International and Regional Trade Law:
The Law of the World Trade Organization
J.H.H. Weiler
University Professor, NYU
Joseph Straus Professor of Law and European Union Jean Monnet Chair,
NYU School of Law
AND
Sungjoon Cho
Assistant Professor
Chicago-Kent College of Law
Illinois Institute of Technology
AND
Isabel Feichtner
Research Fellow
Max Planck Institute for Comparative Public Law and International Law
Heidelberg
Unit X: Dispute Settlement System
© J.H.H. Weiler, S. Cho & I. Feichtner 2007
This unit was last updated November 2007.
International and Regional Trade Law:
The Law of the World Trade Organization
Unit X: Dispute Settlement System
Table of Contents
Supplementary Reading................................................................................................................... 3
Guiding Questions........................................................................................................................... 3
1. Introduction............................................................................................................................. 4
1-1.
Overview (New Features) .............................................................................................. 4
1-2.
Dispute Settlement Understanding................................................................................. 8
1-3.
Glossary ......................................................................................................................... 9
2. Nullification and Impairment ............................................................................................... 10
2-1.
Superfund (1987) ......................................................................................................... 10
2-2.
Kodak-Fuji (1998)........................................................................................................ 15
3. Dispute Settlement System Review...................................................................................... 36
3-1.
Negotiations ................................................................................................................. 36
3-2.
Reform Proposals......................................................................................................... 37
Optional Reading........................................................................................................................... 67
J.H.H. Weiler, The Rule of Lawyers and the Ethos of Diplomats ............................................ 67
Note: We teach dispute settlement in the WTO on the basis of the gambling dispute which gives a
good illustration of the process and the different stages of dispute settlement (Unit XI). This unit
serves as an introduction to the basic concepts and principles.
Supplementary Reading
Peter van den Bossche, The Law and Policy of the World Trade Organization, 2005, 172-306.
Michael J. Trebilcock & Robert Howse, The Regulation of International Trade, 3rd ed. 2005,
112-147.
John H. Jackson, William J. Davey, Alan O. Sykes, Legal Problems of International Economic
Relation, 4th ed. 2002, 246-337.
John H. Jackson, The World Trading System, 2nd ed. 1997, 107-137.
Guiding Questions
General Questions on Dispute Settlement
a. Why do you think panel and Appellate Body reports are so long and exhaustive compared
to other international tribunals? What institutional features might be relevant factors?
b. Why were panel reports under the GATT 1947 so much shorter?
c. Is the reference to the “covered agreements” in the DSU intended to have a limiting
effect not only on the nature of possible claims, but also on the nature of incidentally
relevant legal questions?
d. To what extent do adopted and unadopted dispute settlement reports differ in their legal
relevance?
e. Can you think of why the contracting parties mostly complied with GATT 1947 panel
reports although they could unilaterally block their adoption?
f.
Do you recognize a shift from diplomacy to legalism in the WTO reports as opposed to
the pre-1995 GATT reports you read in this and the past units?
g. What would be the implications of self-executing/directly effective WTO norms? Would
direct effect be desirable?
3
1.
Introduction
1-1. OVERVIEW (NEW FEATURES)
http://www.wto.org/english/thewto_e/whatis_e/tif_e/disp1_e.htm
The WTO’s 'most individual contribution'
Without a means of settling disputes, the rules-based system would be worthless because
the rules could not be enforced. The WTO’s procedure underscores the rule of law, and it makes
the trading system more secure and predictable. The system is based on clearly-defined rules,
with timetables for completing a case. First rulings are made by a panel and endorsed (or
rejected) by the WTO’s full membership. Appeals based on points of law are possible.
However, the point is not to make rulings. The priority is to settle disputes, through
consultations if possible. By early 1997, 19 out of 71 cases had been settled "out of court",
without going through the full panel process.
Principles: equitable, fast, effective, mutually acceptable
WTO members have agreed that if they believe fellow-members are violating trade rules,
they will use the multilateral system of settling disputes instead of taking action unilaterally. That
means abiding by the agreed procedures, and respecting judgements.
Typically, a dispute arises when one country adopts a trade policy measure or takes some
action that one or more fellow-WTO members considers to be breaking the WTO agreements, or
to be a failure to live up to obligations. A third group of countries can declare that they have an
interest in the case and enjoy some rights.
A procedure for settling disputes existed under the old GATT, but it had no fixed
timetables, rulings were easier to block, and many cases dragged on for a long time
inconclusively. The Uruguay Round agreement introduced a more structured process with more
clearly defined stages in the procedure. It introduced greater discipline for the length of time a
case should take to be settled, with flexible deadlines set in various stages of the procedure. The
agreement emphasizes that prompt settlement is essential if the WTO is to function effectively. It
sets out in considerable detail the procedures and the timetable to be followed in resolving
disputes. If a case runs its full course to a first ruling, it should not normally take more than about
one year - 15 months if the case is appealed. The agreed time limits are flexible, and if the case is
considered urgent (e.g. if perishable goods are involved), then the case should take three months
less.
The Uruguay Round agreement also made it impossible for the country losing a case to
block the adoption of the ruling. Under the previous GATT procedure, rulings could only be
adopted by consensus, meaning that a single objection could block the ruling. Now, rulings are
automatically adopted unless there is a consensus to reject a ruling - any country wanting to block
a ruling has to persuade all other WTO members (including its adversary in the case) to share its
view.
4
Although much of the procedure does resemble a court or tribunal, the preferred solution
is for the countries concerned to discuss their problems and settle the dispute by themselves. The
first stage is therefore consultations between the governments concerned, and even when the case
has progressed to other stages, consultation and mediation are still always possible.
Settling disputes is the responsibility of the Dispute Settlement Body (the General
Council in another guise). The Dispute Settlement Body has the sole authority to establish
"panels" of experts to consider the case, and to accept or reject the panels’ findings or the results
of an appeal. It monitors the implementation of the rulings and recommendations, and has the
power to authorize retaliation when a country does not comply with a ruling.
First stage: consultation (up to 60 days)
Before taking any other actions the countries in dispute have to talk to each other to see if
they can settle their differences by themselves. If that fails, they can also ask the WTO directorgeneral to mediate or try to help in any other way.
Second stage: the panel (up to 45 days for a panel to be appointed, plus 6 months for the panel to
conclude)
If consultations fail, the complaining country can ask for a panel to be appointed. The
country "in the dock" can block the creation of a panel once, but when the Dispute Settlement
Body meets for a second time, the appointment can no longer be blocked (unless there is a
consensus against appointing the panel).
Officially, the panel is helping the Dispute Settlement Body make rulings or
recommendations. But because the panel's report can only be rejected by consensus in the Dispute
Settlement Body, its conclusions are difficult to overturn. The panel's findings have to be based
on the agreements cited.
The panel's final report should normally be given to the parties to the dispute within six
months. In cases of urgency, including those concerning perishable goods, the deadline is
shortened to three months.
The agreement describes in some detail how the panels are to work. The main stages are:
Before the first hearing: each side in the dispute presents its case in writing to the
panel.
First hearing: the case for the complaining country and defense: the
complaining country (or countries), the responding country, and those that
have announced they have an interest in the dispute, make their case at the
panel's first hearing.
Rebuttals: the countries involved submit written rebuttals and present oral
arguments at the panel's second meeting.
Experts: if one side raises scientific or other technical matters, the panel may
consult experts or appoint an expert review group to prepare an advisory report.
5
First draft: the panel submits the descriptive (factual and argument) sections of its
report to the two sides, giving them two weeks to comment. This report does not
include findings and conclusions.
Interim report: The panel then submits an interim report, including its findings and
conclusions, to the two sides, giving them one week to ask for a review.
Review: The period of review must not exceed two weeks. During that time, the
panel may hold additional meetings with the two sides.
Final report: A final report is submitted to the two sides and three weeks later, it is
circulated to all WTO members. If the panel decides that the disputed trade
measure does break a WTO agreement or an obligation, it recommends that the
measure be made to conform with WTO rules. The panel may suggest how this
could be done.
The report becomes a ruling: The report becomes the Dispute Settlement
Body's ruling or recommendation within 60 days unless a consensus rejects
it. Both sides can appeal the report (and in some cases both sides do).
Appeals
Either side can appeal a panel's ruling. Sometimes both sides do so. Appeals have to be
based on points of law such as legal interpretation — they cannot reexamine existing evidence or
examine new evidence.
Each appeal is heard by three members of a permanent seven-member Appellate Body set
up by the Dispute Settlement Body and broadly representing the range of WTO membership.
Members of the Appellate Body have four-year terms.
They have to be individuals with recognized standing in the field of law and international trade,
not affiliated with any government.
The appeal can uphold, modify or reverse the panel's legal findings and conclusions.
Normally appeals should not last more than 60 days, with an absolute maximum of 90 days.
The Dispute Settlement Body has to accept or reject the appeals report within 30 days —
and rejection is only possible by consensus.
The case has been decided: what next?
Go directly to jail. Do not pass Go, do not collect .... Well, not exactly. But the
sentiments apply. If a country has done something wrong, it should swiftly correct its fault. And
if it continues to break an agreement, it should offer compensation or suffer a suitable penalty that
has some bite.
Even once the case has been decided, there is more to do before trade sanctions (the
conventional form of penalty) are imposed. The priority at this stage is for the losing "defendant"
to bring its policy into line with the ruling or recommendations. The dispute settlement agreement
stresses that "prompt compliance with recommendations or rulings of the DSB [Dispute
Settlement Body] is essential in order to ensure effective resolution of disputes to the benefit of
all Members".
6
If the country that is the target of the complaint loses, it must follow the
recommendations of the panel report or the appeals report. It must state its intention to do so at a
Dispute Settlement Body meeting held within 30 days of the report adoption. If complying with
the recommendation immediately proves impractical, the member will be given a "reasonable
period of time" to do so. If it fails to act within this period, it has to enter into negotiations with
the complaining country (or countries) in order to determine mutually acceptable compensation
— for instance, tariff reductions in areas of particular interest to the complaining side.
If after 20 days, no satisfactory compensation is agreed, the complaining side may ask the
Dispute Settlement Body for permission to impose limited trade sanctions ("suspend concessions
or obligations") against the other side. The Dispute Settlement Body should grant this
authorization within 30 days of the expiry of the "reasonable period of time" unless there is a
consensus against the request.
In principle, the sanctions should be imposed in the same sector as the dispute. If his is
not practical or if it would not be effective, the sanctions can be imposed in a different sector of
the same agreement. In turn, if this is not effective or practicable and if the circumstances are
serious enough, the action can be taken under another agreement. The objective is to minimize
the chances of actions spilling over into unrelated sectors while at the same time allowing the
actions to be effective.
In any case, the Dispute Settlement Body monitors how adopted rulings are implemented.
Any outstanding case remains on its agenda until the issue is resolved.
7
1-2. DISPUTE SETTLEMENT UNDERSTANDING
Read the Dispute Settlement Understanding
8
1-3. GLOSSARY
By now, you have seen many GATT and WTO dispute settlement reports, and may ask yourself
how to decipher docket numbers and other numbers.
Dispute Settlement
Appellate Body
Reports
Article 21.5
Dispute Settlement Body
Decisions of Arbitrators
Article 21.3 (c)
Article 22.6
9
WT/DS number/AB/R/
WT/DS number/AB/RW/
WT/DS number/
WT/DS number/ARB
Panel Reports
Article 21.5
WT/DS number/R/
WT/DS number/RW/
Requests for consultations, arbitration,
status reports, appeals
WT/DS number/
2.
Nullification and Impairment
2-1. SUPERFUND (1987)
http://www.wto.org/english/tratop_e/dispu_e/gt47ds_e.htm
The Superfund case deals with a U.S. tax on petroleum of 8.2 cents on domestic crude oil and of
11.7 cents on imported oil. There was no question that this tax discriminated against imports.
Instead, the question was whether the small tax differential was sufficient for a nullification or
impairment of benefits under the GATT. The panel report deals with the role of this legal
requirement for a successful GATT complaint which exists in addition to the violation of a
substantive GATT obligation. The main focus is on the presumption of nullification or impairment
and on the question whether this presumption can be rebutted.
Why do you think the drafters of the GATT 1947 provided for an additional requirement of
nullification or impairment in violation disputes?
Is the nullification/impairment presumption in GATT Art. XXIII compatible with the focus on
competitive opportunities rather than trade flow expectations as the objective of substantive
GATT obligations?
UNITED STATES - TAXES ON PETROLEUM AND
CERTAIN IMPORTED SUBSTANCES
Report of the Panel adopted on 17 June 1987
(L/6175 - 34S/136)
5.
5.1
FINDINGS AND CONCLUSIONS
Tax on petroleum
5.1.1The Panel examined the tax on petroleum in the light of the obligations the United States
assumed under the General Agreement and found the following: the tax on petroleum is an excise
tax levied on imported and domestic goods. Such taxes are subject to the national treatment
requirement of Article III:2, first sentence, which reads:
"The products of the territory of any contracting party imported into the territory of any other
contracting party shall not be subject, directly or indirectly, to internal taxes or other internal
charges of any kind in excess of those applied, directly or indirectly, to like domestic
products".
The CONTRACTING PARTIES have not developed a definition of the term "like products" in the
above provision. In the report of the Working Party on Border Tax Adjustments, adopted by the
CONTRACTING PARTIES in 1970, it was suggested that the problems arising from the
interpretation of this term should be examined on a case-by-case basis and that one of the possible
methods for determining whether two products were like products was to compare their end-uses in
a given market (BISD 18S/102). The domestic products subject to the tax are: crude oil, crude oil
condensates, and natural gasoline. The imported products subject to the tax are: crude oil, crude oil
condensates, natural gasoline, refined and residual oil, and certain other liquid hydrocarbon
10
products. The imported and domestic products are thus either identical or, in the case of imported
liquid hydrocarbon products, serve substantially identical end-uses. The imported and domestic
products subject to the tax on petroleum are therefore in the view of the Panel "like products" within
the meaning of Article III:2. The rate of tax applied to the imported products is 3.5 cents per barrel
higher than the rate applied to the like domestic products. Article III:2, first sentence, applies
whether or not the products concerned are subject to a tariff concession and whether or not adverse
trade effects occurred (see paragraph 5.1.9 below). The tax on petroleum is for these reasons
inconsistent with the United States obligations under Article III:2, first sentence.
5.1.2The United States did not present to the Panel any arguments to support a legal conclusion
different from the one set out above. Its main contention was that the tax differential was so small
that its trade effects were minimal or nil and that the tax differential - whether it conformed to
Article III:2, first sentence, or not - did not nullify or impair benefits accruing to Canada, the EEC
and Mexico under the General Agreement. Canada, the EEC and Mexico considered this defence to
be neither legally valid nor factually correct (paragraphs 3.1.1-3.1.11 above). As both sides to the
dispute considered this issue to be the central legal question to which the tax on petroleum gives
rise, the Panel examined it in particular detail. It reached the following conclusions.
5.1.3Under Article XXIII of the General Agreement contracting parties may bring complaints, inter
alia, if they consider that benefits accruing to them under that Agreement are nullified or impaired.
According to established GATT practice, described in the Annex to the 1979 Understanding on
dispute settlement,
"where there is an infringement of the obligations assumed under the General Agreement, the
action is considered prima facie to constitute a case of nullification or impairment" (BISD
26S/216).
The question raised by the case before the Panel is whether the presumption that a measure
inconsistent with the General Agreement causes a nullification or impairment of benefits accruing
under that Agreement is an absolute or a rebuttable presumption and, if rebuttable, whether a
demonstration that a measure inconsistent with Article III:2, first sentence, has no or insignificant
effects on trade is a sufficient rebuttal.
5.1.4According to Article XXIII:2 there are two decisions the CONTRACTING PARTIES may
take after a claim of nullification or impairment, unresolved through consultations, has been
referred to them. First, they may make recommendations or give a ruling on the matter. As to Such
a decision paragraph 4 of the Annex to the 1979 Understanding on dispute settlement states:
"In the absence of a mutually agreed solution, the first objective of the CONTRACTING
PARTIES is usually to secure the withdrawal of the measures concerned if these are found to
be inconsistent with the General Agreement. The provision of compensation should be
resorted to only if the immediate withdrawal of the measure is impracticable and as a
temporary measure pending the withdrawal of the measures which are inconsistent with the
General Agreement" (BISD 26S/216).
The impact of the inconsistent measure is not mentioned in the above paragraph. This suggests that
the practice of the CONTRACTING PARTIES is to make recommendations and rulings on
measures found to be inconsistent with the General Agreement independent of the impact of such
measures.
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5.1.5The second category of decisions the CONTRACTING PARTIES may take under
Article XXIII:2 are decisions to authorize a suspension of concessions or other obligations if that
"consider that the circumstances are serious enough to justify such an action". Paragraph 5 of the
Annex to the 1979 Understanding on dispute settlement indicates how the CONTRACTING
PARTIES are to deal with requests for such an authorization in the case of an infringement of the
obligations assumed under the General Agreement. The relevant part of this paragraph reads:
"A prima facie case of nullification or impairment would ipso facto require consideration of
whether the circumstances are serious enough to justify the authorization of suspension of
concessions or obligations, if the contracting party bringing the complaint so requests. This
means that there is normally a presumption that a breach of the rules has an adverse impact on
other contracting parties, and in such cases, it is up to the contracting parties against whom the
complaint has been brought to rebut the charge" (BISD 26S/216).
Thus, the 1979 Understanding does not refer to the adverse impact of a measure, and the possibility
of a rebuttal, in connection with the power of the CONTRACTING PARTIES to make
recommendations or give rulings on measures inconsistent with the General Agreement; it does so
only in connection with the authorization of compensatory action. This, in the view of the Panel,
supports the conclusion that the impact of a measure inconsistent with the General Agreement is not
relevant for a determination of nullification or impairment by the CONTRACTING PARTIES.
