World Trade Organisation and its structure

Bretton Woods and the International Trade Organization (ITO)

Background: Post-World War II, the United States led the establishment of a new international economic system at the
1944 Bretton Woods Conference.

Primary Focus: The idea of an International Trade Organization (ITO) was conceived, but emphasis was initially placed
on creating the International Monetary Fund (IMF) and the World Bank.

UN Involvement: Multilateral trade negotiations were conducted under the UN Economic and Social Council in 1945,
leading to a resolution in favor of forming the ITO.

ITO Negotiations and Challenges

Negotiation Stages: Negotiations occurred at Lake Success, New York (1947), Geneva (1947), and Havana (1948), with
Geneva meetings being pivotal.

Objectives: Key objectives at Geneva included drafting an ITO charter, preparing tariff reduction schedules, and creating
the General Agreement on Tariffs and Trade (GATT).

Completion in 1947: Tariff reductions and the GATT were finalized by the end of 1947, but the ITO charter's completion
was deferred until 1948.

Provisional application of GATT

Challenge: Governments faced the dilemma of implementing tariff cuts and the GATT without waiting for the final ITO
charter.

Solution: Adopted a Protocol of Provisional Application, allowing the GATT to enter into force immediately from
January 1, 1948. Later, revisions could align it with the ITO charter.

ITO Charter's Fate

Havana Conference (1948): ITO charter was completed during the Havana Conference, but it never entered into force.

US Critical Role: The fate of the ITO charter hinged on US support. With the Republicans winning control of Congress
in 1948, President Truman's submission to Congress faced challenges.

Demise of the ITO: In 1950, the Truman administration announced it would no longer seek congressional approval for
the ITO, leading to the demise of the organization.

GATT Evolution into an International Organization

Background: Failure to adopt the International Trade Organization (ITO) left a void in the Bretton Woods economic
structure.
GATT Fills the Void: The General Agreement on Tariffs and Trade (GATT), not originally designed as an international
organization, gradually became the de facto 'third pillar' to fill the void.

Annual Meetings: Contracting parties of the GATT held yearly meetings, and new contracting parties were added over
time.

GATT Secretariat: The Interim Commission for the ITO transformed into the GATT Secretariat, leading to the GATT's
evolution into an international organization based in Geneva.

GATT's 'Birth Defects'

Inherent Weaknesses: GATT suffered from 'birth defects' or inherent weaknesses that affected its operation.

1. Lack of Charter: GATT lacked a formal charter, which meant it lacked legal personality and clear organizational
procedures.

2. Provisional Application: GATT had only 'provisional' application, indicating a temporary status rather than a fully
established organization.

3. Grandfather Rights: The Protocol of Provisional Application allowed GATT contracting parties to maintain inconsistent
legislation, known as 'grandfather rights.'

4. Ambiguity and Confusion: Ambiguity surrounded GATT's authority, decision-making ability, and legal status, causing
confusion among member countries.

Professor Jackson's Perspective: Professor Jackson identified these issues as GATT's 'birth defects,' hampering its
effectiveness.

Summary of GATT's Challenges

Charter and Legal Personality: GATT faced challenges due to the absence of a formal charter, legal personality, and well-
defined organizational structures.

Provisional Application Limitations: The provisional nature of GATT's application posed limitations on its standing as a
permanent international organization.

Inconsistencies with 'Grandfather Rights': The allowance of 'grandfather rights' contributed to inconsistencies in
adherence to GATT obligations.

Ambiguity in Authority and Status: Ambiguity surrounding GATT's authority, decision-making processes, and legal
status created uncertainty among member nations.

Overview of GATT Obligations

Objective: The General Agreement on Tariffs and Trade (GATT) aims to reduce tariffs and regulate international trade
conduct.
Tariff Limitations: Limits tariff charges based on agreed Schedules of Concessions (Article II), extending benefits to all
GATT contracting parties (Article I).

Rules and Regulations: Serves as a code of general rules ensuring tariff concessions work as intended and are not
undermined.

Key GATT Provisions

 National Treatment (Article III): Requires national treatment of imports concerning taxes and regulations.
 Quotas and Licenses (Article XI and Article IV): Prohibits quotas, import/export licenses, with exceptions, and
special provisions for cinematograph films.
 Freedom of Transit (Article V): Guarantees freedom of transit for goods.
 Subsidies and Duties (Articles VI and XVI): Regulates subsidies, antidumping, and countervailing duties.
 Valuation for Customs (Article VII): Establishes rules on valuation for customs purposes.
 Fees and Formalities (Article VIII): Governs rules on fees and formalities connected with importation/exportation.
 Marks of Origin (Article IX): Regulates rules on marks of origin.
 Transparency and Publication (Article X): Ensures transparency and publication of national trade regulations.
 Currency Exchange Regulation (Article XV): Sets rules on currency exchange regulation.
 State-Trading Enterprises (Article XVII): Governs rules on state-trading enterprises.
 Government Assistance (Article XVIII): Regulates government assistance to economic development.
 Exception Provisions: Provides exceptions for balance-of-payments, developing countries, emergency actions,
health, safety, natural resources, national security, customs unions, and free trade areas.

