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WTO PANEL UPHOLDS US SANCTIONS LAW!

by Chakravarthi Raghavan


Geneva, 23 Dec 99 -- A WTO dispute settlement panel has ruled that the US trade sanctions law (Sections 301-310), while holding a big stick to trade partners, is not violative of WTO trade rules, though it could become so in future if the administration uses the law in a different way.

The ruling, and the reasoning, handed down in a report published on 22 December, by a 3-member panel in a dispute between the European Community and the United States, appears to be a "political" rather than rules-based "legal" judgement, based not upon the letter of the US law that enables US unilateralism, but on the US administration's undertakings (and interpretation) that the administration cannot make any unilateral determinations.

The three-member panel, named by the WTO Director-General on 31 March 1999 (when the two parties could not agree on the panellists), consisted of Mr.David Hawes, former Australian Ambassador to GATT (and now an executive in Qantas Airlines), Mr.Terje Johannessen, former Norwegian Ambassador to WTO (and recently retired), and Prof. Joseph Weiler from Israel (a professor at Harvard Law School, USA).

In its conclusions, the panel says: "In the light of the statutory and non-statutory elements" of Sections 301-310, in particular the US undertakings articulated in the Statement of Administrative Action approved by the US Congress at the time it is implemented the Uruguay Round agreements and confirmed and amplified in the statements by the U.S. to this panel, we conclude that those aspects of Sections 301-310 of the US Trade Act before us in this dispute are not inconsistent with US obligations under the WTO."

The Conclusions also specify that:

* Section 304 (a)(2)(A) of the US Trade Act of 1974, is not inconsistent with Art.23.2(a) of the DSU;

* Section 306 (b) of the US Trade Act of 1974, irrespective of whether we accept the US or the EC approach in respect of Articles 21.5 and 22 of the DSU, is not inconsistent with either Article 23.2(a) of the DSU or Article 23.2(c) of the DSU;

* Section 305 (a) of the US Trade Act of 1974, is not inconsistent with Article 23.2(c) of the DSU;

* Section 306 (b) of the US Trade Act of 1974 is not inconsistent with Articles 1, II, III, VIII and XI of GATT 1994, as they have been referred to by the EC.

"Significantly, all these conclusions are based in full, or in part on the US Administration's undertakings mentioned above. It thus follows that should they be repudiated or in any other way removed by the US Administration or another branch of the US Government, the findings of conformity contained in these conclusions would no longer be warranted."

In ruling that the various provisions of the US law challenged by the EC -- S.304 (a) 2(A), S.305 (a) and Sec 306 (b) of the US Trade Act -- are not inconsistent with the WTO and its agreements and the DSU, the panel makes this statement:

The panel agreed that looking at the statutory language of S.304 of the US trade law "there is indeed a serious threat of unilateral decision", by the USTR, and that this threat -- with its apparent "chilling effect" on other Members and, indirectly, the market place and individual economic operators within it -- was a prima facie violation of the WTO's Dispute Settlement Understanding.

"Merely carrying a big stick is, in many cases, as effective a means to having one's way as actually using the stick" and the "threat of unilateral action can be as damaging on the market place as the action itself."

Having taken this view, on a plain reading of the language of the US law, the panel has then considered the statements made by the US Administration (in its Statement of Administrative Action that accompanied the legislation sent to Congress), a statement approved by the US Congress (but not incorporated in the law itself) as an authoritative expression by the administration of its views regarding the interpretation and application of the Uruguay Round Agreements, and confirmed by the US in its undertakings and replies before the panel. These, the panel claims, confirm "that the USTR's discretion to take unilateral action before exhaustion of DSU procedures has been curtailed."