5.1.6The Panel examined how the CONTRACTING PARTIES have reacted in previous cases to
claims that a measure inconsistent with the General Agreement had no adverse impact and therefore
did not nullify or impair benefits accruing under the General Agreement to the contracting party that
had brought the complaint. The Panel noted such claims had been made in a number of cases but
that there was no case in the history of the GATT in which a contracting party had successfully
rebutted the presumption that a measure infringing obligations causes nullification and impairment.
In a case involving credit facilities granted to farmers that purchase domestically-produced
machinery the Panel considered that:
"If the considered view of the Italian Government was that these credit facilities had not influenced
the terms of competition on the Italian market, there would not seem to be a serious problem in
amending the operation Of the Law so as to avoid any discrimination as regards these credit
facilities between the domestic and imported tractors and agricultural machinery (BISD
7S/66-67).
In a case involving undertakings to purchase domestic products, given by foreign investors to obtain
a governmental authorization to invest, the Panel concluded:
"The Panel carefully considered the effects of the purchase requirements on trade. The Panel
concluded that an evaluation of these effects would entail scrutiny and analysis of the
implementation of several thousands of often differently worded undertakings as well as
speculation on what the purchasing behaviour of foreign investors would have been in their
absence. The Panel could not undertake such an evaluation and it is therefore not in a position
to judge how frequently the purchase requirements cause investors to act differently than they
would have acted in the absence of the undertakings and how frequently they therefore
adversely affect the trade interests of other contracting parties. The Panel, however, believes
that an evaluation of the trade effects was not directly relevant to its findings because a breach
of a GATT rule is presumed to have an adverse impact on other contracting parties" (BISD
30S/167).
12
In the case of an import quota on leather which allegedly had not been fully utilized by the
complaining country the Panel stated:
"The Panel wished to stress that the existence of a quantitative restriction should be presumed to
cause nullification or impairment not only because of any effect it had had on the volume of
trade but also for other reasons e.g., it would lead to increased transaction costs and would
create uncertainties which could affect investment Plans" (BISD 31S/113).
The remarks made by the panels in these cases apply, mutatis mutandis, also to the case before the
present Panel.
5.1.7The Panel concluded from its review of the above and other cases that, while the
CONTRACTING PARTIES had not explicitly decided whether the presumption that illegal
measures cause nullification or impairment could be rebutted, the presumption had in practice
operated as an irrefutable presumption.
5.1.8The Panel then examined whether - even assuming that the presumption could be regarded as
rebuttable in the present case - a demonstration that the trade effects of the tax differential were
insignificant would constitute a proof that the benefits accruing to Canada, the EEC and Mexico
under Article III:2, first sentence, had not been nullified or impaired.
5.1.9An acceptance of the argument that measures which have only an insignificant effect on the
volume of exports do not nullify or impair benefits accruing under Article III:2, first sentence,
implies that the basic rationale of this provision - the benefit it generates for the contracting parties is to protect expectations on export volumes. That,, however, is not the case. Article III:2, first
sentence, obliges contracting parties to establish certain competitive conditions for imported
products in relation to domestic products. Unlike some other provisions in the General Agreement,
it does not refer to trade effects. The majority of the members of the Working Party on the
"Brazilian Internal Taxes" therefore correctly concluded that the provisions of Article III:2, first
sentence, "were equally applicable, whether imports from other contracting parties were substantial,
small or non-existent" (BISD Vol. II/185). The Working Party also concluded that "a contracting
party was bound by the provisions of Article III whether or not the contracting party in question had
undertaken tariff commitments in respect of the goods concerned" (BISD Vol. II/182), in other
words, the benefits under Article III accrue independent of whether there is a negotiated expectation
of market access or not. Moreover, it is conceivable that a tax consistent with the national treatment
principle (for instance, a high but non-discriminatory excise tax) has a more severe impact on the
exports of other contracting parties than a tax that violates that principle (for instance a very low but
discriminatory tax). The case before the panel illustrates this point: the United States could bring
the tax on petroleum in conformity with Article III:2, first sentence, by raising the tax on domestic
products, by lowering the tax on imported products or by fixing a new common tax rate for both
imported and domestic products. Each of these solutions would have different trade results, and it
is therefore logically not possible to determine the difference in trade impact between the present
tax and one consistent with Article III:2, first sentence, and hence to determine the trade impact
resulting from the non-observance of that provision. For these reasons, Article III:2, first sentence,
cannot be interpreted to protect expectations on export volumes; it protects expectations on the
competitive relationship between imported and domestic products. A change in the competitive
relationship contrary to that provision must consequently be regarded ipso facto as a nullification or
impairment of benefits accruing under the General Agreement. A demonstration that a measure
inconsistent with Article III:2, first sentence, has no or insignificant effects would therefore in the
view of the Panel not be a sufficient demonstration that the benefits accruing under that provision
had not been nullified or impaired even if such a rebuttal were in principle permitted.
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5.1.10
For the reasons given in the paragraphs above, the Panel decided not to examine the
submissions of the parties on the trade effects of the tax differential. This decision was based on
legal grounds only and should therefore not be interpreted as endorsing either the views of the
United States or those of Canada, the EEC and Mexico on the trade effects of the tax differential.
(…)
5.1.12
In the light of the considerations set out in paragraphs 5.1.1-5.1.9 above, the Panel
concluded that the tax on petroleum was inconsistent with Article III:2, first sentence and
consequently constituted a prima facie case of nullification and impairment and that an evaluation
of the trade impact of the tax was not relevant for this finding. The Panel therefore suggests that the
CONTRACTING PARTIES recommend that the United States bring the tax on petroleum in
conformity with its obligations under the Genera] Agreement.
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2-2. KODAK-FUJI (1998)
The Kodak/Fuji case is one of the very few non-violation disputes to date, and shows that it is not
easy to succeed with a non-violation complaint. The report gives a good illustration of the legal
requirements of a non-violation claim, the GATT relevance of public versus private action and
the frequent nature of trade disputes between Japan and western WTO members. Note also that
the parties act by proxy for large corporations on both sides.
What legal / economic role does the non-violation nullification or impairment complaint play?
Do you know something similar in general public international law (check the Vienna
Convention)?
What confidentiality delicacies can a case like this raise, in which competing multinationals sit
next to the governments in both camps?
Panel Report in Japan -- Measures Affecting Consumer Photographic Film and Paper,
WT/DS44/R, 31 March 1998
Chairman: Mr. William Rossier; Members: Mr. Adrian Macey, Mr. Victor Luiz do Prado
http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds44_e.htm
(...)
II.
SUMMARY OF FACTUAL ASPECTS
A.
THE MARKET FOR PHOTOGRAPHIC FILM AND PAPER IN JAPAN
2.1. This dispute concerns the distribution of imported consumer photographic film and paper in
Japan. Throughout this report, the terms "photographic film and paper" and "photographic
materials" shall be understood to mean consumer photographic film and paper or consumer
photographic materials.
2.2. (…)
Until 1970-72, black and white film and paper were the predominant products used in Japan.
Thereafter, the dominant products were colour film and paper. Today, colour film and paper
account for 97 percent of Japan's total market for consumer photographic materials, with black and
white film and paper accounting for only 3 percent.
2.3. Japan's photographic materials market is supplied by four manufacturers, two domestic and two
foreign.1 The two domestic manufacturers are Fuji Photo Film, Ltd. (Fuji), and Konica Corporation
(Konica). The two foreign manufacturers, Eastman Kodak Company of the United States (Kodak)
and Agfa-Gevaert Aktiengesellschaft of Germany (Agfa).
1
Polaroid, which specializes in instant-print film, also sells photographic materials in Japan. However, the
United States is not claiming nullification and impairment or violation with regard to instant-print film. Two
domestic manufacturers, Oriental Photo Industrial Co., Ltd. and Mitsubishi Paper Mills, Ltd., produce paper
only. All four domestic photographic manufacturers distribute paper to photo finishing laboratories.
15
2.4. Japan notes that since 1965 the share of imports in the Japanese market for colour film has
ranged from 9 percent to a peak of 20.0 percent in 1981. According to the United States and
Japan, the import share of the Japanese market for photographic film was around 15 percent by
1995 and that of this, Kodak's share is around 10 percent and Agfa’s around 5 percent of the market.
Japan further submits that for black and white film the share of imports has ranged from about 2
percent in 1965 peaking at around 41.4 percent in 1985 and settling at around 25 percent by 1995.
According to Japan, Kodak's share of the black and white market has increased from 3.6 percent in
1967 to a peak of 17.6 percent in 1983.
2.5. The United States submits that foreign film manufacturers distribute all of their film through
wholly-owned local sales subsidiaries. Two-thirds of Kodak film is, in turn, sold to retailers, 9 per
cent is sold to so-called secondary photospecialty wholesalers, with the remaining sold through
Kodak-affiliated photofinishing laboratories. Agfa's local subsidiary sells 90 per cent of its film to
retailers and the rest to secondary wholesalers. Fuji sells all of its film to primary wholesalers, who
then resell through regional secondary wholesalers and 8 per cent through laboratories, while the
remainder is sold direct to retail. Konica sells through sales subsidiaries that were once independent
photospecialty wholesalers.
(…)
B.
JAPANESE ENTITIES AND MEASURES RELATED TO THE US CLAIMS
2.7. As summarized in Sections III and IV, the claims raised by the United States concern two
principal government agencies, several councils and business associations, and numerous specific
measures. The "countermeasures" are divided by the United States into three broad categories:
(1) distribution "countermeasures", which allegedly encouraged and facilitated the creation of
market structures for film and paper in which imports are excluded from traditional distribution
channels (collectively referred to by the United States as "distribution countermeasures"); (…)
(…)
IV.
SUMMARY OF ARGUMENTS
4.1. The claims raised by the United States concern three broad categories of measures:
(1) distribution measures, which allegedly encouraged and facilitated the creation of market
structures for film and paper in which imports are excluded from traditional distribution channels;
(…)
A.
DISTRIBUTION "COUNTERMEASURES"
4.2. The United States argues essentially that at the beginning of the Kennedy Round in 1963,
foreign and domestic manufacturers distributed photographic film and paper through Japan's
primary wholesalers who, in turn, sold to other wholesalers or retailers. Photographic material
manufacturers competed against one another to market their products to the same wholesalers.
Foreign as well as Japanese manufacturers did business with many of Japan's distributors. By the
mid-1970's, however, when many formal market barriers had fallen, the Japanese Government had
fundamentally altered relationships between manufacturers and wholesalers. By then, all of the
leading wholesalers in Japan exclusively handled Japanese products. The United States claims that
so far no foreign firm has succeeded in penetrating these closed distribution channels.
4.3. According to the United States, when the liberalization of international trading conditions
became imminent, MITI and Japanese manufacturing interests recognized that foreign firms in
16
many instances were not only positioned to offer competitive products, but also to deploy superior
resources and managerial expertise in distribution and marketing. MITI foresaw that these foreign
advantages could create serious competition for Japanese manufacturers and their products and that
foreign enterprises would be able to displace domestic manufacturers at the wholesale and retail
levels. MITI officials and Japanese manufacturers therefore jointly devised a plan to streamline
Japan's distribution system while at the same time bringing it under the control of domestic
producers. Under this policy, which was referred to as the "systemization of distribution", MITI
sought to strengthen vertical distribution channels from manufacturer to wholesaler to retailer in
order to establish distribution chains of wholesalers and retailers that would exclusively handle the
products of a particular domestic manufacturer.
(…)
4.6. Japan responds that the aim of MITI’s distribution policies was not to block imports but to
modernize the Japanese distribution industry and help it to meet the foreign competitive challenge
that would be unleashed by liberalization. Nothing in MITI’s distribution policies or any other
so-called "liberalization countermeasures" did anything to encourage or facilitate the creation of an
exclusionary market structure that discriminates against imported film or paper. Since the MITI
policies in question actually say nothing about encouraging single-brand distribution of film, the
United States struggles to establish some connection between MITI’s policies and the market
structure that is the main target of its complaints. Japan asserts that when confronted with the actual
facts of this market, however, the US arguments about "distribution countermeasures" collapse.
4.7. Japan further responds that MITI's concern with modernizing the Japanese distribution sector
has existed continuously for over 30 years, including the periods before and after capital
liberalization. According to Japan, MITI had diverse rationales for encouraging distribution
modernization. Originally, MITI sought to improve the relatively low productivity of the
distribution sector, thereby alleviating a growing labour shortage and the continuing increase in
consumer prices in the late 1960s. To the extent that MITI's distribution modernization policies
were a response to capital liberalization, MITI's concern was to improve the efficiency and
competitiveness of a relatively backward distribution sector. The objective was to compete more
effectively with new foreign entrants. MITI was not trying to prevent imports from enjoying the
allegedly unique advantages of traditional distribution channels. To the contrary, MITI viewed
traditional distribution channels as competitively disadvantaged and sought to remedy their defects.
(…)
4.9. Moreover, Japan argues that the US theory has intractable timing problems. Three of Fuji’s
four major primary wholesalers were already single-brand distributors by 1968, two years before
the guidelines were issued. While Fuji’s fourth primary wholesaler did not become a single-brand
distributor until after the issuance of the Guidelines, it only made this private business decision after
Kodak explicitly refused to deal with the primary wholesalers directly. As to the other domestic
manufacturer, Konica, all of its primary wholesalers had been single-brand distributors by 1955.
There was thus no causal connection between the 1970 Guidelines and the development of
single-brand wholesale distribution in the film sector.
(…)
4.12. Japan further contends that there is nothing at all unusual about the Japanese market structures
for film and paper. Single-brand wholesale distribution of film is a common business practice
which prevails in every major market in the world. Likewise, affiliations between photosensitive
17
materials manufacturers and photofinishing laboratories prevail worldwide. The consistent
prevalence of these market structures around the world is due to market factors, not government
measures.
4.13. Japan notes MITI’s efforts to promote distribution organization continue to this day. To this
end, in 1990 MITI issued distribution guidelines that once again addressed the same kinds of
"irrational" distribution practices that had been targeted by the 1970 Guidelines, e.g., unclear
rebates, liberal returns, and dispatched employees to customers. Now, however, encouraging
imports was one of the guiding purposes for targeting these practices. For its part, the United States
has strongly endorsed the 1990 Guidelines. As recently as November 1996, during the pendency of
this proceeding, the United States specifically urged MITI to "maintain and report an adherence by
the Japanese business community" to these Guidelines. In Japan’s view, the internal inconsistency
of the US position is remarkable because the United States is simultaneously urging Japanese
business to follow the current administrative guidance on rationalizing distribution practices and
arguing before this Panel that similar guidance 20 years earlier was part of an anti-import
conspiracy.
(…)
X.
(…)
FINDINGS
E.
ARTICLE XXIII:1(B) - NON-VIOLATION NULLIFICATION OR IMPAIRMENT
(…)
1.
OVERVIEW OF THE NON-VIOLATION REMEDY
10.35. The underlying purpose of Article XXIII:1 (b) was cogently explained by the panel on EEC Oilseeds:
"The idea underlying [the provisions of Article XXIII:1(b)] is that the improved
competitive opportunities that can legitimately be expected from a tariff concession
can be frustrated not only by measures proscribed by the General Agreement but
also by measures consistent with that Agreement. In order to encourage
contracting parties to make tariff concessions they must therefore be given a right
of redress when a reciprocal concession is impaired by another contracting party as
a result of the application of any measure, whether or not it conflicts with the
General Agreement".2
...
"The Panel considered that the main value of a tariff concession is that it provides
an assurance of better market access through improved price competition.
Contracting parties negotiate tariff concessions primarily to obtain that advantage.
They must therefore be assumed to base their tariff negotiations on the expectation
that the price effect of the tariff concessions will not be systematically offset. If no
right of redress were given to them in such a case they would be reluctant to make
tariff concessions and the General Agreement would no longer be useful as a legal
framework for incorporating the results of trade negotiations".3
2
3
18
EEC - Oilseeds, adopted on 25 January 1990, BISD 37S/86, 128-129, para.144.
Ibid, para.148.
Clearly, the safeguarding of the process and the results of negotiating reciprocal tariff concessions
under Article II is fundamental to the balance of rights and obligations to which all WTO Members
subscribe.
10.36. Although the non-violation remedy is an important and accepted tool of WTO/GATT dispute
settlement and has been "on the books" for almost 50 years, we note that there have only been eight
cases in which panels or working parties have substantively considered Article XXIII:1 (b) claims.4
This suggests that both the GATT contracting parties and WTO Members have approached this
remedy with caution and, indeed, have treated it as an exceptional instrument of dispute settlement.
We note in this regard that both the European Communities and the United States in the EEC Oilseeds case, and the two parties in this case, have confirmed that the non-violation nullification
or impairment remedy should be approached with caution and treated as an exceptional concept.5
The reason for this caution is straightforward. Members negotiate the rules that they agree to follow
and only exceptionally would expect to be challenged for actions not in contravention of those
rules.
10.37 While we consider that the non-violation remedy should be approached with caution and
should remain an exceptional remedy, each case should be examined on its own merits, bearing in
mind the above-mentioned need to safeguard the process of negotiating reciprocal tariff
concessions. Our role as a panel charged with examining claims under Article XXIII:1(b) is,
therefore, to make an objective assessment of whether, in light of all the relevant facts and
circumstances in the matter before us, particular measures taken by Japan have nullified or impaired
benefits accruing to the United States within the meaning of Article XXIII:1(b).
