The WTO, its secretariat and bias against the South

Developing-country members of the WTO have long found the deck stacked against them in the operations of the trade body and its dispute settlement regime, points out Chakravarthi Raghavan.

GENEVA: Almost from its inception, with Renato Ruggiero (of Italy) as WTO Director-General (DG) from May 1995, the double standards of the WTO, its leadership and secretariat began to become evident.

This initial bias has steadily increased over the years, with every DG making his predecessor look better. It has now reached a stage where current DG Roberto Azevedo and senior officials of the WTO secretariat not only openly side with the US to promote its ever-changing agendas and stances, but are also publicly commended for it by the US, without any disclaimers from the secretariat.

Before Ruggiero became DG, there was a short interlude, from 1 January (when the WTO came into being) to 30 April 1995, when the late Peter Sutherland, the DG of GATT 1947 (during whose tenure the Uruguay Round trade negotiations were successfully concluded, with the Marrakesh Agreement establishing the WTO signed in April 1994), had functioned during the transition from the GATT to the WTO. During that brief tenure of his, the secretariat had functioned on behalf of all member states. But since then, it has been openly partisan.

Those that concluded the Uruguay Round negotiations which established the WTO had taken the correct and wise decision that in a member-driven, rules-based organization like the WTO with contractual rights and obligations for members, there could be no scope for any initiative from the head of the independent secretariat. In fact, it was the US at that stage that had vehemently opposed any such role for the WTO DG.

Ensuring that the WTO DG and the secretariat he/she leads strictly abide by their independent mandate, and ending the present impasse in filling vacancies in the WTO’s Appellate Body (AB) in order to secure a fully functioning and binding dispute settlement system, are among the highest priorities now facing the WTO-MTS (multilateral trading system) and its members.

The solutions might need amendments to the Marrakesh Agreement. If the US does not agree to abide by and implement the amendments to the treaty in good faith (if the amendments are carried out against its wishes), it should be invited to withdraw from the WTO.

In the feudal Middle Ages, the sovereigns of Europe saw themselves as law-givers but as being above the law themselves. But after two sovereigns of that era (Charles I in Britain and Louis XVI in France) “lost their heads” in the wake of revolutions, this doctrine slowly gave way to rule of law.

There is no time-machine to take us back a few centuries that would enable the US to function like sovereigns of that era. Otherwise, with a “transactional” US President and a US Trade Representative who wants a dispute settlement system that applies to all others but not the US, the WTO-MTS will be broken beyond repair.

And whether any amendment to the Marrakesh Agreement is needed and carried out or not, if the US continues as now, the rest of the membership have to make up their minds whether to acquiesce or ask the US to withdraw from the WTO. Without an amendment, the US cannot be compelled to withdraw, but such a request nevertheless will be in the spirit of the second sentence in Article X.5 of the Marrakesh Agreement.

This too is among the hard choices that the WTO and its members face.

WTO bias

The bias against the South at the WTO and the dancing to the tune of the US became evident as early as the first year of the WTO’s establishment, in the process for selecting the initial slate of seven AB members.

During that process, candidates from 23 countries were interviewed and the selection from among them was made by a small committee made up of DG Ruggiero and the respective chairpersons of the Dispute Settlement Body (DSB) (Australia), Council for Trade in Goods (Japan), Council for Trade in Services (Sweden) and Council for TRIPS (Hong Kong, then a separate customs territory under the UK).

WTO members were “consulted” and views ascertained 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 names (an option that was not posed to others).

Though that initial slate was accepted by consensus at the DSB, India and Switzerland, while not blocking the consensus, announced that they were not joining, and made statements on the record. Switzerland complained that the selection committee had not followed the criteria agreed upon and had taken a “restricted view” of the European entity. India detailed how one member alone had been given the option of saying “no” to individual candidates. The EU, while joining the consensus, also expressed its dissatisfaction. (For more details on this, see “WTO establishes Appellate Body”, http://www.sunsonline.org/trade/process/followup/1995/11300095.htm.)

As a result, the AB became known as “pro-American”. Everyone involved in that process must be held responsible, but the major ones were the DSB chairperson and the WTO DG; the two had enabled the Americans to exercise such a “privilege”.

