Research on Conflict of Jurisdiction in WTO and FTA
Dispute Settlement:
The Typical Cases and Developments
International Trade and Investment Law MA Thesis Shibei Liu (12712868), liushibeib2@gmail.com
Supervisor: Dr. J.H. (James) Mathis
ABBREVIATIONS ... 1
ABSTRACT ... 2
1 INTRODUCTION... 3
2 JURISDICTION IN WTO&FTA DISPUTE SETTLEMENT ... 5
2.1 Jurisdiction in WTO DSM ... 5
2.2 Jurisdiction in FTA DSM ... 6
2.2.1 Exclusive Jurisdiction ... 7
2.2.2 “Forum Selection” ... 8
2.2.3 Preference Agreements ... 8
3 THE DILEMMA OF JURISDICTIONAL OVERLAPS AND CONFLICTS 10 3.1 Substantive Overlaps ... 10
3.1.1 The Double Identity of Members ... 10
3.1.2 Duplication of substantive obligations... 11
3.2 The Defect of Current WTO Law ... 12
3.2.1 The Missing on Dispute Jurisdiction of GATT Article 24 ... 12
3.2.2 The Absolute Authority Brought by the DSU Article 23 ... 13
3.3 International Law ... 14
4 CASE STUDY ... 16
4.1 Mexico–Soft Drinks ... 16
4.1.1 Background Information ... 16
4.1.2 Discussion around Conflicts of Jurisdiction ... 18
4.2 Brazil-Tyres ... 20
4.2.1 Background Information ... 20
4.2.2 Discussion on Mutually Exclusive Rulings ... 21
4.3 Peru-Agricultural ... 24
4.3.1 Background Information ... 24
5.1 Can Principles of International Law be Invoked under the WTO
Framework? ... 30
5.2 Good Faith ... 31
5.3 Estoppel ... 32
5.4 Forum non Conveniens ... 34
5.5 Res Judicata ... 35
5.6 Lis Alibi Pendens ... 37
6 CONCLUSION ... 39
ABBREVIATIONS
AB: Appellate Body
ASEAN: Association of Southeast Asian Nations DG: Director-General
DSB: Dispute Settlement Body DSM: Dispute Settlement Mechanism DSU: Dispute Settlement Understanding
EC: European Commission / European Community EEA: European Economic Area
EFTA: European Free Trade Association EU: European Union
FTA: Free Trade Agreement
GATS: General Agreement on Trade in Services GATT: General Agreement on Tariffs and Trade MERCOSUR: Mercosur
NAFTA: North American Free Trade Agreement RTA: Regional Trade Agreement
UN: United Nations
VCLT: Vienna Convention on the Law of Treaties WTO: World Trade Organization
ABSTRACT
Since the global multilateral trade negotiations are in trouble, from the end of the 20th
century, countries and regions have signed free trade agreements in an attempt to obtain greater economic and trade benefits by improving the trade environment in the region. The intertwined international trade order of multilateralization and regionalization began to develop. And the predictability and security of the operation of the international trade order depends on maintaining a harmonious relationship between the WTO and FTAs. However, with the further development of the FTAs both horizontally and vertically, the possibility of jurisdictional conflicts between the dispute settlement mechanisms of the WTO and FTAs is gradually increasing. In this context, this article attempts to analyze the conflicts of jurisdiction in WTO and FTA dispute settlement mechanisms. The first is a theoretical analysis on the jurisdictional conflicts, including its textual representation in the FTAs’ related clauses, and the deep-seated legal facts that lead to these kinds of conflicts. The second is a case study. This article focuses on three WTO cases that have a significant influence in the legal field of conflict of jurisdiction, and concludes with the present attitude to this conflict. Finally, this article attempts to give out some possible measures picking up from specific principles of private international law to coordinate the jurisdictional conflicts, as well as the difficulties still remaining.
Keywords
Free trade agreement, conflicts of jurisdiction, dispute settlement mechanism, multilateralism, regionalism.
1 INTRODUCTION
The former DG of WTO, Renato Ruggiero once pointed out that ‘No review of the achievements of the WTO would be complete without mentioning the Dispute Settlement system, in many ways the central pillar of the multilateral trading system and the WTO's most individual contribution to the stability of the global economy.’1
However at the same time, in the more remarkable process of regional economic integration, the proliferation of FTAs continues to impact the WTO multilateral trading system and its dispute settlement mechanism, for the WTO and FTAs have established their own DSMs to ensure that the substantial rights and obligations specified in the agreements can be respected by the Members through the process of hearing and judgment of disputes between them. As the two are both in parallel, the most outstanding problem has already arisen which is the legal issue of conflicts in jurisdiction between these two systems.
In the field of international law, there is always a lack of a central legislature to lead, so each dispute settlement institution is set up independently, so as DSM in international trade. Therefore, when the parties of the dispute are both Members of WTO and the FTA, there will be overlapping jurisdictions when the dispute occurs. Since there is no universally accepted and applicable international treaty to unify the legal standards and basis for exercising jurisdiction, it can be said that States and international organizations are free to decide which cases to exercise jurisdiction over. This creates conditions for the dispute parties to choose a preferred DSM and conduct parallel or repeated submissions. The appearance of this divergence will lead to a decline in the credibility of international law. How to treat and deal with this problem is not only related to the integrity and unification of the international economic order, but also plays a significant role in achieving the goal of free trade order and global welfare growth.
1
Ruggiero, R., 1997. The Future Path of the Multilateral Trading System. Speech on April, 17, Seoul, paragraph 17.
This article is divided into four parts, and the main contents of each part are as follows:
Part 2, the article described separately the characteristics of jurisdiction of the WTO DSM and the FTA DSM. WTO’s jurisdiction has the features of compulsory and exclusive (which is brought by its quasi-judicial process). While most of the FTAs give forum selection clause to settle the jurisdictional overlap. Part 3 discusses the dilemma of the overlap on jurisdiction. In short, it consists of substantive overlaps, the defect of current WTO law, and the powerlessness of the international law in this field. Part 4 is about the legal practice to coordinate the conflicts on jurisdiction in WTO and FTA DSM. The article systematically analyzes three typical cases (Mexico-Soft Drinks,
Brazil-Tyres, and Peru-Agricultural), and specifies the most influential content in their
reports, as well as their deficiencies. Part 5 draws on the principles of private international law as the conflict reconciliation plan and discusses their feasibility separately.
2 JURISDICTION IN WTO&FTA DISPUTE SETTLEMENT
2.1 Jurisdiction in WTO DSM
As the organizational and legal basis of the world’s multilateral trading system, the WTO, dubbed as the ‘economic United Nations’, surely provides a platform for negotiation and settlement of relevant trade disputes, which is what we call DSM. The annex 2 of the Marrakesh Agreement, the DSU, as the basic legal document of the WTO DSM, stipulating its jurisdiction.2 Specifically, the jurisdiction under the WTO system
refers to ‘the scope of a court or tribunal’s power to hear claims and proceedings, examine and determine the facts, interpret and apply the law, make orders and declare judgment’3 within the scope of application of WTO law.4 In fact, this jurisdiction is
compulsory and exclusive in theory.
