Dispute Settlement in the World Trade Organization: Key Legal Concepts

Dispute Settlement in the World Trade Organization: Key Legal Concepts

July 18, 2016
Dispute Settlement in the World Trade Organization:
Key Legal Concepts
The World Trade Organization (WTO) agreements set forth
In addition, a provision in the General Agreement on
rules for government practices that affect international trade
Tariffs and Trade (GATT) suggests that there are some
in goods and services. The agreements address import
circumstances in which a WTO Member could bring a case
tariffs on products, as well as nontariff trade barriers such
without having suffered direct economic injury. The
as product standards and subsidies. The WTO
provision allows a WTO Member to bring a “non-violation”
Understanding on Rules and Procedures Governing the
claim against a Member that has not violated the GATT if
Settlement of Disputes (Dispute Settlement Understanding
application of one of that Member’s measures (e.g., a law
or DSU) provides a means for WTO Members to resolve
or regulation) has nullified or impaired benefits accruing to
disputes arising under the WTO agreements. The United
the complaining Member or impeded the attainment of
States is a Member of the WTO.
GATT objectives. GATT Art. XXIII:1(b). However, the
Appellate Body has stated that this remedy “should be
This In Focus summarizes key legal principles that often
approached with caution and should remain an exceptional
arise in dispute settlement cases. For more on WTO dispute
remedy.” See European Communities—Measures Affecting
settlement generally, see CRS Report RS20088, Dispute
Asbestos and Asbestos-Containing Products,
Settlement in the World Trade Organization (WTO): An
WT/DS135/AB/R, ¶ 186.
Overview. For more on the WTO generally, see CRS In
Focus IF10002, The World Trade Organization, by Ian F.
De Jure vs. De Facto Discrimination
Fergusson and Rachel F. Fefer.
A key WTO principle is the concept of nondiscrimination.
Several provisions in the agreements prohibit a WTO
Standing to Bring a Dispute
Member from discriminating against an imported product,
In the legal context, the concept of “standing” generally
service, or service supplier based on its foreign (WTO
refers to a party’s legal right to bring a dispute before a
Member) origin. E.g., GATT Art. III; Agreement on
court or other tribunal for possible resolution of the issues
Technical Barriers to Trade Art 2.1; General Agreement on
in the party’s complaint. Various legal instruments
Trade in Services (GATS) Arts. II, XVII. WTO
governing a tribunal’s powers (e.g., constitutional
jurisprudence holds that a law or other “measure” may
provisions or prudential concerns incorporated into judge-
violate the WTO agreements not only when it facially
made law) may establish requirements that a party must
discriminates against imported products based on origin (de
meet in order to have standing before that tribunal. For
jure discrimination) but also when an origin-neutral law
example, a key element of standing doctrine in U.S. law
nevertheless discriminates in effect against imported
holds that in order to maintain a lawsuit in federal court, a
products of WTO Member origin (de facto discrimination).
party must have suffered some type of injury to a legally
protected interest. U.S. Const. Art. III, § 2; Lujan v.
A WTO panel’s decision in the Canada—Autos dispute
Defenders of Wildlife, 504 U.S. 555, 560-61 (1992).
illustrates this principle. In that case, Canada exempted
from import duties automobiles brought into the country by
However, the concept of standing differs in WTO dispute
a select group of eligible importers. WT/DS139/R, ¶¶ 10.43,
settlement, which involves state-to-state disputes between
10.45-.50. Although this group could theoretically import
WTO Member countries brought before international
cars originating in any WTO Member country, the group of
tribunals. WTO jurisprudence suggests that a WTO
Canadian importers in practice imported cars mostly from
Member could potentially maintain a dispute settlement
those WTO member countries that hosted car
case without having suffered direct economic injury to its
manufacturers affiliated with the importers. Consequently,
trade interests. In European Communities—Regime for the
the WTO panel determined that the duty exemption
Importation, Sale and Distribution of Bananas, the
conferred an advantage on products (i.e., cars) of the WTO
Appellate Body noted that nothing in the WTO agreements
Members that hosted the importer-affiliated manufacturers.
requires a Member to have a legal interest in a dispute in
Moreover, this advantage was not accorded to like products
order to bring that dispute before a WTO panel.
of other WTO Members that did not host importer-affiliated
WT/DS27/AB/R, ¶ 132. Although the Appellate Body did
companies. Thus, the measure violated GATT Article I:1.
not specifically hold that a WTO Member may bring a
complaint without having suffered any injury to its
Although the Canada—Autos case concerned the GATT’s
economic interests, it did suggest that the WTO
most-favored nation (MFN) treatment provision, the
Agreements may allow a WTO Member to bring a dispute
Appellate Body has recognized that de facto discrimination
settlement complaint against another Member even when its
may also occur under other WTO nondiscrimination
“legal interest” in the case is remote or indirect. Id. at ¶¶
provisions, such as the MFN provision in the GATS. EC-
132-38.
Bananas III, ¶¶ 233-34.
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Dispute Settlement in the World Trade Organization: Key Legal Concepts
Mandatory vs. Discretionary Legislation
context and in light of its object and purpose.” If
When a WTO Member challenges another Member’s law
interpretation under Article 31 fails to clarify the treaty’s
“as such” (i.e., as written and not as applied by an official
meaning or leads to an unreasonable result, then Article 32
of that Member in a particular situation), whether that law
