Implementation of Decisions of the WTO Dispute Settlement Body

RESEARCH PAPER presented by Giuseppe-Matteo Vaccaro-Incisa

Autumn semester 2008

Table of Contents

Introduction 1. Preliminary considerations 1.1 The different approaches in the analysis of WTO’s work and results 1.2 Brief remarks on the relevant provisions for the settlement of disputes at the WTO

2. The relevant provisions for the implementation of decisions 2.1 Two articles, a plurality of perspectives 2.2 Article 21 – ‘Surveillance of Implementation of Recommendations and Rulings’ 2.3 Article 22 – ‘Compensation and the Suspension of Concessions’

3. Major issues and possible solutions 3.1 Non-compliance: different perspectives at the end of the WTO process 3.2 A bid for an extensive notion of trading 3.3 Possible enhancement of the WTO-DSU system

4. Conclusions

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Introduction The present work aims to provide for an overall synthetic assessment of the WTO implementation decision mechanisms and the specific problems their enforcement encounter in the nowadays practice. The following sections will first briefly analyze the matter from the procedural perspective – with a review of the related provisions – to move then to a more substantive approach, assessing the current recognized weaknesses of the WTO disputesettlement compliance system and briefly reviewing the solutions proposed by the relevant doctrine and deemed the most practical to be applied.

1. Preliminary considerations 1.1 The different approaches in the analysis of WTO’s work and results Born the 1st of January 1995, the World Trade Organization (WTO) is unanimously considered to be ‘…the most successful mechanism for peacefully settling trade disputes among nations in history’ 1. However, such unanimity is not equally shared when evaluating the concrete functioning of the mechanisms then created and, most importantly, the effectiveness of the nowadays activity carried on regarding the settlement of trade disputes. Not few are the critical voices regarding

the

implementation

process

of

the

Dispute

Settlement

Body

(DSB)

recommendations and the countermeasures eventually available to induce to compliance a recalcitrant State. In these respects, two different approaches clearly emerge from the scholars consulted: those who hinge their view in the general consideration that the WTO (through its related Agreements2) is a trade-focused, member-driven and consensus-based organization3, by one 1

Won Mog Choi, To comply or not to comply? – Non-implementation problems in the WTO dispute settlement system, Journal of World Trade vol.41 no.5 October 2007, p.1043. In similar terms many different authors (e.g., Fukunaga, Pauwelyn, Wilson). 2 The substantive WTO Agreements consists, in fact, in the four annexes to the main WTO Agreement: Annex 1 as the GATT (General Agreement on Tariffs and Trade), Annex 1B as the GATS (General Agreement on Trade in Services), Annex 1C as the TRIPS (Agreement on Trade-Related Aspects of Intellectual Property Rights), Annex 2 as the DSU (Dispute Settlement Understanding, formally the Understanding of on Rules and Procedures Governing the Settlement of Disputes), Annex 3 (the Trade Policy Review Mechanism) and Annex 4 (the Plurilateral Trade Agreements). 3 As synthetically described by Prof. Pauwelyn in International Trade Law - IHEID coursebook [?], p.78.

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side, and those who rely on a more legal-oriented reasoning, on the other. The former approach emphasize the conciliatory nature of the WTO dispute settlement system, whose primary purpose is -and emerges only in relation to- the settlement of a specific dispute; the latter highlights those characters relating to the collective compliance mechanisms supposedly already existing, yet unexploited- focusing on a perhaps more in abstracto reading. While the second approach may be considered more natural in the legal environment, it is nevertheless believed necessary to keep in mind that the WTO is an organization whose primary scope is to enhance the world flow of trade, a concept diametrically opposed to the setting and development of regulations and dispute settlement procedures – and the time they require to be designed and put in practice as opposed to -say- a sale. Under this perspective, it may be worth recalling that it is generally understood out of the purpose of the WTO Agreements to secure compliance irrespective of a specific injury4. In fact, one of the fundamental principles of the WTO is that the Agreements are firstly aimed at protecting the individual interests of its Members5: it is only through such filter that the general interest of the WTO community is properly guarded and guaranteed. 1.2 Brief remarks on the relevant provisions for the settlement of disputes at the WTO In light of the above, it is possible to underline how the architecture of the dispute settlement procedures at the WTO, through the design of a ‘…multistage mechanisms… [aimed at] …facilitate and ensure the implementation of the DSB recommendations…’ 6, shows an at least a priori unwillingness to entrust the legal world with autonomous and independent dispute settlement powers. It is not a case that panels and Appellate Body (AB) reports – whose conclusions usually form the basis of DSB recommendations – are merely part of the process whose eventual outcome is a DSB recommendation. Out of the entire process, this latter only is the sole

