TWN Info Service on WTO and Trade Issues (Jun16/09)
14 June 2016
Third World Network

US double standards in complaints against AB - Part II
Published in SUNS #8259 dated 10 June 2016

Geneva, 9 Jun (Chakravarthi Raghavan*) - In directing its ire against the Appellate Body (AB) at the WTO's Dispute Settlement Body (DSB) meeting on 23 May, though purportedly against Prof. Seung Wha Chang of Korea and singling him out to deny him reappointment for another term, the US was exhibiting its double standards in the international arena, as underscored in the first part.

So long as dispute panels and AB in the WTO's dispute system were creating trade law, piling obligations on developing countries and curtailing their rights, to pry open their markets to serve the mercantilist interests of its corporations, the US was all praise. But when some rulings went against the US, particularly on its anti-dumping measures and investigations (aimed at protecting specific industries and enterprises), the US began to cry foul. This has reached a crescendo now, in its veto of Prof Chang and voicing its views openly and stridently, initially by its trade officials in Washington DC, and then at the DSB.

In Part I, some egregious examples of panel/AB rulings against developing countries, cumulating and increasing their obligations and curtailing their rights, were cited. Some more examples follow, outlining in brief how the WTO dispute system and the Secretariat (under the guise of servicing panel/AB hearings) began tilting the balance of rights and obligations against developing countries, making the multilateral trading system more inequitous.

In another set of rulings, despite its own so-called โ˜collegiate' rule of working procedures, the AB provided two different views on the same wording in two different provisions invoked in two different, more or less contemporaneous, disputes.

In its rulings on Turkey vs India (DS39/AB/R, analysed in SUNS #4537 dated 26 October 1999, "WTO Appellate Body extending its jurisdiction"), in obiter dicta on points of law not raised in appeal by either India or Turkey, but of indirect benefit to the US in future disputes, the AB handed down a ruling contrary to its earlier views on the India BOP case!

The AB's obiter dicta (against which US expressed no criticism then), opened the way for Customs Unions to depart from GATT obligations, other than those in Article 1, the MFN provision of GATT, as understood till then.

The AB said: "... we are of the view that Article XXIV may justify a measure which is inconsistent with certain other GATT provisions. However, in a case involving the formation of a Customs Union, this โ˜defense' is available only when two conditions are fulfilled. First, the party obtaining the benefit of this defense must demonstrate that the measure at issue is introduced upon the formation of a customs union that fully meets the requirements of sub-paragraph 8 (a) and 5 (a) of Art. XXIV. And, second, the party must demonstrate that the formation of a Customs Union would be prevented if it were not allowed to introduce the measure at issue. Again both these conditions must be met to have the benefit of Art. XXIV."

In these obiter dicta, the AB obliquely sought to expand its own jurisdiction in future cases: "We wish to point out that we make no finding on the issue whether quantitative restrictions found to be inconsistent with Art. XI and Art. XIII of the GATT 1994 will ever be justified by Art. XXIV. We find only that the quantitative restrictions at issue in the appeal in this case were not so justified. Likewise, we make no finding either on many other issues that may arise under Art. XXIV. The resolution of those other issues must await another day. We do not believe it necessary to find more than we have found here to fulfil our responsibilities, under the DSU in deciding this issue."

In the Turkey vs India dispute, the Uruguay Round Understanding on Article XXIV (paragraph 12, p. 34 of Legal Texts) was involved. In the India vs US dispute, and its Quantitative Restrictions (QRs) sought to be justified by India on BOP grounds, the UR understanding on Art. XVIII:B was involved. The language used in para 12 of the Art. XXIV Understanding, and that in Fn 1 to the Art. XVIII:B Understanding (page 27 of Legal Texts), both seek to ensure that the right of members to raise disputes under Art. XXII and XXIII, "with respect to any matter arising out of..." either of the Articles and Understandings are preserved.

