World Trade Organization dispute settlement retaliatory regime at the tenth anniversary of the organization: Reshaping the "last resort" against non-compliance

Journal of World Trade

Volumn 40, Issue 2, 2006, Pages 365-384

  Yenkong, Ngangjoh H ^a,b  

^a MAX PLANCK INSTITUTE FOR COMPARATIVE PUBLIC LAW AND INTERNATIONAL LAW   (Germany)

^b UNIVERSITY OF HELSINKI   (Finland)

Author keywords

[No Author keywords available]

Indexed keywords

DISPUTE RESOLUTION; WORLD TRADE ORGANIZATION;

EID: 33744487985     PISSN: 10116702     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (142)

1. See Article XII of the Marrakesh Agreement Establishing the WTO (hereinafter WTO Agreement or WTO Charter) for accession process.
2. Article XVI:4 WTO Agreement.
3. Dispute Settlement Understanding (DSU) Article 3.2.
4. As of April 2005, about 325 cases were introduced to the WTO dispute settlement procedure and approximately half of these cases are Rules cases (anti-dumping, subsidies, safeguards). In all of these disputes, by June 2004, about 40 Members have initiated complaints under DSU, 30 Members requested Panels, 44 Members target of complaints initiated, 22 Members target of Panel request and 72 Members have joined Panel as third parties. Statistic obtained from the WTO Secretariat. It can also be obtained from
5. See Robert O. Keohane, After Hegemony: Cooperation and Discord in the World Political Economy (Princeton, 1984)
6. Hanspeter Neuhold, The Foreign-Policy "Cost-Benefit-Analysis"Revisited, 42 German Yearbook of International Law (1999), pp. 84-124
7. Monika Butler and Heinz Hauser, The WTO Dispute Settlement System: A First Assessment from an Economic Perspective, 6 Journal of Law Economics & Organization 2 (2000)
8. Markus Burgstaller, Theories of Compliance with International Law (Leiden, 2005).
9. DSU Article 19.1.
10. A reasonable period of time might be 15 months after the date of the adoption of the rulings of the DSB in case of failure of the disputing parties to agree on a reasonable period of time. Such reasonable period of time determined by a binding arbitrator might even be longer depending on the circumstances. In case there is a delay with the report of the Panel or AB (pursuant to Article 17.5 DSU) the reasonable period of time may be 18 months and 21 months in case of disagreement with the level of compliance. In Canada - Dairy, the parties reached a mutually acceptable reasonable period of time with four-stage implementation process. See Agreement under DSU Article 21.3(b), Canada-Measures Affecting the Importation of the Milk and the Exportation of Dairy Products, WT/DS103/10, WT/DS113/10 (7 January 2000). Meanwhile in the US - Line Pipe Safeguards, the parties invoked Article 21.3(c) arbitration and later on requested the suspension of the arbitration award after a mutually agreed reasonable period for implementation was reached. See United States-Definitive Safeguard Measures on Imports of Circular Welded Carbon Quality Line Pipe from Korea, Recourse to Arbitration under DSU Article 21.3(c), WT/DS202/17.
11. DSU Article 22.2.
12. Negative consensus means that all the Members including the Member requesting adoption would agree against the adoption of the report. See DSU Articles 16.4 and 17.14. As would be recalled, this is one of the improvements with the present system as opposed to the GATT where one contracting party could block the adoption of a report.
13. This is the function of the fact that it has 30 days after the lapse of the reasonable period of time to implement the recommendations. See DSU Articles 22.2 and 22.6.
14. If a respondent Member State prefers to delay implementation so as to go through all these procedures, it might take 23 months from the date of the recommendations of the DSB to the date of the implementation.
15. DSU Article 22.3(a). With very linuted exceptions such as the case of Ecuador in EC - Bananas III, this general rule has been observed by retaliatory Members.
