III. European Integration and international trade law

1. III. European Integration and international trade law Regional Integration and the GATT/WTO-System The European Integration and Art. XXIV GATT (Art. 5 GATS) Interfaces EU-WTO

2. 1. Regional Integration and the GATT/WTO-System 1.1. Importance of regional trade agreements • Since 1990’s proliferation of regional trade agreements: over 380 RTA’s notified, 205 agreements are in force • E.g.: NAFTA (North American Free Trade Agreement between Canada, Mexico, USA; largest trade bloc concerning GDP); MERCOSUR (Mercado Común del Sur, custom union with Argentina, Brazil, Paraguay and Uruguay), AFTA (ASEAN Free Trade Area), COMESA (Common Market of Eastern and Southern Africa), CARICOM (Common Market of the Carribean), etc • 2004 all but two members of the WTO were party one or more regional agreements – a significant part of world trade takes place under the terms of regional trade agreements

3. 1.2. RTA and the WTO • WTO recognises the advantages of economic integration and trade liberalisation (even if only some members are involved): • Possible to reach a degree of liberalisationwhich would be out of reach at the global level. • Regional integration can create significant economic growth and can achieve non-economic goals. • But it is not clear, whether a RTA diverts rather than creates trade. • WTO-law must struck a balance between interests of countries pursuing closer economic integration and other members. WTO rules shall ensure that RTA create trade more than they divert (trade creating effects must be greater than its trade diverting effects). WTO therefore shapes RTA’s. • WTO regulations: • Art. XXIV GATT’ 94 + Understanding on Article XXIV • Art. 5 GATS • “Enabling clause” for developing countries

4. 2. European Integration and Art. XXIV GATT (Art. 5 GATS) 2.1. Overview • Second World War had put a definitive end to the traditional European hegemony in the world. • Avoid, by all possible means, coming back to a confrontation among European States. Searching an accommodation between France and Germany. A compromise that would be endorsed by the USA. • Conclusion: Create a freer, fairer and more prosperous continent and that international relationships were developed in a legal framework of concord. Implementation of a free trade policy became a basic condition for ERP-help (curb the expansion of communism) – foundation of the OEEC (liberalize trade, monetary agreements and enhanced economic cooperation); furthermore 1948 Benelux (customs union between Belgium, Netherlands and Luxembourg) worked on external tariff; Council of Europe 1949: political cooperation among European countries (no surrender of souvereignity from the member states); ECSC 1951; Treaties of Rome 1957: EEC, European Atomic Energy Community

5. 2.2. The EEC/EC and Art. XXIV GATT • European RTA have to meet the requirements set out in GATT/WTO law. • Requirements of GATT/WTO-law (two-tier test): A measure, otherwise inconsistent with GATT is justified • If the measure is introduced upon the formation of a customs union, a free trade area or an interim agreement, that meet the requirements set out in GATT/WTO-law (Art. XXIV:8 and Art. XXIV:5). • If the formation of the customs union or free trade area would be prevented, i.e. made impossible, if the introduction of the measure concerned was not allowed. • Question:Does the EEC/EC (at a first glance) meet the requirements of the two-tier-test (give reasons)?

6. Example 2: Turkey – Textiles: In Turkey –Textiles the measures at issue were quantitative restrictions on textiles and clothing from India. According to Turkey this quantitative restrictions Art. XI [General Elimination of Quantitative Restrictions] and XIII [Non-discriminatory Administration of Quantitative Restrictions]) were justified under Art. XXIV GATT. Turkey argued that, unless it was allowed to introduce quantitative restrictions on textiles and clothing from India, it would be prevented from forming a customs union with EC. The EC would have excluded these products from free trade within the EC-Turkey customs union in order to prevent the circumvention of the EC’s quantitative restrictions on textiles and clothing from India by importing them via Turkey. Turkeys exports of these products accounted for 40 per cent of Turkeys total exports to the EC and therefore Turkey expressed strong doubts as to whether the requirements of Art. XXIV can be met.

