd5-35eac230e514 [http://perma.cc/UQT8-7L4P] (discussing the violent expulsion of the Rohingya from the northern Rakhine state in Burma). 42. See Benedict Rogers, Jailing of Reuters Journalists 'Hammerblow' to Myanmar's Fragile Press Freedom, Mizzima Bus. Wkly. (Burma), Sept. 27, 2018, 2018 WLNR 30952274 (“A Myanmar court's decision to jail two Reuters journalists for seven years a week ago represented a near-fatal hammer-blow to the country's fragile press freedom, and gravely undermines the credibility of Myanmar's democratization.”); Shashank Bengali, Prison for 2 Myanmar Journalists: Verdict Against Pair from Reuters Signals an Intent to Muzzle Reports of Crackdown on Rohingya Muslims, L.A. Times, Sept. 4, 2018, 2018 WLNR 26981024 (“In what cour t testimony indicated was a plot to entrap the reporters, police officers had invited the men to a meeting at a restaurant outside Yangon, Myanmar's largest city, and handed them documents

Currents 23.2 2019

43.

44.

45.

46.

47.

48.

49.

purportedly linked to the army campaign in Rakhine.”). Cf. Schwirtz, supra note 37 at A8 (“Bamar Buddhist authorities have made ethnic hatred the defining reality of Rakhine State.”). Muslim Member of Myanmar Ruling party is Shot Dead at Airport, The Guardian, Jan. 29, 2017 (“Ko Ni, a member of Aung San Suu Kyi’s National League for Democracy, was gunned down as he got into a taxi outside arrivals at around 5pm local time by an unidentified gunman”). See Schwirtz, supra note 37, at A1 (noting that Suu Kyi’s “failure to stop the violence has drawn condemnation abroad”); Peter Ford, For West, Aung San Suu Kyi's Silence Complicates Response to Rohingya Crisis, Christian Science Monitor, Sept. 7, 2018, 2018 WLNR 27479384 (“Ms. Aung San Suu Kyi, the de facto head of the Myanmar government, spoke up neither for the Rohingya, nor for the journalists.”). See Myanmar (Burma): US Senate Leader: Congress Should Not Join 'Pile-On' On Myanmar's Suu Ky, Thai News Serv., Oct. 19, 2018 (“The Republican leader of the US Senate [Mitch McConnell] said . . . that civilian leader Daw Aung San Suu Kyi remains the best hope for Myanmar and that it would not be helpful for Congress to join an international pile-on against her over a military crackdown on the country's Rohingya Muslims.”). S e e S t e p h a n i e A m a d o r, Democratization: A Comparative Analysis of Lifted Economic Sanctions in Cuba and Burma, 17 Wash. U. Global Stud. L. Rev. 503, 515 (2018) (“1948, after the assassination of nationalist leader General Aung San [Suu Kyi’s father], Burma declared independence after over a century of British colonial rule.”). See Liam Cochrane, Myanmar: How the Military Still controls the Country, Not Aung San Suu Kyi, (Sept. 23, 2017), https://www. abc.net.au/news/2017-09-24/ how-military-controls-myanmarnot-aung-san-suu-kyi/8978042 [http://perma.cc/22RL-5KTH] (“The constitution provides that 25 per cent of seats in Parliament are given to the military.”). See Oxford Burma Alliance, Education in Burma, http:// www.oxfordburmaalliance.org/ education-in-burma.html [http:// perma.cc/8GWL-586U] (last visited Nov. 4, 2018) (“In the past, Burma was admired for the widespread literacy of its

50.

51.

52.

53.

54. 55.

people and high-quality education standards. . . boasting one of the highest literacy rates in Asia in the late 1940s and 1950s.”). See Jeffery Hayes, Facts and Details: Education in Myanmar, http://factsanddetails.com/ southeast-asia/Myanmar/sub5_5f/ entry-3117.html [http://perma. cc/63QY-WV6U] (last updated May 2014) (“Today, Myanmar lags far behind the developed world in terms of educational standards. Once at its zenith in the region, Myanmar today has unqualified teachers, very little resources, and aging materials.”). Gupte, supra note 39, at 380 (“25.6% of the Burmese population lives below the national poverty line, which is the highest among all the Southeast Asian countries”); cf. Amador, supra note 47, at 522 (“Generally, Burma has received the ‘lowest level of official development assistance among all of the least developed countries in Asia’.”). See Jeffery Hayes, Facts and Details: Independence, Aung San and Burma after World War II, http://factsanddetails.com/ southeast-asia/Myanmar/sub5_5a/ entry-3009.html [http://perma. cc/YUH8-YPBC] (last updated May 2014) (When Burma gained independence on January 4th, 1948, it became “the first nation to successfully break free from the British Empire since the U.S. did so in 1776.”). Cf. Gupte, supra note 39, at 386 (“The military has emerged as and continues to be the most powerful organization in Myanmar's political arena.”); Angeline Chen, Caretaking Democratization: The Military and Political Change in Myanmar. by Renaud Egreteau, 50 N.Y.U. J. Intl. L. & Pol. 307, 307 (2017) (book review) (“Egreteau posits that far from being removed from the political scheme of Myanmar, the military continues to operate with significant influence, despite sociopolitical and economic changes in the past decade.”). Gupte, supra note 39, at 372. See Burmese Universities Are Closed As Military Acts to Block Protests, N.Y. Times, Dec. 13, 1991 (“The ruling military junta of Myanmar . . . shut down universities in the capital today and sent army troops into the streets to break up demonstrations and arrest protesting students.”); Ei Shwe Phyuy, Yangon University’s Hlaing Campus Open Again After 20 years, Myanmar Times, (Dec. 6,

56.

57.

58.

59.

Currents 23.2 2019

2017), https://www.mmtimes. com/news/yangon-universityshlaing-campus-open-again-after20-years.html [http://perma. cc/5FM5-4Y9T] (discussing a campus that was closed in 1996 due to the national students movement). See Interview with Skye Wheeler, Tom Lantos Human Rights Commission, Sexual Violence by the Burmese Military Against Ethnic Minorities (July 25, 2018, 9:45 AM), https://www.hrw.org/ news/2018/07/25/sexual-violenceburmese-military-against-ethnicminorities [http://perma.cc/FT3YE8MH] (“Widespread sexual violence perpetrated by Burmese soldiers has been a hallmark of the culture of abuse and impunity in Burma’s decades-long civil wars with its ethnic groups.”). School’s In: Hundreds Apply for Politics Classes, Myanmar Times, Nov. 28. 2018 (“The teaching of political science was ended altogether in [1]988 by the military government” which also “spread propaganda that had made people afraid of politics altogether.”). See Oxford Burma Alliance, Education in Burma, http:// www.oxfordburmaalliance.org/ education-in-burma.html [http:// perma.cc/M6AB-BG8P] (last visited Nov. 4, 2018) (“Education in Burma is only compulsory for five years, and the majority of students drop out after this short period; according to UNESCO, only 50% of Burma’s children are enrolled in secondary education.”). Cf. Andrew Dusek, Ill Fares the Land: Reparations for Housing, L a n d , a n d Pr o p e r t y R i g h t s Violations in Myanmar, 30 Harv. Hum. Rights J. 129, 154 (2017) (“Prospects for transitional justice in Myanmar have been complicated by the incomplete democratic transition, the persistent armed conflict in ethnic states, and the uncertainty of how the new government will address continuing human rights violations.”); Jonathan Liljeblad, The Efficacy of National Human Rights Institutions Seen in Context: Lessons from the Myanmar National Human Rights Commission, 19 Yale Hum. Rights & Dev. L.J. 95, 107 (2017) (“[T]he status of human rights in Myanmar continues to be fragile. Even though it was among the original signatories to the Universal Declaration of Human Rights, the country has not ratified or acceded to the vast majority of

60.

61.

62.

63.

64.

65.

human rights treaties, with the exceptions being the Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW, acceded to in 1997), the Convention on the Rights of the Child (CRC, acceded to in 1991), and the Convention on the Rights of Persons with Disabilities (CRPD, acceded to in 2011).”). “The Fulbright Scholar Program . . . [is] the United States flagship academic exchange effor t.” F ulbright S cholar P rogram : About CIES, Bureau of Educ. and Cult. Aff. Exch. Prog., https://www.cies.org/about-us/ about-cies [http://perma.cc/9GLJSEWC] (last visited Oct. 28, 2018) The University of Mandalay’s founding dates back to 1925. See University of Mandalay, A Brief History, http://www.mu.edu.mm/ about-us/ [http://perma.cc/699M8VLB] (last visited Nov. 4, 2018). See World Population Review, Population of Cities in Myanmar 2018 (Oct. 28, 2018), http:// worldpopulationreview.com/ countries/myanmar-population/ cities/ [http://perma.cc/9GPQ4JM3] (stating Mandalay’s population as 1,208,099). See My Life Elsewhere, Country Size Comparison, (2018) http:// w w w. m y l i f e e l s e w h e re . c o m / country-size-comparison/burma/ texas-usa (“Texas is approximately 678,052 sq km, while Burma is approximately 676,578 sq km.”). Se e My a n m a r Po p u l a t i o n 2018, W. Pop. Rev., http:// worldpopulationreview.com/ countries/myanmar-population/ [http://perma.cc/72UY-TK4N] (last visited Oct. 28, 2018) (“Myanmar is the 24th most populous country in the world, and the 40th largest country by area, with a 2018 estimated population of 53.86 million.”). Cf. Jonathan Liljeblad, Transnational Support and Legal Education Reform in Developing Countries: Findings and Lessons from Burma/Myanmar, 14 Loy. U. Chi. Intl. L. Rev. 133, 141 (2016) (“Myint Zan, in his study of Myanmar's legal education system, described a curriculum driven by ideology and which was rife with inaccuracies and distortions, lacking in subjects considered standard in most Common Law jurisdictions, afflicted by low admissions and matriculation requirements, and populated by poorly-trained teachers and students. . . . Zan warned that the scale of work necessary to restore

66.

67.

68.

69.

70.

71.

the quality of Myanmar's law schools was extensive and should not be underestimated.”). See Sarah Polcz, Saffron Shadows and Salvaged Scripts: Literary Life in Myanmar Under Censorship and in Transition, 50 L. & Socy. Rev. 529, 530 (Ellen Wiles ed., 2016) (“50 years of censorship profoundly impacted three generations of contemporary writers” in Burma). See U.S. Embassy in Burma, Jefferson Center Mandalay, https:// mm.usembassy.gov/educationculture/american-spaces/jeffersoncenter-mandalay/ [http://perma. cc/FC39-4RJ4] (last visited Oct. 28, 2018) (“Since opening in February 2008 the Jefferson Center has been the [U.S.] Embassy’s outreach hub for Upper Myanmar. . . . Through discussions, presentations, exhibitions, cultural performances, library resources, classes, and workshops, visitors can experience the best of America and its values.”). See U.S. Embassy in Burma, American Center Yangon, https:// mm.usembassy.gov/educationculture/american-spaces/ american-center/ [http://perma. cc/TZ4T-XGFR] (last visited Oct. 28, 2018) (Visitors “can learn about the United States, explore new technologies, enhance . . . English language skills, and participate in open dialogue on many topics.”). See generally Vincent R. Johnson, Ethics in Government at the Local Level, 36 Seton Hall L. Rev. 715, 766 (2006) (“[T]he enactment and enforcement of a good ethics code can be an important step in treating individuals fairly by ensuring an equal opportunity to enjoy the benefits that government provides. An ethics code can also be good for business because a city that conducts its affairs in accordance with high standards is more likely to enjoy the confidence of investors and to derive economic benefits attributable to that confidence.”). See generally Vincent R. Johnson, Corruption in Education: A Global Legal Challenge, 48 Santa Clara L. Rev. 1, 7 (2008) (considering “basic principles that should shape efforts to deter, expose, and penalize corruption in academic institutions.”). See generally Vincent R. Johnson, The Virtues and Limits of Codes in Legal Ethics, 14 Notre Dame J.L. Ethics & Pub. Pol’y 25, 46 (2000) (“Lawyers' ethics codes provide an important basis for the equitable delivery of legal

72.

73.

74.

75.

76.

services and a valuable tool for stating professional aspirations, re-examining ethical choices, and promoting open discussion of ethical issues.”). See Vincent R. Johnson, The Ancient Magna Carta and the Modern Rule of Law: 1215 to 2015, 47 St. Mary's L.J. 1, 3 (2015) (“The modern Rule of Law is a complex philosophic concept that defines the ideals against which the integrity of ‘any legal system can be measured.’ . . . [I]t is generally agreed that legal decisions must be based on rules that are binding on persons regardless of rank. . . . In addition, the Rule of Law demands a legal system be operated in a way that is consistent, accessible, transparent, fair, even-handed, merits public confidence, and respects human dignity.”). See Vincent R. Johnson, The Ethical Foundations of American Judicial Independence, 29 Fordham Urb. L.J. 1007, 1028 (2002) (“The independence of the American judiciary depends heavily on the ethical standards that prevent or mitigate harm to the exercise of judicial judgment by inappropriate pressures flowing from activities or relationships involving persons outside the court.”). USAID, Mission, Vision and Values, https://www.usaid.gov/ who-we-are/mission-visionvalues [http://perma.cc/5DE92WDV] (last updated Feb. 16, 2018) (“[T]he U.S. Agency for International Development leads the U.S. Government’s i n t e r n a t i o n a l d e ve l o p m e n t and disaster assistance through partnerships and investments that save lives, reduce poverty, strengthen democratic governance, and help people emerge from humanitarian crises and progress beyond assistance.”). S h a t t i H o q u e , My a n m a r ' s Democratic Transition: Opportunity for Transitional Justice to Address the Persecution of the Rohingya, 32 Emory Intl. L. Rev. 551, 579 (2018) (“Although Myanmar's military retains a powerful place in the country's government, My a n m a r i s u n d o u b t e d l y undergoing a significant transition into democracy. . . . [T]he combination of old and new regimes has created a complex reality that imposes great challenges in addressing and alleviating the plight of the Rohingya.”). See Mozur, supra note 37, at A1 (stating that Facebook is “so broadly used [in Burma] that

77.

78.

79.

80.

81. 82.

many of the country’s 18 million internet users confuse the Silicon Valley social media platform with the internet.”). See Amador, supra note 47, at 517 (“In response to . . . postelection restrictions [in Burma], the U.S. Senate and Congress passed the Customs and Trade Act of 1990 (“CTA”), which required the President to impose economic sanctions against Burma if specified conditions were not met. On April 13, 1989, President Bush suspended Burma's eligibility for the Generalized System of Preferences program (“GSP”), and he designated Burma as a drug-trafficking country under the Foreign Assistance Act of 1961 (“FAA”) on February of the following year. . . . [T]he Bush administration subsequently . . . refused to renew the Bilateral Textile Agreement with Burma, which had expired on December 31, 1990.”). See Amador, supra note 47, at 521-22 (“U.S. sanctions . . . ‘systematically weakened the [Burmese] economy by limiting trade, investment and foreign aid.’ As a result of sanctions, Burma . . . [became] steadily poorer. For example, U.S. trade restrictions ‘resulted in the closing of many garment factories, leading to tens of thousands of job losses.’”). See Manmeet Ajmani, P.K. Joshi, & Avinash Kishore, How Did Sanctions Impact Myanmar?, The Diplomat, Jan. 6, 2018 (“After enforcement, Myanmar’s exports to the United States dropped to zero, but the U.S. continued to export its products to Myanmar.”). Responses by the United States to Attacks on the Rohingya in Burma, 112 Am. J. Intl. L. 322, 323 (2018); see generally Amador, supra note 47, at 517-21 (offering an historical overview of US sanctions relating to Burma). Schulte & Baird, supra note 24, at 21. See Jo Daniels, Key Features To Expect From Myanmar's New Copyright Law, baker mckenzie (March 22, 2018), https://www. bakermckenzie.com/en/insight/ publications/2018/03/keyfeatures-myanmar-copyright-law [http://perma.cc/3CG3-ABNX] (“Myanmar’s long-anticipated IP laws are making progress, with the four bills having been approved by the National Parliament (Amyotha Hluttaw) and endorsed to the People’s Parliament (Pyithu Hluttaw) on 15 February 2018. All four bills—on copyright,

83.

84.

85.

86.

trademarks, industrial design and patents—are expected to be passed into law imminently.”). Goh Wanjing, Myanmar: The Emergence of a New Construction Law Jurisdiction in Asia, 12 Construction L. Int'l 12, 16 (2017). Jeff Shim, Foreign Agricultural Investments in Myanmar: Toward Successful and Sustainable Contract Farming Relationships, 55 Colum. J. Transnatl. L. 717, 754–55 (2017) (“[C]ontract farming can be a valuable tool not only in attracting foreign investment generally, but also in driving the country's agricultural and rural development. . . . Its successful promotion in Myanmar, however, is contingent upon the Myanmar government's adoption of various legal and non-legal measures.”). Andrew D. Mitchell & Neha Mishra, Data at the Docks: Modernizing International Trade Law for the Digital Economy, 20 Vand. J. Ent. & Tech. L. 1073, 1115 (2018) (“[D]eveloping country Members [of the WTO] have supported the development dimension of electronic commerce. This is particularly the case in the following areas: the role of trade facilitation in enabling electronic commerce, trade assistance to developing countries to focus on infrastructure gaps in electronic commerce, enabling greater access to online payments, and building cooperation between countries to enhance trust and fighting cybercrimes.”). See Stamberger, supra note 19, at 607. According to Stamberger: W TO m e m b e r s , i n 1 9 7 9 , enacted the Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries (the “Enabling Clause”). The Enabling Clause suspends the GATT's general most favored nation (“MFN”) rule and allows developed country members to give differential and more favorable treatment to developing countries. The mechanism for this treatment is the Generalized System of Preferences (“GSP”), under which developed countries offer non-reciprocal preferential treatment to products originating in developing countries. The GSP program is voluntary for developed countries, who also determine which countries receive preferences and to what extent those preferences are granted. But see treblicock et al., supra note 5, at 655 (“[T]here is a growing

Currents 23.2 2019

87.

88.

89.

90.

body of literature questioning the effectiveness of preferential market access arrangements.”). See Anupam Chander & Madhavi Sunder, The Battle to Define Asia's Intellectual Property Law: From TPP to RCEP, 8 UC Irvine L. Rev. 331, 332 (2018) (“When the United States pulled out [of the Trans-Pacific Partnership], the remaining nations suspended a number of its provisions, especially those involving intellectual property, and proceeded with a treaty now dubbed the Comprehensive Progressive TransPacific Partnership (CPTPP).”); see also Stephen Garvey, Resolving US-China IP Disputes Through the WTO: A Legal Alternative to Unilateral Sanctions, 2018 B.C. Intell. Prop. & Tech. Forum 1, 13 (Oct. 6, 2018) (arguing “[t]he United States should scale back its unilateral sanctions as much as possible in favor of action within the WTO framework…”); Lisa M. Brownlee & Christopher Coye, Trademark Law in Belize: Implementation of GATT Trips in a Developing Country, 93 Trademark Rep. 1414 (2003) (“[I]ntellectual property law in Belize . . . [was] completely modernized, with the enactment of new patent, trademark, copyright, and industrial property laws--all to fulfill Belize's obligations as a signatory to GATT TRIP.”). Michael Ewing-Chow, First Do No Harm: Myanmar Trade Sanctions and Human Rights, 5 Nw. U. J. Intl. Hum. Rights 153, 96 (2007) (“Trade sanctions have not been successful in causing regime change.”). Tariff-Based Disputes Continue to Characterize Trump Administration Trade Policies, 112 Am. J. Intl. L. 751, 751 (2018) (“The United States and China ratcheted up their use of tariffs against each other.”). See Faizel Ismail, Mainstreaming Development in the World Trade Organization, 39 J. World Trade 11, 16 (2005) (“While it is widely recognized that the WTO dispute settlement system is an essential component of a multilateral rules-based system and needs to be strengthened, there has been significant criticism from developing countries, especially those with less capacity, that the system is not transparent and inclusive.”); see also World Trade Organization, https:// www.wto.org [http://perma.cc/ SEJ5-RM8B] (last visited Nov. 3,

91.

92.

93.

94.

2018); Sol Picciotto, The WTO’s Appellate Body: Legal Formalism as a Legitimation of Global Governance, 18(3) Governance 477, 490 (2005); Raj Bhala et. al., WTO Case Review 2012, 30 Ariz. J. Int'l & Comp. L. 207, 218 (2013) (quoting former member Jennifer Hillman). See Andrew Lang, world trade law after neoliberalism: reimagining the global economic order 223 (2011) (“Virtually all aspects of the WTO Members’ d o m e s t i c p o l i c i e s a re n ow potentially open to re-description as trade barriers, and are thereby potentially subject to discipline under WTO law.”); Oyejide, supra note 10, at 17 (“The increasing intrusion of WTO rules into the national domestic policy space has been driven by at least two factors. . . First, the success of the GATT/WTO system in reducing conventional border protection measures . . . makes non-border restrictions on market access more visible to trading partners. Second, a desire to gain access to the dispute settlement and enforcement mechanism of the WTO.”); but see Alvaro Santos, Carving Out Policy Autonomy for Developing Countries in the World Trade Organization: The Experience of Brazil & Mexico, 52 Va. J. Intl. L. 551, 632 (2012) (“Despite the international constraints, [developing] countries can expand their policy space--if they deem it desirable--and find room for policies they want to advance.”). See Editorial, supra note 13 (“Regional agreements can be useful . . . , but they threaten to segregate the world into overlapping trading blocs with different rules in areas like labor rights, environmental protection and access to medicines.”). Friedman, supra note 32, at 6-7 (arguing “the world is flat,” meaning that, in selling goods and services, businesses must compete with enterprises in other countries.) See General Agreement on Tariffs and Trade (GATT), 15 April 1994, 1867 U.N.T.S. 187 (1994) [hereinafter GATT 1994 Art XX]; see also Andrew T.F. Lang, Legal Regimes and Professional Knowledges: The Internal Politics of Regime Definition, Regime Interaction in Int’l Law 113, 114 (Margaret A. Young ed., 2012) (Potential conflicts are ubiquitous. “[C]ontemporary interaction between the trade and human

95.

96.

97.

98.

99.

Currents 23.2 2019

rights regime, for example, [is] … motivated by a desire on the part of human rights actors to change the dynamics of the trade regime to make it more compatible with a particular conception of human rights values—and vice versa.”); See Daunton, supra note 30, at 41 (stating it is not hard to envision that the failure to resolve trade disputes could produce adverse consequences rippling broadly throughout the entire economy.) Amrita Narlikar, Collective Agency, Systemic Consequences: Bargaining Coalitions in the WTO, The Oxford Handbook on the WTO 184, 191 (2012); see also Gilbert R. Winham, The Evolution of the World Trading System—The Economic and Policy Context, The Oxford Handbook of Intl. Trade L. 5, 25-27 (Bethlehem et al. eds., 2009). Liel Leibovitz & Matthew Miller, Fortunate Sons: The 120 Chinese Boys Who Came to America, Went to School, and Revolutionized an Ancient Civilization 20 (2011). F ulbright S cholar P rogram : History, Bureau of Educ. and Cult. Aff. Exchange Prog., https://www.cies.org/about-us [http://perma.cc/P5EZ-KQVP] (last visited Nov. 4, 2018) (“The Fu l b r i g h t Pr o g r a m a w a rd s approximately 8,000 grants annually. Roughly 1,600 U.S. students, 4,000 foreign students, 1,200 U.S. scholars, and 900 visiting scholars receive awards, in addition to several hundred teachers and professionals. Approximately 370,000 ‘Fulbrighters’ have participated in the Program since its inception in 1946.”). Fulbright U.S. Scholar Program: At a Glance, Bureau of Educ. And Cult. Aff. Exchange Prog., https://exchanges.state. gov/us/program/fulbright-usscholar-program [http://perma. cc/G7KU-WMM9] (last visited Nov. 4, 2018) (“The Fulbright U.S. Scholar Program sends approximately 800 American scholars and professionals per year to approximately 130 countries, where they lecture and/or conduct research in a wide variety of academic and professional fields.”). See John Newsom, Schools Sue Over Student Visa Rules, Greensboro News & Rec., Oct. 27, 2018, 2018 WLNR 33281283 (“The federal government recently changed how it counts the time that foreign students overstay their visas.

Advocates say many international students could face lengthy bans from the United States.”); Lubna Kably, New Visa Policy to Hit US Institutes Financially, Times of India, Oct. 26, 2018, 2018 WLNR 33120169 (“[I] nternational students, for no fault of theirs, could find themselves barred from entering the US for three to 10 years.”); Geoffrey York & Michelle Zilio, Access Denied: Canada's Refusal Rate for Visitor Visas Soars, Globe and Mail, July 9, 2018, 2018 WLNR 20818771 (“When scholars gathered at Queen's University in early May for their annual African studies conference, the program had a dozen gaps. Twelve invited scholars from Africa were denied an entry visa or could not obtain one in time.”); see also Pakistani Fulbright Scholar Denied Despite Valid Visa, Express Tribune (Pakistan), 2017 WLNR 10487631, Apr. 5, 2017, 2017 WLNR 10487631 (stating that re-entry back to the US has been blocked at the airport for reasons that were unclear). Some visa restrictions have been related to concerns about international terrorism. See Susan Svrluga, Harvard-bound, Now Left in Limbo, Wash. Post, Aug. 15, 2018, 2018 WLNR 24847812 (“Advocates of the president's ban—which mainly affects travelers from certain Muslimmajority nations—said increased scrutiny of some travelers is necessary.”); see also Jaime Adame, Travel Ban Won't Stop Global Recruitment, Universities Say, Ark. Democrat Gazette (Little Rock, AR), June 27, 2018, 2018 WLNR 19621983 (“’Public universities remain deeply concerned about this misguided travel ban and the message it sends to all international students and scholars who have long been drawn to U.S. universities to undertake studies, conduct research, and teach students at our worldleading institutions,’ Association of Public and Land-grant Universities President Peter McPherson said.”). Other visa restrictions have sought to address alleged theft of American intellectual property. See Lindsay Ellis, Chinese College Enrollment—Prominent in Texas— May Decline After US Visa Policy Shift, Groups Warn, Houston Chron., May 30, 2018, 2018 WLNR 16648772 (“The Trump administration plans to shorten

the length of validity for some visas issued to Chinese citizens . . . to counter alleged theft of U.S. intellectual property by Beijing.”); see also Li Ruohan, Sinophobia ‘Rises’ in the US, Global Times, Aug. 10, 2018, 2018 WLNR 24338412 (“‘Almost every student that comes over to this country is a spy,’ Trump said at a dinner with a group of 15 CEOs and senior White House staff.”). 100. See Carol Morello, Ex-Fulbright Scholars are Asked to Lobby Congress to Fight Deep Funding Cut, Wash. Post, June 9, 2017, 2017 WLNR 17766217 (“During the current budget year, the U.S. government has provided a little more than $235 million to finance study abroad for about 8,000 scholars. The Trump administration wants to slash that to $125 million—less money than other governments, universities and businesses contribute separately.”). 101. Id. (“Previous administrations have tried to pare back the Fulbright budget but never succeeded, in large part because it enjoys broad bipartisan support in Congress.”). 102. See Trebilcock et al., supra note 5, at 4 (“[I]n an international trade context . . . a country should specialize in producing and exporting goods in which its comparative advantage is greatest, or comparative disadvantage is smallest, and should import goods in which its comparative disadvantage is greatest.”). 103. See Id., at 3 (stating that David Ricardo’s theory of comparative advantage, on which many economic arguments for trade liberalization are founded, is a sophisticated idea.); Carmen G. Gonzalez, An Environmental Justice Critique of Comparative Advantage: Indigenous Peoples, Trade Policy, and the Mexican Neoliberal Economic Reforms, 32 U. Pa. J. Int'l L. 723, 762-63 (2011) (stating that the theory of comparative advantage—which holds that a country should specialize in goods which can be produced more cheaply or efficiently—is neither simple, obvious, nor immune from dispute. It is argued, for example, that “the economic specialization promoted by the theory of comparative advantage is fundamentally at odds with the economic diversification and industrialization necessary for successful economic development.”). 104. See generally Samuel Moyn, Not Enough: Human Rights in an Unequal World 24 (2018)

Corruption (Oct. 31, 2003), https://www.unodc.org/unodc/ en/corruption/uncac.html [http:// perma.cc/XT94-PKYL](“The United Nations Convention against Corruption is the only legally binding universal anticorruption instrument. . . . The vast majority of United Nations Member States are parties. . . . The Convention covers . . . preventive measures, criminalization and law enforcement, international cooperation, asset recovery, and technical assistance and information exchange . . . [and] many different forms of corruption, such as bribery, trading in influence, abuse of functions, and various acts of corruption in the private sector.”). 114. See Organization Of American States: Inter-American Convention Against Corruption, OAS, Mar. 29, 1996, 35 int’l legal materials 724 (1996), http://www.cambridge.org/core/ journals/international-legalmaterials/article/organization-ofamerican-states-interamericanconvention-against-corruption /887ECEFEB1BE1D2A8ACA 62CD5982771 [http://perma. cc/9X9T-NPB2]; Legal Issues of International Sourcing Part II, 48 No. 20 The Lawyer's Brief NL 2 (Oct. 31, 2018) https://1.next. westlaw.com/Document/Ic41bc0 53d69e11e89589e2e7f94943c2/ View/FullText.html?navigationPa th=Search%2Fv1%2Fresults%2F navigation%2Fi0ad7403700000 168258523097de4bbb9%3FNav %3DANALYTICAL%26fragmen tIdentifier%3DIc41bc053d69e11 e89589e2e7f94943c2%26startInd ex%3D1%26contextData%3D% 2528sc.Search%2529%26transiti onType%3DSearchItem&listSou rce=Search&listPageSource=fcf73 7065d61a03a757b362f932ff156 &list=ANALYTICAL&rank=1&s essionScopeId=3a99df5caaaee542 c41f10d4a570dd346a639b739ca3 cea82e1e9229c657f2c8&originati onContext=Search%20Result&tra nsitionType=SearchItem&context Data=%28sc.Search%29 [http:// perma.cc/EVV9-68EQ](“On March 29, 1996, the Organization of American States (‘OAS’) concluded . . . the first multilateral agreement to combat corruption. . . . The Convention . . . requires signatories to create, maintain, and strengthen standards of conduct, enforcement mechanisms, and a variety of other instructional and monitoring systems. . . . [T] he Convention establishes a set of preventive measures; provides

