In Australia, the Tobacco Plain Packaging Act 2011 is an innovative piece of legislation which aims at discouraging the use of tobacco products by requiring uniform plainness in packaging.[1] The act would require cigarettes to be sold in packaging which would not allow tobacco companies to use their own labels, and consequentially constrain their ability to market their brand image. The government’s stated goal is to reduce tobacco consumption, particularly among young individuals.

Members of the WTO’s Technical Barriers to Trade (TBT) Committee discussed this piece of legislation at a meeting earlier this month, with over a dozen members voicing formal objections to the act.[2] The objecting states argue that Australia’s evidence of the effectiveness of the proposed act is suspect, and thus unnecessarily restricts trade.[3] It is important to note that many of the objecting states do not export tobacco to Australia, and that imported tobacco only accounts for 0.5% of domestic trade of this product, meaning the impact on global trade will be minimal.[4] Still, at this point it is unclear whether another state will challenge Australia on the act if it eventually becomes law.

Meanwhile, in Canada, the Conservative government was briefly the subject of criticism in September when the CBC reported that Health Canada lifted its ban on non-cola caffeinated drinks largely because of pressure from the European Union (EU).[5] EU representatives had been pushing for the lifting of the ban in order to allow IRN-BRU, a leading non-cola caffeinated drink from Scotland, to be sold on the Canadian market. The lifting of the ban drew criticism from across Canada, largely because by Health Canada’s own admission, Canadians are already consuming too much caffeine.[6] Despite this over-consumption of caffeinated beverages however, the Conservative government determined that appeasing European exporters was the more important policy objective.

Finally, the tiny nation of Samoa, with a population of less than 200,000, made headlines last week by dropping its ban on turkey tails and thus paving the way for WTO accession.[7] Turkey tails are an unusual and unexpected source of trade friction, but the ban shared a common link with many trade disputes: health concerns. The meat from turkey tails is apparently high in fat, and thus the Samoan government had banned the product to promote the health of its citizens. According to the World Health Organization (WHO), Samoa is one of the world’s most obese nations, thus making the consumption of fattening foods a pressing health concern. The ban was lifted largely because of lobbying efforts carried out by exporters from the US.[8]

For those who believe that governments should play an active role in protecting the health of its citizens (myself included), on the surface, the outcomes in Canada and Samoa seem alarming; the governments in each nation seem to be favouring free trade at the expense of the health of their citizens.However, a deeper analysis of the respective public health problems in Canada and Samoa reveals that the issue is not as straightforward as it appears at first glance.

In Canada, caffeinated beverages are widely available, in spite of the previous prohibition on caffeinated non-cola drinks. The drink at the centre of the trade dispute with the EU, IRN-BRU, has roughly a third of the caffeine that equivalent amounts of Red Bull or Tim Horton’s coffee do.[9] Despite the ban on drinks like IRN-BRU, over-consumption of caffeine continues to be a problem. This leads to the obvious conclusion that merely banning trade on a narrow group of products was not an effective solution to combating the public health concern. If the government of Canada is serious about curbing caffeine consumption, there are alternative ways to realize this objective. For instance, mandatory packaging requirements indicating the amount of caffeine a product contains would likely be a more effective mechanism for discouraging consumption of highly-caffeinated beverages and would likely be acceptable under WTO rules so long as the requirements do not distinguish between domestic and imported products.

Similarly, Samoa’s ban on turkey tails has obviously not done much in assisting its fight on obesity. Turkey tails will now be subject to tariffs, and Samoa will continue to search for appropriate regulatory tools to reduce its obesity rates.

Australia’s proposed legislation on tobacco packaging provides a useful example of the most appropriate way to regulate behaviour in response to public health concerns. The Australian government has proposed action in the form of mandatory packaging which it believes will promote public health. If governments in Canada and Samoa genuinely want to address their respective public health concerns, there are ample regulatory methods available to them to implement these policy objectives.

In other words, promoting public health and free trade do not have to be mutually exclusive.

[1] Australian Government: Department of Health and Ageing, “Public Consultation on Plain Packaging of Tobacco Products” (6 June 2011), online: < http://www.yourhealth.gov.au>.

[2] World Trade Organization, “Technical Barriers to Trade: Formal Meeting. Members discuss 54 technical barriers, China’s Final Review and Streamlined Work” (10-11 November 2011), online: <http://www.wto.org>

[3] Ibid.

[4] Ibid.

[5] Canadian Broadcasting Corporation, “Caffeine Use Extended despite Health Warnings” (27 September 2011), online: <http://www.cbc.ca>.

[6] Andrew Hanon, “Canada OKs Caffeine for Non-Cola Soft Drinks” (cnews, 20 March 2010), online: <http://cnews.canoe.ca/CNEWS>; Adrienne Silnicki, “Trading Our Children’s Health” (The Council of Canadians, 27 September 2011), online: <http://canadians.org/blog>.

[7] Jason Gate, “Choosing between Free Trade and Public Health” (Business Exchange, 22 November 2011), online: <http://www.businessweek.com/magazine>.

