U.S. & WTO -- Trade Litigation & Global Governance (1995-2013)

1. U.S. & WTO -- Trade Litigation & Global Governance (1995-2013) [Overview & Actual Practice 1995 – 2005] Stuart S. Malawer,J.D. Ph.D. Distinguished Professor of Law & International Trade, George Mason University. http://www.InternationalTradeRelations.com StuartMalawer@InternationalTradeRelations.com (2014)

2. Introduction & Some Questions. • Basics of the WTO. • Basics of the DSU. • Practice: 1995 – 2005. • Observations & Research Note. (2014)

3. I. Introduction & Some Questions. (2014)

4. What has been the Experience of the WTO / DSU Litigation Process over 15 Years? • Main Question: What has been the U.S’s experiencein WTO litigation in light of its initial expectations & concerns? • Impact on U.S. sovereignty. • Developing a rule-based system that would enhance trade. • Question Two: Expectations / concerns & experience ofother states? • To restrict U.S. unilateral action • Fear DSU used against them. • U.S. wouldn’t observe decisions. (2014)

5. Additional Issues : • Issues decided by the DSU? • Role of consultations? • Compliance / Sanctions. • Lessons from the 15+-Year history (1995 – 2010)? • Experience in light of expectations. • For the U.S., other states, trading system. • Method: Not a review of jurisprudence, but of actual practice. (Recent statistical studies.) (2014)

6. WTO Litigation in the News. W.T.O. Rules U.S. Subsidies for Boeing Unfair New York Times (April 1, 2011) (2014)

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10. Significance of the WTO. “No review of the achievements of the WTO would be complete without mentioning the Dispute Settlement system, in many ways the central pillar of the multilateral trading system and the WTO’s most individual contribution to the stability of the global economy.” …… Renato Ruggiero, WTO Director-General, April 17, 1997. (2014)

11. Questions to Consider. • In 1995, what was established by the WTO & other Uruguay Round agreements? What has been the actual experience in light of the expectations at that time? • What is the relation of the DSU (adjudicating trade rules) with the negotiation process of the WTO (rule making) in establishing a rule-based trading system? • What are the basic provisions of the DSU? • Do adverse decisions override domestic law? Issue of sovereignty. • What has been the actual practiceof the panels and AB? (What can be learned from the panel & AB decisions?) • What has the U.S. recordbeen before the DSU? Record of other countries? • What about the newer cases –“2007-2011 U.S. - China Trade Offensive”? • What about “retaliation” and “sanctions” and the U.S. compliance with adverse actions? • What observations can be made at this time? • Role of negotiations or litigation in global trade relations? • What about the balance between the two sides of the WTO from 1995 to 2011? • Use of DSU by other states? EU? India? China? LDC’s? • What are the benefits of litigation & legalization of the trading system for global governance of international economic relations generally? Any downside? (2014)

12. Use of the system by the United States? “Litigation” lessons (probability of success)? Use of the system by countries generally? Use of the system by member countries: Legal implications for the global trade system & those countries? Significance of consultations? “Rule development” for trade system v. “individual case settlement”? What other data to look at in the future? Pending Cases (active panels and appeals) Settled Cases (consultations / inactive panels) What is the issue of legalization or negotiation in the DSU? Transparency or secrecy (traditional Diplomacy)? Any new changes under President Obama? Additional Questions. (2014)

13. II. Basics of the WTO. (2014)

14. ACCOMPLISHMENTS OF THE URUGUAY ROUND. • Establishment of a permanent trade institution (WTO). • WTO to negotiate trade rules & to apply them. (Global trade to be a rule-based system– not governed by power.) • Providing the WTO with a firm legal basis & detailed constituent rules. (Cured the GATT “legal defects.”) • Integrated package of substantive rules. • Further defined traditional trade issues: dumping, export subsidies, agriculture, procurement. • For example, list of prohibited subsidies. • Extended general GATT principles and disciplines to newer trade & transactional areas: investments, intellectual property, services & scientific concerns. • Greater institutional development: dispute resolution system. • Compulsory & binding dispute resolution in a transnational setting. (2014)

