WTO AND THE DEVELOPMENT AGENDA.

Dr. Boniface Chimpango, 01 March 2021

University of Huddersfield.

As the world of trade is celebrating the new head of the World Trade Organisation (WTO), developing countries will be waiting with baited breath for the new policy direction that the multilateral trading system may take under the new leadership in relation to the organisation’s development agenda, which has, hitherto, been stuck in the hamsterwheel of the Doha Round of negotiations.

The role of trade as a tool for economic development has been widely acknowledged in economic cycles[1]. As such the development agenda has been at the heart of both the GATT and WTO Agreements. Both agreements have accorded developing countries special rights and privileges, collectively referred to as ‘special and differential Treatment’ (SDT), to facilitate participation of developing countries in the multilateral trading system. One of the criticisms of the WTO’s trading system is its lack of progressive and egalitarian rules and policies. In this piece we look at the existing SDT provisions within the prism of the arguement made by developing countries that WTO has so far failed to effectively implement its development agenda in so far as creating a level playing field for developing countries is concerned.   

As stated above, the SDT for Developing Countries constitutes a central feature of the GATT/WTO system. The aim of SDT is ‘to foster export-led growth in developing countries’[2]. For instance, one of the objectives of the WTO as stipulated in the chapeau to the WTO Agreement is sustainable economic development and it is also emphasised that international trade should be used as a tool for inducing economic development of least-developed countries. Also the GATT[3] provides for the principle of non-reciprocal preferential treatment for developing countries, which allows developing countries to make matching offers in return when developed countries grant them trade concessions.[4]

Further, The General Agreement on Trade in Services (GATS) has provisions to facilitate increased participation of developing countries in global trade by strengthening the competitiveness of their domestic services through access to technology and improving their access to information networks[5]. Also, WTO’s Dispute settlement system has some provisions that favours developing countries. For example, Article 12.10 of the DSU requires sufficient time to be accorded to developing countries to prepare and present their case. Thus, in the case of India – Quantitative Restrictions[6], where the United States brought a dispute against India, the Panel granted India an additional ten days to prepare its submission.

Other SDT provisions include (i) longer time periods for implementing Agreements and commitments, (ii) measures to increase trading opportunities for developing countries, (ii) provisions requiring all WTO members to safeguard the trade interests of developing countries, (iii) capacity building in areas of dispute handling and technical standards implementation.

It is however observed that despite the WTO’s desire to facilitate development in developing countries through the multilateral trading system, the desire remains more of an aspiration than a realistic goal[7]. There has been a growing clamour by developing countries about the systemic biases within the WTO framework, which have worked against their interests for many years[8]. Their efforts to effect reform of different WTO provisions have not yielded much as evidenced by the unreasonable protraction of the Doha Round of negotiations, which has development as one of its key themes.[9]

The main issue raised by many developing countries is that the legal disciplines under GATT and WTO agreements are marked with a ‘significant development deficit.’[10] As such although developing countries have numerical superiority, their position in the multilateral trading system has not yet substantially improved over the years[11]. There are so many examples of SDT provisions that do not effectively support development interests of the developing countries and for that reason require reform as discussed below.

The first area of concern is the provisions on Tariff bindings under Article II of GATT. Under this discipline WTO members are required to make a commitment not to raise the customs duty on a certain product above an agreed level. It is, however, observed that although tariff bindings provide the needed stability for the multilateral trading system, they in the process prevent developing countries from adopting tariff measures above the maximum bindings that they may need to improve their domestic industries for purposes of development[12]. Under Article XVIII of GATT developing countries are allowed to maintain some flexibility in their tariff structure in order to grant the tariff protection that may be needed to promote a particular industry or to apply quantitative restrictions for balance of payment purposes where there is high level of demand for imports, which are likely to be generated by the relevant economic development programmes.[13]

However, although Article XVIII seeks to support developing countries to establish and promote industries for the purpose of economic development, paragraph 7 of this Article requires developing countries to engage in negotiations with other interested Members and to offer reciprocal concessions. Commentators have observed that requiring developing countries to consult and negotiate with other members may result in delays in implementing necessary development-related trade measures, and the reciprocal concessions would burden their economies and may be counter-effective to their development interests[14]. As a reform proposal, it has been suggested that WTO should set up a “Development-Facilitation Tariff” scheme that will allow developing countries to set the maximum additional tariff rate above the tariff binding to help them develop their nascent industries[15].