[8] Ibid.

[9] Supra note 5.

China is the obvious target of the Act. Populist politicians in the U.S. in recent years have relied on criticizing China in the hopes of appealing to citizens who believe that the primary cause of high unemployment rates in the U.S. is the migration of manufacturing jobs overseas.² The problem with the Act, however, is that it fails to comply with the U.S.’s WTO obligations, and will most likely be successfully challenged by China if it ever becomes law. The Act attempts to classify an undervalued currency as a “subsidy” to exporters. The Agreement on Subsidies and Countervailing Measures (“SCM Agreement”), agreed to at the Uruguay Round of WTO negotiations provides the framework for the permissible imposition of CVDs.³ Section 1.1 of the SCM Agreement outlines four scenarios which are classified as subsidies: 1) the direct government transfer of funds or liability guarantees (i.e. loan guarantees); 2) tax credits; 3) a government supplying or purchasing certain goods or services; and 4) a government acting through an intermediary to accomplish one of 1 to 3. However, a government subsidy alone is not enough to merit the imposition of CVD; the subsidy must be shown to be specific to a particular firm or industry. Simply put, currency manipulation does not fall into any of the categories which would qualify it as a subsidy, nor is it specific enough to warrant CVDs.

The approach adopted by the U.S. Senate is unfortunate. CVDs are designed as a way for governments to protect their domestic industries, particularly on an interim basis, when other WTO Member States are providing local firms with illegal subsidies. Currency manipulation is not a prohibited form of subsidy because while an undervalued currency will help exporters, it will generally be detrimental to companies which rely on imports. Moreover, most countries (including the U.S.) engage in currency manipulation from time to time through the adjustment of interest rates or quantitative easing measures. If CVDs were permissible simply because a currency was undervalued, the result would be an increase of unnecessary trade wars which are contrary to the spirit and purposes of the WTO. The WTO provides the framework for countries to engage in trade based on the mutual respect of its laws; the WTO also provides a mechanism whereby its members can peacefully resolve their disputes through adjudication, without the need to resort to the retaliatory imposition of tariffs. The Currency Exchange Rate Oversight Reform Act of 2011 undermines these purposes by flagrantly violating the rules. The U.S. has legitimate trade grievances against China, such as the systematic non-respect of intellectual property rights and certain prohibitions on U.S. firms operating in China outside the context of a joint venture. The method for remedying these grievances is not through unilateral hostile action but through direct negotiations with the Chinese government and within the framework of the WTO’s dispute resolution body.

The tuna-dolphin disputes revolve around unilateral measures taken by the United States in order to combat the use of purse-seine fishing nets. Purse-seine fishing nets are used for commercial fishing. When used for tuna harvesting, not only tuna but also dolphins (and other species as well) are often trapped, injured, and even killed. It was argued by the United States that due to the use of these nets, the population of dolphins at the ETP was dramatically reduced.

Luckily for the dolphins, two types of U.S. pressure groups did not intend to let them disappear from the waters of the ETP. The first were U.S. fishermen who relied on dolphins for the fishing of tuna. Dolphins often swim above schools of tuna, and as they regularly surface above the water for a breath of air, they serve as an excellent visual indicator of where tuna can be found. The second group of champions to which dolphins owe their gratitude comprise environmental civil society organizations. Dolphins’ excellent reputation developed by generation of TV series and Disney movies probably also did not hurt their campaign.[1]

The pressure applied by these groups was indeed successful. The U.S. first reacted to this pressure with a ban, prohibiting the importation of tuna harvested with purse-seine fishing nets (“non-dolphin-safe tuna”). But as the use of these nets was, and still is prominent among Mexican fisherman, it wasn’t very surprising to find Mexico spearheading the efforts to eliminate this ban. As part of their efforts, Mexico (and other states) invoked the trading system’s dispute settlement mechanism against these U.S. measures. These attempts were relatively successful, as trade dispute settlement panels ordered the United States to drop its ban on non-dolphin-safe tuna.[2]

The use of unilateral trade measures (such as ban on the importation of certain products) in order to ‘convince’ other states to adhere to what locals believe to be ‘right’ and ‘good’, is problematic and regarded by some as ethnocentrism, or cultural imperialism. Think for example on the ways in which many Canadians reacted when the EU decided to ban the importation of Canadian seal products (cute animals, apparently, are an endless source for trade disputes), or its more recent plan to ban Canadian tar-sands oil.[3] What is interesting about these unilateral measures, at least in my view, is how influence flows from one group of interests (environmental interests, for example), to another (economic interests, for example).

More concretely, we can see that some states attempt to influence global environmental issues by applying pressure through the trading system. These attempts highlight the fact that no group of interests is isolated from another. Trade influences the environment, and the environment influences trade. States therefore can use trade in order to affect the environment, and the environment in order to affect trade. International Relations (“IR”) authors define these attempts to influence one system through the use of another as ‘institutional interaction’, i.e. attempts of actors (states, NGOs, etc.) to influence the outcome of one regime (for example, reducing greenhouse gas emissions, which is the goal of climate change treaties), by applying pressure through another institution (for example, unilateral trade measures that affect the trading regime).

