ASPEN CASEBOOK SERIES

INTERNATIONAL TRADE LAW

Second Edition

ANDREW T. GUZMANProfessor of Law

Berkeley Law School

University of California, Berkeley

JOOST H.B. PAUWELYNProfessor of International LawGraduate Institute of International andDevelopment Studies, Geneva, andSenior Advisor, King & Spalding LLP

Wolters KluwerLaw & Business

ContentsPreface to the Second Edition xxiiiPreface to the First Edition xxvAcknowledgments xxvii

1. Trade and Economic Policy 1

A. A Few Numbers on Trade and Economic Growth 1B. The Debate on Liberalized Trade 6

1. Liberalized Trade 7Walter Kirn, Help Wanted 7

2. Trade and the "Great Recession" 11C. Comparative Advantage 12

1. The Parable of the Lawyer-Secretary 122. The Parable of the Entrepreneur-Merchant 123. An Example of Comparative Advantage 14

D. Traditional Arguments Against Trade 201. Domestic Market Failures , 20

Paul Krugman & Maurice Obstfeld, The DomesticMarket Failure Argument Against Free Trade 21

2. Distribution 233. Infant Industry 244. Optimal Tariffs 265. Strategic Trade Policy 276. 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 35Alan S. Blinder, Free Trade's Great, But Offshoring

Rattles Me ' 36Charles Schumer & Paul Craig Roberts, Second

Thoughts on Free Trade 39Arvind Panagariya, Defending the Case for Free Trade

(On Outsourcing) 41B. A Debate Rages 45

David Dollar & Aart Kraay, Spreading the Wealth 45Dani Rodrik, How to Save Globalization from Its

Cheerleaders 48

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3. The Making and Impact of Trade Agreements inNational Legal Systems 53

A. Trade Policymaking in the United States 54Charan Devereaux, Robert Lawrence & Michael

Watkins, Case Studies in U.S. Trade Negotiation,Vol. 1: Making the Rules 55

United States Trade Representative, Report to theCongress on the Extension of Trade Promotion Authority 5 7

Pamphlet Against Fast Track, Public Citizen's GlobalTrade Watch 59

B. Trade Policymaking in the European Union 61Stephen Woolcock, The Treaty of Lisbon and the

European Union as an Actor in International Trade 62Sophie Meunier, Trade Policy and Political Legitimacy

in the European Union 66Sophie Meunier, What Single Voice? European

Institutions and EU-U.S. Trade Negotiations 68C. The Status of WTO Agreements in U.S. and EU Law 70

John James Barcelo, The Status of WTO Rules in U.S. Law 71Marco Bronckers, The Effect of the WTO in European

Court Litigation 74Piet 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? 84World Trade Organization, Understanding the WTO,

Chapter 1: Basics 84B. A Very Brief History of the GATT/WTO System 86

Douglas Irwin, Petros Mavroidis & Alan Sykes, TheGenesis of the GATT 86

William Davey, The World Trade Organization: A BriefIntroduction 87

C. Why Does the WTO Exist? 90Douglas Irwin, Petros Mavroidis & Alan Sykes,

The Genesis of the GATT 90D. The Agreement Establishing the World Trade Organization 93

WTO Agreement, Article III, Functions of the WTO 94World Trade Organization, Understanding the WTO,

Chapter 7: The Organization 94E. Secretariat and Staff 99F. Membership 100G. Navigating the WTO Agreements 100

Contents xiii

Agreement Establishing the World Trade Organization 101World Trade Organization, Understanding the WTO,

Chapter 2: The Agreements 103H. What Does the WTO Do, and What Does It Not Do? 105

World Trade Organization, Ten CommonMisunderstandings About the WTO 106

I. Is the WTO a Legitimate and Accountable Institution? 113Susan George, Beyond the WTO: The Problem Isn't Beef,

Bananas, Cultural Diversity, or the Patenting of Life; TheProblem Is the WTO 113

Ruth Grant &Robert Keohane, Accountability and Abusesof Power in World Politics 115

J. The 2008 Financial Crisis, Its Impact on Trade, and the Futureof the WTO 119

Richard Baldwin & Simon Eyenett, The Collapse of GlobalTrade, Murky Protectionism, and the Crisis 119

Susan Schwab, After Doha: Why the Negotiations AreDoomed and What We Should Do About It 121