15. New Aspects Replacing Older Defects. • The WTO created an integrated system replacing the ad hoc GATT approach. • For the first time a permanent international institution was created with a firm legal foundation. • A new system of compulsory and binding dispute resolution was established with sanctions. • The dispute resolution system is as important as the trade negotiation mission of the WTO – two halves – rule-making & rule implementation. • The creation of a rule-based system with meaningful rule implementation & enforcementwas central to U.S. foreign policy of relying on multilateral institutions in the new era of globalization and the reliance upon a U.S.- style legal / litigation approach to supplement traditional diplomacy. (2014)

16. Two Basic Principles of the WTO. • Most Favored Nation Principle. • National Treatment Principle. • Both principles based on the principle of non-discrimination (as to different imports and domestic products). (2014)

17. WTO (Constituent) Annex 1A (Goods) GATT 1994 TRIMS A/D CVD Safeguards Agriculture SPS Annex 1B (Services / GATS) Newer: Telecom, Fin. Service Annex 1C (Intellectual Property Rights / TRIPS) Annex 2 (Dispute Resolution / DSU) Plurilateral: Gov’t Proc. URUGUAY AGREEMENTS as ‘Executive Agreements’ These agreements were concluded pursuant to “fast track” authority and then implemented by the URIAA. (2014)

18. Trade Issues Negotiated at Uruguay Round. • Traditional Issues.(Expanded). • Goods. • Agriculture. • A/D. • CVD. • Safeguards. • Newer Issues. • Services. • Intellectual Property. • Institutional. • WTO. • DSU. • Singapore (1996). • Financial Services. • Telecom. • Inform. Technology. • Issues NOT Included. • Environment, Labor, Investment, Competition. (2014)

19. Doha Trade Round. • “Doha Ministerial Declaration.” (Nov. 14, 2001). • List issues as to “expanded negotiating agenda” and “other activities.” • To determine whether the Singapore issues were to be part of further negotiations. • Separate declaration on drug patents & compulsory licensing for production in LDC’s. • “Decision on Pharmaceutical Patents.” (August 30, 2003). • Follows the Doha declaration on “compulsory licensing” as a public health exception to TRIPS and allows for export to other LDC’s. • “July 31, 2004 Package”-- After Cancun Ministerial 2003. • Agriculture& cotton. • Domestic support, export subsidies, S&D treatment, market access. • S & D treatment principle. • No inclusion of “Singapore Issues” – (Investment, Competition & Government Procurement). • Hong Kong Ministerial – inconclusive, but kept round alive. (2005). • Trade round suspended July 2006 by WTO Director-General Lamy. • Expiration of TPA / Fast Track in 2007 complicates trade negotiations. • Doha concluded by a weak ‘Bali.” (2013) (2014)

20. Ministerial Meetings under WTO. • Singapore (1996). • Geneva (1998). • Seattle (1999). • Doha (2001). • Cancun (2003). • Hong Kong (2005). • Geneva (2009). • Bali (2012). (2014)

21. TRADE AGREEMENTS: Delegation of Authority, Implementation, “Fast Track (TPA).” Congressional Authority Congress has ‘exclusive authority’ over foreign trade Delegation of Authority (1979 / 1988 Trade Acts). Sets negotiating objectives. “Fast Track / TPA.” President Concludes Trade Agreement Concludes WTO & Multilateral Agreements as international obligations. Legislation implements trade agreements (URIAA) as domestic law. Creates domestic law obligations & approves agreements Implementing Legislation Domestic law ABC Corp XYZ Corp (2014)

22. Dual Nature of Trade Agreements (International & National) & Federal-State Relations. Trade Agreement (WTO) U.S. EU International Obligation Note on WTO & States. • WTO obligations apply to states. • Problem is that state law may violate WTO obligations and create liability for the U.S. • Federal authority is limited to consulting – may bring an action under implementing legislation. Implementing Legislation. Federal Domestic Law. State Corp. X in U.S. (2014)