First of all, its ‘compulsory nature’5 must be recognized. All WTO Members became
subject to the DSM from their ratification on and ‘no responding Member may escape that jurisdiction’.6 And second, in terms of the text, ‘By mandating recourse to the
multilateral system of the WTO for the settlement of disputes, Article 23 of the DSU not only excludes unilateral actions, it also precludes the use of other for the resolution of a ‘WTO-related dispute.’7 The two provisions of Article 238 mean that those
WTO-related disputes can neither be resorted to any other international tribunal, nor can they arbitrarily implement unilateral retaliation, but can only be settled through the WTO DSM; and if one party wants to implement retaliation measures, it must also act in
2
See Article 1(1) and Article XXIII of the DSU
3
Mitchell, A.D., 2007. The legal basis for using principles in WTO disputes. Journal of International Economic Law, 10(4), p.821.
4
The ‘WTO law’ referred to in this article is the general term for all legal rules within the ETO system, including all rules of the WTO Agreement and tis annexes.
5
Introduction to the WTO dispute settlement system: 1.3 Functions, objectives and key features of the dispute settlement system:
https://www.wto.org/english/tratop_e/dispu_e/disp_settlement_cbt_e/c1s3p3_e.htm#fnt2. WTO web portal
6
Ibid
7
Ibid
8
accordance with the retaliation rules in the WTO DSM.9
The exclusivity of jurisdiction stipulated by DSU is only a guarantee of an access to the dispute parties to be included in the WTO DSM. However, when it is not possible for the parties to settle their dispute through non-judicial procedures (e.g., negotiation, mediation, conciliation), whether or not they can successfully go into the quasi-judicial10 (i.e. the panel and the Appellate Body), and thus make a binding decision on
the dispute, becomes another key issue.
The WTO DSM thoroughly changed the ‘positive consensus’ decision-making model of the GATT into ‘negative’ or ‘reverse’ consensus11 to avoid the possibility of
blocking the establishment of a panel.12 Under this decision-making model, if a
proposal is not rejected through a ‘consensus’ way, then it is passed. In other words, a request for the establishment of a panel shall be followed as long as one representative of the parties expressly agrees at the DSB meeting. In this way, the parties have lost any possibility of obstructing their dispute to the quasi-judicial process. Additionally, the above-mentioned ‘negative consensus’ can not only be applied to the establishment of a panel but is applicable in adopting the reports of the panel and the Appellate Body, which makes it impossible for one party to the dispute obstruct the adoption of the report unilaterally. The situation of negative consensus has never occurred to date. For this reason, one speaks of the ‘quasi-automaticity’ of these decisions in the DSB.13
2.2 Jurisdiction in FTA DSM
At the same time, according to Article XXIV of GATT, all WTO Members are 9
Will be further analyzed below.
10
WTO Bodies involved in the dispute settlement process: 3.1 The Dispute Settlement Body:
https://www.wto.org/english/tratop_e/dispu_e/disp_settlement_cbt_e/c3s1p1_e.htm. WTO web portal
11
Ibid.
12
Historic development of the WTO dispute settlement system: 2.1 The system under GATT 1947 and its evolution over the years:
https://www.wto.org/english/tratop_e/dispu_e/disp_settlement_cbt_e/c2s1p1_e.htm. WTO web portal
13
authorized to form regional trade agreements which include FTAs certainly. In addition, the DSM has shown that Article XXIV ‘may justify a measure which is inconsistent with certain other GATT provisions’ in its practice.14 Therefore, it is reasonable for
parties of the dispute to invoke FTA DSM rather than WTO DSM when it constitutes a violation of both the two agreements. For the dispute settlement clauses in FTAs, most of them have certain similarities in terms of jurisdiction, according to which it can mainly be summarized into three jurisdiction models followed.
2.2.1 Exclusive Jurisdiction
Under the clause of exclusive jurisdiction, it is set that disputes arising from matters stipulated in the FTAs can only be brought to the DSM of this agreement, which efficiently excludes the jurisdiction of other DSMs. A good example lies in Europe.
The European Single Market is a single market that seeks to guarantee the free movement of goods, capital, services, and labor – the ‘four freedoms’ – within the EU.15
Under the EU regulation, ‘Member States undertake not to submit a dispute concerning the interpretation or application of this Treaty to any method of settlement other than those provided for therein.’16 In addition, the “common commercial policy”17 is also
included in the exclusive jurisdiction of EU institutions. In theory, once an internal trade dispute within the jurisdiction of the EU arises, even if the parties submit it to the WTO DSM, it shall have a consideration on the treaties of the EU and deny the WTO’s jurisdiction. This shows the exclusive jurisdiction adopted by the EU in handling internal disputes. However, the exclusive jurisdiction requires a community or customs union with strong economic integration. It needs the parties to surrender greater sovereignty and demonstrate a higher level of obedience. As the EU has always 14
Turkey – Restrictions on Imports of Textile and Clothing Product, Report of the Appellate Body, WT/DS34/AB/R, 2003, para 58
15
The European single market: https://ec.europa.eu/growth/single-market/. European Commission web portal
16
See Article 292 of the Treaty Establishing the European Community.
17
operated as more than a free trade area with its predecessor, the EEC being founded as a customs union, the exclusive jurisdiction can be conducted in the EU but is quiet more difficult to achieve in other FTAs.
2.2.2 “Forum Selection”
The ‘forum selection’ clauses appear more frequently in FTAs. The meaning of this kind of clauses is very much like “fork-in-the-road” clauses in investment treaties, that is, FTAs generally stipulate that the parties to the dispute can choose a DSM with jurisdiction, and once the choice be made, they cannot start another dispute settlement procedure on the same issue.
For example, the EU-South Korea FTA states that ‘where a Party has, with regard to a particular measure, initiated a dispute settlement proceeding, either under this Chapter or under the WTO Agreement, it may not institute a dispute settlement proceeding regarding the same measure in the other forum until the first proceeding has been concluded.’18 And the DSM of ASEAN-China FTA clarifies that ‘Once dispute
settlement proceedings have been initiated under this Agreement or under any other treaty to which the parties to a dispute are parties concerning a particular right or obligation of such parties arising under the Framework Agreement or that other treaty, the forum selected by the complaining party shall be used to the exclusion of any other for such dispute.’19 Similar clauses are also showed in the NAFTA20 and many other
FTAs.
2.2.3 Preference Agreements
This is so rare a term that it is often ignored to discuss by people. What we call 18
See Article 14.19(2) of the EU-South Korea FTA.
19
See Article 2(6) of the Agreement on DSM of the Framework Agreement on Comprehensive Economic Co-operation between the PRC and the ASEAN.
20
‘preference agreements’ is half-like the forum selection model. It gives parties a chance to select one preferred forum to settle their dispute as well at first. But, unlike the forum selection model, this choice is not unchangeable for it can be changed to ‘an alternative forum’ only if all the parties have a consensus to do so. NAFTA would be an example for it provides a preference for some specific provisions. Like we have mentioned above, the NAFTA DSM stipulates a forum selection provision with a statement that ‘… unless a Party makes a request pursuant to paragraph 3 or 4’.21 The ‘paragraph 3 or 4’ actually
give out a preference for NAFTA DSM involving environmental, sanitary and phytosanitary, or standards-related measures and further stated that if the complainant has initiated WTO procedures on these issues, the defendant can insist on the withdrawal of the WTO complaint.22
In summary, it is obvious that the common feature of these jurisdiction models is that the parties to the dispute are allowed to choose only one DSM to seek trade remedies. It can be seen that these clauses aim to deal with the overlaps of jurisdiction with WTO and they do to a certain extent restrain the conflict of jurisdiction. However, the provisions cannot exclude the jurisdiction of the WTO DSM in theory, and they still may lead to obvious temporary jurisdictional conflicts, which I will have further discussion below.
