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Dispute Settlement Under theWTO and RTAs:
An Uneasy RelationshipArmand C. M. de Mestral*
Emeritus Professor, Jean Monnet Professor of Law, McGill
University
*Corresponding author. E-mail: [email protected]
ABSTRACT
The proliferation of RTAs is a recognized feature of our time.
While such agreementsare permitted under Article XXIV of the GATT,
this has not been without controversyand one aspect which remains
unclear concerns the role decisions rendered by RTAdispute
settlement bodies play in WTO cases. Are RTA dispute settlement
systems incompetition with and possibly even in contradiction to
the WTO DSU or are theycomplementary? Can they co-exist or are they
cast in eternal opposition? Are theyequal or are they inherently
subordinate to the WTO DSU? The article considers theWTOs treatment
of RTAs in GATT and WTO case law, and weighs arguments forand
against the consideration of RTA decisions by the DSB. The article
submits thatthe DSB should not be blind to the equities of a
situation where two states havereached an agreement in an RTA
selecting dispute settlement under that body. This ismore than a
theoretical argument, it has happened, and the increasingly complex
co-ex-istence of the WTO with some 400 RTAs suggests that similar
problems can arise inthe future. Furthermore, these issues deserve
a much more open and careful analysisthan they have had to
date.
I . INTRODUCTIONThe proliferation of international dispute
settlement procedures is a recognizedfeature of our time.1 Some
have viewed this phenomenon with alarm fearing the
1 International Law Commission, Fragmentation of International
Law: Difficulties Arising from the Diversifica-tion and Expansion
of International LawReport of the Study Group of the International
Law Commission,UNGAOR, 58th Sess, A/CN.4/L.682 (2006)
(Fragmentation of International Law). For a recent analysisof
regional trade agreement dispute settlement mechanisms, see Clause
Chase et al., Mapping of DisputeSettlement Mechanisms in Regional
Trade AgreementsInnovative or Variations on a Theme? (2013)World
Trade Organization: Economic Research and Statistics Division,
http://www.wto.org/english/res_e/reser_e/ersd201307_e.pdf (working
paper) (Chase et al.).
VC The Author 2013. Published by Oxford University Press. All
rights reserved.
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disintegration and fragmentation of international law.2 Others
have taken a morerelaxed position, based on the assumption that
additional dispute settlement proced-ures should on balance promote
greater variety and sophistication in the rules ofinternational
law.3 Nowhere is this phenomenon more pronounced than in the
fieldof international economic law. We have witnessed the
astonishing emergence of theWorld Trade Organizations (WTO) Dispute
Settlement Body4 (DSB) since 1994as one of the most successful
forms of compulsory international dispute settlementof all time.5
Investor-state arbitration, under bilateral investment treaties,
hasemerged as a significant form of international arbitration
focusing on both publicand private interests. Modern treaties in
fields as diverse as environmental protec-tion,6 communications,7
intellectual property,8 air transportation,9 and
internationalhealth protection10 all contain some form of dispute
settlement mechanism. Majornew tribunals have been created to deal
with international criminal law11 and the lawof the sea.12
2 Judge Stephen M. Schwebel, Address to the Plenary Session of
the General Assembly of the UnitedNations, (26 October 1999),
http://www.icj-cij.org/court/index.php?pr87&pt3&p11&p23&p31
(visited 20 September 2013); Judge Gilbert Guillaume, The
Proliferation of International JudicialBodies: The Outlook for the
International Legal Order, (27 October 2000),
http://www.icj-cij.org/court/index.php?pr85&pt3&p11&p23&p31
(visited 20 September 2013).
3 Jonathan I. Charney, The Impact on the International Legal
System of the Growth of InternationalCourts and Tribunals, 31 New
York University Journal of International Law and Politics (1999),
at 679;Thomas Buergenthal, Proliferation of International Courts
and Tribunals: Is it Good or Bad? 14 (2) Lei-den Journal of
International Law (2001) 267.
4 The DSB is governed by the Understanding on Rules and
Procedures Governing the Settlement of Disputes(DSU), Marrakesh
Agreement Establishing the World Trade Organization, Annex 2, The
Legal Texts:The Results of the Uruguay Round of Multilateral Trade
Negotiations, 33 ILM 1226 (1994).
5 Carlos M. Vasquez and John H. Jackson, Some Reflections on
Compliance with WTO Dispute Settle-ment Decisions, 33 (4) Law and
Policy in International Business (2002) 555; Bruce Wilson,
Compli-ance by WTO Members with Adverse WTO Dispute Settlement
Rulings: The Record to Date, 10 (2)Journal of International
Economic Law (2007) 397; David Palmeter and Petros C. Mavroidis,
Dispute Set-tlement in the World Trade Organization (Cambridge:
Cambridge University Press, 2004) 305 (Mavroi-dis). Palmeter and
Mavroidis note that the addition of the DSU, and its important
thickening of legality,has resulted in the most active and most
advanced legal system in the larger field of public
internationallaw.
6 For example, see United Nations Convention on the Law of the
Sea, 10 December 1982, 1833 UNTS 3 397,21 ILM 1261 (entered into
force 16 November 1994); Montreal Protocol on Substances that
Deplete theOzone Layer, 16 September 1987, 1522 UNTS 3, 26 ILM 1550
(entered into force 1 November 1989);Kyoto Protocol to the United
Nations Framework Convention on Climate Change, 11 December 1997,
UNDoc FCCC/CP/1997/7/Add.1, 37 ILM 22 (entered into force 16
February 2005).
7 International Telecommunications Union, Final Acts of the
World Administrative Telegraph and TelephoneConference, 1988,
WATTC-88.
8 Agreement on Trade-Related Aspects of Intellectual Property
Rights, 15 April 1994, 1869 UNTS 299, 33 ILM1197 (entered into
force 1 January 1995).
9 Convention on International Civil Aviation, 7 December 1994,
61 Stat. 1180, 15 UNTS 295 (entered intoforce 4 April 1947).
10 WTO Agreement on the Application of Sanitary and
Phytosanitary Measures, 15 April 1994, 1867 UNTS493 (entered into
force 1 January 1995).
11 Rome Statute of the International Criminal Court, 17 July
1998, 2187 UNTS 90, 37 ILM 1002 (enteredinto force 1 July
2002).
12 Statute of the International Tribunal for the Law of the Sea
(Annex VI), 10 December 1982, 1833 UNTS 3,21 IL 1261 (entered into
force 16 November 1994).
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Recourse to dispute settlement plays a significant part in the
law governing re-gional trade agreements (RTAs). Some 393 such
agreements have been notified tothe WTO13 since the inception of
the transparency procedure;14 at least one hun-dred more are known
to exist.15 Almost without exception these agreements includesome
form of dispute settlement. In the majority of cases, these
agreements16 adopta panel procedure based on the WTO Dispute
Settlement Understanding (DSU)model.17 In most cases, the process
is weaker than the WTO DSU since the outcomeis generally weaker
than the compulsory and binding process of the WTO DSB. Thismay
happen in several ways. RTA dispute settlement provisions often
leave it up tothe two state parties to determine how the panel
decision is to be implemented. Itmay be possible for one party to
frustrate the dispute settlement process by not nam-ing their
panelist. In some cases, the actual commitment to enter into
dispute settle-ment may not be compulsory. Even where the decision
is binding, as with Chapter19 of NAFTA, there may be ways of
challenging or prolonging the process.18
The last decade has witnessed the emergence of a number of major
regionalagreements made by significant groups of states. These
range from the fourMERCOSUR states19 to the ten ASEAN states.20
Other examples are the Andean
13 World Trade Organization, Regional Trade Agreements: Facts
and Figures,
http://www.wto.org/eng-lish/tratop_e/region_e/regfac_e.htm (visited
20 September 2013).
14 World Trade Organization, Transparency Mechanism for RTAs,
http://www.wto.org/english/tratop_e/region_e/trans_mecha_e.htm
(visited 20 September 2013).
15 World Trade Organization, Historical Background and Current
Trends, in World Trade Report 2011The WTO and Preferential Trade
Agreements: From Co-Existence to Coherence (Washington, DC:
WorldBank, 2011) at 54 (World Trade Report).
16 Examples include the Association of Southeast Asian Nations
(ASEAN) Free Trade Area Agreement, theNorth American Free Trade
Agreement (NAFTA), and the Southern Common Market
(MERCOSUR)Agreement. See David Morgan, Dispute Settlement under
PTAs: Political or Legal? (2008) Universityof Melbourne Legal
Studies Research Paper No. 341.
17 See DSU, above n 4.18 For example, decisions by the NAFTA
Chapter 20 Panels are non-binding in the sense that they have
no
direct effect on United States law, and neither federal or state
governments are bound by findings or rec-ommendations. See David A.
Gantz, Dispute Settlement under the NAFTA and the WTO: Choice
ofForum Opportunities and Risks for the NAFTA Parties, 14 (4)
American University International LawReview 1025 (1999) at
10421043. Similar concerns arise under dispute resolution for
AD/CVDNAFTA Chapter 19. As noted in the Senate Report on the North
American Free Trade AgreementImplementation Act: a US court is not
bound by (but may take into consideration) a final decision of
abinational panel or extraordinary challenge committee. S. Rep. No.
103189 at 45 (1993). Also see Don-ald McRae and John Siwiec, NAFTA
Dispute Settlement: Success or Failure?, in Arturo Oropeza
Garcia(ed.), America del Norte en el siglo XXI (Mexico City:
Corporacion Industrial Grafica, 2010) 363. On theother hand, a
report adopted by the DSB requires State action and accompanied by
the threat of compen-sation/retaliation, if required. See John H.
Jackson, The WTO Dispute Settlement UnderstandingMis-understandings
on the Nature of Legal Obligation, 91 (1) American Journal of
International Law (1997)6064. That being said, the North American
Agreement on Environmental Cooperation (NACEC) pro-vides a dispute
resolution system allowing the suspension of benefits where a Party
fails to pay a monet-ary enforcement assessment. See North American
Agreement on Environmental Cooperation Between theGovernment of the
United States of America, the Government of Canada, and the
Government of the UnitedMexican States, 13 September 1993, 28 ILM
1480 (entered into force 1 January 1994).
