U.S. Senate Finance Committee

U.S. Senate Finance Committee Chairman requests an investigation into foreign government censorship and how such censorship may adversely impact U.S. businesses and citizens — a focus on China but broader in reach

· January 10, 2021 · censorship · , , , , , , , · No Comments

In 2020 the United States Senate Committee on Finance’s Subcommittee on Trade held a hearing on “Censorship as a Non-tariff Barrier” and received testimony from four witnesses. The main focus of the prepared testimony was on the actions of China, but the issue is broader than that. Some of the concerns of U.S. businesses are presumably being teed up by the United States and others in the plurilateral talks on e-commerce that are ongoing among more than 80 WTO Members. Since the draft text of the Joint Statement Initiative talks on e-commerce is not public, it is not clear what, if any, current draft provisions deal with the concerns of the U.S. business community. See December 14, 2020 listing of a consolidated negotiating text on e-commerce of 90 pages in INF/ECOM/62/Rev.1 on the WTO webpage (documents online)(document is restricted and hence not publicly available).

On January 4, 2021, the Chairman of the Senate Finance Committee, Senator Chuck Grassley, forwarded a request to the United States International Trade Commission for a fact finding investigation. The letter is embedded below but references the June 30, 2020 hearing and makes specific requests for the type of information to be provided in a report to be provided within 18 months:

“The report should provide detailed information on this important matter, including the following:

“1. Identification and descriptions of various foreign censorship practices, in particular any examples that U.S. businesses consider to impede trade or investment in key foreign markets. The description should include to the extent practicable:

“a. the evolution of censorship policies and practices over the past 5 years in key foreign markets;

“b. any elements that entail extraterritorial censorship; and

“c. the roles of governmental and non-governmental actors in implementation and enforcement of the practices.

“2. To the extent practicable, including through the use of survey data, an analysis of the trade and economic effects of such policies and practices on affected businesses in the United States and their global operations. The analysis should include to the extent practicable, quantitative and qualitative impacts of the identified policies, including by reference, where identifiable, to:

“a. impact on employment;

“b. direct costs (e.g., compliance and entry costs);

“c. foregone revenue and sales;

“d. self-censorship; and

“e. other effects the Commission considers relevant for the Committee to know.”

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While the letter from Senator Grassley does not limit the request to a review of practices of China, the testimony during the June 30, 2020 hearing at the Senate Finance Committee was tightly focused on the serious problems caused by China’s aggressive censorship practices and the resulting harm to U.S. businesses. While all of the prepared testimonies from the hearing are interesting, the most comprehensive in terms of actual negative effects experienced by U.S. businesses was the prepared statement of Nigel Cory, Associate Director, Trade Policy, Information Technology and Innovation Foundation. Mr. Cory had as one of his suggestions having the Senate Finance Committee request a Section 332 fact finding investigation by the U.S. International Trade Commission, which is what has happened. Mr. Cory’s prepared statement is embedded below.

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A former Trump Administration official, Clete Willems, speaking in his personal capacity, reviewed the extensive censorship practiced by China and reviewed various reports by the U.S. Trade Representative’s Office or by the U.S.-China Economic and Security Review Commission on the extent of the problem for U.S. businesses.

“According to USTR’s 2019 Report to Congress on China’s WTO Compliance, ‘China currently blocks most of the largest global sites… and more than 10,000 sites are blocked, affecting billions of dollars in business, including communications, networking, app stores, news and other sites.’1 The report goes on to state that ‘[e]ven when sites are not permanently blocked, the often arbitrary implementation of blocking, and the performance-degrading effect of filtering all traffic into and outside of China, significantly impair the supply of many cross-border services, often to the point of making them unviable.’2

“Additionally, China controls the major press instruments in China – both on- and off-line – and suppresses views inconsistent with the Party’s objectives. The leading news agencies in China are unambiguous instruments of the government. As a result, the U.S. State Department’s recent decision to treat these agencies as foreign government functionaries, subject to similar rules as diplomats stationed in the United States, is entirely appropriate.3 Predictably, China’s response was not to provide the news agencies with more freedom, but to expel journalists from the Washington Post, New York Times, and Wall Street Journal from China, thereby further limiting the number of free voices in the country.