21
Ibid.
22
Hillman, J., 2009. Conflicts between dispute settlement mechanisms in regional trade agreements and the WTO-What should WTO do. Cornell Int'l LJ, 42, p.195-196.
3 THE DILEMMA OF JURISDICTIONAL OVERLAPS AND CONFLICTS
Although the WTO has recognized FTAs’ positive role in promoting trade liberalization and maintaining the international trade system in international trade activities, the overlapping of the subjects of legal relations between the two and the overlapping of their rights and obligations in the substantive norms have brought about the contradictions between the multilateral system and the regional system which need to be resolved in a coordinated manner. Under the situation, however, the WTO law does not make any specific provisions on the conflicts. In the light of the fact that a unified legal system has not yet been formed at the level of international law, and no related jurisdictional conflict coordination mechanism has been established, the existing agreements cannot fundamentally solve the jurisdictional conflicts between WTO and FTAs. So far, no international law or international judiciary has uniformly regulated these conflicts. Due to the absence of the jurisdiction coordination mechanism in the current international trade law, it comes up with the lack of stability and predictability to those disputes involving both WTO and FTA rules.
3.1 Substantive Overlaps
Generally speaking, overlaps and conflicts of jurisdiction are mainly reflected in the ‘personal’ and the ‘subject-matter’. For the personal jurisdiction, the DSMs of the WTO and FTAs have jurisdiction over the countries or regions that are both Members; for the subject-matter jurisdiction, even if the legal relations that the WTO and FTAs aim to regulate are not completely the same, but both are intended to maintain the international trade system so that the coincidence in regulating content is inevitable. The overlaps of substantive obligations occur through.
Article XXIV of GATT,23 the ‘Enabling Clause’,24 and Article V of GATS,25 they are
regarded to be the legal basis for establishing an FTA within the framework of the WTO. With the stagnation of the multilateral round, FTAs are continuously emerging all over the world, and till 2020, all Members of the WTO have notified their participation in one or more RTAs and most of them have participated in the negotiation of the FTAs.26
Under the circumstance that the WTO and the FTAs are coexisting, the legal relationship of the Members no longer stays in a single WTO framework. The identification of the subjects of the legal relations in various trade agreements has led to the overlapping of the legal identity of Members. Those trade disputes between Members with double identities are naturally under the dual jurisdiction of the WTO and the FTAs. The double identity of the Members will definitely cause the conflicts of ‘personal’ on the ground of jurisdiction, which is to say that both WTO and FTA have jurisdiction on the same dispute raised by their double identity Members. Typical case like Argentina-Poultry, Brazil had successively appealed the anti-dumping measures of Argentina to the provisional arbitral tribunal of the MERCOSUR and the WTO DSB.27
The feature of double identity is even more prominent in Mexico-Soft Drinks case which I will analyze in detail later.
3.1.2 Duplication of substantive obligations
In the context of developing international economic integration, countries and regions have gradually recognized some principles that can promote trade liberalization during their economic and trade cooperation. In the process of formulating multilateral trade agreements and other free trade agreements. It is very likely that these principles will 23
See Article XXIV of GATT: Territorial Application, Frontier Traffic, Customs Unions and Free-Trade Areas.
24 Differential and More Favourable Treatment Reciprocity and Fuller Participation of Developing Countries
, Decision of 28 November 1979 (L/4903).
25
See Article V of GATS: Economic Integration.
26
Reginal Trade Agreements: Notifications of RTAs:
https://www.wto.org/english/tratop_e/region_e/region_e.htm WTO web portal
27
Argentina-Definitive Anti-Dumping Duties on Poultry from Brazil, Report of Panel, WT/DS241/R, 2003, para.7.
be transformed into legal obligations through the provisions of treaties. If the same principles generate similar provisions in different trade agreements, it can lead to the duplication of the substantive obligations between them, and thus once the Members violate a certain substantive obligation, it may trigger conflicts of the jurisdiction of DSMs of different trade agreements on this issue. Since that WTO is the largest multilateral trade agreement currently in the world, its rules on substantive obligations have wide applicability and a significant impact on FTAs and therefore it is inevitable to come up with overlaps in the provisions of substantive obligations of WTO and FTAs. Although the two are different in the scope of application, the specific content is highly similar. For example, the ‘National Treatment’ stipulated by GATT Article III is incorporated under Article 301(1) of NAFTA;28 while the rules of trade remedies like
anti-dumping, subsidies, are also transformed into their own. The duplication here puts many trade matters under the scope of different DSMs, and violations based on these duplicated substantive obligations directly lead to the conflicts of ‘subject-matter’ jurisdiction.
3.2 The Defect of Current WTO Law
3.2.1 The Missing on Dispute Jurisdiction of GATT Article 24
It is all known that the connection link between FTAs and WTO is GATT Article 24. This Article is the most important legal basis of all RTAs, which specifies the general rules and substantive requirements for establishing an FTA. However, its regulation seems to be limited to the construction stage of FTAs, and it does not regulate how to coordinate the work with the WTO system in an orderly manner after the establishment of FTAs.29 From the perspective of the title, Article 24 is about 1) Territorial
Application 2) Frontier Traffic 3) Customs Unions and 4) Free-trade Areas.30 From the
28
See Article 301 of NAFTA: National Treatment
29
Hafez, Z., 2003. Weak discipline: GATT article XXIV and the emerging WTO jurisprudence on RTAs. NDL Rev., 79, p.898.
30
perspective of the terms, it has stipulated successively 1) the territories that the provisions shall be applied to;31 2) the substantive elements of frontier traffic, customs
unions and free-trade areas;32 and 3) the formal elements of them.33 Throughout all of
these, no provisions on dispute settlement have been found. During the Uruguay Round, the background of international trade at that time did not allow negotiators to foresee many difficult problems that the development of RTAs would bring, thus leaving a legal gap for the coordination of conflicts of WTO and FTA dispute settlement jurisdiction, while the ‘Enabling Clause’ and Article V of GATS are under the same situation.
To supplement Article XXIV of the GATT, it then came up with Understanding on the
Interpretation of Article XXIV of the GATT 1994 and added provisions related to dispute
settlement.34 Generally, this part is to say that any disputes arising from RTAs, Customs
Unions or interim agreements ‘may’ invoke the provisions of Article XXII and XXIII of GATT as detailed and applied by the DSU.35 Unfortunately, as far as the conflicts of
jurisdiction in WTO and FTAs DSM is concerned, even the DSU has not made any direct regulations to coordinate them.
3.2.2 The Absolute Authority Brought by the DSU Article 23
When the key to the problem comes to the DSU, the issue of consistency between the provisions in FTA DSM and Article 23 of the DSU is worthy of attracting attention. Article 23, paragraph 1 provides that:
‘When Members seek the redress of a violation of obligations or other nullification or impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements, they shall have recourse to, and abide by, the rules and procedures of this Understanding.’