Dispute Settlement Mechanism

Key Dispute Settlement Articles: Article XXII for consultation and Article XXIII for making complaints and resolving
disputes.

Foundation for WTO Dispute Resolution: These provisions form the basis for the development of the GATT system of
dispute resolution and the foundation for WTO dispute settlement procedures.

GATT Procedures

Modifying Concessions and Tariff Negotiations (Article XXVIII and XXVIII bis): Outlines procedures for modifying
concessions and conducting tariff negotiations.

Contracting Parties and Accession (Articles XXXII and XXXIII): Defines procedures for contracting parties and
accession to the GATT.

Amendment and Withdrawal Procedures (Article XXX and XXXI): Covers procedures for amending the GATT and
withdrawing from it.
Acceptance, Entry into Force, and Registration (Article XXVI): Outlines procedures for acceptance, entry into force, and
registration of the GATT.

Historical Context of the GATT

Early Theoretical Foundations:

 Foundations laid by economists Adam Smith and David Ricardo.

 Bilateral treaty arrangements governed trade for many years.

New Ideas:

 GATT marked a departure with the introduction of:

o Multilateralism
o Institutionalism
 These ideas emerged from lessons learned through bitter experiences and historical contemplation.

19th Century Trade Developments:

 UK, influenced by Smith and Ricardo, lowered trade barriers, leading to prosperity.
 Bilateral trade treaties and MFN principles fostered rising prosperity in Europe.

Impact of World War I: Political rivalries and protectionalism with high tariffs and quotas

The Great Depression

Post World War Vision: Multilateral trading system founded to avoid the pitfalls of the interwar years

GATT's Tariff Negotiations

GATT served as the foundation for eight multilateral trade negotiations rounds.

Periodic rounds aimed at reducing tariffs and trade barriers globally.

Reducing Tariffs:

GATT successfully reduced tariffs and other trade barriers worldwide.

Negotiating rounds named after the place or person associated with initiation.

GATT Negotiating Rounds

Names and Dates of Rounds:

 Geneva 1947  Dillon 1960–61

 Annecy 1949  Kennedy 1962–67
 Torquay 1950  Tokyo 1973–79
 Geneva 1956  Uruguay 1986–94
Evolution of Objectives

1. Early Rounds:
a. Primarily focused on reducing tariffs.
b. Addressing non-tariff barriers became a significant concern.
2. Tokyo and Uruguay Rounds:
a. Primarily aimed at reducing non-tariff barriers.
b. Uruguay Round led to an extensive body of international law.

Uruguay Round's Impact and Transformation into WTO

Scope and Complexity:

WTO agreements exceeded 400 pages.

Final Act signed in Marrakesh, Morocco, on April 15, 1994, spanned over 26,000 pages.

Final Act of the Uruguay Round: Marked the transformation of GATT into the World Trade Organization (WTO).
Establishment of a fully-fledged international organization.

Establishment of the WTO  Marrakesh Agreement: Negotiators decided on the WTO's creation on January 1, 1995.
Signature at Marrakesh on April 15, 1994.

Creation and Structure:

 Established as a new international organization on January 1, 1995.

 Legal personality, capacity, privileges, and immunities.
 Institutional relationships with other international organizations.

Single Undertaking Approach - Innovative Approach:

 All agreements annexed to the WTO Agreement became binding as a single body of law.
 Ensured collective acceptance of all Uruguay Round agreements.

Structure of the WTO Agreement

 Annex 1A - GATT 1994 and Agreements:

o Inclusion of various agreements, e.g., Agriculture, Sanitary Measures, Textiles.
o General Interpretive Note resolves conflicts within Annex 1A.
 Annex 1B: General Agreement on Trade in Services (GATS).
 Annex 1C: Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs).

Dispute Settlement and Trade Policy Review

Annex 2: Dispute Settlement Understanding (DSU).

Annex 3: Trade Policy Review Mechanism.

Plurilateral Trade Agreements

Annex 4: Plurilateral agreements like Civil Aircraft, Government Procurement. Some agreements terminated in 1997.

GATT 1994 and WTO Agreement

Replacement and Incorporation:

WTO Agreement formally replaced GATT 1947 with GATT 1994.

