Legal Effect of World Trade Organization - Essay Example

 Abstract This essay deals with the legal effects of WTO Agreement in EU Member States’ courts. In this regard, considerable case law was analysed. Various articles of the EC law were scrutinised. In addition, the various tests applied by the ECJ and the CFI, in this context, have been discussed, at length. In general, international agreements are binding on the EC and its Member States. However, the agreements of the WTO are not deemed by the ECJ, to have a binding effect on the EC or the Member States of the EU. As such, individual rights had not been successful in claims relating to the WTO agreements, in the European courts. Moreover, the ECJ had refused to accord direct effect to the provisions of GATT 1947. Finally, a conclusion was arrived at, in respect of all the above issues. Legal Effect of WTO The European Court of Justice has emerged as an active participant in the international relations of the European Union. It has had considerable influence in determining the existence, perspective and inherent features of the European Commission; as well as the competences of the EU1. As a result, the international agreements entered into by the EC and the EU, are subject to the jurisdiction of the ECJ. The latter exercises its full jurisdiction over these agreements. Moreover, the ECJ treats international agreements and mixed agreements, entered into by the EU as the acts of the EC. The ECJ has made it clear that international agreements are binding agreements on the EC. It has also confirmed that these agreements comprise an integral part of EC law. Therefore, the agreements entered into by the EC will have direct effect. All the same, the ECJ had confirmed that the provisions of WTO agreements could not be cited in the European courts2. The Commission is bound by the international agreements entered into by it. In case of any infringement of the provisions of these agreements, an aggrieved party is at liberty to invoke Article 280 EC. Such violations render the Commission liable for the damages caused by the violations. Despite this legal provision in respect of agreements, there has been no award of damages for violations relating to WTO agreements3. A significant number of cases had been lodged before the ECJ, on the basis of alleged breach of WTO provisions. In all these cases, the ECJ has consistently maintained that the provisions of WTO agreements do not constitute an integral part of the EC legal order. Consequently, individuals cannot invoke the provisions of WTO agreements before European courts. Thus, violations of the provisions of the WTO would not generate to any non – contractual liability on the EC4. The provisions of international agreements and international law have been assumed to constitute an integral part of EC law. This assumption would help in reviewing the validity of Community initiatives. This was principle has been illustrated in the International Fruit Company case. The ECJ had ruled that international agreements have direct effect on par with EC law. This case had great significance, in the context of determining the validity of the EC’s international relations5. Hence, the validity of Community initiatives have to be assessed, after taking into account international agreements entered into by the EC, as well as the provisions of international law. By according to international agreements and law a similar status as that of the EC acts, the court was enabled to award damages for infringements of international agreements. Furthermore, the ECJ has the authority to pronounce a judgement, in the event of failure by a Member State to satisfy the requirements under international agreements6. Prior to the advent of the WTO Agreements, the ECJ consistently refused to concede a direct effect to the provisions of the GATT 1947, in the legal order of the European Community. It had contended that the GATT provisions, relating to disputes, had considerable flexibility. Such outright rejection by the ECJ had attracted considerable criticism7. The following case law reveals the attitude of the ECJ towards the WTO provisions. In Portugal v Council, the ECJ refused to accede to the provisions of the WTO to review the legality of EC’s acts. By doing so it maintained its earlier stance. The ECJ outlined a two step test with this case. The first of these comprised of the ECJ’s refusal to accept that the WTO Dispute Settlement Understanding, by itself, requires the EC to accord direct enforceability to rulings implemented by it. As the second step, the ECJ held that it was not possible to accord such direct enforceability autonomously8. Subsequently, the ECJ established some exceptions to its earlier decisions. Moreover, it indicated that it was possible to consider the provisions of the WTO as a benchmark, for reviewing the acts of the Community, which had been undertaken, in order to implement WTO agreements. The departure of the ECJ from its earlier stance attracted some criticism. It had been assumed that the WTO agreements lack unconditional mandatory force. Hence, there have been arguments that this judgment was wrong9. The review of these measures could bring about the enforceability of WTO law in the European Community. Such review would also serve to strengthen the legal effects of the WTO Agreements. In addition, the ECJ established a two – stage procedure to measure internal legal effects of the international obligations of the EC. Under this