Dispute Settlement In Trade & Investment Agreements

1. Suhail A. Nathani Partner Economic Laws Practice Mumbai● New Delhi ● Ahmedabad August 24, 2007 Dispute Settlement In Trade & Investment Agreements

2. Dispute Settlement In Trade & Investment Agreements: Scheme of Presentation • Dispute Settlement Mechanism (DSM) in the WTO: • History & Working • Evolution • Instruments • Structure of WTO DSS • Legal Basis for a Disputes • Various Stages • Rules of Interpretation • Amicus Curiae Briefs • Standard of Review • India’s Experience • Ongoing Review • DSM in Regional Trade Agreements (RTAs) • Background • Mechanism • Private Party Rights: Investor-State Dispute Settlement • DSM in RTAs vis-à-vis WTO DSS: Mexico Soft Drinks Case

3. Dispute Settlement In Trade & Investment Agreements Dispute Settlement under WTO

4. History and Working of the DSS • World Trade Organisation (WTO) established in the year 1995; successor to the GATT,1947 • One of the primary objectives is to settle trade disputes; done through the DSS • WTO DSS created as part of the WTO Agreement during the Uruguay Round. • Embodied in Understanding on Rules and Procedures Governing the Settlement of Disputes; (Dispute Settlement Understanding -DSU).

5. History and Working of the DSS (Cntd.) • DSU constitutes Annex 2 of the Marrakesh Agreement establishing the World Trade Organization (WTO Agreement) • Sets out the procedures and rules • Present day DSS: result of evolution of rules, procedures and practices developed over 50 years under the GATT,1947. • Prior to WTO DSS, trade disputes settled under the GATT,1947 DSS.

6. Dispute Settlement under GATT,1947 Shortcomings of the GATT DSS • Appointment of panel, adoption of rulings, imposition of sanctions: done through positive consensus • No detailed procedures • No fixed timetable • Rulings easier to block • Cases dragged on for years • Overall an inefficient system; not very popular

7. Dispute Settlement under WTO: Instruments • Article XXII and XXIII of GATT,1947 • Understanding on Rules and Procedures Governing the Settlement of Disputes • Few specific rules in other WTO agreements.

8. Dispute Settlement under WTO: Improvements over GATT, 1947 • It remedies the inherent defects of the GATT DSS • Introduces the negative consensus rule • Resulting in automatic establishment of panel & appellate body (AB), automatic adoption of panel/ AB reports and automatic authorization of countermeasures against the non complying party • Integrated framework applying to all agreements with only minor variations • Provides more detailed procedures for each stage of dispute • Establishes specific time frames and deadlines for prompt settlement of disputes • Provision for appellate review • Overall an efficient system • Effectively used by members to settle more than 300 disputes in the last 12 years.

9. Structure of the WTO DSS • Ministerial Conference: top most decision making body of the WTO • The DSB is the administrative body which handles Day-to-day work of dispute settlement and comprises of all WTO member countries. • The DSB reports to the Ministerial Body. • DSB comprises of ad hoc Dispute Panels and a standing Appellate Body (AB)

10. Legal Effect Panel/Appellate Body Reports • Report becomes binding after adoption by the DSB • Reports binding only on the Parties to the dispute • Since reports relate to specific matters in the dispute between the Parties to the dispute: • Reports have no precedent value • However Panels and Appellate Body accord due deference to previous Reports for the purposes of: • Enhancing the “security and predictability” of the multilateral trading system (Art. 3.2, DSU) • Upholding the “legitimate expectations” created among the WTO Members from previous adopted Reports (AB Report, Japan Alcoholic Beverages II)

11. Dispute Settlement Panel: Function and Composition • Quasi-judicial body, similar to domestic tribunals • Adjudicates disputes in the first instance • No permanent panel at the WTO; different panel composed for each dispute • Normally composed of three( in some cases five) experts on an ad hoc basis • Selected by the DSB in consultation with the disputing parties, possibly from the indicative list maintained by the WTO Secretariat • Preferably one member is from a developing country and the other two from countries not party to dispute. • Panel reviews the factual and legal aspects of the case, records its findings and makes recommendations • On acceptance by the DSB, the Panel report becomes binding on the parties.

