Amexit? Can Trump leave NAFTA & What Would Happen if he did

Disclaimer: The views and opinions expressed in this article are those of the author's and do not necessarily reflect the position of JLIA, Penn State Law, School of International Affairs, or Pennsylvania State University.

 

On June 23, 2016, the United Kingdom (“UK”) voted to leave the European Union (“EU”), the body that has been the definition of prestige in the realm of international treaties.[i] This triggered hysteria, rightfully so, because while the rest of the world were not a part of this treaty, it was so intertwined with any country’s relation Europe that it left countries like America and Canada wondering what it meant for them. But while “Brexit” has caused such uncertainties for countries that are not party to the EU, what would happen if a country like America were to withdraw from one of their biggest treaties? Well, this speculation might have to become reality if President Trump ends up getting his way and leaving the North American Free Trade Agreement.

 

Before Donald Trump took office, he consistently spewed during Presidential Debates that “NAFTA is the worst trade deal maybe ever signed anywhere, but certainly ever signed in this country.”[ii] While Trump argues that NAFTA has only ever hindered the US, would it in fact be as devastating to America for them to leave NAFTA as it is for the UK to leave “EU”? International Trade expert, and Penn State Law faculty member, Takis Tridimas argues otherwise.[iii] Tridimas argues that, while he believes it is unlikely that the US will withdraw from NAFTA, in the event of NAFTA Article 2205[iv] being triggered by the US, he vehemently argues that it will not have such an impact of that of Brexit.[v] This leads Tridimas to mentioning that where Brexit solely uses the EU as the basis of negotiations, and how to readdress issues that are up in the air with the UK leaving certain mechnisms of the EU, the United States comes into NAFTA and withdrawal of NAFTA needing their position to encompass the United States Constitution.[vi]

 

This draws the attention to another issue with President Trump’s solo campaign to withdraw from NAFTA, does he know the Commerce Clause exists?[vii] Under the Constitutions Commerce Clause, Trump cannot terminate NAFTA, nor could he have even renegotiated it without a “yes” from Congress.[viii] While we can debate whether or not the President’s knowledge of the Constitution is substantial or not, or if America leaving NAFTA will be as detrimental of Brexit has been in the EU, the question remains: What would happen if America did leave NAFTA?

 

Well there’s a whole slew of things. Firstly, in my opinion, the dispute resolution mechanism of NAFTA would disappear first and fast.[ix] This system of dispute resolution has been rarely used, with the United States, Canada and Mexico all being members of the World Trade Organization (“WTO”), NAFTA’s Chapter 20 and WTO’s Dispute Settlement Understanding (“DSU”) are often venue shopped between these three countries, with preference being given to the WTO’s dispute resolution system.[x]

 

Secondly, Trump would not hesitate to reinstate various tariffs on Mexico, likely using the WTO’s maximum tariff percentage, as it would be the only binding material on free trade that America would need to adhere to foregoing NAFTA.

 

Thirdly, the most interesting events to succeed the termination of NAFTA would to examine if the United States, Canada and Mexico either multilaterally institute a new agreement or if the countries would forego one another and decide to bilaterally create agreements. With the uncertainty of Congress today, it would not be surprising if Canada and Mexico decided that they would institute a new trade agreement between the two of them. This would likely be followed with new bilateral agreements between Canada and the US and the US and Mexico. Wouldn’t this just unnecessarily complicate matters of free trade between the three countries? To have terminated one simple, all-encompassing, agreement because of a President’s pride (or the Republican Congress’s pride) be replaced with two separate binding agreements, that must also adhere to the global trade organizations guidelines; where’s the common sense in that?

 

Whether the United States decides to leave NAFTA or not is something that only time will be able to tell and we may never see the hypothetical consequences; yet, it could be worse … just look at the failing negotiations of Brexit.

 

About the Author: Pooja Toor is a 2L at Penn State Law.


 

[i] Alex Hunt & Brian Wheeler, Brexit: All you need to know about the UK leaving the EU BBC News (2017), http://www.bbc.com/news/uk-politics-32810887 (last visited Nov 9, 2017).

[ii] Cooper Allen, 2016 general election debate schedule USA Today (2016), https://www.usatoday.com/story/news/politics/onpolitics/2015/09/23/2016-general-election-debate-schedule/81238502/ (last visited Nov 15, 2017).

[iii] Pooja Toor & Takis Tridimas, Personal Interview of Takis Tridimas (2017).

[iv] North American Free Trade Agreement, Can.-Mex.-U.S., Art. 2205, Dec. 17, 1992, 32 I.L.M. 289 (1993).

[v] Pooja Toor & Takis Tridimas, Personal Interview of Takis Tridimas (2017).