procedure, the ECJ evaluates the objective and composition of the international agreement. Thereupon, if the agreement fulfils the stipulated standards, the ECJ focuses on the wording of that agreement10. During this second stage, the question, as to whether a specific stipulation in the agreement has adequate clarity and precision, gains critical significance. The ECJ also determines, whether a stipulation is unconditional and endowed with adequate precision to possess direct effect11. In International Fruit Company case, the ECJ had combined these two principles in its judgment. In addition, it had carefully incorporated these two aspects in the wording of its judgment. From this judgment, it became clear that the GATT 1947 had not been subjected to the second stage of scrutiny. Furthermore, the ECJ refused to implement the GATT Agreements12. In the subsequent stage of the banana import dispute between the EU, the US and Ecuador; the ECJ held that importers of bananas, did not have the locus standi to plead before the national courts in Member States that the laws of the EU were incompatible with the WTO trading rules. The EU had ratified the WTO Agreements and the GATT 1994. According to Article 11(2) of the WTO Agreement, its legal instruments and agreements are binding on all the Members13. The ECJ first examines the WTO Agreements. It does this in order to ascertain whether those agreements provide a right of action, to challenge EU Law, to the citizens of Europe. It has clarified that the past history of this issue, discloses that the WTO Agreements were not documents that had been taken into consideration, while reviewing the legislation of the EU. The ECJ examines the compatibility of EU measures with WTO rules only when a specific EU measure attempts to enforce a WTO requirement or specifically refers to such a requirement14. EU Regulations do not refer to WTO Agreements. Therefore, in the event of conflict in the compatibility issue between EU measures and WTO trading rules, the concerned parties have to resort to negotiations to resolve their disputes15. Consequently, no legal person can take recourse, during legal proceedings in a Member State court, to the notion that EU law is incompatible with WTO trading rules16. The ECJ has been reluctant to grant judicial enforceability to the WTO Agreements. However, it has been seen to be quite willing to permit judicial enforceability to other international agreements, which did not envisage particular integration relations with the EU17. In the Biotechnology case, the ECJ desisted from stating, whether the Rio Convention on Biological diversity, had provided individuals with directly effective rights. Moreover, the Convention on Biodiversity had not been exclusively founded on any reciprocal and mutually beneficial arrangements. This enabled national courts in Member States to review the Community’s obligations and the compliance towards them18. This is quite dissimilar to WTO Agreements. With regard to regional environmental agreements, the ECJ held that the Protocol for the protection of the Mediterranean Sea from land based pollution was directly effective. Subsequently, another amended protocol had been executed between the EC and 21 countries in this area, and this protocol was also held to be directly effective19. Criticism is nothing new to the ECJ. Queries regarding the direct effect of WTO law arise not only in EU law, but also in other WTO legislations. However, the ECJ follows an approach that is principally realistic, in dealing with international relations. Consequently, the political decisions of the EU depend on the direct effect of WTO agreements20. The WTO obligations are bilateral in nature. Article 300(7) EC states that the institutions of the Community are to be bound by their international agreements. This also applies to the institutions of the different Member States of the EU. Thus, under this Article, all international agreements are binding on the EU21. The ECJ has been compelled to recognise the legal effects of the WTO Agreements in the EU. This is consequent to the 30 September 2003 ruling of the Dispute Settlement Board or the DSB. The injured parties were permitted by the aforementioned decision, to claim damages under the provisions of Article 288(2) EC22. These developments, have forced the ECJ to search for a new approach that conforms to the direct effect of WTO law. It is expected that the WTO Agreement would be construed as international agreements that would be binding on all the Member States of the EU, under common rules of trade23. The EU has adopted various trade defence instruments. These trade defence instruments and the secondary legislation derived from them are in accordance with the international obligations of the EU. They are especially in conformity with the obligations pursuant to the WTO Agreements. The EU law ensures the best interests of the Community and in some cases; it operates even beyond the WTO obligations. The Commission provides its extensive support to the exporters of the EU through these Trade Defence Instruments24. In addition to implementing these Trade Defence Instruments, the Commission supports Member States that are involved in disputes with nations that are not Member States of the EU. A country on joining the EU is automatically included in the single market. The EU’s Common Commercial Policy applies to it immediately. In other words, such a country would have to makes the EU law superior to its domestic