In the case against India's QRs (under Art. XVIII:B) where India had pleaded BOP justification, and in the case against Turkey (by India), where Turkey claimed justification, under provisions for Customs Union, the panels faced the issue of whether the BOP justification in the first and the Customs Union justification in the second, were matters that could be raised before and disposed of by a panel, or whether they should be dealt and decided by the substantive WTO bodies where all members are represented.

In the BOP case, the AB, as the panel, interpreted the "Understanding" to provide jurisdiction to both the BOP Committee and the panels to hear and decide. The US in the India BOP case, blocked any conclusion of the Committee and raised a dispute, which the panel and the AB adjudicated and declared illegal.

India and several other developing countries, at the stage of the DSB's adoption of the rulings through negative consensus process, strongly objected to this interpretation, as a serious inroad into the Special and Differential (and more favourable) Rights assured to them under the WTO, GATT 1994 and its Art. XVIII:B.

In the Turkey case, the panel took the opposite view that, arguably, the issue of compliance of a Customs Union with Art. XXIV was for the WTO body to decide, but that it could go into disputes with respect "to any matters arising from the application of these provisions relating to customs unions, free-trade areas or interim agreements leading to the formation of a customs union or free trade areas."

The panel reports on the India BOP case and the Turkey Art. XXIV cases were due to be circulated to all DSB members at about the same time (but in both cases advance copies were provided to dispute parties as per rules); and if the two reports had come out at the same time, both would have landed in the AB at the same time; and the AB (functioning under self-assumed collegiality powers) would have been forced to deal with the fact of the identical language in the GATT 1994 provisions relating to both the disputes.

But the publication of the report on the Turkey dispute was delayed (by the secretariat), by a little over a month after it was ready, on the ground of time needed for translation; it thus went to the AB later. But neither Turkey nor India had even raised as an issue of law in the Turkey appeal the question of the jurisdiction of panels vs the WTO committee on regional trade agreements under Art. XXIV. Nevertheless, the AB advanced its views.

In both cases, before the panels, India had taken the same position. But by the "fortuitous" circumstance of the AB hearing in the BOP case taking place (before the Turkey dispute appeal), the US was able to get the AB to rule about the simultaneous jurisdiction of the WTO legislative body and of the panels on BOP justification. Though an interested third party intervener before the panel in the Turkey dispute, the US did not intervene at the AB stage!

Nevertheless, the AB (which under the DSU cannot create or abridge rights and obligations of the WTO), by obiter dicta that more often come out of Courts of Records in Anglo-Saxon common law jurisdictions, "invited" future appeals in future disputes to enable it to rule on this contradiction in interpretation of the same wording in the 1994 Understandings on BOP and Art. XXIV.

In another dispute, raised by India, Malaysia, Pakistan, Thailand, against US restrictions on imports of shrimp, caught using nets that may result in ensnaring turtles (WT/DS58/AB/R, SUNS #4301 dated 14 October 1998), known as the โ˜shrimp turtle' controversy, the AB:

1. Cleared way for NGOs to file amicus curiae briefs and intervene, in effect ruling that the panel's right to "seek" information should not be narrowly read, but as enabling it to make use of information it did not "seek". It thus made the verb "seek" requiring an active role of the panel (by any ordinary meaning of the word in any dictionary), to mean or include to "receive" even when the panel did not initiate any move on this! The US and EU NGOs cheered, little realising that this also meant rich corporations and their lawyers could also intervene, which they did subsequently as in a steel imports dispute! (More on that later.)

2. Imported and expanded scope of Art. XX of GATT "exceptions" by setting aside the panel ruling on this, as a "serious error" of legal reasoning, that the panel did not examine the ordinary meaning of Art. XX (unlike in the Indonesia national automobile project ruling, there is no discussion whether this means the "substance" of the provisions or the entire Article), nor look at the application of the measure; the AB rather focused on the design of the measure and addressed "a particular situation where a Member has taken unilateral measures which, by their nature, could put the multilateral system at risk."