10.38. In GATT jurisprudence, most of the cases of non-violation nullification or impairment have
dealt with situations where a GATT-consistent domestic subsidy for the producer of a product has
been introduced or modified following the grant of a tariff concession on that product.6 The instant
case presents a different sort of non-violation claim. At the outset, however, we wish to make clear
that we do not a priori consider it inappropriate to apply the Article XXIII:1 (b) remedy to other
governmental actions, such as those designed to strengthen the competitiveness of certain
4
Report of the Working Party on Australian Subsidy on Ammonium Sulphate, adopted on 3 April 1950,
BISD II/188; Panel Report on Treatment by Germany of Imports of Sardines ("Germany - Sardines"), G/26,
adopted on 31 October 1952, BISD 1S/53; Uruguayan Recourse, adopted on 16 November 1962,
BISD 11S/95; Panel Report on EC - Tariff Treatment on Imports of Citrus Products from Certain Countries
in the Mediterranean Region ("EC - Citrus Products"), GATT Doc. L/5576, dated 7 February 1985
(unadopted); Panel Report on EEC - Production Aids Granted on Canned Peaches, Canned Pears, Canned
Fruit Cocktail and Dried Grapes ("EEC - Canned Fruit"), GATT Doc. L/5778, dated 20 February 1985
(unadopted); Japan - Semi-conductors, adopted on 4 May 1988, BISD 35S/116; EEC - Oilseeds, adopted on
25 January 1990, BISD 37S/86; United States - Agricultural Waiver, adopted on 7 November 1990,
BISD 37S/228.
5
In EEC - Oilseeds, the United States stated that it "concurred in the proposition that non-violation
nullification or impairment should remain an exceptional concept. Although this concept had been in the text
of Article XXIII of the General Agreement from the outset, a cautious approach should continue to be taken in
applying the concept". EEC - Oilseeds, BISD 37S/86, 118, para. 114. The EEC in that case stated that
"recourse to the 'non-violation' concept under Article XXIII:1(b) should remain exceptional, since otherwise
the trading world would be plunged into a state of precariousness and uncertainty". Ibid, para. 113.
6
See Australian Subsidy on Ammonium Sulphate, BISD II/188; Working Party Report on Other Barriers to
Trade, adopted on 3 March 1955, BISD 3S/222, 224, para. 13; Report on Operation of the Provisions of
Article XVI, adopted on 21 November 1961, BISD 10S/201, 209, para. 28; EEC - Canned Fruit, GATT Doc.
L/5778 (unadopted); EEC - Oilseeds, BISD 37S/86.
19
distribution or industrial sectors through non-financial assistance. Whether assistance is financial or
non-financial, direct or indirect, does not determine whether its effect may offset the expected result
of tariff negotiations. Thus, a Member's industrial policy, pursuing the goal of increasing efficiency
in a sector, could in some circumstances upset the competitive relationship in the market place
between domestic and imported products in a way that could give rise to a cause of action under
Article XXIII:1 (b). In the context of a Member's distribution system, for example, it is conceivable
that measures that do not infringe GATT rules could be implemented in a manner that effectively
results in a disproportionate impact on market conditions for imported products. In this regard,
however, we must also bear in mind that tariff concessions have never been viewed as creating a
guarantee of trade volumes, but rather, as explained below, as creating expectations as to
competitive relationships.
10.39. The United States has presented much evidence on the structure of the Japanese market for
film. In considering the US claims, we note that the issue is not whether or not the structure
described by the United States in fact exists, but rather whether measures attributable to the
Government of Japan have contributed to the creation or maintenance of that structure in a way that
nullifies or impairs benefits accruing to the United States within the terms of Article XXIII:1 (b).
10.40. While acknowledging the possible application of Article XXIII:1 (b) in this context, we also
note that there are some unusual features to the case before us. Many of the cited "measures" go
back a long way in time and their current status is not always clear. Moreover, many of them are,
on their face, neutral as to the origin of products. These features may make it more difficult to
present a detailed justification in support of non-violation claims.
2.
THREE REQUIRED ELEMENTS
10.41. We now return to our more detailed examination of the scope of Article XXIII:1 (b).
Article XXIII:1 (b) provides in relevant part:
"If any Member should consider that any benefit accruing to it directly or indirectly
under this Agreement is being nullified or impaired ... as the result of ... (b) the
application by another Member of any measure, whether or not it conflicts with the
provisions of this Agreement ... " (emphasis added).
The text of Article XXIII:1 (b) establishes three elements that a complaining party must
demonstrate in order to make out a cognizable claim under Article XXIII:1 (b): (1) application of a
measure by a WTO Member; (2) a benefit accruing under the relevant agreement; and
(3) nullification or impairment of the benefit as the result of the application of the measure.7 We
shall proceed with our analysis by considering in turn each of these three elements.
7
See, e.g., EEC - Oilseeds, BISD 37S/86, paras. 142-152; Australian Subsidy on Ammonium Sulphate,
BISD II/188, 192-193.
20
(a)
Application of a measure
10.42. In analysing the elements of a non-violation claim, a logical starting point is the requirement
that there be application of a measure by a WTO Member. In the first instance, it is necessary to
define what is meant by the term measure. In this case, some of the items included by the United
States in its list of "measures" at issue are laws or regulations. Others are less formal or less
concrete forms of governmental action, such as general policy statements by government agencies
and officials of various ranks. Yet others are governmental actions generally authorizing certain
private activities, where the question is the extent to which such activities are attributable to the
government. These last two kinds of alleged "measures" raise a number of general issues of a
conceptual nature and specific issues in respect of the individual "measures". We explore in this
section general issues related to the definition of measure.
(i)
General considerations
10.43. The ordinary meaning of measure as it is used in Article XXIII:1(b) certainly encompasses a
law or regulation enacted by a government. But in our view, it is broader than that and includes
other governmental actions short of legally enforceable enactments.8 At the same time, it is also
true that not every utterance by a government official or study prepared by a non-governmental
body at the request of the government or with some degree of government support can be viewed as
a measure of a Member government.
10.44. In Japan, it is accepted that the government sometimes acts through what is referred to as
administrative guidance. In such a case, the company receiving guidance from the Government of
Japan may not be legally bound to act in accordance with it, but compliance may be expected in
light of the power of the government and a system of government incentives and disincentives
arising from the wide array of government activities and involvement in the Japanese economy. As
noted by the parties, administrative guidance in Japan takes various forms. Japan, for example,
refers to what it calls "regulatory administrative guidance", which it concedes effectively substitutes
for formal government action.9 It also refers to promotional administrative guidance, where
companies are urged to do things that are in their interest to do in any event. In Japan's view, this
sort of guidance should not be assimilated to a measure in the sense of Article XXIII:1 (b). For our
purposes, these categories inform, but do not determine the issue before us. Thus, it is not useful for
us to try to place specific instances of administrative guidance into one general category or another.
It will be necessary for us, as it has been for GATT panels in the past, to examine each alleged
"measure" to see whether it has the particular attributes required of a measure for Article XXIII:1(b)
purposes.
(…)
10.48. Recalling the criteria applied in Japan - Semi-conductors for determining whether or not a
formally non-binding measure should be assimilated to a governmental restriction under
Article XI:1, i.e., that administrative guidance must create incentives or disincentives to act and
compliance with the guidance must depend largely on governmental action, we consider that these
criteria would certainly also lend themselves satisfactorily to the definition of the term measure
under Article XXIII:1 (b). However, we note that there is nothing in Japan - Semi-conductors
suggesting that this incentives/disincentives test should be seen as the exclusive test for
8
The two definitions of measure relevant to our consideration in the Concise Oxford Dictionary (Ninth Edition 1995)
are "legislative enactment" and "suitable action to achieve some end".
9
21
See para. 6.94.
characterizing formally non-binding measures as governmental. We consider, therefore, that
Japan - Semi-conductors should not be seen as setting forth the exclusive test or outer limit of what
may be considered to constitute a measure under Article XXIII:1(b).
10.49. In particular, we are not persuaded that the definition proposed by Japan, i.e., that a measure
must provide a benefit or impose a legally binding obligation or its substantive equivalent, should
circumscribe what may constitute a measure within the meaning of Article XXIII:1 (b). In our
view, a government policy or action need not necessarily have a substantially binding or
compulsory nature for it to entail a likelihood of compliance by private actors in a way so as to
nullify or impair legitimately expected benefits within the purview of Article XXIII:1 (b). Indeed, it
is clear that non-binding actions, which include sufficient incentives or disincentives for private
parties to act in a particular manner, can potentially have adverse effects on competitive conditions
of market access. For example, a number of non-violation cases have involved subsidies, receipt of
which requires only voluntary compliance with eligibility criteria. Moreover, we also consider it
conceivable, in cases where there is a high degree of cooperation and collaboration between
government and business, e.g., where there is substantial reliance on administrative guidance and
other more informal forms of government-business cooperation, that even non-binding, hortatory
wording in a government statement of policy could have a similar effect on private actors to a
legally binding measure or what Japan refers to as regulatory administrative guidance.
Consequently, we believe we should be open to a broad definition of the term measure for purposes
of Article XXIII:1 (b), which considers whether or not a non-binding government action has an
effect similar to a binding one.
(…)
(ii)
Governmental versus private actions
10.52. As the WTO Agreement is an international agreement, in respect of which only national
governments and separate customs territories are directly subject to obligations, it follows by
implication that the term measure in Article XXIII:1 (b) and Article 26.1 of the DSU, as elsewhere
in the WTO Agreement, refers only to policies or actions of governments, not those of private
parties. But while this "truth" may not be open to question, there have been a number of trade
disputes in relation to which panels have been faced with making sometimes difficult judgments as
to the extent to which what appear on their face to be private actions may nonetheless be
attributable to a government because of some governmental connection to or endorsement of those
actions.
10.53. One GATT study in 1960, examining the question of whether subsidies financed by nongovernmental levy were notifiable under Article XVI, expressed the view that "the question ...
depends upon the source of the funds and the extent of government action, if any, in their
collection".10
10.54. In Japan - Semi-conductors, "Japan contended that there were no governmental measures
limiting the right of Japanese producers and exporters to export semi-conductors at any price they
wished. ... Exports were limited by private enterprises in their own self-interest and such private
action was outside the scope of Article XI:1".11 However, the panel found that
10
11
Report on Review Pursuant to Article XVI:5, adopted on 24 May 1960, BISD 9S/188, 192.
Japan - Semi-conductors, BISD 35S/116, para. 102.
22
" ... an administrative structure had been created by the Government of Japan
which operated to exert maximum possible pressure on the private sector to cease
exporting at prices below company-specific costs ... the Panel considered that the
complex of measures exhibited the rationale as well as the essential elements of a
formal system of export control".12
10.55 And a 1989 panel on EEC - Restrictions on Imports of Dessert Apples noted that "the EEC
internal regime for apples was a hybrid one, which combined elements of public and private
responsibility. Legally there were two possible systems, direct buying-in of apples by Member
State authorities and withdrawals by producer groups". That panel found that both the buying-in
and withdrawal systems established for apples under the EEC regulation could be considered to be
governmental measures for the purposes of Article XI:2(c)(i).13
10.56. These past GATT cases demonstrate that the fact that an action is taken by private parties
does not rule out the possibility that it may be deemed to be governmental if there is sufficient
government involvement with it. It is difficult to establish bright-line rules in this regard, however.
Thus, that possibility will need to be examined on a case-by-case basis.
(iii)
Measure versus continuing effect
(…)
10.59. We note that the parties to the dispute do not disagree on the fundamental point that only a
measure that continues to be applied, and not the market structure which may or may not result
from the application of such measure, may be the basis for a cognizable claim under GATT
Article XXIII:1 (b). On the other hand, we note that the parties disagree as to whether or not certain
of the "measures" at issue are still in effect. Whereas Japan argues that most of the "measures"
ended years ago and thus are not currently actionable, the United States contends that at most two
"measures" were formally repealed and that, in any case, all the policies underlying the "measures"
continue today in the form of "continuing administrative guidance". Given the significance of the
principle of continued application of measures to the interpretation of Article XXIII:1 (b), we shall
need to give particularly careful analysis -- in examining the individual "measures" -- to the
evidence relating to such alleged continuing administrative guidance. At this stage, suffice it to say
that we do not rule out the possibility that old "measures" that were never officially revoked may
continue to be applied through continuing administrative guidance. Similarly, even if measures
were officially revoked, the underlying policies may continue to be applied through continuing
administrative guidance. However, the burden is on the United States to demonstrate clearly that
such guidance does in fact exist and that it is currently nullifying or impairing benefits.
(iv)
Summary
10.60. In examining the non-violation claims in this case, we consider it important to approach the
issue of whether the "measures" in dispute are private or attributable to the Government of Japan
with particular care, especially in light of the strong disagreement between the parties as to the
nature of certain of these "measures". We are also sensitive to the possibility that at times it may
not be possible to distinguish with great precision a bright-line test of a measure. Recalling the
considerations outlined in paragraphs 10.48 to 10.50 above, we will take an expansive view of what
constitutes a measure, bearing in mind that the United States must, in any event, demonstrate that
the measure does in fact result in nullification or impairment of expected benefits.
12
Ibid, para. 117.
13
Panel Report on EEC - Restrictions on Imports of Dessert Apples (Complaint by Chile), adopted on 22 June 1989,
BISD 36S/93, 126.
23
(b)
Benefit accruing under the GATT
10.61. The second required element which must be considered to establish a case of non-violation
nullification or impairment under Article XXIII:1 (b) is the existence of a benefit accruing to a
WTO Member under the relevant agreement (in this case, GATT 1994). In all but one of the past
GATT cases dealing with Article XXIII:1 (b) claims, the claimed benefit has been that of legitimate
expectations of improved market-access opportunities arising out of relevant tariff concessions.14
This same set of GATT precedents suggests that for expectations to be legitimate, they must take
into account all measures of the party making the concession that could have been reasonably
anticipated at the time of the concession.15 Of course, as with the first element (application of a
measure), the complaining party has the burden of demonstrating the "benefit accruing".
10.62. In the particular case before us, the question of legitimate expectations of benefits accruing to
the United States is complicated by the fact that the United States is claiming to have had
expectations of improved market access benefits in respect of four different products (each under a
different tariff line), granted during three successive rounds of multilateral trade negotiations. This
claim raises two general issues. First, may the benefits legitimately expected by a Member derive
from successive rounds of tariff negotiations? Second, what factors should be considered to
determine if a Member should have reasonably anticipated measures that it claims nullified or
impaired benefits?
(i)
Benefits under successive Rounds
10.63. The United States claims to have had reasonable expectations of benefits accruing to it under
Article XXIII:1 (b) as the result of tariff concessions granted by Japan on black and white film and
paper during the Kennedy Round (1967), on colour and black and white film and paper during the
Tokyo Round (1979) and on colour and black and white film and paper during the Uruguay Round
(1994). Japan argues that the reasonable expectations of the United States must be limited to those
existing in 1994 at the conclusion of the Uruguay Round in that these latter expectations reflected a
new balance and global reassessment of the value of market access concessions, replacing any
reasonable expectations that may have arisen under prior tariff negotiations.
10.64. Two provisions of GATT 1994 (sub-paragraphs (b)(i) and (d) of paragraph 1) appear to us to
be relevant to the resolution of this matter. The text of GATT 1994 provides in relevant part:
"1.
The General Agreement on Tariffs and Trade 1994 ('GATT 1994') shall consist of:
(a)
the provisions in the General Agreement on Tariffs and Trade, dated
30 October 1947, ...
14
Australian Subsidy on Ammonium Sulphate, adopted on 3 April 1950, BISD II/188; Germany - Sardines,
adopted on 31 October 1952, BISD 1S/53; Panel Report on Uruguayan Recourse, adopted on 16 November
1962, BISD 11S/95; EC - Citrus Products, GATT Doc. L/5776, dated 7 February 1985 (unadopted); EEC Canned Fruit, GATT Doc. L/5778, dated 20 February 1985 (unadopted); Japan - Semi-conductors, adopted
on 4 May 1988, BISD 35S/116; EEC - Oilseeds, adopted on 25 January 1990, BISD 37S/86; US Agricultural Waiver, adopted on 7 November 1990, BISD 37S/228. Only in EC - Citrus Products did the
complaining party claim that the benefit denied was not improved market access from tariff concessions
granted under GATT Article II, but rather GATT Article I:1 ("most-favoured-nation") treatment with respect
to unbound tariff preferences granted by the EC to certain Mediterranean countries.
15
See, e.g., Australian Subsidy on Ammonium Sulphate, BISD II/188, 193-194; Germany - Sardines,
BISD 1S/53, 58-59; EEC - Oilseeds, BISD 37S/86, 126-129.
24
(b)
the provisions of the legal instruments set forth below that have entered into force
under the GATT 1947 before the date of entry into force of the WTO Agreement:
(i)protocols and certifications relating to tariff concessions;
...
(d)
the Marrakesh Protocol to GATT 1994".
As referenced in the quoted text -- also known as the GATT 1994 incorporation clause -GATT 1994 incorporates both "protocols and certifications relating to tariff concessions" under
paragraph 1(b)(i) and "the Marrakesh Protocol to GATT 1994" under paragraph 1(d). The ordinary
meaning of the text of paragraphs 1(b)(i) and 1(d) of GATT 1994, read together, clearly suggests
that all protocols relating to tariff concessions, both those predating the Uruguay Round and the
Marrakesh Protocol to GATT 1994, are incorporated into GATT 1994 and continue to have legal
existence under the WTO Agreement.
10.65. Japan appears to argue that the Schedules annexed to the Marrakesh Protocol prevail as a
later agreement over Schedules that entered into force under GATT 1947. In our view, such an
interpretation would only make sense if the Marrakesh Protocol, referred to in paragraph 1(d) of
GATT 1994, were viewed as later in time than the protocols referred to in paragraph 1(b)(i) thereof,
and then, only to the extent of any conflict between tariff concessions annexed to the Marrakesh
Protocol and the concessions in the other tariff protocols incorporated in GATT 1994. We consider
that, as argued by the United States, Article 30 of the Vienna Convention16, which is designed to
resolve conflicts between provisions of successive treaties on the same subject matter, is not
applicable to the situation at hand because there is nothing inherently incompatible -- in conflict -between the earlier and later agreed tariff concessions. Such a conflict would only seem to exist if
the subsequent concessions were less favourable than prior concessions, which is not the situation in
this case. Where tariff concessions have been progressively improved, the benefits -- expectations
of improved market access -- accruing directly or indirectly under different tariff concession
protocols incorporated in GATT 1994 can be read in harmony. This approach is in accordance with
general principles of legal interpretation which, as the Appellate Body reiterated in US - Gasoline,
teach that one should endeavour to give legal effect to all elements of a treaty and not reduce them
to redundancy or inutility.17
(…)
10.70. We consider, therefore, that reasonable expectations may in principle be said to continue to
exist with respect to tariff concessions given by Japan on film and paper in successive rounds of
Article XXVIII bis negotiations. Nevertheless, the establishment of a case based on expectations
from rounds concluded 18 or 30 years ago may be difficult. The United States must show that those
expectations, as well as its more recent ones, are currently nullified or impaired.
