Abstract
One of the most important features of the WTO dispute settlement is the use of trade sanctions as a means of promoting compliance with the WTO decisions by Member States. Member States that were injured by the refusal of another Member State to comply with WTO decisions can be authorized to exercise countermeasures against this State. WTO rules regulate the conditions and limitations on the taking of countermeasures by an injured State. The focus of this paper is more circumvented: the role of the principle of proportionality in the WTO discipline on countermeasures. As we try to demonstrate in this paper, the principle of proportionality influences the amount and the type of the countermeasures. WTO arbitrators, however, have not applied correctly this principle. In particular, WTO arbitrators have failed to take into account the economic difficulties of developing countries. Moreover, they have adopted a very strict approach in analyzing cross-retaliation. This strict approach is not compatible with the single undertaking underlying WTO agreements.
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Notes
- 1.
See Alland (1994).
- 2.
Case Concerning the Air Service Agreement of 27 March 1946 between the United States of America and France, Decision of 9 December 1978, § 81.
- 3.
Draft articles on Responsibility of States for Internationally Wrongful Acts, with commentaries 2001, International Law Commission, p. 128.
- 4.
Pursuant to article 50 of the Articles of the International Law Commission on State responsibility, countermeasures shall be preceded by a demand by the injured State that the responsible State comply with its obligations and shall be accompanied by an offer to negotiate. However, this obligation does not invalidate the fact the States that exercise countermeasures have not the obligation to seek the authorization of an international organization to take these measures.
- 5.
See Visscher (1970), p. 331.
- 6.
According to Article XII of the Agreement establishing the WTO, any State or separate customs authority possessing full autonomy in the conduct of its external commercial relations may be a member of the WTO. Thus, not only States are members of the WTO. However, to facilitate the reading of this article, we will utilize the expression Member State to refer to any member of the WTO, including non-Member States.
- 7.
Hudec (1993), p. 331.
- 8.
This obligation is established by Article 23 of the DSU. The Panel in US – Certain EC Products held that “any WTO suspension of concessions or other obligations without prior DSB authorization is explicitly prohibited.” United States – Import measures on certain products from the European Communities, Report of the Panel, 17 July 2002, WT/DS165/R, § 6.37–6.38.
- 9.
See article 22 of the DSU.
- 10.
Article 51 of the Articles of the International Law Commission on State Responsibility.
- 11.
Case Concerning the Air Service Agreement of 27 March 1946 between the United States of America and France, Decision of 9 December 1978, op. cit., § 81. In this trade dispute, there was not an exact equivalence between the American countermeasures and the French breach of the Air Services Agreement.
- 12.
In certain very special circumstances, a trade damage caused by a legal act can justify the exercise of countermeasures in the WTO law. However, this situation is extremely exceptional. About this subject, see Cho (1998).
- 13.
See, for example, European Communities – Measures concerning meat and meat products (hormones), original Complaint by the United States, recourse to arbitration by The European Communities under article 22.6 of the DSU, decision by the Arbitrators, 12 July 1999, WT/DS26/ARB, § 37.
- 14.
Ibid.
- 15.
See article 49 of the Articles on State Responsibility of the International Law Commission.
- 16.
- 17.
Brazil – Export financing programme for aircraft - recourse to arbitration by Brazil under article 22.6 of the DSU and article 4.11 of the SCM Agreement, decision by Arbitrators, 28 August 2000, § III.4.
- 18.
Ibid., § III.18.
- 19.
Canada – Export credits and loan guarantees for regional aircraft, recourse to arbitration by Canada under Article 22.6 of the DSU and Article 4.11 of the SCM Agreement, decision by the Arbitrator, 17 February 2003, WT/DS222/ARB, § 3.107.
- 20.
“In our view (…) when assessing the scope of what may be deemed ‘appropriate’ countermeasures, we should keep in mind the fact that the subsidy at issue has to be withdrawn and that a countermeasure should contribute to the ultimate objective of withdrawal of the prohibited subsidy without delay.” United States – Tax treatment for “Foreign Sales Corporations”—Recourse to arbitration by the United States under article 22.6 of the DSU and article 4.11 of the SCM Agreement, Decision of the Arbitrator, 30 August 2002, WT/DS108/ARB, § 5.57.
- 21.
During the debates of the International Law Commission on the articles of State responsibility, Japan and United States proposed a formulation of the principle of proportionality which included the objective to induce compliance. According to this proposal, the principle of proportionality would be as such formulated: “Countermeasures should be justified to the extent that they are necessary to induce compliance with the obligation breached.” This proposal was explicitly rejected by the International Law Commission. Crawford, James. Third Report on State Responsibility. A/CN.4/517/Add.1, p. 16.
