INTERNATIONAL TRADE LAW

ASPEN CASEBOOK SERIES INTERNATIONAL TRADE LAW Second Edition ANDREW T. GUZMAN Professor of Law Berkeley Law School University of California, Berkeley JOOST H.B. PAUWELYN Professor of International Law Graduate Institute of International and Development Studies, Geneva, and Senior Advisor, King & Spalding LLP Wolters Kluwer Law & Business

Contents Preface to the Second Edition Preface to the First Edition Acknowledgments xxiii xxv xxvii 1. Trade and Economic Policy 1 A. A Few Numbers on Trade and Economic Growth 1 B. The Debate on Liberalized Trade 6 1. Liberalized Trade 7 Walter Kirn, Help Wanted 7 2. Trade and the "Great Recession" 11 C. Comparative Advantage 12 1. The Parable of the Lawyer-Secretary 12 2. The Parable of the Entrepreneur-Merchant 12 3. An Example of Comparative Advantage 14 D. Traditional Arguments Against Trade 20 1. Domestic Market Failures, 20 Paul Krugman & Maurice Obstfeld, The Domestic Market Failure Argument Against Free Trade 21 2. Distribution 23 3. Infant Industry 24 4. Optimal Tariffs 26 5. Strategic Trade Policy 27 6. National Security 28 E. Non-Economic Reasons Supporting Liberalized Trade 30 2. The Modern Trade Debate Among Economists 33 Jagdish Bhagwati, Technology, Not Globalisation, Is Driving Wages Down 33 A. Outsourcing 35 Alan S. Blinder, Free Trade's Great, But Offshoring Rattles Me ' 36 Charles Schumer & Paul Craig Roberts, Second Thoughts on Free Trade 39 Arvind Panagariya, Defending the Case for Free Trade (On Outsourcing) 41 B. A Debate Rages 45 David Dollar & Aart Kraay, Spreading the Wealth 45 Dani Rodrik, How to Save Globalization from Its Cheerleaders 48 xi

xii Contents 3. The Making and Impact of Trade Agreements in National Legal Systems 53 A. Trade Policymaking in the United States 54 Charan Devereaux, Robert Lawrence & Michael Watkins, Case Studies in U.S. Trade Negotiation, Vol. 1: Making the Rules 55 United States Trade Representative, Report to the Congress on the Extension of Trade Promotion Authority 5 7 Pamphlet Against Fast Track, Public Citizen's Global Trade Watch 59 B. Trade Policymaking in the European Union 61 Stephen Woolcock, The Treaty of Lisbon and the European Union as an Actor in International Trade 62 Sophie Meunier, Trade Policy and Political Legitimacy in the European Union 66 Sophie Meunier, What Single Voice? European Institutions and EU-U.S. Trade Negotiations 68 C. The Status of WTO Agreements in U.S. and EU Law 70 John James Barcelo, The Status of WTO Rules in U.S. 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 11 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 World Trade Organization, Understanding the WTO, 94 Chapter 7: The Organization 94 E. Secretariat and Staff F. Membership 99 100 G. Navigating the WTO Agreements 100

Contents xiii 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 2008 Financial Crisis, Its Impact on Trade, and the Future of the WTO 119 Richard Baldwin & Simon Eyenett, The Collapse of Global Trade, Murky Protectionism, and the Crisis 119 Susan Schwab, After Doha: Why the Negotiations Are Doomed and What We Should Do About It 121 5. WTO Dispute Settlement 127 A. Understanding the WTO Dispute Settlement System N 128 William Davey, The WTO Dispute Settlement Mechanism 128 B. Flowchart of the DSU Process and Timelines 146 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 Anwarul Hoda, Tariff Negotiations and Renegotiations Under the GATT and the WTO, Procedures and Practices 185