The panel had formulated a broad standard and test for appraising measures coming under the excluded measures, and found the US shrimp ban as falling under this class because it imposed conditions for market access based on the exporting country adopting conservation policies prescribed by the US. The AB, however, accepted the US plea that Art. XX (g) about exhaustible natural resources, applied not merely to mineral resources (like petroleum products in the Venezuela gasoline dispute against the US), but also to living natural resources, and spoke of "evolutionary" approach to treaty interpretation. The AB held that the treaty interpreter must interpret the treaty in the light of contemporary concerns of the community of nations about protection and conservation of the environment and that, while Art. XX of GATT 1947 (reflecting the understanding at that time on mineral and living resources) was not modified by the GATT 1994 in the Uruguay Round, the WTO preamble had "the objective of sustainable development" in its own preamble, and thus, the term "natural resource" used in GATT 1994, Art XX (g) is not static but "by definition, evolutionary." Evolution in 5 years of life of WTO and GATT 1994!

Public international law interpretation, as codified in the VCLT, requires words of a treaty to be interpreted in their "ordinary meaning", but where language is ambiguous or not clear, there can be reference to negotiating history to arrive at a meaning. Under the Vienna Conventions on Plenipotentiary Diplomatic Conferences for negotiating treaties/agreements, at the end while concluding a treaty, the plenipotentiaries are also authorised to draw up and approve a "negotiating history" to be part of the records of the Conference. Any other "negotiating history", however drawn up, is of no value.

The UR's concluding meeting of plenipotentiaries at Marrakesh was not presented with, nor did it approve or adopt a negotiating history; this was unlike at the end of the previous GATT Tokyo Round (in which both tariff and non-tariff issues were negotiated under GATT 1947), and the negotiating history, drawn up by the secretariat, was adopted. At the Marrakesh plenipotentiary Ministerial meeting, only formal documents and reports of the UR were derestricted and published; though much of those negotiations took place in informal meetings where informal proposals by participants, and sometimes "non-papers" (those without identified authors) were tabled and considered, none of these can be found in the derestricted formal UR documents.

Yet, at the DSU, panels purporting to exercise a need to clarify meanings of language in the WTO accords (rather than on basis of ordinary meaning, deduced from a dictionary), have been using "negotiating history", produced by the secretariat (the legal division servicing the panels, in consultation with substantive divisions), and behind the backs of parties after they have presented and argued their cases, a gross violation of the principles of natural justice common to all systems of law and public international law. These secretariat records resulted, in two dispute cases explained below, in some strange "negotiating history".

In a ruling (DS163/R) against Korea, in a dispute raised by the US on the plurilateral Government Procurement Agreement in Annex IV (see SUNS #4670 dated 18 May 2000 for analysis of ruling), a dispute panel headed by Michael Cartland, a former Hong Kong representative to GATT/WTO, first gave an expanded interpretation of the rarely-invoked "non-violation" clause in GATT Art. XXIII.1.b - only 8 cases till then in the 50 year-history of GATT invoking this clause - for impairment or nullification of benefits to the US; the ruling spoke of impairment to the US, arising out of "reasonable expectation of an entitlement" to a benefit that had accrued "pursuant to the negotiation" rather than "pursuant to a concession exchanged in the negotiations," the traditional view of public international law (codified in Art. 26 of the VCLT, incorporating the principle of "pacta sunt servanda").

This finding by the Cartland panel, enabled its further finding that there was lack of "good faith" in negotiations or "treaty error" on the part of Korea, and that the DSU could be used to invalidate a part of the "treaty" (Government Procurement Agreement) by a ruling, and a DSB recommendation substituted in a "treaty", to enable a party to withdraw reciprocal concessions. It arrived at this expanded view about "pacta sunt servanda", by delving into the negotiating history, not of the Government Procurement Agreement, but of the VCLT itself, citing the statement of the International Law Commission in transmitting the draft VCLT to the UN General Assembly, that had set up the Commission and adopted the VCLT!

