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BOP
ruling calls into question dispute settlement system GENEVA: The WTO panel ruling against India on the balance-of- payments case, as some other recent rulings, has raised some systemic issues on the WTO accords and their internal balance of rights and obligations, as well as about the role of the WTO secretariat in panel proceedings. The three-member panel ruled that the import restrictions maintained by India - quantitative restrictions, import licensing schemes and canalizing some essential imports through state trading agencies - are contrary to India's obligations under GATT 1994 and other WTO agreements in the area of trade in goods, and are not justified by the situation of India in terms of its balance of payments. A reading of the full report of the panel shows that though the entire range of these issues were agitated before the panel, in fact the real dispute between India and the industrialized countries (Australia, Canada, the EC, Japan, New Zealand, Switzerland and the US), both before the BOP Committee and in subsequent "consultations", had been over the phasing out of the restrictions. Agreement was reached between India and all others (save the US) for a 6-year phase-out, with the bulk of restrictions removed in five years and those on a few sensitive products in the sixth year. The US had blocked consensus on such a plan in the BOP Committee, rejected the plan in consultations, and took it to a dispute panel which ruled in its favour. The panel, on the phase-out issue, has, however, suggested a period longer than the 15 months normally given by arbitrators for compliance. But from the wider perspective of developing countries, those now having recourse to the BOP provisions and those who may be forced to do so in future, the ruling has raised some serious systemic questions. These include the role of the WTO General Council and its bodies (which alone can add to or subtract from the bundle of rights and obligations), and that of the DSU which can only interpret the rights and obligations of contestants. Another is the role of the WTO secretariat, which is gradually extending the WTO's jurisdiction through an interpretation process via the panel systems. And a reading of various panel rulings suggests that instead of functioning as an impartial secretariat servicing the contract and acting in the interests of all its membership, it is now promoting particular ideological views and tendencies of dominant trading partners. These issues have become even more important as the full range of obligations of developing countries begin kicking in at the end of the five-year transition period in 2000, and new negotiations with new issues are proposed to be launched and completed as a single undertaking as the major trading nations want. Exercise of power The BOP ruling shows that, using the WTO system and its provisions for taking decisions by consensus in the WTO and its bodies, the majors like the US can block agreements, take issues to the dispute settlement process where the rule of negative consensus prevails, and use the trade sanctions route for enforcement. This exercise of power is facilitated by the secretariat's role in the DSU process. Developing countries had been talking of using the next round to redress the past inequities and tackle their implementation problems, and using the review process of the DSU to tackle some other problems. But the statement of the US Trade Representative, Charlene Barshefsky, on the arbitrator's ruling on the banana dispute negatives such a hope. Once a ruling is given and an arbitrator has fixed an implementation period, Barshefsky has said in a statement relayed to the media here, the other party could judge for itself whether there has been compliance, take the issue to an arbitration panel for judgement on levels of trade damage, and impose trade sanctions, with no need for a DSU review on this. The WTO (unlike the old GATT) is a definitive treaty, with its annexed agreements setting out the various rights and obligations in various sectors and areas; an overarching dispute settlement mechanism to settle disputes, but without adding to or subtracting from existing rights and obligations; provision for the General Council to interpret existing rules, and new obligations created by changes in rules with the necessary majorities and ratification processes. But by a succession of rulings, where the panels and panellists are different, but having a common thread of the guiding hand of a permanent secretariat, the rights and obligations of individual agreements have been bundled, cumulated and extended; without any formal change in rules, the obligations of developing-country members have been increased and their rights eroded. While the DSU prescribes the procedures for settling disputes, it is the various individual agreements that create the right (and obligations) of consultations and dispute settlement. Some do so with a bland reference to the applicability of Art. XXII and XXIII of GATT 1994. Others use some varying language about the application of these articles. But the BOP ruling in effect has made them all have the same meaning, with or without qualifications, namely, an untramelled panel right to look into and rule on all disputes. The panel has ruled that both the substantive and procedural provisions of Art. XVIII of the GATT for determination of a BOP jurisdiction or otherwise, and determining a phase-out period for