ABA SIL INTERNATIONAL TRADE COMMITTEE NEWSLETTER Volume I, No. 1
WELCOME Welcome to the new and revised ABA International Trade Committee Newsletter. The newsletter is intended to help the international trade committee members stay on top of international trade issues and committee activities. ________________________________________ ABA INTERNATIONAL TRADE COMMITTEE NEWS This fall has been busy for the international trade committee. Matt Nicely and Matt Simpson have been researching and drafting a report and recommendation on the Sunshine Act and the International Trade Commission. The draft report has gone out to the membership for discussion and will be revised over the next few months to reflect the comments we are receiving. We hope to have the report and recommendation ready for consideration by the Section of International Law as a whole and the House of Delegates as soon as possible. In addition, the committee has several working groups that are now in full swing including the section’s efforts to comment on BIS’ proposed China Catch-All Exception, Trade Agreements and the Rule of Law, Live at Commerce, and an Oral History of key moments in trade negotiations. The Committee is also planning programs on Beef Trade, The Intersections of Government Contracting and Rules of Origin, and the Impact of Sarbanes Oxley on Trade Compliance Program. Finally, the committee is working on their annual year-in-review publication, which will be published by the Section of International Law in Summer 2007. If you have any questions about these working groups or programs, wish to participate in
them, or wish to propose other topics for Committee activity email Co-Chairs Matt Dunne (matthewdunne@paulhastings.com) or Peggy Clarke (pclarke@pogolaw.com). The next ABA International Trade Law Steering Committee Meeting is Wednesday, November 15 at 12 pm. The meeting location is Paul Hastings Janofsky & Walker LLP, 875 15th St, NW, Washington, DC 20005 (Cleveland Room). ________________________________________ THE TPA DEBATE Amy J. Stanley, Esq. and Matthew T. Simpson1 Introduction With the wave of change moving through the United States Congress many observers warn of the challenges facing legislative initiatives with even the slightest bit of controversy. Near the top of that list is the proposed renewal of the President’s Trade Promotion Authority (“TPA”). TPA, formerly known as “Fast Track Authority,” is set to expire next summer and with it, as proponents of the legislation argue, the ability of the United States to negotiate and implement free trade agreements. Opponents of the legislation, however, see the expiration of TPA as an opportunity to shift the focus of American trade policy and put more power and influence in the hands of Congress and the constituencies they represent. In order to understand the current debate surrounding TPA
Amy J. Stanley, Esq. is a recent graduate of American University’s Washington College of Law and a former intern at the USTR. Matthew T. Simpson is a second-year JD/MA candidate at American University’s Washington College of Law and School of International Service, and President of the WCL International Trade Law Society. 1
Electronic copy available at: http://ssrn.com/abstract=1114133
and the challenges facing its renewal, key arguments on both sides of the debate are presented below. Arguments Against TPA Opponents of TPA attack the legislation on several fronts. First, they argue that TPA is fundamentally unconstitutional. By transferring the power to conclude international trade agreements from the congressional branch to the executive branch, opponents argue TPA is an illegitimate delegation of Congress’ Article I powers to regulate foreign commerce.2 They add to this an Article II § 2 argument that the President must negotiate and make agreements “with the advice and consent of the senate.”3 Congress’ up or down vote under TPA fails to include the advice or consent of Congress until after the deal is finalized, and is thus fails to satisfy the Article II § 2.4 Next, opponents argue TPA allows the administration to gloss over environmental, labor, health, and human rights concerns; especially in agreements with developing countries.5 They suggest that the current negotiating objectives established in the 2002 legislation are too limited and do not sufficiently emphasize the secondary effects of trade agreements.6 Finally, opponents challenge the assertion that TPA accelerates or enhances the US ability to negotiate and sign trade agreements. Highlighting this point, they flout the failure of the Doha Round of WTO negotiations and suggest that TPA enabled the US negotiators to pander to influential lobbying groups, while neglecting real issues and removing any See Article I, Section 8 of the U.S. Constitution (hereinafter referred to as “The Enumerated Powers”). 3 See Article II, Section 2, clause 2 of the U.S. Constitution (hereinafter referred to as “The Treaty Clause”). 4 See Generally Steve Charnovitz, Editorial Comment: Using Framework Statutes to Facilitate U.S. Treaty Making, 98 A.J.I. L. 696 (October, 2004). 5 See Citizens Trade Campaign, Letter to Senate dated August 1, 2002. (www.*citizens**trade*.org/pdf/ft_ctc.pdf). 6 See Id. (The CTC letter suggests that any fast track legislation contain language similar to the Harkin Amendment and Gramm language from the previous version of the 2002 fasttrack bill). 2
