THE WORLD TRADE

ORGANIZATION
Law, Practice, and Policy
Mitsuo Matsushita
Thomas J. Schoenbaum
and
Petros C. Mavroidis
Second Edition
1
3
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PREFACE TO THE SECOND EDITION
Almost three years have passed since the publication of the rst edition of
this book. Although the WTO encountered difculties in the political arena
as exemplied by the failure to initiate multilateral negotiations at the
Cancun Ministerial Conference, the dispute settlement system of the
WTO has continued to grow and provided rules of trade which are essential
for security and predictability of international trading system. With regard
to the dispute settlement system of the WTO, the Sutherland Report states:
``First, while there are some grounds for criticism and reform of the dispute
settlement system, on the whole, there exists much satisfaction with its
practices and performance. Second, in appraising ideas for reform or im-
provement, the most important principle is to `do no harm.' ''
1
In the past
three year period, a number of important panel and the Appellate Body
reports were adopted and their recommendations were implemented. These
reports contributed much toward the establishment of WTO jurisprudence,
which is the basis for a stable and orderly international trade.
In light of these developments, the authors decided to revise the book
extensively and incorporate new rules and principles enunciated in panel
and the Appellate Body reports. Also two new chapters were added, e.g., a
chapter on agriculture and a chapter on government procurement. Agricul-
ture is always a focal point in WTO negotiations and dispute settlement.
The authors think that agriculture deserves a separate chapter for analysis
and explanation. The value and amount of government procurement are
indeed great and play an important role in international trade. This is
especially true in large trading entities such as the United States, the
European Union and Japan. There are also many disputes both internation-
ally and domestically with regard to government procurement. The authors
1
The Future of the WTO: Addressing institutional challenges in the new millennium, Report
of the Consultative Board to the Director-General Supachai Pantichapakdi (World Trade
Organization, 2004), p. 49.
v
think that it makes much sense to incorporate a chapter on government
procurement.
WTO law continues to grow and any writing on this subject is destined
to be out of date. The authors tried to incorporate as much recent infor-
mation as possible. However, there has to be a cutoff time in updating and
this cutoff time is the end of July 2005.
Our thanks are due to Ms Tomoko Ohhara, a graduate student at The
University of Edinburgh specializing in international economic law, who
prepared the table of cases and decisions and the WTO agreements and
other instruments cited in the texts. Last but not least, our thanks are due to
Mr John Louth and editors of the Oxford University Press for their
encouragement and patience without which this second edition would not
have been completed.
Mitsuo Matsushita
Thomas J. Schoenbaum
Petros C. Mavroidis
October, 2005
Preface to the Second Edition
vi
ACKNOWLEDGEMENTS
As has luckily always been the case so far, a number of people were prepared
to give their time assisting us with drafting the various chapters of this book.
At the WTO, Julie Pain was never upset when responding to my continuous
queries about `condential' documents. Doaa Abdel Motaal, Grechen
Stanton, Mario Bordalba-Lyao, John Finn, Johan Human, Mark Koulen,
Thomas Friedheim and Victor do Prado kindly responded to numerous
questions in their own elds of expertise. Stefania Bernabi made very
usefulcomments on the chapter on Technical Barriers to Trade. Werner
Zdouc and Arun Venkataraman managed to rise above our criticism of
some Appellate Body decisions and still offer valuable comments on a series
of issues. A special mention, however, is deserved by Juan Alberto March-
etti, who read, and re-read the chapter on Services and is largely responsible
for making it a better nal product.
Patrick A. Low found the time and, most importantly, the patience to
respond to numerous questions concerning the economics of standardiza-
tion. Clemens Boonekamp provided us with very useful comments on the
chapters on preferential trade agreements. Michael `Tractor' Roberts pro-
vided us with most useful comments on the chapter on Technical Barriers to
Trade, and corrected many misunderstandings regarding the interpretation
of the SPS agreement. Jasper-Martijn `Tijn' Wouters, helped us to substan-
tially improve the chapter on Subsidies. `Tijn' has, over the years, been both a
source of inspiration and a wonderful debating partner on all issues
regarding contingent protection instruments. Pauline Lievre and Panagiotis
Delimatsis demonstrated dedication beyond the call of duty and tirelessly
offered comments, kindly agreeing to share with us their vast expertise on
trade issues. Laurenz Sigismondi and Yvan `Pages' Fauchere read various
chapters critically and improved their nal content. Eyal Benvenisti, Joost
Pauwelyn and Joel Trachtman undertook the daunting task of improving our
understanding of public international law. David Palmeter, our dear friend
and mentor over the years offered his valuable comments on various chapters.
vii
Henrik Horn discussed each and every chapter with us and generously
commented on the economics aspects. Finally, Rhian-Mary Wood-Richards
pointed us to various WTOdocuments we had completely neglected and put
the whole volume in shape.
Petros Mavroidis would not have nished this book without the unlim-
ited support of his wife Suja, and his two daughters Meera-Natalia and
Riya-Valentina who, however, on occasions have been quite upset with his
dedication to this book and graciously reminded him time and again that
there is more to life and they are very much part of it. This, like all his work,
is dedicated to them.
Thomas Schoenbaum wishes to thank, in particular, the senior author of
this book, Mitsuo Matsushita, for his unfailing kindness and for the
pleasure of working with him on various comparative and trade law projects
over almost thirty years. He wishes to dedicate this book to his wife, Naomi.
Mitsuo Matsushita wishes to thank both Thomas Schoenbaum and
Petros Mavroidis for their patience and cooperation, without which this
book would not have been completed. He wishes to dedicate this book to
his wife, Mieko, whose unfailing support for more than forty years has been
the foundation of whatever accomplishments he may have made.
Mitsuo Matsushita
Thomas J. Schoenbaum
Petros C. Mavroidis
October, 2005
Acknowledgements
viii
CONTENTS SUMMARY
1. The World Trade Organization 1
2. Sources of Law and Their Interpretative Elements 19
3. WTO Law and Domestic Law 89
4. Dispute Settlement 103
5. Enforcement of WTO Obligations: Remedies and
Compliance 141
6. The Most-Favoured Nation Clause (MFN) 201
7. The National Treatment Principle 233
8. Tariffs, Quotas and Other Barriers to Market Access 257
9. Agriculture 287
10. Subsidies and Countervailing Duties 331
11. Antidumping 395
12. Safeguards 437
13. Technical Barriers to Trade: TBT and SPS 475
14. Preferential Trade Agreements in the WTO 547
15. Export Controls and National Security 591
16. Trade in Services 601
17. Intellectual Property 695
18. Government Procurement 739
19. Developing Countries 763
20. Environmental Protection and Trade 785
21. Trade and Investment 831
22. Competition Policy and Trade 851
23. Future Challenges 907
ix
CONTENTS
Index of WTO Panels xxxviii
Index of GATT Panels liii
Tables of WTO and GATT Decisions lxvi
Tables of Court and Administrative Decisions xcviii
1. The World Trade Organization 1
1. Bretton Woods and the failure of the International
Trade Organization 1
2. The GATT becomes an international organization 2
3. A summary of GATT obligations 3
4. The GATT tariff negotiating rounds 5
5. The creation of the WTO 6
6. The WTO: functions and structure 9
6.1 Membership, accession and withdrawal 11
6.2 Decision-making 12
6.2.1 General decision-making 12
6.2.2 Interpretations 12
6.2.3 Waivers 13
6.2.4 Amendments 13
6.3 The WTO as an international organization 14
7. Suggestions for improving the WTO 14
8. Current Work: The Doha Development Agenda 16
2. Sources of Law and Their Interpretative Elements 19
1. WTO: a hybrid system 21
2. Setting the scene for discussion: three preliminary observations 26
2.1 Classication through interpretation: the method,
and its inuences and repercussions 26
xi
2.1.1 The Vienna Convention on the Law of Treaties
enters the WTO 26
2.1.2 External considerations stemming from the
interpretative process 30
2.1.2.1 Identifying the interpretative elements 30
2.1.2.2 Prejudging the legal value through
interpretation 31
2.2 The long road from identication to classication 32
2.2.1 WTO adjudicating bodies have identied,
but rarely classied 32