Since then, in several of its rulings, the AB “interpreted” the WTO accords to be cumulative, increasing the obligations of developing countries and reducing to nullity some rights they thought they had secured in the Marrakesh treaty. Those rights arose from the decisions of GATT Contracting Parties (functioning in their collectivity under GATT Art. XXIII) in disputes raised by the US and/or the EU under GATT 1947 and were thus part of the GATT acquis incorporated into GATT 1994 (in Annex 1A of the Marrakesh Agreement). In these several rulings, the AB opened up the markets of developing countries to the transnational corporations of the US.

Dubious decisions

Some egregious examples of questionable dispute settlement rulings (by dispute panels as well as the AB) are worth recalling:

1. In the Indonesia vs US, EU and Japan disputes (WT/DS54, DS55, DS59 and DS60), 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. This is despite the fact that a plain reading of the texts of Annex 1A and its general interpretative note, which is couched in mandatory “shall prevail” language, shows that conflicts had been envisaged by the negotiators of the agreements.

The panel arrived at its conclusion through circuitous arguments, ruling the Agreement on Trade-Related Investment Measures (TRIMs) to be a full-fledged goods agreement and making a specious distinction between the obligations of GATT 1994 (including its Art. III) and the Agreement on Subsidies and Countervailing Measures (SCM), but not as between the TRIMs and SCM Agreements.

For this last, the reference to GATT Art. III in Art. 2 of the TRIMs Agreement was ruled to be a reference not to the Article as such, but only to its substantive contents! What “Art. III” would mean without its contents was known only to the panellists (and the secretariat that “serviced” the panel), and not spelt out for the DSB and its members.

In no judicial, quasi-judicial or administrative proceedings anywhere in the world can the title of a law without its contents be cited as law or given any meaning.

Indonesia did not appeal the panel ruling but implemented it, bowing to the conditionalities attached to its then loan from the International Monetary Fund (IMF). The cumulative outcome of the ruling and a much-circulated photograph of Indonesian President Suharto signing the IMF loan agreement under the stern gaze of the IMF Managing Director, sealed Suharto’s fate and brought about regime change.

There was a similar run of rulings against other developing countries, welcomed by the US. But when some rulings went against the US itself, particularly in relation to its anti-dumping measures (aimed at protecting specific industries and enterprises), it began to cry foul. This reached a crescendo in its veto of the reappointment to the AB of Seung Wha Chang of South Korea for his alleged role in rulings against the US.

2. In another set of rulings, despite its own so-called “collegiality” rule (whereby the AB empowered itself to have consultations at all stages between the three members of a division bench hearing an appeal, and the four other AB members), there were two different views in AB rulings on the same wording in two different accords in Annex 1A. These were more or less contemporaneous disputes.

In the Turkey vs India dispute (WT/DS34 – import restrictions by Turkey over textile and clothing products), the Uruguay Round Understanding on Article XXIV (on customs unions and free trade agreements) was involved. In the India vs US dispute over India’s quantitative restrictions (QRs) imposed on balance-of-payments (BOP) grounds, the Uruguay Round Understanding on Art. XVIII.B was involved.

Both Understandings, in identical language, ensured that the right of members to raise disputes under Art. XXII and XXIII “with respect to any matters arising from” Art. XXIV and XVIII.B was preserved.

In the India QR dispute, this language in the Understanding was ruled to provide jurisdiction to both the WTO’s BOP Committee and dispute panels to hear and decide. This, when the US alone in the BOP Committee had blocked consensus on accepting India’s contentions and programme for phasing out QRs, and then, with such a not-so-clean hand, invoked the provisions in the Dispute Settlement Understanding (DSU) to raise a dispute.

In the Turkey vs India case, the AB handed down a ruling contrary to this view on the same wording in the Understanding on Article XXIV. The AB ruled that the issue of compliance of a customs union with Art. XXIV was for the relevant WTO body to decide, but that a panel or AB could go into the dispute only with respect “to any matters arising from the application of these provisions relating to customs unions ... or free trade areas.”

Moreover, in the Turkey vs India dispute, in obiter dicta on points of law not raised in appeal by either India or Turkey, the AB opened the way for customs unions to depart from GATT obligations other than in the MFN provision in GATT Art. I, but gave no ruling, merely expanding its own jurisdiction to decide in future cases!

