LAW OF WTO
PROJECT ON
SANCTIONS IN INTERNATIONAL LAW AND WTO
Submitted by:
Shijo George
Semester I, LLM
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TABLE OF CONTENTS
ChapterNo.
Topic PageNo.
LIST OF CASES 4LIST OF ABBREVIATIONS 5-6EXECUTIVE SUMMARY 7
I. INTRODUCTION 8-181.1 Statement of Problem 8
1.2 Introduction 9-10
1.3 Scheme of Chapterization 10-11
1.4 Research Objectives 11
1.5 Research Questions 11
1.6 Hypothesis 11
1.7 Literature Review 12-18
1.8 Methodology Adopted 18
1.9 Limitation 18
1.10 Keywords 18
II. DISPUTE SETTLEMENT MECHANISM UNDER THE WTO- HISTORY AND EVOLUTION
19-24
2.1 GATT and WTO 19-21
2.2 Sanction under the GATT and WTO 21-24
III. LEGAL FRAMEWORK AND THE ANOMALIES UNDER THE LAW
25-37
3.1 Introduction 253.2 Consultation 25-
263.3 Panel 26-
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273.4 Appellate Body 27-
283.5 Authorization and Retaliation 28-
29 3.5.1 Authorizing Procedure 29 3.5.2 Nullification or Impairment 30 3.5.2.1 DeterminingNullification or Impairment
31-32
3.6 Types of Sanctions/Retaliations 33-35
3.7 Post-Authorization of Suspension ofconcession or obligations phase
36-37
IV. EFFECTIVENESS OF SANCTIONS IN INTERNATIONAL LAW
38-49
4.1 Purpose of Sanctions 38-39
4.2 Case-Law study on Sanctions 39-47
4.3 Advantages and Disadvantages of sanction 47-49
V. CONCLUSION AND SUGGESTIONS 50-54
5.1 An Analysis of the Effectiveness ofSanctions
50-52
5.2 Suggestions for reforms 52-53
5.3 Conclusion 53-54
BIBLIOGRAPHY 55-57
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LIST OF CASES
Serial
No.
Name Citation
1. Brazil – Export Financing Programme For Aircraft DS462. European Communities — Regime for the
Importation, Sale and Distribution of Bananas
DS27
3. European Communities – Measures Concerning DS26
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Meat and Meat Products (Hormones)
4. United States — Continued Dumping and Subsidy
Offset Act of 2000
DS217
5. United States — Measures Affecting the Cross-
Border Supply of Gambling and Betting Services
DS285
6. United States-Import Measures on Certain
Products from the European Communities
DS165
7. United States — Subsidies on Upland Cotton DS267
LIST OF ABBREVIATIONS
S.NO. ABBREVIATION. FULL FORM.1. AB Appellate Body (WTO)2. DSB Dispute Settlement Body
(WTO)
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3. DSU Understanding on rules
and procedures governing
the settlement of4. Edn. Edition5. EC European Communities6. EU European Union7. GATS General Agreement on
Trade in Services8. GATT General Agreement on
Tariffs and Trade9. Ibid. Ibdiem (in the same
place)10. Id. Idem (same)11. i.e. Idest (that is)12. ICJ International Court of
Justice13. ILC International LawCommission14. ITO International Trade
Organization15. SCM Agreement on Subsidies
and Countervailing16. SPS Agreement on the
Application of Sanitary17. TBT Agreement on Technical
Barriers to Trade18. TRIPS Agreement on Trade-
Related Aspects ofIntellectual Property
19. VCLT Vienna Convention on theLaw of Treaties (1969)
20. Vol. Volume21. WIPO World Intellectual
Property Organization22. WTO World Trade Organization
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This Research Paper focuses upon understanding the role,
sanctions have played over the years under GATT and the
World Trade Organization. An endeavor has been made to
analyse the effectiveness of sanctions in bringing about
compliance. The main aim of sanctions is said to induce
violating countries to comply with their respective
obligations under the WTO. This is done under the current
regime with the help of retaliation measures which provides
the complaining countries with the option to suspend
concessions or obligations in the sector where the violating
country has defaulted or in some other sectors so as to
induce the violating country to comply with the ruling of
the Panel or the Appellate Body. However, the basis behind
its functioning seems to be based on the philosophy of ‘an
eye for an eye and a tooth for a tooth’. This also appears
to be going against the basic premise of free trade which
the WTO aims to promote. Further, in most cases it causes
hardship even to the countries imposing sanctions and
therefore, it questions the effectiveness of sanctions in
International Trade. As it is possible that the economy of
the complaining country is smaller as compared to the
economy of the violating country, it is all the more
possible that the present remedy available under the WTO
would be rendered ineffective in terms of achieving its goal
of inducing compliance. Thus, it depicts the weakness of the
current Dispute Settlement Mechanism in terms of enforcement
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mechanism and requires a research in this area. Through this
research paper, the main emphasis is to study the role of
retaliation under the WTO as a remedy in cases where the
obligations under the WTO have been violated. Thus, the
existing regime of remedy is critically examined and an
effort is made to explore introduction of better and
effective alternative remedies.
CHAPTER I – INTRODUCTION
1.1 STATEMENT OF PROBLEM:
The core problem with the concept of the trade
sanctions is that while it is being used by the WTO to
enforce compliance with the WTO obligations, it
conflicts with the traditional GATT principle which
provides that the trade remedy is used to rebalance
concessions not to sanction. Besides, one wrong cannot
undo another. Further, the disadvantages attached along
with the trade sanctions outweigh the advantages
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flowing from it.1 It is pertinent to mention that the
trade sanctions not only have undesirable affects on
the target country but also on the country that imposes
sanctions and at time also on third countries. Further,
it is also considered that since sanctions and other
such trade barriers impose a cost both on the target
country as well as on the country that initiates such
measures, an alternative has to be found to enforce
free trade rules without having to take recourse to
trade restrictive measures. As, it is a dilemma which
still seems to continue, the researcher would like to
research on this issue.
1.2 INTRODUCTION:
In today’s competitive world every country wants to
have the best economy and therefore there arises
conflict of interests between the countries at the
international level. When there is a conflict of
interest between the countries, disputes are bound to
arise and so arises a need for body to look into the
settlement of disputes between the countries. Now, when
we talk about the trade of goods and services between
the countries at the international level, we have the
World Trade Organization as the legal and the
1 Steve Charnovitz, Rethinking WTO Trade Sanctions, the American Journal of International Law, Vol. 95, No. 4 (Oct. 2011) pp. 792-832 <www.jstor.org/stable/2674625>
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institutional foundation of the international trading
system. The World Trade Organizaton was formally
created by the Marrakesh Agreement Establishing the
World Trade Organization (“WTO Agreement”). Annexure 2
to the WTO Agreement comprises of the Understanding on
Rules and Procedures Governing the Settlement of
Disputes (now known as the Dispute Settlement
Understanding (DSU)).2 The Dispute Settlement
Understanding provides for rules and regulations to
look into disputes arising under various WTO
Agreements. All WTO members are governed by it and can
bring and file cases pertaining to such disputes.
Further, the dispute settlement mechanism under the WTO
allows sanctions to be imposed when countries are not
willing to rectify or amend the policies or laws
inconsistent with the WTO rules and regulations. In
common parlance, sanctions is a measure adopted by a
country or various countries collectively against a
country or an organization that gas violated
international law and measures could be economic,
diplomatic or of some other nature.3 In other words,
sanction is a mode through which compliance is induced.
2DAVID PALMETER AND PETROS C. MAVROIDIS, DISPUTE SETTLEMENT IN THE WORLDTRADE ORGANIZATION, PRACTICE AND PROCEDURE, 2ND EDN., 13-14, CAMBRIDGE UNIVERSITY PRESS, UK, 20043http://www.gov.je/Government/JerseyWorld/InternationalAffairs/Sanctions/Pages/SanctionsFAQ.aspx (Last Visited Aug. 16, 2014)
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It is possible that despite the ruling of the Dispute
Settlement Body asking the violating country to changes
its policies to comply with the WTO rules, the
violating country does not comply with it. In that
case, the complainant country is entitled to
compensation. If the agreement on compensation is also
not made between the countries, then Article 22 of the
Dispute Settlement Understanding provides for the
Complainant Country to retaliate.4 The Complainant
Country can ordinarily retaliate under the specific WTO
agreement that has been violated - that is, sanctions
against goods when merchandise trade is at issue,
services for services, and so forth. However, if this
is unlikely to be effective, they allow governments to
"cross-retaliate" against other sectors, such as
Intellectual Property.5 However, the basis of imposing
sanctions seem to be contrary to the principle of open
trade as it allows the government to ban trade in
response to violations by other countries. Further,
some of the other disadvantages are that sometimes the
countries imposing sanctions incurs losses; there is no
mechanism to help the complaining industry etc.
Therefore keeping in mind the aforesaid it is felt that
4 http://www.adelaide.edu.au/cies/papers/0207.pdf (Last Visited Aug. 16,2014)5 http://www.ictsd.org/bridges-news/bridges/news/wto-authorises-antigua-to-move-forward-on-retaliation-in-us-gambling (Last Visited Aug. 16, 2014)
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the sanctions are ineffective and has a lot of negative
impact on trade rather than positive. So, the
researcher feels that there is a need for a study on
the said subject.
1.3 SCHEME OF CHAPTERIZATION:1. Introduction
This chapter will deal with a small glimpse of the
topic, the author wishes to research on and includes
the Statement of problem, Tentative Chapterization,
Research Objectives, Research Questions, Hypothesis,
the Literature Review and the Research methodology
adopted by the author along with the limitations
involved in the present paper and the keywords used.
2. Dispute Settlement Mechanism under the WTO- History
and Evolution
This Chapter will deal with the History and Evolution
of the Dispute Settlement Mechanism under the World
Trade Organization
3. Legal Framework and the Anomalies under the Law
This Chapter will deal with the legal framework and the
various anomalies under the Dispute Settlement
Mechanism under the WTO and in doing so incorporates
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various views of Judges, authors and experts in the
field of law, based on their research.
4. Effectiveness of Sanctions in International Law
This Chapter will specifically deal with the
effectiveness of Sanctions in International Law in
light of various International Case laws.
5. Conclusion and Suggestions.
This Chapter will provide for conclusion and
suggestions of the researcher from the said research
conducted via which the anomalies could be removed or
rectified.
1.4 RESEARCH OBJECTIVES:
The objects of the project would be To understand the History and Evolution of the
Dispute Settlement Mechanism and Dispute Settlement Understanding.
To understand the Legal Framework of the Dispute Settlement Body.
To understand the role of sanctions in International law.
To understand the mechanism of enforcement of sanctions.
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To understand the effectiveness of sanctions in International law.
1.5 RESEARCH QUESTIONS:
The researcher has tried to deal with the topic keeping
in mind the following research questions:
1) Whether the provisions of the Understanding on
Rules and Procedures governing the Settlement of
Disputes with respect to imposition of Sanctions
are ambiguous in nature or not?
2) Whether sanctions in International Law under the
WTO are effective or not?
