ASPEN CASEBOOK SERIES INTERNATIONAL TRADE LAW

ASPEN CASEBOOK SERIES INTERNATIONAL TRADE LAW Third Edition JOOST H.B. PAUWELYN Professor of International Law» Graduate Institute of International and Developmental Studies, Geneva Visiting Professor of Law, Georgetown University Law Center ANDREW T. GUZMAN Dean, USC Gould School of Law JENNIFER A. HILLMAN Former Member, WTO Appellate Body Visiting Professor of Law, Georgetown University Law Center I, Wolters Kluwer

Contents Preface to the Third Edition Preface to the Second Edition Preface to the First Edition Acknowledgments xxiii xxv xxvii xxix 1. Trade and Economic Policy 1 A. A Few Numbers on Trade and Economic Growth 1 B. The Debate on Liberalized Trade 7 Walter Kirn, Help Wanted 7 C. Comparative Advantage 11 1. The Parable of the Lawyer-Secretary 11 2. The Parable of the Entrepreneur-Merchant 12 3. An Example of Comparative Advantage 13 4. Intra-Industry Trade and Global Value Chains 19 D. Traditional Arguments Against Trade 22 1. Domestic Market Failures 22 Paul Krugman & Maurice Obstfeld, The Domestic Market Failure Argument Against Free Trade 22 2. Distribution 25 3. Infant Industry 26 4. Optimal Tariffs 28 5. Strategie Trade Policy 28 6. National Security 29 E. Non-Economic Reasons Supporting Liberalized Trade 31 2. The Modern Trade Debate Among Economists 35 Jagdish Bhagwati, Technology, Not Globalisation, Is Driving Wages Down 35 A. Outsourcing 37 Alan S. Blinder, Free Trade's Great, But Offshoring Ratties Me 38 Charles Schumer & Paul Craig Roberts, Second Thoughts on Free Trade 41 Arvind Panagariya, Defending the Case for Free Trade (On Outsourcing) 43 B. A Debate Rages 47 David Dollar & Aart Kraay, Spreading the Wealth 47 Dani Rodrik, How to Save Globalization from Its Cheerleaders 50 xi

xii Contents 3. The Making and Impact of Trade Agreements in National Legal Systems 55 A. Trade Policymaking in the United States 56 Charan Devereaux, Robert Lawrence & Michael Watkins, Case Studies in US Trade Negotiation, Vol. 1: Making the Rules 57 Congressional Research Service, Trade Promotion Authority (TPA): Frequently Asked Questions 59 Public Citizen, Fast Track: An Undemocratic Path to Unfair Trade 61 B. Trade Policymaking in the European Union 64 Stephen Woolcock, The Treaty of Lisbon and the European Union as an Actor in International Trade 64 Corporate European Observatory, TTIP: A Corporate Lobbying Paradise 69 C. The Status of WTO Agreements in US and EU Law 70 John James Barcelo, The Status of WTO Rules in US Law 71 Marco Bronckers, The Effect of the WTO in European Court Litigation 74 Piet Eeckhout, External Relations of the European Union, Legal and Constitutional Foundations 77 4. The WTO: History, Structure, and Future 83 A. What Does the WTO Do? 84 World Trade Organization, Understanding the WTO, Chapter 1: Basics 84 B. A Very Brief History of the GATT/WTO System 86 Douglas Irwin, Petros Mavroidis & Alan Sykes, The Genesis of the GATT 86 William Davey, The World Trade Organization: A Brief Introduction 87 C. Why Does the WTO Exist? 90 Douglas Irwin, Petros Mavroidis & Alan Sykes, The Genesis of the GATT 90 D. The Agreement Establishing the World Trade Organization 93 WTO Agreement, Article III, Functions of the WTO 94 World Trade Organization, Understanding the WTO, Chapter 7: The Organization 94 E. Secretariat and Staff 99 F. Membership 100