2.2.2 An attempt at classication: understanding the
benchmarks 33
3. Sources of law 37
3.1 The covered agreements 37
3.1.1 Travaux preparatoires of the WTO
agreement: legally relevant to ascertain 38
3.1.1.1 The content of the travaux
preparatoires 40
3.1.1.2 Conditions for recourse to travaux
preparatoires in practice 50
3.1.2 Subsequent practice 53
3.1.3 Subsequent agreements 53
3.2 International agreements reected in the covered
agreements 54
3.2.1 The Havana Charter 54
3.2.2 Agreements reected in the TRIPS agreement 55
3.2.3 Agreements reected in the SCM agreement 55
3.2.4 The legal relevance of the agreements
mentioned in the WTO agreement 56
4. Interpretative elements 58
4.1 GATT panel reports 58
4.1.1 Adopted GATT reports 59
4.1.2 Un-adopted GATT reports 60
4.2 WTO panel and Appellate Body reports 61
4.3 Decisions and recommendations by various
WTO organs 64
4.3.1 Decisions and recommendations by
WTO Committees 64
4.3.2 WTO Working Party reports 66
Contents
xii
4.4 International agreements not reected in the
WTO agreement 67
4.4.1 The Tokyo round agreements 67
4.4.2 Other international agreements 67
4.4.2.1 Agreements referred to in
WTO decisions 68
4.4.2.2 Bilateral agreements among
WTO Members 68
4.4.2.3 Multilateral agreements 69
4.5 Acts adopted by various international
organizations 71
4.5.1 United Nations (UN) Resolutions 71
4.5.2 ITU Recommendations 71
4.5.3 OECD Guidelines 71
4.6 Decisions by international courts 72
4.7 Domestic law and practice 72
4.8 Unilateral declarations by WTO Members 73
4.8.1 Unilateral declarations outside panel
proceedings 73
4.8.2 Unilateral declarations made during panel
proceedings 75
4.9 Customary international law 76
4.10 General principles of law 81
4.10.1 The nature of general principles 81
4.10.2 Estoppel 82
4.10.3 Good Faith (Bona Fides) 83
4.10.4 Error 84
4.10.5 Res judicata 84
4.10.6 In dubio mitius 85
4.10.7 Non adimplenti contractus 86
4.11 Doctrine 86
5. Conclusions 87
3. WTO Law and Domestic Law 89
1. Introduction 89
2. The United States 91
2.1 Overview of U.S. law 91
2.2 The relationship between WTO law and U.S. law 92
Contents
xiii
3. The European Community 95
3.1 External relations and the EU/EC 95
3.2 The relationship between WTO law and the
laws of the EC and its Member States 97
4. Japan 99
4.1 Overview of Japanese law 99
4. Dispute Settlement 103
1. Introduction 104
2. Dispute settlement in the GATT 105
3. WTO dispute settlement 107
3.1 General considerations 108
3.2 Institutions 108
3.3 Scope of application 109
3.4 The legal effect of panel and Appellate Body
reports 111
3.5 Dispute resolution procedures 112
3.5.1 Objectives 112
3.5.2 Initiation: request for consultations 113
3.5.3 Standing to bring claims 113
3.5.4 Good ofces, conciliation, and mediation 114
3.5.5 Arbitration 115
3.6 The panel process 115
3.7 The appeal process 117
3.8 Implementation 117
3.8.1 Reasonable period for implementation 117
3.8.2 Compliance and the ``sequencing'' problem 118
3.9 Compensation for failure to comply and
retaliation 119
3.10 Special dispute resolution procedures 121
3.10.1 Non-violation complaints 121
3.10.2 Situation complaints 122
3.11 Adverse inference 123
3.12 Amicus curiae 124
3.13 Burden of proof 125
3.14 Judicial economy 127
3.15 Standard of review 128
3.16 Critique of the DSU 131
Contents
xiv
4. Trade retaliation under national laws 133
4.1 The European Union 133
4.2 Japan 134
4.3 The United States 135
4.4 Critique of trade retaliation under national laws 138
5. Enforcement of WTO Obligations: Remedies
and Compliance 141
1. Enforcing WTO obligations 143
2. The types of complaint available 144
3. Recommendations and suggestions by WTO
adjudicating bodies 145
3.1 Recommendations 146
3.1.1 The substantive content of a recommendation 147
3.1.2 The function of a recommendation 147
3.1.3 The legal force of a recommendation 147
3.2 Suggestions 148
3.2.1 The substantive content of a suggestion 148
3.2.2 The function of a suggestion 148
3.2.3 Requesting a suggestion 149
3.2.3.1 Requests for suggestions must be specic 149
3.2.3.2 Discretion as to suggestion, even when
requested 149
3.2.3.3 The dominant case for suggestions
(when requested): no other way to
implement 151
3.2.4 Un-requested suggestions 153
3.2.4.1 Legislative ``suggestion'': the case of
export subsidies 153
3.2.4.2 Other cases 154
3.2.5 Suggestions are not binding 154
4. Reasonable period of time (RPT) 154
4.1 Bilateral denition of the RPT 155
4.2 Multilateral denition of the RPT 155
4.2.1 The regulatory framework 155
4.2.2 The task of the Arbitrator 155
4.2.3 Measuring the RPT under Art 21.3c DSU 156
4.2.3.1 The function of the 15 month guideline 156
4.2.3.2 Attendant Circumstances 157
Contents
xv
5. Compliance panels 160
5.1 The mechanics 160
5.2 The rationale for compliance panels and the
sequencing issue 161
5.3 The mandate of compliance panels 163
5.4 Compliance panel reports can be appealed 165
5.5 More than one compliance panel on the same
dispute? 165
6. Requesting countermeasures 165
6.1 The right to request countermeasures 165
6.2 The function of compensation, suspension of
concessions or other obligations 166
6.3 The form of countermeasures 168
6.4 The procedure to be followed 169
6.5 The legal constraint of Art 22.4 DSU 175
6.6 Agreement between the parties 175
6.7 Disagreement between the parties 176
6.7.1 Compulsory submission to the Arbitrators 176
6.7.2 The task of the Arbitrators 176
6.7.3 The burden of proof 178
6.7.4 The Arbitrators' decision: rst and last resort 179
6.7.5 Calculating the level of suspension of concessions 180
6.7.5.1 Economics matter 180
6.7.5.2 Standard of review 182
6.7.5.3 No room for punitive damages 183
6.7.5.4 Retroactive or prospective remedies? 185
6.7.5.5 Indirect benets 187
6.7.5.6 Only added value matters 189
6.7.5.7 Litigation costs are not recoverable 190
6.7.5.8 Calculating countermeasures
following a GATS-violation 190
6.7.5.9 The special case of prohibited subsidies 191
7. Compliance following the adoption of countermeasures 196
8. To conclude ... 196
6. The Most-Favoured Nation Clause (MFN) 201
1. MFN: some basic economic concepts and institutional
realities 202
Contents
xvi
2. The MFN regime as enshrined in Art I GATT 205
2.1 The coverage summarized 205
2.2 The policies (conferring an advantage) covered 206
2.2.1 Border measures of a scal character 206
2.2.2 Border measures of a non-scal character 208
2.2.3 Internal measures 209
2.3 The original beneciary of the advantage 209
2.4 The extension of the advantage of WTO membership 209
2.4.1 Extension to like products 209
2.4.2 Like products originating in WTO Member States 211
2.4.3 Extending MFN-treatment immediately
and unconditionally 212
2.5 The standard of review 217
2.5.1 De jure and de facto discrimination covered 217
2.5.2 No demonstration of effects or intent required 218
2.5.3 No rebalancing permitted 219
3. Exceptions to the MFN clause 219
3.1 Special and differential treatment for
developing countries 220
3.1.1 The Enabling clause 220
3.1.2 Some historical features 221
3.1.3 The placement of the Enabling clause
in the WTO legal order 226
3.1.4 An exception to Art I GATT 226
3.1.5 Non discrimination in the context of the
Enabling clause 227
3.1.6 Allocation of burden of proof 229
3.2 Discriminatory quotas (Art XIV GATT) 229
3.3 Waivers 231
7. The National Treatment Principle 233
1. What is the national treatment principle? 234
2. National treatment: some key issues 236
2.1 ``Like'' products 236
2.1.1 Article III:2, rst sentence 237
2.1.2 Article III:2, second sentence 237
2.1.3 Article III:4 238
2.1.4 The aim and effects test 239
Contents
xvii
2.2 The product-process distinction 240
2.3 Technical regulations and sanitary and
phytosanitary measures 241
2.4 Application of Article III to state-trading
monopolies 242
2.5 Application of Article III national treatment
obligations to sub-federal units of WTO Members 243
2.6 The relationship between Article III and
Article XI of the GATT 244
3. Taxes 245
3.1 Scope 246
3.2 Border tax adjustment 246
3.3 The non-discrimination principle 247
4. Government regulations 249
5. De facto discrimination 252
6. Article XX exceptions 256
8. Tariffs, Quotas and Other Barriers to Market Access 257
1. Introduction 258
2. Tariffs and customs rules 259
2.1 The nature of a tariff 259
2.2 Welfare effects of tariffs 259
2.3 Tariff modications 261
2.4 Reclassication 262
2.5 Valuation 263
2.6 Rules of origin 265
2.7 Customs laws and procedures 267
2.8 Customs fees and formalities 268
2.9 Preshipment inspection (PSI) 268
3. Quotas 269
3.1 The nature of a quota 269
3.2 Welfare effects of quotas 270
3.3 Prohibition on quotas and other measures
that restrain trade 270
3.4 Exceptions to the prohibition on quotas and
other measures 272
3.5 Licensing 274
Contents
xviii
4. State-trading enterprises 275
5. Technical barriers to trade 278
6. Sanitary and phytosanitary measures 280
7. Sectoral market access agreements 281
7.1 Agriculture 281
7.2 Textiles and clothing 282
7.3 Information technology 284
7.4 Electronic commerce 284
