4 Dispute Settlement
Mitsuo Matsushita, Thomas J. Schoenbaum, Petros C. Mavroidis, Michael Hahn
Mitsuo Matsushita, Thomas Schoenbaum, Petros C. Mavroidis, Michael Hahn
- International trade — Sources of international law
One of the strengths of the WTO is the dispute settlement system, which came into operation on 1 January 1995. This system has rapidly become the most important international tribunal. The WTO dispute settlement institutions function very much like a court of international trade: there is compulsory jurisdiction, disputes are settled largely by applying rules of law, decisions are binding on the parties, and sanctions may be imposed if decisions are not observed.
From its inception, the WTO dispute settlement mechanism has been very busy; more than eighty cases were filed in the first two years, and more than 400 cases had been filed at the time of writing. This activity implies confidence in the system and places political pressure on all states to comply, because many, including the most important trading nations, are both complainants and respondents in the various trade disputes considered.1
The WTO dispute settlement system is the result of over forty years of experience and the evolution of dispute settlement under the GATT 1947. The WTO system can be appreciated only against the background of the GATT regime.
The GATT avoids mention of the term ‘dispute’. The drafters of the GATT did, however, foresee that problems would arise due to future actions or non-actions of one or more GATT contracting parties concerning the matters covered in the GATT. The principal mechanism for dealing with these problems is diplomatic consultation. There are nineteen provisions for consultation in the GATT 1947.2 One of these, Article XXII, is a general provision calling for ‘sympathetic consideration’ and consultation ‘with respect to any matter affecting the operation of this Agreement’.3
GATT Article XXIII creates a specific mechanism to correct ‘nullification or impairment’ of the GATT. Nullification or impairment can occur for any one of three reasons: (1) failure of a party to carry out its obligations under the GATT; (2) the application of a measure by a party regardless of whether the measure conflicts with the GATT; or (3) the existence of any other ‘situation’ that is troublesome.4 Thus, dispute settlement addresses more than just breaches of the GATT.
Article XXIII specifies a series of steps for dealing with a possible nullification or impairment. Each step is an escalation to be taken if previous attempts to settle the matter are ineffective:
1. The party concerned addresses ‘written representations or proposals’ to the other contracting party or parties, which must give these representations or proposals ‘sympathetic consideration’.5
2. The matter may be referred to the contracting parties, which ‘shall promptly investigate’ and make appropriate recommendations to the parties concerned.6 Alternatively, this may take the form of a ‘ruling on the matter’. In the course of the investigation, the contracting parties may consult with contracting parties, ‘any appropriate inter-governmental organization’, or the UN Economic and Social Council.7
3. The contracting parties may authorize a contracting party or parties to suspend the application of concessions or obligations under the GATT as a countermeasure if ‘the circumstances are serious enough’.8 The party against which this action is directed may then withdraw from the GATT on sixty days’ notice.9
Article XXIII and dispute settlement under the GATT 1947 were shaped by state practice. At first, diplomatic negotiations were the sole means of dealing with controversies. Then, ‘working parties’ began to be established to investigate and formulate recommendations. Working parties were typically composed of representatives of various countries who received instructions from their governments. In 1955, the GATT contracting parties began referring disputes to ‘Panels’, ad hoc groups of experts References(p. 85) who acted as neutrals, not government representatives. Panel decisions had no official or binding effect but were referred to the GATT Council,10 which could make the ‘appropriate recommendations’.11
The GATT Panel decision process of dispute resolution was successful. Because it was frequently utilized, it became necessary to formalize the Panel procedures. This led to a series of agreements and understandings on dispute settlement12 to supplement the skeleton approach of Article XXIII. Over the years, panels began to take a more rule-oriented, judicial approach to settling disputes. Parties invoked Article XXIII to vindicate their legal rights under the GATT. The panels’ recommendations rested on legal, rather than merely diplomatic, grounds. To a remarkable degree, the decisions of the GATT panels adopted by the GATT Council were implemented and observed by states. This was not due to the threat of suspension of concessions,13 but rather was an accomplishment of the dynamics of the process. A losing party could not ignore a decision based on legal principles. To do so would threaten the entire legal order on which the GATT system was based and which the losing party would need (and might be on the winning side of) in other cases.
Despite the success of the GATT Panel dispute resolution process, serious shortcomings inhibited its effectiveness. Such shortcomings included delays in the formation of Panels and the Panel process, blocking of the adoption of Panel reports in the GATT Council, and delays in the implementation of Council recommendations. The Tokyo Round of multilateral trade negotiations added dispute resolution procedures to References(p. 86) the various Codes approved in 1979. The result was dispute resolution procedures that were confusing in number and were largely uncoordinated.14
These difficulties were addressed in the new system of dispute settlement adopted by the WTO.
3. WTO Dispute Settlement
In the negotiations leading to the establishment of the WTO dispute settlement mechanism, the debate focused on whether a negotiation approach would be superior to a more legalistic, rule-oriented approach.15 Fears were expressed that reforms which gave primacy to legal rules would impair the WTO’s credibility because powerful states would inevitably ignore the rules when they went against their national interests.16 However, the evolution of the WTO dispute settlement system over a period of almost twenty years has disproved the misgivings entertained by some members and the judicialized, rule-oriented approach to dispute resolution has prevailed at the WTO.
The WTO dispute settlement system is built on the pre-existing GATT regime. The document establishing the new system is the Uruguay Round Understanding on Rules and Procedures Governing the Settlement of Disputes (Dispute Settlement Understanding or DSU). DSU Article 3.1 affirms the application of GATT 1947 Articles XXII and XXIII. In addition, the WTO Agreement provides that ‘[e]xcept as otherwise provided under this Agreement or the Multilateral Trade Agreements, the WTO shall be guided by the decisions, procedures and customary practices followed by the Contracting Parties to GATT 1947’.17
Three institutions administer the WTO dispute settlement system. The first institution is the Dispute Settlement Body (DSB), which establishes Panels, adopts Panel and Appellate Body reports, supervises the implementation of recommendations and rulings, and authorizes sanctions for failure to comply with dispute settlement decisions.18 The General Council of the WTO serves as the DSB, but the DSB has its own chairman and follows separate procedures from those of the General Council.19
References(p. 87) The DSU creates an Appellate Body to review Panel rulings.20 The Appellate Body is a standing institution composed of seven persons appointed by the DSB for four-year terms.21 The members of the Appellate Body must be persons with demonstrated expertise in law and international trade who are not affiliated with any government. The Appellate Body membership must be ‘broadly representative of membership in the WTO’.22 The Appellate Body members hear cases in divisions of three, but each member is required to ‘stay abreast’ of the dispute settlement activities of the WTO.23
The WTO system continues the Panel system of the GATT 1947. Panels are composed of three (exceptionally five) persons, ‘well qualified governmental and/or non-governmental individuals’, selected from a roster of persons suggested by WTO members.24 Panel members serve in their individual capacities and not as representatives of WTO members.25
The competence of the WTO Dispute Settlement Body is set out in DSU Article 1. Any dispute arising out of any of the multilateral WTO agreements must be resolved according to the rules and procedures of the DSU.26 These agreements, which are referred to collectively as the ‘covered agreements’, are listed in DSU Appendix 1.27 Some WTO agreements contain special or additional rules and procedures, and the DSU incorporates these rules and procedures as well.28 In the event of conflict, the special or additional rules and procedures prevail.29
In its interpretation of the covered agreements, Panels and the Appellate Body are guided by ‘customary rules of interpretation of public international law’,30 a reference to the Vienna Convention on the Law of Treaties (VCLT).31 Interpretations of the WTO agreements by Panels and the Appellate Body are not, however, definitive. Only the Ministerial Conference and the General Council have the authority to adopt definitive interpretations.32
An interesting and unresolved issue is whether WTO Panels and the Appellate Body have jurisdiction to decide questions of public or private international law (or even References(p. 88) Member State law) when such issues arise in connection with a controversy under a covered agreement. An example is the dispute brought by the European Community (EC) before the WTO concerning the US Helms-Burton law’s provision imposing economic sanctions on persons and companies that own certain property in Cuba.33 This dispute concerned provisions of a ‘covered agreement’, GATT (Article XXI), as well as questions of public international law regarding extraterritorial jurisdiction and the doctrine of non-intervention. At the EC’s request, this dispute was suspended when the United States waived application of key provisions of the disputed law. If there is conflict between a provision in a covered agreement and a rule in other international agreement or the customary international law, Panels and the Appellate Body must adhere to the provision in the covered agreement and reject any rule that is in conflict with it. This seems clear from DSU Article 3.2 which states that ‘Recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreement.’34 However, as long as rights and obligations of members provided in the covered agreements are not affected, there is nothing in the covered agreement or the DSU which prohibits Panels and the Appellate Body from applying rules incorporated in other international agreements or the customary international law.35 However, one may argue that an application of any rules other than those contained in the covered agreement is inherently outside the power of Panels and the Appellate Body.
