WTO Governance and Dispute Settlement: An Assessment from Latin American countries
Draft, November 2002 Valentina Delich/ LATN
Introduction While the World Trade Organization (WTO) was not thought to “govern” the global economy not even international trade relations as a whole, it accomplishes some of the State governmental functions at an international level. Namely, to be a recognized forum for trade rule-making –and thus it performs a legislative function- and to enforce such rules through a dispute settlement system –and thus it discharges a quasi-judicial function-. To be sure, the WTO is not a world trade government, but after its creation, the concept of State sovereignty must be redefined, at minimum to encompass the idea that national legislation on trade must be compatible with WTO rules and therefore the sovereign right to legislate has been curtailed and that WTO dispute resolution may proceed without the consent of the State, and therefore an element of jurisdiction has been delegated. WTO rules, rule-making and enforcement are severely questioned on different grounds. In effect, since the debacle of Seattle, the WTO “governance deficit” issue has gained salience both in trade specialized literature and in newspapers. Developing countries as well as other actors, such as NGOs, are among the most visible criticizers. However, under the “governance” heading there are quite different issues and also actors understand and prioritizes them quite differently. Under the governance umbrella, the WTO decision making procedures, internal and external transparency and accountability are discussed. Also, WTO rules‟ goodness, its enforcement and special and differential treatment for developing countries are part of the governance debate. In addition to the fan of issues, it must be added the multiplicity of actors and their diverse standing in the organization and in the international system. As far as the WTO is an intergovernmental organization, countries are primary and –for nowexclusive formal actors of the system (and thus, its formal constituency). In contrast, NGOs‟ and multinational corporations legitimacy to participate in the organization‟s work is a disputed question. From this array of WTO governance issues, those related to the DS system are relevant to developing countries, and Latin Americans are no exception. In effect, the DS system has become a consequential piece of the trade scenario for all, but particularly for developing countries. In effect, the new DS system incorporates the “negative consensus” at crucial stages of the proceedings and as a consequence, countries cannot block the proceedings. Panel or/and Appellate Body reports are always adopted by the Dispute Settlement Body. What make developing countries so sensitive to the functioning of the DS system is the combination between the automaticity of the system and the characteristics of their incorporation to the WTO, namely, the new conceptualization of special and differential treatment and the fact that disciplines and rules adopted in the Uruguay Round are stricter and more intrusive over domestic policies. In this sense, since the creation of the WTO in 1995, developing and developed countries are subject to the same set of rules and implementing similar commitments1. Differences
1
This is a consequence of the single undertaking principle coupled with a new elaboration of the Special and Differential Treatment (S&D) concept. The single undertaking principle as the UR negotiation deal breaker obliged countries to take the whole package of rules and commitments if they wanted to be WTO members. In
do not lie in the type of commitments countries have taken, but in the pace and deepness of their implementation. In addition, the WTO incorporated disciplines on intellectual property rights, sanitary and phitosanitary measures, and investments, among others, traditionally the realm of domestic politics. Simply stated, there is a strong enforcement of stricter and intrusive rules with no special consideration to the countries‟ level of development -other than different time lines for implementation of commitments-. As soon as the DS system was set in place, concerns over the expertise required to bring and defend cases, the beneficiaries and the kind of outcomes it would produce, straight off in developing countries. As first cases were solved, research studies highlighted and demarcated more precisely those problems and offered strategies and technical alternatives to bettering the functioning of the DS system. Most of these studies considered the DS system as a highly beneficial asset to the trade system and that did not need major improvements if considered as a whole2. In addition, the review process of the DSU in the WTO Dispute Settlement