9. Agriculture 287
1. Trading farm products in the GATT era 288
1.1 The legal framework 288
1.2 The reality 291
2. The Uruguay round brings change 292
2.1 Negotiators with export interest pushed ... 292
2.2 ... and internal (EC) reform helped as well ... 293
2.3 ... to make a start 294
3. The WTO Agreement on Agriculture summarized 295
3.1 How to liberalize farm trade 295
3.2 The AG Agreement in context 296
3.3 Absence of hierarchy ? The AG Agreement and the
national schedules of concession 297
3.4 Product-specic coverage of the AG Agreement 299
4. The restrictions on domestic subsidies 299
4.1 The obligation to convert existing process into tariffs 299
4.2 Calculating the level of protection 301
4.2.1 The AMS is the benchmark for commitments 301
4.2.2 The extent of the AMS 303
4.2.3 Exemptions from the AMS 305
4.2.3.1 De minimis thresholds 305
4.2.3.2 Production limiting programmes
(Blue box) 306
4.2.3.3 Support to low-income producers
in developing countries 306
4.2.3.4 Minimal, or non-trade-distorting schemes
(Green box) 307
4.3 The resulting perspective: tariff peaks,
no ad valorem duties 309
Contents
xix
5. Export subsidy commitments 315
5.1 What is an ``export subsidy''? 315
5.1.1 Export subsidies explicitly mentioned 315
5.1.2 De facto export subsidies 318
5.2 The restrictions with respect to export subsidies 318
5.2.1 The regime summarized 318
5.2.1.1 Scheduled goods, schemes covered by
Art 9.1 AG 322
5.2.1.2 Unscheduled goods, schemes covered
by Art 9.1 AG 322
5.2.1.3 Scheduled and unscheduled goods,
schemes not covered by Art 9.1AG 322
5.2.2 The standard of review for violations of
export subsidy commitments (Art 3.3 AG) 323
5.2.3 The standard of review for violations of the
anti-circumvention provision (Art 10 AG) 323
5.3 WTO Members' commitments on export subsidies 324
6. Other commitments 327
6.1 Due restraint (Peace Clause) 327
6.2 Export prohibition 327
6.3 Transparency requirements 327
6.4 Least developed and net food-importing
developing countries 328
7. Agriculture in the development round 329
10. Subsidies and Countervailing Duties 331
1. Thou shalt not subsidize 332
2. A subsidy in the SCM sense of the term 336
2.1 Financial contribution 336
2.1.1 Direct and indirect nancial contribution 336
2.1.2 Financial contribution: an expansive interpretation 337
2.1.3 The special case of double taxation 341
2.1.4 Recourse to regulatory diversity to determine
whether nancial contribution exists 342
2.1.5 Attributing nancial contribution to a government 343
2.2 A benet conferred 346
2.2.1 The private investor-test 347
2.2.2 The cost of production 351
Contents
xx
2.3 The recipient: specic (and also unintentional) 352
2.4 Methods for calculation of benet 355
2.5 Classication of subsidies 360
2.5.1 Prohibited subsidies 360
2.5.2 Actionable subsidies 364
2.5.3 Non-actionable subsidies 364
3. Counteracting subsidies 364
3.1 The multilateral option 365
3.1.1 Prohibited subsidies 365
3.1.2 Adverse effects 369
3.1.2.1 Adverse effects resulting in serious
prejudice 369
3.1.2.2 Adverse effects resulting in nullication
or impairment 374
3.1.2.3 Legal action to eliminate adverse effects 374
3.2 The unilateral option: countervailing duties
(CVDs) 375
3.2.1 The conditions for lawful imposition 375
3.2.1.1 The substantive requirement 375
3.2.1.2 The procedural requirements 382
3.2.2 Imposition of CVDs 384
3.2.2.1 The level of CVDs (Lesser duty rule) 384
3.2.2.2 Imposition of CVDs on an
aggregate basis 384
3.2.2.3 Retroactive application of CVDs 385
3.2.3 Review of CVDs 385
3.2.3.1 The sunset review 386
3.2.3.2 The administrative review 387
4. Thou shalt not be punished in any other way 390
5. Special and differential treatment 392
6. Standard of review 393
7. Conclusions 393
11. Antidumping 395
1. What is dumping? 396
1.1 Dumping as sales below cost 397
1.2 Dumping as international price discrimination 398
1.3 Duration 399
Contents
xxi
1.4 Cost analysis 399
1.5 Welfare effects 400
1.6 Measures to counteract dumping 400
2. The regulation of antidumping duties 401
2.1 The legal framework of antidumping in
the GATT/WTO regime 401
2.1.1 GATT Article VI 402
2.1.2 The Antidumping Agreement 402
2.1.3 Institutions and notications 403
2.1.4 Developing countries 403
2.2 Investigation 403
2.2.1 Initiating an investigation 403
2.2.2 Evidential issues 404
2.2.3 The duties of the investigating authority 406
2.3 Determination of dumping 406
2.3.1 Like product 407
2.3.2 Comparison of third-country prices 409
2.3.3 Constructed value 409
2.3.4 Arm's-length transactions and transactions
between afliated parties 411
2.3.5 Sales below cost 412
2.3.6 Fair price comparisons 413
2.3.7 Averaging 414
2.3.8 Zeroing 415
2.4 Determination of injury 417
2.4.1 Material injury or threat of material injury 417
2.4.2 Factors to be considered when determining
injury 418
2.4.3 Factors to be considered when determining threat 419
2.4.4 Cumulation of injuries 419
2.4.5 Causation 420
2.5 Domestic industry 421
2.6 The imposition of antidumping measures 422
2.6.1 Provisional measures 422
2.6.2 Denitive measures 423
2.6.3 Retroactivity 423
2.6.4 Duration and review 423
2.7 Price undertakings (suspension of antidumping
duty investigations) 424
Contents
xxii
2.8 Anti-circumvention 424
2.9 Dispute settlement 425
3. Criminal penalties and private remedies 427
3.1 The U.S. 1916 Antidumping Act 428
3.2 Future implications of the panel and the Appellate
Report on the 1916 Act case 430
3.3 The U.S. Offset Act 431
4. Conclusions 433
12. Safeguards 437
1. Introduction 438
2. The legal and policy framework for safeguards
in the GATT/WTO regime 439
3. GATT Article XIX and the Agreement on Safeguards 440
3.1 GATT Article XIX 440
3.2 The Safeguards Agreement 440
3.3 The relationship between GATT Article XIX
and the Safeguards Agreement 441
3.4 Investigation 442
3.5 Provisional application 443
3.6 Determination of increased imports 443
3.7 Unforeseen developments 444
3.8 Determination of injury 446
3.8.1 Serious injury or threat of serious injury 446
3.8.1.1 Serious injury 447
3.8.1.2 Threat of serious injury 447
3.8.1.3 Factors to be considered when
determining injury or threat thereof 448
3.8.1.4 Domestic industry 449
3.8.2 Causation 449
3.9 Limits on the application of safeguard measures 451
3.9.1 Parallelism 451
3.9.2 Non-attribution 454
3.9.3 Extent of safeguards 455
3.9.4 Selectivity 455
3.9.5 Developing countries 456
3.9.6 GATT Article XIII 456
3.9.7 Duration and review 457
Contents
xxiii
3.10 Notication and consultation 457
3.11 Compensation 458
3.12 The standard of review for safeguard disputes 460
4. Safeguard measures for balance-of-payment reasons 460
4.1 The GATT 460
4.2 The WTO 463
5. Safeguard measures in textile and clothing trade 465
6. Prohibition on voluntary export restraints 467
6.1 Prohibition in the Safeguards Agreement 467
6.2 Tension between voluntary export restraints and
competition policy 468
6.2.1 The automobile VER case 469
6.2.2 The steel VER Case 472
6.2.3 Analysis of the conict between trade policy
and competition policy 473
13. Technical Barriers to Trade: TBTand SPS 475
1. The role of TBT and SPS 477
2. The legal relationship between GATT, TBT and SPS 481
3. Technical Barriers to Trade 483
3.1 Coverage 483
3.2 Technical regulations 485
3.2.1 National treatment and MFN 485
3.2.2 International standards 486
3.2.2.1 The denition of international
standards in TBT 489
3.2.2.2 International standards and the
necessity requirement 491
3.2.2.3 Technical regulations must be based
on international standards 491
3.2.2.4 Legitimate objectives pursued through
international standards 492
3.2.2.5 Deviating from inappropriate or
ineffective international standards 493
3.2.2.6 Burden of proof in case of deviation 494
3.2.3 Unilateral technical regulations 496
3.2.3.1 The necessity requirement 497
3.2.3.2 Performance requirements 497
Contents
xxiv
3.2.3.3 Mutual recognition agreements (MRAs) 498
3.2.3.4 Additional obligations 498
3.3 Standards 499
3.3.1 National treatment 499
3.3.2 Code of Good Practice 500
3.4 Common (to technical regulations and
standards) provisions 501
3.4.1 Conformity assessment 501
3.4.2 Special and differential treatment 501
3.4.3 Expert groups 502
4. The Sanitary and Phytosanitary Measures 502
4.1 Coverage 502
4.2 International standards 503
4.2.1 Recourse to international standards 503
4.2.2 International standards and the
necessity requirement 505
4.2.3 SPS measures must be based on
international standards 505
4.2.4 Deviating from international standards 507
4.2.5 Burden of proof in cases of deviation from
international standards 508
4.3 National SPS measures 509
4.3.1 National treatment and MFN for
nationally-dened SPS measures 509
4.3.2 SPS measures on scientic evidence 510
4.3.2.1 The obligation to have recourse
to scientic evidence 510
4.3.2.2 Dening risk 511
4.3.2.3 Dening risk assessment 512
4.3.3 The necessity requirement in the trade
context: least restrictive option 523
4.3.3.1 The test for consistency with
Art 5.6 SPS 524
4.3.3.2 The appropriate level of protection 524