On the other hand, one may argue that to avoid a piecemeal decision that does not resolve the dispute, it is advisable that the WTO institutions have competence to consider all aspects of a dispute, including those involving legal issues not strictly arising under a covered agreement. DSU Article 11 arguably provides this authority by granting to Panels the authority to ‘make such other findings as will assist the DSB in making the recommendations or in giving the rulings provided for in the covered agreements’. In addition, the Vienna Convention Article 31.2(c), provides for the application of ‘any relevant rules of international law applicable in the relations between the parties’, in connection with the interpretation of a treaty. Because the DSU incorporates this interpretive principle,36 Panels and the Appellate Body should be able to apply such rules where relevant.37 Alternatively, a legal question involving public international law could be the subject of a request by the WTO for an Advisory Opinion from the International Court of Justice (ICJ).38 The Advisory Opinion References(p. 89) procedure, however, would appear to be impractical and time-consuming because the DSB and the General Council would have to agree to make the request and the matter would have to be argued and decided separately by the ICJ.
WTO Panel and Appellate Body reports are binding on the parties to the dispute once the DSB adopts them.39 They are not binding interpretations of the WTO agreements, however, and have no legal effect on other WTO members. They also are not precedents that are legally binding in subsequent cases. Nevertheless, such reports constitute evidence of treaty practice, and subsequent dispute settlement Panels and the Appellate Body rely on their reasoning. To the extent their reasoning is persuasive, even unadopted reports may be cited and relied on by subsequent Panels.40 In fact, Panels and the Appellate Body closely examine precedents when dealing with a dispute and try not to deviate from the interpretations established by the precedents.
Although there is no stare decisis in the WTO jurisprudence in a strict sense of the term, it is generally considered that the failure of Panels to follow precedents (especially holdings of the Appellate Body) undermines the development of a coherent and predictable body of jurisprudence clarifying members’ rights and obligations under the covered agreements. In fact, Panels are most careful not to deviate from the rules established in previous appellate reports and, in this respect, rules enunciated in previous appellate reports have operated as the authority for subsequent Panels and appellate reports.41
Panels issue findings of fact and law in dispute cases and the Appellate Body reviews Panels’ interpretation of WTO agreements. Judging from this hierarchical structure of the dispute settlement process, one might argue that Panels are obligated to follow previous appellate reports if they deal with the same subject matter.42
Panels and the Appellate Body are guided by the rules of interpretation of treaties contained in the Vienna Convention. Articles 31 and 32 of the Vienna Convention are especially relevant. Article 31 states, ‘A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.’ Article 32 states, ‘1. Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning References(p. 90) resulting from the application of Article 31, or to determine the meaning when the interpretation according to Article 31: (a) leaves the meaning ambiguous or obscure; or (b) leads to a result which is manifestly absurd or unreasonable.’
In almost every report of Panels and the Appellate Body, Article 31 of the Vienna Convention is cited and dictionary meanings of the relevant words in the provision in question are discussed. Although Article 32 is used rarely, there are cases in which the Appellate Body relied on Article 32, as exemplified by the Canada—Dairy case.43
As under the GATT, the WTO dispute settlement system is based on the central idea that the rights and obligations of the members under the WTO agreements are to be preserved and safeguarded.44 To that end, the prompt settlement of ‘situations’ in which a member considers its rights to be impaired is ‘essential to the effective functioning of the WTO’.45 Thus, the objective of WTO dispute settlement is to secure the withdrawal of any measure that is found to be inconsistent with any agreement or to foster a mutually acceptable solution that is consistent with the WTO agreements.46 All settlements and solutions must be consistent with the covered agreements.47
The DSU cautions WTO members to be judicious about invoking the dispute settlement procedures. They should consider whether the action ‘would be fruitful’ and would ‘secure a positive resolution to a dispute’.48 The first step is to make a request for consultations with the other member or members. Only after this consultation do the parties have a right to invoke the Panel process.
Upon a request for consultations, the member concerned must reply within ten days and must enter into good faith consultations within thirty days after receiving the request.49
A WTO Panel and the Appellate Body, in EC—Bananas, addressed the matter of standing to pursue a claim. In that case, the European Communities questioned the ‘legal interest’ of the United States to bring a dispute involving bananas because US banana production was minimal and the United States did not export bananas. The Appellate Body concluded that a WTO member has broad discretion in deciding to bring a case under the DSU:
References(p. 91) The wording of Article XXIII:1 of the GATT 1994 and of Article 3.7 of the DSU suggests, furthermore, that a Member is expected to be largely self-regulating in deciding whether any such action would be “fruitful”. We are satisfied that the United States is a producer of bananas, and a potential export interest by the United States cannot be excluded. The internal market of the United States for bananas could be affected by the EC banana regime, by the effects of that regime on world supplies and world prices of bananas.
We agree with the panel report that “neither Article 3.3 nor 3.7 of the DSU nor any other provision of the DSU contains any explicit requirement that a Member must have a ‘legal interest’ as a prerequisite for requesting a panel”. We do not accept that the need for a legal interest is implied in the DSU or in any other provision of the WTO Agreement.50
This is, in effect, the recognition of an ‘actio popularis’ because all WTO members would seem to have an interest in any material breach of the covered agreements. The liberal approach to standing is quite new and controversial; there was no tradition of such complaints under the GATT.51
In addition, any WTO member that is not a party to the original dispute may intervene in one of two ways. First, such a member ‘having a substantial interest in a matter before a panel’ has an opportunity to be heard both orally and in writing.52 Second, such a ‘third party’ to a dispute may freely bring an original complaint under the normal dispute settlement procedures.53 Whenever ‘feasible’, a single Panel will handle both (or all) complaints related to the original matter.54
The DSU provides that the parties to a dispute may agree ‘voluntarily’ to employ good offices, conciliation, or mediation as a settlement technique.55 Such procedures may begin or be terminated at any time.56 An agreement to use these procedures, however, does not preclude the establishment of a dispute settlement Panel. The complaining party must allow a period of sixty days after the date of the request for consultations before requesting the establishment of a Panel. If the parties agree, procedures for good offices, conciliation, or mediation may proceed even after a Panel has been established.57
References(p. 92) Normally, the WTO Director-General, acting in an ex officio capacity, will offer good offices, conciliation, or mediation.58 These three procedures are similar in that a neutral third party is involved to aid the process of dispute settlement. A good officer is more of a channel of communication than an active participant in the dispute settlement process. A conciliator independently investigates the dispute and makes a written proposal for its resolution. A mediator is an active participant in the dispute settlement process, bringing the parties together in an informal setting and making suggestions for resolution and closure of the dispute. In practice, the three procedures tend to blend. These procedures are useful not only in resolving issues of law and fact but also in dealing with non-justiciable issues that an adjudicative process cannot settle.
WTO members can agree to use binding arbitration as an alternative means of dispute settlement.59 In such a case, the parties to the dispute can define the issues and the procedures to be followed. Any arbitration award is then enforceable through the WTO. DSB and WTO sanctions may be imposed for non-compliance.
