Towards sounder and fairer WTO retaliation: Suggestions for possible additional procedural rules governing members' preparation and adoption of retaliatory measures

Journal of World Trade

Volumn 42, Issue 1, 2008, Pages 3-60

  Malacrida, Reto ^a  

^a WTO Legal Affairs Division

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[No Author keywords available]

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ECONOMIC RELATIONS; TRADE AGREEMENT; TRADE POLICY; TRADE RELATIONS; WORLD TRADE ORGANIZATION;

EID: 44349156619     PISSN: 10116702     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (136)

1. See, e.g., GATT 1947 Articles XVIII:C, paragraph 21, XIX:3(a) and XXIII:2.
2. Special or additional rules on retaliation are contained in Articles 4.10 and 7.9 of the WTO Agreement on Subsidies and Countervailing Measures. These rules apply to disputes concerning certain types of subsidies or effects of subsidies.
3. This has been confirmed by a WTO arbitrator who stated that, "there is nothing in Article 22.1 of the DSU, let alone in paragraphs 4 and 7 of Article 22, that could be read as a justification for counter-measures of a punitive nature". Decision by the Arbitrator, EC - Regime for the Importation, Sale and Distribution of Bananas (EC - Bananas III) - Recourse to Arbitration by the European Communities under Article 22.6 of the DSU, WT/DS27/ARB, 9 April 1999, DSR 1999:II, 725, para. 6.3.
4. The arbitrator in EC - Bananas III stated in this regard that, "this temporary nature [of the suspension of concessions or other obligations] indicates that it is the purpose of countermeasures [i.e., the suspension of concessions or other obligations as described in Article 22.1 of the DSU] to induce compliance." Decision by the Arbitrator, EC - Bananas III - Recourse to Arbitration by the European Communities under Article 22.6 of the DSU, WT/DS27/ARB, 9 April 1999, DSR 1999:II, 725, para. 6.3. That the ultimate aim of retaliation is to induce compliance would also appear to be supported by the provisions of Article 22.3 of the DSU which provide for the possibility of retaliating across sectors or agreements when sector-to-sector retaliation is not "effective" or "practicable". If it were assumed that the ultimate aim of retaliation is merely to re-establish a balance of concessions, or of benefits, the existence of the "effectiveness" condition attached to cross-retaliation would be difficult to explain. Indeed, while one can see that it may not be "practicable" for a complaining Member to keep out imports of goods up to a cumulative value which corresponds to the level of nullification or impairment of benefits suffered by that Member (e.g., because the value of total imports of goods from the responding Member may be smaller than the level of nullification or impairment), it is less than clear in what type of situations sector-to-sector retaliation could be said to be "ineffective" (but "practicable") in establishing a temporary new balance.
5. See Article 49.1 of the International Law Commission's articles on responsibility of States for internationally wrongful acts, according to which countermeasures may be taken "in order to induce [a State which is responsible for an internationally wrongful act] to comply with its obligations [to cease the wrongful act, make full reparation for any injury caused, etc.]". The articles are annexed to UN General Assembly, Resolution on responsibility of States for internationally wrongful acts, A/RES/56/83, adopted 12 December 2001.
6. This was confirmed by the arbitrator in EC - Bananas III who determined that Ecuador was entitled to retaliate across agreements. Specifically, the arbitrator determined that Ecuador was authorized to suspend vis-à-vis the European Communities, in addition to concessions under the General Agreement on Tariffs and Trade 1994 concerning certain categories of goods, commitments under the General Agreement on Trade in Services on wholesale trade services and, subject to conditions, obligations under the Agreement on Trade-Related Aspects of Intellectual Property Rights relating to the protection of performers, producers of phonograms (sound recordings) and broadcasting organizations as well as to geographical indications and industrial designs. See Decision by the Arbitrator, EC - Bananas III - Recourse to Arbitration by the European Communities under Article 22.6 of the DSU, WT/DS27/ARB/ECU, 24 March 2000, DSR 2000:V, 2237, para. 173.
7. Decision by the Arbitrator, EC - Hormones - Recourse to Arbitration by the European Communities under Article 22.6 of the DSU, WT/DS48/ ARB (Canada), 12 July 1999, DSR 1999:III, 1105, para. 19.
8. The Members in question were Antigua and Barbuda, Argentina, Brazil, Canada, Chile, Ecuador, the European Communities, India, Japan, Korea, Mexico, New Zealand and the United States.
9. Namely, Antigua and Barbuda, Argentina, Brazil, Chile, Ecuador, India, Korea and Mexico. It is useful to note that there is no agreed WTO definition of the term "developing country Member". As a result, Members decide for themselves whether or not they fall within that category of Members, although other Members could challenge their decisions.
10. There are several pending requests that could still be authorized by the DSB in the future. See Annex B to this article.
11. The four disputes are: (1) EC - Bananas III (retaliation by the United States against the European Communities); (2) EC - Hormones (retaliation by the United States and Canada against the European Communities); (3) US - Tax Treatment for "Foreign Sales Corporations" ("US - FSC") (retaliation by the European Communities against the United States); and (4) US - Continued Dumping and Subsidy Offset Act of 2000 (Byrd Amendment) ("US - Offset Act (Byrd Amendment)") (retaliation by Canada, the European Communities, Japan and Mexico against the United States).
12. See Determination by the CONTRACTING PARTIES of 8 November 1952, Netherlands Measures of Suspension of Obligations to the United States, BISD 1S/32-33. It appears that the Netherlands imposed the discriminatory quantitative restriction authorized by the contracting parties until 1959. However, one commentator stated that trade data indicates that the quantitative restriction was not actually enforced.
13. See Robert E. Hudec, Enforcing International Trade Law: The Evolution of the Modern GATT Legal System (Salem, NH: Butterworth Legal, 1993), p. 430.
14. The dispute in question was Canada - Import, Distribution and Sale of Certain Alcoholic Drinks by Provincial Marketing Agencies ("Canada - Provincial Liquor Boards"). The United States in July 1992 took the unilateral decision to retaliate against Canada after Canada had refused to consent to the US request to the contracting parties that they authorize the United States to retaliate against Canada. In response, Canada unilaterally decided to counter-retaliate against the United States. The retaliatory measures were terminated in August 1993 (see GATT documents C/M/259, pp. 27-31, and DS17/10).