10.71. Turning to the four products at issue in this dispute and their relevance to reasonable
expectations claimed by the United States, we note that the first tariff concessions by Japan on
photographic film and paper were in the Kennedy Round and that these related only to
16
Article 30 of the Vienna Convention, entitled "Application of successive treaties relating to the same
subject-matter", provides in relevant part: "... 3. When all the parties to the earlier treaty are parties to the later
treaty but the earlier treaty is not terminated or suspended in operation under article 59, the earlier treaty
applies only to the extent that its provisions are compatible with those of the later treaty".
17
WT/DS2/AB/R, p. 23.
25
black and white film and paper; the subsequent concessions granted during the Tokyo and Uruguay
Rounds related to both colour and black and white film and paper. In light of these facts, two
general points can be made as to how we shall proceed with our Article XXIII:1(b) analysis. First,
it is clear that the United States cannot claim any reasonable expectations on colour film or paper
emanating from the Kennedy Round. Second, because the US arguments and Japanese rebuttals
focus mainly on the film market, and particularly on that for colour film, we consider it appropriate
to also focus on the film market in our analysis and, as of 1979, on the colour film market in
particular, supplementing this analysis as necessary with reference to the market for black and white
film and both black and white and colour paper.
(ii)
Legitimate expectations of a benefit
10.72. The text of Article XXIII:1 (b) simply refers to "a benefit accruing, directly or indirectly,
under this Agreement" and does not further define or explain what benefits are referred to. Past
GATT panel reports have considered that such benefits include those that a Member reasonably
expects to obtain from a tariff negotiation.
10.73. The first GATT report analysing Article XXIII:1 (b) was the 1950 Report of the Working
Party on Australian Subsidy on Ammonium Sulphate. The Working Party found that the withdrawal
by Australia of a wartime subsidy on sodium nitrate fertilizer while maintaining a subsidy on
ammonium sulphate fertilizer, although not inconsistent with Australia’s GATT obligations,
nullified or impaired benefits accruing to Chile under the General Agreement. The Working Party
agreed that impairment would exist if the Australian action
"which resulted in upsetting the competitive relationship between sodium nitrate
and ammonium sulphate could not reasonably have been anticipated by the
Chilean Government, taking into consideration all pertinent circumstances and the
provisions of the General Agreement, at the time it negotiated for the duty-free
binding on sodium nitrate. The working party concluded that the Government of
Chile had reason to assume, during these negotiations, that the war-time fertilizer
subsidy would not be removed from sodium nitrate before it was removed from
ammonium sulphate. [Reasons omitted.] For these reasons, the working party also
concluded that the Australian action should be considered as relating to a benefit
accruing to Chile under the Agreement, and that it was therefore subject to the
provisions of Article XXIII. ... The inequality created and the treatment Chile could
have expected at the time of the negotiation, after taking into consideration all
pertinent circumstances, including the circumstances mentioned above, and the
provisions of the General Agreement, were important elements in the working
party’s conclusions".18
The 1952 Panel Report on Germany - Sardines also based a non-violation finding on an "action of
the German Government, which resulted in upsetting the competitive relationship between
[different members of the same fish family that] could not reasonably have been anticipated by the
Norwegian Government at the time it negotiated for tariff reductions on [fish]".19 In so finding, the
panel noted that Norway "had reason to assume" that the fish they were interested in would not be
treated less favourably.20
18
Australian Subsidy on Ammonium Sulphate, BISD II/188, para. 12 (emphasis added).
BISD 1S/53, 58, para. 16 (emphasis added).
20
Ibid. The panel found that the fish at issue, although of the same family, were not "like products" and thus
the differential tariff treatment did not violate Article I.
19
26
10.74. Two GATT study groups elaborated these concepts in the context of subsidies, in each case
focusing on whether a party had reasonable expectations that certain treatment would continue. In
1955, a working party wrote:
"So far as domestic subsidies are concerned, it was agreed that a contracting party which
has negotiated a concession under Article II may be assumed, for the purpose of
Article XXIII, to have a reasonable expectation, failing evidence to the contrary,
that the value of the concession will not be nullified or impaired by the contracting
party which granted the concession by the subsequent introduction or increase of a
domestic subsidy on the product concerned".21
A 1961 report, citing the foregoing paragraph, stated:
"In this connexion it was noted that the expression 'reasonable expectation' was qualified by
the words 'failing evidence to the contrary'. By this the Panel understands that the
presumption is that unless such pertinent facts were available at the time the tariff
concession was negotiated, it was then reasonably to be expected that the
concession would not be nullified or impaired by the introduction or increase of a
domestic subsidy."22
10.75. The 1990 Panel Report on EEC - Oilseeds approached a non-violation complaint as follows:
"The Panel examined whether it was reasonable for the United States to expect that
the Community would not introduce subsidy schemes systematically counteracting
the price effect of the tariff concessions.
...
The Panel does not share the view of the Community that the recognition of the
legitimacy of such expectations would amount to a re-writing of the rules of the
General Agreement. The contracting parties have decided that a finding of
impairment does not authorize them to request the impairing contracting party to
remove a measure not inconsistent with the General Agreement; such a finding
merely allows the contracting party frustrated in its expectation to request, in
accordance with Article XXIII:2, an authorization to suspend the application of
concessions or other obligations under the General Agreement. The recognition of
the legitimacy of an expectation thus essentially means the recognition of the
legitimacy of such a request. The recognition of the legitimacy of an expectation
relating to the use of production subsidies therefore in no way prevents a
contracting party from using production subsidies consistently with the General
Agreement; it merely delineates the scope of the protection of a negotiated balance
of concessions. For these reasons the Panel found that the United States may be
assumed not to have anticipated the introduction of subsidies which protect
Community producers of oilseeds completely from the movement of prices for
imports and thereby prevent tariff concessions from having any impact on the
competitive relationship between domestic and imported oilseeds, and which have
21
Working Party Report on Other Barriers to Trade, adopted on 3 March 1955, BISD 3S/222, 224, para. 13 (emphasis
added).
22
Panel Report on Operation of the Provisions of Article XVI, adopted on 21 November 1961, BISD 10S/201, 209, para.
28.
27
as one consequence that all domestically-produced oilseeds are disposed of in the
internal market notwithstanding the availability of imports".23
10.76. As suggested by the 1961 report, in order for expectations of a benefit to be legitimate, the
challenged measures must not have been reasonably anticipated at the time the tariff concession was
negotiated. If the measures were anticipated, a Member could not have had a legitimate expectation
of improved market access to the extent of the impairment caused by these measures.
10.77. Thus, under Article XXIII:1 (b), the United States may only claim impairment of benefits
related to improved market access conditions flowing from relevant tariff concessions by Japan to
the extent that the United States could not have reasonably anticipated that such benefits would be
offset by the subsequent application of a measure by the Government of Japan. In the case before
us, there is disagreement between the parties on this issue of reasonable anticipation with respect to
each and every "measure" claimed by the United States to nullify and impair benefits accruing to it
under GATT.
(…)
10.79. We consider that the issue of reasonable anticipation should be approached in respect of
specific "measures" in light of the following guidelines. First, in the case of measures shown by the
United States to have been introduced subsequent to the conclusion of the tariff negotiations at
issue, it is our view that the United States has raised a presumption that it should not be held to have
anticipated these measures and it is then for Japan to rebut that presumption. Such a rebuttal might
be made, for example, by establishing that the measure at issue is so clearly contemplated in an
earlier measure that the United States should be held to have anticipated it. However, there must be
a clear connection shown. In our view, it is not sufficient to claim that a specific measure should
have been anticipated because it is consistent with or a continuation of a past general government
policy. As in the EEC - Oilseeds case24, we do not believe that it would be appropriate to charge the
United States with having reasonably anticipated all GATT-consistent measures, such as
"measures" to improve what Japan describes as the inefficient Japanese distribution sector. Indeed,
if a Member were held to anticipate all GATT-consistent measures, a non-violation claim would not
be possible. Nor do we consider that as a general rule the United States should have reasonably
anticipated Japanese measures that are similar to measures in other Members' markets. In each such
instance, the issue of reasonable anticipation needs to be addressed on a case-by-case basis.
10.80. Second, in the case of measures shown by Japan to have been introduced prior to the
conclusion of the tariff negotiations at issue, it is our view that Japan has raised a presumption that
the United States should be held to have anticipated those measures and it is for the United States to
rebut that presumption. In this connection, it is our view that the United States is charged with
knowledge of Japanese government measures as of the date of their publication. We realize that
knowledge of a measure's existence is not equivalent to understanding the impact of the measure on
a specific product market. For example, a vague measure could be given substance through
enforcement policies that are initially unexpected or later changed significantly. However, where
the United States claims that it did not know of a measure's relevance to market access conditions in
respect of film or paper, we would expect the United States to clearly demonstrate why initially it
could not have reasonably anticipated the effect of an existing measure on the film or paper market
and when it did realize the effect. Such a showing will need to be tied to the relevant points in time
(i.e., the conclusions of the Kennedy, Tokyo and Uruguay Rounds) in order to assess the extent of
23
EEC - Oilseeds, BISD 37S/86, 128-129, paras. 147-148.
24
28
EEC - Oilseeds, BISD 37S/86, paras. 147, 148.
the United States' legitimate expectations of benefits from these three Rounds. A simple statement
that a Member's measures were so opaque and informal that their impact could not be assessed is
not sufficient. While it is true that in most past non-violation cases, one could easily discern a clear
link between a product-specific action and the effect on the tariff concession that it allegedly
impaired, one can also discern a link between general measures affecting the internal sale and
distribution of products, such as rules on advertising and premiums, and tariff concessions on
products in general.
10.81. Third, for our purposes, we consider the conclusion of the tariff negotiations in the three
Rounds to be as follows: In the case of the Kennedy Round, it appears that tariff negotiations
continued until the very end of the Round and thus we will consider the date of the conclusion of
the Round, i.e., 30 June 1967, as the relevant date. In the case of the Tokyo Round, the conclusion
of the Round was 12 April 1979, although the relevant Protocol was formally dated 30 June 1979.
We will address where appropriate the US argument that the negotiations on film tariff reductions
ended earlier. In the case of the Uruguay Round, tariff negotiations were substantially completed as
of 15 December 1993, although the formal end of the Round occurred on the signing of the WTO
Agreement in Marrakesh on 15 April 1994. Accordingly, we will use the date of 15 December
1993 as the conclusion of the Uruguay Round tariff negotiations.
(c)
Nullification or impairment of benefit:
10.82. The third required element of a non-violation claim under Article XXIII:1 (b) is that the
benefit accruing to the WTO Member (e.g., improved market access from tariff concessions) is
nullified or impaired as the result of the application of a measure by another WTO Member. In
other words, it must be demonstrated that the competitive position of the imported products subject
to and benefiting from a relevant market access (tariff) concession is being upset by ("nullified or
impaired ... as the result of") the application of a measure not reasonably anticipated. The equation
of "nullification or impairment" with "upsetting the competitive relationship" established between
domestic and imported products as a result of tariff concessions has been consistently used by
GATT panels examining non-violation complaints. For example, the EEC - Oilseeds panel, in
describing its findings, stated that it had "found ... that the subsidies concerned had impaired the
tariff concession because they upset the competitive relationship between domestic and imported
oilseeds, not because of any effect on trade flows".25 The same language was used in the Australian
Subsidy and Germany - Sardines cases.26 Thus, in this case, it is up to the United States to prove
that the governmental measures that it cites have upset the competitive relationship between
domestic and imported photographic film and paper in Japan to the detriment of imports. In other
words, the United States must show a clear correlation between the measures and the adverse effect
on the relevant competitive relationships.
10.83. We consider that this third element -- causality -- may be one of the more factually complex
areas of our examination. In this connection, we note that in the three prior non-violation cases in
which panels found that the complaining parties had failed to provide a detailed justification to
support their claims, the issue turned primarily on the lack of evidence of causality.27 Four issues
related to causation merit general discussion. First, the question of the degree of causation that must
be shown -- "but for" or less. Second, the relevance of the origin-neutral nature of a measure to
25
Follow-up on the Panel Report, EEC - Oilseeds, BISD 39S/91, 114-115, para. 77 (emphasis added).
See para. 10.73 above.
27
Uruguayan Recourse, BISD 11S/95, 100, para. 15; Japan - Semi-conductors, BISD 35S/116, 161, para.
131; US -Agricultural Waiver, BISD 37S/228, 261-62, paras. 5.20-5.23.
26
29
causation of nullification or impairment. Third, the relevance of intent to causality. And fourth, the
extent to which measures may be considered collectively in an analysis of causation.
10.84. As to the first issue, the United States argues that it need not show that the measures in issue
are a "but for" cause of impairment of market-access conditions for imported film and paper, but
that it need only demonstrate that these measures are "a" cause of such distortion. Japan argues that
a clear linkage between the measure at issue and the alleged nullification or impairment must be
proved by the complaining party in order to establish the necessary causal connection. Specifically,
Japan states that the issue is whether the complaining party has provided a "detailed justification" in
support of its claim that a measure has caused nullification or impairment. In our view, Japan
should be responsible for what is caused by measures attributable to the Japanese Government as
opposed, for example, to what is caused by restrictive business conduct attributable to private
economic actors. At this stage of the proceeding, the issue is whether such a measure has caused
nullification or impairment, i.e., whether it has made more than a de minimis contribution to
nullification or impairment.
10.85. In respect of the second issue, Japan argues that all of the accused "measures" are neutral as
to origin of the goods, none of them distinguishing between the imported and domestic products
concerned, and that there is accordingly no causal connection between the alleged "measures",
individually or collectively, and any unfavourable competitive conditions for imported film and
paper. The United States responds that the "measures" at issue have had a disparate impact on
imported products in their application, thereby upsetting competitive conditions of market access
for imported film and paper. In our view, even in the absence of de jure discrimination (measures
which on their face discriminate as to origin), it may be possible for the United States to show de
facto discrimination (measures which have a disparate impact on imports). However, in such
circumstances, the complaining party is called upon to make a detailed showing of any claimed
disproportionate impact on imports resulting from the origin-neutral measure. And, the burden of
demonstrating such impact may be significantly more difficult where the relationship between the
measure and the product is questionable.
10.86. We note that WTO/GATT case law on the issue of de facto discrimination is reasonably
well-developed, both in regard to the principle of most-favoured-nation treatment under
GATT Article I28 and in regard to that of national treatment under GATT Article III.29 The
consistent focus of GATT and WTO panels on ensuring effective equality of competitive
opportunities between imported products from different countries and between imported and
domestic products has been confirmed by the Appellate Body in its reports on Japan - Alcoholic
Beverages30 and most recently in Bananas III31, with respect to both GATT and GATS nondiscrimination rules. We consider that despite the fact that these past cases dealt with GATT
provisions other than Article XXIII:1 (b), the reasoning contained therein appears to be equally
applicable in addressing the question of de facto discrimination with respect to claims of nonviolation nullification or impairment, subject, of course, to the caveat, that in an Article XXIII:1 (b)
28
See, e.g., Panel Report on European Economic Community - Imports of Beef from Canada, adopted on
10 March 1981, BISD 28S/92, 98, paras. 4.2, 4.3.
29
See Panel reports on United States - Section 337 of the Tariff Act of 1930 ("US - Section 337"), adopted on
7 November 1989, BISD 36S/345, para. 5.11; Canada - Import, Distribution and Sale of Certain Alcoholic
Drinks by Provincial Marketing Agencies, adopted on 18 February 1992, BISD 39S/27, paras. 5.12-5.14 and
5.30-5.31; US - Malt Beverages, BISD 39S/206, para. 5.30; US - Gasoline, WT/DS2/R, para. 6.10; Japan Alcoholic Beverages, WT/DS8/R, para. 6.33 and Bananas III, WT/DS27/R/ECU, paras. 7.179-7.180
30
31
30
WT/DS8/AB/R, adopted on 1 November 1996, p. 16.
WT/DS27/AB/R, pp. 97-99.
case the issue is not whether equality of competitive conditions exists but whether the relative
conditions of competition which existed between domestic and foreign products as a consequence
of the relevant tariff concessions have been upset.32
10.87. The third issue is the relevance of intent to causality. The parties disagree in many cases
whether the intent behind a specific measure is to limit imports or to promote an unrelated policy
goal. From our reading of the measures and consideration of the parties' arguments, it is apparent
that there may have been more than one reason motivating the adoption of measures. We note,
however, that Article XXIII:1 (b) does not require a proof of intent of nullification or impairment of
benefits by a government adopting a measure. What matters for purposes of establishing causality
is the impact of a measure, i.e. whether it upsets competitive relationships. Nonetheless, intent may
not be irrelevant. In our view, if a measure that appears on its face to be origin-neutral in its effect
on domestic and imported products is nevertheless shown to have been intended to restrict imports,
we may be more inclined to find a causal relationship in specific cases, bearing in mind that intent is
not determinative where it in fact exists. It remains for the complaining party to show that the
specific measure it challenges does in fact nullify or impair benefits within the meaning of Article
XXIII:1(b).
10.88. Finally, as for the US position that the Panel should examine the impact of the measures in
combination as well as individually (a position contested by Japan), we do not reject the possibility
of such an impact. It is not without logic that a measure, when analyzed in isolation, may have only
very limited impact on competitive conditions in a market, but may have a more significant impact
on such conditions when seen in the context of -- in combination with -- a larger set of measures.