Body enabled countries to suggest changes to set to rights the system3. Proposals to amend the DSU are already in the table and a work program was agreed upon the last Ministerial Conference of the WTO in Doha4. Taking into account the six years experience with the WTO DS system and that negotiations are underway, this presentation attempts to point out pros and cons of the DS in relation to Latin American countries. To do so, firstly there is an assessment of the working of the DS system. Secondly, there is an speculation on the consequences of having a conflict-solving procedure so streamlined while rule making is proving to be a weary process. Finally, there is a summary of the negotiation proposals and some concluding remarks. Latin America and the DSU: FAQs 5. ¿Are Latin American (LA) countries better off with the WTO DS system than the GATT‟s? ¿Is there any evidence of a system bias, i.e. favoring the stronger party in a dispute? ¿Has Latin American countries being particularly targeted? ¿How effective were S&D clauses included in the DSU?. When compared with GATT, there is no doubt that the WTO dispute settlement system provides developing countries with the opportunity to defend their rights and to pressure other countries to meet their obligations in a more balanced way6. However, this comparison is of limited value when analyzing Latin American countries. This is so because most LA countries were not signatories of the GATT (such as the Andean
respect to S&D clauses, its pivotal idea is the reduction of problems stemming from implementation, mainly through the allowance of extended deadlines to comply . 2 See, John Jackson, ibid, Julio Lacarte Muró and Petina Gappah (2000) “Developing countries and the WTO Legal and Dispute Settlement System: A View from the Bench” in Journal of international Economic Law, Vol 3 Number 3, September 2000; 3 The review process started in 1997. 4 Following the work program accorded in Doha, negotiations on the DSU are not under the principle of single undertaking, and therefore, if consensus among Members is reached, modifications can be set in place before the negotiations end. 5 Part of this section draws on Delich, Valentina “Latinoamerica y el sistema de solución de diferencias de la Organización Mundial del Comercio” in La nueva agenda del comercio en la OMC, Marcelo Olarreaga and Ricardo Rocha editors, The World Bank Institute and the University of Rosario, Bogota. 2000. 6 See, Weston, Ann and Delich, Valentina “Settling Disputes” in The Premise and Promise of Trade Relations, edited by Diana Tussie, Palgrave, forthcoming.
countries that negotiated its accession during the Uruguay Round) or, when formally in, they were actually auto-excluded (due to their import substitution policies, the exclusion of agriculture and textiles from GATT negotiations and the use of S&D clauses). Therefore, a Latin American evaluation of the dispute settlement system should be related to WTO rather than GATT history, reviewing not only the number of cases, claimants, defendants, and themes but also examining the working of S&D clauses. Overall, after six years, the dispute settlement system has proved both to be efficacious in terms of procedures and effective in terms of the number of conflicts settled and reports already in implementation stage. Out of 248 cases initiated, 84 involve Latin American countries (34%). From those 84 cases, 54 involve developed and LA countries (65%) and 21 are cases between LA countries (25%)(the rest involve LA with other developing or newly industrialized countries). From the 56 cases between LA and developed countries (European Union, Canada, Japan and the United States), in 27 cases Latin America is the petitioner (48%) and in 30 cases Latin America is the defendant (52%)7. Up to July 2002, there were 59 appellate body and panel reports adopted, from which 12 involved a LA country (22%). From those 12, in 5 LA Countries are petitioners (42%) and in the other 7 cases LA countries are defendants (58%).8 Numbers then suggest that developing countries are not special targets of developed countries. The fact that most of the settled cases were win by the claimant no matter its developed-developing characterization strongly suggest that the procedure is not biased in favor of the stronger party in a dispute. Of course, the fact that the procedure is not biased to any party in particular does not speak of the nature (biased or not) of the rules applied. And still if accepted that substantive rules are not biased and neither DS procedures are, there is the question of human and financial capacity to litigate effectively. Table1 Consultations initiated by LA countries against developed countries, pending consultations and panel and appellate body reports adopted.