16. DSU Article 22.3(b).
17. Worth pointing out here that the issue of cross-retaliation has manifested itself mostly with regards to developing countries against developed countries (though not necessarily exclusively). This shows how difficult the current structure of WTO retaliatory regime is for the former. This difficulty was also noted by the arbitrators in the EC - Bananas III (para. 126), when they pointed out while accepting Ecuador's cross-retaliatory demands that, "In our view, these figures illustrate the considerable economic differences between a developing WTO Member and the world's largest traders". In this case, contrary to the United States that also successfully challenged the EC - Bananas regime and was granted retaliation of $191.4 million of European goods per annum, Ecuador could not realistically retaliate in the area of GATT and GATS where the WTO illegal measures were found; and was rather permitted to cross-retaliate in the area of TRIPs. While such retaliation could have generated furiousness among the affected companies, it could not put enough political pressure on EC to comply. See WTO Article 22.6 arbitrators' report, EC - Regime for the Importation, Sale and Distribution of Bananas, Recourse to Arbitration by the EC under Article 22.6 DSU, WT/DS27/ARB/ECU, para. 177 (24 March 2000). Also important here is the fact that the United States could find it practicable and effective to retaliate only in goods area, though nullification and impairments were found in both goods under GATT and services under GATS. para. 1.1.
18. WT/DS27/ARB/ECU, para. 126. Cross-retaliation seems to have also been under consideration by Brazil in United States - Subsidies on Upland Cotton (WT/DS267/R) after the issuance of the Panel report. See BNA, Daily Report for Executive (17 June 2004), "Brazilian Farmers Eye Retaliatory Options if US Fails to Comply with Cotton Ruling". For another line of consideration of cross-retaliation, see Bronckers Marco and Naboth van den Broek, Financial Compensation in the WTO, Improving the Remedies of the WTO Dispute Settlement, 8 Journal of International Economic Law 1 (2005), pp. 101-126.
19. DSU Article 22.3(d).
20. See paras 2, 66 and 96 of the report.
21. DSU Article 22.3(e).
22. DSU Articles 22.4 and 22.8. The exception to the application of the concept of "equivalent" countermeasures would be found in the reading of SCM Agreement Articles 4.10 and 4.11. Here, as discussed below, the term "appropriate countermeasure" is used.
23. Article 22.6 arbitration decision, European Communities - Measures Concerning Meat and Meat Products (Hormones) (Complaint by Canada and United States), Recourse to Arbitration by the European Communities, WT/ DS26/ARB, WT/DS48/ARB, para. 16 (Authorization to Suspend Concessions, 26 July 1999).
24. EC - Hormones, Original Complaint by the United States, Recourse to Arbitration by the European Communities under Article 22.6 of the DSU, paras 14-15.
25. In this regard, see, also, European Communities - Regime for the Importation, Sale and Distribution of Bananas, Recourse to Arbitration by the European Communities, WT/DS27/ARB/ECU, para. 29 (Authorization to Suspend Concessions, 18 May 1999).
26. In the DSU context, it means a situation where a retaliatory Member may change products subject to retaliation from time to time based on a single authorization. However, sometimes the term "Carousel effect" is used to describe an attempt by a Member to escape the effects of antidumping or safeguards. Here, manufacturers may change the make-up of the products subject to any of these major to evade retaliatory action.
27. The EC and other trading partners of the United States seem to be greatly against the implementation of the so-called "Carousel legislation" as provided for under Section 407 of the United States Trade and Development Act adopted on 18 May 2000. This is due to the fact that the Act may permit the United States to unilaterally introduce new line of products on which to undertake retaliation under the WTO dispute settlement. The United States raised the issue of carousel in Hormones, but at the same time mentioned that it had no intention to resorting to carousel suspension, though the US Congress did pass the Carousel legislation in favour of some African and the Caribbean States less than six months later. Nevertheless, the EC argued against such a carousel suspension. See para. 22 of the report.
28. Minutes of the DSB, WT/DSB/M/59 (19 April 1999).
29. Except we go by the provisions of Article 6.2 DSU, which warrants the inclusion of the legal basis of a particular complaint on the request for the establishment of the Panel. This was also spelt out by DSU Article 22arbitrators in EC - Bananas, WT/DS27/ARB/ECU, para. 28.
30. EC - Bananas, Recourse to Arbitration by the European Communities, WT/ DS27/ARB (Authorization to Suspend Concessions, 19 April 1999). In the Hormones case, the arbitrators were of the view that "The more precise a request for suspension is in term of product coverage, type and degree of suspension, etc...., the better. Such precision can only be encouraged in pursuit ofDSU objectives..." as provided for under DSU Articles 3.2, 3.3 and 3.7. Para. 16, footnote 16.
