Remedies under the WTO Legal System By R. Rajesh Babu M A RTI N U S NIJHOFF PUBLISHERS LEIDEN BOSTON 2012
CONTENTS Acknowledgment Abbreviations xiii xv 1. Introduction.: 1 1. Introduction 1 2. Scope and Objective 3 3. General Introduction to the Volume 5 3.1. Remedies under International Law 5 3.2. Remedies under WTO Law 8 3.3* Enforcement of Remedies under WTO Law 12 3.4. WTO Remedies and Developing Countries 16 2. General Features of the WTO Dispute Settlement Understanding 19 1. Introduction 19 2. GATT Dispute Settlement (1947-1994) 20 2.1. The Havana Charter and the GATT 1947 20 2.2. The General Agreement in Tariffs and Trade, 1947 21 2.3. Dispute Settlement in GATT 1947 (Articles XXII and XXIII) 22 2.4. Compliance and Enforcement in the GATT Era 25 2.5. Summary of the GATT Era 29 2.6. The Uruguay Round: Rethinking on Compliance and Enforcement 30 3. The WTO Dispute Settlement Understanding 30 3.1. The Dispute Settlement Understanding: An Introduction 31 3.2. The WTO Dispute Settlement Process: Pre-Implementation Stage 32 3.3. Compliance with and Enforcement of Adopted Reports: The Implementation Stage 34 3.4. Surveillance of Implementation 35 4. Special and Additional Rules and Procedure for Dispute Settlement 35
viii CONTENTS 4.1. Article 4.7 of the SCM Agreement 37 5. Prohibition of Unilateralism 38 6. Jurisdiction 43 6.1. Compulsory Jurisdiction 43 6.2. Scope of Jurisdiction 44 6.3. Nature of Claims 46 7. Other Means of Dispute Settlement in the DSU 47 7.1. Good Offices, Conciliation or Mediation 47 7.2. Arbitration Pursuant to Article 25 of the DSU 48 3. Remedies under International Law 51 1. Introduction 51 2. Remedies in International Law in Context 54 3. The ILC's Articles on State Responsibility for Internationally Wrongful Acts...:. 58 3.1. Historical Development of the Articles 58 3.2. General Overview of the Articles 60 3.3. Legal Status of the Articles 63 3.4. Basic Concepts Underlying the Articles 64 3.4.1. Distinction between Primary and Secondary Obligations 64 3.4.2. The Concept of'injured State' and 'Injury' 65 3.4.3. Residual Nature of the Articles 67 4. Legal Consequences of the International Responsibility of a State 68, 4.1. Obligations Arising out of an International Wrongful Act 70 4.1.1. Cessation of the Wrongful Act 70 4.1.2. Assurance and Guarantees of Non-Repetition 73 4.2. Reparation for Injury Caused 74 4.2.1. Definition of Injury and Establishing the Causal Link 4.2.2. Forms of Reparation ^ 5. Conclusion 3. _» 4. Remedies under WTO Law, 3n 1. Introduction < ijj 2. The Relationship between WTO Law and Er } International Law 2 2.1. WTO Law as Lex Specialis - Understanding the ^ Connection ^ o> 3 Q. V
CONTENTS ix 2.1.1. Concept of Lex Specialis in International Law 96 2.1.2. WTO Law as "Lex Specialis" 99 2.2. Applicable Law in the WTO DSU - the Possible Wider Relationship 104 2.3. Customary Rules of Interpretation under International Law and the WTO -the Minimum Level of Interaction 110 2.3.1. Customary Rules of Interpretation under International Law 111 2.3.2. Customary Rules of Interpretation in the WTO 112 2.4. Non Liquet in the WTO and International Law - A Possible Fall Out 115 3. Nature of WTO Obligations: Bilateral or Collective? 119 4. Access to the WTO Dispute Settlement System: Legal Standing 127 5. Material Aspects of Remedies under the WTO Dispute Settlement System 131 5.1 Object and Purpose of Remedies 132 5.2. Nature and Content of Remedies under the DSU 135 5.2.1. Recommendation to 'Bring the Measures into Conformity': The Ultimate Remedy under the WTO 136 5.2.2. Special Rules on Remedies: Subsidies Practice - "Withdrawal" vs. "Bring into Conformity" 140 5.2.3. Suggest Ways to Comply - the Non-binding Option 141 5.3. Legal Effect of Rulings under Article 19.1 144 5.4. Value of GATT/WTO Reports as Precedent 147 5.5. The Prospective Nature of Remedies 149 6. Implementation of Adverse DSB Rulings: The Procedural Aspect of Remedies 157 6.1. Prompt Compliance '. 158 6.1.1. Concept of Compliance 159 6.2. Reasonable Period of Time for Implementation 160 6.2.1. The Procedure 162 6.2.2. Scope of Article 21.3 (c) Arbitration 163 6.2.3. Factors Determining the Reasonable Period of Time 164
