Ball and (Block)Chain: How the United States’ Ban on Venezuelan Cryptocurrency Affects National Treatment Consistency Under the GATS
NICHOLAS LOYACONA* ∙ FEBRUARY 13, 2019 ∙ ARTICLE
The General Agreement on Trade in Services (the “GATS”) was the first-ever multilateral agreement on trade in services.[1] It established a regulatory framework that WTO Members can use to negotiate and implement commitments for the liberalization of trade in services.[2] The GATS entered into force on January 1, 1995.[3] As a part of the GATS, each signatory of the agreement includes its own Schedule of Commitments. In these schedules, the respective country lists limitations on national treatment concerning foreign service and service suppliers compared to its domestic counterparts. When a country lists a sector in its Schedule and makes a specific commitment, that country agrees to treat foreign suppliers under the same terms and conditions as it treats its own domestic suppliers, giving national treatment to them. The United States’ Schedule of Commitments was finalized by the WTO on December 12, 1997, and obviously does not discuss twenty-first-century technology, including cryptocurrencies.
As a possible solution to Venezuela’s economic woes, in December 2017, President Nicolás Maduro announced the launch of “Petro,” a digital currency backed by oil reserves to shore up a collapsed economy and circumvent U.S.-led financial sanctions.[4] Responding in March 2018, President Donald Trump issued Executive Order 13827 to prohibit all transactions involving Venezuela’s Petro.[5] Ultimately, Venezuela requested that a WTO panel be established.
In its request, Venezuela argued that there was a violation of national treatment under the GATS. Venezuela specifically took issue with “discriminatory coercive measures” regarding transactions in Venezuelan digital currency (Petro), adopted pursuant to Executive Order 13827.[6] Venezuela claimed its digital currency was accorded less favorable treatment compared to like domestic financial services and service suppliers, in violation of Article XVII(1) of the GATS and the United States’ national treatment commitment.[7]
Due to the novelty of cryptocurrencies, this article will attempt to explore some solutions for both Venezuela and the U.S. if this dispute were to make it to a panel. The main issue facing Venezuela is characterizing Petro in a way that places it under a sector in the U.S.’ Schedule, which the Americans have afforded national treatment.
One viable sector could be financial services. For cryptocurrencies to fall under this sector, the technology will need to be covered by the definition of financial services under the Annex on Financial Services.[8] Paragraph 5(a) of the Annex defines financial service as “any service of a financial nature offered by a financial service supplier of a Member.”[9] Paragraph 5(a)(x) also includes trading in securities within financial services, it states, “Trading for own account or for account of customers, whether on an exchange, in an over-the-counter market or . . . transferable securities[.]”[10]
Cryptocurrencies might fall under the definition of financial services if the act of creation and purchase of cryptocurrencies is considered “trading,” and if so, then it must be demonstrated that cryptocurrencies are transferable securities. Financial trading is defined as “buying and selling securities.”[11] Cryptocurrencies are bought and sold on blockchain networks, so it is a very strong argument that “trading” encompasses cryptocurrencies. However, the second prong of illustrating that cryptocurrencies are securities is challenging because the term “security” is not defined in the GATS or its Annex on Financial Services.
According to the Corporate Finance Institute, the definition of “security” is “a financial instrument, typically any financial asset that can be traded.”[12] While the appropriate ordinary meaning of a term is determined by the panel’s judgment, there is nothing to suggest that cryptocurrencies, which have at least some overlap with securities, would be omitted from the broad definition of financial services.
Furthermore, in Argentina – Financial Services, the panel held that a provision that would have restricted Argentine citizens from participating in transactions involving the public offering of negotiable securities or other financial instruments or products when they were offered from residents of Panama was, in fact, covered by the financial services cited in paragraph 5(a)(x) of the Annex on Financial Services.[13] Therefore, any provision that restricts access to cryptocurrencies would similarly be interpreted to affect the supply of financial services.