31. See also Brazil-Export Financing for Aircraft (Brazil-Aircraft) Recourse to Arbitration by Brazil under DSU Article 22.6 and SCM Agreement Article 4.11, WT/DS46/ARB (Authorization to Suspend Concessions, 12 December 2000), United States - Tax Treatment for "Foreign Sales Corporations" (US - FSC) Recourse to Arbitration by the United States under DSU Article 22.6/SCM Agreement Article 4. 11, )WT/DS108/ARB (Authorization to Suspend Concession, 7 May 2003). In both US - FSC and Brazil - Aircraft, the requesting parties seem to have included the list of the targeted products in their request.
32. See also Palmeter David and Petros C. Mavroidis, Dispute Settlement in the World Trade Organization, Practice and Procedure (2nd edn, Cambridge: 2004), pp. 266-268.
33. EC - Bananas, WT/DS27/ARB/ECU, paras 27-29.
34. This was noted by the arbitrators in Hormones as follows: "In our view, the limitations linked to this DSB authorization are those set out in the proposal made by the requesting Member on the basis of which the authorization is granted. In the event tariff concessions are to be suspended, only products that appear on the product list attached to the request for suspension can be subject to suspension." Para. 16.
35. For more arguments on this, see, for instance, Palmeter and Mavroidis, as note 26 above, pp. 268-269.
36. SCM Agreement Article 3.1. See also SCM Agreement Article 5 for actionable subsidies.
37. SCM Agreement Article 4. 10. SCM Agreement Article 4.11 and DSU Article 22.6 therefore provide for a determination by the arbitrators whether the countermeasures are appropriate. And footnote 10 to Article 4.11 further clarifies appropriate countermeasures as those countermeasures that are not disproportionate in light ofthe prohibited subsidies in question. The Agreement does not clearly define the word "appropriate".
38. Brazil - Aircraft, arbitration, WT/DS46/ARB, paras 3.27 and 3.60 (Authorization to Suspend Concessions, 12 December 2000).
39. Para. 3.43.
40. Naulilaa arbitral award, UN Reports of International Arbitral Awards (UNRIAA), Vol. II (1928), p. 1028. But the real controversy over the question of countermeasures started in the Air Service Agreement in Arbitration in 1978 (UNRIAA at 443, para. 41).
41. See, for instance, D.N. Hutchinson, "Solidarity and Breaches of Multilateral Treaties", British Year Book of International Law (Oxford: 1988), pp. 150-214
42. Martti Koskenniemi, "Solidarity Measures: State Responsibility As a New International Order?", British Year Book of International Law (Oxford: 2002), pp. 337-356.
43. In Gabcikovo-Nagymaros Project (Hungary/Slovakia), the ICJ in considering countermeasures rather used the term "proportionality" as opposed to "appropriate" under SCM Agreement Article 4.11.
44. See ICJ Reports (1997), at 55-57, paras 82-87.
45. Paras 3.43-3.44.
46. Canada - Export Credits and Loan Guarantees for Regional Aircraft, Recourse to Arbitration by Canada under Article 22.6 of the DSU and Article 4.11 of the SCM Agreement, decision by the arbitrator, WT/DS222/ ARB, paras 3.6-3.14 (Authorization to Suspend Concessions, 18 March 2003). The other approach here could be that even without the numerous possible readings of these provisions, the benchmark for taking countermeasures would be the damage suffered and eliminate any possibility of punitive damage.
47. For the latter view, see Petros C. Mavroidis, Remedies in the WTO Leqal System: Between a Rock and a Hard Place, 11 European Journal of International Law 4 (2000), pp. 763-814.
48. See also Robert Z. Lawrence, Crimes and Punishments? Retaliation under WTO (Washington, D.C.: October 2003).
49. US - FSC, arbitration report, WT/DS108/ARB, paras 5.5-5.6 and 8.1 (Authorization to Suspend Concessions: 7 May 2003).
50. This was pointed out by the arbitrators in Brazil - Aircraft (para. 3.51). See also the decision of the arbitrators in US - FSC, para. 5.6; Canada-Aircrqft II, WT/DS222/ARB, paras 3.7-3.9.
51. US - FSC, as note 37 above, para. 6.10.
52. This seems to be closer to the notion ofsolidarity measures articulated in my previous work. See Ngangjoh H. Yenkong Collective Countermeasures and the WTO Dispute Settlement: Solidarity Measures Revisited, 2 Nordic Journal of Commercial Law 2 (2004). A plausible argument in this respect may also be extended to the Agreement on Safeguards, where a suspension of concessions could be allowed also on behalf of Members which did not invoke the dispute, but have suffered damages due to the WTO inconsistent afeguards measures.