“This is just one recent example of China’s decision to double down on policies of suppression and control. The latest U.S. – China Economic and Security Review Commission Report highlighted China’s growing censorship of economic news, noting that ‘[i]n the past year, Beijing has directed media outlets to avoid stories on declining consumer confidence, local government debt risks, and other unwelcome economic news.’4 In December, China promulgated a new internet censorship law prohibiting online content providers from making, reproducing, or publishing information that could harm the nation’s honor and interests, disseminate rumors, or insult others, among other vaguely defined terms.5 And of course, too many sources to count have highlighted China’s suppression of information related to the coronavirus.6” [footnotes omitted]

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A number of the prepared statements reviewed whether the World Trade Organization provides a remedy for censorship under the GATS and the breadth of possible exceptions. The Cory and Willems prepared statements are embedded above. A third paper by Beth Baltzan is embedded below. See also Wu, Tim (2006) “The World Trade Law of Censorship and Internet Filtering,” Chicago Journal of International Law: Vol. 7: No. 1, Article 12, .https://chicagounbound.uchicago.edu/cgi/viewcontent.cgi?article=1243&context=cjil.

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Conclusion

The U.S. International Trade Commission will likely start the Section 332 investigation in the coming week or two but will not likely conclude the investigation and generate its report until mid-2022. The investigation should generate useful information for Congress to consider in future trade promotion authority legislation (post 2021) and for the Administration in terms of future trade negotiations. However, the report will come too late to be relevant to the ongoing plurilateral talks on an e-commerce agreement where 2021 is the likely year for an agreed text.

With a change of Administrations and change of control of the Senate in the United States in less than two weeks, it is likely but not certain that the Biden Administration will place a priority on ensuring that the ongoing plurilateral negotiations for rules on e-commerce address the major concerns on censorship, although China’s participation in those talks will make achieving meaningful results more challenging.

I assume that Senator Wyden, when he becomes Chairman of the Senate Finance Committee, will want to see the 332 investigation requested by Senator Grassley completed, though it is possible he could add to or modify the requested scope of the investigation.

It is also possible that the Biden Administration will decide to pursue China’s censorship practices in the context of a WTO dispute and/or will attempt to address the censorship concerns in a phase 2 negotiation with China.

What is not in doubt is that the issue of censorship as a non-tariff barrier will continue to be an important one for U.S. businesses and citizens, just as it is for businesses and members of the public around the world.

USTR Lighthizer on WTO dispute settlement, answers to Congressional questions from June 17 hearings

· August 9, 2020 · WTO Dispute Settlement · , , , , , · No Comments

At the June 17 hearings before the U.S. House and Ways Committee and the U.S. Senate Finance Committee, the U.S. Trade Representative Robert Lighthizer testified about the Trump Administration’s 2020 trade agenda. While there were few questions during the hearing that were addressed to dispute settlement at the WTO, the Committees forwarded follow-up questions to Amb. Lighthizer for responses. Several dealt with WTO dispute settlement, in particular, reform of the Appellate Body (“AB”).

For example, Senate Finance Chairman Chuck Grassley (question 4) and Ranking Member Ron Wyden (question 16) each inquired about the next steps by the U.S. to achieving AB reform. Both Chairman and Ranking Member are strong supporters of achieving Appellate Body reform and limiting the Appellate Body to the role envisioned in the Dispute Settlement Understanding. Amb. Lighthizer’s answer to them was the same. Both questions asked and Amb. Lighthizer’s answer are provided below.

Chairman Grassley, Question 4
“I’m a strong supporter of reforming the WTO Appellate Body, but I’m worried that we still have not made any concrete proposal of our own for reforming dispute settlement. A number of allies who have been supportive of WTO reform have told me that they are discouraged by the continued lack of a proposal from the United States. Unfortunately, many of these countries are now signing up for the EU’s alternative: the Multiparty Interim Arbitration Arrangement.

“I believe we need to do more than identify problems. We need to propose and build consensus for solutions that will carry out what Congress understood it approved in 1995: binding dispute settlement on certain rules carefully negotiated by Members, not discovered by appointed judges. Accordingly, we need solutions that address overreach and other problems like the AB’s failure to follow the 90 day rule.

“What efforts are you taking to develop a proposal that we can rally our allies around, and will you commit to working with Congress on it – as is required by the constitution and the law?“

Ranking Member Wyden Question 16

“For more than a year, this Administration blocked approval for new Appellate Body Members in an effort to draw attention to concerns regarding the WTO dispute resolution system. I share these concerns, and I want them to be addressed. Last December these concerns captured the world’s attention when the Appellate Body became unable to hear new cases after the retirement of two judges left only one remaining judge. The United States has yet to put forward a reform proposal despite opposing other WTO members’ reform suggestions.