4.3.4 Consistency in the application of the
appropriate level of protection 527
4.3.5 SPS measures adopted on precaution 532
4.3.5.1 The precautionary principle in
the WTO and in customary
international law 532
Contents
xxv
4.3.5.2 Precaution and scientic evidence 534
4.3.5.3 Establishing (in-)consistency with
Art 5.7 SPS 535
4.4 Remaining SPS provisions 537
4.4.1 Control inspection and approval
procedures 537
4.4.2 Equivalence 538
4.4.3 Procedural obligations 539
4.5 Special and differential treatment 539
5. Recourse to experts 540
5.1 Appointment of experts 540
5.2 The legal relevance of expertise 541
5.3 To bear in mind ... 542
6. Standard of review 544
7. Conclusions 544
14. Preferential Trade Agreements in the WTO 547
1. Preferential trade agreements (PTAs) in the WTO:
FTAs and CUs 548
2. Globalization yet preferences too 549
3. What matters in preferential trade? 551
4. PTAs in the GATT 554
4.1 No intrinsic inconsistency 554
4.2 The Art XXIV GATT test summarized 555
4.3 Designed at home, approved (?) in Geneva 555
4.3.1 Two tracks available for review of the
consistency of FTAs and CUs 555
4.3.2 Choice of track 556
4.4 The multilateral track 559
4.4.1 The duty to notify a PTA 559
4.4.1.1 A brief summary, of the CRTA 559
4.4.1.2 When to notify? 560
4.4.2 The external requirement 562
4.4.2.1 Free Trade Areas (FTAs) 562
4.4.2.2 Customs Unions 564
4.4.3 The internal requirement 568
4.4.3.1 The test summarized 568
Contents
xxvi
4.4.3.2 Substantially all trade 568
4.4.3.3 Other restrictive regulations of commerce 570
4.4.4 Conclusions 572
4.5 The bilateral track 573
4.5.1 GATT panels: conicting or scarce evidence 574
4.5.2 WTO panels: potential PTA-busters 575
4.6 Reviewing GAT jurisprudence 577
5. PTAs in the GATS-context 578
5.1 The procedural obligation 578
5.2 The substantive obligations 578
5.2.1 The internal requirement 578
5.2.2 The external requirement 579
5.3 Extending the benets to third parties 580
5.4 Two available tracks 580
5.5 The standard of review 580
5.6 Labour market integration agreements 581
5.7 GATS: no jurisprudence 581
5.8 Should PTAs cover both GATTS and GATS? 581
6. No panel jurisprudence (for good reasons) 582
6.1 The outsiders: if I don't do it, somebody else will 583
6.1.1 Risk averse agents (panels) 584
6.1.2 Cost of litigation 585
6.1.3 De minimis? Less enforcement,
better (export) opportunities 586
6.1.4 Unnecessary restriction of future options 586
6.1.5 Corruption 586
6.1.6 Too much at stake? 587
6.2 The incumbents: I won't do it, you shouldn't
either (no room for an eye for an eye) 587
6.3 Is there a third group of countries? 588
7. MFN is LFN 588
15. Export Controls and National Security 591
1. Introduction 591
2. Export restraints 592
3. Export taxes 593
4. Security exceptions 594
xxvii
Contents
5. Extraterritorial application of export controls 598
6. Conclusions 600
16. Trade in Services 601
1. The advent of GATS 604
2. The relationship between GATT and GATS 609
3. The scope of GATS: liberalization of trade in services 611
3.1 Dening service 611
3.2 Dening measures affecting trade in services 613
3.3 Modes of supply 616
4. Non-retroactivity of obligations assumed under GATS 617
5. General obligations 619
5.1 MFN 619
5.1.1 Likeness of services (and service suppliers) 620
5.1.2 Automatically and unconditionally 621
5.1.3 The standard of review: de jure, de facto
discrimination 622
5.1.4 MFN exceptions 623
5.2 Transparency 626
5.3 Economic integration 627
5.4 Domestic regulation 627
5.5 Mutual recognition 630
5.6 Competition-related requirements 632
5.7 Safeguards 633
5.8 Payments and transfers 633
5.9 Subsidies 634
5.10 General exceptions 635
5.10.1 A brief overview of Art XIV GATS 635
5.10.2 Necessity in Art XIV GATS 636
5.10.2.1 Necessary to protect public
morals or public order 638
5.10.2.2 Necessary to secure compliance 639
5.10.2.3 Compliance with the chapeau of
Art XIV GATS 639
5.11 Institutional provisions 640
6. Specic commitments 640
6.1 The primacy of CPC 640
Contents
xxviii
6.2 The scheduling modalities 642
6.2.1 The 1993 and 2001 Scheduling Guidelines 642
6.2.2 Horizontal and sector-specic commitments 645
6.2.3 The level of commitments: none, unbound
and in-between 646
6.3 Interpreting commitments by WTO members 647
7. Art XVI GATS: market access under the GATS 648
7.1 The objective function of Art XVI GATS 648
7.2 How to schedule Art XVI commitments 654
7.3 Can WTO Members restrict access to their
market through measures other than those
dened in Art XVI.2 GATS? 655
7.4 Relationship with other provisions 657
7.4.1 Art XVI Art XVII GATS 657
7.4.2 Art XVI Art VI GATS 657
7.4.3 Art XVI Art XIV GATS 659
8. Art XVII GATS: national treatment 659
8.1 The scope of national treatment 659
8.2 The test of Art XVII GATS summarized 662
8.3 Applying the test 662
8.3.1 Specic commitments must have been
undertaken 662
8.3.2 Measure affecting trade in services 662
8.3.3 Like services or service suppliers 663
8.3.4 Treatment no less favourable 664
8.4 Standard of review: de jure and de facto
violations 666
8.5 Relationship with other provisions 667
8.5.1 Art XVII Art XVI GATS 667
8.5.2 Art XVII Art VI GATS 667
8.5.3 Art XVII Art XIV GATS 667
9. Art XVIII GATS: additional commitments 668
9.1 The scope of additional commitments 668
9.2 The mechanics of scheduling additional
commitments 669
9.3 Relationship with other provisions 669
9.3.1 Art XVIII Art II GATS 669
9.3.2 Art XVIII Art XIV GATS 669
9.3.3 Art XVIII Art XXI GATS 669
Contents
xxix
10. Changes in the specic commitments 670
10.1 Replacing and adding to past commitments 670
10.2 Multilateral modication of schedules 673
10.3 Unilateral modication of schedules 673
11. Liberalizing trade in services: an empirical view 674
12. The WTO Telecoms Agreement 677
12.1 A lengthy negotiation process 677
12.2 Sources of law 678
12.2.1 The Annex 679
12.3 The Reference Paper 680
12.3.1 The rationale for negotiating the
Reference Paper 680
12.3.2 The Reference Paper summarized 682
12.3.3 Anti-competitive practices envisaged 683
12.3.4 Interconnection 684
12.3.4.1 Who should abide by ? Dening
the major supplier 684
12.3.4.2 International (?) interconnection 685
12.3.4.3 Cost-orientated rates for
interconnection 687
12.3.4.4 Interconnection on reasonable
terms and conditions 689
12.4 Scheduling commitments in telecoms 689
12.4.1 The telecoms-specicity of the Services
Sectoral Classication List 689
12.4.2 Level of commitments by modes of
supply 690
12.4.3 Types of limitations maintained 691
13. Conclusions 692
17. Intellectual Property 695
1. Introduction 696
2. Types of intellectual property rights addressed in the
TRIPS Agreement 699
3. Overview of the TRIPS Agreement 704
4. Institutional arrangements 706
5. Provisions relating to developing countries 707
Contents
xxx
6. Public policy criticisms 708
6.1 Benets and costs of higher IP standards for
developing countries 709
6.2 Protection of traditional knowledge
and culture 711
6.3 Biological diversity 712
6.3.1 Access to genetic resources 713
6.3.2 Patentability 716
6.3.3 Transfer of technology 717
6.4 Health 718
6.4.1 Compulsory licensing 719
6.4.2 Parallel imports 720
6.4.3 Beyond the TRIPS Agreement 722
6.5 Food 723
7. The general principles of the TRIPS Agreement 724
7.1 The relationship between the TRIPS Agreement
and other intellectual property treaties 724
7.2 Acquisition and maintenance of intellectual
property rights 724
7.3 National treatment and most-favoured-nation
treatment 725
8. Minimum substantive standards 725
8.1 Copyright and related rights 725
8.2 Patents 726
8.2.1 Patent excludability 726
8.2.2 Limited exceptions 727
8.2.3 Compulsory licensing 728
8.2.3.1 Differing views on compulsory
licensing 728
8.2.3.2 Provisions in the TRIPS Agreement 729
8.3 Trademarks and service marks 730
8.4 Geographical indications 730
8.5 Undisclosed information or trade secrets 731
8.6 Industrial designs 731
8.7 Layout designs of integrated circuits 731
9. Enforcement of intellectual property rights
under the TRIPS Agreement 732
9.1 General principles 732
9.2 Civil and administrative procedures and remedies 732
Contents
xxxi
9.3 Criminal procedures 732
9.4 Border measures 733
9.5 Provisional measures 733
9.6 Dispute settlement 734
10. Exhaustion of intellectual property rights 734
11. Restrictive business practices 735
11.1 Types of restrictive business practices involved in
technology licensing agreements 735
11.2 Article 40 of the TRIPS Agreement 736
12. Conclusions 737
18. Government Procurement 739
1. The Government Procurement Agreement as a
Plurilateral Agreement 740
2. The background of the Agreement on
Government Procurement 742
2.1 General background 742
2.2 The Tokyo Round Agreement 743
3. Major features of the Agreement on Government
Procurement 744
3.1 In general 744
3.2 Scope and coverage 745
3.3 National treatment and non-discrimination 746
3.4 Rules of origin 746
3.5 Special and differential treatment for
developing countries 747
3.6 Technical specications 747
3.7 Tendering procedures 748