(“In the French “revolutionary era . . . , it became more and more the common sense that some sort of ‘reasonable’ equality in the distribution of the good things in life was both feasible and necessary.”). 105. See Trebilcock et al., supra note 5, at 2. 106. Id. at 6-10. 107. Id. 175, 256-57. 108. Id. at 13; see also Andrew Lang, supra note 94, at 221, 228 (“domestic institutions … came to resemble a more radical form of the free market.”). 109. See Ryon, supra note 40, at 845 (“Corruption is commonplace in Burma, where government officials expect to be paid off by businesses in exchange for licenses and a faster bureaucratic process.”); Beina Xu & Eleanor Albert, Council on Foreign Relations: Understanding Myanmar, (Mar. 25, 2016), https://www.cfr.org/ backgrounder/understandingmyanmar [http://perma.cc/JL4GGBGX] (“By 1988, widespread corruption and food shortages led to mass protests, spearheaded by students.”). 110. See, e.g., Coral Davenport & Steve Eder, Interior Leader Under Pressure in Ethics Cases, N.Y. Times, Nov. 1, 2018, at A1 (“Ryan Zinke, the secretary of the Interior Department and a key figure in President Trump’s push to roll back environmental regulations . . . is facing increased scrutiny amid federal allegations that he . . . maintained close ties with industries he oversees.”). 111. See Gupta, supra note 39, at (“Although Myanmar's growth rate has been about 7% and Foreign Direct Investment (F.D.I.) is expected to increase to $100 billion in the next two decades, none of this development is reaching the ordinary citizens, especially those living the rural areas. . . . Revenues from the sale of the natural resources are not directed towards rural development but instead fill the pockets of the military leaders and their crony companies.”). 112. S e e V i n c e n t R . J o h n s o n , Comparative Defamation Law: England and the United States, 24 U. Miami Intl. & Comp. L. Rev. 1, 97 (2016) (“Despite the United Kingdom's passage of Defamation Act 2013, it is still the case that American defamation law is far more protective of free speech and free press than English law.”). 113. See G.A. Res. 58/4 Art. 34 2003 Convention Against

for the criminalization of certain acts of corruption, including transnational bribery and illicit enrichment; and. . . [for] mutual legal assistance and technical cooperation, extradition and identification, tracing, freezing, seizure and forfeiture of property or proceeds.”). 115. See Civil Law Convention on Corruption, Art. 8, Nov. 4, 1999, E.T.S. No. 174 (entered into force Nov. 1, 2003); see also Rahul Kohli, Foreign Corrupt Practices Act, 55 Am. Crim. L. Rev. 1269, 1306 (2018) (“The 2002 Civil Law Convention on Corruption has been ratified by thirty-five countries . . . . It is the first international convention that unifies signatories' approach to civil litigation in bribery cases. The Civil Law Convention on Corruption expands liability for U.S. international business interests because it establishes two individual causes of action not available under U.S. law.”). 116. See Criminal Law Convention on Corruption: Details of Treaty No. 173, Council of Europe § 5:15, https://www.coe.int/en/ web/conventions/full-list/-/ conventions/treaty/173 [http:// perma.cc/FAH8-E3AP] (last visited Nov. 6, 2018); The Developing Web of International Anticorruption Conventions— Council of Europe Conventions, 1 Foreign Corrupt Prac. Act Rep. § 5:15 (2nd ed. Jan. 1, 1999) (“The Criminal Law Convention on Corruption entered into force on July 1, 2002. . . . [It] requires the criminalization of both active and passive (i.e., receipt) domestic bribery. It then goes beyond both the OAS and OECD Conventions to require criminalization of both active and passive bribery in the private sector. The Convention also requires criminalization of transnational bribery of officials.”). 117. S e e A f r i c a n Un i o n ( A U ) , Convention on Preventing and Combating Corruption, Jul. 11, 2003, 43(1) int’l legal materials 5 (2004), https://au.int/ sites/default/files/treaties/7786treaty-0028_-_african_union_ convention_on_preventing_and_ combating_corruption_e.pdf [http://perma.cc/P4ZF-SX2J]; D. Alison von Rosenvinge, Global Anti-Corruption Regimes: Why Law Schools May Want to Take a Multi-Jurisdictional Approach, 10 Ger. L.J. 785, 794–95 (2009), (“In 2006, the African Union Convention on Preventing and Combating Corruption (AU

Currents 23.2 2019

Corruption Convention) entered into force. . . . The measures to prevent corruption require public officials to “declare their assets at the time of assumption of office during and after their term of office in the public service,” to create bodies to implement and monitor codes of conduct for public servants and to maintain accounting, auditing and monitoring systems. The AU Corruption Convention also addresses preventing private corruption.”). 118. Convention on Combating Br i b e r y o f Fo re i g n Pu b l i c Officials in International Business Transactions, OECD, Dec. 17, 1997, S. Treaty Doc. No. 105-43, 37 int’l legal materials 1, http:// www.oecd.org/daf/anti-bribery/ ConvCombatBribery_ENG.pdf [http://perma.cc/9LK8-8QTM] (entered into force Feb. 15, 1999); Rachel Brewster & Christine Dryden, Building Multilateral Anticorruption Enforcement: Analogies Between International Trade & Anti-Bribery Law, 57 Va. J. Intl. L. 221, 237 (2018) (“The OECD Convention requires states parties to criminalize the act of bribing a ‘foreign public official’ to ‘obtain or retain business’ or to gain any “improper advantage in the conduct of international business.” It also requires states parties to enact accounting provisions requiring the keeping of accurate books and records.”). 119. See Cordell Hull, united states history, https://www.u-s-history. com/pages/h1630.html [http:// perma.cc/ZT72-Y2Z6] (last visited Nov. 5, 2018) (“Hull was appointed Secretary of State by President Franklin D. Roosevelt on March 4, 1933. He held that post for nearly 12 years. During Hull's historically long period as secretary of state, he negotiated reciprocal trade agreements with numerous countries, lowered trade tariffs and stimulated trade.”). 120. Peter M. Gerhart, The World Trade Organization and Participatory Democracy: The Historical Evidence, 37 Vand. J. Transnat'l L. 897, 910 (2004). 121. See Daunton, supra note 30, at 47 (“[E]ven Britain, the main proponent of free trade, introduced protectionist policies.”). 122. See United Nations, Overview, http://www.un.org/en/sections/ about-un/overview/index.html [http://perma.cc/KH5T-KPUN] (last visited Nov. 4, 2018) (“The United Nations is an international organization founded in 1945 . . .

currently made up of 193 Member States.”). 123. See Trebilcock et al., supra note 5, at 23 (The World Bank’s “initial mandate [was] to provide reconstruction capital from countries like the USA whose economies had not been devastated by the war to shattered economies of Europe and Japan” and was later redefined as “providing capital to less-developed countries.”). 124. See Herdegen, supra note 4, at 513 (“The IMF was established [in 1944] to ensure a stable international monetary system as the basis of international trade and capital movements, to foster a sound economic growth and to contribute to a stable monetary regime of Member States.”). 125. See Marshall Plan, History, https://www.history.com/topics/ world-war-ii/marshall-plan-1 [http://perma.cc/JJS5-QPB5] (last updated Aug. 21, 2018) (“The Marshall Plan, also known as the European Recovery Program, was a U.S. program providing aid to Western Europe following the devastation of World War II. It was enacted in 1948 and provided more than $15 billion to help finance rebuilding efforts on the continent.”). 126. See Morello, supra note 100 (“The [Fulbright Scholar] program was the brainchild of Sen. J. William Fulbright, who proposed it in the wake of World War II as an expression of the U.S. commitment to democratic values and soft power. ‘It is a modest program with an immodest aim— the achievement in international affairs of a regime more civilized, rational and humane than the empty system of power of the past,’ he said of the program, signed into law by President Harry S. Truman in 1946.”). 127. See Daunton, supra note 30, at 50 (“The main desideratum was to return to multilateral trade and reject protectionism through tariffs, preferences, and controls.”).

Currents 23.2 2019

Twenty-first Century Trade Policy: The Recent U.S. Approach and the Way Forward C H E R I E

—————————————————

Introduction ————————————————— The United States makes external trade

O .

TAY L O R

Cherie O. Taylor is a Professor of Law and Director of the Institute for International Legal Practice & National Security at South Texas College of Law Houston.

Analyzing trade policy trends over the last decade requires examining the approaches taken by three Presidents. What follows is a broad overview of the efforts of

policy by engaging in a full complement

how the U.S. has participated in the World

Presidents G.W. Bush, Obama, and Trump

of unilateral, bilateral, regional, and

Trade Organization, and 3) how the U.S.

at the multilateral and regional levels.

multilateral trade efforts. While the content

has acted as a proponent of regionalism in

—————————————————

of this trade policymaking has differed

international trade.

1. President G.W. Bush

under each President, in the post-WW II era

It is crucial to examine the past patterns

—————————————————

patterns recurred. The President – whether

and future signs of U.S. trade policy now for

On the multilateral front, the Bush

Republican or Democrat – more often than

two reasons. First, the Presidential campaign

administration pursued trade policy

not has struggled in his attempts to share

of 2016 and the beginning of the Trump

through negotiations in the World Trade

trade policymaking with the Congress. Both

administration have changed the direction

Organization.6 Throughout the Bush years,

the Executive Branch and Congress have been

and scope of U.S. trade policy.3 Second,

the U.S. actively participated in the Doha

committed to the efforts of the GATT and

President Trump has what has been rarely

Round negotiations but was not able to steer

its successor, the World Trade Organization

available to the Executive Branch over the last

the organization towards a breakthrough

(WTO). Each branch has emphasized the

decade4 –Trade Promotion Authority (TPA)5

in the talks. Instead, the pursuit of free

importance of the U.S. taking a leadership

– the authority to negotiate and submit trade

trade agreements (FTAs)– complete with

role in the keeping the WTO focused on

agreements for approval by Congress.

a checklist for what would make a good

its mission of trade liberalization. Since the

—————————————————

partner country – became the primary way7

late 1980s, the United States has turned

I. Attempting Trade Policy without Coordination: The President and Congress

the Bush Administration pushed forward

into an active participant in regionalism in international trade. What this essay examines is the extent

trade liberalization. The U.S. chose FTA partners because they met specific trade, foreign policy, and national security goals.8

to which these patterns in U.S. trade

—————————————————

Additionally, the U.S. selected FTA partners

policymaking have altered over the last two

—————————————————

willing to accept the U.S. model for free

decades and what may lie ahead. The essay

A. The Trade Policy Efforts of Presidents G.W. Bush, Obama, and Trump

trade agreements – a model based upon and

will do this by focusing on three major aspects of trade policy – 1) how the President and Congress share trade policymaking, 2)

—————————————————

extrapolated from the North American Free Trade Agreement (NAFTA)9 and U.S. desires for expanding certain trade rules beyond the

Currents 23.2 2019

levels agreed to at the WTO.10

Congressional approval.

succeeded in making some progress in the

From 2003 through 2007, the President

What this meant was the U.S. negotiated

Doha Round negotiations of the WTO.17

submitted and Congress approved at least one

trade agreements but could not complete

Second, the Obama administration

free trade agreement every year for a total

them – by having them up for a congressional

negotiated and completed expansions to two

of eight FTAs.11 President Bush was able

vote on the necessary implementing

existing WTO plurilateral agreements – the

to achieve this record because he had access

legislation. President Obama was well

Government Procurement Agreement and

to the 2002 version of Trade Promotion

aware of his need for trade promotion

the Information Technology Agreement.18

Authority allowing any trade agreement

authority and the difficulties he would face

Finally, the Obama administration led the

completed by 2007 to come up for a vote

in obtaining such authority. In his 2009

effort to launch two new sets of plurilateral

before Congress.12 In addition to the eight

Trade Policy Agenda report to Congress,14

agreements – the Trade in Ser vices

completed and voted upon FTAs, President

the President announced that he would

Agreement (TiSA) and the Environmental

Bush finished negotiations for three other

seek Trade Promotion Authority but only

Goods Agreement (EGA)19. The Obama

FTAs by 2007 – with Panama, Colombia,

after “extensive consultations with Congress

administration hoped to submit some of

and South Korea. However, President Bush

to establish proper constraints on that

these plurilateral agreements to Congress for

left office before presenting these agreements

authority” and after his administration had

approval. However, none of the negotiations

to Congress for its consideration. By that

“assessed our priorities and made clear to this

ended in time for completed agreements to

time, President Bush had lost the confidence

body [Congress] and the American public

go to Congress.

of Congress on trade issues and he did not

what we intend to do with it.”

—————————————————

seek renewal of trade negotiating authority.

The Obama administration never held

Congress approved the three FTAs left behind

consultations with Congress over Trade

by the Bush administration only in 2011

Promotion Authority and its proper shape

after each was re-negotiated in some form.

and limits. However, President Obama did

—————————————————

fulfill the second part of his promise to delay a

2. President Obama

request for TPA until his trade priorities were

—————————————————

established. From 2009 until 2015, President

The Obama administration’s initial

Obama and USTR developed a clear set of

From 2009 until 2015, President Obama and USTR developed a clear set of trade policy goals and pursued several new sets of major trade agreement negotiations at the multilateral and regional levels.

approach to trade policy making did not

trade policy goals and pursued several new

—————————————————

widely diverge from that of the Bush

sets of major trade agreement negotiations

At the regional level, the Obama

administration. From the beginning,

at the multilateral and regional levels. Only

administration went far beyond the Bush-

President Obama, working through his Office

after all of these efforts were underway did

era approach to regionalism20. The U.S.

of the United States Trade Representative

President Obama seek TPA from Congress in

launched negotiations for two large regional

(USTR), pursued multilateral, regional, and

2013. After being rebuffed, Obama renewed

free trade agreements. These mega-regionals21

bilateral trade negotiations. At its inception,

that request in 2015. Obama’s strategic delay

marked the biggest FTA negotiations

however, President Obama faced a problem

in seeking TPA led to a pitched battle in

since the failed Free Trade Agreement of

President Bush lacked until later in his

Congress over whether it would grant that

the Americas (FTAA) negotiations.22 The

administration. Congress did not provide

authority. President Obama won the fight

first mega-regional agreement initiated

trade promotion authority in the early years

in June 2015 but only by appealing to the

by the Obama administration was the

of the Obama administration. It was not

Republicans in both houses of Congress.

Trans-Pacific Partnership (TPP). The U.S.

until 2015, two years shy of the end of his

At the multilateral level from 2009-

involvement with TPP began in 2009 when

two terms in office, that President Obama

2016, the Obama administration pursued

President Obama announced the start of

was in a position submit agreements for

three goals. First, Obama tried and ultimately

negotiations. TPP negotiating sessions

Currents 23.2 2019

went from 2010 until their completion in

supported the agreement.32 By contrast, as a

actions as aggressive unilateralism. From his

October 2015.

The twelve participating

candidate Trump expressed hostility towards

perspective the U.S. has been under attack

countries released the TPP Agreement to

the WTO. Trump also campaigned against

from trade. As a result, the U.S. is justified in

the public in November 2015 following the

U.S. free trade agreements. He blamed the

starting trade wars that “are good, and easy to

announcement by the Obama administration

NAFTA and TPP for economic hardships

win.”36 The immediate consequences of the

that it would seek approval from Congress.25

faced by voters, particularly those in 2016

trade wars have been retaliatory trade actions

The TPP partner countries signed the

battlefield states in the Mid-West.

by major allies and the filing of numerous

Upon taking office, President Trump

WTO disputes. The long-term consequences

The second set of mega-regional

started to follow through on his campaign

(exploding trade deficits and harms to U.S.

negotiations started by the Obama

promises and his message that the post-WW

industries) are just starting to appear.

administration was for a Transatlantic

II consensus on trade policy of all other

The first trade actions brought were

Trade and Investment Partnership (T-TIP).

U.S. presidents has not served the U.S.

under Section 232 of the Trade Expansion

These negotiations, if completed, would

well. President Trump has made “America

Act of 196237, an act unused since 1982.38

have created a free trade area between the

First” the theme for his administration’s

President Trump requested in 2017 that

U.S. and the European Union (at that time

approach to trade policy.34 In his Trade

the Commerce Department investigate the

representing the 28 Member States of the

Policy Agenda (2018), President Trump

situation with steel and aluminum imports

EU ). The T-TIP negotiations began in June

explained what “America First” entails.

into the United States. When completed in

2013 and by October 2016 the countries

The American First trade policy contains

2018, the Commerce Department reports39

completed the fifteenth negotiating session.27

five priorities: 1) supporting U.S. national

found that the quantities and circumstances

—————————————————

security; 2) strengthening the U.S. economy;

of both steel and aluminum imports

3. President Trump

3) negotiating better trade deals; 4) enforcing

threatened “to impair the national security”

—————————————————

U.S. trade laws and rights under existing

under the terms of Section 232. In March

During the 2016 campaign, U.S. trade

trade agreements; and 5) reforming the

2018, President Trump adopted the analysis

policy and the value of free trade agreements

multilateral system.

of the investigative reports and imposed

became major issues. The Presidential

—————————————————

a 25% tariff on steel imports and a 10%

agreement in March 2016.

Upon taking office, President Trump started to follow through on his campaign promises and his message that the post-WW II consensus on trade policy of all other U.S. presidents has not served the U.S. well.

candidate or president of either party before

—————————————————

with the United States.41 Since that time,

Trump has expressed hostility towards free

President Trump devoted most of 2018

the U.S. has negotiated separately with all

trade agreements since the U.S. completed

to pursuing the national security priority. He

of these countries. Some have been granted

its first agreement in 1984. 31 Even in

did this by bringing a series of trade actions

permanent exemption status (Argentina,

1992 when Bill Clinton was campaigning

against almost every major trading partner of

Australia, and Brazil)42 while others (the EU,

for President on a pledge to add side-

the United States. The U.S., in other words,

Canada, and Mexico)43 were not and the

agreements to NAFTA to deal with labor

started a series of trade wars. President Trump

tariffs went into place against them.

and environmental impacts, he strongly

did not regard these unprecedented trade

nominees of both parties expressed views on trade that were far from typical for Presidential candidates or Presidents.

However, the election of President Trump marked a sharp break from all previous post-WWII Presidents on trade issues.29 No candidate before Trump run a campaign that attacked the GATT or the WTO.

tariff on aluminum imports against all U.S. trading partners except initially for NAFTA partners, Canada and Mexico.40 The U.S. did not actually go ahead with sanctions against all of these countries singling out some – Argentina, Australia, Brazil, South Korea and EU – as entitled to exemption because of their important security relationships

Before the imposition of the Section 232

Currents 23.2 2019

tariffs, there was political opposition in the

regard to technology transfer requirements

engaged in a series of threats and negotiations

U.S. and from major trading partners such

imposed by China’s government).

On the

for the next few months until the Trump

as the EU and China. Since the imposition

day the USTR report was issued, President

administration announced that it was moving

of both sets of tariffs, the Section 232 actions

Trump directed USTR to pursue a WTO

ahead with a final tariff list to go into effect

have been challenged as unconstitutional45

dispute and to pursue impose tariffs against

in July of 2018.61 China promised its own

in U.S. courts and illegal under GATT and

China for these policies.55 The first action

retaliatory tariffs in response and President

WTO rules. Canada, China, the EU, India,

– seeking a WTO dispute – is the standard

Trump countered with a threat to request

Mexico, Norway, the Russian Federation,

response to a Section 301 investigation where

the imposition of additional tariffs.62 The

Switzerland47, and Turkey have all filed WTO

USTR finds there to be a violation of any

dialogue ended when the U.S. imposed its

disputes against the U.S. arguing that the

trade obligation by another WTO Member

tariffs. China responded with retaliatory

tariffs violate the GATT.48 In response to

State.56 The United States filed a request

tariffs.63 The two countries sparred over the

these requests for WTO consultations, the

for consultations, the first step in a WTO

size and amount of additional tariffs until

United States has argued that the Section

dispute, on March 23, the day after the the

each ended up with expanded tariff lists.64

232 measures are not Safeguards measures

USTR report.57

The United States and China continue as of

but tariffs that the U.S. is entitled to use

Completely atypical was the determination

early 2019 to negotiate over the intellectual

under Article XXI, the National Security

by the President to impose tariffs unilaterally

property and technology issues and the

exception to GATT rules.

Not content

under Section 301. The EU pursued the

impasse over the tariffs.65

to leave the matter to WTO resolution,

U.S. during the Clinton administration in

Throughout the trade wars, it has been

Canada, China, the EU, India, Mexico, the

a WTO dispute alleging that the statute

hard to determine exactly what the U.S.

Russian Federation, and Turkey also imposed

constituted a violation of trade law.58 At that

goals are66 and what the U.S. sees as the end

retaliatory tariffs upon the United States. In

time, the U.S. promised that it would not use

game.67 Tariff strikes, and the threat of more,

response, the United States has filed WTO

Section 301 as a unilateral tool against other

could produce a shift in China’s willingness

disputes against several of these countries

WTO Members and would instead bring

to buy more U.S. goods thus lowering the

arguing violations of GATT Article I and II.

WTO disputes when WTO law applied.

trade deficit. However, there is no guarantee

The other Trump administration

Despite this commitment, USTR followed

that tariff wars will change China’s industrial

actions against China were also pursued

President Trump’s orders and released a tariff

policies.68

as necessary for U.S. national security.51

list intended to affect $50 billion of China’s

In 2017, President Trump directed USTR

imports into the United States.

China’s

administration started out being more

to determine under Section 301 of the

response was to request consultations at

interested in WTO reform than WTO

Trade Act of 1974, whether any of China’s

the WTO on the U.S. tariffs in April 2018

rulemaking. 69 However, by the end of

laws, policies, practices, or actions were

arguing violation of Articles I and II of the

2018 U.S. concerns about the WTO had

“unreasonable or discriminatory” and

GATT and Article 23 of the WTO Dispute

expanded. The U. S. offered summary of

whether they could be “harming American

Settlement Understanding.

these concern in response to the WTO’s 2018

intellectual property rights, innovation,

—————————————————

Trade Policy Review of the United States:

that China had engaged in a number of

Throughout the trade wars, it has been hard to determine exactly what the U.S. goals are and what the U.S. sees as the end game.

unfair trade practices related to intellectual

—————————————————

property and investment (particularly with

The United States and China then

or technology development.”

USTR

responded by conducting the Section 301 investigation53 and issuing a detailed report in March of 2018. The report determined

Currents 23.2 2019

On the multilateral level, the Trump

•

“the WTO dispute settlement system has strayed far from the system agreed to by Members. It has appropriated to itself powers that the WTO Members never intended to give it”;

•

“the WTO is not well equipped to

handle the fundamental challenge

administration, the President and USTR

President Trump to show U.S. dissatisfaction

posed by China, which continues

articulated all the substantive and procedural

over the AB defaults. From the beginning

to embrace a state-led, mercantilist

problems the U.S. has with WTO DSU

of his presidency, Trump has battled with

approach to the economy and

determinations and the WTO Appellate

the WTO by blocking the selection of

trade”;

Body (AB).75 With regard to substance,

Appellate Body members.83 There was a

the U.S. formally objects to AB decisions in

similar response by President Obama who

the areas of trade relief laws and standards

blocked attempts to replace one Appellate

that have, contrary to the WTO Dispute

Body member. That controversy was resolved

Settlement Understanding (DSU), “added

in late November 2016, when President

to or diminished the rights and obligations”

Obama agreed to the appointment of

“certain Members’ persistent

of the United States.77 Several former U.S.

two new members to fill vacancies.84 The

lack of transparency, including

Trade Representatives78 and scholars79 agree

Trump administration has blocked any new

their unwillingness to meet their

that there has been overreach by the AB in

appointments unless the WTO agrees to

notification obligations, have

certain disputes. The other substantive issues

U.S. proposed rule changes.85 The practice

undermined Members’ work

regarding how the AB conducts its review

has whittled the original seven-member

in the WTO committees to

of appeals are: 1) the issuing of advisory

Appellate Body down to three judges left

monitor compliance with WTO

opinions by the Appellate Body that are not

to hear all appeals. At some point in 2019,

obligations.”

necessary to resolve a dispute; 2) Appellate

there could be a practical end to the AB if it

The Trump administration has engaged

Body review of facts and review of domestic

falls below this quorum.86

in several fights with the WTO having

law de novo; and 3) Appellate Body claims

This fight over AB appointments is

to do with its dispute settlement system,

that its reports are entitled to be treated as

crucial to the health of the WTO dispute

traditionally viewed as the most effective

precedent. With regard to procedural issues,

settlement system.87 If the U.S. blocking

part of the organization. 71 Early in his

the U.S. has stated that the AB disregards the

leads to the shutdown of the Appellate

administration, President Trump expressed

90-day deadline for appeals and that there

Body, the WTO may be unable to run the

concerns about the WTO dispute settlement

has been continued service by persons who

dispute settlement system as it was intended

system and its decisions limiting U.S.

are no longer Appellate Body members.82

to operate.88 Many of the major U.S. trade

sovereignty. The 2017 Trade Policy Agenda,

—————————————————

partners and free trade agreement partners

•

“the WTO’s negotiating arm has been unable to reach agreements that are of critical importance in the modern economy”; and

•

WTO dispute settlement system. Moreover,

By the second year of the Trump administration, the President and USTR articulated all the substantive and procedural problems the U.S. has with WTO DSU determinations and the WTO Appellate Body (AB).

as the largest complainant in the WTO

—————————————————

that differs from previous presidents. The

dispute settlement system;74 the U.S. has a

Some of the procedural issues raised

major concern of President Trump is that

strong interest in compliance by respondents

about the functioning of the dispute

free trade agreements that result in U.S. trade

with adverse WTO decisions.

settlement system have actually worsened

deficits are, in some form, failed agreements.

because of the course of action pursued by

As a result, President Trump has promised to

named this issue as the top priority.

President Trump suggested that the U.S. would not accept WTO determinations that it has violated a WTO agreement and acted unilaterally.

No U.S. President made such

suggestions since the start of the WTO in 1995. If the U.S. were to follow through, great uncertainty would arise within the

By the second year of the Trump

have responded to the blocking crisis by coming up with proposals for WTO reform89 and leading forums to discuss WTO reform.90 The United States has to date rejected all of the proposals of these countries. The U.S. has not issued a comprehensive report on its goals in the WTO reform process. With regard to regional trade agreements, President Trump has also taken an approach

Currents 23.2 2019

negotiate “new and better trade deals, stating

of early 2019, the Trump administration has

under the terms of TPA 2015 and Congress

in summary:

abandoned the T-TIP.

must approve the deal and it has notified

Plainly, the time has come for a

The USTR began negotiations in

major review of how we approach

August 2017 with Canada and Mexico

trade agreements. For decades now,

to re-negotiate NAFTA in keeping with

This issue of coordination is crucial

the United States has signed one

President Trump's campaign promise to re-

because since the mid-1970s, Congress has

major trade deal after another – and,

negotiate or withdraw from the agreement.

delegated its authority to the President to

as shown above, the results have

U.S. goals in the NAFTA re-negotiations

negotiate and sign trade agreements under

often not lived up to expectations.

were set out in a Summary of Objectives

certain conditions.105 Congress has granted

The Trump Administration believes

for NAFTA Renegotiation issued in July

trade promotion authority in its current

in free and fair trade, and we are

2017.100 The United States signed a revised

form – five times since 1974 – only when

looking forward to developing

NAFTA, renamed the United States-Mexico-

requested by the President. Even when

deeper trading relationships with

Canada Free Trade Agreement (USMCA),

presidents requested and congress granted

international partners who share

on November 30, 2018.

The Trump

trade-negotiating authority, there was always

that belief. But, going forward,

administration also started and completed

a fight over the scope and length of the

we will tend to focus on bilateral

a short renegotiation of the free trade

authorization. President Obama was well

negotiations, we will hold our

agreement between the U.S. and South

aware of this history when he waited until

trading partners to higher standards

Korea (KORUS).

Congress must approve

2013, well into his second term in office,

of fairness, and we will not hesitate

the USMCA. The changes made to KORUS

to seek formal trade promotion authority.

to use all possible legal measures

were so small that they were done by

President Obama simply went ahead with

in response to trading partners

executive proclamation and therefore did

the business of negotiating agreements.

that continue to engage in unfair

103

not require any congressional involvement

Congress acquiesced and never challenged

activities.

