Behind the Multilateral Trading System

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1 Behind the Multilateral Trading System Legal Indigenization and the WTO in Comparative Perspective Xing Lijuan Carolina Academic Press Durham, North Carolina

2 Copyright 2014 Xing Lijuan All Rights Reserved Library of Congress Cataloging-in-Publication Data Xing, Lijuan. Behind the multilateral trading system : legal indigenization and the WTO in comparative perspective / Xing Lijuan. pages cm Includes bibliographical references and index. ISBN (permanent paper) 1. World Trade Organization. 2. Foreign trade regulation. 3. International and municipal law. I. Title. K4610.X ' dc Carolina Academic Press 700 Kent Street Durham, North Carolina Telephone (919) Fax (919) Printed in the United States of America

3 Summary of Contents Chapter 1 Review of Literature 13 I. Survey of the Key Sources 13 II. Analysis of the Key Sources 21 Chapter 2 The Concept of Legal Indigenization 49 I. Responses to a Problematic World 49 II. The Concept of Indigenization in the Context of International Law 66 Chapter 3 Legal Indigenization of WTO Law in China 73 I. International Trade Rule-Making 73 II. International Trade Disputes 83 III. Domestic Legislation on Trade 98 IV. Domestic Adjudication of Trade Issues 103 Chapter 4 Legal Indigenization of WTO Law in the United States 131 I. International Trade Rule-Making 131 II. International Trade Disputes 146 III. Domestic Legislation on Trade 155 IV. Domestic Adjudication of Trade Issues 162 Chapter 5 Legal Indigenization of WTO Law in the European Union 173 I. International Trade Rule-Making 173 II. International Trade Disputes 181 III. Domestic Legislation on Trade 189 IV. Domestic Adjudication of Trade Issues 195 Chapter 6 Legal Indigenization and the WTO 219 I. Indigenized WTO Agreements and Practices 219 II. Legal Indigenization in the Context of Further Negotiations 232 III. General Implications for the WTO 246 v

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5 Contents Abbreviations Acknowledgments Abstract and Overview xv xvii xix Introduction The Aim, Structure, Conceptual Terminology, and Limitations of This Book 3 Goals 3 Structure and Approach 5 Conceptual Terminology 7 Limitations 11 Chapter 1 Review of Literature 13 I. Survey of the Key Sources 13 A. WTO Mechanisms Overall assessment On certain mechanisms The WTO and domestic law The WTO and international law Legal principles and the interpretation of the WTO agreements The design of the WTO agreements The position of developing countries in the WTO Domestic context 17 B. International Negotiation and Rule-Making The current round of multilateral trade negotiations Power of rule-making Strategies or priorities in trade negotiations 18 C. Domestic Legislation and Policy-Making Legislation Free Trade Agreements Domestic (and regional) influences on the international regime 20 D. Participation of Members in Multilateral Disputes Settlement 20 II. Analysis of the Key Sources 21 A. WTO Mechanisms Overall assessment On certain mechanisms The WTO and domestic law 24 vii

6 viii CONTENTS 4. The WTO and international law Legal principles and the interpretation of the WTO agreements The design of the WTO agreements The position of developing countries in the WTO Domestic context 28 B. International Negotiation and Rule-Making Current multilateral negotiations Power of rule-making Strategies or priorities in trade negotiations 30 C. Domestic Legislation and Policy-Making Legislation Free Trade Agreements Domestic (and regional) influences on the international regime 32 D. Participation of Members in Multilateral Disputes Settlement 32 Summary 33 Appendix 1.1 Extended Survey of the Key Sources 35 Chapter 2 The Concept of Legal Indigenization 49 I. Responses to a Problematic World 49 A. Legal Fragmentation in Trade before World War II 49 B. Legal Globalization as a Response to Fragmentation 51 C. Legal Globalization Inherent Problems 53 D. Legal Globalization Acquired Problems Surge of sovereign countries Self-evolution of the global trading system Development of international law 59 E. Legal Indigenization as a Response to Problematic Globalization 64 II. The Concept of Indigenization in the Context of International Law 66 A. Meaning 66 B. Comparisons with Other Relevant Terms 68 Summary 72 Chapter 3 Legal Indigenization of WTO Law in China 73 I. International Trade Rule-Making 73 A. Review of China s Proposals Special and Differential Treatment in China s proposals Substantive provisions in China s proposals Procedural matters in China s proposals 75 B. Characteristics of China s Trade Negotiations Special and Differential Treatment An inclination for vagueness Procedural matters 77 C. Pertinent Aspect of Chinese Legal Tradition and Culture Sovereign equality Attitude toward international law Procedural issues 82 II. International Trade Disputes 83