19 Additional Protocol to the Treaty of Asuncion on the
Institutional Structure of Mercosur, 26 March 1991, 34ILM 1244
(entered into force 29 November 1991) (MERCOSUR).
20 ASEAN Free Trade Agreements, 28 January 1992, S/C/N/463
(1992), http://www.worldtradelaw.net/fta/agreements/afta.pdf
(visited 20 September 2013).
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Community of Nations,21 the various African RTAs,22 and the
ASEAN-India FreeTrade Area.23 Still larger and more ambitious
agreements are under negotiation inthe form of a Trans-Pacific
Partnership24 or an eventual EUUSA FTA.25 Themost ambitious RTA,
the European Union, has been profoundly influenced by thework of
its Court of Justice,26 a true court composed of 28 independent
judges whohave broad exclusive and compulsory jurisdiction to rule
on a host of trade andrelated non-trade matters arising under
European Union law.27
What are we to make of the existence of these many dispute
settlement proced-ures existing under various RTAs? Do they stand
alone, relevant to their parties only,or are they part of a larger
pattern of dispute settlement, which is emerging at thepresent
time? In particular, what is the relationship of these agreements
to the WTODSU?
At first blush, there is an extraordinary paradox in the fact
that we have witnessedthe development of many procedures in the
same timeframe that has seen the emer-gence and consolidation of a
considerable body of new substantive and procedurallaw under the
WTO DSU, one of the few compulsory and binding procedures toexist
in the world today. This is all the more extraordinary in that many
of the legalissues arising under RTAs are similar in principle to
those arising under the law ofthe WTO. Most RTAs affirm their
fidelity to the law of the WTO or explicitly state
21 Codification of the Andean Subregional Integration Agreement
(Cartagena Agreement), 25 June 2003, L/6737(2003),
http://www.worldtradelaw.net/fta/agreements/cartagenafta.pdf
(visited 20 September 2013).
22 South African Development Community (SADC) Free Trade
Agreement, 17 August 1992, WT/REG176(entered into force 5 October
1992), http://www.worldtradelaw.net/fta/agreements/sadcfta.pdf
(visited20 September 2013); Common Market for Eastern and Southern
Africa (COMESA), 5 November 1993,WT/COMTD/N/3 (1994),
http://www.worldtradelaw.net/fta/agreements/comesafta.pdf (visited
20September 2013); East African Community Free Trade Agreement,
WT/COMTD/N/14 (2000),
http://www.worldtradelaw.net/fta/agreements/eacfta.pdf (visited 20
September 2013); Economic Community ofWest African States (ECOWAS)
Revised Treaty, WT/COMTD/N/21 (2005),
http://www.worldtradelaw.net/fta/agreements/ecowasfta.pdf (visited
20 September 2013); Economic and Monetary Community ofCentral
Africa (CEMAC), WT/COMTD/N/13 (1999),
http://www.worldtradelaw.net/fta/agreements/cemacfta.pdf (visited
20 September 2013).
23 Framework Agreement on Comprehensive Economic Cooperation
between the Republic of India and the Associ-ation of Southeast
Asian Nations (2003),
http://wtocenter.vn/sites/wtocenter.vn/files/1-Framewor-k%20Agreement%20on%20Comprehensive%20Economic%20Cooperation%20ASEAN-India.pdf
(visited20 September 2013).
24 The original Trans-Pacific free trade agreement is between
Brunei, Chile, New Zealand, and Singapore:Trans-Pacific Strategic
Economic Partnership, 18 July 2005, WT/REG229 S/C/N/294 (entered
into force28 May 2006),
http://www.worldtradelaw.net/fta/agreements/TransPac_SEP_FTA.pdf
(visited 20 Sep-tember 2013). The Trans-Pacific Partnership
proposes to expand this treaty to include Brunei, Chile,New
Zealand, Australia, Canada, Malaysia, Mexico, Peru, the United
States, Vietnam, and potentiallyJapan.
25 BBC News, EU and US free-trade talks launched, BBC News, 13
February 2013, http://www.bbc.co.uk/news/business-21439945 (visited
20 September 2013).
26 Consolidated Version of the Treaty on the Functioning of the
European Union, 2008/C 115/01
(2007),http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uriOJ:C:2010:083:0047:0200:en:PDF
(visited 20September 2013) (TFEU).
27 Ibid, at art 344.
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that they should be interpreted in a manner conformable to that
law.28 This is trueto the point that one can affirm that most RTAs,
even the European Union in thetrade sphere, have the same deep
structure and are based on the same fundamentalprinciples as the
WTO. Yet, each agreement has its own system of dispute
settlementand no effort has ever been made to establish or even
envisage the establishment ofa general world trade court, which
might receive complaints arising under all formsof trade law
disputes.29 This being the case, are the dispute settlement systems
estab-lished under RTAs in competition with and possibly even in
contradiction to theWTO DSU, are they complementary to the WTO DSU,
or do they regulate essen-tially the same disputes? Can they
co-exist or are they cast in eternal opposition? Arethey equal or
are they inherently subordinate to the WTO DSU?30 As is
illustratedbelow by the cases reviewed, the questions posed by the
co-existence of RTA disputesettlement systems and the WTO DSU arise
in a variety of contexts and reflect arange of different legal
issues. But the overriding question is whether WTO panelsand the
Appellate Body have the authority to consider other dispute
settlement sys-tems and then act in consequence, or whether they
must give precedence to WTOlaw in all cases.
These questions are part of a broader debate that was opened by
the adoption ofArticle XXIV of the GATT in 1947. Without Article
XXIV, preferential agreementsviolate the fundamental tenets of
non-discrimination, which are at the core of theGATT and were
carried forward into the WTO in 1994. A decision was made in1947 to
permit the continuation and future formation of customs unions.
This wasnot surprising, given the fact that customs unions were
well understood by politiciansand economists as a significant form
of regional integration31 and had even playedan important role in
the emergence of several European states.32 But the founders ofthe
GATT did not limit themselves to customs unions. Under quiet
pressure fromthe USA and Canada and several other countries,33 it
was decided also to allow the
28 North American Free Trade Agreement, 17 December 1992, 32 ILM
289 (entered into force 1 January1994) at Preamble, art 103, art
301, art 2005.1 (NAFTA); Free Trade Agreement between the
Governmentof New Zealand and the Government of the Peoples Republic
of China (2008),
http://www.chinafta.govt.nz/1-The-agreement/2-Text-of-the-agreement/0-downloads/NZ-ChinaFTA-Agreement-text.pdf
(visited 20September 2013) at Preamble, art 1, art 3 (NZChina
FTA).
29 The only area where there has been a call to establish a
general court is in the area of international in-vestor-state
arbitration. So far these efforts have proven fruitless. There have
recently been calls for acomprehensive South American trade dispute
tribunal.
30 This article focuses specifically on one aspect of RTAs and
the WTO. In particular, it considers the im-pact of a decision
rendered by an RTA dispute resolution body on a subsequent WTO
dispute. In doingso, this article largely sets aside other issues
that could arise under RTAs.
31 The original treating founding the Benelux Customs Union was
signed on 5th September 1944. See Cus-toms Convention between the
Netherlands, Belgium and Luxembourg, 5 September 1944, Jaargang
1944-77,1954-117, 1958-21, 1947-282 (entered into force 1 January
1948).
32 For example, the German Zollverein, formed in 1834, was a
step towards the political unification of Ger-many. See Soamiely
Andriamananjara, Customs Unions, in Jean-Pierre Chauggour and
Jean-ChristopherMaur (eds), Preferential Trade Agreement Policies
for Development: A Handbook (Washington, DC: WorldBank, 2011) at
111.
33 See World Trade Report 2011, above n 15, at 51. For a general
history of the evolution of RTAs underthe GATT, see John H.
Jackson, World Trade Law and the Law of GATT (Indianapolis, IN:
Bobbs-Mer-rill, 1969) (Jackson); Kerry Chase, Multilateralism
Compromised: The Mysterious Origins of GATTArticle XXIV, 5 (1)
World Trade Review 1 (2006) at 2 (Chase).
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formation of free trade areas (FTAs), a new and undefined form
of economic inte-gration, the essence of which involves states
reducing trade barriers with one ormore countries, but maintaining
the freedom to deal directly with third countries.34
Both forms of trade association were made subject to the
conditions that they benotified to the GATT Contracting Parties,
that they cover substantially all trade andthat they lead to trade
creation rather than trade diversion.35 Article XXIV also cre-ated
the general obligation of parties to notify their customs unions
and FTAs to theGATT Contracting Parties.36
The substantive and procedural ambiguities of Article XXIV soon
became evi-dent:37 so much so that, for many years, commentators
and GATT diplomats con-sidered that the article was essentially
political and hortatory in nature.38 As theGATT customary dispute
settlement procedure evolved, many continued to considerthat
Article XXIV was inherently non-justiciable.39 However, this did
not stop a smallnumber of disputes involving complaints against
customs unions or FTAs beingtaken to GATT panels.40 Further
complexity was added in 1979 when the Contract-ing Parties to the
GATT adopted the Enabling Clause, which relaxed the require-ments
for customs unions and FTAs for developing countries with a view
tofostering their more rapid economic development.41 The increasing
numbers ofFTAs in the 1980s focused the attention of GATT
negotiators engaged in the Uru-guay Round of Multilateral Trade
Negotiations on the failure of the Contracting Par-ties or dispute
settlement panels to clarify the meaning of the substantive
conditionspermitting the formation of customs unions and FTAs.