removal of restrictions if the BOP claim is found unjustified - all issues involving not merely strict GATT law and rights and obligations, but political economy and development considerations - can coexist without any necessary conflict. The BOP panel report has given sanction to the ability of a country to block a consensus in the BOP Committee and the General Council, and then take the case to a panel to try and win the argument about whether the BOP restrictions are justified and how soon they should be dismantled. The WTO dispute settlement system provides for an Appellate Body to hear appeals and rule on questions of law. But that body has shown itself to be more sensitive to political winds than to law. Though it has jurisdiction only on points of law, in effect it has on more than one occasion overturned panel rulings (based on facts determined by them), and then undertaken a de novo examination of facts or made a finding on legal issues not addressed by the panel, or adopted what is being called an "evolutionary" approach to interpretations of the provisions of the agreements. Whatever justification could be cited by domestic courts for this, as by the US Supreme Court, it seems to have no application for international agreements. Role of secretariat The WTO secretariat services the panels, and its officials in the legal and substantive divisions guide panels in their deliberations and conclusions - about past GATT practice and decisions, meanings of the language used in various agreements, and the secretariat's view of the negotiating history. And the secretariat provides notes to panels behind the backs of parties. These practices, which trade diplomats had been talking about in private, were raised at a General Council meeting (over the interpretation of the DSU articles in the US-EC banana case) by the Indian ambassador S. Narayanan. If there was an answer to him, the press office of the WTO which briefs the media on meetings (which are all restricted) did not relay it. But trade diplomats say that the secretariat practice of providing notes to panels behind the backs of the disputants is being justified by citing the practice in the US Supreme Court (and perhaps lower federal courts) where individual judges have "clerks" who do research and provide notes to them on the cases. But this explanation cannot stand a moment of scrutiny. The US Supreme Court and its secretariat are independent of the Executive and the Congress. Supreme Court judges, once appointed, serve virtually for life, removable only through impeachment. The "clerks" of judges are chosen from the ranks of those who are at the top of their graduating class in prestigious universities. Each judge chooses and appoints his or her "clerks", who do not serve permanently but only for 2-3 years, the stint constituting a useful beginning in the c.v. and a springboard for them to join prestigious and lucrative law firms or go into academia. In the WTO, panellists are temporary and ad hoc (in fact, their names are suggested by the secretariat and agreed to either by the parties or by the Director-General in cases of disagreement), while the secretariat, as "clerks", is permanent and serves the panel as a whole and not individual panellists. If the practice of "clerks" providing private briefs to panellists is to prevail, then each panellist must be able to choose and appoint his own "clerk" to do his own research, one trade observer, on hearing this explanation, said. And there is an ocean of difference (wider than the Atlantic and deeper than the Pacific) between the "rule of law" as understood and practised in the US, in the legal systems of, say, Europe, Japan and India and a few other developing countries (with an independent judicial system) and the WTO's "rule-based" system, where the rules themselves were drafted in privacy and secrecy - with most delegations not even having lawyers to scrutinize the texts or given time to have their capitals look at the drafts - and with a panel system so heavily influenced by the secretariat, whose recruitment, promotions and so on do not even follow the UN system and rules and practices. It is no great secret among trade diplomats that the US, in agreeing to the consensus choice of Ruggiero as the WTO head, made sure that under him the Legal division would be headed by an American - an eminent trade law academic with a particular view of trade law and trade economics - while a Canadian was named to head the independent Appellate Body secretariat. And the seven members of the Appellate Body themselves were chosen in a process where their acceptability to the US was first determined, and then the choice was presented to others to get their consensus. The US Supreme Court practices, hearings and procedures and exercise of jurisdiction (including an evolutionary approach to interpretation) are totally inapplicable to the WTO and its secretariat servicing the panels and bringing its subjective views and judgements to bear on issues and disputes. Partisanship A careful reading of various WTO panel and Appellate Body rulings - such as in the Venezuelan gasoline case, the Indian TRIPS case, the Indonesian automobile dispute, the shrimp- turtle case, and now in the BOP case - seems to lend strength to the growing feeling among trade experts and former negotiators and officials in developing countries of a partisan role by the secretariat. The secretariat has a vested interest in the current system - where it dispenses patronage in suggesting