7 CONTENTS ix A. Overview 84 B. Chinese Ideologies Challenged by the DSB Disputes Protection of subjects involving illegality Publications and public morality Trading rights and state control Criminal thresholds and the protection of intellectual property rights as civil rights 86 C. Pertinent Aspects of Chinese Legal Tradition and Culture Protection of subjects of law involving illegal elements Publications and public morality Trading rights and state control The protection of civil rights through the criminal law The protection of intellectual property rights more fundamental issues 97 III. Domestic Legislation on Trade 98 A. Legal Regime of Trade 98 B. WTO Law in Domestic Context and Characteristics of Domestic Legislation WTO law in domestic context Characteristics of domestic legislation 100 C. Pertinent Aspects of Chinese Legal Tradition and Culture Forms of law in dynastic China Contemporary China s legal regime 102 IV. Domestic Adjudication of Trade Issues 103 A. Administrative and Judicial Regimes Relating to Trade 103 B. WTO Law in Domestic Context and Characteristics of Domestic Adjudication WTO law in domestic context Characteristics of domestic adjudication 105 C. Pertinent Aspects of Chinese Legal Tradition and Culture Judicial review on administrative activities Direct application of WTO law Administrative litigation as a legal remedy Competence of intermediate courts to exercise jurisdiction over trade cases 115 Summary 116 Appendix 3.1 Specific Amendments to the Dispute Settlement Understanding Drafting Inputs from China 119 Appendix 3.2 Dynasties in Chinese History 122 Appendix 3.3 Sentences Requiring Thresholds Prescribed in Chapter III of the Criminal Law 123 Appendix 3.4 Sentences Not Requiring Thresholds Prescribed in Chapter III of the Criminal Law 124

8 x CONTENTS Appendix 3.5 Sentences of Fixed-Term Imprisonment of Not More than Three Years or Criminal Detention Prescribed in Chapter III of the Criminal Law 125 Appendix 3.6 Sentences of Fixed-Term Imprisonment of Not Less than Three Years but Not More than Seven Years Prescribed in Chapter III of the Criminal Law 128 Appendix 3.7 A List of Departmental Rules Issued by the Ministry of Commerce on Anti-dumping Issues 130 Chapter 4 Legal Indigenization of WTO Law in the United States 131 I. International Trade Rule-Making 131 A. Overview Multilateral trade negotiations Negotiations for free trade agreements 134 B. Characteristics of the United States Trade Negotiations Series of proposals Cautiousness toward Special and Differential Treatment Reforms of the WTO mechanisms The international rule of law Procedural justice U.S. practices and experiences Selective partners in free trade agreements Out-reform in trading partners 140 C. Pertinent Aspects of U.S. Legal Tradition and Culture Procedural fairness in the common law tradition Leadership in the WTO Reciprocity and Special and Differential Treatment The international rule of law Segmentation of power and trade issues 145 II. International Trade Disputes 146 A. Overview 147 B. U.S. Ideologies Challenged by the DSB Disputes Sovereignty or unilateralism The extra-territorial application of American law 150 C. Pertinent Aspects of U.S. Legal Tradition and Culture Origins of unilateralism The extra-territorial application of American law 154 III. Domestic Legislation on Trade 155 A. WTO Law in Domestic Context and Characteristics of Domestic Legislation WTO law in domestic context Characteristics of domestic legislation 156 B. Pertinent Aspects of U.S. Legal Tradition and Culture The civil law and common law traditions Fluctuation of trade policies Subordination of international law to domestic law 161 IV. Domestic Adjudication of Trade Issues 162