5. WTO Dispute Settlement 127

A. Understanding the WTO Dispute Settlement System N 128William Davey, The WTO Dispute Settlement Mechanism 128

B. Flowchart of the DSU Process and Timelines 146C. Problem: Antigua Gambling 148

6. Special Topics in WTO Dispute Settlement 151

A. Retaliation and the Level of Trade Suspension 151EC—Hormone Beef , 152

B. Unilateral vs. Multilateral Enforcement of GATT/WTO Agreements 161C. Confidential Proceedings vs. Transparency and Open Hearings 165

1. Private Representation Before the WTO 1662. Amicus Curiae Briefs 1683. Public Hearings 174

D. Problem: Patria and Protectio 178

7. Tariffs 181

A. Background to Tariff Negotiations and Tariff Bindings 1821. Tariffs, Tariff Negotiations, and Tariff Bindings 1822. Tariff Renegotiations 185

Anwarul Hoda, Tariff Negotiations and RenegotiationsUnder the GATT and the WTO, Procedures and Practices 185

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B. The Jurisprudence on Import Tariffs 1901. Argentina—Textiles 190

Argentina—Textiles (Appellate Body Report) 191Argentina—Textiles (Panel Report) 194

2. EC—Customs Classification of Chicken Cuts 196Vienna Convention on the Law of Treaties, Article 31: General

Rules of Interpretation 198Vienna Convention on the Law of Treaties, Article 32:

Supplementary Means of Interpretation 199EC—Customs Classification of Chicken Cuts 199

3. Special Case 1: AgriculturaTProducts 2094. Special Case 2: Information Technology Products 210

C. The International Trade Negotiation Game 212D. Problem: Tramontanan Chocolate Duties 215

8. Quantitative Restrictions 217

A. What Is a Non-Tariff Barrier? 219B. Background to the General Ban on Quantitative Restrictions 221

Arthur Dunkel & Frieder Roessler, The Ranking of TradePolicy Instruments Under the GATT Legal System 222

C. Japan—Semi-Conductors - 221Japan—Semi-Conductors 228

D. Other Developments 2341. The Line Between Government and Private Conduct 234

Argentina—Bovine Hides 2342. What Are "Restrictions on Importation"? 237

India—Autos 2373. Export Restrictions 2404. "Critical Shortages" 2415. Freedom of Transit 241

E. Problem: Patrian Shoes 243

9. National Treatment—Internal Taxation 245

A. National Treatment 246Petros C. Mavroidis, The General Agreement on Tariffs and Trade:A Commentary 246

B. The Leading Case: Japan—Taxes on Alcoholic Beverages 247Japan—Taxes on Alcoholic Beverages (Panel Report) 248Japan—Taxes on Alcoholic Beverages (Appellate Body Report) 250

C. Other Developments 2621. How Does One Prove That Products Are "Directly

Competitive or Substitutable"? 2622. When Is a Tax Applied "So as to Afford Protection to Domestic

Production"? 263Chile—Taxes on Alcoholic Beverages 264

Contents xv

3. The Line Between a Tax and a Tariff and WhenIs a Tax "Applied, Directly or Indirectly, to . . . Products"and Subject to "Border Tax Adjustment" andNational Treatment? 267

D. Problems: Luxury Taxes and Carbon Taxes 2711. Patria's "Luxury Tax" 2712. Eutopia's "Carbon Tax" 272

10. National Treatment—Internal Regulations 275

A. What Is Regulatory Protectionism? 2761. The Dilemma of Regulating Regulations 2762. Regulatory Protection Is the Worst Kind of Protection 277

B. The Leading Case: EC—Asbestos 278EC—Asbestos ' " 279

C. Other Developments 2921. "No Less Favorable" 292

Joost Pauwelyn, The Unbearable Lightness of Likeness 2952. When Does a Regulation "Affect" Products? 297

Tuna—Dolphin I 298D. Problems: Communian Beef and Flandrian Seals . 301

1. Communia's Hormone Beef Ban 3012. Flandria's Seal Products Ban 302

11. Most-Favored-Nation Treatment 303

A. The MFN Obligation 304William Davey & Joost Pauwelyn, MFN-Unconditionality:

A Legal Analysis of the Concept in View of Its Evolutionin the GATT/WTO Jurisprudence 305

Robert Hudec, "Like Product": The Differences inMeaning in GATT Articles I and III 307

B. The Leading Case: EC—Bananas 313EC—Bananas 314

C. Other Developments 3191. Does GATT Article 1:1 Cover Both De Jure and De Facto

Discrimination? 319Canada—Autos 319

2. Any Advantage Must Be Accorded "Immediately andUnconditionally" to the Like Product of All OtherWTO Members 323

Belgian Family Allowances 323Steve Charnovitz, The Law of Environmental "PPMs"

in the WTO: Debunking the Myth of Illegality 3243. Non-Discrimination for Government Procurement and State