—————————————————

the Obama administration. The reason for Congressional acquiescence was because

by President Obama on regional trade

B. Congress & the Role of Trade Promotion Authority (TPA)

agreements. Trump scuttled the TPP

—————————————————

notified every set of negotiations pursued

It is

Because of the Obama administration

under the terms of the expired 2002 TPA.106

unlikely that the U.S. will reverse its position

delay in seeking trade negotiating authority

—————————————————

on the TPP during any Trump administration

– and the slow response by Congress in

as the President has expressed a preference for

responding once requested – there was trade

bilateral free trade agreements and the TPP,

policy making without true coordination

now the Comprehensive and Progressive

between the branches during the Obama era.104

Agreement for Trans-Pacific Partnership

There are mixed signals about coordination

(CPTPP) , is a regional trade agreement.

between the Trump administration and

The Trump administration also suspended

Congress. President Trump withdrew from

the other set of mega-regional negotiations

the Trans-Pacific Partnership – deciding not

begun by President Obama . Early in the

to submit the agreement for a vote – without

By not seeking an early authorization by Congress of TPA, both the Obama administration and Congress lost a chance to have a debate over and reach an understanding on the direction and content of U.S. trade policy.

Trump administration, the EU expressed a

consulting Congress. However, the Trump

—————————————————

strong interest in completing T-TIP based

administration has recognized that its re-

By not seeking an early authorization

on achievements from the Obama era. As

negotiated NAFTA, the USMCA, comes

by Congress of TPA, both the Obama

102

At the outset of his presidency, Trump expressly repudiated the approach taken

Agreement for the United States.

Currents 23.2 2019

101

Congress of an intent to pursue other free trade agreements.

President Obama conducted his trade policy making in plain view.

President Obama

administration and Congress lost a chance to

during the course of negotiations for any

have a debate over and reach an understanding

agreement.

agreements submitted by 2021.109 Since the first fast-track statute,110 the form of trade promotion authority granted

on the direction and content of U.S. trade

Fast track authority, renamed Trade

policy. This failure did not have far-reaching

Promotion Authority in 2002, has worked

consequences during the Obama years.

effectively since its creation to deliver trade

1. Setting out the trade negotiating

When President Obama received TPA in

agreements that the U.S. has been willing to

objectives to be met by any trade

2015, Congress was expecting the free trade

enter. Given the power sharing inherent in

agreement submitted under the

agreements and plurilateral agreements

the U.S. system, trade partners are assured

terms of the statute;

that he had been negotiating. However,

that any agreement negotiated properly

2. Setting out requirements for

President Obama was unable for different

under TPA terms will not be reopened by

C o n g re s s i o n a l ove r s i g h t o f

reasons to submit any of the agreements he

Congress as it considers and votes upon the

negotiations and consultations

negotiated for Congressional approval. The

implementing legislation.

between the Executive Branch and

TPP Agreement was finished in 2015 but fell

long believed that not amending negotiated

victim to the U.S. tradition of holding off

agreements makes partner countries much

3. Setting out requirements the

votes on major initiatives during an election

more likely to make their best offers during

President must meet for a trade

year. The 2016 election then brought in a

negotiations for each trade agreement

agreement to enter into force (to

president in a position to make use of trade

submitted under fast track or TPA.

108

be implemented in U.S. law); and

promotion authority but not motivated to

Negotiating partners can also gauge the

4. Placing limitations placed on the

use it. This marks a dramatic shift in the

likelihood of a positive vote on the agreement

history of U.S. trade policy making.

since they can see through the legislation

The U.S. has conducted all of its trade policy making since that time under one

107

Congress has

by Congress has had the same elements:

Congress;

use of trade promotion authority. TPA 2015 contains these sections.

what Congress is willing to approve.

However, to understand how Congress

—————————————————

will treat the agreements submitted by the

normal process for bills to move faster.

Fa s t t r a c k a u t h o r i t y, renamed Trade Promotion Authority in 2002, has worked effectively since its creation to deliver trade agreements that the U.S. has been willing to enter.

First, Congress votes either to accept or

—————————————————

play that role for the two sets of mega-

reject the implementing legislation thus

Despite the evident virtues of this

regional negotiations started by the Obama

eliminating any chance for a slow down

method of power sharing, Congress has

administration. Both sets of negotiations

through amendments. Second, Congress

never granted trade promotion authority

were already underway, and in the case of

votes under a shortened period for debate on

on an ongoing basis. Each time Congress

the TPP almost complete, when TPA 2015

the legislation. In exchange for this generous

has passed a version of the legislation, it has

was passed. President Obama never used

delegation of powers, Congress requires

put time limits on the delegation of powers.

TPA 2015. It has fallen to President Trump

input at the beginning of the negotiating

Congress granted TPA 2002 for agreements

to use this authority. Consequently, the

process for trade agreements by setting out

submitted for a vote between 2002 and

trade negotiating objectives of TPA 2015

the objectives any approved agreement must

2007. Congress provided in TPA 2015 for

should be seen as the standards against

satisfy. Congress also requires the President

agreements to be voted on before 2018,

which the USMCA or any bilateral free trade

to engage in extensive consultation with it

or if the President sought an extension, for

agreement111 will be assessed and accepted or

version or the other of this “fast track” authority. The descriptor came about because of crucial aspects of this delegation. Congress agrees in the legislation to vote on the implementing legislation for trade agreements in two ways that make the

President several new features of the statute must be analyzed. In previous versions of trade promotion authority, Congress provided the trade negotiating objectives as a road map for the issues in any trade agreement negotiation. This section of TPA 2015 could not

Currents 23.2 2019

rejected by Congress.

rules required for this highly

list of principal negotiating objectives as

protected sector of trade);

part of its efforts to obtain 21st century

Investment (providing for investor

trade agreements.112 These new objectives

and (2) principal objectives. The overall

rights and backed up with investor-

reflect the changes in the global marketplace

objectives make general statements about

state dispute settlement (ISDS));

since 2002 and cover digital trade in

Intellectual Property (setting

goods and cross-border data flows, state-

any trade agreement submitted. More

out the minimum standards for

owned enterprises (SOEs), localization

important, for determining the fate of any

the IP rights protected and the

barriers to trade, currency issues, and

trade agreement vote is whether the FTA

requirements for civil and criminal

human rights. The final text of the TPP

meets the more specific principal objectives.

enforcement of such rights);

agreement that President Obama notified

Labor and Environment (setting

to Congress under TPA 2015113 has new

principal negotiating objectives of TPA

out the ways to protect core labor

chapters covering most of these topics,114

2002. The objectives deal with aspects of free

rights and ensure environmental

and other issues of great interest to the

trade agreements in place since NAFTA and

laws are followed);

mix of developed and developing country

Regulatory Practices (dealing with

partners in the TPP – cooperation and

during the G. W. Bush Administration.

the standards barriers through trade

capacity building,115 development,116 small

The standard principal objectives include:

disciplines over sanitary and phyto-

and medium-sized enterprises (SMEs), 117

(1) market access for trade in goods; 2)

sanitary standards and technical

and regulatory coherence.118 The proposed

market access for trade in services; 3) trade

barriers to trade);

USMCA contains chapters covering all of the

There are two main categories of trade negotiating objectives: (1) overall objectives

the goals Congress wants to see met by

In TPA 2015, Congress retained all of the

the slightly expanded later FTAs approved

•

in agriculture; 4) investment; 5) intellectual

•

Government Procurement;

original NAFTA topics as well as most of the

property; 6) labor and environment; 7)

•

Competition Law;

newer topics.119

regulatory practices; 8) anti-corruption;

•

Anti-corruption and transparency;

9) good governance and transparency; 10)

•

Trade remedy laws (the extent to

TPA 2015.120

dispute settlement and enforcement; 11)

which trade remedy laws of each

—————————————————

trade remedy laws; 12) border taxes; and, 13)

FTA partner are affected by the

textile negotiations.

agreement); and Dispute Settlement (setting out

II. Maintaining Multilateralism While Reviving Plurilateralism

contain a chapter to deal with all expected

how disputes that arise under the

—————————————————

aspects of all of these topics. Every FTA since

terms of the FTA are resolved and

The Word Trade Organization performs

NAFTA has had chapters covering:

enforced).

NAFTA and the Bush-era FTAs each

•

Market access in goods (including

—————————————————

dispute settlement, and surveillance of the

Services; Financial Services; and, Telecommunications);

—————————————————

devoted to how the U.S. has pursued WTO

In TPA 2015, Congress expanded the

rulemaking. The U.S. tried in the early

general rules of origin, special rules for autos and textiles, and customs procedures). Market access in services (captured in three chapters devoted to Cross Border Trade in

•

three main functions: rule making,

T h e Wo r d Tr a d e Organization performs three main functions: rule making, dispute settlement, and surveillance of the implementation by Member States of the agreements of the organization.

issues such as tariff phase-outs,

•

The Trump administration plans to use

Agriculture trade (for the special

Currents 23.2 2019

implementation by Member States of the agreements of the organization.121 The United States plays an active role in all of these functions of the WTO. However, the WTO feels the U.S. presence in the organization most in the first two areas – rulemaking and dispute settlement. Given the focus of this essay, this section is

years of the Doha Round122 to push for a

While completion of a comprehensive

Members.”130 Originally, there were four

comprehensive set of agreements adopted

set of multilateral agreements eluded the

Plurilateral Agreements in the WTO. As of

as a single undertaking–where all Members

WTO, the U.S. turned increasingly towards

2016, only two of these remain in force – the

accept and agree to implement all agreements

agreements with other countries on issues

Agreement on Government Procurement and

at the same time. As the years passed, and

important to like-minded countries. This

the Agreement on Civil Aircraft.131

suspensions of the negotiations piled up,

move towards plurilateralism – negotiating

The stalled years of the Doha Round

the U.S., like most WTO Member States,

for agreements accepted by some but not

revived plurilateralism. What form this new

shifted towards coming up with at least one

all WTO members – is not new to the

turn towards plurilateralism will take – and

multilateral agreement that could be adopted

WTO and its predecessor, the GATT. In

how the WTO membership will respond –

by the entire membership.

The efforts

the 1960s and 1970s, GATT Contracting

is not yet clear. The Marrakesh Agreement

aimed at seeking out such a multilateral

Parties negotiated and completed a series

does not define the term “Plurilateral

agreement started under the G.W. Bush

of codes on issues, such as subsidies, anti-

Agreements.”

administration and bore results during the

dumping, technical barriers to trade and

any such agreement, the determination of

Obama administration.

government procurement that the entire

how many WTO Members must negotiate

The U.S. was a major proponent of

group was unwilling to adopt.128 Only those

that agreement, and the terms under which

the Trade Facilitation Agreement (TFA),

Contracting Parties who negotiated the codes

other members could join is for those WTO

an agreement aimed at easing the barriers

and were willing to bind themselves became

Members participating in the negotiations.132

that traders face when goods enter customs

signatories.

in each country.

—————————————————

123

The TFA negotiations

Consequently, the scope of

Some scholars have pushed for plurilateralism as the solution to the stalemate

Ninth WTO Ministerial Conference in

The stalled years of the Doha Round revived plurilateralism.

December 2013 in Bali, Indonesia. The

—————————————————

is because plurilateral agreements have a

TFA – with its focus on helping cooperation

One of the goals of the Uruguay Round

recognized place in the WTO system 134

among customs authorities to coordinate

negotiations from 1986 to 1994 was to create a

and may be adopted later by the entire

and speed up customs clearance of goods –

membership organization that would require

membership. By contrast, regional trade

delivers an agreement focused on issues of

all of its members to agree to the same set of

agreements—customs unions and free trade

concern to developing and least-developed

multilateral agreements. The Contracting

agreements—are authorized by exceptions

countries, the original focus of the Doha

Parties of the GATT achieved that goal

to the GATT and WTO agreements. 135

Round. Trade Facilitation was one of the

upon completion of the Uruguay Round.

Regional trade agreements exist to benefit

negotiating issues in the Doha Agenda.125

The Marrakesh Agreement Establishing the

only those countries taking part in the

The TFA is unique among existing WTO

World Trade Organization – and making

agreements.

agreements in: 1) allowing flexibility for

the WTO a membership organization –

During the lifetime of the WTO

developing and least-developed countries

makes it clear that the agreements known

(1995-present), there have been efforts made

in how they implement its obligations, and

as “Multilateral Trade Agreements” are

to create or amend and upgrade plurilateral

2) making this implementation conditional

“binding on all Members.”129 Nevertheless,

agreements three times. The United States

upon these countries gaining the necessary

the Marrakesh Agreement also recognized

has been a major participant in all of these

implementation capacity.

The TFA went

that there would be going forward into the

efforts. The U.S. has also been involved as

into force in February 2017 when two-

WTO some “Plurilateral Trade Agreements”

a major player in the one set of plurilateral

thirds of the WTO Members ratified the

– agreements for “those Members that have

negotiations taking place outside the WTO

agreement.127

accepted them, and are binding on those

– the Trade in Services Agreement (TiSA).

began in 2009124 and completed with a final set of negotiations leading up to the

126

in the WTO multilateral negotiations and as preferable the increasing proliferation of preferential trade agreements.133 This

Currents 23.2 2019

A group of WTO Members reached the

to all government procuring entities put

EGA as part of his Climate Action Plan.149

first plurilateral agreement, the Information

on the schedule of a GPA Member State.

The participating Members negotiated the

Technology Agreement (ITA), in 1996

Negotiations to revise and expand the

EGA to: 1) remove tariffs on an identified

at the first ministerial meeting of the

coverage of the GPA went on from 2001

list of environmental goods; 2) add new

new organization.136 Initially 29 members

until 2012. The new version of the GPA

goods subject to liberalization over time;

committed to the ITA with the goal of

went into force in 2014.

The crucial

3) include services related to the export of

eliminating tariffs on high technology

push to revise the agreement came during

environmental goods; and 4) remove or limit

products.

The WTO amended the ITA

the years of the Obama administration. The

non-tariff barriers that affect environmental

in 2015 as part of the Nairobi Ministerial

GPA – and the entire topic of government

goods.150 The goal of the negotiations during

Conference. 138 The ITA liberalization

procurement – has always been of interest to

the Obama administration was to reach a

commitments benefit all WTO Members,

the United States. The design of the GPA

critical mass of participating countries to

as the agreement required each participating

was very influential for the drafters of the

work towards a final agreement. The last

country to eliminate unilaterally its tariffs,

government procurement chapters in many

time participating WTO Members met for

to put the zero tariff commitment into its

free trade agreements.

There has been a

negotiations, in December 2016, there was

schedule of WTO commitments and to

government procurement chapter in every

work on a draft text to provide the basis for

extend this commitment on a Most Favored

U.S. FTA since NAFTA.

a final agreement. The negotiations did not

Nation basis to all WTO Members.

—————————————————

conclude at that time and remain stalled in

137

139

After

145

144

The ITA currently has 82

The driving force behind the EGA was not only to increase trade in such goods but also to engage with the effects of climate change.

Member States as signatories and covers

—————————————————

participating in the TiSA negotiations

over 97% of world trade in information

The third WTO plurilateral effort led

represent 70% of the world’s services

by the United States, the EU, and 16 other

market.152 As the world’s largest exporter

The second plurilateral effort at the

members (accounting for almost 90% of

of services,153 the United States is a strong

WTO was to re-negotiate the Agreement

the world’s trade in such goods)146 aimed at

supporter of TiSA. Greater market access

on Government Procurement (GPA), one

achieving tariff elimination for environmental

to almost three quarters of the global

of the original Plurilateral Agreements.

goods through an Environmental Goods

services market can only benefit the services-

The GPA started as a code and became a

Agreement (EGA).

The EGA was one of

dominated U.S. economy. Trade in services

plurilateral agreement because the topic it

the agreements entered into by the U.S. as

currently accounts for the largest portion

covered – purchases by governments – was

part of its engagement with Asian countries

of the U.S. GDP154 and is the area of trade

not covered by the National Treatment

and its work with the APEC (Asia-Pacific

in which the U.S. registers a trade surplus.

obligation of Article III of the General

Economic Cooperation) group of nations.

148

TiSA negotiations began with a push

Agreement on Tariffs and Trade.

As a result,

Like the U.S., and the EU, the APEC

from the United States and Australia. The

only like-minded countries signed on to the

countries are leaders in the export and import

United States has not made its positions

first version of the GPA. The GPA works

of environmental goods. The driving force

on the TiSA negotiations public through

by opening up government procurement

behind the EGA was not only to increase

the Office of the United States Trade

markets in goods and services only to those

trade in such goods but also to engage with

Representative.155 However, after nineteen

firms from other participating countries.143

the effects of climate change. Consequently,

rounds of negotiations, it was clear that

The agreement allows firms market access

President Obama proposed the idea for the

the agreement was meant to have structure

17 rounds of negotiations, the participating countries updated and expanded the ITA to include more than 201 additional high technology products for duty free treatment.

140

products.

141

142

147

Currents 23.2 2019

2019.151 The Obama administration pursued one other plurilateral effort – the Trade in Services Agreement (TiSA) negotiations. The U.S. along with the other 22 countries

Declaration, while some Members wanted

intention to pursue negotiations on electronic

“A core text that incorporates and

to reaffirm the Doha Agenda while others

commerce.164 The participating Member

builds on key provisions of the

argued “new approaches were necessary to

States – which includes the U.S. and the

GATS and includes horizontal

achieve meaningful outcomes in multilateral

EU – stated that the goal of the negotiations

provisions that would apply to all

negotiations.” 158 Most WTO Members

was to “achieve a high standard outcome

parts of the agreement;

viewed the Declaration as a sign that Member

that builds on existing WTO agreements

Commitments on market access

States should proceed to work on agreements

and frameworks with the participation of as

with like-minded countries on plurilateral

many WTO Members as possible.”165 Many

agreements. The position – that like-minded

of the WTO Member States pursuing this

countries should move forward on issues

plurilateral initiative felt compelled to move

where they can – represents the views of most

forward since e-commerce, while a crucial

developed country

part of international trade, remains free of

including four parts: •

•

and national treatment with each party’s schedule and list of exceptions or non-conforming measures; •

Specific sectoral regulatory annexes; and

•

county

160

159

– if not developing

– WTO Members. In the Eleventh

Ministerial Conference in Buenos Aires,

WTO discipline.166 —————————————————

Institutional provisions that set the

Argentina, in 2017 the WTO did not make

ground rules for how TiSA would

breakthroughs in any set of negotiations.161

III. Focusing on Regionalism

function, addressing issues such

—————————————————

Trade Policy agenda, the U.S. noted that it

Each President, regardless of party affiliation, picked up where the prior President left off and built upon the previous efforts at regionalism in trade.

was continuing to analyze the negotiations

—————————————————

party affiliation, picked up where the prior

undertaken by the prior administration,

The U.S. entered that Ministerial with

President left off and built upon the previous

a lack of confidence in the WTO with

efforts at regionalism in trade. President

While plurilateral negotiations and

regard to both multilateral and plurilateral

Clinton picked up the implementation

agreements can be a way forward for a WTO

negotiations. By the end of the meeting, the

battle over NAFTA after President G.H.W.

struggling to achieve multilateral agreements,

U.S. stated that the Ministerial signaled that

Bush completed and signed the agreement

the type of plurilateral agreement matters. The

the WTO negotiating impasse was “broken”

in 1992.168 President G.W. Bush continued

completion of the Tenth WTO Ministerial

thus paving the way for like-minded WTO

with the FTAA negotiations started under

– the Nairobi Ministerial in December

Member States to pursue new work in other

President Clinton. 169 President Obama

2015 – signaled the WTO’s willingness to

areas.162 The U.S. was most interested in

followed up on the announcement made by

allow more plurilateral agreements. At the

Buenos Aires with the idea of plurilateral talks

President G.W. Bush late in his term that the

Ministerial, the Member States declared

on electronic commerce. At that meeting, the

United States would enter the Trans-Pacific

a lack of consensus about whether the

U.S. and 70 other Member States, covering

Partnership negotiations.170

Doha Round structure for negotiations – a

77% of world trade, announced an initiative

There has been a break in this pattern

comprehensive set of agreements offered

to do “exploratory work towards future

with the election of President Trump. There

as a single undertaking for all members –

WTO negotiations on trade-related aspects

is, however, one commonality between the

would govern the future negotiating agenda

of electronic commerce."

In January

trade policymaking approaches of last three

of the WTO. According to the Ministerial

2019, 76 WTO Members confirmed the

Presidents. All three considered regional

as amending the agreement in the future or how new members could join.”

156

The Trump administration has not moved forward on TiSA negotiations. In the 2018

including TiSA.

157

163

Presidents G.W. Bush and Obama treated regionalism in trade as had all other previous leaders starting in the mid-80s when the United States began negotiating FTAs and then became a proponent of free trade agreements.167 Each President, regardless of

Currents 23.2 2019

trade agreements to be a key component of

selected its bilateral FTA partners by a model

which had won the 2006 mid-term election

U.S. trade policy. What follows is a short

179

it developed for selecting target countries.

used its new power to insist upon an

description of the approach taken by each

The first bilateral agreements completed

agreement with President Bush – known

President and what this means for U.S. trade

and enacted came with countries that had

as the May 10th Agreement – that all future

policy going forward.

approached the Clinton administration:

FTAs and in particular, the Colombia, Peru,

—————————————————

Jordan (2001), Chile (2003), Singapore

Panama, and KORUS FTAs reflect certain

A. President G.W. Bush: Spreading the U.S. Model of Regionalism

(2003) and Australia (2004). After those

understandings on labor, environment,

agreements were completed, the focus shifted

intellectual property rights and foreign direct

towards FTAs connected to regional trade

investment.181 President Bush submitted the

—————————————————

initiatives. One regional trade initiative

Peru FTA for a vote under TPA 2002 and

The G.W. Bush administration

– based upon negotiating with friendly

Congress voted to approve the implementing

responded to the lack of progress in the

countries in the Middle East (MEFTA) –

legislation thus making it part of U.S. law in

Doha Round by espousing the doctrine of

produced bilateral agreements with Morocco

December 2007.182

“competitive liberalization” – that the way

(enacted in 2004), Bahrain (enacted in 2005)

—————————————————

to seek greater trade opportunities was to

and Oman (enacted in 2006). The collapse

pursue multilateral agreements, regional

of the FTAA negotiations,180 that attempted

B. President Obama: Reconfiguring Regionalism

agreements and bilateral agreements at the

to create a Western Hemisphere free trade

—————————————————

same time.

With regard to regionalism

area, was followed by completing free trade

The last three FTAs finished by the

and bilateral FTAs, President Bush further

agreements with Latin American countries:

G.W. Bush administration languished in the

refined a system for approaching trade

the regional DR-CAFTA (enacted in 2005)

early years of the Obama administration for

and investment relationships developed by

and bilateral FTAs with Peru (enacted in

different reasons for each country.183 President

previous administrations. The components

2007), Panama (signed 2007 but not enacted

Obama’s first efforts regarding regionalism

of the system were, and remain today, Trade

until 2011) and Colombia (signed in 2007

came in his attempt to shepherd the final

and Investment Framework Agreements,

172

but not enacted until 2011). The other major

Bush era FTAs through Congress. The

regional

bilateral FTA completed by President Bush,

President had difficulties with this process

trade initiatives,174 and bilateral free trade

KORUS, was also completed in 2007 but

because Congress wanted changes to each of

agreements.175

not enacted until 2011.

the FTAs. The 110th and 111th Congresses

—————————————————

did not take up the issue of the final FTAs.

171

Bilateral Investment Treaties,

173

The G.W. Bush administration focused

In addition, all Bush era FTAs shared the

T h e G . W. B u s h administration focused most of its effor ts on negotiating bilateral free trade agreements that took a particular form – those based on the NAFTA model 176 dictated by the United States.

limited institutionalism of NAFTA, and like

—————————————————

NAFTA employed multiple forms of dispute

The last four FTAs negotiated by

President Obama’s trade vision expanded

President Bush ran into problems with

beyond that of President G.W. Bush. The

Congress. The House Democratic leadership

trade vision of the Obama administration

most of its efforts on negotiating bilateral free trade agreements that took a particular form – those based on the NAFTA model176 dictated by the United States. This “NAFTA model” approach to negotiating FTAs meant that all Bush era agreements had the same basic design as NAFTA and covered the same topics – with some additions – as NAFTA.177

settlement.

178

The G.W. Bush administration also

Currents 23.2 2019

During that time, President Obama worked to resolve the issues regarding each agreement and reached agreements about all of the issues holding up each one.184 President Obama presented the implementing legislation for each of the three agreements to the 112th Congress in October 2011. Congress approved the FTAs in successive votes that year and President Obama signed all three of them in October 2012.

involved making the United States the hub

localization requirements [that stakeholders

to all types of firms from every TPP partner

country for two different mega-regional free

view as] crucial to the development of

country. The TPP Agreement was the first

trade areas. The Trans-Pacific Partnership

cross-border trade in services, and vital to

U.S. FTA to include a chapter on how to

negotiations began with the U.S. discussions

optimizing the global operations of large

assist small and medium-sized companies to

with four countries (New Zealand, Brunei,

and small U.S. companies in all sectors.”193

benefit from the new free trade area.198

Chile, and Singapore) and ultimately grew

Finally, the USITC report acknowledged

The ambitious and complex nature

to include twelve participating countries as

the legal impact of the agreement – that it

of the agreement did not play well during

(Australia, Peru, Malaysia, Vietnam, Japan,

would “establish trade-related disciplines

a 2016 election cycle focused heavily on

Canada, and Mexico) joined. Half of the

that strengthen and harmonize regulations,

slogans. Almost every candidate in the 2016

TPP partners were already partners in U.S.

increase certainty, and decrease trade costs

election characterized the TPP Agreement

FTAs, including both NAFTA partners.185

for firms that trade and invest in the TPP

as a problem for U.S. and a boon for large

Together, the final group of TPP partners

region.”

corporations to the exclusion of everyone

accounted for 40% of global GDP.

—————————————————

else. 199 At one level, such a response is

186

would take the lead in defining what kind

The ambitious and complex n a t u re o f t h e [ T T P ] agreement did not play well during a 2016 election cycle focused heavily on slogans.

of trade rules were going to govern the Asia/

—————————————————

an acceptance of how free trade economic

Pacific region. The TPP model would be

The TPP Agreement was an ambitious

integration is now built into the U.S.

based on an extension of the U.S. approach

and complex FTA for several reasons. First,

economy. The result is usually limited

with its evolution of the NAFTA model. It

the agreement aimed to create a free trade

changes in trade policymaking and an

has been clear to governments and scholars

area composed of developed and developing

overall adoption of the standard U.S. FTA.201

that the China-led Regional Comprehensive

countries.194 Second, the agreement served

However, the 2016 election was different

Economic Partnership (RLEP) process would

the role of updating U.S. – and TPP partner

in making opposition to trade a key theme

produce a different (less liberalized model).

countries’– thinking about what a 21st century

of the attack on President Obama and any

President Obama pushed for the TPP as

trade agreement should contain. Given the

extension of his trade policies by Secretary

part of his program to re-direct U.S. foreign

very different economies of the partner

Clinton. When Candidate Trump won the

policy and trade interests towards Asia. The

countries, for example, it was important to

election, it was clear that the U.S. approach

Obama administration saw this “pivot to

develop rules that would discipline state-

to regionalism would shift.

Asia”189 as crucial for future U.S. trade growth

owned enterprises (SOEs).195 Moreover, the

The other mega-regional agreement

given the growing middle class in Asia.190

TPP negotiations offered a chance to update

started by President Obama was for a

After six years of negotiations, the TPP was

NAFTA to cover things – like electronic

Transatlantic Trade and Investment

completed

commerce – that came into being after 1992

Partnership with the European Union. The

countries. The review of the TPP Agreement

when NAFTA was completed.

Third,

T-TIP negotiations were an experiment in

by the U.S. International Trade Commission

the TPP partners negotiated under heavy

trade policymaking for three reasons. First,

(USITC) was that it would have a positive

scrutiny by stakeholders (politicians and

the talks involved the U.S. negotiating for a

impact on the overall U.S. economy.

civil society).

In response to arguments

free trade area with a dominant developed

USITC stated that another impact would be

that U.S. FTAs were more useful to major

country trade bloc. The only other developed

“electronic commerce provisions that protect

corporations than to all businesses, there was

countries that the U.S. had FTAs with were

cross-border data flows and prohibit data

a focus placed on making this one accessible

Canada (first in a bilateral FTA and then as

The countries negotiating the TPP wanted the agreement to be a model free trade agreement for the 21st century.187 This meant the United States and its partners

188

191

and signed by all 12-partner

192

The

197

196

not surprising, Presidential candidates never run for election praising trade200 and usually promise to re-direct or correct free trade agreements. What inevitably follows once the candidate becomes President is

Currents 23.2 2019

part of NAFTA) and Australia. Second, the

Although aggrieved with U.S. trade

U.S. leadership in trade policymaking has

amount of trade between the partners is large

policy in general, President Trump has

diminished. It is impossible to lead through

and consequently the effects of any final FTA

expressed the greatest hostility towards large

withdrawal. The failure of the Trump

would have a large impact on world trade.

regional trade agreements.208 The first sign of

administration to start bilateral FTA talks

Total trade in goods and services between the

this came with the almost immediate decision

with the TPP countries the United States left

U.S. and the EU is over $1 trillion a year,

by a newly sworn-in President Trump about

behind underscores this loss of leadership.215

thus accounting for almost a third of global

the TPP Agreement. In an Executive Order

Although the eleven TPP partners initially

goods and services trade and almost half of

issued on the third day of his administration,

talked about dropping the effort, they

global GDP.