53. See Brazil - Aircraft arbitration report, para. 3.51.
54. See in this case, United States - Continued Dumping and Subsidy Offset Act of2000 (Byrd Amendment), WT/DS217/AB/R, WT/DS234/AB/R, paras 296-297 (adopted 27 January 2003). In European Communities - Trade Description ofSardines (EC-Sardines), the Appellate Body observed as follows: "... We must assume that Members of the WTO will abide by their treaty obligations in good faith, as required by the principle ofPacta Sunt Servanda articulated in Article 26 of the Vienna Convention (footnote omitted) And, always in dispute settlement, every Member of the WTO must assume the good faith of every other Member." WT/DS231/ AB/R, 80, para. 278 (adopted 23 October 2002)
55. For a broader argument on the principle ofpacta sunt servanda in the WTO acquis, see Ngangjoh H. Yenkong, Pacta Sunt Servanda and Complaints in the WTO Dispute Settlement, 1 Manchester Journal of International Economic Law 2 (September 2004), pp. 76-94.
56. SCM Agreement Part III, Article 5.
57. This was first clarified by the Appellate Body in EC-Bananas, WT/DS27/AB/ R, para. 132 (adopted 25 September 1997).
58. EC - Bananas arbitration report, WT/DS27/ARB/ECU, at para. 76.
59. For the international law nature of an adopted dispute settlement report, see John H. Jackson, The WTO Dispute Settlement Understanding: Misunderstandings on the Nature of Legal Obligations, 91 AJ.I.L. (1997), pp. 60-64.
60. However, this realist approach may not necessarily hold if reputation cost is brought into place. Butler and Hauser are ofthe view that reputation cost depends on the nature, size and political structure of the country. See Butler and Hauser, as note 5 above, pp. 503-533.
61. Though the critiques of the concept of sovereignty have termed it "organized hypocrisy", Jackson has argued that the academic discourse on sovereignty is growing in its importance in the evolving international economic law. See John H. Jackson, The State of International Economic Law 2005: The Changing Fundamentals of International Economic Law and Ten Years of the WTO, 8 J.I.E.L. 1 (2005), pp. 3-15
62. and Stephen D. Krasner, Sovereignty: Organized Hypocrisy (Princeton, NJ: Princeton University Press, 1999)
63. Stephen D. Krasner (ed.), Problematic Sovereignty: Contested Rules and Political Possibilities (New York: 2001).
64. An alternative approach to this is the normative realism argumentation that seems to distinguish between "defensive", "offensive" realism and "neoclassical" realism. Offensive realism lending support from an assumption that unilateralism is the proper way to achieve a State's economic and political motive; while Glaser (1998), argues that defensive realism assumes that international anarchy is often more benign. In other words, State pursuing a particular economic or political motive does not need to abrogate international norms in order to attain such goals. Yet, for neoclassical schools, States respond to external behaviour beyond their understanding, by seeking to get more grip on the control oftheir environs. Here, the more such grips can be obtained, the more influential a state will be in the international arena and vice versa. These distinctions which were first aclumbrated by Snyder seem to suggest that national interest justifies international behaviour.
65. See Snyder, Myth of Empire: Domestic Politics and International Ambition (New York: 1991)
66. Charles Glaser, "Realist as Optimists: Cooperation as Self-Help", in Michael F. Brown (ed.), The Perils, ofAnarchy: Contemporary Realism and International Security (Cambridge, MA: 1995).
67. Using this concept, Friedman argues that a tougher ex ante punishment would prevent any undesirable outcome ex post. See David D. Friedman, Law's Order (Oxford: 2000), pp. 74-78.
68. See also Mavroidis, as note 36 above.
69. See Neuhold, as note 5 above, pp. 87-88. According to Neuhold, only government guided by rationality would consider these variances when anticipating a violation of the rule of international law. But it is worth pointing out that in some cases even a notorious regime would claim rationality when taking certain actions incompatible with international law.
70. See, e.g., Keohane, as note 5 above, pp. 244-245
71. see also Ronald H. Coase, The Firm, the Market and the Law (Chicago: 1988).