GATT 1994 includes amendments, decisions, and understandings up to 1995.

Four Specific Tasks of WTO

1. Negotiations Forum: Provide a forum for negotiations among members for current and future agreements.

2. Dispute Settlement: Administer the system of dispute settlement.

3. Trade Policy Review: Administer the Trade Policy Review Mechanism.

4. Cooperation with IMF and World Bank: Cooperate as needed with IMF and World Bank.

Governing Bodies of WTO

1. Ministerial Conference and General Council:

o Ministerial Conference: Supreme authority, meets at least once every two years.
o General Council: Chief decision-making and policy body between meetings.
Additional Bodies:
2. Dispute Settlement Body (DSB) and Trade Policy Review Body (TPRB).
3. General Council, DSB, and TPRB form one administrative entity with distinct functions.

WTO's Work Categories

Key Responsibilities:

 Ongoing trade negotiations facilitation.

 Coordination with other multilateral organizations.
 Organizing public forums, meetings, and engaging with civil society.
 Facilitating dispute settlement and acting as staff for related bodies.
 Training and technical assistance for developing countries.
 Facilitating accession negotiations with prospective members.
 Organizing and facilitating various committees, working groups, and Trade Policy Reviews.

Specialized Councils and Committees

Day-to-Day Work:
  Specialized councils and committees report to the General Council.
 Established for Trade in Goods, Trade in Services, and TRIPs.

WTO Secretariat

 Director-General and Staff:

o Secretariat located in Geneva.
o Director-General appointed by Ministerial Conference, oversees staff.
 Budget Control:
o General Council controls WTO budget.
o Authority to cooperate with other organizations.
 Ad Hoc Working Parties and Committees
o Establishment of ad hoc working parties and committees for various trade matters.
o Consisting of representatives of WTO members on a voluntary basis.

Membership, Accession, and Withdrawal

WTO Membership:

Original membership includes GATT contracting parties and the European Community.

Accession through negotiation, approved by Ministerial Conference.

Accession Process

Time-Consuming Process: Example of China's accession process over fourteen years. Russia's accession as a landmark
event, making WTO a truly universal organization.

Withdrawal Process: Any member can withdraw after giving six months' notice to the Director-General. A rare
occurrence, and withdrawal is subject to notice period.

Principal Accomplishments

Key Achievements:

 Significant reduction in global tariffs, especially in developed countries.

 World trade growth: over 27 times since 1950, contributing to new trade relationships.
 Expansion of international trade rules covering various aspects.
 Addressing non-tariff measures and governmental policies under international rules.
 Extension of trade rules to services, technology, and foreign direct investment.

Dispute Settlement System - Dispute Resolution: Elaboration of a structured Dispute Settlement System. Guarantees
adherence to trade commitments. Busy international tribunal with evolving jurisprudence since 1995.

Trade Policy Review Mechanism (TPRM)

Transparent Policy Reviews: TPRM ensures periodic review of members' trade policies. Aimed at ensuring adherence to
WTO obligations.

Decision Making in the WTO

• Consensus Decision Making:

• Follows GATT practice.

• Deemed decided if no formal objection.

• Consensus vs. unanimity distinction.

Levels of Decision Making

Decision-Making Levels:

Director-General and Secretariat have operational roles, no policy control.

Bodies like Panels, Appellate Body, and DSB interpret and apply existing WTO law.

Standing committees and working groups deal with policy-related tasks.

Policy decisions made at WTO Ministerial Conferences.

Voting in the WTO

Voting Mechanism:

Voting occurs when consensus is unattainable.

Decisions by majority vote in Ministerial Conference and General Council.

Different from IMF and World Bank weighted voting.

Challenges to Consensus - Post-Seattle Reforms:

Consensus building became challenging after the Seattle Ministerial Conference in 1999.

New practices for transparency and inclusiveness.

Interpretations, Safeguards and Waivers

Interpretations:

 Only Ministerial Conference and General Council can adopt interpretations.

 Requires a three-quarters majority.

Waiver Process:

 Safeguards incorporated after GATT 1947 experiences.

  Ministerial Conference approval for waivers by three-fourths majority.
 Annual reviews for extension, modification, or termination.

Amendments to WTO

Difficult process with formal tabling and waiting period.

Exclusive competence of Ministerial Conference.

Provisions amended by unanimous or two-thirds vote, binding on accepting members.

The Sutherland Report on the Future of the WTO.

Background: Published in 2004. Consultative Board to Director-General Supachai Panitchpakdi

Objective:

 Addressing Institutional Challenges in the New Millennium.

