Unit 2 - Background & Issues

First, you need some context, because my basic assumption is that most students lack any substantial background in international economics or international relations.  Accordingly, you do not have much appreciation for differing national interests or perspectives that inform international trade law, or international economic law more broadly, much less the specialized branches of economics that inform them.

This is not a problem peculiar to international trade law, since you face analogous problems understanding law school courses like securities, capital markets, or antitrust regulation in the absence of some understanding of economics and markets.  Trade law touches upon what economists think and understand about  international trade in goods traditionally, and more recently economic integration across borders increasingly including services.  So our context exercise initially intends to provide you with enough background to understand theoretical underpinnings in terms of economics and state interests.  Substantively speaking, international trade law (and related areas like international investment law, or international monetary law)  is largely specialized treaty law in public international law terms, so while you need to understand technical public international law principles of treaty interpretation, understanding that much law does not tell you necessarily what provisions go into said treaty, and why as a matter of economics, etc.  And what happens when something is not addressed in a treaty?

One crucial insight at this point is that if you do not settle all relevant international trade law or similar issues in a treaty, what is left over essentially becomes the subject of negotiations in terms of economic diplomacy.  That raises the question whether different states prefer a “rule-based” trading system, versus a trading system more oriented towards economic diplomacy and negotiation.  As a general matter, the GATT/WTO system has been understood since 1994 as mostly a rule-based system.

Meanwhile, free trade areas and agreements, or FTAs, are themselves negotiated, but import a second question via approaches to dispute resolution.  If you seek to have an enforceable rule-based system, you provide customarily for a dispute resolution body to settle disagreements about the rules, like courts settling disputes in national legal systems (thus generating jurisprudence as further practical guide at a detailed level, initiated at the private sector level, although rules about the precedential value of prior decisions are different in public international law, formally speaking).  If you favor more the economic diplomacy approach, states tend to stay with the traditional approach of diplomatic protection in which the executive branch of government decides what issues to contest with its foreign counterparts, and in negotiations may reach beyond the individual dispute in seeking to influence the other state to adopt its own viewpoint (retorsion in traditional public international law terms, like threatening to withhold foreign aid, or vote against a state when it next seeks a loan from an international financial institution like the World Bank, unless it accepts its counterpart’s position).

So, for example, the Trump Administration’s long-running opposition to naming replacement appellate panel arbitrators for the WTO’s dispute resolution body effectively involved opposition to the WTO’s aspiration towards a rule-based international trading system, reaching back to 1994.  The Trump Administration openly  preferred a state-to-state bilateral economic negotiation approach, which might be more along the lines of free trade agreements like NAFTA 2.0 or the USMCA.  Traditionally, smaller or economically less powerful states preferred a rule-based system, while larger or economically more powerful states preferred economic diplomacy as a matter of maximizing their leverage, and both groups presumably have some voice going forward in what kind of trading system we shall have.  (And how do you feel personally as law student about rule-based systems?)

President Trump's view was clear, meanwhile once President Biden assumed office  on January 21, 2021, he faced a very basic decision about what kind of international trading system and international trade law the US should seek (and seemingly adopted many of the Trump Administration's positions).  But this must be consistent with whatever other states find acceptable, or there simply will be no agreement in treaty law terms.  In practical terms, the US administration could seek to “blow up” the WTO in favor of FTA-type arrangements in emphasizing bilateral over multilateral trade approaches, or might seek “reform” of the WTO and larger regional FTAs in terms of asserting economic principles via negotiated changes in substantive trade law, or might adopt a third or midway position as it has arguably chosen in pursuing IPEF.

What exactly might constitute those legal changes, which ultimately should reflect economic and political convictions?  The US remains free to leave the WTO as a treaty matter, although the Chamber of Commerce types whom most business lawyers represent would go ballistic--  and free traders are hardly in ascendancy in either the Democratic Party or the Republican Party.  (Accordingly, this is not a strictly speaking a party-based political question.)  But reforming an institution like the WTO infers that any state must weigh compromises, etc. in prioritizing negotiating positions.

Second, we should look quickly at the policy and economic arguments for and against “free trade,” to help address obvious developments during the past 5-6 years.  Free trade remains a potential flash point in the political sense, because it may produce net gains economically speaking, but there are invariably winners and losers in the process.  So what is the proper way generally to address what some refer to as a resurgence of protectionism?  This is the traditional approach, treating the international trade question as being for or against “free trade,” as opposed to “fair trade,” both of which concepts are typically more about politics than law.  But there is also a philosophical side to the argument, reflecting the libertarian idea that tariffs are at the consumer level a form of redistributive taxes, which we examine.