xiv Contents B. The Jurisprudence on Import Tariffs 190 1. Argentina Textiles 190 Argentina Textiles (Appellate Body Report) 191 Argentina Textiles (Panel Report) 194 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: AgriculturaTProducts 209 4. Special Case 2: Information Technology Products 210 C. The International Trade Negotiation Game 212 D. Problem: Tramontanan Chocolate Duties 215 8. Quantitative Restrictions 217 A. What Is a Non-Tariff Barrier? 219 B. Background to the General Ban on Quantitative Restrictions 221 Arthur Dunkel & Frieder Roessler, The Ranking of Trade Policy Instruments Under the GATT Legal System 222 C. Japan Semi-Conductors - 221 Japan Semi-Conductors 228 D. Other Developments 234 1. The Line Between Government and Private Conduct 234 Argentina Bovine Hides 234 2. What Are "Restrictions on Importation"? 237 India Autos 237 3. Export Restrictions 240 4. "Critical Shortages" 241 5. Freedom of Transit 241 E. Problem: Patrian Shoes 243 9. National Treatment Internal Taxation 245 A. National Treatment 246 Petros C. Mavroidis, The General Agreement on Tariffs and Trade: A Commentary 246 B. The Leading Case: Japan Taxes on Alcoholic Beverages 247 Japan Taxes on Alcoholic Beverages (Panel Report) 248 Japan Taxes on Alcoholic Beverages (Appellate Body Report) 250 C. Other Developments 262 1. How Does One Prove That Products Are "Directly Competitive or Substitutable"? 262 2. When Is a Tax Applied "So as to Afford Protection to Domestic Production"? 263 Chile Taxes on Alcoholic Beverages 264

Contents xv 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? 267 D. Problems: Luxury Taxes and Carbon Taxes 271 1. Patria's "Luxury Tax" 271 2. Eutopia's "Carbon Tax" 272 10. National Treatment Internal Regulations 275 A. What Is Regulatory Protectionism? 276 1. The Dilemma of Regulating Regulations 276 2. Regulatory Protection Is the Worst Kind of Protection 277 B. The Leading Case: EC Asbestos 278 EC Asbestos ' " 279 C. Other Developments 292 1. "No Less Favorable" 292 Joost Pauwelyn, The Unbearable Lightness of Likeness 295 2. When Does a Regulation "Affect" Products? 297 Tuna Dolphin I 298 D. Problems: Communian Beef and Flandrian Seals. 301 1. Communia's Hormone Beef Ban 301 2. Flandria's Seal Products Ban 302 11. Most-Favored-Nation Treatment 303 A. The MFN Obligation 304 William Davey & Joost Pauwelyn, MFN-Unconditionality: A Legal Analysis of the Concept in View of Its Evolution in the GATT/WTO Jurisprudence 305 Robert Hudec, "Like Product": The Differences in Meaning in GATT Articles I and III 307 B. The Leading Case: EC Bananas 313 EC Bananas 314 C. Other Developments 319 1. Does GATT Article 1:1 Cover Both De Jure and De Facto Discrimination? 319 Canada Autos 319 2. Any Advantage Must Be Accorded "Immediately and Unconditionally" to the Like Product of All Other WTO Members 323 Belgian Family Allowances 323 Steve Charnovitz, The Law of Environmental "PPMs" in the WTO: Debunking the Myth of Illegality 324 3. Non-Discrimination for Government Procurement and State Trading Enterprises 328

xvi Contents D. Problems: Moralian Soccer Balls and Eutopia and Flandria Revisited 329 1. Moralia Soccer Balls 329 2. Eutopia's Carbon Tax and Flandria Seal Products (Revisited) 330 12. Preferential Trade Agreements 331 A. The Basics of Preferential Trading Arrangements 331 B. The Leading Case: Turkey Textiles 338 Turkey Textiles 338 C. The Special Case of Regionalism Among Developing Countries 345 D. The Pros'and Cons and Recent Trends 346 r Joel Trachtman, International Trade: Regionalism 346 UNCTAD, Trade and Development Report, 2007 350 Martin Jacques, The Death of Doha Signals the Demise of Globalisation 352 The WTO and Preferential Trade Agreements: From Co-existence to Coherence 353 E. Problem: The East-West Compact 355 13. General Exceptions: GATT Article XX 357 A. Requirements of Article XX: A Two-Step Analysis 358 B. The Meaning of "Necessary" 359 1. Brazil Tyres 359 Brazil Tyres (Appelate Body Report) 360 2. EC Asbestos 364 EC Asbestos (Appelate Body Report) } 364 C. The Policy Concern Behind Article XX(a): "Public Morals" 371 United States Measures Affecting the Cross-Border Supply of Gambling and Betting Services. 372 D. Article XX(b): "Protect Human, Animal or Plant Life or Health" 375 E. Article XX(d): "Secure Compliance with Laws or Regulations..." 379 1. Korea Beef 379 2. Columbia Indicative Prices and Restrictions on Ports of Entry 380 F. Article XX(g): "Relating to the Conservation of Exhaustible Natural Resources" 383 United States Shrimp 383 China Raw Materials 386 G. Problem: Tabac Tobacco 388 14. General Exceptions: The Chapeau of GATT Article XX 391 A. Introduction to the Chapeau 391 United States Gasoline 392