 Evaluation and recommendations for WTO improvements.

Key Findings

Expert Opinions: Discussion by eight respected experts. 37 specific suggestions for policy and organizational
improvements.

Suggested Improvements: Addressing substantive policy suggestions. Focused on key impact areas.

Impact Area 1 - Decision-Making

 Challenges Identified:
o Reference to WTO decision-making as 'medieval.'
o Consensus principle's strengths and weaknesses.
 Reform Suggestions:
o Retaining consensus with modifications.
o Introduction of written declarations for vital national interests.
o Plurilateral approach and 'GATS scheduling.'

Impact Area 2 - Institutional Reforms

Addressing Deadlocks:

 Increased involvement of high-level officials.

 Enhanced role for Director-General and Secretariat.
 Creation of a 'senior officials consultative body.'

Impact Area 3: Relations with Civil Society

 • Sutherland Report's suggestions for improving relations

• Transparency, consultation, and indirect participation discussed

• The role of civil society organizations in influencing WTO decisions

Impact Area 4: Achieving Greater Consistency

 Sutherland Report's recommendation for "horizontal coordination"

 Two-way dialogue with various multilateral organizations
 Emphasis on preserving WTO rules from undue external influence

Regional and Preferential Trade Agreements

Address the challenge of the proliferation of regional and preferential trade agreements.

Mention concerns and controversies regarding their impact on the multilateral trading system.

Proliferation of agreements and concerns.

Role of GATT Article XXIV and GATS Article V.

Suggestions for interpreting existing rules and providing advisory services.

Developing Countries and Trade

Historical struggle to integrate developing countries into the WTO.

Challenges of accommodating diverse needs.

Aid for Trade initiative and the Doha Development Agenda's importance.

Aid for Trade Initiative:

Purpose: Address the challenges faced by developing countries in implementing WTO-required trade measures.

Financial Assistance: Provides financial assistance to help developing nations meet the costs associated with trade-related
capacity building and infrastructure development.

Capacity Building: Focuses on enhancing the skills, infrastructure, and institutional capabilities of developing countries to
facilitate their meaningful participation in international trade.

Market Access: Aims to improve access for developing countries to global markets, promoting inclusive economic
growth.

Implemented by WTO: Administered by the WTO, the initiative involves cooperation with other international
organizations, donors, and recipient countries.

Doha Development Agenda

Objective: Launched in 2001, the DDA aims to address the developmental concerns of developing countries within the
framework of the WTO.

Comprehensive Negotiations: Encompasses a wide range of issues, including agriculture, services, intellectual property,
and market access for goods, with a focus on development.

Developmental Aspects: Emphasizes the need to make the multilateral trading system more inclusive, giving special
attention to the interests and needs of developing nations.

Importance of Agriculture: Places significant importance on addressing agricultural subsidies and market access to benefit
farmers in developing countries.

Fair Trade Rules: Seeks to establish fair and equitable trade rules that consider the economic disparities between
developed and developing countries.

Current Status: Faces challenges and delays in negotiations, but its successful conclusion is crucial for demonstrating the
WTO's commitment to fostering global economic development.

Equitable Trading System: Aims to create an equitable and balanced trading system that facilitates the integration of
developing countries into the global economy.

Bali Package Overview

Event: Ninth WTO Ministerial Conference in Bali, Indonesia, December 2013.

Significance: Represents a shift in WTO negotiations towards more focused, issue-specific agreements.

Centrepiece: Agreement on Trade Facilitation aiming to simplify customs procedures, reduce compliance costs, and
enhance efficiency.

Key Components:

 Extension of the agreement not to charge import fees on electronic commerce.

 Agreement not to file non-violation complaints involving intellectual property.
 Agreement on the administration of tariff-quotas in agricultural products.

Development Focus:

 protect food security in developing countries.

Future Implications: Bali Package is considered a model for future WTO achievements, indicating a potential shift from
broad global trade negotiations to more targeted, impactful agreements.

Relationship Between WTO Law and the Legal Regime of the EU

International agreements in the EU are integral to its legal order.

Positioned hierarchically between founding treaties (TFEU and TEU) and ordinary legislation.
GATT and WTO agreements are binding on both EU institutions and Member States.

Exclusive Competence and Judicial Obligation

Exclusive Competence

The EU has exclusive competence in common commercial policy (TFEU Art. 3(1)).

Member States' competence remains in other areas, subject to the Commission's representation.

Judicial Obligation

ECJ interprets EU law in light of WTO obligations.

Treaty-consistent interpretation is sought to align EU legislation with WTO agreements.

Direct Effect and GATT/WTO

ECJ deduces an obligation to interpret EU law in line with WTO obligations.