Another area of concern is around the discipline of subsidies.[16]  Certain subsidies are prohibited (e.g. export and import substitution subsidies) while others are either actionable (may only be challenged if they cause adverse effects to other Members’ trade interests) or non-actionable. Prohibited and actionable subsidies, which are injurious to the domestic industry may be challenged directly in WTO dispute settlement, or, they can be offset by the application of a countervailing measure.[17] Article 27.1 of the SCM Agreement recognises the important role that subsidies may play in economic development programmes of developing country Members. However, the fact that the discipline of subsidies under WTO rules apply indiscriminately to all member states, prohibition on grant of some subsidies have adverse effect on the economic development of developing countries. Also as actionable subsidies risk attracting countervailing measures by affected member countries, developing countries are left exposed to the wrath of developed countries. Critics have therefore concluded that the current trade rules have made “a significant dent in the ability of developing countries to employ intelligently designed industrial policies.”[18] Again it is proposed that in order to address this systemic obstacle for developing countries, WTO should consider providing for special rules that would allow developing countries to adopt subsidies that may be ordinarily prohibited or actionable.[19]

 Another discipline of the WTO rules that works against developing countries is Ant-Dumping (AB) Measures.  Dumping is defined as the introduction of a product into the commerce of another country at less than its ‘normal value.’[20] WTO members are allowed to counteract or ‘remedy’ dumping, through the imposition of AB measures[21]. In practice, it is developing countries that have been found in the firing line of AB measures either because they are forced to lower their prices in order to penetrate the international market or because production costs are lower in developing countries and the prices of their products are generally low. It is reported that between July 2013 and June 2014, almost two-thirds of the AB investigations concerned imports from developing countries[22]. The targeting of cheaper imports from developing countries for AD measures is considered to undermine the trade and development interests of developing countries[23]. This is another area that needs reform.

Another WTO discipline that adversely affect developing countries is in relation to the certain trade-related investment measures (TRIMS). This is provided for under the WTO Agreement on Trade-Related Investment Measures (“TRIMs Agreement”), which regulates a range of investment measures that affect international trade such as local content requirements, import controls, foreign exchange balancing requirements and export controls.[24] Generally investment  contributes to economic development by bringing needed capital, technology, and management expertise to the host nation, and some of the TRIMs are designed to maximize investment’s contribution to the host country’s development agenda[25]. In their study, Chang and Green, found that all of today’s developed countries have, in the course of their own development, adopted investment measures to meet their development objectives[26]. However, the current restrictions on TRIPS prevents developing countries from using TRIPS as a development tool. As a result of this concern, twelve developing countries proposed a change to the text of the TRIMs Agreement to make commitments under the agreement optional rather than mandatory.[27] It is also noted that some African countries have actually legislated for the adoption of certain TRIMs, such as local content requirements in defiance of provisions under the TRIMs Agreement[28]. This shows the level of discontent that developing countries have with WTO rules on TRIMS.

