Towards the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT)[1]
in 1993, an ominous work [2]
by the World Bank indicated that sixty-four per cent of the benefits of the round would accrue to developed countries, against only thirty-six per cent to developing nations. In fact, during the last two years of the negotiations, developing countries practically ceased demanding concessions from their developed trade partners and proceeded with a frenzy of unilateral liberalisation in the name of globalisation. Developed countries, with justified glee, reaped the profits. They had secured major tariff reductions from the developing countries, as well as the liberalisation of the services´ sectors, which was a major strategic objective, together with the inclusion of new treaties regulating matters such as investments and intellectual property. Whilst these major concessions were obtained, developed countries in practice ensured that there were no concessions in the most traditional areas of trade: agriculture and textiles.[3]
The conclusion of the round was brought about by the execution of the so-called Treaties of the Uruguay Round, which provided inter alia for the creation of the World Trade Organisation (WTO) in 1995. The ensuing period was characterised by growing prosperity in the developed countries and by numerous crises in and a decreasing participation by developing countries in world trade. The volume of subsidies applied by developed countries increased substantially, ensuring the misery of many and prosperity for a few. The creation of the dispute resolution system of the WTO, which had been hailed as the promoter of juridicity and the rule of law in international trade relations, and accepted by developing nations as a hope in order to neutralise the unilateral measures directed against them principally, but by no means exclusively, by the United States of America (USA), has proved to be yet another instrument of enhancing the hegemonic desires of the developed countries.
I propose to analyse how, during the six years of operation, the dispute resolution system of the WTO has become a travesty of justice and an effective means of subjugation of developing countries, against whom the system has proved to be directed. The perception of this fact by international public opinion, has contributed enormously to the dramatic erosion of the credibility of the WTO. Accordingly, I shall review the operational defects of the dispute resolution system of the WTO and how they have been utilised to establish dominance of the interests of developed countries against developing nations. After this examination, I shall examine the system in action, demonstrating how developing nations lost approximately ninety per cent of the cases they disputed with developed countries. Lastly, I shall show how the system has been successfully utilised by developed countries to derogate rights deriving from other international treaties and to usurp members´ rights and create new precedents and obligations not permitted by international law.The dispute resolution system (DRS) of the WTO is initiated by a formal request for consultations from one member to another.[4]
This request is conveyed to the Dispute Resolution Body (DRB) of the WTO. If these consultations fail to settle the dispute within sixty days, the complaining party may request the establishment of a panel. The right of action is reserved for the sovereign state members of the WTO. Accordingly, private law, physical or juridical persons are not subject to the jurisdiction of the DRB. Once requested, the DRS will automatically establish an arbitration panel [5]
unless there is consensus against it. This reverses the rule applicable under GATT.
Any member state which is an interested third party may be heard by the panel without, however, being a party to the dispute,[6]
as active joinder of plaintiffs is only allowed when the complaint is jointly filed. The joinder of defendants is totally prohibited. This is a major shortcoming in the system, because it allows for different panels to analyse related matters and possibly give different awards. This flaw is exacerbated by the fact that in the DRS, the terms of reference [7]
of a dispute are notdetermined by the plaintiff, but by the legal division of the secretariat of the WTO. Therefore, it could happen that identical cases brought by different members states against a single country are transformed into different matters, brought to different panels, and even attract different decisions.[8]
Similarly, the system does not permit counterclaims of cross-complaints, which may result in two different panels with the same parties and different terms of reference for the same basic issue at stake with disparate decisions. That this is not far-fetched is clear from the dispute involving Brazil and Canada over subsidies given to the respective aeronautical industries with disastrous consequences for Brazil and for the credibility of the system as a whole. To complicate matters further, semantics present an enormous problem in the system, as it eschewed established legal terminology in favour of very imprecise argot. For instance, `practice´ means jurisprudence; `submission´ means petition, complaint, response, and rebutter; `recommendation´ means decision; `report´ means award; `substantive meeting´ means both hearing and session and, among several aberrations too numerous to itemise here, there is even room for `oral hearings´.
Because all panel deliberations together with petitions and briefings filed by the parties are confidential, [9]
the system fails dramatically in terms of governance and presents formidable obstacles to democratic control, within the member states, of the actions taken by their representatives before the WTO. Therefore, errors and omissions by such representatives are not easily identified, which precludes democratic control and denies assessment of legal responsibility under municipal law. In order to further complicate matters, the WTO proceedings do not have a physical file of the case, as in any reliable judicial or arbitration case the world over.