12. Dispute Settlement AB: Functions and Composition • Unlike Panel, AB is a permanent body of seven members • Reviews legal aspects of reports issued by the Panel. • AB members appointed by the DSB by consensus(Art.2.4 DSU) for a four years term and can be reappointed once (Article 17.2 DSU) • AB members to be persons of recognized authority, with demonstrated expertise in law, international trade and the subject matter of the covered agreements generally, and they must not be affiliated with any government (Art. 17.3 DSU) • AB members to be broadly representative of the membership of the WTO (Art. 17.3 DSU)

13. Legal Basis for a Dispute • Violation • The DSU is primarily concerned with settlements of disputes that involve an infringement of an obligation assumed under one or more of the WTO agreements. • Non Violation and Situation Complaints: • GATT Art. XXIII(1)(b): When a benefit under the WTO Agreements, accruing to a Member directly or indirectly, is nullified or impaired as a result of another Member country applying a measure, irrespective of whether or not such measure conflicts with any of the WTO Agreements (Non Violation) • GATT Art. XXIII(1)(c): extends such nullification or impairment as resulting from a broader range of circumstances, captured by the phrase ‘existence of any other situation’. (Situation Complaint)  

14. Non-Violation or Situation Complaints Non Violation • The burden of proof is on the complainant, who must present a “detailed justification” of the complaint by: • Defining the “benefit” being nullified or impaired • Defining the “measure” responsible • Showing a casual relationship between the measure and the nullification or impairment • Eg. Photographic Paper, Asbestosis Where the elements of a non-violation complaint are proved, there is no obligation to withdraw the measure – only that the offending member must make a “mutually satisfactory adjustment.” Situation • All other nullification or impairment of benefits are deemed to be impeded by “any situation.”

15. Basic Stages of Dispute Settlement • The (national) dispute initiation stage. • Consultation stage • Panel stage • Appellate review stage • Adoption • Implementation and Surveillance

16. Basic Stages of Dispute Settlement: Dispute Initiation • Complaints made: • By a particular Business or Industry • To its government • Against trade restrictive measures by a WTO member country • Concerned Government may conduct an internal enquiry to ascertain the legality of the complained measures • On being satisfied it may decide to challenge the measure of that WTO member country.

17. Basic Stages of Dispute Settlement: Consultations • Request for Consultations: • In writing & state the reasons for request • Forms Legal basis of complaint (Art.4.4 DSU) • Notified to DSB and concerned Councils & committees (Art. 4.4 DSU) • Typically take place in Geneva & are Confidential( Art. 4.6 DSU) • Dispute not resolved: Request DSB for establishment of Panel

18. Basic Stages of Dispute Settlement: Request for establishment & Constitution of Panel • Request for establishment of panel initiates the adjudication process • Request to be made to the Chairman of the DSB • Indicate whether: • consultations were held, • identify the specific measures at issue, • and provide a brief summary of the legal basis of the complaint (Article 6.2 of the DSU). • Constitution of Panel: • The WTO Secretariat proposes names, parties either agree or for compelling reasons oppose( Art.8.6 DSU) • If panel not composed within 20 days of its establishment by this method, either party may request the Director General (DG) WTO to compose the panel. • The DG appoints the panel members in consultation with the chairperson of the DSB and the chairperson of the relevant Council or Committee, after consulting with the parties, within 10 days after sending this request to the chairperson of the DSB. ( Art.8.7 DSU)

19. Basic Stages of Dispute Settlement:Panel Proceedings • In accordance with working procedures ( DSU appendix III) • Fixing of Terms of references • Oral & written submissions of the parties • Meetings of parties & Panel • Interim Report & review • Final report issued to the parties within 6 months of the terms of reference • Final report submitted to DSB

20. Basic Stages of Dispute Settlement:Panel Proceedings (Cntd.) • Third parties may also participate, provided they establish “substantial interest”. • 3rd Parties have limited rights of participation & right to seek information • Amicus Curiae briefs may be entertained on Panels discretion. • Expert review groups may be appointed by the Panel ( DSU appendix IV) • Confidentiality to be maintained.

