TWN Info Service on WTO and Trade Issues (July08/31)
24 July 2008
Third World Network

Agriculture: Did Schwab mean the US to have a Peace Clause Plus?
Published in SUNS #6523 on 23 July 2008

Geneva, 22 July (Chakravarthi Raghavan*) -- The remark of US Trade Representative Susan Schwab today that the US could go down to $15 bn in OTDS, "provided there will be no WTO legal challenge to the US on domestic subsidy issues", is so sweeping that it could mean anything.

It seemed more like a Peace Cause Plus or the Mother of all Peace Clauses.

Schwab said at the press briefing (in a prepared text posted on the US Mission website: "We are prepared to make these changes, but we must also have assurances that if our programs meet these disciplines they are not subject  to subsequent legal challenges that reduce them further".

Asked whether she was seeking a peace clause, (according to a podcast of the briefing), Schwab said that the so-called peace clause has expired. "We are not expecting the peace clause as it existed to be reinstated. I do think though that it is  impossible for us to go back to the farm community. And it doesn't really make sense, if we reach an  agreement in the Doha Round on trade distorting domestic support and where it will be capped, if  then a legal challenge could result in it being made even lower. As long as the US  is sticking to its commitment, it's only common sense that that commitment be upheld."

Though Schwab is not a lawyer, in her career she has been involved in US  trade policy and has been a negotiator, both for the private sector in negotiating  accords with other governments, and negotiator in the US government for so long that it is  difficult to make out easily whether she is merely unclear to the media, or deliberately obfuscating what she wants to ensure through negotiations.

A legal challenge to US trade measures can come in disputes raised at the  WTO, after an agreement is signed and the US Congress adopts it with implementing  legislation. Such a dispute can arise at the WTO on the ground that the domestic subsidy measures the US is providing in the agriculture sector is not according to the disciplines (and thus not in accord with US obligations), or that certain subsidy measures and  practices of the US are trade-distorting, but  have not been so classified and notified (e.g. if they claim something is non-trade-distorting and classify it as a 'green box', but can  be shown in a dispute to be really trade-distorting).

A dispute can also arise on the ground that the US measures are violating  other obligations of the United States under other agreements.

So, when Schwab says that once an agreement is reached on an US OTDS of $15 billion, and on that basis the US submits a schedule and it is accepted by others, it should not be open to challenge, she appears in fact to be saying that subsequently there can be no challenge at all.

If that be so, it is almost like the Bush administration's claims that those  it has classified as enemy combatants and kept in Guantanamo are neither subject to  the provisions of international conventions to which the US is a party, nor can it be challenged in the US courts under Habeas Corpus (the US Supreme Court has rejected this).

The old "peace clause" in the agriculture agreement (AoA) - the Article is  titled 'Due Restraint' - is Article 13. It was brought in 1993 during the  Agriculture negotiations in the Uruguay Round, on the ground that the developed countries after 40  years of GATT were reversing course in agriculture trade, and undertaking commitments for  substantial progressive reduction in support and protection to achieve a fair and market  oriented agriculture trading system. As such,"during the implementation" period when  they would be facing difficulties to change to a new regime there is need for restraint  by others, and not being dragged into disputes. The Article, as a result, provided for a  limited carve out from the other obligations under GATT 1994 and the Agreement on Subsidies and Countervailing Measures (SCM), but only when the WTO member concerned is conforming to the domestic subsidy  provisions of the AoA.

[The Marrakesh Treaty and the agreements annexed to it was treated as a  Single Undertaking, and everyone was required to join every agreement. The US, though it signed the Vienna Law of Treaties, absent Senate consent, has not ratified it; and according to the US State Department's website, the US considers itself bound only by the customary rules of public international law, which  the US Supreme Court interprets under a nationalist paradigm (see SUNS #6474 of 15 May  AB ruling on  zeroing' makes Doha deal more difficult). Under normal  international public law (as under the Vienna Law of Treaties), when two parties have  signed two or more treaties, they are obliged to comply with all. In the event of a conflict, this is subject to certain principles of interpretations - generally, the subsequent identical treaty  will be treated as superceding the earlier one; a particular treaty on a particular subject or with a particular provision will be viewed as over-riding a more general treaty or provision  etc.

[Though the DSU requires public international law to be followed in dispute  settlement, the Appellate Body gave a ruling that in settling disputes and as a treaty  interpreter, it would interpret the various agreements in such a way as to remove the  contradictions, so that everyone would need to observe every one of the Marrakesh treaties. This is  an encroachment by the AB into an area and preserve, namely authoritative interpretation of  the provisions of the Marrakesh Treaty and its agreements, that has been reserved  exclusively to the remit of the Ministerial Conferences, and when they are not in session to the  General Council. But to avoid confusing the arguments on Schwab, we can put this aside.]

In terms of Article 13 (a), if domestic support measures conform fully to  the provisions of Annex 2 of the AoA (the annex sets out the exemptions from reductions in subsidy commitments - and lists the various kinds of subsidies  that can be provided, without being hit by the AoA and its reduction  commitments), then they shall be:

( i) non-actionable subsidies for purposes of countervailing duties (duties  covered by Art VI of GATT and Part III of the Subsidies Agreement), ( ii) exempt  from actions based on Art. XVI of GATT 1994 and Part III of the Subsidies Agreement; and ( iii) exempt from actions based on non-violation nullification (a party  may not have violated any obligation, but nevertheless has taken measures that has nullified benefits expected by the other party - a provision seldom or never invoked in GATT history).

Similarly, under Art 13 (b) certain other domestic support measures (that  conform fully to Art. 6 of the AoA including some specifically mentioned), shall be exempt from countervailing duty actions, unless there is first a determination of  injury or threat etc.

And under Art 13 ( c) export subsidies fully conforming to the disciplines  of the AoA (volume and value reductions), shall be subject to countervailing duties only after a definite finding of injury or threat; and shall be exempt from any  actions based on Art XVI of GATT - the general GATT provision on subsidies, and prohibition of export subsidies.

Thus, the scope of the old peace clause was limited.

In order, to complain of a violation of disciplines against dumping, subsidization etc or any other GATT provision or any other Marrakesh agreement, the complainant had first to show that the other party was in violation of the disciplines on domestic subsidy in the AoA. This necessarily meant legal challenge to the US on agricultural domestic subsidy measures. For example  in the cotton dispute, Brazil had first to prove that some of the subsidies and  support provided by the US in respect of cotton were not in conformity with the AoA, and then go on to lay claims and prove its case under the SCM agreement.

But Schwab's statement at the press conference (unless it is claimed to be a "mis-speak", a familiar term in the Bush administration to resile or explain  away earlier statements) would appear to be a push for a provision that the US  could not be challenged at all. If this is what she really meant, it would be a Mother of  all Peace Clauses.

(*Chakravarthi Raghavan, Editor Emeritus, contributed this comment)