31 Ibid., para. 1-2. 32 Ibid., para. 3-8. 33 Ibid., para. 9-12.. 34
See Article 12-15 (Dispute Settlement) of the Understanding on the Interpretation of Article XXIV of the GATT1994.
35
In the WTO case of United States–Sections 301-310,36 the Panel held the view that, as
the title ‘Strengthening of the Multilateral System’37 indicates, Members of WTO
should use WTO DSM to deal with disputes involving WTO rights and obligations and shall not take any other unilateral measures.38 With this Panel Report, scholars
concluded that the DSU has ‘not only compulsory jurisdiction over matters arising under the covered agreements, [but that] it also [has] exclusive jurisdiction over such matters.’39 It has established the exclusive jurisdiction of the WTO DSM essentially. It
shows that the WTO DSM does not seem to be intended to solve the conflicts of jurisdiction with FTAs, for it has an absolute control over disputes within its own responsibilities, and does not consider the possibility of transferring its authority of jurisdiction.
Although the FTAs basically include the jurisdiction model provisions mentioned above and make concessions to the WTO jurisdiction to deal with the overlaps and conflicts, it is still difficult to come up with a solution automatically for the WTO has not made concessions on its own features of compulsory and exclusion on jurisdiction in the WTO law to response the relevant provisions in FTAs.
3.3 International Law
Both WTO law and FTA regulations are legal documents that establish rights and obligations among the subjects of international law. As for the WTO, first, it is not a ‘supranational’ organization for its Members have not ceded part of the sovereignty to it like the EU; and second, WTO law has not been recognized as having the force as some certain provisions of the UN Charter which are regarded as jus cogens so that any international treaty must not violate them. The WTO law is nothing but a series of
36
United States-Sections 301–310 of the Trade Act 1974, Report of Panel, WT/DS152/R, 2000, para.7.35.
37
See Article XXIII of GATT.
38
Ibid., [36].
39
Steger, D.P., 2004. The Jurisdiction of the World Trade Organization. AM. SOC’Y INT’L L. PROC., 98, p.142, 143.
agreements reached through negotiation among its Members, and this is not essentially different from FTAs. In jurisprudence, since there is no central government of the world and a legislative body that overrides all subjects of international law – unless clearly stipulated by treaties – the number of participating members cannot be used to determine the level of its legal effect. Therefore, in essence, without specific statement, the WTO and FTAs are two sets of parallel legal systems and of no priority order in terms of application and hierarchy.
As far as international law is concerned, there are no such international treaties, customary international law, or other sources of international law that specify how to settle the conflicts of jurisdiction between the WTO and FTAs. With the macroscopic background that international law is suffering an increasing fragmentation, in addition to all those customary international legal rules of general application, many other international law rules are unlikely to be binding on all WTO or FTAs Member states, nor can they uniformly regulate such a large number of issues on jurisdictional conflicts of Members. As Pauwelyn concluded in his article, which is aimed to have a comprehensive analysis on the conflicts of jurisdiction between the Southern African Development Community (SADC) and other agreements, that ‘It is interesting to note that none of the treaties … explicitly address the issue of (jurisdictional) overlap’.40
In summary, the authoritative status of the WTO DSM, which has been de facto confirmed, deviates from the position of most FTAs that can be used to select dispute settlement forum by agreement. If such contradictions at the institutional level are irreconcilable, together with the absence of an effective coordination mechanism, the resolution of the conflict of jurisdiction in WTO and FTA DSM will definitely be in a dilemma.
40
Pauwelyn, J., 2004. Going Global, Regional, or Both-Dispute Settlement in the Southern African Development Community (SADC) and Overlaps with the WTO and Other Jurisdictions. Minn. J. Global Trade, 13, p.265.
4 CASE STUDY
According to the discussion above, it seems that it is almost impossible to systematically solve the jurisdictional conflicts between the WTO and FTAs DSM from a jurisprudential perspective in a short period of time. Therefore, in order to continue to study this issue, we have to turn our attention to the case law. Fortunately, benefit from the development and prosperity of regionalization and RTAs, in recent years, a series of cases of jurisdictional conflicts have emerged in practice, some of which – I have mentioned above – as typical cases have important implications for the development of the overlapping jurisdiction theory. Hence, in this chapter, I will elaborate and analyze these cases.
4.1 Mexico–Soft Drinks
4.1.1 Background Information
The sugar industry has a history of hundreds of years in Mexico and is one of the pillar industries of the country’s economy.41 As early as 1991-1992 when the NAFTA was
still being negotiated, the US and Mexico had promised to gradually open up sugar and syrup trade in the form of a bilateral agreement in the NAFTA annex.42 According to
the agreement, during the 15-year ‘transition period’ for the FTA ended in 2008, from the 7th year the agreement come into force which is 2000, if Mexico could achieve
changing from a ‘net sugar importer’ to a ‘surplus producer’ for two consecutive years, it would be entitled to export sugar to the US with zero tariffs every fiscal year exceed the maximum quota before.4344 In other words, the US’s opening imports of sugar from
Mexico was conditional on Mexico’s being a net surplus sugar producer. However, the 41
Aguilar-Rivera, N., 2012. The Mexican sugarcane industry: overview, constraints, current status and long-term trends. Sugar Tech, 14(3), pp.207-222.
42
See NAFTA Annex Article 703.2, Section A.
43
Ibid.
44
Heboyan, V., Ames, G.C., Gunter, L.F. and Houston, J.E., 2001. US-Mexico Sugar Dispute: Impact of Nafta on the Sugar Market (No. 1607-2016-134527), p.7.
US sugar producers believed that there was an alternative sugar product called ‘High Fructose Corn Syrup’ (hereinafter referred to as ‘HFCS’) having the possibility to replace sugar as a sweetener for soft drinks because of its low cost, and resulting in the surplus of sugar in Mexico, thereby increasing the exports to the US and injury their domestic sugar industry.45 Under pressure from domestic sugar producers, the US
government requested a re-negotiation with Mexico to modify the agreement.46 Then
they came up with a 1993 ‘Understanding’, generally referred to as ‘the side letter’. Notwithstanding the side letter was signed by the negotiating representatives47 of the
two parties, it was not signed and exchanged by their trade ministers.48 To this reason,
the US believes that the new text has entered into force, and refused to import Mexican sugar under NAFTA provisions, while the Mexican side insisted that the new one cannot take effect and required the US to implement its commitments in accordance with NAFTA.49
In 1998, Mexico turned to the NAFTA DSM to seek settlement for this dispute but it had not been able to proceed due to the obstruction by the US.50 In addition, because
of the US HFCS’s gradual increase in the Mexican sweetener market, Mexico conducted the anti-dumping measures to restrict the US HFCS imports.51 The
anti-dumping measures were submitted to the WTO DSM and decided to be a violation to the Anti-Dumping Agreement by the Panel.52 Shortly after Mexico withdrew its
anti-dumping measures, in January 2002, it began to implement the Regulations of the Law
on the Special Tax on Products and Services and imposed a 20% tax on
non-sucrose-45
Ibid., p.4.
46
Ibid., p.7.
47
Michael A. Kantor, the USTR, and Jaime Serra Puche, the Mexico’s Secretary of Commerce and Industrial Development (SECOFI).