Trading Enterprises 328

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D. Problems: Moralian Soccer Balls and Eutopia and Flandria Revisited 3291. Moralia—Soccer Balls 3292. Eutopia's Carbon Tax and Flandria—Seal Products (Revisited) 330

12. Preferential Trade Agreements 331

A. The Basics of Preferential Trading Arrangements 331B. The Leading Case: Turkey—Textiles 338

Turkey—Textiles 338C. The Special Case of Regionalism Among Developing Countries 345D. The Pros'and Cons and Recent Trends 346

r Joel Trachtman, International Trade: Regionalism 346UNCTAD, Trade and Development Report, 2007 350Martin Jacques, The Death of Doha Signals the Demise of

Globalisation 352The WTO and Preferential Trade Agreements: From

Co-existence to Coherence 353E. Problem: The East-West Compact 355

13. General Exceptions: GATT Article XX 357

A. Requirements of Article XX: A Two-Step Analysis 358B. The Meaning of "Necessary" 359

1. Brazil—Tyres 359Brazil—Tyres (Appelate Body Report) 360

2. EC—Asbestos 364EC—Asbestos (Appelate Body Report) } 364

C. The Policy Concern Behind Article XX(a): "Public Morals" 371United States—Measures Affecting the Cross-Border Supply of

Gambling and Betting Services . 372D. Article XX(b): "Protect Human, Animal or Plant Life or Health" 375E. Article XX(d): "Secure Compliance with Laws or Regulations . . . " 379

1. Korea—Beef 3792. Columbia—Indicative Prices and Restrictions on Ports of Entry 380

F. Article XX(g): "Relating to the Conservation of ExhaustibleNatural Resources" 383

United States—Shrimp 383China—Raw Materials 386

G. Problem: Tabac Tobacco 388

14. General Exceptions: The Chapeau of GATTArticle XX 391

A. Introduction to the Chapeau 391United States—Gasoline 392

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B. The Leading Case: United States—Shrimp 3941. United States—Shrimp 394

United States—Shrimp 3962. The Compliance Decision: United States—Shrimp, 21.5 406

United States—Shrimp, 21.5 406C. Other Developments 413

1. "Between Countries Where the Same Conditions Prevail" 4132. "Disguised Restriction on Trade" 414

EC—Asbestos 414D. The Role of Non-WTO Law in WTO Dispute Settlement 416

Joel Trachtman, The Jurisdiction of the WTO 416Joost Pauwelyn, How to Win a WTO Dispute Based on

Non-WTOLaw? 417E. Problem: Novador and Sashimia 423

15. Subsidies and Countervailing Duties 425

A. Defining and Regulating Subsidies 426B. Requirements for a Subsidy 429

1. Financial Contribution "by a Government or Any Public Body" 429United States—Antidumping and Countervailing Duties (China) 430

2. Foregone "Government Revenue That Is Otherwise Due" 433United States—Tax Treatment for "Foreign Sales Corporations" 434

3. Has a Benefit Been Conferred? 4384. Specificity 440

C. Prohibited Subsidies 442Canada—Aircraft, 21.5 443

D. Actionable Subsidies 4491. Injury to Domestic Producers 4502. Nullification or Impairment 4513. Serious Prejudice 451

United States—Cotton, 21.5 452E. The Impact of a DSU Decision 456

1. Prohibited Subsidies 4562. Actionable Subsidies 459

F. Countervailing Duties 4601. WTO Rules Governing CVDs 4602. CVD Investigations in the United States 4613. CVD Investigations in the EU - 462

G. Does the SCM Agreement Help or Hurt? 463H. Agricultural Subsidies 464I. Problem: Mobilian Auto Loans 465

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16. Dumping and Anti-Dumping 467

A. What Is Dumping? 4671. In the Ordinary Course of Trade 469

United States—Hot-Rolled Steel 4702. "Comparable Price" 4723. Other Methods of Calculating "Normal Value" 472

B. Calculating the Dumping Margin— "Zeroing" 474EC—Bed Linens 475

C. Determination of Injury _ _.. 479D. Causation 480E. Anti-Dumping as the Exclusive Remedy for Dumping

("Specific Action Against Dumping") 481United States—Offset Act (Byrd Amendment) 482

F. Cumulative Application of Anti-Dumping and CountervailingDuties 485

United States—Antidumping and Countervailing Duties (China) 486G. 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 forLiberalizing North American Trade Remedy Laws 494

H. Trade Remedies in the European Union 497Directorate General for Trade of the European

Commission, Anti-Dumping: Protection AgainstDumped Imports 497

Directorate General for Trade of the EuropeanCommission, Europe's Trade Defence Instruments :(Fact Sheet) 499