9 CONTENTS xi A. Overview: The Main Agencies, Courts, and Statutory Provisions 162 B. Characteristics of Domestic Adjudication Administrative segmentation Judicial review Specialized courts and judicial segmentation 165 C. Pertinent Aspects of U.S. Legal Tradition and Culture Expertise deference Administrative deference The extra-territorial application of American law 168 Summary 168 Appendix 4.1 Further Contribution of the United States to the Improvement of the Dispute Settlement Understanding of the WTO Related to Transparency Revised Legal Drafting 171 Chapter 5 Legal Indigenization of WTO Law in the European Union 173 I. International Trade Rule-Making 173 A. Overview 174 B. Characteristics of the EU s Trade Negotiations An emphasis on overall goals of the WTO mechanisms A unique perspective on constituents of the DSB A fixed style of proposals A focus on development, sustainability, and Special and Differential Treatment Proposed texts accompanying discussions An emphasis on regional issues A heavy reliance on principles and guidelines Status of independent experts in trade disputes settlement 177 C. Pertinent Aspects of EU Legal Tradition and Culture Role of judges Principles and doctrines Jurists in the civil law tradition Sustainable development 180 II. International Trade Disputes 181 A. Overview 182 B. EU Ideologies Challenged by the DSB Disputes Approaches of interpreting the WTO agreements Multilateralism and trade preferences in FTAs The application of legal principles in arguments 185 C. Pertinent Aspects of EU Legal Tradition and Culture The interpretation of international agreements The relationship between trade preferences and multilateralism The status of legal principles 189 III. Domestic Legislation on Trade 189 A. Overview 190 B. WTO Law in Domestic Context and Characteristics of Domestic Legislation WTO law in domestic context 191

10 xii CONTENTS 2. Characteristics of domestic legislation 191 C. Pertinent Aspects of EU Legal Tradition and Culture Different concepts of law The relationship between EU law and national law 194 IV. Domestic Adjudication of Trade Issues 195 A. Overview Administrative organs Courts 196 B. Characteristics of Domestic Adjudication The form of determinations on trade defense Judicial protection of individual rights Types of actions The application of legal principles Procedural rights The style of judgments Case law Opinions of Advocates General The application of the WTO agreements 201 C. Pertinent Aspects of EU Legal Tradition and Culture Judicial review The style of judgments The application of legal principles in EU jurisprudence The centrality of the person and the protection of fundamental rights The principle of due process The system of Advocate General 209 Summary 210 Appendix 5.1 EU Emphasis on Principles, as Illustrated in Proposals on Special and Differential Treatment and Environmental Goods 212 Appendix 5.2 Independent Group of Experts for the Enforcement of Initiation Standards 215 Appendix 5.3 Illustrations of EU Basic Regulations on Trade 217 Chapter 6 Legal Indigenization and the WTO 219 I. Indigenized WTO Agreements and Practices 219 A. The United States and the Multilateral Anti-dumping Mechanism History of U.S. anti-dumping legislation Article VI of the GATT The Kennedy Code The Tokyo Code Anti-dumping Agreement B. Rules for Applying the Notion of Legitimate Expectations Case of Japan Film Case of EC Computer Equipment Case of EC Asbestos Rules for applying the notion of legitimate expectations 231

11 CONTENTS xiii C. Admissibility of Amicus Curiae Submissions 231 II. Legal Indigenization in the Context of Further Negotiations 232 A. Competing (Indigenized) Views on Special and Differential Treatment China The United States The EU 235 B. Competing (Indigenized) Views on Trade and the Environment China The United States The EU 239 C. Competing (Indigenized) Views on Fisheries Subsidies China The United States The EU 241 D. Competing (Indigenized) Views on Reform of the DSB China The United States The EU 244 III. General Implications for the WTO 246 A. In the Short Term Overview of the Trade Policy Review Mechanism The Trade Policy Review Mechanism and legal indigenization Concerns regarding the Trade Policy Review Mechanism 249 B. In the Long Term 250 Summary 250 Conclusion The Context, Concept, and Significance of Legal Indigenization 253 Legal Indigenization and China 253 Legal Indigenization and the United States 254 Legal Indigenization and the EU 255 Legal Indigenization and the WTO 255 Bibliography 257 About the Author 271 Index 273