Having given this obiter dicta, opening up the scope for future complaints, the panel however ruled against the US on the ground that the US had not exercised "due care" in the negotiating process! The US did not appeal, and the panel report was adopted, in effect putting the DSB imprimatur on this expanded clarification/ interpretation of "non-violation" complaints, and "good faith" in negotiations, and ability of panels to remedy "treaty error" and "lack of good faith" in negotiations, by substituting its own judgement in lieu of actual scheduled commitment; a veritable "Daniel come to Judgement" to use Shakespearean language. The US did not protest such an expanded remit for dispute settlement.

The manner in which the dispute settlement process was being invoked, and rulings handed down, elicited some criticism at that time from a former GATT law official, Mr. Frieder Roessler, a German national who had headed its legal division during the Uruguay Round and into the WTO, and later headed the Geneva-based Advisory Centre on WTO Law (set up to help developing countries, in particular LDCs, with legal assistance in disputes).

In a critique of the functioning of the WTO's Dispute Settlement system, and particularly the way panels and the AB made use of the procedural rights in the DSU to virtually nullify the substantial rights and obligations of members under the agreements, Roessler said that the competence of panels and the Appellate Body could not be determined by themselves exclusively on an interpretation of the DSU, but in the context of the complex institutional structure of the WTO and the division of decision-making among different organs, set out in the Marrakesh treaty and which reflect legitimate, negotiated policy objectives.

WTO panels, Roessler said, should respect the competence and discretionary powers of the political bodies established under the agreements, and should not reverse their determinations. And if a competent WTO body has not yet made its determination, panels should not step in and pre-empt that determination. The role of panels, he added, should be limited to protecting Members against an abusive resort to provisions governing, for e.g., the balance of payments measures and regional trade agreements -- against measures that fall outside the discretionary authority of the BOP Committee or the Committee on Regional Trade Agreements.

Roessler's views were in a paper, "The Institutional Balance between the Judicial and Political Organs of the WTO," presented at a seminar (1-2 June, 2000) honouring Prof Raymond Vernon, at the JFK School of Government at Harvard University, Cambridge, Mass., USA. (Frieder Roessler in M. Brocken & R. Quick (eds) โ˜New Directions in International Economic Law', Boston, MA, Klwer Law International, pp 324-45; see SUNS #4685 dated 16 June 2000 for report on the Roessler paper.)

The US at that time voiced no criticism of the way panels and the AB were clarifying and interpreting the WTO and its agreements, that seemed to increase obligations of developing countries to the benefit of the US and its mercantilist interests. This bias at the WTO came into play to a much greater extent - in the 1996 US Presidential election campaign (Bill Clinton vs Bob Dole contest), where the WTO and its DSU and loss of US sovereignty became an issue and one of the campaign slogans was "Two strikes, and we are out"; and the WTO and its panels and AB under DSU, seemed to be trying to ensure there is no such opportunity!

In a similar vein to Roessler remarks and paper, Mr. B. L. Das, former Indian Ambassador to the GATT and a Trade law expert and author of several books on the WTO system and its imbalances, in a critique of the way the panels and the AB were functioning, went so far as to call for the abolition of the standing Appellate Body itself. (See Das, "The panel and Appellate Process at the WTO", SUNS #4689 dated 19 June 2000.)

In analysing the panel and AB views in two separate disputes involving WTO Annex 1A - Agreement on Safeguards, dispute against Korea and dispute against Argentina, heard and rulings handed down at the same time by two different division benches of the AB, Mr. Das pointed to an "extra-ordinary coincidence" in these two reports, of six paras in each having the same wording - paragraphs 84, 85, 86, 87 (part), 88 and 89 of the Korea case AB report (WT/DS98/AB) and paragraphs 91, 92, 93, 94 (part), 95 (part), and 96 of the Argentina case AB report (WT/DS121/AB).

Das added: "The members of the AB divisions in these two cases were two totally different sets of members... Each of these reports is signed by the respective sets of three members each. It is surprising how these two different sets of persons ended up writing exactly the same language in some parts of their respective reports. The AB is like a judicial body in the WTO. One has to presume that the AB in a case writes its own reports, and does not get it written by some other persons. This presumption seems to be hit by the exact convergence of the language in some parts of the two reports as mentioned above."