Using these, the panel says:

"Accordingly, we find that these statements by the US express the unambiguous and official position of the US representing, IN A MANNER THAT CAN BE RELIED UPON BY ALL MEMBERS, an undertaking that the discretion of the USTR has been limited so as to prevent a determination of inconsistency before exhaustion of DSU proceedings. Although, this representation DOES NOT CREATE A NEW INTERNATIONAL LEGAL OBLIGATION for the US -- after all the US was already bound by Art.23 (of the DSU) in becoming a WTO Member -- it clarifies and gives an undertaking, at an international level concerning aspects of domestic US law, in particular, the way the US has implemented its obligations under Art.23.2(a) of the DSU." (emphasis added)

The panel then goes on to make an even more extra-ordinary (from a legal point of view) statement: "The aggregate effect of the SAA (Statement of Administrative Action) and the US statement made to us is to provide the guarantees, both direct to other Members, and indirect to the market place, that Art. 23 is intended to secure. Through the SAA and the US statements, as we have construed them, it is now clear that under Section 304, taking account of the different elements that compose it, the USTR is precluded from making a determination of inconsistency contrary to Article 23.2(a).

"As a matter of international law, the effect of the US undertakings is to anticipate, or discharge, any would-be State responsibility that could have arisen had the national law under consideration in this case consisted of nothing more than the statutory language. It of course follows, that should the US repudiate or remove in any way these undertakings, the US would incur State responsibility since its law would be rendered inconsistent with the obligations under Art. 23."

Given that the US Uruguay Round implementation law has precluded the domestic courts from ruling on these matters, including on those covered by S. 301, the panel still asks other WTO members to rely still on the administration's assurances to the panel.

In effect the panel has said that on a plain reading of the text of the US legislation, the US law is contrary to the US obligations and creates trade insecurity and uncertainty, but that trading partners and enterprises, could accept the US administration's statements before Congress, and before the panel, as guaranteeing market security!

It may be noted that in the US case against India on TRIPS, the US had complained that the Indian law did not provide specifically the socalled "mail-box" provisions for the patent authority to receive applications for process/product patents in the pharmaceutical and chemical sector and "keep them" for a future determination, when the full range of Indian obligations kick in (and not make a determination immediately under existing law to reject such applications as 'non-patentable').

The Indian case was that it had issued an ordinance to provide for these, that the ordinance life had expired, pending Parliamentary action, but that its administrative directions (valid in terms of the Indian government's executive powers and its exercise under the Constitution) and statements in Parliament, would achieve the same objective as the legal requirement.

This view was expressly rejected by the panel and the appellate body, on the argument that the Indian statements to the panel did not provide sufficient trade security and certainty, and India was thus in violation of its WTO obligations over its failure to enact a specific law in terms of its WTO obligations.

A case of one view in one case, and another view in another case (with the secretariat guiding the panel system, from selection of panellists to the rulings) or a case of one interpretation for the rich and powerful and another for others in the rules-based organization?

In the case of the US S.301 laws, the EC in its arguments has cited Prof Robert E.Hudec (a former GATT official, and eminent trade law scholar, who is an advocate of a secretariat role to bring coherence and consistency in panel rulings, and has served on WTO panels).

The EC cites Hudec as saying: "Section 301 is an intricate maze of mandatory commands in one place and extremely wide loopholes in the other. One needs a wiring diagram to trace whether mandatory commands given in one part will actually reach their final target without passing through at least one discretionary exit point. Even with the aid of such a diagram, one cannot predict actual outcomes."

Whether it evolved such a diagram or not, the panel has relied on the administrative interpretations and undertakings, to Congress and before the panel for its ruling that S. 301 does not violate a WTO obligation.

To reach this view, the report cites extensively the rules of treaty interpretation -- the Vienna Law of Treaties, particularly its Articles 31 and 32 - about ordinary meaning to be given to the language of a treaty and supplementary means of interpretation when the language is ambiguous, obscure or leads to manifestly absurd or unreasonable interpretation. But there is no rule of international law interpretation under which statements of the executive to a legislative body or to the panel could be used as a guide to interpretation.

Several of the third parties before the panel have detailed before it a number of instances, in their trade relationships with the US, where the latter has wielded the S. 301 stick in negotiating and seeking agreements with the partner, and while the panel has noted that the US use of S.301 has been a sore point with other WTO members, it has not gone beyond that.