incentive to push for consensus. Lastly opponents highlight the success of trade initiatives passed without TPA (such as the bilateral agreement on China’s accession to the WTO) to support the claim that TPA is not the only way to achieve success.7 Arguments For TPA Supporters of TPA suggest several arguments in favor of renewal. First, they argue that the efficiency of a singular and unified voice representing the U.S. position enhances the credibility of US negotiators. They see TPA’s limits on Congress’ ability to amend or modify the agreements once the negotiations are finalized as a positive attribute, increasing confidence in the soundness of the agreement and limiting the uncertainty that would result if Congress were able to modify agreements after they were negotiated. On this point, the State Department boasts that TPA gives “other countries confidence that the agreements they negotiate with the United States will not be subject to subsequent renegotiation,” and “bring important economic benefits to the United States and its trading partners” through the implementation of trade agreements.8 Addressing the constitutionality concerns of TPA critics, proponents of the legislation argue that Congress ultimately retains the ability to approve or reject any trade agreement and therefore the Article II § 2 requirement of advice and consent is satisfied.9 Supporters of TPA also cite the USTR’s efforts to regularly consult with members of Congress to ensure that the language satisfies the concerns of members. Further, they highlight the Restatement (Third) of Foreign Relations Law’s recognition of these “congressional-executive agreements,” and that the Supreme Court has yet to find one unconstitutional.
See Lael Brainard and Hal Shapio, Fast Track Trade Promotion Authority, Brookings Policy Brief No. 91(December 2001). 8 http://www.state.gov/g/oes/rls/fs/2002/12953.htm 9 See Why Trade Promotion Authority is Constitutional by Edwin Meese III and Todd F. Gaziano. (Available at http://www.heritage.org/Research/TradeandForeignAid/LM 4.cfm) 7
Electronic copy available at: http://ssrn.com/abstract=1114133
Finally, proponents believe that the United States fell dangerously behind the European Union in securing market access for its domestic producers during the eight year period in the 1990’s when TPA was suspended,10 and that the same is likely to happen if the legislation is not renewed. To reinforce this point, they tout the President’s success in furthering U.S. negotiating objectives following the reinstatement of TPA in 2002. Since that time the USTR negotiated and secured Congressional approval of bilateral FTA's with Morocco, Australia, Bahrain, Oman, Chile, and Singapore, as well as the DR-CAFTA, with several more are in process. They identify these agreements as essential elements of the US foreign policy, and fear that without TPA, ongoing negotiations including the Doha Round and those involving Korea and Malaysia will be lost. Conclusion In light of this clear division among factions and the recent change in the political landscape, both sides acknowledge that TPA renewal is unlikely.11 That is not to say, however that a trade promotion authority reflecting a compromise from both sides, is unrealistic. Two modifications that may make a new version of TPA more palatable for both sides are the inclusion of a more robust consultation mechanism and the opportunity to enhance the permanency of the authority. To satisfy the desire of TPA opponents for a greater Congressional role in the negotiating of agreements, one modification may include a more robust consultation mechanism. Perhaps similar to the 1988 legislation, the provision would encourage greater discussion and deliberation amongst the two branches of government, while still providing the benefit of a singular voice for the United States at the negotiating table. This mechanism may also
encourage negotiators to consider a broader range of interests, and weaken arguments of unbalanced representation and concentrated special interest influence. In return for a more consultative mechanism, opponents of TPA may wish to offer its proponents the opportunity for a more permanent instrument.12 Increasing the duration of the TPA will help to minimize the uncertainty facing the negotiators, both foreign and domestic, in several ways. In the short run, it would ensure that on-going negotiations with the potential to extend beyond the June 2007 expiration date are not futile. In the long run, more permanent authority, perhaps automatically renewing and requiring a majority of both houses to terminate, will enhance the credibility of US negotiators, while not unequivocally divesting Congress’ Article I powers. Following the passage of the Reciprocal Trade Agreements Act of 1934 which granted the President limited authority to negotiate reciprocal reductions in tariff barriers, the debate surrounding negotiating authority has waxed and waned. Since 1974 alone, Congress voted over 25 times on legislation involving the delegation of trade negotiating authority to the President.13 In this light, whether TPA is renewed in its current iteration, the June 2007 deadline passes without incident, or some modified version representing the compromises described above replaces the current legislation, the debate around TPA is unlikely to quiet any time soon. You may email Amy J. Stanley at amyjstanley@gmail.com or Matthew T. Simpson at matt.simpson@american.edu with comments or questions about their article. ________________________________________