X CONTENTS 6.2.4. Special Rules in the SCM Agreement 170 6.2.5. Nature of the Burden of Proof 173 6.3. "Surveillance" During the Reasonable Period 174 6.4. Disagreements Regarding Implementation: The Compliance Review Procedure 176 6.4.1. The Compliance Review Procedure 176 6.4.2. Scope of the Article 21.5 Review 179 6.4.3. "Measures" Taken to Comply 182 6.5. The Relationship between Article's 21.5 and 22: The Problem of Sequencing 185 6.5.1. Statement of the Problem 186 6.5.2. The EC - US Controversy: the EC- Banana Case 186 6.5.3. The Panel/Arbitration Findings 189 6.5.4. Bilateral Understanding: The Ad hoc Solution 191 7. Compensation: Remedy for Non-Compliance 193 7.1. Remedies for Non-Compliance 193 7.2. Compensation as a Remedy 194 7.3. Cases where Compensation was Opted for as a Remedy... 196 7.4. Problems with WTO Compensation 198 7.5. Proposals for Improving Compensation as a Remedy 202 7.5.1. Compulsory/ Mandatory Compensation 202 7.5.2. Financial/Money Compensation 203 7.5.3. Retrospective Compensation 205 8. Remedies for Non-violation and Situation Claims 205 8.1. Remedies for Non-violation Claims 208, 8.2. Situation Complaints 210 9. Preliminary Conclusions 211 5. Enforcing Remedies under WTO Law 217 1. Introduction 217 1.1. Enforcement Record of the WTO: The Data 218 1.2. Use of Terms 222 2. Enforcement of Remedies in International Law 225 2.1. Is International Law 'Law'? A Brief Look at the Old Debate 225 2.2. Customary Rules on Countermeasures: The ILC Articles 226 2.3. Preclusion of Wrongfulness of Countermeasures 228 2.4. Conditions Limiting the Application of Countermeasures in International Law 229
CONTENTS Xi 2.4.1. Object of Countermeasures 229 2.4.2. Countermeasures must be Directed only Against the State Responsible 230 2.4.3. Countermeasures are Temporary Measures 230 2.4.4. Reversibility of Object of Countermeasures 231 2.4.5. Non-Termination of Substantive Obligations 231 2.4.6. Countermeasures must be Proportionate 232 2.4.7. Obligations not Affected by Countermeasures 233 2.4.8. Procedural Conditions ' '..'..'. 233 2.4.9. Termination of Countermeasures 234 2.5. Lex Specialis Enforcement Provisions in Other International Law Regimes 235 3. Applicability of Customary Rules of Countermeasures in WTO Law 236 4. Countermeasures in WTO Law 238 4.1. Suspension of Obligation and Retaliation under GATT 1947 238 4.2. From GATT to WTO: Remedies for Non-Compliance 241 4.3. Object and Purpose of Countermeasures in the WTO 242 4.3.1. The Compliance vs. Rebalancing Debate 248 5. General Features of Countermeasures in the WTO 254 5.1. The Bilateral Nature of Countermeasures 254 5.2. Temporal Character of Countermeasures 256 5.3. Prospective Nature of Countermeasures: Date from which 'Injury' is Calculated 259 5.4. Countermeasures to be Consistent with the Covered Agreements 261 6. Principles and Procedure Governing Countermeasures 262 6.1. General Conditions for Countermeasures 264 6.1.1. Choice between Suspension of "Concessions" and "Other Obligations" 267 6.1.2. Other Requirements: Methodology Paper and Product Coverage 268 6.2. Specific Rules and Procedures for Countermeasures 269 6.2.1. Retaliation and Cross-Retaliation: The Hierarchy of Responses : 269 6.2.2. Rules and Procedure for Granting Cross-Retaliation 273 6.3. Scope and Power of Review of Article 22.6 Arbitrators 280
