Developing Countries, Countermeasures

and WTO LawReinterpreting the DSU against

the Background of International Law

Andrea Bianchi (HEID Genève)

Lorenzo Gradoni (University of Bologna)

WTO Law on Countermeasures as Lex Specialis

Art. 23.1 DSU:When Members seek the redress of a violation of obligations or other nullification or impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements, they shall have recourse to, and abide by, the rules and procedures of this Understanding

WTO Law on Countermeasures as Lex Specialis Art. 23.2(c) DSU:

In such cases, Members shall: … follow the procedures set forth in Article 22 to determine the level of suspension of concessions or other obligations and obtain DSB authorization in accordance with those procedures before suspending concessions or other obligations under the covered agreements in response to the failure of the Member concerned to implement the recommendations and rulings [of the DSB] within the reasonable period of time

WTO Law on Countermeasures as Lex Specialis Art. 22.4 DSU:

The level of suspension of concessions or other obligations shall be equivalent to the level of nullification and impairment

LoS = Level of Suspension

N&I = Nullification and Impairment

The Problem Unfairness of the system to small

economies Ineffectiveness of DCs’ countermeasures

as a remedy and as an incentive to induce compliance

System credibility at stake

DCs Reform Proposals on Countermeasures Raising the level of permissible suspension

Rationale: Article 22.4 DSU, as currently construed, limits the permissible amount of suspension to such a point that a countermeasures will be most of the time totally ineffective when taken by a DC against a developed country Member.

Enabling collective countermeasures Rationale: Individual DCs have tipically not enough

“market power” to deploy strong retaliatory actions.They need to join up their forces.

DCs’ Reform Proposals Regarding the Level of Suspension (art. 22.4 DSU)

Anticipating the date from which N&I/LoS should be calculated (Mexico)

LoS = 2 X N&I (Ecuador I) Taking account of the impact of the illegal

trade barrier on the DC’s economy (Ecuador II)

LoS for each Member authorized to take countermeasures = N&I (LDCs)

DCs Reform Proposals on Collective Countermeasures

Enabling collective countermeasures when the complaint is lodged by a DC against a developed country Member (LDCs; Africa Group)

Enabling strengthened collective countermeasures when the complaint is lodged by an LDC against a developed country Member (LDCs)

DCs Reform Proposals: Little Prospect of Winning Support

DCs reform proposals are unlikely to succeed as other WTO Members see them as too radical.

However…

Our main findings

DCs reform proposals, although perceived as “radical” in some quarters, can be reframed as reasonable interpretations of current WTO law.

What the DCs are seeking at the negotiating table is already “within” the WTO legal texts.

The Text Art. 22.4 DSU:

“The level of suspension of concessions and other obligations shall be equivalent to the level of nullification and impairment”

The Equivalence Standard:

LoS N&I

The Questionable Assumption

The equivalence standard (art. 22.4 DSU) as interpreted by arbitral panels:

LoS N&I = Value of lost trade (at the date of the expiry of the reasonable period of time)

… plain meaning of “nullification and impairment”?

Flaws in the Interpretation of the Concept of N&I

Little or no support in the text of Article 22.4 DSU or anywhere else in WTO legal texts

Foreign Sales Corporations Case

“Nothing in the plain language [of Art. 4.10 SCM] dictates that the term ‘appropriate countermeasures’ must be limited in its meaning to ‘equivalence’ or correspondence (or some synonym) with the ‘trade impact’ on the complaining Member.”

There is no mention of “trade impact” in Art. 22.4 DSU either

Acknowledgement by Arbitrators (and a Risk for DCs…)

“We agree … that the term “trade effect” is found neither in Article XXIII of GATT nor in Article 22 of the DSU. Previous arbitrators’ decisions based on direct trade impact are not binding precedents. … However, the trade effect approach has been regularly applied in other Article 22.6 arbitrations and seems to be generally accepted by Members as a correct application of Article 22 of the DSU” (US - Continued Dumping and Subsidy Offset Act)

Flaws in the Interpretation of the Concept of N&I

Finds little support in the text of Article 22.4 DSU or anywhere else in WTO legal texts

Relevant context is blatantly disregarded

For instance…

Art. 21.8 DSU

“[i]f the case is one brought by a developing country Member, in considering what appropriate action might be taken, the DSB shall take into account not only the trade coverage of the measures complained of, but also their impact on the economy of developing country Members concerned”

Flaws in the Interpretation of the Concept of N&I

Finds little support in the text of Article 22.4 DSU or anywhere else in WTO legal texts

Relevant context is completely disregarded Object and purpose of DSU is either…

… construed in a rather confused way …

The “punitive measures” argument

Any reaction exceeding the equivalence standard - as arbitrarily interpreted by the arbitral panels - is disqualified by the latter as “punitive”.