If consultations fail to settle the dispute within sixty days (twenty days ‘in cases of urgency’), the complaining party may request the establishment of a Panel.60 A Panel must be established at the next DSB meeting unless it is decided by consensus not to establish a Panel.61 Unless the parties to the dispute agree otherwise Panels are composed of three (exceptionally five) qualified governmental or non-governmental individuals chosen from lists maintained by the Secretariat. The parties to a dispute have twenty days to agree on the panellists; if they fail to agree, panellists are appointed by the Director-General. Citizens of the states that are parties to the dispute (including citizens of the same customs union or common market) cannot serve as panellists.62 Unless the parties to the dispute agree otherwise, the parties to the dispute also have twenty days from the establishment of the Panel to agree on the ‘terms of reference’ of the Panel; otherwise, standard terms of reference will be used.63
DSU Article 6:2 provides: ‘The request for the establishement of a panel shall…identify the specific measures at issue and provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly.’ Therefore, the terms of reference in a given dispute must identify the specific measures at issue and set out a brief summary of the legal basis of the complaint. The terms of reference can be called ‘claims’ which set out the scope of the dispute. Once the terms of reference are adopted with respect to a dispute, they cannot be changed through the entire process of the References(p. 93) dispute settlement although the parties can amplify the claim without changing the nature of the claim.64
In China—Minerals, the respondent (China) argued that the claimants (the United States, the European Union (EU), and Mexico) did not lay out specifics of their claims and therefore infringed DSU Article 6.2. The Panel held that, although specifics were somewhat unclear in the original terms of reference, later submissions of the respondents explained the details and consequently there was no infringement of DSU Article 6.2.65 China appealed and the Appellate Body reversed the finding of the Panel, stating that defects in the terms of reference could not be cured by later submissions because this would prejudice the right of defence of the respondent.66 However, this ruling of the Appellate Body may be too rigid and deprive the dispute settlement process of the WTO of flexibility.67
Frequently, more than one member requests the establishment of a Panel, and the interests of more than two parties are involved in a dispute. In such cases, a single Panel can consider the disputes of multiple complainants,68 and third parties that have an interest in a dispute have the right to be heard by the Panel.69
A Panel’s function is to assist the DSB in resolving the dispute.70 The Panel operates on a timetable that, generally, shall not exceed six months (three months in cases of urgency).71 The Panel process involves the following: (1) written submissions of parties and third parties; and (2) meetings (oral hearings) with parties and third parties.72
The Panel may seek information and technical advice from any appropriate source.73 The Panel also is given a wide discretion to select which evidence it accepts and which it does not.74 In addition, the Panel may request an advisory report in writing from an Expert Review Group.75 The Panel then submits a draft report to the parties to the dispute. After comments by the parties, the Panel prepares an interim report consisting of findings of fact, and conclusions of law. The interim report is circulated to the parties, which can request a meeting with the Panel to discuss the issues. At the conclusion of this interim review process, the panel prepares a final report and transmits it to the DSB.76
References(p. 94) The DSB has twenty days to consider the report after it has been circulated to members.77 Objections to the report must be made at least ten days before the DSB is to meet.78 Within sixty days after the submission of the report, the DSB must adopt it unless there is a consensus against adoption.79 If a party has notified its decision to appeal, the DSB may not consider the report until after the completion of the appeal.80
Any party to a dispute (but not third parties) may appeal a Panel report to a seven-member standing Appellate Body established for this purpose.81 The Appellate Body sits in divisions of three members.82 Appellate Body members are appointed for four-year terms and cannot be affiliated with any government.83 The Appellate Body has the power to uphold, modify, or reverse the legal interpretations adopted by the Panel.84 Generally, the appellate process must be completed within sixty days but shall in no case exceed ninety days.85 Within thirty days following the circulation of an Appellate Body report, the report must be adopted by the DSB and ‘unconditionally accepted by the parties to the dispute’ unless the DSB decides by consensus not to adopt the report.86
The losing party must inform the DSB of its intentions ‘in respect of implementation of the recommendations and rulings of the DSB’ within thirty days of the date of the adoption of a Panel or Appellate Body report.87
Losing parties have an obligation to comply with the recommendations and rulings of the DSB within ‘a reasonable period of time’.88 What is a reasonable period is determined under DSU Article 21.3 by any one of the following three methods:
3. A period determined through binding arbitration within ninety days after adoption of the relevant report. In this case, the suggested period should not exceed References(p. 95) fifteen months from the date of the adoption of the report but may be shorter or longer depending on the circumstances.89
A problem with the implementation of WTO dispute settlement recommendations and rulings is the lack of guidance over what exactly a losing party must do to comply. The tendency has been for the losing party to take minimal steps and declare itself in full compliance. The winning party often disagrees.90 One solution is to refer the matter to a compliance panel under DSU Article 21.5. In the EC—Bananas case,91 the matter of compliance was referred to a WTO Panel that ruled that the revised EC banana regulations violated the GATT and the GATS. The Panel also ruled that no presumption of consistency or inconsistency attaches to regulations revised by a losing party.92 But the winning party may not want to wait for the decision of a compliance Panel. In the Bananas case, at the United States’ request, a WTO arbitral Panel established under DSU Article 22.6 set the amount of compensation authorized due to continued nullification or impairment of trade benefits.93
The confusion between the provisions of DSU Articles 21 and 22 is termed the ‘sequencing’ problem.94 This problem arises because of a lack of coherence between the two Articles. First, Article 21.5 provides for an expedited compliance procedure:
Where there is disagreement as to the existence or consistency with a covered agreement of measures taken to comply with the recommendation and rulings such dispute shall be decided through recourse to these dispute settlement procedures, including wherever possible resort to the original panel. The panel shall circulate its report within 90 days after the date of referral of the matter to it. When the panel considers that it cannot provide its report within this time frame, it shall inform the DSB in writing of the reasons for the delay together with an estimate of the period within which it will submit its report.
Article 22.2, however, provides that if the losing party fails to bring its offending measure into compliance within twenty days of the expiry of the reasonable period allotted under Article 21.3, the winning party may request authorization from the DSB to retaliate by suspending trade concessions. The convening of a compliance Panel under Article 21.5 is not mentioned. Instead, Article 22.6 states that the DSB must grant authorization to suspend trade concessions within thirty days of the expiry of the reasonable period or refer the matter to arbitration, which shall be final.
References(p. 96) Thus, as in the Bananas case, there appears to be, through an oversight in the drafting of the DSU, the possibility of an Article 21.5 compliance Panel and an Article 22.6 arbitration both proceeding on parallel and possibly conflicting courses. The confusion is compounded by the fact that there is no appeal from the arbitration but an appeal is possible from the compliance Panel.
This state of affairs cannot be dealt with adequately by interpretation; there must be a clarifying amendment of the DSU. This amendment should follow what appears to be the logical sequence intended: Article 22 should be amended so that retaliation may be invoked only after the conclusion of the Article 21.5 compliance determination process. Such an amendment has been proposed.95 In current practice at the WTO, arbitration under Article 22 is suspended until the Article 21.5 compliance proceeding has run its course.
Two sanctions are specified if the recommendations and rulings of the DSB are not implemented within a reasonable period: compensation and retaliation (or suspension of concessions). Both sanctions are temporary. Neither is intended to be a substitute for implementing a recommendation or ruling to conform to the WTO agreements.96
The first option for sanctions is compensation. Compensation consists of additional trade concessions by the losing party, usually in related economic areas to the dispute, that are acceptable to the winning party as a substitute for maintaining the trade barriers in dispute. Compensation is voluntary and the subject of agreement between the parties to the dispute. If no satisfactory compensation is agreed within twenty days of the expiration of the reasonable period, any party having invoked the dispute settlement procedures may request authorization from the DSB to retaliate.97
The second option is retaliation (suspension of concessions). The level of retaliation authorized by the DSB must be equivalent to the nullification or impairment. There are three types of retaliation: (1) parallel retaliation by suspending concessions with respect to the same economic sector in which the nullification or impairment has been found; (2) cross-sector retaliation, which is the suspension of concessions relating to different sectors in the same agreement; and (3) cross-agreement retaliation, which is the suspension of concessions specified in a different agreement.98 The preferred option is parallel retaliation; cross-sector and cross-agreement retaliation will be authorized only if parallel retaliation is impractical.99
Disputes over retaliation can be referred to arbitration if the losing party objects to the level of retaliation or appropriate procedures are challenged where the complaining party has requested cross-retaliation. The original Panel or an arbitrator appointed by References(p. 97) the Director-General carries out the arbitration.100 The arbitration must be completed within sixty days.101
The DSB must both authorize and monitor the retaliation taken.102 Unilateral retaliation is prohibited.103 Retaliation is deemed temporary and will be terminated once the inconsistent measure has been removed, the losing party has provided a solution to the nullification or impairment of benefits, or the parties have reached a satisfactory solution.104
The United States has proposed that retaliation lists be rotated periodically to increase the pressure for compliance. The EC and other members oppose this so-called carousel procedure.