72. Keohane, ibid., pp. 478-490.
73. John Austin, "The Province of Jurisprudence Determined", in Wilfred E. Rumble (ed.), Cambridge Texts in the History of Political Thought (Lecture V) (1995).
74. See, for instance, the preamble to the WTO Charter.
75. In this case see for instance, Dionysios P. Flambouras, The Doctrine of Impossibility of Performance and Clausula Rebus Sic Stantibus in the 1980 Convention on Contracts for the International Sales of Goods and the Principles of European Contract Law - A Comparative Analysis, 13 Pace International Law Review 1 (Spring 2001), pp. 261-293.
76. There is a contemplation here of the cost-benefit analysis. This means that the expectation damages for breach of the contract to the non-breaching party can be enough to retain him in a position in which he would have been if performance had taken place, such party would generally not hesitate to negotiate with the other party for release of perfortnance. For an in-depth analysis of this contractual view, see Steven Shavell, Foundation of Economic Analysis of Law (Cambridge: 2004).
77. See Robert Cooter and Thomas Ulen, Law and Economics (2nd edn, London: 1988), pp. 289-291.
78. Since this view may be incongruous with the pacta sunt servanda principle, which is more welcome in the performance of WTO obligations, it seem to have been beyond the touch of most negotiators at the conclusion of the Uruguay Pound of trade talks. This was expressly pointed out by the Appellate Body in the United States - Continued Dumping and Subsidy Offset Act of 2000 (Byrd Amendment), WT/DS217/AB/R, WT/DS234/AB/R, paras 296-297.
79. See also Ngangjoh H. Yenkong, as note 42 above. However, though this impossibility theory may govern private contracts, it appears difficult to conceive it even in terms of international sales of goods contracts, let alone in the context of WTO. Article 79 of the Contract for International Sales of Goods (CISG) seems to be very much contested in this regard.
80. See, for instance, Flambouras, as note 55 above, pp. 277-279
81. D. Tallon, "Exemptions", in Commentary on the International Sales Law (C.M. Bianca & MJ. Bonell editions, 1987), p. 572.
82. Sykes seems to be suggesting that in a scenario of this nature, the parties are better placed to enter into renegotiations for the efficient adjustment of their original bargain. See Alan O. Sykes, "The Remedies for Breach of Obligations under the WTO Dispute Settlement Understanding: Damages or Specific Performance?", in Marco Bronckers and Peinhard Quick (eds), New Directions in International Economic Law: Essays in Honour of John H. Jackson (London: 2000), pp. 346-357.
83. See also Warren F. Schwartz and Alan O. Sykes, The Economic Structure of Renegotiation and Dispute Resolution in the World Trade Organization, 31 Journal of Legal Studies 1, part 2 January 2002). Another challenge facing the system of remedies in the WTO may also stem from the fact that as other contracts, the negotiating environment of the WTO Agreements could not be extinct from the complexities and uncertainty which prevent any contract negotiator from conceiving all future contingencies in order to spefcify how they ought to react when there is a breach.
84. The centrality of the arguments here use reputation to mean both the extent to which a State is considered to be an honourable member of the international community and the extent to which a State reliably upholds its international law obligations. However, it is important to point out here that reputation concerns as a principal mechanism for maintaining a high degree of compliance with multilateral treaties has been challenged as a weaker and complicated suggestion. Here, Downs and Jones are of the view that the theoretical literature projecting reputation as a credible weapon of compliance always ignore "...the building block of reputational inference - in connection with different agreements". See George W. Downs and Michael A. Jones, Reputation, Compliance, and International Law, 31 Journal of Legal Studies (January 2002), pp. 95-114.
85. For this view, see Joost Pauwelyn, The Role of Public International Law in the WTO: How Far Can We Go?, 95 American Journal of International Law (2001), pp. 535-578
86. and the 2003 publication by the same author, Conflict of Norms in Public International Law: How WTO Law Relates to Other Rules of International Law (Cambridge: 2003), pp. 244-274
87. and Ngangjoh H. Yenkong, as note 42 above.