3) Whether sanctions in International Law are per se
contrary to the basic principles behind formation
of WTO i.e. promoting free trade?
1.6 HYPOTHESIS:
The researcher wants to put to test the following that:
Sanctions in International Trade Law are not
effective in nature.
1.7 LITERATURE REVIEW:
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Books
1. Sherzod Shadikhodjaev, Retaliation in the WTO
Dispute Settlement System, Kluwer Law International,
Netherlands, 2009
The book deals with the WTO Dispute Settlement Remedies
and focuses upon retaliation as one of the remedies
available under the system. It covers an in-depth
analysis of the procedural and substantive aspects of
the retaliation system with reference to relevant rules
under the GATT, Understanding on Rules and Procedures
Governing the Settlement of Disputes (now known as the
Dispute Settlement Understanding) and the Agreement on
Subsidies and Countervailing Measures and case laws. It
examines the way the WTO Retaliation System has worked
and focuses on exploring the possibilities of improving
the system
2. Chad P. Brown and Joost Pauwelyn, The Law, Economics
and Politics of Retaliation in WTO Dispute
Settlement, Cambridge University Press, UK 2010.
The book is a compilation of various articles written
by various authors over a period of time dealing with a
background study of WTO Retaliation and the types of
retaliation. Further, it deals with the policies and
procedures followed for implementing trade retaliation.
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3. David Palmeter and Petros C. Mavroidis, Dispute
Settlement in the World Trade Organization, Practice
and Procedure, 2nd Edn., Cambridge University Press,
UK, 2004
The book basically focuses on the Dispute Settlement
Mechanism and relies heavily on panel and Appellate
Body jurisprudence and the procedures followed by it.
It touches upon case laws but does not deal with the
efficacy of the sanctions in International Law.
4. Autar Krishen Koul, Guide to the WTO and GATT,
Economics, Law and Politics, 2nd Edn., Satyam Law
International, Delhi, 2010.
The book extensively deals with the International
Economic Institutions like the WTO, its dispute
settlement mechanisms and the various agreements under
it. In this second edition, the Author has kept in mind
the developments which have taken place at the WTO/GATT
counter and the decisions rendered by the DSB on
various critical issues. However, it does not deal
extensively with the cases wherein sanctions have been
imposed. Nor, does the book deal with the efficacy of
the sanctions in International Law.
Articles
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1. Steve Charnovitz, Rethinking WTO Trade Sanctions,
http://www.jstor.org/stable/pdfplus/2674626.pdf
(Last Visited Aug. 27, 2014).
The Article is an important text that deals with a
critical analysis of the Dispute Settlement
Mechanism under the WTO and the advantages and
disadvantages of Sanctions in International Law.
2. Kajsa Persson, The Current and Future WTO Dispute Settlement
System – Practical Problems discussing Article 21.5 and Article 22 of
the DSU,
https://gupea.ub.gu.se/bitstream/2077/9862/1/Kajsa_P
ersson_Thesis.pdf (Last Visited Aug. 26, 2014)
The Article is actually a thesis, the purpose of
which is to study the current WTO dispute settlement
system, focusing on the critical stage of
implementation and enforcement and the practical
problems that may arise using the remedies available
in this phase of the process. The main purpose is to
pay attention to the actual effect in practice when
using the remedies available and how the outcome
affects different members of the organization in
different ways.
3. Barbara Marchetti, The WTO Dispute Settlement System:
Administration, Court or Tertium Genus?,
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http://www.iilj.org/gal/documents/marchetti.pdf
(Visited on 29-08-2014)
The Article tries to find answer to the questions as
to whether the decisions adopted by the DSB are
administrative or judicial in nature and in order to
do so the author has tried to look In the process
it deals in great detail regarding the procedure
followed by the Panel and the Appellate Body and
their powers and functions.
4. Anwarul Hoda, Dispute Settlement in the WTO, Developing
Countries and India,
http://www.icrier.org/pdf/Policy_Series_No_15.pdf
(Last Visited Aug. 29, 2014)
This Article mainly focuses upon the WTO dispute
settlement mechanism with respect to serving the
interests of developing countries. It deals with how
cross retaliation though has been favorable for the
developing countries but has on the other hand been
used very sparingly.
5. Asim, Imdad Ali, Non-Compliance and Ultimate Remedies under
the WTO Dispute Settlement System, Journal of Public and
International Affairs, Volume 14/Spring 2003,
http://www.princeton.edu/jpia/past-issues-
1/2003/1.pdf (Last Visited Sept. 11, 2014)
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This article examines the question of non-compliance
and ultimate remedies under the WTO dispute
settlement system. It has tried to analyze the
compliance measures and the author has made an
endeavour to suggest some possible alternatives to
trade sanctions.
6. YE Siyu, The Legal Analysis of the Cross retaliation Under the WTO
Framework,
http://lib.ugent.be/fulltxt/RUG01/002/061/021/RUG01-
002061021_2013_0001_AC.pdf (Last Visited Aug. 29,
2014)
This Article is actually a paper on cross
retaliation and tries to analyze whether cross
retaliation is a desirable remedy. In this respect
the Author has also made an endeavour to deal with
the developing countries especially in light of the
option available to the developing countries to
retaliate in TRIPS.
7. William J. Davey, Implementation in WTO Dispute Settlement:
An Introduction to the Problems and Possible Solutions,
http://www.rieti.go.jp/jp/publications/dp/05e013.pdf
(Last Visited Aug. 29, 2014)
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This is a discussion paper which has tried to assess
the effectiveness of the dispute settlement system
of the World Trade Organization. In this paper, the
operation of the WTO dispute settlement system is
briefly outlined, with particular emphasis on the
overall time taken by the various stages. This is
followed by an analysis of the implementation record
for disputes brought under the WTO.
8. Joost Pauwelyn, The Role of Public International Law in the WTO:
How Far Can We Go?,
http://scholarship.law.duke.edu/cgi/viewcontent.cgi?
article=1065&context=faculty_scholarship (Last
Visited Aug. 29, 2014)
This Article examines the general relationship
between public international law and the WTO law
with special emphasis on the role of Public
International Law in WTO Dispute Settlement
mechanism.
9. Mitchell, Andrew D. & Constantine Salonidis, David’s
Sling: Cross-Agreement Retaliation in International
Trade Disputes, 467, Journal of World Trade 45, no.
2 (2011)
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This Article mainly deals with cross retaliation as
a remedy available under the Dispute Settlement
Mechanism of WTO and tries to analyze the credible
and probable threat of cross-agreement retaliation
and how it could provide a powerful incentive for
compliance.
10.Song Guan, WTO Retaliation Rules in Subsidy-Related
Cases: What Can We Learn from the US-Upland Cotton
Arbitration?, 815- 842, Journal of World Trade 48,
no. 4 (2014)
This article provides an in-depth overview of
retaliation in subsidy-related cases and advocates
that ‘inducing compliance’ should be the goal of
retaliation in WTO dispute settlement. To achieve
this, the article analyses two main actors relating
to the retaliation rules in subsidy-related cases,
namely, the determination of the level of
retaliation and the principles and procedures for
retaliation and cross-retaliation. It also examines
how the WTO arbitrators apply the rules in real-case
scenarios, using the case of US-Upland Cotton as an
example.
11.Bernard O’ Connor, Remedies in the World Trade
Organization Dispute Settlement System – The Bananas
and Hormones Cases, 245-266, Journal of World Trade,
38(2), 2004
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This Article examines the remedies available for
breach of legal duty in the WTO Law. Further, it has
tried to examine the effectiveness of those remedies
in light of two landmark cases of E.C. Bananas and
E.C. Hormones case.
12.Gary Horlick & Judith Coleman, The Compliance
Problems Of The WTO, Arizona Journal of
International and Comparitive Law, Vol 24, No.1,
2007, http://www.ajicl.org/AJICL2007/Horlick
%20article.pdf (Last Visited Sept. 11, 2014)
This Article mainly deals with non-compliance and
the forms of non-compliance under the WTO and lists
out the statistics and the case-laws where there has
been compliance and cases where non-compliance is
there.
13.T.B. Simi, Brazil-US Upland Cotton Dispute What does it Augur for
Agricultural Subsidies?,
http://www.cuts-citee.org/pdf/TLB05-02.pdf (Last
Visited Sept. 09, 2014)
This Article mainly focuses upon the Brazil-US
Upland Cotton case. It mainly deals with what was
the dispute about, the verdict of the Appellate Body
and the significance of the ruling in the said case.
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14.Intan Innayatun Soeparna, The Impact Of The WTO Retaliation
From The Perspective of Human Rights Law,
http://www.academia.edu/6141386/THE_IMPACT_OF_THE_WT
O_RETALIATION_FROM_THE_PERSPECTIVE_OF_HUMAN_RIGHTS_L
AW (Last Visited Sept. 10, 2014)
This paper explains the impact that arises when WTO
retaliation is imposed to a country whether a
developed or developing country, from the
perspective of international human rights law.
15.Jordan Shepherd, Maria V. Sokolova, Wagari Negassa
Wakjira, Effective Compliance in the DSU: The Mechanics of
Monetary Compensation as a form of Reparation,
http://graduateinstitute.ch/files/live/sites/iheid/
files/sites/ctei/shared/CTEI/Law%20Clinic/
memoranda2012/Final%20Memo%20-%20DSU%20Review%20-
%2008062012.pdf (Last Visited Sept. 11, 2014)
This Article focuses upon improving the limitations
of the WTO’s dispute settlement mechanism through
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development of the remedy of monetary compensation
into the Dispute Settlement Understanding (DSU). It
explores possible approaches for applying monetary
compensation in the WTO framework and inspects
different substantive and procedural aspects of its
implementation.
1.8 METHODOLOGY ADOPTED: The research methodology
intended to be adopted for this research is doctrinal
in nature. There shall be extensive review of books,
articles, journals and other literature. International
laws and landmark judgments related to the subject
matter shall be addressed.
1.9 LIMITATION:
As this research paper mainly focuses on sanctions, its
effectiveness and drawbacks based on the cases that
have been decided by the Panel and the Appellate Body
so far, the research is void of other factors that
could also influence the role and effectiveness of
sanctions in International Trade Law. Therefore an in-
depth study and research into those factors might be
necessary so as to support or contradict the present
research paper.
1.10 KEYWORDS:
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Some of the Keywords used are Sanctions, Retaliation,
Suspension of Concessions or Obligations, Nullification
or Impairment, Authorization and Compensation.
Chapter II - Dispute Settlement Mechanism under the
WTO - History and Evolution.
