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TWN Info Service on WTO and Trade Issues (Apr19/19)
25 April 2019
Third World Network


The WTO, its secretariat and bias against the South

Published in SUNS #8894 dated 25 April 2019

Geneva, 24 Apr (Chakravarthi Raghavan*) – Almost from its inception, with Renato Ruggiero (of Italy) as WTO Director-General (DG) from May 1995, the double standards of the WTO, its leadership and secretariat began to be evident when the initial slate of seven Appellate Body (AB) members was agreed on 29 November 1995.

This initial bias has steadily increased over the years, with every DG making his predecessor look better. It has now reached a stage where DG Roberto Azevedo (and senior WTO officials) not only openly side with the US to promote its ever-changing agendas and stances, but are also commended for it publicly by the US, without any disclaimers from the secretariat.

It must be acknowledged that before Ruggiero became DG, there was a short interlude, from 1 January to 30 April 1995, when the late Peter Sutherland, the DG of GATT-1947 (during whose tenure the nearly eight years of Uruguay Round negotiations were successfully concluded, with the Marrakesh Treaty sealed and signed in April 1994), had functioned during the transition from the GATT to the WTO.

During that brief tenure of his, the secretariat had functioned on behalf of all Members. But since then, it has been openly partisan.

Those that concluded the Uruguay Round (UR) negotiations, with the WTO treaty and its annexes, took the correct and wise decision that in a member-driven, rules-based organization with contractual rights and obligations for Members, there could be no scope for any initiative from the head of the independent secretariat.

In fact, it was the US at that stage that had vehemently insisted on and opposed any such role for the WTO DG in the WTO treaty.

Ensuring that the WTO DG and secretariat strictly abide by Art. VI:4 of the WTO treaty, and ending the impasse over the AB vacancies to secure a fully functioning and binding dispute settlement system are among the highest priorities facing the WTO-MTS (multilateral trading system) and its members, and needs to be tackled and resolved.

The solutions might need amendments to the WTO treaty. If the US does not agree to abide by and implement the amendments to the treaty in good faith (if the amendments are carried out against its wishes), it should be invited to withdraw from the WTO.

In the feudal Middle Ages, the sovereigns of Europe saw themselves as law-givers, but as being above the law themselves. But after two sovereigns of that era (Charles I in Britain and Louis XVI in France) “lost their heads” in the wake of revolutions, slowly this doctrine gave way to Rule of Law.

There is no time-machine to take us back a few centuries that would enable the US to function like sovereigns of that era.

Otherwise, with a “transactional” US President and a USTR that wants a WTO-DSU to apply to all others, but not the US, the WTO-MTS will be broken beyond repair.

And whether any amendment to the WTO treaty is needed and carried out or not, if the US continues as now, the rest of the membership have to make up their minds whether to acquiesce or ask the US to withdraw from the WTO.

Without an amendment, the US cannot be compelled to withdraw, but such a request nevertheless will be in the spirit of the second sentence in Art. X:V of the WTO treaty.

This too is among the hard choices that the WTO and its Members face.

The bias against the South at the WTO and the dancing to the tune of the US became evident even in the first year of the WTO’s establishment, in the process for the election of the initial slate of seven AB members.

For that process, candidates from 23 countries were interviewed and the selection from among them was made by a small committee (made up of DG Ruggiero and the Chair of the DSB (Australia), and those of the Councils for Trade in Goods (Japan), Services (Sweden) and TRIPS (Hong Kong, then a separate customs territory under the UK).

WTO members were “consulted” and views ascertained on their preferred candidates and why, on the basis of “criteria agreed by the DSB”. However, the US was effectively given the “privilege” of objecting/vetoing names (an option never posed to others).

Though that initial slate was accepted by consensus at the DSB, India and Switzerland, while not blocking the consensus, announced that they were not joining, and made statements on the record.

Switzerland complained that the Selection Committee had not followed the criteria agreed upon and had taken a “restricted view” of the European entity. India detailed how one member alone had been given the option of saying “NO” to individual candidates.

The EU, while joining the consensus, also expressed its dissatisfaction. (Details in “WTO establishes Appellate Body” (http://www.sunsonline.org/trade/process/followup/1995/11300095.htm).

As a result, the AB became known as “pro-American”. Everyone involved in that process must be held responsible, but the major ones were the DSB Chair and the WTO DG; the two had enabled the Americans to exercise such a “privilege”.