Third, T-TIP negotiations

President Trump withdrew the U.S. from the

moved forward216 into the CPTPP without

did not focus on lowering traditional trade

Tran-Pacific Partnership.209 President Trump

the United States. As of 2019, the CPTPP

barriers as both the U.S. and the EU already

rejected the TPP Agreement without having

countries are entertaining offers (to join

have very low tariffs. Instead, the T-TIP

his administration conduct a review of the

the free trade agreement) from the U.K.,

negotiations were about lowering non-tariff

agreement

or submitting it to Congress

South Korea, Thailand, and Indonesia.217

barriers to trade and regulatory coherence203

for a vote under TPA 2015.211 Nevertheless,

Withdrawal of the U.S. from the Asia/

and finding some answer to what kind of

the Trump administration has acknowledged

Pacific region leaves the U.S. stranded in the

protection there should be for investment

that the TPP Agreement had value as a partial

region.218 It also puts China in a position to

rights in modern free trade agreements.

model212 for re-negotiating NAFTA.

push for its vision of Asia/Pacific trade – the

202

The T-TIP negotiations attracted a great

210

President Trump did not campaign

RCEP – even if negotiations are moving more

because it

against the T-TIP negotiations. Even after

slowly than China would desire.219

represented a modern FTA. In other words,

his election, the EU was hoping the talks

—————————————————

it would “focus predominantly on regulations

would go forward. The EU preference

and rules, thus touching on domestic cultural

was for a T-TIP based on achievements

norms and preferences in ways market access,

from the Obama era.213 A great deal of

which are still present but less prominent,

work would have remained to complete

normally do not.”

the T-TIP negotiations even if the U.S.

deal of support and opposition

204

The T-TIP negotiations started in

agreed to the position suggested by the EU.

2013 and continued actively through

However, without a formal announcement

the end of the Obama era. Each partner

the Trump administration suspended the

made a commitment to transparency by

T-TIP negotiations. This is an interesting

explaining its policy objectives – on a FTA

development given President Trump’s

The Trump administration has been non-responsive to critics pointing out that the country was forfeiting its leadership role in global trade–and preferential market access to other countries–by withdrawing from TPP and suspending T-TIP.

chapter-by-chapter basis for the T-TIP

expressed preference for bilateral agreements.

—————————————————

Agreement.206 Congress fully expected the

For FTA purposes, the EU is a single trade

Meanwhile, the EU has stepped up

T-TIP negotiations to complete and come

unit and so any T-TIP between it and the

to offer itself as the new leader in regional

up for a vote under TPA 2015.

United States would have been a bilateral

trade.220 The EU has moved forward to

agreement.

enact its free trade agreement with Canada

205

207

However,

the Trump administration is no longer

The Trump administration has been

– the Comprehensive Economic and Trade

—————————————————

non-responsive to critics pointing out that

Agreement (CETA). 221 This means that

C. President Trump: Retrenching on Regionalism

the country was forfeiting its leadership role

both NAFTA partners of the U.S., Canada

in global trade–and preferential market access

and Mexico,222 have preferential access to

to other countries–by withdrawing from

the EU in updated modern FTAs while the

TPP and suspending T-TIP.

U.S. does not. Once the U.S. withdrew

conducting T-TIP talks.

—————————————————

214

Currents 23.2 2019

Nevertheless,

from TPP, it also lost access to a regional

U.S. business community initially opposed

USMCA was to negotiate an agreement to

agreement with Japan. That country made its

many of these proposals.

During the

answer Trump administration complaints

entrance into regional trade agreements with

negotiations, the U.S. made proposals on a

about NAFTA. The Canadian and Mexican

the EU instead.223 The EU-Japan Economic

sunset clause for the agreement, for a specified

philosophies were to meet the U.S. objections

Partnership entered into force in February

level of U.S. content in automobile rules of

with concerns of their own235 and to avoid

2019.224 The agreement will save the EU

origin, for changes in the dispute settlement

the termination of NAFTA. Since the U.S.

$1.15 billion per year in tariffs duties with

mechanisms, and changes regarding dairy

complaints about U.S.-Canadian trade and

Japan along with other trade benefits.

trade that were initially rejected by Canada

U.S-Mexico trade were different, the United

The free trade agreement issue that

and Mexico.231 These, and other proposals

States negotiated different obligations for

consumed the Trump administration was

that the U.S. was pushing, were seen as

each trading partner. This means that access

how to replace about NAFTA. Re-negotiating

“poison pills” – proposals that were regarded

to the U. S. market and certain benefits of

NAFTA – once the TPP Agreement update

as so unlikely to be accepted that they

the free trade agreement are different for

was off the table– made sense. NAFTA

formed the basis for a U.S. justification to

Canada and Mexico at the chapter level of

was completed in 1992 before many of

leave NAFTA.232 The U.S. departed from

the USMCA– the level where market access

the new developments in technology and

its usual style of negotiating regional FTAs

in certain areas of trade or other issues are

international trade. Candidate Trump railed

– completing negotiations with all partners

covered.

against NAFTA and threatened to pull out

at one time– and reached an agreement on

—————————————————

of the agreement once elected unless it was

a revised NAFTA, renamed USMCA, with

re-negotiated.

Mexico in August 2018 and with Canada

225

230

Canada and Mexico agreed to NAFTA re-

In order to understand how President

In order to understand h ow Pre s i d e n t Tr u m p has retrenched on trade regionalism, it is necessary to examine how the philosophy behind the USMCA, and thus its content, differs from NAFTA.

negotiation, President Trump threatened

Trump has retrenched on trade regionalism,

—————————————————

to withdraw in May 2017 just before he

it is necessary to examine how the philosophy

The structure of the USMCA is, in

submitted the formal notification required

behind the USMCA, and thus its content,

many ways, similar to that of NAFTA.

227

under TPA 2015 to start the re-negotiations.

differs from NAFTA. NAFTA was designed

The agreement contains all of the standard

The issue quieted down after USTR released

to integrate the North American market.

chapters for a U.S. FTA with regard to trade

the U.S. negotiating objectives for the talks in

All three countries negotiated together in

in goods, trade in services, and investment

July 2017. The negotiations started in August

tripartite sessions a free trade agreement to

rights.236 There is not the traditional focus

2017 and the fourth round of NAFTA re-

meet GATT standards on trade in goods

of a FTA on the removal of tariffs on trade in

negotiations completed in October 2017.

228

and produce breakthroughs matching those

goods because that phase of North American

Even as the negotiating rounds continued,

going on in the GATT Uruguay Round

integration has been complete since 1999.237

President Trump again threatened the future

negotiations in the areas of trade in services,

There are, however, major changes to how

of NAFTA. 229 Some of the negotiating

and trade-related intellectual property

North American firms can qualify for duty-

objectives and proposals the U.S. has made

rights. In addition, the countries sought to

free treatment under the USMCA. One such

during the talks clearly pushed some U.S.

define and protect investment rights and to

change comes in the revised chapter on Rules

interests at the expense of the normal

expand government procurement markets.

of Origin for the proposed agreement.238

functions of a free trade agreement. The

By contrast, the U.S. philosophy behind the

The U.S. pushed hard for and obtained an

226

Therefore, President Trump’s

push for a re-negotiation was expected.

in October 2018.233 Mexico, Canada and

What was not expected was President

the United States signed the USMCA on

Trump’s strategy for NAFTA re-negotiation

November 30, 2018 so that it would be

– of demanding talks and following such

completed during the Mexican presidency

demands with threats to withdraw. After

of Pena Nieto.234

Currents 23.2 2019

agreement that the USMCA would tighten

investment rights claims against Mexico

years.252 The Trump Administration argues

the rules of origin for automobiles. The

but only for energy, power generation,

that the review and re-negotiate provides

USMCA replaces the NAFTA requirement

telecommunications, transportation, and

in the USMCA are a strength as they will

that 62.5% of the value of the content be

other infrastructure project investments.

require Mexico and Canada to satisfy U.S.

North American with a 75% requirement.239

With regard to other investments, the access

concerns.253 One thing is clear. Instead of

As part of that value content, 40-45% of the

to ISDS is limited to claims seeking awards

a secure North American market – what

North American content must come from

only for breach of national treatment, MFN

NAFTA has produced since 1994 – the

workers earning at least $16 an hour.

treatment, and expropriations.

In the area

USMCA would produce a contingent one.254

goal of the increased value percentage is to

of government procurement, Chapter 13 of

The updates to NAFTA in the USMCA

make auto companies produce and purchase

the USMCA also treats Canada and Mexico

– on digital trade, competition policy, state-

a larger proportion of auto parts in North

differently. Chapter 13 does not cover

owned enterprises, regulatory coherence,

America.

U.S.-Canadian government procurement

and anticorruption – are largely modeled

241

240

The

It is not clear that the revision

247

thus leaving that market access to the

after the breakthroughs achieved in the TPP

243

commitments that both countries have made

Agreement.255 Similarly, the improvements

Nevertheless, the automobile industry is

under the WTO Government Procurement

in intellectual property rights protections

generally supportive and considers the new

Agreement. 248 With regard to Mexico,

match what the U.S. obtained in 2015 in

rule of origin to be workable and have the

Chapter 13 of the USMCA limits access

the TPP Agreement.

potential to increase auto production in the

of both U.S. and Mexican firms to federal

U.S.

procurements in each other’s countries.

will produce that effect

242

or that the change

is consistent with GATT obligations.

244

The requirement that the increased

249

What happens next with regard to the USMCA depends on how well President

value percentage be accompanied by wage

Even in the area of dispute settlement,

Trump negotiates with Congress. Initially

guarantees for workers is a new feature for a

the USMCA treats Mexico less favorably

USTR Lighthizer informed Speaker Pelosi

U.S. trade agreement and aimed at protecting

than Canada. Mexico will no longer benefit

that the USMCA text would not be re-

245

American autoworkers.

from the NAFTA Chapter 10 bi-national

opened for input from Congress.256 Moreover,

Other major changes in the USMCA

arbitration process for antidumping and

the Trump administration has continued to

alter the protections given to North American

countervailing duty cases. That option is

suggest that if Congress does not adopt the

investment and access to government

retained for Canada, as it was a major issue

USMCA, NAFTA will be terminated. 257

procurement markets. These are significant

for Prime Minister Trudeau.250

What the Trump administration seeks then

because in both areas NAFTA was a

—————————————————

is for Congress – starting with the House

guaranteeing all investment rights between

Instead of a secure North American market – what NAFTA has produced since 1994 – the USMCA would produce a contingent one.

the U. S. and Canada. Chapter 14 of the

—————————————————

negotiations. A Democratically-controlled

USMCA offers ISDS for legacy investments

Both Canada and Mexico agreed to a

House may have little reason to support a

– existing investment between the two

U.S. insistence that the USMCA itself should

Trump-negotiated agreement in which it

countries – for three years after NAFTA is

sunset. This means that the three countries, if

had little input. There is historical support

terminated but is silent as to ISDS for new

the USMCA is ratified by each and goes into

for a re-opening of a free trade agreement

investments.

251

force, must be extended after sixteen years.

to procure the necessary Congressional

treated differently with respect to Mexico.

Even before the extension vote, the three

support. Speaker Pelosi forced a re-think

There will be access to full ISDS for all

countries must review the USMCA after six

of the Peru, Colombia, and KORUS free

breakthrough free trade agreement. In the area of investment protection, the USMCA essentially removes investor-state dispute settlement (ISDS) as a mechanism for

246

Investment protection is

Currents 23.2 2019

– to vote for the USMCA without any amendments under the terms of TPA 2015. It is not clear that President Trump can get what he seeks. First, Congress is now different than it was during the USMCA

trade agreements during the G.W. Bush

and the WTO, on whether and how to shut

Commission.

Congress does not have

down the trade wars, and on whether to seek

to act immediately. It cannot vote on the

a return to U.S. leadership in international

USMCA until the U.S. International Trade

trade. Achieving any of these goals will

Administration releases its report, required

require standing up to what has become a

under TPA 2015, on the likely economic

greatly empowered President by reminding

impact of the revised agreement.

him that trade policymaking belongs to the

258

259

Even

before that mid-April 2019 deadline, at

Executive Branch and to Congress.

least one large Congressional group, the Congressional Progressive Caucus of more than ninety members, has announced its opposition without changes on enforcement for labor and environmental standards and intellectual property rights provisions that will keep drug prices high.260 Second, it is not clear whether President Trump can unilaterally withdraw from NAFTA.261 Even if that were constitutionally permissible, the economic consequences would be significant – involving losses in trade, investment, and employment – given the long-standing economic integration of the three economies.262 As it turns out, it is not any easier to win trade regionalism with Congress than it is to win trade wars with U.S. trading partners. —————————————————

Conclusion ————————————————— Now, Congress has a role to play in U.S. trade policymaking. That is better for overall U.S. interests but that also makes it harder to discern the future outlines of U.S. trade policy. With regard to the USMCA, there will have to be some effort to reconcile the new agreement and its sharp breaks with past U.S. trade priorities expressed in TPA 2015.263 Apart from this one issue, Congress will also have to determine whether to continue the U.S. walk away from decades of support for the multilateral trading system 65

Currents 23.2 2019

End Notes 1.

See infra Part I, § B for a discussion of how the President and Congress share trade policymaking. This essay actually covers almost two decades of U.S. trade policymaking from 2002 up through early 2019. See The President’s 2017 Trade Policy Agenda, USTR 1 (2017), https://ustr.gov/sites/default/files/ files/reports/2017/AnnualReport/ Chapter%20I%20-%20The%20 President%27s%20Trade%20 Policy%20Agenda.pdf [https:// perma.cc/PR8H-NSAZ]. Bradley Byrne, What is Trade Promotion Authority and Why Does It Matter? Bradley Byrne (2017), https://byrne.house. gov/what-is-trade-promotionauthority-and-why-does-itmatter[https://perma.cc/Q9WCVXGJ] (explaining that over “over the three prior Presidential administrations, the President had an ambitious trade policy agenda but no authorization from Congress to complete and implement trade agreements. By contrast, the Trump administration has expressed little interest in the WTO or free trade agreements that are not bilateral agreements.). President Trump Will Have Broad Presidential Authority to Terminate Trade Agreements and Impose Punitive Duties on U.S. Trading Partners, Hogan Lovells, https:// www.hoganlovells.com/en/ publications/the-next-presidentwill-have-broad-authority-toterminate-free-trade-agreementsand-impose-punitive-duties-onforeign-countries[https://perma. cc/9EFS-5TFN] [hereinafter TPA 2015] (last updated Nov. 10, 2016); see also infra note 106 (explaining President Obama signed the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 on June 21, 2015. TPA 2015 marked the first time that Congress had given trade promotion authority to President Obama. President Trump currently has TPA authority and will have it through 2021 when it expires). The Doha Round of negotiations started in 2000. The WTO Member States suspended the round multiple times, but it is still officially ongoing as

of 2019. The Member States have worked all these years on drafts of texts that represent agreements reached to date. The Doha Round did complete one major Agreement, the Trade Facilitation Agreement, in the 2013 Bali Ministerial. At the 10th Ministerial Conference in 2015, it was clear that there was a divide between the Member States about how to move forward in the WTO. See Nairobi Ministerial Declaration, WT/MIN(15)/DEC (adopted Dec. 19, 2015), https://www. wto.org/english/thewto_e/ minist_e/mc10_e/mindecision_e. htm [https://perma.cc/T324K3TG] (“We recognize that many Members reaffirm the Doha Development Agenda, and the Declarations and Decisions adopted at Doha and at the Ministerial Conferences held since then, and reaffirm their full commitment to conclude the DDA on that basis. Other Members do not reaffirm the Doha mandates, as they believe new approaches are necessary to achieve meaningful outcomes in multilateral negotiations. Members have different views on how to address the negotiations. We acknowledge the strong legal structure of this Organization. Nevertheless, there remains a strong commitment of all Members to advance negotiations on the remaining Doha issues.”); Robert Lighthizer, The President’s 2018 Trade Policy Agenda, USTR 29 (2018), https://ustr.gov/ sites/default/files/files/Press/ Reports/2018/AR/2018%20 Annual%20Report%20I. pdf [hereinafter 2018 Trade Policy Agenda] (explaining that although the WTO has not officially ended the Doha Round, the U.S. has declared it defunct.“[T]he Trump Administration will not negotiate off the basis of DDA mandates or old DDA texts and considers the Doha Round to be a thing of the past.”). Susan G. Esserman, U.S. Speaker, 31 Can.-U.S. L.J. 11, 14 (2005) (explaining that the only regional trade agreement entered into by the United States during the Bush Administration was with the countries in Central America and the Dominican Republic.) C. O’Neal Taylor, Of Free Trade

10. 11.

12. 13.

14.

15.

16.

Currents 23.2 2019

Agreements and Models, 19 Ind. Int’l & Comp. L. Rev. 569, 576, n. 45-6 (2009). [hereinafter FTAs & Models]; see also C. O’Neal Taylor, The U.S. Approach to Regionalism: Recent Past and Future, 12 ILSA J. Int’l & Comp. L. 411 (2009). [hereinafter U.S. Approach]. North American Free Trade Agreement, Can.-Mex-U.S., Dec. 17, 1992, 32 I.L.M. 289 (1993) [hereinafter NAFTA]. FTAs & Models, supra note 8, at 578-595. The pattern is as follows: U.S.Singapore (2003), U.S.-Chile (2003), Australia (2004), U.S.Morocco (2004), U.S.-CAFTA/ DR (2005), U.S.-Bahrain (2006), U.S.-Oman (2006), and U.S.-Peru (2007). Bipartisan Trade Promotion Authority Act of 2002, 19 U.S.C. §3801 (2002). James McBride, The State of U.S. Trade Policy, Council on Foreign Recl. (Jan. 31, 2017), https://www.cfr.org/ backgrounder/trans-pacificpartnership-and-us-trade-policy [https://perma.cc/B58Y-5AEY]. Organization: Office of Trade Policy and Economic Affairs, USTR (2017), https://ustr. gov/about-us/organization [https://perma.cc/R8AB-6LWX] (explaining ”[e]very President, through USTR, submits an annual report to Congress about the U.S. trade agreements program. The report always has two parts: 1) a report on the previous year’s efforts at the multilateral level (the WTO), at regional and bilateral negotiations, at trade agreement activities, and on trade policy developments, and 2) a report on the President’s Trade Policy Agenda for the coming year). 2009 Trade Policy Agenda and 2008 Annual Report, USTR (2009), https://ustr.gov/ sites/default/files/uploads/ reports/2009/asset_upload_ file810_15401.pdf [https:// perma.cc/MH5D-8NPL]. Congress considered TPA 2015 initially along with legislation that would have extended benefits for U.S. workers impacted by trade agreements – Trade Adjustment Assistance legislation. House Democrats rejected the TAA portion of the legislation and the Obama

Administration had to work with the Republican majority to separate out the two bills for stand-alone votes. See Cheryl Bolen, White House Seeking Votes for Trade as Republicans Chart a Path Forward, 32 Int’l Trade Rep. 1129 (June 15, 2015). 17. See infra at Part II of this essay. 18. Press Release, U.S. Leads WTO Partners in Clinching Landmark Expansion of Information Technology Agreement, USTR (July 24, 2015), https://ustr.gov/ about-us/policy-offices/pressoffice/press-releases/2015/july/ us-leads-wto-partners-clinching [https://perma.cc/GW6RZCUN]; see also infra at Part II (discussing of the Information Technology Agreement). 19. WTO Member States that represent 70 percent of the world's trade in services are negotiating the Trade in Services Agreement (TiSA) “outside” the WTO. The fact that the negotiations are outside the WTO means that they are not part of the official agenda for the organization. If the TiSA comes to fruition, there may be some attempt later to roll it into the WTO. By contrast, the Environmental Goods Agreement (EGA) plurilateral negotiations are “inside” the WTO. Eighteen Member States accounting for over 90% of the world’s trade in environmental goods are negotiating the EGA. See Environmental Goods Agreement, WTO (July 8, 2014), https://www.wto.org/ english/tratop_e/envir_e/ega_e. htm [https://perma.cc/G5FSG52K] (explaining the EGA will produce, among other features, a listing of the lowered tariffs on environmental goods reflected in the WTO tariff schedules of participating WTO Members); see also Biores, Environmental Goods Agreement trade talks look to hone the product list, ICTSD (June 24, 2015), http://www. ictsd.org/bridges-news/biores/ news/environmental-goodsagreement-trade-talks-look-tohone-product-list http://www. ictsd.org/bridges-news/biores/ news/environmental-goodsagreement-trade-talks-look-tohone-product-list [https://perma. cc/6TT4-P4LQ] (describing the state of EGA negotiations in 2015 as including the ultimate

adoption of a framework agreement that would contain a listing of the lowered tariffs in the WTO schedules, a review mechanism, and discipline on related issues concerning environmental science and technical barriers to trade). 20. During the Bush administration, the U.S. negotiated largely bilateral free trade agreements. The only free trade agreement that was completed and covered a region was the Central American Free Trade Agreement. United States-Central AmericaDominican Republic Free Trade Agreement, CAFTADR-U.S., May 28, 2004, 43 I.L.M. 514, https://ustr.gov/ trade-agreements/free-tradeagreements/cafta-dr-dominicanrepublic-central-america-fta [https://perma.cc/GL3K-5UP3]. [hereinafter DR-CAFTA] The Bush administration did start the negotiations for the Trans-Pacific Partnership, a large regional agreement, but made no progress on those talks before leaving office. 21. Governments and scholars adopted the term “megaregional” in 2014 as the descriptor for the major sets of trade negotiations going forward between the U.S. and eleven other countries that span the Pacific (TPP), The United States-EU T-TIP negotiations and the RCEP negotiations between the ASEAN countries and six of their trade agreement partner countries. For a discussion of the term and an examination of all aspects of mega-regional agreements. See The World Economic Forum’s Global Agenda Council on Trade & Foreign Direct Investment, Mega-regional Trade Agreements: Game Changers or Costly Distractions for the World Trading System?, World Econ. F. (July 2014), http://www.weforum. org/reports/mega-regional-tradeagreements-game-changersor-costly-distractions-worldtrading-system [https://perma.cc/ KZF2-RPFG]. 22. FTAA negotiations were between 34 of the 35 countries in the Western Hemisphere (Cuba was excluded). The FTAA negotiations went on for five years (from 2000-2005) before being suspended and they have never been resumed. For more information about the FTAA negotiations and why the talks failed. See Taylor FTAs &

23.

24.

25.

26.

27.

Models, supra note 8, at 572 & n. 17; C. O’Neal Taylor, Of Free Trade Agreements and Models, 19 Ind. Int’l & Comp. L. Rev. 569, 576 & notes 45, 46 (2009) (explaining to date this set of negotiations represents the sole failure of a set of U.S.-led free trade negotiations to yield a final agreement once negotiations started). Jackie Calmes & David M. Herzehorn, 11 Pacific Nations and U.S. Endorse Giant Trade Pact, N.Y. Times, Oct. 5, 2015, at A1 (describing how the 12 countries reached final agreement on what to date is the largest regional trade accord in history). Summary of the Trans-Pacific Partnership Agreement, USTR (Oct. 4, 2015), https://ustr. gov/about-us/policy-offices/ press-office/press-releases/2015/ october/summary-trans-pacificpartnership [https://perma. cc/6LPT-T2WX]. The verified legal text of the TPP Agreement is available on the websites of all participating TPP countries. The U.S. version is accessible on the USTR website, see Trans-Pacific Partnership Full Text, USTR, https:// ustr.gov/trade-agreements/ free-trade-agreements/transpacific-partnership/tpp-full-text [https://perma.cc/F9MW-3GC2] [hereinafter TPP Agreement]. The U.S. replaced the version released in November 2015 by the verified version in preparation for the February 2016 signing of the agreement. The T-TIP negotiations started before the United Kingdom voted to leave the EU in the June 23, 2016 referendum. Since that vote, the U.K. has tendered its official Article 50 notice to leave the EU. The Obama administration and the EU completed the 15th round of negotiations just prior to the 2016 Presidential election. The negotiations have lain dormant since the beginning of the Trump administration. The U.S. and the EU did issue a progress report in January 2017 on the status of the negotiations, see U.S.—EU Joint Report on T-TIP Progress to Date, USTR (2017), https://ustr.gov/aboutus/policy-offices/press-office/ press-releases/2017/january/useu-joint-report-t-tip-progress-0 [https://perma.cc/B8PB-GZ3T]. The EU has expressed interest in renewing negotiations based on the progress made during

the Obama era talks, see Bengt Ljung, EU Wants Assurances U.S. Talks Won't Restart From Zero, 34 Int’l Trade Rep. 757 (May 18, 2017) [hereinafter Assurances]. 28. During the Republican primaries, the only candidate focusing on trade issues was Donald Trump. His position was open hostility to all U.S. free trade agreements, particularly NAFTA. Trump promised in his acceptance speech for the GDP nomination to pull back from the tradition of negotiating free trade agreements. During the Democratic primaries, Senator Sanders campaigned heavily against free trade agreements in general and the recently negotiated TransPacific Partnership (TPP) in particular. Secretary Clinton also voiced her opposition to the TPP text completed by the Obama administration in 2015. See Michael A. Memoli, Hillary Clinton once called the TPP the ‘gold standard’. Here’s why, and what she says about the trade deal now, L.A. Times, (Sept. 26, 2016), http:// www.latimes.com/politics/ la-na-pol-trade-tpp-20160926snap-story.html [https://perma. cc/4HH7-3HRC]. During the 2016 campaign and in his first months in office, Trump expressed hostility towards all free trade agreements. Trump has gone back and forth in public statements from pushing for the re-negotiation of NAFTA to threatening to withdraw from the agreement. See Randy Woods, A Map Persuaded Trump to Save NAFTA, for Now, 34 Int’l Trade Rep. (BNA) 732 (May 9, 2017). 29. During the 2016 campaign and in his first months in office, candidate and then President Trump expressed the view that all trade agreements have “been a disaster” for the United States. See Russell Berman, Trump’s Shockingly Specific Speech on Trade, The Atlantic Monthly (June 28, 2016), https:// www.theatlantic.com/politics/ archive/2016/06/donald-trumpsshockingly-specific-speech-ontrade/489194/ [https://perma. cc/T4PB-76WK]. President Trump has gone back and forth in public statements for pushing for the re-negotiation of NAFTA to threatening to withdraw from the agreement. Finally, President Trump settled on renegotiation, see infra PART I, § A.3 for a discussion of the renegotiation of

NAFTA. 30. Candidate Trump and President Trump in his first year in office suggested that the U.S. could leave the World Trade Organization. John Brinkley, Trump May Withdraw U.S. From WTO, Outside Advisor Says, Forbes, (Feb. 13, 2017), https://www.forbes.com/sites/ johnbrinkley/2017/02/13/ trump-may-withdraw-u-sfrom-wto-outside-advisorsays/#5742f02733bb [https:// perma.cc/8NY4-FGS8]; 2018 Trade Policy Agenda, supra note 6, at 3 (explaining that as of 2019, President Trump has shifted his focus to a critique of the WTO). 31. The first U.S. free trade agreement was with Israel and it went into effect in 1985. See U.S.-Israel Free Trade Agreement, Isr.-U.S., Apr. 22, 1985, 24 I.L.M. 653. The second U.S. FTA was with Canada and was known as The U.S.Canada Free Trade Agreement which went into effect in 1989. See U.S.-Canada Free Trade Agreement, Can.-U.S., Jan. 2, 1988, 27 I.L.M. 281. 32. C. O’Neal Taylor, Fast Track, Trade Policy and Free Trade Agreements: Why the NAFTA Turned into A Battle, 28 Geo. Wash. J. Int’l & Econ. 2 (1992) [hereinafter NAFTA Battle]. 33. The President's 2019 Trade Policy Agenda and 2018 Annual Report, USTR, 4 (2019), https://ustr.gov/sites/default/ files/2019_Trade_Policy_ Agenda_and_2018_Annual_ Report.pdf [https://perma.cc/ SQD4-M8LC] [hereinafter 2019 Trade Policy Agenda] (“For many years after World War II, the United States benefited from a global trading system that generally encouraged more efficient markets here and around the world. By the time President Trump took office, however, significant flaws in that system were hurting American workers and businesses. Existing trade agreements were imbalanced and outdated, and efforts to negotiate new rules within the multilateral trading system had failed. American workers and businesses were suffering. In fact, the global trading system appeared to be tilted in favor of non-market economies like China. Furthermore, the United States was considering whether to join the TPP – a deal that would have made these trends

Currents 23.2 2019

even worse.”). 34. 2017 Trade Policy Agenda and 2016 Annual Report, USTR, 1 (2017), https://ustr. gov/about-us/policy-offices/ press-office/reports-andpublications/2017/2017trade-policy-agenda-and-2016 [https://perma.cc/EN2S-ZBY2] [hereinafter 2017 Trade Policy Agenda] (“The overarching purpose of our trade policy – the guiding principle behind all of our actions in this key area – will be to expand trade in a way that is freer and fairer for all Americans”.); see also 2018 Trade Policy Agenda, supra note 3, at 3 (explaining where the section of the Agenda that covers the five priorities of the Trump administration falls under the title “Putting America First: The President’s 2018 Trade Policy Agenda”.). 35. 2018 Trade Policy Agenda, supra note 6, at 3 36. Henry Farrell, “Donald Trump says trade wars are ‘good and easy to win.’ He’s flat out wrong”, Wash. Post (Mar. 2018). The analysis of Farrell contains a reprinting of President Trump’s tweet of March 2, 2018. The entire tweet, which shows how President Trump understands international trade states: “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore – we win big. It’s easy!” Donald J. Trump (@realDonaldTrump), Twitter (Mar. 2, 2018, 2:50 AM), https://twitter. com/realdonaldtrump/ status/969525362580484098 [https://perma.cc/TZ3M9MTH]. The focus of President Trump before the start of the trade wars was clearly that the problem is the trade deficit that the U.S. runs with many trading partners. The tweet suggests that the tariffs will force trading partners to cut back on trade and thus lower the trade deficit. 37. 19 U.S.C. § 1862 (2012). For a description of Section 232 and the determinations that must be made by the president, see Jean Galbraith, Contemporary Practice of the United States, 112 AJIL 315, 316-17 (2018) [hereinafter Galbraith I]. 38. There have been fourteen investigations under Section 232

39.