The DSU is primarily concerned with the settlement of disputes that involve an infringement of an obligation assumed under one or more of the WTO agreements. Such an infringement is considered a prima facie nullification or impairment of a trade benefit accruing to other WTO members. Following GATT practice, however, the DSU provides for dispute settlement concerning complaints that there is a nullification or impairment of benefits without an infringement of a WTO obligation. The DSU contains provisions for resolving two such complaints described in GATT Article XXIII: (1) non-violation complaints; and (2) situation complaints.
In accordance with GATT Article XXIII:1(b), DSU Article 26.1 authorizes a complaint against ‘a measure’ by a member even if such a measure does not conflict with any WTO agreement, if the complaining member considers that any benefit under a covered agreement is being nullified or impaired or the attainment of any objective of a covered agreement is being impeded as a result of the application of the measure.
This procedure is available where not specifically excluded by the relevant covered agreement to secure the removal of trade barriers that impede market access even if there is no violation of the agreement. The burden of proof is on the complainant, which must present a ‘detailed justification’ of the complaint. This involves (1) defining the ‘benefit’ being nullified or impaired or the objective being impeded; (2) defining the ‘measure’ responsible; and (3) showing a causal relationship between the measure and the nullification or impairment or impeding of objectives.105
These three points are all rather vague. The meagre case law106 on non-violation complaints suggests that ‘benefit’ refers to assurance of better market access; that References(p. 98) nullification or impairment depends on a showing of adverse effect and frustration of reasonable expectations; that ‘measure’ may be a specific action or omission; and that the causal factor refers to a propensity to have an adverse effect, not any specific proof of a change in the volume of trade.107
Where the elements of a non-violation complaint are proved, however, there is no obligation to withdraw the measure in question. The Panel or the Appellate Body must recommend that the member concerned make a ‘mutually satisfactory adjustment’.108
The non-violation complaint procedure may appear to lack teeth. Article 26.1(c), however, provides for non-binding arbitration ‘upon the request of either party’. Arbitrators may determine the level of benefits impaired or suggest ways of resolving the dispute. Compensation may be part of a ‘mutually satisfactory adjustment as final settlement of the dispute’. This procedure, although technically non-binding, places pressure on the parties to reach an agreement to resolve the dispute.
In accordance with GATT Article XXIII:1(c), DSU Article 26.2 authorizes a complaint by a member that considers that any benefit under a covered agreement is being nullified or impaired or the attainment of any objective of the agreement is being impeded by the existence of ‘any situation’ other than those covered by the violation and non-violation complaint procedures. The chief utility of the situation complaint procedure is that causes of the frustration of market access expectations can be addressed other than measures. Presumably, the term ‘situation’ allows more nebulous conditions or states of affairs to be addressed. No Panels, however, have been called on to address ‘situations’ in the sixty-year history of the GATT/WTO.
The utility of the situation complaint procedure is very limited. Not only are the elements of such a complaint nebulous but also the only effect is that the findings of the Panel will be circulated to members. The Panel report may be appealed to the Appellate Body. The adoption of the Panel report as well as surveillance and implementation of recommendations and rulings is subject to pre-WTO rules that allow blocking and delay of Panel rulings.
DSU Article 13.1 provides that each Panel has the right to seek information and technical advice from ‘any individual and body’ the Panel deems appropriate. This broad investigative power is essential if the Panel is to fulfil its mandate under DSU Article 11 to make an ‘objective assessment of the matter before it, including an objective assessment of the facts of the case’.
In Canada—Aircraft, the Appellate Body ruled that Panels have authority to draw an adverse inference from the refusal of a party to supply necessary information without good reason.109 This case involved an alleged subsidy by Canada to its aircraft industry References(p. 99) that Brazil regarded as contrary to the SCM (Subsidies and Countervailing Measures) Agreement. The Panel asked Canada for certain information related to the alleged subsidy. In response, Canada asked for a special procedure to protect proprietary information. The Panel complied, but Canada still refused to supply the information.
The Panel did not draw an adverse inference, and Brazil appealed this ruling to the Appellate Body. The Appellate Body upheld the Panel’s discretion but stated that, under the circumstances of the case, the Panel could have drawn an adverse inference and could have found a violation of DSU Article 13, which concerns the Panel’s right to seek information.
Canada—Aircraft, therefore, established the principle that an adverse inference may be drawn from non-cooperation of a party if the lack of cooperation is without any reasonable ground. After Canada—Aircraft, the Appellate Body confirmed that Panels and the Appellate Body may draw an adverse inference from non-cooperation on the part of a party to a dispute under certain circumstances.110
Whether or not Panels and the Appellate Body may accept and consider amicus curiae briefs from persons other than the parties to a dispute (the disputing parties and the third parties) has been a controversial issue. The recent rulings of the Appellate Body, however, show that the power of Panels and the Appellate Body to accept and consider amicus curiae briefs is an established principle. In the Shrimp/Turtle case,111 the Panel declined to accept an amicus curiae brief, but the Appellate Body reversed this and stated that DSU Article 13.1 confers power on Panels to ‘seek’ information from any individual or body, and the power to ‘seek’ information should be interpreted to include the power to accept and consider amicus curiae briefs.
Subsequently, the Appellate Body ruled that two methods exist for the submission and consideration of amicus curiae briefs.112 First, since it is up to each participant in a dispute settlement proceeding to determine what to include in its submissions, an amicus curiae brief may be submitted either to a Panel or to the Appellate Body with the consent of a participating WTO member.113 Second, private organizations and individuals may submit amicus curiae briefs directly to a panel under DSU Article 13.1 and to the Appellate Body under DSU Article 17.9. In the EC—Asbestos case, the Appellate Body established a special procedure for accepting amicus curiae briefs.114 A person submitting an amicus curiae brief must also submit a short summary of the References(p. 100) brief limited to twenty pages and should not repeat the arguments of the parties. Whether to accept or consider an amicus curiae brief is up to the discretion of the panels and the Appellate Body.
At the meetings of the WTO General Council, certain WTO members, especially developing countries, have criticized the decision of the Appellate Body to consider amicus curiae submissions on the ground that the WTO is a contract among the members who have accepted it, and it is inappropriate to permit outside parties to influence adjudicative interpretations and decisions.115
Nevertheless, in the EC—Sardines116 case, the Appellate Body accepted a portion of an amicus curiae brief submitted by the Government of Morocco, while rejecting as unhelpful an amicus brief submitted by a private party.
Burden of proof is a rule to decide which of the disputing parties must prove the illegality or legality of the conduct in question.117 In actuality, the term burden of proof comprehends two different but closely related legal issues: (1) which party has the burden of persuasion that the conduct in question was illegal; and (2) which party has the duty of going forward with relevant legal arguments and factual evidence. Although the Appellate Body has not explicitly made this distinction, we think that this point is essential to understand the issue of burden of proof and to make some of the Appellate Body rulings on this issue.
The first Appellate Body case on burden of proof, US—Wool Shirts and Blouses,118 is regarded as foundational. In that case, the complaining party, India, argued that it was incumbent on the United States, the responding party, to prove that US import restrictions on shirts and blouses from India were not contrary to the ‘safeguard’ provisions of the WTO Agreement on Textiles and Clothing (ATC Agreement). India maintained that the United States had the burden of showing that its conduct was not contrary to the conditions of the safeguard provisions since the United States was invoking the provisions to justify its conduct and because the safeguard was an exception to the general provisions of the ATC Agreement. The Appellate Body disagreed, however, ruling that safeguard provisions of the ATC Agreement should not be regarded as exceptions, but rather functioned as affirmative rights.119 Thus India as the complaining party must adduce prima facie evidence and legal argument to References(p. 101) prove the illegality of the conduct in question. After such proof is established, the respondent has the duty to rebut the complaining party’s proof with appropriate argument and evidence.
In US—Shirts and Blouses, the Appellate Body recognized that it is up to the complainant to present evidence and argument sufficient to establish a presumption that a measure is inconsistent with WTO obligations. It is then up to the respondent member to bring evidence and argument to rebut the presumption.120 This is the holding of the Appellate Body which established the rule on burden of proof in WTO litigation. This line of reasoning with regard to burden of proof has been followed in the subsequent rulings of the Appellate Body.