21. Basic Stages of Dispute Settlement:Appeal • Standing Appellate Body • Only parties to dispute can appeal • Appeal limited to issues of law and legal interpretations developed by the panel( Art. 17.6 DSU) • AB may uphold, modify or reverse the legal findings & conclusions of the panel (Art. 17.13 DSU)

22. Basic Stages of Dispute Settlement:Appeal (Contd.) • Panel report adopted by the DSB within 60 days after the circulation to members unless: • Party notifies decision to appeal • DSB decides by consensus not to adopt it • AB report adopted by the DSB within 30 days after circulation to members. • Where violation of WTO Agreements is found, panel/AB may: (Art.19.1 DSU) • Recommend members to bring the measures in conformity • Suggest ways of implementing the recommendations

23. Dispute Settlement under WTO: Implementation & Surveillance • Panel/AB report to be adopted within “reasonable period of time” (Art. 21.3 DSU): • RPT proposed by member & approved by DSB, • or mutually agreed by the parties, • or determined through arbitration (15 months) • Compliance review: (Art. 21.5 DSU) must be decided by original panel, if possible. • Status report by the member on progress in surveillance

24. Dispute Settlement under WTO:Remedies for Non- compliance • On failure to bring the measure in conformity within reasonable period of time, possibility of: • Compensation; or • Suspension of concessions equivalent to the level of nullification or impairment • Authorization to suspend within 20 days of expiry of reasonable period of time

25. Dispute Settlement under WTO:Remedies for Non- compliance • Compensation: if implementing party fails to achieve full compliance within a reasonable period of time (Art. 22.2 of DSU): • Has to enter negotiations with the complaining party to ascertain mutually acceptable compensation • Compensation not in terms of monetary payments • Respondent supposed to offer a benefit (e.g. tariff reduction) • Suspension of concessions in (Art. 22.2 DSU): • Same sector, or • Other sector. Or • Other agreement. • Arbitration on the level of suspension (Art. 22.6 DSU)

26. Rules of Interpretation • WTO Agreement points two sources of law: • The covered agreements • The international agreements incorporated in the covered agreements • In addition, the decisions, procedures and customary practice followed by the GATT Contracting Parties throughout the GATT years shall also be followed( Art. XVI.1, WTO Agreement) • WTO adjudicating bodies have identified the following interpretative elements: • Panel/Appellate Body reports • Decisions & recommendations by various WTO organs • International agreements not reflected in the WTO agreement • Customary international law (e.g. Art. 31 of the Vienna Convention on Law of Treaties) • The travaux preparatoires of the WTO Agreement

27. Amicus Curiae Briefs • Acceptance of amicus curiae briefs from third parties- A controversial issue • Recent rulings of Appellate Body-Clearly show that the power of Panels/Appellate Body to accept amicus curiae briefs is an established principle • Shrimp-Turtle Case: Appellate body stated that: • Art. 13.1 of the DSU confer power to “seek” information from any individual/body • Power to “seek” shall be interpreted to include the power to accept and consider amicus curiae briefs. • Two methods for submission & consideration of amicus curiae briefs( EC-Sardines): • An amicus curiae brief can be submitted to Panel/Appellate Body with the consent of participating WTO Members. • Private organizations/individuals can submit amicus curiae briefs directly to the Panel (Art. 13.1) & to the Appellate Body (Art. 17.9, DSU) • Whether to accept/consider amicus curiae is up to the Panels/Appellate Body’s discretion.

28. Standard of Review • Art. 11 of DSU: • Panel should make an objective assessment of matter before it • Including and objective assessment of the facts of the case; and • The applicability & conformity with the relevant covered agreements. • Panel must observe due process of law ( Appellate Body in Chile Price –Bands Case) • Art. 17.6(i) of Antidumping Agreement-Special standard of review for antidumping proceedings: • Panel not to overturn the proper establishment of facts and unbiased & objective evaluation made by national antidumping authorities • Art. 17.6(ii) of Antidumping Agreement-National Deference principle: • If in Panel’s view a relevant provision admits two permissible interpretation, it shall accept the interpretation which supports the finding of the concerned national antidumping authority. • Art. 17.6 of the Antidumping Agreement is supplementary to Art. 11 of DSU (Appellate body inUS-Hot-rolled steel)

29. WTO DSS: India’s Experience • India is one of the leading developing country users of the WTO DSS • Involved in total of 84 cases at the WTO DSS: • As complainants in 17 cases • As respondents in 19 cases • As third party in 48 cases • Mixed success at the DSS: • India-QRs Case: India forced to dismantle QR regime on complaint from US • India-Patents Case: India forced to change its IPR law regime and bring it in consonance with the TRIPS on complaint from EC • EC-Bed Linen Case: India’s claim that practice of “zeroing” while establishing the existence of margins of dumping was inconsistent with Anti-Dumping agreement was held to be correct and EU was forced to change its measures. • EU-GSPs Case: No clear benefit to India, even though the measure complained against was held to be WTO non compliant.