88. Except the situation is such that would be justified for the Member concerned to take safeguards measures as provided for under GATT Article XIX and the Safeguards Agreement Article 2. 1. However, the constituent elements of unforeseen development to justify a safeguards action need a careful assessment. Though, the measures must meet the conditions spelled out in Safeguards Agreement Articles 2 and 4, as a matter of fact, the circumstances must actually have been "unforeseen or unexpected" at the time of concluding the Agreements. See the Appellate Body reports in Argentina - Safeguard Measures on Imports of Footwear (Argentina - Footwear Safeguards), WT/DS121/AB/R, paras 85-97 (adopted 12 January 2000)
89. and also the Appellate Body reports in United States - Measures on Import of Fresh, Chilled or Frozen Lamb Meat from New Zealand and Australia, (US - Lamb Safeguards), WT/DS177/AB/R, WT/DS178/AB/R, para. 72, (adopted 16 May 2001). However, the Member may also choose to opt out completely from the entire agreements as provided for under Article XV of the WTO Charter.
90. Citing T. Franck (Fairness in International Law and Institutions, 1995)
91. and J. Rawls (A Theory of Justice, 1971)
92. Kumm goes forward to posit that in order to achieve the purpose of establishing a proper guiding order in an environment of deep disagreement, the subjects of international law are morally required to comply with such laws even in an atmosphere of disagreement. See Mattias Kumm, The Legitimacy of International Law: A Constitutionalist Framework of Analysis, 15 EJ.I.L. 5 (2004), p. 918. The view expressed here seems to be in line with the rulings of the arbitrators in US - FSC, where it was held that the US violation was tantamount to "... an erga omnes obligation owed in its entirety to each and every Member". See para. 6.10 of the decision.
93. In referring to contractual relationship Flambouras (as note 55 above, pp. 277-278) expresses great doubt whether even within the context of CISG Article 79, economic impossibility that merely makes performance difficult and not impossible, can be considered a sufficient ground for discharging a contractual obligation.
94. Article 27 of the 1969 VCLT, United Nations, Treaty Series (UNTS), vol. 1155, p. 331.
95. See also Article 60 of the VCLT that permits other parties than the "directly injured state" to a multilateral treaty to take action against the violating party. Before this period, however, the Permanent Court of International Justice (PCIJ), in l'affaire des Zones franches between France and Switzerland declared a 1923 French law that was incompatible with French international obligation (Accord du 30 Octobre 1924) null and void.
96. See Patrick Daillier and Alain Pellet, Droit International Public (6th edn, Paris: 1999), p. 781. Also important here is the codification of this view in Article 32 of the 2001 ILC articles on States' responsibility.
97. Any measure is temporal awaiting compliance. DSU Article 22.1.
98. EC - Bananas, Article 22.6 arbitration report, para. 6.3,
99. Brazil - Aircraft, arbitration report, paras 3.43-3.44, etc.
100. See preamble to the WTO Charter.
101. Just to mention a few cases, threat of retaliation and retaliation did not trigger prompt implementation of the DSB rulings and recommendations in EC - Bananas (Ecuador), EC - Hormones and US - FSC.
102. M.S. Daoudi and M.S. Dajani, Economic Sanctions: Ideals and Experience (London: 1983), p. 185.
103. See also Economic Diplomacy: Embargo Leverage and World Politics (London: 1985), by the same authors.
104. Conceptualizing this approach from a game theory perspective Butler and Hauser concludes that the influence of these interest groups on the government as regards the implementation of DSI3 rulings and recommendations will also be shaped by re-election procedures. See Butler and Hauser, as note 5 above, p. 513.
105. For an in-depth analysis of the payoff implication ofnot implementing a DSB ruling and recommendation, see John H. Jackson, "Designing and Implementing Effective Dispute Settlement Procedures: WTO Dispute Settlement, Appraisal and Prospects", in Ann O. Krueger (ed.), The WTO as an International Organization (Chicago: 1998), pp. 193-213.
106. See recitals 1 and 4 of the preamble to the WTO Charter.
107. For arguments on the negative effects of retaliation, see Lawrence, as note 36 above
108. Mavroidis, as note 36 above
109. Edward D. Mansfield, International Conflict and the Global Economy (Northampton, MA: 2004);
110. and more recently, Bronckers and van den Broek, as note 15 above.
111. This was the case with the US reaction to the EC non-implementation of the EC - Bananas decision. Here the United States imposed retaliation on Italian batteries.
