The World Trade Organisation and International Trade Law - Assignment Example

International Trade Law and Institutions The World Trade Organisation and International Trade Law 1. INTRODUCTION. The World Trade Organization (WTO) is an international trade organization formed under the General Agreement on Tariffs and Trade (GATT) to replace GATT and implement measures agreed at the Uruguay Round (1994) by 2002. (Martin and Law, 2006). The GAAT (General Agreement of Tariffs and Trade) was an international treaty signed in 1947 to provide for some measure of world free trade with the aim of reducing high tariffs on goods. (Martin and Law, 2006). The WTO began operating on 1 January 1995. The WTO's aims are to continue the work of GATT in agreeing international trading rules and furthering the liberalization of international trade. The WTO extends its jurisdiction into such aspects of trading as intellectual property rights. (Law and Martin, 2006). WTO rules are very important in international trade contracts. The highest authority of the WTO is the Ministerial Conference, held at least every two years. By 2006 the WTO had 149 member states. (Martin and Law, 2006; Bermann, 2007). The World Trade organisations have a series of compelementary functions that work together to phase out most forms of trade restrictions. (Bermann, 2007). According to Bermann (2007), these functions can be subdivided into two groups including “substantive” and “procedural” groupings. Under the substantive grouping on the one hand, the organisation attempts to effect and enforce international trade rules negotitated by its member countries. (Bremann, 2007). The scope of this regulation includes trade in in goods and services to the protection of intellectual property. (Bremann, 2007). The aim of each of the substantive agreements is to eliminate or reduce trade barriers, such as tariffs, quotas, subsidies and domestic regulatory protectionism although they cover a wide spectrum of commercial subjects, each having its own particular considerations. (Bremann, 2007). On the other hand, the procedural grouping aims at peacefully concluding disputes arising under the substantive agreements of the WTO. The disputes settlement Understanding outlines a multilateral approach that aims to ensure security and predictability, promote the prompt settlement of disputes, and exact compliance with the WTO substantive obligations. (Bremann, 2007). There is a preference for multilateral and non-adversarial methods of dispute resolution. (Bremann, 2007). Conversely, in the absence of a mutually agreed solution, the first objective of the dispute settlement mechanism is usually to ensure the withdrawal of the measures concerned. (Bremann, 2007). The world trade organisation was formed from a system of long-term trade agreements. Its objective is to help in the development and enforcement of trade regulations negotiated by its member states. (Bremann, 2007). According to Bremann (2007), the dispute settlement system embodied in the Dispute Settlement Understanding (DSU) performs two notable functions including: i. It operates to “complete” the “incomplete” WTO substantive contract, giving content to areas left vague or silent in the relevant agreements. ii. It adjudicates and resolves trade disputes brought pursuant to WTO agreements. According to Bermann (2007), the current DSU language presents an unnecessary obstacle to the WTO procedural and substantive aims. For example, one country initiates recourse to the dispute settlement system based on another’s alleged violation of one or more agreements. (Bermann, 2007). The complaining country can take counter measures only after the WTO determines that a violation has occurred and the responding state fails to comply with its recommendations. (Bermann, 2007). A post-retaliation complaint arises when one of the disputing parties requests a ruling as to whether the offending country, following the authorization of countermeasures, has since brought its measures into compliance with WTO agreements. (Law and Martin, 2006). Since its formation in 1995, the world trade organization (WTO) has been praised for introducing the rule of law into international trade. This study is therefore aimed at critically evaluating this assertion so as to gain reasonable assurance for expressing an opinion as to whether it is true that the WTO has introduced the rule of law in international trade and to conclude if it is an improvement. The main focus of the argument will be on the second grouping of the WTO which is the procedural grouping. The rest of the work is organised as follows: Section 2 provides a description of the Dispute settlement procedure including a description of the disputes settlement understanding (DSU) with particular emphasis on the Disputes Settlement Body (DSB). Section 3 provides a discussion of cases handled by the DSB and an assessment of how these cases were handled. Section 4 provides a conclusion as to whether the WTO has been successful or not in introducing the rule of law in international trade. 