Third, we shall look at differing perspectives from the competing positions of wealthier Western industrialized states versus the typically poorer developing world (or North versus South, employing the IR terminology).  The wealthier states talk typically about “Singapore Issues,” which is shorthand for mostly “behind the border” issues not pursued in the Doha Development Round, which however, now tend to pop up in discussions about whether China, for example, is really a market economy for the technical purpose in anti-dumping law meaning whether and how third country prices can be used in relevant anti-dumping proceedings.  From that perspective, this is about how a state operates its own economy within its own borders.  But this is in parallel a hidden discussion of the idea that poorer developing states should not be subject to the same trade law obligations as wealthier states, because they do not run their economies the same way.

The underlying question is ultimately whether the GATT/WTO agreements require member states to have liberal or open economies (not), versus competing ideas typically about state leadership or management of economies referred to commonly in terms of “development policy.”  So we shall look at both Singapore Issues and development policy, but mostly in order to understand the perceived differing national interests under trade law of wealthy developed and poorer developing countries.  Meanwhile, there are now many former developing countries which have become increasingly wealthy and sophisticated (think Singapore, South Korea, or Mexico these days, not to mention China).  Where should the line be drawn on what constitutes a developing country still entitled to “differentiated and special treatment,” to employ the trade law terminology?

The Singapore Issues initially addressed concerns about economic organization within WTO member countries raised in the immediate aftermath of the entry into force of the WTO agreement at the 1994 end of the Uruguay Round.  At a 1996 ministerial meeting in Singapore (hence Singapore issues), the EU generally raised these “behind the border” issues, chiefly competition law, government procurement, investment and trade facilitation (customs law), read Singapore Issues--  Wikipedia, seeking their inclusion in the on-coming (but ultimately failed) Doha round of negotiations.  It is fair to characterize these questions generally as being about the technical underpinnings of a liberal economy.  Developing country opposition eventually led to their being dropped from the WTO Doha round agenda in the early 2000s.  So, formally speaking, the prior WTO arrangement was preserved under which the WTO sought to restrict the scope of its rules to economic relations between states, without specifying internal economic organization and domestic regulations except insofar as they directly affected import-export questions.  Meanwhile, dealing with China has forced them back onto a shadow agenda,

The Singapore Issues (competition policy and behind the border issues generally) question reappeared initially early in the Trump Administration typically in the context of arguments over whether China should be treated as a market economy following the 2016 expiration of its accession agreement, practically in conjunction with whether third country prices could be used in anti-dumping actions (Reuters, 11/30/17).

But since the so-called trade war has picked up, the point of contention has expanded to include ideas beyond claims about intellectual property theft to include challenges to China’s use of subsidies to state-owned enterprises in specific markets, or to develop technologies.  Sub silencio, this seems to be more in the nature of criticizing state-owned enterprises (the role of the state in the economy) and whether to be in the WTO, a state needs to be a “liberal economy” focused in the private sector (which, for example, is arguably inconsistent with economic organization under the Indonesian economy, namely Art 33 UUD 1945, read Butt & Lindsey, "Economic Reform When the Constitution Matters:  Indonesia’s Constitutional Court and Article 33 of the Constitution".  So the practical problem with the Singapore issues and liberal economy question for the Indonesians as representative WTO member, is not whether or not a liberal economy is necessarily good economic policy, but whether it is “constitutional” (which they continue to argue about).  American students wondering whether we ever have similar problems might look at the US Constitution’s prohibition on export tariffs, which the WTO agreement would permit.  We prohibit export tariffs constitutionally because of the Stamp Acts, calling upon your recollection of American history.

What would it mean to specify that all WTO members shall have “liberal economies”?  Putting the shoe on the other foot, in the midst of the COVID-19 pandemic the US has distributed generally cash to citizens, and closer to home suspended interest payments on student loan debt (meanwhile continuing to criticize the European, social-democratic approach mandating citizen support as a matter of right).  How does that fit into the concept of a liberal economy, so where do you draw the line?

Once we finish with these preliminaries, we can go on to more specific trade law provisions next week.