48
USTR Michael A. Kantor, letter to Jaime Serra Puche, Mexico’s Secretary of Commerce and Industrial Development, dated November 3, 1993, reprinted in 103d Congress, 1st
Session, House Document 103-160, p.98. See also USITC, The Year in Trade: OTAP 1997, USITC publication 3101, May 1998, p.111.
49
Ibid.
50
Ibid., [44], p.3.
51
Mexico-Anti-Dumping Investigation of HFCS from the US, Report of the Panel, WT/DS132/R, 2000, para.2.2.
52
produced soft drinks in order to restrict the use of HFCS from the US. After the failure to negotiate with Mexico, the US then did not attempt to turn to the NAFTA DSM, but instead requested consultations with Mexico in the WTO in 2004 for one more time.53
On October 7, 2005, the Panel released the report.54 On March 6, 2006, the Appellate
Body issued a report, maintaining the Panel’s decisions that Mexico had violated the WTO’s principle of National Treatment.55 On April 21 of the same year, Mexico stated
that it would implement the DSB rulings and recommendations and promised to revise the tax measures.
4.1.2 Discussion around Conflicts of Jurisdiction
In this case, Mexico raised an issue involving the jurisdiction of the WTO and FTA DSM during the Panel. Mexico recognized that the WTO has jurisdiction in this case for sure. But meanwhile, it pointed out that its tax measures are aimed at forcing the US to fulfill its NAFTA obligations. Mexico further emphasized that, this case is not just about the import sweeteners for soft drinks from the US, but is part of a ‘broader dispute’ with the US ‘concerning the bilateral trade in sweeteners’ under NAFTA,56
which means that the soft drink dispute between the US and Mexico is essentially the same case as the US and Mexico sugar dispute. Since the case had been filed by Mexico to NAFTA in 1998, Mexico requested the Panel to ‘decline jurisdiction’57 on this case,
thereby bringing the US back to the NAFTA’s DSM to completely solve the sugar dispute between the two parties that has lasted for a long period. However, neither the Panel nor the later Appellate Body accepted Mexico’s claim. Specific analysis of the Panel and Appellate Body on the conflicts of jurisdiction is as follows:
First of all, according to the function of Panels regulated by the DSU, the Panel shall 53
WTO DSB, G/L674; WT/DS308/1, 2004.
54
Mexico-Tax Measures on Soft Drinks and Other Beverages, Report of the Panel, WT/DS308/R, 2005.
55
Mexico-Tax Measures on Soft Drinks and Other Beverages, Report of the Appellate Body, WT/DS308/AB/R, 2006.
56
Ibid., [54], para.8.3.
57
‘assist the DSB in discharging its responsibilities’ under the WTO law. Specifically, if the Panel is to provide the parties with a satisfactory solution to the dispute, it should make an ‘objective assessment’ of the factual and legal issues of the case, should also ‘consult regularly’ with the parties.58 If the Panel can arbitrarily refuse to exercise
jurisdiction over the case, it will not be able to fulfill the obligations under Article 11 of the DSU. Meanwhile, Mexico’s so-called ‘discretion’ on jurisdiction means that the Panel has the authority to decide whether to exercise or not. However, the discretion can only be exercised when the Panel has several options that are all legal to choose freely. Therefore, only when the claim of the US is illegal or inconsistent with the provisions of the WTO, the Panel has the discretion.59 There seems to be no such
situation where the Panel can exercise its discretion in this case. The Panel’s decline of jurisdiction will constitute a violation to Article 11.
Moreover, the Panel believed that declining jurisdiction would also violate Article 3(2)60 and Article 19(2)61 which provide that the DSM is an important factor in
establishing security and predictability for the WTO law. The DSB’s rulings and recommendations shall not ‘add to or diminish the rights and obligations of WTO Members provided in the covered agreements’.62 For this reason, assuming that the
Panel refuses to exercise its jurisdiction of this case, it will diminish the rights of the US, especially the rights stipulated by Article 23 of the DSU.63 In summary, Mexico’s
58
Ibid., para.7.6. Also see Article 11 of the DSU.
59
Ibid., para.7.7.
60
See Article 3(2) of the DSU: The dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system. The Members recognize that it serves to preserve the rights and obligations of Members under the covered agreements, and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law. Recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements.
61
See Article 19(2) of the DSU: In accordance with paragraph 2 of Article 3, in their findings and recommendations, the panel and Appellate Body cannot add to or diminish the rights and obligations provided in the covered agreements.
62
Ibid., [54], para.7.9.
63
See Article 23(1) of the DSU: When Members seek the redress of a violation of obligations or other nullification or impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements, they shall have recourse to, and abide by, the rules and procedures of this Understanding.
request for the Panel to decline its jurisdiction was rejected, and Mexico appealed to the Appellate Body.
The Appellate Body reviewed the report and agreed with Mexico that the Panel, as an international dispute settlement body, enjoys ‘certain inherent powers’ in their adjudicative function that entitled panels the right to determine ‘whether they have jurisdiction in a given case’, as well as ‘the scope of their jurisdiction’.64 This inherent
right of panels has been widely accepted in accordance with the previous reports of the WTO.65 However, the Appellate Body also emphasized that although the DSB has the
inherent powers, ‘this discretion does not extend to modifying the substantive provisions of the DSU…’,66 that is, it shall not be an excuse to add to or diminish the
rights and obligations of Members. On this basis, the AB Report agreed with the Panel’s conclusion that Panel’s refusing to exercise jurisdiction will constitute substantial violation of Article 11&23 of the DSU and jeopardize the right of the US to submit a case to WTO. As a result, the Appellate Body rejected Mexico’s claim for jurisdiction.
The Appellate Body also left a room while supporting the Panel for it did not express any opinion on whether there are other situations that could constitute an exclusion of the panel’s jurisdiction. Based on the facts, the Appellate Body found no such situation in this case. As to which legal obstacles can exclude the DSB’s jurisdiction, neither of the two reports have specified.
4.2 Brazil-Tyres
4.2.1 Background Information
64
Ibid., [55], para.45.
65
The United States-Anti-Dumping Act of 1916, footnote 30 to para.54. See also Mexico-Corn Syrup (Article 21.5 - US), Report of the Appellate Body, para.53
66
Brazil implemented measures to ban the import of tires in 1991,67 and in 2000 it banned
the import of retreaded tires officially.68 In August 2001, Uruguay sued Brazil's import
ban on retreaded tires within the MERCOSUR DSM procedure, for Uruguay believed that the ban had constituted ‘new restrictions to commerce’, and thereby violated MERCOSUR obligations. Brazil argued that the 2000 Regulation was only a clarification of the scope of the 1991 tire ban, instead of a new restriction to commerce. In 2002, after reviewing the case, the arbitral tribunal of MERCOSUR determined that Brazil did impose new restrictions on commerce on Members of the MERCOSUR, which violated its relevant obligations under MERCOSUR.69 In response to the arbitral
tribunal's ruling, Brazil subsequently canceled the import restrictive measures on retreaded tires of Members of the MERCOSUR, but it still maintained the original restrictions for countries other than MERCOSUR Members, including the European Union. The EU believed that Brazil's import ban on retreaded tires violated Article XI of GATT, while its exemption for MERCOSUR Members constituted discrimination against the EU so that it also violated Article I and XIII of GATT. Based on these, the EU filed a complaint to the WTO. The DSB established a Panel on January 2, 2006, for this case, and released the Panel Report on June 12, 2007.70 Then the EU notified its
intention to appeal to the Appellate Body some certain issues and interpretations given in the Panel Report. On December 3, 2007, the Appellate Body issued its AB Report and modified some decisions of the Panel Report.71
4.2.2 Discussion on Mutually Exclusive Rulings
According to the results of the MERCOSUR’s arbitral tribunal, Brazil exempted import restrictions on retreaded tires from Member States. The EU then questioned this, arguing that Brazil’s act violated Article XI of GATT on quantitative restrictions.
