SUNS #4689 Monday 19 June 2000
south-north development monitor SUNS [Email Edition]
twentieth year 4689 monday 19 june 2000
TRADE: THE PANEL AND APPEAL PROCESS AT THE WTO
Geneva, 16 June (TWN) -- A number of serious problems have been noticed for some time in the functioning of the dispute settlement system in the World Trade Organisation (WTO).
The recent paper by Chakravarthi Raghavan, “The World Trade Organization and its Dispute Settlement System: Tilting the balance against the South” (Third World Network, Trade and Development Series No.9) has amply brought out that the Panel/Appeal findings and recommendations have been tilting the balance of rights and obligations in the WTO through substantive interpretations.
Frieder Roessler, former Director of GATT Legal Division, in his presentation in a Seminar (June 1-2, 2000) in Harvard University has drawn attention to the trend that the Panels/Appellate Body (AB) are transgressing into areas which should rightly be in the jurisdiction of various other organs of the WTO. He has recommended caution in this regard and maintenance of a balance between the political and judicial organs of the WTO.
Even when two provisions are manifestly conflicting, the Panels/AB have not hesitated in pronouncing which one will be operational in preference to the other. Instead of referring such cases to the General Council, which has the role and authority to interpret the agreements (in between the two Ministerial Meetings), the Panels/AB have taken it on themselves to undertake the task of substantive interpretation.
One important example in point is the Indonesia Car subsidy case, where the subsidy was permissible under the Agreement on Subsidies, but not permissible (according to the Panel) under the Agreement on TRIMs. The Panel decided that the subsidy was not permissible. (An analysis of this case has been given by the writer in SUNS #4271 of 31.8.1998)
In one case, i.e., the Korea-US Government Procurement case, the Panel has even gone on to reflect on the errors in treaty negotiations. The Panel has said that it sees no reason why the question of error in treaty negotiation cannot be addressed under the Dispute Settlement Understanding.
The panel goes on to say that it is necessary that negotiations in the Government Procurement Agreement be conducted on a particularly open and forthcoming basis.
This may be so, but one doubts whether it is for the Panel/AB to reflect on the error in negotiation and transparency in the negotiating process. (The report has been analyzed by C. Raghavan in the SUNS #4670 of 18.5.2000)
Recently in two cases on Safeguards, the AB have ignored or dealt with casually an important feature of the WTO agreements (the family of agreements covered by the WTO). The feature in question is the pre-eminence of the new agreements on goods over the old GATT in cases of conflict between the two. The interpretations/conclusions of the AB have expanded the obligation of the countries taking safeguard measure beyond what is envisaged in the WTO Agreement on Safeguards.
The disputes under reference are: Korea-EC dispute in the area of dairy products and Argentina-EC dispute in the area of footwear.
In anticipation of conflicts between the provisions of the new agreements on goods and the old provisions of the GATT, a general interpretative note has been included in Annex IA, the Multilateral Agreements on Trade in Goods annexed to the Marrakesh Agreement establishing the World Trade Organization (Page 20 of the Legal Texts, GATT 1994). This general interpretative note lays down that the provisions of the new agreements shall prevail over the old provisions of the GATT to the extent of the conflict.
This has been a deliberate, practical and decisive step, necessitated by the fact that the new agreements on goods modify the GATT significantly in many areas. Instead of rewriting the GATT to incorporate the changes brought about by the new agreements, this pragmatic approach has been adopted.
One important difference between the old provisions of the GATT and the new agreements on goods lies in the area of conditions for taking safeguard measures. Prima facie, there is a significant difference between the conditions incorporated in these two places. Following the general interpretative note mentioned above, the conditions as contained in the new agreement (Agreement on Safeguards) should be operative and the old provision on this matter in the GATT should be considered obsolete, because of the conflict between the two.