If Venezuela is able to successfully argue that cryptocurrencies are under the sector of financial services, they would then need to argue that cryptocurrencies also fall under a particular subsector. This is so because financial services is a large, wide-ranging category that includes numerous subsectors that are each afforded varying levels of commitment to national treatment. Venezuela could contend that cryptocurrencies fall under the subsector of “Trading of Securities and Derivative Products and Services Related Thereto” on which the U.S. has afforded full national treatment commitments to the cross-border supply mode.[14]
A “derivative” is defined as “a financial security with a value that is reliant upon or derived from, an underlying asset or group of assets.”[15] Energy derivatives are financial instruments in which the underlying asset is based on energy products, including oil, and trades either on an exchange or over-the-counter.[16] An argument can be made that since Petro is backed by Venezuela’s oil reserves, it is an energy derivative.[17]
If it is determined that cryptocurrencies can be classified in the U.S. Schedule, then a panel would work through the test for consistency with this newly acknowledged national treatment commitment to cryptocurrencies. The first element is whether, and to what extent, a national treatment commitment was made in a sector. The second element of the test is whether the executive order banning Petro is a measure affecting trade in services. Third, whether cryptocurrencies and other digital currencies from the United States are “like” services to the Petro. Lastly, the test calls for a determination of whether the ban is “treatment no less favorable.” This last element requires the establishment of the ban on Petro as a modification of the conditions of competition to the detriment of the imported cryptocurrency services.
Hypothetically, if Venezuela is successful in its argument, the United States would then need to assert an exception to their newly recognized national treatment commitment to cryptocurrencies. First, under Article XIV of the GATS, the United States could ground an argument in one or more general exceptions. The GATS allows Members to deviate, under certain circumstances, from obligations and commitments, like national treatment. The relevant parts of the GATS Article XIV (“General Exceptions”)[18] are the introductory clause (the chapeau) and paragraph (a) regarding public morals and public order:
Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade in services, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any Member of measures:
(a) Necessary to protect public morals or to maintain public order.
First, a panel must determine whether the challenged measure is under the scope of one of the paragraphs (a–e) of Article XIV.[19] Once a respondent has established that the measure at issue meets the condition of a particular subsection of Article XIV, that party must then convince the panel that the measure also meets the requirements of the good faith standard in the chapeau.[20]
Paragraph (a) of Article XIV allows members to diverge from the national treatment and other commitments if the measure is “necessary to protect public morals. . . .” The Panel in US – Gambling interpreted “public morals” to mean “standards of right and wrong conduct maintained by or on behalf of a community or nation.”[21]
In US–Gambling, the Panel and the Appellate Body accepted the U.S.’ concerns associated with the remote supply of gambling.[22] Some U.S. concerns with remote gambling would also be appropriate for the regulation of cryptocurrencies. The concerns of (1) organized crime, (2) money laundering, and (3) fraud[23] are all valid concerns with the Petro cryptocurrency funding the Maduro regime. The U.S. could use these “public morals” concerns to justify the ban on Petro, since there is evidence linking the Petro to suspicious activities, including funding from anonymous “ghost” companies and exploitation of money laundering.[24]
Second, the U.S. must convince the panel that the ban also meets the requirements of the good faith standard in the chapeau of the General Exceptions. This is the most difficult part of the two-step process of obtaining an exception for a national treatment commitment. However, the chapeau analysis is beyond the scope of this article.
In addition, the U.S. could argue under Article XIV bis Security Exceptions that it does not have to provide national treatment because it considers it necessary for the protection of its essential security interests taken in a time of emergency in international relations. The argument for national security would be very similar to that for public morals. According to secretary of the Treasury, Steven Mnunchin, “This is indeed a national security issue. . . . Cryptocurrencies . . . have been exploited to support billions of dollars of illicit activity like cybercrime, tax evasion, extortion, ransomware, illicit drugs, and human trafficking. . . [and] could be misused by money launderers and terrorist financiers.”[25] The United States could claim that Petro trading could fund cybercrime, drug trafficking, and organized crime.
Given Venezuela’s well-documented history of human rights violations and the lengthy list of U.S. sanctions already in place, the U.S. could be successful in arguing that public morals or security concerns justify the ban on Petro. However, this all depends on whether the WTO will be able to resolve this dispute at all. Since December 10, 2019, the Appellate Body of the WTO has been prevented from doing any work due to the U.S.’ refusal to approve the names of its new members.
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*J.D. Candidate, Notre Dame Law School, 2020; Executive Online Editor of the Notre Dame Journal of International & Comparative Law; B.S. in Business Administration, University of Richmond, 2015.
[1] Peter Van den Bossche, The Law and Policy of the World Trade Organization Text, Cases and Materials 50 (2005).