Notwithstanding the logic of this theoretical argument, however, we are sensitive to the fact that the
technique of engaging in a combined assessment of measures so as to determine causation is subject
to potential abuse and therefore must be approached with caution and circumscribed as necessary.
10.89. For the sake of a complete analysis of the US claims, we will examine each alleged
"measure" in light of each of the three elements of a non-violation claim. Thus, even if we find an
alleged "measure" is not a measure for purposes of Article XXIII:1 (b), we will continue with an
analysis of the other two elements. Similarly, even if we find that a measure should have been
reasonably anticipated, we will nevertheless carry through with the causality analysis.
3.
DISTRIBUTION "MEASURES"
(a) General
10.90. The US case against distribution "measures" may best be understood in the context of the
general theme advanced by the United States to the effect that there exists in Japan a unique
relationship between government and industry. The US argument is that for Japan to develop and
implement its industrial policy, the government relies heavily on different types of quasigovernmental entities, including, inter alia, fair trade councils, advisory committees, study groups,
research institutes, and chambers of commerce. The US position is that the participation of these
entities in the "concerted adjustment" process increases the "peer pressure" on these entities to
comply with the industrial policies adopted by the government.
10.91. In Japan's view, the United States relies on a distorted characterization of the Japanese
system by attempting to lump all forms of government-industry cooperation, as well as
administrative guidance, into one catch-all category of informal but binding regulations. Japan's
32
See para. 10.82 above.
31
position is that each "measure" should be examined on its own merit without any preconceived
prejudice of a so-called "unique" Japanese system.
10.92. The United States argues that when the liberalization of international trading conditions
became imminent, MITI and Japanese industry recognized the superiority of foreign firms which
could create serious competition for Japanese manufacturers and their products. MITI and Japanese
manufacturers, it is argued, consequently devised a plan to streamline Japan's distribution system in
order to bring it under the control of domestic producers. The basic US position is that MITI sought
to strengthen vertical distribution channels that would handle the products of a particular domestic
manufacturer exclusively.
10.93. As noted above (para. 10.23), the United States claims that Japan's application of the
following eight distribution "measures" encouraged and facilitated the creation of a market structure
for photographic film and paper in Japan in which imports are excluded from traditional distribution
channels, thereby nullifying or impairing benefits accruing to the United States under Article
XXIII:1(b):33
(1) 1967 Cabinet Decision;
(2) 1967 JFTC Notification 17 on premiums to businesses;
(3) 1968 Sixth Interim Report on Distribution Modernization Outlook and Issues;
(4) 1969 Seventh Interim Report on Systemization of Distribution Activities;
(5) 1969 Survey Report regarding Transaction Terms;
(6) 1970 Guidelines for Rationalizing Terms of Trade for Photographic Film;
(7) 1971 Basic Plan for the Systemization of Distribution; and
(8) 1975 Manual for Systemization of Distribution by Industry: Camera and Film.
We will examine each of these eight distribution "measures" in the order listed above.
10.94. In the following analysis, we will consider whether the US claim in respect of each
"measure" has been justified in light of the three required elements of Article XXIII:1 (b): (i) the
application of a measure; (ii) the existence of a benefit accruing to the United States; and (iii) the
nullification or impairment of that benefit by the measure (causality).
(b)
1967 Cabinet Decision
10.95. The first distribution "measure" claimed by the United States to nullify or impair benefits
accruing to it under Article XXIII:1 (b) is the Japanese Cabinet Decision on Liberalization of
Inward Direct Investment of 6 June 1967 ("1967 Cabinet Decision")34. The Cabinet Decision gave
three points as
"the basic direction of the countermeasures that the government should adopt ... :
(1) prevent disorder that may arise from the advancement of foreign capital;
33
We found in paragraph 10.21 above that three additional distribution "measures" cited by the United States
-- specifically, application of the international contract notification provisions of JFTC Rule No. 1 under
Article 6 of the Antimonopoly Law (April 1971), JDB funding for Konica s wholesalers (1976) and SMEA
funding for photoprocessing laboratories (July 1977) -- are not within the terms of reference of this Panel
because they were not raised in the request for the establishment of the Panel in a manner consistent with
Article 6.2 of the DSU. We have therefore excluded them from further consideration.
34
US Ex. 67-6. It should be noted that the 1967 Cabinet Decision is also cited by the United States as a
promotion "countermeasure".
32
(2) create the foundation to enable our enterprises to compete with foreign
enterprises on equal terms; and (3) actively strengthen the quality of [domestic]
enterprises and reorganize the industrial system so that they can fully compete with
foreign capital".35
10.96. The United States asserts that this Cabinet Decision was a "watershed" in Japan's efforts to
restructure Japanese industry to resist imminent foreign competition following capital liberalization
in the 1960s, establishing a clear national priority to pursue distribution policies aimed at protecting
domestic manufacturers from foreign competition. According to the United States, this decision
formally endorsed the use of "countermeasures" to offset the effects of liberalization, making the
protection of Japanese markets from foreign competition a high national priority. The decision
further allegedly emphasized that the distribution sector was a key area for renovation and
improvement so as to support the production sector, using a concerted industry-government
approach.
10.97. Japan responds that the 1967 Cabinet Decision, which implemented the first stage of capital
liberalization, was concerned generally with modernization and improved efficiency in the Japanese
distribution sector so as to permit domestic industries to compete with foreign rivals in the new, less
regulated business environment.
10.98. Application of measure. Although there can be little doubt that the 1967 Cabinet Decision as
a whole constitutes a measure, within the meaning of Article XXIII:1 (b), we note that the part of
the decision addressing modernization of the Japanese distribution system is more in the nature of a
general policy statement than either a decision on particular government actions or a mandate to
private industry to follow governmental policy by taking specific actions. We further note that the
parties differ on the issue of whether or not this measure is still in effect. While Japan submits and
the United States concedes that the 1967 Cabinet Decision was repealed on 26 December 1980, the
United States argues that the repeal affects only that portion of the 1967 Cabinet Decision relating
to controls on international investment in Japan, not the distribution policies and liberalization
"countermeasures" directed by the 1967 Cabinet Decision. In reply, Japan indicates that it is
impossible to respond adequately to this contention because the United States does not specify
which measures it believes resulted from the 1967 Cabinet Decision, and that in any case any
measures not specifically identified are not properly before this Panel.
10. 99. Reviewing the 1967 Cabinet Decision, we note that it addresses, in general terms, broad
categories of measures which the Japanese Government considered as needing to be taken in
conjunction with the liberalization of direct investment rules. The decision indicates that
"[a]s for our national economy as liberalization progresses, although foreign capital may
advance into many of our industries, it is hoped that our firms will be able to
compete fairly and effectively with them fairly and cooperate with them on equal
terms, thereby promoting national economic interests. The largest future goal of
the people, business circles and government must be the swift attainment of such a
stage by our national economy. ... [I]t would be necessary to restrain foreign
enterprises coming into Japan after liberalization from disturbing order in domestic
industries, by resorting to the strength of their superior power, and from advancing
into the non-liberalized sectors by evading control. ... The establishment of these
countermeasures for strengthening the capacity of our enterprises for international
competition and for preventing foreign enterprises from disturbing order in our
35
Ibid, p.4.
33
industries and market would be a basic necessity if the liberalization is to be
promoted and if our people are to enjoy its economic benefits".36
10.100. By its terms, the Cabinet Decision of 26 December 1980 abolishes the 1967 Cabinet
Decision.37 However, although there can be no doubt that the 1967 Cabinet Decision has been
abolished, it is not clear to us that the broad policies on modernization of the manufacturing and
distribution sectors outlined in the 1967 Cabinet Decision have been abandoned. The 1980
Decision provides only that
"1.
The Government will apply the Foreign Exchange and Foreign Trade Control Law
in an appropriate manner for the management of foreign direct investment ...
2.
Furthermore, the Government, for the time being, will deal carefully, as we have
done so in the past with foreign direct investment in agriculture, forestry, mining,
oil, and leather and leather product manufacturing ...".
In our view, the 1967 policies could have been carried forward, consistently with the 1980
Decision. To the extent the policies have not been abandoned, we consider that they continue to
constitute a measure within the meaning of Article XXIII:1(b).
10.101. Benefit accruing. We recall the US claim that the benefits accruing to it are its legitimate
expectations of improved market access resulting from Japanese tariff concessions on film and
paper at the conclusion of the Kennedy, Tokyo and Uruguay Rounds. The United States maintains
that it could not have reasonably anticipated the impact of the 1967 Cabinet Decision during the
Kennedy Round negotiations. Specifically, according to the United States, at the time of the
Kennedy Round negotiations there were no pertinent facts available concerning the actions Japan
was preparing to take to implement its "liberalization countermeasures programme" and that as of
30 June 1967, the Cabinet Decision had yet to be promulgated and implemented. Similarly, the
United States argues that it was unaware of the impact of this Cabinet Decision on the film market
in Japan even as of the conclusion of the Tokyo and Uruguay Rounds.
10.102. Japan argues that the United States cannot properly claim to have any legitimate
expectations of such improved market access because the first Japanese tariff concessions on film
and paper -- limited to black and white film and paper -- occurred at the conclusion of the Kennedy
Round on 30 June 1967, several weeks following the Cabinet Decision of 6 June 1967. Moreover,
according to Japan, the Cabinet Decision was preceded by a high-level public debate on capital
liberalization, a debate of which the United States would have been aware. Japan argues that the
measure should have been anticipated by the United States a fortiori as of the conclusion of the
Tokyo and Uruguay Rounds.
10.103. We note that this Cabinet Decision of 6 June 1967 was published in Kampo (Japan's official
gazette) on 21 June 196738, thus predating the formal conclusion of the Kennedy Round
(30 June 1967) by nine days. We recall the test developed in our general discussion of reasonable
anticipation to the effect that a Member is presumed to have knowledge of a measure as of the date
of its publication, but that this presumption may be rebutted where the Member identifies
exceptional circumstances. Because of the short time period between this particular measure's
publication and the formal conclusion of the Kennedy Round, we consider it difficult to conclude
36
37
Ibid, pp. 2, 4.
Concerning the Application of Inward Investments, Cabinet Decision, 26 December 1980, Japan Ex. B-55.
38
Table U of Japan's First Submission, p. 188.
34
that the United States should be charged with having anticipated the 1967 Cabinet Decision since it
would be unrealistic to expect that the United States would have had an opportunity to reopen tariff
negotiations on individual products in the last few days of a multilateral negotiating round.
Accordingly, we consider that the United States, in relation to the 1967 Cabinet Decision, has
legitimate expectations of improved market access emanating from the Kennedy Round. However,
applying the test developed earlier, we find that the United States may not claim legitimate
expectations arising from the Tokyo and Uruguay Round concessions.
10.104. Impairment and causality. The United States argues that improved market access to the
Japanese distribution system for film and paper emanating from Japan's Kennedy Round
concessions on black and white film and paper are nullified and impaired as the result of the
1967 Cabinet Decision and subsequent "liberalization countermeasures" of the Japanese
Government. Japan contends that the 1967 Cabinet Decision contains only very general policy
statements as to what sorts of actions the government considered to be desirable in order to
modernize Japan's overall distribution sector following capital liberalization; it does not set in
motion any specific measures which could be said to discriminate de jure or de facto against the
access of imports to the Japanese market. Japan argues that the United States has not provided any
evidence to the Panel demonstrating "impairment" resulting from the Cabinet Decision.
10.105. In our analysis of the claim that the 1967 Cabinet Decision impairs market-access benefits
accruing to the United States, we note that one theme found in the 1967 Cabinet Decision is that the
Japanese Government should find ways to help modernize the distribution sector so as to respond to
the intensified competition that capital liberalization was expected to bring. However, the portions
of the Cabinet Decision addressing the need to modernize the Japanese distribution system are in
the nature of very general policy statements, which do not provide for clear mandates, orders or
recommendations to government entities or private companies to act in a specific way. In fact, the
United States has not been able to point to any specific governmental actions or private sector
activity in the distribution sector emanating from the 1967 Cabinet Decision in and of itself
(although it does argue that in general terms most of the subsequent distribution "measures" it cites
are grounded in the 1967 Cabinet Decision). Accordingly, we find that the United States has not
demonstrated that the general policy statements contained in the 1967 Cabinet Decision, nullify or
impair benefits accruing to the United States within the meaning of Article XXIII:1 (b). At most, in
our view, the 1967 Cabinet Decision is part of the context for later actions taken by the Government
of Japan.
10.106. Thus, while the 1967 Cabinet Decision may still be viewed as a measure for purposes of
Article XXIII:1 (b) and the United States is not charged with having anticipated the measure prior
to the conclusion of the Kennedy Round, the United States should have anticipated the Decision as
of the conclusion of the Tokyo and Uruguay Rounds. Moreover, the United States has not shown
that the measure nullifies or impairs benefits accruing to it from the Kennedy Round in respect of
black and white film and paper, nor from the Tokyo or Uruguay Rounds in terms of black and white
and colour film and paper.
(…)
H.
CONCLUSIONS
10.402. In light of our findings in sections E.3, E.4, E.5 and E.6 above,, we conclude that the
United States has not demonstrated that the Japanese "measures" cited by the United States
individually or collectively nullify or impair benefits accruing to the United States within the
meaning of GATT Article XXIII:1 (b).(…)
35
3.
Dispute Settlement System Review
3-1. NEGOTIATIONS
http://www.wto.org/english/tratop_e/dispu_e/dispu_e.htm#negotiations
New negotiations on the Dispute Settlement Understanding
A 1994 Ministerial Decision says dispute settlement rules should be reviewed by 1
January 1999. The review started in the Dispute Settlement Body in 1997. The deadline
was extended to 31 July 1999, but there was no agreement.
http://www.wto.org/english/tratop_e/dda_e/dda_e.htm
In November 2001, at the Doha Ministerial Conference, member governments agreed to
negotiate to improve and clarify the Dispute Settlement Understanding. Ministers said
that the new negotiations should be concluded not later than May 2003. These
negotiations take place in special sessions of the Dispute Settlement Body (DSB).
On 24 July 2003, acknowledging the fact that the DSB special session needed more time
to conclude its work, the General Council agreed to extend the special session's
timeframe by one year, to May 2004.
36
3-2. REFORM PROPOSALS
The following communications shall give you an overview over most of the issues with respect to
the reform of the WTO dispute settlement system.
37
WORLD TRADE
TN/DS/W/1
13 March 2002
ORGANIZATION
(02-1295)
Original: English
Dispute Settlement Body
Special Session
CONTRIBUTION OF THE EUROPEAN COMMUNITIES
AND ITS MEMBER STATES TO THE IMPROVEMENT OF THE
WTO DISPUTE SETTLEMENT UNDERSTANDING
Communication from the European Communities
The following communication has been received from the Permanent Delegation of the
European Commission.
_______________
Introduction
The experience of the last six years (244 cases as of 4 February 2002) has revealed that the
Understanding on Rules and Procedures Governing the Settlement of Disputes (hereafter "DSU"),
while generally working in a satisfactory manner, can and sometimes needs to be improved on a
number of issues.
In recognition of this fact, the 4th Ministerial Conference decided that:
"30.
We agree to negotiations on improvements and clarifications of the Dispute
Settlement Understanding. The negotiations should be based on the work done thus
far as well as any additional proposals by Members, and aim to agree on
improvements and clarifications not later than May 2003, at which time we will take
steps to ensure that the results enter into force as soon as possible thereafter."
Among the work done so far are the discussion papers submitted by the EC on 21 October
1998 and 23 July 1999, and the text co-sponsored by the EC and its member States before the Third
Ministerial Conference, circulated as document WT/MIN(99)/8 of 22 November 1999.
While these documents were produced in the context of the Decision on the Application and
Review of the DSU, which is no longer relevant for the mandate given at Doha, the EC and its
member States believe that they remain to a large extend relevant for possible improvements to the
DSU. In particular, the EC and its member States continue to support the substance of the text that
they sponsored before the 3rd Ministerial Conference, unless otherwise indicated below.
It should be recalled at the outset that the purpose of a dispute settlement procedure is the
amicable – and quick – resolution of a dispute. In this context, the WTO Members should always
endeavour to solve the dispute at the earliest possible stage, if possible at the consultation stage but
also via recourse to good offices or mediation by the Director-General, as provided in Article 5 of the
DSU. The EC and its member States consider that any improvements of the DSU should contribute
towards this overall goal of facilitating the earliest possible resolution of disputes. Should early
38
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Page 2
resolution or timely compliance not prove possible, preference should be effectively given to trade
compensation over trade-restrictive suspensions of concessions.
This contribution describes by main themes the issues for which the EC and its member States
believe that an improvement is still required. Proposed textual amendments are included in the Annex.
These proposals are without prejudice to further submissions that may be presented in the course of
the negotiations.
I.
MOVING FROM AD HOC TO MORE PERMANENT PANELISTS
A.
REASONS FOR CHANGE
The EC and its member States are of the view that changing the way panelists are selected
and providing them a more permanent basis for their work is likely to lead to faster procedures and
increase the quality of the panel reports.
The first reason is that there is a growing quantitative discrepancy between the need for
panelists and the availability of ad hoc panelists.
On the demand side, it is now clear that there are many more panels under the WTO than
under the GATT. Furthermore, the total duration of the cases is increasing, because of the frequent
recourse to compliance panels and to arbitration on the suspension of concessions, procedures which
are now normally handled by the original panelists.
On the supply side, it has proved more and more difficult to find qualified panelists who are
not nationals of Members involved, be it as a complainant, a defendant or a third party.
The result of the discrepancy between demand and supply has been an increasing delay in the
selection of panelists, and an increasing recourse to the Director-General of the WTO for the
appointment of panelists.
The time that can be gained in constituting the panel could be allocated to other parts of the
procedure.