[vi] Id.

[vii] U. S. Const. art. I, § 8, cl. 3

[viii] Id.

[ix] North American Free Trade Agreement, Can.-Mex.-U.S., Ch. 20, Dec. 17, 1992, 32 I.L.M. 289 (1993).

[x] R. Leal-Arcas, Comparative Analysis of NAFTA’s Chapter 20 and the WTO’s Dispute Settlement Understanding, 8 in Transnational Dispute Management, www.transnational-dispute-management.com (2011)

Brazil: A Biofuel Powerhouse

In contrast to a number of countries that have failed to create an economically viable biofuel industry, Brazil has developed the first successful biofuel economy in the world. With roots in a program first launched in 1975, Brazil’s success stems from a variety of factors that are seemingly unique to this South American nation. As ethanol is a natural by-product of the sugar milling process, Brazil’s vast sugarcane industry contributes to its ability to produce ethanol at a price competitive with oil. Much can be learned from Brazil’s success, and these lessons suggest that nations seeking to develop economically viable alternative energy sources should analyze their own unique qualities so that they incentivize an alternative source of energy that is compatible.

Unlike other South American countries blessed with vast hydrocarbon reserves, Brazil is forced to import virtually all of its oil and natural gas. Thus, in order to reduce its dependence on foreign producers and to take advantage of its burgeoning sugar industry, Brazil enacted legislation that mandated ethanol be added to gasoline to create a mixture comprised of at least 5% ethanol in 1931. Devastated by OPEC’s 1973 oil embargo, Brazil responded by launching the National Alcohol Program in 1975. Consequently, sugarcane farmers were incentivized to grow additional sugarcane for the purpose of producing ethanol and sugarcane and ethanol production grew. 

One factor contributing to the economic viability is Brazil’s long history growing sugarcane. Sugarcane was one of the first commodities Brazil exported to Europe, and Brazil has grown sugarcane since approximately 1532. Accordingly, Brazil has developed, mainly through its state-owned Brazilian Agricultural Research Corporation, some of the most advanced biotechnology and agronomic technology in the world. This investment has yielded impressive results: from 1977 to 2004, the amount of recoverable sugar from sugarcane has increased by 1.5% per year, and has resulted in an increase from 95 to 140 kilograms per hectare. This has translated into a vast increase in liters of ethanol per hectare.

One other critical factor is the availability of cheap, arable land. According to a recent study, Brazil has approximately 610,000,000 hectares of arable land, representing 71% of its total area. Moreover, this land gets abundant rainfall and sunlight, meaning that ”everything just grows faster, bigger, and better all year round.” Indeed, there is so much arable land that many have concluded that Brazil’s success is impossible to replicate in other countries because they are not able to devote as much land to ethanol production as Brazil can.

Brazil’s success has not been replicated elsewhere. While the United States is the largest producer of ethanol fuel, the United States has heavily subsidized its industry and has thus created an artificially low price. Brazil’s ability to produce ethanol at competitive price stems not from subsidy, but from its unique combination of agricultural technology and vast swaths of arable land. Only by identifying their own market advantages will another country succeed in developing an alternative energy industry.

Stephen Dotts is a 3L and a Senior Editor for the Journal of Law and International Affairs at the Penn State University Dickinson School of Law.


Citations to articles & documents are included in the aforementioned underlined hyperlinks.

You Have to Spend Money to Make Money: The Rise of Third-Party Litigation Finance in International Litigation

Over the years, as international commerce has become the norm, there has been a corresponding rise in international litigation and arbitration. Given that many international lawsuits are expensive, parties are looking for ways to decrease risk in these suits. The private capital markets have responded by offering third-party litigation financing (“TPLF”).

TPLF is “a group of funding methods that rely on funds from . . . the capital markets instead of, or in addition to, a litigant’s own funds.”[i] It is a type of contingency fee where a specialist funding company or hedge fund pays some or all of the litigation costs by paying the attorneys’ fees—and sometimes the other costs—and then receives a percentage of the verdict, settlement, or arbitral award.[ii] This form of litigation financing is known as a “syndicated lawsuit” and has been gaining popularity in the international legal world.[iii] By utilizing TPLF, law firms are able to mitigate the cost of bringing a lawsuit while still reaping some of the reward.