At variance with the decision of the arbitrators in Brazil - Aircraft …

Brazil - Aircraft Case

“[a] countermeasure becomes punitive when it is not only intended to ensure that the State in breach of its obligations bring its conduct in conformity with its international obligations, but contains an additional dimension meant to sanction the action of the State”

Flaws in the Interpretation of the Concept of N&I

Finds little support in the text of Article 22.4 DSU or anywhere else in WTO legal texts

Relevant context is completely disregarded Object and purpose of DSU is either…

… construed in a rather confused way … … or denied in spite of clear textual evidence.

An astonishing denial…

The purpose of inducing compliance “is not expressly referred to in any part of the DSU…” (US - Continued Dumping and Subsidy Offset Act)

Art. 3.7 DSU

… in the absence of a mutually agreed solution, the first objective of the dispute settlement system is usually to secure the withdrawal of the measure… found to be inconsistent with any of the covered agreements

Summing up…

“Nullification and impairment” has no plain meaning

The equation [N&I value of lost trade] is just assumed

Systemic interpretation (contextual + teleological) suggests a different reading…

A different interpretationLost trade can result in different levels of impairment depending on the impact that the WTO-inconsistent measure has on the economy of the injured Member

The concept of N&I should be interpreted so as to capture the different ‘economic sizes’ of the Members involved

This could be done by using an appropriate multiplier, e.g.:

Lost Trade [defendant’s GDP / complainant’s GDP]

Antigua and Barbuda’s multiplier claim ignored

“It is one of the rare points of agreement between the parties to calculate the level of nullification and impairment on the basis of the difference between actual and counterfactual Antiguan exports of remote gambling services to the United States that is due to the non-compliance by the defending party. In other words, parties agree on the use of the a ‘trade effects’ approach that has also been used in previous arbitrations” (US - Gambling case)

… in many cases, a higher level of permissible suspension would be useless assuming that collective countermeasures are not allowed under WTO law …

Collective Countermeasures: The Conventional Wisdom

WTO law does not enable collective countermeasures. Only those Members which are materially injured by the WTO-inconsistent measure are entitled to retaliate.

Back to Basics Art. 22.2 DSU

Only the Members “having invoked the dispute settlement procedures” may request authorization from the DSB to retaliate against the wrongdoer

Therefore…

Having legal standing to bring a claim before the WTO is a necessary condition for the acquisition of the right to take countermeasures

Legal Standing and Doctrinal Red Herrings GATT/WTO law has no special rules on legal

standing (Bustamante, 1997) Debate on the structure of WTO obligations:

bilateral or erga omnes partes? Pleas for the introduction of collective

countermeasures in WTO system presented as ambitious reform programme (Pauwelyn, 2000)

The Appellate Body’s ruling in the Bananas case described as the cornerstone of a still uncertain WTO doctrine of legal standing

WTO Rules on Legal Standing (Violation Complaints)

Art. XXIII(1) GATT / Art. 23 DSU:A Member may initiate proceedings if it considers “that any benefit accruing to it … is being nullified or impaired or that the attainment of any objective of the [WTO Agreements] is being impeded as a result of the failure of another contracting party to carry out its obligations”

The Two Doorways to Legal Standing

A Member’s benefits are being nullified or impaired (doorway for materially injured Members)

The attainment of an objective of the WTO system is being impeded (doorway for all Members: individual interest based on material injury is not a prerequisite)

Two Types of Violation Complaints

Traditional (nullification or impairment of individual benefits)

Systemic (impediment to the attainment of an objective of the WTO system)

The Duty to Comply with the DSB Rulings: an Obligation Erga Omnes Partes

Art. 21.1 DSU“prompt compliance with recommendations and rulings of the DSB is essential to ensure effective resolution of disputes to the benefits of all Members”

Art. 22.6 DSU“the issue of implementation of the recommendations and rulings may be raised at the DSB by any Member at any time following their adoption”

The Duty to Comply with the DSB Rulings: an Obligation Erga Omnes Partes

US - Import Measures on Certain Products from the EC, Report of the Panel

“Many elements in Article 21 of the DSU … confirm that implementation of Panel and the Appellate Body recommendations is a systemic concern and that any WTO Member is directly concerned and interested in the implementation process of any other Member”

Implications

The duty to comply with the DSB rulings is an obligation erga omnes partes, i.e. established in the collective interest of WTO Members

Its violation is tantamount to an impediment to the attainment of an objective of the WTO system

Implications

If a Member fails to comply with DSB rulings, every other Member is enabled to lodge a complaint against the former

Under Art. 22.2 DSU, every additional complainant acquires the right to request authorization to take countermeasures against the recalcitrant

N&I: A Stumbling Block at the Stage of Countermeasures? Can Members not undergoing any N&I be authorized to

take countermeasures?

Art. 22.4 DSU:

The level of suspension of concessions or other obligations shall be equivalent to the level of nullification and impairment

… and not to the level of nullification and impairment suffered by each Member wishing to take countermeasures against the recalcitrant …

N&I: A Stumbling Block at the Stage of Countermeasures? Equivalence standard (LoS N&I) sets an

objective limit No subjective limit other than that set by Art.

22.2 DSU, i.e. the invocation of the dispute settlement procedures

No stumbling block on the way of collective enforcement

Allocation of LoS to be agreed by the complaining Members