2. THE DISPUTES SETTLEMENT PROCEDURE. According to Bremann (2007). The dispute settlement understanding (DSU) provides a well defined procerdure for initiating and resolving disputes. By so doing, the DSU achieves compliance with the WTO agreement through multilateral action. (Bremann, 2007). The DSU constitutes four judicial actors including: the Dispute Settlement Body (BSB), the panel, the Appellete Body, and the Arbitrator. (Bremann, 2007). The DSB has the broadest mandate among these actors. It oversees the proper functioning of the WTO rules and procedures and establishes, panels, adopts panel and Appellate Body reports, and athorises the suspension of concessions and other obligations. (Bremann, 2007). When a case of violation of any of the WTO treaties is tabled before the DSB, the parties are given a 60-day consultation period within which to settle their disagreement. (Bremann, 2007). Should the consultation fail, then the DSB may establish a panel upon the request of the complaining party. (Bremann, 2007). The panel memebers who usually range between 3 to 5 memebers make initial findings and at the close of consultations and hearings, issue a final report that announces recommendations if the need arises. (Bremann, 2007). The panel’s rulling can be appealed to the Appellate Body by any party to the dispute. (Bremann, 2007). Three members of the Appellate Body, then review issues of law and legal interpretation and if the Appellate body fines that a member has indeed violated one or more covenants of the WTO, it will then issue a recommendation that the offending member bring its measures into compliance with the WTO agreement. (Bremann, 2007). During this issuing time, the parties may choose to negotiate “mutually acceptable compensation”, allowing the offending member to retain its existing measures. (Bremann, 2007). Should such a settlement fail to resolve the differences, the defendant must bring its measures into compliance with the relevant WTO agreement. (Bremann, 2007). The defendant is usually given a reasonable time to do so during which if it fails to comply with the WTO agreement, the complaining member may request DSB authorisation to suspend conscessions or other obligations. (Bremann, 2007). This authorisation is otherwise referred to as allowing countermeasures and enables the plaintif (Complaining member) to institute trade restrictive measures in response to those the defendant fails to phase out. (Bremann, 2007). In the event where the propriety of the “level of nullification or impairment” (the economic injury caused by the continuation of offending measures) is challenged, the case is referred to arbitration so as to determine whether the level of suspensions authorised is appropriate. (Bremann, 2007). 3. Example of Cases Brought Before the Dispute Settlement Body This study came across three cases which have been brough to the DSB. They include the bananas case (Ludema, 2001), the EC-Hormones case (Pawsey and Kastner, 2002; Bremann, 2007) and the case of the regional aircraft. (Lawton and McGuire, 2001). Having said this, the study will now look at each case in turn. 3.1 The Bananas Case. In this case the United States, Ecuadaor, Guatamela, Honduras and Mexico brought a complaint against the European Communities (EC), over the banana regime. (Ludema, 2001). The dispute settlement panel and the Appellate body rulled against the EC. Although the EC later modified its banana regime, the plaintifs (USA, Ecuadaor, Guatamela, Honduras and Mexico) as well as the panel were not satisfied with the modifications. (Ludema, 2001). To this effect, the USA requested autorisation from the WTO to apply sanctions, in the form of tariffs on EC imports, valued at 250 million US dollars. The EC objected on the grounds that this sum exceeded the damanage (or “nullification or imparment” of benefits) that the US suffered under the modified banana regime. (Ludema, 2001). Following an agreement by an arbitration panel, the USA was authoorised to apply only 191 million US dollars in sanctions, which it did in April 1991. (Ludema, 2001). Following a similar experience, Ecuador, was also autorised to apply sanctions. (Ludema, 2001). Ludema (2001) concludes that the record of the Dispute Settlement Procedure presented above is a reflection of the workings of two basic principles which include conciliation and reciprocity. Conciliation refers to the idea that countries should try to settle disputes on their own whenever possible through bilateral negotiations, instead of invoking the formal mechanism of the DSP. (Ludema, 2001). According to the principle of reciprocity on the other hand, the ultimate goal of the DSP and especially DSP-approved sanctions, is to restore the balance of conscessions. 