Defendant Petitioner
Brazil
United States
Standard for reformulated and Conventional Gasoline (with Ven) Continued dumping and subsidy offset act of 2000 (with Chile) US Patents Code Anti dumping duties on silicon metal. Countervailing duties on certain carbon steel
Canada
Measures affecting the export of civilian aircraft
CE
Measures Affecting importation of certain poultry products Measures affecting differential and favorable treatment of coffe Measures affecting soluble coffe Anti dumping duties on malleable cast iron tube or pipe fittings
7 8
Source: Latin Trade Network, LATN at www.latn.org.ar WT/DS/IV/5
Venezuela
products Standard for reformulated and Conventional Gasoline (with Br) Bananas
Guatemala/Hondu ras/Mexico and Ecuador/Panama Mexico Chile
Peru Uruguay
Imports of fresh or Chilled Tomatoes TRADE DESCRIPTION OF SCALLOPS (WITH PERU) Continued dumping and subsidy offset act of 2000 (with Br) TRADE DESCRIPTION OF SCALLOPS (WITH CHILE)
Trade Description of sardines Implementation of the RU commitments concerning rice
Source: own elaboration with data from www.wto.org Pending: italics Active panels: underlined Panel and appellate body Repots adopted: bold Mutually agreed solutions : CAPITAL LETTERS
In browsing cases initiated by Latin American countries, it is difficult to find the common problematique. Rather, such cases exhibit the different impact that the regulation of international trade have in the heterogeneous Latin American economies9. True, Latin American countries share the fact of being developing countries, but each has its own pattern of insertion in the international market. Since the importer/exporter position on any given product or range of products at the WTO determinant of a country trade interest and sensitiveness, the consequences of a particular measure implemented by a WTO member will hardly be similar across LA countries. However, such a general paragraph could be misleading. Indeed, when the focus moves from the Agreement invoked to the product object of the conflict, it becomes evident that, except for Brazil which has initiated cases related to civilian aircraft, all other cases relates to primary exports: petrol, tomatoes, scallops, rice, sardines, bananas, etc. Broadly, and expectedly, LA countries face market access problems for primary products, and the obstacles they encounter may stem from different Agreements, according to the type of measure the intended export market‟s government has set up. Up to the writing of this presentation, only one conflict agglutinated all developing countries over the same position: the dispute over intellectual property rights and public health that initially pitted the United States vs. Brazil. The case was filed by the US against Brazil within the DSU frame – a consultation on the Brazilian patent law, questioning the concept of patent exploitation and the conditions for compulsory licenses- but Brazil brought the
9
See Delich, Valentina (2000) ibid.
issue to the TRIPS Council on grounds of problems over the interpretation of the Agreement. While exhibiting a successful and internationally praised program to combat AIDS, Brazil argued for a flexible interpretation of the TRIPS commitments in order to allow countries for the implementation of health policies. The Brazilian stance received full support from all developing countries as the TRIPS Agreement is one of the costliest result of the Uruguay Round for them. In effect, the protection and enforcement of intellectual property rights are the easiest associated costs for developing countries of the Uruguay Round Agreements. As easily, IPRs commitments can be singled out as the United States‟ demand for a successful conclusion of the Uruguay Round negotiation. Even if not all issues in the TRIPs Agreement cleave developing and developed countries (for instance, geographical indications confront the United States with the European Union), most of them do. And even if not all IPRs matters hold the same magnitude across Latin American countries (for instance, the traditional knowledge debate is consequential for Andean countries while minor for Argentina and Uruguay) most of them do. Finally, at the last WTO Ministerial Meeting in Doha, a special Declaration on TRIPS and Public Health was adopted in which Members “agree that the TRIPS Agreement does not and should not prevent Members from taking measures to protect public health. (...) we affirm that the Agreement can and should be interpreted and implemented in a manner supportive of WTO Members„ right to protect public health and, in particular, to promote access to medicines for all.” However it is difficult to find another Agreement such as TRIPS, in the sense that most, if not all, developing countries are patent importers/users and most developed are patent exporters/producers. A final note on the cases initiated by Latin American countries and the Agreement on Sanitary and Phitosanitary Measures (SPS). Given that LA countries main exports still are primary and agricultural goods and that market access problems often adopt the form of a non tariff barrier (particularly, sanitary and phitosanitary barriers) one could expect LA countries to be very active in this area, i.e. initiating cases where their export interests and problems are. In this sense, the SPS Agreement principle -to base any sanitary and phitosanitary measure on scientific principles-, the burden of proving the prima facie inconsistency of the measure and the obligation to demonstrate the three elements of article 5.5 (ie. different appropriate level of protection, arbitrary or unjustifiable, that results in discrimination or disguised restriction on international trade) becomes very difficult and onerous for a developing country both as petitioner and demanded. The costs, expertise, and time insuming to carry out a risk assessment in terms of the international standards developed by Codex Alimentarius, IPPC and the IEO virtually results in developing countries defenseless.