3. In a dispute raised by India, Malaysia, Pakistan and Thailand against the US over restrictions on shrimp imports [WT/DS58/AB/R – see South-North Development Monitor (SUNS), No. 4301, dated 14 October 1998], the AB:

(a) Cleared the way for non-governmental organizations (NGOs) to file amicus curiae briefs and intervene. In effect, it ruled that the panel’s right to “seek” information also enabled it to use information it did “not seek” – thus making “seek” and “receive” synonyms in the WTO’s dictionary. Despite its initial view promising to provide detailed reasons, the AB failed to do so.

While the DSU enables panels to “seek” information from any source, there is no such provision in relation to the AB, which is only mandated to decide “all points of law raised by parties” in the appeal.

Nevertheless, in a subsequent dispute on anti-dumping and subsidy issues vis-a-vis the US steel industry, the AB applied this to itself (accepting a brief filed by the US steel industry). This placed amicus curiae briefs from non-members of the WTO on a superior footing. Under the AB’s own rules of procedure, only third parties to a dispute, giving notice to the AB, can file briefs. Other WTO members don’t even have this right.

The AB even made the rather extraordinary claim that the DSU rules and procedures did not prohibit the AB from doing so, and hence it could! In the rules-based WTO system, one of its creations, the AB, thereby claimed the right to thus function, as if enjoying “residuary powers” that are not prohibited (See SUNS Nos. 4654, 4655 and 4666 for rulings and discussions; for the AB’s claims, see “Ruleless Appellate Body and powerless DSB”, SUNS No. 4684, 9 June 2000.)

(b) Imported and expanded the scope of Art. XX of the GATT on “exceptions” to set aside the panel ruling in the shrimp dispute as a “serious error” of legal reasoning, for not examining the ordinary meaning of Art. XX.

There was no discussion (unlike in the Indonesia dispute ruling above) whether this meant the “substance” or the entire Art. XX, nor on the application of the Art. XX measure.

Rather, the AB focused on the “design” of the measure and “a particular situation” where a member has taken unilateral measures which, by their nature, “could put the multilateral system at risk.”

The AB held that the treaty interpreter must interpret the treaty in the light of “contemporary concerns” of the community of nations about protection and conservation of the environment.

While Art. XX of GATT 1947 (reflecting the understanding at that time on mineral and living resources) was not modified by GATT 1994 in the Uruguay Round, the AB conceded, the Marrakesh Agreement had “the objective of sustainable development” in its preamble, and the term “natural resource” used in Art. XX(g) of GATT 1994 was not static but “by definition, evolutionary.”

As a matter of fact, the 1992 UN Conference on Environment and Development (UNCED) had addressed a whole range of environment, conservation and development issues. Among others, UNCED adopted the UN Framework Convention on Climate Change, witnessed nations signing the Convention on Biological Diversity, and adopted other decisions and recommendations under the title “Agenda 21”. However, the US and some others resisted any and all reference to these in the Marrakesh treaty and its annexed agreements including GATT 1994. Only the objective of “sustainable development” was allowed into the preamble of the treaty.

And yet, in the space of about five years, the WTO saw an “evolution” – a born-again Charles Darwin at the AB!

4. In a ruling (DS163/R) against South Korea in a dispute raised by the US on the plurilateral Government Procurement Agreement (see SUNS No. 4670 dated 18 May 2000), a dispute panel chaired by Michael Cartland, former Hong Kong representative to the GATT/WTO, gave an expanded interpretation of the rarely invoked “non-violation” clause in GATT Art. XXIII.1(b), on the impairment or nullification of benefits to the US.

The panel spoke of impairment to the US arising out of “reasonable expectation of an entitlement” to a benefit that had accrued “pursuant to the negotiation”, rather than “pursuant to a concession exchanged in the negotiations,” the traditional view of public international law [the pacta sunt servanda principle codified in Art. 26 of the Vienna Convention on the Law of Treaties (VCLT)].

This enabled the panel to further find lack of “good faith” in negotiations or “treaty error” on the part of South Korea that could invalidate a part of the treaty (Government Procurement Agreement). This “treaty error”, the panel said, could be rectified by substituting the invalidated part of the treaty with a suitably worded DSB recommendation (adopting a panel ruling), and by this process a party would be enabled to withdraw reciprocal concessions.