In its intervention, Brazil has made a point (relating to the US SAA and intentions) that may be worth pondering over:

In Brazil's view, lest there be any doubt, the Statement of Administration Action which accompanies the Uruguay Round Agreements Act, and which represents an "authoritative expression by the Administration concerning its views regarding the interpretation and application of the Uruguay Round Agreements, both for purposes of US international obligations and domestic laws," gives notice of the "Administration's intent to expand the focus of possible action under Section 301 to areas that are not within the scope of US obligations under the Uruguay Round Agreements."

Brazil then goes on to cite from the SAA, "The US administration "intends to use section 301 to pursue vigorously foreign unfair trade barriers that violate US rights or deny benefits to the US under the Uruguay Round Agreements. THE ADMINISTRATION EQUALLY INTENDS TO USE SECTION 301 TO PURSUE FOREIGN UNFAIR TRADE BARRIERS THAT ARE NOT COVERED BY THESE AGREEMENTS... MOREOVER, THE MERE FACT THAT THE URUGUAY ROUND AGREEMENTS TREAT A PARTICULAR SUBJECT MATTER - SUCH AS INTELLECTUAL PROPERTY RIGHTS - DOES NOT MEAN THAT THE TRADE REPRESENTATIVE MUST INITIATE PROCEEDINGS IN EVERY SECTION 301 INVESTIGATION INVOLVING THAT SUBJECT MATTER. IN THE EVENT THE ACTIONS OF THE FOREIGN GOVERNMENT IN QUESTION FALL OUTSIDE THE DISCIPLINES OF THOSE AGREEMENTS, THE SECTION 301 INVESTIGATION WOULD PROCEED WITHOUT RECOURSE TO DSU PROCEDURES." (emphasis in original).

Brazil added that while parts of (US law) S.301-310 serve a useful purpose as a delegation of purpose from Congress to the administration, and for the initiation of citizen's complaints, "there is an irreconcilable conflict between those provisions which mandate or authorize actions that are illegal under the WTO and Article 23 of the DSU and Article XVI:4 of the WTO Agreement. It therefore believes that the Panel should not limit its findings to a restatement of traditional GATT practice, but should affirm that Members have an unqualified obligation to bring their legislation into conformity with WTO provisions."

In its intervention (of some importance given the panel's reliance on SAA and statements before Congress), India has pointed out that in the US itself, "no domestic court could pronounce S. 301 inconsistent with WTO" because S.102 (a)(1) of the implementation law, provides that "no provision of any of the Uruguay Round Agreements nor the application of any such provision to any person or circumstance that is inconsistent with any law of the United States shall have any effect." Also, the same section, India has further pointed out, "provides that nothing in the Uruguay Round Agreements Act shall be construed to limit any authority conferred under any law of the United States including Section 301 of the Trade Act of 1974."

In sum, says India in intervention, "Sections 301-310 of the Trade Act of 1974 is an instrument of unilateralism used by the US to force its trading partners to offer market access for American goods and services beyond the scope of commitments undertaken in multilateral trade negotiations. Consequently, these Sections undermine the multilateral trading system."

A panel may or may not choose to address points raised before it by third parties, since on a strict technicality its task is to examine the issues of rights and obligations as between the two parties, in terms of the panel reference and the complaint.