Table 2 Consultations and panels brought against LA countries by developed countries Petitioner Defendant
United States
Certain measures affecting imports of footwear, textiles, apparel and other items. USA Measures affecting imports of footwear Patent protection pharmaceuticals and test data protection for agricultural chemicals. Certain measures on the protection of patents and test data.
Canada
Japan
CE
CERTAIN MEASURES AFFECTING IMPORTS OF TEXTILES AND CLOTHING. Safeguard on imports of footwear Countervailing duties on imports of wheat gluten Export of bovine hides and imports of finished leather Antidumping measures on imports of drill bits Definitive antidumping measures on imports of ceramic floor tiles Certain automotive investment measures Measures affecting payment terms for imports Measures on import licensing and minimum import prices
Argentina
Brazil
Certain automotive investment measures
Export Financing for aircraft
Certain automot ive investm ent measur es
Mexico
Chile
Measures on minimum import prices MEASURES AFFECTING PATENT PROTECTION Antidumping investigation of high fructose corn syrup Meassures affecting trade in live swine Measures affecting telecommunicatio ns services Taxes on alcoholic
Customs valuation of imports
Taxes on alcoholic
beverages
beverages Taxes on alcoholic beverages MEASURES AFFECTING THE TRANSIT AND IMPORTATION OF SWORDFISH
In browsing cases against LA countries by developed countries, Argentina leads with 10 cases, Brazil followed with 9 cases (but four of which relates to the automotive investment measures) and Mexico with 5. No case has been raised against a Latin American small economy neither to any of the Andean countries. In terms of the Agreement invoked, at first sight there is no a pattern: TRIMs, TRIPs, Anti dumping, Safeguards, etc. Neither in terms of products: footwear, textiles, alcoholic beverages, ceramic floor tiles, swordfish, telecommunications, etc. Most of the cases were initiated by the US and the EC (Japan has initiated only one and Canada has only the case against Brazil). Turning to the use of S&D clauses, it is remarkable that even though the Uruguay Round incorporated special and differential treatment clauses in all Agreements, including the DSU, they are not proving to be a significant instrument. Most of the DSU clauses regarding developing countries have proved to be more declaratives than operatives. For instance, the concept of “special attention” to developing country particular problems and interests during consultations included in Article 4 (10) has no operative content and neither was it developed by panels or AB reports. However, the problem of how to make S&D dispositions operative it is not the sole right of the DSU S&D clauses. Similar problems have been encountered in the Agreement of anti dumping10. The DSU, one component of the WTO system If the DSU is examined in a wider scenario, the WTO system, the contrast between the automaticity of the DS mechanism and the consensus based rule making procedure becomes apparent. While the enforcement of rules advances at full steam, rule making is barely moving. One of the concerns this situation has exacerbated relates to the role of the Appellate Body in respect to interpretation of rules. Strictly, interpretation of the WTO Agreements is an exclusive faculty of the Ministerial Conference and General Council while clarification correspond to the DSB11. In addition, article 3 of the DSU states that “recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements.“ However, the dividing line between interpretation and clarification is often very thin/blurred.
10 11
Delich, Valentina (2000) ibid. “The Ministerial Conference and the General council shall have the exclusive authority ot adopt interpretations of this
Agreement and of the Multilateral Trade Agreements. In the case of an interpretation of a Multilateral Trade agreement in Annex 1, they shall exercise their authority on the basis of a recommendation by the Council overseeing the functioning of that Agreement. (...) Article IX, Decision Making of the Agreement Establishing the WTO.