7. Report of the Appellate Body: TURKEY – RESTRICTIONS ON IMPORTS OF TEXTILE AND CLOTHING PRODUCTS, AB-1999-5, para 62 “We agree with the Panel that had Turkey not adopted the same quantitative restrictions that are applied by the European Communities, this would not have prevented Turkey and the European Communities from meeting the requirements of sub-paragraph 8(a)(i) of Article XXIV, and consequently from forming a customs union. We recall our conclusion that the terms of sub-paragraph 8(a)(i) offer some – though limited – flexibility to the constituent members of a customs union when liberalizing their internal trade. As the Panel observed, there are other alternatives available to Turkey and the European Communities to prevent any possible diversion of trade, while at the same time meeting the requirements of sub-paragraph 8(a)(i). For example, Turkey could adopt rules of origin for textile and clothing products that would allow the European Communities to distinguish between those textile and clothing products originating in Turkey, which would enjoy free access to the European Communities under the terms of the customs union, and those textile and clothing products originating in third countries, including India.”

8. Example 3: Argentina - Footwear In Argentina Footwear the question arose whether Article XXIV:8 (a)(i) prohibited Argentina, as a member of MERCOSUR, from imposing safeguard measures on other MERCOSUR countries. The Appellate Body was even of the opinion that Argentina should have applied the safeguard measures on other MERCOSUR countries: “On the basis of this reasoning, and on the facts of this case, we find that Argentina's investigation, which evaluated whether serious injury or the threat thereof was caused by imports from all  sources, could only lead to the imposition of safeguard measures on imports from  all  sources. Therefore, we conclude that Argentina's investigation, in this case, cannot serve as a basis for excluding imports from other MERCOSUR member States from the application of the safeguard measures.”

9. 3. Interfaces EU - WTO 3.1. Overview • European Integration is based on the exception of Art. XXIV GATT. The latter shaped the customs union and the Common Market. • The EC is member of the WTO since 1 January 1995 (the 27 member States of the EU are WTO members in their own right, s mixed agreement). The EC is therefore bound by the obligations of the WTO and the European Commission speaks for all EU member States at almost all WTO meetings. Before 1995 the EC were de facto members of the GATT. S ECJ, C-21/72 International Fruit Company, Rec.1972,p.1219, s next slide). • The Common Commercial Policy connects the EC to the WTO-law system (s Pt 3.3.).

10. ECJ, C-21/72 International Fruit Company, Rec.1972,p.1219: 14 THE COMMUNITY HAS ASSUMED THE FUNCTIONS INHERENT IN THE TARIFF AND TRADE POLICY, PROGRESSIVELY DURING THE TRANSITIONAL PERIOD AND IN THEIR ENTIRETY ON THE EXPIRY OF THAT PERIOD, BY VIRTUE OF ARTICLES 111 AND 113 OF THE TREATY . 15 BY CONFERRING THOSE POWERS ON THE COMMUNITY, THE MEMBER STATES SHOWED THEIR WISH TO BIND IT BY THE OBLIGATIONS ENTERED INTO UNDER THE GENERAL AGREEMENT . 16 SINCE THE ENTRY INTO FORCE OF THE EEC TREATY AND MORE PARTICULARLY, SINCE THE SETTING UP OF THE COMMON EXTERNAL TARIFF, THE TRANSFER OF POWERS WHICH HAS OCCURRED IN THE RELATIONS BETWEEN MEMBER STATES AND THE COMMUNITY HAS BEEN PUT INTO CONCRETE FORM IN DIFFERENT WAYS WITHIN THE FRAMEWORK OF THE GENERAL AGREEMENT AND HAS BEEN RECOGNIZED BY THE OTHER CONTRACTING PARTIES . 17 IN PARTICULAR, SINCE THAT TIME, THE COMMUNITY, ACTING THROUGH ITS OWN INSTITUTIONS, HAS APPEARED AS A PARTNER IN THE TARIFF NEGOTIATIONS AND AS A PARTY TO THE AGREEMENTS OF ALL TYPES CONCLUDED WITHIN THE FRAMEWORK OF THE GENERAL AGREEMENT, IN ACCORDANCE WITH THE PROVISIONS OF ARTICLE 114 OF THE EEC TREATY WHICH PROVIDES THAT THE TARIFF AND TRADE AGREEMENTS " SHALL BE CONCLUDED ... ON BEHALF OF THE COMMUNITY ". 18 IT THEREFORE APPEARS THAT, IN SO FAR AS UNDER THE EEC TREATY THE COMMUNITY HAS ASSUMED THE POWERS PREVIOUSLY EXERCISED BY MEMBER STATES IN THE AREA GOVERNED BY THE GENERAL AGREEMENT, THE PROVISIONS OF THAT AGREEMENT HAVE THE EFFECT OF BINDING THE COMMUNITY .