Trade, environment and the ways in which influence flows

Influence travels, sometimes even successfully, from the environmental domain into the trading arena. The turtle-shrimps case is one example in which ‘environmental’ influence successfully carried over (through the action of the U.S.) into the trading system. NGOs’ activity is also often mentioned as a vehicle through which influence flows between different regimes (see for example NGOs’ activity at the WTO Ministerial Conference in 1999 (known as “the battle in Seattle”), or during the (failed) OECD negotiations over a multilateral investment agreement).

This route, it should be noted, is a two-way street. An example of how (negative?) influence travels back from international trade motivated groups to affect the outcomes of environmental treaties, can be found in the U.S’s recent WTO challenge of Chinese subsidies granted to local wind power subsidies, which resulted with the elimination of these subsidies.

Critics of the WTO will probably argue that environmentalists’ influence is more likely to be shattered in the trading arena than actually effecting change in that domain. On certain levels they are obviously right. A short review of the ways through which influence travels may demonstrate this point. Influence travels by actors, and actors can act on several levels. Ideally, and most legitimately, actors can influence the trading system through trade negotiations, i.e. states can convince others that environmental considerations are important and should be promoted through trade. But due to the WTO consensus rule (WTO decisions are generally accepted by consensus) and the current negative negotiations atmosphere, it seems improbable that new, urgently needed, environmentally-influenced decisions will be accepted in this manner (for example, regulations concerning subsidies, or environmental goods and services). Influence, therefore, is highly unlikely to travel by actors through trade negotiations.

Another manner in which environmental influence can enter into the trading system is the one mentioned above – through unilateral trade measures applied by certain states that condition access to local markets on the adherence to certain environmental standards. As already mentioned, this approach is considered to be problematic by many as it represents an attempt to impose local standards, which often represent local values and priorities, on foreign states. Furthermore, without getting into too many details, it should be mentioned that under WTO law, states are not allowed to treat differently two similar products which differ only by the way they were made. For example, most will agree that discriminating between two ‘like’ products that differ only in the amount of CO₂ that was emitted during their production, is inconsistent with WTO laws.[4]

Another, less intrusive, way in which influence can travel is in the use of labelling. Labels, according to the online Cambridge dictionary, are “a piece of paper or other material which gives you information about the object it is fixed to”. Examples for labels are ‘fair-trade’, ‘kosher’, ‘eco’, and ‘dolphin-safe’, all of which provide a consumer with information regarding the purchased product that he or she might find important. Labels can be used as ‘conductors’ of influence in more than one way. First, labels can be used as a compulsory requirement for market access. This type of labelling is referred to as ‘mandatory’ labelling. For example, where a specific ‘kosher’ label is required in order to import meat into a state, this is ‘mandatory labelling’. This situation, it should be noted, is in effect no different from the one described in the paragraph above, and should be considered as tantamount to unilateral trade measures.[5]

A second, more interesting, type of labelling is ‘voluntary labelling’. ‘Voluntary labels’ are granted only to those products that follow certain requirements.  But unlike with ‘mandatory labels’, there is no formal barrier which prevents other, non-labelled, products from being sold in local markets. These labels are ‘voluntary’, as producers can decide whether to use them or not. An example of this type of labelling is the variety of ‘fair-trade’ labels available around the world. Indeed in most grocery stores consumers can choose between a variety of ‘fair-trade’ coffees and those brands that do not carry this label. This type of labelling simply provides customers with information about the products they are about to buy. As there is no ‘trade barrier’ imposed by the state, the influence is traveling directly by those consumers who are interested in passing it to traders and producers.

From a trade law perspective, voluntary labelling should be considered as a ‘soft’, non-intrusive, and even desirable ‘conductor’ of influence. It shifts the economic power from the state, which is committed under trade laws to allow market access, to the consumer, whose preferences and ability to choose between competing products is a cornerstone for the capitalist system and are protected both by anti-trust and consumer-protection laws. The battle in this case is no longer between states, and is no longer about trade barriers (as the obligation to allow market access was granted). It is simply between competing producers, whose ability to brand their products, whether through appealing to consumers’ ethics or their desire to dress/drink/act like David Beckham, is their primer motivation.

As explained above, not many routes are currently open for influence to flow from the environmental domain to the world of international trade. This situation is deteriorating as a WTO Dispute Settlement Body (“DSB”) decided recently to impose further difficulties on the transfer of ‘environmental’ influence into the economic domain. The DSB interfered this time with consumers’ ability to choose, their right to be informed, and influence economic actors through their preferences.

The ‘tuna-dolphin’ decision from September 2011

The DSB in its decision from September 2011 arrived at the conclusion that even when the use of a label is completely optional, it shall still be considered as ‘mandatory’ once the conditions for using this label are mandatory, and are regulated by the state. The meaning of the DSB’s decision is that even the use of voluntary labels, if regulated by the state, must be compatible with WTO requirements and can be challenged by other states. Accordingly, in the context of the tuna-dolphin dispute it was decided that conditioning the ‘dolphin-safe’ label with the non-use of seine-purse fishing nets is incompatible with WTO laws. The U.S. should therefore either annul this labelling scheme or face trade sanctions.