The problems would be of three kinds. First, further delay in reaching consensus over the interpretation of controversial or unclear dispositions increases the likelihood of one of this clauses being discussed by the AB within a case submitted to it. The DSU does not foresee causes that the AB could invoke in order not to solve a case nor that the AB could ask the General Council for interpretation. This issue becomes particularly grave in relation to the TRIPS Agreement because its implementation has evidenced that countries widely differ on its interpretation. As noted in Weston and Delich (2002), a second kind of problems is that even if the countries involved in the case can be satisfied with the AB interpretation, there is a question about how to address the interests of other countries. In this sense, one suggestion is that other countries be allowed to make limited submissions to the AB even if they had not previously registered a „third-party‟ interest (Canada DFAIT, 1999a). Another is that the results from a panel or AB should only apply in that case; more radically, where changes in rights and obligations are at stake, the matter should be brought to the General Council for approval by all member countries (Das in Raghavan, 2000). Others have argued that panel and AB decisions might be more acceptable if their deliberations were open to the public, and if members of the public were able to participate through submissions. However, also at issue is the capacity of panels and ABs to cope with additional inputs, and developing country NGOs‟ capacity to participate. Finally, the third kind of problems of the AB alleged interpretations is the issue of adding or diminishing rights, since that would change the balance of rights and obligations without counter-concessions being made. The role of the Appellate Body, and particularly the limits of its mandate in relation to WTO rule‟s interpretation and Members authority over rule making, has been severely questioned by developing countries. In particular, Pakistan has presented a document stating the necessity “to clarify the relevant provisions in the DSU to make it clear that the responsibility for clarifying or modifying the provisions of the WTO Agreements clearly rests with the WTO member countries and that it would not be appropriate for the Appellate Body to usurp these functions under the guise of interpreting law on the basis of contemporary developments. Specifically, Pakistan has stated that “It would be necessary to clarify that the provisions of Article 13.2 would not permit panels or the Appellate Body to take into account “unsolicited information” including “amicus curiae briefs from private parties.” 12 Negotiations on the DSU: issues and positions Negotiations on the Dispute Settlement Understanding are underway since 1997 in the Dispute Settlement Body. In addition, the Work Program adopted at the Doha Ministerial Conference, reads “we agree to negotiations on improvements and clarifications of the Dispute Settlement Understanding. The negotiations should be based on the work done thus far as well as any additional proposals by Members, and aim to agree on improvements and clarifications not later than May 2003, at which time we will take steps to ensure that the results enter into force as soon as possible thereafter.”13 Following, there is a review of the proposals already in the table.
12
WT/GC/W/162 Ministerial Declaration, adopted in the WTO Ministerial Conference held in Doha, Quatar, November 2001, paragraph 30.
The European Union submission focus on: Changing the way panelists are selected in order to provide them a more permanent basis for their work.14 Resolving the sequencing problem between article 21.5 and article 22 DSU, clarifying that article 21.5 is a pre requisite of article 22. Making trade compensation a more realistic alternative to suspension of concessions or other obligations. In this sense, the EC notes that the DSU (article 22.2) gives only 20 days after the end of the reasonable period of time to conclude negotiations of compensation and that it is only in requesting the suspension of concessions and in triggering Article 22.6 DSU arbitration that the parties will know the level of nullification an impairment. Therefore, the EC remarks that the main element for the negotiation of compensation can only be obtained in requesting the authorization to apply sanctions. Thus the EC proposes to allow the complaining party to obtain an independent decision from a WTO arbitrator about the level of nullification and impairment before the request for suspension of concessions is submitted.
There is also a proposal to amend the DSU presented by several Members (from now on, “the joint proposal”15), that basically deals with reforming Article 21 and 22 to solve their sequence problem. The solution would be to create Article 21 bis, named “Determination of Compliance” that would establish a new procedure establishing that first a panel has to determine if the countries is or is not complying and then the country could ask authorization for retaliation. Australia has made a presentation in June 2002 proposing16: To create expedite procedures on safeguard matters brought to the DS system; To agree on a more strict observation of the DSU in relation to compensation. In this sense, Members should not enter into compensation arrangements that in effect constitute a waiver of their obligations. To refrain from varying the list of concessions or other obligations proposed for suspension in retaliation cases, except to correct technical errors or in response to unforeseen circumstances. To adopt two saving-time measures: The establishment of a panel at fist request by the complainant (note: currently is at the second request). A requirement that complainants lodge their first written submission at the time of the first panel request .
