# Trade Law: An Introduction to Selected International Agreements and U.S. Laws > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/crs%3AR41306 ## Record - **Collection:** Congressional research report - **Document type:** CRS Report - **Published:** April 3, 2012 - **Citation:** R41306 ## Text Trade Law: An Introduction to Selected International Agreements and U.S. Laws (name redacted) Legislative Attorney April 3, 2012 Congressional Research Service 7-.... www.crs.gov R41306 CRS Report for Congress Prepared for Members and Committees of Congress Trade Law: An Introduction to Selected International Agreements and U.S. Laws Summary The United States has trade obligations under multilateral trade agreements, including the General Agreement on Tariffs and Trade (GATT) and the other World Trade Organization (WTO) agreements, as well as bilateral and regional trade agreements. A variety of domestic laws implement these agreements, prescribe U.S. trade policy goals, or regulate international trade to achieve specific foreign policy objectives. This report provides an overview of both international and domestic trade law, focusing on a select group of international agreements and statutes that are most commonly implicated by U.S. trade interests and policy. Historically, parties to international trade agreements were obligated to reduce two kinds of trade barriers: tariffs and non-tariff trade barriers. Whereas the former may hinder an imported product’s ability to compete in a foreign market by imposing an additional cost on the product’s entry into the market, the latter has the potential to bar an import from entering that market altogether by, for example, restricting the number of such imports that can enter the market or imposing prohibitively strict packaging and labeling requirements. Consequently, at their most basic, international trade agreements obligate their parties to convert at least some of their nontariff trade barriers into tariffs, set a ceiling on the tariff rates for particular products, and then progressively reduce those rates over time. However, over time, U.S. trade agreements have become increasingly complex. The U.S. model free trade agreement now targets not only tariffs and non-tariff barriers, but also domestic policies in areas such as labor, environmental law, and electronic commerce that U.S. policymakers consider unfair trade practices. Trade agreements have also evolved to include elaborate trade dispute settlement mechanisms. As illustrated in this report, the typical international trade agreement today disciplines its parties’ use of tariffs and trade barriers, authorizes its parties to use discriminatory trade measures to remedy certain unfair trade practices, and establishes a dispute settlement body. Domestic trade laws, meanwhile, can broadly be classified as laws (1) authorizing trade remedies, including remedies for violations of trade agreements, countervailing duties for subsidized imports, and antidumping duties for imports sold at less than their normal value, (2) setting domestic tariff rates and providing special duty-free or preferential tariff treatment for certain products, and (3) authorizing the imposition of trade sanctions to protect U.S. security or achieve foreign policy goals. In addition to describing these domestic laws, this report summarizes the constitutional authorities of Congress and the executive branch over international trade. Finally, the report identifies many of the federal agencies and entities charged with overseeing the development of new trade agreements and the administration and enforcement of federal trade laws. Among the federal agencies and entities discussed are the United States Trade Representative (USTR), the International Trade Administration (ITA), the International Trade Commission (ITC), the United States Customs and Border Protection (CBP), and the United States Court of International Trade (CIT). This report is not intended as a comprehensive review of trade law. It is an introductory overview of the legal framework governing trade-related measures. The agreements and laws selected for discussion are those most commonly implicated by U.S. trade interests, but there are U.S. trade laws and obligations beyond those reviewed in this report. Congressional Research Service Trade Law: An Introduction to Selected International Agreements and U.S. Laws Contents Introduction...................................................................................................................................... 1 Part I: United States Trade Obligations Under International Law ................................................... 1 The Uruguay Round, Marrakesh Agreement, and World Trade Organization .......................... 2 The General Agreement on Tariffs and Trade (GATT) 1994 .............................................. 3 The Nondiscrimination Provisions of the GATT .......................................................... 3 Article XX: General Exceptions to the GATT and “the Chapeau” ............................. 13 Other WTO Agreements Reached During the Uruguay Round ........................................ 19 Antidumping Agreement............................................................................................. 20 Agreement on Subsidies and Countervailing Measures.............................................. 22 Agreement on Safeguards ........................................................................................... 24 Agreement on Rules of Origin .................................................................................... 25 Agreement on Agriculture........................................................................................... 26 Prohibited Export Subsidies Under the AA ................................................................ 27 Domestic Support Programs ....................................................................................... 28 Agreement on Technical Barriers to Trade ................................................................. 30 Agreement on Sanitary and Phytosanitary Measures.................................................. 33 General Agreement on Trade in Services.................................................................... 36 Agreement on Trade-Related Intellectual Property Rights ......................................... 38 Dispute Settlement Understanding.................................................................................... 40 The WTO Plurilateral Agreements.................................................................................... 41 Agreement on Government Procurement.................................................................... 41 Agreement on Trade in Civil Aircraft ......................................................................... 43 The Doha Development Round......................................................................................... 44 Free and Reciprocal Trade Agreements................................................................................... 44 North American Free Trade Agreement ............................................................................ 47 Investment Provisions................................................................................................. 47 Intellectual Property.................................................................................................... 48 Labor ........................................................................................................................... 49 Dominican Republic-Central America-United States Free Trade Agreement................... 50 Investment................................................................................................................... 51 Intellectual Property Provisions .................................................................................. 52 Labor Provisions ......................................................................................................... 53 Trade Negotiations for the Trans-Pacific Partnership Agreement..................................... 55 Part II: The U.S. Constitution and Separation of Powers .............................................................. 56 Article I of the Constitution and Legislative Branch Authority............................................... 56 Article II of the Constitution and Executive Branch Authority............................................... 57 Separation of Powers in Practice: Fast Track and Trade Remedies......................................... 57 Fast Track Authority: Trade Act of 1934, Trade Act of 1974, and Bipartisan Trade Promotion Act of 2002................................................................................................... 57 Import Competition: Tariff Act of 1930 and Trade Act of 1974........................................ 58 Part III: Selected U.S. Agencies and Federal Entities with Responsibility for Aspects of International Trade...................................................................................................................... 60 United States Trade Representative......................................................................................... 60 United States International Trade Administration ................................................................... 60 United States International Trade Commission ....................................................................... 61 United States Customs and Border Protection......................................................................... 61 Congressional Research Service Trade Law: An Introduction to Selected International Agreements and U.S. Laws United States Court of International Trade.............................................................................. 61 Part IV: Selected Federal Statutes Regulating International Trade................................................ 62 Trade Remedy Laws ................................................................................................................ 62 Section 301 of the Trade Act of 1974: Remedies for Violations of Trade Agreements and Other Inconsistent or Unjustifiable Foreign Trade Practices .............. 62 Countervailing Duties: Remedies for Imports of Subsidized Goods ................................ 63 Antidumping Duties: Remedies for Imports Sold at Less Than Fair Value ...................... 65 Safeguards ......................................................................................................................... 67 Section 201.................................................................................................................. 67 Country-Specific Safeguards ...................................................................................... 68 Domestic Tariff and Customs Law .......................................................................................... 69 Harmonized Tariff Schedule.............................................................................................. 69 Generalized System of Preferences................................................................................... 69 Eligible Countries ....................................................................................................... 70 Eligible Products......................................................................................................... 70 Other Duty Free Entry Programs....................................................................................... 71 Statutory Authorities for the Imposition of Trade Sanctions ................................................... 72 Trading with the Enemy Act.............................................................................................. 72 International Emergency Economic Powers Act............................................................... 73 Contacts Author Contact Information........................................................................................................... 75 Acknowledgments ......................................................................................................................... 75 Congressional Research Service Trade Law: An Introduction to Selected International Agreements and U.S. Laws Introduction The post-World War II era has been characterized by a global movement toward liberalizing trade and creating frameworks under which trade disputes can be avoided and resolved.1 In particular, the trade agreements of the last half-century can be seen as adopting the view that government bodies need a global legal framework to ensure that they effectively conform their countries’ policies and laws with their citizens’ interests.2 Legal theorists posit that trade policy failure, in both the global and domestic arenas, as well as inequitable power dynamics among countries engaged in trade negotiations, are the products of a legal architecture that does not sufficiently discipline how governments represent their citizens’ interests.3 In this vein, the international trade law regime has attempted to strengthen its enforcement mechanism over time to ensure that national governments comply with trade law despite shifting domestic pressures.4 As international trade law has developed, there has been interplay between domestic and global trade law. Initially, international trade agreements focused on tariffs, but, over time, they have broadened to encompass aspects of domestic policymaking and establish fairly stringent dispute settlement mechanisms. This interplay, however, has led to criticism that trade agreements infringe national sovereignty and autonomy by (1) limiting the kinds of policy decisions a country can make and (2) giving international trade dispute settlement bodies too much power to shape and constrain domestic law. This report provides an overview of the legal framework that governs trade-related measures. This framework is composed of both international agreements and domestic laws. The particular agreements and statutes selected for this report are those that are most commonly implicated by U.S. trade interests and policy. This report is not intended to be a comprehensive review of trade law. Part I: United States Trade Obligations Under International Law Often, a single trade issue, such as dumping (the sale of goods in foreign markets at lower prices than in the domestic market), is governed by both international agreements and federal laws. Accordingly, this report first discusses international trade agreements and then turns to domestic law. The United States has international trade obligations under (1) the World Trade Organization (WTO) agreements, which include the General Agreement on Trade and Tariffs (GATT) and other “covered agreements”;5 (2) its own free trade agreements; and (3) other international agreements 1 See WORLD TRADE ORGANIZATION, WORLD TRADE REPORT 2007 iii, 247 (2007). Id. at 80 (2007). 