This conclusion is problematic from several aspects. Most notably, the DSB adopted a narrative according to which influence originating from consumers, rather than states, is also subjected to trade laws. This approach is justified, according to the DSB, due to the government’s role in deciding and monitoring the criteria for the ‘dolphin-safe’ labels. But the United States did not prevent its citizens from purchasing Mexican tuna; it only made sure that they would know which tuna was, or was not, harvested with purse-seine nets. The state enabled its public to influence, if they wish to do so, the economic sector, and affect the environment through their purchasing habits.

Furthermore, there are obvious advantages to having state-regulated labels.[6] The alternative to state-regulation of labelling is privatized regulation, i.e. leaving labels to be regulated by NGOs, or other private organizations. But the use of private organizations in order to regulate labels is not without faults. First, there are standards of transparency, due-process in decision-making, and a variety of administrative laws and principles to which private organizations are not bound.[7] The economic value of influential labels is incredibly high, and accordingly so will be the pressures applied on the labelling body. The mechanisms imbedded within (certain) governments are better suited to deal with and monitor such pressures. Furthermore, there are also questions of quality assurance. Who is there to “watch the watchdog”?[8] To ensure that these private organizations adhere to high standards of research,[9] monitoring, and decision-making?

Secondly, it should be remembered that these labels often symbolize values and ethics. Privatizing the labelling process, therefore, means privatizing the right to decide on the exact content of these values. While states, politicians and public servants represent citizens and their values, who is it that decides the criteria for what is ‘fair-trade’, for example? What kind of public debate took place within these private organizations in order to establish what ‘fair-trade’ is, and what it should be?

Apparently, if the ‘dolphin-safe’ label would have been produced and monitored by an NGO, this would not have been a ‘trade law’ problem. But why should this change anything? A voluntary ‘label’, as mentioned above, is simply a medium, a transmission tool for providing information. As long as this information is accurate (and there is no doubt that Mexican fishermen are indeed using purse-seine nets), why should a state be banned from passing it on to its citizens? And since when is the provision of accurate information a trade law violation? Since when is it even trade-law related?

The only logical explanation for these questions would have been that both the panel and Mexico believed that this label restricts trade and market access. Otherwise, Mexico would not have bothered to complain in the first place. But labelling, it should be remembered, is aimed to do exactly this; to inform consumers who consider this information to be important, and to allow them to influence international traders and producers to include environmental considerations in their decisions. The whole point of ‘labelling’ is indeed to limit market access and to “discriminate” against certain type of products. The crucial question, however, should have been who is really limiting the market access? Is it the state, or environmentally-conscious consumers?

In my view, the DSB in this case has crossed the line by interfering in the consumer-producer relationship, rather than the state-state relationship it was designed to deal with. The role of the state in this case  was marginal at best. It was aimed at supporting consumers, not blocking trade. The DSB has arrived at its conclusion by focusing on the interpretation of single words, but missed the bigger picture regarding the nature of the state measure, the role of trade laws, and the role of the WTO in general. By doing so, the DSB has limited even further the routes in which influence can travel between the different domains, as it submitted voluntary labelling based on state regulation and monitoring to WTO laws, which in fact are designed to prevent exactly what the labelling was trying to achieve.

The game, however, is not over yet. As this is ‘only’ a panel report, it remains to be seen what the appellate body will rule on these questions. The dissenting opinion in this case indeed leaves some room for optimism. Hopefully, the Appellate Body will give further consideration to these issues and reverse this decision.

[1] Most notably: http://www.youtube.com/watch?v=akyJYeBVbuM

[2] It should be noted that at the time of these decision, trade panels’ reports were de facto not enforceable. For a summary of the cases, see http://www.wto.org/english/tratop_e/envir_e/edis04_e.htm; and http://www.wto.org/english/tratop_e/envir_e/edis05_e.htm.

[3] See online: http://www.guardian.co.uk/environment/2011/oct/04/oil-sands-imports-eu-ban

[4] This topic is disputable and deserves more attention. See interesting discussion in Charles Benoit, “Picking tariff winners: Non-product related PPMs and DSB interpretations of “unconditionally” within Article I:1” (2011) 42(2) Georgetown Journal of International Law  583.

[5] In WTO law, this situation is considered as ‘technical regulation’, and indeed certain WTO agreements pose restriction on ‘mandatory labelling’ (most notably, see Article 2 of the Agreement on Technical Barriers to Trade (“TBT Agreement”).

[6] The author refers in this respect to democratic, non-corrupt states.

