International Trade Law Research - Case Study Example

Student's Name: Course Name and Number: Instructor's Name: Date Submitted: TABLE OF CONTENTS TABLE OF CONTENTS 2 Introduction 2 The legal issues and obligations that guide member states in determining whether to use or abandon Article XX of GATT 5 Critical examination of the nature of Article XX with particular reference to US — Shrimp dispute 6 The role of the Appellate Body in enhancing members’ rights 8 Critical analysis of the role of the Appellate Body in dealing with ‘public morals’ in the US-Gambling DS285 under the WTO dispute settlement system 10 The extent to which the role played by the Appellate body in US gambling dispute may (or may not) persuade the trading nations to utilize the WTO dispute settlement system 15 Conclusion 16 References 18 Introduction The General Agreement on Tariffs and Trade (GATT) refers to an agreement between the member countries that seeks to regulate the cross-border trade. According to its preamble, GATT was established under the assumption of free trade achieved through considerable tariffs and non-tariffs trade barriers elimination on a mutual basis. However, it was developed after the negotiating governments failed to come up with International Trade Organization (ITO). GATT was established in 1944 in Breton Woods where United Kingdom and United States delegates proposed financial and economic plan for the reconstruction following the aftermath of World War II. The delegates envisioned formation of GATT in an effort to promote cross-border negotiations on reduced tariffs. Liberalized trade allows unrestricted flow of goods and services across borders. Further, GATT provides that resources should be traded across countries in response to competitive pressures of international trade.1 Article XX of GATT provides the condition under which member states could be allowed to derogate from GATT provisions. However, consideration of public health and the point of liberalizing trade at times lead to conflict. Of recent, quite a number of WTO members have been seen restricting imports such as asbestos, cigarettes and hormone treated meat on grounds of public health concerns. GATT restricts the member states from placing quantitative hindrances on trade and encourages member’s states to grant unrestricted access to their markets. Countries that engage in harmful trade always complain that the imposed trade restrictions violate GATT provisions. Nonetheless, such restrictions are allowed under Articles XX of GATTSS only if they are not meant to impede international trade. Discussed below are the grounds under which member states are allowed by Article XX to derogate from GATT provisions. The fundamental rationales for derogation of GATT obligations under Article XX As outlined under Article XX of GATT member states are allowed to deviate from provisions provided under GATTs. As such, WTO member states can successfully defend imposition of a cross-border measure meant to guard against importation of harmful products. Moreover, there are some exceptional circumstances under which a member state is allowed to invoke the provisions of GATT.2 These circumstances, however, should meet the criteria provided by Article XX - exception criteria. The preamble of Article XX requires every member to demonstrate a justification of exception and show that it does not constitute unjustified or arbitrary discrimination. Additionally, such measures should not be one that acts to restrict cross border trade. The ground under which GATT allows an exception of Article XX includes measures such as those enacted to protect human, plants and animal life. Article XX (b) allows restriction of trade in products that poses a threat to human, plants and also animals’ life. This provision grants the member states right to health over trade liberalization.3 An excellent example is the US Gasoline case where the WTO panel ruled in favor of Unite States (US) clean air act that seemed to discriminate against gasoline importation. The panel agreed that the US policy was meant to check against air pollution that came with imported gasoline. In addition, Article XX outlines government measures, which are also exempted from GATT requirements on security grounds. These includes though not restricted to protection against arms or fissionable materials posed as a security threat, disclosure of information which the member states believes to be of security importance and lastly action taken by state under the United Nations Charter requiring maintenance of cross border security and peace. For instance, during Falkland war of 1982, both Australia and Canada imposed a two month restriction on imports from Argentina. Argentina cried foul of the violation of Article I, II and XI, but the two nations were set free by Article XX, which provided that the contracting member states must not give notifications and, therefore, retained all their rights under GATT.4 Other grounds under which a member state may invoke GATT requirements includes when protecting public morals, trading in gold and silver, conservation of exhaustible natural resources and when the export of domestic materials is being restricted for the purpose of ensuring sufficient availability of such materials domestically and the price is reduced below global prices as a regional stabilization plan. The legal issues and obligations that guide member states in determining whether to use or abandon Article XX of GATT This section reveals the legal issues and obligations considered by member states in reaching a decision whether to apply or abandon GATT Article XX. Article XX of GATTs concerns exceptions to the general obligations under GATT. Member states alleged to have violated the general obligations can seek vindication of their actions under the Article XX. Notably, the Article insulates member state measures from probe for reasons provided under Article XX including protection of human, animal and plants, promotion of shared cultural values among others all intended to maintain domestic sovereignty.5 However, Article XX prologue guarantees protection against possible abuse of its provisions by member states. The preamble requires the member countries not only to argue that their measures fit within the