The growth of the TPLF industry has been seen across the globe. Countries like Australia and the United Kingdom have taken substantial strides to allow and encourage TPLF.[iv] This movement has sparked an interest in international law firms to utilize this new funding technique.[v] For example, eight out of the ten major law firms in London were using some sort of TPLF in international litigation and arbitration cases.[vi]

While many counties have embraced, and in fact encourage, TPLF, others are still testing the waters by implementing systems where TPLF is allowed in narrow circumstances. Hong Kong is currently in the process of amending and establishing its approach to TPLF, both in international litigation and arbitration. In October of 2015, the Hong Kong Law Commission, led by the Third Party Funding for Arbitration Sub-Committee, published a Consultation Paper encouraging that TPLF be permitted in international arbitration taking place in Hong Kong.[vii] Previously, TPLF agreements were only allowed in arbitration conducted overseas.[viii] The court in Unruh v. Seeberger expressly raised the issue, but did not answer, whether TPLF agreements are barred within its borders.[ix] Ms. Kim Rooney, the Chairman of the Third Party Funding for Arbitration Sub-committee, noted that:

“[Hong Kong] is a major international financial and arbitration centre and that parties considering whether to resolve their disputes in [Hong Kong] by international arbitration are starting to take into account, among others, the potential financial options available to them in conducting such arbitrations. Accordingly, clarity and certainty of the relevant law concerning third party funding for arbitration will be desirable.”[x]

Given the recognized importance of this issue, the Law Commission held a consultation period to review the opinions of the public—which ended on January 18, 2016. Numerous organizations participated in this consultation period, including influential organizations such as the U.S. Institute for Legal Reform and Burford Capital.[xi]

While the U.S. market for TPLF is fairly small, when compared to other countries, it has been steadily increasing.[xii] Pressure for United States capital companies to enter the litigation market has emanated from foreign jurisdictions .[xiii] Recognizing the opportunities for potential profit in the TPLF market, as exemplified abroad, U.S. investment companies have begun to fall into step. There has been a “new wave” of litigation financing that has emerged from the shift toward utilizing TPLF.[xiv] However, this issue is complicated in the U.S. because some jurisdictions ban or limit the use of TPLF.[xv]

The influence of TPLF is evident, given the growth in the TPLF market and the reactions of different countries in adopting or preventing its use in litigation and arbitration. Many scholars support the use of TPLF as it provides a means of financing for those who may be otherwise prevented from filing suit due to financial reasons. However, others fear easy access to funding may lead to a rise in frivolous lawsuits. Either way, TPLF appears to be rising a part of international litigation and arbitration. It will be important for those likely to be involved in international litigation to track how different countries approach the use of TPLF.

 

John Rafferty is a 3L and an Articles Editor of the Journal of Law and International Affairs at the Penn State University Dickinson School of Law.


 

[i] Maya Steinitz, Whose Claim Is This Anyway? Third-Party Litigation Funding, 95 Minn. L. Rev. 1268, 1276-77 (2011).

[ii] Id. at 1277 (citing Baker & McKenzie LLP, Demand for Third Party Litigation Funding Rises as Supply Becomes Volatile (2008), available at http:// www.bakernet.com/NR/rdonlyres/427586D3-6891-4FC2-B926-B0181DB75595/0/ third_party_litigation_funding_ca&u score;oct08.pdf.).

[iii] Joshua G. Richey, Tilted Scales of Justice? The Consequences of Third-Party Litigation Financing of American Litigation, 63 Emory L.J. 489, 495-96 (2013).

[iv] Maya Steinitz, Whose Claim Is This Anyway? Third-Party Litigation Funding, 95 Minn. L. Rev. 1268, 1279-81 (2011).

[v] Id. at 1281.

[vi] Id.

[vii] IRL Responds to Hong Kong Law Commission on Risks of Third Party Litigation Financing, U.S. Chamber Institute for Legal Reform, http://www.burfordcapital.com/blog-burfords-comment-to-the-hong-kong-law-reform-commissions-third-party-funding-for-arbitration-sub-committee/ [hereinafter IRL].

[viii] Uhruh v Seeberger (2007) 10 H.K.C.F.A.R 31, 118 (H.K.).

[ix] Id.

[x] See IRL, supra note 7.

[xi] Burford Capital, Burford’s Comment to the Hong King Law Reform Commission’s Third Party Funding for Arbitraiton Sib-committee, Burford, http://www.burfordcapital.com/blog-burfords-comment-to-the-hong-kong-law-reform-commissions-third-party-funding-for-arbitration-sub-committee/.

[xii] Richard Lloyd, The New, New Thing; The American Lawyer (May 17, 2010), available at www.law.com/jsp/tal//PubArticleTAL.jsp?id=1202457711273&hbxlogin=1&login.

[xiii] Steinitz, supra note 4, at 1278.

[xiv] Steinitz, supra note 4, at 1277.

[xv] Jennifer Trusz, Full Disclosure? Conflicts of Interest Arising from Third-Party Funding in International Commercial Arbitration, 101 Geo. L.J. 1649 (2013).