2.1 GATT and WTO:
In order to settle the disputes pertaining to the rights and
obligations arising out of the Agreements under the WTO, a
dispute settlement system is in force. This system is called
the Dispute Settlement Understanding and has been in force
since 1995. However, it would be better to say that it
evolved from its predecessor the General Agreement on
Tariffs and Trade (hereinafter referred to as ‘GATT’), and
is known to be the most developed and most active system of
formal dispute settlement of all international regimes. It
is considered to be the central pillar in the multilateral
trading system, and it aims to bring stability to the global
economy.6
Under the old system of GATT 1947, there was as such no
provision for dispute settlement. It only provided 2
provisions pertaining to dispute settlement, namely Article
XXII and XXIII of the GATT. Further, at that time there was6 Kajsa Persson, The Current and Future WTO Dispute Settlement System – PracticalProblems discussing Article 21.5 and Article 22 of the DSU, https://gupea.ub.gu.se/bitstream/2077/9862/1/Kajsa_Persson_Thesis.pdf(Last Visited Aug. 26, 2014)
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in place a system of working parties which consisted of
representatives of all interested contracting parties
including the parties to the dispute. The working parties
adopted the reports by consensus among all participants.
This system of working parties was later on replaced by
panels consisting of three to five independent experts from
non-involved GATT contracting parties. The panels reported
their conclusions to the GATT Council which consisted of all
the members. The Council had to adopt the recommendations or
rulings by consensus before it became legally binding upon
the members concerned. Now, with passage of time, the
Dispute Settlement System under GATT changed from a power-
based system of settlement through diplomatic negotiations
into a system with features of a rule-based system of
dispute settlement through adjudication.
Although as the first official body at the multilateral
trading system, it had a role to play, yet it was not
without any glitches. To start with, the most acute problem
was the way key decisions were taken. These decisions were
all to be taken by consensus of the Council. A member
concerned by the conflict could block or delay a decision
and paralyze the whole dispute settlement system. Further,
Panels were pressurized to come to a conclusion satisfactory
to all parties even if it may not have been the most
convincing one. Now, during the Tokyo Round, some proposals
were made by the United States to improve the panel
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procedural rules and to increase the predictability of the
dispute settlement system. However, most of the limits of
the prior GATT system remained, and the Understanding Regarding
Notification, Consultation, Dispute Settlement and Surveillance, adopted on
November 28, 1979, did not bring about a real system reform.
From then till the Uruguay Round, the question of the nature
of the dispute settlement system became the crucial issue in
the debate on the World Trade Organization. However, the
End-Result of the Uruguay Round was the creation of a
permanent Appellate Body in the dispute settlement system.
Consequently, most of the deficiencies and faults of the
panel process were corrected; rigorous terms were
established for the assessment of the panel, and the entire
dispute system was streamlined. Most importantly the right
to veto the establishment of a panel or the adoption of its
rulings was eliminated, and the DSU demanded a negative
consensus of all members in order to block the process.7
Now, at key stages such as the establishment of a panel, the
adoption of a panel report or of a report of the Appellate
Body, positive decisions had to be taken unless there is
consensus for not doing so. This made decision making
effectively automatic because the complaining party or the
party that has obtained a favorable verdict cannot be
expected to join the consensus not to establish the panel or7 Barbara Marchetti, The WTO Dispute Settlement System: Administration, Court orTertium Genus?, http://www.iilj.org/gal/documents/marchetti.pdf (Visitedon 29-08-2014)
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not to adopt the panel or Appellate Body report. Further,
now time limits have been laid down for the dispute
settlement procedures to be completed right from the time a
request has been made by the complaining member for
consultations. If an agreement is not reached in the
consultations within 60 days the complaining party may
proceed to request for the establishment of a panel. If no
agreement is reached on panelists within 20 days after the
date of establishment of a panel, the Director General may
determine the composition in consultation with the Chairman
of the DSB and the Chairman of the relevant Council or
Committee. Panels are mandated to complete the process in no
more than nine months and the Appellate Body within ninety
days. Besides, the creation of the Appellate body enabled
appeal on issues of law covered in the panel reports and
legal interpretations developed by the panel. The Body has
been empowered to uphold, modify or reverse the legal
findings and conclusions of the panel. 8
2.2 Sanction under the GATT and WTO:
Now, the term “sanction” per se has not been used in either
the Marrakesh Agreement Establishing the World Trade
Organization or its annexures. The Charter of United Nations
also does not expressly define ‘sanctions’, but Article 41
8 Anwarul Hoda, Dispute Settlement in the WTO, Developing Countries and India,http://www.icrier.org/pdf/Policy_Series_No_15.pdf (Last Visited Aug. 29,2014)
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is generally understood as providing a definition. As per
Article 419, sanctions refer to ‘measures not involving the use of
armed force’, including a ‘complete or partial interruption of economic
relations.’10 Although, here sanction is used in a different
context but is somewhat similar to what sanctions are under
the DSU. Under the DSU, suspending concessions or other
obligations under the covered agreements in response to a
violation or to non-violation nullification or impairment
are called sanctions.11 Fortunately, a WTO ruling has
referred the term ‘sanction’. In the case of United States-
Import Measures on Certain Products from the European Communities, the
panel referred to the U.S. action in the Bananas dispute as
"trade sanctions”. Taking note of the DSU provision
requiring WTO members to abide by DSU rules when they "seek
the redress of a violation of obligations," the panel
characterized a DSU Article 22 measure as "essentially
retaliatory in nature”. Sanction basically arises when the
decision taken in a dispute has not been implemented. In
such a situation, the Complaining Party may be authorized to
retaliate by suspending some of its own obligations
9 Article 41: “The Security Council may decide what measures notinvolving the use of armed force are to be employed to give effect toits decision, and it may call upon the Members of the U.N to apply suchmeasures. These may include complete or partial interruption of economicrelations and of rail, sea, air, postal, telegraphic, radio and othermeans of communication, and the severance of diplomatic relations. 10 https://www.dfat.gov.au/sanctions/about-sanctions.html (Last VisitedSept. 03, 2014)11 http://www.wto.org/english/tratop_e/dispu_e/disp_settlement_cbt_e/c6s10p1_e.htm (Last Visited Sept. 03, 2014)
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resulting from the WTO agreements. Article XXIII of the GATT
was considered to be the cornerstone for dispute settlement
at one point of time. Under this Article, the Dispute
process was triggered when a Contracting Party determined
that any benefit attributing to it under the GATT 1947 was
being ‘nullified or impaired’ by the actions of another
Contracting Party. In the event of a dispute, the GATT
firstly encouraged nations involved to solve the dispute
between themselves before referring to the other Contracting
Parties. Only when no mutually agreed solution can be
reached, the Contracting Parties would then decide on the
subject matter or assist the panel in adopting a report. As
a means of remedy, GATT Article XXIII provided that a
complaining nation could possibly be authorized to suspend
concessions or obligations to the other nation under the
GATT, provided that two substantive conditions are
fulfilled, namely, (a) the circumstances are serious enough,
and; (b) the proposed suspension is appropriate. Now, as
mentioned before, retaliation could be authorized only by
‘positive’ consensus, i.e., to say that every single
contracting party, including the parties to the dispute, had
the chance to block the decision by voting against it. As a
result, the losing party could effectively veto any proposal
for suspending concessions, rendering the authorization of
the retaliation being rare. In the entire history of the
GATT, the only case of an authorized suspension was 1952
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United States Import Restrictions on Dairy Products case (hereinafter
‘Dairy Products’ case), whose decision allowed the Netherlands
to impose discriminatory quantitative restrictions on the
United States exports of wheat flour. The retaliation had
been provoked by an admittedly illegal United States quota
on dairy products. Now, the decision was adopted with both
parties to the dispute abstaining. Later on, Netherlands had
renewed the authorization of the suspension once a year for
seven years, but it never enforced the quota, arguably
because the retaliatory restriction itself was of no help in
persuading the U.S. Congress to repeal the dairy product
quotas and even if the restriction had been enforced, it
would require the Netherlands to buy more expensive wheat
flour from someone else.
With the WTO coming into being, the Dispute Settlement
Understanding (DSU) also came into picture which included
within its purview all covered agreement and laid down the
rules and procedures for settlement of the disputes under
the WTO. There are two major differences between GATT and
WTO which needs to be mentioned herein. Firstly, under
Article XXIII: 2 of GATT, the provision states that the
contracting parties “may” authorize suspension of
concessions if the circumstances are “serious” enough, and
in so far as the measures are considered “appropriate”. On
the other hand, DSU states that after a reasonable period of
time has elapsed the DSB “shall grant authorization to
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suspend concessions or other obligations”. Thus, the new
procedure indicates that it has to be followed mandatorily
and also points towards removal of discretion to resist a
suspension in “inappropriate” or less serious cases.
Secondly, there are differences in the extent or level of
countermeasures. While under the GATT the level of
countermeasure was to be “appropriate” to the level of
nullification or impairment, under the DSU, the term used
has been “equivalent”. Thus, DSU imposes a strict standard
of equivalence between damage incurred and the level of
countermeasures.12
Now, Article XXII:3 of the DSU provides a hierarchy of
remedies namely ‘parallel’ retaliation, ‘cross-sector’
retaliation and ‘cross-agreement’ retaliation. In principle,
the complaining party should first seek to suspend
concessions within the same sector where a violation is
found (the ‘parallel retaliation’); if that party considers
that it is not practicable or effective to suspend
concessions within the same sector, it may continue to seek
suspension of concessions in other sectors under the same
agreement (the ‘cross-sector’ retaliation); if it is not
practicable or effective to implement ‘cross-sector’
retaliation, when the circumstances are serious enough, that
12 Asim, Imdad Ali, Non-Compliance and Ultimate Remedies under the WTO Dispute Settlement System, Journal of Public and International Affairs, Volume 14/Spring 2003, http://www.princeton.edu/jpia/past-issues-1/2003/1.pdf (Last Visited Sept. 11, 2014)
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party may further seek to suspend concessions under another
WTO agreement (the ‘cross-agreement’ retaliation). Both
‘cross-sector’ and ‘cross-agreement’ retaliation are
collectively referred to as cross-retaliation. Thus, the
first and foremost role of such sanctions under the DSU is
to ensure compliance. This is also clear from the fact that
Article III:7 of the DSU also provides that ‘the first
objective of the dispute settlement mechanism is usually to
secure the withdrawal of the measures concerned’. Article
22.8 DSU implicitly corroborates the goal of WTO suspension
– only in case that the illegality is removed or a
settlement is found, should the suspension be removed 13
In other words, one can say that the movement from GATT to
WTO has been one from regarding retaliation as aimed at
rebalancing or compensation in GATT to inducing compliance
or sanction in the WTO.
13 YE Siyu, The Legal Analysis of the Cross retaliation Under the WTO Framework,http://lib.ugent.be/fulltxt/RUG01/002/061/021/RUG01-002061021_2013_0001_AC.pdf (Last Visited Aug. 29, 2014)
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Chapter III: Legal Framework and Anomalies under the Law
3.1 Introduction:
The WTO Dispute Settlement system is administered by the
Dispute Settlement Body which has the authority to establish
Panels (the referral of a dispute to adjudication) and to
adopt reports of the Panel and the Appellate Body (which
hears appeal from the Panel) under the Understanding on
Rules and Procedures Governing the Settlement of Disputes.
Further, it has the authority to do surveillance of
implementation of rulings and recommendations and to
authorize suspension of concessions and other obligations
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under the covered agreements. Now, therefore the two main
bodies of the DSB are the Panel and the Appellate Body.