Contents xvii B. The Leading Case: United States Shrimp 394 1. United States Shrimp 394 United States Shrimp 396 2. The Compliance Decision: United States Shrimp, 21.5 406 United States Shrimp, 21.5 406 C. Other Developments 413 1. "Between Countries Where the Same Conditions Prevail" 413 2. "Disguised Restriction on Trade" 414 EC Asbestos 414 D. The Role of Non-WTO Law in WTO Dispute Settlement 416 Joel Trachtman, The Jurisdiction of the WTO 416 Joost Pauwelyn, How to Win a WTO Dispute Based on Non-WTOLaw? 417 E. Problem: Novador and Sashimia 423 15. Subsidies and Countervailing Duties 425 A. Defining and Regulating Subsidies 426 B. Requirements for a Subsidy 429 1. Financial Contribution "by a Government or Any Public Body" 429 United States Antidumping and Countervailing Duties (China) 430 2. Foregone "Government Revenue That Is Otherwise Due" 433 United States Tax Treatment for "Foreign Sales Corporations" 434 3. Has a Benefit Been Conferred? 438 4. Specificity 440 C. Prohibited Subsidies 442 Canada Aircraft, 21.5 443 D. Actionable Subsidies 449 1. Injury to Domestic Producers 450 2. Nullification or Impairment 451 3. Serious Prejudice 451 United States Cotton, 21.5 452 E. The Impact of a DSU Decision 456 1. Prohibited Subsidies 456 2. Actionable Subsidies 459 F. Countervailing Duties 460 1. WTO Rules Governing CVDs 460 2. CVD Investigations in the United States 461 3. CVD Investigations in the EU - 462 G. Does the SCM Agreement Help or Hurt? 463 H. Agricultural Subsidies 464 I. Problem: Mobilian Auto Loans 465

xviii Contents 16. Dumping and Anti-Dumping 467 A. What Is Dumping? 467 1. In the Ordinary Course of Trade 469 United States Hot-Rolled Steel 470 2. "Comparable Price" 472 3. Other Methods of Calculating "Normal Value" 472 B. Calculating the Dumping Margin "Zeroing" 474 EC Bed Linens 475 C. Determination of Injury.. 479 D. Causation 480 E. Anti-Dumping as the Exclusive Remedy for Dumping ("Specific Action Against Dumping") 481 United States Offset Act (Byrd Amendment) 482 F. Cumulative Application of Anti-Dumping and Countervailing Duties 485 United States Antidumping and Countervailing Duties (China) 486 G. Is Anti-Dumping Good or Bad? 490 Terence P. Stewart, Administration of the Antidumping Law: A Different Perspective 490 Michael J. Trebilcock & Thomas M. Boddez, The Case for Liberalizing North American Trade Remedy Laws 494 H. Trade Remedies in the European Union 497 Directorate General for Trade of the European Commission, Anti-Dumping: Protection Against Dumped Imports 497 Directorate General for Trade of the European Commission, Europe's Trade Defence Instruments : (Fact Sheet) 499 I. Trade Remedies in the United States 500 United States International Trade Commission, Trade Remedy Investigations: Antidumping and Countervailing Duty Investigations 500 Jennifer A. Hillman, Testimony Before the Senate Finance Committee 500 J. Problem: Welcome to the Firm 504 17. Safeguards 507 A. Agreement on Safeguards and GATT XIX 509 GATT Article XIX: Emergency Action on Imports of Particular Products 509 B. Argentina Footwear 512 Argentina Footwear 512 C. Causal Influences Other Than Increased Imports 515 United States Lamb 516 D. "Domestic Industry" 519 United States Lamb 519

