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Enforcement and Countermeasures in the WTO: Rules are Rules-Toward a More Collective Approach

Published online by Cambridge University Press:  27 February 2017

Joost Pauwelyn
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Extract

In the thirty cases that have led to the adoption of dispute settlement reports in the World Trade Organization (WTO), the enforcement tool of last resort—countermeasures—has been invoked five times. This number is more—in five years—than in the forty-seven-year history of the General Agreement on Tariffs and Trade (GATT), the WTO’s predecessor. In addition, on six occasions WTO members have invoked the expedited procedure to solve disagreements concerning compliance with dispute setdement reports, a procedure newly introduced with the establishment of the WTO. In another case, compliance procedures are looming.

Type
Notes and Comments
Information
American Journal of International Law , Volume 94 , Issue 2 , April 2000 , pp. 335 - 347
Copyright
Copyright © American Society of International Law 2000

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References

1 See the disputes on European Communities—Regime for the Importation, Sale and Distribution of Bananas [herinafter EC—Bananas], WTO Doc. Series WT/DS27, where the United States retaliated and Ecuador recently requested authorization to do the same; European Communities—Measures Concerning Meat and Meat Products (Hormones) [hereinafter EC—Hormones], WTO Doc. Series WT/DS26 & WT/DS48, where both the United States and Canada retaliated; and Australia—Measures Affecting the Importation of Salmon [hereinafter Australia—Salmon], WTO Doc. Series WT/DS18, where Canada’s request for authorization to retaliate is still under consideration. In all cases arbitration on the level of suspension was requested under DSU Article 22.6. Each time the original panel acted as arbitrator.

2 In two GATT cases authorization to take countermeasures within the GATT framework was requested. First, the Working Party on Netherlands Action under Article XXIII(2) to Suspend Obligations to the United States, GATT BISD 1S/62 (Nov. 8, 1952), authorized the Netherlands to retaliate against the United States, but the Netherlands never exercised this authorization. Second, in United States—Taxes on Petroleum and Certain Imported Substances [hereinafter US—Superfund], GATT BISD 34S/136 (June 17, 1987) (panel report), both the European Communities and Canada requested authorization to retaliate, a request that was blocked by the United States (case reported in Robert Hudec, Enforcing International Trade Law 211 (1993)).

3 Twice in EC—Bananas (WTO Doc. WT/DS27/RW/ECU and WT/DS27/RW/EEC) and once in Australia—Salmon (WTO Doc. WT/DS18/14), plus Australia—Subsidies Provided to Producers and Exporters of Automotive Leather (WTO Doc. WT/DS126/8), Brazil—Export Financing Programme for Aircraft (WTO Doc. WT/DS46/13), and Canada—Measures Affecting the Export of Civilian Aircraft (WTO Doc. WT/DS70/9). In the latter four cases the compliance procedure is still pending at the time of writing. Compliance procedures are conducted pursuant to DSU Article 21.5.

4 Case on United States—Import Prohibition of Certain Shrimp and Shrimp Products, WTO Doc. WT/DS58/16 (Jan. 12, 2000) (complaint by Malaysia).

5 The DSU can be found on the WTO Web site at <>.

6 DSU Article 6.1. All WTO members recognize the jurisdiction of the WTO dispute settlement system as compulsory and exclusive in respect of seeking redress of inconsistencies under WTO rules. Id., Art. 23.1.

7 See, respectively, DSU Arts. 6.1, 16.4, 17.14, 22.6.

8 Id., Art. 19.1.

9 Id.

10 Id., Art. 21.1.

11 Id., Art. 21.3.

12 As stated in DSU Article 22.1 (last sentence), “Compensation is voluntary and, if granted, shall be consistent with the covered agreements”—including, it would seem, the basic principle of nondiscrimination enshrined in the most-favored-nation (MFN) clause (GATT Article I). For an example, see the compensation offered by Japan on an MFN basis—in the form of tariff concessions—for the delay in implementation in Japan—Taxes on Alcoholic Beverages, WTO Doc. WT/DS10/19 (Jan. 12, 1998).

13 DSU Arts. 22.1 and 22.2.

14 Nowhere in the DSU is the term countermeasure or retaliation used. In this Note, both terms will be used as having the same meaning. Below, it is questioned whedier the suspension of concessions or odier obligations under the DSU can actually be described as “countermeasures,” since their implicit objective is to compensate rather than to induce compliance.

15 DSU Arts. 19.1, 22.6.

16 Id., Art. 21.4.

17 Id., Arts. 21.3, 21.6. Note, in particular, that the “issue of implementation … may be raised at the DSB by any Member at any time.” Id., Art. 21.6 (emphasis added).

