Citation(2006) 18 SAcLJ 372
Date01 December 2006
Published date01 December 2006
AuthorAbdul GHAFUR Hamid (alias Khin Maung Sein) LLB, LLM in International Law (Yangon), PhD (IIUM); Associate Professor of Law and Member of the WTO and Globalisation Unit, International Islamic University Malaysia.

The most distinct characteristic of dispute settlement in the World Trade Organization (WTO) is the possibility of authorising a trade sanction against a non-complying member state. However, WTO observers are now questioning whether WTO trade sanctions are really advantageous to the success of the multilateral trading system. Against this background, the present paper first reviews the six disputes in which the WTO authorised trade sanctions, and then makes an appraisal of trade sanctions in terms of their consistency with the general international law of state responsibility and their contribution to the success of the multilateral trading system. The paper finds that trade sanctions are counterproductive and their remedial value is doubtful. Nevertheless, as there are not yet any alternatives that can replace trade sanctions, the conclusion is that the Dispute Settlement Understanding should be amended in order to dilute the stringency of trade sanctions and to conform with the law of state responsibility.

I. Introduction

1 How are the WTO rules enforced? They are enforced through the WTO dispute settlement mechanism, which is governed by the Dispute Settlement Understanding (DSU).1 This dispute settlement mechanism consists of ad hoc panels and a standing Appellate Body. They issue reports with findings and recommendations, and in order to have binding force these reports are required to be adopted by the Dispute Settlement Body (DSB).2 The DSB monitors the implementation of the

rulings and recommendations, and has the power to authorise sanctions when a country does not comply with a ruling. Trade sanctions are, under the DSU, a remedy of last resort. However, the imposition of trade sanctions can now be found in some high profile cases, creating a serious impact on the economies of the disputing parties and affecting the objectives of the multilateral trading system. The present paper, therefore, considers the value of trade sanctions as a remedy under the law of the WTO and attempts to explore alternative ways and means of enforcement.

II. The WTO remedial system and the role of trade sanctions

2 According to Article 3.7 of the DSU, the three distinctive remedies under the WTO dispute settlement mechanism are:

  1. (a) withdrawal of the inconsistent measure;

  2. (b) compensation; and

  3. (c) suspension of concessions or other obligations.

3 Under the general international law of state responsibility, “cessation and non-repetition” is considered a primary remedy for an internationally wrongful act.3 We can also find this type of remedy in the WTO system, namely, the “withdrawal of inconsistent measure” remedy. If a panel or the Appellate Body concludes that the measure complained of is inconsistent with a covered agreement, it has to recommend that the member concerned “bring the measure into conformity with that agreement”.4 Prompt compliance with the ruling of the DSB is required.5 If it is not possible to comply immediately, however, the violating member is given a “reasonable period of time” within which to comply.6 Therefore, “to bring an inconsistent measure into conformity with the covered agreements” is the preferred remedy under the DSU.7 We can even say that it is the ultimate aim of the entire WTO remedial system.

4 If a measure has been found inconsistent with a covered agreement, and the member concerned has failed to bring the measure into conformity with the agreement within the determined reasonable period of time, the member must, if so requested, enter into negotiations with the complaining party with a view to developing mutually acceptable “compensation”.8 Compensation under the DSU has a very different meaning from that in general international law. It is actually the granting of a trade benefit to the complaining member in order to compensate prospectively for the nullification or impairment caused by the non-complying measure.9 Rather than being pecuniary in character, compensation involves the lifting of trade barriers — such as tariff reductions or increases in import quotas — by the violating member. The remedy of compensation is voluntary10 and the complaining member cannot impose it arbitrarily over the violating member without its consent.