Contents xiii G. Navigating the WTO Agreements 100 Agreement Establishing the World Trade Organization 101 World Trade Organization, Understanding the WTO, Chapter 2: The Agreements 103 H. What Does the WTO Do, and What Does It Not Do? 105 World Trade Organization, Ten Common Misunderstandings About the WTO 106 I. Is the WTO a Legitimate and Accountable Institution? 113 Susan George, Beyond the WTO: The Problem Isn't Beef, Bananas, Cultural Diversity, or the Patenting of Life; The Problem Is the WTO 113 Ruth Grant & Robert Keohane, Accountability and Abuses of Power in World Politics 115 J. The Doha Round of Trade Negotiations and the Future of the WTO 119 Susan Schwab, After Doha: Why the Negotiations Are Doomed and What We Should Do About It 119 Joost Pauwelyn, The WTO in Crisis: Five Fundamentals Reconsidered 122 5. WTO Dispute Settlement 127 A. Understanding the WTO Dispute Settlement System 128 William Davey, The WTO Dispute Settlement Mechanism 128 B. Flowchart of the DSU Process and Timelines 147 C. Problem: Antigua Gambling 148 6. Special Topics in WTO Dispute Settlement 151 A. Retaliation and the Level of Trade Suspension 151 EC Hormone Beef 152 B. Unilateral vs. Multilateral Enforcement of GATT/WTO Agreements 161 C. Confidential Proceedings vs. Transparency and Open Hearings 165 1. Private Representation Before the WTO 166 2. Amicus Curiae Briefs 168 3. Public Hearings 174 D. Problem: Patria and Protectio 178 7. Tariffs 181 A. Background to Tariff Negotiations and Tariff Bindings 182 1. Tariffs, Tariff Negotiations, and Tariff Bindings 182 2. Tariff Renegotiations 185

xiv Contents Anwarul Hoda, Tariff Negotiations and Renegotiations Under the GATT and the WTO, Procedures and Practices 185 B. The Jurisprudence on Import Tariffs 190 1. Argentina Textiles 190 Argentina Textiles (Appellate Body Report) 191 Argentina Textiles (Panel Report) 193 2. EC Customs Classification of Chicken Cuts 196 Vienna Convention on the Law of Treaties, Article 31: General Rules of Interpretation 198 Vienna Convention on the Law of Treaties, Article 32: Supplementary Means of Interpretation 199 EC Customs Classification of Chicken Cuts 199 3. Special Case 1: Agricultural Products 209 4. Special Case 2: Information Technology Products 210 C. The International Trade Negotiation Game 214 D. Problem: Tram ontanan Chocolate Du ties 216 8. Quantitative Restrictions 219 A. What Is a Non-Tariff Barrier? 221 B. Background to the General Ban on Quantitative Restrictions 224 Arthur Dunkel & Frieder Roessler, The Ranking of Trade Policy Instruments Under the GATT Legal System 224 C. Japan Semi-Conductors 230 Japan Semi-Conductors 231 D. Other Developments 236 1. The Line Between Government and Private Conduct 236 Argentina Bovine Hides 237 2. Unwritten Measures and What Are "Restrictions... on... Importation"? 240 Argentina Import Measures 242 3. Export Restrictions 246 4. "Critical Shortages" 247 5. Freedom of Transit 248 6. The Trade Facilitation Agreement 249 E. Problem: Patrian Shoes 250 9. National Treatment Internal Taxation 253 A. National Treatment 254 Petros C. Mavroidis, The General Agreement on Tariffs and Trade: A Commentary 254 B. The Leading Case: Japan Taxes on Alcoholic Beverages 255 Japan Taxes on Alcoholic Beverages (Panel Report) 256 Japan Taxes on Alcoholic Beverages (Appellate Body Report) 258 C. Other Developments 270 1. How Does One Prove That Products Are "Directly Competitive or Substitutable"? 270

