DSU ARCHITECT CRITICAL OF JUDICIAL ACTIVISM AT WTO
by Chakravarthi Raghavan
Geneva, 9 June 2000 -- The World Trade Organization must ensure that its judicial organs (panels and the Appellate Body) exercise their powers with due regard to the jurisdiction assigned to other parts of its institutional structure, according to the former head of the GATT legal division, and a leading figure in the design of the Dispute Settlement Understanding (DSU) during the Uruguay Round.
In a critique of the functioning of the WTO's Dispute Settlement system, and particularly the way panels and the Appellate Body have made use of the procedural rights in the DSU to virtually nullify the substantial rights and obligations of members under the agreements, Mr.Frieder 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 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 and which reflect 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, he added, should be limited to protecting Members against an abusive resort to provisions governing, for e.g., 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's views in a paper, "The Institutional Balance between the Judicial and Political Organs of the WTO," were presented at a seminar (1-2 June) honouring Prof Raymond Vernon, at the JFK School of Government at Harvard University (Cambridge, Mass., USA). Roessler's paper and that of other participants can be found at the website: <http://www.ksg.harvard.edu/cbg/trade>
Roessler, a German national, was the head of the legal division of GATT during the Uruguay Round, and for a few months into the WTO. As head of the legal division, he had played an important role in shaping the views of the secretariat and of key negotiators in the formulation of the DSU, as well as in the drafting of the various compromises in the WTO agreements that were presented as the 'Dunkel text' in December 1991, and the subsequent talks among small groups of nations and the draft texts that were evolved, leading to the final shape of the Marrakesh Agreement for establishing the WTO and its annexes.
Former and present officials at the WTO recall that Roessler then took the US legalistic view of rights and obligations in settling trade disputes. His arguments that trade security and certainty is best secured through a system rooted in law prevailed with some Third World negotiators too, who brushed aside advice of caution from others. Some perhaps had been on an ego-trip too, confident they could present legal arguments and win.
Roessler's comments on the way the panels and the Appellate Body decisions are taking over the trading regime is thus of some interest. In his paper, Roessler has noted that under the old GATT all decision-making was attributed to, and delegated by, the CONTRACTING PARTIES - signatories acting jointly and collectively).
In establishing the WTO, a more complex institutional structure, separating the judicial and political bodies, were set up, and empowered to take binding decisions confirming, defining or altering the rights and obligations of members.
The membership of the WTO, through the amendment and rule-making provisions functioned as the legislative branch. Various political organs -- the Committee on Regional Trade Agreements (CRTA), the Committee on Subsidies and Countervailing Measures, the Safeguards Committee and the Committee on Balance-of-Payments (BOP) functioned as "executive authorities". The panels, arbitrators and the Appellate Body were the 'judicial organs'.
But in dealing with the dispute settlement system, Roessler points out that even within national systems in modern states, where judiciary is independent, various legal doctrines have been developed to ensure that the judicial powers did not take on the functions of other branches of the government. In the US, the Supreme Court developed the Chevron doctrine - for courts to defer to an administrative agency's interpretation of an ambiguous provision in a statute, if the agency view was "reasonable".
The WTO too, he argues, should ensure that its judicial organs exercise their powers with due regard to the jurisdiction assigned to other parts of the institutional structure. Roessler examines this issue in terms of the GATT and now the WTO jurisprudence on the relationship between the procedures of the dispute settlement system and the special procedures of review set in respect of the BOP measures or the RTAs.
The Appellate Body, he complains, has recently ruled that the provisions allocating competence to the judicial organs of the WTO -- and thus rights of complainants under the DSU -- would prevail over the provisions in agreements assigning competence to the political organs -- thus subordinating the procedural rights of defendants under other agreements, in regard to the BOP or RTAs.
This decision, the former WTO legal division head points out, has shifted the decision-making authority inside the WTO, from the political to the judicial organs, and thus has "changed the negotiated balance in the WTO".