Panels establish times for filing of petitions and briefs on a case-by-case basis.[10]
This often allows for different treatment of parties to a dispute, amongst themselves, as well as with regard to similar situations which also involve other parties. The awards are drafted without the presence of the parties.[11]
Individual opinions of arbitrators are anonymous and, whenever dissenting, are excluded from the award.[12]
This situation serves to mask the true deliberations of the panel and unfairly disadvantages the defeated party as regards the merits and changes of an eventual appeal.
A grave shortcoming in the system keenly and very ably explored by developed countries, to the detriment and with disastrous consequences for developing nations, is the failure to accept deliberation of preliminary issues. The most common preliminary issue denied jurisdiction by the DRS, involves conflict of treaties, as developed countries managed to derogate rights of developing nations deriving from other bodies of international law, such as the Charter of the United Nations; the International Monetary Fund (IMF) Agreement; and several human rights and health treaties. The first case before the WTO to renege on rights deriving from other treaties, was the case brought by the USA against India on the matter of quantitative import restrictions. With the precedent established, Brazil was also denied IMF rights in the panel brought by Canada in connection with interest rate equalisation for the aeronautical industry. The next case to address conflict of treaties, if Brazil presents the argument, will be the one brought by the USA on patent protection, with the potential of destroying Brazil´s successful aids programme.
Panels consist of three or five members.[13]
Arbitrators are well-qualified governmental or non-governmental individuals, [14]
selected with a view to ensuring independence of the members.[15]
Citizens or members involved in a dispute may not serve as arbitrators.[16]
The secretariat of the WTO maintains a roster of arbitrators.[17]
When a dispute is between a developing country member and a developed country, the panel shall, if the developing country member so requests, include at least one panellist from a developing country.[18]
In practice, however, the arbitrators are chosen by the legal division of the secretariat of the WTO according to criteria not subject to transparency or governance, often disregarding the diversity requirement of the treaty.
Adoption of awards is automatic,[19]
unless the decision is appealed by one or both of the parties. The DRS has a standing appellate body (AB) with seven arbitrators and each appeal panel has three panellists, termed a division. No provision is made for session `en banc´ of the AB. The maximum period for a decision is sixty days, which in practice has put enormous constraints on the system. In accordance with the treaty,[20]
the AB must address each of the legal issues raised in the appeal. Appeal awards are also subject to automatic adoption.[21]
WTO arbitrators at both first instance and on appellate level, function on an ad hoc basis. Frequently, they do not reside in Geneva, Switzerland, where the headquarters of the WTO are situated, and they do not have any independent infrastructure to support their activities. Therefore, they have to rely on the technical support and assistance of the `legal, historical and procedural aspects of the matter dealt with´ [22]
by the secretariat of the WTO. This has caused serious distortions in the DRS and gave rise to grave accusations concerning the actual role played by the secretariat.In the six years since the creation of the WTO and 1 January 1995, 220 complaints [23]
have been noted by the member states of the secretariat. Of these, 116 were resolved in various ways during the consultation phase. Fifty-one have been objects of definitive decisions by the DRS; thirty-nine have been settled by the parties or are inactive; and fourteen cases are presently first instance or appellate level. In terms of the WTO´s annual report for the year 2000,
Developed countries filed about three quarters of the complaints under the Dispute Settlement Understanding (DSU), and were respondents in the same share of complaints. Developing countries filed the remaining one quarter of complaints, against developed countries in over 50% of the complaints and the rest against other developing countries. The USA and the European Union (EU) are the most frequent complainants to the WTO … . [24]
What the WTO´s annual report fails to present, is an analysis of the results of cases subjected to DRS awards and of the situation of developing countries in the system. Of the fifty-one panel reports either issued or adopted by the DRS, only three involved developing countries against other developing countries; seventeen concerned developed countries as plaintiffs against developing nations; eight had developing countries as plaintiffs against developed countries as defendants; and twenty-three involved developed countries against developed countries. The majority of the conflicts, therefore, were between developed and developing countries.