18 Id., Art. 21.5.

19 Id., Art. 22.6.

20 See International Law Commission Draft Articles on State Responsibility [hereinafter ILC Draft], Article 41, adopted on first reading in 1996, U.N. GAOR, 51st Sess., Supp. No. 10, U.N. Doc. A/51/10 (1996).

21 ILC Draft, supra note 20, Arts. 42–46. However, in six of the GATT panel reports that addressed either anti-dumping or countervailing duties against alleged subsidies (only three of which reports were adopted), the panel found in one way or the other that duties levied in breach of the rules had to be reimbursed.

22 Few studies are available on remedies under the WTO. For an excellent contribution see Hendrik Horn and Petros C. Mavroidis, Remedies in the WTO Dispute Settlement System and Developing Country Interests, World Bank Institute, available in <>.

23 See supra note 12. It could be argued, however, that compensation as provided for in the DSU—even if it were restricted to prospective damage only—should be paid from the date of adoption of the reports. The “reasonable period of time” given to comply delays the remedy of cessation, but not the altogether different remedy of compensation. The DSU is not conclusive on this point.

24 See the Overview of the State-of-Play of WTO Disputes, regularly posted on the WTO Web site at <>. So far, almost 150 distinct matters have been brought under the DSU in the WTO’s five-year history.

25 This problem is especially likely to occur in politically sensitive disputes such as EC—Hormones and EC—Bananas, supra note 1. It would, for example, most likely have occurred if the United States had lost the dispute in United States—The Cuban Liberty and Democratic Solidarity Act, WTO Doc. Series WT/DS38, a case that the European Communities ultimately did not pursue further.

26 Even if compliance eventually occurs, the interested sectors of the weaker member may already have been forced out of business by that time.

27 ILC Draft, supra note 20, Arts. 41–46.

28 See Christine Gray, Judical Remedies in International Law 12 (1987), which states that “the award of remedies other than damages by international arbitral tribunals is extremely unusual.”

29 In only 5 of the 27 cases that so far led to adoption of DSB recommendations did panels make suggestions under Article 19.1 of the DSU. Very few complainants request suggestions on implementation. Unfortunately, the Appellate Body has never made suggestions, however, on how its reports could be implemented.

30 GATT Art. XXIII(1). It also refers to impeding the attainment of GATT objectives.

31 It is noteworthy that a finding of so-called nonviolation nullification and impairment does not require the member concerned to withdraw the measure. Making a “mutually satisfactory adjustment” suffices (DSU Art. 26.1(b)). The provision for nonviolation claims was designed to address a problem concerning tariff concessions under the original GATT, which could be easily circumvented by imposing similar restrictions in areas not regulated by GATT. This mode of circumventing GATT was possible because GATT’s scope was so narrow. After the introduction of new rules and agreements through the Tokyo and (especially) the Uruguay Round negotiations, this argument, as well as the associated justification for allowing nonviolation claims, lost much of its validity.

32 Judith H. Bello, The WTO Dispute Settlement Understanding: Less is More, 90 AJIL 416, 417 (1996). A stimulating—and in my view, correct—response to this article was provided by John J. Jackson, The WTO Dispute Settlement Understanding—Misunderstandings on the Nature of Legal Obligation, 91 AJIL 60 (1997).

33 Following this approach, WTO countermeasures have their counterpart in national law. They could be seen as the suspension or nonperformance of contractual obligations as a result of a breach of the contract by the other party. This concept also exists in the law of treaties. See Article 60 of the Vienna Convention on the Law of Treaties, May 23, 1969, 1155 UNTS 331, on “Termination or suspension of the operation of a treaty as a consequence of its breach.”

34 For arguments in support, see Jackson, supra note 32.

35 DSU Arts. 22.1 and 3.7.

36 Much depends, of course, on how one defines a “self-contained regime.” See Bruno Simma, Self Contained Regimes, 1985 Neth. Y.B. Int’l L. 115. In my view, as far as the WTO is concerned, the criterion of lex specialis—as set out in Article 37 of the ILC Draft, supra note 21—should apply; that is, the general international law rules in the ILC Draft do not apply “where and to the extent that the legal consequences of an international wrongful act of a State have been determined by other rules of international law relating specifically to that act” (emphasis added).

37 WTO Appellate Body, United States—Standards for Reformulated and Conventional Gasoline, WTO Doc. WT/DS2/AB/R, at 17 (Apr. 29, 1996).

38 The idea of providing predictability to economic operators, not just states as governments, has already been incorporated in GATT case law (see panel report in US—Superfund, supranote 2, paras. 5.2.1–5.2.2). In addition, a recent WTO panel report stressed the importance of “the creation of market conditions conducive to individual economic activity in national and global market places and … the provision of a secure and predictable multilateral trading system” as crucial objectives and purposes of the DSU and, more generally, of the WTO. The report also introduced the principle of “indirect effect” of WTO rules. See United States—Sections 301–310 of the Trade Act of 1974, WTO Doc. WT/DS152/R, paras. 7.72–7.92 (Dec. 22, 1999) (panel report).