The AB in both the cases referred to above came to the identical conclusion that there was a difference between the two provisions. And yet, they did not apply the principle of pre-eminence laid down in the general interpretative note mentioned above. They decided that both the sets of conditions must apply simultaneously. This has added to the burden of the countries proposing to apply safeguard measures. The line of logic applied by the Panels and the AB will be analyzed in the subsequent paragraphs.
Article XIX.1 of the GATT 1994 contains the conditions under which a safeguard measure can be taken. It says:
“If, as a result of unforeseen developments and of the effect of the obligations incurred by a Member under this Agreement,.... any product is being imported into the territory of that Member in such increased quantities and under such conditions as to cause ...serious injury to domestic producers in that territory of like or directly competitive products, the Member shall be free, in respect of such product,....to suspend the obligation ...or to withdraw or modify the concession.” (for simplicity, let us call it “the earlier provision”)
Article 2 of the Agreement on Safeguards lays down the conditions as follows:
“A Member may apply a safeguard measure to a product only if that Member has determined...that such product is being imported into its territory in such increased quantities. ....and under such conditions as to cause...serious injury to the domestic industry that produces like or directly competitive products.” (for simplicity, let us call it “the later provision”)
In accordance with the general interpretative note mentioned above, if there is a conflict between these two sets of provisions, the latter will be applicable to the extent of the conflict; and the former will cease to be operative to that extent.
The difference between these provisions is that “the earlier provision” includes a phrase: “as a result of unforeseen developments and of the effect of the obligations incurred by a Member under this Agreement”, whereas “the later provision” does not include it. Since this phrase will occur again and again in our analysis, let us call it “the critical phrase”, for the sake of simplicity.
The Korea case panel came to the conclusion that there was no conflict between “the earlier provision” and “the later provision”, as, according to the panel, “the critical phrase” does not “add conditions for any measure to be applied pursuant to Article XIX but rather serves as an explanation of why an Article XIX measure may be needed”. The panel thus thought that “the critical phrase” did not have any operational significance. This is very surprising as “the critical phrase” clearly qualifies the conditions of increased import.
A plain reading of “the earlier provision” indicates that the increased import as a condition for safeguard measure should have been the result of unforseen developments and of the effects of obligations incurred by the Member. It is difficult to agree with the panel that “the critical phrase” has been included merely to serve as an explanation why a safeguard measure may be necessary. The use of the “critical phrase” as an “explanation” of why an Art.XIX measure may be needed was totally unnecessary in Article XIX.
The Korea case AB has rightly disagreed with the panel. It has concluded that “the critical phrase” describes certain circumstances which must be demonstrated in order that safeguard measure under Article XIX can be taken.
But the problem with the conclusion of the Korea case AB is that it has not thereafter gone on to analyze the conflict between “the earlier provision” and “the later provision”. It has merely said that it is refraining from examining whether Korea fulfilled the requirement of “the critical phrase”. In this manner it has implicitly held that “the critical phrase” continues to be operative. Perhaps it has done so on the basis of what it has said in paragraphs 74 and 75 of its report. In paragraph 74, it has agreed with the statement of the panel that “all WTO obligations are generally cumulative and Members must comply with all of them simultaneously”. Further in paragraph 75, it has observed that the GATT 1994 and the Agreement on Safeguards are both integral parts of the WTO treaty and are equally binding on all Members. Perhaps for this reason it has believed that both “the earlier provision” and “the later provision” are equally binding.
The Argentina case Panel has noted that there is an express omission of “the critical phrase” in “the later provision.” It sees a meaning in this omission. And then it goes on to conclude that safeguard measures which “meet the requirements of the new Safeguards Agreement satisfy the requirements of Article XIX of GATT”.
The Argentina case AB has disagreed with this view. It has concluded that a safeguard measure “must comply with the provisions of both the Agreement on Safeguards and Article XIX of the GATT 1994”. But then it goes on to say: “In our view, if they had intended to expressly omit this clause, the Uruguay Round negotiators would and could have said so in the Agreement on Safeguards”. Thus the AB is not convinced that it is a case of deliberate omission.