In EC—Hormones,121 the EC imposed a ban on domestic sale and import of beef taken from animals treated with six kinds of hormones. An international standard formulated by the Codex Commission stated that, with respect to two hormones, beef products involved no recognizable risk as long as the residue of hormones remained within the limit stated in the standard. The United States and Canada filed a complaint with the WTO alleging that this EC measure was contrary to the SPS. The Panel stated that the measure in question was contrary to the SPS. The Appellate Body upheld the Panel’s finding and held also that the EC measure was contrary to the SPS.
With regard to burden of proof, the Panel held that it was incumbent on the complaining party to adduce evidence that the responding party’s measure was not based on a sufficient risk assessment under Article 3.1 of the SPS Agreement. The Panel also held that it was the responsibility of the party which had invoked a measure under Article 3.3 of the SPS Agreement to prove that its measure would be justified under this provision although not based on an international standard. The Panel found that Articles 3.1 and 3.3 of the SPS Agreement had a general rule–exception relationship in which Article 3.3 operates as an exception to the general rule in Article 3.1 and whoever invokes an exception to the general rule is responsible to prove that its measure is justifiable under the provision granting exception.
The Appellate Body reversed both of those holdings of the Panel and stated that the party challenging a SPS measure of another member was responsible for proving that the measure was contrary to the SPS and also that the measure could not be justifiable by a provision for derogation.122 In the view of the Appellate Body, Article 3.3 is not an exception to the general rule incorporated in Article 3.1 but it simply excludes from its scope of application the kinds of situations covered by Article 3.3 and gives it special right. On this basis, the Appellate Body held that it was incumbent on the complaining party to adduce evidence to show that the responding party’s measure was contrary to Article 3.1 and did not satisfy the requirement of Article 3.3 of the SPS Agreement. The Appellate Body stated that this conclusion did not affect the general rule that a complaining party has the burden of proving a prima facie case of inconsistence.123
References(p. 102) Another recent SPS case in which the issue of burden of proof under this Agreement was taken up is EC—GMO.124 In 2003, the United States, Canada, and Argentina took the EC to the WTO on the ground, inter alia, that the EC violated provisions of the SPS by imposing a moratorium with respect to approval of import of agricultural products produced with biotechnology (GMO products). The Panel published a report in 2006 in which it approved some EC measures but invalidated some others. In this case, six members of the EC invoked temporary safeguards prohibiting import of GMO products and the complainants challenged this. The EC invoked Article 5.7 and argued that the measures in question were justified by this provision. The Panel examined the relationship between Articles 2.2 and 5.1 of the SPS on the one hand and Article 5.7 of the SPS on the other. Article 2.2 of the SPS requires that members base their SPS measures on sufficient scientific evidence and Article 5.1 requires that members run risk assessment with regard to SPS measures125 that they intend to adopt and allows them to enforce such measures only when such measures are supported by sufficient scientific evidence. On the other hand, Article 5.7 of the SPS allows members to adopt temporary SPS measures on the basis of available evidence in accordance with the requirements stipulated in that Article when sufficient scientific evidence is not available. The question here was the burden of proof with respect to the relationship between Articles 2.2 and 5.7 of the SPS and Articles 5.1 and 5.7 thereof.
The Panel made a general statement by citing the EC—Tariff Preferences case126 that when a provision of a treaty permits a measure under certain conditions which would be inconsistent with another provision of the treaty if a permission was not granted under such conditions, the claimant who alleged a violation of the provisions bore the burden of proving (a) that the measure in question was inconsistent with the latter provision and (b) that it did not satisfy the conditions for permission. The Panel then examined the relationship between Articles 2.2 and 5.7 of the SPS Agreement.
Article 5.7 of the SPS permits members to take temporary SPS measures when there is no sufficient evidence to take SPS measures in accordance with Article 2.2 of the SPS. Article 2.2 refers to Article 5.7 by the phrase ‘except as provided for in paragraph 7 of Article 5’. For this reason, the Panel said that Article 5.7 is not an exception to Article 2.2 but creates an independent right for a party invoking it. The Panel held that the claimant alleging a violation of Article 2.2. of the respondent’s SPS measure must prove also that the respondent measure was not permitted by Article 5.7 of the SPS. Likewise the Panel held that the claimant was responsible to prove that the respondent’s SPS measure was inconsistent with Article 5.1 and also that it was not allowed by Article 5.7. In conclusion, the Panel held that the EC measures were in violation of Article 5.1 and were not permitted by Article 5.7.
References(p. 103) In subsidy areas, a similar issue arose. In Brazil—Aircraft,127 the Appellate Body held that the sentence in Article 27.2 of the SCM Agreement which states ‘The prohibition of paragraph (a) of Article 3 shall not apply to: (a) developing country Members referred to in Annex VII, (b) (omitted)’ does not grant an exception from Article 3.1 (a) which prohibits subsidies but conferred an independent right to members invoking it. Thus the burden of proof is on the claimant to establish that the respondent’s measure did not satisfy the requirement of Article 27.2 of the SCM Agreement.
The latest case in line with the above series of appellate rulings is India—Additional Import Duties128 in which India imposed certain additional duties on imports of alcoholic products in addition to regular duties. The United States, the claimant, brought a case against India on the ground that this amounted to an imposition of import duties in excess of the concession which India had made under GATT Article II:1(b). India argued that these additional taxes were imposed as border tax adjustments under GATT Article II:2(a) and, therefore, should be justified. The Appellate Body ruled that Article II:1(b) and Article II:2(a) are ‘closely inter-related provisions’ and the United States was required to present arguments and evidence that the Indian additional duties were not justified under Article II:2(a).
In discussing the burden of proof issue, the Appellate Body noted that it was incumbent on the United States as the complaining party to establish a prima facie case in violation of GATT Article II:1(b) as well as to present arguments and evidence that the additional duties were not justified under Article II:2(a).129 Then India was required to produce arguments and evidence that the additional duties were allowable under Article II:2(a). Following India’s rebuttal, the burden shifted to the United States to rebut India’s rebuttal with appropriate legal argument and evidence.130 Thus, in this case the Appellate Body ruled that the United States had the burden of persuasion and the initial burden of going forward with arguments and evidence with respect to both the affirmative provision of the GATT (Article II:1(b)) as well as the relevant provision for border tax adjustment (Article II:2(a)). But at this point, the duty of going forward with arguments and evidence shifted to India. After India’s submission of arguments and evidence, the duty of going forward returned to the United States. As the Appellate Body stated, ‘Once the responding party seeks to rebut arguments and evidence offered by the complaining party, the complaining party, depending on the nature and content of the rebuttal submission, may need to present additional arguments and evidence in order to prevail on its claim.’131 The Appellate Body thus made clear that although the ultimate burden of persuasion in a WTO case rests on the complaining party, the burden of going forward with arguments and evidence can shift from party to party, depending on the circumstances of the case.
In all of the above rulings of the Appellate Body, the following formula seems to apply. Provision A in an agreement prohibits Measure X, Provision B in the same agreement permits Measure X under certain conditions (the derogation clause) and either Provision A or Provision B refers to the other or both are closely interrelated, References(p. 104) then Provision B is not an exception. Provision B is a provision excluding members from application of the rule in Provision A and providing an independent right to members invoking it. In this situation, the claimant which alleges that the respondent’s measure is in violation of Provision A is required to prove not only that it is contrary to Provision A but also that it does not satisfy the requirement for Provision B.
There is another series of Panel and appellate rulings in which ‘exceptions’ to general rules are dealt with. In those cases, the principle enunciated is somewhat different. In United States—Gasoline, one of the issues was whether the US measures to deal with air pollution fell under GATT Article XX. Speaking of burden of proof as to whether the measure in question goes against the chapeau of Article XX, the Appellate Body stated: ‘The burden of demonstrating that a measure provisionally justified as being within one of the exceptions set out in the individual paragraphs of Article XX does not, in its application, constitute abuse of such exception under the chapeau, rests on the party invoking the exception…’132 In EC—Asbestos, the EC was accused by Canada of violating GATT Article III for the reason that it had prohibited the sale and importation of asbestos while permitting the sale and importation of like products. The Panel stated: ‘We consider that the reasoning of the Appellate Body in United States—Shirts and Blouses from India is applicable to Article XX, in as much as the invocation of that Article constitutes a “defense” in the sense in which that word is used in the above-mentioned report. It is therefore for the European Communities [the respondent] to submit in respect of this defense a prima facie case showing that the measure is justified.’133 This part of the report was not reviewed by the Appellate Body.