[7] for example, the author’s request to receive Greenpeace’s list of donators was denied

[8] Expression borrowed from  Robert C. Blitt, “Who will watch the watchdog?: International Human Rights Nongovernmental Organizations and the case for Regulation” (2004) 10 Buffalo Human Rights Law Review 261

[9] See for example Paul Collier’s well debated criticism of Christian-Aid, Paul Collier, The Bottom Billion (Oxford: Oxford University Press, 2007); See also critique over the outcome of ‘fair-trade’, Andrew Chambers, “Not so fair trade” 12 December 2009, The Guardian, online: <http://www.guardian.co.uk/commentisfree/cif-green/2009/dec/12/fair-trade-fairtrade-kitkat-farmers>

The most common reasons propagated for this trend include the low volume of global trade emanating from and to Africa, African countries’ inability to navigate the complicated and expensive DSS, and a lack of expert trade lawyers. Whilst these factors are accurate and helpful in explaining African absenteeism in the DSS, it is important to examine the WTO DSS itself. It is vital to consider the functioning, structure and jurisprudence of the system itself for potential failings that can assist in helping explain African countries’ minimal involvement. A key area to consider is the implication of jurisprudence on African countries despite their engagement in the DSS as primary parties. Dispute Panels and Appellant Body render significant decisions that often have a direct impact on African countries’ trade policies with little to no contribution by the very African countries that stand to gain or lose a great deal.

An example of a pivotal and far reaching Panel and Appellant Body ruling has been the India-Quantitative Restrictions (QR) on Imports of Agricultural Textile and Industrial Products case (August 1999). The Appellate Body upheld the Panel’s finding that WTO panels are competent to hear any complaints regarding measures for which a GATT Article XVIII balance-of-payments justification is evoked as a defence to a trade violation sanction. GATT Article XVIII:B is a special provision for developing countries which allows their economies that can only support “low standards of living and are in the early stages of development”, to restrict imports if they face balance-of-payments problems.

Essentially, this ruling brought – within the WTO’s dispute settlement jurisdiction – matters that should be handled by the political organs internal to the WTO. The Balance-of-Payments Committee and the General Council are two such political bodies. This decision makes this provision much less effective and thereby takes away a mechanism for developing countries to correct trade imbalances. In the long run, it weakens their position even further. The immediate implications are that countries with balance-of-payments problems  – including many African countries – have lost the opportunity to discuss this issue in a diplomatic forum such as the General Council, where development challenges could be better articulated than in the dry legalistic dispute settlement system.

This is only one example where it is clear that the WTO DSS has failed to be sensitive and accommodating to the unique situations of developing countries. In particular, the Appellant Body failed to anticipate and appreciate the long term negative effects of their ruling on African countries. This example is one of the possible reasons that helps explain African countries’ failure to take advantage of the WTO DSS.

To conclude, on one hand, the fact that the majority of WTO is made up of African countries counts for nothing until this presence is coupled with a strong understanding of the DSS mechanism. This issue is of pressing importance simply because African countries, especially the weakest of them, need the WTO DSS. As the Dispute Settlement System evolves along with International Economic Law, it will serve African countries well to get involved in reshaping new sets of legal principles and procedures that govern the system. However, on the other hand, there is clear evidence that the integration of African countries into the multi-lateral Dispute Settlement System has been a process leaving much to be desired. There is a great need for reform and sensitivity of the system that will ultimately enhance the long-term stability, predictability and legitimacy of the WTO Dispute Settlement System. A failure to reform could mean that the DSS will remain fundamentally prejudicial to the long-term position of African Countries and other developing economies in the global trading system.

“What does this have to do with law?” you may ask (other than its relevance to my ongoing unjust dismissal hearing). Simple: by passing the environmental buck on to financial regulatory agencies such as the Ontario Securities Commission (OSC), we would be treating them just like poor old Tibor.

In the land of the incompetent, the semi-competent man is king. Similarly, in the ham-fisted world of inefficient and ineffective governmental organisations, a body which generally satisfies its mandate, such as the OSC, is a paragon. Of course, the OSC (or the rest of Canada’s financial market regulators) isn’t beyond criticism. Many complain that Canada is more lax towards fraud and white-collar crime than other countries. Nevertheless, the OSC has fared much better in meeting its dual mandate – protecting investors while promoting fair and efficient markets – than equivalent organizations in other jurisdictions, such as the Securities and Exchange Commission (SEC) in the United States (particularly during the financial crisis).

It is understandable that some would want to use a relatively effective (and semi-autonomous) governmental body such as the OSC to advance important causes which are unrelated to its mandate, just because they have been neglected by more relevant organisations. Examples of such causes could include labour standards, unpopular executive decisions (see this year’s OSC ruling involving Magna International), and now environmental standards. “Tibor,” I mean “OSC,” you might say, “Environment Canada has little power to force businesses to improve their sustainability practices. Why not use corporate disclosure rules to help things along?”

Professor Dhir’s proposal, in his recent special submission to Legal Frontiers, is of course phrased differently, but the effect is largely the same. Professor Dhir argues that the OSC already has the power to require disclosure on environmental matters, and that such disclosure is of material significance to investors. He proposes that Canadian (or Ontario) law be modified to require that companies explain an absence of environmental and social policies, and assess the success of such policies.