Second, recent developments concerning the actual consideration of cases by panelists put a
greater strain on panelists selected on an ad hoc basis. Indeed, the actual conduct of a dispute
settlement procedure has become much more sophisticated than before and has substantially increased
the workload of panelists.
It is not only because of procedural developments, such as preliminary rulings and the
handling of business confidential information, that cases take more time to handle. It is also due to the
increased complexity of the substance of the cases brought before the panels, both from a factual and
a legal point of view, and because of the increased complexity of the assessment conducted by
panelists.
Moving to a system of permanent panelists would most likely result in less reversals of panel
reports by the Appellate Body than is currently the case, thereby reducing the total timeframe of the
procedure, the workload of the Appellate Body and the costs for all the parties.
Thirdly, it would enhance the legitimacy and credibility of the panel process in the eyes of the
public, as the possibility of conflicts of interests would be eliminated and the independence of the
panelists would be protected as is the case in domestic proceedings or in the Appellate Body.
39
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Fourthly, it would increase the involvement of developing countries in the panel process.
Under the current system, only 35% of the panelists having served since 1995 come from a
developing country. Such a figure would increase with a more permanent roster of panelists that, as is
the case with the Appellate Body1, would be broadly representative of the WTO Membership.
In conclusion, moving from a system of ad hoc selection of panelists to a more permanent
selection process would lead to faster proceedings and better and more consistent rulings.
It would not constitute a radical change from the principles of the DSU: in effect, it would
amount to reducing the size of the "roster of panelists" and to streamlining the selection process on the
basis of that roster. In addition, it would be fully in line with the evolution of the dispute settlement
system since the Uruguay Round.
B.
MOVING TO A SYSTEM OF PERMANENT PANELISTS
In its October 1998 document, the EC made reference to a roster of between 15 and 24
permanent panelists. Given the level of panel activity, these figures are still broadly accurate and are
based on a reasonable estimate of the overall expected workload of panels in any given year and the
time permanent panelists would actually devote to panel work.
On this latter point, it seems preferable at this stage to provide for a full-time activity, in order
to ensure panelists of high quality and expertise and avoid as far as possible potential problems of
conflict of interest.
As far as qualifications are concerned, permanent panelists should have either demonstrated
expertise in international trade law, economy or policy, and/or past experience as a GATT/WTO
panelist.
The EC and its member States consider that on balance, it is not necessary to require that
panelists cover specifically all possible sectors of expertise existing under the WTO Agreements.
Indeed, even if one was able to define in advance the exact expertise that will be required (and not
simply "trade in goods" as is currently the case for the indicative list of panelists), it would mean that
the few panelists selected for a specific field would always be the only ones to adjudicate those issues,
and that others would risk being underemployed if no cases involving their speciality were brought.
Furthermore, the allocation of a too large number of panelists among "micro-chapels" would
be at odds with the need to ensure consistency in the rulings of the panels.
In line with the rules applicable to the members of the Appellate Body, government affiliation
should not be permitted.
Further, it should be provided that panelists should not participate in the consideration of any
disputes that would create a direct or indirect conflict of interest, along the lines of Article 17.3 DSU.
Decisions on including an individual in the roster of permanent panelists would be taken by
the DSB, upon proposal by the Members. A selection process will have to be defined. To better
preserve the independence of the panelists, a non-renewable term of six years for example could be
considered, with appropriate phase-in provisions for the first panelists. Ideally, the respective terms of
the panelists and of the Appellate Body members should not coincide.
1
Of the 47 reports issued by the Appellate Body, 45 or 96% were issued by a division having at least
one member from a developing Member, and 24 or 51% were issued by a division having two of its three
members from a developing country.
40
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Obviously, the parties to the dispute will not at all be involved in the selection of the three
panelists sitting in a specific case. In line with the practice of the Appellate Body, panelists would be
appointed by lottery, depending on the availability of candidates. In case of a direct or indirect
conflict of interests, the panelist would have to disqualify himself from the procedure, and a new
drawing would be made.
II.
IMPLEMENTATION ISSUES
A.
THE RELATIONSHIP BETWEEN ARTICLE 21.5 AND ARTICLE 22 DSU
A first item that had attracted a lot of attention in 1999 is the "sequencing" issue, i.e. the
chronological order in which the multilateral determination of consistency with a covered agreement
of measures taken to comply with the recommendations and rulings of the DSB on the one side, and
the multilateral procedure for the suspension of concessions or other obligations on the other side,
takes place.
In light of the practice followed consistently since then, it would appear that Members now
broadly agree that completing the procedure established under Article 21.5 DSU is a pre-requisite for
invoking the provisions of Article 22 DSU, in case of disagreement among the parties about
implementation. The problem is therefore clearly less acute than in the past.
With this in mind, the EC remains however in favour of clarifying the language of the DSU,
to ensure legal certainty and predictability of the system for all its Members.
This clarification should be done first by taking into account the practice followed by the
Members when dealing with the sequencing issue. The EC and its member States therefore consider
that, in accordance with the consistent practice of all WTO Members, the compliance procedure must
include a systemic right of appeal against rulings of compliance panels.
Furthermore, the EC and its member States believe that consultations are an essential part of
any dispute settlement procedure, and that therefore consultations should be held before any request
for the establishment of an Article 21.5 panel.
B.
MAKING TRADE COMPENSATION A MORE REALISTIC ALTERNATIVE TO SUSPENSION OF
CONCESSIONS OR OTHER OBLIGATIONS
Under Article 3.7 DSU, the first objective of the dispute settlement mechanism in the absence
of a mutually agreed solution to a dispute is to secure the withdrawal of WTO-inconsistent measures.
That key objective should never be forgotten.
If however immediate compliance is not possible, Article 3.7 DSU gives preference to
temporary trade-enhancing compensation over trade-restricting suspension of concessions or other
obligations.
It is logical that trade compensation should always be preferred to suspension of concessions
or other obligations, which is only a last-resort instrument: the authorization to suspend concessions
runs against a basic principle of the WTO, i.e. predictability of the trading system.
Therefore, the use of suspension of trade concessions involves a cost not only for the
defending party, but also for the economy of the complaining Member. As shown by past experience,
this is especially the case when that complaining Member is a developing country.
41
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However, the reality is that trade compensation is currently not a realistic option before the
application of trade sanctions.
Indeed, the structure of the DSU is such that Members are induced to request suspension of
concessions first. First, Article 22.2 DSU gives only 20 days after the end of the reasonable period of
time to conclude negotiations of compensation. More importantly, it is only in requesting the
suspension of concessions and in triggering an Article 22.6 DSU arbitration that the parties will know
the level of nullification and impairment: in other words, the main element for the negotiation of
compensation can only be obtained in requesting the authorization to apply sanctions.
A substantial improvement of the DSU should be possible on this point.
One possibility would be to allow the complaining party to obtain an independent decision
from a WTO arbitrator about the level of nullification and impairment before the request for
suspension of concessions is submitted.
An arbitration on the level of nullification and impairment may thus happen:
–
before the end of the reasonable period of time, when the non-complying party
indicates that it will not be able to comply with the recommendations and rulings of
the DSB, and the complaining party requests arbitration on the level of nullification
and impairment, or
–
after the end of the reasonable period of time, when both parties agreed that there has
not been implementation, or after the compliance panel established under Article 21.5
DSU has completed its task and has found that the implementing party has not
complied with its WTO obligations.
If, in the absence of an agreement on compensation, the complaining party requests ultimately
the authorization to suspend concessions, an arbitration under Article 22.6 DSU would still take place,
but the task of the arbitrator would be limited to verifying whether the level of the proposed
suspension of concessions is equivalent to the pre-determined level of nullification and impairment
and/or whether the rules on cross-retaliation have been respected. As the performance of that activity
would not be time-consuming, the time gained in that part of the procedure could be used for the
earlier quantification exercise.
Another possibility to enhance compensation would be to encourage the non-complying party
to offer to the prevailing party a compensation package for a value equal to the level of nullification
and impairment, provided that the complainant decides to present such a request (such request should
normally be made after a quantification of the level of nullification and impairment has taken place).
Further refinements of this procedural step could be considered, such as the presentation of a
compensation package whose value is higher than the level of nullification and impairment, so as to
allow the complaining party to choose within that package up to the level of nullification and
impairment. Such a procedural step should however be limited in time, so as to avoid any
unreasonable delay in the overall procedure and therefore any weakening of the objective of
compliance.
C.
EXEMPTING GOODS EN ROUTE FROM THE SCOPE OF THE SUSPENSION OF CONCESSIONS OR
OTHER OBLIGATIONS
Because the suspension of trade concessions usually takes the form of prohibitive duties, it
would be appropriate to provide for a specific exemption for goods en route. For example, Canada
42
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Page 6
exempted from the 100% duties the goods in transit to Canada on or before the date of entry into force
of the suspension of concessions in the EC – Hormones (DS48) case.
D.
MODIFICATION OF THE SUSPENDED CONCESSIONS OR OTHER OBLIGATIONS AFTER THE
AUTHORIZATION BY THE DSB
The EC and its member States remain firmly convinced that any amendment to the DSU
should address the "carousel" issue.
Indeed, there must be a specific provision in the DSU that makes clear that a Member does
not have the ability to modify unilaterally the list of concessions or other obligations for which a DSB
authorization has been granted under Article 22.7 DSU.
The text sponsored by the EC and its member States before the 3rd Ministerial Conference
included a provision to that effect ("footnote 11").
Thailand and the Philippines have recently submitted a proposal as document
WT/MIN(01)/W/3, which provides a useful contribution for further discussions on this issue.
In any event, any amendment of the DSU must achieve the key objective of the EC and its
member States. Additional proposals may be presented as the negotiations proceed.
E.
TERMINATION OF THE SUSPENSION OF CONCESSIONS OR OTHER OBLIGATIONS AFTER THE
AUTHORIZATION BY THE DSB
The current text of the DSU does not provide any specific procedure in case a Member
implements the recommendations and rulings of the DSB after another Member has been authorized
to suspend concessions or other obligations.
An expedited compliance panel procedure should be provided to that effect, as proposed in
the text sponsored by the EC and its member States before the 3rd Ministerial Conference.
That text should be completed by a specific arbitration procedure for the re-computation of
the level of nullification and impairment, should the panel conclude that the Member concerned has
not fully implemented the recommendations and rulings of the DSB.
III.
TRANSPARENCY
Dispute settlement mechanisms established under international public law normally provide
for public access to their proceedings. This is the case for the International Court of Justice, the
International Tribunal for the Law of the Sea or the European Court of Human Rights for example.
The WTO dispute settlement mechanism differs from the international practice on this issue.
Because "the aim of the dispute settlement mechanism is to secure a positive solution to a
dispute" (Article 3.7 DSU), continuing to keep panel or Appellate Body proceedings not accessible to
the public should not be a priori excluded, to the extent one of the parties to a dispute consider that
this can help to resolve the dispute, for the same reasons that consultations can remain confidential. It
should indeed be remembered that some disputes have found a solution before the circulation of the
panel report.
The DSU should therefore provide sufficient flexibility for parties to decide whether certain
parts of the proceeding before the panel or the Appellate Body should be open to the public for
43
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attendance. At the same time, third parties should also have the right to decide whether their
interventions should take place in open or closed sessions.
The precise modalities for opening panel and Appellate Body proceedings to the public would
have to be developed but in any event, the panel or the Appellate Body should be able to impose
limited and justified restrictions on the opening of the proceedings, especially when dealing with
business confidential information.
IV.
REGULATION OF AMICUS CURIAE SUBMISSIONS
The DSU as interpreted by the Appellate Body now allows the submission of amicus curiae
briefs on a case by case basis2.
The EC and its member States consider that it is necessary to define better the framework and
the conditions for allowing such amicus curiae briefs in potentially all cases. Indeed, the acceptance
of amicus curiae submissions should not lead to a delay in the proceeding, nor create substantial
additional burdens for the developing Members. At the same time, sufficient time should be given for
the amicus curiae submissions to be meaningful and for the parties to review those briefs to the extent
they were accepted by the panel or the Appellate Body.
Moreover, the procedural two-stage approach described by the Appellate Body should be
retained, i.e. an application for leave and an effective submission. Amicus curiae submissions should
be directly relevant for the factual and legal issues under consideration by the panel, or the legal
issues raised in the appeal.
More generally, this does not prevent panels from being more pro-active in seeking
information relevant for an objective assessment of the matter. The EC and its member States are
indeed of the view that recourse by panels to the expertise of competent international organizations is
of utmost importance for the proper functioning of the WTO dispute settlement system. Panels should
be encouraged, in such circumstances, to make full use of their right to seek information, including
through the use of existing cooperation mechanisms with these organizations.
V.
FURTHER CLARIFICATIONS AND MODIFICATIONS OF THE DSU
Experience has revealed that other, more technical issues should be addressed.
•
In Article 4 DSU, a provision should be added to enable a Member to formally withdraw a
request for consultations. Furthermore, consultations which have not been followed by a
request for the establishment of a panel within a certain time frame (e.g. 18 months) should be
considered as withdrawn.
The purpose of these proposals is to allow Members to "clean" dormant cases which are still
technically open but where parties do not want to proceed any further.
•
The withdrawal of the request for the establishment of a panel should also be provided
explicitly and regulated in Article 6 DSU.
•
As a way to make early settlements more attractive, it would seem appropriate to provide that
compliance with mutually agreed solutions can be examined via the procedures of
2
This issue has to be distinguished from the right of any WTO Member to participate in dispute
settlement proceedings as third parties. As indicated in the Annex, the EC and its member States support a
substantial enhancement of their rights in the procedure.
44
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Page 8
Articles 21.5 (or proposed 21bis) and 22 DSU to the extent that they have been notified in full
to the DSB. For the complaining party, this would have the advantage of avoiding to restart a
complete procedure in case the non-respect of a mutually agreed solution constitutes a
violation of the covered agreements.
45
•
In Article 10.2 DSU, the time frame for notifying a third party interest should be mentioned
explicitly, i.e. 10 days. This would clarify the current situation based on "past practice". It
should be noted that short time limits are necessary in the current system, because the
notification of third parties interests is a pre-requisite for the composition of the panel
(because panelists may not be nationals of third parties). This would of course change with
permanent panelists.
•
Additional improvements enabling the Appellate Body to cope with its workload would have
to be considered. In view of the volume of its work and on the basis of past experience, it
would appear desirable to convert the mandate of the Appellate Body Members into a
full-time appointment for a given period of time.
•
Recent experience makes clear that the DSU must contain a remand authority for the
Appellate Body, as it is the task of panels to establish clearly and unequivocally issues of
facts. The proposal made by the EC and its member States in 1998 needs therefore to be
further considered.
•
The time frame for the completion of the arbitration under Article 21.3(c) DSU should start
from a more logical date than the date of the adoption of the report, for example by providing
a 45-day period from the date of the appointment of the arbitrator.
•
Article 22.6 DSU contains a 60-day deadline for the completion of an arbitration on
suspension of concessions starting from the end of the reasonable period of time. A new
starting point for the time period should be provided in case no such reasonable period of time
exists.
•
More generally, the Working Procedures could be more developed, on the basis of the
experienced gained so far, in order to ensure increased consistency in the way panels conduct
the proceedings. As for the Appellate Body, Annex 3 could be wholly or partially converted
into Working Procedures for panels, which could be modified by the DSB.
WORLD TRADE
TN/DS/W/90
16 July 2007
ORGANIZATION
(07-2996)
Original: English
Dispute Settlement Body
Special Session
DIAGNOSIS OF THE PROBLEMS AFFECTING
THE DISPUTE SETTLEMENT MECHANISM
Some Ideas by Mexico
The following communication is circulated at the request of the delegation of Mexico. This
document was originally circulated as JOB(03)/208 on 10 November 2003.
_______________
INTRODUCTION
The DSU review so far
The process to amend the DSU started in 1998 and has gone through a number of phases without
yielding concrete results. The latest attempt stems from the mandate at Doha, which stated that "the
negotiations should be based on the work done thus far as well as any additional proposals by
Members, and aim to agree on improvements and clarifications not later than May 2003". More than
40 new proposals were submitted and again, we have failed to meet our goal.
In spite of the fact that the Chairman has submitted his own text, there is no agreement in sight, and
the May 2004 deadline (already pushed back from May 2003) may again prove to be inadequate.
There are still many conceptual difficulties among delegations; technical divergences prevail all over
the text and there is still substantial disagreement as to which issues need to be included.
Mexico believes that the lack of focus has been the prevalent element in our failure to reach
consensus. There is not a clear idea of the goal of the exercise, there has been no prioritisation of
issues, and Members have repeatedly found themselves stranded in technical discussions without
strategic guidance.
Our inability to get results is especially problematic since the pressures on the system are bound to
rise as disputes increase: in the past, every new round has led to a jump in disputes, as the number of
issues covered by multilateral disciplines have increased (e.g. TRIPS), commitments have deepened
(e.g. deeper tariff cuts) and new Members have acceded to the organization (e.g. China).
46
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Page 2
Disputes by year
Average for the period
following the round
10.5
6.2
1.2
Geneva-Kennedy
48-79
Tokyo 80-94
Uruguay 95-01
Doha
Alternative approach: diagnosis-based work
This document is based on the premise that we need to start our work by detecting the major problems
facing the DSU today. Once we are clear on what we are trying to solve, it should be much easier to
define how to solve it.
In other words, we propose to undertake a diagnostic exercise to identify the fundamental
problems, before considering the specific proposals aimed at solving them. This diagnostic
exercise should be based on the analysis of the empirical evidence accumulated during the first 8½
years of the DSU's operation; this would help us stay objective and avoid subjective appreciations
colouring the diagnosis.
To help guide the diagnostic exercise, the present document proposes a classification of what
Members seem to consider major problems, based on the proposals they have submitted: From each
existing proposal, the underlying problem was distilled and classified with related problems, yielding
ten fairly general categories.1
For easier reference, we have grouped problem categories into three broad baskets: access to the
system (comprising integration of developing countries and LDCs, internal transparency and external
transparency), compliance (which includes enhancing compliance and limiting the application of
remedies) and procedural issues (covering the need to ensure professionalism, modification of
timeframes, alternative means for dispute resolution and others).