Contents xv 2. When Is a Tax Applied "So as to Afford Protection to Domestic Production"? 271 Chile Taxes on Alcoholic Beverages 272 3. The Line Between a Tax and a Tariff and When Is a Tax "Applied, Directly or Indirectly, to... Products" and Subject to "Border Tax Adjustment" and National Treatment? 275 D. Problems: Luxury Taxes and Carbon Taxes 279 1. Patria's "Luxury Tax" 279 2. Eutopia's "Carbon Tax" 280 10. National Treatment Internal Regulations 283 A. What Is Regulatory Protectionism? 284 1. The Dilemma of Regulating Regulations 284 2. Regulatory Protection Is the Worst Kind of Protection 285 B. The Leading Case on "Like Products": EC Asbestos 286 EC Asbestos 287 C. The Leading Case on "Less Favorable Treatment": EC Seals 300 EC Seals 305 Panel Report, 2013 309 D. When Does a Regulation "Affect" Products? 316 Tuna DolphinI 317 E. Problems: Communian Beef and Flandrian Child Labor Ban 321 1. Communia's Hormone Beef Ban 321 2. Flandria's Ban on Child Labor Product 321 11. Most-Favored-Nation Treatment 323 A. The MFN Obligation 324 William Davey & Joost Pauwelyn, MFN-Unconditionality: A Legal Analysis of the Concept in View of Its Evolution in the GATT /WTO Jurisprudence 325 Robert Hudec, "Like Product": The Differences in Meaning in GATT Articles I and III 328 B. The Leading Case: EC Bananas 334 EC Bananas 335 C. Other Developments 339 1. Does GATT Article 1:1 Cover Both De Jure and De Facto Discrimination? 339 Canada Autos 339 EC Seals 343 2. Any Advantage Must Be Accorded "Immediately and Unconditionally" to the Like Product of All Other WTO Members 345 Belgian Family Allowances 345

xvi Contents Steve Charnovitz, The Law of Environmental "PPMs" in the WTO: Debunking the Myth of Illegality 347 3. Non-Discrimination for Government Procurement and State Trading Enterprises 348 D. Problems: Moralian Soccer Balls and Eutopia and Flandria Revisited 350 1. Moralia Soccer Balls 350 2. Eutopia's Carbon Tax and Flandria's Ban on Child Labor Products (Revisited) 351 12. Preferential Trade Agreements 353 A. The Basics of Preferential Trading Arrangements 353 B. The Leading Case: Turkey Textiles 360 Turkey Textiles 361 C. The Special Case of Regionalism Among Developing Countries 368 D. The Pros and Cons and Recent Trends 369 Joel Trachtman, International Trade: Regionalism 369 Joost Pauwelyn, Taking the Preferences out of Preferential Trade Agreements: TTIP as a Provider of Public Goods? 373 Martin Jacques, The Death of Doha Signals the Demise of Globalisation 377 The WTO and Preferential Trade Agreements: From Co-existence to Coherence 378 E. Problem: The East-West Compact 380 13. General Exceptions: GATT Article XX 381 A. Requirements of Article XX: A Two-Step Analysis 382 B. The Meaning of "Necessary" 383 1. Brazil Tyres 383 Brazil Tyres (Appelate Body Report) 384 2. EC Asbestos 388 EC Asbestos (Appelate Body Report) 388 C. The Policy Concern Behind Article XX(a): "Public Morals" 395 United States Measures Affecting the Cross-Border Supply of Gambling and Betting Services 396 EC Seals 399 D. Article XX(b): "Protect Human, Animal or Plant Life or Health" 401 E. Article XX(d): "Secure Compliance with Laws or Regulations..." 405 1. Korea Beef 405 2. Colombia Indicative Prices and Restrictions on Ports ofentry 406 F. Article XX(g): "Relating to the Conservation of Exhaustible Natural Resources" 409 United States Shrimp 410 China Raw Materials 412 G. Problem: Tabac Tobacco 416