- 22.
Brazil – Export financing programme for aircraft - recourse to arbitration by Brazil under article 22.6 of the DSU and article 4.11 of the SCM Agreement, op. cit., § 3.54.
- 23.
See, for example, the Brazil – aircraft and the US – FSC cases.
- 24.
United States – subsidies on upland cotton – recourse to arbitration by the United States under article 22.6 of the DSU and article 4.11 of the SMC Agreement, op. cit., § 4.114.
- 25.
Article XXXVI b) of the GATT states that “export earnings of the less-developed contracting parties can play a vital part in their economic development and that the extent of this contribution depends on the prices paid by the less-developed contracting parties for essential imports, the volume of their exports, and the prices received for these exports.” Article XXXVI 6 also mentions the “the chronic deficiency in the export proceeds and other foreign exchange earnings of less-developed contracting parties.”
- 26.
Netherlands Action Under Article XXIII:2 To Suspend Obligations to The United States, Report adopted by the Contracting Parties on 8 November 1952 (L/61), § 7.
- 27.
United States – subsidies on upland cotton – recourse to arbitration by the United States under article 22.6 of the DSU and article 4.11 of the SMC Agreement, op. cit., § 5.181.
- 28.
“There is no requirement that States taking countermeasures should be limited to suspension of performance of the same or a closely related obligation.” Draft articles on Responsibility of States for Internationally Wrongful Acts, with commentaries 2001, op. cit., p. 129.
- 29.
On this subject, see Reuter (1995), p. 171.
- 30.
Marceau (2004), pp. 31–32.
- 31.
The mainstream of the economists generally underlines the welfare losses arising from trade barriers. See Krugman (1991).
- 32.
“We agree with the United States that ‘the mere fact of additional cost on Brazil’s domestic economy’ would not be sufficient, in and of itself, to conclude that suspension of concessions or other obligations is ‘not practicable or effective’ within the meaning of Article 22.3 of the DSU. To the extent that the imposition of a barrier to trade on certain imports inherently generates economic costs on the Member imposing them, the suspension of concessions on trade in goods may always have the potential to cause some harm to the economy of the Member imposing the barriers. To assume that this inherently would justify recourse to cross-retaliation would amount to reading out of Article 22.3 the principle contained in subparagraph (a). Rather, subparagraphs (b) and (c) of Article 22.3 set out the specific circumstances in which a complaining Member may be entitled to seek to suspend concessions in another sector or another agreement, whatever the sector in which the violation was found.” United States – subsidies on upland cotton – recourse to arbitration by the United States under article 22.6 of the DSU and article 4.11 of the SMC Agreement, op. cit., § 5.131.
- 33.
“(…) (1) exports are good; (2) imports are bad; and (3) others things equal, an equal increase in imports and exports is good. In other words, GATT-think is enlightened mercantilism.” Krugman (1991), p. 15.
- 34.
The arbitrators in EC – bananas retained a very different reading of Article 22.3 from the arbitrators in US—cotton. For the arbitrators, in trade disputes where a great economic imbalance exists between the injured Member State and the responsible Member State, the criteria of effectiveness, set forth by article 22.3, should be interpreted in a flexible manner: “In these circumstances, a consideration by the complaining party in which sector or under which agreement suspension may be expected to be least harmful to itself would seem sufficient for us to find a consideration by the complaining party of the effectiveness criterion to be consistent with the requirement to follow the principles and procedures set forth in Article 22.3.” European Communities – regime for the importation, sale and distribution of bananas – recourse to arbitration by the European Communities under article 22.6 of the DSU, decision by the arbitrators, 9 April 1999, WT/DS27/ARB, § 2.5.
- 35.
This obligation was underlined by the arbitrators who authorized cross-retaliations. See, for example: United States – measures affecting the cross-border supply of gambling and betting services – recourse to arbitration by the United States under article 22.6 of the DSU, op. cit., § V.2.
- 36.
For example, in the official WTO website, it is said that “the WTO dispute rules have teeth.” See https://www.wto.org/english/thewto_e/minist_e/min99_e/english/book_e/stak_e_4.htm. Assessed on 1 Dec 2016.
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Damásio Borges, D. (2019). Countermeasures in the WTO Law and the Principle of Proportionality: A Developing Country’s Perspective. In: do Amaral Júnior, A., de Oliveira Sá Pires, L.M., Lucena Carneiro, C. (eds) The WTO Dispute Settlement Mechanism. Springer, Cham. https://doi.org/10.1007/978-3-030-03263-0_12
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