3.8 Abnormally low tendering 749
3.9 Challenge procedures 749
3.10 Consultations and dispute settlement 750
3.11 Exceptions 750
3.12 Entry into force of the Agreement 751
4. Domestic implementation 751
4.1 Art XXIV of the Agreement 751
4.2 The European Communities 751
4.3 The United States 752
4.4 Japan 753
Contents
xxxii
5. Dispute settlement in relation to the Agreement
on Government Procurement 754
5.1 In general 754
5.2 GATT/WTO dispute cases 755
5.2.1 The Trondheim Case 755
5.2.2 The Korean Inchon Airport Case 757
5.2.3 The State of Massachusetts Case 759
5.2.4 The Japan Railway (JR) Case a dispute
settlement at challenge procedures 760
19. Developing Countries 763
1. The developing world 763
2. A little history 765
3. GATT Article XX(h) 770
4. GATT Article XVIII 770
5. Part IV of the GATT 772
6. The generalized system of preferences 773
7. The Global System of Trade Preferences 777
8. Special and differential treatment provisions for
developing countries in the Uruguay Round 777
9. Trade and economic development 779
10. Trade and the right to development 781
11. Enhancing market access 782
12. New initiatives 782
20. Environmental Protection and Trade 785
1. Introduction 786
2. Environmentalist trade demands: a critical
analysis 790
3. The environmental impact of trade 790
4. The Tuna Dolphin cases: a false start 794
5. The WTO approach under GATT 1994 797
5.1 GATT Article XX(g) 797
5.2 GATT Article XX(b) 799
5.3 The chapeau of Article XX 801
Contents
xxxiii
6. Multilateral and bilateral environmental agreements 803
7. Unilateral measures 805
8. Protection of natural resources 806
9. Environmental standards and process and
production methods 807
9.1 Standards and technical regulations 807
9.2 Process and production methods 808
9.2.1 Environmental agreements 811
9.2.2 Environmental management systems 813
9.2.3 Investment 815
10. Recycling and packaging 816
11. Eco-labels 818
12. The export of hazardous substances and wastes 820
12.1 Domestically prohibited goods 820
12.2 Waste 821
13. Environmental taxes 823
13.1 Taxes on products 826
13.2 Taxes on resource use 827
13.3 Taxes on inputs 827
14. Conclusions 829
21. Trade and Investment 831
1. Trade and investment in the WTO: from modest
initial steps to high hopes and back 831
2. TRIMs 838
2.1 The scope of TRIMs 838
2.2 TRIMs after GATT: what value is added? 839
2.3 TRIMs and other WTO Annex 1A agreements 844
2.4 Substantive provisions 845
2.4.1 Standstill 845
2.4.2 Transitional phase 845
2.4.3 TRIMs inconsistent with Art III GATT 846
2.4.4 TRIMs inconsistent with Art XI GATT 847
2.5 Procedural obligations 848
2.5.1 Notication of TRIMs 848
2.5.2 Transparency 848
Contents
xxxiv
2.6 Remaining provisions 848
2.6.1 Review of TRIMs 848
2.6.2 Institutional Issues 849
3. Conclusions 849
22. Competition Policy and Trade 851
1. WTO and competition policy 852
1.1 Introduction 852
1.2 Anti-competitive conduct that adversely affects
international trade 853
1.2.1 International cartels, export cartels and
import cartels 853
1.2.2 Boycotts, tie-in contracts and vertical restraints 855
1.2.3 Mergers and acquisitions 856
2. Provisions on competition policy in the WTO
agreements 858
2.1 Agreement on technical barriers to trade
(TBT Agreement) 858
2.2 Trade in services 860
2.3 Intellectual property and trade-related
investment measures 862
2.4 Safeguards and antidumping 863
3. Extraterritorial application of domestic competition
laws 864
3.1 In general 864
3.2 The United States 865
3.3 The European Community 869
3.4 Germany 871
3.5 Japan 872
4. Conict of jurisdictions 874
4.1 In general 874
4.2 The ICI case 874
4.3 The Swiss Watch case 876
4.4 The Laker case 877
4.5 The GE/Honeywell case 879
4.6 Summary 880
5. Trade policy and competition policy 881
5.1 Trade policy and competition 881
Contents
xxxv
5.2 The Semiconductor case 882
5.3 Competition policy implications of the
Semiconductor Agreement 883
6. International cooperation in competition policy 885
6.1 Globalizing economy and the need for
convergence of competition law and policy 885
6.2 International cooperation in competition policy 886
6.2.1 Types of cooperation in competition policy 886
6.2.2 Positive comity 888
6.2.3 Cooperation in investigation 889
6.2.4 Convergence of competition policy and law 890
6.2.5 The ICPAC Report 892
7. The competition policy debates in the WTO 893
7.1 Activities of the working group on trade
and competition policy in the WTO 893
7.2 Review of the working group's reports 896
7.2.1 Consensus 896
7.2.2 Divergent views 897
7.3 The Ministerial Declaration on Competition
Policy adopted at the Doha Ministerial
Conference in November 2001 899
8. Conclusions 901
8.1 Option 1: A declaration that competition
policy is an integral part of the WTO regime 901
8.2 Option 2: A plurilateral agreement 901
8.3 Option 3: A non-binding multilateral framework
for cooperation in competition policy 902
8.4 Option 4: A partly-binding multilateral
framework 904
23. Future Challenges 907
1. Four crises 907
1.1 Internal decision-making 908
1.2 Civil society 910
1.3 Developing countries 912
1.4 Regional and bilateral free trade agreements 913
2. The multilateral trading system at a crossroads 914
Contents
xxxvi
3. Societal issues 918
3.1 The environment 918
3.2 Health 920
3.3 Workers' rights 921
3.4 Human rights 923
3.5 The poor 924
3.6 Intellectual property 926
3.7 Transparency 927
3.8 Governance 927
4. The Doha negotiating agenda 928
Annex 1: Article 22.6 Arbitrations 933
Annex 2: GATT & WTO Dispute Settlement Reports 937
Index 947
Contents
xxxvii
1
THE WORLD TRADE ORGANIZATION
1. Bretton Woods and the failure of the International Trade Organization 1
2. The GATT becomes an international organization 2
3. A summary of GATT obligations 3
4. The GATT tariff negotiating rounds 5
5. The creation of the WTO 6
6. The WTO: functions and structure 9
6.1 Membership, accession and withdrawal 11
6.2 Decision-making 12
6.2.1 General decision-making 12
6.2.2 Interpretations 12
6.2.3 Waivers 13
6.2.4 Amendments 13
6.3 The WTO as an international organization 14
7. Suggestions for improving the WTO 14
8. Current Work: The Doha Development Agenda 16
1. Bretton Woods and the failure of
the International Trade Organization
The idea of founding an international organization to develop and coordin-
ate international trade was put forward in 1944 at a conference on economic
matters held in Bretton Woods, New Hampshire, but the details were left
for later. After the founding of the United Nations in 1945, multilateral
trade negotiations were conducted within the framework of the UN
1
Economic and Social Council, which in 1946 adopted a resolution in
favour of forming an International Trade Organization (ITO).
Negotiations over the ITO and the post-war international trading system
were held in several stages: at Lake Success, New York in 1947; in Geneva in
1947; and in Havana in 1948. The Geneva meetings, which were pivotal, had
three objectives: (1) draft an ITO charter, (2) prepare schedules of tariff
reductions and (3) prepare a multilateral treaty containing general principles
of trade, namely, the General Agreement onTariffs andTrade (GATT). By the
endof 1947, workhadbeencompletedonthe tariff reductions andthe GATT.
The nal work to complete a charter for the ITOwas put off until 1948.
The governments of the countries engaged in the negotiations were left
with a problem: how to bring the tariff cuts and the GATT into force right
away without waiting on the nal round of negotiations to form the ITO.
The solution was to adopt a Protocol of Provisional Application to apply
the GATT ``provisionally on and after January 1, 1948.''
1
In this way, the
GATT and its tariff schedules could immediately enter into force, later
the GATT could be revised to be consistent with the charter, and the GATT
and the charter could nally be adopted.
The countries participating in the Havana Conference of 1948 com-
pleted work on the ITO charter, but the ITO charter never entered into
force. Because the support of the United States was critical, other countries
that were ready to adopt the ITO charter waited to see its fate in the United
States. President Truman submitted the ITO charter to Congress, but the
Republicans won control of Congress in the 1948 election. In 1950, the
Truman administration announced that it would no longer seek congres-
sional approval for the ITO. The ITO was dead.
2. The GATT becomes an international
organization
The failure to adopt the ITO meant the absence of the ``third pillar''
2
on
which the Bretton Woods economic structure was to be built. The GATT,
which was not intended to be an international organization, gradually lled
this void. The contracting parties of the GATT the GATT could have no
1
Protocol of Provisional Application to the General Agreement on Tariffs and Trade, 30
October 1947, 55 U.N.T.S. 308.
2
The two ``pillars'' that came into existence as agreed at the Bretton Woods Conference were
the International Monetary Fund and the World Bank.