15. A responding contracting party could also block a request for authorization to retaliate. In fact, there appear to have been four such cases in the GATT. In US - Manufacturing Clause, the European Economic Community in the spring of 1986 requested authorization to retaliate against the United States, but that request was apparently blocked by the United States until the implementation issue was solved in the summer of 1986. See Hudec, as note 12 above, p. 511. In US - Taxes on Petroleum and Certain Imported Substances, also known as the "Superfund" dispute, the European Communities in 1988 and Canada in 1989 requested authorization to retaliate against the United States, but this request was blocked by the United States.
16. See Hudec, as note 12 above, p. 211. Subsequently, as already noted, in Canada - Provincial Liquor Boards, the United States in July 1992 requested authorization to retaliate against Canada, but Canada blocked the request. Finally, in EEC - Payments and Subsidies Paid to Processors and Producers of Oilseeds and Related Animal-Feed Proteins, the United States in late 1992 requested authorization to retaliate against the European Economic Community, but it failed to secure a consensus decision by the contracting parties.
17. See GATT document C/M/260, p. 26.
18. Notwithstanding this trend towards more frequent recourse to retaliation, commentators have characterized the overall record of Members in complying with adverse DSB rulings as generally positive. See, e.g., Bruce Wilson, Compliance By WTO Members With Adverse WTO Dispute Settlement Rulings: The Record To Date, Journal of International Economic Law (forthcoming).
19. See, e.g., WTO document WT/DS285/16.
20. This category of disputes includes Australia - Measures Affecting Importation of Salmon ("Australia - Salmon"), Canada - Measures Affecting the Importation of Milk and the Exportation of Dairy Products, US - Anti-Dumping Act of 1916, Japan - Measures Affecting the Importation of Apples, US - Final Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada ("US - Softwood Lumber IV"), US - Final Dumping Determination on Softwood Lumber from Canada ("US - Softwood Lumber V") and US - Investigation of the International Trade Commission on Softwood Lumber from Canada ("US - Softwod Lumber VI"). While the threat of retaliation may not have been the only reason why these disputes were resolved, it nonetheless seems improbable that the solutions reached in these disputes and their timing had nothing whatsoever to do with the existence of a threat of retaliation. Statements from officials appear to lend support to this interpretation. For example, in relation to the solution reached in Australia - Salmon, the then Australian Trade Minister said that "[i]t was vital in reaching this settlement that innocent Australian exporters did not get caught in the crossfire". See Canada, Australia end salmon import row, Reuters, 17 May 2000.
21. This category of disputes would appear to include Brazil - Export Financing Programme for Aircraft ("Brazil - Aircraft") and Canada - Export Credits and Loan Guarantees for Regional Aircraft. In these disputes, no retaliatory measures were applied and there is little information about whether the responding Members in these disputes fully implemented the relevant DSB rulings. In the absence of more information it is not possible to exclude that these disputes remain at least partially unresolved and that, despite this, the authority to retaliate has remained unused. In other words, it is possible that the complaining Members in these disputes decided to obtain authorization to retaliate primarily to avoid losing the last-resort option of retaliation and to force the responding Member back to the negotiating table. In the case of Canada, there are press reports pointing in that direction.
22. See, e.g., Canada meets fire with fire in air battle with Brazilians, Financial Times, 10 July 2001
23. Brazil, Canada to meet for trade talks in Washinton May 23, Bridge News, 12 May 2000.
24. A case in point appears to be the Canada - Certain Measures Concerning Periodicals dispute where the United States was the complaining party. According to press reports, the United States in that dispute threatened to retaliate against Canada in the event of non-compliance and notably hinted that it might target the Canadian steel industry which was an important economic factor in the Ontario constituency of then Canadian Heritage Minister Sheila Copps. The Minister in question apparently stated that this was a factor in her acceptance of a compromise. She is quoted as saying that "I haven't been a political idiot, and I'm not going to start now". See Averting Cultural Trade War, U.S., Canada Settle Dispute Over Split-Run Magazines, 16 International Trade Reporter 22 (2000), 934. A US threat of retaliation may also have contributed to the mutually agreed solution reached in the Australia - Subsidies Provided to Producers and Exporters of Automotive Leather dispute.
25. See Talks stall as the US threatens sanctions, The Age, 13 June 2000.
26. See WTO document WT/MIN(01)/DEC/1. For a description of the history of the DSU review process and of the DSU negotiations, see William J. Davey, Reforming WTO Dispute Settlement, University of Illinois Public Law & Legal Theory Research Paper No. 4-01 (29 January 2004).
27. A third scenario should be mentioned: foreign producers or exporters might decide to absorb the increase in the tariff rate in order to avoid losing market share in the domestic market of the complaining Member. In this scenario, retaliation would not entail an economic cost for the economy of the complaining Member. On the other hand, if it were the importers who decide to absorb the increase in the tariff rate, there would be an economic cost for the complaining Member. Neither of these scenarios is a very probable one, but US experience with retaliation shows that they are not entirely unrealistic. Indeed, the United States found out that US imports of some EC-origin goods on the two US retaliation lists in the EC - Hormones and EC - Bananas III disputes (including Roquefort cheese, truffels, berry juice, chicory and dried buiscuits) continued in spite of being subject to 100 percent ad valorem duties. See US hikes pressure in EU beef, banana rows, Reuters, 26 May 2000
28. White House wary of tapping EU duties for US cattlemen, Reuters, 25 September 2000. Regarding why this may have been the case, one explanation was provided by an Italian manufacturer of batteries for telecommunications equipment targeted by the United States in the EC- Bananas III dispute. This particular manufacturer decided to continue to export and pay the 100 percent duties out of his own pocket, explaining that he did not want to lose key US customers and 10 years of work.
29. See European Firms Are Suing EU for Damages in Trade War, Wall Street Journal, 30 August 2000.
30. The newspaper headline "Brussels Sins, Cheese Lovers Do Penance" captures this kind of sentiment. The headline relates to the dispute EC - Hormones. In that dispute, the European Communities failed to implement the DSB's adverse ruling. The United States therefore sought and obtained authorization to subject specified EC-origin goods, including French blue cheese, to a 100 percent retaliatory customs duty. See Aaron Lukas, Brussels Sins, Cheese Lovers Do Penance, Journal of Commerce, 2 August 1999.