Xii CONTENTS 6.4. Burden of Proof 283 7. Level of Countermeasures: The Principle of Proportionality... 286 7.1. The Concept of Proportionality in International Law 286 7.2. The WTO Countermeasures and the Principle of Proportionality 288 7.2.1. Determination of'equivalence' in Countermeasures Cases 292 7.2.2. Appropriate' Countermeasures in the SCM Agreement: The Exception 296 7.3. Assessment of Level of Countermeasures - The Methodology 301 7.3.1. Assessment of "Equivalence" 302 7.3.2. Mirror Legislation as Equivalent Countermeasure 306 7.4. The "Carousel" Type Retaliation 308 8. Surveillance of Implementation 312 9. Instances of Countermeasures in the WTO: The Cases 313 9.1. The EC-Bananas Case 314 9.2. The EC - Hormones Case 319 9.3. The US- Tax Treatment for "Foreign Sales Corporations" Case 323 9.4. The Aircraft Subsidy Cases 324 9.5. The US - Offset Act of 2.000 {Byrd Amendment) Case 326 9.6. The US -Gambling andbetting Services Case 328 9.7. The Issues Raised by these Cases 330 10. The Effectiveness of Countermeasures in WTO Law 333 1 o. 1. Effectiveness of Countermeasures: The Institutional Dilemma 336 11. Preliminary Conclusions 340 6. WTO Remedies arid the Developing Countries 343 1. Introduction 343 1.1. The Problem of Identifying "Developing Countries" 347 2. Differential Treatment in International Law 350 2.1. The S&D Principle as a Permanent Exception to International Law: Some Preliminary Observations 354 3. The GATT 1947 and the Developing Countries 357 3.1. Differential Treatment in the GATT 1947 357 3.2. GATT Dispute Settlement and the Developing Countries 358
CONTENTS Xiii 3.3. The Developing Countries' Attempt to Improve the GATT Dispute Settlement 361 3.4. The Uruguay Round and Special and Differential Treatment 363 4. The WTO and the Developing Countries 364 5. The WTO Remedies and Special and Differential Treatment for the Developing Countries 366 5.1. The WTO DSU and S&D Treatment Provisions 366 5.2. Remedies under the WTO DSU and S&D Treatment for Developing Countries 370 5.3. Legal Effect of S&D Treatment Provisions in WTO Law 372 5.4. S&D Provisions in DSU: Law and Practice 376 5.4.1. The Pre-Implementation Stage 377 5.4.2. Implementing the DSB's Rulings 381 5.4.3. WTO Jurisprudence on Remedies and S&D Provisions 383 5.4.4. Reviewing the DSU: Making S&D Provisions More Precise, Operational and Effective 387 5.4.5. Special Procedures Involving LDCs 392 5.5. Observations 394 6. Interpretation by the Panel/Appellate Body: Bias against Developing Countries 395 7. Countermeasures and the Developing Countries' Interests 409 7.1. The Developing Countries' Attempted Countermeasures: The Cases 415 7.1.1. The EC - Bananas (Ecuador) Case 415 7.1.2. The US - Gambling and Betting Case 419 7.1.3. The US - Subsidies on Upland Cotton Case 421 7.1.4. Observations 423 7.2. Improving Enforcement under the WTO: Some Proposals 425 7.2.1. Mandatory Monetary/Financial Compensation 426 7.2.2. Joint or Collective Retaliation 429 7.2.3. The Retrospective Effect of Remedies 432 7.2.4. The Direct Effect of WTO Rulings 433 7.2.5. Automatic Option to Cross-Retaliate for Developing Countries 434
XIV CONTENTS 7.2.6. The Preclusion of Threshold or De Minimis Proceedings 435 7.2.7. Auctioning Countermeasures 436 7.2.8. Other Proposals 437 8. Preliminary Conclusion 438 7. Summary and Conclusions 443 1. The WTO Dispute Settlement as an Extraordinary System...7... 444 2. Remedies under the DSU: Extraordinary or Archaic? 447 2.1. 'Cessation' as the 'Only' Remedy for Breach of WTO Obligations 447 2.2. Remedies for Non-Compliance: The Buy-Out Option? 451 2.3. Procedural Remedies: The Additional Problem 454 2.4. Developing Countries: The Casualty? 455 3. Contribution of Remedies to the DSU's Success: The Paradox 458 4. Improving the Remedies: Some Thoughts and Recommendations 461 4.1. Looking for Improving Remedies within the WTO Text 462 4.2. Improving Remedies through Negotiations 466 Bibliography 471 Jndex 493