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However, it is interesting to note the possibility, at present day recognized, to bring a dispute before a Panel irrespective of the individual legal interest of the Member. In fact the Appellate Body, in the ruling EC – Bananas III, assessed that there is no requirement in the DSU to prove the party’s legal interest but that it is sufficient for the party to consider its benefits nullified and the recourse to DSU procedures eventually ‘fruitful’ ex Art.3.7. Nevertheless, such assumption rises from the principle of the ‘potentiality of the violation’ more than to the ‘vindication of a public interest’. In this respect Fukunaga makes a comparison between this and the Roman actio popularis (see note 5; p.389). 5 In this sense Yuka Fukunaga, Securing compliance through the WTO dispute settlement system: implementation of DSB recommendations, Journal of International Economic Law, vol.9 no.2 June 2006, p.387. 6 Such effective yet perhaps slightly overstated definition is given by Fukunaga (see note 5; p.384).

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element in possess of real legal value, as the final resolution for the parties, creating ‘legitimate expectations’ between them and the other Members. The basic principles regarding the WTO dispute settlement procedure are outlined in GATT Articles XXII (Consultation) and XXIII (Nullification or Impairment). A State who find its trading jeopardized in ‘…any matter affecting the operation of [the] Agreement’ and consequently seeing its ‘…benefits accruing to it directly or indirectly… nullified or impaired…’ and/or is thus ‘impeded’ in ‘…the attainment of any objective of the Agreement’ because of a failure of another Member to comply with its obligations with the same Agreement, can make ‘…written consideration or proposals’. Hence, interests-driven diplomatic negotiations appear to be the pivot of the relations at the WTO. By the same token, it cannot be missed that the provisions regulating the eventual failure of the negotiations above (contained in Annex 2 of the WTO Agreement and labeled ‘Understanding of the Rules and Procedures Governing the Settlement of Disputes’) provide for a number of mechanisms that specifically keep out of the dispute resolution process any extraneous third-party legally empowered to settle the dispute by way of judgment. In fact, after the enlistment of the general principles and provisions of the opening articles, Article 4 outlines the consultation process and Article 5 focuses on ‘Good Offices, Conciliation and Mediation’. It is only with Article 6 (Establishment of Panels) that something resembling an arbitral tribunal appears on the WTO-DSU scene. While a discreet number of provisions is thus dedicated to describe the Panels’ terms of reference (Article 7), composition (Article 8), procedures (Article 12) and terms of confidentiality (Article 14), their function is clearly limited in Article 11 (Function of Panels): ‘the function of Panels is to assist the DSB in discharging its responsibilities…’. Hence, only duty of the Panel is to ‘…make an objective assessment of the matter before it…’. Such disposition is further restricted by Article 19 (Panel and Appellate Body Recommendations), where not only is confirmed the principle that the WTO does not consider the application of sanctions as a proper instrument of its policy (19.2) but it is also affirmed that ‘where a Panel or the Appellate Body concludes that a measure is inconsistent … it shall recommend that the Member concerned bring the measure into conformity with that Agreement’. Through a quite narrow reading out of this wording, Panels often limit themselves to repeat the wording of Article 19, while only occasionally

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endorsing its second (optional) provision on the suggestion of ways to implement the recommendation given 7. The DSU, thus, does not provide for any formal power to the legal determinations of panels or the AB (whose body composition and procedures for review and adoption of the report are all contained in Article 17), affording instead the DSB (composed by all WTO Members) the power to ratify or deny effect to their findings8.

2. The relevant provisions for the implementation of decisions 2.1 Two articles, a plurality of perspectives The above introduction was deemed necessary to illustrate how, being latched more in interests-driven diplomacy and negotiations rather than to a rigid legal mechanism, the WTO compliance system accordingly shows strengths and weaknesses that belong more to the world of international relations than to that of international law strictu sensu. In this respect it is hard to share, however, the consideration that compliance in the WTO dispute settlement system operates ‘…only in the course of the dispute resolution’ 9. Such view is too narrow and does not take full account of the fact that, being the compliance principle based on the sum of the Members’ individual interests, there is a systemic push towards it that operates in the sense of generally avoiding disputes at all 10 (of course, inasmuch this is convenient – or not too costly11).