legislation25. In Nakajima, the ECJ held that GATT obligation were capable of rendering an act that contravened it as invalid. This was consequent to the adoption of the anti – dumping regulation, which conformed to the extant transnational requirements. Specifically, this was the outcome of obligations resulting from the Anti – Dumping Code and the General Agreement’s Article VI26. In Italy v. Council, the court held that the Community had adopted a Council Regulation, in order to implement treaties with non – member countries, subsequent to the expansion of the EU, and in compliance with Article XXIV of GATT It further held that the intention of the Community was to put into practice a specific commitment that had been agreed upon within the provisions of GATT27. Nakajima gives the impression that it concerns an express allusion to international obligations. Italy v. Council, on the other hand, relates to execution that is based on the acceptance of a measure. As such, it becomes manifest that implementation can be on the basis of a reference to a parent measure. The maintenance of these diverse exceptions to implementation by the ECJ, leads one to surmise that there might be instances, entailing intent to implement, even in the absence of an allusion to an explicit stipulation. Several issues crop up in the area of damages liability. One of these relates to the ECJ’s ruling in Bergaderm, which apparently brought about a fuller amalgamation of the liability test relating to Member States and the institutions of the European Community. The ECJ opined that for liability to be demonstrated, the legal rules should disclose an intention to bestow rights upon individuals. On the other hand, the established case law renders the Community institutions liable, if they violated higher – ranking laws, in order to protect individuals28. It had been the erstwhile practice for the Community courts to hold that violations of GATT law were not instances of unlawful conduct. Such decisions were founded on the precept that the legitimacy of Community acts was not to be determined on the basis of the provisions of GATT.29 Subsequent judgements necessitated a much more intricate study. The absence of direct effect assumes lesser significance, if liability for damages is to be in ascertained by whether the objective of WTO rules is to grant rights to individuals. Seemingly, the CFI erred in contending that enforceability in a court of law was essential for categorising a measure as bestowing rights upon individuals30. With the decision in Francovich, individuals were permitted to claim damages against Member States; despite the fact that the Community provisions being relied upon did not have direct effect31. However a conferring rights test is more difficult than an unlawful conduct test, to utilize on the use of implementation exceptions; because of concentration on the instrument’s category, instead of the institutions conduct32. For instance, it is quite simple to establish on the basis of a conduct based test that an institution, which is desirous of implementing WTO rules, becomes liable on indulging in unlawful acts, while attaining that objective. On the other hand, a test that is founded on the nature of the instrument, does not lend itself to such easy application33. The liability test in Bergaderm is merely another way of depicting the conventional liability rules. The purpose of these rules was to illustrate the relation between the Community institutions and the non – contractual liability of the Member States. There had never been any intent to supplant the elaborate rules that were relevant to the Community institutions. As such, the ECJ judgement in Bergaderm does not reveal any intention to change the tests of unlawful conduct or violations of laws to safeguard the individual. There is no intention on behalf of the ECJ to abandon previous case law. In addition, legitimate expectations and proportionality are apparently rules that protect individuals, rather than rules that bestow rights. Moreover, the CFI holds that these rules are relevant in the legal order of the EC34. The commencement of non – contractual liability relating to the implementation exceptions is from the instance of compulsion of the Community to implement the WTO requirements. Consequently, in the bananas case, the exceptions preclude plaintiff damage claims that transpired in 1993, at the time of instigation of the Community system, the date when system decried by the WTO or the date of adoption of the Appellate Body report by the Dispute Settlement Body. The relevant date will be the 1st of January, 1999, when the Community agreed to give effect to the decision35. It had been argued that the different rulings, in the context of the banana regime, regarding Article 307 EC’s applicability were correct. This Article does not bestow direct effect upon the extant Member State treaties and this has been sufficiently established. In addition, the text of the WTO agreement makes it unequivocally different from GATT 1947. Consequently, Article 307 has no relevance, in the context of the WTO and the present Member States. This contention is based on the fact that none of these Member States had been subject to WTO obligations, before joining the EU36. All the same, it is difficult to accept the observation made by the Court of First Instance, which states that the Community had the exclusive competence to accept GATT 1994. The reason for this is that notwithstanding the