Being Right

The United States was recently dealt a disappointing loss by a World Trade Organization (WTO) panel in its case against China. The suit stemmed from alleged Chinese intellectual property violations and that such substantially damaged the interests of US companies.

In a rather interesting twist, the US admitted that its tariff measures were indeed inconsistent with its WTO obligations but justified the same as arising from the need to “protect public morals” (as China’s actions amounted to “state-sanctioned theft”) and thus qualifies for protection under Article XX.a of the General Agreement on Tariffs and Trade (GATT).

Significantly, the Panel agreed with the US that trade related measures can indeed be instituted to protect public morals. Note that in the Seal Products case, it was pointed out that “the content of the concept of public morals ‘can vary in time and space, depending upon a range of factors, including prevailing social, cultural, ethical and religious values’ and that, for this reason, Members should be given some scope to define and apply for themselves the concepts of ‘public morals’ in their respective territories, according to their own systems and scales of values.”

In the present case, the Panel kept consistency: US “standards of right and wrong” could indeed conceivably be appropriate when invoking the said “public morals” clause.

Nevertheless, the Panel ultimately ruled against the US, declaring the latter as not having sufficiently established the nexus between the trade matters sought to be resolved — both in terms of the actions sought to be prevented and the measures imposed to remedy China’s violations — and the public morals objectives being sought. The justifying circumstance being inapplicable, the Panel ruled the US as having violated its commitments under GATT.

The case is interesting, coming as it does at a time when local political leaders and academicians are seemingly intent on excluding public morals as a part of discussions in the public square or in a court of law. But as the US Tariffs and the Seal Products cases show, even a matter as technically pedantic as international trade could involve moral issues.

And even more interesting when one reflects on the European Parliament resolving last week to withhold GSP+ benefits from the Philippines, ostensibly on the ground of the Philippine government’s supposed human rights violations.

The GSP (or Generalized System of Preferences) serves as an exemption to the WTO’s “most favored nation” obligation, with lower tariffs given for poorer countries under certain conditions.

The three biggest GSP providers are the US, Japan, and the European Union. GSP schemes vary according to the provider, resulting in different technical requirements particularly for rules of origin.

As for the EU’s GSP+, the European Commission describes it as a “special incentive arrangement for sustainable development and good governance. It slashes these same tariffs to 0% for vulnerable low and low2er-middle income countries that implement 27 international conventions related to human rights, labor rights, protection of the environment and good governance.”

The EU’s GSP+ privileges do seem substantial. As described by the Foreign Service Institute (“Does the Philippines Need the EU’s GSP+?”): “A record-high P120 billion (EURO 2 billion) worth of Philippine exports benefitted from GSP+ in 2017, most of which were concentrated in the food and agricultural sectors.” The following Philippine products most benefiting were: animal products, fish and related products, prepared foodstuffs, edible fruits, and also automotive parts, leather, textiles, and footwear.

The Philippines has a “GSP+ utilization rate of 71%” and “all in all, the Philippines benefits considerably from the EU’s GSP+.” And although “losing it would be far from a death blow to the economy, and that it could, in theory, be compensated by increased economic ties with other trade partners like China, retaining GSP+ remains the best possible outcome for the country if it is serious about maximizing its growth. Consequently, Manila would do well to ensure that it keeps GSP+.”

This is not the first time the European Parliament voted on such a measure. Reportedly, the same resolutions were made in 2016, 2017, and 2018. Nevertheless, it is not the European Parliament (which represents the different EU member country citizens and is directly elected by them) but the supposedly “politically independent executive arm,” the EU Commission (representing the member governments, each government allowed one representative) that makes the decision on GSP+.

Trade Secretary Ramon Lopez, however, reportedly remains optimistic: “We have an inter-agency working group in place that attend to the regular monitoring visits and respond accordingly to various issues if and when they are officially raised by the EU Commission. The EU Commission has a mechanism in place and process to follow to verify issues before sanctions are imposed.”

Let’s hope so. As the EU Commission tersely points out: the GSP+ is “not negotiated.” This significantly dampens even the minute possibility of questioning before the WTO such withdrawal of benefits, in the same manner as the US’ trade measure, and potentially leaves our exporters with minimum recourse.


Jemy Gatdula is a Senior Fellow of the Philippine Council for Foreign Relations and a Philippine Judicial Academy law lecturer for constitutional philosophy and jurisprudence.

Twitter @jemygatdula