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13 Abbreviations AD ADA ASCM ASEAN CAFC CAP CARIFORUM CBP CCL CCP CISADA CIT COP CTD CVD DDA DOA DOC DSB DSU EAR EC EC Treaty ECJ EEC Treaty EEZ EU FTA G20 GATS GATT GSP IMF IPR ISA Anti-dumping Anti-dumping Agreement Agreement on Subsidy and Countervailing Measures Association of Southeast Asian Nations Court of Appeals for the Federal Circuit Common Agricultural Policy Caribbean Forum of African, Caribbean and Pacific States Customs and Border Protection Commerce Control List Common Commercial Policy Comprehensive Iran Sanctions, Accountability, and Divestment Act Court of International Trade Conference of the Parties Committee on Trade and Development Countervailing Duties Doha Development Agenda Department of Agriculture Department of Commerce Dispute Settlement Body Dispute Settlement Understanding Export Administration Regulations European Community or European Communities Treaty Establishing the European Community European Court of Justice Treaty Establishing the European Economic Community Exclusive Economic Zones European Union Free Trade Agreement The Group of Twenty Finance Ministers and Central Bank Governors General Agreement on Trade in Services General Agreement on Tariffs and Trade Generalized System of Preference International Monetary Fund Intellectual Property Rights Iran Sanctions Act xv

14 xvi ITC ITO LDCs MEA MFN MOC NAFTA NPC OCT PRC S&D treatment SDS SIAs SPC SPS Agreement STO TBT Agreement TEU TPRM TRIPs TWEA UN URAA USTR WTO WWII ABBREVIATIONS International Trade Commission International Trade Organizations Least-Developed Countries Multilateral Environmental Agreement Most-Favored-Nation Ministry of Commerce North American Free Trade Agreement National People s Congress Overseas Countries and Territories People s Republic of China Special and Differential Treatment Sustainable Development Strategy Sustainability Impact Assessments Supreme People s Court Agreement on the Application of Sanitary and Phytosanitary Measures Special Trade Obligation Agreement on Technical Barriers to Trade Treaty on European Union Trade Policy Review Mechanism Agreement on Trade-Related Aspects of Intellectual Property Rights Trading With the Enemy Act United Nations Uruguay Round Agreements Act Office of the United States Trade Representative World Trade Organization World War II

15 Acknowledgments Any honest author realizes that his or her work draws strength and guidance from many sources. In my case, much of that strength and guidance can be traced to the University of Kansas. In particular, Professor John W. Head has been an enduring inspiration in my work. Serving as my supervisor and the Chairperson of my Dissertation Committee, Professor Head has provided constant guidance and support to me in the past three years, in such various forms as reading, editing, discussing, and critiquing my work as well as training and honing my skills in advanced legal research and writing. I am deeply indebted to Professor Head, and therefore, begin my acknowledgments with sincere respect and genuine thanks to him. A big note of appreciation also goes to Professor Raj Bhala of the University of Kansas School of Law, Professor Virginia Harper Ho of the University of Kansas School of Law, Professor Tailan Chi of the University of Kansas School of Business, and Ms. Ashly LoBurgio Basgall, the Faculty Services Senior Researcher of the University of Kansas School of Law, for their invaluable comments on the manuscript. I am also grateful for the excellent study and research environment of the University of Kansas School of Law as well as moral support from its whole faculty. All these made every step of my writing an easier and more interesting task. As will be obvious from footnote references and from the Bibliography, I have relied heavily on many authorities with far broader expertise than I could possibly bring to bear on this subject myself. I offer acknowledgments and expressions of gratitude to them collectively. A special mention is warranted for Lucia Orth, who has generously given her encouragement and personal assistance to me from the outset. Finally, but distinctly not least, I thank my family for their constant support and inexhaustible love. xvii