Korea has submitted a proposal in July 2002. The main points of its presentations are17:
14
The EC remarks that under the current system only 35 per cent of the panelists having served since 1995 come from developing countries and that such a figure would increase with a more permanent roster of panelists as it is the case of the Appellate Body. In the case of the AB, of the 47 reports issued, 45 (96%) were issued by a division having at least one member form a developing countries and 24 or 51 % were issued by a division having two of its three members from a developing country. 15 “Proposed Amendment of the DSU”, a document submitted by Japan, Canada, Costa Rica, Czech Republic, Ecuador, the European Communities and its member States, Hungary, Japan, Korea, New Zealand, Norway, Peru, Slovenia, Switzerland, Thailand and Venezuela. WT/MIN(99)8
16 17
See TN/DS/W8 See TN/DS/W/11
To strengthening the discipline at the initial stage of implementation of a report, giving 30 days from the date of adoption of reports to Members to reach and agreement on either the reasonable time to implement or the arbitrator. To allow the panel foresaw in Art. 21.5 (Note: this is the compliance panel that has to examine in detail the existence or consistency of measures taken to comply with the rulings) to determine the level of the nullification or impairment.
Costa Rica has presented a proposal on third parties rights in July 200218. The objective is to strengthen the rights or third parties while preserving the expeditiousness and effectiveness of the dispute settlement mechanism. Costa Rica proposes to amend the provision that limits the right of third parties to join in consultations and to require the panel and the Appellate Body to accord due consideration to the arguments presented by third parties, instead of merely reflecting their views in the descriptive section of the report. Finally, it proposes to allow third parties access to all the submissions and other information submitted to the panel or the Appellate Body, both by parties to the dispute and other third parties and to allow Members to reserve their right as their parties during the appellate review, irrespective of whether said Member had reserved its right as third party during the panel stage. The United States has presented a document as a contribution to the improvement of the DS system19. Basically, it deals with issues related to transparency. The main points are: Open meetings (for the public, except those portions dealing with confidential information) Timely access to submissions and to final reports To consider making guideline procedures for presentation of amicus curiae. Finally, there is also a presentation made by Pakistan proposing to allow for financial compensation. The document submitted to the DSB reads that “It would be useful to clarify that the term “compensation” used in Article 22 includes grant of financial compensation to the complaining party by the country which has been found to be in violation of the rules. Panels should be authorized to recommend payment of such financial compensation in disputes between developed and developing countries where they find that as a result of WTO inconsistent measures taken by developed countries, the developing country has lost its trade in the affected product”20. Some Concluding Remarks Three broad concerns emerged little after implementation of the Uruguay Round Agreements started: the balance of costs and benefits between developing and developed countries; the different interpretations over some commitments (which most of the times implies the debate on the extension of commitments); and the working of the dispute settlement system, particularly the issue of effective retaliatory measures by smaller countries and the consequences of the negative consensus rule. As time went on, out of these three broad issues, the DS system proved to be the less conflictive for Latin American countries. In this sense, once cases are reviewed, no evident procedure bias
18 19 20
See TN/DS/W/12 See TN/DS/W/13
WT/GC/W/162
against Latin American interests is found and once proposals for the DSU modification are summarized, no radical changes are demanded or sought. However, not all countries have the same skills at the time of preparing and further cases. There is an Argentine TV spot very eloquent. Five soccer super stars get into the field while other unknown five players wait for the photographers to stop shooting. The referee calls the captains to draws lots for the initial kick off. Then, all players line up and blind themselves with a bandage. The game starts. Professional players are unable to pass the ball to others, they kick the air, and cannot score. They are lost and their skills are useless. The other team is able to coordinate ball passes, skip the professional players and score. The game ends and the super stars have badly lost. In order to shake hands, players take out their bandages and the audience finds that the unprofessional team is formed by blind people. The commercial is over and in the screen it can be read: it is about rules. So, the point is that even acknowledging that the DSU is a beneficial asset to the world trade system, and to weaker countries in particular, since the DSU S&D dispositions are ineffective, when a dispute arise, developing face developed countries in a “neutral field” but less armed since they are less trained, experienced and have scarce financial resources (Delich, 2002). Finally, and in respect to the reform of the Dispute Settlement system, if isolated and regarded as a technical problem, it is not a priority in the negotiating agenda of developing countries. Substantive rules are. However, as noted in this presentation, the line between interpretation and clarification is very thin. Interpretation of a commitment often means determining its extension, and in turn, the extension of a commitment, for instance the more/less protection of intellectual property rights, could be taken as a concession (as it was in the Uruguay Round) and therefore it should be negotiated by Members instead to be defined by experts in a panel or Appellate Body report if one want to maintain the balance of cost and benefits.
Buenos Aires, November 2002