After Das's article in SUNS, WTO officials explained to this writer about "collegiality" under Working Procedures - at that time these were not made public, but available to Members - and that in the light of conclusions by the AB division, reports are drafted by the AB secretariat, and approved by the Division benches!

The recent letter of six AB members to the DSB chair, both explains and brings on public record now, that the division bench of three hearing an appeal invariably consults and interacts throughout with the four other members of the AB who did not participate in the hearing of the appeal, and that this is being done in terms of the AB's "Working Procedures". Not yet in public record then, but known, as this writer had done at that time, by talking to some panel members and AB members (after the rulings), it would appear that after the hearing of parties and third parties in a dispute, panels and the AB division in reaching their conclusions are "guided" by officials of the legal (and substantive) divisions of the WTO, "servicing" the panel; and in most cases the secretariat also draws up a draft report.

And in the case of the AB, the three-member division bench interacts throughout, without the presence of the parties and third parties to the appeal, with other members of the AB, and their reports too are drafted by the AB secretariat's legal assistance.

In any domestic jurisdiction this is enough to make a ruling or decision (judicial, quasi-judicial or administrative), illegal and invalid. The WTO apparently is a different animal, and part of the DSU review process to be undertaken, in priority to any other negotiations at the WTO, must address these and remedy them, and ensure adopted rulings at the DSB do not add to or diminish the rights and obligations provided in the covered agreements.

In its ruling (USA vs EU, DS202/AB/R), the AB ruled against US on countervailing duties under SCM, but in the process, through its free-wheeling ways without any authority of the rules, managed to raise more controversies.

The US, in its notice of appeal, had not spelt out the legal grounds and panel decisions thereof, as required under the AB working procedures. And when the EC asked for dismissal of the appeal on that ground, the US said there was no such requirement in the DSU; and instead of ruling and upholding its own working procedures, the AB division "requested" the US to file its grounds of appeal and accepted it though the time for appeal had expired!

The AB also asserted its right to receive amicus curiae briefs, this time from an industry association, but decided there was nothing in the brief!

In the process, it gave NGOs and their amicus curiae briefs, superior rights over WTO members as third parties who had not notified their intention to intervene in the appeal, or Members, other than third parties who can't claim any right to be heard! On substance, the AB turned down US arguments about when โ˜benefit' is conferred, but refused to provide any authoritative ruling that would end future disputes.

In the EC-Canada patent case, the panel (DS114/R), used the "negotiating history" of the TRIPS provided in a note by the secretariat (Annex 6 of its report), purporting to draw a history of the negotiations "on the basis" of draft legal texts in the negotiating group in the spring of 1990, a secretariat composite text, and subsequent chairman's informal text and revisions, as well as in an Appendix to the Annex 6, on "parallel work" in the WIPO Committee of Experts on preparations for a Patent Harmonization Treaty.

The secretariat note admitted these texts were not circulated to the TRIPS negotiating group, but still used them on the ground that WIPO representatives had kept negotiators 'informed' of developments! At Marrakesh all formal documents, and reports were derestricted; however, the report of various meetings of the NG on TRIPS, at that juncture in 1994, were available even to UR delegates only as drafts (subject to editing, and corrections from delegations); the reports were finalised and made public only in 1995 or 1996, after the WTO came into being. (see SUNS #4630 dated 21 March 2000, "WTO panel hits stockpiling exception in Canadian Patent Act".)

And while the AB has shown willingness to create law, and do what it wants over NGO briefs, on the sequencing issue - compliance panel first before retaliation authorisation request or Art. 21.6 of DSU vs Art. 22 - where the QUAD disagreed considerably, the AB noted lack of clarity and ambiguity, and said it was for the members to clarify through interpretation or change of rules! (see SUNS #4812 dated 12 January 2001.)

(* Chakravarthi Raghavan, Editor Emeritus of the SUNS, contributed this comment, part two of a two-part article. The first part was published in SUNS #8258 dated 9 June 2016.)