Preference given to interpretations consistent with the Treaty and international agreements.

Slide 6: Direct Effect Challenges

Challenge arises if efforts to reconcile EU statute with WTO agreements fail.

ECJ's prerogative to determine direct effect; past jurisprudence indicates a favorable view.

Portugal v Council Case

• Portugal sought annulment of a Council Decision on textile market access.

• ECJ reiterates GATT rules are not unconditional and rejects direct effect for WTO agreements.

Judicial enforceability of WTO law in the European Union: Case Analysis of Portugal v. Council Case C-149/96
Portugal v Council [1999]

Background: Portugal sought to annul a Council Decision related to market access for textile products. The Council
Decision was based on EU law, and Portugal contested its compatibility with WTO agreements.

The "Portugal v Council" case refers to a legal dispute between Portugal and the Council of the European Union regarding
a Council Decision on market access for textile products originating in India and Pakistan. The case is relevant in
understanding the impact of the relationship between the European Union (EU) and the World Trade Organization
(WTO).

Key Points from the Case:

Direct Effect Rejected: The European Court of Justice (ECJ) rejected the idea of direct effect for WTO agreements in the
EU legal order. Direct effect would mean that individuals or companies could invoke WTO agreements before EU courts.
Consistency with GATT Rules: The ECJ reiterated its previous jurisprudence from the "International Fruit Company"
case, stating that GATT (General Agreement on Tariffs and Trade) rules are not unconditional. The court maintained that
an obligation to recognize GATT/WTO rules as directly applicable in the domestic legal systems of the EU cannot be
based solely on the spirit, general scheme, or terms of GATT.

Council's Statement Influence: The court considered the Council's statement that the GATT/WTO Agreement is not
susceptible to being directly invoked in Community or Member State courts. The Council's position, influenced by major
trading partners' practices, was a significant factor in the court's decision.

Impact on EU-WTO Relations

No Automatic Direct Effect: The case established that WTO agreements, including the Dispute Settlement Understanding
(DSU), do not automatically have direct effect in the EU legal order. This means that individuals or companies cannot
directly rely on WTO rules in EU courts.

Reciprocity and Consistency: The ECJ's decision indicated a link between reciprocity and direct effect. The court
considered that granting direct effect could weaken the EU's negotiating position if other WTO members did not provide
similar status to EU law in their domestic legal orders.

Limited Influence of WTO Decisions: The case signaled that decisions by WTO panels or the Appellate Body, even if
finding EU law incompatible with WTO obligations, do not automatically trigger changes in EU laws. The EU legislators
have the discretion to decide whether and how to modify the laws.

Factors affecting Direct Effect

Council's statement on direct effect influenced the ECJ's decision.

Reciprocity and reluctance to weaken Union negotiators' position played a role.

Slide 9: Exceptions to Direct Effect

Nakajima Exception: Direct effect if a Union act expresses intent to implement a WTO obligation.

Fediol Exception: Direct effect if the Union act refers to specific provisions of a WTO agreement.

DSB and EU Law

DSB decisions don't automatically change EU laws.

EU legislators must act if DSB accepts reports viewing Union law as incompatible with WTO obligations.

Japan and WTO: Legal Framework

• Constitutional Supremacy

• Japanese Constitution mandates respect for treaties and international law.

• Treaties and customary international law hold supremacy over domestic laws.
 • GATT and WTO Status in Japan

• GATT and WTO Agreements enjoy treaty status in Japan.

• Conflicts between WTO provisions and domestic laws are resolved in favor of WTO.

Kyoto Necktie Case

Case involving the direct effect of GATT in the Kyoto District Court.

Raw Silk Price Stabilization Law faced GATT Article XVII challenges.

Key Points:

 Court upheld the law, protecting raw silk producers against imports.
 Denied direct effect of GATT in Japanese law.
 Argued that GATT violations lead to consultations and possible retaliation, not domestic law nullification.

Background of the Kyoto Necktie Case

The Kyoto Necktie case refers to a legal dispute that arose in Japan, specifically in the Kyoto District Court, and involved
the direct effect of the General Agreement on Tariffs and Trade (GATT) within the Japanese legal system.

The case revolved around the 1976 Raw Silk Price Stabilization Law in Japan. This law aimed to stabilize the prices of
domestically produced raw silk. To achieve this, the legislation restricted the import of raw silk, designating the Silk
Business Agency as the sole importer of raw silk in Japan. The objective was to protect domestic raw silk producers by
preventing disruptions caused by freely imported raw silk when domestic prices were low.