31. In the European Communities, for instance, a German and an Italian company separately initiated legal proceedings against the European Communities to claim compensation for damages suffered as a result of EC failure to implement the DSB ruling in EC - Bananas III. See Bananenstreit beschert der EU Schadensersatzforderungen, Frankfurter Allgemeine Zeitung, 11 October 2000
32. European Firms Are Suing EU for Damages in Trade War, Wall Street Journal, 30 August 2000.
33. "One has no need to fulfil one's obligation toward another party if that party has not fulfilled his/her own obligation toward oneself."
34. This is different from the kind of non-application of WTO agreements between particular Members that is contemplated as a possibility in Article XIII of the WTO Agreement. Article XIII non-application is non-application ab initio, not ex post suspension of application of WTO agreements.
35. See WTO document TN/DS/W/9. As addressed below, there also is concern about retaliation causing harm to private parties of the complaining Member. This point is also made in WTO document TN/DS/W/9.
36. Addressing the US government plans to impose 100 percent duties on EC motorcycles in retaliation for EC non-compliance in EC - Hormones, Edward W. Moreland, representative of the American Motorcyclist Association asked: "Where's the beef in motorcycles?". See US Agriculture Reps Urge Rotating Products on Beef Hormone Retaliation List, 16 International Trade Reporter 16, 662. Similarly, a small French glue producer targeted by the United States in the EC - Hormones dispute asked: "What have we to do with American beef?"
37. See French glue producer reels from US sanctions, Agence France-Presse, 23 July 1999. And Italian manufacturers of a sheep-milk cheese called pecorino, who were initially targeted for retaliation by the United States in the EC - Bananas III dispute, likewise struggled to comprehend the reason for being drawn into an intergovernmental trade dispute, asking: "What do we have to do with bananas?"
38. See Italian Cheese Gets Caught in Grinder Of Banana Dispute, Wall Street Journal, 1 March 1999.
39. Where a responding Member maintains State trading enterprises that export to the complaining Member, the complaining Member could target these exports. This would be a way in which a complaining Member could target the responding Member directly rather than only indirectly, via private parties that are nationals of the responding Member.
40. In this respect, a European Commission spokeswoman had the following comment on the European Communities' list of products targeted for retaliation in the US - Offset Act (Byrd Amendment): "We have also selected products from vocal United States sectors that we hope could help Congress focus its mind on compliance". See EU Set to Levy $50 Million in Sanctions on U.S. Exports, Protesting Byrd Amendment, BNA WTO Reporter, 18 November 2004.
41. That this may work would appear to be confirmed by a statement of the then chairman of the US House Ways and Means Committee, Rep. Bill Thomas, to the effect that "[i]f, in fact, the European or other countries... do retaliate [in response for US non-compliance in the US - Offset Act (Byrd Amendment) dispute] ... that creates a focal point for Congress to discuss the need and the time line for change". See Rep. Thomas Supports Repealing Byrd Amendment as Ordered by WTO, BNA WTO Reporter, 19 November 2004.
42. According to press reports, the well-known French activist and farmer José Bové likened the targeting of private parties of the responding Member to the taking of hostages and the bombing of civilians. See Pascal Lamy promet à José Bové de plaider pour un meilleur fonctionnement de l'OMC, Le Monde, 15 August 2001. Similarly, the Director of Trade Policy of the Confederation of Swedish Enterprise expressed the view that politicians "still treat trade as a kind of surrogate war, where perceived state interests (i.e., short-term political advantage) rule supreme" and in which "consumers and companies are treated as mere pawns who should be happy to sacrifice themselves for the narrow electoral interests that fuel [protectionism in countries] around the world".
43. See Hans Ekdahl, Suffering citizenry continues enriching the trade war lords, Financial Times, 21 June 2002.
44. When the United States made known its intention to target cashmere knitwear in the EC - Bananas III dispute in retaliation for EC non-compliance, the UK Government was apparently so irritated that the then UK Secretary of State for Trade and Industry summoned the US ambassador to the United Kingdom to register a formal protest. See What Bananas? Tariff Fight Baffles Europe, Washington Post, 18 March 1999.
45. For instance, it could affect the willingness of the responding Member to agree to trade concessions in the context of multilateral trade negotiations.
46. Possible cases in point are the EC - Bananas III and EC - Hormones disputes. It has been speculated that the European Communities brought the US - FSC dispute to the WTO in a direct, tit-for-tat, response to the hard line taken by the United States in the aforementioned disputes. See Bananas, beef - and now export subsidies, Financial Times, 18 February 2000.
47. For instance, a complaining Member might be granted authorization to increase the bound tariff rate applicable to a particular good by 100 percent, which could have the practical effect of stopping all trade in that good. The complaining Member may therefore decide to increase the tariff rate by only, say, 20 percent.
48. To recall, by "innocent" producers and traders of the responding Member are meant producers and traders who are not "behind" (i.e., who have not sought or otherwise supported) the breach of the responding Member's WTO obligations that caused the complaining Member to retaliate.
49. To cite the most extreme case to date, in EC - Hormones, the retaliatory measures imposed by the United States and Canada have been in place for more than six years.
50. See, e.g., WTO document TN/DS/W/9.
51. See WTO document TN/DS/W/9 and also WTO document TN/DS/W/17 (arguing, apparently, for non-mandatory monetary compensation in cases where the complaining Member is a developing or least-developed country).