scope of general exceptions, but also prove that such measures do not promote unjustified or arbitrary discrimination or a disguised restriction. Critical examination of the nature of Article XX with particular reference to US — Shrimp dispute Currently, the challenge confronting the WTO is the decision on whether trade restriction for environmental protection is permissible under GATT Article XX prologue. Even though, a number of multilateral environmental protection agreements allows trade restriction, unilateral trade measures practiced by some member states fails to protect the environment as envisaged under Article XX. As such, international consensus is necessary to achieve environmental protection. Article XX (6) of GATT permits exceptions from GATT provisions for measures that have been proven to protect human and animal health.6 Further, Article XX (b) provides exceptions in relation to the preservation of exhaustible resources. However, these exceptions are only suitable for measures that seek protection within the jurisdiction of the enacting country. In Shrimp’s row, the Appellate body applied dynamic construction of GATT. It was established that the usual meaning of the GATT provisions led to basic interpretation.7 The usual explanation was found by interpreters to lead to narrower understating of individual phrases that have changed overtime. However, dynamic interpretation of GATT provisions has led to altered meaning of Article XX of GATT. An excellent illustration is the Shrimp case where the Appellate body seemed to disagree with the WTO panel methodology of the exception clause consideration. Disappointingly, the WTO panel observed that the measure enacted by the US went against the purpose and object of Article XX of GATT provision. The Shrimps case led to deep concern on exception clause of Article XX that allows the member states the right to enact laws that sought to prohibit GATT provisions for legitimate public welfare. The WTO panel observed that having a multilateral system of trade formed a pervasive and fundamental premise of establishment of GATT provision though it did not constitute an obligation or absolute right. Shrimps dispute elaborates on the logic and the underlying structure underlying Article XX. It further shows that, by applying the exception clause, the challenged policy must truly be enacted for protection of exhaustible natural resources. As such, all the measures that contradict provisions under GATT must not only fit the requirements of Article XX, but also the enacting member state should prove beyond doubt that such measures would not unjustifiably restrict cross border trade. As such, the WTO panel agreed that the challenged measure should comply with the preamble of Article XX and should not unjustifiably or arbitrary discriminate cross-border trade by promoting protectionism. Moreover, based on this dispute, the WTO panel also established a cut-off line that distinguishes member’s substantive right and member’s right to invoke Article XX. The Shrimps dispute determined an appropriate precedence in that; the WTO dispute settlement body stated that for a policy objective to pass the test of protection of exhaustible natural resources, it must be applied internationally. Therefore, the Shrimp’s dispute indicates that to pass the exception test, the established measure should comply with the provisions of GAAT. The establishment of coercive and unilateral measures requires that their application be one that is transparent, nondiscriminatory and effective in serving the intended purpose. Nonetheless, any member claiming exception under Article XX must prove beyond doubt that the planned action is in accordance with the provisions of Article XX preamble. The role of the Appellate Body in enhancing members’ rights In Shrimp Versus Turtle case, 12, the appellate body ruled that no per se rule existed of impermissibility in Article XX text. The body rather said that the article provides two requirements on trade measures that prohibit market accessibility based on other countries policies. The Appellate body (AB) ruled that such measures must be in line with Article XX preamble. Therefore, the application of such measures should not give rise to arbitrary or unjustified discrimination amongst nations where similar conditions prevail nor should they act to disguise protectionism or restrict international trade. In Shrimp’s dispute, the AB felt that the US measure that banned the importation of Shrimps from any other nation that lacked turtle conservation program similar to that of its own agreed with Article XX (g) exception for conservation of depreciable natural resources. Further, the AB found that the US applied the measure in such a way that seemed to violate the preamble as it treated Asian states in a manner that differed from its other trading partners from western hemisphere hence engaging in arbitrary and unjustified discrimination. The AB ruling went contrary to US application that was based on environmental conservation grounds thus negating the impact the case could have set. The AB panel held that, the US set turtle friendly measures on some states that deviated from Article XX. Under Shrimp’s case, the AB found that Article XX had a per se exclusion of unilateral trade measures to protect the environment. More so, AB completed an analysis that enable application of the law as correctly understood based on the facts of the dispute. The US had derogated from Article XX (g) that related to conservation of exhaustible natural recourses and instead applied Article XX (b) that sought to protect animal life.8 In this light, the AB interpreted exhaustible natural resources by considering international legal policies and instruments that promoted sustainable development. However, these policies and instruments suggested that endangered species should also be considered exhaustible regardless of the reproductive capacities.9 After establishing that the sea turtles fell within the classification of endangered species, the AB further examined whether the US measures met the goal of conservation of exhaustible natural resources. According to AB, the Chapeau checks the abuse of rights and regulates the overall balance of both rights and obligations provided by