11. 3.2. “Effect of binding the community” • How to deal with possible collisions between EC and WTO-law? • The ECJ developed concepts of direct applicability and supremacy of Community law (van Gend & Loos, Costa v. ENEL) – the WTO DSB not. • Such a decision is probably excluded by Art 3 (2) 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.” • Therefore the decision is up to MS-legal order.

12. ECJ: no direct applicability/direct effect of WTO-law –espsince it’s considerable importance of the negotiations between the parties and moreover since "the most important commercial partners of the Community" have concluded from the subject-matter and purpose of the WTO Agreements that they are not among the rules applicable by their judicial organs when reviewing the legality of their rules of domestic law. This also concerns decisions of DSB.EC measure can not be challenged on the basis of WTO law (by market citizens and even by Member States, ECJ Portugal v. Council), but: • Indirect applicability (interpretation of national/supranational law in conformity with international law; precondition: interpretative margin or discretion) • Fediol and Nakajima- Cases (C-70/87 and C-69/89): The ECJ will review the legality of a Community measure in the light of WTO-rules: • Where the Community intended to implement a particular obligation • Where the Community refers expressly to the precise provisions of the WTO-agreements • WTO law is of greater significance for the control of member state measures (ECJ C-53/96, Hermès, concerning TRIPS) – in terms of intra-Union-control WTO-Law is yardstick for MS-measures

13. Example: Leon van Parys (ECJ, C-377/02) – The Banana-Case Leon van Parys, a private banana importer from Belgium, has imported bananas into the EC from Ecuador more than 20 years. 1998 he applied again for import licences, but the Belgian authority refused to issue the former with import licences for certain quantities of bananas originating in Ecuador and Panama under reference to the EC legislation on a common market for bananas. Leon van Parys – in an action before the Raad van State (second instance) - challenged the legality of this EC legislation since the DSB of the WTO had adopted reports holding this legislation to be an violation of various provisions of GATT 1994. The Raad van State decided to stay the proceedings and refer to the ECJ the question “Does this EC-legislation infringe the GATT’ 94” for a preliminary ruling. The ECJ found it necessary to answer the question whether, under EC law, nationals may challenge the validity of EC legislation on the basis of WTO Agreements.

14. Example: Leon van Parys (ECJ, C-377/02) – The Banana-Case “Given their nature and structure, the WTO agreements are not in principle among the rules in the light of which the Court is to review the legality of measures adopted by the Community institutions. It is only where the Community has intended to implement a particular obligation assumed in the context of the WTO, or where the Community measure refers expressly to the precise provisions of the WTO agreements, that it is for the Court to review the legality of the Community measure in question in the light of the WTO rules. […] the Community did not intend to assume a particular obligation in the context of the WTO, capable of justifying an exception to the impossibility of relying on WTO rules before the Community Courts and enabling the latter to exercise judicial review of the relevant Community provisions in the light of those rules. First, even where there is a decision of the DSB holding that the measures adopted by a member are incompatible with the WTO rules, the WTO dispute settlement system nevertheless accords considerable importance to negotiation between the parties. In those circumstances, to require courts to refrain from applying rules of domestic law which are inconsistent with the WTO agreements would have the consequence of depriving the legislative or executive organs of the contracting parties of the possibility afforded in particular by Article 22 of the Understanding on rules and procedures governing the settlement of disputes of reaching a negotiated settlement, even on a temporary basis. Secondly, to accept that the Community Courts have the direct responsibility for ensuring that Community law complies with the WTO rules would deprive the Community’s legislative or executive bodies of the discretion which the equivalent bodies of the Community’s commercial partners enjoy. Therefore, an economic operator cannot plead before a court of a Member State that Community legislation is incompatible with certain WTO rules, even if the DSB has stated that that legislation is incompatible with those rules. (see paras 39-42, 48, 53-54, operative part)

15. 3.3. Common Commercial Policy (in short) • Most developed external policy since E(E)C is based on a customs union (Art 23 EC) – GATT definition requires not only common customs tariffs but also common policy on trade matters (uniform conduct of trade relations with third countries). General awkwardness of dichotomy between trade policy and foreign and security policy (CFSP) • CCP is in general an exclusive power – BUT: services and intellectual property is a joint competence (s ECJ Opinion 1/94 concerning Art. 133 EC) • Common import and export regimes established besides common costums tariff • Common rules for exports (principle of freedom of exports, s Council Regulation 2603/69) • Common rules for imports (principle of freedom to import products originating in third countries, subject to possible safeguard measures, Council Regulation 3285/94) • Commercial Defence(Anti-dumping measures, Anti-subsidy measures, Defence against trade barriers)