dispute settlement

Enforcement in Free Trade Agreements

Enforcement in Free Trade Agreements

Which makes the use of the dispute system in the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) all the more surprising.  Last year, New Zealand challenged Canada over the proper implementation and allocation of tariff rate quotas for dairy products.  CPTPP members established the first-ever panel to review the case in March 2023.  The public hearing for the case is taking place this week in Ottawa, with a decision expected in a matter of weeks afterward.  The case is expected to be publicly released in September.  This will give observers a first glimpse into how well or poorly the dispute system embedded in the CPTPP works.  It could also provide an important impetus to future use of the dispute mechanism as a tool to prod members towards improved enforcement of various provisions. Frankly, none of the current CPTPP members is likely to have fully implemented all their commitments.  As a simple example, the agreement requires all members to update their government procurement thresholds at least every two years.  This is necessary because the limits were written as Special Drawing Rights (SDRs) which are not typically top of mind for firms looking to compete for construction contracts.  The SDR conversion rates and the adjustments to procurement are supposed to be published regularly but (as far as I know) not a single government has done so.  These sorts of implementation gaps appear across the agreement.  Some may be relevant to businesses and others may be less so.  But the basic point here is that, by relying on a dispute settlement mechanism built into an FTA to manage effective implementation, it requires such a mechanism to actually be used by participants.  Otherwise, enforcement and compliance will always be weak. The use of the dispute settlement provisions for the first time in the CPTPP, then, represents a potentially significant boost to the overall implementation incentives for this agreement.  For companies that may be waiting for improved delivery of various CPTPP promises, stepped up attention to implementation cannot come soon enough. 

Managing Disputes Over Trade: Part I

Managing Disputes Over Trade: Part I

Trade policy, like many other arenas, has developed a complicated language that can be impenetrable or, at best, opaque to outsiders.  Some aspects, especially those touching on law, have extra layers of jargon. While trade dispute settlement systems can be quite important and have been frequently in the news over the past few years, it can be hard to follow the arguments.  Talking Trade will be running a multi-part set of blog posts to help unravel the situation and make it easier for you to follow evolving developments.  Let’s dive in with some background to help set the context…The international trading system has had to overcome multiple challenges to function and remain effective.  Governments have strong incentives to cheat or, as they would put it, to strongly prioritize their own economy and companies over the affairs of others.  But if everyone is busy protecting their own, the net result is much worse for everyone. This basic tension between keeping markets open despite individual incentives for closure has been a key element of the system for decades.  Now, the long-standing the consensus in favor of freer trade has started to fray with far more serious trade disputes ahead.

US Trade Policy Under Biden: More of the Same

US Trade Policy Under Biden: More of the Same

United States Trade Representative (USTR) Katherine Tai gave what was billed as a major speech at CSIS outlining US trade policy on October 4. A careful review of China policy has been underway for months and Tai’s speech was to deliver the results of this study. At the end of her prepared remarks and a short round of questions, observers were left with few clues about the future trajectory of US policies and little detail beyond broad brush strokes already sketched over previous months. What was made clear is that US trade policy, in practice, is not likely to look substantially changed from paths pursued by the previous Trump administration. In fact, if Tai’s speech were read alongside similar policy statements made under the Trump team, it would be difficult to pick out who said what. First, Tai argued that China has failed to follow appropriate actions or adjust its bad behavior despite a long history of engagement. The approach used under the Trump administration, in particular the Phase 1 agreement, may not have been exactly the model she would have chosen (what model she might have thought more suitable was not discussed), but it remains in place. Tai did express distain for the term “Phase 1,” even as she essentially promised to follow it. Tariffs will continue to be imposed on Chinese imports, although the administration will restart the process of reviewing requests for exclusion. With limited details available on the process, however, it is unclear whether tariffs will be waived in large part, or only in limited circumstances. Nor was there any clarity on how long the process may take to conclude. Given the relatively limited time “left” on the Phase 1 agreement, even a short delay may deliver only modest benefits to US firms struggling to manage tariffs of up to 25% which have now been imposed, in some cases, for years.

The WTO Needs Reform, But There’s a Context

The WTO Needs Reform, But There’s a Context

Ultimately, there was really only one compelling idea: empower members and advocates from around the globe to interact within an informed context of trade and work with the institution as it actually existed. It was—and remains—a fundamental point. The WTO is currently winnowing down candidates to fill the vacant Director General post and considering a wide range of reform proposals and suggestions. The institution’s faltering legal system just ruled in a dispute between two of the largest members in the system, setting up another round of inquiries into the health and functioning of what has always been called the “crown jewel” of the organization. As WTO members grapple with the biggest sets of challenges faced over its 25-year history, maintaining a clear-eyed view of possibilities is important. The WTO may become anything the members want it to become, but for the moment, it does not operate with the same logic or functions like the UN, the IMF, the World Bank, the OECD, a national government, a corporation, or an NGO. Transposing the “wishful thinking” that WTO reform will take place based on experiences with these other institutions and organizational forms, no matter how good, will fail.

Trade Without A Referee

Trade Without A Referee

The game of football is basically the same all over the world.  Kids can learn the game in Morocco, Brazil, Laos or Germany secure in the knowledge that they might all one day compete together in the World Cup. They can sleep soundly at night because the rulebook is the same and because the referees that enforce the rules on the pitch do so in a broadly consistent manner. Both parts are important.  If kids in various countries had the same rulebook, but enforcement varied by a lot in different places, it would not be possible to play the same game anymore.  If what counted as a penalty was widely different in Morocco from Germany, or the total number of players allowed on the field was different in Laos from Brazil, the game would no longer be the same even if the “rulebook” were officially identical. We are about to find out what happens if the referees simply vanish from the pitch entirely.  How long will players keep following the same rules before local variations of the game appear?  Without a referee to maintain order, how will players behave in each match?  How long will the global game continue at all? Before football fans panic, this problem is not actually found in football, but in the global trade arena.  The referees are a much more obscure group of just seven individuals known as the Appellate Body of the World Trade Organization (WTO).  Today in Geneva, the referees were officially pulled off the trade pitch.