The above line of appellate and Panel reports shows that, in invoking exceptions incorporated in GATT Article XX, the party invoking paragraphs of Article XX and chapeau is responsible for demonstrating that the challenged measure falls under them and is justifiable. This is continued in EC—Tariff Preferences in which the Enabling Clause was at issue. In this dispute, the EC made a ‘drug arrangement’ with some developing countries granting them tariff preferences. On being excluded from this preferential treatment, India brought a claim against the EC that this differential treatment violated GATT Article III. The EC claimed that this preferential treatment was allowed under the Enabling Clause which states ‘Notwithstanding the provisions of Article I of the General Agreement, Members can confer preferential tariffs to developing country Members’.
Generally the Appellate Body followed the precedents on Article XX in EC—Tariff Preferences. However, it provided a different twist in this case. According to the Appellate Body, the burden of proof for an exception falls on the respondent and from this allocation of the burden of proof, ‘it is normally for the respondent, first, to raise the defense and, second, to prove that the challenged measure meets the requirements of the defense provision.’134 However, the Appellate Body added that, in a case involving the Enabling Clause, the complainant has to define parameters within which the respondent makes a defence in its complaint. According to the Appellate Body, the References(p. 105) responsibility of the complainant is merely to identify those provisions of the Enabling Clause with which the scheme is allegedly inconsistent without bearing the burden of establishing the facts necessary to support such inconsistency.135 Here the Appellate Body somewhat aggravated the burden of proof on the part of complainant in cases in which the Enabling Clause is at issue.
The above review of Panel and appellate rulings seems to indicate that there is a distinction between the burden of proof in respect of the SPS, the TBT, and the SCM Agreement on the one hand and that in respect of GATT Article XX and the Enabling Clause on the other. The Appellate Body explains that this difference comes from the fact that, in the SPS, the TBT, and the SCM agreements, a derogation clause allowing members to take measures which would contravene the prohibitions incorporated in those agreements but for that derogation clause is not an exception, but it provides a right to take such a measure. The Appellate Body arrives at this conclusion by comparing the literal structures of the relationship between the relevant provisions and the derogation clauses in the SPS, the TBT, and the SCM agreements to Article XX, the Enabling Clause, and provisions in the GATT from which exceptions Article XX/the Enabling Clause provide. This dichotomy seems to be somewhat artificial. However, this follows from the principle of literal interpretation which has been adopted by the Appellate Body.
Judicial economy is a recognized principle of the judicial and administrative process whereby an adjudicating body is authorized to deal only with issues necessary to dispose of the dispute in question while skipping other issues raised by the parties. In the WTO, while Panels are free to employ judicial economy, DSU Article 17.12 states that the Appellate Body shall address each of the issues raised during the appellate proceeding. Therefore, contrary to the practice of Panels, the Appellate Body is not free to exercise judicial economy. The reason for this difference comes from the role assigned to the Appellate Body. The Appellate Body is charged with the responsibility not only of resolving disputes but also of establishing interpretations of WTO agreements. Therefore, the Appellate Body must address each legal issue raised in an appellate proceeding regardless of whether it is necessary to resolve the dispute.
Korea raised this issue in the US—Line Pipe case.136 In that case, which involved a safeguard measure by the United States, Korea raised a claim regarding the non-application of a safeguard measure to members of a free trade agreement under GATT 1994 Article XXIV. The Appellate Body, however, did not deal with this issue on the ground that the dispute had been resolved by its holding on ‘parallelism’. In light of the text of DSU Article 17.12, which states that the Appellate Body shall deal with each legal issue raised in an appellate proceeding, the dismissal by the Appellate Body of the issue raised by Korea regarding the applicability of GATT 1994 Article XXIV is problematic.
References(p. 106) 3.15 Standard of review
DSU Article 11 states that a Panel should make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability and conformity with the relevant covered agreements. This requires that a Panel treat pieces of evidence produced before it with objectivity and not distort or ignore them and that a Panel analyse the matter before it without bias and reach a reasonable conclusion. In short, this means that a Panel must observe due process of law.137 To facilitate this, DSU Article 13 accords Panels a wide scope of investigative power, including the power to seek information from any individual or body, and members are obligated to cooperate and provide information requested by a Panel. Although DSU Articles 11 and 13 do not refer to the Appellate Body, it is obvious that the Appellate Body is under the obligation to observe due process of law as well.
One of the issues with regard to the standard of review for Panels is how much weight should the Panel give to fact-finding by the authority of the member in question. The question is whether the Panel should defer to the fact-finding of the domestic authority (deference principle) or can engage in independent fact-finding on its own initiative (de novo principle). The Appellate Body stated that the Panel should rely on either the deference principle or the de novo principle in fact-finding. Instead, the Panel must rely on the test enunciated in DSU Article 11 for its objective assessments of fact and law. For example, it should test whether the explanations for the conclusions reached by the domestic authority are reasoned and adequate in the light of other plausible alternative explanations.138
Article 17.6(i) of the Antidumping Agreement provides for a special standard of review for antidumping proceedings. This Article requires that if the establishment of facts by a national antidumping authority was proper and the evaluation was unbiased and objective, even though the Panel might have reached a different conclusion, the Panel shall not overturn the evaluation. Article 17.6(ii) of the Antidumping Agreement requires that where the Panel finds that a relevant provision of the Agreement admits of more than one permissible interpretation, the Panel shall find the national antidumping authority’s measure to be in conformity with the Agreement if it rests upon one of those permissible interpretations.
When one compares the wording of Article 17.6 of the Antidumping Agreement and DSU Article 11, one might have the impression that Article 17.6 declares a deference principle according to which WTO bodies are obligated to respect determinations of national antidumping authorities as an exception to DSU Article 11. However, in US—Hot-rolled Steel,139 the Appellate Body stated that Article 17.6 of the Antidumping Agreement is supplementary to DSU Article 11 with regard to antidumping matters and should not be interpreted as superseding DSU Article 11. This interpretation seems reasonable since DSU Article 3.2 requires Panels and the Appellate Body to interpret References(p. 107) provisions of WTO agreements, including DSU Article 11, according to the established rules of public international law for interpreting treaties (which are incorporated in the Vienna Convention), and Article 17.6 of the Antidumping Agreement contains the requirement that the rules of interpretation established in public international law should be observed. Therefore, both DSU Article 11 and Article 17.6 of the Antidumping Agreement incorporate the same rules of interpretation as expressed in Article 31(1) and (2) of the Vienna Convention.
There are two principles with regard to standards of review: the deference principle and the de novo principle. Under the deference principle, WTO bodies defer to findings of the national authority and do not, in principle, engage in new findings of fact or law unless the findings of the national authority are clearly unreasonable. Under the de novo principle, WTO bodies take a more active role and use evidence that was not before the national authority. Neither of these principles has been applied in their extreme forms. Panels and the Appellate Body have taken a middle-of-the-road approach and applied a test which is a mixture of these two principles depending on the particulars of the case concerned. In EC—Hormones,140 the Appellate Body stated that the proper standard of review is neither the deference principle nor the de novo principle, but the proper test is ‘the objective assessment’ as provided for in DSU Article 11.
In Guatemala—Cement I,141 the Appellate Body enunciated the deference principle by stating: ‘in our review of the investigative authorities’ evaluation of the facts, we will first need to examine evidence considered by the investigating authority. That is, we are not to examine any new evidence that was not part of the record of the investigation’. This expresses the deference principle with regard to fact-findings and, according to this rule, Panels should not look for facts that were not before the investigating authority.
However, the later trend of Appellate Body rulings seem to shift toward ‘judicial activism’. In Thailand—H-Beams,142 the issue was an interpretation of Article 3.1 of the Antidumping Agreement. The Appellate Body stated that Panels are given broad authority to investigate whether the antidumping authority of a member did a proper job in fact-finding, and suggested that Panels can examine not only evidence before the antidumping authority but also other evidence. This seems to be a departure from the principle established by Guatemala—Cement I.