Further, the provisions of Agreement on Trade-Related Intellectual Property Rights, (TRIPS Agreement) are also a source of concern for developing countries. The TRIPS Agreement sets out mandatory standards for the protection of intellectual property rights (IPRs), including patents, trademarks, copyrights, designs, and geographical indications. It also requires the protection of foreign IPR holders by incorporating other major IPR conventions and provides for enforcement against IPR violations[29]. It is observed that in practice there is a tension between developing countries, whose priority is to acquire advanced technology and knowledge, with the aim of improving their industries and promote economic development, and developed countries, whose interest is to control access to their intellectual property.[30] While IPR protection would be regarded as a legitimate interest for developing countries, the extensive obligations under the TRIPS Agreement are considered counterproductive to the development effort of developing countries whose legal and financial recourses may not be sufficient for extensive IPR protection. In fact according to a study that was conducted in 2000, implementing the TRIPS obligations would require the least developed countries to invest in buildings, equipment, training, and so forth that would cost each of them $150 million, which for many of the least-developed countries this represents a full year’s development budget[31]. As such in order to help developing countries, there is need to consider developing countries from the application of the provisions in the TRIPS Agreement which impose legislative requirement on them.

Some developed countries have designed special trading arrangements, which offers duty-free, quota-free (DFQF) treatment on imports from developing countries with the aim of helping them grow their economies[32]. Examples of such arrangements include the “Everything But Arms” (EBA) initiative by the European Union, which offers DFQF treatment to products currently exported by LDCs[33] and the African Growth and Opportunity Act (AGOA) by the U.S., which eligible sub-Saharan African countries with duty-free access to the U.S. market for over some products[34]. The problem is that these arrangements are not sponsored by WTO and therefore limited in their offering. It would be helpful if the WTO negotiated similar types of DFQF treatment that would apply to more developed countries. Also non-WTO negotiated agreement is likely to be faulted by the WTO. In the case of EC–Tariff Preferences[35] the EC provided preferential arrangements to 12 countries, to assist in combating drug trafficking. The Appellate Body found that the arrangements were not justified by the Enabling Clause of the WTO Agreement because they were granted them to a ‘closed list’ of beneficiaries without proper criteria or standards for choosing those countries.

In 2013, WTO issued a Ministerial Decision on DFQF Market Access for Least-Developed Countries, which simply stated that Developed-country Members that do not yet provide duty-free and quota-free market access for at least 97 % of products originating from LDCs, should seek to improve their existing duty-free and quota-free coverage for such products, so as to provide increasingly greater market access to LDCs[36].

Perhaps the most telling evidence of WTO failure to facilitate economic development of developing countries, is the lack of progress in the Doha Round negotiations, which, inter alia, was supposed to review the all SDT provisions with a view to strengthening them and making them more precise[37]. Also, the Doha Declaration mandated the Trade and Development Committee to identify which of those SDT provisions are mandatory, and to consider the implications of making mandatory those which are currently non-binding[38]. The Doha negotiations have not yet yielded much for developing countries 19 years since commencement. One of the reasons for the delay is because developed countries have not been amenable to the Less Than Full Reciprocity negotiating principle which allows developing countries to cut less tariff than industrialised countries[39]. Further the US and EU have resisted the calls from developing countries to reduce agriculture subsides, which adversely affect the competitiveness of agriculture products from developing countries. WTO have to this date failed to broker any deal between the two sides[40].  

This discussion confirms that despite the recognition in the GATT and WTO agreements of the important role of trade in development, the WTO has failed to meaningfully implement the development agenda. Developing countries have been adversely affected, systemically, by a number of WTO discipline that favour developed countries in practice. WTO has not vigorously pushed for relevant reforms that would create a level playing field for developing countries. The impasse in the Doha development agenda negotiations is a confirmation of the WTO’s inability to champion the development interests of developing countries.

It is hoped that the new WTO administration will revise the Doha Round and ensure that the concerns of developing countires with the WTO trading system in its current incarnation are comprehensively addressed. 


[1] See, Kituyi, M. International trade and development nexus. GREAT Insights, Volume 2, Issue 8. November 2013.