39 As opposed to the agreements on trade in goods (GATT) and trade in services (GATS), the TRIPS Agreement is a set of treaty provisions without member-specific schedules in which additional concessions are made. Only the provisions of the agreement itself govern the TRIPS area. In that sense, it is more of a traditional international-law treaty.

40 In this respect, it is interesting to note that the member-specific schedules of concessions—the main yardstick in the traditional balance between members—are also now seen by the Appellate Body as treaty text that is part of the Marrakesh Agreement Establishing the WTO. See WTO Appellate Body, EC—Customs Classification of Certain Computer Equipment, WTO Doc. WT/DS62/AB/R, para. 84 (June 26, 1998). In other words, these concessions are, as well, no longer seen as bilateral-contractual, but as a result of the common intention of all WTO members. The Appellate Body considers the concessions as setting out international legal rights and obligations subject to the laws of treaty interpretation in the Vienna Convention on the Law of Treaties, supra note 33.

41 See supra note 33.

42 See supra note 31. In 2000, WTO members have to decide whether or not to expand the so-called nonviolation and situation cause of action present in GATT and GATS (nonviolation complaints only) to the TRIPS area, pursuant to Article 64.3 of the TRIPS agreement For a discussion, see WTO Doc. IP/C/W/124 (Jan. 28,1999) (access restricted to WTO members).

43 An example of where the nonviolation idea was transposed into a specific treaty obligation could be found in the WTO’s Agreement on Subsidies and Countervailing Duties, specifically when it deals with so-called actionable subsidies (Part III). There, the obligation in case of noncompliance is not to eradicate the subsidy. It is to make sure, instead, that the adverse effects of the subsidy are removed (Article 7.8).

44 In this respect, DSU Article 3.5 should also be noted. This provision requires that all solutions to disputes have to be consistent with WTO rules. No room is thus left for a bilateral compromise to prevail over multilateral WTO rules. See also supra note 17.

45 Appellate Body report on EC—Bananas, WTO Doc. WT/DS27/AB/R, para. 136 (Sept. 9, 1997).

46 See supra note 16 and the discussion of this issue in the EC—Bananas, arbitration report, WTO Doc. WT/DS27/ARB, paras. 6.8–6.10 (Apr. 9, 1999). If one took a more collective approach to WTO rules, however, the mere breaking of the rules without trade effects could be said to have a damaging effect; that is, though without a definitive, tangible trade effect on even a single member, the violation may be seen as having a damaging effect on the collective WTO membership. This effect could then arguably justify both compensation and countermeasures in cases where no direct trade effect is apparent.

47 Only the winning party has to give its approval to the idea and level of compensation, but once die losing party grants it—for example, by reducing its tariffs on products X and Y-—that party has to do so with respect to all WTO members. See supra note 13. In order to favor the winning party in particular, however, the agreement on compensation is most likely to apply to products that are of exclusive or particular interest to the winning party. See, for example, the E.C./U.S.-Canada compensation negotiations in EC—Hormones, supra note 1, where buffalo meat was singled out.

48 EC—Bananas, arbitration report, supra note 46, para. 2.13.

49 Id., para. 6.3 (first emphasis added). See also EC—Hormones, arbitration report, WT/DS26/ARB, para. 39 (Canadian case), and WT/DS48/ARB, para. 40 (U.S. case) (July 12, 1999).

50 In EC—Hormones, supra note 1, for example, the estimated total beef exports without the hormone ban in place were calculated. From that amount, actual exports were deduced. The end figure, expressed in price terms, was then the value of EC imports that the United States and Canada were allowed to target with 100%, prohibitive tariff rates. In other words, the value of product kept out by the hormone ban was aimed at being equivalent to the value of product kept out by the countermeasures. EC—Hormones, arbitration report, supra note 49; see abo EC—Bananas, arbitration report, supra note 46).

51 It is interesting to note that in the pre-DSU era, countermeasures only had to be “appropriate in the circumstances” (GATT Art. XXIII(2)), not “equivalent to the level of nullification or impairment” (DSU Art. 22.4).

52 Countermeasures in general international law have to be proportional to the original violation (in degree of gravity, as well as in effects). See Article 41 of the ILC Draft, supra note 20.

53 See supra note 46. The idea of “punishing” through countermeasures should only exist in a collective system of enforcement. Indeed, if one were to incorporate a “punishment” factor in a bilateral system such as the current DSU, the effect would be that only those rules that strong players were willing to enforce would be backed up by “punishment.” Rules to the benefit of weaker players would be less likely to be enforced, their beneficiaries having fewer resources to bring a case, win it, and impose countermeasures. WTO arbitration panels have explicitly stated that DSU countermeasures are not of a punitive nature, supra note 49.