52. One conceivable solution to this problem would consist in requiring Members, ex ante, to contribute financially to some sort of country-specific, but WTO-administered, dispute settlement liability fund. The relevant accounts would of course need to be blocked. One conceptual difficulty with such a solution would be the underlying assumption that Members will not only act inconsistently with their WTO obligations, but will also fail to implement any adverse DSB ruling. This is at odds with the presumption of good faith to which all Members are entitled. See, e.g., Appellate Body Report, Chile - Taxes on Alcoholic Beverages, WT/DS87/AB/R, WT/DS110/AB/R, adopted 12 January 2000, DSR 2000:I, 281, para. 74. Another, more practical, difficulty could be the level of contributions that would be necessary to secure payment of monetary compensation. Indeed, in one case alone, the US - FSC dispute, the level of suspension of concessions or other obligations authorized by the DSB amounted to over USD 4 billion p.a. For comparison, the WTO Secretariat's annual budget, which is paid for by Member contributions, amounted to roughly USD 141 million in 2006. Another method of ensuring the payment of agreed or multilaterally authorized monetary compensation would be for Members to allow its enforcement in their own domestic courts. Yet this would require a degree of "hand-tying" that few Members are likely to be comfortable agreeing to ex ante, given the uncertainty surrounding the amount of future dispute settlement liabilities. Nonetheless, it appears that Canada, for instance, has accepted this kind of mechanism in the North American Free Trade Agreement (NAFTA) side agreement on the environment, the North American Agreement on Environmental Cooperation.
53. See, also, Peter Sutherland et al., The Future of the WTO: Addressing institutional challenges in the new millennium, Report by the Consultative Board to the Director-General Supachai Panitchpakdi, World Trade Organization, 2004, paras 242-243.
54. See, e.g., WTO document TN/DS/W/19.
55. Such a consequence would obviously be a matter of justifiable concern. One commentator has noted in this regard that any disadvantages suffered by some developing country Members in the field of rule enforcement (dispute settlement) may to some extent be a mirror image of certain advantages enjoyed by developing country Members when it comes to rule-making. To understand this point, it is necessary to recall that as a result of application of the most-favoured-nation principle to market access concessions, developing country Members get to free ride on concessions negotiated between, and "paid for" by, other Members. While this is also true for developed country Members, developing country Members may not be expected to offer concessions of their own on the basis of full reciprocity. Moreover, in relation to some WTO disciplines they may be afforded special and differential treatment (e.g., exemptions). See Robert Z. Lawrence, Crimes & Punishments? Retaliation under the WTO (Washington, D.C.: Institute for International Economics, 2003), pp. 18, 96. Other observers contend that at least the group of small and poor developing country Members "may have de facto 'exempt' status in terms of implementation of their WTO obligations", due to the circumstance that other Members would lack a strong incentive to contest a breach of WTO obligations by such developing country Members.
56. See Bernard Hoekman and Petros C. Mavroidis, Enforcing Multilateral Commitments: Dispute Settlement and Developing Countries, WTO/World Bank Conference on Developing Countries in a Millennium Round, 14 September 1999, p. 3. This, however, may to some extent also be true for small developed-country Members.
57. The example of Ecuador is often cited in this connection. Ecuador in the EC - Bananas III dispute was authorized by the DSB to retaliate against the European Communities, but did not make use of that authorization. This contrasts with the conduct of the United States in the same dispute. Like Ecuador, the United States was authorized to retaliate against the European Communities, but unlike Ecuador it did implement a retaliatory measure.
58. Members that might potentially qualify as small or poor developing country Members and which might consider that they have not (yet) obtained satisfactory implementation of a DSB ruling include Antigua and Barbuda (in the US - Measures Affecting the Cross-Border Supply of Gambling and Betting Services dispute ("US - Gambling") and Ecuador (in EC - Bananas III). However, there are several examples of prolonged non-implementation of DSB rulings obtained by developed country complaining Members. These disputes include EC- Hormones, US - Section 110(5) of the US Copyright Act ("US - Section 110(5) Copyright Act"), US - Section 211 Omnibus Appropriations Act of 1998 and US - Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan.
59. See WTO documents TN/DS/W/19 and TN/DS/W/47. In relation to this proposal, it might be worth examining whether it would not be more appropriate, for systemic reasons, to treat developing country Members and developed country Members the same, such that all Members would be afforded the same freedom of action in respect of cross-sectoral or cross-agreement retaliation. Having said this, the proposal to treat developed country Members differently may reflect a deliberate policy view. During the Uruguay Round negotiations on the DSU, many developing countries were opposed to allowing cross-retaliation against them because of fears that breaches by developing countries of the Agreement on Trade-Related Aspects of Intellectual Property Rights could lead to retaliation against developing country goods exports.
60. It has been suggested in this regard that cross-agreement retaliation could be "a dangerously attractive option" for developing country complaining Members, as it might mean, for instance, that they would pay less (or nothing) in return for the use of intellectual property rights of nationals of the responding Member. See Gary N. Horlick, Problems with the compliance structure of the WTO dispute resolution process, in The Political Economy of International Trade Law - Essays in Honor of Robert E. Hudec, ed. Daniel L.M. Kennedy and James D. Southwick (Cambridge: Cambridge University Press, 2002), p. 642. Echoing a similar view, a former senior US trade official, Nao Matsukata, has been quoted in the press as saying that "[i]intellectual property is the perfect sanction item. It gives small countries [...] absolute leverage".
61. See Tiny Player holds all the aces in high stakes games, New Zealand Herald, 22 September 2007. It is easy to see why cross-agreement retaliation, and notably retaliation involving the suspension of obligations under the TRIPS Agreement, may provide greater leverage for developing country complaining Members. A developing country complaining Member may well - at least in the short and medium term - depend on goods or services provided by the responding Member. In such a situation, if the developing country complaining Member were to apply retaliatory measures against essential goods or services supplied by the responding Member, it would effectively tax its own importers or consumers, as they would need to charge or pay more for the relevant goods or services. Indeed, in the US - Gambling dispute, which arose over the issue of US compliance with obligations under the GATS, the complaining Member, the small Caribbean island of Antigua and Barbuda, sought authorization to suspend, vis-à-vis the United States, certain obligations under the TRIPS Agreement on the grounds that, on an annual basis, approximately 48.9 percent of the foreign goods and services used by its people came from single source providers located in the United States.
62. See WTO document WT/DS285/22.
63. See WTO documents TN/DS/W/17 (collective retaliation to benefit developing country Members and least-developed country Members); TN/DS/W/ 37 (collective retaliation apparently to benefit only least-developed country Members, although the proposal is not entirely clear in this regard); TN/DS/W/42 (collective retaliation to benefit developing country Members and least-developed country Members); and TN/DS/W/9 (referring to "large-scale retaliation" which would apparently benefit all categories of complaining Members).