Legal Challenge: Kyoto Necktie case

European manufacturers took advantage of the situation. While raw silk imports were restricted, silk fabric imports were
not. European manufacturers purchased raw silk from major producing countries like China and South Korea and
produced silk ties for sale in Japan at lower prices.

Japanese fabric producers challenged the Raw Silk Price Stabilization Law under GATT Article XVII:1(a). This article
stipulates that state-trading agencies should operate transactions based on commercial considerations such as price,
quality, and availability. Additionally, GATT Article II:4 prohibits selling commodities in the domestic market at a price
above the actual import price plus the applicable tariff.

Court's ruling

The Kyoto District Court rejected the argument against the law and upheld its validity. The court contended that the
exclusive importership and price stabilization system were designed to protect raw silk producers from the pressure of
imports, akin to an emergency measure allowed under GATT Article XIX. It considered the duration of the measure
reasonable in relation to the pressure of imports.
Regarding the effectiveness of GATT Articles in relation to domestic laws, the court stated that a violation of a GATT
provision would pressure the defaulting country to rectify the violation through consultations and possible retaliatory
measures. However, it asserted that this did not render the legislation contrary to GATT, and therefore, the law was not
null and void.

Impact of Japan-WTO relation

The Kyoto Necktie case reflects the Japanese approach to the direct effect of GATT in its legal system. By denying direct
effect and asserting the supremacy of domestic laws, Japan signaled a cautious stance in automatically aligning its legal
framework with international trade agreements. This approach is consistent with the broader trend seen in other
jurisdictions, including the European Union and the United States, where WTO law is not automatically accorded direct
effect. The case, therefore, underscores the careful balance that Japan seeks to maintain between its domestic legal
obligations and its commitments under international trade agreements, impacting its relationship with the WTO.

Judicial Consistency

Japanese courts maintain consistency with EU and U.S. cases.

Despite constitutional primacy of international law, WTO law isn't accorded direct effect.

Domestic laws prevail in case of conflict, emphasizing no automatic nullification.

Impact on Japan-WTO Relations

Japanese approach mirrors EU and U.S. practices.

WTO law doesn't automatically influence domestic laws.

Consistency in denying direct effect signals a cautious stance in the relationship.

The Relationship Between WTO Law and US Law

Self-executing vs. Non-self-executing Agreements

US constitutional practice distinguishes between self-executing and non-self-executing international agreements.

Self-executing agreements have direct effect in domestic law, while non-self-executing agreements require further
legislation.

GATT as Non-self-executing Agreement

In US law, multilateral trade agreements like the GATT are considered non-self-executing.

Leading scholars confirm that the GATT is non-self-executing.

URAA Settlement on Direct Effect

The Uruguay Round Agreements Act (URAA) clarified that WTO agreements have no direct effect in the US legal order.
Decisions by WTO dispute settlement Panels and the Appellate Body also have no direct effect on US law.

Impact on Existing US Law

Laws passed by Congress after the WTO Agreement and URAA take precedence over conflicting WTO agreements.

US courts emphasize that unambiguous US law prevails over international law in case of conflict.

Dualistic Approach of the United States

The US adopts a dualistic approach, viewing the WTO Agreement as an executive agreement with binding international
obligations.

The Agreement is not directly effective in domestic law and requires transformation by Congress into domestic law.

Handling of State Law

The URAA stipulates that no State law may be declared invalid based on inconsistency with WTO agreements, except in
an action brought by the United States.

US officials or courts can declare state law conflicting with WTO obligations invalid.

WTO Dispute Settlement Mechanism

• Based on pre-existing GATT regime.

• Document: Uruguay Round Understanding on Rules and Procedures Governing the Settlement of Disputes
(DSU).

• Guidance: Follows decisions, procedures, and practices of GATT 1947, as stated in the WTO Agreement.

Three Key Institutions

• Dispute Settlement Body (DSB): Establishes Panels, adopts reports, supervises implementation, and authorizes
sanctions.

• Appellate Body: Reviews Panel rulings; standing body with seven members.

• General Council: Serves as DSB, but DSB has its chairman and separate procedures.

Jurisdiction and Application

• Competence: DSU Article 1 outlines the scope of the WTO Dispute Settlement Body.

• Covered Agreements: Listed in DSU Appendix 1; special rules prevail in case of conflict.

Binding Nature of Reports

• Binding on Parties: Reports adopted by DSB are binding on the disputing parties.

• Not Binding on Others: No legal effect on non-disputing WTO members.

 • Evidence and Precedent: Used as evidence of treaty practice; persuasive in subsequent cases.

Dispute Resolution Procedures

• Objective: Preserve and safeguard rights and obligations under WTO agreements.

• Initiation: Begins with a request for consultations; judicious use encouraged.