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This could be, though, also a consequence of the tight time-framing of the settlement procedure: in the most complex cases Panels might be prevented from making a proper in-depth inquiry for the proposition of possible implementation alternatives or solutions because of a technical lack of time. This however reinforces the idea that is not up to the rather limited legal side of the WTO mechanisms to necessarily find a solution to disputes. Rather, this stage might be completed more appropriately throughout successive negotiations between the parties (for a framing under a different perspective see note 5; p.399-400). 8 True is that, at present, only a very few instances of rejection of the DSP or Appellate Body decisions have been rejected. 9 Fukunaga; see note 5; p.398. 10 For a potentially violating Member a dispute represents a cost both in economical terms (e.g. the cost of the procedure and that of the eventual compensations and countermeasures taken against the violation) as well as in political term (e.g. the social and political costs of adaptation of the internal system whether the violation is found, or those in terms of international credibility whether the violation is particularly unsightly to the international community or whether the Member concerned demonstrates itself unable to implement the recommendation, etc.). 11 In this respect it is worth recalling the ‘efficient breach theory’, which has been analogically applied to the WTO system: in consideration of the political and economical costs the implementation requires, the Member concerned may opt not to comply, preferring instead to bear the negative consequences of non-compliance.

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It is to be equally hard to share the quite opposite approach that sees at the heart of the compliance system the retaliation mechanism, thus making ‘…the most protectionist groups the beneficiary of WTO remedial scheme’. Consequence of such approach would be that ‘…although the overall performance of the compliance system might be called a success, this growing problem suggests that the system may be headed for a crisis’ 12. While such statements may be true with regard to the fact that the WTO system probably pushes Members – particularly those smaller or underdeveloped – towards forms of grouping in order to ‘count more’, in all the other respects numbers and data available show a quite different reality13. The only provisions at the basis of the compliance mechanisms with DSB recommendation decisions are, thus, two: DSU Article 21 (Surveillance of Implementation of Recommendations and Rulings) and Article 22 (Compensation and the Suspension of Concessions). Nevertheless, while hardly definable anything else than the bulkiest provisions of the DSU (together with Article 17), under a legal point of view their clear yet dense wording has proved not impervious to loopholes – something that has put the effectiveness of those provisions under question by many scholars. An analysis of the relevant parts of both provisions is deemed necessary, together with a brief review of the doctrinal debate surrounding them. 2.2 Article 21 – ‘Surveillance of Implementation of Recommendations and Rulings’ Out of its eight paragraphs, Paragraphs 1 and 2 of Article 21 state two of the three main principles set out in the entire DSB body: respectively, i) the full implementation of DSB recommendations as the only mean to give effect to the WTO system (thus indirectly recalling the non-sanctionatory character of the organization – namely, the third principle) and ii) the regime of favor reserved to developing countries when involved in dispute settlement procedures (regime restated and further specified under the implementation point of view, in Paragraphs 7 and 8).

12

Choi; see note 1; p.1044-1049. For statistics and data on cases and compliance updated to year 2007: Bruce Wilson, Compliance by WTO Members with adverse WTO dispute settlement rulings: the record to date, Journal of International Economic Law, vol.10 no.2, p.397-403. 13

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Paragraph 3, by restating the sovereign choice of Member States to comply with the WTO-DSB recommendation system, firstly states that ‘…the Member concerned shall inform the DBS of its intention in respect of implementation of the recommendation and rulings…’. The assent of the Member is nor automatic nor implied by the DSB decision or by the same membership into the organization. Of course, a denial is generally unexpected and there may be consequences to a decision of non-implementation (see below), still it appears to be entirely up to the Member to determine its will towards the DSB. The paragraph further provides for implementation framing and scheduling. When not ‘immediately’ possible, implementation will happen within a ‘reasonable period of time’ whose criteria for determination are set forth in a fashion that clearly privileges the parties agreement over any binding method. In fact, only if (a) the Member concerned (MC) rejects the proposal for implementation or (b) the parties could not reach an agreement on it, that such implementation period shall be (c) ‘…determined through binding arbitration…’. It appears evident that the system has been crafted in the fashion to avoid that a recalcitrant party may block the dispute-settlement process and the decision-making of the WTO. Moreover, available data14 show how the reasonable period of time accorded through letter (c) above is generally shorter than that requested by the MC. It is also clear that the arbitration pursuant to Article 21.3(c) does not involve an evaluation of what constitutes the implementation measures: it solely deals with the determination of the time for the implementation. Suggestions made by some scholars on the possibility to introduce a reading of such provision in light of Article 19.1 (thus requiring the arbitrators to infer ways of implementation) would only slow-down and overburden the panels with an inquiry on national legal systems which – besides being out of their task – not only would hardly result effective (given the time constraints, inappropriate for such an inquiry) but would remain anyhow merely indicative and non-binding. Furthermore, it is generally understood that such award can be overruled at any time by a subsequent agreement of the parties. Hence, a further inquiry on the merit with a consequently more accurate (and rigid) determination of the ‘reasonable time’ – including suggestions on implementation – could have the backlash to discourage further interactions between the parties and increase the system case-load.