23. III. Basics of the DSU. (2014)

24. The WTO & DSU. • The WTO Agreement is the constituent agreement & one of a group of agreements resulting from the Uruguay Round of Trade Negotiations (1986 - 1994). • The WTO became effective on Jan. 1, 1995. • DSU is annexed to the WTO Agreement. • In the U.S. the URIAA(1994) implemented the Uruguay Round of Agreements. (2014)

25. U.S. Concerns at Time of Implementation. • Generally, transfer of “sovereignty” to the WTO? • Specifically, as to the authority of the DSU to override U.S. law. • Issue of “transparency” (confidentiality / procedural rules) concerning the process. • How would the system develop -- for or against U.S. interests? (2014)

26. Additional Concerns • Would the U.S. be able to avoid implementation? Would other countries? • Would other countries use the DSU? Against the U.S.? • Would the new system in fact encourage greater global trade, investment and business and perhaps ultimately freer markets and freer societies? • Note: • Countries were concerned about U.S. Use of the DSU and its implementation of decisions? • Primary purpose for the U.S. was to create a litigation-based system to enforce global trade rules & the primary purpose of other countries was to restrict the use of unilateral trade sanctions by the U.S. (to multilateralize sanction) -- Both achieved their aims. (2014)

27. The Dispute Resolution System • Four Historic Accomplishments: • Compulsory • Binding • Integrated • Sanctions (2014)

28. Aims of the DSU(Article 3). • To provide security and predictability to the multilateral trading system. • That a prompt settlement of disputes is essential. • To secure a positive solution to a dispute. (Negotiated solution is preferable to litigated decisions.) • Once a violation is determined the aim is to secure the withdrawalof the offending measure. • Compensation is to be resorted to only if the withdrawal of the measure is impracticable. • As a last resort, have suspension of concessions or other obligations (“Retaliation”). (2014)

29. DSU Articles --Article 19 – (Panel & AB Recommendations)Article 21 -- (Surveillance of Implementation) Article 22 -- (Suspension of Concessions) • Article 19 --- Recommendation is to “bring the measure into conformity” with the WTO agreement. • Article 21 --- Prompt complianceis essential. The panel reviews a disagreement over consistency of compliance measures taken and keeps under surveillance implementing actions. •  Parties need to inform of intentions to comply with DSB. • Arbitrationas to “reasonable period.” Art. 21(3). • “Consistency of compliance” – original panel. Art. 21(5). • Article 22 --- Full implementation is preferred. Sanctions (withdrawal of concessions) may be authorized. • Authorization for sanctions to DSB. • Arbitration (by panel) for amount of sanctions. Art. 22(6). (2014)

30. Basic Procedures. • First stage is consultations. • Upon failure of consultations panels are established by the Dispute Settlement Body (DSB) (General Council). • Panels have detailed rules of procedures providing for “descriptive sections,” interim reports, and final reports. • If appealed the Appellate Body (AB) reviews the panel report. • Issues of law covered by the panel • Legal interpretations developed by the panel. • The DSBautomaticallyadopts the reports of the panels and the Appellate Body unless there is a “consensus” (unanimity) against its adoption. (Concept of automaticity.) • DSB keeps surveillance of implementation. (2014)

31. Basic Characteristics of Procedures. • Three member panels and Appellate Body. • Panels are selected from a roster and the AB members are permanent (but not full time). • Quasi-Judicial • Panel members chosen by parties if have agreement • Rebuttal arguments • Experts • Third Parties • No jury / No examination of other party • AB members not selected by parties • Substantial confidentiality and secrecy of proceedings provided. (This has come under attack by those wanting more transparency and a greater role for civil society – NGOs.) (2014)