40.

41.

42.

43. 44.

45.

by the Commerce Department since 1980. In every one of those, except one by President Reagan in 1982, the president determined that there was no action necessary. The Effect of Imports on National Security: Investigations conducted under Trade Expansion Act of 1962 as amended, Dep’t. of Com. 16 (June 2007), https://www.bis.doc. gov/index.php/documents/section232-investigations/86-section232-booklet/file [https://perma. cc/3AGW-GCXT]. Bureau of Industry and Security, Secretary Ross Releases Steel and Aluminum 232 Reports in Coordination with White House, Dept. of Com. (Feb. 16, 2018) https://www.commerce.gov/ news/press-releases/2018/02/ secretary-ross-releases-steeland-aluminum-232-reportscoordination [https://perma.cc/ Q6JK-LYZ5]. Donald Trump, Presidential Proclamation on Adjusting Imports of Steel into the United States, White House (Mar. 8, 2018), https://www.whitehouse.gov/ presidential-actions/presidentialproclamation-adjusting-importssteel-united-states/ [https:// perma.cc/PBA7-DDAK]. Donald Trump, Presidential Proclamation on Adjusting Imports of Aluminum into the United States, White House (Mar. 8, 2018), https://www.whitehouse. gov/presidential-actions/ presidential-proclamationadjusting-imports-aluminumunited-states/ [https://perma.cc/ HR66-X8J3]. Jean Galbraith, Contemporary Practice of the United States, 112 AJIL 499, 500 (2018) [hereinafter Galbraith II]. The United States also negotiated an exemption for South Korea based on that country’s willingness to accept a quota on South Korean exports to the United States. For a description of the negotiations and how they played out with Argentina, Australia, Brazil, and South Korea. Id. at 500-02. Id. at 502-03. For a discussion of the opposition aby the Republican Senate and reactions by the EU and China, see Galbraith I, supra note 37, at 319-20. An action was filed in the Court of International Trade in June 2018 arguing that the President lacked Constitutional authority to take action under Section 232. See G. Thrush, Trump Use of

National Security to Impose Tariffs Faces Court Test, N.Y. Times (Dec. 19, 2018), https://www. nytimes.com/2018/12/19/us/ politics/trump-national-securitytariffs.html [https://perma.cc/ RYL7-7BNC] (discussing when a three-judge panel on the court of International Trade heard arguments in December 2018). 46. Most of the WTO disputes filed have argued that the Section 232 tariffs violate GATT Articles I, II, X, XI, and XIX and various provisions of the Safeguards Agreement. See Request for Consultations by Canada, United States--Certain Measures on Steel and Aluminum Products, WTO Doc. WT/DS550 (June 1, 2018). 47. Request for Consultations by Canada, supra note 46; Request for Consultations by China, United States--Certain Measures on Steel and Aluminum Products, WTO Doc. WT/DS544/1 (April 5, 2018); Request for Consultations by the European Union, United States--Certain Measures on Steel and Aluminum Products, WTO Doc. WT/ DS548/1 (June 1, 2018); Request for Consultations by India, United States--Certain Measures on Steel and Aluminum Products, WTO Doc. WT/ DS547 (May 18, 2018); Request for Consultations by Mexico, United States--Certain Measures on Steel and Aluminum Products, WTO Doc. WT/DS551 (June 5, 2018); Request for Consultations by Norway, United States-Certain Measures on Steel and Aluminum Products, WTO Doc. WT/DS552/1 (June 12, 2018); Request for Consultations by the Russian Federation, United States--Certain Measures on Steel and Aluminum Products, WTO Doc. WT/DS554/1 (June 29, 2018); Request for Consultations by Switzerland, United States-Certain Measures on Steel and Aluminum Products, WTO Doc. WT/DS556/1 (July 9, 2018). 48. Turkey was treated differently from other countries with regard to the Section 232 tariffs. See Jean Galbraith, Contemporary Practice of the United States, 112 AJIL 751, 757 (2018) [hereinafter Galbraith III]. Turkey’s WTO dispute against the United States was filed in August 2018. Request for Consultations by Turkey, United States--Certain Measures on Steel and Aluminum Products, WTO Doc. WT/DS556/1 (Aug. 15, 68

Currents 23.2 2019

2018). 49. Communication from the United States, United States – Certain Measures on Steel and Aluminum Products, WTO Doc. WT/DS 544/2 (Apr. 13, 2018) (providing the U.S. response to the request for consultations by China). The relevant section of Article XXI of the GATT states: “Nothing in this Agreement shall be construed… (b) to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests.” General Agreement on Tariffs and Trade, Oct. 30, 1947, 61 Stat. A-11, T.I.A.S. No. 1700, 55 U.N.T.S. 194, https://www. wto.org/english/docs_e/legal_e/ gatt47_01_e.htm [https://perma. cc/7SK7-DYU9] [hereinafter GATT]. 50. Request for Consultations by the United States, Canada-Additional Duties on Certain Products from the United States, WTO Doc. WT/DS557/1 (July 16, 2018) [hereinafter U.S. Request with Canada]; Request for Consultations by the United States, China--Additional Duties on Certain Products from the United States, WTO Doc. WT/DS558/1 (July 16, 2018); Request for Consultations by the United States, European Union--Additional Duties on Certain Products from the United States, WTO Doc. WT/DS559/1 (July 16, 2018); Request for Consultations by the United States, Mexico--Additional Duties on Certain Products from the United States, WTO Doc. WT/DS560/1 (July 16, 2018); Request for Consultations by the United States, Turkey--Additional Duties on Certain Products from the United States, WTO Doc. WT/DS561/1 (July 16, 2018). The request for consultations with Mexico does not make a GATT Article II claim. 51. 2018 Trade Policy Agenda, supra note 6, at 4. 52. Presidential Memorandum Addressing China’s Laws, Policies, Practices, And Actions Related to Intellectual Property, Innovation, and Technology, 82 Fed. Reg. 39007 (Aug. 17, 2017). 53. USTR stated in its initiation notice that it would focus on the following concerns about China in its investigation: (1) the Chinese government reportedly uses a variety of tools (including opaque approval processes,

54.

55.

56. 57.

joint venture requirements, foreign equity limitations and other mechanisms) to require or pressure the transfer of technologies and intellectual property to Chinese companies; (2) the Chinese government reportedly deprives U.S. companies of the ability to set market-based terms in licensing negotiations with Chinese companies; (3) the Chinese government reportedly intervenes in markets by directing or unfairly facilitating the acquisition of U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property; and (4) the Chinese government reportedly conducts or supports unauthorized intrusions into U.S. commercial computer networks or cyberenabled theft. 2017 Report to Congress on China’s WTO Compliance, USTR 30 (2018), https://ustr.gov/sites/default/files/ files/Press/Reports/China%20 2017%20WTO%20Report. pdf [https://perma.cc/7SW6WBMY]. Findings of the Investigation into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation Under Section 301 of the Trade Act of 1974, USTR (Mar. 22, 2018), https://ustr.gov/ sites/default/files/Section%20 301%20FINAL.PDF [https:// perma.cc/D5ZB-8UPL]. For a summary of the findings of the Section 301 report, see Press Release, President Trump Announces Strong Actions to Address China’s Unfair Trade, USTR, (Mar. 22, 2018), https:// ustr.gov/about-us/policy-offices/ press-office/press-releases/2018/ march/president-trumpannounces-strong [https://perma. cc/CR7C-6FNE]. Presidential Memorandum of March 22, 2018, on the Actions by the United States Related to the Section 301 Investigation of China’s Laws, Policies, Practices or Actions Related to Technology Transfer, Intellectual Property, and Innovation, 83 Fed. Reg. 13009, 13100 (Mar. 27, 2018). 2018 Trade Policy Agenda, supra note 6, at 30. Request for Consultations by the United States, China— Certain Measures Concerning the Protection of Intellectual Property Rights, WTO Doc. WT/DS 542 (Mar. 23, 2018) (according to the request, “China denies

58.

59.

60.

61.

62. 63.

64.

foreign patent holders the ability to enforce their patent rights against a Chinese joint-venture party after a technology transfer contract ends. China also imposes mandatory adverse contract terms that discriminate against and are less favorable for imported foreign technology. Therefore, China deprives foreign intellectual property rights holders of the ability to protect their intellectual property rights in China as well as freely negotiate market-based terms in licensing and other technologyrelated contracts.” The U.S request goes on to cite these issues as violations of Section 3 and 28 of the Trade-Related Intellectual Property Right Agreement (TRIPs)). See C. O’Neal Taylor, Impossible Cases: Lessons from the First Decade of WTO Dispute Settlement, 28 U. Pa. J. Int’l L. 309 (2007). Press Release, Under Section 301 Action, USTR Releases Proposed Tariff List on Chinese Products, USTR (Apr. 3. 2018), https:// ustr.gov/about-us/policy-offices/ press-office/press-releases/2018/ april/under-section-301-actionustr [https://perma.cc/5DEBN99S]. Request for Consultations by China, United States--Tariff Measures on Certain Goods from China, WTO Doc. WT/DS 543 (Apr. 4, 2018); see also GATT, supra note 48, at Art. I (Most Favored Nation) and Art. 2 (Tariff Binding). Press Release, USTR Issues Tariffs on Chinese Products in Response to Unfair Trade Practices, USTR (June 15, 2018), https://ustr. gov/about-us/policy-offices/ press-office/press-releases/2018/ june/ustr-issues-tariffs-chineseproducts [https://perma.cc/ N243-XU46]. See Galbraith II, supra note 41, at 751-53 (providing a threat-bythreat description of events). Raymond Zhong, China Strikes Back at Trump’s Tariffs, but its Consumers Worry, N.Y. Times (July 6, 2018), https://www. nytimes.com/2018/07/06/ business/china-trump-tradewar-tariffs.html [https://perma. cc/6Y8R-F8QZ]. Press Release, USTR Finalizes Second Tranche of Tariffs on Chinese Products in Response to China's Unfair Trade Practices, USTR (Aug. 7, 2018), https:// ustr.gov/about-us/policy-offices/ press-office/press-releases/2018/

65.

66.

67.

68.

august/ustr-finalizes-secondtranche [https://perma. cc/95RT-YD7C] (announcing the tariffs would go into effect on August 23); Press Release, MOFCOM Spokesman Comments on China's Countermeasures on US$ 16 Billion Worth of Products Imported from the US, Ministry of Com. People’s Republic of China (Aug. 9, 2018), http://english.mofcom.gov.cn/ seng/201808/20180802775504. shtml [https://perma.cc/ Q7Q5-HN5W] (announcing that China’s tariffs would “be implemented synchronously with the US side.”). Press Release, Statement on the United States Trade Delegation’s Meeting in Beijing, USTR (Jan. 9, 2019), https://ustr. gov/about-us/policy-offices/ press-office/press-releases/2019/ january/statement-united-statestrade[https://perma.cc/LM3KKYT9]. Ana Swanson & Neil Irwin, Trump Starts a Trade War, but the Path to Success Remains Unclear, N.Y. Times (July 6, 2018), https://www.nytimes. com/2018/07/06/us/politics/ trump-trade-war-unclearoutcome.html [https://perma. cc/68MK-NNA6] (explaining the Trump administration has sent mixed messages about what would constitute a victory in the trade wars. According to Swanson and Irwin, “with China, the president’s advisers have vacillated between asking Beijing to purchase more American products to lower the United States’ trade deficit and pushing for more substantive economic reforms.”). Id. (according to Daniel Price, a former trade official under President G.W. Bush and now with Rock Creek Global Advisors, “there is no apparent plan. The administration has given no indication what the offramp is or what their objectives are.”). David A. Lake & Jessica Chen Weiss, The Trump administration wrongly assumed China would capitulate in a trade war. What happens now?, Wash. Post (Sept. 24, 2018) (according to Lake and Weiss, the tariffs wars are aimed at trade in goods whereas the real economic competition between the two relate to the “industries of the future – robotics, artificial intelligence, biotech and more. The Trump administration appears to believe

69.

70.

71.

72.

that the trade war will prompt Beijing to abandon the Made in China 2025 initiative – aimed at upgrading its technology to compete with the United States. The opposite is more likely.”). Bruce Baschuk, U.S. Seeks Focus on WTO’s ‘Systemic, Institutional Problems’, 34 Int’l Trade Rep. (BNA) 1078 (2017) (explaining in 2017, the U.S. did not believe that in WTO is in a “mode of serious deal-making or rulemaking” in the period leading up to the 11th WTO Ministerial Conference in Buenos Aires according to Christopher Wilson, U.S. Charge d’Affaires). Statement of the United States by Ambassador Dennis Shea at the 14th WTO Trade Policy Review of the United States of America, USTR (Dec. 17, 2018), https:// ustr.gov/about-us/policy-offices/ press-office/press-releases/2018/ december/statement-unitedstates-ambassador# [https:// perma.cc/CZJ8-36TG]. Press Release, WTO disputes reach 400 mark, WTO (Nov. 6, 2009), https://www.wto.org/english/ news_e/pres09_e/pr578_e. htm (explaining the occasion of the dispute settlement system reaching 400 disputes that “the dispute settlement system is widely considered to be the jewel in the crown of the WTO” and “[t]his is surely a vote of confidence in a system which many consider to be a role model for the peaceful resolution of disputes in other areas of international political or economic relations.”); see also Giorgio Sacerdoti, Future of The Global Trade Order 45 (Carlos Primo Braga & Bernard Hoekman eds., 2016) (discussing the future of the WTO Dispute Settlement System: Consoligating a Success Story). 2017 Trade Policy Agenda, supra note 34, at 2 (according to the report, one of the “key objectives” of the Trump administration is to resist “efforts by other countries – or Members of international bodies like the World Trade Organization (WTO) – to advance interpretations that would weaken the rights and benefits of, or increase the obligations under, the various trade agreements to which the United States is a party.” Stating, “[e]ven if a WTO dispute settlement panel – or the WTO Appellate Body – rules against the United States, such a ruling does not automatically

Currents 23.2 2019

73.

74.

75. 76.

77.

78.

lead to a change in U.S. law or practice. Consistent with these important protections and applicable U.S. law, the Trump Administration will aggressively defend American sovereignty over matters of trade policy.”). Damian Paletta & Ana Swanson, Trump suggests ignoring World Trade Organization in major policy shift, Wash. Post (2017) https://www. washingtonpost.com/news/ wonk/wp/2017/03/01/trumpmay-ignore-wto-in-major-shiftof-u-s-trade-policy/?utm_term=. a8521d6a3820 [https://perma. cc/LC46-C4J2]. See Arie Reich, The effectiveness of the WTO dispute settlement system: A statistical analysis, 5, 13 (EUI Working Paper Law No. 11, 2017) (analyzing all disputes filed in the WTO dispute settlement system as of May 2017 lists the United states as the most active complainant (in 114 disputes) and as the most active respondent (in 130 disputes)). 2018 Trade Policy Agenda, supra note 6, at 23-28. Id. at 23 (explaining that the 2018 Trade Policy Agenda describes the problems that have been identified by the G.W. Bush, Obama and Trump administrations with regard to WTO panel and Appellate Body decisions that have “added to or diminished rights or obligations in various areas, such as subsidies, antidumping duties, and countervailing duties; standards (under the TBT Agreement) and safeguards.”). Id; DSU, Dispute Settlement Rules: Understanding on Rules and Procedures Governing the Settlement of Disputes, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, 1869 U.N.T.S. 401, 33 I.L.M. 1226 (1994) [hereinafter DSU] (according to Article 3(2) of the DSU: “Recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements.”). See Bryce Baschuk, A Conversation With Six Former USTRs, CSIS (Sept. 20, 2018), https://www.csis.org/events/ conversation-six-former-ustrs-0 [https://perma.cc/T994-N8LX] (There is a webcast available of the talk presented by the former USTR heads for the Center for Strategic & International Studies (CSIS).The former USTR

79.

80. 81. 82. 83.

84.

85. 86.

87.

heads are Bill Brock (USTR for Reagan), Carla Hills (USTR for G.H.W. Bush), Michael Kantor and Charlene Barshefsky (USTRs for Clinton), Susan Schwab (USTR for G.W. Bush), and Ron Kirk (USTR for Obama)). David A. Gantz, An Existential Threat to WTO Dispute Settlement: Blocking Appointment of Appellate Body Members by the United States, 10 (Arizona Legal Studies Discussion Paper No. 18-26, (July 2018), https:// www.ssrn.com/index.cfm/en/. See also Jennifer Hillman, Three Approaches to Fixing the World Trade Organization’s Appellate Body: The Good, the Bad, and The Ugly?, IIEL at 4, n. 8-9 (2018), https://iielaw.org/iielissue-briefs/ [https://perma. cc/849G-FTQN]. 2018 Trade Policy Agenda, supra note 6, at 26-28. DSU, supra note 77, at art. 17.5. 2018 Trade Policy Agenda, supra note 6, at 24-26. WTO Member States acting as the Dispute Settlement Body (DSB) appoint Appellate Body members to revolving four-year terms. Manfred Elsig, Mark Pollack, & Gregory Shaffer, Trump is fighting an open war on trade. His stealth war on trade may be even more important, Wash. Post (Sept. 27, 2017), https:// www.washingtonpost.com/news/ monkey-cage/wp/2017/09/27/ trump-is-fighting-an-openwar-on-trade-his-stealthwar-on-trade-may-be-evenmore-important/?utm_term=. c0cf7153f032 [https://perma.cc/ DF8H-DGM6]. Id. Cathleen Cimino-Isaacs, Rachel Fefer, & Ian Fergusson, World Trade Organization: Overview and Future Direction, C. R. S. Rep. (Nov. 29, 2018), https:// www.americanvoiceforfreedom. org/wp-content/ uploads/2018/11/World-TradeOrganization.pdf [https://perma. cc/PW2R-MRMS]. Bryce Baschuk, Drop WTO Obstruction, Trade Ministers Urge U.S., 34 Int’l Trade Rep. (BNA) 1353 (2017) (explaining that during the October meeting of the WTO Dispute Settlement Body (DSB), trade ministers of many WTO Member States asked the U.S. to stop blocking appointments warning that the U.S. practice could undermine the operation of the dispute settlement system. The U.S.

response at that meeting was that the DSB needed to meet U.S. concerns regarding “process violations and a pattern of judicial overreach in the WTO's final adjudicative forum.”). 88. It is clear that WTO Member States will have to make a plan that may or may not include the U.S. Hillman, supra note 78, points out that one solution to the WTO AB blocking crisis is for Member States to pursue arbitration under Article 25 of the WTO Dispute Settlement Understanding. See James Bacchus, Saving the WTO’s Appeals Process, Cato Inst. (Oct. 12, 2018), https://www.cato.org/ blog/saving-wtos-appeals-process [https://perma.cc/U232-KKWE] (according to Bacchus, a former member of the WTO Appellate Body: “The time has come for the other WTO members to stand up to Trump’s bullying and isolate the United States by employing the alternative of arbitration that has previously been largely ignored but is clearly permitted under the WTO treaty. Under Article 25, any two WTO members can choose to use arbitration when they have a trade dispute. They can select their own arbitrators. They can decide on their own procedures. They do not need prior approval to do so. They cannot be prevented from doing so by any other country. The judgment they get in arbitration will be as binding and as enforceable as any other judgment in WTO dispute settlement. “Arbitration’ is not defined in Article 25. Thus, countries choosing it as an alternative to the regular dispute settlement proceedings are free to decide simply to duplicate those proceedings. They can photocopy the regular dispute settlement rules and adopt them as their form of arbitration. This would have the practical effect of establishing a parallel dispute settlement system in the WTO that is identical to the current one – but that excludes the United States.”). 89. Press Release, European Commission presents comprehensive approach for the modernization of the World Trade Organization, Eur. Comm’n (Sept. 18, 2018), http://europa.eu/rapid/pressrelease_IP-18-5786_en.htm [https://perma.cc/GA7T-MSD5]. The European Commission has issued a Concept Paper that sets out EU ideas on how to reform 70

Currents 23.2 2019

90.

91. 92. 93.

94.

95.

the WTO dispute settlement system and on how to make the organization operate more effectively, see Concept Paper: WTO modernization Future EU proposals on rulemaking, Eur. Comm’n 14-17, http://trade. ec.europa.eu/doclib/docs/2018/ september/tradoc_157331.pdf [https://perma.cc/L83W-6Q68] (providing the Commission a June 2018 mandate to pursue WTO modernisation in pursuit of the objectives of (1) making the WTO more relevant and adaptive to a changing world, and (2) strengthening the WTO's effectiveness. The Concept Paper directly addresses the U.S. concerns about the WTO dispute settlement system raised in the 2018 Trade Policy Agenda.). Canada led a forum for discussion of WTO reform with 12 other like-minded WTO Member States in October 2018. The group included Australia, Brazil, Chile, the EU, Japan, Kenya, Mexico, New Zealand, Norway, Singapore, South Korea, and Switzerland. Strengthening and modernizing the WTO: Discussion paper communication from Canada, Can. Gov’t (Oct. 19, 2018), https://international. gc.ca/gac-amc/campaigncampagne/wto-omc/discussion_ paper-document_travail. aspx?lang=eng [https://perma. cc/45K6-X9WB]. 2017 Trade Policy Agenda, supra note 34, at 2, 5. Id. at 6. Adam Taylor, A timeline of Trump's complicated relationship with the TPP, Wash. Post (Apr. 13, 2018), https://www. washingtonpost.com/news/ worldviews/wp/2018/04/13/atimeline-of-trumps-complicatedrelationship-with-the-tpp/ [https://perma.cc/32DG-2J2G]. Comprehensive and Progressive Agreement for Trans-Pacific Partnership, Can. Gov’t (Mar. 3, 2018), https:// international.gc.ca/tradecommerce/trade-agreementsaccords-commerciaux/agr-acc/ cptpp-ptpgp/text-texte/index. aspx?lang=eng [https://perma. cc/7CE2-7JFL] (explaining that despite the views of many that the U.S. withdrawal would lead to the end of the TPP integration movement, the eleven other trade partners of the U.S. went ahead to complete the negotiations and have it enter into force). 2017 Trade Policy Agenda,

supra note 34, at 6 (“By withdrawing from the TransPacific Partnership (TPP), the President sent a clear signal that the United States would take a new approach to trade issues, and paved the way for potential bilateral talks with the remaining TPP countries.”). 96. See infra at Part III, § C and notes 213-15. 97. See Assurances, supra note 27 (describing the T-TIP negotiations as only two-thirds complete with the most difficult issues still left.). The EU continued to study the impact of the free trade agreement and in March 2017 issued its Sustainability Impact Assessment of the T-TIP negotiations. In a position paper on the SIA, the chief recommendation was that the EU “should seek to negotiate an ambitious TTIP agreement that covers both tariffs and non-tariff barriers, in order to achieve the maximum potential benefits for EU Member States and the EU as a whole.” See European Commission services’ position paper on the sustainability impact assessment in support of negotiations of the Transatlantic Trade & Investment Partnership between the European Union and the United States of America, Eur. Comm’n. 13 (Mar. 31, 2017), http://trade.ec.europa. eu/doclib/docs/2017/march/ tradoc_155462.pdf [https:// perma.cc/CEB3-P4XU]. 98. 2018 Trade Policy Agenda, supra note 6, at 13. 99. Josh Wingrove & Andrew Mayeda, Trump Reveals NAFTA Talks as Canada, Mexico Huddle, 34 Int’l Trade Rep. 1049 (July 20, 2017). 100. Summary of Objectives for the NAFTA Renegotiation, USTR (July 17, 2017), https://ustr. gov/sites/default/files/files/Press/ Releases/NAFTAObjectives.pdf [https://perma.cc/GXR7-SPEN]. 101. United States-Mexico-Canada Free Trade Agreement, USTR (Nov. 30, 2018), https:// ustr.gov/trade-agreements/ free-trade-agreements/unitedstates-mexico-canada-agreement [https://perma.cc/JVE6-WQZT] [hereinafter USCMA]. 102. Brian Flood, Trump Administration Kicks Off Renegotiation of Korea Trade Deal, 34 Int’l Trade Rep. 1030 (July 20, 2017) (announcing that the U.S. called a special joint committee meeting to start the KORUS renegotiation process

to “resolve several problems regarding market access in Korea for U.S. products, and, most importantly, address our significant trade imbalance.”). For an analysis of the KORUS renegotiation, see Jeffrey J. Schott & Euijin Jung, KORUS Amendments: Minor Adjustments Fixed What Trump Called “Horrible Trade Deal”, PIIE 18-22 (Nov. 2018), https://piie. com/system/files/documents/ pb18-22.pdf [https://perma.cc/ P2RK-FUNH]. 103. International Trade and Finance: Overview of Issues for the 116th Congress, C. R. S. Rep. No. 45474, 25 (Jan. 28, 2019), https://crsreports.congress. gov/product/pdf/R/R45474 [https://perma.cc/Y3A5-RFG9] [hereinafter Issues for the 116th Congress] (“The President also negotiated changes to the U.S.South Korea (KORUS) FTA, but the relatively minor adjustments were made by proclamation at the end of 2018 and require no further action by Congress.”). 104. President Obama is not the only modern era President to conduct his trade policy regime without trade promotion authority. From 1994-2002, almost the entirety of the Clinton Administration and the beginning of the G.W. Bush Administration – there was no trade promotion authority in place. The gap from 2007 until 2015 marked a hiatus of the authority for a similar period. See Ian F. Ferguson, Trade Promotion Authority (TPA) and the Role of Congress in Trade Policy, CRS Rep. RL33743, 6-7 (June 15, 2015) (discussing why this earlier hiatus occurred) [hereinafter CRS-TPA Report]. 105. Id. at 2-3 (explaining that the Constitution requires the Executive Branch and Congress to share power over the making of trade policy, with the greatest power given to Congress. Congress has the power to “lay and Collect Taxes, Duties, Imposts, and Excises”, and thus has direct authority over the money raised by tariffs placed on goods entering the United States. Every other aspect of what would be considered trade policy – beyond tariffs into all aspects of conducting trade with other countries – is covered under the Constitutional grant of power “[t]o regulate Commerce with Foreign Nations. U.S. Const., Art. I, sec. 8. The powers granted to the Executive Branch came from the foreign affairs power granted

to the President “make Treaties.” U.S. Const.., Art. 2, sec. 3. There has also been interpretation of the inherent powers of the President by the Supreme Court holding that the President has foreign affairs powers as an aspect of sovereignty. Despite this required power sharing, the Congress and the President have traditionally struggled over how to share. By 1934, Congress had concluded that it should delegate the negotiating power on trade agreements to the President. However, the modern era approach to this power sharing happened in the mid-1970s. Under all delegations since that time, the President has been delegated powers to negotiate and sign trade agreements as long as the completed agreements met the objectives set by Congress, and both houses of Congress approved the implementing legislation for the trade agreement). 106. Bipartisan Congressional Trade Priorities and Accountability Act of 2015, H.R. Rep. No. 114-100 Part I, 114th Cong. § 1(b), at 30 (2015) (Conf. Rep.) (“Working with Congress, the Administration is pursuing a robust and ambitious trade negotiating agenda.”) [hereinafter House Conf. Rep.]. 107. Id. 108. Id. (“Only with this authority in hand is the United States able to demonstrate to its trading partners that it is serious about concluding trade agreements because implementation procedures are in place, thus creating an atmosphere for other countries to put their best offers on the table and make concessions to produce the best agreement for the United States.”). 109. Press Release, USTR Lighthizer Welcomes Extension of Trade Promotion Authority, USTR (July 2, 2018), https://ustr.gov/aboutus/policy-offices/press-office/ press-releases/2018/june/ustrlighthizer-welcomes-extension [https://perma.cc/TEA8-73QZ]. 110. For a detailed history of the evolution of the fast track statutes, see NAFTA Battle, supra note 32, at 36-50; For a short description of the main features of each grant of trade promotion authority, see CRS – TPA Report, supra note 104, at 2-7. 111. The U.S. has indicated that it will be working towards a free trade agreement with the United Kingdom. See 2018 Trade Policy Agenda, supra note 6, at 11-12.

(explaining that the U.S. has also expressed an interest in a “closer trade relationship” with Japan since it will not have that relationship through the TPP Agreement). 112. See CRS-TPA Report, supra note 104, at 17. 113. Len Bracken, USTR Releases TransPacific Trade Pact, 32 Int’l Trade Rep. 1944 (Nov. 5, 2015), https:// www.bna.com/ustr-releasestranspacific-n57982063269/ [https://perma.cc/JSN2-693R] (noting that on the same day that USTR released the TPP final text to the public, President Obama gave Congress the 90-day notice required by TPA 2015 that he intends to sign the TPP Agreement). 114. See TPP Agreement, supra note 25 (listing TPP chapters covering Electronic Commerce (Chapter 14), which deals with digital trade issues, and State-Owned Enterprises (Chapter 17). There are no separate TPP chapters for the localization, currency and human rights issues but the chapter on Development does deal with the effects of trade agreements on all levels of people in the economies of the countries and aims to focus study and effort on how to empower women); See id. at ch. 23.3 (4) (“The Parties may enhance broad-based economic growth through policies that take advantage of trade and investment opportunities created by this Agreement in order to contribute to, among other things, sustainable development and the reduction of poverty. These policies may include those related to the promotion of market-based approaches aimed at improving trading conditions and access to finance for vulnerable areas or populations, and SMEs.”); See id. at ch. 23.4 (2) (“[T]he Parties shall consider undertaking cooperative activities aimed at enhancing the ability of women, including workers and business owners, to fully access and benefit from the opportunities created by this Agreement.”). 115. Id. at ch. 21 (Cooperation and Capacity Building). 116. Id. at ch. 23 (Development). 117. Id. at ch. 24 (Small and Medium-Sized Enterprises). 118. Id. at ch. 25 (Regulatory Coherence). 119. See USMCA, supra note 101 (covering the new topics as follows: Digital trade (ch. 19), State-Owned enterprises (SOEs) (ch. 22), Macroeconomic Policies and Exchange Rate Matters (ch.