112. Meaning that, there will be no compensation if the respondent refuses to give consent. See DSU Article 22.1.
113. Of course, the Article 21.5 Panel in Australia - Automotive Leather, however, viewed remedies in the context of SCM Agreement Article 4.7 as not only being prospective. Here the original Panel was faced with a complaint by the United States against a grant of Au$30 million and a concessional loan of Au$25 million provided by the Australian Federal Government to Howe Leather Co. Australia failed to properly comply with the DSB recommendations and the compliance Panel found that by providing a new subsidized loan on the same day as repayment of the old subsidy, Australia did not comply with the DSB's recommendation to "withdraw the subsidy". In considering the measure to be inconsistent with Australia's commitments under Article 4.7 of the SCM Agreement, the Panel was of the view that "an interpretation of 'withdraw the subsidy' that encompasses repayment of the prohibited subsidy seems a straightforward reading of the text of the provision".
114. See 2001 WorldTradeLaw.net LLC.Panel Report, Australia - Subsidies Provided to Producers and Exporters of Automotive Leather, Recourse by the United States to Article 21.5 of the DSU, WT/DS126/RW, para. 6.27 (11 February 2000).
115. On this issue, see Ngangjoh H. Yenkong, 'The Role of the Arbitrators in Determining Reasonable Period of Time and Retrospective Remedies in the WTO Dispute Resolution: Beyond the Australia-Automotive Leather Panael', 6 Journal of World Investment and Trade 4 (2005), p. 611-634..
116. For a critical view of the Panel's rulings, see Gavin Goh and Andreas R. Ziegler, Retrospective Remedies in the WTO After Automotive Leather, 6 Journal of International Economic Law 3 (2003), pp. 545-564.
117. DSU Articles 22.1 and 22.2.
118. It is not the granting of some financial benefits to make good past injury but only a temporary renegotiation of the WTO treaty. This is different from the sort of compensation provided by Article 36.2 of the ILC's Articles.
119. For instance, apart from the glaring example that Ecuador found it unnrealistic to retaliate against the EC in EC - Bananas, in US - FSC, the EC as well was authorized to retaliate against US products in an equivalent of US$4 billion until the United States withdraws its WTO-inconsistent measures. Due to the domestic pressure from the importers of the concerned US products, the EC only reluctantly started to effect its retaliation as from 1 March 2004 (the EC started to retaliate with a far less product coverage though incrementally than the overall US$4 billion as was authorized on May 7 2003). The decision to retaliate was incorporated into EC Council Regulation 2193/ 2003 (OJ L 328 p.3). By October 2004, the EU Trade Cormilissioner Pascal Lamy, issued a statement welcoming the signature by the US President repealing the WTO illegal FSC/ETI export subsidies. Commissioner Lamy also expressed the intention of the EC to suspend its retaliation against US products.
120. It is only by coincidence that this can happen. But, with the economics of globalization, such a situation would rarely exist and even more difficult from developing-developed countries' perspective. With this situation, Anderson argues that "trade loss equivalence would never translate into equivalent damage to economic welfare, except by coincidence - and necessarily the complainant will in addition lose econornically during the retaliation period from the import restriction it imposes on the respondent's trade". See Kym Anderson, Peculiarities of Retaliation in WTO dispute settlement system, 1 World Trade Review 2 (2002), p. 129.
121. See also Jackson as note 47 above.
122. See, for instance, Special Session of the VVTO Dispute Settlement Body Meeting, Minutes of the Meetings, TN/DS/M/1, 12 June 2002, TN/DS/M/5, 14 October 2002, TN/DS/M/6, of 13-15 November 2002.
123. For a careful analysis and reconstruction of tradable retaliatory rights as proposed by Mexico, see Kyle Bagwell, Petros C. Mavroidis and Robert W. Staiger, The Case for Tradable Remedies in WTO Dispute Settlement, mimeo (21 January 2004).
124. See also Mateo Diego-Fernandez and Roberto Rios Herran, The Reform of the WTO Dispute Settlement Understanding: A Closer Look at the Mexican Proposal, 1 Manchester Journal of International Econornic Law 1 (2004), pp. 4-23.
125. Also, in the DSB meeting in which Mexico tabled this proposal, some Members still holding the traditional conservative view of the WTO criticized the proposal as purporting to tend the WTO into a commercial institution where retaliatory rights could be "trafficked". Here, they argue that this idea is innovative but was never anticipated by the negotiator at Uruguay. See the comments of Canada, and Chile in the DSB Special session, TN/DS/M/6, (November 2002).