This expanded view of pacta sunt servanda was achieved by delving into the negotiating history not of the Government Procurement Agreement, but of the VCLT itself, citing the statement of the International Law Commission when transmitting the draft VCLT to the UN General Assembly that adopted the VCLT. (See SUNS No. 4670 dated 18 May 2000.)

Strangely, the only relevant negotiating history of the VCLT – the initial mandates to the International Law Commission and discussions leading to it in the Sixth Committee of the UN General Assembly or the General Assembly itself, or the discussions on the Commission’s recommendations in the same Sixth Committee – does not seem to have figured in the panel’s discussion.

However, in the end the panel ruled against the US on the ground that the US had not exercised “due care” in the negotiating process! The US did not appeal, and the panel report was adopted, putting the DSB/WTO imprimatur on this expanded interpretation of the scope of “non-violation” complaints, “good faith” in negotiations, and the ability of panels to remedy “treaty error” and “lack of good faith”.

A legal high-wire act, without the normal safety net!

The manner in which the WTO dispute settlement process was being invoked and rulings handed down, elicited some criticism at that time from a former GATT law official, Frieder Roessler, a German national who had headed its legal division during the Uruguay Round negotiations and into the WTO.* Roessler later headed the Geneva-based Advisory Centre on WTO Law set up to help developing countries, in particular least developed countries, with legal assistance in disputes.

In a critique of the functioning of the dispute settlement system – in particular the way panels and the AB made use of the procedural rights in the DSU to virtually nullify the substantial rights and obligations of members under the agreements – Roessler said that the competence of panels and the AB could not be determined by themselves exclusively on an interpretation of the DSU, but only in the context of the complex institutional structure of the WTO and the division of decision-making among different organs, as set out in the Marrakesh treaty, reflecting legitimate, negotiated policy objectives.

Dispute panels, Roessler said, should respect the competence and discretionary powers of the political bodies established under the WTO agreements and should not reverse their determinations. And if a competent WTO body had not yet made its determination, panels should not step in and preempt that determination.

The role of panels should be limited to protecting WTO members against an abusive resort to provisions governing, for example, BOP measures and regional trade agreements – against measures that fall outside the discretionary authority of the BOP Committee or the Committee on Regional Trade Agreements.

The US voiced no criticism of the panels and the AB at that time, when they were siding with it. This “bias” of panels and the AB came into play during the 1996 US presidential election campaign (Bill Clinton vs Bob Dole), in which the WTO, the DSU and “loss of US sovereignty” was an issue: one of the campaign slogans was “Two strikes, and we are out”. The panels and the AB seemed to be trying to ensure there was no such opportunity.

5. Appeals against panel rulings in two separate disputes (WT/DS98 and WT/DS121 – one against South Korea and the other against Argentina), both relating to the Agreement on Safeguards, were heard and rulings handed down at the same time by two different division benches of the AB.

Commenting on them critically, trade expert and former Indian ambassador to the GATT Bhagirath Lal Das pointed incidentally to an “extraordinary coincidence” in the two AB reports: six paragraphs in each having the same wording – paragraphs 84, 85, 86, 87 (part), 88 and 89 in the South Korea case report; and paragraphs 91, 92, 93, 94 (part), 95 (part) and 96 in the Argentina case report.

Das said: “The members of the AB divisions in these two cases were two totally different sets of members ... Each of these reports is signed by the respective sets of three members each. It is surprising how these two different sets of persons ended up writing exactly the same language in some parts of their respective reports. The AB is like a judicial body in the WTO. One has to presume that the AB in a case writes its own reports, and does not get it written by some other persons. This presumption seems to be hit by the exact convergence of the language in some parts of the two reports as mentioned above.”

After Das’s article, WTO officials explained to this writer about the “collegiality” rule under the AB’s working procedures. This rule was not in the public domain then. It was only later, during the time of the US veto of a second term for the AB member Seung Wha Chang, that a letter by the six remaining AB members to the DSB chairperson brought it on public record: the division bench of three hearing an appeal invariably consults and interacts throughout with the four other members of the AB who did not participate in the hearing of the appeal.

(For Das’s critique of the AB, on procedures and substance, see SUNS No. 4689 dated 19 June 2000.)