In several rulings, the AB “interpreted” the accords to be cumulative, increasing the obligations of developing countries and reducing to nullity some rights they thought they had secured in the WTO treaty.

Those rights arose from the decisions of GATT CPs (Contracting Parties, functioning in their collectivity under GATT Art. XXIII), in disputes raised by the US and/or the EU under GATT-1947 and thus part of the GATT-acquis incorporated into GATT 1994 (in Annex IA of the WTO treaty).

In these several rulings, the AB opened up the markets of developing countries to the Transnational Corporations (TNCs) of the US.

Some egregious examples, reported in past issues of SUNS, are worth recalling:

1. In the Indonesia vs US, EU and Japan disputes (WT/DS54, DS55, DS59 and DS60), the panel ruled that when a number of international agreements are entered into by the same parties at the same time, there has to be a presumption that there are no conflicts. This, even though a plain reading of texts of Annex IA and its general interpretative note, in mandatory “shall prevail” language, shows that conflicts were envisaged by negotiators.

The panel did this with circuitous arguments, to rule the Agreement on Trade-Related Investment Measures (TRIMs) to be a full fledged goods agreement, and made a specious distinction between the obligations of GATT 1994 (including its Art. III) and the Subsidies and Countervailing Measures (SCM) Agreement, but not as between TRIMs and the SCM Agreements.

For this last, the references to GATT Art. III, in Art. 2 of the TRIMs Agreement (p163 Legal Texts), was ruled to be a reference not to the Article as such, but only to its substantive contents!

What “Art. III” would mean without its contents, was known only to the panelists (and the secretariat that “serviced” the panel), but not spelt out for the DSB and its members.

In no judicial, quasi-judicial or administrative proceedings anywhere in the world can the title of a law without its contents be cited as law or given any meaning!

Indonesia did not appeal the panel ruling, but implemented it, bowing to the conditionalities of the IMF loan. The cumulative outcome of the ruling and the picture of President Suharto signing the IMF loan agreement, with the IMF Managing Director standing behind him, sealed Suharto’s fate, and brought about regime change.

There was a similar run of rulings against developing countries, with the US cheer-leading. But when some rulings went against the US, particularly on its anti-dumping measures and investigations (aimed at protecting specific industries and enterprises), the US began to cry foul.

This reached a crescendo, in its veto of the re-appointment to the AB of Prof. Seung Wha Chang of Korea for a second term for his alleged role in rulings against the US.

2. In another set of rulings, despite its own so-called “collegiate” rule (whereby the AB empowered itself to have consultations at all stages between the three members of a division bench hearing an appeal, and the four other AB members), there were two different views in AB rulings, on the same wording in two different accords in Annex 1A. These were more or less contemporaneous disputes.

3. In the Turkey vs India dispute (WT/DS34 – import restrictions by Turkey over Textile and Clothing products), the Uruguay Round Understanding on Article XXIV (paragraph 12, p34 of Legal Texts) was involved. In the India vs US dispute over India’s Quantitative Restrictions (QRs) on balance of payment (BOP) grounds, the UR Understanding and its Fn 1 on Art. XVIII:B (p27 of Legal Texts) was involved.

Both, in identical language, ensured that the right of members to raise disputes under Art. XXII and XXIII, “with respect to any matter arising out of …” either of the Articles and Understandings are preserved.

In the India QR dispute, the language in Fn 1 to the “Understanding” was ruled to provide jurisdiction to both the BOP Committee and dispute panels to hear and decide. This, when the US alone in the BOP Committee had blocked consensus on accepting India’s contentions and programme for phasing out QRs, and then, with such a not-so-clean hand invoked the provisions in the DSU to raise a dispute.

In the Turkey vs India case, the AB handed down a ruling contrary to this view on the same wording in the Understanding on Article XXIV (Customs Unions and FTAs).

The AB ruled that the issue of compliance of a Customs Union with Art. XXIV was for the WTO body to decide, but that a panel or AB could go into the dispute only with respect “to any matters arising from the application of these provisions relating to customs unions … or free trade areas.”

Moreover, in the Turkey vs India dispute (DS39/AB/R), in obiter dicta on points of law not raised in appeal by either India or Turkey, the AB opened the way for Customs Unions to depart from GATT obligations, other than in the MFN provision in GATT Article 1, but gave no ruling, merely expanding its own jurisdiction to decide in future cases!