An interesting aspect of this ruling by the Appellate Body is that it allowed the Panel to base its findings on evidence not shown to the parties. This finding may invite criticism that parties are not accorded a sufficient opportunity to be heard.143
This trend was exhibited again in US—Lamb144 in which the issue was the scope of review by the Panel of fact-findings by the US International Trade Commission. The Panel took the view that its task was limited to a review of the determination made by References(p. 108) the US International Trade Commission and to examining whether the published report provides an adequate explanation of how the facts as a whole support the determination of threat of injury by the US International Trade Commission. However, the Appellate Body stated that a panel need not confine itself to the arguments of the investigating authority, and must be open to the possibility that the explanation given by the competent authorities is not reasoned or adequate.
However, in US—Cotton Yarn,145 the Appellate Body stated that Panels must not conduct a de novo review of the evidence and should not substitute their judgment for that of the competent authority.
On the whole, however, it seems that a departure from the rule established by Guatemala—Cement I is clear. The question is whether this trend will continue in future. If the investigative powers of Panels are extended beyond a certain limit, there may be criticism that WTO bodies act beyond their authority.
DSU Article 17:6 states: ‘An appeal shall be limited to issues of law covered in the panel report and legal interpretation developed by the panel’. In light of this provision, it is clear that a review by the Appellate Body is limited to ‘legal issues’ rather than ‘factual issues’. However, legal issues can be interpreted liberally and include not only interpretations of WTO agreements in a narrow sense of the term but also such things as the characterization of law in a member, for example, a question of whether a member’s law is an antidumping law or competition law.146
The WTO dispute settlement system is a valiant attempt to subject controversies over international trade to the rule of international law. This ambitious goal will be advanced if this system continues to be respected, especially by larger states, so that rule-oriented settlements prevail over power-oriented dispute settlement. The WTO system has unabashedly adopted the judicial model of dispute settlement.
This effort deserves high praise, but, even if it is successful, there have been some criticisms raised against the dispute settlement process at the WTO. Some argue that the Appellate Body has overstepped the boundary assigned to it and, in fact, ‘made law’ instead of interpreting law.147 We refrain from making any judgement as to whether the Appellate Body has overstepped its boundaries or not. However, the Appellate Body has the final word in a dispute settlement since the report of the Appellate Body in a dispute is adopted automatically by negative consensus voting at the DSB, and the winning party always favours its adoption. Even if the Appellate Body makes a mistake, there is no mechanism to correct it. In a domestic jurisdiction, if the Supreme Court makes a mistake, the legislature can enact a law to correct it. However, in the WTO process, the political branch (the General Council and the Ministerial Conference) does not commonly exercise this power.
References(p. 109) This means that there are no effective ‘checks and balances’ operating within the WTO. One way to correct this omission is to modify Article IX:2 of the WTO Agreement to allow the adoption of an interpretation of a WTO agreement by two-thirds or a simple majority of the members. However, this would mean that the General Council or the Ministerial Conference could overturn a ‘judicial or quasi-judicial’ decision of a Panel or the Appellate Body for political reasons. This would be contrary to the idea of establishing a judicialized dispute settlement process.
Another solution may be to create a peer review group in the WTO that would examine reports of the Appellate Body, criticize them if there is any problem of interpretation, and periodically publish the results. This group would have no power to overturn the rulings of the Appellate Body, but the Appellate Body could study the reports of this group and gain insight from them. This peer review group would consist of legal experts with established reputations in international law or WTO law, such as academics, judges, and practising lawyers.148
WTO members would be excluded because the purpose of this ‘peer review’ is not to determine whether rulings of the Appellate Body are politically palatable, but to judge whether they are legally sound and balanced. WTO members already have the opportunity to express their views when the DSB adopts a report of the Appellate Body.149
There is also a need for alternative dispute resolution methods and more diplomatic and negotiation-based dispute settlement. GATT 1947’s numerous provisions for diplomatic consultation as well as the DSU’s authorization of conciliation, mediation, good offices, arbitration, and expert review are largely overshadowed by the quasi-judicial procedures and the strict timetables of the Panels and the Appellate Body. While the WTO system is a vast improvement, there is a need to increase the role of the alternative dispute settlement systems that may be more suited to certain types of disputes than the rule-based system.
There is also a need to open the dispute settlement process to allow greater transparency and participation by non-governmental organizations.150 In addition, there is a need to expand the resources of developing countries to allow them to participate more effectively in the system.References(p. 110)
1 For an excellent detailed treatment of the subject, see Ernst-Ulrich Petersmann, The GATT–WTO Dispute Settlement Mechanism, International Law, International Organizations and Dispute Settlement (Kluwer Law International, 1997). For a practical handbook, see N. David Palmeter and Petros C. Mavroidis, Dispute Settlement in the World Trade Organization (Cambridge University Press, 1999). For suggestions and evaluations, see ‘Symposium on The First Three Years of the WTO Dispute Settlement System’ (1998) Nr’ l Law 32l, 609 (1998). For a recent evaluation of dispute settlement at the WTO, see The World Trade Organization, The Future of the WTO, Addressing Institutional Challenges in the New Millennium (The Sutherland Report) (WTO, 2004) Chapter VI, 49–59.
10 The GATT Council, which was set up by resolution of the contracting parties in 1960, ‘consisted of representatives of all GATT contracting parties who wished to assume the responsibility of such membership’, and met almost monthly. John H. Jackson, The World Trading System, 2nd edn. (Bobbs-Merill Co., Inc., 1997) 63.
11 For detailed treatment of this history, see especially Ernst-Ulrich Petersmann, ‘The Dispute Settlement System of the World Trade Organization and the Evolution of the GATT since 1948’ (1994) Common Mkt. L. Rev. 31, 1157; Robert E. Hudec, Enforcing International Trade Law: The Evolution of the Modern GATT Legal System (Butterworth Legal Publications, 1993) 9.
12 These are as follows: (1) The 1966 Decision on Procedures under Article XXIII, 5 April 1966, GATT B.I.S.D. (14th Supp) at 18 (1966) (applying to disputes between a developing country contracting party and a developed country contracting party); (2) Understanding Regarding Notification, Consultation, Dispute Settlement and Surveillance, 28 November 1979, GATT B.I.S.D. (26th Supp) at 210 (1979); (3) The 1982 Decision on Dispute Settlement Procedures, 29 November 1982, GATT B.I.S.D. (29th Supp) at 9, 13–16 (1983); (4) here refer to the Decision on Dispute Settlement Procedures, 30 November 1984, GATT B.I.S.D. (31st Supp) at 9–10 (1984); and (5) The 1989 Decision on Improvements to the GATT Dispute Settlement Rules and Procedures, 12 April 1989, GATT B.I.S.D. (36th Supp) at 61 (1989).
13 The suspension of concessions was authorized in only one case under the GATT. This case involved import restrictions on dairy products maintained by the United States. After a GATT Working Party found that these restrictions were inconsistent with the GATT, the contracting parties authorized the Netherlands to suspend concessions so that the importation of wheat flour would be limited to 60,000 metric tons in 1953. Netherlands Measures of Suspension of Obligations to the United States, 8 November 1952, GATT B.I.S.D. (1st Supp) at 33 (1952). Both the Netherlands and the United States abstained from voting on this authorization. The Netherlands never acted to implement this suspension, presumably because it would have been ineffective. See Robert E. Hudec, ‘Retaliation Against Unreasonable Foreign Trade Practices’ (1975) Minn. L. Rev. 59, 461, 505–7.
14 See Amelia Porges, ‘The New Dispute Settlement: From the GATT to the WTO’ (1995) Leiden J. Int’l L. 8, 115; Norio Komuro, ‘The WTO Dispute Settlement Mechanism: Coverage and Procedures of the WTO Understanding’ (1995) J. World Trade, 29(4), 5, 17–37; John P. Gaffney, ‘Due Process in the World Trade Organization: The Need for Procedural justice in the Dispute Settlement System’ (1999) Am.U. Int’l L. Rev. 14, 1173.
15 Jackson, The World Trading System, n. 10 at 85–8.
16 Hudec, Enforcing International Trade Law, n. 11 at 362–6; Edwin Vermulst and Bart Driessen, ‘An Overview of the WTO Dispute Settlement System and Its Relationship with the Uruguay Round Agreements: Nice on Paper but Too Much Stress for the System?’ (1995) J. World Trade 29(2), 131, 146.