However, before approaching the Panel, the parties are given
the freedom to negotiate among themselves so as to settle
the dispute and this process is called consultation.
3.2 Consultation:
The Understanding on Rules and Procedures Governing the
Settlement of Disputes lays down the procedures for the
settlement of disputes and Article 4 provides for the
process of settlement of disputes through Consultation. A
particular country may ask for consultations with another if
the complaining country believes that the other country has
violated a WTO agreement or otherwise nullified or impaired
the benefits accruing to it. Now, the objective of the
consultation stage is to enable the disputing parties to
understand the factual situation and the legal claims
pertaining to the dispute and to resolve the matter without
further proceedings. However, if consultations fail and
consequently the dispute is not resolved within 60 days of
the request for consultations, then the complaining country
may request the WTO Dispute Settlement Body, which is
composed of all WTO members, to establish a panel to decide
on the dispute.14 If requested, the Dispute Settlement Body
(DSB) is required to establish a panel no later than the14 Article 4.7 of the Understanding on Rules and Procedures Governing the Settlement of Disputes.
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second meeting at which the request for a panel appears on
the agenda, unless there is a consensus in the DSB to the
contrary.15 Thus, unless the member requesting the
establishment of a panel consents to delay, a panel will be
established within approximately 90 days of the initial
request for consultations.
3.3 Panel:
Once the panel is established by the DSB, it is necessary to
select the three individuals who will serve as panelists. If
the parties cannot agree on the identity of the panelists
within 20 days of the panel's establishment, any party to
the dispute may request the WTO Director-General to appoint
the panel. After completing the fact-gathering and argument
phase, the panel issues its "interim report", which contains
its findings and recommendations. Parties are allowed to
then comment on some aspects of the interim report. In light
of the comments received, the panel then issues its final
report.16
Now, one thing to be noted here is that the WTO Panel has
Substantive as well as Implied or Incidental Jurisdiction.
Article 3.2 provides that the jurisdiction of the Panel is
15 Article 6 of the Understanding on Rules and Procedures Governing the Settlement of Disputes.16 William J. Davey, Implementation in WTO Dispute Settlement: An Introduction to the Problems and Possible Solutions, http://www.rieti.go.jp/jp/publications/dp/05e013.pdf (Last Visited Aug. 29, 2014)
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limited to claims under the WTO covered agreement. Further,
as per Article 7.1 of the DSU, the standard terms of
reference of the WTO panels are:
“to examine, in the light of the relevant provisions,
the matter referred to the DSB and to make such
findings as will assist the DSB in making the
recommendations or in giving the rulings provided for
in the covered agreements.”
Finally, Article 11 provides that the Panel is to “make an
objective assessment of the applicability of and conformity
with the relevant covered agreements and make such other
findings as will assist the DSB in making the
recommendations or in giving the rulings provided for in the
covered agreements.” Apart from this, incidental or implied
jurisdiction is also inherent in the mandate of the WTO
panels. Elements of the incidental jurisdiction are the
jurisdiction to (a) interpret the submissions of the parties
in order to isolate the real issues in the case and to
identify the object of the claim; (b) to determine whether
one has substantive jurisdiction to decide a matter; (c) to
decide whether one should refrain from exercising validly
established substantive jurisdiction.17
17 Joost Pauwelyn, The Role of Public International Law in the WTO: How Far Can We Go?,http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=1065&context=faculty_scholarship (Last Visited Aug. 29, 2014)
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Again, the DSU provides that a panel’s final report is to be
circulated to WTO members within nine months of the panel’s
establishment. The final report is then referred to the DSB
for formal adoption, which is to take place within 60 days
unless there is a consensus not to adopt the report or an
appeal of the report to the WTO Appellate Body.
3.4 Appellate Body:
The WTO Appellate Body, which consists of seven individuals,
is appointed by the DSB for four-year terms. Further, the
Appellate Body is required to issue its report within 60 (at
most 90) days from the date of the appeal, and its report is
to be adopted automatically by the DSB within 30 days,
absent consensus to the contrary.18 Once it is found that a
measure is inconsistent with a covered agreement, the
Appellate Body then as per Article 19 is to recommend that
the Member concerned is to bring the measure into conformity
with the respective agreement. Finally, the final phase of
the WTO dispute settlement process is the surveillance of
implementation stage. This is to ensure that the
recommendations of the DSB are implemented and in order to
ensure effective resolution of disputes to the benefit of
all members.19 If a panel finds that an agreement has been
violated, it typically recommends that the defaulting WTO18 Article 17 of the Understanding on Rules and Procedures Governing theSettlement of Disputes.19 Article 21 of the Understanding on Rules and Procedures Governing theSettlement of Disputes.
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member concerned brings the offending measure into
conformity with the WTO obligations. As per Article 21.3 of
the DSU, under the DSB’s surveillance function, the
defaulting member is required to state its intentions with
respect to implementation within 30 days of the adoption of
the applicable report(s) by the DSB. While members virtually
always express their intention to implement, they typically
indicate that the immediate implementation is impractical,
which means that under the DSU they are to be afforded a
reasonable period of time for implementation. Absent
agreement, that period of time may be set by arbitration,
and the DSU provides. If a party fails to implement the
report within the reasonable period of time, the prevailing
party may request compensation. If that is not forthcoming
within 20 days of the expiration of the reasonable period of
time, it may then request the DSB, within 30 days of said
expiration, to authorize it to suspend concessions owed to
the non-implementing party (i.e. take retaliatory action or
sanctions). Now, suspension of concession is said to be only
temporary and is to be applied only until the inconsistency
of the measure is removed.20
3.5 Authorization and Retaliation:
20 William J. Davey, Implementation in WTO Dispute Settlement: An Introduction to theProblems and Possible Solutions,http://www.rieti.go.jp/jp/publications/dp/05e013.pdf (Last Visited Aug.29, 2014)
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The request for authorization to retaliate must meet the
basic minimal requirements of form. It must identify
basically two aspects:
(a) A specific level of suspension of concessions and
other obligations sought; and
(b) The agreement and sector under which concessions
or other obligations would be suspended.
This is required to examine as to whether the legal
requirements regarding the permissible magnitude and form of
retaliation have been complied with.21 Now, under the DSU,
Article 22.3 provides a hierarchy of sanctions which are
retaliation remedies, namely, ‘parallel’ retaliation,
‘cross-sector’ retaliation and ‘cross-agreement’
retaliation. In principle, the complaining party should
first seek to suspend concessions within the same sector
where a violation is found (the ‘parallel retaliation’); if
that party considers that it is not practicable or effective
to suspend concessions within the same sector, it may
continue to seek suspension of concessions in other sectors
under the same agreement (the ‘cross-sector’ retaliation);
if it is not practicable or effective to implement ‘cross-
sector’ retaliation, when the circumstances are serious
enough, that party may further seek to suspend concessions
21 CHAD P. BROWN AND JOOST PAUWELYN, THE LAW, ECONOMICS AND POLITICS OFRETALIATION IN WTO DISPUTE SETTLEMENT, 94, Cambridge University Press,UK 2010.
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under another WTO agreement (the ‘cross-agreement’
retaliation). Both ‘cross-sector’ and ‘cross-agreement’
retaliation are collectively referred to as cross-
retaliation. The primary purpose of the retaliation/cross-
retaliation is to induce compliance as implied in Article 22.1
DSU, providing that the suspension of concessions or other
obligations are temporary measures available in the event
that the recommendations and rulings are not implemented
within a reasonable period of time. Article 3.7 DSU also
provides that ‘the first objective of the dispute settlement
mechanism is usually to secure the withdrawal of the
measures concerned’. Article 22.8 of the DSU implicitly
corroborates the goal of WTO suspension – only in case that
the illegality is removed or a settlement is found should
the suspension be removed.
Further, Article 22.4 DSU provides that ‘the level of the
suspension of concessions shall be equivalent to the level
of the nullification or impairment’. The proposed suspension
is thus subject to the multilaterally controlled
‘equivalence’ standard examined by arbitration in line with
Article 22.6 DSU.22
3.5.1 Authorizing Procedure:
22 YE Siyu, The Legal Analysis of the Cross retaliation Under the WTO Framework,available at http://lib.ugent.be/fulltxt/RUG01/002/061/021/RUG01-002061021_2013_0001_AC.pdf (Last Visited Aug. 29, 2014)
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Article 22 of the DSU provides the main procedural stages to
be followed by a requesting party when it seeks to cross-
retaliate. If the losing party does not bring the contested
measure into compliance within a reasonable time after the
adoption of Panel or Appellate Body report, a mutually
acceptable compensation might be first considered. If no
satisfactory compensation is agreed, then a request can be
filed to seek authorization of parallel, or cross-
retaliation. For the purpose of counterbalance, the losing
party is conferred the right to make objection to the level
of suspension proposed, or to claim that the principles and
procedures set forth in Article 22.3 DSU have not been
followed in the form of arbitration.
The role of Arbitrator in this regard has been explained
under Article 22.7 of the DSU. It explains that the role of
Arbitrators is mainly to:
(a) to determine whether the alleged level of
‘suspension or other obligations’ is equivalent to the
level of ‘nullification or impairment’.
(b) to examine whether the principles and procedures
set forth in Article 22.3 DSU have been followed.
Now, as per Article 22.3 of the DSU, it is evident that
as a general rule the complaining party should first seek
to suspend concession or other obligations with respect
to the same sector as that in which the Panel or43 | P a g e
Appellate Body has found a violation or other
nullification or impairment. However, if Parallel
retaliation is not practicable to induce compliance then
cross sector retaliation and if cross sector is not
practicable or effective and the circumstances are serious
enough then cross-agreement retaliation.
Further, under Article 22.3 (d) of the DSU there are
factors which the parties shall take into account like:
(a) the trade in question and the importance of such
trade to the requesting party, and;
(b) the broader economic elements related to the
Nullification or Impairment and the broader economic
consequences of suspension.
3.5.2 Nullification or Impairment:
The concept of “nullification or impairment appears in
Article XXIII of the GATT and Articles 3.8 and 22 and 23 of
the DSU. Now, Article 22.4 of the DSU provides that the
level of the suspension of concessions or other obligations
authorized by the DSB shall be equivalent to the level of
the nullification or impairment. This means that one has to
determine the ‘level’ of suspension of concession and that
this level should be ‘equivalent’ to the level of
Nullification or Impairment. Now, the term ‘equivalent’ has
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not been defined under the DSU. However it has been
interpreted in the case of E.C. Bananas23 to mean a
correspondence, identity or balance between two related
levels. It therefore means that the level of Nullification
or Impairment should be equal to the level of retaliation.