4. In another dispute raised by India, Malaysia, Pakistan and Thailand against the US over restrictions on shrimp imports (WT/DS58/AB/R, see SUNS #4301 dated 14 October 1998), the AB:

A. Cleared the way for NGOs to file amicus curiae briefs and intervene. In effect, it ruled that the panel’s right to “seek” information also enabled it to use information it did “not seek” – thus making “seek” and “receive” synonyms in the WTO’s dictionary.

Despite its initial view promising to provide detailed reasons, the AB failed to do so!

While the DSU enables panels “to seek” information from any source, there is no such provision in relation to the AB, which is only mandated to decide “all points of law raised by parties” in the appeal.

Nevertheless, in a subsequent dispute on AD-SCM issues vis-a-vis the US Steel industry, the AB applied this to itself (accepting a brief filed by the US Steel industry). This placed amicus curiae briefs from non-Members on a superior footing.

Under the AB’s own rules of procedure, only third parties to a dispute, giving notice to the AB, can file briefs. Other WTO members don’t even have this right!

The AB even made the rather extraordinary claim that the DSU rules and procedures did not prohibit the AB from doing so, and hence it could!

In a rules-based WTO system, where one of its creations, the AB, thus claimed the right to thus function, as if enjoying “residuary powers” that are not prohibited! (see SUNS issues #4654, #4655 and #4666 for rulings and discussions; for AB’s claims, see, “Ruleless Appellate Body and powerless DSB”, SUNS #4684 dated 9 June 2000.)

B. Imported and expanded the scope of Art. XX of the GATT on “exceptions” to set aside the panel ruling in the shrimp dispute as a “serious error” of legal reasoning, for not examining the ordinary meaning of Art. XX.

There was no discussion (unlike in the Indonesia national automobile project ruling), whether this meant the “substance” or the entire Art. XX, nor on the application of the Art. XX measure.

Rather, the AB focused on “the design” of the measure and “a particular situation” where a Member has taken unilateral measures which, by their nature, “could put the multilateral system at risk.”

The AB held that the treaty interpreter must interpret the treaty in the light of “contemporary concerns” of the community of nations about protection and conservation of the environment.

While Art. XX of the GATT 1947 (reflecting the understanding at that time on mineral and living resources), the AB conceded, was not modified by GATT 1994 in the Uruguay Round, the WTO Treaty had “the objective of sustainable development” in its preamble, and the term “natural resource” used in Art. XX (g) of the GATT 1994 is not static but “by definition, evolutionary.”

As a matter of fact, the 1992 UN Conference on Environment and Development (UNCED) or the Rio Earth Summit, addressed a whole range of environment, conservation and development issues.

Among others, UNCED adopted the UN Framework Convention on Climate Change (with the US declining to be a party), witnessed nations signing the Convention on Biological Diversity (CBD) and adopted other decisions and recommendations under the title “Agenda 21”.

The US and some others resisted any and all reference to these in the WTO treaty and its agreements including GATT-1994. Only the objective of “sustainable development” (in Rio Summit documents) was allowed into the preamble of the WTO treaty. Even as of now, the US and a few others oppose any references to the CBD at the WTO, nor have they agreed to WTO “observer” status for the CBD secretariat!

And yet “Evolution” in five years of the WTO, a born-again Charles Darwin at the AB!

5. In a ruling (DS163/R) against South Korea, in a dispute raised by the US on the plurilateral Government Procurement Agreement in Annex IV of the WTO treaty (see SUNS #4670 dated 18 May 2000), a dispute panel chaired by Michael Cartland, former Hong Kong representative to the GATT/WTO, gave an expanded interpretation of the rarely-invoked “non-violation” clause in GATT Art. XXIII.1.b (only 8 cases till then in the 50-year history of GATT-1947 and GATT-1994 invoking this clause), on the impairment or nullification of benefits to the US.

The panel spoke of impairment to the US, arising out of “reasonable expectation of an entitlement” to a benefit that had accrued “pursuant to the negotiation”, rather than “pursuant to a concession exchanged in the negotiations,” the traditional view of public international law (the pacta sunt servanda principle, codified in Art. 26 of the Vienna Convention on the Law of Treaties – VCLT).

This enabled the panel to further find lack of “good faith” in negotiations or “treaty error” on the part of Korea that could invalidate a part of the “treaty” (Government Procurement Agreement). This “treaty error”, the panel said, could be rectified by substituting the invalidated part of the treaty with a suitably worded DSB recommendation (adopting a panel ruling), and by this process enable a party to withdraw reciprocal concessions.