30. WTO DSS: India’s ExperienceOngoing Dispute • India is presently involved in a dispute with the USA (WT/DS360) concerning the imposition of “Additional Duties” on imports of alcoholic beverages and certain identified industrial & agricultural products • Initial complaint was brought by the European Communities against levy of “Additional Duties” on imports of Alcoholic Beverages under Section 3(1) & 3(5) of the Customs Tariff Act,1975(WT/DS356); USA joined as a complainant later on • Following consultations India removed the “Additional duties” on alcoholic beverages levied under Section 3(1), Customs Tariff Act,1975 • Thereafter EC requested the Panel to suspend the proceedings • USA decided to continue with the Panel proceedings • In substance the dispute now concerns the “Additional Duties” imposed under Section 3(5) of the customs Tariff Act,1975

31. Ongoing Review of the WTO DSS • Broad consensus that DSS has worked reasonably well • Nevertheless review is desirable • As agreed by the Members during the Uruguay Rounds, review of the DSU started in 1997-not part of Doha Round “Single Undertaking” • Has not resulted in any agreed outcome • Doha Ministerial Declaration contained a mandate for “negotiations on improvements and clarifications” of the DSU. • No results till date, though countries have made their submissions on desired changes in the system.

32. Dispute Settlement In Trade & Investment Agreements Dispute Settlement Mechanism under RTAs/FTAs

33. Dispute Settlement Mechanism under RTAs/FTAs: Background • Shift in the focus of trade liberalization from WTO to RTAs/FTAs • Surge in the number of RTAs • 330 RTAs notified to the WTO (earlier GATT) till 2005 • 206 RTAs notified since 1995 • Several other in force but not notified

34. Relevance of DSMs in RTAs • Trade disputes by their nature require resolution/solution rather than ruling on right or wrong • Overburdened domestic judicial systems • Skepticism over impartiality of National Courts • Need for time bound resolution

35. Characteristics of an Ideal DSM • Clear procedure • Effective administration • Impartial, Speedy, Transparent, Inexpensive • Upholding principles of Pvt. and Public International Law • Develops coherent jurisprudence

36. DSMs under RTAs: Typical Structure • Akin to WTO DSS • Consultations/Negotiations • Establishment of Arbitral Panel/Committee • Appeal: Appellate Board • Enforcement Mechanism: Measures to be brought in conformity or else withdrawal of concessions/benefits • May provide limited access to private parties

37. DSMs under RTAs: Private Party Rights • RTAs: Agreements between two or more countries granting preferential market access • Contractual Agreements: Imposing obligations upon signatory countries and not upon private parties • Scope of recent RTAs more ambitious: covering issues such as the trade in Services, Intellectual Property Rights, Investment, Government Procurement, Competition Policy, Labour, Environment etc • Directly affect the commercial interests and investment decisions of Private Parties • Thus Private Parties given limited access to DSMs: usually in case of investor-state disputes

38. Private Party rights under FTAs

39. DSMs under RTAs vis-à-vis WTO DSS: Mexico Soft Drinks Case • Detailed rules for resolution of disputes contained in RTAs • Establishing DSMs running parallel to WTO DSS • May provide countries with two options for dispute resolution • Mexico Soft Drinks Case: Issue of conflict of jurisdiction between NAFTA Panel and WTO Panel • Both Panel and AB held that “WTO Panel would seem not to be in a position to choose freely whether or not to exercise its jurisdiction” • Interesting issues arising out of Mexico Soft Drinks Case: • Firstly, what should a country consider when entering into an RTA with dispute settlement provisions? • Flowing from this question, what is the implication of the choice of dispute settlement forum available to a WTO member who is also a signatory to an RTA that has its own dispute settlement provisions?

40. Dispute Settlement In Trade & Investment Agreements The End Thank You!