[2] E.Ornelas, Chapter 7 – Special and Differential Treatment for Developing Countries, Handbook of Commercial Policy, Volume 1, Part B, 2016, Pages 369-432Edited by Kyle Bagwell, Robert W. Staiger

[3]Part IV of the GATT 

[4] WTO, Special and differential treatment provisions, https://www.wto.org/english/tratop_e/devel_e/dev_special_differential_provisions_e.htm

[5] Article IV of the GATS 

[6] WTO, DS90.

[7] Yong-Shik Lee, The Long and Winding Road – Path Towards Facilitation of Development in the WTO: Reflections on the Doha Round and Beyond, Law Dev Rev 2016; 9(2): 437–465

[8] P. Gallapher, The First Ten Years of the WTO: 1995–2005 (New York: Cambridge University Press, 2005), pp. 62–78.

[9] WTO, The Doha Round, available at: https://www.wto.org/english/tratop_e/dda_e/dda_e.htm, accessed 03 September 2020.

[10] Yong-Shik Lee, note 6 above.

[11] Ibid.

[12] Ibid p. 449

[13] Article XVIII, of GATT, para. 2.

[14] Yong-Shik Lee, note 6 above.

[15] Yong-Shik Lee, Facilitating Development in the World Trading System: A Proposal for Development Facilitation Tariff (DFT) and Development Facilitation Subsidy (DFS), 38 Journal of World Trade, no. 2 (2004), 935–954.

[16] Article XVI of the GATT 1994 and Articles 3 to 9 of the Agreement on Subsidies and Countervailing Measures (“SCM Agreement”)

[17] Peter Van den Bossche, The Law and Policy of the World Trade Organization: Text, Cases and Materials (4th eds. CUP: 2017)

[18] Dani Rodrik, ‘Industrial Policy for the Twenty-First Century’, Faculty Research Working Papers Series no. RWP04-047 (Kennedy School of Government, Harvard University, September 2004), 34–35, available at: , accessed 19 April 2016.

[19] Lee, note 14.

[20] Article VI of the GATT 1994 and Article 2.1 of the Anti-Dumping Agreement.

[21] Article VI of the GATT 1994 and the Anti-Dumping Agreement .

[22] WTO, Report (2014) of the Committee on Anti-Dumping Practices, G/L/1079 (Oct. 31, 2014).

[23] Yong-Shik Lee, note 6 above

[24] TRIMs Agreement, annex, paras. 1(a)-2(c).

[25] Lee note 14

[26] 4 Ha-Joon Chang and D. Green, The Northern WTO Agenda on Investment: Do as we Say, Not

as we Did (Geneva: South Centre, 2003), p. 33.

[27] WTO, Preparations for the 1999 Ministerial Conference, WT/GC/W/354 (Oct. 11, 1999), paras.

20-21.

[28] C. Nwapi, Defining the ‘Local’ in Local Content Requirements in the Oil and Gas and Mining

Sectors in Developing Countries, 8 Law and Development Review, no. 1 (2015), 187–216.

[29] Paragraphs 9-12 of TRIPS Agreement

[30] Lee, note 6.p.455

[31] J.M. Finger, The WTO’s Special Burden on Less Developed Countries, 19

Cato Journal, no. 3 (2000), 435.

[32] Lee, note 6.

[33] P. Brenton, Integrating the Least Developed Countries into the World Trading System: The

Current Impact of European Union Preferences Under ‘Everything But Arms’, 37 Journal of World

Trade (2003), 623–626

[34] USTR, African Growth and Opportunity Act (AGOA),  https://ustr.gov/issue-areas/trade-development/preference-programs/african-growth-and-opportunity-act-agoa#   

[35] WTO, DS246.

[36] WTO, Duty-Free and Quota Free (DFQF) Market Access for Least-Developed Countries, Ministerial Decision of 7 December 2013, WT/MIN(13)/44, WT/L/919 (Dec. 11, 2013).