Judicial organs of the WTO, he argues, should exercise judicial restraint when their competence overlapped with that assigned to a political organ of the WTO.
The Roessler paper does not deal with the further perversion of the system that has taken place due to the role of the WTO secretariat -- which under the Marrakesh agreement has no inherent powers (unlike in the international organizations of the UN system), and is staffed at high professional levels mostly by a few nationalities of the developed world and recruited from ideological backgrounds. This secretariat services all the three organs (of the WTO outlined by Roessler), directly or indirectly picks the panellists, and exercises the asserted right (of the legal division) to provide 'notes' to panels and guide them (behind the back of disputants), with a similar exercise by the secretariat of the Appellate Body, separate from the legal division, but organically part of the WTO secretariat under the Director-General.
Tracing the history of the institutional balance in the old GATT jurisprudence, Roessler refers to rulings and decisions on review of regional trade agreements (under Art XXIV:7 of GATT) and the dispute settlement provisions in Art XXIII, and disputes relating to the BOP provisions in Articles XII or XVIII:B -- the views of panels in the US vs EC, citrus fruits preferential tariffs imports, and the first banana case involving preferential tariffs for Lome -- Roessler notes that no panel ever decided to determine the overall consistency of a regional trade agreement with Art. XXIV or the BOP justification of measures (notified under Art.XII or XVIII:B), without a prior determination of the BOP Committee.
"The consistent practice of the CONTRACTING PARTIES was to leave these matters to bodies composed of representatives of contracting parties."
During the Uruguay Round, notes Roessler, the US and Canada had proposed that matters left unresolved by the BOP Committee and the General Council could be settled under the normal dispute settlement procedures. "This proposal was not taken over into WTO law," notes the legal division head during the Uruguay Round. Instead a footnote was included for the Understanding on BOP in GATT 1994 (footnote 1 on p27 of the Legal texts): "Nothing in this Understanding is intended to modify the rights and obligations of Members under Articles XII or XVIII:B of GATT 1994. The provisions of Articles XXII and XXIII of GATT 1994 as elaborated and applied by the Dispute Settlement Understanding may be invoked with respect to any matters arising from the application of restrictive import measures taken for balance-of-payments purposes."
The footnote, Roessler said, clarified that:
* dispute settlement procedures may be invoked in respect of restrictions notified under Art.XVIII:B, an issue that had been in dispute until the panel in the Korea case confirmed it could be;
* the invocation must relate to "matters arising from the application of restrictive import measures taken for BOP purposes;
The ordinary meaning of the word 'application' and the 'applicability' in a particular case, suggest that panels can only make findings on specific measures imposed for BOP purposes.
* the invocation cannot entail a modification of the rights and obligations under Art. XVIII:B -- a call to panels to respect, as the panel in the Korea BOP had done, the procedural rights of the defendant under Art XVIII, in particular the right to a phase-out period.
A similar reference to the application of measures is contained in the text of paragraph 12 of the Understanding on the Interpretation of Article XXIV of the GATT 1994 ("Understanding on Article XXIV"), which reads: "The provisions of Articles XXII and XXIII of GATT 1994 as elaborated and applied by the Dispute Settlement Understanding may be invoked with respect to any matters arising from the application of those provisions of Article XXIV relating to customs unions, free-trade areas or interim agreements leading to the formation of a customs union or free-trade area."
None of the other clauses in the WTO agreements, such as the TBT agreement, referring to the DSU qualifies the right of access to dispute settlement procedures by reference to the application of particular measures or provisions.
The institutional balance between the political and judicial organs of the WTO, reflected in the footnote to the BOP understanding, is the balance that has emerged in practice, as the panel in the Korea case noted. In that case the BOP Committee had in practice not examined the application of individual measures, but had focused on the overall BOP justification. A panel's examination of whether the application of a specific BOP measure was consistent with the various WTO agreements , did not encroach upon the competence of the BOP Committee. The footnote reflected the fact that, while the application of individual trade measures imposed for BOP reasons was subject to clear WTO rules and thus capable of resolution by a panel, there are no internationally agreed standards for assessing the adequacy of monetary reserves. A panel that determines the overall BOP justification of trade measures therefore would act in a complete normative vacuum.