Equally troubling was thefailure to clarify the procedural
requirements inherent in the obligation to notify theContracting
Parties to the GATT of the formation and entry into force of
suchagreements. Indeed, it appeared at the time that the obligation
was being respectedmore in the breach than in the observance. The
result was that among the decisionsemerging from the Uruguay Round
in 1994 was the Understanding on the
34 See Jackson, above n 33, at 575580.35 General Agreement on
Tariffs and Trade 1994, 15 April 1994, 1867 UNTS 187, 33 ILM 1153
(1994) at art
XXIV, paras 5 and 8 (GATT 1994). Kenneth Dam discusses RTAs and
trade diversion versus trade cre-ation in light of US economic
interests in Kenneth Dam, The Rules of the Global Game: A New Look
atUS International Economic Policymaking (Chicago: University of
Chicago Press, 2001) at 134. For a criti-cism of the standard set
by Article XXIV, see Kenneth W. Dam, Regional Economic Arrangements
andthe GATT: The Legacy of a Misconception, 30 (4) University of
Chicago Law Review (1963) 615(Dam).
36 See GATT 1994, above n 35, at XXIV, para 7(a).37 See Jackson,
above n 33, at 575623 (specifically 588 and 621). Jackson describes
the criteria for estab-
lishing permissible regional arrangements under the GATT as
ambiguous and difficult to apply.38 See Dam, above n 35; see Chase,
above n 33, at 2.39 See Dam, above n 35.40 GATT Panel Report,
European CommunityTariff Treatment on Imports of Citrus Products
from Certain
Countries in the Mediterranean Region (ECCitrus), L/5776, 7
February 1985, unadopted; GATT PanelReport, European Economic
CommunityPayments and Subsidies Paid to Processors and Procedures
of Oil-seeds and Related Animal-Feed Proteins (EECOilseeds),
L/6627-37S/86, adopted 25 January 1990.
41 Differential and More Favourable Treatment Reciprocity and
Fuller Participation of Developing Countries,L/4903 (1979),
http://www.wto.org/English/docs_e/legal_e/enabling_e.pdf (visited
20 September2013) at art 2(c). The Enabling Clause has only once
been the subject of dispute settlement: WTOAppellate Body Report,
European CommunitiesConditions for the Granting of Tariff
Preferences to Devel-oping Countries (ECTariff Preferences),
WT/DS246/AB/R, adopted 7 April 2004.
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Interpretation of Article XXIV of the GATT 1994 (1994
Understanding), which con-tains various interpretative provisions
designed to clarify substantive and proceduralobligations of WTO
Members.42 The Interpretation also removes one central uncer-tainty
by affirming that disputes under Article XXIV are justiciable and
subject to theprocedures of the DSU.43
In the years immediately after 1994, it became clear that the
number of RTAs wasincreasing rapidly. It also became clear that the
procedural requirements of ArticleXXIV and the 1994 Understanding
needed careful administration in order to ensurethat they were
respected. To bring greater discipline to the review of RTAs
oncenotified, the WTO created the standing Committee on Regional
Trade Agreements(CRTA) in 1996.44 Despite the good intentions of
WTO Members, the CRTA didnot prove equal to the task of providing a
disciplined review process of the manyRTAs notified to the WTO in
the subsequent years. By 2006, it was clear that theCRTA had failed
those who expected that there might be a substantive review ofRTAs
leading to a principled evaluation of the fidelity of each
agreement to the re-quirements of Article XXIV, the Enabling Clause
and the 1994 Understanding. Bythat point, only one agreement had
actually been formally approved,45 the factual de-scription had
been prepared for 19 agreements,46 but no agreement could be
reachedon systemic issues.47 In other words, despite the good
intentions of many, WTOMembers present in the CRTA could not bring
themselves to act as judges of eachothers conduct, for fear of
being the object of condemnation of their own agree-ments at a
later date. The only way out was to agree to separate the process
of judg-ment upon substantive and procedural issues. To achieve
this objective, WTOMembers adopted the Transparency Mechanism for
Regional Trade Agreements in2006, which sets out in much greater
detail than previous documents the proceduralduties of WTO Members
to notify the WTO Secretariat of the agreements they planto
negotiate, of the conclusion of the negotiations and of the working
of the RTAs.48
42 Understanding on the Interpretation of Article XXIV of the
General Agreement on Tariffs and Trade 1994,LT/UR/A-1A/1/GATT/U/4
(1994), http://www.wto.org/english/docs_e/legal_e/10-24_e.htm
(vis-ited 20 September 2013) (1994 Understanding).
43 See 1994 Understanding, above n 42, at para 12. The 1994
Understanding provides that Article XXII andXXIII of the GATT may
be invoked with respect to any matters arising from the application
of thoseprovisions of Article XXIV relating to customs unions,
free-trade areas or interim agreements leading tothe formation of a
customs union or free-trade areas.
44 World Trade Organization, Work of the Committee on Regional
Trade Agreements (CRTA),
http://www.wto.org/english/tratop_e/region_e/regcom_e.htm (visited
20 September 2013).
45 Petros Mavroidis, Trade in Goods (Oxford: Oxford University
Press, 2007) at 167. He notes, Schott(1989) identifies four cases
where PTAs were judged broadly consistent with the GATT. Since his
studythere has been one case where there has been a definitive and
unambiguous acceptance, at the CRTAlevel, that the notified PTA was
GATT consistent: the CU between the Czech and the Slovak
republics.We are simply in the dark as to the consistency of the
remaining 99% of all PTAs currently in place.
46 World Trade Organization, Factual Abstracts,
http://www.wto.org/english/tratop_e/region_e/factua-l_abstracts_e.htm
(visited 20 September 2013).
47 Jo-Ann Crawford, New Transparency Mechanism for Regional
Trade, 11 Singapore Year Book of Inter-national Law 133 (2007) at
135.
48 Transparency Mechanism for Regional Trade Agreements,
WT/L/671 (2006),
http://www.wto.org/eng-lish/tratop_e/region_e/trans_mecha_e.htm
(visited 20 September 2013) (2006 Transparency Mecha-nism). The
WTOs RTA Database is accessible here:
http://rtais.wto.org/UI/PublicMaintainRTAHome.aspx (visited 20
September 2013).
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The Secretariat is required to set up a major database of RTAs
and is even em-powered to make inquiries into the existence of
agreements, which have not beennotified to the WTO.49 Adoption of
reports is now limited to a one day meetingwhere the factual report
prepared by the Secretariat is studied and questions asked ofthe
parties in the CRTA.50 No judgment is passed on potential conflict
with the lawof the WTO.51 This is now clearly left to complaint
procedures under the DSU.
The 2006 Transparency Mechanism applied to all RTAs, but, to
ensure that prefer-ential agreements made under the Enabling Clause
or otherwise by the WTO col-lective membership were not neglected,
the WTO also adopted the TransparencyMechanism for Preferential
Trade Agreements in 2010.52 Publicity requirements forpreferential
trade agreements are similar but review is before the WTO
Committeeon Trade and Development.
The result of these developments is that the ball has been sent
squarely into thedispute settlement court. The process of review of
regional and preferential tradeagreements in the WTO now functions,
but does not produce reasoned judgmentsof different agreements,
still less does it produce answers to potential disputes be-tween
parties. This is deferred entirely to the procedures established
under the DSUafter a WTO Member has referred a complaint to the
DSB. This has advantages anddisadvantages. The principal advantage
is that the DSU creates a compulsory and abinding procedure, which
is open to all WTO Members and can be invoked regard-less of
economic or political strength. The disadvantage is that it may
have placedthe attention of dispute settlement panels and the
Appellate Body too much on thestrict terms of the DSU rather than
on the broader framework of the totality ofWTO law. What follows is
a plea to panellists and the Appellate Body to considerthe problems
posed by the troubled relationship of RTAs and the WTO from
thebroader perspective of the unity of international trade law
rather than forcing allthrough the prism of the DSU.
To complete this introduction, it is important to remember that
this debate onthe relationship between dispute settlement
procedures of RTAs and the WTO DSUis part of a broader debate on
the legitimacy of recourse to bilateral and regionalpreferential
arrangements. Many commentators see these agreements as a threat
tothe integrity of the WTO, while others see RTAs as a means of
promoting trade lib-eralization as well as experimenting with forms
of economic integration not envis-aged in WTO law. The literature
on the issue is vast; it encompasses analysis by
49 Ibid, at paras 20 and 21.50 Ibid, at para 11.51 Lorand
Bartels disagrees with this position. He distinguishes between full
and interim agreements. While
the degree of control by WTO Members over full agreements is
rather vague, this is not the case for in-terim agreements. He
argues that Article XXIV:7(b) allows WTO Members to recommend that
an in-terim agreement not be considered reasonable. Consequently,
there is an obligation on the parties to thatagreement not to
maintain the agreement unless modifications are made. See Lorand
Bartels, Interimagreements under Article XXIV GATT, 8 (2) World
Trade Review 339 (2009) at 342.
52 Transparency Mechanism for Preferential Trade Arrangements,
WT/L/806 (2010),
http://www.wto.org/english/news_e/news12_e/rta_13mar12_e.htm
(visited 20 September 2013) (2010 TransparencyMechanism).
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economists,53 political scientists,54 and lawyers.55 The 2011
Report of the WTO ablyreviews many aspects of the question.56 The
general consensus is probably bestsummed up in a report by the
World Bank suggesting that trade liberalization is al-ways more
efficient for the global economy if it results from multilateral
agreementbut that, in many circumstances, RTAs may offer an
attractive second best solutionfrom the economic and political
perspectives.57 Suffice it to say that these agree-ments are
permitted by the GATT Article XXIV and the law and practice of
theWTO and that the great majority of WTO Members have had, and
continue to have,recourse to RTAs. For the time being, the WTO has
to deal with the problems posedby RTAs and cannot ignore them.
