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TWN Info Service on WTO and Trade Issues (Apr19/05)
9 April 2019
Third World Network


Time for WTO to take up overdue review of DSU

Published in SUNS # 8882 dated 5 April 2019

Geneva, 4 Apr (Chakravarthi Raghavan**) – The World Trade Organisation (WTO) and its Multilateral Trading System (MTS) is facing an existential threat, and unless this is taken up and resolved at the highest political decision- making levels of the WTO membership, the WTO system will atrophy and wither away.

(See SUNS #8873 dated 25 March 2019, “WTO-MTS facing existential threat, needs political decisions”, for part one of this series on the WTO-MTS and the crisis in the Appellate Body.)

Tackling and resolving the issues raised by this threat is the highest priority.

In this light, after resolving the threat to the system posed by the US blockage of a process to fill four current vacancies in the Appellate Body (AB), a mandatory obligation under Art.17.2 of the Dispute Settlement Understanding (DSU), WTO members must take up and discharge the obligation cast on them at Marrakesh in 1994, namely, to undertake a complete review of the DSU and decide to continue it as it is or with changes to its rules or to terminate and replace it with something else.

The review and changes to the existing DSU as such would need decisions by consensus, without it being linked collaterally to other desired changes of any delegation or group of them in the WTO-MTS. These changes may need “amendments” to the current DSU and/or the WTO, and will be subject to the amendment procedures prescribed in the WTO Treaty and its annexed Agreements.

In concluding the Uruguay Round (UR) of GATT negotiations at Marrakesh in 1994 with the WTO Treaty and its annexed Agreements, the Ministers of the participating countries with plenipotentiary powers also took some decisions and understandings that are integral parts of the adopted Treaty, set out in the “Legal Texts”.

Among these is the “Decision on Application and Review of the Understanding on Rules and Procedures Governing the Settlement of Disputes” (p465 of the Legal Texts, GATT Secretariat 1994).

The WTO Treaty committed all parties to sign on to all the agreements, and bring their own domestic laws and regulations into compliance with their obligations under the WTO Treaty.

The Treaty has also set out, under each of the “agreements, decisions and understandings”, a commitment by members to undertake further negotiations in a number of areas.

These were set out in full detail by the WTO secretariat in an official document in 1995-96, something that the then UNCTAD Secretary-General, Mr. Rubens Ricupero, used to call the “built-in agenda”.

These further negotiations on issues that were unresolved in the WTO Treaty is a continuing collective obligation of the WTO members, and an agenda that cannot be just jettisoned without necessary decisions at the highest level (and some may need amendment of the Treaty).

The 1994 Ministerial “Decision on Application and Review of the Understanding on Rules and Procedures Governing the Settlement of Disputes” (p465 of the Legal Texts) invited the Ministerial Conference (MC) to undertake a “full review” of the DSU within four years after the WTO’s entry into force and “to take a decision on the occasion of its first meeting after the completion of the review, whether to continue, modify or terminate such dispute settlement rules and procedures.”

Such a review and decision was to have been made at the Seattle Ministerial Conference (1999), but could not be done in the kind of confusion in which the Conference met and ended, as a result of the US Clinton administration-organised street demonstrations and protests (with “anarchists” playing a role in the mayhem and chaos that ensued there).

In the preparations for that Seattle meeting, the informal group of developing countries did its own review in a small committee of members, chaired by Ambassador Munir Zahran of Egypt. The group sought and drew on the expertise of its former negotiators and others.

[Disclosure: The writer participated in this exercise at the request of the group, and contributed an analysis of various DSU rulings and their implications. The analysis and recommendations were discussed at a meeting of the informal group, preparatory to the Seattle meeting. In this light, it was revised and published subsequently as a monograph: Chakravarthi Raghavan (2000) “The World Trade Organization and its Dispute Settlement System: Tilting the balance against the South”, TWN Trade and Development Series No. 9, TWN Penang, Malaysia (https://www.twn.my/title/tilting.htm). The analysis and several of its recommendations are still relevant and valid today.]

After the Seattle fiasco, when a new Round of Multilateral Trade Negotiations — the Doha Work Programme (DWP), otherwise known as the Doha Development Round (DDR) — was launched in 2001 at the Doha Ministerial Conference (MC4), the mandate for the DSU Review was reiterated, but de-linked from the DDR as a Single Undertaking. [Paras 30 and 47 of MC4, WT/MIN(01)/DEC/1, 14 November 2001.]

The Ministers at Doha decided this deliberately, so that the Review could be done and changes in Rules effected, without any attempt by any Member or Group to use this as a trade-off for concessions by other Members in other areas.

This decision has not been over-ruled or changed in any way by subsequent MCs, and is thus still in force.