14

Fukunaga; see note 6, p.401. The reasonable period of time averagely accorded is of 11.82 months.

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Paragraph 4 outlines the time-frame deemed necessary to complete a procedure – from the establishment of the panel to the determination of the reasonable period time, both by the DSB – which ‘shall not exceed’ 15 months (18 if an extension has been conceded by the DSB upon motivated request of the panel). It shall be noted that such terms have been always respected 15. Paragraph 5 16, by laying out the review of implementation measures, introduces the principle of multilateral (or collective) surveillance over the -in principle- bilateral dispute17. In fact, while establishing a ‘…surveillance mechanism with a verification authority driven by the complaining party’ 18, it provides that instead of initiating a new proceeding from scratch, the complaining Member (the only one having the legal standing for such request) concerned about the ‘existence or validity’ of the implementation measures taken by the MC, has the right to recourse to an expedited panel/AB process (possibly the same panel/AB responsible for the previous decision). Within 90 days the Panel’s new determination on the existence and effectiveness of the measures taken by the MC ‘shall circulate’ within the DSB. The available data show that such procedure appears to effectively facilitate the implementation of recommendations – or at least promote interaction between the concerned parties. In fact, it has been enacted 29 times, with final reports adopted in 18 cases. In most of the cases, the Members of the dispute ‘…either eventually reached a mutually agreed solution following the adoption of an Article 21.5 report or the [MC] simply revoked the violating measures’ 19. The review outlined in Paragraph 5 is limited, as per its wording, to ‘measures taken to comply’. In this respect, it has been noted that such expression has been intended rather broadly so far: sometimes the identification of the measures has been left to the complaining party, some others any kind of provision in the concerned sector taken by the MC has been considered constituting part of the implementing measures. Ultimately, the AB has determined that not only sectorial measures have to come to consideration but it is also 15

See note 13. On the agenda of the current DSU review negotiations Article 21.5 appears in relation to its potential conflict with Article 22. It is not considered clear, in fact, if the compliance panel ex Article 21.5 must first complete its review of the implementation measures undertaken by the MC prior the retaliation request by the complaining party on the ground of MC alleged non-compliance. Beside the apparent logical answer to this question, practice has been established in the adoption of a bilateral procedural agreement, thus resolving this ‘sequencing problem’. 17 Such principle is even clearer in the following Paragraph 6. 18 The definition is proposed by Fukunaga (see note 5; p.404). 19 See note 5; p.405. 16

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necessary to ‘…take full account of the factual and legal background against which relevant measures are taken’ 20. Some report, though, share instead the notion of ‘inextricable link’ between the ruling and the measures taken, with the test that ‘…any impartial observer would consider them to be measures “taken to comply”’ 21. Such ‘flexible’ approach is deemed to be the most appropriate for an effective verification on implementation for both the parties and the arbitrators22. Paragraph 6, in the effort to improve the transparency of the implementation measures, establishes the principle of collective surveillance in terms even broader than the previous Paragraph 5. The surveillance mechanism over implementation here outlined provides that ‘any Member at any time’ may raise at the DSB the ‘issue of implementation’, no matter its concrete interest on the dispute. Once raised, the issue is put on the DSB agenda – generally not before six months from ‘…the date of establishment of the reasonable period of time…’ – and there shall remain until the issue ‘is resolved’. To monitor such ‘resolution’, Paragraph 6 also provides for a report to be delivered by the MC to the DSB 10 days prior any DSB meeting23, in order to inform the Body on the progress on implementation made. It has been noted that, due to the ‘perfunctory reporting [technique] and discussion’, such surveillance at the moment contributes to ensure implementation only marginally. In this respect, it is certainly to be shared the idea that more strict reporting requirement should be imposed on the MC. On the other hand, it is found not to be in line with the general scope of the WTO any proposal of power enhancement and increased autonomy of the collective DSB surveillance: it is solely up to the complaining Member ‘…to perform the primary role in the surveillance and monitoring of the implementation’ 24. 2.3 Article 22 – ‘Compensation and the Suspension of Concessions’ Composed by 9 paragraphs, Article 22 develops the mechanisms identified already in DSU Article 3.7. Under this perspective, Paragraph 1 mainly restates the principles and lists the mechanisms set forth in Article 3.7. Compensation and suspension of concessions or other 20