Article XX. Nevertheless, the AB established that the US measures constituted unjustified discrimination. The US declined to negotiate with the defendants as it did with the other trading partners from the western hemisphere. Such a failure to engage in equitable negotiations amounted to trade discrimination. Thus, the AB established that the US measures were unjustifiably discriminatory on grounds that they were rigid and extended US laws to other countries, full disregard of conditions prevailing in other states. The US was found to require all other countries requiring them to have programs similar to ones prevailing in its own country disregarding conditions prevailing in their own countries.10 Based on the agreement envisaged in the Inter- American Convention for Protection and Conservation of sea Turtles, this was certainly discriminatory as the agreement required some specific circumstances to be taken into account in the determination of satisfaction of US conservation objective. Further, the measure applied by the US seemed to bar importation of Shrimps merely because they came from waters of countries that were not certified by the US. As such, the AB felt that the criterion applied by the US was rigid and culminated to unjustified discrimination because it seemed to influence other WTO member states to adopt regulatory schemes similar to those applied by the US. Critical analysis of the role of the Appellate Body in dealing with ‘public morals’ in the US-Gambling DS285 under the WTO dispute settlement system With trade liberalization, WTO member states still posses the right to impose trade restrictive measures to guard the public morals. The Appellate Body (AB) definition of public morals complies with that provided by General Agreement on Trade in Services (GATS). In this regard, the AB found that certain measures enacted by US prohibited international provision of internet betting services were contradictory with GATS provisions.11 When disputes arise between member states, the WTO resolution body organizes a board to look into the clash after which the recommendations are tabled for adoption. However, the AB, which comprises of seven trade experts appointed by the dispute settlement body reviews, appealed legal cases. Nonetheless, the debate still continues over gambling as provided by Article XIV (a) of GATs. This Article authorized states to instill restrictive measures to protect public morals. This principal objective of this section is to analyze the roles played by AB in dealing with public morals with reference to the US- Gambling case.12 The US- Gambling case involved a grievance brought before the WTO panel by Antigua and Barbuda whereby the US enacted federal measures that restricted services supplied by suppliers outside US from supplying gambling and betting services to users in the US. Antigua complained of such restriction claiming that they caused total restriction of cross border trade in betting and gambling services thus amounting to violation of obligations under GATS. Further, Antigua singled out provisions in GATS schedule that provided international commitment and market access on betting and gambling services and that the US had grossly contravened the provisions set out. The AB panel found that the US measures went against Articles XVI by barring some members from accessing its market. The panel agreement with Antigua assertion showed that the US was party to GATS provisions requiring specific commitments on betting and gambling. Regrettably, the US had portrayed less favored treatment to service suppliers from Antigua compared to local suppliers. Lastly, the claimant alleged that US had failed to demonstrate that its measures were justifiable with regards to Article XIV (a) of GATS. Upon the appeal by the US on the panel’s judgment, the AB upheld the panel’s determination on specific commitment and total violation as provided in Article XVI of GATS. The AB did so by reference to the GATS schedule and Articles XVI. However, considering GATS Article XIV, the AB concluded that the measure by US was justified on the basis of public moral protection provided under GATS Article XIV sub-paragraph (a) that touches on issues of fraud, money laundering, under age gambling that includes online gambling and compulsive. Additionally, the AB identified that the US measures complied with non discrimination requirement of Article XIV preamble.13 The gambling case has been specially treated in that it was the first case to deal with Ecommerce and internet while at the same time touching on GATS. However, gambling is a strictly regulated activity in many states, in most cases restricted in areas such as authorized casinos. The greatest concerns with regards to labor gambling is that, it can easily erode its geographic element by allowing the service consumers easy access to gambling services readily available from international service providers. On the other hand, GATS present a challenge on application of domestic measures that restrict internet gambling. For this matter, the US introduced measures that restricted Antigua suppliers from supplying gambling services in the US market. The US argued that, even though it had engaged itself in international commitment, the measures introduced were neutral and did not go against Article XVI. Moreover, it argued that the main reason for setting up these measures were to promote ethics hence applicable within the premise of GATS Article XIV. However, on examination of this case, the WTO panel held that the US had committed expanding its market to betting services and that according to them, the measures amounted to violation of Article XIV. Further, the panel argued that the US measures failed to pass the necessity test. Later the AB upheld the WTO panel report and argued further that the US under the preamble of Article XIV failed since activities such as gambling and horseracing were remotely allowed within the US. Indeed, with gambling industry within the US market earning gross revenue of approximately $ 80 billion dollars per year, the issue at hand relating to restriction of cross border trade in gambling services appears to restrict international trade despite the US prohibition being premised on the Wire Act of 1961 that pre dated the