See Generally I.M. Destler, Renewing Fast-Track Legislation (presenting a similar argument in favor of a more permanent authority). 13 See Carolyn C. Smith, Trade Promotion Authority and Fast Track Negotiating Authority for Trade Agreements: Major Votes, Knowledge Services Group, available at http://fpc.state.gov/documents/organization/73937.pdf. 12
Bush’s trade authority renewal: dead on arrival? By Missy Ryan, Reuters (October 18, 2006) 11 See transcript of the Carnegie Endowment for International Peace (http://www.carnegieendowment.org/events/index.cfm?fa=p rint&id=927). 10
standing the international trade system, it was every country’s interest to have China play according to international trade rules set forth by the General Agreement on Trade and Tariffs of 1947. THE ANTI DUMPING DUTIES IMPOSED BY MEXICO ON CHINESE EXPORTS, WHAT CAN BE EXPECTED AFTER THE EXPIRATION OF THE “PEACE CLAUSE” IN 2007. By Francisco J. Cortina14
Consequently, during the 1980’s, China requested its reincorporation to the General Agreement on Trade and Tariffs of 194715, and later its accession to the World Trade Organization (WTO), requesting the special treatment granted to developing economies16.
Background At the beginning of the 1970’s decade, no one would forecast that the People’s Republic of China would be one of the most important players in the international trade arena by the end of the 20th century.
During the accession process to the WTO, China faced great opposition by Mexico, due to its large volume of exportation at very low prices that would probably cause injury to said Members’ domestic industry. Additionally, Mexico feared that China’s accession to the WTO would grant it locus standing to challenge the antidumping duties that it had been imposed on Chinese exports as of 199317.
The economic policies determined by the socialist regime led by Chairman Mao resulted in the country’s disadvantage with regard to other economies that followed open market and free trade policies. On this regard, a few years after the death of Mao in 1976, Deng Xiaoping headed some of the most important reforms in the Chinese economy. Deng argued that China was in the primary stage of socialism and that the duty of the party was to perfect "socialism with Chinese characteristics." This interpretation of Chinese Marxism reduced the role of ideology in economic decision-making and deciding policies of proven effectiveness. As a result of such reforms, China began to improve its position in the world trade system up to the point that after a few years it started to consolidate as an important trade power. Given the importance of the Chinese economy and its Partner of Chevez, Ruiz, Zamarripa, a trade, customs and tax law firm based in Mexico City. Mr. Cortina is a member of the board of the Mexican Bar Association (Barra Mexicana), and active participant of the trade and customs commission of such Bar. He is also a member of the international trade committee of the international section of the ABA.
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As a result of the latter, China and Mexico agreed to incorporate the “peace clause” in China’s protocol of accession to the WTO as its 135th Member. The “peace clause” According to Mexico’s reservations set forth in Annex 7 of the People’s Republic of China protocol of accession to the WTO18, the “peace clause” states that: “Notwithstanding any other provisions of this Protocol, during six years after the accession of China, Mexico's existing measures listed below shall not be subject to the provisions of either the WTO
15 China was one of the original signatories to the Havana Charter in 1948, but denounced it in 1949. 16 This request led to an exhaustive accession process that lasted near 20 years. 17 The outcome of those investigations was the issuance of anti dumping duties that in some cases were extremely high; e.g. Toys 351 %, apparel 550 %, some kind of shoes reached even the 1035 %. 18 WT/L/432, November 23, 2001.
Agreement or the anti-dumping provisions of this Protocol”. In the above said terms, during a six year period after its accession to the WTO, China would not be able to request consultations, nor ask for the establishment of a panel in accordance to the Dispute Settlement Understanding, with regard to Mexico’s antidumping duties imposed on several goods19. It is worth mentioning that the referred six year period concludes on December 12th, 2007. Consequently, it is important to analyze the potential scenarios that may arise from the expiration of the “peace clause”. The latter, as the exaggerated dumping margin determined for such imports has derived in the impossibility to continue with the imports of such goods. Such situation might be deemed as inconsistent with Mexico’s obligations under WTO Agreements. Potential Scenarios Even though no one can foretell what the future may bring, it is feasible to anticipate three potential scenarios: a) China takes no action against Mexico; b) China and Mexico negotiate a new peace clause; or c) China starts procedures against Mexico before the Dispute Settlement Body (DSB). First scenario. The possibility that China takes no action against Mexico’s antidumping duties is the least feasible. The latter, as China has shown a real interest in challenging Mexico’s determinations on antidumping procedures, with the objective of opening the Mexican market to its exports.