3 Id. at 79. 4 See id. at 118. 5 The term “covered agreements” refers to the Marrakesh Agreement, the Agreements in Annexes I and 2 of that Agreement, and any Plurilateral Trade Agreement in Annex 4 of that Agreement. Appellate Body Report, Brazil– Measures Affecting Desiccated Coconut, p.13 WT/DS22/AB/R (February 21, 1997). The Marrakesh Agreement and (continued...) 2 Congressional Research Service 1 Trade Law: An Introduction to Selected International Agreements and U.S. Laws with narrower policy goals, such as the conservation of natural resources. The scope of this report, however, is limited to obligations incurred under agreements that seek to liberalize international trade. In the WTO context, trade agreements are categorized as either multilateral (accepted by all WTO Members as a condition of membership) or plurilateral (accepted by only some WTO Members). Other free trade agreements may be classified as bilateral agreements (which bind only two countries) and regional agreements (which bind countries within a discrete region of the world). No matter their classification, most trade agreements have a corresponding body of domestic law. The Uruguay Round, Marrakesh Agreement, and World Trade Organization After World War II, developed nations sought to establish an open trade network to facilitate the recovery of the global economy. These negotiations yielded a proposal for an International Trade Organization (ITO), and, as a temporary fix until the ITO Charter could be negotiated, the General Agreement on Trade and Tariffs 1947 (GATT 1947). The expectation was that the GATT 1947 would expire once a more comprehensive trade agreement, the ITO Charter, was developed and ratified.6 Then the ITO would interpret and administer the ITO Charter. However, the ITO never materialized, and, therefore, despite its provisional nature, the GATT 1947 became a permanent fixture in international trade.7 Nevertheless, to dispel any concern that an international organization had been established, the GATT 1947 signatories continued to be called “Contracting Parties” rather than “Members.” Moreover, the GATT 1947 was not considered a comprehensive trade agreement because it consisted mainly of the commercial policy provisions of the ITO charter. Partly as a response to concerns about the GATT 1947’s strength and breadth, Contracting Parties engaged in a series of “rounds” of multilateral trade negotiations over the ensuing decades: the Dillon Round (1960-1962), the Kennedy Round (1964-1967), the Tokyo Round (1973-1979), the Uruguay Round (1986-1994), and the ongoing Doha Development Round. Each round of talks sought to liberalize new markets, lower tariffs, and identify solutions to different kinds of trade barriers.8 It was not until the Uruguay Round that the Contracting Parties finally reached an agreement on a charter for an international trade organization: the WTO. The agreements completed in the Uruguay Round are detailed in the Marrakesh Agreement. Part of this Agreement is the Agreement Establishing the World Trade Organization (the WTO Agreement). The other texts negotiated during the Uruguay Round are annexed to the WTO Agreement. Annex 1 contains 13 multilateral agreements on trade in goods as well as the General Agreement on Trade in Services and the Agreement on Trade-Related Aspects of Intellectual (...continued) the contents of its annexes will be discussed further in “The Uruguay Round, Marrakesh Agreement, and World Trade Organization.” 6 WORLD TRADE REPORT, supra footnote 2, at 80. 7 See id. 8 The Kennedy Round was the first round to go beyond tariffs and deal with certain non-tariff measures. Id. at 184. However, since then, non-tariff barriers have become a major part of multilateral trade negotiations. Congressional Research Service 2 Trade Law: An Introduction to Selected International Agreements and U.S. Laws Property Rights.9 Annex 2 contains the Dispute Settlement Understanding, which sets out the process by which WTO Members may resolve disputes over the meaning or application of a WTO agreement. Annex 3 contains a Trade Policy Review mechanism, providing for periodic review of a WTO Member’s trade laws and policies. Annexes 1 through 3, and the agreements therein, must be accepted by a country as a condition of its membership in the WTO. Accordingly, all of these agreements, along with the other provisions of the Marrakesh Agreement, were approved and implemented in U.S. law through the Uruguay Round Agreements Act (URAA, P.L. 103-465, 19 U.S.C. §3501 et seq.), which then-President Bill Clinton signed into law on December 8, 1994. The General Agreement on Tariffs and Trade (GATT) 1994 The GATT 1994, which is found in Annex I of the WTO Agreement, consists of (a) the GATT 1947, (b) certain protocols, waivers, and tariff concessions made pursuant to the GATT 1947, and (c) interpretations of particular language and provisions of the GATT 1947. At its most general, the GATT sets the maximum tariffs for particular goods and countries and disciplines certain trade-restricting measures adopted by WTO Members. This report surveys many of the articles of the GATT that are considered fundamental as well as those that are frequently raised in WTO consultations or disputes over a WTO Member’s domestic trade measures. The Nondiscrimination Provisions of the GATT The GATT seeks to prohibit WTO Members from discriminating between “like products” on the basis of their origins. More specifically, the GATT bars WTO Members from discriminating between like products because they originated in different WTO Members or because they originated in a WTO Member’s territory rather than domestically. The GATT articles that lay out this prohibition, Article I and Article III, are therefore known as the nondiscrimination provisions. Although “like product” is used in both provisions, the GATT does not offer a single precise and absolute definition of the term.10 Consequently, to determine whether two products are “like,” WTO panels and the Appellate Body engage in a case-by-case analysis to discern whether the two products are in a competitive relationship given the products’ properties and end uses, consumer preferences, and tariff classification.11 Article I: Most Favored Nation Treatment Article I of the GATT requires WTO Members to grant immediate and unconditional mostfavored-nation (MFN) treatment to the products of other Members.12 This means that any 9 The other agreements included in this annex are: the Agreement on Agriculture, the Agreement on Sanitary and Phytosanitary Measures, the Agreement on Textiles and Clothing (which terminated in January 2005), the Agreement on Technical Barriers to Trade, the Agreement on Trade-Related Investment Measures, the Agreement on Antidumping, the Agreement on Customs Valuation, the Agreement on Preshipment Inspection, the Agreement on Rules of Origin, the Agreement on Import Licensing, the Agreement on Subsidies and Countervailing Measures, and the Agreement on Safeguards. 10 See Appellate Body Report, Japan–Taxes on Alcoholic Beverages, WT/DS8/AB/R, p. 21 (October 4, 1996) (writing that the concept of “like product” is “like an accordion”). 11 See Appellate Body Report, EC–Asbestos, WT/DS135/AB/R, ¶ 99 (March 12, 2001); Working Party Report on Border Tax Adjustments (December 2, 1980), GATT B.I.S.D. (18th Supp.) at 97. 12 GATT, Art. I:1. Note that domestic U.S. law refers to MFN status as “normal trade relations.” Internal Revenue Restructuring and Reform Act of 1998, P.L. 105-206 §5003, 112 Stat. 685 (1998). Congressional Research Service 3 Trade Law: An Introduction to Selected International Agreements and U.S. Laws “advantage” that a WTO Member grants in the context of customs duties or rules regarding importation or exportation to any product imported from one country, whether a WTO Member or not, must also be granted to any “like” product imported from all WTO Members.13 The term “advantage” in Article I:1 has been given a very broad definition to encompass any more favorable competitive opportunity or commercial status relative to those of like products destined to different WTO Members.14 It can include, for example, variations in both the procedural and administrative requirements for imports.15 As a result, variations in the licensing requirements for imports can constitute an advantage under Article I:1.16 In EC–Bananas III,17 for example, a WTO panel ruled that the European Union had accorded an origin-discriminatory advantage to the products of some WTO Members by imposing additional licensing requirements on imports from other WTO Members.18 Notably, a measure may be deemed to accord an advantage even if it is written in origin neutral terms.19 Similarly, two products may be deemed “like” under Article I:1 even if they are subject to different tariff classifications or, for other reasons, are not exact duplicates.20 WTO panels and the Appellate Body assess the “likeness” of two products by examining their characteristics, their end-uses, their tariff classification, and consumers’ tastes and habits.21 Where a complaining Member demonstrates that the difference in treatment between imported products is based exclusively on the products’ different origins, a WTO panel will presume that there can or will be discrimination between imported products that are “like.”22Although it is often difficult in other cases to predict whether a given measure would affect “like” products from WTO Members, a measure that affects a broad range of products may be likely to result in discrimination between at least some “like” imports. 13 Panel Report, Indonesia–Certain Measures Affecting the Automobile Industry, WT/DS54/R, ¶ 14.138 (July 2, 1998). Note that free trade agreements are often facially inconsistent with this requirement but have generally been permitted under Article XXIV. See infra “Article XXIV: Customs Unions and Free Trade Areas.” 14 Panel Report, EC–Regime for the Importation, Sale, and Distribution of Bananas, WT/DS27/R/GTM, ¶ 7.239 (May 22, 1997); Panel Report, Colombia–Indicative Prices and Restrictions on Ports of Entry, ¶ 7.341, WT/DS366/R (April 27, 2009). In Colombia–Ports of Entry, the panel wrote that a measure also gives rise to an Article I:1 “advantage” when it gives an operator the opportunity to “choose how to operate his business in order to enhance his profitability and competitiveness.” Id. at ¶ 7.351. 15 See Panel Report, EC–Regime for the Importation, Sale, and Distribution of Bananas, WT/DS27/R/USA, paras. 7.193, 7.194 (May 22, 1997). 16 See id. In EC–Bananas III, the Appellate Body affirmed a WTO panel report ruling that the European Union’s import licensing procedures for bananas were inconsistent with Article I:1 of the GATT because they imposed heightened requirements for banana importers from some WTO Members but not all. Appellate Body Report, EC– Regime for the Importation, Sale, and Distribution of Bananas, ¶ 206, WT/DS27/AB/R, (September 9, 1997). 17 Panel Report, EC–Regime for the Importation, Sale, and Distribution of Bananas, WT/DS27/R/USA (May 22, 1997). 18 Id. at paras. 7.193, 7.194. 19 See Panel Report, Canada–Certain Measures Affecting the Automotive Industry, paras. 14.123, 14.147, 15.1(c), WT/DS139/R (February 11, 2000). 20 Rex J. Zedalis, A Theory of GATT Like Product Common Language Cases, 27 VAND. J. TRANSNAT’L L. 33, 78-84 (1994). See MICHAEL TREBILOCK, UNDERSTANDING TRADE LAW 40-41 (2011). 21 PETER VAN DEN BOSSCHE, THE LAW AND POLICY OF THE WORLD TRADE ORGANIZATION: TEXTS, CASES AND MATERIALS 330-31 (Cambridge University Press 2008) (2008). Panel Report, U.S.–Certain Measures Affecting Imports of Poultry from China, ¶ 7.425., WT/DS392/R (September 23, 2010). 22 Panel Report, U.S.–Poultry, supra footnote 21, at paras. 7.427, 7.428; Panel Report, Colombia–Ports of Entry, supra footnote 14, at paras. 7.356, 7.357. Congressional Research Service 4 Trade Law: An Introduction to Selected International Agreements and U.S. Laws Once a measure is found to have conferred a trade advantage that affects “like” products, that measure will be deemed inconsistent with Article I:1 if it fails to accord the advantage “unconditionally.” WTO panels have adopted different interpretations of the term “unconditionally,”23 but their decisions suggest that conditions may be attached to an advantage only if they do not discriminate, either on their face or as applied, between “like” products on the basis of their countries of origin or destination.24 For example, an advantage is not accorded “unconditionally” if some countries have to do or pay something to receive it.25 Similarly, an advantage is not accorded “unconditionally” if some countries have to take a particular action, such as adopt a specified policy, in order for exports to their territories to be eligible to receive it.26 Notably, a measure framed in origin neutral terms so as to appear facially consistent with Article I:1 violates the MFN principle if it has a discriminatory impact on imports of like products from some WTO Members relative to others.27 In Canada–Autos,28 for example, a WTO panel examined a Canadian measure that exempted car imports from a customs duty if their manufacturers satisfied certain requirements, including establishment in Canada and the use of Canadian materials in production.29 The panel found that the duty exemption was an “advantage” and that, although the exemption was origin neutral on its face, the structure and characteristics of the global automotive industry meant that the criteria for the exemption created origin-based discrimination among auto imports from WTO Members.30 The panel buttressed this finding with the measure’s legislative history, which suggested that the exemption was part of a scheme intended to rationalize production in the North American automotive market and encourage U.S.owned car manufacturers to expand their production operations to Canada.31 In other words, the panel ruled that Canada’s import duty exemption was a de facto violation of Article I:1 because it 23 Compare Panel Report, Canada–Autos, supra footnote 19, at paras. 10.23-10.25 (finding that measures are inconsistent with Article I:1 “not because they involve the application of conditions that were not related to the imported product but because they involve conditions that entailed different treatment of imported products upon their origin”) and Panel Report, Colombia–Ports of Entry, supra footnote 14, at ¶ 7.362 (“In line with the approach elaborated in the Canada–Autos dispute, the Panel considers that it may thus assess whether the advantage is conferred ‘immediately and unconditionally’ based on whether an advantage... is not similarly accorded to those products originating in Panama for reasons related to [their] origin or the conduct of Panama.”) with Panel Report, EC– Conditions for the Granting of Tariff Preferences, ¶ 7.59, WT/DS246/R (December 1, 2003) (writing that the term “unconditionally” in Article I:1 retains its “ordinary” meaning: “not limited by or subject to any conditions”). 