Currents 23.2 2019

33), Small and Medium-Sized Enterprises (ch. 25), AntiCorruption (ch. 27), and Good Regulatory Practices (ch. 28). Chapter 28 of the USMCA is a re-work and re-named version of the Regulatory Coherence chapter of the TPP Agreement. 120. Issues for the 116th Congress, supra note 103, at 25. 121. See Marrakesh Agreement Establishing the World Trade Organization, Apr. 15, 1994, 1867 U.N.T.S. 154, 33 I.L.M. 1144, at art. 3.2, 9.1 (1994) [hereinafter Marrakesh Agreement] (noting that Member States negotiate the WTO agreements through consensus); id. at art. 3.3 (providing an understanding on the Rules and Procedures Governing the Settlement of Disputes); Annex 2 (noting that Member States bring disputes against each other in the system described by the Dispute Settlement Understanding as “a central element in providing security and predictability to the multilateral trading system.”); id. at art. 3.1 (explaining that in the dispute settlement system, Member States not only act as parties, but also as enforcers of the rules as part of the Dispute Settlement Body. Finally, Member States also oversee implementation of the existing WTO agreements thus engaging in surveillance). 122. Although not officially been declared as a failed round by the Member States, the Doha Round has been characterized as such. See Nairobi Declaration, supra note 6, for the position of the Trump administration; see also Will Martin & Patrick Messerlin, Why Is It so Difficult? Trade Liberalization under the Doha Agenda, 23 Oxford Rev. Econ. Pol’y 347 (2007); Sungjoon Cho, The Demise of Development in the Doha Round Negotiations, 45 Tex. Int’l L.J. 573 (2010); Susan C. Schwab, After Doha: Why the Negotiations Are Doomed and What We Should Do About It, Foreign Affairs, https://www.foreignaffairs.com/ articles/2011-04-09/after-doha [https://perma.cc/QV3X-BEBL] (last visited Oct. 22, 2017) (providing views for how the Doha Round has been analyzed). 123. Trade facilitation – Cutting “red tape” at the border, WTO (June, 15 2012), https://www.wto. org/english/tratop_e/tradfa_e/ tradfa_introduction_e.htm [https://perma.cc/YZ9W-AJ5U];

see also Protocol Amending the Marrakesh Agreement Establishing the World Trade Organization, WTO Doc. WT/L/940 (Nov. 28, 2014), https://www.wto. org/english/tratop_e/tradfa_e/ tradfa_e.htm [https://perma.cc/ WBE4-QYA2]. 124. See Nora Neufeld, The Long Winding Road: How WTO Members Finally Reached a Trade Facilitation Agreement, WTO (2014), https://www. wto.org/english/res_e/reser_e/ ersd201406_e.pdf [https:// perma.cc/ZH2W-97PE] (providing a review of the negotiations leading up to the TFA negotiations.). 125. See Ministerial Declaration of 14 November 2001, WTO Doc. WT/MIN(01)/DEC/1, 41 ILM 746 (2002), https:// www.wto.org/english/thewto_e/ minist_e/min01_e/mindecl_e. htm [http://perma.cc/9FJ43SD5] [hereinafter Doha Declaration] (listing the Trade Facilitation as a part of the Work Programme for the organization); see id. at ¶ 27 (“Recognizing the case for further expediting the movement, release and clearance of goods, including goods in transit, and the need for enhanced technical assistance and capacity building in this area, we agree that negotiations will take place after the Fifth Session of the Ministerial Conference on the basis of a decision to be taken, by explicit consensus, at that session on modalities of negotiations.”). 126. See, Ben Czapnik, The Unique Features of the Trade Facilitation Agreement: A Revolutionary New Approach to Multilateral Negotiations or the Exception Which Proves the Rule?, 18 J. Int’l Econ. L. 773, 775 (2015) (discussing these TFA aspects). 127. Bryce Baschuk, WTO’s $1 Trillion Trade Facilitation Accord Enters Into Force, 34 Int’l Trade Rep. 341 (Mar. 2, 2017) (according to WTO Director General Azevedo, the TFA is “the biggest reform of global trade this century” and “sends a message about the power of trade to support jobs and growth around the world—in developed and developing countries alike.”). 128. See generally Rudolf Adlung & Hamid Mamdouh, Plurilateral Trade Agreements: An Escape Route for the WTO?, 8-10 (WTO, Working Paper ERSD-2017-03), https://www.wto.org/english/ res_e/reser_e/ersd201703_e.

pdf [https://perma.cc/U327EVVT] [hereinafter Adlung & Mamdouh]. 129. Marrakesh Agreement, supra note 120, at ¶ 2. (Marrakesh Agreement Establishing the World Trade Organization, Apr. 15, 1994, 1867 U.N.T.S. 154, 33 I.L.M. 1144 (1994) at arts. III.2 and IX.1) [hereinafter Marrakesh Agreement]. 130. Id. at ¶ 3. 131. See Plurilaterals: of minority interest, WTO (Nov. 19, 2017, 10:02 PM), https://www.wto. org/english/thewto_e/whatis_e/ tif_e/agrm10_e.htm [https:// perma.cc/PPY9-5HKW] (according to the WTO’s explanation, the plurilateral agreements are of “minority interest.”). 132. Bernard M. Hoekman & Petros C. Mavroidis, WTO ‘a la carte’ or ‘menu du jour’? Assessing the Case for More Plurilateral Agreements, 26 Eur. J. Int’l L. 319, 320-21,325-26, 327-28 (2015) [hereinafter Hoekman & Mavroidis]. 133. See Id. at 336-41; see also Draper, Peter & Memory Dube, Plurilaterals and the Multilateral Trading System, ICTSD (Dec. 2013), http://e15initiative.org/ wp-content/uploads/2015/09/ E15-RTAs-Draper-and-DubeFinal.pdf [https://perma. cc/58L5-BYC3]. 134. The Marrakesh Agreement provides that a Ministerial Conference of the WTO can add agreements to the list of existing Plurilateral Agreements. See Marrakesh Agreement, supra note 120, at 161 (“The Ministerial Conference, upon the request of the Members parties to a trade agreement, may decide exclusively by consensus to add that agreement to Annex 4. The Ministerial Conference, upon the request of the Members parties to a Plurilateral Trade Agreement, may decide to delete that Agreement from Annex 4.”). 135. See GATT, supra note 49, at Art. XXIV (Article XXIV defines and prescribes rules for Customs Unions and Free Trade Agreements). Compare GATT, supra note 48, at 268-70 (Article XXIV defines and prescribes rules for Customs Unions and Free Trade Agreements), with General Agreement on Trade in Services, art. V, Apr. 15, 1994, 1869 U.N.T.S 188 (providing a similar provision governing the creation of such agreements). 136. Ministerial Declaration of 72

Currents 23.2 2019

Information and Technology Products, WTO Doc. WT/ MIN(96)/16 (1996) [hereinafter ITA]. 137. See 20 Years of the Information Technology Agreement: Boosting trade, innovation, and digital connectivity, WTO (2017), https://www.wto. org/english/res_e/booksp_e/ ita20years_2017_full_e.pdf [https://perma.cc/297D-MLQQ] [hereinafter 20 Years of the ITA] (reviewing the history of the ITA and its most recent expansion). 138. Ministerial Declaration on the Expansion of Trade in Information Technology Products, WTO Doc. WT/MIN(15)/25 (2015) [hereinafter ITA Expansion]. 139. ITA, supra note 136, at Annex; ITA Expansion, supra note 138, at Annex. 140. ITA Expansion, supra note 138, at Annex. 141. 20 Years of the ITA, supra note 136, at 4-5 (explaining that in his introduction to the review of the 20 years of the ITA, WTO Director General Azevedo explains why the ITA is so significant to the globalized world) (“Of course, the ITA is not only about eliminating duties and expanding trade, it is also about stimulating innovation and spreading new technologies. By lowering costs for IT products, the Agreement has contributed to the adoption and diffusion of computers and mobile phones, thereby helping more people to become connected. This helps consumers and businesses alike – particularly small and medium-sized enterprises. In addition, the ITA has helped to improve the trading environment for IT products by improving predictability for business and fostering investment in the participants' economies.”). 142. Hoekman & Mavroidis, supra note 132, at 332. 143. Agreement on Government Procurement art. I, Apr. 15, 1994, 1915 U.N.T.S. 122 [hereinafter GPA]; see Robert D. Anderson & Anna Caroline Müller, The Revised WTO Agreement on Government Procurement (GPA): Key Design Features and Significance for Global Trade and Development, WTO 4-14 (Working Paper ERSD-2017-04, 2017) https:// www.wto.org/english/res_e/ reser_e/ersd201704_e.htm [https://perma.cc/Q6J5-DMAX] [hereinafter Anderson & Müller] (for information on the history

of the GPA and its subsequent revision.). 144. The revised GPA, which entered into force on 6 April 2014, continues the earlier effort of the GPA by establishing standards of non-discrimination, transparency, and procedural fairness in public procurement. See Revised Agreement on Government Procurement, WTO (2014), https://www.wto.org/ english/docs_e/legal_e/rev-gpr94_01_e.htm [https://perma.cc/ CRV7-5Y3W]; see also Anderson & Müller, supra note 143, at 1422 for a review of its key design features. 145. See Anderson & Müller, supra note 143, at 31. 146. The participating WTO Members in the EGA negotiations are: Australia; Canada; China; Costa Rica; the European Union (representing Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom); Hong Kong, China; Iceland; Israel; Japan; Korea; New Zealand; Norway; Singapore; Switzerland; Liechtenstein; Chinese Taipei; Turkey; and the United States. 147. The EGA negotiations began in 2014 with a formal announcement by the United States and the other WTO Members. See Press Release, United States and WTO Partners Announce Launch of Negotiations for Environmental Goods Agreement, USTR (July 8, 2014), https://ustr.gov/aboutus/policy-offices/press-office/ press-releases/2014/July/USand-WTO-Partners-AnnounceLaunch-of-Negotiations-forEnviro-Goods-Agreement [https://perma.cc/T4BZ-JDGL]. 148. See Memorandum from USTR, Interim Environmental Review: Environmental Goods Agreement, USTR (Oct. 2016), [hereinafter Interim Environmental Review: EGA] (“The United States has been a longstanding advocate for liberalization of trade in environmental goods. In 2011, as host of the Asia-Pacific Economic Cooperation (APEC) forum, the United States secured a groundbreaking commitment among APEC’s 21 economies

to reduce import tariffs on a list of 54 environmental goods to five percent or less by the end of 2015. That commitment has resulted in the reduction of duties on hundreds of tariff lines in the APEC region, impacting billions of dollars of trade in clean technologies.”); see also Fact Sheet, APEC List of Environmental Goods: Promoting Exports, Creating Jobs, and Advancing Green Growth and Sustainable Development, USTR (Sept. 9, 2012), https://ustr. gov/about-us/policy-offices/ press-office/fact-sheets/2012/ september/apec-environmentalgoods [https://perma.cc/JZ7D2NH6]. 149. President Barack Obama, The President’s Climate Action Plan, Off. of Energy Efficiency & Renewable Energy, 19-20 (2013), https:// obamawhitehouse.archives. gov/sites/default/files/image/ president27sclimateactionplan. pdf [https://perma.cc/8ZFC4DSE]. 150. The United States would not see much impact from the first goal as it already has low tariffs. However, the U.S. does export green products and technologies to all of the participating members. See Interim Environmental Review: EGA, supra note 148, at 1314 (according to the USTR Environmental Review of the EGA, the removal of tariffs on “these technologies will likely reduce their cost, increase their deployment, drive economies of scale, and spur innovation and product development in these sectors. For example, eliminating tariffs on renewable energy technologies can facilitate increased use of renewable energy to generate electricity, if the costs of renewable electricity capacity and generation fall relative to those of fossil fuels, leading to reduced carbon emissions. In another example, a series of studies conducted by the OECD illustrated that imported monitoring equipment allowed several developing countries to obtain reliable air and water quality data, an essential starting point to better enforcement of clean air and clean water laws in those countries.”). 151. See Press Release, Progress Made on EGA, setting stage for further talks, WTO (Dec. 4, 2016) https://www.wto.org/ english/news_e/news16_e/

ega_04dec16_e.htm [https:// perma.cc/TG46-E8XH] (according to the landing page for the EGA on the WTO website, there have been no news items on the EGA since the December 2016 talks); Environmental Goods Agreement, WTO, https://www.wto.org/ english/tratop_e/envir_e/ega_e. htm [https://perma.cc/L98G9BFY] (last visited Feb. 26, 2019). 152. See Trade in Services Agreement, USTR, https://ustr.gov/TiSA [https://perma.cc/W6ZNLN8Z] (last visited Feb. 26, 2019). The participating WTO Members are: Australia, Canada, Chile, Taiwan, Colombia, Costa Rica, the EU, Hong Kong, Iceland, Israel, Japan, Korea, Liechtenstein, Mauritius, Mexico, New Zealand, Norway, Pakistan, Panama, Peru, Switzerland, the United States, and Turkey. 153. Rachel F. Fefer, Cong. Research Serv, R44354, Trade in Services Agreement (TiSA) Negotiations: Overview and Issues for Congress 3 (2017) [hereinafter CRS Report: TiSA]. 154. Id. at 1 (“Services account for 78% of U.S. private sector gross domestic product (GDP), 82% of private sector employees in 2015, and an increasing portion of U.S. international trade.”). 155. It is actually easier to understand TiSA by examining the information provided by the EU. The EU provides detailed information about its participation in the TiSA negotiations, including a basic fact sheet on the TiSA negotiations as well as a concept paper, two proposals, and an initial offer of services commitments. See TiSA Factsheet, Eur Comm’n, http://trade. ec.europa.eu/doclib/docs/2016/ september/tradoc_154971.doc. pdf [https://perma.cc/N32ZD97P](Sept. 25, 2016); The EU publishes TiSA Position Paper, Eur Comm’n, http://trade. ec.europa.eu/doclib/press/index. cfm?id=1133[https://perma.cc/ UJ5W-PS4A] (July 22, 2014). 156. CRS Report: TiSA, supra note 153, at 7. 157. 2018 Trade Policy Agenda, supra note 6, at 13 (referring to the TiSA negotiations, among others, the Agenda states, “[i]f we see opportunities to use prior negotiations like these to advance the President’s Agenda, and to build stronger markets

for American workers and businesses, we will not hesitate to seize them.”). 158. See Nairobi Ministerial Declaration, supra note 6. 159. For the first time the Group of 20 nations dropped any mention (and therefore support for) the Doha Round in their wrap up communique issued from the latest meeting held by the group in July 2017. This shift paved the way for the developed countries in the WTO to move forward on plurilateral agreements. See Bryce Baschuk, G-20 Drops Support for Doha Round; Focus on Doable Outcomes, 34 Int’l Trade Rep. (BNA) 994 (July 13, 2017). 160. See Bryce Baschuk, India’s Top Trade Minister Rejects WTO’s E Commerce Negotiations, 34 Int’l Trade Rep. (BNA) 1024 (July 20, 2017). 161. See Bryce Baschuk, WTO Ministerial Chair Unfazed by U.S. Administration’s Pessimism, 34 Int’l Trade Rep. (BNA) 1280 (Sept. 28, 2017) (stating that she did not believe that USTR Lighthizer's comments about the limited prospects for Buenos Aires would “foreclose the possibility for trade ministers to forge more limited trade deals—called plurilaterals—or establish work programs on issues linked to fishery subsidies, electronic commerce, and investment.”). 162. Press Release, USTR Robert Lighthizer Statement on the Conclusion of the WTO Ministerial Conference, USTR (Dec. 14, 2017), https://ustr. gov/about-us/policy-offices/ press-office/press-releases/2017/ december/ustr-robert-lighthizerstatement [https://perma.cc/ V44B-ES8Q]. 163. Joint Statement on Electronic Commerce, WTO, WT/ MIN(17)/60 (Dec. 13, 2017), https://www.wto.org/ english/news_e/news17_e/ minis_13dec17_e.htm [https:// perma.cc/32X8-CPG4]. (follow “The Joint Statement on Electronic Commerce” hyperlink, infra note 164). 164. The Joint Statement on Electronic Commerce, WTO, WT/L/1056 (Jan. 25, 2019), http://trade. ec.europa.eu/doclib/docs/2019/ january/tradoc_157643.pdf [https://perma.cc/W4ZBP3TH]. 165. Id. 166. Leikha Kihara, DAVOS-Nearly half WTO members agree to

Currents 23.2 2019

talk on new e-commerce rules, Reuters (Jan. 25, 2019), https:// www.reuters.com/article/davosmeeting-ecommerce/davosnearly-half-wto-members-agreeto-talks-on-new-e-commercerules-idUSL3N1ZP329 [https:// perma.cc/6XCL-AWP4]; (according to Hiroshige Seko, Japan’s trade minister, “The current WTO rules don’t match the needs of the 21st century. You can tell that from the fact there are no solid rules on e-commerce…”). 167. See FTAs & Models, supra note 8, at 569-72 (describing how the United States went from experimenting with regionalism to becoming a proponent of regionalism). 168. See NAFTA Battle, supra note 32, at 4. 169. Kevin Kennedy, The FTAA Negotiations, A Melodrama in Five Acts, 1 Loy. U. Chi. Int’l L. Rev. 2 (2004) (describing views about the FTAA negotiations and what happened); see also David A. Gantz, The Free Trade of the Americas Agreement: An Idea Whose Time has Come—and Gone?, 1 Loy. U. Chi. Int’l L. Rev. 179 (2004). 170. See Stephen Joyce, United States Agrees to Launch Negotiations on Joining Trans-Pacific Economic Agreement, 25 Int’l Trade Rep. (BNA) 1382 (2008). 171. See FTAs & Models, supra note 8, at 576-75, 609 n.44 (explaining that during the Bush era USTR Ambassador Robert Zoellick coined this terminology and it became the U.S. approach to trade regionalism). 172. Trade & Investment Framework Agreements, USTR, https:// ustr.gov/trade-agreements/ trade-investment-frameworkagreements (last visited Feb. 26, 2019) (explaining the Trade and Investment Framework Agreements (TIFAs) are still part of the U.S. system for developing trading relationships. USTR describes TIFAs as proving: “strategic frameworks and principles for dialogue on trade and investment issues between the United States and the other parties to the TIFA.” TIFAs also serve “forum for the United States and other governments to meet and discuss issues of mutual interest with the objective of improving cooperation and enhancing opportunities for trade and investment.” The topics covered in these consultations and that

provide the basis for “possible further cooperation include market access issues, labor, the environment, protection and enforcement of intellectual property rights, and, in appropriate cases, capacity building.” This page of the USTR website lists all of the current TIFAs); see Taylor C. O’Neal, Regionalism: The SecondBest Option?, 28 St. Louis U. Pub. L. Rev. 155, 160, 199 n.19. (hereinafter Second-Best Option) (during the G.W. Bush administration, there were thirtythree TIFAs in place); Id. at 199 n.19 (providing examples of this during the Bush era; USTR under President Bush used the TIFAs as the beginning point for free trade agreements with countries from different regional trade groups). 173. See Bilateral Investment Treaties and Related Agreements, U.S. Dep’t of State (2017), https:// www.state.gov/e/eb/ifd/bit/ [https://perma.cc/6QV6-9QC9] (explaining the United States started entering into Bilateral Investment Treaties in the early 1980s. The United States uses a model BIT when it negotiates with partner countries. This website lists the latest model BIT from 2012 and information about BITs and investment chapters in U.S. free trade agreements); see Second-Best Option, supra note, 199 at n. 20 (providing information about the status of the U.S. BIT program during the Bush era). 174. Trade Policy Review Report by U.S.,WTO Doc. WT/ TPR/G/200, at 14-16 (2008) [hereinafter US/TPR], https:// docs.wto.org/dol2fe/Pages/ FE_Search/FE_S_S009-DP.asp x?language=E&CatalogueIdLis t=8633&CurrentCatalogueIdI ndex=0&FullTextHash=37185 7150&HasEnglishRecord=Tru e&HasFrenchRecord=True&H asSpanishRecord=True [https:// perma.cc/8AEW-7K35] (during the Bush era, the United States was involved in six initiatives that have aimed at creating either a regional or a series of bilateral free trade agreements: the enterprise for ASEAN initiative (EAI), the Middle East Free Trade Area Initiative (MEFTAI), South African Customs Union Initiative (SACU), the Free Trade Area of the Americas (FTAA), the North American Free Trade Agreement (NAFTA), and the Central American-Dominican

Republic Free Trade Agreement (CAFTA-DR). Two of these initiatives SACU and the FTAA, were suspended) (All of the other regional efforts produced free trade agreements (NAFTA, CAFTA-DR) or a combination of TIFAs and bilateral free trade agreements (EAI, MEFTAI)). 175. During the years of the Bush Administration – from 20012008 – the U.S. negotiated, completed and tried to implement 10 bilateral free trade agreements with the following countries: Singapore, Chile, Australia, Morocco, Bahrain, Oman, Peru, Panama, Colombia, and South Korea. 176. See FTAs & Models, supra note 8, at 577 (explaining why the U.S. adopted the NAFTA model approach); see also U.S. Approach, supra note 8, at 428-36 (as the U.S. kept negotiating FTAs during the G.W. Bush Administration, the model changed into one based upon NAFTA but containing many elements of understanding that went beyond NAFTA and existing WTO disciplines – the “WTO-plus model”). 177. See U.S. Approach, supra note 8, at 428-436 (providing examples; the topics covered in each FTA copied what NAFTA had put in place. However, as time and experience under NAFTA taught the U.S. lessons about operating within a free trade agreement, U.S. FTAs grew to include new topics); see also FTAs & Models, supra note 8, at 591-93 (explaining that as the United States and its NAFTA partners learned a great deal about investment arbitration under Chapter 11 of NAFTA, the U.S. pushed for new additions to future investment chapters of FTAs); Id. at 593-594 (reflecting the U.S. interest in pushing for higher standards for intellectual property rights protection and enforcement in all Bush era FTAs). 178. See also FTAs & Models, supra note 8, at 578-595 (Providing an in-depth examination of the NAFTA model and each of its elements). 179. Id. at 577 at n. 49-50. 180. See FTAs & Models, supra note 8, at 572 at n. 17. 181. See Samira Salem, Faina Rozental, Labor Standards and Trade: A Review of Recent Empirical Evidence, 4 U.S. Int’l Trade Comm’n: J. Int’l Commerce. & Econ. 2, 74 74

Currents 23.2 2019

(2012), https://usitc.gov/ journals/JournalVol_IV_2. pdf#page=66 [https://perma.cc/ BTN9-42DE]; see also Sungjoon Cho, The Bush Administration and Democrats Reach a Bipartisan Deal on Trade Policy, 11 Am. Soc’y Int’l L. 15 (May 31, 2007), http://www.asil.org/ insights/volume/11/issue/15/ bush-administration-anddemocrats-reach-bipartisandeal-trade-policy [https://perma. cc/75H4-S4PD] (explaining the major provisions of the agreements and analyzes its impact); For a summary of the requirements that Congress put upon these FTAs, see also Ian F. Fergusson, Richard S. Beth, Cong. Research Serv., R43491, Trade Promotion Authority (TPA): Frequently Asked Questions 11 (2015), digitalcommons.ilr. cornell.edu/cgi/viewcontent. cgi?article=2431&context=key_ workplace [https://perma.cc/ B45V-AHUL] (The May 10th issues on labor rights and the adoption by FTA partners of certain environmental agreements are reflected in the current version of Trade Promotion Authority, TPA 2015). 182. See William H. Cooper, Free Trade Agreements: Impact on U.S. Trade and Implications for U.S. Trade Policy Cong. Research Serv., RL31356, 7 (2014), https://digitalcommons. ilr.cornell.edu/cgi/viewcontent. cgi?article=2252&context=key_ workplace [https://perma.cc/ D7RD-URAT]. 183. Id. at 5-6 (explaining with regard to Colombia, the concern was by U.S. labor unions about that country’s violent treatment of union leaders and labor activists. With regard to Panama, the concern was over that country’s tax policy, which critics argued allowed that country to act as a tax haven for persons and companies trying to avoid U.S. taxes. With regard to South Korea, the major concern (although other groups protested as well) was the U.S. auto industry complaint about auto import barriers.). 184. See generally id. at 1 (for a description of the resolution of the issues raised about Colombia and Panama.). 185. The U.S. was, as pointed out above, already in NAFTA with Canada and Mexico. The U.S. also had free trade agreements in

place with Australia, Chile, Peru, and Singapore. See FTA Austl.U.S., May 18, 2004, 43 I.L.M. (2004) (final) [hereinafter U.S.Australia FTA]; FTA Chile-U.S., June 6, 2003, 42 I.L.M. 1026 (2003) (final) [hereinafter ChileU.S. FTA]; TPA Peru-U.S., Apr. 12, 2006, 2006 U.S.T. LEXIS 131 (2006) [hereinafter PeruU.S. FTA]; FTA Sing.-U.S., May 6, 2003, 42 I.L.M. 1026 (2003) (final) [hereinafter SingaporeU.S. FTA]. 186. See David A. Gantz, The TPP and RCEP: Mega-Trade Agreements for the Pacific Rim, 33 Ariz. J. Int’l & Comp. L. 57, 59-60 (2016) [hereinafter Gantz]. 187. See generally The Trans-Pacific Partnership: A Quest For A Twenty-First Century Trade Agreement (C.L. Lim & Deborah K. Elms, eds., 2012) for a chapter on what that concept meant to the negotiating partners; see also Hillary Clinton, America’s Pacific Century, Foreign Pol’y, Oct. 11, 2011, http://foreignpolicy. com/2011/10/11/americaspacific-century/ [https://perma. cc/89EA-5V7N] (“Our hope is that a TPP agreement with high standards can serve as a benchmark for future agreements — and grow to serve as a platform for broader regional interaction and eventually a free trade area of the Asia-Pacific.”). 188. See Lim, supra note 187, at 429. 189. See Peter Baker, Trump Abandons Trans-Pacific Partnership, Obama’s Signature Trade Deal, N.Y. Times (Jan. 23, 2017), https://www. nytimes.com/2017/01/23/us/ politics/tpp-trump-trade-nafta. html [https://perma.cc/9CXS9BEF] (describing critics of President’s Trump move as undercutting “Obama’s so-called pivot to Asia and . . . [that Trump had] essentially ceded the field to China, which was not part of the agreement.”). 190. By 2030, 66% of the global middle class will be in Asia. See The President’s Trade Agenda: Made in America, USTR, Trade Pol’y Agenda 5 (2015), https:// ustr.gov/sites/default/files/ President%27s%20Trade%20 Agenda%20for%20Print%20 FINAL.pdf [https://perma.cc/ Y8XA-PQDX]. 191. See The President’s Trade Policy Agenda 2016, USTR 5-6 (2016), https://ustr.gov/sites/default/ files/2016-Trade-Policy-Agenda. pdf [https://perma.cc/8JAVM7JZ].