Follow-On Biologic Drugs Are Unlikely to Reduce the Price of Biologic Drugs Absent FDA Innovation

The price of pharmaceutical products has long been a source of controversy. While the recent headline of the increase of the drug Daraprim from $13.50 per tablet to $750.00 may provide an extreme example of some of the problems affecting the pharmaceutical industry, the looming costs of biologic drugs represent a far more complex and nuanced problem with few easy answers. Though generic versions of biologic drugs may offer some relief, the advent of these biosimilars, or follo-on biologics, is unlikely to result in lower prices without significant Food and Drug Administration (“FDA”) innovation.

In 2005, the European Union’s European Medicines Agency established guidelines for the approval process for follow-on biologics. This pathway predates the pathway established by the Biologics Price Competition and Innovation Act of 2009 (“BPCIA”), and has thus far resulted in the approval of 19 follow-on biologics for six different pioneer biologic drugs. Importantly, the impact of this regulation in the European Union’s mature follow-on biologic markets can be measured and used to predict the effects of similar regulation in America.

When analyzing the market data for follow-on biologic markets in the European Union, it is clear that the four most mature markets, and thus the markets that have the most value with regard to predicting regulatory effects in America, are for the biologic drugs erythropoietin, human growth hormone, granulocyte colony-stimulating factor, and anti-tumor necrosis factor. A recent report published by the IMS Institute for Healthcare Informatics, an American company that is the largest vendor for U.S. physician prescribing data, analyzed these markets and concluded that the extent to which biosimilar competition has penetrated the health care market is the most crucial predictor of whether the existence of a follow-on biologic actually results in lower prices for the consumer. The report suggests several ways to achieve this market penetration, including mass purchasing plans, elimination of barriers to an unrestricted free market, and establishing substitution guidelines that allow generic substitution. As the United States does not engage in the mass national purchasing that some countries belonging to the European Union do engage in, the United States should focus on eliminating barriers of entry to an unrestricted free market and promote the substitution of cheaper follow-on biologic drugs when appropriate to reduce the price of biologic drugs.

While the BPCIA established a regulatory framework for the introduction of follow-on biologics, it is ultimately up to the FDA to promulgate specific regulations for how a follow-on biologic manufacturer can bring a product to market. Importantly, this includes establishing whether a follow-on biologic is merely “biosimilar,” or if it is “expected to produce no meaningful clinical difference” to the pioneer drug and can be classified as “interchangeable.”[i] Unfortunately for biologic drug consumers, it is unlikely that a follow-on biologic will be able to meet this high bar because there is enormous pressure on the FDA from pioneer biologic organizations, including the  Biotechnology Industry Organization, to withhold making this determination until the state of the art  testing of biologics has improved.

Learning from the past, the FDA would be wise to promulgate standards that can eventually be converted into rules as the state of the art develops.[ii] These rules might eventually be able to advise companies on how to produce follow-on biological drugs that interact with a specific enzyme or incorporate a specific three dimensional motif. Furthermore, as the FDA establishes rules, it is likely able to save on screening costs[iii] that contribute to the price of biologics and affect the market penetration of follow-on biologics. However, these vastly understated shifts depend on the ability of the FDA to efficiently and consistently measure biologic drug safety and efficacy- a task that currently consumes enormous amounts of time and money, and is the principal factor contributing to the high price of biologic drugs. Thus, significant technological advancement in the state of the art of biologic drugs is likely the most significant factor in reducing the cost of the price of biologic drugs. While this advancement is likely to take years and costs billions of dollars, European data suggests that absent market penetration and substation, follow-on biologics are likely to have an insignificant impact on the price of biologic drugs in the United States absent this shift in how the FDA regulates biologic drugs.

 

Stephen Dotts is a 3L and a Senior Editor for the Journal of Law and International Affairs at the Penn State University Dickinson School of Law.


 

[i] 42 U.S.C. § 262(k)(2)(A)(i)(I-V) (2011).

[ii] See Louis Kaplow, Rules versus Standards: An Economic Analysis, 42 Duke L.J. 557, 557-629 (1992)(arguing that standards are cheap to establish but expensive to enforce and that rules are expensive establish but cheap to enforce; the FDA is wise to employ both of these methods where appropriate for maximum effectiveness; and establishing rules for a less-developed market is more prone to large companies dominating the process).

[iii] See Richard A. Merrill, Risk-Benefit Decisionmaking by the Food and Drug Administration, 45 Geo. Wash. L. Rev. 994 (1976)(arguing that FDA screening of “small-ticket” products, such as drug products, is extremely expensive when compared to utilizing industry standards to ensure product efficacy and safety).