The World Trade Organization
2
members held meetings every year, and new contracting parties were
gradually added. The Interim Commission for the ITO became the
GATT Secretariat. The GATT evolved into an international organization
based in Geneva, taking as its ``charter'' the GATT, practice under the
GATT and additional understandings and agreements.
Nevertheless, the GATT always suffered from what Professor Jackson has
termed ``birth defects'', inherent weaknesses that handicapped its oper-
ation.
3
These birth defects included:
1. The lack of a charter granting the GATT legal personality and
establishing its procedures and organizational structure;
2. The fact that the GATT had only ``provisional'' application;
3. The fact that the Protocol of Provisional Application contained pro-
visions enabling GATT contracting parties to maintain legislation that
was in force on accession to the GATT and was inconsistent with the
GATT (so-called grandfather rights);
4
and
4. Ambiguity and confusion about the GATT's authority, decision-
making ability and legal status.
3. A summary of GATTobligations
The GATT lowers tariffs by limiting tariff charges to those agreed in the
Schedules of Concessions (Article II) and giving the benet of these conces-
sions to all GATT contracting parties (Article I). The tariff schedules are
annexed to the GATT.
5
The GATT is a code of general rules regulating the
conduct of the parties. Most of these rules are designed to assure that the
tariff concessions work as intended and are not undermined. The GATT
contains the following additional provisions:
1. A requirement of national treatment of imports with respect to taxes
and regulations (Article III);
3
John H. Jackson, Designing and Implementing Effective Dispute Settlement Procedures: WTO
Dispute Settlement, Appraisal and Prospects, in The WTO as an Internati onal Organ-
i zati on 161, 163 (Anne O. Krueger ed., 1998).
4
John H. Jackson, The Juri sprudence of GATT and the WTO: Insi ghts on
Treaty Law and Economi c Relati ons 84 (2000) (discussing grandfather rights).
5
GATT Art XXXIV.
3. A summary of GATT obligations
3
2. A prohibition on quotas, import or export licenses and other meas-
ures, with some exceptions (Article XI), and a special provision relating
to quotas on cinematograph lms (Article IV);
3. Guarantees of freedom of transit (Article V);
4. Rules relating to subsidies and antidumping and countervailing
duties (Articles VI and XVI);
5. Rules on valuation for customs purposes (Article VII);
6. Rules on fees and formalities connected with importation and
exportation (Article VIII);
7. Rules on marks of origin (Article IX);
8. Rules on transparency and publication of national trade regulations
(Article X);
9. Rules on currency exchange regulation (Article XV);
10. Rules on state-trading enterprises (Article XVII); and
11. Rules on government assistance to economic development (Article
XVIII).
In addition, the GATT contains provisions that allow some exceptions to
the basic GATT rules:
1. Exceptions for quotas for balance-of-payments purposes (Articles XII,
XIII, XIV, XV and XVII, Section B);
2. Exceptions for developing countries (Article XVIII and Part IV);
3. An exception for emergency action where serious injury is caused
or threatened to a domestic industry (Article XIX) (the so-called escape
clause);
4. An exception for health, safety, the protection of natural resources and
other matters (Article XX);
5. An exception for national security (Article XXI);
6. An exception for customs unions and free trade areas (Article XXIV);
7. An exception for waivers by the contracting parties (Article XXV); and
8. An exception allowing a GATT contracting party to ``opt out'' of a
GATT relationship on a one-time basis only, when a new contracting
party joins the GATT (Article XXXV).
6
6
Under the WTO Agreement, the ``opt-out'' procedure is continued in modied form. The
WTO agreements in Annexes 1 and 2 of the WTO Agreement do not apply between a Member
and any other Member if either, at the time of becoming a Member, does not consent. However,
as between the original WTO Members, this opt-out procedure may be exercised only where
GATT Article XXXV had been previously invoked and was still effective on 1 January 1995.
See WTO Agreement Article XIII:1 and :2.
The World Trade Organization
4
Two GATT provisions are central to the settlement of disputes: Article
XXII, which provides for consultation, and Article XXIII, which allows a
GATT contracting party to make a complaint and permits the GATT
Contracting Parties
7
to investigate and make recommendations for resolv-
ing the dispute. These provisions were the basis on which the GATT system
of dispute resolution was developed and are the foundation for WTO
dispute settlement procedures.
Finally, the GATT contains a number of provisions relating to procedure:
1. Procedures for modifying the Schedules of Concessions (Article
XXVIII) and conducting tariff negotiations (Article XXVIII bis);
2. Procedures for withholding or withdrawing concessions if a state
withdraws or fails to become a contracting party (Article XXVII);
3. Procedures dening which countries may be the contracting parties
and for accession to the GATT (Articles XXXII and XXXIII);
4. Procedures for amending the GATT (Article XXX);
5. Procedures for withdrawing from the GATT on six months' notice
(Article XXXI); and
6. Procedures for acceptance, entry into force and registration of the
GATT (Article XXVI).
The GATT also contains an Annex with notes and supplementary
interpretations of various Articles. The GATT was modied and superseded
in part by the GATT 1994, one of the WTO agreements. The ``original''
GATT, as amended, is now known as the GATT 1947.
4. The GATT tariff negotiating rounds
Despite its birth defects, the GATT served as the basis for eight ``rounds'' of
multilateral trade negotiations. These rounds were held periodically to
reduce tariffs and other barriers to international trade and were increasingly
complex and ambitious. All were successful.
The principal accomplishment of the GATT was its success in reducing
tariffs and other trade barriers on a worldwide basis.
7
The GATT uses the terms ``contracting party'' and ``contracting parties'' as well as the term
``CONTRACTING PARTIES.'' The latter is used when the contracting parties are ``acting
jointly.'' GATT Art XXV:1. This work uses the term ``Contracting Parties'' in place of ``CON-
TRACTING PARTIES.''
4. The GATT tariff negotiating rounds
5
The various negotiating rounds were named after the place in which the
negotiations began or the person associated with initiating the round. The
names and dates of the completed rounds are as follows:
. Geneva 1947
. Annecy 1949
. Torquay 1950
. Geneva 1956
. Dillon 196061
. Kennedy 196267
. Tokyo 197379
. Uruguay 198694
The objectives of the early GATT negotiating rounds were primarily
to reduce tariffs. Non-tariff barriers later emerged as a vital concern as well.
The objectives of the Tokyo and Uruguay Rounds were primarily to
reduce non-tariff barriers. The Uruguay Round culminated in the
creation of an immense new body of international law relating to trade:
the basic texts of the WTO agreements exceeded 400 pages, and the
Final Act signed in Marrakesh, Morocco on 15 April 1994 was over
26,000 pages.
The Final Act of the Uruguay Round transformed the GATT into a new,
fully edged international organization called the World Trade Organiza-
tion (WTO).
5. The creation of the WTO
The idea of creating a World Trade Organization emerged slowly from
various needs and suggestions. Even at the beginning of the Uruguay
Round, negotiators and observers realized that signicant new agreements
would require better institutional mechanisms and a better system for
resolving disputes. One of the 15 negotiations undertaken at the beginning
of the Round was on the ``functioning of the GATT system'', dubbed with
the acronym ``FOGS''. Negotiators were particularly concerned with how
new agreements would come into force and whether they would be binding
on all GATT contracting parties. Many countries wanted to avoid the
problems of the Tokyo Round, which had resulted in signicant new
``side agreements'' that were binding only on those GATT contracting
parties that accepted them (GATT a la carte).
The World Trade Organization
6
Thus, Uruguay Round negotiators were receptive to the suggestion, rst
made by Professor Jackson, to use the Uruguay Round as an occasion to
found a new ``World Trade Organization''.
8
Jackson argued that it was time
to cure the ``birth defects'' of the GATT by creating an organization that
would be a United Nations specialized agency with an organizational
structure and a dispute settlement mechanism. The creation of such an
organization could solve the problems of ``GATT a la carte''. It would be
necessary to accept all the Uruguay Round agreements to be a Member of
the new World Trade Organization.
The idea of a new world trade organization was taken up in the FOGS
negotiation. When the Draft Final Act of the Uruguay Round was issued in
1991, it contained a proposal for a new ``Multilateral Trade Organization''.
Working groups and negotiators did further work, and the name was
changed to the World Trade Organization. The Draft Final Act included
agreements on transitional arrangements and the termination of the GATT
1947 and the Tokyo Round agreements on subjects covered by new WTO
agreements. Finally, the negotiators decided that the WTO would come
into being on 1 January 1995.
9
The package of agreements that brought the
WTO into being was opened for signature at Marrakesh on 15 April 1994.
The package consisted of multilateral trade agreements annexed to a single
document, namely, the Marrakesh Agreement Establishing the World
Trade Organization (WTO Agreement).
10
Through this ingenious device,
all agreements annexed to the WTO Agreement become binding on all
Members as a single body of law.
11
Annex 1 of the WTO Agreement is divided into three parts. Annex 1A
consists of the GATT 1994 and the following agreements:
. Agreement on Agriculture
. Agreement on the Application of Sanitary and Phytosanitary Meas-
ures
. Agreement on Textiles and Clothing
8
John H. Jackson, Restructuri ng the GATT System 3841 (1990).
9
For details of the complex negotiations, see Amelia Porges, The Marrakesh Agreement
Establishing the World Trade Organization, in The World Trade Organi zati on 63
(T. P. Stewart ed., 1996).