24 See Panel Report, Colombia–Ports of Entry, supra footnote 14, at paras. 7.362- 7.366; Charles Benoit, Picking Tariff Winners: Non-Product Related PPMS and DSB Interpretations of “Unconditionally” Within Article I:1, 42 GEO. J. INT’L L. 583, 600 (2011) (writing that the panel decisions “favoring the flexible interpretations” of the term “unconditionally” include the latest panel report—Colombia–Ports of Entry—and have “contained lengthier and more in depth discussions of the meaning of Article I:1.”). 25 See Van den Bossche, supra footnote 21, at 332. 26 See id. 27 See Panel Report, Canada–Autos, supra footnote 19, at paras. 14.123, 14.147, 15.1(c); Trebilock, supra footnote 20, at 41. 28 Panel Report, Canada–Certain Measures Affecting the Automotive Industry, WT/DS139/R (February 11, 2000). 29 Id. at paras. 2.1, 2.2. 30 Id. at paras. 10.43-10.45. In particular, the panel found that the automotive industry relies heavily on “intra-firm trade”—that is, the major automotive corporations in Canada only imported their own make of motor vehicles and those of affiliated companies. Id. at paras. 10.43, 10.45. 31 Panel Report, Canada–Autos, supra footnote 28, at ¶ 10.49. Congressional Research Service 5 Trade Law: An Introduction to Selected International Agreements and U.S. Laws was designed to benefit auto imports from particular sources, namely those in the United States and North America, and had the discriminatory effect it intended.32 Similarly, in Indonesia–Autos,33 a WTO panel found that an Indonesian measure exempting certain cars from import duties and sales taxes was also inconsistent with Article I:1. In that case, an import’s eligibility for the exemptions depended on facially origin-neutral factors, such as the domestic car company’s relationship with the foreign importer, the use of local content, and the use of the imported car parts in the assembly in Indonesia of a domestic car.34 While these criteria, like those in Canada–Autos, were framed in origin neutral terms, the panel found that in practice only car imports from Korea could satisfy them.35 Therefore, the panel ruled that the tax advantages, as applied, were accorded in a fashion that discriminated against products from WTO Members on the basis of their origin.36 Article III: National Treatment Article III articulates the basic principle of “national treatment”: Members must treat products from other Members no less favorably than they treat their own “like” domestic products.37 Accordingly, Article III reflects concern that WTO Members could use internal taxation schemes, regulations, and other domestic measures to protect their domestic industries. As written, Article III forbids Members from using internal taxes, charges, and regulations that affect the “internal sale, offering for sale, purchase, transportation, distribution or use of products,” as well as internal quantitative regulations, so as to “afford protection to domestic production.”38 However, Article III prescribes different standards for national treatment depending on whether the particular measure is a tax or regulation. When a measure is an internal tax or charge, Article III:2 forbids its application if it either (1) is in excess of those taxes or charges applied to like domestic products39 or (2) dissimilarly taxes imports and domestic products so as to afford protection to a domestic product that is directly competitive with, or substitutable for, the imported product.40 However, when the measure in question is a “law, regulation, or requirement 32 See id. Panel Report, Indonesia–Certain Measures Affecting the Automobile Industry, WT/DS54/R (July 2, 1998). 34 Id. at paras. 14.145-14.146. 35 Id. at ¶ 14.145. 36 Id. 37 See GATT, Art. III:1. There are frequent disputes over the likeness or substitutability of the affected domestic and imported products. E.g., Canada–Periodicals, supra footnote 39, at p. 3 (describing Canada’s argument that split-run and non-split-run periodicals are like products); Japan–Alcoholic Beverages, supra footnote 39, at p.4 (describing Japan’s argument that shochu and vodka are like products). 38 GATT, Art. III:1. 39 Appellate Body Report, Canada–Certain Measures Concerning Periodicals, WT/DS31/AB/R, pp. 22-23 (June 30, 1997). Under this standard, “[e]ven the smallest amount of ‘excess’ is too much” under this standard. Appellate Body Report, Japan–Taxes on Alcoholic Beverages, WT/DS8/AB/R, p. 23 (October 4, 1996). 40 Japan–Alcoholic Beverages, supra footnote 39, at p. 24. The strict “in excess” standard applies only to the small group of products that are considered “like”—that is, products that are perfect substitutes for each other. GATT, Interpretative Note Ad Art. III:2; Canada–Periodicals, supra footnote 39, at p. 28. In contrast to “like products,” “directly competitive and substitutable products” refers to both perfect and imperfect substitutes. Id. Therefore, when the complaining Member’s products are directly competitive with, but not necessarily perfect substitutes for, the respondent’s domestic products, the respondent’s tax is not subject to the “in excess” standard but rather to a two-prong test that asks whether (1) the imported and domestic products are similarly taxed, and, if so, (2) whether the dissimilar taxation is applied so as to protect domestic production. Japan–Alcoholic Beverages, supra footnote 39, at p. 24. 33 Congressional Research Service 6 Trade Law: An Introduction to Selected International Agreements and U.S. Laws affecting their internal sale, offering for sale, purchase, transportation, distribution, or use,” Article III:4 proscribes its application if it treats foreign products less favorably than like domestic products.41 A wide variety of measures fit the definition of a “law, regulation, or requirement” affecting “internal” transactions, and, as a result, are subject to Article III:4. Examples include local content requirements, advertising bans, and labeling requirements.42 WTO and GATT panels have also found that, while measures that tax particular products, such as sales taxes, are governed by Article III:2, measures that tax taxpayers for engaging in particular behavior, such as tax credits for specified taxpayer purchases, are assessed under Article III:4.43 Even border measures— measures that affect importation or exportation—governed by Article XI:1 can be subject to Article III:4.44 Ultimately, whether a “law, regulation or requirement” is covered by Article III:4 typically depends on whether it might modify the conditions of competition between domestic and imported products in the internal market.45 Significantly, WTO panels have found that these conditions can be modified not only by measures that regulate the products but also by measures that regulate their manufacturers or producers.46 In Thailand–Cigarettes,47 a WTO panel considered the Article III:4 consistency of Thai measures that imposed more reporting, registration, and recordkeeping requirements on resellers of imported cigarettes than were imposed on resellers of domestic cigarettes.48 Thailand argued, inter alia, that the reason for the difference was to ensure that the sale of domestic products and the sale of imports were both subject to the same regulatory regime and legal liabilities.49 41 The Appellate Body has defined “like domestic product” more broadly for the purposes of the Article III:4 test than it has for the purposes of the test for internal taxes and charges laid out in Article III:2. See Appellate Body Report, EC– Measures Affecting Asbestos and Asbestos Containing Products, WT/DS135/AB/ R, ¶ 99 (March 12, 2001). The Appellate Body considers the term “like domestic product” in Article III:4 to include a small group of imperfectly substitutable products in addition to perfectly substitutable products. See id. 42 One example of an internal regulation deemed inconsistent with national treatment is the Korean dual retail scheme that the United States and Australia challenged in 1999. In those two cases, Korean measures confined sales of imported beef to stores bearing a “Specialized Imported Beef Store” sign. The panel held that both the requirement that imported beef be sold only in certain stores and the requirement that those stores bear a specialized sign violated Article III:4. Panel Report, Korea–Various Measures on Beef, WT/DS161/R, paras. 641-643 (July 31, 2000). 43 Compare U.S.–Measures Affecting Alcoholic and Malt Beverages (June 19, 1992), GATT B.I.S.D. (39th Supp.) 206, at paras. 5.13-15 (ruling that U.S. excise tax credits for domestic wine and cider producers contravened Article III:2) with Panel Report, U.S.–Tax Treatment for “Foreign Sales Corporations,” WT/DS108/RW, paras. 2.6, 8.144 (August 20, 2001) (ruling that an income tax benefit provided for income earned predominantly as a result of goods manufactured, grown, or extracted within the United States was governed by Article III:4). 44 Van den Bossche, supra footnote 21, at 347. See Panel Report, India–Measures Affecting the Automotive Sector, WT/DS146/R, paras. 7.224, 7.306 (March 8, 2002). 45 Panel Report, Italy–Agricultural Machinery, GATT B.I.S.D (7th Supp.), 60 at ¶ 12 (October 23, 1958) (emphasis added); Van den Bossche, supra footnote 21, at 369. 46 See, e.g., Panel Report, Mexico–Tax Measures on Soft Drinks and Other Beverages, WT/DS308/R, paras. 8.1098.113 (October 7, 2005) (finding that both “bookkeeping requirements” imposed on soft drink producers, importers, and exporters and taxes imposed on imported sweeteners affect the use of certain sweeteners within the meaning of Article III:4). 47 Panel Report, Thailand–Customs and Fiscal Measures on Cigarettes, WT/DS371/R, ¶ 7.734 (Jul 15, 2011). For example, businesses selling imported cigarettes were required to, inter alia, obtain, complete, and file certain forms on a monthly basis, prepare detailed tax invoices—and retain those invoices for no less than five years, and be subject to audits. Id. at paras. 7.651-7.655. 48 Appellate Body Report, Thailand–Customs and Fiscal Measures on Cigarettes, WT/DS371/AB/R, paras. 98-100 (July 15, 2011). 49 However, in affirming the panel’s decision, the Appellate Body wrote that Thailand did not produce evidence to (continued...) Congressional Research Service 7 Trade Law: An Introduction to Selected International Agreements and U.S. Laws Thailand alleged that because cigarette importers are not legally responsible for paying the taxes on their cigarettes, resellers of imported cigarettes presented a risk of tax evasion in the absence of measures subjecting the sale of imported cigarettes to reporting, collection, and enforcement mechanisms that mirrored those in place for the sale of domestic cigarettes.50 Therefore, Thailand contended that the measures merely imposed requirements on resellers of imported cigarettes for which there were already “equivalent” requirements imposed on resellers of domestic cigarettes.51 However, the WTO panel found that the Thai measures were inconsistent with Article III:4 because they could prejudice cigarette suppliers against importing and selling foreign-made cigarettes by raising the operating costs associated with selling imported cigarettes in the Thai market.52 The panel cited evidence that administrative burdens can and do affect business decisions and that the Thai measures at issue were enforced through penalties and other sanctions, including the denial of tax credits.53 Accordingly, the WTO panel and Appellate Body agreed that the Thai measures subjected imported cigarettes to less favorable treatment in violation of Article III:4.54 Article II: Tariffs The original goal of the GATT was to move countries toward imposing tariffs, rather than nontariff trade barriers,55 that could then be reduced over time. Article II of the GATT embodies this goal by requiring each WTO Member to abide by the tariff schedule that it has submitted to the WTO. The goods that are subject to the negotiated tariff rates are called “bound” items. Article II forbids Members from imposing tariffs on goods from other Members that are less favorable than the tariff rates listed in the applicable schedule.56 Furthermore, Members may not impose any other duty or charge on a product’s importation that exceeds the duties that existed at the date the Members entered the WTO.57 There are, however, exceptions to Article II. Under Article II:2, tariff concessions do not prevent Members from levying internal taxes consistent with Article III:2 (these are often called “border tax adjustments”),58 antidumping or (...continued) substantiate this assertion. Appellate Body Report, Thailand–Cigarettes, supra footnote 48, at ¶ 139. 50 Panel Report, Thailand–Cigarettes, supra footnote 47, at ¶ 7.740. 51 Id. at paras. 7.668. 52 Id. at ¶ 7.736. 53 Appellate Body Report, Thailand–Cigarettes, supra footnote 48, at paras. 137-138, n.204; Panel Report, Thailand– Cigarettes, supra footnote 47, at paras. 7.719, 7.222, 7.736 7.634. 54 Appellate Body Report, Thailand–Cigarettes, supra footnote 48, at ¶ 140; Panel Report, Thailand–Cigarettes, supra footnote 47, at ¶ 7.738. 55 An example of a non-tariff trade barrier is the Korean dual retail scheme that the WTO panel ruled against in 2000. Korea–Beef, supra footnote 42, at paras. 641-643. As explained earlier, under that scheme, Korea confined sales of imported beef to stores bearing a “Specialized Imported Beef Store” sign. Id. These kinds of trade barriers pose unique obstacles to trade liberalization in part because, unlike tariffs, they can not be overcome simply by a willingness to pay more money for the privilege of exporting products to a foreign country. 56 GATT, Art. II:1(a). 57 See id. at Art. II:1(b). 