Thereafter it says that the provisions of the Article XIX of the GATT 1994 and of the Agreement on Safeguards would apply cumulatively, except to the extent of a conflict between specific provisions. And it does not see this matter as an issue involving a conflict between specific provisions of two Multilateral Agreements on Trade in Goods. Hence it concludes that both the provisions must continue to apply cumulatively.
The main issue is whether or not there is a conflict between “the earlier provision” and “the later provision” because of the existence of “the critical phrase” in the former and its absence in the latter.
The Korea case AB has just ignored this point, which is surprising. On the one hand, it has held that “the critical phrase” is not redundant and has an operative role. On the other hand, it has failed even to notice that there is a possibility of a conflict between “the earlier provision” and “the later provision” if “the critical phrase” is operative.
The Argentina case AB has simply observed that it does not see it as an issue involving a conflict. There is no attempt at any examination as to whether there is a conflict. Such an examination should have been thought essential as there is a prima facie difference in the conditions imposed by “the earlier provision” and “the later provision”. The Argentina case AB appears to have handled this important issue rather casually.
One should try to define the situation in which a conflict should be said to exist between two provisions. The common dictionary meaning of the word “conflict” is a clash or an encounter. In its verb form, it means being incompatible. Hence one should seek the elements of clash or incompatibility in the provisions. One criterion for the existence of conflict could be: whether it is impossible to act in accordance with the two provisions simultaneously. Another criterion could be: whether the actions in accordance with the two provisions result in two entirely different and incompatible situations.
In the case under consideration, it is clearly not impossible to act in accordance with the two provisions simultaneously. These provisions contain the conditions which are to be fulfilled before a Member takes a safeguard measure. According to “the later provision”, a Member has to determine whether increased import has caused serious injury to the domestic industry. According to “the earlier provision”, a Member has also to determine, in addition, whether such increased import has arisen due to the existence of “the critical phrase” situation, i.e., because of unforseen developments or because of the effect of obligations undertaken by the Member. It is clearly not impossible to determine all these points simultaneously.
However, the actions according to these two provisions do indeed result in two entirely different and incompatible situations. Acting in accordance with “the later provision”, a Member has the right to apply a safeguard measure only after determining whether there is serious injury to the domestic industry because of the increased import. However, acting in accordance with “the former provision”, the Member does not have that right. Following this course, the right would occur only if the additional condition which is contained in “the critical phrase” is satisfied.
Hence, even though it is not impossible to act in accordance with these two provisions simultaneously, the situations emerging from these two sets of actions are substantially different and incompatible. One situation gives the right to a Member to take safeguard measure without investigating the causes of the increased import, whereas the other situation does not give it the right. Following this line of reasoning, the inevitable conclusion is that there is a conflict between “the later provision” and “the former provision”. And in that case, “the later provision” prevails in accordance with the general interpretative note mentioned above.
The AB in these two cases has not examined the existence of conflict seriously, and has, thereby, added to the burden of a Member taking a safeguard measure and reduced the right of that Member in this regard.
There is another matter which is totally unrelated to the substance in these disputes, but extremely important from the systemic angle. One is struck by a strange feature of the reports of the AB in these cases. Some important and operational paragraphs of the two reports are exactly the same. These paragraphs examine the relationship between the Article XIX of GATT 1994 and the Agreement on Safeguard and are significant. Paragraphs 84, 85, 86, 87(part), 88 and 89 of the Korea case AB report are exactly the same respectively as paragraphs 91, 92, 93, 94(part), 95(part), and 96 of the Argentina case AB report.
The members of the AB divisions in these two cases were two totally different sets of the members of the Appellate Body. 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.
This is an important issue meriting serious consideration of the Members of the WTO and, in particular, the Dispute Settlement Body.
(*The writer is a former Ambassador and Permanent Representative of India to GATT and also former Director of International Trade Programmes in UNCTAD. He wrote this article for the SUNS)