19 Products included are: bicycles, footwear and parts thereof, brass padlocks, baby carriages, door knob locks, malleable iron connections, non-refillable pocket lighters, fluorite, furazolidone, tools, textiles, toys, pencils, bicycle tires and inner tubes, electrical machines, appliances and equipment and parts thereof, parathion-methyl, clothing, organic chemicals, ceramic and porcelain dishware, iron and steel valves, and candles.
As such, China has abandoned its traditional low profile position during antidumping investigations carried out by the Mexican government, and has began to actively participate in such procedures. As an example of the above, the Chinese exporters have participated in the antidumping investigations in Mexico on handbags20 and toothbrushes21 recently concluded without the imposition of antidumping duties in both cases. It is worth mentioning that the Mexican authorities’ determinations do not clearly show that the participation of Chinese exporters in those investigations derived in the termination of said procedures. However, the appearance of Chinese exporters did in fact contribute to the final result. Second scenario. The possibility for China and Mexico to negotiate a new peace clause is also an unlikely prospect. What reasons would lead China to negotiate a new peace clause with Mexico that would result in an agreement not to challenge ridiculously high antidumping duties in many sensible products? One reason why China would agree to enter this type of negotiation would be to improve its diplomatic position before other WTO Members. The latter, as such course of action would demonstrate China’s willingness to continue the process to become a full market economy and to acquiesce with its obligations set forth in the accession protocol. Specifically, China would improve the image maintained by some WTO Members, which is mainly a country that uses the international trade system to crack national industries through the export of cheap products. Another reason for China to accept a new peace clause would be Mexico’s compromise to perform sunset reviews over its antidumping duties, in full compliance with WTO standards. In exchange, Official Daily Gazette of the Federation, December 21st, 2005. 21 Official Daily Gazette of the Federation, December 28th, 2005. 20
China would not initiate any procedure before the DSB until such investigations are concluded. However, this course of action would imply Mexico’s recognition that its current antidumping duties on Chinese exports were imposed outside the framework set forth by the WTO. As such, this possibility will imply a diplomatic disadvantage for Mexico, as it would set a negative precedent regarding the manner said country carries out antidumping investigations and imposes the corresponding duties.
As of December 12th, 2007 the “peace clause” established in Annex 7 of China’s accession protocol to the WTO will expire, allowing said nation to challenge Mexico’s antidumping duties imposed on its exports since 1993 and 1994, before the DSB. It is quite probable that in 2008 China will start procedures before the DSB which could be definitively concluded by 2010. In case Mexico obtains a favorable resolution, it is predictable that it would continue to impose said antidumping duties in the future.
Third scenario. The most likely scenario to be expected consists in China starting procedures before the DSB against Mexico’s antidumping duties imposed during 1993 and 1994. The possible outcomes of this scenario would be the following: In the event Mexico obtains a favorable ruling by the DSB that is later confirmed by the Appellate Body, it would have the right to maintain its antidumping duties against Chinese goods. Furthermore, Mexico would be able to continue performing sunset reviews on its antidumping duties as it has been doing for the last ten years. On the contrary, if China’s claims are ratified by the DSB, Mexico would be obligated to revoke its antidumping duties on Chinese goods. However, in case Mexico appeals the Panel decision and losses before the Appellate Body, it would have to comply with the Panel‘s decision within a “reasonable period of time”. In this case, Mexico’s challenged antidumping duties on Chinese exports could be definitively revoked around 2011. Conclusions The current antidumping duties imposed by Mexico to Chinese products could be considered as tantamount to a de facto prohibition for their import into the country.
If China succeeds in its claims before the DSB, Mexico is expected to amend or extinguishing the antidumping duties for some of the products by 2011. You may email Francisco J. Cortina at fcortina@chevez.com.mx with comments or questions about his article. ________________________________________ FINALLY… If you wish to submit an article for the International Trade Committee Newsletter, the deadline for the winter volume is January 12, 2006. All articles should be substantive in nature, under 1200 words, and relevant to current international trade events. Email Amy J. Stanley (amyjstanley@gmail.com) for more information.