Cuts over 18,000 foreign taxes on Made in America manufactured goods and farm products. • Addresses nontariff barriers to trade more fully than any previous U.S. free trade agreement. • Opens markets for services, a sector in which U.S. businesses and workers are the most competitive in the world. • Helps to preserve a free and open Internet, including through groundbreaking provisions that promote the free flow of data and combat forced localization. • Sets strong and balanced intellectual property (IP) rules to promote U.S.-based creativity, research, and innovation. • Sets the highest ever, fully enforceable labor standards of any U.S. trade agreement. • Preserves our environment with the strongest ever, fully enforceable environmental commitments of any U.S. trade agreement. • Levels the playing field for U.S. workers by disciplining Stateowned enterprises (SOEs). • Supports small business exporters, including through a first ever chapter addressing issues specific to small and me dium sized enterprises (SMEs). • Promotes transparency and rule of law, and levels the playing field by fostering good governance and fair competition— including between SOEs and private busi nesses and their workers. 192. The International Trade Commission is required to do a “likely impact” report on every trade agreement entered into by the United States. All such ITC reports are submitted to Congress for its consideration prior to the votes required on the implementing legislation for a trade agreement. In the case of the TPP Agreement, the TPA 2015, Section 105 (c) (2) and (3) mandated the report, see Bipartisan Congressional Trade Priorities Act 2015, Pub. L. No. 114-26, 129 Stat. 319, 347 (2015) (according to the report on the TPP Agreement with regard to GDP, income, employment, and trade levels: “[b]y year 15 (2032), U.S. annual real income would be $57.3 billion (0.23 percent) higher than the baseline projections, real GDP would be $42.7 billion (0.15 percent) higher, and employment would be 0.07 percent higher (128,000

full-time equivalents), U.S. exports and U.S. imports would be $27.2 billion (1.0 percent) and $48.9 billion (1.1 percent) higher, respectively, relative to baseline projections. U.S. exports to new FTA partners would grow by $34.6 billion (18.7 percent); U.S. imports from those countries would grow by $23.4 billion (10.4 percent).”); see also Trans-Pacific Partnership Agreement: Likely Impact on the U.S. Economy and on Specific Industry Sectors, Inv. No. TPA105-001, USITC Pub. 4607 at 21 (May 2016), the Executive Summary of the report also explains that the sectors of trade that would benefit the most would be the agriculture and food sectors in trade in goods and trade in services.). 193. Id. 194. This aspect of the agreement meant that there were challenging negotiations over topics such as the protection of intellectual property rights. There was a particularly sustained battle over the level of protection that the U.S. pharmaceutical industry could count on. For an analysis of this chapter of the TPP Agreement, see Lee Branstetter, TPP and the Conflict Over Drugs: Incentives For Innovation Versus Access to Medicines, in Peterson Inst. Int’l Econ., PIIE Briefing 16-4, Assessing the Transpacific Partnership: Volume 2: Innovations in Trading Rules (Jeffrey J. Schott & Cathleen Cimino Isaacs, eds., May 2016), at 28, https://piie. com/system/files/documents/ piieb16-4.pdf [https://perma. cc/ZZ4D-YQJ5] [hereinafter PIIE TPP Vol. 2] (concluding that the TPP IP chapter on this issue reached a compromise on the pharmaceutical issue, a balance where “member states are agreeing to pay a little more for new drugs for a brief period in return for new therapies that can be handed off, in generic form, to the next generation. This balance has worked for the United States. With the flexibilities built into the agreement, it will also work for the other TPP member states.”). 195. See Sean Miner, Commitments on State-Owned Enterprises, in PIIE TPP Vol.2, supra note 194, at 91—100. 196. The NAFTA countries completed the text of NAFTA before the introduction of the Internet.

•

Consequently, there was no electronic commerce. The later FTAs the U.S. had with Australia, Chile, and Peru were completed after the internet and were not as limited. For what the TPP would do with electronic commerce or digital trade, see Branstetter, supra note 194, at 72-81. 197. Throughout the negotiating process, the U.S. and other TPP countries took comments from citizens and industries on all covered topics. 198. See Carolyn Freund, Other New Areas: Customs Administration and Trade Facilitation, Anticorruption, Small and Medium-Sized Enterprises, and More, in PIIE TPP Vol. 2, supra note 194, at 69-70. 199. 2016 Presidential Candidates on the Trans-Pacific Partnership Trade Deal, Ballotpedia, https://ballotpedia.org/2016_ presidential_candidates_on_the_ Trans-Pacific_Partnership_trade_ deal [https://perma.cc/8X9EJ5GE] (noting that of a group of the 2016 U.S. presidential candidates including Hillary Clinton (Democrat), Donald Trump (Republican), Jill Stein (Green Party), and Gary Johnson (Libertarian Party), every candidate other than Johnson opposed the TPP Agreement). This is a reversal of the position that Clinton took while in the Obama administration. See also Memoli, supra note 28. 200. See U.S. Approach, supra note 8, at 441-42 for an illustration of this pattern. Senator Obama ran for election with hostility towards trade agreements and suggestions that NAFTA should be re-negotiated. He then governed by following the G.W. Bush administration lead on the TPP Agreement. 201. President Obama went from trade skepticism to pushing for not only the TransPacific Partnership but also the Transatlantic Trade and Investment Partnership. 202. Fact Sheet: United States to Negotiate Transatlantic Trade and Investment Partnership with the European Union, Off. of the U.S Trade Rep. (Feb. 13, 2013), https://ustr.gov/aboutus/policy-offices/press-office/ fact-sheets/2013/february/USEU-TTIP [https://perma.cc/ EFN3-WFGB]. 203. See Gantz, supra note 186, at 57 (according to Gantz, the focus of the T-TIP negotiations is on

Currents 23.2 2019

“regulatory cooperation and coherence, along with improved consultation and mutual recognition of regulations, all of which would facilitate supply chain management in a world where almost no complex product is made in a single jurisdiction.”). For the view of Congress on regulatory coherence, see House Conf. Rep., supra note 106, at 48. 204. See Patricia Garcia-Duran & Leif Johan Eliasson, The Public Debate over Transatlantic Trade and Investment Partnership and Its Underlying Assumptions, 51 J. World Trade 23, 26-40 (2017). 205. Id. at 24. 206. See EU Negotiating texts in TTIP, Eur. Comm’n (July, 14 2016), http://trade.ec.europa.eu/ doclib/press/index.cfm?id=1230 [https://perma.cc/Z843-EQHX]. 207. House Conf. Rep., supra note 106, at 34. 208. The hostility of President Trump rests upon his fixation with the trade deficits that deals can create. See Brock R. Williams, Bilateral and Regional Trade Agreements: Issues for Congress, Congressional Research Service, Rep. No. 45198 (May, 17, 2018), https://crsreports. congress.gov/product/pdf/R/ R45198 [https://perma.cc/ BR2L-5VQ9] (“Much of the President’s concern with U.S. FTAs relates to the U.S. trade deficit, which he asserts stems from bad trade deals and 'unfair trading practices' of U.S. FTA partners. In order to investigate this relationship, the Administration undertook examinations of U.S. bilateral trade deficits and the outcomes of existing U.S. FTAs focused on potential violations of commitments or negative effects. To date those studies have not been made public but may inform U.S. negotiations moving forward.”). 209. Presidential Memorandum Regarding Withdrawal of the U.S. from the Trans-Pac. P’ship Negotiations and Agreement, U.S. Off. of the Press Sec’y (2017), https://www.whitehouse.gov/ the-press-office/2017/01/23/ presidential-memorandumregarding-withdrawal-unitedstates-trans-pacific [https:// perma.cc/ARC6-ADU9]. 210. President Trump had not yet appointed his United States Trade Representative, Robert Lighthizer, and consulted with only his personal advisors before

abandoning the TPP. 211. The withdrawal marks a major shift from what Congress expected when it passed TPA 2015. At that time, Congress expected to receive the chance to vote on both mega-regional agreements. 212. Andrew Mayeda & David Gura, Ross Says TPP Could Form Starting Point for U.S. on NAFTA Talks, 34 Int’l Trade Rep. 733 (May 3, 2017), https:// www.bloomberg.com/news/ articles/2017-05-03/ross-saystpp-could-form-starting-pointfor-u-s-on-nafta-talks. 213. See Assurances, supra note 27. 214. See Bengt Ljung, U.S. Falls Behind in Trade as EU, Japan, Canada Strike Deals, 34 Int’l Trade Rep. 1057 (July 27, 2017) [hereinafter Ljung] (according to Tim Bennett, director general and chief executive officer of the Trans-Atlantic Business Council: “Clearly U.S. exporters of manufactured goods, agricultural products, and certain services will be at a competitive disadvantage in any market where the EU negotiates trade liberalizing agreements and the U.S. doesn't have similar market access.” Bennet also pointed out that “[m]issing market opening opportunities in major markets, such as TPP and TTIP, is bad policy that will undermine U.S. exporters, lead to job losses, and disincentivize investors.”). 215. With regard to the CPTPP countries, the 2018 Trade Policy Agenda notes that the U.S. has free trade agreements with six of these countries (Canada, Mexico, Australia, Chile, Peru, and Singapore) already and that with regards to the remaining 5 (Japan, Vietnam, Malaysia, New Zealand, and Brunei), Japan is the most important to President Trump. “Since President Trump’s visit with Japan’s Prime Minister Shinzo Abe in February 2017, the United States has made clear that it seeks a closer trade relationship with Japan. President Trump has also indicated a willingness to engage with the other TPP countries – either individually or collectively – on terms that will lead to significantly improved market outcomes.”); see also 2018 Trade Policy Agenda, supra note 6, at 12. 216. Charissa Yong, CPTPP to continue attracting more members, RCEP unlikely to be concluded this year, say experts, The Straits

Times (Jan. 11, 2019), https:// www.straitstimes.com/world/ united-states/cptpp-to-continueattracting-more-members-rcepunlikely-to-be-concluded-this [https://perma.cc/E4YHQDWU] [hereinafter Yong]. 217. Id. 218. Christopher Corr & Samuel Scoles, Trade Issues for Asia Business in 2017: A Look Beyond Headlines at TPP’s Demise and Emerging RCEP Trade Agreement, 34 Int’l Trade Rep. 139 (Jan. 19, 2017) (“[I]f RCEP is successfully concluded and ratified, businesses from the U.S. and other non-RCEP countries will likely be at a disadvantage in competing for business and supply chain investment within the region. This is not a reflection of China writing self-serving, anti-U.S. trade rules via the RCEP. Rather, it is simply a result of the U.S. not being a party to the RCEP, combined with the expected failure of the TPP leaving U.S. businesses on the outside looking in.”). 219. As of 2019, the RCEP process is moving slowly due to an in ability to reach consensus and looming elections for several of the countries involved in the negotiations. See Yong, supra note 216. 220. See Bengt Ljung, EU-Canada Deal in Force, Showing World Leadership Role, 34 Int’l Trade Rep. 1288 (Sep. 28, 2017) [hereinafter Deal in Force] (explaining the EU celebrated the provisional entry into force of CETA by describing that agreement as “a model to be copied by the world.” The EU Parliament approved CETA in February 2017, but the agreement could not go into force until there was approval by the trade ministers of the EU countries and then a final approval by the Canadian Parliament. The EU fought hard to get CETA through against a tough campaign of anti-trade activists.). 221. The EU Council text of CETA is the official legal text of the Canadian-European Union FTA. Comprehensive Economic and Trade Agreement (CETA), Can.-E.U., (2016), http:// data.consilium.europa.eu/doc/ document/ST-10973-2016INIT/en/pdf [https://perma. cc/3MWG-R6ED]. 222. Deal in Force, supra note 220 (explaining Mexico already had an FTA with the EU. The two 76

Currents 23.2 2019

have been working on upgrading that FTA and planned to finish that process by the end of 2017.). 223. Ljung, supra note 214 (according to Fredrik Erixon, director of the trade think tank the European Centre for International Political Economy (ECIPE), there are consequences for the U.S. in coming to an FTA with Japan after the EU: “Being first also means setting standards to some extent. Japan now will use the EU-Japan agreement as a benchmark for what it will offer the U.S. and other countries.”). 224. Press Release, EU-Japan trade agreement enters into force, Eur. Comm’n, (Jan. 31, 2019), http://europa.eu/rapid/pressrelease_IP-19-785_en.htm [https://perma.cc/78ZQ-8RRZ] (providing the full text of the EU-Japan Economic Partnership Agreement.). 225. Ljung, supra note 214. 226. See Rossella Brevetti, Outlook 2017: NAFTA Redo Gaining Support, Likely in New Year, 34 Int’l Trade Rep. 12 (Jan. 5, 2017). 227. See Jennifer Jacobs, Andrew Mayeda, and Toluse Olorunnipa, Trump Says NAFTA Pullout Still Possible If Renegotiation Fails, 34 Int’l Trade Rep. 705 (May 4, 2017). 228. See Rossella Brevetti, America First Proposals Land with Thud on NAFTA Table, 34 Int’l Trade Rep. (BNA) 1413 (Oct. 26, 2017) [hereinafter Brevetti]. 229. Ana Swanson, Trump’s Tough Talk on Nafta Raises Prospects of Pact’s Demise, N.Y. Times (Oct. 11, 2017), https://www. nytimes.com/2017/10/11/ business/economy/nafta-trump. html [https://perma.cc/9AUMN6UL] (President Trump raised that prospect in an Oval Office meeting with Canadian President Trudeau. U.S. business leaders – of more than 300 state and local chambers of commerce – have become panicked enough to send a letter to President Trump urging that the U.S. remain in NAFTA.). 230. The first negotiating objective is to cut the U.S. deficit with its NAFTA partners. This type of goal cannot be met without tilting the re-negotiation towards U.S. interest above its trading partners. Moreover, it shows a misunderstanding of the trading relationship between the U.S. and Canada. The United States holds a trade surplus with Canada. See also

Rossella Brevetti, Chamber Warns of ‘Poison Pill’ U.S. NAFTA Proposals, 34 Int’l Trade Rep. 1347 (Oct. 12, 2017) [hereinafter Poison Pill]. According to Thomas Donahue, president and chief executive officer of the U.S. Chamber of Commerce: “[a]ny economist worth his or her salt has repeatedly explained that the trade balance is not only the wrong way to measure who's ‘winning’ on trade, it's the wrong focus, and is impossible to achieve without crippling the economy.” Id. With regard to U.S. proposals that lack U.S. industry support, see Brevetti, supra note 228, at 32 (“Private sector business groups, including the Business Roundtable, have said they strongly oppose U.S. proposals that would tighten rules of origin or imposing a U.S. content requirement on autos; add a five-year sunset clause; make investor state dispute settlement optional; and scale back market access for government procurement. Despite widespread industry opposition, the U.S. proceeded with the proposals anyway.”). 231. Poison Pill, supra note 230, at 33; see also Gary Hufbauer and Steven Globerman, The United States-Mexico-Canada Agreement: Overview and Outlook, Fraser Research Bulletin (Nov. 2018) at 3, https://www.fraserinstitute.org/ studies/united-states-mexicocanada-agreement-overviewand-outlook [https://perma. cc/KM77-CSDK] [hereinafter Hufbauer & Globerman] (describing the initial U.S. demands in the renegotiation as “poison pills.”). 232. See M. Angeles Villarreal and Ian F. Fergusson, NAFTA Renegotiation and the Proposed United StatesMexico-Canada Agreement (USMCA), Cong. Research Serv., R44891 2 (2019), https:// crsreports.congress.gov/product/ pdf/R/R44981[https://perma. cc/FQL2-UTUN] [hereinafter NAFTA Renegotiation and the Proposed USMCA]. 233. World Trade Organization, Trade Policy Review of the United States, Executive Summary, WTO. Doc. No. WT/ TPR/S/382 (Nov. 12, 2018) at 12. 234. Issues for the 116th Congress, supra note 103, at 25 (President –elect Andres Lopez Obrador

was to take office on December 1, 2018.). 235. NAFTA Renegotiation and the Proposed USMCA, supra note 232, at 2. 236. Compare the chapters of NAFTA, supra note 9, with the chapters of the USMCA, supra note 101; The standard chapters include: see NAFTA Renegotiation and the Proposed USMCA, supra note 232, at 14; see also Hufbauer & Globerman, supra note 231, at 4 (noting that core features of NAFTA particularly with regard to national treatment and market access for goods, national treatment and minimum standard of treatment for investment, and national treatment and most-favored – nation treatment for most cross border services from NAFTA are all retained in the USMCA.). 237. Id. at 5. 238. USMCA, supra note 101, at ch. 4: Rules of Origin. 239. Id. at art. 4.10 (“The Appendix to Annex 4-B (Product-Specific Rules of Origin) includes additional provisions that apply to automotive goods.”) and Annex 4-B at 4-B-72. The USMCA in ANNEX 4(B) has a large number of product-specific rules of origin that have been altered from NAFTA. See 2019 Trade Policy Agenda, supra note 33, at 16 (According to the Trump administration, this is an improvement because “the USMCA includes stronger rules of origin that exceed those in both NAFTA and the TPP. The robust rules of origin contained in the USMCA govern the tariff treatment not only of autos and auto parts, but also of other industrial products such as chemicals, steel-intensive products, textiles and apparel, glass, and optical fiber. The USMCA also establishes procedures that streamline certification and verification of rules of origin and that promote strong enforcement of those rules. These USMCA provisions will help prevent duty evasion before it happens, and ensure that only producers using sufficient and significant North American parts and materials receive preferential tariff benefits.”). 240. Hufbauer & Globerman, supra note 231, at 5 (“Clearly this affects Mexican plants and not those in the US or Canada. Failure to meet the rules of origin will subject US auto and parts

imports from Mexico or Canada to MFN tariffs of 2.5 percent, and truck imports (including popular pickup truck models) to 25 percent tariffs.”). 241. NAFTA Renegotiation and the Proposed USMCA, supra note 232, at 16. 242. Id. 243. Id. The issue is whether the revised rule of origin puts the agreement between the U.S., Mexico, and Canada in violation of GATT Article XXIV and its requirement for free trade agreements that the duties placed on goods coming from outside the free trade area “shall not be higher or more restrictive than the corresponding duties and other regulations of commerce existing in the same constituent territories prior to the formation of the free-trade area… .” GATT, supra note 49, at Art. XXIV (5) (b). 244. NAFTA Renegotiation and the Proposed USMCA, supra note 232, at 17. 245. 2019 Trade Policy Agenda, supra note 33, at 12-13 (The Trump administration contends that its entire trade policy is better for U.S. workers than the trade policy he inherited. With regard to the auto wage provisions of the USMCA, the Trump position is that “[u]nder NAFTA, the rules of origin are satisfied so long as the relevant production takes place in any of the three NAFTA countries – the United States, Mexico, or Canada. In other words, a car produced solely in Mexico will qualify for duty-free treatment in the United States. Not surprisingly, this rule encourages automakers to base their production in Mexico, where wages – as described above – have been kept artificially low. This situation is not fair to American workers – and under the USMCA, it will change. To qualify for duty-free treatment under USMCA, at least 40-45 percent of a vehicle’s content must be produced by workers in the NAFTA region that earn an average wage of at least $16 per hour. No plants in Mexico are close to fulfilling this requirement, which means that companies seeking to serve the U.S. market will have a strong incentive to increase production in the United States. The new rules of origin in USMCA should result in billions of dollars in new investment related to U.S. production of automobiles

and auto parts in the short-term, while providing substantial benefits over the long-term as companies make decisions about where to locate and source parts for the new energy and autonomous vehicles of the future. These provisions represent a dramatic change in U.S. trade policy. For decades, the United States signed trade deals that often encouraged companies to shift production from this country into other countries with much lower labor costs. Now, we are taking a different approach – an approach designed to ensure that American workers have a much better chance of competing on more equal terms for the type of manufacturing jobs that have long been a backbone of our middle class.). 246. USMCA, supra note 101, at ch. 14 and Annex 14(C) Legacy Investment Claims and Pending Claims. 247. Id. at Annex 14(D) MexicoUnited States Investment Disputes. 248. Id. at ch. 13. 249. Id. at Annex 13 (A), Schedule of Mexico and Schedule of the United States; see also Hufbauer & Globerman, supra note 231, at 6 (“These changes reflect Trump’s Buy American policy. While the changes do not absolutely preclude cross-border competition for government procurement, the extent of competition will largely be determined by each federal, state, or provincial government for itself—inviting capture of politicians by local firms to hamper foreign competition.”). 250. USMCA, supra note 101, at ch. 10; see also Hufbauer & Globerman, supra note 231, at 6 (“This was a red line for Prime Minister Justin Trudeau, given the magnitude and frequency of US anti-dumping and countervailing duties against Canadian exports (softwood lumber and many others).”). 251. USMCA, supra note 101, at ch. 34, art. 34.7 (3) (“As part of the Commission’s joint review, each Party shall confirm, in writing, through its head of government, if it wishes to extend the term of this Agreement for another 16-year period. If each Party confirms its desire to extend this Agreement, the term of this Agreement shall be automatically extended for another 16 years and the Commission shall conduct a joint review and

Currents 23.2 2019

consider extension of this Agreement term no later than at the end of the next six-year period.”). 252. Id. at art. 34.7(2) (“On the sixth anniversary of the entry into force of this Agreement, the Commission shall meet to conduct a “joint review” of the operation of this Agreement, review any recommendations for action submitted by a Party, and decide on any appropriate actions. Each Party may provide recommendations for the Commission to take action at least one month before the Commission’s joint review meeting takes place.”). 253. 2019 Trade Policy Agenda, supra note 33, at 15 (“These provisions ensure that the USMCA will not suffer the same fate as NAFTA, which had become unbalanced and outdated long before it was renegotiated. Moreover, the increasing value of the U.S. economy in coming years will provide strong incentives for Mexico and Canada to renegotiate and satisfy U.S. concerns during these regular reviews. In short, the term and review provisions are part of a new paradigm whereby trade deals are monitored more closely, and U.S. policymakers are in a stronger position to advocate for the interests of American workers.”). 254. Hufbauer & Globerman, supra note 231, at 7 (“These provisions [the sunset and the review and re-negotiate] deliberately create a cloud of uncertainty for investment in Canada and Mexico, as [USTR] Lighthizer intended, but not as dark a shadow as the ambassador envisaged in his original 5-year sunset clause.”). 255. Compare USMCA, supra note 101, Chapters 19 (Digital Trade), 21 (Competition Policy), 22 (State-Owned Enterprises), 28 (Good Regulatory Practices) and 27 (Anticorruption) with TPP Agreements, supra note 26, at Chapters 14 (Electronic Commerce), 16 (Competition Policy), 17 (State-Owned Enterprises), 25 (Regulatory Coherence), and 27 (Transparency and Anti-Corruption). The Trump administration officially rejects this interpretation of the USMCA efforts in these areas. See 2019 Trade Policy Agenda, supra note 33, at 15 (“The TPP included certain provisions –

on topics such as intellectual property and market access – that are similar to provisions in the USMCA. Because of these facts, some have suggested that the USMCA is merely a revision of the TPP. This is not correct. While the USMCA built upon ideas developed in negotiating the TPP, the USMCA represents a much better deal for U.S. workers and the U.S. economy than the TPP would have been. Many of the differences between the USMCA and the TPP have been described above. For example, the USMCA’s rules on intellectual property, digital trade, labor, and the environment are significantly stronger and more effective than anything in the TPP.”). 256. Gary Clyde Hufbauer, Trump can Push Congress on NAFTA, But Congress can Push Back, Peterson Inst. for Int’l Econ. (Dec. 11, 2018), https://piie. com/blogs/trade-investmentpolicy-watch/trump-can-pushcongress-nafta-congress-canpush-back [https://perma. cc/S8FL-V6R9] [hereinafter Hufbauer]. 257. Sabrina Rodriguez, Trump’s trade chief meets skepticism as he sells new NAFTA to Democrats, POLITICO (Mar. 13, 2019), https://www.politico.com/ story/2019/03/13/trump-naftademocrats-1266166 [https:// perma.cc/DQ4P-YM68]. 258. Hufbauer, supra note 256. 259. NAFTA Renegotiation and the Proposed USMCA, supra note 232, at 12. 260. Sabrina Rodriguez, Liberal Wing of Democrats wants changes to NAFTA replacement, POLITICO (March 12, 2019) https://www. politico.com/story/2019/03/12/ democrats-against-naftareplacement-1263704 [https:// perma.cc/54TM-XNQ7] (According to Rep. Mark Pocan, co-chair of the CPC, “we want to make sure we have a bill that works for labor, for the environment, for consumers. We especially find the provisions around pharma very egregious.”). 261. NAFTA Renegotiation and the Proposed USMCA, supra note 232, at 41. 262. Id. at 45-46 (surveying the analysis done by several economics groups of the impacts of a U.S. withdrawal from NAFTA.) 263. Id. at 41; see also Part II supra and its discussion of the features that Congress expects in trade

agreements.

Currents 23.2 2019

The WTO: Challenges Ahead and Cries for Reform —————————————————

—————————————————

Introduction

ii. AB Not Adhering to Procedural Requirements

mandate to reform American trade policy

i. AB's Interpretation Methods adding to or Diminishing Rights and Obligations Under the WTO Agreement

by leveraging the United States’ position as

—————————————————

as well as the 60-day requirement that

the world’s largest economy to open foreign

The Report accused the Appellate Body

the AB provide an estimate of the period

markets and to obtain fairer treatment

(AB) of injecting its own policy preferences as

within which it will submit the report as

for American workers. Part of this Trump

opposed to following their limited mandate

being counter to the Members’ agreement

administration effort has aimed at taking

under the WTO Agreement. For example, the

of “prompt settlement” of disputes. In

a drastically different approach than all

U.S. disagreed with both the panel and AB

addition, the Report expressed concern

recent presidents with regard to the World

decision in the US-FSC dispute, a complaint

that the AB had interpreted Rule 15 of its

Trade Organization (WTO). Part I will

filed by the European Communities over the

Working Procedures, a rule that authorizes

look at what is happening at the WTO.

U.S. Internal Revenue Code’s tax treatment

the AB (with notification to the DSB) to

Part II will analyze the Europeoan Union’s

for “Foreign Sales Corporations (FSC),

allow AB members the ability to continue to

modernization proposals for the WTO and

arguing that it resulted in an interpretation

serve until the complete disposition of any

Part III will look at the recent activity in the

under which WTO rules do not treat

appeal to which they had been assigned. This

WTO dispute settlement system.

different (worldwide vs. territorial) tax

practice has been used by the AB to “deem”

—————————————————

systems fairly, which disregarded the broader

a person an AB member once their term had

I. What is Happening at the WTO?

perspective that, in the General Agreement

expired. This has led the U.S. to block the

on Tariffs and Trade (GATT), Members had

reappointment of AB Judge Servasing, which

—————————————————

agreed to an understanding that a country did

took the AB from four to three judges. If the

—————————————————

not need to tax foreign income. In another

U.S. continues this blocking strategy, the AB

A. U.S. Posisiton on WTO

case, US-CDSOA, a joint complaint by a

will be left with only one judge by December

—————————————————

number of countries regarding the U.S.

2019, i.e., without a quorum to hear appeals.

The administration’s 2018 Trade and

amendment to the Tariff Act of 1930 titled

—————————————————

Policy Agenda Annual Report (Report) sets

“Continued Dumping and Subsidy Offset

out the following critiques of the World

Act of 2000,” the Report expressed concern

Trade Organization and its argument that

that the AB had, in effect, created a new

its dispute settlement system requires reform.

category of prohibited subsidies that was

iii. AB Issuing Advisory Opinions on Issues Not Necessary to Resolve a Dispute

neither negotiated nor agreed to by WTO

————————————————

————————————————— President Trump has taken the view that his 2016 election victory gave him a

Members.

————————————————— The Report criticized the AB for not adhering to the 90-day deadline for appeals

The Report accused the AB of “making 79

Currents 23.2 2019

law” with its reports as opposed to helping

of new members. Chairperson Bhatia urged

dispute is settled. Although Bhatia essentially

Members resolve trade disputes among

Members to engage in constructive dialogue

agreed with the U.S. criticism in some

themselves, in effect, issuing “advisory

in order to address the challenges as a matter

regards, he stated lasting solutions cannot

opinions.” The Report noted this concern

of priority: (1) the AB faces the burgeoning

target the symptoms. Instead, the pertinent

has been raised repeatedly by the United

pressure of increasingly complex disputes at

causes must be taken into account.

States for more than 16 years. In addition,

various stages and (2) critiques have raised

Finally, Bhatia stated the yearlong

the report specifically noted more than two-

“fundamental questions” about the way the

impasse on the process of appointing AB

thirds – 46 pages – of the AB’s analysis are

Dispute Settlement Understanding (DSU)

Members is debilitating the AB. Reduced

in the nature of orbiter dicta.

should be used to resolve disputes.

strength is undermining the collegiality of

—————————————————

AB deliberations and the lack of proper

i. An Overloaded System

geographical representation threatens its

iv. AB Review of Facts of a Member's Domestic Law de novo

————————————————— Bhatia explained that since the AB’s

—————————————————

inception, 551 disputes (formal trade

The Report criticized the AB’s review

complaints made by Member countries) had

of Member’s domestic law de novo, arguing

been initiated by 65% of WTO Members

ii. Preserving the Legitimacy o f t h e W TO ' s D i s p u t e Settlement System

in a WTO dispute, the key fact to be

as either complainants, respondents or

—————————————————

proven is what a Member’s challenged

third parties. These disputes resulted in 230

Bhatia then addressed the U.S.

measure does (or means), and the law to be

circulated panel reports and 136 circulated

arguments that the AB judges were essentially

interpreted are the provisions of the WTO

AB reports. Bhatia argued that the AB’s

activist judges. Bhatia explained that AB’s

Agreements. However, the Report argues the

legitimacy was shown by the fact that

interpretation method begins by looking at

AB consistently has reviewed the meaning of

there had been zero instances where losing

the plain text of the agreement and discerning

a Member’s domestic measure as a matter of

Members had not chosen to implement the

what the “ordinary meaning” of terms are

law as opposed to a matter of fact and thereby

ruling. While Members may have critiqued

in context of and in light of the object and

giving the panel’s finding deference. Finally,

the individual determinations, those critiques

purpose of the underlying instrument. This

the Report criticized the AB’s practice of

rarely challenged the overall authority or

interpretation method is codified in the

treating their reports as precedent for panels

legitimacy of the WTO Appellate Body.