3.5.2.1 Determining Nullification or Impairment:
Now, determining the level of nullification or impairment is
also an important task and the arbitrators in the past have
done this through the use of so called ‘counterfactual situations’
(i.e., a hypothetical state of affairs that would have
existed if the defending party had complied with its
obligations). For example, in E.C. Hormones24 case, the
arbitrators made a series of assumptions on what U.S. and
Canadian exports of hormone-treated beef to the EC would
have been if the EC had withdrawn its ban. The
counterfactual included assumptions on issues such as trade
volumes, price, and the division of market share between
Canada and the United States. It basically compared, on an
annual basis, (a) the value of the beef exports under the
current WTO-inconsistent EC regime, with (b) the value of
the beef exports which would have occurred in a WTO-
consisted EC import regime.
23 DS2724 DS26
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Another significant case in this regards is that of U.S.
Gambling25 case. In this case, the Arbitrator had selected a
counterfactual in which only the horseracing sector of the
US remote gambling market was opened up to foreign
suppliers. Now, in this case, as per the counterfactual used
by the arbitrators, the level of nullification or impairment
was found to be US$21 million per year, while as per the
counterfactual proposed by Antigua the level should have
been more than $3 billion a year. In this case, the
arbitrators had to actually select between three proposed
counterfactuals as mentioned below:
(a) A Counterfactual proposed by Antigua, in which the
entirety of the US remote gambling market was opened up
to foreign suppliers.
(b) A counterfactual mentioned by US, in which the US
implemented a ban on the provision of remote gambling
services in all sectors.
(c) A counterfactual proposed by US in which the US
permitted the provision of remote gambling services in
the horseracing sector but not in other sectors.
Now, the majority of the arbitrators had opted for the third
counterfactual.
Another aspect to be considered in this process of
determining nullification and impairment is that arbitrators25 DS285
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also have to make assessments of whether there is a causal link
between a claimed loss and the underlying violation. Generally, only
losses caused by the violation will be considered in the
calculation of nullification and impairment. Some of the
cases mentioned below are an illustration of this:
(a) Canada – Aircraft case: Brazil had argued that if
Canada had withdrawn the export subsidies at issue, a
customer would have switched its sourcing and purchased
aircraft from a Brazilian manufacturer, The Arbitral
Panel had concluded that there was no demonstrated
causal link between his loss and the grant of export
subsidies by the Canadian Government.
(b) US- Gambling Case: US argued that Antigua’s
estimates of nullification and impairment improperly
attributed all of the revenue lost by the Antiguan
suppliers to the effects of the US measures without
factoring in the impact of the increased competition
from suppliers located in other countries. Based on the
evidence submitted, the Arbitral Panel agreed with the
objection. Accordingly, estimates of remote gambling
revenues lost by Antiguan suppliers were adjusted to
account for losses that could not be attributed to the
US measures but instead to increased competition from
non-Antiguan suppliers.
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(c) EC-Hormones Case: In this case, the US had argued
that if the EC had lifted its import ban, US exporters
would have embarked on marketing and promotional
efforts and these promotional efforts would have led to
increased exports of edible beef offal worth 20.1$
million. The Arbitral Panel however refused to include
these marketing effort driven additional exports in its
calculations, reasoning that taking these exports into
account would be too speculative.26
3.6 Types of Sanctions/Retaliations:
As mentioned earlier, the Dispute Settlement Understanding
provides for 3 ways of suspending concessions or other
obligations. Article 22(3) of the DSU provides as follows:
“In considering what concessions or other obligations to
suspend, the complaining party shall apply the following
principles and procedures:
(a) The general principle is that the complaining
party should first seek to suspend concessions or other
obligations with respect to the same section(s) that in
which panel or Appellate Body has found a violation or
other nullification or impairment.26 CHAD P. BROWN AND JOOST PAUWELYN, THE LAW, ECONOMICS AND POLITICS OFRETALIATION IN WTO DISPUTE SETTLEMENT, 108-109, CAMBRIDGE UNIVERSITYPRESS, UK 2010.
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(b) If that party considers that it is not practicable
or effective to suspend concessions or other
obligations with respect to the same sector(s), it may
seek to suspend concessions or other obligations in
other sectors under the same agreement;
(c) If that party considers that it is not practicable
or effective to suspend concessions or other
obligations with respect to other sectors under the
same agreement, and that the circumstances are serious
enough, it may seek to suspend concessions or other
obligations under another covered agreement.”
Now, the first remedy i.e., which lies in the same section
(i.e., parallel retaliation) is not an issue if it is
possible. However, issue arises when it is not practicable
or effective to induce such compliance.
Not practicable or effective:
Here, the retaliating party need not show that retaliations
are both not practicable and not effective in order to
satisfy the conditions of Article 22.3 DSU. Accordingly,
even if the retaliation was practicable, still the
retaliating party could show that it would be ineffective in
order to proceed to retaliate under a different agreement.27
27 Mitchell, Andrew D. & Constantine Salonidis, David’s Sling: Cross-Agreement Retaliation inInternational Trade Disputes, 467, Journal of World Trade 45, no. 2(2011)
49 | P a g e
Now, what is practicable and effective has not been defined
under the DSU and each of them has to be examined for a
better understanding. The examination of ‘practicability’
concerns whether the parallel retaliation is available for
application in practice as well as suitable for being used
in a particular case. For example: suppose China’s
commitment in financial service sector under GATs has not
come into force (i.e. China has not opened its market to
foreign financial institutions), but the benefits of Chinese
financial institution in the U.S. are somehow impaired by
the U.S. illegal action. Now, China raises this issue before
the panel. Further, assuming the proceedings have reached
the retaliatory stage. Unfortunately, the parallel
retaliation in financial service sector is not ‘practicable’
for China, since there is no market access for the U.S.
financial institutions at all. The imports volume from the
U.S. relating to the financial services is zero with a
consequence that there is no concession in the same sector
to be suspended.28
Similarly, ‘effectiveness’ means that the impact of a
suspension must be strong and have desired result of
inducing compliance. If the parallel retaliation can
sufficiently achieve the purpose, then there is no
requirement to request for cross retaliation. To give an28 YE Siyu, The Legal Analysis of the Cross retaliation Under the WTO Framework,http://lib.ugent.be/fulltxt/RUG01/002/061/021/RUG01-002061021_2013_0001_AC.pdf (Last Visited Aug. 29, 2014)
50 | P a g e
extreme example, if the offending party, an economy
dependent on exports to the complaining party, violates
certain obligations under the GATT 1994, the parallel
retaliation seems to be sufficient to induce compliance
since it will have a deep and adverse effect on that
country’s economy. Moreover, arbitrators also consider the
observation that the cross-retaliation is least detrimental
to the complaining party itself if actual evidence is
attached.29
In the US-Upland Cotton case, it was observed that:
“A consideration of the ‘effectiveness’ criterion under
these provisions involves an assessment of the effectiveness
– or lack thereof – of suspension in the same sector or
under the same agreement, rather than an assessment of the
relative effectiveness of such suspension, as compared to
suspension in another sector or agreement. In other words,
the procedures and principles under Article 22.3 do not
entitle a complaining party to freely choose the most
effective sector or agreement under which to seek
suspension. Rather, it entitles the complaining party to
move out of the same sector or same agreement, where it
considers that suspension in that sector or agreement is not
‘practicable or effective’.”30
29 Id.30 Mitchell, Andrew D. & Constantine Salonidis, David’s Sling: Cross-Agreement Retaliation in
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Further, it is not expected that developing countries, will
have to prove that practicability or effectiveness does not
exist in all the sectors of the relevant agreement or in
exhaustive detail. For instance, the arbitrators in US-
Gambling had observed that it would not be reasonable to
expect Antigua to be in a position to produce in the context
of the proceedings, such detailed sector-specific statistics
and data relating to its bilateral services trade. Further,
it observed that Antigua may not maintain such data on a
regular basis, in the same way as some developed countries
or larger developing countries may do.31
Circumstances are serious enough:
Now, to retaliate under a different agreement altogether,
the complaining party also needs to show that the
circumstances are serious enough to warrant cross-agreement
retaliation pursuant to Article 22.3(c). Since, the said
Article does not interpret the meaning of ‘seriousness’, the
arbitrators in the U.S. Gambling had adopted a neutral
alternative by seeking contextual guidance as provided under
Article 22.3(d) by considering:
(a) the trade in question and its importance to the
requesting Member, and
International Trade Disputes, 469, Journal of World Trade 45, no. 2 (2011)31 Id.
52 | P a g e
(b) the broader economic elements related to the
nullification or impairment and the broader economic
consequences of the proposed suspension on both
parties.
3.7. Post-Authorization of Suspension of concession or
obligations phase:
Article 22(6), (7) and (8) mainly deal with the process
involved once the authorization has been granted. Article
22(6) of the DSU provides that once the authorization has
been requested and if the member concerned objects to the
level of suspension proposed or claims that the principles
and procedures set forth have not been followed, then the
matter shall be referred to arbitration. Further, such
arbitration shall be carried out by the original panel, if
members are available or by an arbitrator appointed by the
Director General and shall be completed within 60 days after
the date of expiry of the reasonable period of time.
Besides, Article 22(7) provides that the arbitrator acting
pursuant to paragraph 6 shall not examine the concessions or
other obligations to be suspended but shall determine
whether the level of such suspension is equivalent to the
level of nullification or impairment. The arbitrator may
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also determine if the proposed suspension of concessions or
other obligations is allowed under the covered agreement.
However, if the matter referred to arbitration includes a
claim that the principles and procedures set forth in
paragraph 3 have not been followed, the arbitrator shall
examine that claim. In the event the arbitrator determines
that those principles and procedures have not been followed,
the complaining party shall apply them consistent with
paragraph 3. The parties shall accept the arbitrator's
decision as final and the parties concerned shall not seek a
second arbitration. The DSB shall be informed promptly of
the decision of the arbitrator and shall upon request, grant
authorization to suspend concessions or other obligations
where the request is consistent with the decision of the
arbitrator, unless the DSB decides by consensus to reject
the request.
Further, Article 22(8) also provides that the suspension of
concession or other obligations shall be temporary and shall
only be applied until such time as the measure found to be
inconsistent with a covered agreement has been removed, or
the Member that must implement recommendations or rulings
provides a solution to the nullification or impairment of
benefits, or a mutually satisfactory solution is reached.
In accordance with paragraph 6 of Article 21, the DSB shall
continue to keep under surveillance the implementation of
adopted recommendations or rulings, including those cases
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where compensation has been provided or concessions or other
obligations have been suspended but the recommendations to
bring a measure into conformity with the covered agreements
have not been implemented.32
32 http://www.wto.org/english/docs_e/legal_e/28-dsu_e.htm (Last Visited Sept. 04, 2014)
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Chapter IV - Effectiveness of Sanctions in International Law
4.1 Purpose of Sanctions:
To ascertain whether sanctions have played an effective role
in International Law, one needs to first look at the
objectives and the purpose or the legislative intent behind
introduction of the concept of sanctions under the WTO for
the purposes of settlement of disputes and ascertain as to
how far have they been able to achieve the goal. Initially
under the GATT, the goal was towards rebalancing or
compensation while under the WTO, the goal is to induce
compliance or settlement of the dispute. Article 22.1 adds
another sentence that also specifies the temporary nature of
retaliation: neither compensation nor the suspension is
preferred to full implementation of a recommendation. In
short, the temporary nature of suspension of concessions
indicates that the DSU has a strong preference for
compliance and that retaliation is an alternative measure
applied until compliance occurs. This goal of inducing
compliance was also recognized by the arbitrators in para
6.3 of the E.C. Bananas III(US) (Art 22.6-EC) case for the
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first time in history of WTO dispute settlement and has been
repeatedly confirmed by arbitrators in later cases. In the
said case, the arbitrators had stated as follows:
“…the authorization to suspend concessions or other
obligations is a temporary measure pending full
implementation by the Member concerned. . . . this
temporary nature indicates that it is the purpose of
countermeasures to induce compliance. . . . there is
nothing in Article 22.1 of the DSU, let alone in
paragraphs 4 and 7 of Article 22, that could be read as
a justification for counter-measures of a punitive
nature.”