54 Refer, for example, to the cases lost by the European Communities against the United States (EC—Bananas, supra note 1, and EC—Hormones, supra note 1), which could be “compensated” by or “balanced” with the U.S. loss, at least at the panel stage, with the case brought by the European Communities in United States—Tax Treatment for “Foreign Sales Corporations,” WTO Doc. WT/DS108/R, (Oct. 28, 1999) (panel report, currendy under appeal).

55 See Horn & Mavroidis, supra note 22, at 9–12.

56 In this respect, lessons could be drawn from the U.N. Security Council model of collective enforcement. See, for example, Ch. VII of the UN Charter.

57 Such suspensions could raise a problem of multiple calculations of “nullification or impairment” suffered by each of the members wanting to retaliate. However, once a formula has been accepted by arbitration in one case—referring, for example, to trade flows of the last three years—that formula can often be transposed to other cases, as well, so that only the member-specific data has to be filled in to come to a result (see, for example, the arbitration in EC—Hormones, supra note 49, where basically the same formula was used to calculate nullification in both the U.S. and Canadian complaints).

58 For example, in EC—Bananas, supra note 1, Ecuador requested authorization to retaliate not by raising its tariffs on EC goods (a move that, according to Ecuador, would hurt instead of benefit its own economy), but by suspending certain of its obligations with respect to the European Communities under the TRIPS and GATS Agreements. See WTO Doc. WT/DS27/52 (Nov. 9, 1999).This requestis still under consideration. What is referred to as “cross-retaliation” is governed by DSU Article 22.3.

59 Collective DSB action in favor of a prevailing developing country could be taken already under the current rules. DSU Article 21.7 provides: “If the matter is one which has been raised by a developing country Member, the DSB shall consider what further action it might take which would be appropriate to the circumstances.” The problem, however, is that such DSB action requires a consensus of all WTO members, including the losing member. DSU Art. 2.4.

60 Id., Art. 22.6.

61 See supra note 59.

62 One could argue that given the already very low level of tariffs, many WTO members may have little to offer in compensation. One could nevertheless think of other types of compensation than a lowering of import tariffs—for example, granting larger import quotas or making additional market-access commitments in services.

63 The MFN level of compensation could be determined by the nullification suffered by the member that originally brought the case, assuming that that member will be affected the most by the inconsistent measure. However, in case another member considers itself to be affected even more—even if it did not bring the case in the first place—that member could be allowed to submit an additional request to raise the MFN level of compensation to a higher level.

64 Pecuniary compensation would raise the problem of redistribution within the winning member. This problem exists with respect to all international claims compensated government-to-government, however. The rule of thumb, following principles of diplomatic protection, should be that, unless specific rules are framed, it is up to the receiving government to decide how the compensation is to be redistributed.

65 A possible drawback linked to strong members being forced to pay pecuniary compensation to weaker members is that such compensation could be set off by the stronger member in other areas, such as development aid. As noted earlier, this drawback provides an additional reason to grant remedies not just to the winning member, but to all WTO members collectively. In contrast, when weaker countries have to pay pecuniary compensation to stronger, there may be a problem concerning the appropriate allocation of resources. This problem could be solved by imposing an obligation of due restraint on the stronger members, as already enshrined in the DSU. DSU Art. 24.1.

66 See supra note 21.

67 Another tool to bolster enforcement of WTO rules would be to give them “direct effect” in national courts. This Note discusses possible tools at the international, not the national level. “Direct effect” is, accordingly, not further discussed. See Piet Eeckhout, The Domestic Legal Status of the WTO Agreement: Interconnecting Legal Systems, 1997 Common Market L. Rev. 11; Judson O. Berkey, The European Court of Justice and Direct Effect for the GATT: A Question Worth Revisiting, 9 Eur. J. Int’l L. 626 (1998).

68 So far only one WTO panel was faced with a request for reparation ex tunc. In Guatemala—Anti-Dumping Investigation Regarding Portland Cement from Mexico, WTO. Doc. WT/DS60/R, paras. 8.1–8.6 (June 19,1998) (panel report, rev’d by Appellate Body, WTO Doc. WT/DS60/AB/R (Nov. 2, 1998)), Mexico requested the panel to recommend that Guatemala refund antidumping duties already collected. The panel refused Mexico’s request, however, without addressing the substantive issue of reimbursement of duties already collected. Further insight into the issue of reimbursement could be provided by the still pending Article 21.5 compliance panels referred to supra note 3.

69 Robert Hudec, Broadening the Scope of Remedies in WTO Dispute Settlement, presentation at University of Amsterdam conference on Improving WTO Dispute Settlement Procedures: Issues and Lessons from the Practice of Other International Courts and Tribunals (May 6–7, 1999).