I I . THE DISPUTES
A. GATT casesWhile questions had been raised concerning the
legal implications of the GATTArticle XXIV process and the
possibility of submitting disputes arising out of RTAsto GATT panel
reviews in the years following 1947,58 few GATT Contracting
Par-ties were eager to put these questions to the test. There
appeared to be a general re-luctance to put such disputes before
GATT panels. Thus the 1962-63 Chicken War,which arose between the
USA and the EEC, was fought by retaliation and ultimatelysolved by
negotiation.59 For over twenty years, GATT diplomats used their
skills tokeep disputes potentially involving Article XXIV from
dispute settlement panels. Inthe 1976 case arising out of Canadas
dissatisfaction at the allegedly inadequate ad-justments made by
the European Economic Community (EEC) to its tariff, resultingfrom
its enlargement, the panel refused to hear Canadas complaint under
GATTArticle XXIV.6 on the grounds that the complexity of the issues
involved made apanel procedure inappropriate.60 A similar dispute,
mentioned above, between Can-ada and the EEC on the issue of
Canadas ordinary and quality wheat rights datingfrom the Article
XXIV.6 negotiations on 29 March 1962 was submitted to an
Arbi-trator and resolved in 1990.61
53 Viet D. Do and William Watson, Economic Analysis of Regional
Trade Agreements, in Lorand Bartelsand Frederico Ortino (eds),
Regional Trade Agreement and the WTO Legal System (Oxford: Oxford
Uni-versity Press, 2006) 7.
54 Andrew Moravcsik, The Choice for Europe: Social Purpose and
State Power from Messina to Maastricht (Ith-aca, NY: Cornell
University Press, 1998).
55 Leon Trakman, The Proliferation of Free Trade Agreements:
Bane or Beauty? 42 Journal of WorldTrade Law (2008).
56 See World Trade Report 2011, above n 15.57 Ibid, at 198.58 In
USMargins of Preference, the Contracting parties decided the
determination of rights and obligations
between governments arising under a bilateral agreement is not a
matter within the competence of theCONTRACTING PARTIES. USMargins
of Preference (1949), BISD 11/11,
http://www.worldtrade-law.net/reports/gattpanels/marginspreference.pdf
(visited 20 September 2013).
59 Herman Walker, Dispute Settlement: The Chicken War, 58
American Journal of International Law(1964) 671 (Walker).
60 Ibid, at 673677.61 Award by the Arbitrator, Canada/European
CommunitiesArticle XXVIII Rights (Article XXVIII Rights),
DS12/R-37S/80, published 26 October 1990.
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By the 1980s, the EEC had granted a range of tariff preferences
to different cate-gories of countries under a variety of trade
agreements; furthermore, the success ofthe Common Agricultural
Policy (CAP) in encouraging the production of crops inthe EC, which
subsequently supplanted imports from other GATT Contracting
Par-ties, gave rise to several major disputes in which the EEC
sought to defend its legalposition, in part, by invoking Article
XXIV.
The EEC/EC was the object of several other complaints by the USA
and otherGATT Contracting Parties. Some involved so-called
non-violation complaints inwhich the EC did not invoke Article XXIV
as a defence. But, in others, it did invokeArticle XXIV. In the
1985 EECProduction Aids Granted on Canned Peaches pro-ceeding, the
USA alleged that subsidies under the CAP resulted in nullification
andimpairment of exports to the EEC.62 The panel issued a
non-binding recommenda-tion that the EEC take steps to restore the
competitive relationship between EECproduce and the imported goods
in question.
In the ECCitrus litigation, the USA alleged that its exporters
of citrus fruits hadsuffered nullification and impairment of their
rights as a result of the grant of prefer-ential tariff treatment
of citrus fruit imports by the EU under its trade agreements.63
The agreements involved association agreements with future EU
members such asSpain and Greece, former members of the French
Customs Territory, Algeria, Mo-rocco and Tunisia and Mediterranean
partner countries such as Malta, Cyprus, Tur-key, Israel, and
Lebanon. Objection was also taken to the change in tariff
treatmentof citrus products in the UK, Ireland, and Denmark after
their adhesion to the EC in1973. The USA argued that the tariff
preferences constituted violations of GATTArticle I, which required
compensatory adjustment. The USA also argued that thevarious
agreements did not meet the requirements of Article XXIV in that
none ap-peared to involve a binding commitment to form a customs
union or an FTA andfurther that such agreements being exceptions
from Article 1 required a restrictive in-terpretation.64 The EC
responded that the preferences were contemplated by
variousparagraphs of Article XXIV as being interim agreements
leading to FTAs or customsunions and, in the case of the UK,
Ireland, and Denmark, as part of the process ofenlargement of the
EC itself. The EC also argued that Article XXIV should not beseen
as derogating from Article I, but that the two articles constituted
principles ofequal validity under the GATT.65 The EC argued that
since all these agreementshad been notified to the GATT and that
since the process of review by working par-ties established by the
Contracting Parties had led to no recommendations eitherpositive or
negative, the issue of compatibility with Article XXIV could not be
beforethe panel thus implying that the EC was free to grant these
preferences.66 Finally,
62 GATT Panel Report, European Economic CommunityProduction Aids
Granted on Canned Peaches,Canned Pears, Canned Fruit Cocktail and
Dried Grapes (Complaint by the United States) (EECCannedFruit),
L/5778, 20 February 1985, unadopted.
63 Panel Report, ECCitrus, above n 40, para 3.3.64 Ibid, at para
3.8.65 Ibid, at para 3.4.66 Panel Report, ECCitrus, above n 40,
paras 3.93.10. Also see para 3.11: To examine the consistency
of
the agreements with Article XXIV in the context of a violation
complaint under Article XXIII would runcounter to the highly
pragmatic attitude the CONTRACTING PARTIES had taken towards
interimagreements.
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the EC argued that American citrus exporters could not in fact
prove that preferenceswere the cause of any of the adverse
commercial effects that they claimed to havesuffered. The USA
maintained its point that nothing stopped it from arguing a
viola-tion of Article XXIV, but concentrated on adducing evidence
that its citrus exportshad suffered nullification and impairment
under Article I.67
The five panel members appeared to accept that the issue of
compatibility withArticle XXIV was not before them, partly because
of the drafting of the terms of ref-erence, and because there had
been no consensus during the process of review ofeach agreement and
no direction had been given to the EC to withdraw its measures;in
consequence, the panel considered that there was no issue of prima
facie violationof the GATT but only an issue of factual
nullification and impairment. Whether thereasoning of the panel in
this case was legal or diplomatic, readers must judge
forthemselves. At the end of a very lengthy and complex report, the
panel held that, onthe basis of the evidence available to it, the
USA had suffered nullification and im-pairment of its rights in
respect of potential exports of fresh oranges and lemons as aresult
of the ECs granting of preferences under various agreements. The
evidenceadduced respecting many other categories of citrus fruit
and juices was not deemedsufficient to warrant a similar finding.
This being the case, the USA was entitled tocompensatory adjustment
in proportion to the nullification and impairmentsuffered.68
The Citrus report displayed the reluctance of panels to make
firm recommenda-tions on alleged violations of Article XXIV. This
reluctance was displayed in severalsubsequent GATT proceedings. The
Citrus report was not adopted.
EECOilseeds was the major non-violation case in which the USA
alleged thatsubsidies to the production of oilseeds by the EEC
under the CAP compromised thetariff bindings previously agreed to
between the two Contracting Parties underArticle II.69 This case
was vigorously argued and the EECs subsequent implementingaction
was subject to a second proceeding.70 The panel held that the
result of CAPsubsidies had in fact compromised the original
expectations of producers in the USAthat they would be able to
export oilseeds to the EEC market when tariffs had firstbeen bound.
The panel thus found that there had been non-violation
nullificationand impairment resulting from the EEC agricultural
subsidies. The complaint of theUSA in this case was based on the
failure of consultations under Article XXIV.6.However, the EC did
not base its defence on Article XXIV but rather suggested thatthe
original commitments had been superseded by other commitments made
in laterenlargement negotiations.71
Interestingly, in the case of a dispute between Canada and the
EC on the issue ofCanadas ordinary and quality wheat rights, which
originated in Article XXIV.6 nego-tiations, Canada based its
complaint against the EC on bilateral agreements
67 Ibid, at para 3.12.68 Ibid, at para 5.1.69 Panel Report,
EECOilseeds, above n 40.70 GATT Panel Report, Follow-up on the
Panel Report European Economic CommunityPayments and Subsi-
dies Paid to Processors and Producers of Oilseeds and Related
Animal-Feed Proteins, DS28/R-39S/91,adopted 31 March 1992.
71 Panel Report, EECOilseeds, above n 40, paras 54, 71, 75.
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concluded on 29 March 1962.72 In response to the argument as to
the propriety ofraising this bilateral agreement, the Arbitrator
agreed to consider it appropriate inthe circumstances.73 The
Contracting Parties adopted this report.
The EECBananas case was the final, and ultimately unadopted,
litigation underthe GATTbefore the creation of the WTO and the
entry into force of the DSUin which Article XXIV issues were argued
between the USA, with support of otherstates, and the EEC.74 In
these cases, the EEC sought to justify its system of importquotas
and other measures governing the importation and marketing of
bananasfrom all sources around the world, including both former EU
Members colonies andthe major Central American producing countries.
The USA argued that the EECquotas were a violation of Article I,
tariff bindings under Article II, as well as ArticleXI. Among the
many arguments advanced by the EEC was the position that the
quo-tas were justified under Article XXIV. In particular, the EEC
argued that the LomeConvention trade and aid agreement with the ACP
countries was an FTA justifiedunder article XXIV75 and that it was
also a commodity agreement equally justifiedunder the GATT.76 The
panel rejected both arguments. The panel noted that theLome
Convention was not a trade agreement based on reciprocity, but
rather an es-sentially unilateral agreement offered by the EU to
ACP countries. Hence, it couldnot be justified under the Article
XXIV as a customs union or a FTA.77 The sameposition was taken by
the panel with respect to the argument that the Bananas Pro-tocol
of the Lome Convention was a commodity agreement.78 In the opinion
of thepanel, the protocol did not meet the requirements of the GATT
for commodityagreements.79
72 A 1990 complaint by Canada under Article XXIV.6, but not
raising article XXIV issues, was dismissed byan Arbitrator. Award
by the Arbitrator, Article XXVIII Rights, above n 61.
73 The Arbitrator noted: In principle a claim based on a
bilateral agreement cannot be brought under themultilateral dispute
settlement procedures of the GATT. An exception is warranted in
this case given theclose connection of this particular bilateral
agreement with the GATT, the fact that the Agreement is con-sistent
with the objectives of the GATT, and that both parties joined in
requesting recourse to the GATTArbitration procedures. Article
XXVIII Rights, above n 61, at 5.
