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US DISREGARDS ‘CONFIDENCE-BUILDING’ MEASURES

by Chakravarthi Raghavan

Geneva, 19 June 2000 -- The United States' action in ignoring the informal understanding on post-Seattle ‘confidence-building’ measures, and in disregard of the General Council decision on how transitional period issues of WTO agreements should be resolved, came in for criticism Monday at a meeting of the Dispute Settlement Body (DSB) of the World Trade Organization.

At the DSB Monday, the United States sought the establishment of a panel in a dispute against India over what the US has called Indian measures “affecting trade and investment” in the motor vehicle sector.

While the US has brought up for establishment of a panel, the dispute (on which consultations were held before Seattle) with India where transition period restraints are involved, separately, the US has also initiated dispute consultations, as a step prior to seeking panels, with Brazil, Argentina, the Philippines and Romania over violations where the transition periods and restraint understandings are involved.

This was the first time the request came before the DSB, and India blocked reference to a panel.

Earlier, the DSB sent to a panel the complaint from Pakistan against the US over some transitional safeguard measures the US has applied against imports of combed cotton yarn from Pakistan, and which the US has declined to withdraw even though recommended to do so by the Textiles Monitoring Body.

In other actions, the DSB adopted the report of a panel dismissing the complaint of the US against Korea under the plurilateral Government Procurement Agreement and the report of the Appellate Body and panel upholding EC-Japan complaints that Canada’s duty-free treatment for some imports of automobiles, buses and some commercial vehicles violated the Most Favoured Nation (MFN) principle and the Subsidies agreement.

In the dispute it raised against India, the US said that the Indian measures affecting “trade and investment” in the motor vehicles sector were inconsistent with India’s obligations under the WTO. The measures, the US said, required manufacturing firms in the vehicles sector to achieve specified levels of purchase or use of domestic content, and to neutralise foreign exchange requirements for imports by exports of the same value of cars and components. The Indian measures, the US said, were in violation of articles III:4 and XI:1 of the GATT 1994 and Articles 2.1.  and 2.2 of the TRIMs Agreement.

India’s Ambassador S.Narayanan told the DSB that India regretted that the US was seeking the establishment of a panel on matters that were not “trade related investment measures, but as the US in the title of its complaint had said were “measures affecting trade and investment”.  India did not agree that the measures were inconsistent under Art.  III:4 (national treatment for imported products) and Art.XI:1 (general elimination of quantitative restrictions) of GATT 1994 and Articles 2.1 and 2.2 of the TRIMS agreement (prohibition of any TRIM inconsistent with Art III and Art XI of GATT).

Even if, for the sake of argument, the Indian measures were TRIMs, as claimed by the US, said Narayanan, India’s obligations would have to be evaluated in light of Art.4 of TRIMs (permitted deviations in terms of Art XVIII of GATT and GATT Declaration on balance-of-payments).

Also, one of the transitional period issues to which the WTO membership had paid attention to in the recent period related to extension of the transition period for phasing out of TRIMs. India recalled in this connection the statement of the Chairman of the General Council on 17 December 1999 urging Members to exercise due restraint on these matters. At the General Council meeting of 8 May, a specific decision had been taken on the TRIMs transition period issues, in the light of the Chairman’s statement of 17 December, and envisaging consultations as a matter of priority by the Chairman of the Goods Council on the means to address the case of TRIMs not notified or those in respect of which extensions had not yet been requested.

“The US delegation should reflect carefully on the impression they are likely to create among developing countries through this request for establishment of a panel, and about the relevance of the General Council decision of 8 May which was meant to be a confidence-building measure,” Narayanan said. He was sure that a solution which took care of interests of both India and the US could be found through consultations and he was happy to note that the US was willing to have further consultations on this.

In its intervention, the Philippines said the entire WTO membership had taken a decision on how to address the transition period issues - under the direction of the General Council, where consultations were to be held in the Council on Trade in Goods (CTG). The CTG was yet to meet and consider this, and a request for a panel at this stage was premature.

For the US, Amb. Rita Hayes insisted that both the 17 December statement of the Chair of the General Council and the 8 May decision of the Council were without prejudice to the US rights.

But the Philippines came back to note that the CTG meeting was yet to take place.

On the panel ruling in the plurilateral government procurement agreement (GPA) case over the Korean airport construction contracts, Korea as a party, and later the Philippines and India, expressed their systemic concerns over the way the panel had dealt with the US ‘non-violation’ complaint and claiming the right to look at issues of good faith in negotiations (see report and analysis in SUNS #4670 of 18 May).

Under the DSU Article 2, in respect of a plurilateral agreement, only parties to it are to participate in the decision making. But given the wider implications of the panel’s views on non-violation complaints relating to treaty negotiations being amenable to the DSU process, India and the Philippines intervened to object to such an approach. Hong Kong (whose former representative headed that panel) reserved its position on Art.2 of the DSU.

While welcoming the ruling, Korea said the panel had rightly held that the Korean commitments under the GPA did not apply to procurement by the Inchon Airport construction entities. The panel had also rightly rejected the US non-violation claims. But the way it reached these conclusions had raised some systemic concerns. The panel had rightly noted that the first step in addressing the non-violation complaint was whether there was an agreed concession, found there was none and hence held the non-violation complaint could not be sustained.

But instead of stopping there, the panel had gone on to state that an “alternative, ‘non-traditional’ type of non-violation claim” could be sustained under customary international law, rather than the DSU or the GPA, “on the basis of reasonable expectations accrued pursuant to negotiations, rather than concessions (exchanged).”

Korea was not persuaded by the panel’s development of this alternative non-violation claim. In Korea’s view, “a panel’s duty is solely to interpret and apply WTO covered agreements and, in so doing, uphold and enforce Member’s rights and obligations under those agreements.” But even in terms of those ‘non-traditional approaches’, the panel had concluded that the US expectations of GPA coverage were not reasonable.

In its intervention, India asked how a panel under the WTO and the DSU could claim the right to correct errors in treaty? If there were any such errors, it was for the members who were parties to the treaty to consider and correct whatever mistakes there might be. A panel had no such right.

The Philippines said that the panel’s view that in a non-violation complaint, if there was nothing available in the text of the WTO agreement, the panel could look at the general customary international public law, was plainly wrong. The WTO and its agreements were the only basis for a panel to apply in a dispute. No panel or Appellate Body could go outside these and look at customary international law to decide cases.

Earlier, in the exercise of its surveillance jurisdiction, the DSB again was seized of the banana dispute tangles and the EC’s failure to put in place a new regime for compliance. But little new ground was covered.  The EC had presented a paper showing the numerous consultations it had held with various parties, while the parties consulted complained that these meetings had not involved any genuine consultations and efforts to find solutions. In any event, several of the Latin American complainants who had won the dispute argued that the EC’s obligation was to establish a regime in compliance, and not use the excuse of the various participants' failure to agree as a reason to continue the violation. The EC for its party in one of the exchanges said it would put in place soon a tariff-only regime, but ensuring that its preferences for the Lome partners remained intact.

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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