The crucial assumption for having financial regulators enforce environmental disclosure is that it is materially relevant to investors because it corresponds with financial performance. Yet various studies have examined this link and found it to be inconclusive. For this reason, National Instrument 51-102 (which applies across Canada) requires companies only to report on “environmental policies that are fundamental to […] operations”. This is logical on its face: in some industries (such as mining or fishing) environmental policies may closely relate to financial performance, while in others (such as manufacturing musical instruments) the link may be nonexistent. Disclosure of these policies is thus only relevant to investors in the former case.

The distinction is important because as international political action on the environment – and particularly climate change – stalls, individual countries will turn to non-conventional means and organisations to achieve progress. For example, the United States has been considering using tariffs within the World Trade Organisation (WTO) framework to prompt action on greenhouse gas emissions. But the risk is that pulling in unrelated organisations such as the OSC or the WTO may merely confuse environmental law, reducing the impetus for a proper solution without actually achieving much.

There are many strong arguments for forcing corporations to implement environmental and social policies. But these arguments may not involve information which is materially important to investors. For this reason, it unwise to pursue action on corporate environmental responsibility within the context of a financial regulatory body tasked with protecting investors – even if progress on other fronts has been limited. Doing so is like forcing a square peg into a round hole, just because someone put gum in the square hole. Nevertheless, the temptation to do so in this case is strong, particularly since political action on the environment is so full of gum. But as Tibor could tell you, foisting the tough jobs onto someone else can only get you so far.

I only wish he hadn’t told a certain Labour Relations Board the same thing during a certain unjust dismissal hearing.

QUICK, FIND TIBOR!

The opening of borders to international activity has also brought about certain illnesses, some of which are not easy to confront. On the environmental front for example, it seems as if fears of losing economic competitiveness inhibit countries like the United States from passing a significant climate change bill. With regard to labour standards, competition for foreign investment may encourage countries to relax their labour laws and to use lower standards as an enticement for foreign economic actors. International economic activity is a complex, multilayered issue, one that touches (and often clashes with) a multitude of global issues.

A somewhat complicated relationship exists between international economic activity of multinational corporations and morality. The different concepts of moral behaviour, the notion of companies as entities that should act according to guidelines of morality (rather than just acting according to laws) and the role of the state as a champion for the public’s morality; all these factors are controversial and contribute to the complexity of the relationship. In the context of international economic law, one should add to this debate concerns of hidden protectionism, i.e. cases in which a state attempts to protect its domestic industry by attributing ‘moral fault’ to foreign economic actors.

In the past, several multinationals have acted in a manner which is considered as immoral to western eyes. Reports of Nike’s ‘sweatshops’ remains until today a symbol for abusive behaviour, in which the possibility to reduce costs outdid western views of what is appropriate. In other, less brutal cases however, the clash between international economic rights and morality is harder to discern. Indeed in recent years two cases relating to this issue of ‘morality’ were adjudicated by the WTO Dispute Settlement Body (“DSB”): US - Measures Affecting the Cross-Border Supply of Gambling and Betting Services[1] in which the United State raised GATS Article XIV(a) – the ‘public morals’ defence – concerning its prohibition of online gambling, and China – Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products[2] in which China raised the ‘public morals’ defence (this time under the GATT), regarding its right to authorise and restrict the distribution of foreign ‘entertainment products’ (i.e. DVDs, books, etc.).

Both of these cases dealt with attempts of multinational corporations to operate in foreign markets (the US market in the first case, the Chinese market in the second), and the consequent refusal of local authorities to allow their activities due to the danger that such an industry poses to its ‘public morals’. In both of these cases it was not so much the companies’ behaviour, but rather the companies’ services and products (gambling and entertainment products) that were considered as a threat to ‘public morals’.

When deciding these cases, the WTO panels clarified that the notion of ‘morals’ is to be defined according to the local “community or nation” standards of morality. ‘Morality’, for the purpose of WTO law, is a subjective, local concept, and is to be determined according to local “cultural, ethical and religious values”. One may ask whether this type of pluralistic determination does not bring WTO panels to an automatic acceptance of any claim of the morality defence.[3] After all, how can a foreign panel of arbitrators dispute a claim based on local values? Should and can trade arbitrators become the judges of such values?[4]

A recent clash between two rising giants, China and Google, presents another advancement in the relationship between multinational corporations and morality. In a nut shell, this dispute regards Google’s decision to shut its Chinese search engine (google.cn), due to the Chinese authorities’ censorship of Google search results. Google’s decision was not portrayed as a business decision, or as a result of cost-benefit calculation, but as nothing less than a human-rights/freedom of speech political move. Sergey Brin, one of Google’s two co-founders demanded U.S. governmental support on this issue, stating “I certainly hope they make it a high priority … Human rights issues deserve equal time to the trade issues that are high priority now,… I hope this gets taken seriously.”[5] He further sources his childhood in communist USSR as a motivation for this move.[6] U.S. officials were fast to adopt Brin’s narrative; Secretary of State Hillary Clinton was quoted by the BBC, saying that companies like Google should refuse to support “politically motivated censorship”.[7]

Google so it seems, is doing what the U.S. or China have attempted to do in the above described trade disputes: It claims that the other party’s morality is just not high enough for its own standards. While such a decision is expected of a sovereign body like a state, it is somewhat surprising to see it coming from a commercial entity. Whose standards of morality does Google promote here? Its shareholders? Probably not.[8] Sergey Brin’s? Possibly. The free world? Who appointed them or asked them to?