of the VCLT provides that “recourse may be had to
conforms with WTO rules may depend on whether the law
supplementary means of interpretation, including the
requires officials of the responding Member to take WTO-
preparatory work of the treaty and the circumstances of its
inconsistent action or merely permits such action. See
conclusion in order to ... determine the meaning.”
Appellate Body Report, U.S. – Anti-Dumping Act of 1916,
Effect of WTO Agreements and
¶¶ 88-91, WT/DS136/AB/R, WT/DS162/AB/R (August 28,
Decisions on U.S. Domestic Law
2000). Although a law that requires WTO-inconsistent
The WTO agreements and decisions rendered by panels
action will likely violate the agreements, it is unclear
thereunder cannot modify U.S. law. If a WTO Member
whether a law that gives an official discretion to take an
considered a U.S. measure to violate the WTO agreements,
action that would violate WTO agreements may itself
it could potentially challenge the measure in a dispute
violate those agreements.
settlement proceeding under the rules and procedures of the
DSU. If an adverse WTO decision were ultimately
Some early precedents under the predecessor to the WTO,
rendered, the United States would be expected to remove
the GATT 1947, held that a panel would find a law to be
the offending measure, generally within a reasonable period
consistent with a Contracting Party’s international trade
of time, or face the possibility of paying compensation to
obligations when: (1) the law provided an official of that
the complaining Member or being subject to sanctions.
Party with discretion to apply that law in a way that did not
Such sanctions might include the imposition by the
violate the agreements; and (2) the official applied the law
complaining Member of higher tariffs on imports of
in such a manner. Id. However, in the context of WTO
selected products exported from U.S. territory.
dispute settlement, the Appellate Body has expressed some
ambivalence about this “mandatory/discretionary”
Although the WTO’s Dispute Settlement Body could
distinction. Appellate Body Report, U.S.—Laws,
authorize a WTO Member to retaliate against the United
Regulations and Methodology for Calculating Dumping
States for maintaining a measure in violation of WTO rules,
Margins (“Zeroing”), ¶¶ 211, 214, WT/DS294/AB/R (April
no WTO body could compel the United States or one of its
18, 2006).
political subdivisions to alter its laws. While the Supremacy
Clause of the U.S. Constitution puts treaties on equal
In 1999, a WTO panel examined the U.S. Section 301
footing with federal law, U.S. Const. art. VI, cl. 2, Congress
program, which authorizes the executive branch to take
did not consider the WTO agreements to be self-executing.
action against unfair foreign trade practices, and held that it
E.g., S. Rept. 103-412, at 13. Thus, the agreements did not
provisionally violated the DSU because “in a treaty the
have domestic legal effect until Congress passed legislation
benefits of which depend in part on the activity of
implementing the agreements. Congress approved and
individual [economic] operators the legislation itself may
implemented the WTO agreements in URAA, P.L. 103-
be construed as a breach, since the mere existence of
465. Section 102(a)(1) of the URAA states that “No
legislation could have an appreciable ‘chilling effect’ on the
provision of any of the Uruguay Round Agreements, nor
economic activities of individuals.” U.S.— Sections 301-
the application of any such provision to any person or
310 of the Trade Act of 1974, ¶ 7.81, WT/DS152/R. The
circumstance, that is inconsistent with any law of the
panel wrote that the “threat alone of conduct prohibited by
United States shall have effect.” As a result, WTO panel
the WTO would enable the Member concerned to exert
and Appellate Body reports adopted by the WTO Members
undue leverage on other Members.” Id. at ¶ 7.89. However,
that are in conflict with federal law do not have domestic
the panel in that case nevertheless found that Section 301
legal effect unless and until Congress or the executive
did not violate the WTO agreements because the U.S.
branch, as the case may be, takes action to modify or
Statement of Administrative Action submitted by the
remove the conflicting statute, regulation, or regulatory
President and approved by Congress with the Uruguay
action.
Round Agreements Act (URAA), H. Doc. 103-316,
appeared to prevent the executive branch from interpreting
Nor do WTO dispute settlement decisions in conflict with
and applying the law at issue in a manner that violated U.S.
state law have domestic legal effect without federal or state
WTO obligations.
action. Section 102(b)(2)(A) of the URAA provides that
Interpretation of the WTO Agreements “[n]o State law, or the application of such a State law, may
be declared invalid as to any person or circumstance on the
WTO adjudicators often must interpret a phrase in the
ground that the provision or application is inconsistent with
WTO agreements. Article 3.2 of the DSU provides that the
any of the Uruguay Round Agreements, except in an action
agreements should be interpreted “in accordance with
brought by the United States for the purpose of declaring
customary rules of interpretation of public international
such law or application invalid.” Notably, URAA Section
law.” WTO panels have held that key customary rules are
102 does not foreclose the possibility that Congress (or a
contained in the Vienna Convention on the Law of Treaties
federal agency), acting within its authority, could preempt a
(VCLT). 1155 U.N.T.S. 331 (May 23, 1969).
state law by enacting legislation or promulgating a rule.
Article 31 of the VCLT states, in part, that a “treaty shall be
interpreted in good faith in accordance with the ordinary
Brandon J. Murrill, Legislative Attorney
meaning to be given to the terms of the treaty in their
IF10436
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Dispute Settlement in the World Trade Organization: Key Legal Concepts

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