Of the eight cases developing nations instituted against developed countries, developing nations won three and lost five. When, however, developing nations acted as defendants against developed countries as plaintiffs, developing nations lost sixteen and won only one. Therefore, developing nations lost twenty-one out of twenty-five cases against developed countries, a failure rate of approximately ninety per cent! Both the USA and the EU, but occasionally also Japan and Canada, the so-called QUAD countries, benefitted most from the system – the USA in particular. According to the testimony of Ambassador Charlene Barshefsky, former head of the United States Trade Representative (USTR) to the US Congress, the USA prevailed in virtually all of the disputes in which the country was involved. In addition, it prevailed almost always in the consultation phase of the dispute, particularly against developing countries. Ms Barshefsky went on to compliment Congress for having made `a more effective GATT dispute settlement system a ´principal US negotiating objective´. [25]
The developing countries most involved in disputes with developed countries were Brazil, India and Korea. India always, and Brazil occasionally, were leaders of the developing world in multilateral trade negotiations and suffered the largest number of strategic defeats of the DRS. India lost its five panels against developed countries, prevailing once against another developing country, Turkey, in the matter related to textiles. Its defeats included the strategic case of quantitative restrictions against the USA; shrimps against the USA; patents against the EU; pharmaceuticals against the USA; and textiles against the USA.
On the other hand, Brazil lost in two panels against Canada on incentives for the aeronautical industry, a matter of great strategic relevance, once as plaintiff and once as defendant. Brazil also lost two cases against the EU on matters involving poultry and dairy products and prevailed in one, together with Venezuela, against the USA on environmental standards for gasoline. Brazil also often succumbed in the consultations, namely as to the matter of automotive policy to the USA, EU and Japan; and as to import licences with the EU and import restrictions with the USA.
Korea was involved in seven panels. It settled one with the USA on the matter of semi-conductors, in which America claimed victory. In the other six, Korea lost the matter of alcoholic beverages against the US and against the EU, dairy products against the EU, and panels pertaining to beef against the US and Australia. Korea won a panel against the USA as to government procurement, but the USA did not implement the award. Indonesia was involved in three panels on the strategic issue of its automotive policy and lost all of them to the USA, EU and Japan. Argentina lost the two panels it was involved in, both dealing with footwear, against the EU and the USA.
In active panels where a final award is still pending, the confrontational nature of the struggle between developed countries against the developing nations is still more pronounced. In fourteen cases, ten involve conflicts between developed and developing countries, of which seven have developed countries as plaintiffs. Of the remainder, three involve conflicts between developed countries, and one a conflict between developing countries. The developing countries most involved in the active panels are Argentina, Brazil and India with two panels each. Both panels involving Brazil and Argentina have very relevant strategic implications. The Philippines is a defendant in a strategic complaint by the USA regarding motor vehicles.
If data of both decided and undecided panels is compounded, we find a total of sixty-five cases, of which fifty-one have been decided. Of those thirty-five cases (twenty-five decided and ten undecided), or the vast majority, deal with conflicts between developed countries against developing nations. On the other hand, twenty-six cases (twenty-three decided and three undecided) are between developed countries. Lastly, there were four cases (three decided and one undecided) between developing countries. Thus with less than twenty-five per cent of the world trade, developing countries are involved in approximately fifty-four per cent of the trade litigation, normally as defendant! If consultations are added to the tally, the percentage would be even higher. Brazil, a developing country with less than five per cent of the international trade volume of the EU and of the USA, is at present involved in as many consultations as those trade partners. Thus, after six years, the DRS of the WTO leans heavily toward developing countries.
We have seen how many grave imperfections there are in the legal framework of the DRS and how the system is used by developed countries against developing nations with devastating effects, allowing for a winning record of approximately ninety per cent. If the structure is faulty, it is also heavily weighed in favour or developed countries in the composition of the legal division of the secretariat, the location of the headquarters of the WTO, and even in the language of the DRS – English, native tongue of the great majority of the developed trading partners.
The lack of transparency in the composition of the legal division of the secretariat, compounded by the enormous powers granted to this bureaucracy, make the DRS a travesty of justice. The secretariat has usurped the rights of members states to choose the terms of reference for disputes; in practice, it selects the arbitrators for all disputes; and it supports the work of the panels in a way that no administrative structure has ever supported the administration of justice, often drafting awards and in practice de facto conducting the dispute process.
With all these systemic and idiosyncratic advantages, developed countries wasted no time in utilising the DRS of the WTO in a way to impair and, in practice, derogate from rights granted to developing nations under certain long standing international agreements, which had fallen out of favour with developed nations after the cold war and under the ideologies of liberalism and globalisation. Such `disgraced´ treaties include the Agreement of the IMF; agreements within the ambit of the World Intellectual Property Organisation; World Health Organisation (WHO); International Labour Organisation (ILO); United States Conference on Trade and Development (UNCTAD).