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17 Abstract and Overview This book offers a new perspective from which to view and understand the World Trade Organization (WTO) regime and its participants. The central feature of this new perspective is the concept of legal indigenization. The term legal indigenization generally refers to the process or ideology with which domestic authorities make and implement international or domestic rules in a way appealing to their native characteristics (especially legal traditions), as responses to globalization led by a defective global legal system. The core thesis of the book is that the key elements of the legal tradition and culture of a country or a region inevitably and fundamentally influence the ways in which it participates in WTO activities and implements its WTO obligations. These ways, however, have not been adequately explored and explained in the extensive literature relating to developing and implementing international trade rules. In developing and elaborating on that core thesis, this book has six chapters, following an Introduction that summarizes the significance, structure and approach, and conceptual terminology of the book. Chapter 1, Review of Literature, comprises two parts. The first part surveys the key academic, professional, and official literature regarding a range of issues pertinent to this book. These include such topics as (1) the general character and structure of the WTO regime, (2) specific trade mechanisms, (3) the relationship between WTO law and domestic law, (4) the relationship between WTO law and general international law, (5) legal principles and the interpretation of the WTO agreements, (6) the position of developing countries in the multilateral trading system, (7) strategies pursued by individual members in international trade negotiations, (8) examinations of domestic trade legislation, (9) Free Trade Agreements (FTAs), (10) the WTO dispute settlement mechanism, and (11) domestic adjudication of trade issues. The second part of the chapter offers the main findings of the literature introduced in the first part. It is those findings, of course, that serve as the foundation as well as the starting point for further research as reflected in this book. The findings of pertinent literature have helped me formulate two assumptions of the book. One is that the deficiencies of the current WTO legal regime have made it possible, and even necessary, for a WTO member to indigenize WTO law by resorting to its own legal tradition and culture. The other assumption is that some WTO members practices in dealing with the WTO have demonstrated their willingness and efforts to indigenize WTO law. Chapter 2, The Concept of Legal Indigenization, develops the fundamental concept of this book legal indigenization. The chapter starts in Section I by reviewing legal fragmentation in international trade before World War II (WWII). The disaster of world war, which is said to be brought about by legal fragmentation, necessitated international responses to such fragmentation. The responses made subsequently by international participants resulted in the globalization of trade. Then, the section proceeds into the exploration of the inherent and acquired problems of that globalization, explaining the need of a WTO member to rely on legal indigenization. Section II of the chapter defines the concept of legal indigenization, based on the various concepts of indigenization xix

18 xx ABSTRACT AND OVERVIEW that exist in different contexts and dissects the concept of legal indigenization for further understanding. In that same vein, the latter part of the section compares this central term with two other relevant terms globalization and localization. Based on the concept of legal indigenization defined in Chapter 2, the three succeeding chapters proceed to apply this concept to the specific actions adopted by China, the United States, and the European Union (EU) regarding their interactions with the WTO. Chapter 3, Legal Indigenization of WTO Law in China, examines four aspects of legal indigenization within China. Section I focuses on China s participation in international trade rulemaking. It explains how China emphasizes Special and Differential (S&D) treatment as well as discussing substantive and procedural issues in the Chinese proposals submitted to the WTO. The sources of pertinent features of the Chinese proposals submitted to the WTO are located, partially, in Chinese legal tradition and culture. Section II of Chapter 3 finds that China s participation in international trade dispute settlement has designated the Chinese ideologies challenged by its trading partners. Those ideologies bear on such issues as (1) whether legal protection is to be provided for subjects of law involving illegal elements, (2) the relationship between publications and public morality, (3) state control of trading rights, and (4) the necessity of criminal thresholds regarding the protection of intellectual property rights (IPR). The section examines how these features have taken shape, based on Chinese legal tradition and culture. Section III examines key characteristics of the overall trade legislation in China, such as (1) the degree of specification of laws at different levels, (2) the use of temporary legislation, and (3) a focus on management. The section explains these features from the perspective of Chinese legal tradition, focusing specifically on various forms of law in dynastic China and China s contemporary legal system. Section IV examines domestic adjudication of trade disputes arising within China. It reviews administrative and judicial regimes relating to trade issues. Although China has complied with its WTO obligation to provide judicial review of administrative determinations relating to trade issues, it still treats adjudication of trade issues as having unique characteristics that other members of the WTO might find odd or objectionable, which reflects deeply-rooted elements of Chinese legal tradition and culture. Chapter 4, Legal Indigenization of WTO Law in the United States, examines the process of legal indigenization (again, relating to trade law) taking place within that country. Section I explores several aspects of U.S. proposals submitted to the WTO on both substantive and procedural issues, as well as S&D treatment. It also gives some attention to U.S. FTA negotiations. The section characterizes U.S. proposals to the WTO from several perspectives and points out the preference of the United States for (1) submitting a series of proposals, (2) exhibiting cautiousness toward S&D treatment, (3) addressing institutional reform, (4) emphasizing the international rule of law, (5) pursuing procedural justice, etc. The section traces these practices to their roots in U.S. legal tradition and culture, specifically (1) the emphasis on procedural fairness in the common law tradition, (2) the U.S. leadership in the WTO, (3) U.S. reliance on reciprocity, (4) its belief in the rule of law, and (5) segmentation of power in its political regime. Section II examines international trade disputes involving the United States as respondent and reveals certain U.S. ideologies challenged by its trading partners, such as the relationship between sovereignty and unilateralism and the extra-territorial application of U.S. domestic law. The section also attributes these features to U.S. legal tradition and culture, especially to vestiges of unilateralism. Section III explores domestic legislation on trade within the United States and highlights some of its key characteristics, such as the urge for comprehensive content and codification as well as a subordinate status of international trade agreements. The origins of these characteristics in U.S. legal tradition and culture mainly involve (1) a mixture of the civil law and common law traditions, (2) the fluctuation