Vienna Convention on the Law of Treaties.

legitimacy.

to follow when deciding future disputes

Bhatia further argued that the increasing

If the terms are still ambiguous, only then

which, the Report states, is counter to the

workload of the AB means that AB Members

may AB members resort to supplementary

WTO Agreement.

are not part-time workers, but should give

means of interpretations. However, once

—————————————————

full-time commitment to the WTO. The

adjudicators had concluded that certain

B. AB Response

increase in workload and long delays in filling

conduct was outside the scope of application

—————————————————

vacancies caused the AB to take initiatives to

invoked by treaty obligation, their analysis

The AB’s Chair, Ujal Singh Bhatia,

streamline its reports by annexing them to

should end there and WTO Members are

speaking at a public event in 2018, responded

executive summaries of the arguments and

entitled to act as they please.

to the Report, stating the AB had experienced

making the reports more “user friendly.” As

Bhatia also stated in each scenario, the

an “extraordinarily strenuous year” in 2017

a result, none of the AB’s decisions issued in

AB carefully decides, on a case-by-case basis,

and now faced “unprecedented challenges”

2017 exceeded 70 pages. However, WTO

how to “address” the issue raised on appeal,

arising from the increasing number and

Members are entitled to initiate as many

including whether findings concerning

complexity of appeals filed; coupled with

disputes as they wish and thus it is not

the interpretation of WTO provisions are

the ongoing stalemate over the appointment

uncommon to see several years pass before a

necessary in order to facilitate the prompt

Currents 23.2 2019

settlement and effective resolution of the

U.S., thereby further blocking the progress

amend its own Working Procedures in

specific dispute.

of the WTO.

order to deny new appeals in the event the

As to the AB treating their reports as

International Economic Law Professor

terms of three or more AB members have

precedent, Bhatia stated their mandate was

David Gantz at the University of Arizona

expired, thus allowing panel decisions to be

for “security and predictability” and as such,

Law School advances a similar approach. He

considered final for automatic adoption by

this implied an adjudicator would resolve

suggests the U.S. and a group of Members

the DSB. While the legal basis for such a

the subsequent legal questions the same

draft a series of “interpretations” of the

weighty change is dubious at best, the benefit

each time, but also stated each case must be

Dispute Settlement Understanding (DSU)

would be that it would allow the system to

considered on its own merits. Cases or issues

which would “fix” the Dispute Settlement

move on, albeit at the cost of WTO Members

that appeared to be similar might be decided

Mechanism (DSM) and then seek to have

right of appeal.

differently when they could be distinguished

the interpretations enacted by the General

The Institute of International Economic

from earlier cases or when factual scenarios

Council. Gantz also offers mid-term options

Law (“IIEL”) at Georgetown University Law

were different. Specifically, Bhatia pointed

that are even less feasible such as action by

Center suggested several minor amendments

out the difficulties in consistency experienced

the AB to amend its own rules to dispose

to the DSU. First, it would allow AB judges

by international investment arbitration.

automatically of appeals and any type of

whose terms had expired to continue to

Finally, Bhatia echoed the U.S. in stating

voting in the General Council or elsewhere

serve on the cases where oral arguments had

that it was “not for adjudicators to make

that represented a departure from consensus

already taken place, thereby reducing the

law by their rulings.” However, he stated the

or a departure from long-followed practice.

time that judges whose term had expired to

sustained inactivity on the WTO rulemaking

Former Appellate Body Member, James

only the time between oral arguments and the

front puts more pressure on the adjudicators.

Bacchus writing for the CATO Institute has

issuance of a decision, which is typically no

—————————————————

also suggested that in exchange for the U.S.

more than two and a half months. Second,

C . Po s s i b l e S o lu t i o n s Offered from the Legal Community

ending their blocking of AB reappointments,

AB members whose terms had expired would

the other 163 members of the WTO

be allowed to serve until their replacement

should agree to negotiate new terms on

had been appointed. While this would

—————————————————

what he believes is the U.S. main concern:

require a modification to the DSU, it could

—————————————————

the rules on dumping. He states that this

be accomplished simply by consensus in the

i. Heavy Handed Approach

should not be construed as acquiescing to

DSB and then in the Ministerial Conference

—————————————————

“arrogant American ambition of having the

or General Council.

Marina Foltea has proposed reforming

international legal discretion to do whatever

—————————————————

the dispute settlement system by taking

it chooses in applying trade remedies,” but

a simple majority vote in the Dispute

instead should be viewed as “resuming

iii. Options Outside the WTO

Settlement Body (DSB). This would require

anti-dumping negotiations on the degree

————————————————

a consensus of members, to re-create an

of deference owed to domestic authorities –

Both Professor Gantz and Ms. Foltea

appeal system through a separate treaty

and this time reaching an agreed solution in

have also suggested, as a work-around for

outside the WTO. Foltea believes that the

more precise wording of the anti-dumping

the AB’s delay in issuing reports, to turn

mere possibility of bringing up the option to

rules in the WTO treaty – wording that has

to arbitration as set out in DSU Article 25.

vote could be a solution in itself, as “WTO

consistency and clarity.”

Here, both Member States could decide on

Members may not want to be singled out

—————————————————

their own arbitration proceedings which

through – or left out of – voting decisions.”

ii. Minor Changes

would be enforceable in the same way as if

This risk associated with this approach would

————————————————

they had been adopted by the AB. While this

be that it might invite more clashes with the

Ms. Foltea also suggests the AB could

option would only be a temporary solution.

Currents 23.2 2019

The benefit would be that it would not

both a carrot and a stick for Members to

WTO could more effectively determine the

further overload the AB, allow for an appeals

increase their participation in the notification

best practices for each Member to meet their

process, and most importantly, buy time

obligations of the WTO Agreement, solve

notification requirements.

for WTO Members to find more solution

market access issues, incrementally modify the

Not all Members fail to meet their

solutions for the overall system.

rules, and downsize ineffective committees.

obligations due to a lack of resources or

—————————————————

diminished economic capacity. Some ignore

II. The E.U.'s Modernization Proposals for the WTO

the obligations willfully. The proposal details,

————————————————

i. Promoting Proper Use of Notifications to Increase Transparency

—————————————————

————————————————

or repeated non-compliance. The sanctions

Proper compliance with notification

proposed include stronger political criticisms

————————————————

obligations will allow the WTO to monitor

and limitations on certain rights conferred

The proposals by the European Union

more effectively and to enforce its rules thus

through participation in the WTO.

(EU) for the modernization of the WTO

allowing participation in the WTO to be

The proposal also recommends an

suggests that the WTO is facing serious

more widely realized. In order to increase

increase in the use of counter-notifications

difficulties handling international trade

compliance with the notification obligations

and strengthening the Trade Policy Review

negotiations and disputes. The EU has

the EU proposes that committee-level

Mechanism (“TPRM”). The counter-

made suggestions it believes will allow the

monitoring be bolstered. This proposal

notification system allows Members to

WTO to adapt to the changing landscape

encourages introducing measures that

prepare notifications on behalf of other

of current global politics. The proposals deal

require Members to explain reasons for

Members. The mechanism is rarely used

with changes to WTO procedure in order to

delays in notification and reply to comments

due to the large amounts of research and

promote transparency and the regular work

on those delays. The comments, and the

intelligence required to produce a notification

of the WTO, improve the WTO dispute

replies to them, would be publicly available.

on behalf of another Member. The EU

settlement policies in an effort to solve trade

Moreover, the Secretariat would be given

suggests like-minded Members prepare

concerns before they reach the litigation

the opportunity to make more qualitative

joint counter-notifications and the WTO

stage, and incremental changes to the WTO

assessments on them. Finally, non-compliant

strengthen consequences for Members being

“rule book.” The proposals contain specificity

Members will be put “more on the spot”

subject to counter-notifications. They also

with regard to procedural matters, especially

in WTO meetings and reports. While

suggests the Secretariat should have greater

in the dispute settlement arena.

the language of the proposal is vague, it

involvement, but caution this should be

—————————————————

is clear the EU would like to see some

done only if the neutrality of the office can

B. Proposals for Regular WTO Work and Increased Transparency

punishments put in place to encourage the

be maintained. Concerning the TPRM, a

more intractable Members into compliance

tool for the Secretariat to apply peer pressure

with the notification obligations.

to Members who are avoiding compliance,

————————————————

The proposal offers a carrot as well as a

the EU suggests the Secretariat could use

The new transparency proposals

stick to improve compliance. Not all WTO

other Members information to highlight

push towards proper compliance with

Members have the same resources or capacity

issues even if the non-compliant Member

WTO notification obligations from all

to meet the notification requirements in a

under review has not notified the Secretariat.

Members. The EU put forth four proposals

timely and complete fashion. By using WTO

The proposal is not so broad, however as to

for increasing multilateral transparency

resources to assist struggling Members and

limit a Member-under-review’s ability to

and continuing the regular work of the

making better use of workshops and informal

consent to the use of their information in

WTO. These proposals focus on providing

committee discussions, the EU believes the

a counter-notification. The EU also calls

A. Overview

Currents 23.2 2019

in broad fashion, possible sanctions for willful disregard of notification obligations

for expanding the power of the Secretariat

—————————————————

Appellate Body, with measures designed to

in assessing notification performance in

lead to longer, single-term appointments for

individual Member reviews and classifying

iv. Downsizing Ineffective Committees

the information in notifications into a

————————————————

substantive issues facing the Appellate Body’s

The proposal also recognizes the need to

interpretations and U.S.’ concerns regarding

separate chapter.

AB members. The second stage deals with

—————————————————

trim the fat in order to decrease the possibility

AB “over-reach.”

ii. Solving Market Access Problems

of bureaucratic bloat within the WTO. They

—————————————————

point to specific committees that no longer

————————————————

enjoy broad or even narrow relevance. While

The proposal to “solve” market access

the proposal falls short of calling for their

problems is a brief two-pronged suggestion.

dismantling, it does state it would serve

The EU proposed pre-litigation problem-

the WTO better to scale down less relevant

i. Comprehensive Amendment to the Dispute Settlement Understanding Regarding the Functioning of the Appellate Body

solving being bolstered by rules that oblige

committees. Allowing committees to go

————————————————

Members to give substantive replies within

dormant when there is not a pressing need

The EU identifies a series of issues that

specific timeframes when others raise specific

for their existence would free up Member’s

have caused problems for the Appellate Body,

trade concerns in a Committee meeting. In

participants and allow them to focus efforts

one of which, is proceedings are limited to

addition, the proposal posits strengthening

on other more relevant issues.

a 90-day period. The proposal calls for an

of cross-committee coordination on market

—————————————————

amendment to allow the parties to agree to

access issues with the help of the Secretariat.

an extension of the 90-day limitation. By

The hope is the increased regulations will

Proposals on WTO Dispute Settlement

lead to more consistent and satisfactory

————————————————

proceeding, the parties could confer and

replies and provide real consequences for

The EU has expressed serious concerns

agree a dispute may take more than 90 days to

disobedient Members, while avoiding the

that the dispute settlement function of the

resolve and thus agree to waive the limitation.

merry-go-round of speaking points that is

WTO is nearing a precipice that will render

The EU also suggests the Appellate Body

the current norm.

it ineffective and undermine the organization

could limit the scope of an appeal so that

—————————————————

as a whole. The EU points to the U.S.’

a decision could be reached and publicized

iii. Incremental Adjustments to the "Rule Book"

ongoing blockage of Appellate Body (AB)

within the timeframe. The EU also advocates

appointments and claim unless rectified the

for more substantive measures which would

————————————————

Body will have less than three members by

increase the efficiency and geographic balance

The EU has suggested that the WTO

December of 2019. This would mean the

of the AB. By expanding the number of AB

councils and committees should be allowed

Body would fall below the minimum number

members from seven to nine and making

to adjust and clarify the rulebook outside of

of members required to hear an appeal and

the placement a full-time job, rather than

the constraints of formal negotiations. They

thus prevent its basic function. Without an

the current de jure status, the AB would

cite the lack of decisions have had substantive

appellate mechanism there is a real possibility

be able to handle disputes more effectively.

consequences and advocate the ability to

a party to a dispute may block the adoption

The example the EU provides is three three-

modify the rule book incrementally to

of a panel ruling by simply seeking an

Member panels could hear different disputes

allow the WTO to evolve with the times

unobtainable appeal. This would completely

in a full-time capacity, thus enabling appeals

and remain relevant in the changing global

disable the basic function of WTO dispute

to be more quickly decided.

economic landscape.

settlement scheme. The EU has proposed a

The proposal further suggests the WTO

two-stage solution to this pressing issue. The

codify Rule 15, which would allow outgoing

first stage focuses on strengthening the

Appellate Body members to complete the

consulting in the early stages of an appellate

Currents 23.2 2019

disposition of a pending appeal if hearings

the substantive rules can be modified or

the option of future participation open to

have begun within the outgoing member’s

interpreted by the WTO membership as

Members who do not immediately agree with

term. In addition, the E.U. proposes the

a whole. However, these modifications

the trade decisions. The proposals are more

Body should not be constrained to “address

or interpretations should be addressed

higher-minded than concrete and present a

each of the issues raised” but rather the

once there is a clear path to increasing the

wide array of potential changes to current

Body should be free to address only the

membership of the Appellate Body. The EU

WTO rules in areas the EU feels are deficient.

issues necessary to resolve a specific dispute.

reiterates the fact the potential dip below

—————————————————

Allowing the Body to make narrow rulings

minimum required membership is a more

i. Future Rulemaking

would also likely have a beneficial effect

pressing issue than an in-depth proposal

————————————————

on the 90-day time constraint by allowing

for substantive rule changes and advocates

The EU states there is a need to broaden

members to ignore irrelevant issues.

resolving the limited membership in the

the WTO’s negotiating agenda to focus

Body before addressing future procedural

on creating rules that: rebalance and level

precedent within the Appellate Body. By

modifications.

the “playing field”; address market access,

allowing regular meetings between the

—————————————————

discrimination, and regulatory barriers

Appellate Body and the WTO Members,

D. Proposals on Rule Making

across economic sectors; and increase the

the WTO Membership could comment on

————————————————

contribution of trade to global sustainability

issues or trends in the AB’s jurisprudence

The EU has proposed three changes

objectives. With regard to rebalancing and

without requiring the discussions to be

to the WTO rule making scheme which

leveling the “playing field” the EU puts

hinged on whether or not the Membership

they believe will allow the WTO to

partial focus on the Agreement on Subsidies

will adopt a particular AB report. The

increase its effectiveness as a global trade

and Countervailing Measures (“SCM

proposal also calls for AB members to be

coordination body while limiting harmful

Agreement”). The SCM Agreement is the

ineligible for re-appointment so as to protect

trade practices. The first proposal is a lengthy

primary tool for disciplining industrial

the independence of the AB. The single term

discussion of current policy and suggests

subsidies undertaken by Members, but the

appointment suggestion is coupled with a

stronger rules, which would address what

EU believes it has been ineffective. The

longer term of appointment (six to eight

the EU sees as issues critical to the evolving

EU points to gaps and ambiguities in the

years). This single but longer term would

global trade needs. The second proposal

Agreement, which need to be addressed in

address the issues many WTO Members

looks at how the WTO could adapt its

order to make the SCM Agreement more

have with respect to the independence of

agreements as Members’ economies develop.

applicable and useful.

the Appellate Body. A longer term would

In some cases, Member States no longer merit

Again, the EU touches on transparency

provide certainty of AB members and provide

special and differential treatment they may

and notification in this proposal by suggesting

the ability for Body members to benefit from

once have needed when they joined. This

the WTO incentivize Members to comply

longer exposure to the experience required to

proposal focuses on how to better facilitate

fully with notification obligations. Part of the

make appropriate rulings.

global development without being mired

proposal references ways the EU has already

—————————————————

in special treatment agreements that would

identified to improve transparency and

ii. Substantive Issues with Dispute Settlement

hinder future trade objectives. The third

compliance. The previous EU suggestions

proposal deals with “flexible multilateralism”

involved creating a rebuttable presumption

————————————————

which would allow for certain Members to

that non-compliance with notification

The EU proposal for the second phase

agree upon trade measures without requiring

obligations of subsidies should cause the

of the AB reform is brief and focused mainly

a complete multilateral consensus, thus

subsidies to be seen as subsidies that cause

on U.S.’ concerns that the AB overreaches

allow Members the opportunity to more

serious prejudice. In such a situation, the

in areas of trade defense. The EU states

freely negotiate. The measures would keep

offending Member must either provide

The proposal also addresses the issue of

Currents 23.2 2019

proper notification or the WTO should

has thus far been insufficient at addressing

of the WTO have made substantial economic

allow other Members to submit counter-

the sources of the trade problems. The

strides, which has made such classifications

notification. The measures go on to delineate

proposal calls for increased administrative

both improper and ineffective for WTO

potential actionability on these presumptions

review and a strengthening of licensing

objectives. These misclassifications have led

and methods for mitigating the consequences

agreements to reinforce trade secrets and

to imbalances, which dilute the potency of

of non-compliance.

limit unfair commercial use or unauthorized

the WTO with regard to aiding the truly

The proposal also delves into the growth

disclosure of foreign proprietary innovation

developing Member States and has reduced

and influence of State-Owned Enterprises

or technology. On top of suggesting new

the less developed nations desire to enter

(“SOEs”), while recognizing that the SCM

rules to address specific issues, the EU

into negotiations. The E.U. proposes a

Agreement already has certain measures in

proposes expanding complimentary rules

series of changes that which allow the current

place for regulating subsidies to SOEs. The

that would increase the WTO’s capacity to

classification structure to adapt to future

narrow interpretation of the current rules

discipline rule violators.

changes and thus more effectively handle shifts in global trade realities.

has limited the WTO ability to apply the

This EU proposal notes the deficiency

SCM Agreement to many SOEs. The EU has

of current WTO rules in the area of digital

The EU proposes a “graduation”

proposed a case-by-case analysis of SOEs to

trade as well, and explains the barriers this

mechanism for allowing Members to

determine whether these enterprises perform

deficiency presents. The proposal cites a

lose access to Special and Differential

meaningful government functions or whether

need for creating rules that would remove

Treatment (SDT) under the WTO rules and

their operation is contrary to WTO policy.

unjustified barriers to global digital trade,

policies. This would allow for Members who

The E.U. also calls for more transparency in

bring increased legal certainty for companies,

no longer meet the criteria for a developing

monitoring the market-distorting support

and create a secure digital environment for

nation to opt-out automatically from SDT

given to SOEs so the WTO can evaluate if

customers. These rules would also need to

or to agree to no longer remain eligible for

the SOEs are helping or harming trade.

address the “forced technology transfers”

SDT. In the interim, the EU proposes that

and apply to all economic sectors, not just

Members should be encouraged to clarify

services.

areas where they are actually in need of SDT

There are currently two categories of subsidies prohibited under the WTO rules: subsidies that are contingent upon export

Finally, the proposal looks to global

flexibilities and present a roadmap which

performance and subsides contingent

sustainability objectives and how new

would show the WTO when the Member

upon the use of domestic over imported

WTO rules could help promote sustainable

would able to assume all the obligations

goods. The EU calls for expanding subside

development for all Members. The EU

under the WTO agreement.

prohibitions and the creation of a rebuttable

stated that within the coming months it will

The proposal also offers changes to SDT

presumption of serious prejudice for specific

prepare a detailed analysis of already agreed

going forward. Recognizing the continued

subsides.

upon sustainability goals and identify ways

need for the WTO to assist Least Developed

The EU also states that the current

in which trade policy could aid in their

Countries, the proposal advises moving

rules are insufficient at addressing barriers to

accomplishment. The proposal also calls for

away from open-ended exemptions in favor

market access and discriminatory treatment

multilateral participation in identifying and

of more needs driven and evidence-based

of foreign investors. The proposal points

implementing these trade practices.

classifications. These narrower classifications

out “forced technology transfers”, where

—————————————————

would help ensure Members ability to more

in a state or domestic operator requires a

accurately develop in needed areas and

foreign operator to share their innovation

ii. Increased Flexibility for Development Objectives

or technology, have become a serious

————————————————

would be on impressing on all Members

barrier to trade. The EU notes the scope

Many of the countries declaring

that the core rights and obligations under

of the existing provisions is limited and

themselves to be developing at the creation

the WTO would eventually be universally

provide specific and targeted SDT. The focus

Currents 23.2 2019

implemented while still allowing for in-

scale multilateral consensus. This “flexible

also highlight current inadequacies and

built flexibilities for certain Members to

multilateralism” would allow the WTO to

point to some imminent threats. The firmest

form addition commitments which would

develop agreements that could be beneficial

proposals deal with the most pressing issue,

cater to their specific needs. In addition,

and still allow other Members to participate

the potential obsolescence of the Appellate

the proposal suggests that these flexibilities

later on a Members Most Favored Nation

Body. The EU put forth concrete measures

be proportionally tied to the number of

(“MFN”) status.

that could be implemented quickly to

Members participating in the agreement.

The EU is not discounting the need for

avoid the Appellate Body from becoming

While the goal is to dial back SDT,

full-scale multilateral agreements. In fact, it

ineffectual. The proposals provide measures

the EU recognizes that the need still

restates the importance of such agreements,

that would allow for the dispute settlement

currently exists for SDT and as such,

where possible, in its proposal. However,

function of the WTO to regain lost ground

they suggested additional SDT in existing

the proposal goes on to suggest a plurilateral

and progress successfully into the future. The

agreements. However, the additional SDT

negotiations policy should be available when

proposals for reforming rule making and

must be directed in such a fashion as to

full multilateral consensus is unobtainable.

increasing transparency lack the same level

best promote trade growth. In order to

They would allow Members to enter into

of grounding, but do provide some keen

accomplish these goals, the EU has proposed

plurilateral negotiations and agreements in

observations and suggestions for going

that any additional SDT clearly identify its

cases of multilateral stalemates, while still

forward. However, the lack of specificity

development objective; present economic

leaving open the option for all Member

of the proposals will leave them open to

analysis of the impact of any rule and its

States to join the plurilateral negotiations

collateral attacks. Without firm support from

expected benefits; analyze the impact of

on an MFN basis. Strengthening the role

other Member States, the proposals are likely

the requested flexibility on other WTO

of the Secretariat in supporting various

to remain simply that of broad guidance.

Members; and specify a time frame for which

negotiation processes, through a proposed

—————————————————

the flexibility is requested and delineate the

Ministerial Decision, would allow for better

scope of its application. The EU believes this

implementation and monitoring of these

III. What is Going on with WTO Dispute Settlement?

comprehensive approach would increase the

plurilateral negotiations. The proposal

————————————————

usefulness of any additional SDT.

states there should be an increase in political

A WTO dispute arises when one

—————————————————

support and engagement in the WTO by

Member State believes another Member

iii. Strengthening Rulemaking Procedures in the WTO

the Member States, such as increasing the

state has violated a WTO agreement or a

frequency of WTO Ministerial Conferences

commitment or that it has nullified a benefit

and methods for intensifying the Senior

expected under a WTO agreement.

————————————————

Official process. Smaller negotiations do

—————————————————

The WTO negotiation function can

not require full multilateral approval by the

oftentimes be blocked by recalcitrant Member

WTO and function as a work around to

A. Recent Disputes Filed by the U.S. Agains China

States or those believing the negotiations will

blockages while continuing to grow trade

————————————————

prejudice their own domestic economic

in the face of individual Member State

A Request for Consultations is the

goals. The EU has submitted a proposal that

disapproval.

first step in the WTO Dispute Settlement

would increase the flexibility and therefore

—————————————————

system. Before moving any further, the

the applicability of WTO negotiations. The

E. Conclusion

countries in dispute have to discuss the

concept is called “flexible multilateralism”

————————————————

dispute and try to come to an agreement. The

which would allow for negotiations and

The EU’s proposals provide guidance,

countries have up to 60 days for consultations.

agreements between separate Members,

often in broad form, for the WTO to

If consultation fails, the countries can ask the

even if the measures were not ready for a full

increase its efficiency going forward. They

WTO Director-General to mediate or try to

Currents 23.2 2019

assist in a resolution of the dispute. If there is

its respective complaint. For example, in

appropriate.

no resolution, the countries move on to the

its May 18, 2018 complaint, India claims

—————————————————

second stage, the panel stage.

the U.S. has acted inconsistently with the

On March 23, 2018, the U.S. filed

U.S.’s obligations under the Agreement on

D. Additional Duties on Certain Products

a Request for Consultations with China

Safeguards. The Agreement on Safeguards

————————————————

regarding “Certain Measures Concerning

sets forth the rules for application of

Interestingly though, the U.S. brought

the Protection of Intellectual Property

safeguard measures pursuant to Article XIX

complaints against Canada, the E.U., Mexico,

Rights”. The U.S. states China does not

of GATT 1994. Safeguard measures are

and Turkey because of their “Additional

allow non-Chinese patent holders the ability

defined as “emergency” actions with respect

Duties on Certain Products.” In these

to enforce their patent rights against any

to increased imports of particular products,

complaints, the U.S. declares the respondent

Chinese joint-venture party. China also

where such imports have caused or threaten

nations are acting unfavorably, towards

implements unfavorable contract terms

to cause serious injury to the importing

the U.S. by treating the U.S. differently

for imported foreign technology. The EU

Member's domestic industry.

than outlined in each nation’s Schedule of

filed a Request for Consultations on June

India also alleges the U.S. has assigned

Concessions. Each nation, in response to

1, 2018, for “Certain Measures on Transfer

import duties in excess of the U.S.’ Schedule

the initial U.S. action, has implemented

of Technology,” and on July 16, 2018 the

of Concessions and Commitments, and

additional duties on products originating

U.S. filed a Request for Consultations for

because the import duties are not assigned

from the U.S. It appears that the U.S. wants

“Additional Duties on Certain Products”.

uniformly to all steel and aluminum products,

it both way: it wants to be able to ignore the

—————————————————

the import duties are discriminatory to

U.S.’s Schedule of Concessions, but it wants

B. Disputes Filed by China Against the U.S.

certain members of the World Trade

the rest of the world to have to comply with

Organization. Schedules of Concessions

its own Schedule of Concessions.

————————————————

reflect specific tariff concessions and other

China filed multiple Requests for

commitments that countries have given in

Consultations against the U.S. concerning the

the context of trade negotiations. India

U.S. imposing an additional ad valorem duty

continues by stating the import duties

of 25-percent against China’s products. This

“implicitly introduce restrictions in the form

tariff would be imposed on goods such as

of quotas.”

machinery and electronics originating in

The U.S. responded to India’s complaint

China. China also filed a separate complaint

stating the import duties were necessary

regarding “Certain Measures on Steel and

as a matter of national security, and every

Aluminum Products”.

member of the WTO is allowed to judge for

—————————————————

itself what constitutes a matter of national

C. Certain Measures on Steel and Aluminum

security. The U.S. denies the tariffs are

————————————————

allegation of violation of the Agreement on

India, the E.U. , Canada, Mexico,

Safeguards is neither accurate nor relevant

Norway, the Russian Federation , Switzerland,

to the issue at hand. That means the

and Turkey have all requested consultations

consultations provision in the Agreement

with the U.S. regarding “Certain Measures

on Safeguards is not applicable here, and

on Steel and Aluminum.” Each nation

because this is an issue of national security

presents almost an identical argument in

for the U.S., WTO dispute settlement is not

safeguard measures; and therefore, India’s

Timeline Image Attributions

1992 - Pixabay (No Attribution Required) 1993 - Pixabay (No Attribution Required) 1994 - Photo by Michael McCrady 1995 - Public Domain, “Technology Internet Web” by Anthony Furgison 1996 - USTR 1999 - Public Domain, Attribution: Pixabay (No attribution required) 2000 - Pixabay (No attribution required) 2002 - Pixabay (No attribution required) 2008 - “NEW Dollar Bill” by Reuben Ingber 2009 - “Bitfinex bitcoin cryptocurrency Bill Gates” by wccftech 2015 - “3 + 1 = 5 Short tekstet” by KADK 2016 - Pixabay (No attribution required) NOW - Pixabay (No attribution required), Pixabay (No attribution required), Pixabay, Pixabay (No attribution required)

Currents 23.2 2019

Interested in supporting a

CURRENTS Scholarship Program? Students who serve on the Currents editorial board receive no compensation or scholarship assistance. The editorial board oversees the entire editorial process for each of the bi-annual issues published. In addition, they must complete written notes of publishable length and quality, while juggling the competing demands of classes, part-time jobs, and families. Without scholarship assistance, many talented students simply cannot make such a sacrifice. We believe that a scholarship fund would enable Currents to attract talented students who could focus more exclusively on improving and expanding the journal in the coming years. Please consider supporting this new fund, which will help Currents continue to provide a unique forum for the exploration of the prevalent international trade law and business issues of the next decade. Please visit our website for more information or for contact information: www.stcl.edu/academics/law-reviewsjournals/currents/

I am pleased to support a scholarship program for students on the Currents editorial board at the following level:

CURRENTS Editorial Board Scholarship Program

Subscription Information

Sponsor $100

Donor $50

Sponsor $1,000

Supporter $500

Fold this sheet into three panels, staple at both ends, and mail. No postage is necessary when mailed in the United States.

____________________________________

In the space provided, please comment on countries of interest, topics of concern, and suggested authors for future articles:

So that we may continue to provide informative and timely articles of interest to you, we ask that you complete the comment section below.

It is our pleasure to provide you with this, our latest issue of Currents: Journal of International Economic Law. If you would like to receive Currents, and have not already subscribed, please complete the business reply card subscription form and return it to us.

Benefactor $500

Individual

Benefactor $5,000

Corporate

Check enclosed Please bill me for my pledge of $_________ Charge to: o MasterCardÂŽ o VisaÂŽ Account # Expiration Date Credit Card Signature: Name Name of Company/Firm Address City State Zip Code Telephone

CURRENTS SOUTH TEXAS COLLEGE OF LAW HOUSTON 1303 SAN JACINTO ST HOUSTON TX 77002-9840 POSTAGE WILL BE PAID BY ADDRESSEE

13199 HOUSTON TX

o Refer

Credit Card Signature:

Expiration Date

Account #

Charge to: o MasterCard® o Visa®

$30 (1 year subscription) $55 (2 year subscription) $75 (3 year subscription)

Payment enclosed

o o o o

Please send invoice

to P.O. # ______

Subscription includes 2 issues/year

Zip

State

City

Address

Firm/Corp/Educ. Inst

Name