10
The WTO is established formally by Article I of the WTO Agreement. No reservations
may be made to the WTO Agreement; reservations to the multilateral trade agreements are
allowed only if their terms permit them. WTO Agreement Art XVI:5. The WTO Agreement is
registered in accordance with Article 102 of the United Nations Charter. Id. Art XVI:6.
11
Id. Art II:2.
5. The creation of the WTO
7
. Agreement on Technical Barriers to Trade
. Agreement on Trade Related Investment Measures
. Agreement on Implementation of Article VI of the General
Agreement on Tariffs and Trade 1994 (Antidumping Agreement)
. Agreement on Implementation of Article VII of the General Agree-
ment on Tariffs and Trade 1994 (Customs Valuation Agreement)
. Agreement on Preshipment Inspection
. Agreement on Rules of Origin
. Agreement on Import Licensing Procedures
. Agreement on Subsidies and Countervailing Measures
. Agreement on Safeguards
Annex 1A includes a General Interpretive Note that provides that, if there
is a ``conict'' between provisions of the GATT 1994 and another Annex
1A Agreement, the provision of the latter controls.
12
Annex 1B consists of the General Agreement on Trade in Services
(GATS) and its annexes. Annex 1C consists of the Agreement on Trade-
Related Aspects of Intellectual Property Rights (TRIPs Agreement).
Annex 2 consists of the Understanding on Rules and Procedures
Governing Settlement of Disputes (Dispute Settlement Understanding or
DSU), which establishes the procedures for resolving trade disputes among
WTO Members.
Annex 3 consists of the Trade Policy Review Mechanism, which estab-
lishes a periodic review of each WTO Member's compliance with WTO
agreements and commitments.
Annex 4 consists of the Plurilateral Trade Agreements:
. Agreement on Trade in Civil Aircraft
. Agreement on Government Procurement
. International Dairy Agreement
. International Bovine Meat Agreement
The plurilateral agreements are binding only on the parties that
have accepted them.
13
The International Dairy Agreement and the
12
General Interpretive Note to Annex 1A, Multilateral Agreements on Trade in Goods, of
the WTO Agreement, reprinted in WTO, The Legal Texts: The Results of the
Uruguay Round of Multi lateral Trade Negoti ati ons 16 (1999).
13
WTO Agreement Art II:3.
The World Trade Organization
8
International Bovine Meat Agreement, however, were terminated in
1997.
14
The WTO Agreement formally replaced the GATT 1947 with the
GATT 1994, which is a new and legally distinct agreement. The GATT
1994 consists of the GATT 1947, excluding the Protocol of Provisional
Application, as amended by all legal instruments that entered into force
under the GATT before 1 January 1995, the date of the entry into force of
the WTO Agreement.
15
Such legal instruments include various protocols,
decisions on waivers, other decisions and understandings and the Marrakesh
Protocol to the GATT 1994. Thus, the WTO Agreement incorporates the
GATT as it existed in 1994 rather than the original GATT.
6. The WTO: functions and structure
The WTO exists to ``facilitate the implementation, administration, and
operation as well as to further the objectives'' of the WTO agreements.
16
Beyond this general purpose, the WTO has four specic tasks: (1) to
provide a forum for negotiations among Members both as to current
matters and any future agreements; (2) to administer the system of dispute
settlement; (3) to administer the Trade Policy Review Mechanism; and (4)
to cooperate as needed with the IMF and the World Bank, the two other
Bretton Woods institutions.
17
The WTO is formally endowed with existence, legal personality and legal
capacity as an international organization. It must be accorded privileges and
immunities that are in accordance with its functions.
18
The WTO has two governing bodies: the Ministerial Conference and the
General Council. The Ministerial Conference is the supreme authority. It is
composed of representatives of all WTO Members and meets at least once
every two years. The General Council is the chief decision-making and
14
WTO, Deletion of the International Dairy Agreement from Annex 4 of the WTO Agreement,
Decision of 10 December 1997, WT/L/251, 17 December 1997; WTO, Deletion of the Inter-
national Bovine Meat Agreement from Annex 4 of the WTO Agreement, Decision of 10 December
1997, WT/L/252, 16 December 1997.
15
WTO Agreement Art II:4 and Annex 1A.
16
Id. Art III:1.
17
Id. Art III.
18
Id. Arts I, VIII.
6. The WTO: functions and structure
9
policy body between meetings of the Ministerial Conference.
19
The General
Council also discharges the responsibilities of two important subsidiary
bodies, namely, the Dispute Settlement Body and the Trade Policy Review
Body.
20
The General Council is composed of all WTO Members and meets
``as appropriate''.
Specialized Councils and Committees that report to the General Council
do much of the day-to-day work of the WTO. The WTO Agreement
establishes these Councils: a Council for Trade in Goods; a Council for
Trade in Services; and a Council for Trade-Related Aspects of Intellectual
Property Rights (TRIPS).
21
These Councils have the power to establish
committees (or subsidiary bodies) as required.
22
The Ministerial Confer-
ence has also established committees: a Committee on Trade and Develop-
ment; a Committee on Balance of Payments; a Committee on Budget,
Finance and Administration;
23
and, by special action on 14 April 1994, a
Committee on Trade and Environment. Additional councils and commit-
tees oversee the Plurilateral Trade Agreements. These also report to the
WTO General Council.
24
The WTO has a Secretariat located in Geneva and presided over by a
Director-General, who is appointed by the Ministerial Conference.
25
The
Ministerial Conference sets the powers and term of ofce of the Director-
General, and the Director-General has the power to appoint the staff and
direct the duties of the WTO Secretariat.
26
Neither the Director-General
nor the Members of the Secretariat may seek or accept instructions from any
national government, and both must act as international ofcials.
27
The General Council has control over the WTObudget, which is prepared
by the Director-General and the Committee on Budget, Finance and Admin-
istration.
28
The General Council has authority to arrange for cooperating
19
Id. Art IV:1 and :2.
20
Id. Art IV:3.
21
Id. Art IV:5.
22
Id. Art IV:6.
23
Id. Art IV:7.
24
Id. Art IV:8.
25
Id. VI:1.
26
Id. Art VI:1, :2 and :3.
27
Id. Art VI:4. The Secretariat staff members ``to the extent practicable'' are to be appointed
from the pre-existing GATT Secretariat. Id. Art XVI:2.
28
Id. Art VII. Each WTO Member contributes to the budget according to its share of world
trade in goods.
The World Trade Organization
10
with other inter-governmental organizations and non-governmental
organizations.
29
To deal with the plethora of matters that may arise concerning trade, the
WTO commonly establishes ad hoc Working Parties and committees con-
sisting of representatives of WTO Members who participate on a voluntary,
though ofcial, basis.
6.1 Membership, accession and withdrawal
The original WTO Membership consisted of all GATT contracting parties
as of the entry into force of the WTO Agreement on 1 January 1995 and
the European Community.
30
Countries may join the WTO only after
negotiating terms of accession.
31
The Ministerial Conference must approve
the terms of accession by a two-thirds majority of the WTO Members.
32
In
practice, accession is accomplished through obtaining a consensus of all
WTO Members.
Accession to the WTO is a difcult and time-consuming process. In the
case of China, for example, a prerequisite to the negotiation of a ``Protocol
of Accession'' to the WTO was the requirement of negotiating bilateral
market access packages with interested WTO Members. Thus, China
entered into a series of bilateral trade agreements, notably with the United
States
33
and the European Community.
34
Only after these bilateral negoti-
ations were completed did substantive discussions on the text and annexes of
a Protocol of Accession begin. The entire accession process, which extended
over 14 years, was nally completed when China became a WTO Member
by decision of the Fourth Ministerial Conference of the WTO in November
2001.
29
Id. Art V.
30
Id. Art XI:1. A Member also must have negotiated appropriate Schedules of Concessions.
Id. The WTO Agreement had to be accepted formally by each original Member. Id. Art XIV.
Although the European Community is a WTO Member, the number of votes of the European
Community and its Member States may not exceed the number of votes of the Member States of
the European Community. Id. Art IX.
31
Id. Art XII.
32
Id. Art XII:1 and :2.
33
See Summary of U.S.China Bilateral WTO Agreement, February 2, 2000 (visited 4/8/02)
http://www.uschina.org/public/wto/ustr/generalfacts.html.
34
Highlights of the EUChina Agreement on WTO (visited 4/8/02) http://www.europa.eu.int/
comm/trade/bilateral/china/high.htm.
6. The WTO: functions and structure
11
Any Member may withdraw from the WTO Agreement after giving
notice to the Director-General six months before the date on which it
intends to withdraw.
35
6.2 Decision-making
The WTO's decision-making processes are quite unusual. The procedures
and customary practices under the old GATT are generally retained.
36
There are several types of decisions.
6.2.1 General decision-making
There are two primary modes of decision-making: decision by consensus
and voting. For general decision-making, WTO bodies continue to follow
the practice of the GATT 1947 of deciding by consensus. The WTO
Agreement provides that ``[t]he body concerned shall be deemed to have
decided by consensus if no Member, present at the meeting when the
decision is taken, formally objects to the proposed decision''.
37
Thus,
consensus differs from unanimity. In consensus decision-making, the mi-
nority will normally go along with the majority unless it has a serious
objection. The majority will, in turn, not ramrod decisions through by
vote but will deal with the objections of the minority. The consensus
decision-making process takes a great deal of time.
Voting occurs in the WTO only when a decision cannot be taken by
consensus. In the Ministerial Conference and the General Council, decisions
are taken by ``a majority of the votes cast'' unless otherwise specied in the
relevant WTO agreement.
