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Joost Pauwelyn
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Besides self interest, loss of reputation and risk of emulation, the threat of unilateral retaliation is, indeed, the fourth “cost” of appealing into the void that I describe in my recent JIEL editorial on WTO Dispute Settlement Post 2019, p. 306-308, see https://academic.oup.com/jiel/article/22/3/297/5609188. All four of these “costs” mean that, indeed, most likely, the blocking of panel reports (by appealing them into the void) will not become the “new normal” post 2019: "appealing an adverse panel report ‘into the void’ may actually make things worse for the losing defendant. Under a DSB adopted panel report [claimant’s] retaliation would, legally speaking, be capped by the Article 22.4 equivalence standard and monitored by a separate arbitration procedure under Article 22.6. In contrast, [claimant’s] unilateral retaliation outside the DSU may not be so capped, cannot be challenged in Article 22.6 arbitration and may hence ‘punish’ the defendant even more. In the end, power relations may, therefore, push weaker parties not to appeal ‘into the void’." And it is this last sentence that makes me doubt that, as you put it Nicolas, the “threat of unilateral retaliation” will be enough to guarantee the continued automatic adoption of panel reports in all cases (no appeals into the void): 1. Where the claimant is relatively weak (say, Colombia winning a panel case against the EU, India or China), the threat of unilateral retaliation (by Colombia) risks not being credible, so it may not stop an appeal into the void by the EU, India or China, especially if the loss before the panel (suffered by the EU, India or China) is a sensitive one (think of India’s recent loss in the export measures case, DS541). In addition, all three of these defendants can credibly claim that they appeal into the void in the hope that the AB will be resurrected soon. 2. Where both parties are equally large/strong (say, US v. China or Korea v. Japan cases), unilateral retaliation (by the US/Korea) may be credible, but it may not stop an appeal into the void (by China or Japan; again, especially if the panel loss is a sensitive one) since counter-retaliation could be threatened (by China or Japan); in other words, rather than no appeal under the threat of unilateral retaliation, what may then happen is an appeal into the void and an escalating “trade war”. So the threat of unilateral retaliation may work to ensure automatic adoption of panel reports, but probably mostly/only in cases with a strong claimant v. a relatively weak defendant (say, US v. Mexico or EU v. South Korea disputes).
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Fair point, Steve. This is also why, when we tried to link the "Secretariat's increased role" to expressed "US concerns", we focused on objectively verifiable features, such as increasing length of reports and proceedings, extensive reference back to prior rulings, and low number of dissents (not e.g. the AB's interpretation on zeroing or public body). I do not think that the existence of these trends can be doubted, or are "false statements". What explains or caused them is another issue and, yes, there are most likely many factors at play. But we do venture, in the paper, an argument that the (increased) role of the Secretariat may have had an influence...
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On the normative side, let me just add something on moving closer to a “clerks” system, which both of you focus on. We put this out only as an idea to debate, at the end of the paper; it is certainly not the key point of the paper. Also, it probably makes more sense for staff assisting the AB, less for staff assisting panels (as panels are purely ad hoc; ABMs are there for four years, renewable once). Moving closer to a “clerks” system could also take many different forms (e.g. individual ABMs hiring entirely new people for their term in office; assigning existing staff to individual ABMs on a case by case basis; keep staff assigned to an entire division but have them operate under the control only of ABMs, with the director of the AB Secretariat taking on a purely managerial/registrar-type role etc.). The bottom-line is that moving closer to a “clerks” system would probably do two things: (1) reduce the “collective voice” of the Secretariat, whatever that voice may be inclined to do (I do think that it can systemically be linked to a preference for consistency, sticking to precedent, upholding of past practices etc.), and (2) enhance the voice of individual (Members-selected) AB members, as they would be the ones directly controlling their "clerk(s)", and also because individual ABMs would then have “their own assistant” to help explain and defend their views and positions in a given case (now, if you are not a native English speaker or are completely new to the system or have more of a diplomatic rather than a legal technical background, it may be very hard for individual ABMs to enter the internal debates, be able to phrase their position in the legal/technical/precedent-laden discourse that currently prevails etc.). In other words, re-arranging staff support closer to a “clerks” system (which, by the way, can be done without changing the DSU, no “can of worms” opened there either; one just needs to change internal, WTO Secretariat policy) may be one element in re-calibrating the playing field somewhat between adjudicators and staff. On Sungjoon’s point that this would create all kinds of concerns related to nationality, who the clerks would be etc., the same concerns could already now be raised in respect of current Secretariat hires. Indeed, as pointed out above, staff influence under the current system is more important than what it would likely be under something closer to a “clerks” system. Obviously, either way, existing Rules of Conduct (which do regulate potential conflicts of interest) would continue to apply.