58 Border tax adjustments have particular significance in environmental policy. When a country wants its producers to internalize a particular environmental cost, it usually wants to do so without depriving the domestic industry affected of its global competitiveness. Consequently, it may impose a border tax adjustment (BTA) to “level the playing field,” that is, prevent imports from countries whose producers do not internalize that cost from being cheaper than domestic products whose producers do. However, not all taxes are eligible for treatment as a BTA. See, e.g., Panel Report, United States–Taxes on Petroleum and Certain Imported Substances (June 17, 1987), GATT B.I.S.D. (34th Supp.) 136, (continued...) Congressional Research Service 8 Trade Law: An Introduction to Selected International Agreements and U.S. Laws countervailing duties consistent with the GATT and other relevant agreements, and fees or other charges commensurate with the cost of services rendered.59 Despite Article II’s importance to the GATT, its enforcement can be difficult because WTO Members frequently disagree about which duty applies to a particular good. A country’s tariff schedules address categories and sub-categories of products but do not expressly identify and provide a tariff rate for every potential product variation and nuance.60 Despite these problems, a country’s customs agency must rely on the tariff schedules as written to identify the kind of product under consideration and apply a tariff rate. This leads to problems like the one encountered in EC–Chicken Classification, in which Brazil complained that the European Union incorrectly classified fresh chicken packed in salt as fresh chicken cuts rather than salted chicken cuts.61 At issue was an EU regulation that provided the customs agency with guidance on the distinction between salted and fresh chicken cuts, stating that chicken must be “deeply and homogenously impregnated with salt in all parts” to be subject to the ad valorem duty that was more favorable to foreign imports than the duty that was applied to fresh chicken.62 Article VIII: Fees and Formalities Article VIII:1 of the GATT requires that all fees and charges imposed in connection with importation or exportation be (1) limited in amount to the approximate cost of services rendered, and (2) not represent an indirect protection to domestic products or a taxation of imports or exports for fiscal purposes.63 The first prong (limiting the amount to the cost of services rendered) is actually a dual requirement as it requires (a) that a service was rendered, and (b) that the level of the charge does not exceed the approximate cost of that service.64 Moreover, the term “services rendered” means services rendered to the individual importer in question.65 (...continued) at paras. 5.2.3-5.2.4 (hereinafter US–Superfund); Working Party Report on Border Tax Adjustments, GATT B.I.S.D. (18th Supp.) 97, at ¶ 14 (1970). Taxes levied on producers, such as social security charges and payroll taxes, are not eligible for treatment as a BTA, but taxes levied on products are. See, e.g., US–Superfund, supra, at ¶ 5.2.4; Working Party Report on Border Tax Adjustments, supra, at ¶ 14. Accordingly, in US–Superfund, a GATT panel upheld a BTA imposed by the United States on imported products derived from certain petro and inorganic chemicals. US–Superfund, supra, at paras. 5.2.6-5.2.7. Having deemed the tax eligible for treatment as a BTA, the panel assessed whether the tax in fact met the qualifications, listed in Article II:2(a), for exemption from Article II:1. Id. at paras. 5.2.7-5.2.10. See also Art. II:2(a) (exempting charges only if they are “equivalent to an internal tax imposed consistently with the provisions of paragraph 2 of Article III in respect of the like domestic product or in respect of an article from which the imported product has been manufactured or produced in whole or in part.”). The panel found that the tax constituted a BTA that was, in principle, consistent with Article III:2 and, therefore, exempt from, rather than an infringement of, Article II:1. US–Superfund, supra, at ¶ 5.2.10. 59 GATT, Art. II:2. 60 See, e.g., Panel Report, EC–Salted Chicken Cuts, WT/DS269/ R, p. 2 (May 30, 2005). In negotiating tariff concessions, countries generally use a broad formula and do not look at every possible product individually. The result is that the actual classification of many products is not discussed at all. Id. 61 Id. at 2, 10-12. 62 Id. at 7, 18. 63 Article VIII:4 provides a non-exhaustive list of the type of governmental activities connected to importation or exportation to which Article VIII applies. These activities include licensing, statistical services, documentation, inspection, and quarantine. 64 Panel Report, U.S.–Customs User Fee (February 2, 1988), GATT B.I.S.D. (35th Supp.) 245, at ¶ 69. 65 Id. at paras. 77, 80. Congressional Research Service 9 Trade Law: An Introduction to Selected International Agreements and U.S. Laws One of the early disputes involving Article VIII was US–Customs User Fee, which was heard by a GATT panel in 1987. In that case, the European Union and Canada challenged the GATTconsistency of an ad valorem processing fee charged by the U.S. Customs Service on all commercial merchandise entering the United States.66 The amount of the fee charged varied depended only on the appraised value of the merchandise, not on the costs incurred by the Customs Service of processing the merchandise.67 The United States argued that the fee was commensurate with the services rendered because it was commensurate with the sum costs of the Customs Service’s commercial operations.68 The panel disagreed, finding that if the “cost of services rendered” referred to the total cost of the relevant government activities, rather than to the actual cost of the services rendered to the individual importers charged, Article VIII:1 would not provide an objective standard by which the equitable apportionment of these fees could be ascertained.69 Accordingly, it ruled that it the U.S. processing fee was inconsistent with Article VIII:1 to the extent that it caused fees to be levied in excess of the approximate cost of the services provided to each individual importer.70 Similarly, in Argentina–Textiles, the panel found that Article VIII:1 forbade Argentina from imposing an ad valorem duty with no fixed fee on textile and footwear imports. In that case, Argentina was calculating an average import price for each tariff line of textiles, apparels, and footwear to determine what the specific minimum duty was for products in that category.71 Upon the importation of an article within that tariff line, Argentina then applied either the specific minimum duty or an ad valorem duty with no fixed fee depending which duty was higher.72 While Argentina claimed that it applied the higher ad valorem duty only to recoup the costs of the “statistical services” involved in calculating the average import price for tariff line, the panel ruled that because the ad valorem duty had no fixed maximum fee, it was inherently not limited to the approximate cost of the services rendered and therefore inconsistent with Article VIII:1.73 In addition, in U.S.–Certain EC Products, a WTO panel ruled that Article VIII barred the United States from increasing bonding requirements on imports from the European Communities in order to secure the collection of future additional import duties that it was going to impose, once authorized by the DSB, for the European Communities’ non-compliance with a WTO decision.74 The United States argued that the increased bonding requirements were a fee for the “early release of merchandise,” but the panel found that the United States failed to provide any evidence that the bonding requirements represented any approximate costs of such services.75 66 Id. at ¶ 7. Id. at paras. 8, 10, 26. 68 Panel Report, U.S.–Customs User Fee, supra footnote 64, at ¶ 28. 69 Id. at ¶ 81. 70 Id. at ¶ 86. 71 Panel Report, Argentina–Measures Affecting Imports of Footwear, Textiles, Apparel, and Other Items, WT/DS56/R, ¶ 2.6 (November 25, 1997). 72 Id. 73 Id. at paras. 2.20, 6.75. 74 Panel Report, U.S.–Import Measures on Certain Products from the European Communities, WT/DS165/R, pp. 3-5 (July 17, 2000). 75 Id. at ¶ 6.70. 67 Congressional Research Service 10 Trade Law: An Introduction to Selected International Agreements and U.S. Laws Article IX: Marks of Origin Article IX of the GATT disciplines marks of origin laws, that is, laws setting requirements for the labeling of certain products with their country or region of origin. Under Article IX:1, WTO Members may not accord to the products of other Members “treatment with regard to marking requirements” that is “less favorable than the treatment accorded to like products of any third country.” Article IX thus requires most favored nation treatment in marks of origin laws just as Article I requires most-favored nation treatment in the broader context of tariffs, other charges, and all rules and formalities connected to importation and exportation. In addition, while Article IX:2 recognizes that origin marking is important for protecting consumers against fraudulent or misleading labels, it calls on WTO Members to reduce the trade barriers that may result from domestic origin marking requirements. Article IX is not so broad, however, as to govern measures requiring the labeling of process and production methods, even when the measure requires this labeling based on the location where the good was produced or harvested.76 In US–Tuna/Dolphin I, an unadopted report, a GATT panel rejected Mexico’s allegations that provisions of the U.S. Dolphin Protection Consumer Information Act (DPCIA) were inconsistent with Article IX.77 The challenged provisions created civil penalties for selling tuna products with labels or other indications that the tuna was harvested in a manner not harmful to dolphins if the tuna was caught in particular locations by certain methods.78 The GATT panel agreed with the United States that these labeling provisions were subject to the nondiscrimination rules set by Article I and Article III:4, not the marks of origin rules set by Article IX.79 The panel reasoned that because Article IX does not entail a national treatment requirement, but only a most favored nation requirement, it was intended to regulate the marking of origin of imported products, but not the marking of products or their process and production methods generally.80 Article XI: General Elimination of Quantitative Restrictions Article XI:1 of the GATT bars the institution or maintenance of quantitative restrictions on exports to, and imports from, any WTO Member’s territory. Quantitative restrictions limit the amount of a product that may be imported or exported. Unlike internal regulations enforced at the border, quantitative restrictions hinder the opportunity for a product to enter into, rather than simply compete in, the enforcing country’s market.81 Common examples of quantitative restrictions include embargoes, quotas, minimum import or export prices, and certain import or export licensing requirements. Only duties, taxes, and other charges are Article XI:1 consistent methods of restricting imports or exports. By barring WTO Members from placing quantitative prohibitions or restrictions on the importation or exportation of products, Article XI illustrates the strong preference of GATT and 76 See, e.g., Panel Report, U.S.–Restrictions on Imports of Tuna, (September 3, 1991) GATT B.I.S.D. (39th Supp.) 155 (unadopted). 77 Id. at ¶ 2.12. 78 Id. 79 Id. at ¶ 5.41 80 Panel Report, US–Tuna/Dolphin I, supra footnote 76, at ¶ 5.41. 81 Panel Report, India–Measures Affecting the Automotive Sector, ¶ 7.224, WT/DS146/R, WT/DS175/R (December 21, 2001). Congressional Research Service 11 Trade Law: An Introduction to Selected International Agreements and U.S. Laws Uruguay Round negotiators for tariffs as opposed to non-tariff border restrictions.82 These negotiators intentionally made tariffs the border protection of choice because they are more transparent and easily satisfied without bringing trade to a halt unlike quantitative restrictions, and, perhaps most importantly, they are capable of definitive reduction over time.83 Although Article XI:1 is a cornerstone GATT obligation, import and export restrictions are the frequent subject of WTO dispute settlement proceedings. In U.S.–Shrimp, for example, several WTO Members requested that a panel examine a U.S. ban on shrimp imports from nations whose trawling procedures the United States had not certified as sufficiently protecting sea turtles.84 The panel wrote that the express prohibition on imported shrimp from non-certified countries was inconsistent with Article XI:1,85 raising doubts about the WTO consistency of similar measures that ban imports or exports that do not meet certain criteria. While an import ban can be readily identified as a quantitative restriction, WTO panels have also characterized “discretionary” or “non-automatic” licensing requirements as prohibited quantitative restrictions.86 As a result, a system under which the licensing authority has universally granted licenses to applicants who satisfy the prerequisites may still violate Article XI:1 if those prerequisites give the licensing authority unfettered discretion to deny a license. 87 In addition, an early GATT case, Japan–Semi-Conductors,88 held that a lengthy license approval process also has a limiting effect on exportation in violation of Article XI:1. In that case, the GATT panel held that three-month delays in an agency’s export licensing process restrained exports even though the delays did not result from any “mandatory” law, regulation, or requirement.89 Japan had required exporters to obtain licenses before exporting certain quantities of semi-conductors, and, after several years, lowered the threshold level of semi-conductors that could be shipped without a license.90 As a result of this change in policy, the number of license applications almost doubled. The licensing agency found itself unprepared for the sudden increase of applications, and, due to the back-up, applications often could not be processed for several months.91 The panel held that the practices resulting in the three-month delays in licensing 82 GATT, Art. XI:1. See Panel Report, Turkey–Restrictions on Imports of Textile and Clothing Products, WT/DS34/R ¶ 9.63 (May 31, 1999). 83 See Panel Report, Turkey–Textiles, supra footnote 82, at ¶ 9.63. 84 Panel Report, U.S.–Import Prohibition of Certain Shrimp and Shrimp Products, ¶ 7.11, WT/DS58/R (May 15, 1998); Appellate Body Report, U.S.–Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, paras. 2-6 (October 12, 1998). Similarly, in U.S.–Tuna, a GATT panel found that a U.S. embargo on tuna imports from countries that did not implement a regulatory regime that prevented certain tuna harvesting practices was inconsistent with Article XI:1. Panel Report, U.S.–Tuna, supra footnote 76, at ¶ 7.1. 85 Panel Report, U.S.–Shrimp, supra footnote 84, at ¶ 7.16. As discussed below, the United States sought, unsuccessfully, to justify the measure under Article XX(b). See infra footnotes 109-115 and accompanying text. Ultimately, the Department of State revised its guidelines for the implementation of the country certification program. Notice of Proposed Revisions to Guidelines for the Implementation of Section 609 of P.L. 101-162, 64 Federal Register 14481 (March 25, 1994); Revised Guidelines for the Implementation of Section 609 of P.L. 101-162, 64 Federal Register 36946 (July 8, 1999). 86 See, e.g., Panel Report, India–Quantitative Restrictions on Imports of Agricultural, Textile, and Industrial Products, WT/DS90/R, paras. 5.129, 5.130 (September 22, 1999). 87 See e.g., Panel Report, China–Measures Related to the Exportation of Various Raw Materials, WT/DS394/R, ¶ 7.917 (July 5, 2011). 88 Panel Report, Japan–Trade in Semi-Conductors, (May 4, 1988) GATT B.I.S.D. (35th Supp.), 31. 