Such a review was never carried out in “good faith”, the negotiations for the Review being constantly side-tracked by the US and the EU.

The two have been the major beneficiaries of the DSU process and the functioning of panels and the Appellate Body (AB).

On the other hand, developing nations and their development prospects have been the long-ignored victims.

Taking advantage of the DSU provision for the adoption of reports and the rulings and recommendations of panels and the AB by negative consensus, and advised by the WTO secretariat (servicing them) in violation of all principles of natural justice, the panels and the AB, in carrying out their mandate to clarify the existing provisions of the WTO Treaty and its agreements, have handed down rulings resulting sometimes in their rule-less behaviour and even running contrary to the specific provisions of the WTO Treaty.

As noted above, in the nearly two-decades of off-and-on negotiations on the DSU review, except for a few minor procedural changes, both the US and the EU have opposed any substantive changes. The review has neither been completed nor concluded, and remains on the agenda of the informal DSB negotiating sessions.

It is sheer hypocrisy for the EU or the US now to talk of the need for reforms and decisions on the items remaining on the agenda of WTO bodies without any decisions.

The US, under the Trump administration, has now created a situation (by blocking the consensus for filling vacancies on the AB) whereby before end-2019, the AB will become non-functional for lack of three members to constitute a division bench to hear and dispose of appeals on issues of law.

Though the US has done so for mala fide collateral purposes, namely, to force other members to yield to US blackmail tactics to effect so-called “WTO Reforms”, it has done the developing countries a great service by bringing the DSU review issue prominently back on the WTO agenda, and identifying the WTO DG Roberto Azevedo (and thus the Secretariat) as being partisans in promoting the US agenda (and hence should not be allowed to play any role in this).

This is an opportunity that developing countries would miss at their own peril; and the future of the WTO-MTS will be irreparably damaged, if they do not use it to ensure a complete review of the DSU to meet not only the issues being flagged by the US, but also their own much earlier voiced criticisms of the system and the functioning of the secretariats of the WTO including that of the AB, in “servicing” the panels and the AB.

In this process, the developing countries should refuse to engage in any formal or informal talks that would in any way link the review and changes to the DSU to negotiations and trade-offs in any other area, or in return, for taking up any new agenda of the US or its allies — the EU, Australia and others. [See SUNS #8878 dated 1 April 2019 and #8873 dated 25 March 2019.]

Such a DSU review should be taken up after the Ministerial Conference or the General Council (GC) has considered the current threat to the WTO and its Multilateral Trading System, and has provided authoritative interpretations of DSU Article 17.2 to make clear that it is both a collective obligation of the Members as a whole as well as of individual Members to implement Art. 17.2 in good faith.

On this particular matter, the MC and GC should strive to act by consensus, but if no consensus can be achieved, to then decide by voting, as provided in Art. IX:2 of the WTO Treaty, set out below:

“Art IX:2. The Ministerial Conference and the General Council shall have the exclusive 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 of Article X.”

The DSU is in Annex II to the WTO Treaty. As such, the relevant parts of Art. IX:2 for an authoritative interpretation of DSU Art. 17.2 are the first and third sentences of Art. IX:2.

In this and the further tasks of the DSB (for reviewing the DSU), it is essential to bear in mind a few details as context:

The various multilateral trade agreements in Annex I to the WTO Treaty – agreements on trade in goods (IA), in services or GATS (IB) and on intellectual property or TRIPS (IC) – were negotiated over a seven-year period among different groups of nations and their officials in various negotiating groups (1986-1990) and at the TNC (Trade Negotiations Committee) level (1991-1993).

This resulted sometimes in the same concept or agreed view being formulated in different language in the various agreements under the Multilateral Agreement on Trade in Goods (Annex IA).

On the other hand, the WTO Treaty and the Dispute Settlement Understanding (Annex II) were fashioned towards the end of the UR negotiations in 1993.

These two were first agreed upon by the US and the EU at ministerial level talks (by USTR Micky Kantor for the US and Sir Leon Brittan for the EU, then the EEC), and settled (at official level) in detail by more or less the same group of countries and delegates (though aided by different advisors).

In the process outlined in the paragraph above, three different terms have been used (in the WTO Treaty and the DSU Art. 3).

These are “to clarify” in DSU Art 3.2; “authoritative interpretation” in Art IX:2, and “Amendment” in Article X respectively of the WTO Treaty.

Though the terms “clarify” and “interpret” are generally used loosely as synonyms, in the WTO and DSU context, where two different terms have been used, in terms of the “ordinary meaning” under the Vienna Convention on the Law of Treaties (VCLT), it is clear that the intent was, and is, to relate to two different functions: “clarify” as a function of panels and the AB, and “interpretation” as a function of the Ministerial Conference and when it is not in session, that of the General Council.