The panel, in effect, has disposed off these and other systemic concerns, about the multilateral trading system (which it says involved not only the government members, but those in the market place) with this view: "the mandate we have been given in this dispute is limited to the specific EC claims set out in Section VII.A above. WE ARE NOT ASKED TO MAKE AN OVERALL ASSESSMENT OF THE COMPATIBILITY OF SECTIONS 301-310 WITH THE WTO AGREEMENTS. IT IS NOT OUR TASK TO EXAMINE ANY ASPECTS OF SECTIONS 301-310 OUTSIDE THE EC CLAIMS. WE ARE, IN PARTICULAR, NOT CALLED UPON TO EXAMINE THE WTO COMPATIBILITY OF US ACTIONS TAKEN IN INDIVIDUAL CASES IN WHICH SECTIONS 301-310 HAVE BEEN APPLIED. LIKEWISE, WE HAVE NOT BEEN ASKED TO ADDRESS THE WTO CONSISTENCY OF THESE PROVISIONS IN SECTION 301-310 RELATING TO DETERMINATIONS AND ACTIONS TAKEN BY THE USTR THAT DO NOT CONCERN THE ENFORCEMENT OF US RIGHTS UNDER THE WTO AGREEMENT, INCLUDING THE PROVISIONS AUTHORIZING THE USTR TO MAKE A DETERMINATION AS TO WHETHER OR NOT A MATTER FALLS OUTSIDE THE SCOPE OF THE WTO AGREEMENTS." (emphasis added)

The EC was primarily responsible in persuading many of the developing countries (including those like Brazil and India, which had some serious doubts and questions) in 1993 to accept the scheme of the WTO and its DSU, as a way of ensuring the outlawing of US unilateralism.

After many instances of US unilateralism against others, when it merely shrugged its shoulders, the EC did take up the case, but appears to have failed even to frame the dispute making the full range of US unilateralism the central issue.

And the panel (guided by the legal division?) has clearly taken refuge in this situation. It is possible that the EC and others, if serious, could raise another dispute, specifically focusing on all these questions, though there is no certainty that another panel, or the Appellate Body will be willing to come to grips with fundamental problem. But unless members raise a new dispute, embracing the whole range of issues and get a ruling, to the many uncertainties of the WTO trade order, this too will be added as a Xmas gift from the panel.

The panel has provided, in an annex, an overview of the operation of sections 301-310 of the US trade law, but with a footnote that "this overview is of a non-binding nature and does not have the status of a factual finding by this Panel" and was prepared following consultations with the parties as part of the descriptive part of this Report!

Sections 301-310 of the US Trade law, enacted in the 1974, and modified in 1988 and later by the 1994 legislation to implement the Uruguay Round agreements, provides for initiation of investigations by the US Trade Representative, and determinations about trade laws and practices of other countries and ultimately to imposition of trade sanctions (by raising tariffs and duties or other concessions in the area of goods and services).

Sec.301 of the US law enables the US administration to enforce its rights under WTO agreements, and for any US private person to require the administration to investigate and proceed in such matters. The provision (usually described in popular trade literature as '301 family of laws' - ordinary 301, 'special 301' dealing with intellectual property issues, and 'Super 301') also gives domestic legal authority to the US administration to take up with other trading partners, and seek redress against their trade policies not covered by any obligation under the WTO and its covered agreement.

The US administration has frequently used these powers, and has threatened trade sanctions, to force trading partners to negotiate and reach an agreement or understanding with the US. The provisions of this law had been for a long time a sore point with the other trading nations, who in negotiating the Uruguay Round agreement for a WTO and its integrated Dispute Settlement Understanding, thought that with all its faults, the WTO and the DSU would end the US threat of unilateral trade sanctions.

But the US implementation legislation dealt with the issues in what its critics have seen as a deliberately imprecise way to enable the US to pursue its illegitimate goals to secure more rights than under the WTO.

As many as 16 WTO members had appeared before the panel as "third parties" having a systemic interest in the dispute. These included Brazil, Canada, Colombia, Costa Rica, Cuba, Dominica, Dominican Republic, Ecuador, Hong Kong China, India, Israel, Jamaica, Japan, Korea, St. Lucia and Thailand.

At issue in the case were the interpretation of these provisions of US law, how far they comply with the requirements of the WTO and its dispute settlement understandings, and whether the US law was discretionary or mandatory on the administration, and the implications of unilateral sanctions or threats in a multilateral trade system claiming to provide "order" and its effects on other governments and enterprises everywhere.

The sword of damocles (of US threats) continues to hang over the international system. (SUNS4580)

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

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