89 Id. at paras. 108-109, 118. 90 Id. at ¶ 22. 91 Id. Congressional Research Service 12 Trade Law: An Introduction to Selected International Agreements and U.S. Laws had a limiting effect on exportation and were, therefore, de facto quantitative restrictions prohibited by Article XI:1.92 Despite the strong policy choice behind it, Article XI does provide exceptions to its rule, including (1) export prohibitions or restrictions temporarily applied to prevent or relieve critical shortages facing the exporting Party; (2) quantitative restrictions that are “necessary” for the application of standards or regulations for the classification, grading, or marketing of commodities in international trade; and (3) import restrictions designed to remove a temporary surplus of the like domestic product.93 Other GATT articles may be implicated by the imposition of quantitative restrictions.94 Under Article XIII, for example, quantitative restrictions must be applied in accordance with most favored nation treatment. Article XX: General Exceptions to the GATT and “the Chapeau” Article XX identifies 10 policy-related exceptions to the provisions of the GATT that may justify a GATT-inconsistent measure. To qualify for an exception, the violative measure must: (1) fall within the scope of one of the 10 exceptions; and (2) be applied in a manner that does not constitute arbitrary or unjustifiable discrimination between countries where the same conditions prevail or a disguised restriction on international trade. This second condition is referred to as “the chapeau” of Article XX because it is contained in the introductory clause, or the “hat,” of Article XX. The Article XX Exceptions Among the 10 measures excepted from the GATT’s provisions are those measures (1) necessary to protect public morals; (2) necessary to protect human, animal, or plant life and health; (3) relating to products of prison labor; (4) imposed for the protection of national treasures of artistic, historic, or archaeological value; or (5) relating to the conservation of exhaustible natural resources which operate in conjunction with restrictions on domestic production or consumption. Article XX operates as an affirmative defense in a WTO dispute settlement proceeding. Consequently, Article XX is raised after a Member’s measures are deemed inconsistent with the GATT and is invoked by the defending Member who bears the burden of proving that Article XX exempts the measures concerned from the provisions of the GATT. The defending Member must first show that the measure fits within one of the exceptions covered by Article XX. For Article XX exceptions that require the defending Member to prove that the measure is “necessary” to achieve an identified goal (e.g., to protect human, animal, or plant health), this means that the defending Member must make a prima facie case that (1) the common interests or values protected by the measure are important, (2) the measure materially contributes to the realization of the ends it pursues, and (3) the restrictive impact of the measure on international commerce is 92 See id. at ¶ 118. GATT, Art. XI:2. See also Panel Report, Canada–Measures Affecting Exports of Unprocessed Herring and Salmon (March 22, 1988), GATT B.I.S.D. (35th Supp.) 98, at paras. 4.2-4.3 (assessing whether Canada’s export restrictions on frozen fish that were not of “No. 1” quality were “necessary” for the purposes of Article XI:2(b)). 94 E.g., GATT, Art. XIII (requiring quantitative restrictions to be applied on an MFN basis); GATT, Art. XII (permitting the imposition of quantitative restrictions to safeguard a Member’s balance of payments). 93 Congressional Research Service 13 Trade Law: An Introduction to Selected International Agreements and U.S. Laws outweighed by its contribution to the stated values or interests.95 The complaining Member may then rebut the defending Member’s arguments by showing that there are less restrictive alternatives available. Then the defending Member must show that these alternatives would not be effective or feasible.96 The Article XX Chapeau If the defending Member is successful in showing that the measure fits into one of the stated Article XX exceptions, it must next show that the measure satisfies the “chapeau.” Specifically, the defending Member must establish that, as applied, the measure neither (1) creates arbitrary or unjustifiable discrimination between countries where the same conditions prevail nor (2) constitutes a disguised restriction on international trade.97 The chapeau is intended to strictly discipline the use of the Article XX exceptions so as to distinguish measures intended to protect legitimate interests from measures intended to circumvent a Member’s WTO obligations.98 Accordingly, the chapeau imposes requirements that are more difficult to satisfy than the requirements of any one of the 10 policy exceptions.99 Relatively few panel or Appellate Body reports have articulated the standards for determining that a measure is a disguised restriction on international trade. Ostensibly, this analysis involves a heightened analysis of the intent behind the measure’s application to discern whether the defending Member’s true motive was protectionism. 100 Because the intent behind a measure “may not be easily ascertained,” panels may scrutinize the “design, architecture, and revealing structure” for signs of knowing or willful “protective application.”101 A WTO panel may also consider the extent to which the measure’s application has a discriminatory effect, such as benefiting a domestic industry to the detriment of a foreign one.102 Given the rudimentary nature of WTO jurisprudence in this area, it can be difficult to predict whether a given measure would be indefensible under Article XX because its application constituted a disguised restriction on trade. In contrast to the jurisprudence on “disguised restrictions,” a host of WTO panels and Appellate Body reports have declared measures inconsistent with the Article XX chapeau because their application constituted arbitrary or unjustifiable discrimination. These decisions express a strong preference for measures applied after international negotiations or pursuant to an international agreement.103 The seeming corollary of this preference, moreover, is the distaste that panels and 95 Appellate Body Report, Korea–Various Measures on Beef, WT/DS161/AB/R ¶ 157 (July 31, 2000). Appellate Body Report, Brazil–Measures Affecting Imports of Retreaded Tyres, WT/DS332/AB/R ¶ 156 (December 3, 2007). 97 Id. at ¶ 215. 98 See id. 99 See Appellate Body Report, U.S.–Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R, p. 23 (April 29, 1996) (describing the burden of demonstrating that a measure satisfies the Article XX chapeau as “of necessity, a heavier task than that involved in showing that an exception, such as Article XX(g), encompasses the measure at issue.”). 100 See Van den Bossche, supra footnote 21, at 650. In addition, the term “restriction” has been construed broadly to encompass both restrictions on international trade and discrimination in international trade. See Panel Report, European Communities–Measures Affecting Asbestos and Asbestos-Containing Products, ¶ 8.235, WT/DS135/R (September 18, 2000) (citing Appellate Body Report, U.S.–Gasoline, supra footnote 99, at 25). 101 Panel Report, EC–Asbestos, supra footnote 100, at ¶ 8.236. 102 See, e.g., id. at paras. 8.237-8.239. 103 See Appellate Body Report, U.S.–Import Prohibition of Certain Shrimp and Shrimp Products, Recourse to Article (continued...) 96 Congressional Research Service 14 Trade Law: An Introduction to Selected International Agreements and U.S. Laws the Appellate Body have shown for measures with a unilateral or coercive character.104 As discussed below, these preferences are expressed both in the Appellate Body’s interpretation of the term “discrimination” and its interpretation of the phrase “arbitrary or unjustifiable.” According to the Appellate Body, “discrimination,” for the purposes of the Article XX chapeau, occurs when a measure is applied without regard for the similarity of—or differences between— the conditions in either the importing and exporting countries or two importing countries.105 In other words, both the differential treatment of countries in which the same conditions prevail as well as the uniform treatment of countries where different conditions prevail constitute discrimination.106 Once a measure’s application is deemed discriminatory, a WTO panel will assess the nature of the discrimination to determine whether it is “arbitrary or unjustifiable.” This analysis depends on whether the discrimination has a “a legitimate cause or rationale in light of the [Article XX] objectives,”107 and often requires an assessment of the actions, if any, that the defending Member took to prevent foreseeable discrimination.108 For example, in U.S.–Shrimp,109 the Appellate Body examined the GATT consistency of a U.S. measure prohibiting the importation of shrimp from countries not certified by the United States as maintaining a regulatory program or fishing environment that satisfied the U.S. standards for sea turtle protection.110 After determining that the shrimp import ban created discrimination because it was “coercive,” 111 the Appellate Body assessed whether this discrimination was “arbitrary or unjustifiable.” It described its approach to this question as “heavily” influenced by the U.S. failure to engage all shrimp exporting Members in negotiations before enforcing the ban.112 (...continued) 21.5 of the DSU by Malaysia, WT/DS58/AB/R, ¶ 124 (October 22, 2001) (“Clearly, and ‘as far as possible,’ a multilateral approach is strongly preferred.”) (quoting Principle 12 of the Rio Declaration on Environment and Development). 104 Appellate Body Report, United States–Import Prohibition of Certain Shrimp and Shrimp Products, paras. 171-172, WT/DS58/AB/R, ¶ 172 (October 12, 1998). 105 See id.; Van den Bossche, supra footnote 21, at 644. 106 Van den Bossche, supra footnote 21, at 644. See Appellate Body Report, U.S.–Shrimp, supra footnote 104, at ¶ 172. 107 Appellate Body Report, Brazil–Tyres, supra footnote 96, at ¶ 225; Appellate Body Report, U.S.–Gasoline, supra footnote 99, at 23-24. In Brazil–Tyres, Brazil sought to justify a ban on retreaded tire imports from countries that were not part of the MERCOSUR customs union by, inter alia, claiming that the MERCOSUR exemption was necessary to comply with a ruling by a MERCOSUR abritral tribunal. Panel Report, Brazil–Measures Affecting Imports of Retreaded Tyres, WT/DS332/R, ¶ 7.270 (June 12, 2007). The Appellate Body held that although Brazil legitimately needed to conform its policies with the arbitral tribunal’s decision, in the context of the Article XX chapeau, this need was not a legitimate reason for discriminating between countries. Specifically, the Appellate Body decided that Brazil’s discrimination against non-MERCOSUR countries was arbitrary or unjustifiable because the reason for it—compliance with the arbitral tribunal’s ruling—was wholly unrelated to Brazil’s goal of protecting public and environmental health. Appellate Body Report, Brazil–Tyres, supra footnote 96, at paras. 228, 232-33. 108 See, e.g., Appellate Body Report, U.S.–Gasoline, supra footnote 99, at 28 (stating that the United States failed to adequately export international cooperation and “the resulting discrimination must have been foreseen”). 109 Appellate Body Report, United States–Import Prohibition of Certain Shrimp and Shrimp Products, paras. 171-172, WT/DS58/AB/R (October 12, 1998). 110 Id. at ¶ 161. 111 Id. at paras. 161, 164. According to the Appellate Body, the shrimp import ban effectively required other Members to adopt the same sea turtle-protection policies as the United States regardless of the different conditions in the territories of those Members. Id. The Appellate Body suggested the Department of State should have incorporated an “inquiry into the appropriateness of the regulatory program for the conditions prevailing in those exporting countries” into its implementation of the ban. Id. at paras. 161, 165. 112 Appellate Body Report, U.S.–Shrimp, supra footnote 109, at ¶ 166 (stating that the U.S. failure to engage these (continued...) Congressional Research Service 15 Trade Law: An Introduction to Selected International Agreements and U.S. Laws Indeed, the Appellate Body ultimately found that the discrimination was unjustifiable because (1) the import ban reflected U.S. negotiations with some, but not all, WTO Members that export shrimp;113 and (2) the United States had not even attempted to use existing international mechanisms to achieve international cooperation.114 As a result, the Appellate Body wrote, the ban had a “unilateral character” that heightened both its discriminatory nature and its “unjustifiability.”115 In a subsequent decision, U.S.–Shrimp (Article 21.5),116 the Appellate Body clarified what it meant by international cooperation. In that case, Malaysia challenged the adequacy of the measures the United States imposed to implement the Appellate Body’s decision in U.S.–Shrimp. Specifically, the Department of State had revised its guidelines so that countries could be certified for shrimp imports once they demonstrated either that their shrimp fishing environments did not pose a threat of incidental sea turtle capture or that they had implemented, and were enforcing, a “comparably effective” regulatory program.117 In determining whether a country’s regulatory program was “comparably effective” to U.S. standards, the guidelines stated that the Department of State would “take fully into account any demonstrated differences between the shrimp fishing conditions in the United States and those in other nations.”118 In addition, the United States commenced international negotiations with Malaysia, the complaining Member, as well as other countries. Although these negotiations did not yield an agreement between the United States and Malaysia, the discrimination caused by the U.S. embargo and shrimp import certification procedures was not “arbitrary or unjustifiable” because the United States had undertaken “serious, good faith efforts” to avoid it.119 Article XXI: National Security Exceptions to the GATT Article XXI lists three very specific occasions when international or domestic security interests trump a Member’s obligations under the GATT. In any one of these three situations, a Member’s noncompliance with the GATT will not be considered a violation of its provisions. These occasions occur when: (1) the Member’s noncompliance is the refusal to disclose information and the Member considers the disclosure contrary to its essential security interests; (...continued) WTO Members in “serious across-the-board negotiations with the objective of concluding bilateral or multilateral agreements” “bears heavily” on the analysis). 