TWN Info Service on WTO and Trade Issues (Jun16/18)
27 June 2016
Third World Network

US double standards in complaints against AB - Part I
Published in SUNS #8258 dated 9 June 2016

Geneva, 8 Jun (Chakravarthi Raghavan*) - In voicing its complaints at the WTO Dispute Settlement Body (DSB) on 23 May, while vetoing the re-appointment for another term of Prof Seung Wha Chang of South Korea, the United States has once again exhibited the double standards it practices.

In the early years of the WTO and the functioning of the DSU (Dispute Settlement Understanding), when rulings by the panel and the Appellate Body (AB) were being handed down, with most of the rulings against the developing countries and automatically adopted at the DSB by the negative consensus rule, the US was one of the main beneficiaries and cheerleader, often when the EU and Japan too were complainants.

Several of those rulings added to the obligations of the developing countries, curtailing their rights, and were grounded on questionable reasoning and conclusions, and purportedly based on public international law interpretations, codified by the Vienna Convention on the Law of Treaties (VCLT).

[The US never ratified the VCLT (as the Senate did not consent and advise) and as a result some others too. However, the US State Department (to whose views on international commitments the US courts, including the Supreme Court, defer), in a statement by the Secretary of State, announced that the US abided by public international law.]

When the Uruguay Round (UR) agreements were being negotiated and concluded at official level in October-November 1993, the several agreements, cobbled into one at the last moment, had been negotiated at various stages in formal and informal negotiating groups, with most of the negotiators having no clear view on the final outcome or of the institutional set-up for implementation of the agreements until the very end.

This outcome, in the shape of the draft WTO Treaty - with annexed agreements relating to Trade in Goods, Trade in Services, Trade-Related Aspects of Intellectual Property Rights, Trade Policy Review Mechanism, some Plurilateral agreements, and a Dispute Settlement Understanding for an integrated dispute settlement system - was negotiated within a small group of key countries (often between the US and the EU initially), and put together and presented to the UR participants on a take-it-or-leave-it basis, often with very little time for developing country negotiators in Geneva and their capitals to study them and their implications. They never had any option to suggest changes.

The various agreements under the rubric of 'Trade in Goods' were negotiated so disjointedly, with different negotiating groups on different issues, often with one or two delegates of developing countries shuffling between different negotiating groups meeting at the same time, and agreeing to compromises in differing languages for more or less the same concepts.

Some of these were such that even at the time of the official level conclusion in November-December 1993, possible conflicts inter se were envisioned.

To reconcile these, two safeguards were suggested.

One was to subject all the agreements to "legal scrutiny and reconciliation", before settling on a final draft. At the time of legal scrutiny, when some of the inconsistencies and impreciseness in language were raised and pointed out by some developing countries, Canada argued that re-opening compromise texts achieved after much difficulty may result in unravelling the entire package of agreements.

While important, this was not such an insurmountable obstacle; and, with clear instructions for time-bound discussions to produce uniformity and clarity, without endangering or changing substance, solutions could have been found.

Nevertheless, with delegations weary after seven years of negotiations, the Canadian suggestion that these matters could be resolved through the DSU process, prevailed.

In this respect, some of the built-in safeguards were pointed to:

1. The DSU, through the panels and Appellate Body process of appeals on points of law, were to "clarify" the existing provisions of those agreements in accordance with customary rules of interpretation of public international law. Recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements. (DSU, Art 3.2).

2. Under Art. IX:2 of the WTO treaty, "The Ministerial Conference and the General Council shall have the EXCLUSIVE (emphasis added) authority to adopt interpretations of this Agreement and of the Multilateral Trade Agreements. In the case of an interpretation of a Multilateral Trade Agreement in Annex I, they shall exercise their authority on the basis of a recommendation by the Council overseeing the functioning of that Agreement. The decision to adopt an interpretation shall be taken by a three-fourths majority of the Members. This paragraph shall not be used in a manner that would undermine the amendment provisions in Article X."

3. The negotiators recognised some of the conflicts likely to arise from the GATT 1994 and several multilateral agreements, under the rubric of 'trade in goods', put together in one Annex, Annex 1A of the WTO treaty, titled "Multilateral Trade Agreements on Trade in Goods".

(This Annex 1A has listed in it, the GATT 1994, six Understandings related to the various specified Articles of GATT 1994; the Marrakesh Protocol to GATT 1994 incorporating the schedules of Members incorporating tariff concessions and bound rates of tariffs; and 12 Agreements covering various aspects of trade in goods.)