WTO Article 21.5 Appellate Body report, Australia – Subsidies, para 6.5. See supra, para 6.17. 22 In fact, it does not allow for simple ‘revoke & replace’ of inappropriate measures taken with new ones – this way eluding the expedited review ex Article 21.5 –, while confirming on the other hand the limits of the possible review, not to be extended to any measure non-connected to the scope of the DSB recommendation. 23 Following the raise of the issue and after the 6 months-term has elapsed. 24 See note 5; p.404. 21

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obligations are remedies to be considered only after the failure to implement (reaffirmed anyway as always ‘preferred’) and only on a temporary-basis. Furthermore, coherently with Article 3 Paragraphs 2, 4, 5, 7 and 10 (all asserting the non-sanctionatory character that informs the WTO system), it provides that ‘compensation is voluntary and, if granted, shall be consistent with the covered agreements’. Paragraph 2 outlines the procedural framework for the (eventual request of) negotiations for compensations, in both cases the MC fails to comply or comply through the procedure provided ex Article 21.3. Compensation shall be both mutually developed and acceptable by all disputants and ‘satisfactory’ for the complaining Member. The Paragraph clarifies also that the standing for such request is limited to ‘…any party having invoked the dispute settlement procedure…’. Once again, the burden of bring the action forward does not lay under a -say- ‘systemic’ point of view (i.e., any Member) but is, instead, placed upon the initiative and will of the complaining Member. Such norm pivots on two rationales: first, the need not to overburden the DSB with tasks too broad (that could either weaken its overall action or grant to it a power the Members have not explicitly agreed to, in the Treaty); secondly -and complementarily-, it is the Member whose benefits accruing from the Treaty are nullified or impaired the best suited to tackle the MC. Paragraph 3 focuses then on the ‘principles and procedures’ to which any suspension shall be informed. It appears from these provisions – letter (a) to letter (e) – that the drafters of the Treaty wanted to make sure that the ‘level of suspension… shall be equivalent to the level of nullification or impairment’ and shall not be related to ‘…covered agreement [that] prohibits such suspension’ – which is also the wording, respectively, of Paragraphs 4 and 5. Proof that those guidelines and definitions are clear enough is the fact that no debate on their wording has arisen among scholars – being instead the principle of ‘equivalency’ they enshrine to be object of rather fierce debate. Paragraph 6 takes the move from the second period of Paragraph 2. If a suspension request has been issued by the complaining Member, this shall be granted by the DSB – unless: 1) it decides by consensus to reject it or 2) the MC ‘…objects the level of suspension proposed…’ or

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3) in case of request following a procedure ex Article 21.3 (b) or (c), the MC ‘…claims that principles and procedures set forth in paragraph 3 [of Article 22] have not been followed…’. In the latter two cases the solution will be sought through arbitration (in the case of Article 21.3(c), possibly through the same panel of the previous determination) within a time frame that could be as short as 30 days. Pending the arbitration ‘…concessions or other obligations shall not be suspended…’. Available data show that suspension procedures have been requested in 27 cases – 16 of which have gone through arbitration ex Article 22.6 – and authorized by the DSB in 15 of them. The rationale behind the suspension mechanism is synthetically expressed through the Latin maxim inadimplenti non est adimplendum (i.e., the tit-for-tat approach): the countermeasure is justified to the extent necessary to induce compliance through the restoration of the balance of rights and obligations by way of what, in principle, is supposed to be a mirror-violation vis-à-vis the non-complying Member. Such structure of the countermeasure reflects (and reverses) the logic of the reciprocal balance of benefits at the core of the WTO system, and that is why the level of the countermeasure cannot exceed that of the violation itself25. The concerns over the effectiveness of such countermeasure when taken by small or developing countries will be briefly addressed in section 3. As per the analyzed provisions in Article 21.3 and 21.5 and in light of the general principle affirmed in Article 11 – which all underline as in the WTO system arbitration is merely functional to the subsequent DSB determination – Paragraph 7 of Article 22 dictates to the arbitrators ex Paragraph 6 what to determine (i.e., the equivalence of the proposed suspension to the level of nullification or impairment) and what instead shall not be inquired about (i.e., the nature of the concessions or obligations to be suspended). The arbitrators’ jurisdiction is therefore limited, to the point that the determination whether such suspension is or is not allowed under the covered agreement is only optional. Lastly, if the case, they shall determine whether principles and procedures set forth in Paragraph 3 have not been followed. 25