The same logic applied to the distinction made in the Understanding on Article XXIV between matters arising from the application of the provisions on RTAs and matters related to the overall justification of such agreements. The WTO CRTA which has to examine agreements notified under Article XXIV:7, in practice is not expected, and procedurally not equipped, to examine whether the application of all the individual measures taken within the framework of an RTA conforms to the WTO.
But since each RTA affected the overall trade policy of Members, the consistency of that policy could not be appropriately addressed in disputes between individual Members. The CONTRACTING PARTIES have deliberately never defined the degree of trade integration required by Article XXIV, and a panel that rules on this matter would therefore be acting without any prior normative guidance. Moreover, a complaint may be brought under the DSU only against one of the parties to a regional trade agreement, and since the DSU does not recognise the status of co-defendant, the other parties to the agreement can therefore be deprived of all active participation in the proceedings. Here, too, it made sense to distinguish between the panel's examination of individual measures taken within the framework of a regional trade agreement and its examination of the overall justification of such an agreement.
Analysing the WTO panel rulings in the US case against India over BOP restrictions, and the Indian case against Turkey over its textiles quotas purportedly under a customs union with the EC -- disputes and panel hearings that went on in parallel.
In the Art. XXIV case, India had not challenged the customs union as such, but only the measures taken by Turkey under it. Roessler notes that the panel in this case against Turkey took the position that the issue of GATT/WTO compatibility of a customs union as such was a matter for the CRTA, but that the panel could go into the particular measures taken.
In the US case against India over BOP, the panel took the view that the reference to the application of measures in the footnote to the BOP understanding did not curtail the panel's competence. The panel also rejected the Indian contention that provisions allocating competence to panels had to be interpreted in the light of the provisions allocating competence to the BOP Committee. India had also drawn attention to the similar wording used in the Understanding on Art. XXIV. But the panel rejected that argument and said the phrase "application of those provisions of Art.XXIV plainly means 'implementation of provisions of Art.XXIV' and does not allow for a distinction as proposed by India."
Roessler comments: "Two WTO panels, meeting concurrently, thus arrived at an entirely different conclusion on the relationship between the judicial and the political organs of the WTO in their interpretation of the terms "any matters arising from the application of".
In the case against Turkey, the panel held these words referred to specific measures taken in connection with the formation of an Art. XXIV agreement, and that the overall justification was a matter to be left to the determination of the CRTA. In the case against India over BOP, the panel reached the opposite conclusion on the meaning of the words in both BOP understanding and on the Art. XXIV understanding.
Both panel rulings were appealed and the Appellate Body had the opportunity to resolve this contradiction.
In the BOP appeal, India argued that under the panel's interpretation of the footnote, the terms in that would be rendered meaningless, contrary to the principles of interpretation in Art.31 of the Vienna Law of treaties. The Appellate Body reacted to this by saying that it did not agree with India that, under the Panel's interpretation, the words "matters arising from the application of" would have no meaning at all and would be read out of existence. These words, the Appellate Body (AB) said, reflected the traditional GATT doctrine that, with the exception of mandatory rules, only measures that are effectively applied can be the subject of dispute settlement proceedings.
Having found that the footnote to the BOP understanding did not curtail the competence of the panel, says Roessler, the AB remaining task was to determine the relationship between the DSU provisions creating and defining the competence of panels (and conferring procedural rights on the complainant) and the equally valid provisions creating and defining the competence of the BOP Committee and the General Council (and conferring procedural rights on the defendant).