64. WTO documents TN/DS/W/17, TN/DS/W/37 and TN/DS/W/40 appear to provide otherwise, as they seem to allow for a departure from the provisions of DSU Article 22.4. While this might enhance the effectiveness of retaliation (e.g., in cases where the "equivalent" level of suspension is relatively low), logically, it would also increase the collective cost of retaliation.
65. It is conceivable that the developing country complaining Member would not retaliate at all and that other Members would retaliate on its behalf.
66. Some would say that the DSU already gives Members the possibility of bringing joint complaints (several Members acting as one complaining Member) or multiple complaints (several complaining Members acting separately) in respect of the same matter. In the former case, the Members concerned could share the burden of retaliation among themselves, in the sense that each of them would retaliate to a lesser extent than it would if it had to "go it alone" or that only some of the co-complaining Members would retaliate. In the latter case, each Member would need to obtain a separate authorization to retaliate, but it might not be necessary, for purposes of inducing compliance, for each complaining Member to apply a retaliatory measure. Thus, this second possibility could likewise allow for burden sharing among complaining Members.
67. WTO documents TN/DS/W/17 and TN/DS/W/37 do not appear to envisage mandatory collective retaliation. Another possible concern about mandatory collective retaliation might be that a situation could arise where Member A is subject to collective retaliation on behalf of Member B and at the same time is expected to take part in a collective retaliation exercise on behalf of Member B against Member C. In other words, the situation would be one where a Member would not only suffer economically because of another Member (even if justifiably so), but would in addition be expected to incur additional costs in assisting that same Member in obtaining compliance by a third Member. In terms of domestic politics, this could be a delicate situation for Member A to find itself in.
68. See WTO documents TN/DS/W/23 and TN/DS/W/40.
69. See also Roberto Lavagna (a former WTO ambassador for Argentina), Schott in the dark, The Economist, 16 September 2000.
70. This would mean that, with the agreement of the responding Member, a Member might obtain an authorization to retaliate that is worth, say, USD 100 million per annum in exchange for benefits that are worth, say, USD 75 million per annum.
71. In fact, as previously indicated, if the "price" of the "protection" right is negotiable, the purchasing Member might be able to afford its economic operators more protection than it paid for.
72. The "protection" right would be country-specific, i.e., it could be used only as against imports originating in the territory of the responding Member.
73. This might be true even if the developing country Member selling the "protection" right would discount the price to be paid for that right in order to take account of the uncertainty surrounding the period for which the right may be used. Indeed, in such cases the political benefits the purchasing Member could obtain from providing additional protection may be too uncertain to justify incurring the political costs of such a move. Also, it should be remembered that if the developing country Member were to concede a lower price for the "protection" right in question, it would receive less compensation for the responding Member's failure to comply.
74. See WTO documents TN/DS/W/1, TN/DS/W/23, TN/DS/W/26, TN/DS/W/32, TN/DS/W/ 33, TN/DS/W/35 and TN/DS/W/40.
75. DSU Article 22.1, in fine, implies that compensation must be granted on a most-favoured-nation basis.
76. In US - Section 110(5) Copyright Act, the European Communities and the United States achieved a very similar result under existing DSU rules by jointly agreeing to have recourse to the provisions of Article 25 of the DSU on ad hoc arbitration. See Award of the Arbitrators, US - Section 110(5) of the US Copyright Act - Recourse to Arbitration under Article 25 of the DSU, WT/DS16O/ARB25/1, 9 November 2001, DSR 2001:II, 667.
77. For instance, in its dispute with the United States over a US safeguard measure imposed on steel products, the European Communities proposed retaliatory tariffs on imports from politically sensitive States seen as crucial to upcoming US legislative elections. See EU Proposes 30% Tariff on US Cigarettes in Steel Row, Dow Jones International News Service, 14 May 2002. While this case did not concern Article 22 retaliation, it nonetheless illustrates how retaliation may give a complaining Member leverage that it would not have if it accepted an offer of compensation.
78. For example, in EC - Hormones, US beef producers were apparently willing to switch to production of hormone-free beef for the EC market in order to be able to resume beef exports to that market. Doing so would apparently have taken between 18 and 24 months, and so there was concern that a possible compensatory increase to be offered by the European Communities in the EC quota for hormone-free beef might be withdrawn within a period of less than 18 to 24 months, in the event of EC compliance with the relevant DSB ruling. See EU, US Far From Deal To Lift WTO Beef-Dispute Sanctions, Dow Jones Newswires, 15 June 2001.
79. Others would like some clarification in the text of the DSU. See WTO document TN/DS/W/33. The current text of the DSU refers simply to "compensation".
80. See WTO document WT/DS160/23.
81. See EU Offers to Step Up Aid to Solve Banana Row With Ecuador, Bloomberg, 5 May 2000.
82. This concern has led to a specific proposal for an amendment of the DSU. See WTO document TN/DS/W/49.
83. See WTO documents TN/DS/W/1 and TN/DS/W/32.
84. Mention should be made of the fact that the DSU already contains a relevant rule, namely, the requirement that DSU Article 22.8 imposes on the complaining Member to apply a retaliatory measure only as long as necessary, i.e., until the time the responding Member implements the DSB ruling. While a responding Member could initiate a complaint based on DSU Article 22.8 with a view to obtaining a DSB ruling that confirms that a complaining Member has failed to apply its retaliatory measure only as long as necessary, such a complaint could take a long time to work its way through all stages of WTO dispute settlement procedures.
85. That maximizing effectiveness abroad and minimizing cost at home are relevant objectives of complaining Members when preparing retaliatory measures is confirmed by a statement of Peter L. Scher, former special US negotiator for agriculture at USTR. In relation to the EC - Hormones dispute, Scher explained that "[t]he criteria we used to develop the list [of targeted EC products] was intended to put maximum pressure on the EU to comply with its WTO obligations while minimizing the economic impact on businesses in the United States". See U.S. Announces Final List of EU Imports Targeted For Higher Duties in Beef Dispute, 16 International Trade Reporter 29 (1999), 1212.