Contents xvii 14. General Exceptions: The Chapeau of GATT Article XX 419 A. Introduction to the Chapeau 419 United States Gasoline 420 B. The Leading Case: United States Shrimp 421 1. United States Shrimp 421 United States Shrimp 423 2. The Compliance Decision: United States Shrimp, 21.5 433 United States Shrimp, 21.5 433 C. Other Developments 440 D. The Role of Non-WTO Law in WTO Dispute Settlement 445 Joel Trachtman, The Jurisdiction of the WTO 445 Joost Pauwelyn, How to Win a WTO Dispute Based on Non-WTO Law? 446 E. Problem: Novador and Sashimia 453 F. Problem 455 15. Dumping and Anti-Dumping Duties 457 A. What Is Dumping? 458 1. In the Ordinary Course of Trade 461 United States Hot-Rolled Steel 461 2. "Comparable Price" 463 3. Other Methods of Calculating "Normal Value" 464 B. Calculating the Dumping Margin Fair Comparison and "Zeroing" 467 EC Red Linens 469 C. Determination of Injury 473 1. Injury to Whom? 473 2. What Is Injury? 474 D. Causation 476 E. Anti-Dumping as the Exclusive Remedy for Dumping 478 United States Offset Act (Byrd Amendment) 478 F. Cumulative Application of Anti-Dumping and Countervailing Duties 480 United States Antidumping and Countervailing Duties (China) 480 G. Is Anti-Dumping Good or Bad? 485 Alan Wm.Wolff, Role of the Antidumping Laws 486 Michael J. Trebilcock & Thomas M. Boddez, The Case for Liberalizing North American Trade Remedy Laws 489 H. Trade Remedies in the European Union 493 Directorate General for Trade of the European Commission, EU Anti-Dumping Policy 493 Directorate General for Trade of the European Commission, Europe's Trade Defence Instruments (Fact Sheet) 495

xviii Contents I. Trade Remedies in the United States 496 United States International Trade Commission, Trade Remedy Investigations: Antidumping and Countervailing Duty Investigations 496 J. Problem: The Computer Wars 499 16. Subsidies and Countervailing Duties 503 A. Defining and Regulating Subsidies 504 B. Requirements for a Subsidy 506 1. Financial Contribution "by a Government or Any Public Body" 507 United States Antidumping and Countervailing Duties (China) 507 2. Financial Contribution: Direct Transfer of Funds or Government Revenue that Is Otherwise Due or Government Purchase ofgoods 512 Canada Certain Measures Affecting the Renewable Energy Generation Section and Feed-in Tariff Program 513 United States Tax Treatment for "Foreign Sales Corporations" 516 3. Has a Benefit Been Conferred? 518 4. Specificity 523 C. Prohibited Subsidies 525 EC and Certain Member States - Large Civil Aircraft 526 D. Actionable Subsidies 531 1. Injury to Domestic Producers 531 2. Nullification or Impairment 532 3. Serious Prejudice 532 United States Cotton, 21.5 533 E. The Impact of a DSU Decision 537 1. Prohibited Subsidies 537 2. Actionable Subsidies 540 F. Countervailing Duties 542 1. WTO Rules Governing CVDs 542 2. Application of CVDs to Non-Market Economies (NMEs) in the US and EU 543 G. Does the SCM Agreement Help or Hurt? 545 H. Agricultural Subsidies 546 I. Problem: Streetcars for All? 548 17. Safeguards 551 A. Agreement on Safeguards and GATT XIX 553 GATT Article XIX: l(a): Emergency Action on Imports of Particular Products 553 B. Argentina Footwear 556 Argentina Footwear 557 C. Causal Influences Other than Increased Imports 560 United States Lamb 561