The AB had three options to resolve this issue:
First, the provisions allocating competence to the judicial organs of the WTO (and, consequently the rights of the complainant under the DSU) prevail completely over the provisions assigning competence to the political organs (and hence the procedural rights of the defendant under other WTO agreements);
Second, the competence of the political organs is exclusive; and
Third, a balance between the competence of the judicial organs of the WTO and that of its political organs obtained by the exercise of judicial restraint, (and, with it, a balance between the rights of the complainant under the DSU and the rights of the defendant under other WTO agreements).
The AB chose the first alternative, and ruled that " . . the competence of the Panel to review all aspects of balance-of-payments restrictions should be determined in the light of Article XXIII of the GATT, as elaborated and applied by the DSU, and of footnote 1 to the BOP Understanding." The AB explained that if panels refrained from reviewing the BOP justification of restrictions, they would diminish the explicit procedural rights of Members under Article XXIII and footnote 1 to the BOP Understanding, as well as their substantive rights under Article XVIII:11. The AB thus made clear that it regarded panels to be competent to examine the justification of BOP measures. It was less clear on whether panels should exercise their competence with judicial restraint, merely noting that ". . . if the exercise of judicial restraint were to lead in practice . . . to panels refraining from considering disputes regarding the justification of BOP restrictions, such exercise of judicial restraint would . . . be inconsistent with Article XXIII of the GATT 1994, as elaborated and applied by the DSU . . ."
In the ruling against Turkey on the Art XXIV issue, neither Turkey nor India had appealed the ruling on the competence of panels to determine the overall consistency of regional trade agreements. Neither party therefore presented any arguments on this issue to the AB.
Nevertheless the AB ruled on this issue, Roessler notes. In the case against Turkey, the panel basically held that Art.XXIV could not be interpreted as permitting members forming a customs union to impose otherwise prohibited restrictions.
The AB reversed this finding, and ruled that Article XXIV could provide a justification for Quantitative Restrictions (QRs) in situations in which the formation of a customs union would be prevented if such restrictions were not imposed. It based its view on Article XXIV:5 that "the provisions of this Agreement shall not prevent the formation of a customs union". The AB has not revealed under which circumstances the obligation to remove a QR might be deemed to prevent the formation of a customs union. It emphasised: "we make no finding on the issue of whether quantitative restrictions found to be inconsistent with Article XI ... will ever be justified by Article XXIV. We find only that the quantitative restrictions at issue in the appeal in this case were not so justified."
Having determined that Article XXIV could, under as yet undefined circumstances justify QRs, the AB then declared that panels were duty-bound to examine the overall consistency of a customs union with Article XXIV of the GATT, if the provision was invoked as a justification for inconsistencies with other provisions, and laid out the conditions where such a defence would be available.
This ruling logically implied that the AB is of the view that panels were competent to examine the overall consistency of an RTA. And the AB leaves no doubt about it by adding: "We are not called upon in this appeal to address this issue, but we note in this respect our ruling in India 'Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products', on the jurisdiction of panels to review the justification of balance-of-payments restrictions under Article XVIII:B of the GATT 1994."
In the AB proceedings on India QRs issue, India had referred to the several GATT panel reports, and the report of the panel on the Turkey textile products case, as precedents supporting the conclusion that the BOP justification of import restrictions should not be reviewed by panels. The AB dismissed these precedents as irrelevant on the ground that the question before it was limited to that of the jurisdiction of panels in respect of BOP measures.
However, in the obiter dictum on the Turkey case, the AB declares - without further explanation - that its ruling on the jurisdiction of panels on BOP measures to be also relevant for determining jurisdiction on RTAs.
In neither of its reports, the AB has provided a rationale for its conclusion on the competence of panels to determine the overall consistency of RTAs with Article XXIV.
Citing the views of the AB in various disputes that interpretations must be based on Art. 31 of the Vienna Law of Treaties and that "interpretation must give meaning and effect to all the terms of the treaty", Roessler points out that under Art.3:2 of the DSU, the WTO dispute settlement process "serves to preserve the rights and obligations of Members under the covered agreement" and "cannot add to or diminish the rights and obligations" of Members. And under Art. XVI:1 of the WTO Agreement, the WTO is to be guided by the decisions, procedures and customary practices followed by the CONTRACTING PARTIES to GATT 1947.