86. It is possible to give actual examples to make clear that these are not necessarily unrealistic scenarios. First, on alternative markets, it seems that French producers of "foie gras" were able to avoid some of the impact of US retaliatory duties by taking advantage of the growth of the French domestic market for "foie gras". See Foie gras: un enjeu de 7 millions de francs, Le Figaro, 9 September 1999. Second, on customs classification, there is the example of a French manufacturer of bed linen who was able to avoid being hit by US retaliatory tariffs by having some of its exported goods reclassified by US Customs authorities.
87. See Guerre de la banane: quatre français attaquent los Quinze, Les Echos, 11 September 2000. Third, on rules of origin, there is the example of a German manufacturer of cardboard packaging who was able temporarily to avoid the impact of US retaliatory tariffs by shifting a sufficient number of manufacturing activities and processes to Switzerland to avoid EC origin.
88. See Merry-go-row, The Economist, 9 September 2000. Finally, regarding the preparation of joint ventures with producers of the complaining Member, a case in point is the US denim manufacturer Cone Mills which apparently decided to enter into joint ventures with European partners after being targeted for potential EC retaliation over the US safeguard measure on steel imports.
89. See EU Tax List Aims at U.S. Exporters From Cone Mills to Cargill, Bloomberg, 12 September 2002.
90. To illustrate, it seems that French mustard manufacturers who were targeted by the United States in retaliation for EC non-compliance in the EC - Hormones dispute experienced difficulties in being heard by French and EC authorities. Furthermore, there appears to have been a lack of solidarity among the competing manufacturers, which added to their difficulties in carrying out effective lobbying activities. See Les fabricants de Roquefort se paient un McDo, Libération, 13 August 1999
91. Moutarde: entre 5 et 10% en moins, Le Figaro, 9 September 1999. Along similar lines, a French exporter of bed-sheets and other linens who was targeted by the United States for retaliation in the EC - Bananas III dispute stated that "[i]f I complain to the French government, nobody is going to care about it because we are too small".
92. See What Bananas? Tariff Fight Baffles Europe, Washington Post, 18 March 1999. To cite another example, the president of a group of French producers of blue cheese, a product which was targeted by the United States together with other products of French gastronomy, such as foie gras, truffels and scallions, stated that "[w]e represent the flower of French gastronomy but we have no political weight".
93. See Europe Shrugs Off US Sanctions, Wall Street Journal, 8 and 9 September 2000. Finally, addressing EC retaliatory tariffs in US - FSC, the president of the US National Foreign Trade Council said that the European Communities tried to target products made in influential congressional districts with the result that "they've picked up a lot of smaller companies that don't have a lot of influence in Washington, D.C."
94. See Extraterritorial Income Retaliatory EU Taxes Not Seen Creating Expected Pressure to Pass Export Tax Bills, BNA WTO Reporter, 12 July 2004.
95. For instance, it has been claimed that a (subsequently reversed) US decision to target Scottish cashmere sweaters could have caused the loss of 4,000 jobs in rural Scotland. See US groups want cashmere on EU retaliation list, Reuters, 10 July 2000.
96. It is pertinent to recall, in this context, the ransacking of a McDonald's restaurant under construction in Millau, France, in August 1999 by some militant members of an association of French cheese-makers whose products were targeted by the US retaliatory measure in the EC - Hormones dispute. See Les fabricants de Roquefort se paient un McDo, Libération, 13 August 1999.
97. Apparently, some French café owners in regions affected by US retaliatory measures decided to counter-retaliate by pricing a bottle of Coca Cola at the equivalent of £ 50. Others replaced Coca Cola by Pepsi Cola because the latter was made in France under licence by a French company. See French take their revenge with £50 Coca-Cola, Daily Telegraph, 9 August 1999. Furthermore, the town council of St Pierre-de-Trivisy, a French town, decided to impose a 100 percent tax on bottles of coke sold at the town campground and recreation centre until the United States lifted its retaliatory tariff on Roquefort cheese.
98. See A Roquefort David Strikes a Coke Goliath, International Herald Tribune, 23 August 1999.
99. To illustrate, it seems that some 40 percent of US exports to the European Communities are intracompany exports. See L'enjeu colossal des échanges transatlantiques, Le Figaro, 3 November 2000. The example of Ireland is instructive. Apparently, several subsidiaries of US multinationals, such as Hewlett Packard and Intel, use Ireland as a manufacturing base from which to supply various export markets. Given this, Irish exporters were concerned that if the European Communities in the US - FSC dispute targeted US goods imported into Ireland by the US companies based there, this would render Ireland a less attractive business location for these companies.
100. See Ireland Threatened by EU Sanctions Against US, Exporters Say, Bloomberg, 16 September 2002.
101. In EC - Bananas III, for example, the United States apparently dropped EC washing machines from the list of goods targeted for retaliation at a very late stage, after it discovered that the washing machines in question contained many US components. See What Bananas? Tariff Fight Baffles Europe, Washington Post, 18 March 1999.
102. There may be other, less obvious, ways in which a complaining Member could inadvertently hurt itself if it were not adequately informed. For example, it has been suggested that for the United States to impose retaliatory tariffs on upmarket EC textile products would have hurt mainly US retailers, at least in cases where the latter had signed contracts with EC suppliers for the coming seasons and did not have guaranteed prices based on the preretaliation tariffs. See Italy calls for dialogue in EU - US trade row, Reuters, 14 July 2000.
103. A similar point was made above in relation to the proposal to allow for the tradability of DSB authorizations to retaliate.
104. That this incentive exists would appear to be confirmed by reports that in the context of the EC - Hormones dispute the US National Pork Producers Council lobbied for inclusion of EC pork products - notably Italian hams such as prosciutto - on the list of goods to be targeted by the United States in retaliation for EC non-compliance. See Daniel T. Griswold, The Coming Trans-Atlantic Trade Tussle, Wall Street Journal Europe, 13 December 2000. The windfall benefit for US pork producers from imposition of 100 percent retaliatory tariffs on EC pork products was estimated at USD 200 million, this being the value of imports of EC pig meat in a previous representative period.
105. See EU - US Beef Dispute To Give $200 Mln Boost to US Hogs, Dow Jones Newswires, 19 May 1999.
106. In this sense, a notice-and-comment procedure could also help to prevent or reduce the above-noted problem of regulatory capture.