67
See Portaria DECEX 8/1991.
68
See Portaria SECEX 8/2000.
69
See Treaty of Asunción.
70
WTO DSB, WT/DS332/R, 2007.
71
Brazil’s response clarified that the import restrictions did not comply with the provisions of Article XI, but it is consistent with the ‘protect human, animal or plant life or health’ purpose under Article XX(b) of GATT.72 The EU’s defense against this
was that Article XX of GATT can only be invoked if it conforms to its Chapeau, and there must be strict conditions for the application of the exception clause.
The Panel noted that Brazil’s exemption of import ban on Members of MERCOSUR was taken after arbitration by the MERCOSUR dispute settlement arbitral tribunal according to which the restrictive measures of Brazil had constituted new restrictions to commerce. Therefore, the Panel ruled that Brazil’s exemption for MERCOSUR Members is not made under ‘capricious or unpredictable reasons’,73 but is an
adjustment to the binding of the agreement, which is legally binding for Brazil as a Member. The Panel believed that the ‘discrimination’ caused by the exemption of import restrictions is not unreasonable, for this discrimination is based on special preferential treatment for Members of the FTA, which is certainly not enjoyed by other states. Discrimination between members and non-members arising from the implementation of the MERCOSUR is not a priori unreasonable.74
The Appellate Body gave out a different decision then. The AB Report also recognized that Brazil’s restrictions exemption based on the jurisdiction of MERCOSUR cannot be regarded as ‘arbitrary’. However, unlike the Panel’s determination, the Appellate Body believed that even a decision made for rational reason may still constitute ‘arbitrary, unjustifiable discrimination’ as stated in the chapeau of Article XX of GATT, for the reasons of disputed measures could ‘bear no rational connection to the objective’, or just ‘go against that objective’.75 In this case, the basis and purpose of Brazil’s defense
72
See Article XX(b) of GATT: Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures: (b) necessary to protect human, animal or plant life or health.
73
Brazil-Measures Affecting Imports of Retreaded Tyres, Report of the Panel, WT/DS332/R, para.7.258.
74
Ibid., para.7.273.
75
to the complaint were to ‘protect human, animal or plant life or health’, but the restrictions exemption for Members out of MERCOSUR arbitral tribunal’s ruling ‘bears no relationship to the legitimate objective pursued by the import ban that falls within the purview of Article XX(b)’.76 Brazil’s disputed measure would even cause more
import of retreaded tires from MERCOSUR Members, which is totally contrary to its original intention and purpose. Therefore, the restrictions exemption resulted in contradiction to Article XX of GATT and constituted ‘unjustifiable discrimination’ under Article XX.
This decision of the Appellate Body can be regarded as a direct conflict with Brazil’s obligations under MERCOSUR. In 2009, Brazil stopped the issuance of new authorizations for imported retreaded tires, regardless of their origins (including MERCOSUR Members). That is to say, Brazil ultimately chose to respect the WTO obligations to achieve its declared environmental purpose. As can be seen from the ruling in this case, although Brazil was acting in accordance with its MERCOSUR obligations, it still has to meet the requirements of the WTO law. That is, the ability of WTO Members to violate WTO obligations and discriminate against other Members through FTAs has been further restricted according to the AB Report. The Appellate Body was working to preserve the autonomy of the WTO system and strongly suggested ‘that, implicitly, what it is doing, intentionally or unintentionally, is setting the supremacy of WTO law’ vis-à-vis FTA law77 despite the lack of hierarchical
jurisdiction between the WTO and FTAs under international law.78 It indicated a
trending, that there is a shift from a horizontal relationship between the WTO and FTAs such as MERCOSUR towards a vertical relationship by putting the WTO legal order on the top.79
para. 227.
76
Ibid., para. 228.
77
See interview with WTO panellist (Jerusalem, 6 June 2012). See also interview with EU official (Brussels, 20 July 2012).
78
Agon, S.S., 2019. International Adjudication on Trial: The Effectiveness of the WTO Dispute Settlement System. Oxford University Press, p.286.
79
4.3 Peru-Agricultural
4.3.1 Background Information
In the process of free trade development in Central America, Guatemala and Peru reached concluded their FTA (Guatemala-Peru Free Trade Agreement) negotiations on 13 October 2011.80 In this agreement, Guatemala allowed Peru to ‘maintain its price
range system (PRS)’.81 It is a trade measure first introduced in 2001, under which the
additional tariffs are imposed at least with respect to some specific products such as agricultural products. The FTA further stipulated that, if there are any conflicts between the FTA provisions and the WTO law, then the FTA provisions shall prevail.82 What is
so paradoxically is that Guatemala, on the one hand, approved the FTA by its congress and formally ratified it by the president in 2014, on the other hand, submitted its dispute with Peru to the WTO DSB, accusing Peru of violation of relevant WTO regulations in 2013.83 But because Peru had not ratified the agreement, the FTA had not entered into
force.
The case stemmed from Guatemala’s allegation that Peru had imposed additional tariffs in accordance with the PRS provision on imported agricultural products such as milk, corn, rice, and sugar since 2001 in addition to fixed tariffs. Guatemala believed that the duties resulting from the PRS are a violation of relevant articles of the Agreement on Agriculture,84 GATT1994,85 and the Customs Valuation Agreement,86 which are all
important components of the WTO law, for the additional tariffs have constituted
80
Foreign Trade Information System, Organization of American States,
http://www.sice.oas.org/TPD/CACM_PER/GTM_PER_e.asp 81
See Guatemala-Peru FTA, Annex2.3, para.9.
82
Peru-Additional Duty on Imports of Certain Agricultural Products, Report of the Panel, WT/DS457/R, para.3.7.
83
WTO DSB, G/AG/GEN/109; G/L/1024; G/VAL/D/12; WT/DS457/1, 2013.
84
Article 4.2 and footnote 1 of the Agreement on Agriculture.
85
Articles II:1(a), II:1(b), X:1, X:3(a), XI and XI:1 of the GATT 1994.
86
variable import levies and violated Peru’s WTO commitments.