Also not on public record then, but known to this writer at that time (after talking to some panel and AB members after their rulings), was the way the secretariat functioned beyond its mandate to service panels. After the hearing of parties and third parties in a dispute, panels, in reaching conclusions, are “guided” by the legal (and substantive) divisions of the WTO secretariat “servicing” the panel. In most cases the secretariat also draws up a draft report.

(Panel members told the writer after their reports were published, that in one or two instances, when they disagreed with the secretariat, they were told they would never again be named to a panel!)

In the case of the AB, the three-member division bench interacts throughout, without the presence of the parties and third parties to the appeal, with other members of the AB, and their reports too are drafted with the AB secretariat’s legal assistance.

In any domestic jurisdiction under any system of law, this is enough to make a ruling or decision (judicial, quasi-judicial or administrative) illegal and invalid.

The WTO is a different animal though; thus, part of the DSU review process to be undertaken, in priority to any other negotiations at the WTO, must address and remedy this and any other basic adjudicatory flaws. It is also essential to ensure that adopted rulings at the DSB do not “add to or diminish the rights and obligations provided in the covered agreements” (DSU Art. 3.2).

6. In its ruling on a US vs EU dispute, the AB ruled against the US on countervailing duties under the SCM Agreement, but in the process raised more controversies.

In its notice of appeal, the US had not spelt out the legal grounds and panel decisions thereof, as required under the AB working procedures. When the EU asked for dismissal of the appeal on this ground, the US said there was no such requirement in the DSU.

Instead of upholding its own working procedures, the AB division “requested” the US to file its grounds of appeal and accepted it, though the time limit for the appeal had expired!

The AB also asserted its right to receive amicus curiae briefs, this time from an industry association, but then decided there was nothing in the brief! In the process, it gave NGOs superior rights over WTO members, as third-party members which had not notified their intention to intervene in the appeal or members other than third parties can’t claim any right to be heard.

On substance, the AB turned down US arguments about when a “benefit” is conferred, but refused to provide any authoritative ruling that would end future disputes. (See SUNS No. 4666 dated 12 May 2000, and No. 4684 dated 9 June 2000.)

7. In the EC-Canada patent case (DS114/R), the panel used the “negotiating history” of the TRIPS Agreement provided in a note by the secretariat (Annex 6 of its report). This purported to draw up a history of the negotiations “on the basis” of draft legal texts in the negotiating group in the spring of 1990, a secretariat composite text, and the subsequent chairman’s informal text and revisions, as well as (in an appendix to Annex 6) “parallel work” in the World Intellectual Property Organization (WIPO) Committee of Experts on preparations for a Patent Harmonization Treaty.

The secretariat admitted that these texts had not been circulated to the TRIPS negotiating group, but (drawing on its internal notes) still cited them on the ground that WIPO representatives had kept negotiators “informed” of developments! (See SUNS No. 4630 dated 21 March 2000, and Nos. 4654 and 4655 dated 26 and 27 April 2000.)

At Marrakesh when all formal documents and reports were derestricted, no report of minutes of various meetings of the Negotiating Group on TRIPS was available even to Uruguay Round delegates; they only had draft minutes (subject to editing and corrections from delegations); the reports were finalized and made public only in 1995 or 1996, long after the WTO came into being, and thus not part of the cache of documents derestricted in April 1994.

8. While the AB has shown willingness to create law and do what it wants to play to the gallery over NGO briefs, on the sequencing issue – compliance panel first before request for authorization for right of retaliation – on which the Quad (Canada, the EU, Japan and the US) disagreed, the AB noted the lack of clarity and ambiguity, and ruled it was for the members to clarify through interpretation or change of rules! (See SUNS No. 4812 dated 12 January 2001.) (SUNS8894)

This article is the fourth in a series on the current AB impasse and other issues related to the WTO dispute settlement system. The first three parts were published in TWE Nos. 676, 677 and 678/79. Part 5 will appear in the next issue of TWE.

Note

* Frieder Roessler (2000), “The Institutional Balance between the Judicial and Political Organs of the WTO”, in M. Brocken and R. Quick (eds.), New Directions in International Economic Law, Boston: Kluwer Law International, pp. 324-45.

Third World Economics, Issue No. 680/681, 1-31 January 2019, pp1-6