5 If no agreement is reached on compensation, the complaining member may seek authorisation from the DSB to suspend trade concessions it would otherwise be obligated to grant the non-complying member.11 DSB authorisation for the “suspension of concessions” is virtually automatic; it can be withheld only if there is a consensus against them.12 Suspension of concessions need to be “equivalent to the level of the nullification or impairment” caused by the measure that was found to be in breach.13

6 Quite contrary to compensation, suspension of concession means the raising of trade barriers by the complaining member in connection with the violating member. Again, this remedy is purely prospective; it does not compensate for losses already suffered, but rather rebalances the playing field for the future.14 The DSU provides that suspension of concessions is a temporary measure available only pending full compliance by the member concerned with the recommendation of the DSB.15

7 Out of the three remedies available under DSU, our main concern is the third, namely, “suspension of concessions or other obligations”, commonly known as “trade sanctions”.16 The alternative terms used are “countermeasures” or “retaliation”. With the advent of the WTO, the term “sanction” has been increasingly used to describe what Article 22 of the DSU authorises.17 In United States—Import Measures on Certain Products from the European Communities,18 the Panel referred to the United States action in the EC—Bananas III dispute19 as “trade sanctions”.20

III. Instances of WTO trade sanctions

8 Authorisations for WTO trade sanctions do not occur very often. Out of the 60-plus disputes in which a respondent government was judged to be in violation, the WTO authorised trade sanctions in six disputes, and only in five the winning parties invoked them.21

A. The EC—Hormones dispute

9 The EC—Hormones dispute involved two complaints against European Communities restrictions on the importation of meat

produced with the aid of growth hormones. One complaint came from the US and the other from Canada. In their decisions in EC Measures Concerning Meat and Meat Products (Hormones),22 the WTO Panel and the Appellate Body concluded that the EC’s ban on meat violated the WTO Agreement on the Application of Sanitary and Phytosanitary Measures (“the SPS Agreement”).23 The DSB gave the EC a “reasonable period of time” of fifteen months to bring its food safety measures into compliance, and when the EC failed to do so, the US and Canada were authorised to suspend tariff concessions equal to US$116 million and C$11 million respectively.24 Both governments implemented these trade restrictions by imposing 100% duties on selected products from various EC countries.25

10 At the DSB meeting on 7 November 2003, the EC stated that one of the reasons cited by the Appellate Body in its ruling against it was its failure to carry out a risk assessment within the meaning of the SPS Agreement, and that as the independent scientific committee commissioned by it to carry out a risk assessment had found that the hormones in question posed a risk for consumers, the EC had fulfilled its WTO obligations and was entitled to demand the immediate lifting of the sanctions imposed by Canada and the US.26

11 On 13 January 2005, the EC requested the establishment of a panel for continued suspension of concessions without recourse to the procedures established by the DSU after it had removed the measures found to be inconsistent with the WTO law in the EC—Hormones case. The EC made two complaints — one against the US and the other against

Canada — giving rise to two new cases, namely, United States—Continued Suspension of Obligations in the EC—Hormones Dispute27 and Canada— Continued Suspension of Obligations in the EC—Hormones Dispute,28 which demonstrate the never-ending story of the EC—Hormones dispute. The Panel held its first hearing from 12 to 15 September 2005. On 20 January 2006, the Panel informed the DSB that due to the complexity of the dispute, it would not be able to complete its work in six months and expected to issue its final report only in October 2006.

12 This dispute clearly demonstrates the unending nature of trade sanctions. Although a violating party has alleged to have taken care of the non-complying measure, there can still be disputes between the two parties as to whether there has been genuine compliance.

B. The EC—Bananas III dispute

13 The EC—Bananas III dispute involved complaints against the EC’s restrictions on the importation of bananas. In its decisions in European Communities—Regime for the Importation, Sale and Distribution of Bananas,29 the WTO Panel and the Appellate Body concluded that the discriminatory EC banana regime violated WTO rules in numerous ways. The DSB gave the EC a “reasonable period of time” of 15 months to bring its banana regime into compliance, and when the EC failed to do so, the US was authorised in April 1999 to suspend tariff concessions equivalent to US$191 million.30 The US government took this action immediately by imposing 100% duties on selected products from various EC countries.31 In November 1999, Ecuador was also given the authority to undertake suspension of tariff concessions equivalent to

US$202 million.32 In July 2001, EC communicated to the DSB that it had reached a mutually satisfactory solution with the US as well as Ecuador regarding the implementation of the recommendations adopted by the DSB.33 On 21 January 2002, the EC announced that it had implemented Phase 2 of the Understanding with the USA and Ecuador.

C. The Brazil—Aircraft dispute

14 In July 1998, Canada lodged a complaint about...

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