Contents xix D. "Domestic Industry" 565 United States Lamb 566 E. Form, Extent, and Duration of the Safeguard 569 1. Form 569 2. Extent 569 3. Duration 572 4. Compensation 572 F. The Justification for a Safeguard Exception 573 Alan O. Sykes, The Safeguards Mess: A Critique of WTO Jurisprudence 574 G. A Comparison Among WTO Trade Remedies 577 H. Problem: The Sweet Life 577 18. Agreement on Sanitary and Phytosanitary Measures 581 A. The History and Scope of the SPS Agreement 582 B. The Dilemma: Health and Safety vs. Market Access 585 C. EC Hormones 586 1. The Standard of Review 587 EC Hormones 587 United States Continued Suspension in EC Hormones 588 2. Harmonization: Article 3 590 EC Hormones 590 3. Based on a Risk Assessment: Article 5 594 EC Hormones 594 4. The "Rational Relationship" Requirement 597 EC Hormones 597 EC Hormones 599 D. The Precautionary Principle and the SPS Agreement: Article 5.7 601 E. Regionalism Recognition of Pest-Free Areas 607 F. Balancing Trade and Safety 608 Andrew Guzman, Food Fears: Health and Safety at the WTO 609 G. The Role of Scientific Experts 612 Joost Pauwelyn, The WTO Agreement on Sanitary and Phytosanitary (SPS) Measures as Applied in the Three First SPS Disputes: EC Hormones, Australia Salmon, and Japan Varietals 612 H. Role of the SPS Committee 615 I. Problem: Salmon Plague 617 19. Agreement on Technical Barriers to Trade 619 A. What is a Technical Regulation? "Mandatory" Compliance 620 United States Tuna II 620 B. What Is a Technical Regulation? Measures Addressing Process or Production Methods (PPMs) 624

XX Contents EC Seals 627 C. National Treatment and MFN 632 United States Clove Cigarettes 633 D. Not More Trade Restrictive than Necessary 642 United States Tuna II 642 E. International Standards 648 United States Tuna II 649 E. Problem: Piain Packaging of Cigarettes 658 20. Trade in Services 661 A. Background to the Services Industry and Trade in Services 661 Bernard Hoekman & Carlos A. Primo Braga, Protection and Trade in Services: A Survey 661 B. A Brief Description of the GATS 666 Aaditya Mattoo, National Treatment in the GATS: Corner-Stone or Pandora's Box? 666 Bernard Hoekman & Carlos A. Primo Braga, Protection and Trade in Services: A Survey 671 GATS and Democracy: A Joint Publication of the Seattle to Brüssels Network, Introduction 672 World Trade Organization, How [GATS] Schedules Are Structured 674 C. The Leading Case: United States Gambling 677 United States Gambling 677 Joost Pauwelyn, Rien Ne Va Plus? Distinguishing Domestic Regulation from Market Access in GATT and GATS? 689 D. Other Developments 692 1. China Audiovisuais 692 2. China Electronic Payment Services 695 E. Problem: Preferential Trade in Services 697 F. Problem: Complexian Distribution Services 699 Complexia Measures Concerning the Supply of Distribution Services (Complaint by Hubris) 699 21. Trade-Related Aspects of Intellectual Property Rights 701 A. A Primer on International IP 702 UNCTAD ICTSD, Project on IPRS and Sustainable Development, Intellectual Property Rights: Implications for Development 702 B. A Brief Description of the TRIPS Agreement 708 Advocate General to the European Court of Justice, Re: The Uruguay Round Treaties 709 C. Overview of Dispute Settlement Under the TRIPS Agreement 715

Contents xxi 1. Summary of the Nine TRIPS Disputes Decided to Date 715 2. TRIPS Jurisprudence on IP Exceptions and Domestic Enforcement 718 Joost Pauwelyn, The Dog That Barked But Didn't Bite: 15 Years of Intellectual Property Dispute at the WTO 719 D. The TRIPS Agreement and Access to Essential Medicines 729 E. Protection of Traditional Knowledge and the TRIPS Agreement 735 F. Problem: Generic Transit Through Richland 737 22. The WTO and Developing Countries 739 A. Background: Country Classifications 740 B. WTO Provisions Aimed at Assisting Developing Countries 745 C. The Generalized System of Preferences and the Enabling Clause 751 The Enabling Clause (Differential and More Favourable Treatment, Reciprocity and Füller Participation of Developing Countries) 751 EC Tariff Preferences 753 D. Does GSP Promote Development? 763 Michael Gasiorek et al., Mid-Term Evaluation of the EU's Generalised System of Preferences 765 E. A New Approach? The Trade Facilitation Agreement 767 F. Problem: Justice in Trade 768 Frank Garcia, Global Justice and the Bretten Woods Institutions 770 Table ofcases 773 Index 777