107. DSU Article 22.7 provides that an arbitrator acting pursuant to DSU Article 22.6 must not examine "the nature of the concessions or other obligations to be suspended".
108. There is one caveat: DSU Article 22.5 states that the DSB must not authorize suspension of concessions or other obligations if a covered agreement prohibits such suspension. However, the WTO agreements currently do not appear to contain such prohibitions.
109. Indeed, according to one theory of economic sanctions, sanctions may be most effective when they target "innocent bystander" groups. More specifically, it has been argued that the best targets of sanctions are groups which (i) have previously been disinterested in the issue at stake, (ii) have strong pre-existing ties to the country which imposes the sanctions and (iii) have significant resource reserves available for lobbying. In contrast, according to this theory, groups responsible for, or benefiting from, the offending measure are likely to be highly committed to that measure. And groups in the targeted country which oppose the measure which sanctions are intended to help remove (i.e., groups which are friendly to the country imposing the sanctions) are likely to have already expended a significant proportion of their resources lobbying against the measure in question. The proponents of this theory argue therefore that the marginal impact on the target country's policy to be gained from pressuring this friendly group into additional lobbying can be expected to be significantly lower than the marginal impact on policy to be gained from inducing lobbying on the part of "innocent bystanders". See Solomon Major and Anthony J. McGann, Caught in the Crossfire: "Innocent Bystanders" As Optimal Targets of Economic Sanctions, 49 Journal of Conflict Resolution 3 (June 2005), 348, 350-351.
110. As already pointed out, when a complaining Member targets innocent private parties of the responding Member, this can lead to strong protests from the part of the latter, including from their government. To provide an example, when the United States made known its intention to target cashmere knitwear for retaliation in EC - Bananas III, the UK Secretary of State for Trade and Industry stated in parliament that "[i]t is particularly regrettable that American action is directed against industries which have absolutely no connection with bananas or the issues in dispute. There can be no justification for inflicting, or seeking to inflict, serious damage on businesses and communities in pursuit of objectives which are utterly unrelated to the activities in which they are engaged." Quoted in Christopher Barclay, The Trade Dispute between the EU and the USA over Bananas, House of Commons Library Research Paper, 12 March 1999.
111. Thus, it would appear that resort to a domestic notice-and-comment decision-making procedure for retaliatory measures would obey what has been termed by one commentator "the moral and political imperative that the WTO respect individual concerns". See Horlick, at note 47 above, p. 644.
112. See UNDP, Governance for Sustainable Human Development, UNDP policy document, 1997 ("Good governance is, among other things, participatory, transparent and accountable.").
113. Horlick, at note 47 above, p. 642. To recall, the United States in EC - Bananas III and EC - Hormones applied 100 percent retaliatory tariffs - so-called "killer duties" - to imports of selected EC goods.
114. Suggested amendments in italics; original footnotes omitted.
115. Since the notice-and-comment procedure suggested in this section is a domestic procedure, i.e., a procedure conducted at the national level, it would be sufficient for the complaining Member to give notice in its own official language(s).
116. It is worth noting that a complaining Member might well find it appropriate to include in its notice, and seek comments on, several possible options for a retaliatory measure that it is considering. Indeed, input from interested parties could prove extremely useful to that Member in coming to a final decision on which option to select.
117. In accordance with DSU Article 22.2, the earliest time at which authorization to retaliate can be sought is after expiry of a 20-day period following the end of the reasonable period of time. Therefore, it seems clear that a complaining Member must be given the possibility of completing the internal process by which it prepares and adopts a proposal for a retaliatory measure no later than the expiry of this 20-day period. Furthermore, while Article 22.2 does not require a responding Member to enter into negotiations on compensation before the expiry of the reasonable period of time, the phrase "no later than the expiry of the reasonable period of time" in Article 22.2 implies that it would not be improper for the complaining Member to request such negotations prior to the expiry of the reasonable period of time. This being so, it would appear that a complaining Member should likewise have the right to commence the necessary preparatory steps for retaliation prior to the expiry of that period, at least in cases where these steps cannot reasonably be completed within 20 days. It should be mentioned in this context that Members sometimes conclude so-called sequencing agreements (i.e., agreements on the sequencing of procedures under DSU Articles 21.5 and 22.6 in the event of non-implementation by the responding Member) before the expiry of the applicable reasonable period of time. See, e.g., WTO documents WT/DS103/14, WT/DS108/12 and WT /DS113/14. Finally, it is worth recalling that in the context of the DSU negotiations it has been proposed that complaining Members should have the possibility of obtaining a binding determination of the level of nullification or impairment before the expiry of the reasonable period of time.
118. Interestingly, US experience with retaliation showed that the publication of a list of targeted goods initially resulted in increased imports of the goods proposed to be targeted. Subsequently, once the retaliatory measure went into effect, there was a sharp drop in imports of the relevant goods. See France Not Suffering From Sanctions Imposed in US Beef Hormone Case, BNA WTO Reporter, 19 April 2000. The initial increase in imports of the goods on a proposed retaliation list was due to the fact that the relevant importers tended to try to accumulate stocks. This, however, imposes additional costs on businesses, in that they face additional storage costs and higher transportation costs. The increase in transportation costs results from the need to accelerate and expedite shipping in order to avoid being subject to the proposed retaliatory measure once it enters into force.
119. See EU Tax List Aims at U.S. Exporters From Cone Mills to Cargill, Bloomberg, 12 September 2002.
120. A similar concern about disruptive effects on trade resulting from the public disclosure of preparatory administrative action underlies the provisions of Article 5.5 of the Anti-Dumping Agreement and Article 11.5 of the Agreement on Subsidies and Countervailing Measures. Both provisions require investigating authorities to avoid publicizing applications for the initiation of anti-dumping or CVD investigations, unless they have made a firm decision to initiate an investigation.
121. Indeed, under US administrative law, for instance, notice-and-comment rule making by administrative agencies is referred to as "informal" rule making. See, e.g., Stephen G. Breyer and Richard B. Stewart, Administrative Law and Regulatory Policy: Problems, Text and Cases (3rd edn, Boston, Toronto and London: Little, Brown, 1992), p. 534.