In this respect it may be interesting to note that even the adoption of the term ‘countermeasure’ has been attentively debated and preferred over ‘reprisal’ (too vague and apparently superficial), ‘retaliation’ (too warish) or ‘sanction’ (too UN-related). The term ‘countermeasure’ generally understood implies the adoption – under certain condition of international law – of unilateral measures which are unlawful but legitimate as response to an international wrongful act (for more details see note 5; p.418).

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In the latter case a deeper power of inquiry seems to emerge. Here, the arbitrators are provided with a broader and less specific duty (‘…shall examine the case…’). Furthermore, in the last period of the paragraph is stated that, ‘…where the request is consistent with the decision of the arbitrators…’, the DSB shall grant authorization to proceed with the suspension. The different wording is perhaps due to the fact that this time ‘…the arbitrators’ decision [is] final…’ and ‘…the parties concerned shall not seek a second arbitration…’; it possibly constitutes as well a safety-clause for the system: being Paragraph 3 the core of the countermeasures system and being this in turn extremely important to the balance of the WTO dispute-settlement mechanisms, arbitrators are here provided with a broader powers than that granted by the other provisions – for the solution of which a simple ‘yes or no’ finding is sufficient. Paragraph 8, to conclude26, in its first sentence restates the principle of temporariness of the adopted countermeasures outlined in Paragraph 1. The second sentence adapts instead the provision of Article 21.6 (on the continuous DSB supervision until an agreement has been reached or the measure deemed in violation of the WTO Agreements has been brought into conformity) to the context of Article 22.

3. Major issues and possible solutions Having outlined the relevant provisions and their main interpretative and procedural issues, the following brief analysis focuses on those issues relating to the effective implementation under a substantive point of view and on the solutions so far proposed by the relevant doctrine in this respect. 3.1 Non-compliance: different perspectives at the end of the WTO process Despite in virtually every case the MC has indicated its intention to bring itself into compliance, it is not a mystery that recommendations have been occasionally not properly implemented – particularly in cases involving MC’s critical interests. Besides DSB authorizations to retaliation (the most glaring signal of non-implementation), cases where implementation has been found inadequate, delayed or it is still disputed do not miss from the

26

Paragraph 9 deals in fact with matters out of the scope of the present analysis.

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WTO docket - although the overall Members’ compliance record is still characterized by remarkable results27. One of the most consistent hurdles for the State facing compliance obligations lies just outside the WTO perimeter, and it is known as the ‘internal front’. National decision-makers need to face and persuade recalcitrant domestic interest groups to abide with binding international decisions. In general, implementation proves easier to be achieved if the violation may be corrected ‘…through administrative action under the control of the executive as opposed to legislative action’ 28 (particularly when ‘…opposed to political interests in superpower States’ 29). Moreover, it has been found that a considerable number of cases with implementation problems have been officially closed on a de facto basis (i.e., the time limit for the request of further dispute-settlement steps by the complaining Member expired). The ‘horizontal enforcement’ remains, thus, the key of the WTO compliance system: it is up to the injured complaining party to seek authorization by the WTO to pursue its own interests. The findings above are believed to show that proposals to ‘verticalize’ the WTO process (or its enforcement) are ultimately unfeasible: suspensions cannot be granted by the WTO in pursuit of the common interest, because this would essentially harm one of its Member to protect another – a concept out of the scope of the free trading organization. The MC is, in fact, already ‘…bound to the DSB recommendation and bears legal obligations to implement it’ 30. Indeed, as also previously found, such a clear statement of principle does not actually provide for any practical solution regarding the implementation methods to be followed by the MC, or any straightforward solution to non-implementation. It is debated whether this was a intentional choice of the drafters of the Agreements. The outcome of such ambiguity is, however, certain enough: the propositions to fill such practical gaps are nearly countless – and some of them rather peculiar. As found in the preliminary considerations, however, it is well possible to identify the general approach they belong to – i.e., pivoting around international relations or legal considerations. Some of those are briefly reviewed below.