I would like to end this entry with two concluding thoughts. First, if the two trade cases presented above (US – Gambling and China – entertainment products) illustrate how states make use of morality in the face of multinational corporations, the Google-China incident shows that multinational corporations can play this game just as well. However, it is not yet clear what this ‘morality’-based narrative will get Google eventually (besides gaining some positive public opinion), and whether this type of ‘soft power’ is effective at all. More experienced players have already advised Google: “You’ve got to decide: do you want to obey the laws of the countries you’re in or not? If not, you may not end up doing business there.”[9]

Furthermore, it is not at all clear whether it is within the interests of multinational corporations to drag morality deeper into the game. While ‘morality’ is a possible defence in trade law, the lacking of such is not yet a valid ground for a challenge. Moreover, raising such a claim could possibly invite public scrutiny of the claimant itself. This kind of attention can do more damage than good.

Second, when it comes to the resolution of disputes, it is not clear how economic tribunals can assess ‘morality’ based claims. In fact, besides accepting whatever ‘morality’ claim that is laid before them, it is not clear what else arbitrators can do.

[2] http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds363_e.htm

[3] Pending, of course, on the fulfillment of the defence’s other conditions.

[4] It is hard however to see how could have the panels ruled in a different manner. Approaching to ‘universal’ values will obviously be overreaching and probably highly controversial

[5] Bobby Johnson & Ian Katz, “Google Co-founder Sergey Brin urges US to act over China web censorship” (24 March 2010) The Guardian, online: <http://www.guardian.co.uk/technology/2010/mar/24/google-china-sergey-brin-censorship>

[6] Ibid. See also Steve Lohr, “Interview: Sergey Brin on Google China Move” (22 March 2010) New York Times, online: <http://bits.blogs.nytimes.com/2010/03/22/interview-sergey-brin-on-googles-china-gambit/>

[7] BBC News, “Hillary Clinton calls on China to probe Google attack”, (21 January 2010) BBC News, online: <http://news.bbc.co.uk/1/hi/8472683.stm>

[8] In 2007 Google’s shareholders rejected a proposal against self-censorship in China. Erik Larkin, “Google Shareholders Vote Against Anti-Censorship Proposal”, (11 May 2007) PC World, online: PC World, <http://www.pcworld.com/article/131745/google_shareholders_vote_against_anticensorship_proposal.html>

[9] Bill Gates, as quoted in Bobbie Johnson & Tania Branigan, “Web censorship in China? Not a problem, says Bill Gates”, (25 January 2010) The Guardian, online: <http://www.guardian.co.uk/technology/2010/jan/25/bill-gates-web-censorship-china?intcmp=239>.

Unlike the World Trade Organization’s (WTO) dispute settlement system, however, the substantive and procedural law applicable to investment disputes is not formalized in a manner analogous to the WTO Dispute Settlement Understanding (DSU).  Instead, international investment arbitration is a mixed system; one that is fragmented and that “sits uneasily between public international law jurisdictions and domestic judicial systems”.[3]

Perhaps this uncomfortable mélange is a necessary characteristic that ensures the dispute resolution process is “neutral and effective”.[4] The existence of such a “broad network of interrelated rights”, however, creates a “patchwork”.[5] As Susan D. Franck notes:

“[…] decisions about issues with economic and political consequences are resolved in private before different sets of individuals who can and do come to conflicting decisions on the same points of law”.[6]

This patchwork creates uncertainty about the meaning of investment treaty rights in public international law,[7] which is evidenced by inconsistencies in investor-state arbitral jurisprudence[8] – and there is no single body empowered to resolve the inevitable inconsistencies that result.[9]

So where do we go from here?  For international investors, does this make investor-state arbitration as a dispute settlement mechanism a “risky” choice?[10]

This debate quickly shifts toward finding a solution to these unsightly inconsistencies.  Should an appellate review system be established?  Should confidentiality be stripped from arbitral awards to increase transparency?[11] Less focus is placed, however, on the causes of this inconsistency.

Certain sources of conflicting jurisprudence are systemic and necessary, such as the ad hoc nature of investment arbitration.[12] Others may result from the correctable errors of arbitral panels.  For example, the notion of National Treatment – the “counterpart in international trade law of the Biblical injunction to “love thy neighbour as thyself” ”[13] – exists in both the WTO and investment treaty law.  The WTO DSU has been construed as “a lodestar in charting the desired evolution of the system of investor-state arbitration”,[14] and this perspective creates a tendency for investment arbitrators to draw on WTO jurisprudence.[15]

The concept of National Treatment in investment treaties, however, is similar though not identical to the form it takes in the WTO Agreements.  By extension, the reasoning of WTO panels or of the WTO Appellate Body cannot be directly applied to investor-state disputes.