The AB recognises that the terms "matters arising from the application", to be given meaning and effect, must be interpreted as a qualification of the right to resort to the DSU. But according to the AB, their implication is that "only measures that are effectively applied can be the subject of dispute settlement proceedings".
However, notes Roessler, the AB does not indicate any reason why the drafters of the BOP Understanding and the Understanding on Article XXIV would have wanted to establish the requirement of effective application only in respect BOP measures and RTA agreements.
The former head of the Legal Division (who presumably knows the material in the secretariat files about the negotiating history) adds: "This idea does not appear in the documents leading to the adoption of the BOP Understanding and the Understanding on Article XXIV and it is difficult to conceive of a rationale for distinguishing BOP measures and measures taken under RTAs from other measures in this respect."
The distinction made by the AB is without any legal consequence. Under Article XVI:4 of the WTO Agreement, Members must ensure the conformity of their domestic law with the provisions on balance-of-payments measures. Furthermore, Article XVI:3 of the WTO Agreement provides that the general requirement of Article XVI:4 overrides any conflicting requirement in the provisions of the agreements annexed to the WTO Agreement. Article XVI:3 and 4 thus make clear that laws, regulations and administrative procedures on BOP measures as such - before they are being effectively applied - could be subject to dispute settlement proceedings.
Adds Roessler "The AB, contrary to its own jurisprudence, thus interpreted the terms of a heavily negotiated treaty provision in a manner that deprives them of any effect. "
Whatever the correct interpretation of the terms "application of", the question remained whether the DSU provisions assigning competence to panels could be interpreted as overriding the provisions of other agreements assigning competence to the WTO's political bodies.
"When an organ of the WTO determines its own jurisdiction, it thus exercises its right to interpret the provision of the WTO Agreement conferring authority upon it. In doing so, it must pursuant to Article 31 of the Vienna Convention on the Law of Treaties take into account not only the terms of the provision attributing powers to it but also the context in which this provision appears. That context comprises those provisions of the WTO Agreement that attribute related powers to other bodies. An analysis of the terms of those jurisdictional provisions may lead the WTO organ to the conclusion that not only it but also other organs could claim jurisdiction over the matter at issue. Such a conflict must be resolved in good faith in the light of the institutional structure that the framers of the WTO Agreement have set up to realise the purposes of the WTO. The principles of interpretation of the Vienna Convention of the Law of Treaties thus suggest that the judicial organs of the WTO cannot determine their jurisdiction exclusively on the basis of the provisions of the DSU."
Moreover, points out Roessler, Art. 3:2 of the DSU states the obvious, namely that the complainant's rights under the DSU cannot diminish the rights of the defendant under other WTO agreements.
"The procedural rights of Members under the DSU are thus clearly subsidiary to those conferred by the WTO agreements: a complainant may resort to the DSU only to enforce the obligations of the defendant under other WTO agreements, not however to diminish the rights of the defendant under those agreements. This implies that a panel cannot determine its jurisdiction in a manner that diminishes those rights. Article 3:2 of the DSU obliges them to exercise judicial restraint whenever a WTO Member attempts to resort to the DSU for the purpose of negating another Member's procedural rights under another WTO agreement."
This principle of WTO law should be observed since each of the WTO organs charged with making legal determinations operate within a different legal framework. Moving an issue from one organ to another could therefore profoundly change the procedural and substantive rights of the Members involved. With respect to BOP measures, for example, the procedures under Art. XVIII:12(c) permit the membership of the WTO as a whole, acting through the BOP Committee and the General Council, to examine, with the assistance of the IMF, the measures notified by one Member under Article XVIII:B. By contrast, the rulings of the DSB emerge from a proceeding in which only the facts and claims submitted by the parties to the dispute are considered and the results of which are binding only on the parties to the dispute.