Contents xix E. Form, Extent, and Duration of the Safeguard 522 1. Form 522 2. Extent 522 3. Duration 524 4. Compensation 525 F. The Justification for a Safeguard Exception 526 Alan O. Sykes, The Safeguards Mess: A Critique of WTO Jurisprudence 526 G. A Comparison Among WTO Trade Remedies 530 H. Problem: Welcome (Back) to the Firm 530 18. Agreement on Sanitary and Phytosanitary Measures 531 A. The History and Scope of the SPS Agreement 531 B. The Dilemma: Health and Safety vs. Market Access 535 C. EC Hormones 535 1. The Standard of Review 536 EC Hormones 536 United States Continued Suspension in EC Hormones 537 2. Harmonization: Article 3 539 EC Hormones 539 3. Based on a Risk Assessment: Article 5 541 EC Hormones 541 4. The "Rational Relationship" Requirement 544 EC Hormones 544 EC Hormones 546 D. The Precautionary Principle and the SPS Agreement: Article 5.7 550 E. Balancing Trade and Safety 555 Andrew Guzman, Food Fears: Health and Safety at the WTO 556 F. The Role of Scientific Experts, 560 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 560 G. Problem: Salmon Plague 562 19. Agreement on Technical Barriers to Trade 565 A. What Is a Technical Barrier? 565 B. EC Sardines 566 EC Sardines 566 C. National Treatment and Least Trade Restrictive Requirements 574 United States Clove Cigarettes 575 D. International Standards 580 EC Sardines 580 E. Problem: Australia Plain Packaging 591

xx Contents 20. Trade in Services 593 A. Background to the Services Industry and Trade in Services 593 Bernard Hoekman & Carlos A. Primo Braga, Protection and Trade in Services: A Survey 593 B. A Brief Description of the GATS 598 Aaditya Mattoo, National Treatment in the GATS: Corner-Stone or Pandora's Box? 598 Bernard Hoekman & Carlos A. Primo Braga, Protection and Trade in Services:j\ Survey 602 GATS and Democracy: A Joint Publication of the Seattle to Brussels Network, Introduction 603 '. World Trade Organization, How [GATS] Schedules Are Structured 606 C. The Leading Case: United States Gambling 608 United States Gambling 609 Joost Pauwelyn, Rien Ne Va Plus? Distinguishing Domestic Regulation from Market Access in GATT and GATS? 620 D. Other Developments 623 China Audiovisuals 623 E. Problem: Complexian Distribution Services 627 21. Trade-Related Aspects of Intellectual Property Rights 631 A. A Primer on International IP 632 UNCTAD ICTSD, Project on IPRS and Sustainable : Development, Intellectual Property Rights: Implications for Development 632 B. A Brief Description of the TRIPS Agreement 638 Advocate General to the European Court of Justice, Re: The Uruguay Round Treaties 639 C. Overview of Dispute Settlement Under the TRIPS Agreement 645 1. Summary of the Nine TRIPS Disputes Decided to Date 645 2. TRIPS Jurisprudence on IP Exceptions and Domestic Enforcement 648 Joost Pauwelyn, The Dog That Barked But Didn't Bite: 15 Years of Intellectual Property Dispute at the WTO 649 D. The TRIPS Agreement and Access to Essential Medicines 659 E. Protection of Traditional Knowledge and the TRIPS Agreement 666 F. Problem: Generic Transit Through Richland 668

Contents xxi 22. The WTO and Developing Countries 669 A. Background: Country Classifications 670 B. WTO Provisions Aimed at Assisting Developing Countries 675 C. The Generalized System of Preferences and the Enabling Clause 680 The Enabling Clause (Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries) 680 EC Tariff Preferences 682 D. Does GSP Promote Development?.. 692 Michael Gasiorek et al., Mid-Term Evaluation of the EU's Generalized System of Preferences 694 E. Problem: Justice in Trade 696 Frank Garcia, Global Justice and the Bretton Woods Institutions 698 Table of Cases 701 Index 705