[37] Paragraph 44 of the Doha Declaration

[38] WTO Ministerial Conference, Implementation-Related Issues and Concerns – Decision of 14 November 2001, WT/MIN (01) 17 (20 November 2001)

[39] Simon J Evenet, ‘Reciprocity and the Doha Round Impasse: Lessons for the Near Term and After, Aussenwirtschaft; Dec 2007; 62, 4; ABI/INFORM Collection pg. 391 at p.398.

[40] Ibid.

CASE ANALYSIS

Dr. Boniface Chimpango | 08 October 2020.

UNITED STATES — TARIFF MEASURES ON CERTAIN GOODS FROM CHINA, WT/DS543/R.

Background

This dispute arose from the investigations by the United States carried out under section 301 of the Trade Act of 1974 of alleged China’s practices related to technology transfer, intellectual property, and innovation, which the United States considered to be unfair and distortive policies of “state-sanctioned theft”, misappropriation of US technology, intellectual property, and commercial secrets.

As a retaliation to the findings of the Section 301 investigations, the United States imposed additional duties on certain products from China as follows:

  • 25% additional duties imposed in June 2018 on a first set of products with an approximate annual trade value of USD 34 billion; and
  • additional duties on a second set of products with an approximate annual trade value of USD 200 billion, initially imposed in September 2018 at 10% and subsequently raised in May 2019 to 25%.

China complained against the imposition of additional duties by the United States.

China’s Complaint to the WTO

The WTO dispute started with China requesting a consultation with the United States on 04 April 2018 pursuant to Article 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) and Article XXIII of the General Agreement on Tariffs and Trade 1994 (GATT 1994.)

China argued that the tariff measures were inconsistent with the United States’ obligations under Article I:1 of the GATT 1994 because they failed to accord immediately and unconditionally to certain products originating in China and imported into the United States the advantage, favour, privilege or immunity granted by the United States, “[w]ith respect to customs duties and charges of any kind imposed on or in connection with” the importation of like products originating in the territories of other WTO Members. China further argued that the measures were inconsistent with the United States’ obligations under Article II:1(a) and (b) of the GATT 1994 because they imposed additional duties on certain imported products originating in China in excess of the United States’ bound rates set forth in its Schedule.

Article I:1 of the GATT 1994 provides for what is called the Most Favoured Nation (MFN) principle, which prohibits discrimination between like products originating in, or destined for, different countries. The principal purpose of the MFN treatment obligation under Article I:1 is to ensure all WTO Members equality of opportunity to import from, or to export to, other WTO Members (or any other country). On the other hand, Article II:1 of GATT 1994 seeks to protect negotiated tariff concessions or bindings for each WTO Member. Article II:1 (a) contains a general prohibition against according treatment less favourable to imports than that provided for in a Member’s Tariff Schedule while Article II:1 (b) prohibits the application of ordinary customs duties in excess of those provided for in the Schedule[1].

United State’s Defence

In its defence the United States, raised two points, one preliminary objection and one substantive defence as follows:

  • As a preliminary point, the United States argued that as they had engaged in bilateral negotiations with China to address several trade concerns — including some matters covered by this dispute —  the parties had decided to settle their dispute outside the WTO, and thus reached a “settlement of the matter” within the meaning of the third sentence of Article 12.7 of the DSU and that, therefore, the Panel should confine its report to a brief statement of the facts and a notation that a settlement has been reached; and
  • As a substantive defence to China’s complaint, the United States argued that the additional duties were justified under Article XX(a) of the GATT 1994, as measures necessary to protect US public morals. The United States argued that   China’s acts, policies, and practices addressed in the relevant Section 301 Report amounted to “state-sanctioned theft” and misappropriation of US technology, intellectual property, and commercial secrets, and this violated the public morals prevailing in the United States.

Article XX of the GATT 1994 provides for general exceptions to the non-discriminatory principle by allowing WTO members to adopt measures that would otherwise be discriminatory between countries where the same conditions prevail, or which may amount to a disguised restriction on international trade if the measures are ,inter alia, necessary to protect public morals.[2]

WTO Dispute Settlement Panel Findings

Upon hearing both sides, the panel made the following findings.