• Standing: Broad discretion for members to bring claims; 'actio popularis' recognized.

Alternative Resolution Mechanisms

• Good Offices, Conciliation, Mediation, Arbitration

• Voluntary Methods: Parties can agree to use good offices, conciliation, or mediation.

• Arbitration: Alternative means with defined issues and procedures; enforceable through WTO.

The Panel Process

• Stages of Panel Proceedings

• Establishment: Requested if consultations fail; operates within a set timetable.

• Composition: Three (or five) members chosen from lists; terms of reference defined.

• Process: Written submissions, meetings, information-seeking, and possible advisory reports.

• Adoption and Consideration

• DSB Consideration: Within twenty days of circulation, objections can be raised.

• Adoption: Must be adopted within sixty days unless a consensus against adoption exists.

• Appeals: DSB may not consider the report if an appeal is pending.

Overview of Appellate Process and Implementation in WTO Dispute Settlement: Appellate Process (3.7)

 Any party to a dispute can appeal a Panel report to a seven-member standing Appellate Body
 Appellate Body members appointed for four-year terms
 Power to uphold, modify, or reverse legal interpretations
 Appellate process completion within 60-90 days
 Appellate Body report adoption by DSB within 30 days

Implementation (3.8)

• Losing party informs DSB of intentions within 30 days

• Reasonable period for implementation determined under DSU Article 21.3

• Three methods to determine a reasonable period

Compliance and the 'Sequencing' Problem (3.8.2)

• Lack of guidance on compliance actions by losing party

• 'Sequencing' problem between DSU Articles 21 and 22

• Reference to compliance panel under DSU Article 21.5

• Confusion between compliance panel and arbitration proceedings

Proposed Amendment

• Need for a clarifying amendment of DSU

• Suggested amendment: Retaliation invoked only after the Article 21.5 compliance determination

• Current practice: Arbitration under Article 22 suspended until Article 21.5 compliance proceeding concludes

Compensation and Retaliation (3.9)

• Two sanctions for non-implementation: compensation and retaliation

• Compensation: Additional trade concessions by losing party, subject to agreement

• Retaliation: Suspension of concessions equivalent to nullification or impairment

Types of Retaliation

1. Parallel retaliation (same economic sector)

2. Cross-sector retaliation (different sectors, same agreement)

3. Cross-agreement retaliation (different agreement)

4. Preference for parallel retaliation; others if impractical

Dispute Over Retaliation

• Disputes over retaliation can be referred to arbitration

• Arbitration completed within sixty days

• DSB authorizes and monitors retaliation

The carousel procedure, proposed by the United States in the context of WTO dispute settlement

• It involves periodically rotating lists of products or sectors subject to retaliatory measures. The idea is to increase
pressure on the losing party to comply with WTO rulings.

• Under the carousel procedure:

 • Rotation: Instead of maintaining a static list of products or sectors subject to retaliation, the list is periodically
rotated.

• Increased Pressure: This rotation is intended to exert additional pressure on the losing party, as different
industries or sectors may be affected during each rotation.

• Motivation for Compliance: The hope is that by periodically changing the targeted products or sectors, the
losing party will have a continued incentive to come into compliance with WTO obligations to avoid the negative
impact on its various industries.

Criticism of Carousel procedure

While the carousel procedure has been proposed by the United States, it has faced opposition from some WTO members,
including the European Union. Critics argue that such a system could lead to instability and unpredictability for
businesses and may not necessarily enhance the effectiveness of the dispute settlement process. The debate around the
carousel procedure reflects broader discussions on how to improve and strengthen the WTO dispute resolution
mechanisms.

Special Dispute Resolution Procedures

• DSU primarily addresses disputes involving an infringement of WTO agreements.

• Infringement considered as prima facie nullification or impairment of trade benefits for WTO members.

• DSU allows for dispute settlement on complaints of nullification or impairment without a WTO obligation
infringement.

Non-Violation Complaints (3.10.1)

• DSU Article 26.1 authorizes complaints against measures causing nullification or impairment without violating a
WTO agreement.

• Applicable to secure the removal of trade barriers impeding market access even without a violation.

• Complainant bears the burden of proof, providing a detailed justification.

• If proven, no obligation to withdraw the measure; a 'mutually satisfactory adjustment' is recommended.

• Arbitration available upon request, exerting pressure for dispute resolution.

Situation Complaints (3.10.2)

• DSU Article 26.2 allows complaints based on any 'situation' causing nullification or impairment.

• Chief utility in addressing frustration of market access expectations beyond specific measures.

• Limited utility as findings are non-binding and only circulated to members.