The DRB of the WTO has complied readily and efficiently with the desires of its masters, the developed countries, on numerous occasions in the past six years. On at least two separate instances, the AB of the DRS decided ultra vires, creating new obligations for the member states, which had not been contemplated in the treaties of the Uruguay Round. The first of these instances occurred in the case of Canada v the EU on the matter of asbestos, where the AB allowed amicus curiae briefings and set up suitable procedures [26]
In the case pertaining to textiles brought by the USA against India, the AB decided that, contrary to a specific disposition in the relevant agreement, [27]
that `a panel need only address those claims which must be addressed in order to resolve the matter in issue in the dispute´.
Similar aberrations occurred in the case brought by the USA against Australia on the matter of leather seats, when the DRS decided that the recipient company of the declared illegal subsidies should return these to its national government.[28]
If private companies and/or individuals are not admitted as parties to the DRS of the WTO, how can they be subject to its jurisdiction? How could the Australian government be expected to enforce this decision against the domestic company in a municipal court? In another scandalous decision favouring the USA, in a case brought by the EU, the AB decided in favour of the USA based on its promise of not applying the unilateral measures allowed by the notoriously illegal section 301 of the Trade and Commerce Act. [29]
In the matter brought by Korea against the USA on the question of government purchases (won by the USA) the AB decided that it had competence to decide on the matter of error in the negotiation of international treaties.[30]
Furthermore, in the bananas case against the EU, the USA, a country that neither produces nor exports bananas, had its right of action recognised [31]
and proceeded to win the dispute. In the case brought by the USA against the EU on the matter of hormones, the AB decided that the USA `had in fact a valid `prima facie´ case on the central risk issue´(sic)! [32]
Two cases, in particular, marked not only a defeat of dramatic strategic proportions for developing countries, as well as an illegal derogation of rights deriving from the IMF agreement, with potentially devastating economic and social consequences. The IMF agreement allows for trade and financial restrictions resulting from a crisis of balance of payments. Such restrictions were expressly recognised by the Understanding on Balance of Payments Provisions of the GATT 1994. In both cases the DRS derogated those rights. The first of these matters involved the case brought by the USA against India on the question of quantitative restrictions; the second was the aeronautical dispute brought by Canada against Brazil. It is not clear why Brazil and India accepted the jurisdiction of the WTO for these matters, which involved a blatant conflict of treaties.
The case brought by the USA against India refers to quantitative restrictions put in place by the defendant for the importation of approximately 2 700 agricultural, industrial and textile products, which according to plaintiff were illegal in face of the relevant provisions of the Agreements on Agriculture and Import Licensing. India´s defence was based on the fact that it was administering exchange controls in view of a critical situation of its balance of payments, the corollary of which in trade terms was the imposition of quantitative import restrictions. The panel, which was presided by the Brazilian ambassador to the WTO, Celso Lafer, in a scandalous decision, found `contra-legem´ in favour of the USA. The decision was confirmed by the AB.
The second case refers to alleged illegal subsidies to the Brazilian aeronautical industry built into the programme of export finance (PROEX) maintained by Brazil. According to the plaintiff, Canada, the equalisation of interest rates of PROEX, according to which the Brazilian government paid the difference between the borrowing costs of Brazilian companies and those of developed country companies. This situation is also recognised by the IMF agreement, as Brazil was then a signatory to the transitory clause and administered exchange controls. The panel found in favour of Canada, with the benefit of the precedent of the case against India, and Brazil was ordered to pay concessions to Canada in the order of US$1,7 billion. More devastating was the fact that Brazil was left without a legal export financing programme before the multilateral regime, the only among the eight top industrialised countries to be in this hapless situation.
The latest attempt at the derogation of other international treaties, in addition to the relevant WTO agreement, is the recently formed panel in the case brought by the USA against Brazil on the matter of patent protection for the pharmaceutical industry. Brazil has a highly efficient programme of production of AIDS antiretroviral drugs, which it manufactures in state laboratories for distribution at no cost to the affected population. This programme reduced by fifty per cent deaths related to AIDS and saved the country approximately US$ 500 million in hospitalisation and other medical care costs. The programme has been widely praised internationally and is based on the 1996 Brazilian law on intellectual property rights that incorporated the terms of the Agreement on Trade Related Aspects of Intellectual Property Rights, including article 31 thereof, which deals with use without authorisation of the right holder. The USA wants to prevent this programme from becoming a model for other developing countries in order to ensure continued high revenue for its laboratories. If the USA prevails, the secretariat will ensure that the `practice´ [33]
is extended to other WTO members.We have seen how the operation of the WTO is used to ensure the dominance of the hegemonic interests of developed countries over developing nations. We have covered how, under the specious mantle of rhetoric juridicity, the autos-de-fé of the DRB of the WTO lead developing nations inexorably to defeat, derogation of rights, trade exclusion, disaster and misery. We have seen how the stolid Annual Report of the WTO closes its eyes to this sad reality. However, the Director-General of the WTO has not forgotten the despondent plight of the rich and powerful nations:
We must not forget that if the big guys are not doing well, neither will the small guys. We need the US, Japan and Europe going strongly … the big guys also need new markets to ward off protectionist pressures at home. [34]
If developing countries are to stall these neo-colonialist pressures, they must work together with determination and efficiency.