It is time to ensure that the AB, which often talks of its duty as “treaty interpreter”, functions in accord with the WTO Treaty intent.

Where the language used in any covered agreement is ambiguous and needs “interpretation”, the AB, rather than providing an “interpretation” of the provisions of the agreements, must ask the MC/GC to provide an “authoritative interpretation”.

The WTO Treaty and the DSU, along with various agreements listed in Annexes IA, IB and IC, were concluded at official level in November-December 1993.

None of the negotiators, until this stage, had a clear idea of how the various agreements under the UR would be dealt with: whether as one agreement or several agreements, and the nature of the organisation that would come into being to service and administer these agreements or in any other way.

It was only at this stage (after the WTO Treaty was agreed upon to be a Single Treaty with annexes), when the implications in the use of varying language and phrases to express the same intent in various agreements in Annex IA were brought up by some developing countries, that the negotiators decided to append the General Interpretative Note to Annex IA:

“In the event of conflict between a provision of the General Agreement on Tariffs and Trade 1994 and a provision of another agreement in Annex IA to 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 prevail to the extent of the conflict.” (p20 of the Legal Texts).

Early in 1994, at the stage of the legal scrutiny of texts concluded at official level was taken up, and when the ambiguity and/or variation in language used in various agreements was again brought up, that Canada (then a part of the QU AD and generally viewed by others as reflecting the US views) insisted that any effort to reconcile the texts would lead to the unravelling of the entire package and should not be undertaken.

Rather, Canada suggested, these matters could be left to be sorted out by panels and the AB. This view prevailed.

(Throughout, the negotiations texts hammered out in the “green room” at various points were done in English. It was only after adoption of texts at official level in end 1993, that the French and Spanish versions, at the legal scrutiny stage, were “scrutinised and okayed” by the French and Spanish-speaking delegations. Though these have equal status with the English language texts, panels and the AB, attempting to “clarify” by reference to the French or Spanish versions, are somewhat on shaky ground, as shaky as when they try to find the “ordinary meaning” by reference to specialist dictionaries.)

From the beginning, with the US cheer-leading, panels and the AB, tasked with “clarifying existing provisions” (DSU Art. 3:2), have disregarded the over-riding interpretative note to Annex IA, and have made it inutile. (More on this later).

As set out above, before taking up the DSU review, the MC/GC need to settle, by authoritative interpretation, Art. 17.2 of the DSU.

This is perhaps the only Article or rule in the WTO Treaty and its annexes, that sets out in the mandatory “shall”, both the collective and individual obligation of Members to implement in good faith.

If there can be any doubt left in anyone’s mind on the US lack of good faith, in blocking the processes for filling vacancies on the AB, the recent testimony of the USTR Robert Lighthizer to the US Senate Finance Committee that its objections are intended to force others to radically change the WTO-MTS to suit its current needs makes its lack of good faith clear.

As noted in the first part of this series, taking the US objections at face -value and in an effort to make suggestions for resolving the deadlock over the AB appointments, a number of former trade negotiators, trade law academics, and some members of the WTO, have put forward various suggestions (some of these are referenced below*), without the US either spelling out the changes it w ants or responding in detail to the suggestions and proposals.

In practical terms, unless the US, in good faith, agrees, with or without changes to any or all of them, most of the proposed solutions like arbitration will result in over 40 percent of disputes involving the US, as complainant or respondent, remaining unresolved. Such a dispute settlement system ill-serves the collectivity of the WTO.

* References:

1. Recourse to DSU to save dispute settlement (Parts A & B) https://worldtradelaw.typepad.com/ielpblog/2019/03/guest-post-taking-recourse-to-the-dsu-to-save-dispute-settlement-at-the-wto-html, and https://worldtradelaw.typepad.com/ielpblog/2019/03/guest-post-taking-recourse-to-the-dsu-to-save-dispute-settlement-at-the-wto-part-b.html;

2. Five papers and writings cited by Clement Marqet in footnote 8 to SSRN-id32.pdf.

3. https://worldtradelaw.typepad.com/ielpblog/2019/03/would-speeding-up-wto-dispute-settlement-help-with-the-appellate-body-crisis.html and https://worldtradelaw.typepad.com/ielpblog/2019/03/planning-for-life-without-the-appellate-body.html

4. Raghavan (2000), “The World Trade Organization and its Dispute Settlement System: Tilting the balance against the South”, https://www.twn.my/title/tilting.htm, and http://www.twn.my/title2/wto.info/2019/ti190313.htm

[** Chakravarthi Raghavan, Editor-Emeritus of the SUNS, contributed this comment and analysis, and it is the second in a series. The first part appeared in SUNS #8873 dated 25 March 2019. See also http://www.twn.my/title2/wto.info/2019/ti190313.htm]

 


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