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Thanks, Simon, and Sungjoon, for your comments. Interesting how both of you jump to the normative parts of the paper, i.e. the impact of the increased role of the Secretariat and what to correct/change, if anything. In my view, the main contribution of the paper is rather descriptive: (i) offering empirical proof of the Secretariat’s involvement in the drafting of panel reports (the data-driven methods we use are quite powerful); and (ii) describing -- and offering reasons for -- the rise, over time, of the role of the Secretariat across a number of functions (issues paper, questions to parties, internal deliberations, drafting of reports etc.), both in panel and, importantly, also in AB proceedings. To be clear, and in support of what Sungjoon writes, there is, and remains, an absolute need to have the WTO Secretariat support both panels and the AB. As I pointed out after involvement in a CAFTA state-to-state trade dispute, the fact that PTA dispute mechanisms do not have a (permanent) Secretariat is a serious drawback. See http://tinyurl.com/jofkky4 Yet, when it comes to the WTO, the question is whether today’s division of labor between (part-time) adjudicators and (permanent) staff is out of kilter and may even partly -- I repeat, partly -- explain some of the outcomes the US is so upset with. If so, this is not a question of re-designing the system to improve it (and thereby unnecessarily “opening a can of worms”, as Simon puts it), but rather an existential exercise to save the system …
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"Farming out" drafting in itself is, indeed, not necessarily a problem (although in a fine-grained precedential system, like today's WTO, it is worth knowing about). The crux of our paper is, rather, that the Secretariat's role in drafting must be considered in the context of its other roles: panel selection, writing of issues papers, questions to parties, active participation in internal deliberations etc. And this, crucially, realizing also the dynamic of increasing asymmetries between (permanent) staff and (part-time) adjudicators. This, undoubtedly, raises questions of division of labor, who does what (and varies case by case). In terms of "efficiency", that is exactly the other point we make in the paper: the (increasing) role of the Secretariat, and how it gets involved, may, over time, actually make things more complicated, and longer, so less efficient. On top of that, it may partly explain some of the outcomes that at least one large WTO Member currently objects to (e.g. de facto rule of precedent, expansive rulings), to the point that it risks blocking the entire system. Hence, simply making sure that the adjudicator reads and agrees with what the Secretariat drafted (which, I have no doubt, is already generally the case today) does not ensure "we are all good" or "fixed" the problem.
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Only one caveat, Sungjoon: 90% compliance rate is with WTO rulings; not with WTO rules ... We do not know exactly how many WTO violations are out there & not challenged. Rule of law is not merely court compliance, but primary norm compliance, and my fear is that the WTO does much better on former (compliance with rulings) than on latter (compliance with rules). Based on WTO disputes actually filed (these days predominantly in trade remedies), there are entire fields of WTO law that are becoming "black holes" (e.g. GATT Art. XXIV, major parts of GATS & TRIPS etc.).
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Thanks, Sungjoon, you are of course right. But through your lens, I am not even sure that WTO suspension, as calibrated in the case law, falls under the pole of "enforcement/retaliation" (and, yes, it is certainly not "remedy/compensation"): it is merely reciprocal suspension, tit-for-tat reduction in trade flows (along the lines of Art. 60 VCLT, a kind of exceptio non adimpleti contractus), that as such is not really "instrumental" to achieve the purpose of repealing the violation (although factors other than formal WTO suspension are at work to achieve the impressive 90% compliance rate with WTO rulings). And of all things, I have a hard time seeing how WTO suspension, which has recently led to all kinds of settlements and compensations keeping the violation in place (Cotton, Clove, Hormones etc.) sustains a "trade rule of law". Again, it is much more a system of balance, than one of strict rule of law. And, mind you, this is not necessarily a bad thing!