Further, arbitrators in US-Gambling (2007) further confirmed
that the sole goal of WTO retaliation is to ‘induce
compliance’, and held that ‘the very reason for the
existence of countermeasures under the DSU is to induce
compliance with the covered agreement that has not taken
place within the period foreseen in the DSU. Likewise, in
the arbitration decision on Brazil-Aircraft (2000), the
arbitrators discussed the meaning and purpose of
‘countermeasures’ under Article 4.10 of the SCM Agreement for
the first time, stating that they ‘find it more appropriate
to refer to its meaning in general international law and to
the work of the International Law Commission (ILC) on state
responsibility, which addresses the notion of
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countermeasures’. They ‘note that countermeasures are meant
to “induce” [the State which has committed an
internationally wrongful act] to comply with its obligations
under Articles 41 to 46’. Borrowing the meaning and purpose
of countermeasures from general international law, the
arbitrators concluded that ‘a countermeasure is
“appropriate” inter alia if it effectively induces compliance’. They
further pointed out that ‘in such a case, effectively
“inducing compliance” means inducing the withdrawal of the
prohibited subsidy’.33
4.2 Case-Law study on Sanctions:
Now, a study of few cases that have taken so far would help
in understanding as to how far the sanctions have been able
to meet the requisite goal and whether they are an efficient
method of inducing compliance.
European Communities — Regime for the Importation, Sale and
Distribution of Bananas34:
This case dates back to April 1996, when Ecuador, Guatemala,
Honduras, Mexico and the US requested the establishment of
Panel to examine the revised EC regime for the importation,
sale and distribution of bananas established by a Council
Regulation. The Panel held that the EC bananas import regime33 Song Guan, WTO Retaliation Rules in Subsidy-Related Cases: What CanWe Learn from the US-Upland Cotton Arbitration? , 815- 842, Journal of WorldTrade 48, no. 4 (2014)34 DS27
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violated the WTO obligations under the GATT, GATS and the
Agreement on Import Licensing Procedures. The US requested
suspension of concessions under Article 22.2 of the DSU
without requesting a compliance Panel under Article 21.5 of
the DSU. At the same time Ecuador requested a compliance
panel under Article 21.5 which found that the revised EC
regime was not fully compliant. Ecuador then requested for
suspension of concessions against European Communities upto
US$ 450 million. Now, the DSB authorized Ecuador to suspend
US$ 201.6 million. In this case, conditional cross
retaliation was authorized for the first time providing for
retaliation first in GATT and GATTS and then TRIPs. Now,
negotiations were held and US provisionally lifted the
sanctions against the European Communites. Ecuador had never
made use of the option of applying sanctions against the
European Communities on the basis that the harm to the
Ecuadorian economy would outweigh the possible benefit of
persuading the European Communities to comply with its
commitments.35
European Communities – Measures Concerning Meat and Meat Products
(Hormones)36
35 Bernard O’ Connor, Remedies in the World Trade Organization Dispute Settlement System – The Bananas and Hormones Cases, 245-266, Journal of World Trade, 38(2), 200436 DS26
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This case concerns the EC measures prohibiting the
importation of meat and meat products that have been treated
with growth hormones. Accordingly, the EC had decided to ban
all imports of US beef and beef products. Now, the parties
approached the Panel which held that they were not in
conformity with a number of WTO rules. The EC objected to
the conclusions of the panels in September 1997, which were
consequently submitted for review to the Appellate Body
(AB). Now, the Appellate Body held that the EC had provided
‘‘general studies which do indeed show the existence of a
general risk of cancer; but they do not focus on and do not
address the particular kind of risk at stake here’’.
Accordingly, due to the lack of specific scientific
verification for the EC measures, the Appellate Body
recommended the EC to bring its measures into conformity
with its obligations under the SPS Agreement. Now, USA
requested the Dispute Settlement Body (DSB) of the WTO to
authorize the suspension of the application to the EC and
its Member States to tariff concessions covering trade in an
amount of US$202 million per. A similar request was made by
Canada on May 20, 1999 for an amount of CDN$75 million per
year. The EC objected to the level of suspension proposed by
the US and Canada, and, on July 12, 1999, the WTO Arbitrator
determined that the level of nullification or impairment11
suffered by the USA and Canada was US$116.8 million per year
and CND$11.3 million per year respectively. The retaliatory
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measures were set in the same sector as the noncompliance
had taken place, namely in the agricultural sector. The list
of agricultural products for suspension of concessions was
proposed by the USA. However, after a long time of almost
10 years, in the year 2009 a mutually agreed solution was
notified and on 14th April 2014, EU and US notified the DSB
of a revised Memorandum of Understanding entered into
between the two on 21st October 2013.
Thus, in this case even full retaliation did not lead to
compliance, and the retaliation did not and could not
compensate the exporters injured by the measure found to be
WTO-inconsistent.37 Further, sanctions are of no use to the
U.S. beef producers as there are virtually no EC beef
imports to stop.
At present, there is no disincentive for countries to delay
coming into compliance whereas on the other hand there are
all reasons available to delay the same.
United States — Measures Affecting the Cross-Border Supply of Gambling
and Betting Services 38
In this case, Antigua and Barbuda brought a complaint
concerning certain US measures relating to gambling and
37 Gary Horlick & Judith Coleman, The Compliance Problems Of The WTO, Arizona Journal of International and Comparitive Law, Vol 24, No.1, 2007, http://www.ajicl.org/AJICL2007/Horlick%20article.pdf (Last VisitedSept. 11, 2014)38 DS285
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betting services including federal laws such as Wire Act,
Travel Act and Illegal Gambling Business Act. According to
Antigua, these measures prohibited cross-border supply of
gambling and betting services to consumers in U.S. and thus
violated the U.S. market access commitments under the GATS.
After fruitless consultation, the matter was considered by
the Panel and then finally by the Appellate Body. The Panel
found out that the US GATS schedule included under sub-
sector 10.D on ‘other recreational services’, specific
commitments on gambling and betting services. Further, US
acted inconsistently with Article XVI:I and sub-paras (a)
and (c) of Article XVI:II by maintaining certain limitations
on market access not specified in its schedule. Finally,
although measures at issue are justified under Article XIV
(a) as measures ‘necessary’ to protect public morals or
maintain public order, they are inconsistent with the
chapeau of Article XIV. In particular, in the light of the
Interstate Horsing Act (which appeared to authorize domestic
operators to engage in the remote supply of certain betting
services), the US failed to demonstrate that its
prohibitions on remote gambling applied to both foreign and
domestic service suppliers, i.e., in a manner that did not
constitute arbitrary and unjustifiable determination within
the meaning of the chapeau. As confirmed by the Compliance
Panel, the US has not implemented the adopted rulings. Thus,
Antigua requested authorization from Dispute Settlement Body
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to suspend its concession and related obligations vis-à-vis
US in amount of USD 3.443 billion per year. Antigua
initially sought to retaliate under GATS and TRIPS
Agreement, but ultimately limited its request to TRIPS
retaliation only. The arbitrators firstly established that
the parallel retaliation in the same sector (that is,
‘Recreational, Cultural and Sporting Services’) under the
GATS was not practical or effective because the only trade
within this sector under the GATS that Antigua had made
commitments on was Entertainment services. The suspension in
this sector would adversely affect Antiguan citizens, i.e.
limiting entertainment options available, while having
virtually no impact on the U.S., due to Antigua’s negligible
trade volume. Antigua continued to argue that it heavily
relied on imports of products and services sourced from the
U.S. by virtue of the fact that it is a small island with
limited natural resources, so that raising tariff on
products or limiting the provision of services would have ‘a
disproportionate adverse impact on Antigua by making these
products and services materially more expensive to the
citizens of country. Therefore, it was not practicable or
effective for Antigua to take the cross-sector retaliation
in other sectors under the GATS. Finally, TRIPS was selected
as the sector to be targeted. The target areas were
copyright, Industrial Design, Patent and protection of
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undisclosed information under TRIPS. The assessment of
Arbitrators was in 4 steps:
(a) Establishment of workable assumption about
Antigua’s revenues from exports of remote gambling
services to US
(b) Adjustment of ‘this time series for apparent
impact of competing suppliers’
(c) Determination of plausible share of betting
service on horse racing in Anitgua’s total
revenues from remote gambling
(d) Consideration of developments in US demand
for gambling services on horse racing.
Further, it was estimated that an estimated annual revenue
loss by Antigua from gambling on horse racing would be USD
18 million and USD 14 million respectively. Finally
considering growth in US demand for gambling on horse racing
services, the arbitrators increased the figures to USD 23
million and USD 18 million. Taking average of figures and
rounding off to next full million, the Arbitrators concluded
that the annual level of nullification or impairment of
benefits was USD 21 million.39
However, this authorization has not been used so far by
Antigua and Barbuda. Antigua is of the view that ceasing all39 YE Siyu, The Legal Analysis of the Cross retaliation Under the WTO Framework, http://lib.ugent.be/fulltxt/RUG01/002/061/021/RUG01-002061021_2013_0001_AC.pdf (Last Visited Aug. 29, 2014)
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trade with the United States would have virtually no impact
on the economy of the United States, which could easily
shift such a relatively small volume of trade elsewhere.
Since the threat of the traditional retaliation really
depends on the market size and trade volume of the
retaliating country in relation to the non-complying
country, the traditional retaliation will be of no help for
developing countries in face of considerably larger
economies.40
United States — Subsidies on Upland Cotton 41:
In this case, the complainant, Brazil argued that the
subsidies amounting to US$ 12.9 billion paid to the US
farmers growing upland cotton during the 1999-2002 period
and others mandated through to 2007 by the US Farm Bill
violated the WTO rules. Such subsidies as per Brazil
increased the production of high cost US upland cotton,
increased its export and suppressed the prices in the US,
the World and Brazil. Brazil argued that the US cotton
subsidy programmes caused ‘serious prejudice’ to the
interests of Brazil, contravening Article 5(c) of the
Subsidies and Countervailing Agreement which provides that
no member should cause adverse effects to the interests of
other members. Brazil further argued that the US cotton step
2 programme and US export credit guarantees for all40 Id.41 DS267
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commodities were prohibited subsidies under Article 3 of the
Subsidies and Countervailing Agreement. The Panel ruled
largely in favour of Brazil. It charged the US for
practicing trade distorting measures like marketing loans,
market loss assistance and counter cyclical payments and for
wrongly classifying direct payments on cotton. The Panel
also judged that the US Domestic Support measures caused
‘serious prejudice’ to Brazilian interests. The Panel
therefore asked the US to withdraw these subsidies entirely
or to take appropriate steps to negate its adverse effect.