27

See note 13. Wilson; see note 13; p.399. 29 Choi, see note 1 ; p.1050. 28

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3.2 A bid for an extensive notion of trading To consider necessary to find an a priori solution in order to give proper effect to the retaliation mechanism (e.g., through collective measures, when the complaining State is too small to produce any consistent effect on the market of the MC) is a comprehensible proposition. Still, such idea does not take into account the WTO’s systemic distance with considerations in abstracto, i.e., disconnected from a specific case. It is believed moreover necessary to keep being focused on the real dimension of the problem – otherwise considerations, though correct in principle, may fall into being pure academic speculations. Here, retaliation is not embargo: its negative effects, while certainly harming economical interests, will hardly put to death vital sectors of a country’s economy (provided the special regime granted to weaker States). It is also arguable the idea that retaliatory effects would fall on end-consumers: the more harmful the retaliation, the more the retaliated State will take appropriate measures to protect its domestic market – when not taking those for implementation. The only case of concrete danger may be found in the harmful unilateral modification of major import/export relations in countries where that specific import/export is the vital source for the national economy. Yet very probably the country in question would be a developing one, thus -again- enjoying the special DSU regime. By the same token, the proposition to strengthen in abstracto implementation through the introduction of ‘…more credible threats of retaliation…’ or having ‘…more binding and specific recommendation and retaliation…’ 31 appears too much legal-ish (i.e., not in line with the essentially interests-based diplomatic negotiations WTO policy), and seems to ignore that the WTO system (as generally any legal order, whether domestic or international) should not tie its effectiveness to ‘threats’ – besides representing such ‘threats’ straight the opposite scheme than that behind an organization created for the enhancement of reciprocal trading benefits. Ultimately, as found above, the effectiveness of the compensation mechanism depends on voluntary payment by the MC, thus the -uneventful- introduction of ‘compulsory compensation’ may have the only concrete outcome to distort the effective interaction between the parties that seek to resolve a dispute.

31

Choi; see note 1; p.1063.

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In this sense, the introduction of an arbitral procedure similar to that ex Article 22.6 for the determination of the amount of nullification or impairment could be helpful (yet, as per any concrete modification of the Agreements, improbable). The award provided this way could also help the parties in finding an agreement on the appropriate level of compensation – and of course it would be easy to imagine that, after a period of unproductive back and forth (between negotiations, verifications and arbitrations) the DSU could adopt a panel report on compensation determination through an extensive and enforcing interpretation aimed at the defense of WTO general principles (to which Members freely associated with). Yet such proposition falls again into a too legally-oriented perspective, unfit to deal with what are believed to be the core values of the WTO system. At the very end of the implementation-inductive process it is nevertheless true that, if retaliatory economic disadvantages do not create a sufficient degree of political incentive for compliance, there is actually no way to stop the situation being retaliated against from becoming the status quo (so called ‘efficient breach’ theory). This, though, does not defeat the basic principle of the WTO-DSU system: it is here believed to be part of Members overall trading policy to decide whether (and how) to open their market in certain sectors: whenever the determination falls into non-compliance, they will bore then the consequences of such choice by trading the nullification value with equivalent payments due to the damaged trading partners. 3.3 Possible enhancements of the WTO-DSU system The enhancement of the WTO-DSU system is thus found possible (to some extent, necessary) through the exploitation of those elements already available in the DSU – rather than forcing strained reading out of its wording – and on simple (and possible) procedural adaptations – in lieu of impractical speculation over the introduction of principles that would reverse the WTO nature and logic. Under such perspective, according to an extensive notion of trading, focusing on the ‘mutually acceptable compensations’ (Article 22.2) and to the fact that no specific formality is required could lead to a more extensive trade-use of the ‘monetization of the violation' 32. In 32

Not far from this, Choi (see note 1; p.1065). Choi’s attitude is nevertheless more ‘punitive’: he defines the monetary compensation as ‘monetary fines’ and he supports a more severe and binding approach on noncomplying Members.