Annex A to the text
| PARTIES | MATTER | CASE WINNER |
1. | India v Turkey | Textile | India |
2. | US v Canada | Dairy | Canada |
3. | NZ v Canada | Dairy | NZ |
4. | US v Canada | Quantitative | US |
5. | Canada v Brazil | Aircraft | Canada |
6. | Brazil v Canada | Aircraft | Canada |
7. | US v Australia | Leather seats | US |
8. | US v Japan | Agriculture | US |
9. | Korea v US | Semiconductors | Korea |
10. | EU v Korea | Alcoholic beverages | EU |
11. | US v Korea | Alcoholic beverages | US |
12. | Mexico v Guatemala | Cement | Guatemala |
13. | India v USA | Shrimp | US |
14. | Canada v Australia | Salmon | Canada |
15. | Eu v India | Patents | EU |
16. | Brazil v EU | Poultry | EU |
17. | Japan v Indonesia | Automobile | Japan |
18. | US v Indonesia | Automobile | US |
19. | EU v Indonesia | Automobile | EU |
20. | US v EU | Computers | US |
21. | US v Argentina | Footwear | US |
22. | US v Japan | Film | Japan |
23. | US v EU | Meat | US |
24. | Canada v EU | Meat | Canada |
25. | US v India | Pharmaceutical | US |
26. | US v EU | Bananas | US |
27. | US v Canada | Periodicals | US |
28. | India v US | Textiles | US |
29. | Philippines v Brazil | Coconut | Brazil |
30. | Costa Rica v USA | Textiles | Costa Rica |
31. | EU v Japan | Alcoholic beverages | EU |
32. | Venezuela & Brazil v USA | Gasoline | Venezuela & Brazil |
33. | EU v Chile | Alcoholic beverages | EU |
34. | EU v Korea | Dairy products | EU |
35. | EU v Argentina | Footwear | EU |
36. | EU v US | Trade Act 1974 | US |
37. | EU v Mexico | Fructose | US |
38. | EU v US | Tax subsidies | EU |
39. | EU v Canada | Pharmaceuticals | EU |
40. | EU v USA | Steel | EU |
41. | Japan v Canada | Automotive | Japan |
42. | EU v Canada | Automotive | EU |
43. | EU v Korea | Govt procurement | Korea |
44. | EU v USA | Copyright | Draw |
45. | EU v USA | Anti-dumping | EU |
46. | Japan v USA | Anti-dumping | Japan |
47. | US v Canada | Patent | US |
48. | US v Korea | Beef | US |
49. | Australia v Korea | Beef | Australia |
50. | EU v USA | Wheat | Draw |
51. | Brazil v EU | Milk | EU |
Annex B to the text
PRESENT WTO CONSULTATIONS FOR BRAZIL
PARTIES | MATTER | |
1. | Brazil v EU | anti-dumping on steel |
2. | Brazil v USA | cv duties on steel |
3. | EU, Japan & Brazil v USA | dumping and subsidies |
4. | Brazil v Mexico | dumping on electric transformers |
5. | Brazil v EU | soluble coffee |
6. | Brazil v Turkey | steel |
7. | US v Brazil | patents |
8. | US v Brazil | minimum import prices |
9. | EU v Brazil | minimum import prices |
Annex C to the text
ACTIVE PANELS
PARTIES | MATTER | |
1. | USA v Argentina | footwear |
2. | Japan v USA | steel |
3. | Colombia v Nicaragua | goods & services |
4, | Pakistan v USA | cotton |
5. | US v India | motor vehicles |
6. | EU v India | automotive |
7. | Canada v USA | subsidies |
8. | EU v USA | trademark |
9. | Korea v USA | steel |
10. | USA v Phillipines | motor vehicles |
11. | EU v Argentina | tiles |
12. | EU v Chile | swordfish |
13. | USA v Brazil | patent |
14. | Brazil v Canada | subsidies to industry |
Lawyer admitted in Brazil, England and Wales and Portugal. GATT and WTO panelist. Brazilian government ad-hoc representative for the Uruguay Round of the GATT. Post-graduation professor of the law of international trade.