internet era. In addition, several states had imposed a ban on gambling. Among the laws that sought to prohibit gambling are illegal gambling business Act, Travel Act and the Wire Act of 1961. To single out, the wire Act barred transmission of bets, any assistance on bets and wagering or any other communication that could lead to individual receiving betting money. After critical analysis of GATS provisions, the AB ruled that the Internet horseracing Act allowed remote supply of betting and gambling services for horse racers. Moreover, the AB learnt that the US applied the prohibitive measure in an inconsistent manner as the law allowed internet gambling for horse racers while at the same time barring the foreign websites from participation. This amounted to differential enforcement of the measures leading to trade discrimination. As noted, this was the first case that concerned trade relating to cyberspace touching on GATS issue. The case helps us to understand the roles played by the AB in dispute settlement process. As such, it gives us a clear demonstration of a self assured and a more mature appellate body that possesses a powerful voice in dispute settlement. More importantly, the cases not only enable us to focus on AB as a body that determines appeals, but also one that handles a complicated and delicate dispute settlement processes.14 In its dispute resolution methods, the AB has been famed with completing the whole case analytical process with intent of holding the concerned parties accountable on case outcomes. Gambling for this matter has illustrated AB as a body that understands its role of critically examining the legal system to determine its applicability in line with the GATT and GATS provisions. Further, the body show of competence is shown where it seeks to understand the legal interpretation of written laws based on the context in deciding the most fraught legal issues. In this particular case, the AB analysis differentiates measures and their corresponding effects. It continues to say that a measure brings about the alleged impairment. According to the AB, total prohibition of the gambling was the measure. However, without clearly knowing the cause of prohibition, the defendant may not be able to prepare adequately in defense. More so, the complainant may also not get a solid base to challenge total prohibition measure per se.15 The AB, therefore, suggests that an effect violating a given obligation constitutes a measure as long as there is a clear demonstration of a source of the effect in other measures. The extent to which the role played by the Appellate body in US gambling dispute may (or may not) persuade the trading nations to utilize the WTO dispute settlement system After the US had made an appeal to the Appellate body on WTO panel ruling, the AB upheld the ruling of the panel. Further, after both the US and Antigua engaged in oral arguments before the body, the AB added that the US had violated free trade provided under GATS by enacting the three federal laws. The body also affirmed the three measures despite being earmarked to promote public morals failed to meet the criteria of moral exception provided under Article XIV of GATS.16 It was held that the federal laws played a crucial role in maintaining public order. On the other hand, they deviated from the preamble condition that provided regulation not to discriminate between nations. This was after the AB established that the US companies were allowed by the same federal laws to offer online gambling services. However, the role played by AB in this particular case goes an extra mile to encourage other nations to seek dispute resolution under WTO dispute settlement system since even after the US failed to amend its laws in compliance with its commitments; a compliance panel was constituted to oversee enactment of the body’s rulings and recommendations.17 Surprisingly, the US responded to the compliance panel by invoking GATS Article XXI to help in modification of earlier commitments with more emphasis placed on online gambling. Being the first case, the US withdrew from GATS provisions though one of the withdrawal conditions was to compensate the affected member- Antigua. Further, successful appeal by Antigua at the AB that sought permission to react against the US suspension of its obligations as was provided under the Intellectual Property Rights served to portray the effectiveness of the WTO dispute settlement system. The AB authorized $ 21 million annually to Antigua as the best estimate of revenues from trade in gambling services with the US between year 2001 and 2006. Conclusion Based on a legal standpoint, the environment has never been favorable for businesses exploiting foreign markets. This is because the climate for cross border trade has never been predictable. Countries prohibit foreign companies from trading in their markets by the introduction of tariff and nontariff barriers. To the worst, some countries enact laws that seek to totally prohibit the importation of some goods and services from certain sources. All these prohibitive measures are meant to restrict cross border trade, but at times it proves an immense challenge to restrict online shopping. As such, the US still strives to prevent its citizens from engaging in online gambling. However, lack of proper regulations leaves the players vulnerable to substantial loses as witnessed in the recent scandal involving Ultimabet and Absolute Poker. Nonetheless, use of online services facilities information dissemination which tends to drive dishonest casinos out of the market. The online gaming business is highly competitive as the involved websites compete on the basis of a variety of games on offer, reputation, and availability of customer hotlines amongst other features. By examining the US gambling case, it is not clear whether the US intention was to promote public good or offer protection to its local gaming companies due to competition from foreign companies. Nevertheless, the dispute between the two trading partners emanated from the US legislative processes that were applied selectively leading to imbalance between the internal trade interests and compliance with obligations set forth under GATS. 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