I. Trade Remedies in the United States 500United States International Trade Commission, Trade Remedy

Investigations: Antidumping and Countervailing DutyInvestigations 500

Jennifer A. Hillman, Testimony Before the Senate FinanceCommittee 500

J. Problem: Welcome to the Firm 504

17. Safeguards 507

A. Agreement on Safeguards and GATT XIX 509GATT Article XIX: Emergency Action on Imports of

Particular Products 509B. Argentina—Footwear 512

Argentina—Footwear 512C. Causal Influences Other Than Increased Imports 515

United States—Lamb 516D. "Domestic Industry" 519

United States—Lamb 519

Contents xix

E. Form, Extent, and Duration of the Safeguard 5221. Form 5222. Extent 5223. Duration 5244. Compensation 525

F. The Justification for a Safeguard Exception 526Alan O. Sykes, The Safeguards Mess: A Critique of WTO

Jurisprudence 526G. A Comparison Among WTO Trade Remedies 530H. Problem: Welcome (Back) to the Firm 530

18. Agreement on Sanitary andPhytosanitary Measures 531

A. The History and Scope of the SPS Agreement 531B. The Dilemma: Health and Safety vs. Market Access 535C. EC—Hormones 535

1. The Standard of Review 536EC—Hormones 536United States—Continued Suspension in EC—Hormones 537

2. Harmonization: Article 3 539EC—Hormones 539

3. Based on a Risk Assessment: Article 5 541EC—Hormones 541

4. The "Rational Relationship" Requirement 544EC—Hormones 544EC—Hormones 546

D. The Precautionary Principle and the SPS Agreement: Article 5.7 550E. Balancing Trade and Safety 555

Andrew Guzman, Food Fears: Health and Safety at the WTO 556F. The Role of Scientific Experts , 560

Joost Pauwelyn, The WTO Agreement on Sanitary andPhytosanitary (SPS) Measures as Applied in the ThreeFirst 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? 565B. EC—Sardines 566

EC—Sardines 566C. National Treatment and Least Trade Restrictive Requirements 574

United States—Clove Cigarettes 575D. International Standards 580

EC—Sardines 580E. Problem: Australia—Plain Packaging 591

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20. Trade in Services 593

A. Background to the Services Industry and Trade in Services 593Bernard Hoekman & Carlos A. Primo Braga, Protection and

Trade in Services: A Survey 593B. 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, Protectionand Trade in Services:j\ Survey 602

GATS and Democracy: A Joint Publication of theSeattle to Brussels Network, Introduction 603

'. World Trade Organization, How [GATS] SchedulesAre Structured 606

C. The Leading Case: United States—Gambling 608United States—Gambling 609Joost Pauwelyn, Rien Ne Va Plus? Distinguishing Domestic

Regulation from Market Access in GATT and GATS? 620D. Other Developments 623

China—Audiovisuals 623E. Problem: Complexian Distribution Services 627

21. Trade-Related Aspects of IntellectualProperty Rights 631

A. A Primer on International IP 632UNCTAD—ICTSD, Project on IPRS and Sustainable :

Development, Intellectual Property Rights: Implicationsfor Development 632

B. A Brief Description of the TRIPS Agreement 638Advocate General to the European Court of Justice, Re:

The Uruguay Round Treaties 639C. Overview of Dispute Settlement Under the TRIPS Agreement 645

1. Summary of the Nine TRIPS Disputes Decided to Date 6452. TRIPS Jurisprudence on IP Exceptions and Domestic

Enforcement 648Joost Pauwelyn, The Dog That Barked But Didn't Bite: 15

Years of Intellectual Property Dispute at the WTO 649D. The TRIPS Agreement and Access to Essential Medicines 659E. Protection of Traditional Knowledge and the TRIPS Agreement 666F. Problem: Generic Transit Through Richland 668

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22. The WTO and Developing Countries 669

A. Background: Country Classifications 670B. WTO Provisions Aimed at Assisting Developing Countries 675C. The Generalized System of Preferences and the Enabling Clause 680

The Enabling Clause (Differential and More FavourableTreatment, Reciprocity and Fuller Participation ofDeveloping Countries) 680

EC—Tariff Preferences 682D. Does GSP Promote Development?. . 692

Michael Gasiorek et al., Mid-Term Evaluation of the EU'sGeneralized System of Preferences 694

E. Problem: Justice in Trade 696Frank Garcia, Global Justice and the Bretton Woods

Institutions 698

Table of Cases 701Index 705