32. Two Methods for Private Sector to Attack Foreign Restrictions &Two Methods of Litigation Before the WTO. # 1 Industry Action in Domestic Agencies # 2 Direct WTO Action by a Country # 1 EU # 2 U.S. EU U.S. Market Access Restriction Market Access Restriction Unilateral Remedy after domestic agency determination e.g., A/D or CVD … # 1 -- WTO action by a member against unilateral trade remedy. # 2 -- Direct WTO action against national restriction. • Another option for the private sector – It can lobby the USTR to bring a direct action against a perceived foreign market restriction. • If the WTO determines a violation it then may authorize sanctions. • This is the basic WTO approach – sanctions only allowed via a multilateral determination via the dispute resolution system. • The WTO allows unilateral trade remedies against a perceived foreign restrictions if pursuant to domestic agency determinations. • This is one exceptional instance that allows unilateral restrictions. • The private sector has this as one option – filing a domestic agency case -- with the ITC, ITA or USTR. • The foreign country can then attack the agency determination in the WTO. This is a supranational review of a national determination. (2014)

33. Flow Chart of Litigation Stage (Merits). Dispute Settlement Body Appellate Body Panels Consultation smalawer@1998 (2014)

34. Impact of Litigation. • Binding only on the parties to the litigation. Benefits to Trading System. • Non-party (third-party) takes advantage of removal of trade restriction by the losing party. • Non-party (third party) may remove own national restriction – once the trade rule is clarified by the decision. • Further benefits other states. (2014)

35. Post-Litigation Stage (Implementation / Enforcement). Arts. 21 – 23 (DSU) Removal of offending measure. Stage # 2 -- Surveillance / Compliance Review (implementation). Sanctions. Implementation. Final DSB action --after panel/AB decision. Stage # 1 -- Litigation Stage. smalawer @2006 (2014)

36. Sanctions & Compliance. Authorization of Sanctions. Removal of Sanction. Winning state to remove sanctions when it determines implementation is sufficient. WTO authorizes winning party to impose sanctions when have non-compliance – WTO determines compliance. But if winning states fails to remove sanctions, losing state to return to WTO and ask for compliance determination. (2014)

37. These approximate periods for each stage of a dispute settlement procedure are target figures — theagreement is flexible. In addition, the countries can settle their dispute themselves at any stage. Totals are also approximate. 60 days Consultations, mediation, etc 45 days Panel set up and panelists appointed 6 months Final panel report to parties 3 weeks Final panel report to WTO members 60 days Dispute Settlement Body adopts report (if no appeal) Total = 1 year (without appeal) 60-90 days Appeals report 30 days Dispute Settlement Body adopts appeals report Total = 1y 3m (with appeal) Time Periods for the Full Litigation Process. (2014)

38. (2014) Source: WTO (2005).

39. Implementation / Sanctions. • Decisions to be implemented by bringing the offending “measure into conformity with that agreement.” Art. 19 • Losing Party may “buy its way out.” (Maybe not) • Implementation of recommendation is preferred. Art. 21 • WTO determines if there is an inconsistency between implementing measures and ruling (original panel). Art. 21 • Arbitrator may decide “reasonable period of compliance.” • However, compensation or suspension of concessions may be authorized (“retaliation & cross-sector retaliation / cross-agreement”) by the DSB.Art. 22 • Arbitrator may decide if “suspension” is equivalent to “nullification” (amount of sanctions). • Sanctions are primarily tariff surcharges for winning party. • Enforcement -- as of 2005 only 7 (8) sanctions authorized (Beef, Bananas, FSC, Canadian Aircraft) (Against U.S. – FSC, Byrd). (2014)

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41. IV. Practice: 1995 - 2005. (2014)

42. For summary chart of cases Click here (1995-2005) • For NYLJ article (2004) on earlier data Click here (2014)

43. Total Cases – 62 • Complainant – 26 • Respondent -- 36 • Malawer, “U.S. & WTO – 10 Yr. Review.” (Summer 2005). (Click here.) (2014)

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45. 22 consultations resolved favorably. (2014)

46. 14 consultations resolved. (2014)

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49. Source: "Update of WTO Dispute Settlement Cases (WTO: Oct. 14, 2004). • Litigation does not include Art. 21.5 • Consultation includes mutually agreed solutions Art. 3.6, inactive & active panels. (2014)

50. Some cases jointly filed: Total 315 complaints, 309 cases. (2014)