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principle, monetary compensations unrelated to particular import or export transactions neither distort trade nor increase the transaction costs – both unwelcomed under the WTO rules. It is understood that the ‘cash versus violation’ trading rule would not in any case replace the MC’s obligation to comply. The periodical revision and correction of the violation value (needed to maintain the ‘equivalency’ between violation and compensation) could actually induce implementation even faster than retaliation, particularly when the State eventually authorized to retaliate: a. May have difficulty in finding a sector for effective retaliation; b. The retaliation would have anyway scarce effect on the MC’s market. In this respect, the ‘efficient breach’ theory (i.e., the State opts to pay damages instead of complying) would lose most of its efficiency on the side of the MC, while the complaining Member could decide how to manage the resources periodically received while waiting for compliance. The periodical revision could also lead to ‘gradual compliance’ – probably more welcome by MC’s interest-groups than ex abrupto legislative adaptations. Such reading of the compensatory mechanism presents advantages for smaller-markets, developing and developed Members; in fact: -

Developing States a. Would find themselves in a stronger position to claim for compensation (without reaching the potentially ineffective retaliatory stage); b. Concerns over possible backlashes on financial aids (whether the MC is also a donor of the complaining Member), besides being rather unrealistic 33, could anyhow be well taken into account by the DSB as a sort of counter-retaliation whose value is assessed in the subsequent tranche of compensation due by the MC; c. Even in the -again- rather unrealistic case a developing country would find itself in the position of non-complying MC (not in the record so far), it is even less probable that it would have to endure a situation such as to let doctrinal concerns over a supposed disparity in fine-paying ability become true: such measures would hardly pass the DSB bar.34

33

Given the nowadays international context it would not be easy for any developed State to justify such a behavior towards a developing State in the eyes of the public opinion. 34 See supra, note 32. Moreover, both points b) and c), in their eventually negative reading, underline the overall necessity for the WTO to be composed by Member who at least are ‘regional powers’. This ‘push towards unity’, necessary to properly balance Members trading powers, may generate positive effects in the

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Developed States a. World trade-giants (and most frequent WTO-rules violators), the US and the EC, would be plainly allowed to offset different monetary payments with each other. Read as a temporary and compensatory trading choice in place of implementation, it is hard to see the reasons for the heavy criticism that such an option eventually raises from some scholar 35; b. Taking into account that, as per the available data, retaliatory measures are taken only by the world’s trade Powers (US, EC, Canada, Japan, Mexico) and mostly among themselves, monetary compensations would allow these States to prove the WTO system more efficient before the entire WTO community, while they have the time to confront domestic interest groups opposing the measures to be taken to comply.

Under such perspective, other contributions -mostly merely procedural- to the enhancement of the effectiveness of the WTO-DSU system could be the following: a. More strict burdens on reports ex Article 21.6 (and Article 22.8): establishing (for instance, through the first appropriate AB ruling) standards and requirements for reports in order to allow the DSB for an effective evaluation of the implementation measures undertaken may help the implementation process itself; b. In order to discourage those attempts aimed at extending the implementation period, the determination of the level of compensation due to nullification or impairment should be calculated from the date of the establishment of the panel.

wake as -say- the African Union (on the push towards the creation of ‘large regional area markets’ and on regional-based considerations see Choi; note 1; p.1070) 35 Contra, Choi (see note 1; p.1066); to sum up: anything different than implementation endanger the compliance systems and promotes the culture of illegality, damaging the integrity of the WTO.

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Conclusions The present paper’s conclusions are undoubtedly far from those supporting a ‘gradual

reform towards judicialization and adjudication’ of the WTO compliance system 36. It seems hard to fail to notice that, if the legal world has been confined to a corner within the WTO system, that is also for the reason that the WTO dispute management and settlement pivots around interest-based negotiations and diplomacy, a world partly at odds with a too strict legal approach on the same issue. As shown, the interests of developing countries may be efficiently protected through the adoption of countermeasures assessing extensively the notions of nullification or impairment, rather than through collective measures (so far, impracticable). In a future at the moment not-foreseeable, a change in the WTO perspective on dispute resolution would entail an overall greater efficiency of the entire system than the creation of alternative mechanisms and exceptions to the present rules aimed at fixing single categories of problems. In this respect, following the 1994 GATT – WTO transition in the voting system principle (from positive to negative consensus), the next step could be to enhance the effect of WTO recommendations, providing them with self-executive and direct effect within -say- six months, safe any express intervention of the legislative/executive branch of the MC (for internal harmonization purposes). Such step is, though, not in sight at the moment.

Giuseppe-Matteo Vaccaro-Incisa

36

See note 1; p. 1070.

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