As such, Annex 1A itself has a "General Interpretative Note to Annex 1A", and stipulates:

"In the event of conflict between the General Agreement on Tariffs and Trade 1994 and the provision of another agreement in Annex 1A of the Agreement Establishing the World Trade Organization (referred to in the Agreements in Annex IA as the "WTO Agreement"), the provisions of the other Agreement SHALL (emphasis added) prevail to the extent of the conflict."

While every participant signing on to the WTO agreement at Marrakesh, had also to sign on to all the Agreements listed in Annexes 1, II and III, but not the plurilateral agreements listed in Annex IV, where adherence was to be voluntary, the WTO Treaty has no provision on the sum total of rights and obligations under various agreements.

In terms of customary rules of interpretation of public international law, when a country is a party to several agreements, it is expected to implement in good faith all, with specific obligations in one over-riding the general in another, and a subsequent agreement between the same parties on a specific subject over-riding an earlier one etc.

From the outset, contrary to these "customary rules of interpretation", the panels and the AB, aware that rulings will be automatically adopted by the DSB by negative consensus, in a series of disputes raised by the US against individual developing countries (and in the banana dispute against the EU), ruled that the rights and obligations of the various agreements were "cumulative", even though those who negotiated, drafted and concluded the agreements, did not formulate any such requirement.

Despite this, the AB said that it would so clarify and reconcile the various agreements that there are no conflicts, and in such a way that a Member would be obliged and enabled to observe all the obligations of all the agreements.

The US double standards, and the WTO and its secretariat acquiescing, began even in 1995 when the initial slate of seven AB members was agreed on 29 November 1995 (after a difficult process of haggling involving the WTO DG, the US and EU); it resulted not only in seven AB members named, but a US national being named to head the WTO's legal division (and a Canadian to head the AB's legal assistance secretariat!).

Under the old GATT, the legal division was headed by a German national. Under the WTO, Europe as a whole got one seat on the AB!

For the selection of AB members, candidates from 23 countries were interviewed and from among them a selection was made by a small committee consisting of then WTO DG Renato Ruggiero, the Chairs of the DSB (Don Kenyon of Australia), the Goods Council (Minoru Endo of Japan), Services Council (Crister Manhusen of Sweden) and TRIPS Council (S. W. Harbinson of Hong Kong).

[Britain transferred Hong Kong over to China in 1997; in 1995, Hong Kong was still a separate customs territory under the UK.]

In the selection process, the WTO members were "consulted" and asked for views on their preferred candidates and why on the basis of criteria agreed by the DSB; however, the US was effectively given the "privilege" of objecting/vetoing some names (a question never posed to others), and thus helping to label the successful ones as "pro-American".

Everyone involved in the process must be held responsible, but the major one was that of DSB Chair Don Kenyon and WTO DG Renato Ruggiero: the two enabled the Americans to exercise such a "privilege".

After some tussle (between the US and EU on Europe's claim for two seats), seven names were put before the DSB and accepted by consensus; India and Switzerland, while not blocking the consensus, however, said they were not joining.

Switzerland, in neither opposing nor joining the consensus, said there was an imbalance, complaining that the Selection Committee had not followed the criteria set out and agreed upon, and had taken a "restricted view" of the European entity.

India, in a statement made available by its delegation to the media outside, detailed how one member alone had been given the option of saying 'NO' to individual candidates. The EU, while joining the consensus, expressed its dissatisfaction. (For detailed report, see Raghavan, "WTO establishes Appellate Body,"

In several of its rulings, the AB "interpreted" the accords cumulatively, increasing obligations of developing countries and restricting their rights, in effect using the DSU and negative consensus for adoption of rulings to open up markets of developing countries to the TNCs of the US.

Some egregious examples are detailed below (in this, and upcoming part 2 of "US double standards").

The AB bias in favour of the US, and acting against developing countries to pry open their markets, began from the outset in its rulings, adding to developing country obligations and reducing to nullity some rights they thought they had secured, in a series of disputes raised by the US and/or the EU.

In a dispute against Indonesia over its domestic auto production project, with some subsidisation for local procurement (see SUNS #4271 - Indonesia Automobile dispute - WT/DS54/R and separate reports, DS55/R, DS59 and DS60 on each complaint), the panel ruled that when a number of international agreements are entered into by the same parties at the same time, there has to be a presumption that there are no conflicts.

However, on a plain reading of texts, it is clear that the UR negotiators in reaching the various WTO accords in Annex IA (agreements on trade in goods), did envisage conflicts, and hence inserted the over-riding general interpretative note to Annex IA.

The panel got around this, arguing that this could apply to any conflict between the obligations of GATT 1994 (including Art. III) and the Subsidies and Countervailing Measures (SCM) Agreement, but not between TRIMs and the SCM Agreement.