While we have worked from the proposals to detect the problems, we take no position on the
proposals themselves. Specifically, it is not the aim of this paper to discuss whether the proposals
effectively solve the problems. Such a discussion belongs to a later phase of the exercise, once we
have finished the diagnosis.
It should also be said from the outset that this is a first approach to the diagnosis, intended to spark the
discussion among Members. We have included, for each category, some (clearly marked) remarks
reflecting our reaction to the data, but we certainly don't see these remarks as the ultimate answer. In
fact, we welcome discussion and different interpretations of the evidence we have laid out (and
additions to it). That is exactly the kind of exercise we believe is needed at this stage.
1
We used the latest Chairman's compilation (JOB(03)/69/Rev.2) as the universe of proposals. Some
proposals could address more than one single problem. However, for practical purposes, all proposals were
introduced in the single category of problems which they more likely intended to solve.
47
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TABLE OF CONTENTS
I.
Access to the system ............................................................................................................. 4
I.1
1.2
1.3
II.
Compliance ........................................................................................................................... 9
II.1
II.2
III.
Need to enhance compliance .................................................................................. 10
Need to limit the application of remedies ............................................................... 12
Procedural issues................................................................................................................ 13
III.1
III.2
III.3
III.4
III.5
48
Developing country Members and LDCs are not integrated into the
dispute settlement system ......................................................................................... 4
Need to increase internal transparency ..................................................................... 6
Need to modify rules on external transparency ........................................................ 8
Need to ensure professionalism in examining disputes .......................................... 13
Need to modify timeframes .................................................................................... 15
Need to explore alternative means for dispute resolution....................................... 16
Need for parties to regain control of disputes ......................................................... 17
Miscellaneous ......................................................................................................... 18
TN/DS/W/90
Page 4
I.
ACCESS TO THE SYSTEM
I.1
DEVELOPING COUNTRY MEMBERS AND LDCS ARE NOT INTEGRATED INTO
THE DISPUTE SETTLEMENT SYSTEM
Basic facts
⇒
Of a total of 295 disputes (DS numbers): 2,3
• 197 (61%) have been initiated by developed country Members;
• 125 (39%) have been initiated by developing country Members; and
• 0% has been initiated by LDCs.4
⇒
Furthermore, of 131 WTO Members:5
• 29 are developed countries (11 of which have initiated a dispute);
• 72 are developing countries (28 of which have initiated a dispute); and
• 30 are LDCs (0 of which have initiated a dispute).
⇒
Developing countries and LDCs with a high reliance of trade (as measured in relation to the
size of their economy) are not recurring to the dispute settlement mechanism.6
W e ig h t o f tr a d e in e c o n o m y
v s . c o m p la in s file d
75
72
T ra d e /G D P (% )
63
C o m p la in ts
29
18
0
A fric a n G r o u p
2
22
25
15
0
LDCs
US
B ra z il
In d ia
The cases were addressed until 29 June 2003. Each dispute is identified by a DS number. If a panel
or Appellate Body report contains more than one DS number, it will be considered as a number of disputes
equal to the number of DS numbers contained. To the date mentioned, 295 requests for consultations had been
submitted; 89 Panel/AB reports had been adopted, 77 of which had found at least one violation of the WTO
Agreements; 13 cases had been referred to a 21.5 panel and 7 awards on the level of nullification or impairment
had been issued. Arbitrations on RPT, on the level of nullification or impairment and second recourses to
Article 21.5 have not been considered except where it is expressly stated.
3
Annex 1 and 2.
4
322 Members have requested consultations. This figure considers the joint requests for consultations
issued as a single DS number (e.g. shrimp-turtle).
5
The original number of WTO Members is 145 at the time of this work; but for this exercise we are
counting the European Community as one Member instead of 15 separate Members.
6
Source for Trade/GDP – Heston, Summers and Aten, Penn World Table Version 6.1, Center for
International Comparisons at the University of Pennsylvania (CICUP), October 2002.
49
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Page 5
Specific Problems
i.
ii.
iii.
iv.
v.
The DSU does not provide for litigation costs.
Consultations are not held in the capitals of LDCs.
The particular problems of developing countries and LDCs are not effectively taken into
account.
The system does not ensure the presence of panelists from developing countries or LDCs.
Panel timeframes do not provide for special and differential treatment.
What the experience tells us
i.
Do litigation costs amount to a major determinant in the access of developing countries?
The legal fees of the Advisory Centre on WTO Law for handling a whole case (consultations,
panel and Appellate Body proceedings):
•
•
ii.
Is holding consultations in the capitals of LDCs a problem?
•
•
iii.
There have been no cases brought by or against LDCs.
However, the provisions of the DSU do not preclude the possibility of carrying out
consultations in an LDC capital.9 In fact, it is common practise among Members to
agree on the place for consultations, which often take place in the capital of one of
them.
How many times have panels been required to take into account the particular problems of
developing countries and LDCs?
•
iv.
From 6,000 US dollars, for a minimum of 240 hours at a rate of 25 US dollars (for
LDCs);
To 222,250 US dollars, for a maximum of 635 hours at 350 US dollars (the highest
rate for non-Member developing countries).7 This equals half-a-day of Ecuador's
losses in the banana case.8
Of 174 reports adopted10, Members (complainants or defendants) have invoked
provisions on special and differential treatment 24 times (13.8%).11
Are nationals from developing countries and LDCs being selected as panelists?
•
•
7
To date, 273 panel positions have been filled;
Of which 113 have been assigned to nationals of developing country
Members (41%);
See http://www.acwl.ch/
The Ecuador-bananas example is used throughout the whole document, where the level of
nullification or impairment needs to be estimated. Based on the arbitrator's award regarding the annual level of
nullification or impairment suffered by Ecuador in that case, we estimated that its daily losses amount to
$552,328 US dollars.
9
Art. 4. DSU
10
89 panel reports, 64 Appellate Body reports, 13 panel reports under Article 21.5 and 8 Appellate
Body reports under Article 21.5.
11
Annex 4
8
50
TN/DS/W/90
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•
v.
No national of a LDC has been appointed panelist to date (0%).12
Is it necessary that panel timeframes provide for special and differential treatment?
•
•
•
The average time for a panel to issue its report is 9.2 months.13
There is no substantial difference in the timeframes of panels involving developed
countries vis-à-vis those involving developing country Members.14
Of a total of 89 panel and 64 Appellate Body reports adopted, none has ruled against
a developing country Member for not meeting a particular deadline.
Remarks:
• Disputes by developed countries are much more frequent than by developing countries.
• LDCs have never been engaged in the dispute settlement system.
• This disparity is even more striking since trade represents a high proportion of GDP in
many non-using developing countries and LDCs.
• Financial aspects of engaging in a WTO dispute do not seem to be at the core of the
problem.
• Neither is the panel's attention to matters involving development issues.
• Or the impossibility of meeting deadlines.
• There is a fair amount of panelists from developing country Members, but not a single one
from LDCs.
I.2
NEED TO INCREASE INTERNAL TRANSPARENCY
Basic facts
⇒
Out of 89 cases in which a panel report has been adopted, Members have participated as third
parties in 81 (90%).15
⇒
Out of 64 cases in which an Appellate Body report has been adopted, Members have
participated as third participants in 54 (84.4%).16
⇒
Public submissions may be obtained from many active players, e.g. the EC, the United States,
the Advisory Centre on WTO Law, Australia, Canada and New Zealand.17
⇒
The average delay between issuance of a final panel report to parties and its circulation to
other Members is 28 days.18
12
http://www.worldtradelaw.net/dsc/database/panelistcountrycount.asp. The figures refer to the
positions as panelists, regardless of the amount of DS numbers involved. Compliance panels are also
considered.
13
Annex 3.
14
Annex 3. See also WT/DSB/OV/14.
15
http://www.worldtradelaw.net/dsc/database/partiespanel.asp. The cases where no third party has been
involved are: DS8, DS10, DS11, DS31, DS90, DS99, DS126 and DS170.
16
http://www.worldtradelaw.net/dsc/database/partiesab.asp. The cases where no third participant has
been involved are: DS8, DS10, DS11, DS31, DS33, DS90, DS103, DS113, DS170, and DS176.
17
http://www.acwl.ch/. There are other Members which make their submissions public, but do not
upload them in a webpage, such as Norway
18
Annex 3.
51
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⇒
Appellate Body reports are made available to parties and other Members on the same day. 19
⇒
All WTO Members have access to the meetings of the DSB where panels are established and
reports are adopted.
Specific Problems
i.
ii.
iii.
iv.
Rules for joining consultations are not adequate;
There is no adequate protection for "strictly confidential information";
Third parties do not have enough rights;
DSB rules for surveillance on compliance are insufficient.
What the experience tells us
i.
Are rules for joining consultations adequate?
•
•
•
ii.
Is there adequate protection for "strictly confidential information"?
•
•
•
iii.
Of a total of 295 consultation requests, in 153 cases there has been at least one
request of a Member wishing to join the consultations.
On average, 3.2 Members request to join the consultations per case.20
The current rules allow the Member being consulted to establish its own standard as
to whether the request to join is well founded, and do not provide for deadlines.21
Of 174 reports adopted,22 16 have dealt with business confidential
information (9.2%).
In 6 of those cases, the parties agreed on procedures for the treatment of confidential
information.
In another 5 cases, either the Appellate Body or the panel refused a request for
procedures for the treatment of confidential information. 23
Do third parties have enough rights?
•
19
Shortcomings of third party rights can be divided in three categories:
–
Documents they cannot access: submissions made after the first substantive
meeting; oral statements of the parties and replies to questions from the
panel; interim and final panel report in advance.
–
Meetings they cannot attend: part of the first substantive meeting and all of
the second substantive meeting, as well as any meeting during the interim
review process.
–
Examination of their arguments: while panels or the Appellate Body are
required to hear the arguments of third parties, they are not required to
address them.24
Rules for circulation and derestriction of documents: WT/GC/W/464/Rev.1
Annex 5.
21
Art. 4.11 of the DSU.
22
89 panel reports, 64 Appellate Body reports, 13 panel reports under Article 21.5 and 8 Appellate
Body reports under Article 21.5.
23
Annex 6.
24
Annex 7.
20
52
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iv.
Are rules for surveillance on compliance insufficient?25
•
•
In 57 of 72 cases where an RPT has been required (79%),26 the RTP has exceeded
6 months, which means Members have have been required to inform as to the status
of implementation under the current rules.
At each DSB meeting in which surveillance of implementation has been an issue,
Members have had the opportunity to comment on the implementation and have used
it widely.
Remarks:
• Most internal transparency issues can be solved by becoming a third party in a dispute
settlement case. Furthermore, non-third parties have access to submissions by many key
players.
• Third parties have access to the essential documents in dispute settlement proceedings, but
their views are not necessarily considered by panels and the Appellate Body.
• The issue regarding the rules for joining consultations has come up frequently, and practice
on acceptance or refusal is not transparent.
• The issue of strictly confidential information has come up in a limited number of cases.
• The timelines for surveillance of compliance of DSB rulings and recommendations seem
adequate, given the length of time to comply in most cases. There are no standards,
however, as to the level of detail which communications may contain.
I.3
NEED TO MODIFY RULES ON EXTERNAL TRANSPARENCY
Basic Facts
⇒
The access of the general public to disputes is the same as that of WTO Members, with the
following exceptions:
•
•
⇒
They cannot access DSB meetings where panels are established and panel reports are
adopted;
Their access to the minutes of such meetings is subject to the timelines established in
the rules on derestriction.27
The general public has been able to communicate with panels and the Appellate Body:
•
•
•
Through their governments' submissions;
Upon request of the panel;28 or
In some cases, through amicus curiae briefs. 29
Specific Problems
i.
ii.
Need to establish procedures for amicus curiae briefs;
Need to prohibit amicus curiae briefs;
25
Surveillance by the DSB on implementation begins 6 months after the date of adoption.
Annex 10. Violations have been found in 77 cases so far, but immediate compliance (30 days or less)
has been ensured 5 times.
27
WT/GC/W/464/Rev.1. 45 days after the date of circulation.
28
Art. 13 of the DSU.
29
Annex 8.
26
53
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iii.
Procedures should be open to the public.
What the experience tells us
i.
ii.
Is there a need for establishing procedures for amicus curiae briefs?
Is there a need for prohibiting amicus curiae briefs?
•
•
iii.
Of 174 reports adopted,30 amicus curiae briefs have been submitted
15 times (8.6%).31
In 13 of these 15 cases, Members have expressed concern at DSB meetings.32
Should proceedings be open to the public?
•
•
Hearings before panels, the Appellate Body and arbitrators have never been open to
the public.
Public access to the discussions held during those meetings has two types of
limitations:
–
The extent to which Members make public their own submissions and replies
to panels (at the discretion of the Member); and
–
Temporal: positions are made public at the panel/Appellate Body
proceedings, in the descriptive part of the Reports (in case submissions have
not been made public).
Remarks:
• The issue of amicus curiae briefs has come up a limited number of times.
• The issue of lack of openness to the public is temporary and ends at the moment when
documents become public.
II.
COMPLIANCE
The duty of Members to comply with their WTO commitments can be seen from two different angles:
⇒
Ensuring the conformity of their laws, regulations and administrative procedures with their
obligations as provided in the WTO Agreements.33 (Compliance a priori)
⇒
Securing the withdrawal of the measures concerned if these are found to be inconsistent with
the provisions of any of the covered agreements.34 (Compliance a posteriori)
⇒
It is impossible to estimate the number of illegal measures taken by Members which go
unchallenged.35 We propose to measure compliance a priori in two ways:
30
89 panel reports, 64 Appellate Body reports, 13 panel reports under Article 21.5 and 8 Appellate
Body reports under Article 21.5.
31
DS18 (Panel); DS58 (Panel, AB, 21.5 Panel and 21.5 AB); DS122 (AB); DS135 (Panel and AB),
DS138 (Panel and AB) DS141 (Panel); DS160 (Panel); DS212 (AB); DS236 (Panel) and DS231 (AB).
32
WT/DSB/M/50,
WT/DSB/M/103,
WT/DSB/M/83, WT/DSB/M/86, WT/DSB/M/140,
WT/DSB/M/134.
33
Article XVI:4 of the WTO Agreement. If a Member considers that a measure is nullifying or
impairing its benefits (mainly because of lack of conformity), it may initiate a dispute settlement procedure.
34
Article 3.7 of the DSU. In the case the panel/Appellate Body concludes that the Measure is
inconsistent, it shall recommend that the Member bring its measure into conformity.
54
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•
•
⇒
The number of times that at least one Member has considered that another Member
has not fulfilled its duty of compliance a priori; 36 and
The number of times in which the DSB has recommended that a Member brings its
measure(s) into conformity.
The estimation of compliance a posteriori is easier, since it only requires an examination of
what Members have done to comply with the recommendations and rulings of the DSB.
Basic Facts
Compliance a priori
⇒
⇒
⇒
⇒
During 8½ years of existence of the WTO, 295 requests for consultations have been
circulated (34.7 per year).37
Furthermore, 89 panel reports have been circulated (10.5 per year).38
Of which, 77 (85.6%) have declared that at least one measure is illegal (9.1 per year). 39
During 47 years of existence of the GATT, 131 panel reports were circulated (2.8 per year).40
Compliance a posteriori
Of the 77 cases where a violation has been found:
⇒
⇒
⇒
⇒
⇒
Immediate compliance has been secured 5 times.
Compliance has been secured within the RPT 28 times (there are 11 additional cases in which
the RPT is ongoing). The average RPT is of 292 days.
There have been 16 cases pursuant to Article 21.5 (of which 13 were referred to a panel).
12 cases remain in limbo or ongoing non-compliance.
A mutually agreed solution has been reached during the RPT in five cases.41
II.1
NEED TO ENHANCE COMPLIANCE
Specific Problems
i.
ii.
iii.
iv.
v.
Need to introduce the possibility of taking provisional measures
Need to address injury even if measures are withdrawn before consultations
Need to have monetary compensation
Retaliation is not a viable option for many Members
Need to ensure the DSU provides incentives to comply as soon as possible.
(a)
Need to allow to obtain compensation or to exercise retaliation at an early stage;
(b)
Need to have an earlier arbitration on nullification or impairment;
(c)
Need to determine nullification or impairment retroactively;
35
See US – Shirts and Blouses (AB). Not even an estimate of the number of notifications would be
appropriate, since legislation may potentially contain an unlimited number of "measures". Arguably, lack of
action by a Member can also constitute a "measure".
36
There are two inefficiencies in this measurement: a) the cases are not res judicata; and b) other cases
not distinguished by Members are not covered—i.e., external agreements, measures not challenged, or measures
not analyzed.
37
Annex 12.
38
Annex 11.
39
Annex 10.
40
Annex 11.
41
Annex 10.
55
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(d)
(e)
(f)
Need to eliminate burdens for cross-retaliation;
Need to allow parties to have negotiable remedies;
Need to have collective retaliation.
What the experience tells us
i.
Do Members need provisional measures?
•
ii.
Do Members need to address injury even if measures are withdrawn before consultations?
•
iii.
Article 22.1 of the DSU already provides for monetary compensation. In fact, it has
already been used.42
Is it true that retaliation is not a viable option for many Members?
•
•
v.
There are no data available to estimate this problem.
Is monetary compensation necessary?
•
iv.
There are no data available to estimate this problem.
In all cases in which the Member concerned has not secured compliance, retaliation
has eventually been authorized in 7 cases (58%); in these 7 cases, compensation was
not agreed.43
Of these cases, two have been authorized in favour of developing country Members
(Ecuador and Brazil) and five in favour of developed country Members (United
States and Canada twice, the EC once).44
Is action needed to ensure that the DSU provides incentives to comply as soon as possible?