Guatemala held that regardless of whether the FTA is in effect or not, it has nothing to do with this dispute. Guatemala further argued that Members of the WTO wishing to renounce their rights under the WTO Agreement can only settle through the DSM, or under the multilateral legal framework of multilateral agreement consensus, and cannot modify the rights and obligations under WTO Agreement by signing FTAs. Guatemala’s agreement to Peru’s maintenance of the PRS mechanism does not represent its recognition of the PRS, nor does it exempt Peru from complying with the WTO and FTA obligations, nor does it waive its rights to submit disputes to the WTO DSM. Guatemala advocated that although Article 24 of the GATT allows the signing of FTAs as an exception to the Most Favored Nation Treatment, and grants certain Members more rights than under the WTO Agreement, it does not, therefore, mean that it is possible to modify the rights and obligations granted to Members under the multilateral framework by signing the FTAs.87 On the contrary, Peru claimed that since
Guatemala has made its commitment in the FTA that it agrees to maintain the PRS mechanism in Peru, and the parties have modified the reciprocal obligations covered by the WTO, the stipulated priority application of FTA should allow the PRS mechanism to continue to exist.88
4.3.2 Discussion on Admissibility and Modification
In this case, the DSB faced mainly the following three issues: 1) Did Guatemala violate its Good Faith obligation stipulated by Article 3.7 and 3.10 of the DSU?89 2) Is PRS
inconsistent with Peru’s WTO obligations?90 3) Did Guatemala and Peru modify the
WTO obligations between them through signing FTA?91 As for this paper, the first and
87
Ibid., [82], para.7.9.2.2
88
Ibid., para.7.23.
89
Peru-Additional Duty on Imports of Certain Agricultural Products, Report of the Appellate Body, WT/DS457/AB/R, para.4.1.
90
Ibid.
91
third issues take the biggest significance on the problem of jurisdictional conflict. In other words, these two issues correspond to the admissibility of the FTA dispute resorting to the WTO, and the rationality of modifying parties’ obligations under WTO rules in accordance with the FTA provisions.
The Argument about good faith was raised in relation to the provision of the FTA first. The Panel pointed out that the scope of its jurisdiction is to investigate and adjudicate the relevant provisions of the agreements involved, and to exclude any consideration of non-WTO international law, unless ‘based on a relevant provision of the covered agreements that has been invoked by one of the parties to the dispute.’92 Specifically
in this case, the Panel should go through with Article 3.7 and 3.10 of the DSU and examine whether Guatemala engaged in the procedure in a manner contrary to the concept of good faith. According to the previous AB report, the Panel drew that complainants ‘could be precluded from initiating [DSU] proceedings by means of … Understandings … if the parties to these Understandings had, either explicitly or by necessary implication, agreed to waive their right to have recourse to [the DSU].’93
This is also recognized by the AB report, in which it emphasized that ‘… the relinquishment of rights granted by the DSU cannot be lightly assumed’, and that ‘the language in the Understandings must clearly reveal that the parties intended to relinquish their rights … Thus, while we do not exclude the possibility of articulating the relinquishment of the right to initiate WTO dispute settlement proceedings in a form other than a waiver embodied in a mutually agreed solution … any such relinquishment must be made clearly’94 Such decision clarified the conditions to effectively exclude
the jurisdiction of WTO DSB: an explicit or logically necessary waiver of WTO jurisdiction.95 The WTO DSB finally concluded that Guatemala cannot be regarded as
waiving the WTO jurisdiction and settled the first problem on admissibility of this case. 92
Ibid., [82], para. 7.69.
93
European Communities-Regime for the Importation, Sale and Distribution of Bananas, Report of the Appellate Body, WT/DS27/AB/R, para.217.
94
Ibid., [89], para.5.25.
95
Howse, R. and Langille, J., 2017. Spheres of Commerce: The WTO Legal System and Regional Trading Blocs-A Reconsideration. Ga. J. Int'l & Comp. L., 46, p.683.
The issue of modification was evaded in the Panel Report with an expression of ‘it is not necessary for this Panel’,96 but the Appellate Body made very important comments
on this issue in its report.
Although it is noted that the two parties were still controversy about whether the disputed FTA clause allows Peru to maintain PRS that do not comply with WTO regulations (according to the FTA, on the one hand, it affirms the rights and obligations of both parties under the WTO, but on the other hand, it also provides that when the FTA conflicts with the WTO, its provisions should take priority to apply.97 In other
words, it is unclear from the text that whether these provisions allow maintaining the measures violate the WTO rules),98 the Appellate Body stated that even if the disputed
FTA allowed the maintenance of measures violate the WTO rules, it could not be persuaded that such modification of rights and obligations among FTA parties could be based on the provisions of Article 41 of the VCLT.99
The Appellate Body pointed out that the specific provisions of the Marrakesh Agreement dealing with modifications, exemptions or exceptions to FTAs should take priority over general provisions such as Article 41 of VCLT, especially in the case of FTAs, considering that Article XXIV of GATT allows deviation from certain WTO rules in FTAs. However, such deviations are conditional, that is, the level of duties or other commercial controls maintained by Members externally is not higher or more restrictive than the situation before the FTA was concluded.100 Based on this limitation,
Article XXIV of GATT, Article V of GATS and the Enabling Clause are standards that must be considered to measure whether the FTA clause can deviate from the WTO law.101
96
Ibid., [82], para.7.528.
97
See Guatemala-Peru FTA, Article 1.3.
98 Ibid., [89], para.5.108-5.110. 99 Ibid., para.5.111. 100 Ibid., para. 5.112. 101 Ibid., para. 5.113.
Peru didn’t invoke Article XXIV of GATT as a defense, but it cited Turkey-Textile,102
in which the AB Report clearly stated that as long as certain conditions are met, Article XXIV of GATT can justify measures that do not comply with GATT regulations.103
According to the decision of the Appellate Body of the Turkish-Textile, to cite Article XXIV of GATT as a defense, it must prove that: 1) the disputed measure was introduced only when the customs union or FTA was formed, and the disputed customs union or FTA fully complied with all the requirements of Article XXIV of GATT, and, 2) failure to introduce the disputed measure would hinder the establishment of the customs union or FTA.104 Meanwhile, the AB Report also referred to paragraph 4 of Article XXIV,
gave out the purpose of FTAs, ‘to facilitate trade’, which is inconsistent with the interpretation raised in this case.105
The AB Report of Peru-Agricultural has been a significant jurisprudence of the WTO. First, the report stated that its findings are ‘irrespective of the status of the FTA as not being ratified by both parties’.106 It jumped out of the Panel’s reliance on the status of
FTA. Second, it narrowed the circumstances for panels to decline their jurisdiction in a dispute with both FTA and WTO jurisdiction. It is to say, even if there is a clear and unambiguous ex-ante exclusion of WTO DSM in an FTA, it will not be effective to defeat the panels’ jurisdiction.107 Third, to a considerable extent, the possibility of
FTAs retaining measures that do not comply with WTO law is narrowed too. Last, it demonstrated that the WTO’s preference not to take other international law, whether in the FTAs or the VCLT and ILC articles, into account in its DSM, which made WTO a system conducts independently and autonomously. It shows a ‘constitutionalization’ effect in the report: Members cannot use bilateral or multilateral trade agreements to 102
Turkey-Restrictions on Imports of Textile and Clothing Products, Report of the Appellate Body, WT/DS34/AB/R, 1999. 103 Ibid., [89], para. 5.114. 104 Ibid., para. 5.115. 105 Ibid., para. 5.116. 106 Ibid., para. 5.28. 107
Howse, R. and Langille, J., 2017. Spheres of Commerce: The WTO Legal System and Regional Trading Blocs-A Reconsideration. Ga. J. Int'l & Comp. L., 46, p.684.
adjust liberalization downward from what is legally entrenched in the WTO system.108
108
5 POSSIBLE SOLUTIONS AND UNSETTLED DIFFICULTIES
From the analysis and discussion above, we can see that although most of the FTAs have certain clauses on how to decide which DSM to use when facing conflicts of jurisdiction on their disputes, due to the aggressive posture that the WTO has always shown when dealing with regionalism, these clauses seem to be powerless, and conflicts of jurisdiction are still difficult to resolve automatically. Under the condition that the DSU cannot be systematically modified in the short term, many scholars have proposed applying some principles and rules of international law, including private international law – which have been proven to be feasible and have a positive effect in settling conflicts of jurisdiction in international civil and commercial cases – on overlaps and repetitions of the jurisdiction of the disputes.