Consequently, US appealed before the Appellate Body and the
Appellate Body issued its report on 3rd March 2005,
upholding the Panel’ ruling on all major points of the
dispute. With respect to the ‘serious prejudice’, the
Appellate Body upheld the Panel’s finding that the
challenged price-contingent subsidies caused significant
price suppression within the meaning of Article 6.3(c) of
the Subsidies and Countervailing Agreement. In August 2009,
the WTO Arbitration Panel was assigned to determine the
level of retaliation and it announced that Brazil’s trade
countermeasure against US goods and services could include:
(a) a fixed amount of $147.3 million in response to the US
Cotton programme or (b) a variable amount based on guarantee
program spending. It also ruled that Brazil would be
entitled to cross-retaliation if overall retaliation amount
exceeded a formula based variable annual threshold. Brazil
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had requested to suspend concessions or other obligations
under GATT 1994 and the GATS and TRIPS agreements. The
arbitrators differentiated between two different kinds of
goods, namely, the ‘capital goods, intermediate goods and
other goods’ that constituted inputs into Brazil’s economy
and ‘consumer goods’. The arbitrators held that suspension
of concessions or other obligations in relation to imports
of capital, intermediate or other essential inputs would
harm Brazil’s domestic economy, and was therefore not
practicable or effective. However, considering the total
amount of consumer goods Brazil imported from the US in
2007, the arbitrators ruled that there was no basis for
Brazil to determine the suspension of concession or other
obligations in the entire range of consumer products to be
impracticable or ineffective. After careful calculation, the
arbitrators held that there were enough imports of consumer
goods for Brazil to target to retaliate without causing
‘serious and unreasonable cost’ to itself.42
Now, the authorization granted to Brazil can be seen to have
induced settlement of the dispute between Brazil and the US.
On 21 December 2009, Brazil announced its intention to
impose retaliatory trade sanctions against US goods and
services in 2010 amounting to USD 829.3 million. Brazil also
announced a preliminary list of US patents and intellectual
42 T.B. Simi, Brazil-US Upland Cotton Dispute What does it Augur for Agricultural Subsidies?,http://www.cuts-citee.org/pdf/TLB05-02.pdf (Last Visited Sept. 09, 2014)
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property rights it might restrict. The threat of trade
retaliatory measures eventually had an effect. On 20 April
2010, Brazil and the US signed a Memorandum of Understanding
establishing a USD 147.3 million annual fund for technical
assistance and capacity-building for Brazil’s cotton
sector.43
However, this case brought out an issue regarding the
‘reasonable period of time’ in respect to compliance. The
reasonable period of time for the US to repeal the Step 2
payments expired on 1 July 2005.The US did not actually
withdraw the subsidies until 31 July 2006, before the
establishment of the compliance panel. In response, Brazil
sought a one-time countermeasure for the failure to comply.
However, the arbitrators rejected the claim on the basis of
the absence of a multilateral determination of non-
compliance and the fact of the non-compliance had ceased.
They also took into consideration the temporary nature of
countermeasures aimed at inducing compliance. They believed
that once such an objective had been achieved, past
incompliance should not be retrospectively punished in the
form of ‘one-time countermeasures’, even if the reasonable
period of time is not respected Now, If this view is
followed, we cannot avoid the question that if a Member can
escape being punished by withdrawing the inconsistent43 Song Guan, WTO Retaliation Rules in Subsidy-Related Cases: What Can We Learn from the US-Upland Cotton Arbitration? , 815–842, Journal of World Trade 48, no. 4 (2014)
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measures before the compliance panel determination, does the
reasonable period of time still have meaning? Under such
circumstances, the reasonable period of time for compliance
is automatically postponed to the time of establishing the
compliance panel.44
Brazil – Export Financing Programme For Aircraft45:
The case pertains to “PROEX”, an export financing support
programme of Brazil which was created by the Government of
Brazil and provides export credits to Brazilian exporters
either through direct financing or interest rate
equalization payments. Canada approached the Panel
contending that it was prohibited export subsidy. Now, in
this case at the final stage, DSB gave Canada authorization
to suspend tariff concession up to 100 percent surtax
on selected imports from Brazil. However, Canada did not
retaliate.
One of the reasons was that Canada imported goods from
Brazil amounting to approximately $1.5 billion per year, the
majority being primary materials, agricultural and low-
technology goods. Now, agricultural products were also
included among the imports that would be aggrieved if Canada
imposed a 100 percent punitive tariff as retaliation.
Further, some domestic industries such as industries of iron
44 Id.45 DS46
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products, textiles and low technology products were also
affected industries if Canada imposed a 100% punitive
tariff. On the other hand, Brazil would be able to clear
these products through other international markets, in the
light of the relatively limited quantities sold into Canada
and thus it would be Canada who would be adversely
affected.46
United States — Continued Dumping and Subsidy Offset Act of 200047:
In this case, the Byrd Amendment was a US law providing for
distribution of import duties collected as a result of
antidumping and countervailing duty among the petitioners in
a case. Now, this Act was successfully challenged before the
WTO Panel and the Appellate Body. Eight complainants sought
retaliation and were consequently authorized to retaliate
against US. But only the European Community, Canada, Japan
and Mexico actually implemented the authorized retaliation,
while, all the other developing countries, including Brazil,
Chile and India, gave up in the end. They were fully aware
of the potential risks that the suspension of concessions in
trade in goods would bring about irreparable damages to
themselves in the light of the imbalance of trade volume.
46 Intan Innayatun Soeparna, The Impact Of The WTO Retaliation From The Perspective ofHuman Rights Law, http://www.academia.edu/6141386/THE_IMPACT_OF_THE_WTO_RETALIATION_FROM_THE_PERSPECTIVE_OF_HUMAN_RIGHTS_LAW (Last Visited Sept. 10, 2014) 47 DS217
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Thus, an analysis would show that either the countries have
taken too much time in complying or the complaining
countries despite being authorized have restrained
themselves from imposing sanctions for one reason or the
other.
4.3 Advantages and Disadvantages of sanction:
Now, before analyzing the effectiveness of sanctions, it
would be essential to see some of the advantages and
disadvantages sanctions have as per various trade law
experts. Some of the advantages are:
Medium to show discontent and seek redressal:
One of the purposes served through sanctions is said to be
that it provides a platform for the complainant to signal
its outrage, placate the injured domestic constituency, and
close the chapter so that it can move on.
Acts as an external pressure to change internal laws
and policies:
Being retaliated against can also be useful for the
defendant government by giving it leverage at home to change
the law. The threat of sanctions changes the domestic
political scenario; however, by catalyzing the forces who
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would be hurt by the retaliation and who therefore lobby for
the required policy change.
Improves the stature of WTO:
Giving the WTO teeth improves its stature among
international organizations and engenders respect for it.
The availability of trade sanctions can be said to be a key
factor in the high number of complaints that have been
brought to the DSB.48
On the other hand, some of the Disadvantages of sanctions in
International Law are:
No Relief to Private Actors:
The DSB has no requirement that the sanctioning country
choose categories that will help the complaining private
economic actors. Indeed the DSU (unlike some other WTO48 Steve Charnovitz, Should the Teeth Be Pulled? A Preliminary Assessment of WTO Sanctions, http://www.iatp.org/files/Should_the_Teeth_Be_Pulled_A_Preliminary_Asses.pdf (Last Visited Aug. 29, 2014).
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Agreements completely ignores the complaining industry. One
could imagine a requirement that any import duties collected
in trade sanctions be paid to the complaining industry, but
the DSU does not do that.
Reverse Effect:
One of the biggest disadvantages of WTO sanctions is that
they are badly aimed. For example, in the hormones cases,
the United States and Canada imposed high tariffs on EU
exports which frustrate domestic users who suffer a loss of
choice and probably have to pay higher prices for substitute
products. The sanctioning country does entail some overall
efficiency losses, and could end up getting hurt as much or
more than the target country.
Against the basic concept of Free Trade:
In approving trade sanctions for commercial reasons, the WTO
undermines its own principles in favor of trade. When the
importing nation is voluntarily imposing the tariff, it is
making a statement that such tariffs are welfare-enhancing.
Thus, free trade which is said to be propagated by the WTO
as its main objective per se is seemed to be hit by
sanctions.
Undermines Intellectual Property Rights:
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In many cases, it has been seen that for cross-retaliation,
that intellectual property rights as the sector to retaliate
has been allowed. One thing to be kept in mind is that the
suspension of obligations under the TRIPS Agreement (the
Agreement on Trade-Related Aspects of Intellectual Property
Rights) interferes with private rights owned by natural or
legal persons and should not therefore be taken lightly.
Adversely effects Human Rights:
Trade sanctions also adversely effects Human Rights in both
the violating country and the country imposing sanctions.
The freedom to engage in voluntary commercial intercourse is
a basic human right that the WTO/DSB pays no attention to in
authorizing trade sanctions. In the process, the DSB does
not even take into account the impact on innocent
individuals.
Favors Larger Economies:
One of the disadvantages of sanctions as per the trade law
experts is said to be that it favors large economies. A
small country may cause a small amount of “nullification or
impairment” and therefore the sanction against it would be
small. As a plaintiff, a smaller country would not be able
to inflict much harm upon a larger country.49
49 Id.74 | P a g e
Chapter V – Conclusion and Suggestions
5.1 An Analysis of the Effectiveness of Sanctions:
Based on the study of sanctions and how they have been used
in various cases, one can conclude that the Adjudicating
Bodies have tried to use sanctions to inducing compliance by
countries that have violated their obligations under the
respective agreements. However, it is also clear that it has
not been successful to a major extent and carries with it
certain major glitches pertaining to the following aspects:
o Developing Countries:
From a study of cases in the preceding chapters it is clear
that the developing countries have been reluctant in
implementing retaliatory measures despite being authorized
by the DSB to do so. At the maximum, these countries like
Brazil, Ecuador, Antigua and Barbuda have threatened to
impose them but have not done so. Ecuador and Anitgua and
Barbuda had obtained rights to cross-retaliate in the sector
of intellectual property rights. Now, the reason behind the
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reluctance shown by the developing countries is that
retaliatory measures would adversely affect the developing
countries more than it would affect the violating countries.