74 GATT Panel Report, EECMember States Import Regimes for
Bananas (ECBananas I), DS32/R, 3June 1993, unadopted; GATT Panel
Report, EECImport Regime for Bananas (EECBananas II),DS38/R, 11
February 1994, unadopted.
75 Panel Report, ECBananas I, ibid, at para 217.76 Panel Report,
ECBananas II, above n 74, para 165.77 Panel Report, ECBananas I,
above n 74, paras 358, 372; Panel Report, ECBananas II, above n
74,
paras 156164. The Panel also rejected the EECs argument that
Article XXIV was subject to non-reciprocity under Article XXXVI:8.
The Panel concluded that Article XXIV was not specifically
men-tioned in the Note to Article XXXVI:8 and that the participants
in the negotiations of a free trade area inthe sense of Article
XXIV, although involved in a process of tariff reduction, did not
derive their negotiat-ing status from the General Agreement, nor
were they bound to follow procedures set out under the Gen-eral
Agreement for the conclusion of the agreement. The Panel concluded
that the wording andunderlying rationale of the note to Article
XXXVI:8 thus suggested to the Panel that Article XXXVI:8and its
Note were not intended to apply to negotiations outside the
procedural framework of the GeneralAgreement, such as negotiations
of a free trade area. Panel Report, ECBananas II, above n 74,para
161.
78 Panel Report, ECBananas II, above n 74, paras 165166.79 The
Panel held that in order to benefit from the exception in Article
XX(h), such criteria or agreements
had to be submitted to the CONTRACTING PARTIES with an explicit
invocation of that provision.Ibid, at para 166.
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The significance of this litigation was not easy to establish on
the eve of the estab-lishment of the WTO. Most reports, except the
EECOilseeds panel reports, hadbeen too controversial to adopt.
There was also an obvious reluctance of GATTContracting Parties to
submit the issue of compatibility of particular RTAs, or meas-ures
taken pursuant to RTAs to a clear legal test under Article XXIV.
The view waswidely held that review of customs unions and FTAs was
essentially a policy exerciseor that the criteria of Article XXIV
were too imprecise to apply and that their imple-mentation was best
left to negotiation between Contracting Parties. But the fact
re-mains that on several occasions these issues were pleaded and
argued before GATTpanels, so that the matter was certainly not
tabula rasa when it was put to the newlyformed WTO. The affirmation
of the 1994 Understanding that Article XXIV was sub-ject to dispute
settlement rested on solid, but hotly contested ground.
B. WTO casesSince 1994, the DSU has dealt with at least 13 cases
in which the existence of anRTA has been pleaded or argued in one
way or another.80 As the following discus-sion of these cases
demonstrates, arguments have been raised in many different
con-texts: GATT Article XXIV,81 the corresponding Article V of the
GATS,82 the
80 WTO Appellate Body Report, TurkeyRestrictions on Imports of
Textile and Clothing Products (TurkeyTextiles), WT/DS34/AB/R,
adopted 22 October 1999; WTO Appellate Body Report,
ArgentinaSafe-guard Measures on Imports of Footwear (Complaint by
the EC) (ArgentinaFootwear), WT/DS121/AB/R,adopted 14 December
1999; WTO Appellate Body Report, United StatesDefinitive Safeguards
Measuresof Wheat Gluten Products from European Communities
(Complaint by the EC) (USWheat Gluten), WT/DS166/AB/R, adopted 22
December 2000; WTO Appellate Body Report, CanadaCertain measures
af-fecting the Automotive Industry (Complaint by the United States)
(CanadaAutos), WT/DS139/AB/R &WT/DS142/AB/R, adopted 22
December 2000; WTO Appellate Body Report, United
StatesDefinitiveSafeguard Measures on Imports of Circular Welded
Carbon Quality Line Pipe from Korea (Complaint byKorea) (USLine
Pipe), WT/DS202/AB/R, adopted 15 February 2002; WTO Panel Report,
Argen-tinaDefinitive Anti-Dumping Duties on Poultry from Brazil
(ArgentinaPoultry), WT/DS241/R, adopted22 April 2003; WTO Appellate
Body Report, United StatesDefinitive Safeguard Measures on Imports
ofCertain Steel Products (Complaint by Brazil) (USSteel
Safeguards), WT/DS259/R, adopted 10 Novem-ber 2003; Appellate Body
Report, ECTariff Preferences, above n 41; WTO Panel Report,
UnitedStatesInvestigation of the International Trade Commission in
Softwood Lumber from CanadaRecourse toArticle 21.5 of the DSU
(Complaint by Canada) (USSoftwood Lumber), WT/DS277/R, adopted
22March 2004; WTO Panel Report, MexicoTax Measures on Soft Drinks
and Other Beverages (Complaintby the United States) (MexicoSoft
Drinks), WT/DS308/R, adopted 7 October 2005; WTO AppellateBody
Report, BrazilMeasures Affecting Imports of Retreaded Tyres
(BrazilRetreaded Tyres), WT/DS332/AB/R, adopted 3 December 2007;
WTO Consultations, European CommunitiesMeasures Affect-ing the
Tariff Quota for Fresh or Chilled Garlic (EUTariff Garlic), DS/349
(this dispute is still in consult-ations phase see
http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds349_e.htm
(visited 20September 2013)); WTO Panel Report, Dominican
RepublicSafeguard Measures on Imports of Polypropy-lene Bags and
Tubular Fabric (Dominican RepublicPolypropylene Bags), WT/DS415/R,
adopted 31 Janu-ary 2012; In WTO Appellate Body Report, United
StatesMeasures Concerning the Importation, Marketingand Sale of
Tuna and Tuna Products (USTuna II), WT/DS381/AB/R, adopted 16 May
2012, the USAhad originally requested consultations under NAFTA
with Mexico on the basis that Mexico should movethe case from the
WTO to NAFTA. Ultimately, the existence of an RTA was not
pleaded.
81 Appellate Body Report, TurkeyTextiles, ibid.82 General
Agreement on Trade in Services, Marrakesh Agreement Establishing
the World Trade Organization,
Annex 1B, The Legal Texts: The Results of the Uruguay Round of
Multilateral Trade Negotiations, 15April 1994, 1869 UTS 183, 33 IM
1167 (1 January 1995) at art 7 (GATS).
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Enabling Clause,83 safeguards under an FTA,84 seeking
justification of a special tariffregime under an FTA,85 attempts to
preclude review of a measure under the DSU,86
invocation of GATT Article XX to justify decisions by dispute
settlement bodies ofRTAs allegedly not in conformity with other
provisions of the GATT,87 argumentsof forum non conveniens that the
dispute before the DSB in fact involves a disputeunder an RTA,88 as
well as the invocation of Article XXIV.6 to challenge the grant
ofnew tariff-rate quotas to a third party resulting from EU
enlargement.89 The invoca-tions of RTAs have been used as both a
shield and a sword,90 in justification and de-fence. There are some
relatively straightforward cases where RTAs were used toargue
exemptions from general safeguard measures granted under many FTAs
or tohalt WTO proceedings in favour of proceedings under an FTA.
The most complexand controversial cases are those in which the
State Parties to an RTA have soughtto plead decisions taken
pursuant to their agreements before panels establishedunder the
DSU.91 Most of these decisions have dealt with substantive legal
argu-ments and few have clarified the procedural rights and duties
arising under ArticleXXIV, Article V, or the Enabling Clause. The
result is a body of decisions that haveclarified some of the
relevant law, but which leave many questions unresolved.
The most tantalizing issue emerging from these cases is clearly
the matter of theright to plead RTA decisions before the DSB. Does
the DSU create a monopoly andgive absolute priority to the DSB? Or
is it possible to imagine a dialogue betweenthe WTO and RTAs? The
BrazilRetreaded Tyres decision may lead to some clarifi-cations,
but many significant issues remain unresolved.
1. Turkey TextilesTrue to its mission to bring greater order to
GATT law, the AB took on the chal-lenge posed by RTAs as soon as it
was offered. The TurkeyTextiles decision re-mains the most
important single decision rendered by the AB in this area.92 In
thislitigation, Turkey argued that it was justified in
reintroducing quotas on textile im-ports from India, despite having
bound commitments to India to the contrary, onthe grounds that the
subsequent establishment of a customs union with the EC pro-vided
justification under GATT Article XXIV. The panel, like the AB,
accepted that
83 WTO Appellate Body Report, IndiaPatent Protection for
Pharmaceutical and Agricultural Chemical Prod-ucts (IndiaPatents
(US)), WT/DS50/AB/R, adopted 19 December 1997.
84 Appellate Body Report, USWheat Gluten, above n 80; Appellate
Body Report, USLine Pipe, above n80; Appellate Body Report, USSteel
Safeguards, above n 80.
85 Appellate Body Report, CanadaAutos, above n 80.86 Panel
Report, ArgentinaPoultry, above n 80; Panel Report, MexicoSoft
Drinks, above n 80.87 Panel Report, USSoftwood Lumber, above n 80;
Appellate Body Report, BrazilRetreaded Tyres, above
n 80.88 Panel Report, MexicoSoft Drinks, above n 80; Panel
Report, Dominican RepublicPolypropylene Bags,
above n 80.89 Consultations, EUTariff Garlic, above n 80.90 If
seen as a pure exception Article XXIV can only be a shield.
However, it has also been seen and argued
as a justification. This reflects the tension between those who
construe Article XXIV as only an exceptionand those who hold it to
be equal to the opening articles of the GATT.
91 Panel Report, USSoftwood Lumber, above n 80; Appellate Body
Report, BrazilRetreaded Tyres, aboven 80.