5.1 Can Principles of International Law be Invoked under the WTO Framework?
Allowing relevant international law principles to become an integral part of the WTO DSM is not only extremely important for the development of the WTO DSM, but also a significant means that the WTO can use to avoid conflicts with other judicial decisions.109 According to the DSU, the WTO DSB serves to ‘clarify the existing
provisions of those agreements in accordance with customary rules of interpretation of public international law’.110 Meanwhile, in the AB Report of US-Gasoline, the
Appellate Body emphasized that the WTO is not completely isolated legal system and its rules cannot be separated from other rules of public international law.111 Obviously,
it is possible for the WTO to interpret unclear provisions in accordance with the rules of public international law. Article 31 of the VCLT is regarded as the accepted and
109
Pauwelyn, J., 2003. Conflict of norms in public international law: how WTO law relates to other rules of international law (Vol. 29). cambridge university press, p.136.
110
See Article 3(2) of the DSU.
111
United States-Standards for Reformulated and Conventional Gasoline, Report of the Appellate Body, WT/DS2/AB/R, para.17.
commonly used treaty interpretation practice of the international community. In long-term practice, this clause has become a ‘customary rule of international law’ that can be used to interpret the relevant provisions of the WTO.
Specifically, the WTO can interpret its relevant provisions with the use of Article 31(3)(c) of the VCLT, according to which the panels and Appellate Body may consider ‘relevant rules of international law applicable in the relations between the parties’ when interpreting the provisions.112 For example, the AB Report indicated in US-Shrimp that
Article 31(3)(c) of the VCLT made it possible for the DSB to use general principles of international law to interpret relevant WTO provisions.113 Together with the Panel
Report of EC-Biotech Products,114 they all recognize that when applying the provisions
of the WTO covered agreements, this kind of ‘legal interpretation’ can link the WTO rules with principles of international law. Therefore, when facing conflicts of jurisdiction in WTO and FTA DSM, the DSB or the parties could invoke and apply principles of international law to settle the problem. In addition, the principles to coordinate jurisdiction in international law described below are all widely accepted by their legal practice in various states. These principles are not going to deny the jurisdiction of WTO, but to emphasize that the jurisdictional rules of WTO are not in a vacuum, instead, they can be influenced by these principles.
5.2 Good Faith
In the field of international law, the principle of ‘good faith’ is all accepted with clear text regulation in the UN Charter115 and the VCLT.116 In the Mox Plant Case (Ireland
112
See Article 31(3)(c) of the VCLT.
113
US-Import Prohibition of Certain Shrimp and Shrimp Products, Report of the Appellate Body, WT/DS58/AB/R, para.158.
114
European Communities-Measures Affecting the Approval and Marketing of Biotech Products, Report of the Panel, WT/DS293/R, para.7.94.
115
See Article 2(2) of UN Charter: All Members, in order to ensure to all of them the rights and benefits resulting from membership, shall fulfill in good faith the obligations assumed by them in accordance with the present Charter.
116
See VCLT Article 26: Every treaty in force is binding upon the parties to it and must be performed by them in good faith; Article 31(1): A treaty shall be interpreted in good faith in accordance with the ordinary
v. the UK) in 2003, the Permanent Court of Arbitration confirmed that good faith is a
principle of international law and considered that under some circumstances, an international DSB should make concessions to the jurisdiction of another DSB to show the respect of good faith.117
In the WTO legal system, there is also good faith principle shown in Article 3(10) of the DSU, says ‘… if a dispute arises, all Members will engage in these procedures in good faith in an effort to resolve the dispute.’ In terms of this article, the principle of good faith is used to begin a dispute settlement procedure. As for whether it can be used to ask the panels to decline their jurisdiction, it remains in controversies, for the WTO has not elaborated on the meaning of the good faith under the WTO framework in any legal documents, nor has it stipulated how the good faith principle should be applied to the issue of jurisdiction. However, although the WTO has no clear provisions on this, some scholars have explained the connotation of good faith within the WTO framework. Swedish scholar Panizzon believes that the good faith principle in WTO judicial practice reflects and includes a measure of:
- The general principle of law of good faith; - The customary rule of pacta sunt servanda; - The doctrine of negotiating in good faith;
- The doctrine of implementing WTO boligations in good faith; - The prohibition of abus de droit;
- The general principle of estoppel.
It is believed that the ‘doctrines of abuse of rights or estoppel’, which fall under the broader notion of good faith, could ‘lead a panel to give effect to forum selection and/or exclusive forum clauses in RTAs’.118
5.3 Estoppel
meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.
117
PCA: The Mox Plant Case (Ireland v. the United Kingdom), Order No. 3, 2003, para.28.
118
Graewert, T., 2008. Conflicting Laws and Jurisdictions in the Dispute Settlement Process of Regional Trade Agreement and the WTO. Contemp. Asia Arb. J., 1, p.327.
As mentioned above, the principle of estoppel is closely related to the principle of good faith. The estoppel means, the parties should guarantee that their words and deeds are consistent all along with the legal procedure. If the interests of the other party are lost due to the inconsistency of words and deeds, the law should have prohibition or even punishment on this situation, otherwise, it is a kind of ‘blasphemy’ of the legal authority. In the jurisdictional conflicts of international trade disputes, estoppel refers to, that, once both parties agree on the choice of dispute jurisdiction, they must abide by their commitments. Unless there are special circumstances, neither party can easily change the previous agreement on the forum. For the complainants, there are further requirements, which is, if they have submitted the case to a DSB, they should not submit it to another DSB with jurisdiction on this dispute when the DSB’s decision is legal and valid. In addition, the estoppel should not be applied only to parties to disputes, and the WTO DSM should also respect this principle. That is, if a party violates this principle to submit a dispute to the WTO DSM, then WTO shall give careful consideration on whether to invoke the estoppel to refuse to exercise jurisdiction over the claim.
In the judicial practice of the WTO, the discussion on estoppel is not without precedent. For example, both parties to the Argentina-Poultry case were involved in the issue of application of the estoppel principle.119 In this case, Argentina disputed the jurisdiction
of the Panel on the ground of the principle of estoppel. Argentina believed that Brazil had submitted their dispute to MERCOSUR, and the arbitral tribunal of the MERCOSUR had already ruled on this dispute. Brazil was now requesting the WTO to review the same dispute, which is obviously a violation of estoppel. The Panel pointed out that the principle of estoppel applies in circumstances where ‘1) a statement of fact which is clear and unambiguous, and which 2) is voluntary, unconditional, and authorized, is 3) relied on in good faith’.120 The Panel reviewed the above three
conditions and, on the basis that it believed that Argentina’s claim did not meet all these
119
See DS241: Argentina-Definitive Anti-Dumping Duties on Poultry from Brazil.
120
Argentina-Definitive Anti-Dumping Duties on Poultry from Brazil, Report of the Panel, WT/DS241/R, para.7.37.