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Great points, Jonathan. But in Chorzow / general international law the quest is to define and compensate all "injury" caused by the breach. And, yes, in doing so, you do not want to compensate for speculative losses, so "full compensation" may not be achieved. Still, it makes sense to require proof/some proximity before making a violator pay. In the WTO, in contrast, identifying "injury" is not even the starting point/goal. The WTO follows the very mercantilistic idea that lifting a trade restriction is a "concession" (will "cost you") and restricting trade (or suspending a trade concession in retaliation) is a privilege (will "help you"). So what it asks following breach is: how much trade did the violator keep out; in return, the victim can do the same. Now imagine that, instead, we trie to identify the "injury" caused by a WTO breach. You would then indeed have to decide, first, injury to whom? To the entire country ("net loss") or only the harm caused to affected traders? If one considers net loss (e.g. impact on Canada as a whole of the US COOL measure), one could indeed en up with surprises: being the victim of a WTO breach may actually increase a country's overall welfare (think of export subsidies!); conversely, imposing a WTO inconsistent trade restriction will, in many cases, harm (not help) the violating country as a whole (steel tariffs may help steel producers but harm the overall economy). Still, if general welfare impact were the standard, economists can calculate this (see chapters by Schropp and Breuss in this book I edited a while ago: http://tinyurl.com/haq22tf). But it would mean a massive shift in approach for the WTO. If, instead, one considers injury only to affected traders (e.g. Canadian cattle/meat traders in the COOL case), the way one considers damages to a specific investor in ISDS (without offsetting benefits that may flow elsewhere in the home state), then what Canada/Mexico asked for in the COOL arbitration (counting also domestic losses) makes sense. Indeed, also in the Cotton retaliation for US actionable subsidies, the loss to Brazilian cotton farmers was calculated (without offsets for lower cotton prices in Brazil benefitting Brazilian consumers). Either way, if one adopts an injury approach (be it net loss or affected traders loss), one must then do the same when calculating the impact of the retaliating measure, so as to ensure "equivalence" between the impact of the violation and that of the retaliation (in COOL, this would mean that one would then have to account for the net loss on the US economy as a whole, or all losses suffered by affected US traders, as a result of Canada's retaliation for it to be equivalent to the injury caused by US COOL). Again, this all sounds complicated, but it can be done (approximately) by economists. I am not favouring any of these three approaches (trade losses, national net loss, economic impact on traders); only pointing out the systemic/distributional differences for the broader system as a whole (for one thing, if you are a large country / price maker, like the US, a trade restriction by a small country is unlikely to affect US domestic prices so for the US not counting for domestic losses in retaliation is less of an issue).
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Yes, and this could also deal with some of the WTO-FTA issues we discussed earlier ...
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Indeed, not all provisions can be contracted out from; contracting out that would undermine the treaty as a whole (whatever that means!) is prohibited. But the fact that an inter se agreement changes a provision in a multilateral treaty (here, right to a panel or prohibition of certain tariffs under Art. 4.2 AoA for specific Peruvian measure) is not, as such, enough to be prohibited by 41.1(b)(ii); you need more than that, a special case where the derogation destroys the treaty as a whole (if it does so one would think it also affects third party rights, so the two limitations in 41 at least partly overlap). AB already allowed for contracting out of right to a panel under DSU settlement so I do not see why doing the same under an FTA would undermine the effective execution of the WTO treaty any more than that ...
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The WTO never publishes party submissions. Some members (such as EU, US) make their own submissions public on their own websites. I could not find anything either on Peru's external trade ministry website. But Peru's core arguments are summarised in the Panel report.
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On (i), absolutely, Art. 11.1(b) of the Safeguards Agreement is one of few examples where the WTO explicitly prohibits certain inter se agreements (to be distinguished from the many instances where the WTO prohibits individual state behaviour, in regard of which WTO members can waive/consent inter se, as long as they do not affect third party rights) and, pursuant to VCLT Art. 41.1(b), in that case (Art. 11.1(b) SGA), contracting out is not "legal". On (ii), very much like for the VCLT, it depends on the specific ASR article: some are now commonly accepted as custom/general principles, others not (yet?).