internal division of power, agreement with the WTO was entered into by the Community and the Member States, in a fashion that ignored competence for benefiting a third party37. In accordance, with international law a third party could be expected to believe that a Member State was obligated to it, and that it could demand enforcement of that obligation. However, an institution does not bring upon itself non – contractual liability, if it violates Article 307 EC38. An application of the Bergaderm test as envisioned by the Court of First Instance, illustrates that the conferment of rights on individuals, in not the intention of pre – existing agreements with a third country. This transpires; on account of the fact that such agreements do not create rights that are directly effective. Under these circumstances, it seems to be better to continue with the application of previous case law, which requires unlawful conduct and breach of superior rule of law for safeguarding individuals39. In addition, it is quite unclear, as to whether these tests can be satisfied by a Community measure that is in breach of Article 307 EC. This argument is fallacious, because Article 307 has no effect on a Community act’s legality that is at variance with a Member State’s previous agreement. On the other hand, Article 307 EC permits the concerned Member State to adhere to that prior agreement40. As such, Article 307 makes a conflicting Community act, inapplicable to the degree of the dispute. The dissimilarity amidst legality and inapplicability has considerable significance in respect of inapplicability, because a Community act continues to be legitimate in Member States that had not accepted obligations that had been in existence previously. In addition, a Member State can take recourse to inapplicability, not only in respect of secondary legislation of the EC but also in the case of obligations arising from the various Treaties of the EC. Furthermore, any Community act that violates Article 307 EC has no applicability in the concerned Member State; therefore, the adoption of such an act does not render the Community liable41. The Community implementation of WTO law in the EU is sophisticated. This can be surmised on conducting an analysis of the Community’s case law and the institutional practices of the EU. This system is the outcome of interaction and coordination between the judiciary and the legislative. The EU’s system of application of the WTO Law is not very receptive; however, there are just a few inconsistencies in it. In order to improve its applicability, the WTO has to effect reforms to its provisions and law – making system. Such reforms are essential for the WTO law to have greater effect in agreements with the EU42. The scope of WTO law is vast, because it covers trade in goods and services, and intellectual property legislation. In addition, it has appreciable links to EC Law. Therefore, the presence of a direct effect in the WTO Law could prove to be of great difficulty for the EU. Such direct effect, would have invited litigation, in respect of actions that would have to set aside either the domestic laws or the legislation of the EC. From the very beginning, the Council as well as the Commission had made it very clear that they would not accord recognition of direct effect to the provisions of WTO Law, and this was on the basis of their political interests43. WTO law does not require Members to give direct effect in their domestic legal system, nor clarifies about this outcome. Hence, domestic law has to formulate tangible conditions to the relationship between domestic law and WTO law. The effect of WTO law on Community legislation is complex and disputed. Bibliography Antonis Antoniadis, WTO law and the EU: a nexus of reactive, coactive and proactive approaches, June 2004, Retrieved 17 January 2009 from http://www.jhubc.it/ecpr-bologna/docs/423.pdf Article 11(2) of the WTO Agreement Article 280 EC Article 300(7) EC Article 307 EC Candidate Countries: Trade and Enlargement – A Sectoral Overview, retrieved 17 January 2009 from http://ec.europa.eu/trade/issues/bilateral/regions/candidates/sect_ovw.htm Case C-149/96 Portugal v Council (1999) ECR I-8395 Case 21 – 24/72 International Fruit Company v Produktschap voor Groenten en Fruit (1972) ECR 1219 Case C-69/89 Nakajima [1991] ECR I-2069 Case C-352/96 Italy v. Council [1998] ECR 1-6937 Case C-352/98 P, Bergaderm and others v. Commission [2000] ECR I-5291 Case C-466/93 Atlanta [1995] ECR I-3799 Geert A. ZONNEKEYN, The Bed Linen Case and its Aftermath, (2002) 36(5) Journal of World Trade Joined Cases C-6/90 and C-9/90 Francovich and Bonifaci v. Italian Republic [ 1991] ECR I- 5357 Judy, Yo-ming Wu, The Effect of the WTO Agreement on the European Union, retrieved on 17 January 2009 from http://www2.tku.edu.tw/~tiexm/conference_paper/session3/Judy.pdf Leon Van Parys NV v Belgisch Interventie-en Restitutiebureau, Case C-377/02; ECJ Press Release No 16/05 (1 March 2005). International Law Update, Mar2005, Vol. 11 Paul Craig, Grainne De Burca. EU Law: Text, Cases and Materials, Oxford University Press, 4th Edition, revised, 2008 Piet Eeckhout, External Relations of the European Union: Legal and Constitutional Foundations, Oxford University Press, 2004, P.294. Stefan Griller, Judicial Enforceability of WTO Law in the European Union, Journal of International Economic Law, Oxford University Press, 2000 Steve Peers, "WTO dispute settlement and Community law" (2001) 26 European Law Review Read More