113 See Appellate Body Report, U.S.–Shrimp, supra footnote 109, at ¶ 172. 114 See id. at ¶ 171. 115 Id. at ¶ 172. 116 Appellate Body Report, U.S.–Import Prohibition of Certain Shrimp and Shrimp Products, Recourse to Article 21.5 of the DSU by Malaysia, WT/DS58/AB/R (October 22, 2001). 117 Appellate Body Report, U.S.–Shrimp (Article 21.5), supra footnote 116, at paras. 6, 7. 118 Id. at ¶ 6. See also Revised Guidelines for the Implementation of 609 of P.L. 101-162 Relating to the Protection of Sea Turtles, 64 Federal Register 36,946 (July 8, 1999) (“In reviewing any such information, the Department of State will take fully into account any demonstrated differences between the shrimp fishing conditions in the United States and those in other nations, as well as information available from other sources.”). 119 See Appellate Body Report, U.S.–Shrimp (Article 21.5), supra footnote 116, at paras. 123, 134. Congressional Research Service 16 Trade Law: An Introduction to Selected International Agreements and U.S. Laws (2) the Member considers noncompliance necessary to protect its essential security interests relating to fissionable materials, the traffic in arms or other materials for the purpose of supplying a military establishment, or a time of a war or emergency in international relations, or (3) the Member’s noncompliance occurs in its pursuit of its obligations under the UN Charter for the maintenance of international peace and security. In general, Article XXI is understood as intending to remove legitimate national security matters from the scope of GATT obligations and to discourage use of the exception for measures with commercially inspired goals.120 Moreover, some countries, including the United States, have taken the position that the Article is “self-judging,” that is, that each WTO Member may determine whether a particular matter is contrary to or necessary for the protection of its essential security interests and that determination cannot be reviewed by WTO panels or the Appellate Body.121 While this position raises questions about the proper role of dispute settlement proceedings in this area, to date there is no WTO case law on the application of Article XXI. Despite the absence of case law, Article XXI has played a role in the diplomatic discourse that precedes, and in some cases eliminates the need for, a request for consultations. For example, when WTO Members have threatened to request consultations over the Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1996 (“Helms-Burton Act,” P.L. 104-114, 22 U.S.C. 6021 et seq.), the United States responded with claims that the measure was justified under Article XXI. The goal behind the LIBERTAD Act was to dissuade other countries from investing in Cuba and to generally undercut the Fidel Castro regime. To achieve this goal, the law codified and strengthened the long-standing embargo against Cuba, making parties liable under U.S. law for trafficking in property expropriated by Cuba from U.S. citizens without compensation and requiring the U.S. State Department to deny visas to officials of companies that had trafficked in such property.122 The European Union asked for WTO consultations, stating that the LIBERTAD Act would violate both the GATT and the GATS by, inter alia, restraining E.U. companies who export goods to Cuba or trade in goods from Cuba and excluding E.U. citizens from entering the United States.123 During the ensuing meetings and negotiations between the United States and the European Union, the United States contended that, if the LIBERTAD Act was indeed inconsistent with the WTO agreements, it was justified under Article XXI. Moreover, because, in its view, it is up to the country invoking Article XXI to determine when a particular trade measure is justified by national security concerns, the United States argued that any WTO panel would lack competence to assess the use of Article XXI and, consequently, there could be no WTO proceedings on any dispute resulting out of the consultations on this issue.124 This dispute never actually came before a panel because the two governments reached a diplomatic solution in the 120 Decision Concerning Article XXI of the General Agreement, Decision of November 30, 1982, GATT B.I.S.D. (29th Supp.) 23 (1983). 121 Dapo Akande and Sope Williams, International Adjudication on National Security Issues: What Role for the WTO?, 43 VA. J. INT’L L. 365, 373-74 n.24 (2003). 122 P.L. 104-114, §§102, 401. 123 Request for Consultations by the European Communities, United States–The Cuban Liberty and Democratic Solidarity Act, WT/DS38/1 (May 13, 1996). 124 C. O’Neal Taylor, Impossible Cases: Lessons from the First Decade of WTO Dispute Settlement, 28 U. PA. J. INT’L ECON. L. 309, 378 (2007). Congressional Research Service 17 Trade Law: An Introduction to Selected International Agreements and U.S. Laws form of a Memorandum of Understanding, and the European Union requested that the panel suspend its work.125 Article XXIII: The Basis for WTO Dispute Settlement Article XXIII provides the basis for dispute settlement under both the GATT and under the other WTO agreements. Article XXIII entitles any WTO Member who considers that a benefit granted by the GATT is being “nullified or impaired or that the attainment of any objective of the Agreement is being impeded” to have recourse to WTO dispute settlement procedures.126 Most often, the nullification or impairment of a benefit (or the impeding of the realization of an objective) results from a violation of an obligation prescribed by a WTO agreement, but Article XXIII states that it could also result from a Member’s application of a measure that does not conflict with the provisions of a WTO agreement or from “any other situation.”127 However, disputes alleging nullification and impairment of trade benefits from non-violative actions occur much less frequently than disputes alleging violations of WTO agreements. In general, proving nullification or impairment requires showing that the affected imports are subject to and benefiting from a WTO agreement market access concession (e.g., a tariff) and their competitive position is being upset by the challenged measure.128 However, when the complaining Member demonstrates that the challenged measure violates an obligation prescribed by a WTO agreement, the measure is considered prima facie to constitute a case of nullification or impairment.129 In other words, there is a presumption that a breach of the rules adversely affects other Members, and, consequently, it shifts the burden to the defending Member to disprove the presumed nullification or impairment.130 To date, very few Members have tried to rebut this presumption, and it appears that none have succeeded, which has led some to suggest that the presumption may be rebuttable only in theory.131 Article XXIV: Customs Unions and Free Trade Areas WTO Members’ participation in free trade agreements and customs unions132 is facially inconsistent with the MFN obligation because parties to these arrangements may grant lower 125 European Union–United States: Memorandum of Understanding Concerning the U.S. Helms-Burton Act and the U.S. Iran and Libya Sanctions Act, April 11, 1977, 36 I.L.M 429 (1997). 126 GATT, Art. XXIII. See Appellate Body Report, India–Quantitative Restrictions on Imports of Agricultural, Textile, and Industrial Products, ¶ 84 WT/DS90/AB/R (August 23, 1999). 127 GATT, Art. XXIII:1. 128 Panel Report, Japan–Measures Affecting Consumer Photographic Film and Paper, ¶ 10.82, WT/DS44/AB/R (March 31, 1998). 129 Dispute Settlement Understanding, Art. 3.8. 130 Id. 131 E.g., PETER VAN DEN BOSSCHE, THE LAW AND POLICY OF THE WORLD TRADE ORGANIZATION: TEXTS, CASES AND MATERIALS 185 (Cambridge University Press 2008) (2008). 132 The distinction, under Article XXIV:8, between customs unions and free trade area lies in the different GATT requirements placed on how these two groups treat trade with third countries (i.e., non-members of the customs union or free trade area). Compare GATT, Art. XXIV:8(a) (defining customs union) with id. at Art. XXIV:8(b) and Art. XXIV:5(b) (defining free trade area). Broadly speaking, a member of a free trade area can restrain trade with a nonmember country more than it restrains trade with the other members of the free trade area so long as, in doing so, the member country does not constrain trade with the non-member more than it had prior to the formation of the free trade area. A member of a customs union, on the other hand, can never restrain trade with non-member countries even if, in doing so, it does not constrain trade with the non-member more than it had prior to the formation of the customs union. Congressional Research Service 18 Trade Law: An Introduction to Selected International Agreements and U.S. Laws tariff rates and more favorable treatment to each other’s goods without granting those benefits to the goods of other WTO Members. However, these arrangements are permitted under Article XXIV as vehicles of trade liberalization.133 Like Articles XX and XXI, Article XXIV operates as a defense to justify an otherwise GATTinconsistent measure, namely a measure related to the formation of customs unions or free trade areas. Article XXIV justifies these measures only if the formation of the customs union or free trade area in question would be made impossible if the measure concerned was not allowed.134 It is unclear at this time, however, how a WTO panel or the Appellate Body would determine whether a measure satisfies this standard. Under Article XXIV:8(a), the members of both customs unions and free trade areas are required to eliminate “duties and other restrictive regulations of commerce” with respect to “substantially all” trade between them. The “substantially all” standard offers customs unions and free trade areas some flexibility in the degree to which they liberalize the trade between them.135 Furthermore, in Argentina–Footwear, the Appellate Body found that Article XXIV:8(a)’s requirement to eliminate all tariffs and commerce-restricting regulations on trade among customs union members did not prohibit Argentina’s imposition of safeguard measures on countries who were part of a customs union (MERCOSUR) with Argentina.136 Other WTO Agreements Reached During the Uruguay Round All multilateral trade agreements negotiated during the Uruguay Round are binding on WTO Members.137 These are agreements that a country must accept in order to become a WTO Member. As mentioned, these agreements were implemented in U.S. law through the Uruguay Round Agreements Act (“URAA,” P.L. 103-465, 19 U.S.C. §3501), which then-President Bill Clinton signed into law on December 8, 1994. The WTO agreements selected for discussion below are those that are still in effect, impose substantive, rather than purely procedural, requirements on WTO Members, and have been commonly cited in WTO consultations and disputes. As with the overview of the selected provisions of the GATT above, the following section is not a comprehensive list or discussion of all of the agreements that are annexed to the Marrakesh Agreement. Instead, it is intended only as an introduction to the WTO agreements that are frequently mentioned as governing common types of trade measures. 133 GATT, XXIV:5(b)-(c), XXIV:8(b). Appellate Body Report, Turkey–Restrictions on Imports of Textile and Clothing Products, ¶ 46, WT/DS34/AB/R (October 22, 1999). (“Article XXIV can justify the adoption of a measure which is inconsistent with certain other GATT provisions only if the measure is introduced upon the formation of a customs union, and only to the extent that the formation of the customs union would be prevented if the introduction of the measure were not allowed.”) 135 Id. at ¶ 48. Other than noting this flexibility, the Appellate Body has offered little guidance on the meaning of “substantially all.” Instead, in Turkey–Textiles, it simply noted that the term “substantially all the trade” is “not the same as all the trade, and also that [it] is something considerably more than merely some of the trade.” Id. at ¶ 48. 136 Appellate Body Report, Argentina–Safeguard Measures on Imports of Footwear, WT/DS121/AB/R (December 14, 1999). 137 However, under the Uruguay Round Agreements Act (URAA, P.L. 103-465, 19 U.S.C. §3501 et seq.), U.S. law prevails over conflicting provisions of WTO agreements until Congress or the executive branch acts to harmonize U.S. law with WTO agreements and rulings. See 19 U.S.C. §3512(a). 134 Congressional Research Service 19 Trade Law: An Introduction to Selected International Agreements and U.S. Laws Antidumping Agreement Article VI of the GATT condemns dumping, the practice of exporting a product at a price lower than the price charged for that product in the exporter’s home market, when it causes or threatens material injury to an established industry in the territory of another Member or materially retards the establishment of a domestic industry.138 The Agreement on Implementation of Article VI of the GATT 1994 (the Antidumping, or AD, Agreement) provides substantive and procedural requirements for WTO Members to follow in conducting antidumping investigations and imposing antidumping duties, which supplement existing tariffs. No action against the dumping of exports from another Member can be taken except in accordance with the provisions of the GATT, as interpreted by the Antidumping Agreement.139 Under the Antidumping Agreement, a domestic investigation of dumping by a WTO Member must be triggered by a written application by or on behalf of a domestic industry.140 An application meets this standard if domestic producers expressing support for the application produce both a greater percentage of “like products”141 than the domestic industry opposed to the application and no less than 25% of total production of “like products.”142 All WTO Members must inform the Committee on Antidumping Practices when they initiate anti-dumping actions and provide reports on all ongoing investigations. The AD Agreement defines dumping as introducing a product into a foreign country’s market at an export price lower than the product’s “normal value”—that is, its “comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country.”143 Accordingly, the first step in assessing a dumping margin is calculating the normal value and the export price of the product. Although the normal value is ordinarily the market price in the country of export,144 Article 2.2 of the AD Agreement permits WTO Members to use a different methodology for calculating the normal value in certain circumstances.145 In addition, by incorporating an interpretative note to Article VI of the GATT, Article 2.7 of the AD Agreement permits WTO Members to use surrogate country data to make price comparisons about the normal value of products allegedly dumped by a government-controlled, i.e., nonmarket, economy (NME).146 Once the normal value is determined, the investigating authorities must 138 GATT, Art. VI:1. AD Agreement, Art. 18. 