US risks “systemic” repercussions, “legal uncertainty” on DSU

India has taken issue with the inconsistent stances adopted by the US with regard to trade disputes in the WTO.

by D. Ravi Kanth

GENEVA: The United States must adopt consistent positions for resolving trade disputes at the WTO or face the risk of causing grave “systemic” repercussions and “legal uncertainty” on the Dispute Settlement Understanding (DSU), India has warned, according to people familiar with the development.

During the WTO’s Dispute Settlement Body (DSB) meeting on 5 September, India drew attention to the conflicting positions adopted by Washington in two trade disputes with New Delhi.

One of the disputes centres around countervailing measures imposed by the US on Indian hot-rolled carbon steel products. In the other dispute, the US has requested for imposing trade retaliatory measures to the tune of $450 million on Indian goods, without a DSB determination as to whether India has properly implemented the DSB recommendations for removing avian influenza-related restrictive measures on American poultry and poultry products.

No status report

On the countervailing measures imposed by the US on imports of certain hot-rolled carbon steel flat products from India, the WTO’s Appellate Body (AB) delivered a comprehensive ruling in 2014. The AB rejected the US determination of a “public body” in countervailing investigations and measures.

The AB determined that a “public body” must be “an entity that possesses, exercises or is vested with governmental authority”, and ruled against section 19 USC 1677(7)(G)(iii) of the American domestic law.

The US had argued that India’s National Mineral Development Corporation (NMDC) was a public body under 19 USC 1677(7)(G)(iii) because of the Indian government’s 98% shareholding interest in the company. India contested the US claim by pointing out that the NMDC was a “Mini RATNA” Category I company with enhanced autonomy from the government.

The AB had already rejected the US “ownership” test for a “governmental authority” in another trade dispute between the US and China in 2011. Effectively, the US had dismissed arguments about the lack of Indian government control.

After the AB dismissed the US determination of “public body”, India said the AB’s ruling on public bodies has immense significance in the context of the vital role played by public sector undertakings in the economies of developing countries.

More importantly, the AB verdict required the US to either amend or repeal section 19 USC 1677(7)(G)(iii) of its domestic law so as to bring it into conformity with the WTO Agreement on Subsidies and Countervailing Measures.

But, for inexplicable reasons, the US chose to cock a snook at the AB ruling for the past two years by simply refusing to provide any status report under Article 21.6 of the DSU about its efforts to amend/repeal the condemned provision, according to legal diplomats familiar with the DSB proceedings.

The US, according to diplomats, had repeatedly maintained that the provisions of the WTO-inconsistent domestic law were never utilized. Therefore, the US refused to even list the item in the DSB agenda, unlike other cases where it is in the process of implementing the WTO rulings. The US, for example, is consistently reporting to the DSB about the ongoing efforts to implement other DSB recommendations in cases concerning US anti-dumping measures on certain hot-rolled steel products and Section 110(5) of the US Copyright Act. However, in the Indian steel case, the US simply disregarded the reporting requirements as set out in Article 21.6.

“This is not a minor procedural issue but a serious systemic issue for the dispute settlement mechanism,” India warned at the 5 September DSB meeting. “Ignoring this aspect would render Article 21.6 ineffective and seriously undermine the surveillance mechanism under the DSU.”

Further, the US chose to pursue “different legal standards in different disputes which pertain to essentially the same issue – a legislation which is WTO inconsistent”, India maintained, according to trade officials familiar with the DSB meeting. The US “must file status reports as it does in other similar disputes”, asserted India.

India also flagged concerns on the US compliance with respect to the “as applied” determinations. India emphasized that the sequencing issues in implementing AB rulings need to be resolved bilaterally between the parties or through a compliance panel under Article 21.5 of the DSU instead of resorting to trade retaliatory measures under Article 22.

India said it did not take recourse to Article 22 provisions for the lack of implementation by the US in the steel dispute as “not doing so is the legal, logical and consistent step that ensures predictability of the dispute settlement system.”

The US, said India, must adopt “consistent practice in other disputes as well.”

Retaliation request

In the second dispute, over India’s restrictive measures against the import of poultry and poultry products, the DSB adopted the AB ruling that dismissed New Delhi’s avian influenza-related restrictions on 19 June 2015. Subsequently, the two sides – the US and India – entered into what is called a reasonable period of time (RPT) agreement under which India agreed to eliminate the restrictive measures by 19 June 2016.

India amended several provisions for allowing “imports of poultry and poultry products into India from country, zone or compartment free from avian influenza, in accordance with the relevant international standard i.e. the OIE Terrestrial Code” on 21 June 2016.

After taking into consideration all responses to its draft notification, India included the final notification in its Gazette order of 8 July 2016 and subsequently notified to the WTO’s Committee on Sanitary and Phytosanitary Measures and the DSB on 19 July 2016.

With the publication of the new notification, India claimed that it had fully implemented the DSB recommendations and also simultaneously entered into bilateral consultations to allay the US concerns on compliance.

The two sides held detailed bilateral consultations since July but the US chose to raise the issue at the DSB. Further, the US went ahead with a request under Article 22.2 of the DSU to impose trade retaliatory measures worth $450 million for the one-month delay in implementation by India.

The US, which had not complied with several rulings in different trade disputes for more than 12 years, resorted to trade sanctions for a delay of one month in the implementation of DSB recommendations by India.

Worse still, the US did not even take recourse to the establishment of a compliance panel under Article 21.5 to determine whether the Indian measures fully complied with the DSB recommendations.

In several trade disputes, including the recent tuna dispute with Mexico, the US had repeatedly maintained that “the DSB cannot grant authorization to suspend concessions in any amount where the Member concerned has come into compliance.” But, in the dispute with India, the US proceeded to seek authorization to suspend concessions without recourse to a compliance panel.

India said it was taken aback with the US request for authorization to impose trade retaliatory measures in a dispute without going through the sequencing agreement, as it did in another dispute with the US.

In their comments, Japan and the EU also sided with India that it is important to go through the sequencing procedures.

Against this backdrop, India asked the US to suspend the arbitration proceedings and pose the issue of compliance to a panel.

India urged the US to enter into a sequencing agreement in the dispute, arguing that New Delhi had brought its measures into compliance.

India said the US request for suspension of concessions has no legal basis, and maintained that “not adhering to the sequence disrupts the legal certainty of the Dispute Settlement Understanding.”

However, the US stuck to its position that “arbitration is currently in progress.” The US said there is no change in its position as “the revised measure appears to retain many of the features of India’s prior measure that DSB found to be inconsistent with India’s obligations under the SPS [Sanitary and Phytosanitary Measures] Agreement.”

The Indian revised measures “appear to be more trade restrictive than a measure based on international guidelines”, the US maintained.

In crux, the inconsistent positions adopted by the US in several disputes exposed Washington’s consistent approach of “double standards” in international trade disputes, said a legal diplomat from South America.

“What is good for the goose is not good for the gander, is a historical approach followed by the US since the Monroe Doctrine in the early 19th century,” the diplomat concluded. (SUNS8309)                                         

Third World Economics, Issue No. 624, 1-15 September 2016, pp8-9