If the restrictions of the Member consulting with the BOP Committee are not, or are no longer, justified, the General Council may, upon the recommendation of the BOP Committee, specify a period for their removal or approve a time-schedule for their removal. These provisions take into account the fact that BOP measures are generally in place - legally - for long periods of time and their phased removal is therefore appropriate to permit economic operators to adjust.
In contrast, DSU articles 19:1 and 21 are designed to deal with measures that were never legal and that should therefore be removed promptly. Shifting the resolution of a dispute on the BOP measures from the BOP Committee to a panel thus changes fundamentally the balance of rights and obligations under Article XVIII.
While the panel and the AB, in the India BOP case, were formally correct that the existence of a panel track did not impinge on the right of the BOP committee, they did not in practice consider that the legal alternatives open in one forum could be curtailed and reduced to inutility by creating new legal opportunities in another. The process of taking a decision by consensus in the BOP Committee would be taking place in the shadow of procedural alternatives available in the absence of a consensus. And this is what happened in the India case. India reached bilateral agreements with a number of parties to phase out the QRs over a longer period, but the US refused to cooperate and took the issue to the panel for immediate removal of restrictions.
BOP measures and RTAs have one common feature: to be WTO-consistent, they must be applied across most sectors. For a BOP measure to be consistent with paragraph 4 of the BOP Understanding, it must be used to control the general level of imports and not for the protection of individual sectors. Similarly, an RTA, to be consistent with Article XXIV:8 of the GATT 1994, must cover substantially all the trade between the territories of its parties. A panel that determines the overall consistency of BOP measures or RTAs thus passed a judgement on an entire trade regime. "Since there are no agreed standards for determining the adequacy of monetary reserves and the scope of trade integration required by Article XXIV has deliberately been left undefined, the panel must pass its judgement without having received any prior normative guidance from the WTO membership and therefore engage essentially in a legislative or political task.
"If its ruling is not implemented, it becomes a license to retaliate of enormous proportions."
The consistent practice of the CONTRACTING PARTIES (to GATT 1947) was that the dispute settlement system would be overburdened if it were used to resolve conflicts of this nature. The adoption of the DSU led to a clear separation between the judicial and the political organs determining the legality of trade measures.
But the now independent judicial organs should be even more cautious than the CONTRACTING PARTIES and therefore refrain from using their interpretative power to confer decision-making authority upon themselves that the WTO Members have explicitly assigned to bodies composed of Members.
Panels should exercise caution and circumspection when asked to make the same legal determination that a political body of the WTO is empowered to make.
The competence of panels cannot be determined exclusively on the basis of the definition in the DSU. The provisions that create and define the competence of the political organs of the WTO and the procedural rights of the respondent under the WTO agreements must also be taken into account. The purpose of the complex institutional structure of the WTO Agreement was to divide decision-making power between many different organs. The assignment of decision-making authority to each of these organs reflects legitimate, negotiated policy objectives. Each organ of the WTO must therefore determine its jurisdiction with due regard for the powers conferred on the other organs and resolve conflicts of jurisdiction in a manner that reconciles those objectives to the maximum.
Many decisions on trade policy matters that Members of the WTO take under their domestic law - such as the decision to impose safeguard measures or to grant adjustment assistance - are taken by specialised agencies with broad discretion. Just as the domestic courts respect the competence and discretionary powers of such agencies, WTO panels should respect the competence and discretionary powers of the political bodies established under the WTO agreements. If the legal status of a regional trade agreement or a balance-of-payments restriction has been determined by the competent WTO body, panels should not reverse that determination; if the competent WTO body has not yet made its determination, panels should not step in and pre-empt that determination. Their role should be confined to protecting Members against an abusive resort to the provisions governing balance-of-payments measures and regional trade agreements, that is against the imposition of measures that fall outside the discretionary authority of the BOP Committee and the CRTA. (SUNS4685)
The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.
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