140 Id. at Art. 5.1. 141 Article 2.6 of the Antidumping Agreement defines the term “like product” to mean “a product which is identical, i.e. alike in all respects to the product under consideration, or in the absence of such a product, another product which, although not alike in all respects, has characteristics closely resembling those of the product under consideration.” 142 AD Agreement, Art. 5.4. Panel Report, Mexico–Antidumping Duties on Steel Pipes and Tubes from Guatemala, ¶ 7.322, WT/DS331/R (June 8, 2007). 143 Id. at Art. 2.1. 144 AD Agreement, Art. 2.1. 145 E.g., id. at Art. 2.2 (permitting a different method to be used when either there are no sales of like product in the exporting country or the particular market situation does not permit a proper comparison). 146 Appellate Body Report, European Communities–Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China, WT/DS397/AB/R, ¶ 285 (July 15, 2011). For more information on the application of antidumping law to nonmarket economies, see CRS Report RL33976, U.S. Trade Remedy Laws and Nonmarket Economies: A Legal Overview, by (name redacted). See also Alexander Polouektov, Non-Market Economy Issue in WTO Anti-Dumping Law and Accession Negotiations, 36 J. WORLD TRADE 1, 18-19, 20-22, 23-25 (2002) (comparing anti-dumping practice and criteria for qualifying as a market economy in selected legislative systems). 139 Congressional Research Service 20 Trade Law: An Introduction to Selected International Agreements and U.S. Laws calculate the dumping margin by comparing the product’s export price with its normal value. Article 2.4 of the Antidumping Agreement requires this comparison be fair, made at the same level of trade (i.e., ex-factory, wholesale, or retail), and made with sales that occurred, as nearly as possible, at the same time.147 If the dumping margin is de minimis, the investigating Member may not impose anti-dumping duties.148 Many WTO disputes center around the methodology that a WTO Member uses to calculate the dumping margin. In particular, the practice of using “zeroing”149 to assess a country’s dumping margin has been a frequent subject of WTO dispute settlement proceedings150 and is discussed later in this report. To form the basis for anti-dumping duties, dumping must cause or threaten injury to the domestic industry or materially retard its establishment.151 The presence of injury is determined by examining the import volume of the dumped product, its effect on the prices in the domestic market for a like product, and the resulting impact on domestic producers of the like product.152 Several additional factors are relevant when the WTO Member is investigating allegations that the dumping causes a threat of injury, rather than actual injury.153 For the purposes of these injury and threat determinations, the term “domestic industry” generally refers to the domestic producers as a whole of a like product or the domestic producers of a major proportion of the total domestic production of a like product.154 Only in exceptional circumstances may a WTO Member use a narrower regional definition.155 Finally, the AD Agreement requires a WTO Member to determine that the dumping causes the injury to the domestic industry. Article 3.5 of the Agreement contains a non-attribution requirement: investigating authorities must separate and distinguish the injurious effect of other factors from the injuries effects of the dumped imports to ensure that the imposition of an antidumping duty on the imports at issue would, in fact, be justified.156 147 Allowances shall be made on a case-by-case basis for certain differences that affect price comparability and, in some circumstances, for costs incurred between transportation and resale and/or profits accruing. AD Agreement, Art. 2.4, 148 See AD Agreement, Art. 5.8. 149 Zeroing, which is discussed in greater detail later in this report, involves aggregating the dumping margins for all of the different versions of a single product but assigning the value of zero to each sub-product’s dumping margin when that sub-product’s export price exceeds its normal (home market) value. See infra “Antidumping Duties: Remedies for Imports Sold at Less Than Fair Value.” In effect, zeroing means that the margins for sub-products sold at less than their normal value are not offset in a dumping investigation by the margins for sub-products that are sold at more than their normal value. Id. Consequently, a dumping margin determined under zeroing is likely to be higher than a dumping margin determined without zeroing. See id. 150 E.g., Panel Report, U.S.–Antidumping Measures on Polyethylene Retail Carrier Bags from Thailand, WT/DS383/R (February 18, 2010); Panel Report, U.S.–Continued Existence and Application of Zeroing Methodology, WT/DS350/R (February 19, 2009). See also CRS Report RL32014, WTO Dispute Settlement: Status of U.S. Compliance in Pending Cases, by (name redacted) (identifying, inter alia, cases that involve zeroing). 151 AD Agreement, Art. 3 n. 9. 152 Id. at Art. 3.1. 153 See AD Agreement, Art. 3.7; Panel Report, Mexico–Anti-Dumping Investigation of High Fructose Corn Syrup (HFCS) from the United States, WT/DS132/R, ¶ 7.131 (February 24, 2000). 154 AD Agreement, Art. 4.1. 155 Id. at Art. 4.1(ii). 156 Id. at Art. 3.5. Appellate Body Report, Japan–Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan, WT/DS184/AB/R, paras. 223-232 (August 23, 2001). Congressional Research Service 21 Trade Law: An Introduction to Selected International Agreements and U.S. Laws Ultimately, WTO Members must limit the amount of any antidumping duty imposed to the amount “adequate to remove the injury to the domestic industry,”157 and the duty must be lifted as soon as it is no longer necessary to counteract the dumping causing the injury.158 The AD Agreement requires WTO Members to review the need for the continued imposition of any antidumping duty when requested by an interested party.159 Members must also “terminate” an antidumping duty five years after its imposition unless, after review, the authorities determine that lifting the duty would lead to the continuation or recurrence of dumping and injury.160 Agreement on Subsidies and Countervailing Measures Like the Antidumping Agreement, the Agreement on Subsidies and Countervailing Measures (SCM Agreement) is an agreement meant to expand, clarify, and implement some of the original provisions of the GATT. One of these provisions, Article VI addresses measures taken to offset any subsidy granted to an imported product. The second, Article XVI, requires Members to notify subsidies and be prepared to discuss limiting those subsidies if they cause serious damage to other Members. However, neither Article VI nor Article XVI defines the term “subsidy” or provides clear and comprehensive rules for governments who are either offering, or responding to, subsidies. Consequently, these provisions were deemed vague and inconsistently applied, and support developed for a new, clearer, and more comprehensive agreement on subsidies. Accordingly, the SCM Agreement was developed to discipline Members’ use of subsidies and their responses to countering the effects of certain subsidies. Among the advantages that the SCM Agreement provides over the subsidy provisions of Articles VI and XVI of the GATT is a more precise definition of subsidy. The SCM Agreement defines “subsidy” as a financial contribution by a government or public body within a WTO Member’s territory that confers a benefit.161 A financial contribution may take the form of (1) a direct transfer of funds, such as a grant, loan, or loan guarantee; (2) government revenue (i.e., a tax) “otherwise due” but foregone or not collected; (3) governmental provision of goods or services other than general infrastructure; (4) governmental payments to a funding mechanism or the government’s entrusting a private body to carry out at least one of the functions described above.162 In addition, WTO panels and the Appellate Body have interpreted the word “benefit” broadly to include receipt of a financial contribution on terms that are more favorable than those available to the recipient in the marketplace.163 The SCM Agreement entitles a WTO Member to respond to subsidized imports in two ways. One authorized response is to use the WTO dispute settlement process to seek withdrawal of the subsidy or the removal of its adverse effects. The second authorized response is to launch a domestic investigation and ultimately charge an extra duty, known as a countervailing duty, on subsidized imports that are injuring domestic producers. For a subsidy to be remedied under 157 AD Agreement, Art. 9.1. Id. at Art. 11.1 159 Id. at Art. 11.2. 160 Id. at Art. 11.3. 161 SCM Agreement, Art. 1.1. 162 Id. 163 Appellate Body Report, Canada–Measures Affecting the Export of Civilian Aircraft, WT/DS70/AB/R ¶ 149 (August 2, 1999) (approving of the WTO panel’s finding that a financial contribution only confers a benefit if it is provided on terms that are more advantageous than market terms). 158 Congressional Research Service 22 Trade Law: An Introduction to Selected International Agreements and U.S. Laws either procedure, it must be specific in law or fact to an enterprise, industry, or group thereof.164 Prohibited subsidies, as described below, are considered specific per se. The SCM Agreement divides subsidies into two categories: prohibited and actionable. Prohibited subsidies are contingent upon either export performance or the use of domestic over imported products.165 If a subsidy is deemed prohibited, the WTO dispute settlement body will recommend that the subsidizing Member withdraw the subsidy without delay and specify a time-period in which the measure should be withdrawn.166 All other subsidies are actionable, meaning they may be subject to dispute settlement or domestic remedies if they are used in a way that causes adverse effects to the interests of the complaining Member.167 There are three types of adverse effects: (1) material injury to the domestic industry of the complaining member; (2) nullification or impairment of the Member’s WTO benefits (such as tariff concessions on a particular product); and, (3) serious prejudice to the Member’s interests.168 Regardless of whether the subsidies are prohibited or actionable, if the defending Member does not remove a subsidy or its adverse effects within a set compliance period, the WTO dispute settlement body may, upon request, authorize the complaining Member to impose new or additional tariffs, known as countervailing duties, against the subsidizing Member’s exports.169 The goal of these countervailing duties is to effectively restore the benefits that are supposed to accrue to the complaining Member under the WTO agreements. As discussed in the later section on domestic investigations of foreign subsidies,170 Members may also impose countervailing duties against subsidized imports without first requesting consultations and bringing the dispute before a WTO panel. However, when a Member imposes countervailing duties without first litigating the dispute, it may do so only if it initiates and conducts its investigation of the foreign subsidies in accordance with the provisions of the SCM Agreement.171 The interpretation of the SCM Agreement was at issue in the “Boeing-Airbus cases”172 between the United States and the European Union. The United States first requested dispute settlement 164 SCM Agreement, Arts. 1.2, 2. In general, under Article 2, a subsidy is specific if it distorts the flow of resources. See MARC BENITAH, THE LAW OF SUBSIDIES UNDER THE GATT/WTO SYSTEM, 259 (2001). For example, if the U.S. gives a subsidy to all U.S. industries, that subsidy is not specific because it does not direct more resources to a particular part of U.S. territory. However, that subsidy would be specific if the U.S. gave it to only those industries that are in Alabama. See SCM Agreement, Art. 2.2. In that case, the flow of resources would be distorted within the United States since more resources would be directed to one particular state, Alabama. In addition to geographic distortion, the SCM Agreement is also concerned with distortion among industries, enterprises, and groups of industries or enterprises. However, it can be difficult to define an “industry” or “group of industries.” Accordingly, a WTO Panel has suggested that a subsidy to any industry or group of industries is specific unless it is “sufficiently broadly available through an economy as not to benefit a particular limited group of producers of certain products.” Panel Report, U.S.– Subsidies on Upland Cotton, WT/DS267/R, ¶ 7.1142 (September 8, 2004). 165 SCM Agreement, Art. 3.1. 166 Id. at Art. 4.7. 167 Id. at Art. 5. 168 Id. 169 These countervailing measures can be imposed on any of the defending Member’s exports, but the amount of the countervailing duty must not exceed the full amount of the subsidy. See SCM Agreement, Art. 19.2. 170 Infra notes 484-500. 171 SCM Agreement, Art. 10. 172 U.S.–Large Civil Aircraft, DS317; EC and Certain Member States–Large Civil Aircraft, DS316. Congressional Research Service 23 Trade Law: An Introduction to Selected International Agreements and U.S. Laws proceedings in 2004, alleging that several European Union countries provided a variety of actionable and prohibited subsidies to Airbus, including, inter alia, “launch aid,” grants and loans for research and development, and the governmental provision of infrastructure goods and services to develop and upgrade Airbus manufacturing sites.173 The European Union filed a countersuit, alleging that the U.S. provided actionable and prohibited subsidies to Boeing, including, inter alia, state and federal tax incentives, access to NASA and Department of Defense (DOD) facilities and equipment for corporate research and development, and payments by both agencies to Boeing pursuant to contracts for research and development.174 Agreement on Safeguards A safeguard measure is a temporary restriction imposed on imports to allow a domestic industry time to adjust to import surges. These measures can be applied even in the absence of the unfair trade actions required for antidumping or countervailing duties. Possible safeguards include quotas, tariffs, and tariff rate quotas. Under Article 2.2 of the Agreement on Safeguards, however, a safeguard measure must be product, not country, specific.175 Because safeguard measures disturb the balance of rights and obligations, the Members affected by a safeguard are entitled to appropriate trade compensation.176 The foundation for both domestic and international safeguard law is Article XIX of the GATT, which permits Members to apply safeguards where two conditions are met: (1) imports are increasing as a result of both unforeseen developments and the effect of obligations incurred by Members under GATT, and (2) imports are increasing in such quantities as to cause or threaten serious injury to domestic producers of like or directly competitive products.177 Both the U.S. law on safeguard measures, discussed later in this report, and the WTO Agreement on Safeguards are based on Article XIX. The Agreement on Safeguards lays out (1) substantive requirements that must be met in order to apply a safeguard,178 (2) procedural requirements for the application of a safeguard measure,179 173 Appellate Body Report, EC–Large Civil Aircraft, WT/DS316/AB/R, ¶ 1 (June 1, 2011); Request for Consultations by the United States, EC–Measures Affecting Trade in Large Civil Aircraft, WT/DS316/1 (October 12, 2004). 