[2] Id.
[3] General Agreement on Trade in Services art. I(1), Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1B, The Legal Texts: The Results of the Uruguay Round Of Multilateral Trade Negotiations 284 (1999), 1869 U.N.T.S. 183, 33 I.L.M. 1167 (1994) [hereinafter GATS].
[4] Alexandra Ulmer & Deisy Buitrago, Enter the ‘Petro’: Venezuela to launch oil-backed cryptocurrency, Reuters (Dec. 3, 2017, 2:36 PM), https://www.reuters.com/article/us-venezuela-economy/enter-the-petro-venezuela-to-launch-oil-backed-cryptocurrency-idUSKBN1DX0SQ.
[5] Exec. Order No. 13827, 83 Fed. Reg. 12469 (Mar. 21, 2018).
[6] Request for the Establishment of a Panel by Venezuela, United States — Measures Relating to Trade in Goods and Services, ¶ 4(xi), WTO Doc. WT/DS574/2 (requested Mar. 15, 2019).
[7] Id.
[8] GATS, supra note 3, Annex on Financial Services, available at https://www.wto.org/english/tratop_e/serv_e/10-anfin_e.htm.
[9] Id. at ¶ 5(a).
[10] Id. at ¶ 5(a)(x)(E).
[11] Trading, The Fin. Dictionary, available at https://financial-dictionary.thefreedictionary.com/Trading (last visited Nov. 20, 2019).
[12] Security, Corp. Fin. Inst., available at https://corporatefinanceinstitute.com/resources/knowledge/finance/security/ (last visited Nov. 20, 2019).
[13] Panel Report, Argentina — Measures Relating to Trade in Goods and Services, ¶ 7.857, n.1066, p. 204, WT/DS453/R (adopted May 9, 2016), available at https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=134788,134790&CurrentCatalogueIdIndex=0&FullTextHash=&HasEnglishRecord=True&HasFrenchRecord=True&HasSpanishRecord=True.
[14] United States International Trade Commission, U.S. Schedule of Commitments under the General Agreement on Trade in Services, p. C-26, Investigation No. 332–354, GATS/SC/90/Suppl.3 (adopted Aug. 1998), available at https://www.citizen.org/wp-content/uploads/us_commitments_under_gats.pdf.
[15] Derivative, Investopedia, available at https://www.investopedia.com/terms/d/derivative.asp (last visited Nov. 20, 2019).
[16] Energy Derivative, Investopedia, available at https://www.investopedia.com/terms/e/energy-derivative.asp (last visited Nov. 20, 2019).
[17] Frances Coppola, Venezuela’s ‘Cryptocurrency’ Isn’t Really A Cryptocurrency At All, Forbes (Jan. 8, 2018, 10:42 AM) https://www.forbes.com/sites/francescoppola/2018/01/08/venezuelas-cryptocurrency-isnt-really-a-cryptocurrency-at-all/#500ea8e76cbe.
[18] GATS, supra note 3, art. XIV.
[19] Appellate Body Report, United States — Measures Affecting the Cross-Supply of Gambling and Betting Services, ¶ 292, WTO Doc. WT/DS285/AB/R (adopted Apr. 20, 2005).
[20] Id.
[21] Panel Report, United States — Measures Affecting the Cross-Border Supply of Gambling and Betting Services, ¶ 6.465, WT/DS285/R (adopted Apr. 20, 2005).
[22] Appellate Body Report, United States – Measures Affecting the Cross-Supply of Gambling and Betting Services, ¶¶ 283–84, WTO Doc. WT/DS285/AB/R (adopted Apr. 20, 2005).
[23] Id. at ¶ 283.
[24] Marco Cavicchioli, Venezuela: risk of money laundering and economic collapse for Petro, Cryptonomist (Feb. 27, 2019), https://en.cryptonomist.ch/2019/02/27/venezuela-petro-money-laundering/.
[25] Billy Bambrough, Bitcoin and Crypto Suddenly Branded A ‘National Security Issue’, Forbes (Jul. 16, 2019, 3:00 AM), https://www.forbes.com/sites/billybambrough/2019/07/16/bitcoin-and-crypto-suddenly-branded-a-national-security-issue/#48f763c1a594.
Tags: Venezuela, Trade, Cryptocurrency