3.2. The EC-Hormones Case According to Pawsey and Katsner (2002), the United States was exporting about US$120 million in beef per year to the European Union. However, in 1989, the EU banned the improt of US beef produced with growth promoting hormones, which dramatically reduced US access to an important international market. (Pawsey and Katsner, 2002; Bremann, 2007). This event saw led to a drop in US beef exports to Europe from 76,000 tonnes in 1982 to 4500 tonnes in 1990. (Pawsey and Katsner, 2001). The EU further issued a Directive in 1996, extending the prohibition to almost all importation from nonmenber State countries of “animals and meat from animals treated with hormones to promote rapid growth. (Bremann, 2007). Following from above, the United States concerned about its lost exports to Europe tabled a complaint to the WTO on the grounds that the restrictions on importation of certain types of meat products was not in compliance with the WTO Sanitary and Phytosanitary Measures Agreement (SPS) since they neighther reflected and international health standard nor were scientifically justified by an EC risk assessment which is necessary for validity under SPS. (Pawsey and Katsner, 2002; Bremann, 2007). A panel was composed to hear the matter and it issued its rulling in favour of the United States. (Bremann, 2007). Following an appeal by the EC, the Appellate Body upheld the relevant protion of the panel’s decision, finding that the absence of a risk assessment justifying the EC prohibition, as required by Article 5.1 and 5.2 of the SPS Agreement, rendered the EC legislation inconsistent with the WTO agreement. (Bremann, 2007). Following the Appellate Body’s recommendation, the DSB requested that the meaures in violation of the SPS agreement be brought into compliance. (Bremann, 2007). The USA submitted a request to the WTO for an authorisation to suspend trade concession on imports from the EC up to a value of US$202, which is the amount it was claiming to have lost each year as a result of the ban. (Katsner and Pawsey, 2002). Following an arbitration, “the level of nullification of impairment sufferred” by the USA as a result of offending measures was found to be US$117 million per year. (Pawsey and Katsner, 2002; Bremann, 2007). The later approved a set of products from which the United States could pick to impose countermeasures stipulating that the total trade value be lower that or equal to US$117 million per year and the countries that these measures had to be applied primarilty to included Germanay, France, Italy, and Denmark, countries which the US deemed possessed the most influence in resolving the dispute. (Pawsey and Katsner, 2002; Bremann, 2007). At present the ban remains in place and the dispute unresolved. (Pawsey and Katsner, 2002; Bremann, 2007). 3.3. The Case of the Regional Aircraft. The aircraft witnessed a dramatic expansion during the 1990s and it was dominated by two firms: Embraer of Brazil and Bombadier of Canada. (Lawton and McGuire, 2001). Although these two companies were bitter rivals they exhibited great similarities in both corporate and product development. (Lawton and McGuire, 2001). According to Lawton and McGuire (2001), both Brazil and Canada sought to use state aids to reduce the costs of their firms’ products. Both Bombardier and Embraer were shy about the absolute need to extensive state funds for their product development and sales. (Lawton and McGuire, 2001). Bombardier was the first to market the 50 seat “Canadian Regional Jet” (CRJ) – 100 in 1992 while Embraer introduced the EMB-135 in 1994. (Lawton and McGuire, 2001). Following an announcement of two orders from two American regional Airlines: Continental Express and American Eagle by Embaer, its Canadian Competitor was shocked. (Lawton and McGuire, 2001). Both Airlines ordererd more than 100 Brazilian regional jets each. (Lawton and McGuire, 2001). Following this event, Bombardier began complaining that the Brazilian government backed Embraer’s success. (Lawton and McGuire, 2001). Since it was possible for Embraer to secure loans from the Governement at lower interest rates thus making it possible for Embraer to secure the agreement of the Brazilian government before concluding the sale. (Lawton and McGuire, 2001). For this reason it was possible for Embraer to enter a bidding contest with Bombardier knowing that the Brazilian government would agree funding it. (Lawton and McGuire, 2001). As a result Embraer was enjoying a cost advantage of US$2 million although Bombardier claimed the cost advantage was US$4 millon. (Lawton and McGuire, 2001). This revarly became increasingly bitter through 1997 and Bombardier pressed the Canadain government to table the case before the WTO but the request was withdrawn when a possibility of negotiated settlement appeared. (Lawton and McGuire, 2001). It was however difficult for the two firms to develop strategies that were significantly different as they were offering technologically similar solutions. (Lawton and McGuire, 2001). Price competition was therefore the key factor in the rivalry. (Lawton and McGuire, 2001). After failing to agree on a bilateral basis, both countries counters-ued each other in the WTO. (Lawton and McGuire, 2001). The disputes panel of the WTO ruled against the Canadian government on April 14 1999 on the grounds that some Canadian Subsidy programs supporting Bombardier violated the agreement on subsidies and countervailing measures (ASCM). (Lawton and McGuire, 2001). Some of these subsidies include the debt-financing scheme, the Canada Account and the Technology Partnerships Canada Programme designed to support regional aircraft production. (Lawton and McGuire, 2001). On the other hand, Brazil was found to have afforded Embraer an illegal subsidy with its Proex scheme of interest rate subsidies to purchase Brazilian aircraft. (Lawton and McGuire, 2001). In a nutshell, the WTO concluded that Canada was entitled to impose sanctions on Brazil worth US$230 million per year until a bilateral accord on the Poex-based sales was agreed. (Lawton and McGuire, 2001). 