“What are the next steps in addressing the problems at the WTO?“

“Amb. Lighthizer Answer: The Administration is committed to working with any interested WTO Member to find solutions to the failure of the Appellate Body to follow WTO rules. This means first understanding what is the root of the problem: Why has the Appellate Body consistently broken WTO rules – that is, those rules agreed by WTO Members in the Uruguay Round and approved by the Congress in the Uruguay Round Agreements Act – despite every effort by U.S. Administrations to get it to stop.

“By exercising our right not to approve new members to the Appellate Body, the Administration has forced the WTO to engage in a long-overdue debate on this problem. My office also comprehensively detailed the Appellate Body’s pervasive rule-breaking in its Report on the Appellate Body earlier this year.1 The Report details the concerns expressed by the United States for more than 20 years and the repeated failure of the Appellate Body to apply the rules of the WTO agreements in a manner that adheres to the text of those agreements. The Report also highlights several examples of how the Appellate Body has altered WTO Members’ rights and obligations through erroneous interpretations of WTO agreements.

“Appellate Body overreaching has unfairly taken away U.S. rights and advantaged China. Through a series of deeply flawed reports, the Appellate Body has eroded the U.S. ability under WTO rules to counteract economic distortions caused by China’s non-market practices that harm our workers and businesses. For example, the Appellate Body’s erroneous interpretation of “public body” threatens the ability of WTO Members to counteract trade-distorting subsidies provided through state-owned enterprises, favoring non-market economies at the expense of market economies.

“The dispute settlement system should support, rather than weaken, the WTO as a forum for discussion, monitoring, and negotiation. The Appellate Body has facilitated efforts by some Members to obtain through litigation what they have not achieved – and could not achieve — through negotiation. If WTO Members believe in a rules-based trading system, then we must ensure the dispute settlement system follows the rules that WTO Members established. Without understanding the problem of why the Appellate Body has not followed the rules Members agreed to for it, simply writing new rules or affirming the existing rules in whatever form will not fix the problem. This is why we have continued to insist that Members need to understand why the Appellate Body does not consider itself bound by the rules so that we can find real, lasting solutions.

“Unfortunately, some of our trading partners – prominently, the EU and China – continue to deny that the Appellate Body has broken the rules. Rather than seeking reform in the areas of concern raised by the United States and other WTO Members, the EU and China have pursued an arbitration arrangement that incorporates and exacerbates some of the worst aspects of the Appellate Body’s practices. The numerous departures from agreed WTO rules in the EU-China arrangement highlight a fundamental difference among WTO Members: Some Members prefer an appellate “court” with expansive powers to write new rules and impose new obligations on the United States, instead of the more narrow appellate review as agreed to by Members in the DSU.

“The United States continues to engage with our trading partners and remains committed to working with any WTO Member that acknowledges U.S. concerns and is willing to work together to find real solutions and reform. I look forward to continuing to work with you and the Committee on these important issues.

“1 United States Trade Representative, Report on the Appellate Body of the World Trade Organization, February 2020, available at: https://ustr.gov/sites/default/files/Report_on_the_Appellate_Body_of_the_World_Trade_Organization.pdf.”

In the questions from the House Ways and Means Committee members, one question dealt with WTO reform, and the answer from Amb. Lighthizer included not only reform of the WTO generally but also the needs for addressing Appellate Body overreach. See question 1 from Rep. Jason Smith:

“Rep. Jason Smith

“1. The World Trade Organization (WTO) is in urgent need of reform and modernization. For too long, the WTO has been left stagnant, unable to adapt to the challenges presented by a rapidly changing global economy. As a result, American manufacturing and other critical U.S. industries have suffered the consequences of a body that has time and again, sought to diminish US. sovereignty. I am pleased that you and President Trump have taken on this task and have put forth a vision for a reformed WTO that will better serve the interests of America and our allies. With that in mind, what steps are you and your team taking this year to advance the necessary solutions the WTO system desperately needs?