126. See also Bronckers and van den Broek, as note 15 above.
127. Here Lawrence argues that WTO Members would be given the option of offering a "pre-authorizing compensation mechanism" under the current Doha mandate. In this respect, such offer would be included in the multilateral negotiation so that in case of non-comphance, a winning Member could select an equivalent package from the respondent's corrunitments. See Lawrence, as note 36 above, pp. 86-89.
128. See Permanent Court of International Justice (PCIJ), Chorzów Factories dispute, Judgment No. 8. Ser A No. 9, Claim for Indemnity, (1927)
129. see also Articles 31 and 36 of the International Law Conunission's (ILC) Articles on the Responsibility of States for Internationally Wrongful Acts adopted by the ILC in 2001 and obtainable in UN General Assembly document (A/56/10 and Corr. 1) on its Fifty-sixth session, Agenda item 162, 56/83 (28 January 2002). In the Texaco-Calasiatic arbitration, the arbitrator was of the view that "restitutio in integrum constitute... a normal sanction for the non-performance of contractual obligations" and this view can only be altered when there is an impossibility to re-establish the status quo.
130. See Journal de Droit International (1977), p. 350
131. and Daillier and Pellet, as note 65 above, pp. 780-781.
132. By implication, an obligation to render reparation is an automatic fallback from an abrogation of contractual relations. See Daillier and Pellet, ibid. Article 27 of the 1969 VCLT, United Nations, Treaty Series (UNTS), vol. 1155, p. 331.
133. This will be no surprise as the evolution of the legal regime of the Multilateral Trading System from the GATT to the WTO in 1995 and beyond has survived different challenges. Worth pointing out here that after making the fundamental changes in the GATT dispute resolution mechanism, WTO Members did not exactly have a clear vision on how some of the provisions were going to operate in practice. Reason being why even before the Doha Round, Members had been negotiating on the improvement and clarifications of the DSU. See for instance WT/DSB/M/39, 18 November 1997, and the 1998 Annual Report, WT/DSB/14, 27 November 1998. See an empirical analysis of this development by Edwini Kessie, "The 'Early Harvest Negotiations"', in E-U. Petersmann (ed.), The WTO Dispute Settlement System 1995-2003 (The Hague: Kluwer Law International, 2004), pp. 115-150.
134. From a jurisprudential perspective, the issue of not reading the WTO law in clinical isolation from other rules of public international law has witnessed a gradual process before generally being conceived nowadays as an irrefutable aspect in the WTO acquis. For a lucid analysis on this, see Joost Pauwelyn, 91 A.J.I.L. (2001).
135. This is not also incongruous with the late 90s evolution of international norms and the posture of international economic institutions as articulated by Jackson, as note 47 above, p. 10.
136. In ruling on the case concerning the refusal by the Government of the German Empire on 21 March 1921, permission to the steamship Wimbledon to pass through the Kiel Canal, the PCIJ submitted that "The German authorities... were wrong in refusing free access to the Kiel Canal to ... Wimbledon and therefore, the German Government is under an obligation to 'make good the prejudice sustained as a result of this action'. Thus, the sum is estimated at Frs174.082.86 centimes, with interest at six per cent per annum from March 20th, 1921. In a further development of this judgment, the Court held that the said payment which would be directed to the Government of the French Republic within one month from the date of the judgment will grow by ten per cent per annum in case the said date is not respected". See PCIJ, S.S. "Wimbledon", August 17 1923, File E. b. II. Docket III.I.
137. See full judgment and dissenting opinions by Judge Anzilotti and Huber in Permanent Court of International Justice Publications, Series A judgments, Vol. 1, Nos. 1-8, 1923-1927) Kraus Reprint (Liechtenstein: 1970).
138. See for instance, Articles 31.2 and 36 of the 2001 ILC's Articles on the Responsibilty of States for International Wrongful Acts.
139. For instance, in Bananas and Hormones, the imposition of high tariffs by the United States on imports from the EC led to an outright frustration on the domestic users in the United States who suffered a loss of choice and probably had to pay high prices for substitute products. Referring to Dam, Charnovitz argues that though some lobbyists in the United States were contented with the protection of their domestic industries, consumers had to pay more on the products facing retaliation. See Steve Chamovitz, Rethinking WTO Trade Sanctions, 95 A.J.I.L. 4 (2001), p. 814.
140. See also Kenneth W. Dam, The GATT Law and International Economic Organization (Chicago: 1970), p. 357.
141. DSU Article 3.2.
142. Neuhold, as note 5 above, p. 88.