92 Appellate Body Report, TurkeyTextiles, above n 80.
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Article XXIV allowed a plea that the introduction of a customs
union might permitthe parties to take measures which were normally
contrary to the GATT. However,in rejecting Turkeys arguments, the
panel held that Article XXIV only justified meas-ures contrary to
GATT Article I.93 The AB took a broader approach in principle
andheld that Article XXIV contemplated measures covered by a wide
range of theGATT beyond the mere scope of the Most Favoured Nation
(MFN) provisions ofArticle I.94 To do this, the AB gave weight to
the general provisions of ArticleXXIV.4 as well as the preamble to
paragraph 5 and the requirements of paragraph 8.According to the
AB, a party invoking the benefit of Article XXIV had the burden
ofshowing that the contravening measures have been introduced on
the formation ofthe customs union and that it respects the
substantive requirements of paragraphs 5and 8.95 The AB also
stressed the requirement of paragraph 2 of the 1994 Under-standing
that the measures must avoid creating adverse effects upon the
commerceof other Members.96 Most significantly, the AB read into
Article XXIV a conditionthat to be justified any measure must be
necessary for the formation of the customsunion. In effect,
according to the AB, for the measure to be justified the party
invok-ing it must demonstrate that it meets the tests of paragraphs
5a and 8a of ArticleXXIV and the party must demonstrate that the
formation of the customs unionwould be prevented if it were not
allowed to introduce the measure.97
As Trebilcock and Howse note, the approach taken by the AB with
respect to thescope of Article XXIV is in principle a broad one,
but at the same time the AB imposeda severe burden of justification
in the form of the necessity test.98 Clearly, the TurkeyTextiles
decision was not designed to open the floodgates. Furthermore, this
case dealswith a customs union; there has yet to be a fully
comparable case dealing with an FTA.
2. Safeguards and Article XXIVSeveral cases have dealt with the
relationship between the application or exemptionof safeguards
under RTAs and Article XXIV.99 A genuine customs union like the
EU
93 WTO Panel Report, TurkeyRestrictions on Imports of Textile
and Clothing Products (TurkeyTextiles),WT/DS43/R, adopted 31 May
1999, para 9.208.
94 Even so, the AB concluded that Turkey was not required to
apply the quantitative restrictions at issue inthe appeal in order
to form the customs union and therefore it failed to satisfy the
necessity requirementof Article XXIV. Appellate Body Report,
TurkeyTextiles, above n 80.
95 Ibid, para 46.96 Ibid, at para 57.97 Ibid, at para 58.98
Michael Trebilcock, Robert Howse and Antonia Eliason, The
Regulation of International Trade, 4th ed.
(New York: Routledge, 2012) at 117 (Trebilcock, Howse, and
Eliason). Joost Pauwelyn is particularlycritical of the necessity
requirement in the context of safeguards. He argues that the
Appellate Bodys re-quirements for Article XXIV justification,
spelled out in TurkeyTextiles, are supported by neither thetext nor
the spirit of Article XXIV and that they ought to be overturned. He
argues that that the neces-sity requirement should be replaced with
the requirement that (the exclusion of regional imports) is partof
the formation of a regional arrangement in line with Article XXIV.
This would allow for the exclusionof imports from a safeguard
measure under Article XXIV. See Joost Pauwelyn, The Puzzle of WTO
Safe-guards and Regional Trade Agreements, 7 (1) Journal of
International Economic Law 109 (2004) at 141(Pauwelyn, Puzzle of
WTO Safeguards).
99 Appellate Body Report, ArgentinaFootwear, above n 80;
Appellate Body Report, USWheat Gluten,above n 80; Appellate Body
Report, USLine Pipe, above n 80; Appellate Body Report, USSteel
Safe-guards, above n 80.
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formally prohibits safeguards and similar measures between
member states,100 and asurprising number of FTAs, like NAFTA101
provide for the exclusion of other mem-ber states of an FTA from
the application of general safeguard measures adopted byany one of
them. The first complaint arising out of safeguards involved a plea
by Ar-gentina invoking MERCOSUR in justification of a safeguard
measure that it hadtaken.102 Other cases involved complaints
against the USA in circumstances where ithad exempted Canada and
Mexico from general safeguards measures pursuant toChapter 8 of
NAFTA.103 Interestingly, the panels in the ArgentinaFootwear104
andthe USWheat Gluten105 cases considered arguments based on
Article XXIV exten-sively, while the Appellate Body showed much
greater reserve on the same issues.The basis of the safeguards
exemption was the same in the USLine Pipe and theUSSteel Safeguards
cases, the Article XXIV justification was argued at some lengthin
the former and briefly in the latter case before the panels, but
was given littleweight by the AB in either case.106
In the ArgentinaFootwear case, Argentina, after investigating
imports and find-ing injury resulting from imports from all
sources, imposed safeguard duties only onimports from non-MERCOSUR
countries. The panel concluded that GATT ArticleXIX and Articles 2
and 4 of the Safeguards Agreement required that the assessment
ofthe sources of injury and the imposition of duties must be done
in parallel and, forthis reason, found that Argentina had violated
its commitments by considering allsources of injury but then
excluding its MERCOSUR partners. Argentina argued infurther
justification of its measures that Article XXIV.8 had the effect of
prohibitingthe imposition of safeguards against partners in a
customs union because Article XIXwas not listed among the duties
and other regulations of commerce that might bemaintained under
Article XXIV.8(a)(i) or (b). The panel noted that the footnote
toArticle 2.1107 of the Safeguards Agreement did not appear to be
an absolute ban on re-taining safeguards and, in any case such a
restriction might be maintained during thetransitional period of
establishment of the customs union, or might be acceptedunder the
substantially all trade requirement.108 The panel also speculated
on thepossible difference between the treatment of a customs union
and an FTA, particu-larly if the customs union chose to impose
safeguards as a single unit.109 But, in thecircumstances, where
Argentina had found injury arising out of sources in and
100 Treaty on European Union, Treaty of Maastricht, 7 February
1992, C 325/5 (entered into force on 1 No-vember 1993).
101 See NAFTA, above n 28, at art 802.102 Appellate Body Report,
ArgentinaFootwear, above n 80.103 Appellate Body Report, USWheat
Gluten, above n 80; Appellate Body Report, USLine Pipe, above
n 80; Appellate Body Report, USSteel Safeguards, above n 80.104
WTO Panel Report, ArgentinaSafeguards Measures on Imports of
Footwear (ArgentinaFootwear),
WT/DS121/R, adopted 25 June 1999.105 WTO Panel Report, United
StatesDefinitive Safeguard Measures on Imports of Wheat Gluten from
the
European Communities (USWheat Gluten), WT/DS166/R, adopted 31
July 2000, paras 8.1788.181.106 See generally Trebilcock, Howse,
and Eliason, above n 98.107 Panel Report, ArgentinaFootwear, above
n 104, at para 8.95: Nothing in the (Safeguards) Agreement
prejudges the interpretation of the relationship between Article
XIX and paragraph 8 of the ArticleXXIV of GATT 1994.
108 Ibid, at paras 8.938.98.109 Panel Report, ArgentinaFootwear,
above n 104, paras 8.998.100.
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outside the MERCOSUR, it could not then apply the safeguard
measures only to theexternal sources and exempt its MERCOSUR
partners.110
The AB took issue with much of the panels analysis of the
application of ArticleXXIV. In particular, the AB considered that
footnote to Article 2.1 of the SafeguardsAgreement only applied to
safeguard measures applied by a customs union itself,which had not
happened in this case. Secondly, the AB stated that any measures
tobe justified under Article XXIV must be introduced upon the
formation of the cus-toms union and were subject to the necessity
test declared in the TurkeyTextilesdecision.111 Since these issues
had not been properly raised, the AB reversed thepanel on these
matters. However, the AB strongly affirmed that the parallelism
testderived from Article 2 of the Safeguards Agreement was
applicable and led the AB,like the panel, to conclude that
Argentina had violated the Agreement.112
In the USWheat Gluten case, the USITC investigated the complaint
that im-ports of wheat gluten from all sources were causing serious
injury in the USA, butsubsequently concluded that imports from
Mexico and Canada, both NAFTA par-ties, were not contributing
importantly to the serious injury and therefore excludedCanadian
and Mexican imports from the application of safeguards measures.113
Thisexclusion was challenged by the EC. In response, the USA
questioned whether theAB had established a broad requirement of
parallelism in ArgentinaFootwear, butasserted that in following
Chapter 8 of NAFTA it had done everything necessary torespect the
concept of parallelism set out in that decision.114 The USA
asserted itsinterpretation of parallelism to require that it
consider injury from all sources butallowing it to exempt from
safeguard measures NAFTA partners whose exports hadnot contributed
to the injury.115 The panel found this approach unsupportable
underthe Safeguards Agreement, which in its view required symmetry
of treatment so thatall sources be considered or excluded at the
start of the investigation.116 The panelalso noted that since the
USA interpreted Article XXIV as giving a defence only toArticle XIX
measures, but not to the Safeguards Agreement,117 the requirements
ofsymmetry and parallelism must stand and had been violated.118 The
panel furtherstated: We do not believe that we have been asked to
rule, and consequently makeno ruling, on whether or not, as a
general principle, a member of a free trade areacan exclude imports
from other members of that free trade area from the applicationof a
safeguard measure.119 Before the AB, the USA challenged this
approach, but theAB, upholding the panels findings in para 8.182 of
the panel report, stated: We seeno error in this approach, and make
no findings on these arguments.120
110 Appellate Body Report, ArgentinaFootwear, above n 80, para
102.111 Ibid, at paras 99109.112 Ibid, at paras 111114.113 Panel
Report, USWheat Gluten, above n 105, para 8.162.114 Ibid, at paras
8.1588.159.115 Ibid, at paras 8.1748.175.116 Ibid, at paras
8.1768.179.117 Ibid, at para 8.181.118 Ibid, at para 8.182.119
Ibid, at para 8.183.120 Appellate Body Report, USWheat Gluten,
above n 80, para 99.