23 DSU Art. 17.1. Art. 4 of the Working Procedure drafted by the Appellate Body (Working Procedures for Appellate Review, Dated 28 February 1997 (WT/AB/WP/3)) provides for ‘collegiality’ of members of the Appellate Body. Members must convene on a regular basis to discuss matters of policy, practice, and procedure, and shall stay abreast of dispute settlement activities and other relevant activities of the WTO. In particular, each member shall receive all documents filed in an appeal. The Working Procedure also provides for an ‘exchange of views’ by stating that ‘the division responsible for deciding each appeal shall exchange views with the other Members before the division finalizes the appellate report for circulation of the WTO Members.’ When a division handling a dispute has finished an oral hearing, the other three members join the three members of the division and hold an exchange of views. In this way, members of the Appellate Body who are not members of the division handling the dispute can keep abreast of what is happening in the case and give their views on the matter. This is a device to ensure consistency of Appellate Body rulings through collegiality of members.
31 Vienna Convention on the Law of Treaties, available at <http://www.un.org/law/ilc/texts/treatfra.htm>.
35 See generally Joost Pauwelyn, ‘The Application of Non-WTO Rules of International Law in WTO Dispute Settlement’ in Patrick F. J. Macrory, Arthur E. Appleton, and Michael G. Plummer, eds., The World Trade Organization: Legal, Economic and Political Analysis (Springer, 2005) 1406–25.
37 Therefore, the WTO/GATT is not a self-contained legal regime. See P. J. Kuyper, ‘The Law of GATT as a Special Field of International Law: Ignorance, Further Refinement or Self-Contained System of International Law’ (1994) Neth. Y.B. Int’l L. 25, 227, 229–32. For an argument that WTO panels have broad authority to decide all relevant questions of public international law, see Joost Pauwelyn, ‘The Role of Public International Law in the WTO: How Far Can We Go?’ (2001) Jam. J. Int’l L. 95, 535, 554–9.
38 Statute of the International Court of Justice, 26 June 1945, Arts. 65–8, 59 Stat. 1055, T.S. No. 993 (1945), available at <http://www.icj-cij.org/icjwww/ibasicdocuments/ibasictext/ibasicsta-tute.htm>.
39 They are not precedents that are legally binding in subsequent cases. Nevertheless, such reports constitute evidence of treaty practice, and subsequent dispute settlement Panels and the Appellate Body are free to cite them and rely on their reasoning. To the extent their reasoning is persuasive, even unadopted reports may be cited and relied on by subsequent panels. In fact, Panels and the Appellate Body closely examine precedents when dealing with a dispute and try not to deviate from the interpretations established by the precedents. ‘Appraisal and Prospects’ in Anne O. Krueger, ed., The WTO as an International Organization (Chicago University Press, 1988) 161, 169–70.
51 GATT Art. XXIII:1 states ‘If any contracting party should consider that any benefit accruing to it directly or indirectly under this Agreement is being nullified or impaired or that the attainment of any objective of the Agreement is being impeded as the result of [failure of another contracting party to comply with its obligations under this Agreement], the contracting party may…make written representations or proposals to the other contracting party…’ (emphasis supplied). Art. XXIII:2 goes on to provide that if no satisfactory solution is achieved, the matter may be referred to the contracting parties for investigation. These provisions seem to suggest that a contracting party can bring a case with regard to a measure of another contracting party to the WTO for a systemic reason even if there is no immediate nullification and impairment caused by it. In other words, a party can bring a case before the WTO DSB with regard to a measure of another party in order to maintain the soundness of the WTO system even if there is no immediate trade effect on the claiming party.
67 For comments and criticisms of the report of the Appellate Body, see Mitsuo Matsushita, ‘A Note on the Appellate Body Report in the Chinese Minerals Export Restrictions Case’ (Winter 2012) Trade, Law and Development IV(2), 400 et seq.
73 DSU Art. 13.2. The rules and procedures governing Expert Review Groups (ERGs) are set out in DSU Appendix 4. Their function is to make available technical and scientific expertise to Panel members. ERGs work under the authority of the Panels, which decide their terms of reference and their working procedures. DSU Appendix 4, para. 1. Their initial reports are advisory only. DSU Appendix 4, para. 6.
80 Ibid. Under DSU Art. 17.9, the Appellate Body has authority to draft its Working Procedures.
85 DSU Art. 17.4. On the structure and functions of the Appellate Body, see Victoria Donaldson, ‘The Appellate Body: Institutional and Procedural Aspects’ in Patrick F. J. Macrory, Arthur E. Appleton, and Michael G. Plummer, eds., The World Trade Organization: Legal, Economic and Political Analysis, Vol. I (Springer, 2005) 1277–340; Mitsuo Matsushita, ‘Some Thoughts on the Appellate Body’ in Macrory, Appleton, and Plummer, eds., The World Trade Organization (2005) 1389–404.
91 Ibid. para. 6.152.
95 DSU Art. 22. It is unclear whether the sanction procedure under Art. 22 can go forward before the Art. 21.5 and 21.6 procedures are complete. In EC—Bananas, the United States argued that Art. 22 may be invoked before the completion of Art. 21 proceedings. In fact, the WTO arbitrators released both findings at once. This seems to be a precedent that Arts. 21 and 22 proceedings can go forward simultaneously.
105 For the major cases in which a non-violation complaint was dealt with, see the following: Japan—Film, Panel report, WT/DS44/R, 22 April 1998; EC—Asbestos, Panel report, WT/DS135/R, 18 September 2000; Appellate Body report, WT/DS135/AB/R, 5 April 2001.
106 See European Communities—Payments and Subsidies Paid to Processors and Producers of Oilseeds-Related Animal Feed Proteins, 25 January 1990, GATT B.I.S.D. (37th Supp) at 86, para. 148 (1991). Often the benefit is a tariff concession. The Australian Subsidy on Ammonium Sulfate, 3 April 1950, GATT B.I.S.D. II at 188, para. 10 (1952); Treatment of Germany Imports as of 16–17 (1953).
110 See also US—Wheat Gluten, Appellate Body report (AB-2000-2-10), WT/DS166/AB/R, 22 December 2000, para. 172; US—Upland Cotton, Panel report, WT/DS267/R, 21 March 2005; Korea—Commercial Vessels, Panel report, WT/DS273/R, 11 April 2005.
113 In US—Hot-rolled Steel, Appellate Body report (AB 2000-1) WT/DS138/AB/R, 5 October 2000, para. 362, the Appellate Body first invoked DSU Art. 17.9 for this purpose, reasoning that if Panels are authorized to accept amicus briefs, the Appellate Body, which has authority to adopt its own working procedures, could do the same.
116 EC—Sardines, Appellate Body report, paras. 153–70. For details of issues surrounding amicus curiae briefs, see C. L. Lim, ‘The Amicus Brief Issue at the WTO’ (2005) Chinese Journal of International Law 4(1), 85–120.
117 For a detailed study of the allocation of burden of proof, see Michelle T. Grando, ‘Allocating the Burden of Proof in WTO Disputes: A Critical Analysis’ (August 2006) Journal of International Economic Law 9(3), 615–56.
119 It should be noted that the ATC Agreement was transitory in nature, that is, it was an agreement to last only for five years after the coming into being of the WTO. It was a transition process from the MFN Agreement (the Multi-fibre Agreement) to GATT Art. XIX. Therefore, the ATC Agreement represented ‘a world of imperfection’ in which import restrictions (safeguards) were not exceptions.
125 Risk assessment in a narrow sense means a scientific examination of whether a substance generates hazards to life and health. In a broad sense, however, it includes an assessment of ‘risk management’, that is, an assessment of manageability or controllability of risk. For example, a risk may be small in scientific experiment but there may be circumstances in which it is difficult administratively to prevent such risk from spreading widely. Proper risk assessment should take into account both scientific aspect and administrative or managerial aspects.
129 Ibid. para. 190.
130 Ibid. para. 191.
131 Ibid. para. 191.
135 Ibid. paras. 114–15.
140 See n. 121.
148 The Sutherland Report (see n. 1) proposes that a group of experts be established to review rulings of the Appellate Body and, if the group thinks it appropriate, recommends that the General Council exercises its power to adopt an exclusive interpretation of provisions of WTO agreements under Art. XI:2 of the WTO Agreement (see 49–59 of the Report).