4. Conclusions. According to Ludema (2001), renegotiations of punishments implicit in a DSP generally reduces trade policy cooperation relative to no-DSP case. Ludema (2001), concludes that the Dispute Settlement Procedure though important needs to increase response time if it is to succeed in achieving its objective of free trade. Following from the EC-Hormones case, Kastner and Pawsey (2002) conclude by providing the following points: 1. While the dispute may be subject to the WTO-SPS Framework and its existing provisions, an unfavourable decision outcome (and penalty) against one member (Like in the case of the EU), may be witstood (possibly due to economic strength), inevitable resulting in piece-meal, bilateral negotiations which may lead to dispute resolution but which could undermine the larger goal of multi-lateral harmonisation; 2. According to the Appellate Body, risk Management considerations may be taken into account in risk assement exercises. While perhaps too late to benefit the EU in the hormone-treated beef case, this rulling could have important implications as it leads legitimacy to previously excluded risk factors. According to Bremann (2007), even though the Dispute Settlement Understanding (DSU), provides detailed procedure governing initial complaints, it fails to supply an explicit avenue for parties to resolve posretaliation disagreements. In the event where one party claims that the non-compliant measures have been corrected after the termination of the “reasonable period”, and thus that the previously valid countermeasures and no longer authorised, they are offered no recourse under the existing text. (Bremann, 2007). To illustrate how complex the dispute resolution mechanism of the WTO is, Bremann (2007) compares it with the US federal adjudicatory process. Bremann (2007) notes two interesting features: Firstly, whereas the US civil procedure authorises a judge to adjudicate liability, order and appropriate remedy, and enforce that order, the WTO distributes these functions differently. The panel and Appellate Body make liability determinations for all original and compliance complaints while the arbitrators resolve any party agreements concerning the remedy. (Bremann, 2007). Secondly, the compliance inducing mechanisms relied upon by the systems differ. (Bremann, 2007). Rule 65 of the Federal Rules Civil Procedure stipulates that parties may be enjoined from taking certain actions, a party’s noncompliance under federal law could lead to the initiation of contempt procedings and result in a court imposed penalty such as fines or imprisonment. (Bremann, 2007). The WTO on its part has no equivalent enforcement mechanism; instead, it relies on the authorisation of retaliatory countermeasures to discourage continued noncompliance. Following from the latter, the WTO is in need of a postretaliatory complaint procedure. (Bremann, 2007). For this to take place the WTO must make changes to its present mechanism to avoid postretaliation disputes. (Bremann, 2007). The lesson from the EC-Hormones case is that countries face difficulties in case of postretaliation disputes because the DSU has no postretaliation procedure in its present mechanism. (Bremann, 2007). From the forgoing we can conclude that even though one can conclude that the WTO has successfully introduced the rule of law in international trade, it has not been very successful in resolving disputes due to the length of time involved in its dispute settlement procedures (DSP) and as a result of a mechanism to carter for postretaliation procedures. The WTO therefore needs to improve on the response time of its DSP as well as restructure its dispute settlement procedures to incorporate aspects of postretaliation disputes. BIBLIOGRAPHY Bermann S. (2007). Ec-Hormones and the Case For an Express WTO Postretaliation Procedure. Culumbia Law Review. Vol. 107, pp 131-168. Kastner J. J. (2002). Harmonising sanitory measures and resolving trade disputes through the WTO-SPS framework. Part 1: a case of the US-EU hormones-treated beef dispute. Food Control. Vol. 13, pp 49-55. Ludema R. D. (2001). Optimal international trade agreements and dispute settlement procedures. European Journal of Political Economy. Vol. 17, pp 355-376. Martin E. E. A., Law J. (2006). World Trade Organization  Oxford Dictionary of Law. Oxford University Press, 2006. Oxford Reference Online. http://www.oxfordreference.com/views/ENTRY.html?subview=Main&entry=t49.e4316 McGuire S. M., Lawton T. C. (2001). Supranational governance and corporate strategy: the emerging role of the World Trade Organisation. International Business Review. Vol. 10, pp 217-233. Read More