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In the two subsequent cases involving safeguards taken by the
USA pursuant toNAFTA, USLine Pipe and USSteel Safeguards turn
largely on complex argu-ments pertaining to the application of the
principle of parallelism in the particularfacts of the
investigations, and the methodologies and findings of the
customsauthorities of the USA. But, in both cases Article XXIV was
raised. In the USLinePipe case, Korea advanced a procedural
argument that the USA could not raise theArticle XXIV defence, as
the CRTA had not yet issued a final decision that NAFTAwas in
compliance with Article XXIV.8.121 The panel rejected this argument
out ofhand122 and concluded that the United States is entitled to
rely on an ArticleXXIV defence against Koreas claims under Articles
I, XIII and XIX regarding theexclusion of imports from Canada and
Mexico from the scope of the line pipemeasure.123 The AB did not
find it necessary to deal with the issue extensively asthe panel
had found that the conditions for the application of the Article
XXIV de-fence had not been met and therefore declared the findings
of the panel on thesematters to be moot.124 Article XXIV is briefly
discussed by the panel in the USSteel Safeguards case but dismissed
because the panel made a finding that the prin-ciple of parallelism
had been violated; thus the AB did not have to take up
thematter.125
The result is that there are four decisions in which the method
of evaluating justi-fications for excluding imports from RTA
partners from safeguard measures hasbeen challenged by other WTO
Members and fairly extensively considered at thepanel level. Panels
have assumed that exclusion from safeguards is legitimate if
theprinciple of parallelism is followed, but there is no ruling by
the AB that the advan-tage given to FTA partners126 by excluding
them from safeguard measures is eitherjustified or unacceptable
under WTO law. Thus, the four cases deal with ArticleXXIV but in a
partial and fragmentary fashion leaving many questions
concerningthe application of an Article XXIV defence open.
121 WTO Panel Report, United StatesDefinitive Safeguards
Measures on Imports of Circular Welded CarbonQuality Line Pipe From
Korea (USLine Pipe), WT/DS202/R, adopted 29 October 2001, para
7.143.
122 Ibid, at para 7.144.123 Ibid, at para 7.146.124 Appellate
Body Report, USLine Pipe, above n 80, para 199: Given these
conclusions, we need not ad-
dress the question whether an Article XXIV defence is available
to the United States. Nor are werequired to make a determination on
the question of the relationship between Article 2.2 of the
Agree-ment on Safeguards and Article XXIV of the GATT 1994. We,
therefore, modify the findings and conclu-sions of the Panel
relating to these two questions contained in paragraphs 7.135 to
7.163 and inparagraph 8.2(10) of the Panel Report by declaring them
moot and as having no legal effect.
125 WTO Panel Report, United StatesDefinitive Safeguard Measures
on Imports of Certain Steel Products(Complaint by Brazil) (USSteel
Safeguards), WT/DS259/R, adopted 11 June 2003, para 10.711:Finally,
since the Panel has found that the exemption of imports from
Canada, Mexico, Israel and Jor-dan in this case was inconsistent
with the requirement of parallelism, there was no need to address
thequestion whether this exemption in departure of Article I of
GATT 1994 and Article 2.2 of the Agree-ment on Safeguards was
justified by Article XXIV of GATT 1994. As the Appellate Body has
stated, thequestion of whether Article XXIV of GATT 1994 can serve
as an exception to Article 2.2 of the Agree-ment on Safeguards
becomes relevant only when the requirement of parallelism has been
compliedwith.
126 As opposed to partners in a customs union.
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3. Exemption from customs dutiesWhen the NAFTA negotiations were
completed, Canada maintained a system of ex-emptions from customs
duties on automobiles directed to companies, which wereboth
importers and producers of automobiles in Canada. This had the
effect ofimposing duties on some, mainly Japanese, automobiles,
while exempting those ofcompanies with production facilities in
Canada. Japan objected to the measures andcomplained to the DSB.127
This was part of an allegedly non-discriminatory scheme,originating
in the 1965 CanadaUnited States Automotive Products
Agreement(Autopact),128 by which all manufacturers of automobiles
who maintained a certainlevel of Canadian value added were exempted
from duties both across NAFTA bor-ders, but also into Canada from
third countries. Canadas defence was that the meas-ures were
non-discriminatory, but it also raised Article XXIV as a defence to
theJapanese critique.129 The EC, as intervener, responded that the
measures failed tomeet the test of necessity and there was not even
a true FTA since the Autopact, ascarried forward into NAFTA Annex
300A, was really a sectoral agreement.130 Thepanel summarily
dismissed the Article XXIV argument on the ground that it did
notcontemplate the granting of preferences to third states.131
In a 2006 complaint, that has not gone beyond the consultations
stage, Argentinacomplained that the EU by increasing Chinas
tariff-rate quota by 20,500 tonnes toimport garlic, acting pursuant
to Article XXIV, as a result of its most recent expan-sion, had
failed to respect the conditions set by XXIV.6 by not taking into
accountArgentinas initial negotiating rights.132
4. Status of measures under the enabling clauseUntil the
proceedings in Indias complaint against the EU concerning treatment
ofcertain intellectual property rights under the EUs implementation
of the GeneralizedSystem of Preferences (GSP), there had been no
interpretation of the scope and ap-plication of the Enabling
Clause, adopted as part of the Tokyo Round of MultilateralTrade
Agreements in 1979, as it applied to other measures taken by WTO
Members.The EU not only implemented preferences under the GSP but
also added additionalcategories of preferences: in particular, the
EU offered preferential treatment to 12states that agreed to
implement special measures to combat production and traffick-ing in
drugs, the Drug Arrangements. India, not being one of the 12,
complained
127 Appellate Body Report, CanadaAutos, above n 80.128 Agreement
Concerning Automotive Products between the Government of Canada and
the Government of the
United States of America, January 1965,
http://www.lexum.com/ca_us/en/cts.1966.14.en.html (visited20
September 2013).
129 WTO Panel Report, CanadaCertain Measures Affecting the
Automotive Industry (CanadaAutos),WT/DS139/R, adopted 11 February
2000, para 6.132: Canada, the United States and Mexico haveformed a
free-trade area and, therefore, any advantage that may be accorded
by Canada to its free tradepartners is exempt from Article I:1
obligations by virtue of Article XXIV of the GATT. See also
paras6.183 and 6.227.
130 Ibid, at paras 6.1836.188.131 Ibid, at para 10.55: Article
XXIV clearly cannot justify a measure which grants WTO-inconsistent
duty-
free treatment to products originating in third countries not
parties to a customs union or free tradeagreement.
132 Consultations, EUTariff Garlic, above n 80.
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that the EU had violated GATT Article I and that the measures
were not justifiedunder the Enabling Clausethe legal basis for the
GSP and part of the WTOacquis.133 The panel held that India had
shown that the measures violated Article Iand that the EU had
failed to show that the Drug Arrangements were justified underthe
Enabling Clause or under Article XX(b).134 The AB agreed with the
panel thatthe Enabling Clause constituted an exception from Article
I,135 but held that it wasincumbent on India to raise the violation
of the Enabling Clause and for the EU tomake the case that the
conditions of the Enabling Clause had been respected. Thisthe EU
had failed to do, as the AB held that the principle of
non-discrimination inthe Enabling Clause did not necessarily mean
exactly the same treatment of allGeneralized System of Preferences
beneficiaries but, as a minimum, did require thesame treatment of
all similarly situated beneficiaries.136
The Enabling Clause is thus shown to operate in a manner similar
to ArticleXXIV or Article XX with respect to the collective right
to development of least de-veloped countries. It sets conditions,
which must be respected if it is to be invokedto justify tariff
treatment that deviates from that required by GATT Article I.
5. Invocation of RTA disputes before the WTO dispute settlement
proceduresPerhaps the most important WTO decisions for the purposes
of this article deal withthe arguments made by WTO Members in
various cases that the WTO DSB is notthe appropriate forum to hear
the case or that the DSB should take note of and giveeffect to
decisions taken under the aegis of dispute settlement provisions of
variousRTAs.137 These cases most starkly demonstrate the potential
consequences of thesame states being parties to multiple trade
treaties with different dispute settlementprocedures. This is
particularly acute in the many situations when the provisions ofthe
WTO and the RTA are identical,138 are based on the same
principles139 or whenit is affirmed that the RTA should be
interpreted in accordance with WTO law.140
The nature of the WTO as the basic matrix of international trade
law becomes veryclear in these cases as does the issue of whether
this implies that the WTO DSB hasprimacy over any RTA dispute
settlement procedure or whether the DSB is pre-cluded from
considering the very existence, let alone the results, of any
suchprocedure.
133 Appellate Body Report, ECTariff Preferences, above n 41,
paras 13.134 Ibid, at para 6.135 For further discussion on the
legal status of the Enabling Clause, see Lorand Bartels, The WTO
Ena-
bling Clause and Positive Conditionality in the European
Communitys GSP Program, 6 (2) Journal ofInternational Economic Law
507 (2003) at 515516. Bartels notes that the legal status of the
EnablingClause is not entirely clear. However, he concludes that
the Enabling Clause was intended to affect therights and
obligations of all of the Contracting Parties and was designed as a
legal basis for future (vol-untary) measures affecting all
Contracting Parties.
136 Appellate Body Report, ECTariff Preferences, above n 41,
paras 173 and 190.137 Panel Report, ArgentinaPoultry, above n 80;
Panel Report, USSoftwood Lumber, above n 80, fn 12;
Panel Report, MexicoSoft Drinks, above n 80; Appellate Body
Report, BrazilRetreaded Tyres, aboven 80.
138 For example, see NAFTA, above n 28, at ch 301.139 Ibid.140
NAFTA, above n 28; NZChina FTA, above n 28.