Say for instance, an import tariff on a small country pushes
up its domestic import price, which in turn leads to higher
domestic production and less consumption on the
importable. Without a doubt, such a small country bears
a dead weight loss due to both production and consumption
distortions. Therefore, this term will aggravate domestic
users, who suffer a loss of choice and probably have to pay
higher prices for substitute products; otherwise if
a small country is retaliated, the import tariff will boost
the price of exported product, which means domestic
users particularly in a large country will acquire
substitute product from different exporter country but at
less price. Furthermore, the competition among exporters
from developing countries is fierce, since developing
countries are typically exporting similar products.50
In E.C. Bananas and E.C. Hormones case, the US government
had imposed high tariffs on imports from E.C. But, this
frustrated even the domestic users in the US who had
suffered loss of choice and had to pay higher price for
substitute products.
50 Intan Innayatun Soeparna, The Impact Of The WTO Retaliation From The Perspective ofHuman Rights Law,http://www.academia.edu/6141386/THE_IMPACT_OF_THE_WTO_RETALIATION_FROM_THE_PERSPECTIVE_OF_HUMAN_RIGHTS_LAW (Last Visited Aug. 10, 2014)
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o Against the Basic Concept of Free Trade:
One of the negative features of sanctions is that it
encourages trade discrimination and is thus against the
concept of free trade. The basic postulate on which the WTO
seems to work is to reduce trade barriers and ensure free
trade among its members. Further, it undermines the WTO as a
rule based system. If the illegal act of one party is met by
an authorization for another party to reciprocate with
another illegal act, then it is like deviating from the
basic rule of law.51
o TRIPS or other sectors:
Now, as discussed in the preceding chapters, a party has the
option to cross-retaliate as well that is to say,
retaliation under another WTO agreement. Now, some consider
it advantageous as by the possibility of suspending under
TRIPS, small countries might gain leverage over large
countries and induce compliance through a sanction that
minimizes damage to its own economy. However, as mentioned
in the preceding para, this is against the rule of law.
Further, it amounts to disregarding multilateral treaties on
intellectual property.52
Besides, in cross retaliation, innocent private parties have
to face the rod for no wrong on their part51 Steve Charnovitz, Rethinking WTO Trade Sanctions,http://www.jstor.org/stable/pdfplus/2674626.pdf (Last Visited Aug. 27,2014).52 Id.
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Further, for instance, assume that a retaliatory member
suspends its copyright obligations under TRIPS by uploading
on websites, downloadable movies of the targeted country
either at discounted prices or for free as a part of
retaliation. Now, the fact that such products will be
accessible all around the world, the complexity arises
regarding how a retaliating Member will ensure that the form
of suspension corresponds to the level of nullification or
impairment.53
5.2 Suggestions for reforms:
Compensation and Imposing fines:
While retaliation seems to work when threatened by a large
country against a smaller one, and has worked as between two
large countries, it may not be an effective remedy for a
small country. One obvious possible change would be to
provide for the payment of fines or damages. One obvious
problem would be the disparity in fine-paying ability among
WTO Members. The system would have to be designed to avoid
the possibility that rich Members could effectively buy
their way out of obligations in a way not available to the
poor Members. One alternative would be to tie the amount of
fines to the size of the Member’s economy, or otherwise
53 SHERZOD SHADIKHODJAEV, RETALIATION IN THE WTO DISPUTE SETTLEMENT SYSTEM, 93, KLUWER LAW INTERNATIONAL, NETHERLANDS, 2009.
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provide for a sliding scale that would minimize
“discrimination” against poor Members. To avoid the
perception that the payment of fines is simply an
alternative to compliance, the fines could be assessed
annually (or on some other periodic basis) and could be
increased over time. Such a system could serve as a method
of rebalancing if the fines are paid to the Member owed
compliance and could promote prompter compliance if the
fines are increased over time.54
Even various developing countries over the period of time
have suggested monetary compensation as a reform to make
compliance procedure effective. 55
Further, imposing fines could act as some kind of cost on
the violating party for delay in compliance with its
obligations under WTO.
Membership Sanction:
Another possible option could be to withdraw a benefit from
being a member of the international organization. Say for
instance, withdrawal of a right to vote or the ability to
obtain financial or technical assistance or say going to the
54 William J. Davey, The WTO Dispute Settlement System: How Have Developing CountriesFared?,http://luc.edu/media/lucedu/law/students/publications/ilr/pdfs/2008pdfs/davey_wto_dispute_paper.pdf (Last Visited Sept. 10, 2014) 55 Jordan Shepherd, Maria V. Sokolova, Wagari Negassa Wakjira, Effective Compliance in the DSU: The Mechanics of Monetary Compensation as a form of Reparation, http://graduateinstitute.ch/files/live/sites/iheid/files/sites/ctei/shared/CTEI/Law%20Clinic/memoranda2012/Final%20Memo%20-%20DSU%20Review%20-%2008062012.pdf (Last Visited Sept. 11, 2014)
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extent of taking away the right of the scofflaw country to
approach WTO for settlement of its disputes until compliance
is induced.56
Collective Criticism:
A collective criticism from other countries at the
International Forums might help in creating political
pressure on the non-complying country and thereby pressurize
the country to comply with its obligations under the
respective Agreements. For, a country that does not respect
the rulings of the Panel or the Appellate Body should be
treated in the same manner so as to induce compliance.
5.3 Conclusion:
Thus, once it is determined that a country has violated its obligations under the
WTO, rather than allowing retaliation, the researcher feels that the remedy be
narrowed down to the following two:
The violating country continues to pay compensation (i.e. to say an
amount of compensation equal to the losses already incurred and an
amount in the form of fine) annually till the date it complies with the
ruling of the Panel/Appellate Body.
The violating country is restrained from approaching the DSU for
settlement of its disputes and is restrained from joining as a third party till
the date it complies with the rulings of the Panel/Appellate Body.56 Steve Charnovitz, Rethinking WTO Trade Sanctions,http://www.jstor.org/stable/pdfplus/2674626.pdf (Last Visited Aug 29,2014)
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One of the positive aspects of the above mentioned alternatives are that these
would have less trade distortive effect in comparison to the current remedies.
Further, as the complaining country does not increases tariff or imposes any
other kind of restrictions, therefore, the probability of trade diversion in other
sectors is also eliminated. Besides, this should be made enforceable as an award
in the domestic courts of the countries. If this is done then, the probability of
improving the enforcement aspect of the DSB will increase and the trade
distortive effects of imposing sanctions would also be reduced.
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BIBLIOGRAPHY:
A. PRIMARY SOURCES-
i. LEGISLATIONS
1. General Agreement on Tariffs and Trade 1947.
2. General Agreement on Tariffs and Trade 1994.
3. Marrakesh Agreement Establishing the World Trade
Organization
4. Understanding on Rules and Procedures Governing the
Settlement of Disputes.
B. SECONDARY SOURCES
i. BOOKS:
1. David Palmeter and Petros C. Mavroidis, Dispute
Settlement in the World Trade Organization, Practice
and Procedure, 2nd Edn., Cambridge University Press,
UK, 2004
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2. Sherzod Shadikhodjaev, Retaliation in the WTO
Dispute Settlement System, Kluwer Law International,
Netherlands, 2009.
3. Chad P. Brown and Joost Pauwelyn, The Law, Economics
and Politics of Retailiation in WTO Dispute
Settlement, Cambridge University Press, UK 2010.
4. Autar Krishen Koul, Guide to the WTO and GATT,
Economics, Law and Politics, 2nd Edn., Satyam Law
International, Delhi, 2010.
ii. ARTICLES-
1. Mitchell, Andrew D. & Constantine Salonidis,
David’s Sling: Cross-Agreement Retaliation in
International Trade Disputes, 467, Journal of
World Trade 45, no. 2 (2011)
2. Song Guan, WTO Retaliation Rules in Subsidy-
Related Cases: What Can We Learn from the US-Upland
Cotton Arbitration? , 815- 842, Journal of World
Trade 48, no. 4 (2014)
3. Bernard O’ Connor, Remedies in the World Trade
Organization Dispute Settlement System – The
Bananas and Hormones Cases, 245-266, Journal of
World Trade, 38(2), 2004
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iii. WEBSITES-
4. Steve Charnovitz, Rethinking WTO Trade Sanctions,
http://www.jstor.org/stable/pdfplus/2674626.pdf
(Last Visited Aug. 27, 2014).
5. Kajsa Persson, The Current and Future WTO Dispute
Settlement System – Practical Problems discussing Article 21.5 and
Article 22 of the DSU,
https://gupea.ub.gu.se/bitstream/2077/9862/1/Kajsa
_Persson_Thesis.pdf (Last Visited Aug. 26, 2014)
6. Barbara Marchetti, The WTO Dispute Settlement System:
Administration, Court or Tertium Genus?,
http://www.iilj.org/gal/documents/marchetti.pdf
(Visited on 29-08-2014)
7. Anwarul Hoda, Dispute Settlement in the WTO, Developing
Countries and India,
http://www.icrier.org/pdf/Policy_Series_No_15.pdf
(Last Visited Aug. 29, 2014)
8. Asim, Imdad Ali, Non-Compliance and Ultimate Remedies
under the WTO Dispute Settlement System, Journal of Public
and International Affairs, Volume 14/Spring 2003,
http://www.princeton.edu/jpia/past-issues-
1/2003/1.pdf (Last Visited Sept. 11, 2014)
9. YE Siyu, The Legal Analysis of the Cross retaliation Under the
WTO Framework,
http://lib.ugent.be/fulltxt/RUG01/002/061/021/RUG0
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1-002061021_2013_0001_AC.pdf (Last Visited Aug.
29, 2014)
10.William J. Davey, Implementation in WTO Dispute
Settlement: An Introduction to the Problems and Possible Solutions,
http://www.rieti.go.jp/jp/publications/dp/05e013.p
df (Last Visited Aug. 29, 2014)
11.Joost Pauwelyn, The Role of Public International Law in the
WTO: How Far Can We Go?,
http://scholarship.law.duke.edu/cgi/viewcontent.cg
i?article=1065&context=faculty_scholarship (Last
Visited Aug. 29, 2014)
12.Gary Horlick & Judith Coleman, The Compliance
Problems Of The WTO, Arizona Journal of
International and Comparitive Law, Vol 24, No.1,
2007, http://www.ajicl.org/AJICL2007/Horlick
%20article.pdf (Last Visited Sept. 11, 2014)
13.T.B. Simi, Brazil-US Upland Cotton Dispute What does it Augur
for Agricultural Subsidies?,
http://www.cuts-citee.org/pdf/TLB05-02.pdf (Last
Visited Sept. 09, 2014)
14.Intan Innayatun Soeparna, The Impact Of The WTO
Retaliation From The Perspective of Human Rights Law,
http://www.academia.edu/6141386/THE_IMPACT_OF_THE_
WTO_RETALIATION_FROM_THE_PERSPECTIVE_OF_HUMAN_RIGH
TS_LAW (Last Visited Sept. 10, 2014)
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15.Jordan Shepherd, Maria V. Sokolova, Wagari Negassa
Wakjira, Effective Compliance in the DSU: The Mechanics of
Monetary Compensation as a form of Reparation,
http://graduateinstitute.ch/files/live/sites/
iheid/files/sites/ctei/shared/CTEI/Law%20Clinic/
memoranda2012/Final%20Memo%20-%20DSU%20Review%20-
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