38
Each Member has one vote.
39
Thus, the deci-
sion-making process of the WTO is quite different from the IMF and the
World Bank, where weighted voting favours the larger, more important states.
6.2.2 Interpretations
The WTO has a rather strict rule concerning interpretations of the WTO
agreements because WTO Members realized the complexity of the huge
mass of verbiage and did not want ofcial ``glosses'' to be adopted by
subsidiary bodies. Thus, the WTO Agreement provides that only the
Ministerial Conference and the General Council have the power to adopt
interpretations of the WTO agreements by a three-quarters majority of the
35
WTO Agreement Art XII:1.
36
Id. Art XVI:1.
37
Id. Art IX:1.
38
Id. Art IX:1.
39
Id. Art IX:1.
The World Trade Organization
12
Members. The interpretation authority may not, however, be used to
undermine the amendment provisions of the WTO Agreement.
40
6.2.3 Waivers
Safeguards have been built into the WTO waiver process in the light
of difcult experiences with the waiver provision (Article XXV) of
the GATT 1947.
41
Only the Ministerial Conference by three-fourths
of the Members can make a decision on a waiver of any obligation under
the WTO agreements. A decision to grant a waiver of any obligation subject
to staged implementation or a transitional period may be taken only by
consensus.
42
Waivers are subject to annual review, after which they may be extended,
modied or terminated.
43
At the Fourth WTO Ministerial Conference in Doha, Qatar, in Novem-
ber 2001, waivers were accepted to settle the Bananas case between
the United States and certain Latin American banana producers on the
one hand, and the European Community on the other.
44
One waiver allows
the EC to continue discriminating in favour of imports of banana producers
from Africa, the Caribbean and the Pacic;
45
a second waiver grants the EC
the right to give tariff preferences to developing countries, including Latin
American countries, on a variety of other products.
46
The EC, in return for
the waiver, has promised to replace its discriminatory tariff-quota regime for
bananas with a tariff system by 1 January 2006.
47
6.2.4 Amendments
Amending the WTO agreements is very difcult. To ensure against surprise
proposals, an amendment must be formally tabled for at least 90 days before
40
Id. Art IX:2.
41
Pre-WTO waivers granted under the GATT 1947 terminated as of the date of entry into
force of the WTO Agreement. Understanding in Respect of Waivers of Obligations under the
General Agreement on Tariffs and Trade 1994, para 2, reprinted in WTO, The Legal Texts:
The Results of the Uruguay Round of Multi lateral Trade Negoti ati ons
29 (1999).
42
Id. Art IX:3.
43
Id. Art IX:4.
44
See Ministerial Conference Fourth Session Doha, 914 November 2001 European
Communities The ACP-EC Partnership Agreement, Decision of 14 November 2001, WT/
MIN(01)/15, 14 November 2001.
45
Id. para 1.
46
Id. Annex para 1.
47
See EU Waivers Approved as Latin Americans Drop Banana Demands, Insi de U.S. Trade,
15 November 2001, at 10.
6. The WTO: functions and structure
13
being submitted for acceptance.
48
The Ministerial Conference has exclusive
competence to vote on amendments. Certain provisions of the agreements
may be amended only by unanimous vote.
49
Other provisions can be
amended by two-thirds vote, but such an amendment is binding only on
those Members accepting it.
50
The Ministerial Conference, by three-quarters
vote, can decide that all Members must accept an amendment, and recalci-
trant Members either must withdraw from the WTO or remain a Member
with the consent of the Ministerial Conference.
51
6.3 The WTO as an international organization
52
The WTO Agreement created the WTO as a new international organiza-
tion with a legal personality, legal capacity, and sufcient privileges and
immunities.
53
It also endowed the WTO with decision-making processes,
an institutional structure, and distinctive functions. If it maintains the
support of its Members and gains public understanding and support, the
WTO will continue to play a key global economic role in the twenty-rst
century.
7. Suggestions for improving the WTO
In creating the WTO, the international community has overcome the
``birth defects'' surrounding the GATT and its functions. Two primary
difculties remain. First, decision-making is too cumbersome. Second, the
WTO needs to be more ``externally'' transparent.
First, the primary modes of decision-making, namely, consensus and
voting, are too cumbersome for an organization that has 149 Members (as
at the time of writing). These modes may lead to deadlock or back-room
deals and other low-visibility decisions. Both are to be avoided if possible.
48
WTO Agreement Art X:1.
49
Id. Art X:2. For example, the following provisions of the WTO agreements may only be
amended by unanimous vote: the amendment provision of the WTO Agreement (Article X),
Arts I and II of the GATT, Art II:1 of GATS, Art 4 of TRIPS and Art IX of the WTO
Agreement. Id.
50
Id. Art X:3 and :4.
51
Id. Art X:5.
52
See generally The WTO as an Internati onal Organi zati on, above note 3.
53
Id. Arts I, II.
The World Trade Organization
14
Deadlock obviously impairs the function of the WTO, while low-visibility
decisions cause resentment among WTO Members and by the public.
A more efcient yet fair method of decision-making is needed. One
solution would be to create an ``Executive Body'' of the General Council
that would have general decision-making power. The Members of the
Executive Body should be chosen according to objective criteria based on
such factors as (1) GDP; (2) share of world trade; and (3) population. Other
criteria could assure representation by developing countries and a geo-
graphic balance. The Executive Body should have both permanent
Members and a rotating group of Members that would serve xed terms.
Thus, every WTO Member would have a seat on the Executive Body at
regular intervals. A weighted voting system could be devised to replace
consensus decision-making. Some variant of this proposal is needed to
improve the WTO's decision-making process.
54
A second need is to improve the WTO's external transparency. Greater
public disclosure of the WTO's business would promote public understand-
ing of the benets of trade and the complex issues that must be decided.
Transparency also would lead to more input by the global public.
Canada,
55
for example, has proposed several need transparency reforms:
. Enhanced transparency of trade policy reviews, including broadcast
over the Internet of Canada's interim trade policy review, scheduled
to be conducted in December 2000, as such a ``Webcasting'' exercise
would provide the public with a greater understanding and appreci-
ation of the WTO peer review process;
. Increasedpublic access toWTOdocumentation, including adoptionof
a liberal ``de-restriction'' policy for documents such as WTOsecretariat
working papers, formal contributions from WTO Members, draft
meeting agendas, minutes of meetings and notes of discussions, and
improved access to trade policy review documentation;
. Expanded use of the WTO's Internet site to disseminate information
on the organization and its work, including provision of ``hot links''
to the Internet sites of trade-related, nongovernmental organizations;
54
See Symposium: Democratizing International Trade Decision-Making, 27 Cornell Int' l
L.J. 699 (1994).
55
Posted at www.dfait-maeci.gc.ca/tna-nac/wto-e.asp#canada. For a similar proposal made by
the United States, see Insi de U.S. Trade, 7 April 2000, at 20. For more far-reaching reforms,
see Steve Charnovitz, Opening the WTO to Nongovernmental Interests, 24 Fordham Int' l L.J.
173 (2000).
7. Suggestions for improving the WTO
15
. Improved dialogue with the public through (1) allocation of a por-
tion of the WTO secretariat's budget to outreach initiatives such as
symposia, workshops and improvements to the WTO Internet site;
and (2) use of the WTO's outreach budget for more frequent and
more structured meetings with journalists and non-governmental
organizations;
. Consideration (1) of convening annual meetings for WTO bodies
and committees to which nongovernmental observers would be in-
vited or to which they could make written submissions; and (2) of
conducting a series of dialogues among WTO Members, academics,
the media, and non-governmental organizations;
. In the longer term, creation of a mechanism for parliamentary input
into international trade policy debates, including the possibility of
regular informal meetings of WTO Member parliamentarians; and
. Creation of ad hoc advisory boards made up of experts in specialized
areas to provide nonbinding advice to the WTO Membership on
issues such as trade and sustainable development and electronic
commerce, similar to those created by the Asia-Pacic Economic
Cooperation (APEC) forum, the World Intellectual Property Organ-
ization (WIPO), and the Organisation for Economic Co-operation
and Development (OECD).
A variant of these proposals is needed to improve the WTO's public
image and to open the decision-making process related to trade.
8. Current Work: The Doha Development Agenda
The WTO in 2005 has 148 members and 33 observer states are
possible candidates for future membership. A new Director-General, Pascal
Lamy of France, was appointed in 2005, succeeding Supachai Pachipakdi of
Thailand.
In addition to its many day-to-day responsibilities under existing agree-
ments and understandings, the WTO is in the midst of a complex new
negotiation known as the Doha Development Agenda. This negotiation,
which is behind schedule, but is expected to be completed by 2007, consists
of the following principal areas and issues:
. Trade in agricultural products
. Non-agricultural trade issues
The World Trade Organization
16
. Commitments for trade in services
. Trade facilitation issues (cutting red tape and customs formalities)
. Developing countries and trade
. Trade and environmental protection
In addition, the Doha negotiation is addressing a variety of technical issues
and problems arising out of the agreements currently in force.
The work of the WTO has expanded greatly. The great body of law
administered by the WTO continues to expand as each agreement gives rise
to new needs and controversies, leading to new negotiations and further
agreements. As the sole global intergovernmental organization responsible
for international trade, its role has become indispensable to the functioning
of the world economy.
8. Current Work: The Doha Development Agenda
17