•
Out of 89 panel reports adopted, a violation has been found in 77 cases (86%).45
•
The average period of time between the establishment of a panel and the expiry of the
RPT is 775 days, or over two years. If one counts from the request for consultations,
the average period grows to 1,507 days, or over 4 years.46
•
Once a panel has established a violation (77 times), immediate compliance has been
achieved five times (6%); 6 months have been exceeded 57 times (79%). The average
time to comply has been 292 days. 28 cases have gone beyond the RPT (36%).47
•
In the case of "Ecuador-Bananas", this translates into losses for 161 million dollars
during the reasonable period of time only. The average loss from the establishment of
a panel to the expiry of the RPT would have amounted to 428 million USD, or
832 million since the request for consultations.
42
In the case "US – Copyright Act" (WT/DS160/23), the US agreed to make a lump-sum payment of
$3.3 million to a fund to be set up by performing rights societies in the EC for the provision of general
assistance to their members and the promotion of authors' rights.
43
Annex 10.
44
Idem.
45
Annex 10
46
Annex 3
47
Annex 10
56
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•
Collective retaliation, as such, has never been authorized. Nevertheless, there have
been 4 cases, out of 7 (57.1%) in which more than one Member has been authorized
to suspend concessions or obligations ("Bananas" – for Ecuador and US – and
"Hormones" – for Canada and US).
Remarks:
• Non-compliance (both a priori and a posteriori) is the most important problem of the
dispute settlement mechanism.
• The amount of disputes (non-compliance a priori) has increased significantly since the
creation of the WTO, and tends to grow with every round.
• Non-compliance a posteriori has been remedied in a fair number of cases within the RPT,
but has taken an average of 292 days.
• Losses caused by delays and non-compliance amount to hundreds of millions of dollars.
• Retaliation is a last resort and has only been used by few Members. However, it has been
used more than compensation.
II.2
NEED TO LIMIT THE APPLICATION OF REMEDIES
Specific Problems
i.
ii.
iii.
Need to address "sequencing"
Need to regulate "carrousel"
Need to clarify obligations regarding product en route
What the experience tells us
i
Is "sequencing" a problem?
•
•
•
ii.
Do we need to regulate "carrousel"?
•
iii.
There have been 16 cases brought to 21.5 procedures;48 of which 8 have been
preceded by an agreement on sequencing between the parties (53.3%);49
There has only been one case in which the proper application of "sequencing" has
been disputed.
There has not been any case in which suspension of concessions has been denied
because of lateness in the consideration of the request.
Of the 7 authorizations to suspend concessions, there has been no notice that a
Member has changed the list of concessions suspended.
Do we need to clarify obligations regarding product en route?
•
48
There are no data available to estimate this problem.
Annex 10
WT/DSB/OV/14. There have been two further agreements on sequencing, in respect of which no
proceedings have been followed. See Annex of "Cases with violation".
49
57
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Remarks:
• An important number of Article 21.5 cases has not needed an agreement on "sequencing".
• There has only been one dispute in which the concept of "sequencing" has not been put into
question.
• There is no evidence that carrousel is a danger to the dispute settlement mechanism.
III.
PROCEDURAL ISSUES
III.1
NEED TO ENSURE PROFESSIONALISM IN EXAMINING DISPUTES
Specific Problems
i.
ii.
iii.
iv.
v.
Panels are often overturned by the Appellate Body;
Difficulty to find available panelists;
Panels take long time to issue their reports;
There are not enough Appellate Body Members;
It is inappropriate to reappoint Appellate Body Members.
What the experience tells us
i.
Are panel findings being often overturned by the Appellate Body?
The Appellate Body has:
•
•
•
•
upheld 58% of panel findings;
modified 2% of them;
reversed 28% of them; and
declined to rule on or rejected 12% of claims.50
In sum, the Appellate Body has expressly disagreed with 30% of panels' findings.
Appelate body treatment of panel findings
Upheld, declined or rejected
Reversed or modified
50
58
Annex 14
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ii.
How long has the dispute settlement mechanism taken to make panelists available?51
•
•
•
iii
How much time have panels taken to issue their report?52
•
•
iv.
Average time of 3.3 months over schedule.
The average time over schedule taken in the panel proceeding can cause losses for
54.5 million US dollars.
How long do the seven Appellate Body Members take to issue their reports?
•
•
•
•
v.
Average time of 59 days (i.e. 29 days over schedule).
Panels have been composed within the legal timeframe 17 out of 102 times (16.7%).
Using the "EC – Bananas" case as an example, the average time taken over schedule
in composing a panel can cause losses for 16 million US dollars.
Average time of 86.3 days.
The Appellate Body has issued its report within the timeframe of 60 days 5 out of 64
times (7.8%).
In 46 of 64 times (71.9%) the report has been issued within the timeframe of 90
days.53
Using the "EC – Bananas" case as an example, Ecuador could have lost 14.7 million
US dollars for the average time over schedule in an Appellate Body proceeding.54
Is it appropriate to reappoint Appellate Body Members?
•
•
5 of 7 original Appellate Body Members (71.4%) were reappointed without further
discussion.
The remaining two Members had expressed their wish not to be reappointed.
Remarks:
• The major shortcoming for panels is the excess of time needed for their composition and
their work.
• The Appellate Body does not seem to be in great disagreement with the findings of panels.
• There is a problem of Appellate Body reports not being issued in the lower end of the
timeframes. However, they have normally been issued within the higher end of the
timeframes.
• The issue of re-appointment of Appellate Body members is not a major problem.
51
Annex 3. Legal timeframe 20+10 days.
Idem. Legal timeframe 6 months, or 3 for cases of subsidies or emergency cases.
53
Idem. Legal timeframe 60 days, and in no case more than 90 days.
54
Idem. On a basis of 60 day- Appellate Body proceeding.
52
59
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III.2
NEED TO MODIFY TIMEFRAMES
Basic Facts
Timeframes55
De jure
Consultations
Panel establishment
Panel procedure
(establishment to
circulation)
AB procedure (Notice of
appeal to circulation)
From adoption/
to circulation of 21.3(c)
award
Matter referred and final
report circulated in 21.5
panels56
60 days
10 days
9 months
(12.9 DSU)
60 days
(17.5 DSU)
90 days
(21.3(c) DSU)
90 days
(21.3(c) DSU)
De facto
Average
147.65 days
41.2 days
12.0 months
Difference between
the two
87.6 days
31.2 days
3.0 months
86.3 days
26.3 days
135.2 days
45.2 days
159.1 days
69.1 days
Other figures:57
⇒
Average time from panel establishment to panel composition: 58 days.
⇒
Average time from issuance of final panel report to the date of circulation to Members: 28
days.
⇒
Average time RPT for compliance: 292 days.
⇒
Average time for a 21.5 panel proceeding: 159 days.
Specific Problems
i.
ii.
iii.
Need to have expedited procedures for safeguards/antidumping
Provide additional flexibility to extend deadlines under the DSU
Accelerate proceedings:
(a)
Reduce number of meetings in which a panel is established.
(b)
Require panels to circulate their reports in a timely manner.
(c)
Merge both component of interim reports and limit the scenarios in which the interim
review may be held.
(d)
Need to have an earlier arbitration on RPT.
What the experience tells us
i.
Do we require expedited procedures for safeguards/antidumping?
•
•
55
Out of 89 panel reports circulated, 18 referred to the Anti-dumping
Agreement (20%).58
Out of 89 panel reports circulated, 8 referred to the Safeguards Agreement (9%).59
http://www.worldtradelaw.net/dsc/stats.htm and Annex 3.
For this exercise, we are not taking into account 21.5 appeals.
57
Annex 3.
58
http://www.worldtradelaw.net/dsc/database/ad.asp
59
http://www.worldtradelaw.net/dsc/database/safeguards.asp
56
60
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•
ii.
Do we need to provide additional flexibility to extend deadlines under the DSU?
•
iii.
There is no evidence that procedures regarding antidumping or safeguards can be
completed in a shorter timeframe.60
We have not been able to find any dispute settlement case in which a party or third
party has been ruled against for not meeting a particular deadline.
Do we need to accelerate proceedings?
•
•
•
•
•
Out of 89 panel reports circulated, 81 have exceeded the 9-month period provided for
in Art. 12.9 of the DSU (89%)61
Out of 64 Appellate Body reports circulated, 58 have exceeded the 60-day period
provided for in Art. 17.5 of the DSU (91%).62
Out of 77 cases where an RPT has been established or the Member concerned has
otherwise complied, 57 have exceeded 6 months (79%), and 38 have exceeded 9
months (49%).63
Of 89 which have adopted a report, 17 have been established at the first meeting
(17%),64 the average being 44.7 days.65
Arbitrators' awards are issued in 64.3 days (135.2 days after adoption).66
Remarks:
• Deadlines are not being met. Rather than shortening the timeframes on paper, consideration
should be given to shortening the timeframes in practice.
• The need for expedited procedures for a particular set of agreements does not warrant a
special treatment, since timeframes have not been respected for all WTO agreements.
III.3
NEED TO EXPLORE ALTERNATIVE MEANS FOR DISPUTE RESOLUTION
Specific Problems
i.
ii.
Need to enhance and make mandatory the use of good offices, conciliation and mediation
Need to address conflict between provisions by the GC
What the experience tells us
i.
Do we need to enhance and require Members to resort to good offices, conciliation and
mediation?
•
60
The concept of good offices has been available to Members since 1979. Apparently, it
was used three times in the GATT days, one of them unsuccessfully. 67
Annex 3.
Annex 3.
62
Idem.
63
Idem.
64
Idem.
65
Idem.
66
http://www.worldtradelaw.net/dsc/database/rpttiming.asp
67
WT/DSB/25
61
61
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•
•
•
ii.
The immediate precedent to the current rules is in Paragraph D of the Decision of
12 April 1989 on Improvements to the GATT Dispute Settlement Rules and
Procedures (36S/61). There is no record that this decision was used. 68
On 17 July 2001, the Director General circulated a document expressing his readiness
to assist Members in the use of good offices, conciliation or mediation.69
To the cut-off date of this exercise (29 June 2003) no single public document exists
suggesting Members' use of the current provisions.
Is it appropriate to address conflict between provisions by the General Council?
•
•
The General Council has never adopted an authoritative interpretation under
Article IX of the WTO Agreement. 70
The DSB has adopted 89 panel reports, 64 Appellate Body reports, 13 panel reports
under Article 21.5 and 8 Appellate Body reports under Article 21.5.71 All of them
contain certain interpretations to the provisions of WTO Agreements.
Remarks:
• Good offices, conciliation and mediation have been resorted to very seldom. Panel
proceedings are preferred by Members.
• Members do not view the General Council as an efficient decision-taker regarding
interpretations of or amendments to, WTO provisions. They have resorted to the DSB to
sort out their differences of interpretation.
III.4
NEED FOR PARTIES TO REGAIN CONTROL OF DISPUTES
Specific Problems
i
ii.
iii.
Need to create the possibility for Members to have partial adoption of reports;
Allow for suspension of the Appellate Body proceedings;
Need to introduce an interim proceeding for the Appellate Body.
What the experience tells us
i
Do Members need to have the option to adopt the reports partially?
•
ii.
Of 174 reports,72 we were only able to find two cases in which the parties disagreed
with the same finding or conclusion (1.2%).73
Do Members need the option to suspend Appellate Body proceedings?
•
68
Of 89 panel reports and 13 panel reports under Article 21.5, we have found that 12
cases have been suspended (11.8%).74
Idem.
Idem.
70
In fact, the only formal request for an authoritative interpretation has been on "sequencing".
WT/GC/W/133 and WT/GC/W/143. Furthermore, the only formal request to amend an Agreement has also been
on "sequencing" (WT/GC/W/489).
71
See Annex 3. This does not count arbitration awards or 21.5 proceedings.
72
89 panel reports, 64 Appellate Body reports, 13 panel reports under Article 21.5 and 8 Appelate
Body reports under Article 25
73
Australia – Automotive leather (DS 126) and India – Automotive sector (DS 146).
69
62
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•
iii.
7 of which have been followed by a mutually agreed solution (6.9%).75
Do Members require an interim proceeding for the Appellate Body?
•
We have only been able to find one panel report in which a particular ruling has been
overturned as the result of the interim proceeding.76
Remarks:
• In a large majority of cases, parties have not disagreed with regard to the same finding by a
panel or the Appellate Body.
• The concept of suspension of proceedings has not been used often. However, Members
might find some use in this possibility.
• Experience does not show a substantial use for the interim proceedings. In general, changes
appear to be marginal.
III.5
MISCELLANEOUS
A.
Housekeeping issues
Specific Problems
i.
ii.
iii.
iv.
Need to create the possibility to withdraw a panel request
Need to establish sunset procedures for consultation and panel requests and panels
Notification of mutually agreed solutions should be specific
Need to clarify obligations regarding the notices of appeal.
What the experience tells us
i.
Is there a need to create the possibility to withdraw a panel request?
•
ii.
There have been 10 cases in which the panel request has been formally withdrawn.77
Is there a need to establish sunset procedures for consultations requests and panels?
•
•
•
74
There have been 151 requests for consultations which have not been followed by a
panel request within one year.78
There have been 7 cases in which a panel request was made, but the Panel was not
established.79
There have been 14 panels established which have not been composed within one
year.80
WT/DS/OV/14
WT/DS/OV/14
76
DS213
77
WT/DSB/OV/14. These cases are: DS1, DS13, DS89 and DS181 (withdrawal before the
establishment of the Panel). DS35, DS106, DS227, DS240, DS255 and DS257 were withdrawn after the
establishment of the Panel.
78
Annex 3
79
See WT/DSB/OV/14 and WT/DSB/29/Add.1. These cases are: DS36, DS39, DS82, DS115, DS120,
DS123 and DS143.
80
Annex 3
75
63
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iii.
Need notifications of mutually agreed solutions be more specific?
•
•
iv.
There have been 59 notifications of mutually agreed solutions either orally or in
writing.
Of which 11 do not specify the content of such solution (19%); 20 have a low level of
specificity regarding their content (34%) and 28 are exhaustive as to the explanation
of their content (47%).81
•
Is there a need for clarify obligations regarding the notices of appeal?
•
Of 64 Appellate Body reports adopted, there have been 8 cases in which the clarity of
the notice of appeal has been challenged (13%).82
Remarks:
• It is possible to withdraw a panel request under the current rules. This has happened 10
times.
• There is an important amount of consultations which lay in limbo. The number of panels
which are currently in limbo is smaller. A sunset procedure could help clarify the status of
many of them.
• Notifications on mutually agreed solutions have a good level of detail.
• The issue of clarity regarding the notices of appeal seems to be a small one.
B.
New procedures
Specific Problems
i
ii.
iii.
Need to give special treatment to measures already held inconsistent.
Need to introduce a remand procedure from the Appellate Body.
Need to allow panels to examine mutually agreed solutions.
What the experience tells us
i
Do we need to give special treatment to measures already held inconsistent?
•
ii.
Given the broad interpretation of the term "measure", it is not possible to ascertain
where has been a case in which a measure already held inconsistent has been
challenged anew.
Do we need to introduce a remand procedure from the Appellate Body?
•
•
•
81
There has been only one case in which the Appellate Body has been unable to make
any finding because of lack of factual findings on the part of the panel.83
There have been 20 cases in which there have been two or more requests for the
establishment of a panel.84
There have been 18 groups of disputes including more than one complainant.85
Annex 15
http://www.worldtradelaw.net/dsc/wtoindex.htm#abrule202d
83
WT/DS103/AB/RW, WT/DS113/AB/RW.
84
Annex 17.
85
Annex 18.
82
64
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Page 20
iii.
Is there a need to allow panels to examine mutually agreed solutions?
•
•
There have been 59 mutually agreed solutions.
We do not have sufficient information as to what cases have been reintroduced to the
dispute settlement mechanism as a result of lack of conformity with a mutually
agreed solutions.
Remarks:
• There is an important number of cases which have been the subject of more than one
challenge.
• The issue of remand has not been a major problem in practise.
• The need to have panels rule on mutually agreed solutions is not evident.
C.
Others
Specific Problems
i
ii
iii.
Need to clarify that the expression "RPT" also refers to arts. 4.7 and 7.9 of the SCM
Agreement
Need to facilitate procedures for multiple complaints
Need to know opinions of individual panelists or Appellate Body members.
What the experience tells us
i
Do we need to clarify that the expression "RPT" also refers to arts. 4.7 and 7.9 of the SCM
Agreement?
•
ii
Do we need to facilitate procedures for multiple complaints?87
•
•
iii.
Of 77 cases in which a violation has been found, there have been 5 cases in which
any of these two provisions of the SCM agreement were dealt with (7%).86
There have been 20 cases in which there have been two or more requests for the
establishment of a panel.88
There have been 18 groups of disputes including more than one complainant.89
Do we need to know opinions of individual panelists or Appellate Body members?
•
86
We have found only one case in which the Appellate Body included a separate
opinion90 and three cases in which the panel has done so.91
Brazil – Aircraft Australia –Leather, Canada – Aircrafts, US –FSC, and Canada – Autos.
Annex 16.
88
Annex 17.
89
Annex 18.
90
EC – Asbestos.
91
US – German Steel CVDs, US –Certain EC products (Panel), and EC – Poultry.
87
65
TN/DS/W/90
Page 21
Remarks:
• The issue of clarifying that RPT includes Articles 4.7 and 7.9 of the SCM Agreement has
come up in a limited number of occasions.
• There is an important number of cases which could be the subject of multiple complaints.
• Knowing the opinion of individual panelists or Appellate Body members does not seem to
be very important.
66
Optional Reading
J.H.H. WEILER, THE RULE OF LAWYERS AND THE ETHOS OF DIPLOMATS
-- Reflections on the Internal and External Legitimacy of WTO Dispute Settlement,
Harvard Jean Monnet Working Paper 9/00
http://www.jeanmonnetprogram.org/papers/00/000901.html
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69
70
71
72
73
74
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76
77
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79
80
81
82
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86