122. WTO dispute settlement practice shows that responding Members routinely request WTO arbitration on the level of suspension of concessions or other obligations to be authorized by the DSB. There is, therefore, little reason for concern about arbitration concerning the conduct of a notice-and-comment procedure being used by the responding Member as a new dilatory manoeuvre. At any rate, this type of arbitration would be far less complex than the traditional type of arbitration on the level of suspension of concessions or other obligations. Accordingly, it should require significantly less time to complete.
123. The arbitrator in EC - Hormones encouraged such transparency, stating that "[tlhe more precise a request for suspension is in terms of product coverage, type and degree of suspension, etc. ..., the better. Such precision can only be encouraged in pursuit of the DSU objectives of 'providing security and predictability to the multilateral trading system' (Article 3.2) and seeking prompt and positive solutions to disputes (Articles 3.3 and 3.7). It would also be welcome in light of the statement in Article 3.10 that 'all Members will engage in DSU procedures in good faith and in an effort to resolve the dispute'". Decision by the Arbitrator, EC - Hormones - Recourse to Arbitration by the European Communities under Article 22.6 of the DSU, WT/DS48/ ARB (Canada), 12 July 1999, DSR 1999:III, 1105, fn. 15.
124. That practice is not unbroken, however. In a minority of cases, no, or an incomplete, list of the goods, services, and/or holders of intellectual property rights covered by a request was forwarded to the DSB. Relevant cases include: US - Gambling, US - Oil Country Tubular Goods Sunset Reviews, US - Subsidies on Upland Cotton, US - Softwood Lumber IV, US - Softwood Lumber V, US - Softwood Lumber VI, US - Offset Act (Byrd Amendment) and US - Section 110(5) Copyright Act. It should be noted, however, that in some of these cases the level of suspension requested to be authorized was claimed to be liable to vary from year to year and it was indicated by the requesting Member in those cases that every year a final list detailing the level of suspension that would be implemented in that year and the goods, etc. subject to the proposed retaliatory measure would be notified to the DSB.
125. An issue that it is not necessary to get into here is whether the level of suspension resulting from a request forwarded to the DSB may exceed the level of nullification or impairment. A possible reason for doing so would be to allow the complaining Member periodically to modify the product coverage of its retaliatory measure while ensuring at the same time that these modifications would involve only goods, services, etc., already identified in, or identifiable from, its request. The amendments to DSU Article 22 that are suggested in this section are neutral in respect of this issue.
126. The arbitrator in EC - Bananas III stated that "[w]e believe ... that the fact that [this] criterion relates to the suspension of concessions or other obligations is not necessarily an indication that 'broader economic consequences' relate exclusively to the party which was found not to be in compliance with WTO law .... As noted above, the suspension of concessions may not only affect the party retaliated against, it may also entail, at least to some extent, adverse effects for the complaining party seeking suspension". Decision by the Arbitrator, EC - Bananas III - Recourse to Arbitration by the European Communities under Article 22.6 of the DSU, WT/DS27/ARB/ECU, 24 March 2000, DSR 2000:V, 2237, para. 86.
127. In relation to domestic industrial suppliers of a directly affected exporter, producer or supplier of a good or service, footnote 14bis is intended to make clear that the new subparagraph (h) would leave a complaining Member free to determine whether or not they are "interested parties". This is to take account of the fact that a directly affected producer of a good may have a very large number of industrial suppliers. For instance, the chairman and CEO of the Boeing Company stated that there are "[t]ens of thousands of companies" supplying Boeing with parts and services. See Philip M. Condit, Keep trade free, fair and growing, Seattle Times, 18 November 1999. However, there may exist ways of distinguishing between different groups of suppliers. The supply elasticity of some of these suppliers may be low, for instance, due to specialization, dedication of production facilities, etc., while the elasticity of others may be high. In the former case there would appear to be a stronger case for allowing participation as an "interested party" than in the latter. At any rate, subparagraph (h) would allow a complaining Member to draw the line where and as it deems fit.
128. The considerations that follow also apply, mutatis mutandis, to instances where it would be foreign suppliers of a service or foreign holders of intellectual property rights that would be given an opportunity to provide comments and information.
129. A case in point is the American Forest and Paper Association, which asked its European customers to lobby on its behalf to get various forest and paper products off the European Communities' proposed target list in the US - FSC dispute. See EU Tax List Aims at US Exporters From Cone Mills to Cargill, Bloomberg, 12 September 2002. Another example is that of some New York and Washington, D.C., chefs lobbying US authorities to remove French mustard from a proposed target list in the EC - Hormones dispute.
130. See La moutarde monte au nez des chefs de cuisine américains, Le Monde, 7 July 1999.
131. See Italian Cheese Gets Caught in Grinder Of Banana Dispute, Wall Street Journal, 1 March 1999. Of course, in the territory of the complaining Member there may likewise be insufficient awareness of the existence of a proposed retaliatory measure.
132. See How to Become a Top Banana, Time Magazine, 30 January 2000. However, it is arguable that it is the responsibility of the complaining Member to make sure that its own private parties are adequately informed.
133. The United States, for instance, carried out a notice-and-comment procedure in, inter alia, the EC - Hormones dispute. See US Federal Register of 25 March 1999 (Vol. 64, No. 57), Request for comment; notice of public hearing relating to "Implementation of WTO Recommendations Concerning EC - Measures Concerning Meat and Meat Products (Hormones)". Along similar lines, Canada appears to have conducted a notice-and-comment procedure in at least four cases where it sought authorization to retaliate, viz., EC - Hormones, Australia - Salmon, Brazil - Aircraft and US - Offset Act (Byrd Amendment). More specifically, Canada published in the Canada Gazette a proposed list of products in respect of which it was considering to withdraw concessions, and in respect of which it invited public comment.
134. See WTO documents WT/DS48/17, WT/DS18/12, WT/DS46/16 and WT/DS234/31. However, from the last-mentioned document it would appear that Canada only invited comments from Canadian interested parties. Regarding the European Communities, it appears that in US - FSC, the European Commission gave the European industry 60 days to comment on a proposed list of goods to be subject to retaliatory tariffs.
135. See EU industry gears up to limit sanctions fallout, Financial Times, 15 September 2002.
136. Members have already accepted to implement very similar obligations in the context of several other WTO agreements.