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The first case to raise these issues is ArgentinaPoultry141 in
which Argentinasought to prevent Brazil from proceeding with a
complaint against Argentinas anti-dumping measures, on the ground
that Brazil had already pursued its recoursesunder the MERCOSUR
Protocol of Brasilia for the Solution of Controversies (Protocolof
Brasilia) and had obtained a judgment. Argentina argued as a
preliminary issuethat Brazil should not be allowed to bring the
case before the DSB because it hadnot respected the principle of
good faith and was therefore estopped from proceed-ing.142
According to Argentina, for Brazil to have pursued the procedure
under theProtocol of Brasilia and then, when dissatisfied with the
outcome, to seek to pursuethe same case under the DSU was evidence
of bad faith, a general principle of inter-national law which
should prevent Brazil from proceeding.143 Alternatively,
underArticle 31.3(c) of the Vienna Convention on the Law of
Treaties, interpretation musttake into account all treaty
obligations existing between the parties, in particular an-other
trade agreement dealing with the same issues.144 Brazil responded
that therequisite legal and factual elements of the plea of
estoppel were not present and thatthe Protocol of Brasilia (unlike
the signed but not yet in force Olivos Protocol for theSettlement
of Disputes or Olivos Protocol) contained no express fork in the
road pro-vision. Furthermore, Brazil denied abusing its rights and
asserted that it was simplyexercising its rights under the DSU.145
Chile, the EU, and the USA made various ar-guments in support of
Argentina.146 Only Paraguay, a MERCOSUR partner, calledfor the full
recognition of the existence of the RTA.147
The panel found for Brazil on the grounds that to violate the
principle of goodfaith there must be violation of an explicit
provision of WTO law and more thanmere violation.148 Similarly, the
panel found no room for the plea of estoppel, layingconsiderable
emphasis on the fact the Olivos Protocol was much more explicit
thanthe Protocol of Brasilia and was not yet in force between the
parties.149 The panelalso held that Argentina was not calling on it
to interpret the MERCOSUR ruling in
141 Panel Report, ArgentinaPoultry, above n 80, paras
7.177.41.142 Ibid, at para 7.18.143 Ibid, at para 7.20.144 Ibid, at
para 7.21.145 Ibid, at paras 7.227.24.146 Ibid, at paras 7.257.27
and 7.307.31. The arguments included: the claims are based on
different issues;
the interpretation of MERCOSUR could not be relevant to
interpreting a WTO dispute; there was noexpress commitment by
Brazil not to proceed before the DSB thus no estoppel; Brazil had
never expli-citly renounced its rights under the DSU; MERCOSUR
dispute settlement rules are not within theterms of reference of
the panel; the panel is restricted to interpreting the GATT and
covered agree-ments; any plea of estoppel only relevant to MERCOSUR
proceedings; DSU art 3.2 only refers to theinterpretation of WTO
law.
147 Ibid, at paras 7.28, 7.29. Paraguay argued that the case was
res judicata because it had already beenbrought under the dispute
settlement procedure established under MERCOSUR and that Article 21
ofthe Brasilia Protocol clearly established the unappealable and
binding nature of awards rendered by theAd Hoc Arbitral Tribunal,
which are deemed to be res judicata, a principle they believed
should prevail.Paraguay also referred to the Protocol of Olivos
(which was not in force at the time), which allows mem-ber to
choose a forum in which to pursue their disputes to the exclusion
of all other possible forums pro-vided under the Protocol.
148 Ibid, at para 7.36.149 Ibid, at paras 7.377.39.
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a particular way but actually to apply that ruling as a matter
of WTO lawsome-thing which the panel considered it was not
permitted to do.150
The second case in this series involved the attempt by the
Government of Canadato place evidence before a WTO panel hearing in
support of its complaint againstthe conduct of anti-dumping and
countervailing duty measures in the USA. The evi-dence consisted in
the decisions of various CanadaUnited States bi-national
panelsunder Chapter 19 of NAFTA dealing with essentially the same
issues. Canada soughtto use these decisions as evidence that its
claims against the USA in the WTO pro-ceeding were well founded.
The panel declined to rule on the weight to be given tothe
decisions but agreed to include them in a footnote of its
decision.151 In the foot-note, the Panel noted that references to
these decisions were inappropriate because:(i) the proceeding in
the NAFTA fell outside the terms of reference of the WTODSU Article
21.5 Panel since a determination or decision in a NAFTA proceeding
isnot a measure taken to comply with a DSB ruling, (ii) the panels
decision in theNAFTA proceedings were the subject of a pending
review, and (iii) that Canada hadfailed to point out that the
Commission was erroneously precluded by the NAFTApanel from
reopening the record and that, accordingly, the Section 129
Determina-tion is based on a different record than that in the
NAFTA proceedings.152 The AB,since it decided the case on other
grounds, did not consider the decisions at all.
The MexicoSoft Drinks decision,153 like the ArgentinaPoultry,
represented adetermined attempt by Mexico to resist having to
respond before the DSB to a com-plaint by the USA against allegedly
discriminatory taxes on imported high fructosecorn syrup (HFCS) and
products containing HFCS. Mexico considered that it hadacted in the
context of a dispute with the USA resulting from the failure of the
USAto give effect to an agreement to allow the importation of
Mexican sugar after theconclusion of NAFTA in 1994. Considering
that the dispute was properly to be con-ducted under NAFTA, Mexico
made a plea of forum non conveniens before the DSB,in answer to the
complaint of the USA, noting that its efforts to institute a
disputesettlement panel under NAFTA Chapter 20 had been frustrated
by the USA.
Mexico advanced three central arguments. First, that it had an
agreement with theUnited StatesNAFTA, which was allowed by WTO law,
and that NAFTAincluded a dispute settlement procedure under Chapter
20, which it sought touse.154 Due to the refusal of the USA to
refer the dispute to NAFTA Chapter 20, themeasures which Mexico had
adopted were proportional and necessary under GATTArticle XX(d) in
order to ensure respect for Mexican laws and regulations and to
en-courage the USA to respect NAFTA. This being the case Mexico
asked that thepanel refrain from ruling on the case. Mexico also
asked that the panel recommend
150 Ibid, at paras 7.407.41.151 Panel Report, USSoftwood Lumber,
above n 80, fn 12.152 Ibid.153 Panel Report, MexicoSoft Drinks,
above n 80. For an analysis of this case, see William J Davey
and
Andre Sapir, The Soft Drinks Case: The WTO and Regional
Agreements, 8 (1) World Trade Review(2009) 5 (Davey).
154 As discussed, NAFTA Chapter 20 has not been interpreted as
creating a binding dispute settlement pro-cedure. See above n
18.
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that the parties take up their dispute under NAFTA Chapter
20.155 The USA focusedforemost on the argument that the taxes in
question were discriminatory and thusmanifestly violated GATT
Article III. Beyond this, the USA argued that Mexicosplea of forum
non conveniens was beyond the mandate of the panel and that the
taxescould not be justified as necessary to ensure respect for
Mexicos laws and regula-tions.156 Fundamentally, the USA argued
that the only issues before the panel wereMexicos obligations under
WTO law and that the request to refuse to make findingsand refer
the parties to NAFTA was quite outside the bounds of the panels
legal au-thority under the DSU and the Memorandum between the
parties.157 The USA dis-tinguished ArgentinaPoultry as being a
totally different and distinct case.158 TheEU, as intervener,
indicated that in principle it is not excluded that other
treatiesform part of public international law, relevant to a
case.159
The panel report deals extensively with Mexicos arguments, but
the panel wasclearly more impressed by the assertions of the USA
that the Mexican measures dealtwith similar products and taxed a
similar product (HFCS) in a discriminatory man-ner in violation of
Article III. In response to Mexicos position that its measures
werenecessary to ensure respect for its laws and regulations under
Article XX(d) and thatthe panel had discretion to refuse to rule
and to refer the parties to their NAFTA ob-ligations, the panel
displayed great scepticism. The panel would not accept the
char-acterization of laws and regulations as referring to
international obligations.160 Thepanel held that it had no
discretion under Article XXIII, the DSU, or the standardterms of
reference of the dispute to refuse to make findings.161 On the
contrary, thepanel found that there existed a separate dispute
between the parties under NAFTAover which it had no right to rule.
The AB was in fundamental agreement with thepanel162 holding that a
panel under the DSU, while it had certain inherent jurisdic-tion
over procedure and the right to determine its jurisdiction,
certainly did notenjoy the kind of broad discretion to refuse to
hear a case as claimed by Mexico.163
Indeed, the AB seems to have held that for a panel to refuse to
hear a case would betantamount to denying a WTO Members right to
having a dispute heard under the
155 Panel Report, MexicoSoft Drinks, above n 80, paras
4.1204.138.156 Ibid, at paras 4.1404.144.157 Ibid, at paras
4.1544.155.158 Ibid, at para 4.193.159 Ibid, at para 4.203.160
Ibid, at paras 8.1718.172.161 Ibid, at paras 8.2188.230.162 WTO
Appellate Body Report, MexicoTax Measures on Soft Drinks and Other
Beverages (MexicoSoft
Drinks), WT/DS308/AB/R, adopted 6 March 2006, para 79. The AB
held that it agreed with the Panelsconclusions, but several aspects
of its reasoning differed. The AB concluded that the terms laws or
regu-lations covered rules forming part of the domestic legal
system of a WTO Member, including rulesderiving from international
agreements that have been incorporated into the domestic legal
system of aWTO Member or have direct effect. The AB also found that
Article XX(d) did not require the use ofcoercion nor that the
measure sought to be justified results in securing compliance with
absolute cer-tainty. Rather, Article XX(d) requires that the
measures be designed to secure compliance with laws orregulations
which are not inconsistent with the provisions of the GATT 1994.
And, finally, the AB didnot endorse the Panels reliance on the
Appellate Bodys interpretation in USGambling of the termnecessary
to interpret the terms to secure compliance in Article XX(d).
163 Ibid, at paras 4557.
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DSU.164 One of the interesting features of this case is the
manner in which a disputeoriginating in the exercise of exceptional
rights under an RTA, allegedly permitted byArticle XXIV which
allows preferential arrangements, was largely adjudicated
underArticle XX(d), which allows exceptions from the basic
provisions of the GATT.Whether there is any link between these
exceptions and in particular the necessityanalysis under both
articles will be dealt with below.
The major case dealing with Article XXIV is the BrazilRetreaded
Tyres case.165
This is a remarkable case from a number of perspectives, not the
least because themeasures defended by Brazil were adopted for
purposes of environmental protection,but also because Brazil
pleaded the necessity of giving effect to MERCOSUR cus-toms union
rules as determined by a MERCOSUR arbitral tribunal.166 For
reasonsof public health and environmental protection, Brazil had,
in 2000, adopted rulesbanning the importation of retreaded and used
automobile and truck tyres from allsources. As a result of a legal
challeng