“Answer: We continue to engage extensively with WTO Members to pursue meaningful reform of the WTO. The United States is pleased that Brazil, Costa Rica, Korea, and Singapore have responded to our reform initiatives by agreeing to forego special and differential treatment in future WTO negotiations. We are continuing to work to ensure all countries are contributing to the WTO commensurate with their role in the global economy. The United States is also leading an effort to bring the WTO back to upholding its core principle of market orientation to ensure a level playing field for U.S. workers, farmers, and businesses. We have also advanced work on transparency, ensuring timely notifications that can help get the WTO back to its core function of negotiating new trade rules.

“Additionally, we cannot allow overreaching by the Appellate Body to continue to weaken our ability under WTO rules to address the harm to our workers and businesses caused by non-market practices such as China’s economic distortions. WTO Members must come to terms with the failings of the Appellate Body and understand the causes if we are to achieve lasting and effective reform of the WTO dispute settlement system. The United States will continue to engage with any WTO Member in order to restore the WTO dispute settlement system to the role given to it by WTO Members and to ensure that dispute settlement supports, rather than weakens, the WTO. The United States led a group of 11 Members to issue a statement calling for transparency in dispute settlement through open meetings and public submissions, and we will continue to work to persuade Members who did not join the statement (such as the EU, China, and India) to support greater transparency.”

No movement at the WTO

Now that the Appellate Body has been without three members for nearly eight months, one would have expected that negotiations would be intense to find a solution acceptable to the United States and the membership. But other than certain Members seeking at each Dispute Settlement Body meeting to get agreement to start looking for new Appellate Body members (which is blocked by the United States), there is no indication that any meaningful activities are being pursued in 2020 to resolve the longstanding concerns of the United States.

With Director-General Azevedo’s announcement on May 14 that he would step down as the Director-General at the end of August 2020, much attention within the WTO in recent months has understandably been focused on finding a new Director-General. The selection process will likely continue until early November. This makes it unlikely that any major effort to address U.S. concerns will happen in the remainder of 2020.

Similarly, as we are less than three months from U.S. Presidential elections, many WTO Members will likely prefer to wait to see the results of the election before engaging with the U.S. on its core concerns.

Some major Members, like the EU, keep talking about looking for permanent solutions. See August 3, 2020, European Commission, Directorate-General for Trade, The WTO multi-party interim appeal arrangement gest operational, https://trade.ec.europa.eu/doclib/press/index.cfm?id=2176. “Commissioner for Trade Phil Hogan said: ‘With the agreed pool of arbitrators, the interim appeal arrangement for the WTO disputes is now up and running. * * * It shows that participating WTO members are willing to take concrete action to preserve an independent dispute settlement system with an appeal function. We can now turn our attention to finding a solution to the underlying problems through reform of the WTO Appellate Body and other aspects of the WTO system that need improvement.'” (emphasis added).

However, it has been the EU’s failure to recognize the departure of the Appellate Body from its limited role and the EU’s embrace of an Appellate Body creating rights and obligations that are not part of existing agreements that have significantly contributed to the problems identified by the United States. While Europe has shown some flexibility on addressing process issues, it has not acknowledged the serious overreach problems that the U.S. and many other Members have identified over the years. Thus, the EU concept of permanent solutions to the Appellate Body reform effort ignores core concerns of the U.S.

Conclusion

The U.S. has documented over the last several years the pervasive problems with the WTO’s dispute settlement system, particularly the actions of the Appellate Body. Since the Dispute Settlement Understanding already makes clear the proper role for the Appellate Body and the limitation on panels and the Appellate Body not to create rights or obligations, the U.S. insistence on Members focusing on why the Appellate Body has felt free to ignore the limits on its authority is understandable as a first step to determining what needs to be done to get the dispute settlement system back to what was agreed to by Members at the creation of the WTO. The U.S. concerns also explain its lack of support for a mere reaffirmation of the original Dispute Settlement Understanding language.

In prior posts, I have put forward thoughts on how one could make the original language self-executing or enforceable by Members to a dispute and hence address U.S. concerns if other countries will not focus on why the Appellate Body has been willing to ignore limits on its authority. See, e.g., July 12, 2020, WTO Appellate Body reform – revisiting thoughts on how to address U.S. concerns, https://currentthoughtsontrade.com/2020/07/12/wtos-appellate-body-reform-revisiting-thoughts-on-how-to-address-u-s-concerns/.

Absent an agreement among Members as to the reasons for Appellate Body departure from its limited role, Members will need to make modifications to the Agreement or to what is contained in binding interpretations that actually prevent future departures from the correct, limited role of the Appellate Body.

Don’t hold your breath that Members will find solutions any time soon.