This issue is one of many that begs for attention.  Before we start sculpting solutions to the inevitable inconsistencies generated by international investor-state arbitration, we must focus our attention on the causes.

[2] Ibid.

[3] Ibid. at 578.

[4] Ibid.

[5] Susan D. Franck, “The Legitimacy Crisis in Investment Treaty Arbitration: Privatizing Public International Law Through Inconsistent Decisions” (2005) 73 Fordam L. Rev. 1521 at 1523.

[6] Ibid. at 1522.

[7] Ibid. at 1523.

[8] See for example Jürgen Kurtz’s examination of Occidental v. Ecuador and Methanex v. USA in “The Use and Abuse of WTO Law in Investor-State Arbitration: Competition and its Discontents” (2009) 20(3) The European Journal of International Law 749.

[9] Supra note 5 at 1522.

[10] Frank Spoorenberg & Jorge E. Viñuales, “Conflicting Decisions in International  Arbitration” (2009) 8 The Law and Practice of International Courts and Tribunals 91 at 92.

[11] Jürgen Kurtz, “The Use and Abuse of WTO Law in Investor-State Arbitration:  Competition and its Discontents” (2009) 20(3) The European Journal of International Law 749 at 751.

[12] For example, the application of different sets of laws in different jurisdictions by different arbitral panels will necessarily result in a certain – and arguably tolerable – level of inconsistency.

[13] Aaditya Matoo, “National Treatment in the GATS” (1997) 31(1) Journal of World Trade Law 107 at 107.

[14] Supra note 11 at 750.

[15] Ibid.

In the eyes of many, regionalism and multilateralism stand stubbornly pitted against one another, despite implicit recognition of the “desirability” of RTAs in Art. XXIV:4 of the 1947 version of the General Agreement on Tariffs and Trade (GATT).[4]

Since the establishment of the Committee on Regional Trade Agreements (CRTA) in 1996, the WTO has scrambled to find ways to effectively control the impact of RTAs. This futile mission to tighten RTA regulation has been driven by a persistent fear of trade diversion, as well as by the assumption that regionalism—and the agreements springing from it—is subordinate to the multilateral regime.

WTO regulation of RTAs has evolved since 1947, notably with the introduction of the 1994 Understanding on the Interpretation of Article XXIV of the GATT 1994 and the creation of the Transparency Mechanism for RTAs in 2006. These regulations remain however, narrow and ambiguous. Article XXIV thus continues its long history of being systematically flouted by member states with the WTO as little more than “an innocent bystander” to the overwhelming spread of regionalism.[5]

Under the GATT 1947, regionalism was permitted as an exception.[7] RTAs were accepted, but only to the extent that they complied with the terms of GATT Art. XXIV. It is this exception ethos that reinforces the “conceptual primacy of multilateralism,” which undermines the legitimacy of RTAs.[8] In many respects, this attitude has contributed to the disregard of GATT Art. XXIV.

It is time to reconceptualize the relationship between the WTO and RTAs. Regionalism is a permanent feature of the multilateral trading regime and “a natural path of human civilization.”[6] WTO regulation of regional trading blocs must begin by acknowledging this firmly entrenched reality. Many discussions of regionalism use the “building blocks” versus “stumbling blocks” rubric to debate the trade creation/diversion effects of RTAs on the multilateral regime. Scholars and policymakers line up along one side or the other, vehemently espousing the benefits or drawbacks associated with regional trading blocs.

These criticisms however, miss the point. Firstly, regional blocs are not necessarily a step on the way to something else; they are an end themselves. Secondly, it is no longer constructive to debate the advantages and disadvantages of RTAs, particularly within this building block/stumbling block paradigm. Doing so artificially narrows the scope of analysis. The impacts of RTAs are part of a single category: effects of regionalism. Separating these effects into the “good” and the “bad” has lost its practical relevance. The WTO should instead focus its efforts on redefining the broader relationship between regionalism and multilateralism. The question remains: where do we go from here?

[2] Ibid.

[3] John Jackson quoted by David A. Gantz in Regional Trade Agreements: Law, Policy and Practice (Durham: Carolina Academic Press, 2009) at 31.

[4] General Agreement on Tariffs and Trade, 30 October 1947, 58 U.N.T.S. 187, Can. T.S.1947 No. 27 (entered into force 1 January 1948) [GATT 1947], Art. XXIV:4.

[5] Richard Baldwin, Multilateralising Regionalism: Spaghetti Bowls as Building Blocs on the Path to Global Free Trade (2006) NBER Working Paper No. 12545 at 37.

[6] Sungjoon Cho, “Breaking the Barrier Between Regionalism and Multilateralism: A New Perspective on Trade Regionalism” (2001) 42:2 Harvard International Law Journal 419 at 419.

[7] Ibid, at 421.

[8] Ibid.