names of panellists to the parties and, where the latter cannot agree on them, to the Director-General - and in the entire process of dispute settlement. Trade diplomats too have a vested interest: those who, after a tour of duty in Geneva, are reassigned to other posts (where they may even be dealing with non-trade issues and may feel frustrated over their unexploited trade expertise) but get nominated to the roster of panellists, thus affording them the opportunity, when on a panel, to visit Geneva, keep up with the WTO scene and catch up on trade issues. Some panellists have been named to and served on more than one panel. In the past too, the secretariat was partial, but in the WTO its partiality has become more blatant and open, with some senior officials privately justifying or explaining it as being part of their "advocacy" role. Whether or not there is a new round - irrespective of what will or will not be included or whether it will be an open- ended agenda process - and though individual developing countries or groups of them may have differing or even conflicting interests, trade observers from the Third World have begun to say, developing countries have a common interest in joining together and setting right the dispute settlement system and the secretariat's role and functioning - perhaps even before agreeing to launch a new round. Some of these questions have been flagged by some delegations in the DSU review process, and some, such as appointment of panellists and the role of the Appellate Body, have been raised by Pakistan in a submission to the Ministerial preparatory process. The Pakistan document says that while the basic principles on which the system of selection of panellists is based should not be changed, the selection of panellists should be from a pool of candidates representing a broad range of expertise ensuring a balance between panellists from developed and developing countries. Pakistan has asked for data from the secretariat on the names of individuals selected as panellists since the establishment of the WTO, their nationality, background and experience - whether as members of the Mission, officials from national capitals or non-government experts. In respect of the latter, it has also asked for information whether the name of the NGO expert was in the indicative list of experts or what criteria were used to select the individual. Information has also been sought on the number of cases where the DG had to decide on the panel composition as parties were unable to agree on the names suggested. In terms of the role of the Appellate Body, the Pakistan paper notes that it can hear only issues of law covered in the agreements, but has no authority to send back for examination by panels, where it considers that the panel has failed to examine fully the facts of the case or, in interpreting the law, has not taken into account some of the provisions of the agreement. This situation, the paper says, has led the Appellate Body to examine de novo the facts of the case or make a finding on legal issues not addressed by the panel (as in the US shrimp- turtle case). In all such cases, the Pakistani paper says, the Appellate Body should be required to send the case back to the panel for re-examination. Challenging the "evolutionary" approach adopted in interpretations, Pakistan notes that the Appellate Body has also said in the shrimp-turtle case that in interpreting the terms and words of legal instruments drafted some 50 years back, the treaty interpreter "must read the treaty in the light of contemporary concerns of the community of nations" even though such concerns may not have existed when the treaty was adopted. Disagreeing with such a broad interpretation, and underscoring Art. 3 of the DSU that panels and the Appellate Body cannot add to or diminish rights and obligations in covered agreements, Pakistan points out that the broad interpretation given by the Appellate Body to Art. XX (g) of GATT 1994, namely that the term "exhaustible natural resources" originally intended to cover physical resources must now be broadened to cover "living resources" taking into account contemporary concerns of the community for environmental protection, has resulted in significantly increasing the thrust of Art XX to justify trade restrictions, and thus diminishing the rights of member-countries. Such a customary law to interpretation applies only to treaties negotiated on a once-and-for-all basis, and not to those, like the WTO agreements, which contain provisions for surveillance on a continuous basis. The Pakistan document has also assailed the Appellate Body for taking on board the amicus briefs of NGOs, and taking them into account in giving rulings on "unsolicited" information or briefs by NGOs. In view of the uncertainty created, it must be clarified that the DSU's Art. 13.2 does not permit panels or the Appellate Body to take into account unsolicited information including amicus briefs. While some of the issues have thus been brought up by Pakistan, other basic issues are still to be thought out and raised by developing countries. On the role of the secretariat in WTO activities and in the panel processes of judging between parties, some trade experts like B L Das suggest differing approaches may be needed, and perhaps the secretariat servicing panels may need to be organically separated from the WTO. (SUNS4414) The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.
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