The "no conflict" between TRIMs and Subsidies and Countervailing Measures (SCM) Agreement was deduced by "interpreting" the TRIMs as a "full-fledged" Agreement of the WTO, and TRIMs references to the "provisions" of Art. III of GATT 1994 (against investment measures), as a reference, not to the Article as such -- as would be the ordinary meaning of the term in public international law interpretations -- but only to its "substantive aspects"!

The panel did not explain where it got this "qualification" to distinguish between "substantive aspects" and the Article itself! The panel used the AB ruling, in the US-EC banana dispute (see below), to buttress this view and promote the theory of "cumulative obligations" on the same subject in different agreements.

However, if TRIMs and SCM Agreement are separate accords, the special rights given to developing countries (to promote industrialisation) by subsidies and incentives, ought to have prevailed over the more general TRIMs.

In commenting on the Indonesia auto dispute, in the same issue of SUNS #4271, Mr. Bhagirath Lal Das (a trade expert and former Indian ambassador to GATT 1947) points out that in reaching the conclusion of no conflict between TRIMs (a general accord) and the specific Agreement on Subsidies and Countervailing Measures permitting developing countries to provide subsidies for use of domestic goods in preference to imported goods, the panel has taken "circuitous routes, making a subtle, but tenuous, distinction between the Art. III of GATT 1994 and 'the provisions' of this article."

This appears totally artificial, as an Article cannot be viewed as separate from its provisions. He says: "one may be tempted to ask: what is the content of Article III of GATT 1994, devoid of its provisions contained in its various paragraphs?"

Indonesia did not appeal the panel ruling, but implemented it. In this instance, it bowed to the IMF, acting in tandem, imposing as a conditionality for its loans to meet Indonesia's financial crisis, that Indonesia implement the ruling, end the subsidy and abandon its automobile project.

The IMF thus advanced the mercantilist interests of its major shareholders, the US, EU (France, Germany and UK) and Japan.

[As a result, the accord (and the picture of the flamboyant way then IMF boss Michael Camdessus stood behind Suharto as he signed the accord with the IMF) sealed Suharto's fate, and the corrupt Suharto regime gave way to successors who did not want to pursue the projects whose beneficiaries were Suharto's sons.]

In the earlier banana dispute (WT/DS27/AB/R), the US, in pursuing the interests of its Chiquita banana TNC (which procured and exported bananas from Central and South America, but not from the US), had challenged the EU's whole-sale distribution regime under the General Agreement on Trade in Services or GATS; without the GATS challenge, the US had no locus standi in disputes involving Annex IA accords, since the US exported no bananas.

(The US withdrew its own initial complaint, and joined the Central American countries as co-complainant, where Chiquita TNC had banana plantations and exported bananas to the EU at MFN rates, as against the preferential tariff regime for bananas from ACP countries.)

The issue raised by the US complaint hence was over the EU's obligations under the agreements under Annex IA (i.e. GATT 1994 and other agreements in the area of trade in goods on imports of bananas, and preferential tariffs for imports from the ACP or Lome pact countries) and the accord in Annex IB (GATS) and whether invoking GATT accords (by Guatemala and others), excluded a claim by the US under GATS.

The WTO treaty itself has no provision analogous to that in Annex IA, on any conflicts amongst the agreements in Annexes IA, IB, IC and Annex 2 (DSU).

Thus in any conflict among the first three, issues such as conflict between the general and the particular accord, a presumption (rebuttable though) about no conflict is possible.

But all Annex IA accords are covered by the mandatory General Interpretative note about conflicts, and shows that the signatories envisaged possible conflicts, and ways to resolve them.

In the Indonesia auto dispute, the conflicts were in relation to various accords under GATT 1994, and other goods agreements (while in the banana case it involved Central American, Ecuador and others exporting bananas, and the US rights under GATS).

Generally, where there are two or more agreements, there are rules of interpretation about this - the specific over-riding the general, etc.

At first (in the banana dispute against the EU) the panels said that the obligations under the GATT, GATS and TRIPS were 'cumulative'.

This itself was questionable. But to import this to make the GATT 1994 and the other goods agreements to be cumulative, as in the Indonesia auto dispute, is nonsense. If negotiators had intended it, they would have said so, as both this writer and Mr. Das pointed out at the Seatini seminar in Harare (see Martin Khor, "WTO dispute system tilting balance against South" in SUNS #4638).

(* The above comment is by Chakravarthi Raghavan, Editor Emeritus of the SUNS. Part 2 of this article on US double standards in complaints against the AB appeared in SUNS #8259 dated 10 June 016.)