174 Appellate Body Report, U.S.–Measures Affecting Trade in Large Civil Aircraft, WT/DS353/AB/R, ¶ 2 (March 23, 2012); Panel Report, US–Large Civil Aircraft, WT/DS353/ R, paras. 3.1, 7.940-7.947, 7.111-7.1112 (March 31, 2011). 175 In other words, safeguard measures must be applied without discrimination between the Members supplying the product. For example, if the steel industry of Member A suffers serious injury as a result of a sudden surge of imports of steel from Members B and C, Member A, if it chooses to impose a safeguard measure, must impose the measure against imports from both Members B and C. Member A cannot choose to overlook the damage caused by Member B’s steel industry and impose the safeguard measure only against Member C. 176 Agreement on Safeguards, Art. 8.1. The amount and character of this compensation is determined by consultation between the two Members. Id. at Art. 12.3. If the Members fail to reach an agreement on compensation, the affected exporting Member may suspend the application of substantially equivalent concessions or other obligations to the trade of the Member applying the safeguard. Id. at Art. 8.2. 177 GATT, Art. XIX:1(a). 178 See, e.g., Agreement on Safeguards, Art. 2.1. 179 See, e.g., id. at Art. 3 (requiring Members to apply a safeguard measure only after undertaking and publishing an investigation made pursuant to procedures that were previously established and publicly available); Art. 12.1 (requiring Members to immediately notify the WTO when they initiate a safeguard investigation). Congressional Research Service 24 Trade Law: An Introduction to Selected International Agreements and U.S. Laws and (3) characteristics of, and conditions relating to, a safeguard measure.180 Today, all safeguard measures must comply with both Article XIX of the GATT and the Agreement on Safeguards.181 Under the Agreement on Safeguards, a Member may apply a safeguard measure only when it determines that the product is being imported in such increased quantities as to cause or threaten serious injury to the domestic industry that produces like or directly competitive products.182 The Appellate Body has clarified the “increased imports” requirement to mean an increase that is “recent, sudden, sharp, and significant.”183 This means that the legality of a safeguard hinges in part on the rate and amount of the increase in the recent past. Import trends that precede the recent past (e.g., import trends over the previous five years rather than the previous two) are not grounds for imposing a safeguard measure, and, if older data and more recent data show conflicting trends, the most recent data on imports takes precedence in a determination of a safeguard measure’s legality.184 Moreover, WTO panels have narrowly interpreted the causation element: the domestic industry’s injury must be caused solely by the import surge and not by any other factor.185 Agreement on Rules of Origin Rules of origin are national rules that determine the source of imported goods, and, accordingly what restrictions and duties should apply to their importation. Determining a product’s country of origin can be difficult given the increasing globalization of manufacturers’ supply chains. Preferential rules of origin determine whether a particular good is entitled to enter the importing country on better terms than products from other countries.186 For example, preferential rules of origin determine whether a product originated in a country that participates in a reciprocal trade agreement with, or benefits from a tariff preference program administered by, the importing country. Nonpreferential rules of origin determine a product’s country of origin for all other purposes, including application of most favored nation treatment, quantitative restrictions, imposition of antidumping and countervailing duties, and government procurement requirements.187 180 See, e.g., Agreements on Safeguards, Art. 7 (limiting the duration of safeguard measures to four years with the possibility of one four-year extension). 181 Van Den Bossche, supra footnote 131, at 673. 182 Agreement on Safeguards, Art. 2.1. 183 Panel Report, U.S.–Definitive Safeguard Measures on Imports of Wheat Gluten from the European Communities, WT/DS166/R, ¶ 8.31 (July 31, 2000). See also Appellate Body Report, Argentina-Footwear, supra footnote 136, at p. 47 (“... the increase in imports must have been recent enough, sudden enough, sharp enough, and significant enough, both quantitatively and qualitatively, to cause or threaten to cause ‘serious injury.’”). 184 Van Den Bossche, supra footnote 131, at 677. 185 Panel Report, Korea–Safeguard Measure on Imports of Certain Diary Products, WT/DS98/R, paras. 7.89-7.90 (June 21, 1999) (“[I]f the national authority has identified factors other than increased imports which have caused injury to the domestic industry, it shall ensure that any injury caused by such factors is not considered to have been caused by the increased imports ... the [national] authority has the obligation not to attribute to the increased imports any injury caused by other factors.”). This interpretation of the causation element is often referred to as non-attribution. 186 Asif H. Qureshi and Roman Grynberg, Preferential Rules of Origin and WTO Disciplines with Specific Reference to the U.S. Practice in the Textiles and Apparel Sectors, 32 LEGAL ISSUES ECON. INTEGRATION 25, 27 (2005); Joseph A. LaNasa III, Rules of Origin and the Uruguay Round’s Effectiveness in Harmonizing and Regulating Them, 90 AM. J. INT’L L. 625, 626 (1996). 187 Qureshi and Grynberg, supra footnote 186, at 27; LaNasa, supra footnote 186, at 626. Congressional Research Service 25 Trade Law: An Introduction to Selected International Agreements and U.S. Laws There is no international consensus on how countries should formulate their rules of origin. The United States and many WTO Members apply the “substantial transformation” standard under which the source of a given import is the country in which the last “substantial transformation” occurred.188 However, other countries may identify a product’s country of origin as the country in which (1) a certain percentage of value was added to the good; (2) the activity resulting in a particular change in the product’s tariff classification occurred; or (3) a specified production process occurred.189 By agreeing to the WTO Agreement on Rules of Origin (RO Agreement), WTO Members agreed to a negotiate a uniform set of nonpreferential rules of origin.190 Once the negotiations (also known as the Harmonization Work Program) are completed, all WTO Members will apply only one set of non-preferential rules of origin for all purposes. However, the negotiations are currently running more than 10 years behind schedule.191 Until WTO Members reach an agreement that harmonizes their nonpreferential rules of origin, Article 2 of the Agreement, which governs the application of rules of origin during the “transition period,” is the major source of guidance on these rules. Among Article 2’s lengthy list of directives is both a national treatment and an MFN requirement,192 a prohibition on the use of rules of origin as a primary means of protecting domestic industries or favoring a particular Member’s imports,193 and a requirement that rules of origin not themselves create restrictive, distorting, or disruptive effects on trade.194 However, Article 2 has been interpreted rather narrowly, with the WTO panel in U.S.–Textiles Rules of Origin195 emphasizing that, until harmonization is completed, WTO Members retain considerable discretion in designing and applying their respective nonpreferential rules of origin.196 Nevertheless, in the name of transparency, Members are required to notify the WTO Committee on Rules of Origin of their respective rules of origin.197 Agreement on Agriculture Members’ agricultural support policies can be governed by both the Agreement on Agriculture (AA) and other non-agriculture specific WTO Agreements such as the GATT and the SCM 188 “Substantial transformation” occurs if an imported article is subjected to a manufacturing process that results in the article having a name, character, or use different from the one it had when it was imported. See 19 C.F.R. §§134.1(d)(1), 134.35. 189 Qureshi and Grynberg, supra footnote 186, at 28; Rod Falvey and Geoff Reed, Rules of Origin as Commercial Policy Instruments, 43 INT’L ECON. REV. 393, 394 (2002). 190 Agreement on Rules of Origin, Arts. 1.1, 1.2. 191 See Unfinished Rules of Origin Business, WASH. TRADE DAILY (May 5, 2010); WORLD TRADE ORGANIZATION, WTO ANNUAL REPORT 2009, 41 (2009); Van Den Bossche, supra footnote 131, at 435. 192 Agreement on Rules of Origin, Art. 2(d). 193 Id. at Art. 2(b); Panel Report, US–Rules of Origin for Textiles and Apparel Products, WT/DS243/R, ¶ 6.36 (June 20, 2003). 194 Agreement on Rules of Origin, Art. 2(c). 195 Panel Report, US–Rules of Origin for Textiles and Apparel Products, WT/DS243/R (June 20, 2003). 196 See, e.g., id. at paras. 6.24, 6.25, 6.73. In U.S.–Textiles Rules of Origin, a WTO panel rejected India’s allegations that U.S. rules of origin were inconsistent with Article 2(d) of the RO Agreement. The panel held, inter alia, that, unlike the MFN and national treatment provisions of the GATT, which prohibit discrimination between “like products,” the MFN and national treatment provisions of the RO agreement prohibit discrimination between the same good regardless of its provenance. Panel Report, U.S.–Textiles Rules of Origin, supra footnote 195, at paras. 6.2466.249. 197 Id. at Art. 2(a). Congressional Research Service 26 Trade Law: An Introduction to Selected International Agreements and U.S. Laws Agreement.198 The objective of the AA is to ensure that Members undertake “progressive reductions in agricultural support and protection over an agreed period of time.”199 An agricultural support or protection program is governed by the AA if it (1) satisfies the SCM Agreement’s definition of a “subsidy”;200 and (2) supports a product listed in Annex 1 of the AA.201 Because WTO Members make commitments under the AA, a covered agricultural support program is inconsistent with the AA if it does not conform with the Member’s schedule or domestic support reduction commitments. However, as discussed below, the AA prescribes different rules for export subsidies than domestic agricultural support measures. Prohibited Export Subsidies Under the AA Like the SCM Agreement, the AA defines “export subsidies” as subsidies that are contingent on export performance.202 Unlike the SCM Agreement, the AA does not prohibit all export subsidies. Instead, Article 3.3 prohibits Members from providing the six types of export subsidies identified in Article 9.1 to: • unscheduled agricultural products,203 and • scheduled products in excess of the specified reduction commitment levels.204 Among the export subsidies listed in Article 9.1 are direct subsidies, payments on the export of an agricultural good, subsidies to reduce the costs of marketing agricultural exports, and subsidies contingent on the product’s incorporation in exported products. The AA also prohibits export subsidies and non-commercial transactions that are not identified in Article 9.1 when they circumvent, or threaten circumvention of, the Member’s export subsidy commitments.205 In U.S.–Upland Cotton,206 Brazil challenged several U.S. policies designed to support a variety of U.S. agricultural industries. Among these policies were the so-called “Step 2 payments” to domestic purchasers and exporters of U.S. cotton. The Commodity Credit Corporation of the U.S. Department of Agriculture provided these commodity certificates and cash payments to exporters of U.S. cotton as compensation for marketing or otherwise enhancing the international 198 For additional discussion of the Agreement on Agriculture, see CRS Report RS20840, Agriculture in the WTO: Limits on Domestic Support, by (name redacted). However, on those occasions when a conflict arises between the AA and either the GATT or the SCM Agreement’s rules, the AA’s rules prevail. See AA, Art. 21 (“The provisions of GATT 1994 and of other Multilateral Trade Agreements in Annex 1A to the WTO Agreement shall apply subject to the provisions of this Agreement.”). Ordinarily, all Annex 1A agreements prevail when there is a conflict with the GATT. 199 Appellate Body Report, U.S.–Subsidies on Upland Cotton, WT/DS267/AB/R, ¶ 49 (March 3, 2005) (emphasis added). 200 See Appellate Body Report, U.S.–Tax Treatment for “Foreign Sales Corporations,” WT/DS108/AB/R, ¶ 136 (February 24, 2000) (hereinafter U.S.–FSC). Accordingly, an economic support program will be deemed a subsidy under the AA if it is a financial contribution by a government that provides a benefit to the recipient. 201 These products include, inter alia, all products covered by first 24 chapters of the Harmonized Tariff System (HTS) that are not fish or fish products. 202 AA. , Art. 1(e). 203 Id. at Art. 3.3. 204 Id. 205 Id. at Art. 10.1. 206 Panel Report, U.S.–Subsidies on Upland Cotton, WT/DS267/R (September 8, 2004). Congressional Research Service 27 Trade Law: An Introduction to Selected International Agreements and U.S. Laws competitiveness of U.S. cotton when it was more expensive than foreign-grown cotton.207 Determining that the phrase “contingent on exports” has the same meaning it is given under the SCM Agreement, the Panel found that the Step 2 payments were export subsidies under the AA because, to receive them, exporters had to prove that they had exported U.S. cotton.208 Furthermore, because the United States had not scheduled export subsidy commitments for upland cotton, the Step 2 payments were inconsistent with U.S. commitments under the AA.209 Having found that the Step 2 payments were inconsistent with the U.S. schedule, the Panel in U.S.–Upland Cotton did not need to consider whether the payments circumvented U.S. commitments. In contrast, the WTO Appellate Body in U.S.–FSC210 determined that U.S. tax benefits for Foreign Sales Corporations (FSCs) circumvented, but did not violate, U.S. expo [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/crs%3AR41306. Public record. Not legal advice.