This expanded view about “pacta sunt servanda” was achieved, by delving into the negotiating history, NOT of the Government Procurement Agreement, but of the VCLT itself, citing the statement of the International Law Commission in transmitting the draft VCLT to the UN General Assembly that adopted the VCLT. (See SUNS #4670 dated 18 May 2000.)

Strangely, the only relevant negotiating history of the VCLT — the initial mandates to the International Law Commission (ILC) and discussions leading to it in the Sixth (legal) Committee of the UNGA or the UNGA itself, nor the discussions on the ILC recommendations in the same Sixth Committee of the UNGA — do not seem to have figured in the panel’s discussion of the VCLT “negotiating history”.

However, the panel ruled against the US on the ground that the US had not exercised “due care” in the negotiating process! The US did not appeal, and the panel report was adopted, putting the DSB/WTO imprimatur on this expanded interpretation of the scope of “non-violation” complaints, “good faith” in negotiations, the ability of panels to remedy “treaty error” and “lack of good faith”, with a ruling and report the DSB must adopt.

A legal high-wire trapeze act, without the normal safety net!

The manner in which the dispute settlement process was being invoked and rulings handed down, elicited some criticism at that time from a former GATT law official, Mr. Frieder Roessler**, a German national who had headed its legal division during the Uruguay Round negotiations and into the WTO. Roessler later headed the Geneva-based Advisory Centre on WTO Law (set up to help developing countries, in particular LDCs, with legal assistance in disputes).

In a critique of the functioning of the WTO’s Dispute Settlement system, and in particular the way panels and the AB made use of the procedural rights in the DSU to virtually nullify the substantial rights and obligations of members under the agreements, Roessler said that the competence of panels and the Appellate Body could not be determined by themselves, exclusively on an interpretation of the DSU, but only in the context of the complex institutional structure of the WTO and the division of decision-making among different organs, set out in the Marrakesh treaty, reflecting legitimate, negotiated policy objectives.

WTO panels, Roessler said, should respect the competence and discretionary powers of the political bodies established under the agreements and should not reverse their determinations. And if a competent WTO body has not yet made its determination, panels should not step in and pre-empt that determination.

The role of panels should be limited to protecting Members against an abusive resort to provisions — for example, rules governing the balance of payments measures and regional trade agreements — against measures that fall outside the discretionary authority of the BOP Committee or the Committee on Regional Trade Agreements.

[** Roessler (2000), “The Institutional Balance between the Judicial and Political Organs of the WTO,” in M. Brocken & R. Quick (eds) “New Directions in International Economic Law”, Boston, MA, Kluwer Law International, pp 324-45.]

The US at that time voiced no criticism of the panels and the AB, when they were siding with it. This “bias” of panels and the AB came into play as an outcome of the 1996 US Presidential election campaign (Bill Clinton vs Bob Dole), in which the WTO, the DSU and “loss of US sovereignty” was an issue: one of the campaign slogans was “Two strikes, and we are out”!

The panels and the AB seemed to be trying to ensure there was no such opportunity!

6. In appeals (against panel rulings) in two separate disputes (WT/DS98 and WT/DS121), both relating to the Agreement on Safeguards (in Annex 1A to the WTO treaty), one against Korea and another against Argentina, the two appeals were heard and rulings handed down at the same time by two different division benches of the AB.

Commenting on them critically, a former Indian ambassador to the GATT and trade expert, Mr. Bhagirath Lal Das, pointed incidentally to an “extra-ordinary coincidence” in the two AB reports: six paras in each having the same wording – paragraphs 84, 85, 86, 87 (part), 88 and 89 in the Korea case report (WT/DS98/AB) and paragraphs 91, 92, 93, 94 (part), 95 (part), and 96 in the Argentina case report (WT/DS121/AB).

Das said: “The members of the AB divisions in these two cases were two totally different sets of members …. Each of these reports is signed by the respective sets of three members each. It is surprising how these two different sets of persons ended up writing exactly the same language in some parts of their respective reports. The AB is like a judicial body in the WTO. One has to presume that the AB in a case writes its own reports, and does not get it written by some other persons. This presumption seems to be hit by the exact convergence of the language in some parts of the two reports as mentioned above.”