• No panels have been called on to address 'situations' in GATT/WTO history.

Adverse Inference (3.11)

• DSU Article 13.1 grants Panels the right to seek information from any individual or body.

• Panels can draw an adverse inference if a party refuses to provide necessary information without good reason.

• Example: Canada—Aircraft case.

• Adverse inference is a tool to ensure cooperation in providing information.

Amicus Curiae (3.12)

• Panels and Appellate Body may accept and consider amicus curiae briefs.

• Controversial, but recent rulings establish the acceptance of amicus curiae submissions.

• Two methods for submission: with consent of a participating WTO member or directly to the panel/Appellate
Body.

• The acceptance is at the discretion of panels and the Appellate Body.

Burden of Proof (3.13)

• Burden of proof involves demonstrating the legality or illegality of the conduct in question.

• Two issues: burden of persuasion and duty of going forward with legal arguments and evidence.

• US—Shirts and Blouses case laid the foundation: complainant must establish a prima facie case, and respondent
rebuts.

• Recent cases (EC—Hormones, India—Additional Import Duties) illustrate the evolving understanding of the
burden of proof in different contexts.

Judicial Economy in WTO

Definition: Judicial Economy in the WTO context

Judicial Economy allows adjudicating bodies to focus on essential issues in a dispute, skipping others. Unlike Panels, the
Appellate Body, guided by DSU Article 17.12, cannot freely exercise judicial economy due to its broader role.

DSU Article 17.12: Appellate Body vs. Panel Authority

DSU Article 17.12 outlines the Appellate Body's obligation to address every legal issue raised during an appellate
proceeding, unlike Panels. This distinction stems from the Appellate Body's responsibility to establish interpretations of
WTO agreements.

Case Example: US—Line Pipe (2002) and Korea's Issue on Applicability of GATT 1994 Article XXIV

Korea raised a claim about a safeguard measure under GATT 1994 Article XXIV, but the Appellate Body dismissed it.
This highlights the tension between judicial economy and the Appellate Body's obligation to address all legal issues.
Standard of Review in WTO Panels

• DSU Article 11: Objective Assessment, Due Process, and Investigative Powers

• DSU Article 11 mandates Panels to make an objective assessment, ensuring due process and granting
broad investigative powers. The Appellate Body, while not explicitly mentioned, is also bound by due
process.

• Deference Principle vs. De Novo Principle

• The dispute lies in whether Panels should defer to the findings of national authorities (deference) or
engage in independent fact-finding (de novo). The Appellate Body advocates for an 'objective assessment'
under DSU Article 11.

• Case Example: EC—Hormones (Appellate Body's 'Objective Assessment' Test)

• The Appellate Body in EC—Hormones established the 'objective assessment' test, emphasizing that neither
deference nor de novo principles should strictly apply.

Special Standards in Antidumping Cases

• Article 17.6(i) and (ii) of the Antidumping Agreement

• Antidumping cases have specific standards. Article 17.6(i) requires respecting national authorities if
proper, while (ii) allows multiple interpretations. This does not supersede DSU Article 11.

• Relationship with DSU Article 11

• Despite the apparent conflict between Article 17.6 and DSU Article 11, the Appellate Body has clarified
that they are supplementary rather than contradictory.

• Case Example: US—Hot-rolled Steel (2001) and Interpretation of Antidumping Agreement

• Despite similarities in language, the Appellate Body clarified that Article 17.6 of the Antidumping
Agreement supplements, not supersedes, DSU Article 11.

• The Appellate Body's interpretation in this case emphasized the compatibility of Article 17.6 with DSU
Article 11, ensuring consistency in the application of standards of review.

Evolution of Standard of Review

Shift from Deference Principle to Judicial Activism

• There has been a noticeable shift in Appellate Body rulings towards greater scrutiny of national authorities'
findings, indicating a move towards judicial activism.

• This shift raises questions about the appropriate balance between deference and independent review.

Case Examples: Thailand—H-Beams (2001), US—Lamb (2001), and US—Cotton Yarn

 • These cases illustrate instances where Panels and the Appellate Body departed from strict deference principles,
leading to broader investigative powers.

• The trend suggests a departure from the traditional approach established by earlier cases.

Potential Criticisms: Limited Opportunity for Parties, Exceeding Investigative Powers

• Critics argue that extending investigative powers beyond limits may undermine due process and exceed the
authority of WTO bodies.

• Balancing thorough review with procedural fairness remains a key challenge.

DSU Article 17.6 and Appellate Body Review

• Limitation to Legal Issues

• Liberal Interpretation of 'Legal Issues'

• Case Discussion: US—Cotton Yarn and Broad Interpretation of Legal Issues