19 ABSTRACT AND OVERVIEW xxi of trade policies in U.S. legal history, and (3) dualism adopted by the country with respect to the relationship between international law and domestic law. Section IV examines domestic adjudication of trade issues arising within the United States. After reviewing pertinent administrative agencies and judicial bodies relating to trade adjudication, the discussion emphasizes certain characteristics of domestic adjudication of trade issues within the country, such as the use of administrative segmentation and specialized courts. U.S. legal tradition and culture can help explain these characteristics, for example, deference to expertise in U.S. courts. Chapter 5, Legal Indigenization of WTO Law in the European Union, analyzes the process of legal indigenization of WTO law within the EU. Section I examines how the EU has participated in international trade rule-making and explains the EU s emphasis on certain topics, such as (1) constituents of the Dispute Settlement Body (DSB), (2) the style of proposals, (3) the importance of sustainable development and S&D treatment, (4) the establishment of principles guiding negotiations of specific rules, and (5) the role of independent experts in the multilateral dispute settlement mechanism. The origins of the special attention accorded to these topics by the EU can be found in the EU s legal tradition and culture, particularly in (1) the role of judges in the civil law tradition, (2) the center stage given to general principles, (3) a high status given to jurists, and (4) the great importance attached to sustainable development. Section II discusses international trade disputes involving the EU as respondent. On the grounds of a review of pertinent cases, the section identifies some EU ideologies that seem conflicting with those of its trading partners, such as (1) its various approaches of interpreting the WTO agreements, (2) its attitude toward the relationship between multilateral principles and trade preferences in FTAs, and (3) the application of general principles of law in its arguments. Some of the factors contributing to the formulation of these features appear also in continental European legal tradition and culture, especially in the civil law s approach of interpreting international agreements. Section III of the chapter explores the domestic trade legislation within the EU. 1 Based on an overview of its trade legislation, the section points out some EU-specific approaches to trade legislation. These approaches find their roots in continental European legal tradition and culture, especially in the concept of law as adopted by the civil law tradition and in theories about the relationship between EU law and the domestic laws of its Member States. Section IV, after reviewing pertinent administrative agencies and courts involved in adjudication of trade issues within the EU, characterizes such domestic adjudication of trade issues as giving special emphasis to (1) the judicial protection of individual rights, (2) the application of general principles of law, (3) procedural justice, and (4) direct application of the WTO agreements. Once again, the shared corpus of legal tradition and culture that predominates in the EU can partially account for these features, as explained at the end of Chapter 5. Chapter 6, Legal Indigenization and the WTO, explores legal indigenization of WTO law from an integrated perspective. Its aim is to explain how, at the multilateral level, the WTO provisions have been indigenized by each of these three individual members legal traditions and cultures. Section I reviews how existing WTO provisions and practices were influenced by the legal traditions and cultures of certain members. It does this by studying three examples: (1) the United States and the multilateral anti-dumping (AD) mechanism, (2) rules developed by the DSB for applying the principle of legitimate expectations, and (3) the admissibility of amicus curiae submissions in the DSB. Section II focuses on legal indigenization in the context of negotiations for prospective multilateral 1. For a discussion of reasons for describing EU legislation and adjudication as domestic in this book, see infra Chapter 5.

20 xxii ABSTRACT AND OVERVIEW rules. The section examines competing (indigenized) views from three participants China, the United States, and the EU on S&D treatment, environmental issues, fisheries subsidies, and reform of the DSB. Section III addresses the general implications of legal indigenization for the WTO both in the short term and in the long run. The text of the book closes with a Conclusion that summarizes the main findings of all the above chapters.

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