After Das’s article, WTO officials explained to this writer about the “collegiality” rule under the AB Working Procedures. This rule was not in the public domain then. Later, the letter of the six AB members to the DSB Chair (about the US veto of a second term for the Korean member Prof. Chang) brought it on public record: the division bench of three hearing an appeal invariably consults and interacts throughout with the four other members of the AB who did not participate in the hearing of the appeal, and this is done as per the AB’s “Working Procedures”.

[For Mr. Das’s critique of the AB, on procedures and substance, see SUNS #4689 dated 19 June 2000.]

Not on public record then, but known to this writer at that time (after talking to some panel and AB members, after their rulings), was the way the secretariat functioned beyond its mandate to service panels. After the hearing of parties and third parties in a dispute, panels, in reaching conclusions, are “guided” by the legal (and substantive) divisions of the WTO secretariat “servicing” the panel. In most cases the secretariat also draws up a draft report.

(In this process, in one or two instances, panel members told the writer, after their reports were published, that when they disagreed with the secretariat, they were told they would never again be named to a panel!)

And in the case of the AB, the three-member division bench interacts throughout, without the presence of the parties and third parties to the appeal, with other members of the AB, and their reports too are drafted with the AB secretariat’s legal assistance.

In any domestic jurisdiction under any system of law, this is enough to make a ruling or decision (judicial, quasi-judicial or administrative), illegal and invalid.

The WTO is a different animal, and part of the DSU review process to be undertaken, in priority to any other negotiations at the WTO, must address this and other basic adjudicatory norms and remedy them. It is also essential to ensure that adopted rulings at the DSB do not “add to or diminish the rights and obligations provided in the covered agreements.” (DSU Art.3.2, p405 Legal Texts.)

7. In its ruling on US vs EU, DS202/AB/R, the AB ruled against the US on countervailing duties under the SCM Agreement, but in the process raised more controversies. In its notice of appeal, the US had not spelt out the legal grounds and panel decisions thereof, as required under the AB working procedures. When the EU asked for dismissal of the appeal on that ground, the US said there was no such requirement in the DSU.

Instead of upholding its own working procedures, the AB division “requested” the US to file its grounds of appeal and accepted it, though the time limit for the appeal had expired!

The AB also asserted its right to receive amicus curiae briefs, this time from an industry association, but decided there was nothing in the brief! In the process, it gave NGOs superior rights over WTO members as third parties who had not notified their intention to intervene in the appeal, or Members, other than third parties, who can’t claim any right to be heard!

On substance, the AB turned down US arguments about when a “benefit” is conferred, but refused to provide any authoritative ruling that would end future disputes. (See SUNS #4666 dated 12 May 2000 and #4684 dated 9 June 2000.)

8. In the EC-Canada patent case (DS114/R), the panel used the “negotiating history” of the TRIPS Agreement, provided in a note by the secretariat (Annex 6 of its report). This purported to draw up a history of the negotiations “on the basis” of draft legal texts in the negotiating group in the spring of 1990, a secretariat composite text, and the subsequent chairman’s informal text and revisions, as well as (in an Appendix to the Annex 6) on “parallel work” in the WIPO Committee of Experts on preparations for a Patent Harmonization Treaty.

The secretariat admitted that these texts were not circulated to the TRIPS negotiating group, but (drawing on its internal notes) still cited them on the ground that WIPO representatives had kept negotiators “informed” of developments! (See SUNS #4630 dated 21 March 2000, and #4654 and #4655 dated 26 and 27 April 2000).

At Marrakesh when all formal documents and reports were derestricted, no report of minutes of various meetings of the Negotiating Group on TRIPS were available even to UR delegates; they only had draft minutes (subject to editing, and corrections from delegations); the reports were finalised and made public only in 1995 or 1996, long after the WTO came into being, and thus not part of the cache of documents derestricted in April 1994.

9. And while the AB has shown willingness to create law and do what it wants to play to the gallery over NGO briefs, on the sequencing issue – compliance panel first before request for authorisation for right of retaliation (or Art. 21.6 of DSU vs Art. 22 of DSU issue), where the QUAD (Canada, EU, Japan and the US) disagreed – the AB noted the lack of clarity and ambiguity, and ruled it was for the members to clarify through interpretation or change of rules! (see SUNS #4812 dated 12 January 2001.)

[* Chakravarthi Raghavan, Editor Emeritus of the SUNS, contributed this comment, the fourth in a series. The three earlier parts were in SUNS #8873 dated 25 March 2019, #8882 dated 5 April 2019 and #8892 dated 23 April 2019.]

 


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