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Thanks, Julia. On (i), yes, international law allows states to consent to what would otherwise be a violation ("agree not to comply"), and they can do so unilaterally or by treaty (Art. 20 ASR); treaty law also allows for inter se modification of a multilateral treaty as long as, essentially, the WTO treaty does not explicitly prohibit this and third party rights are not affected (VCLT Art. 41 and Art. 30/31.3(a)). Those are two important conditions and the WTO does not generally prohibit inter se modifications or inter se contracting out (on the contrary, it explicitly allows for FTAs etc.). Also, the fact that one Member consented/agreed/waived, cannot take away the rights of other WTO members. A good example is when the EU and US were allowed to "contract out" of DSU Art. 17.10 on confidential AB proceedings. The DSU prohibits open hearings, so to hold open hearings would violate the DSU. But that does not stop 2 WTO members from waiving their rights by agreement (nothing in the DSU prohibits such agreement). And the AB permitted this for as long as the confidentiality rights of other members were not affected. On (ii) no real difference in status between VCLT and ASR if and to the extent both represent customary international law. But ASR is somewhat easier to digest since it waives/consents to case/claim/measure specific issues. VCLT, in contrast, is more drastic and relates to legal modification of treaty between parties in general; or interpretation of treaty between parties generally, also beyond the specific case/measure.
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The Spanish original states, in full: "Perú podrá mantener su Sistema de Franja de Precios, establecido en el D.S. No 1152001EF y sus modificaciones, respecto a los productos sujetos a la aplicación del sistema indicados con un asterisco (*) en la columna 4 en la Lista de Perú establecida en este Anexo". And keep in mind also, as I pointed out in my main post, that there still is the issue of the FTA not being in force (yet?): a major hurdle, but not insurmountable, for Peru, depending on the broader facts in the case. Press statements (ICJ Nuclear Tests cases) and promises during panel proceedings (US - Section 301) have been found to unilaterally commit states. But here, if there is nothing beyond the FTA as such, Guatemala could argue that its consent re the PRS was dependent on Peru's reciprocal ratification of the FTA. So as long as Peru does not ratify the FTA, arguably, the consent is in suspense. So best would, no doubt, be for Peru to ratify the FTA; in that case, difficult for Guatemala to deny there is consent in the sense of Art. 20.
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If you ask me, Art. 20 of the Articles on State Responsibility refers to "[v]alid consent by a State to the commission of a given act by another State" and the FTA language does give Guatemala's consent to (part of) Peru's Price Range System. What matters is consent to a given act; not explicit listing of what this act would otherwise violate. If I consent to you trespassing on my property, must I cite to the legal provisions allowing me to keep you off my property before you will dare to enter my house? But as you say, the FTA language does not refer to any promise not to challenge the PRS in any forum. So Guatemala probably did not waive its procedural right to bring a WTO claim against the PRS. Substantively, however, it gave its consent for Peru to continue the PRS (at least for some products).
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The AB, Panels, and the Secretariat staff advising them, may feel on safer grounds when having such explicit legal hook within the WTO treaty itself. But as a matter of public international law, does it really make a difference? The fact that TRIPS does not have an FTA exception simply means that TRIPS-plus provisions in FTAs must be extended to all WTO members on an MFN basis (with the limited exception you mention). It does not mean that WTO members are any less "permitted" to conclude FTAs in the TRIPS field than under GATT/GATS (TRIPS Art. 1.1 explicitly allows for "more extensive protection than is required by this Agreement"). The real issue under TRIPS is whether an FTA provision could be TRIPS-minus, and here the question is largely whether such TRIPS-minus could happen purely inter se, without affecting third party rights (condition (ii) in my post above). There could also be an argument that TRIPS itself explicitly prohibits the TRIPS-minus treatment (i.e. the TRIPS-minus could be invalid/illegal under condition (i) in my post above, also referred to in Art. 41 VCLT).
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Thanks, GDB, for these insights. And what about export restrictions imposed, say, by Switzerland against arms sales to, e.g., Syria or the DRC, on the ground that the arms would be used to commit crimes against humanity (Art. 3.3 of draft Arms Treaty)? Is this done to protect Switzerland's "essential security interests"? Or rather out of humanitarian concerns? If the latter, does Art. XXI even apply? And, if not, how could Switzerland justify the restriction? Art. XX(a), public morals? Plus, could the DRC complain that Switzerland discriminates the DRC (in violation of MFN and Art. 4.3/5 of the draft Arms Treaty) by restricting arms to the DRC but not, say, to another country which, in the eyes of the DRC, is "equally bad"? Where Art. XX(a) applies, would the chapeau of XX prohibit such discrimination?
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