The United States’ Preliminary Point

With regards to the United States preliminary point, the Panel acknowledged that an ongoing bilateral process was taking place between China and the United States. However, the Panel observed that this bilateral process seemed to be parallel to the panel proceedings, and not intended, by China at least, to replace them. The Panel found that the parties had not reached a settlement of the matter within the meaning of the third sentence of Article 12.7 of the DSU. The Panel stated that when a WTO dispute settlement process has been initiated, a panel is required to discharge its adjudicative responsibilities under the DSU, unless the parties relinquish their rights under DSU by withdrawing the complaint or requesting suspension of the proceedings, which was not the case in this matter.[3]Whether the United States tariff measures were in breach of the MFN obligations under article I:1 of GATT 1994

Whether the United States tariff measures were in breach of the MFN obligations under article I:1 of GATT 1994

On whether the United States tariff measures were inconsistent with the non-discrimination obligation under article I:1 of GATT 1994, the Panel concluded that China had established a prima facie case that the measures were inconsistent with Article I:1 of GATT 1994, because  the United States’ additional duties applied only to products from China and therefore failed to accord to products originating in China an advantage granted to the like product originating in all other WTO Members. It was noted that the United States had failed to present to the Panel any refutation of China’s assertion that the measures are inconsistent with Article I:1[4].

Whether the United States tariff measures were inconsistent with Article II:1(a) and (b) of the GATT 1994.

The Panel concluded that China had established a prima facie case that the United States’ tariff measures were inconsistent with Article II:1(b), because the additional duties were ordinary customs duties applied in excess of the rates to which the United States bound itself in its Schedule.

The panel further concluded that China had also established a prima facie case that the measures were inconsistent with Article II:1(a), on the ground that the additional duties accorded imports from China “less favourable treatment” than that provided in the United States’ Schedule.

Whether the measures are provisionally justified under Article XX of the GATT 1994

The  Panel observed that, according to WTO case law, in order to provisionally justify a challenged measure under one of the Article XX subparagraphs, a responding Member must establish that the challenged measure addresses the interest specified in that paragraph, and that there is “a sufficient nexus between the measure and the interest protected”[5].

With respect to the defence under Article XX (a) the Panel noted that there was a three-stage process in establishing the defence as follows[6]:

(i) determine whether the claimed policy is a “public morals” objective within the meaning of Article XX(a).

(ii) assessed whether the measure is “designed” to protect that public morals objective, and

(iii) consider whether the measures are “necessary” to protect public morals, which involves “weighing and balancing” of a series of factors and a comparison between the challenged measure and reasonably available WTO-consistent alternative measures.

Following a through discussion under the first stage, the Panel concluded that the “standards of right and wrong” invoked by the United States (including norms against theft, misappropriation and unfair competition) was covered, at least at a conceptual level, by the term “public morals” within the meaning of Article XX(a) of the GATT 1994[7].

With regards to whether the United States’ measures were designed to protect the public morals objective it had invoked, China argued that the measures were not designed to protect public morals, mainly because they were not designed to apply to goods that embody content or conduct offensive to public morals in the United States.[8] On its part the United States argued that in so far as its measures created a disincentive for China to continue its conduct, which were found to be morally objectionable, the measures met the minimal threshold of being “designed to” protect public morals for the purposes of Article XX(a).

The Panel first observed that the ‘design test’ is a preliminary step aimed at assisting and informing the further analysis of whether a measure is provisionally justified under subparagraph (a) of Article XX and that sometimes the application of this test at a general level may not necessarily provide useful information that informs such further analysis. The Panel concluded that, in the circumstances of this case, it found it difficult to assess at any general level whether the measures at issue are “designed” to protect public morals and that it was, therefore, not convinced that the intermediate step of such a design test was helpful for its analysis. It was the Panel’s view that the more detailed design aspects and consequential understanding of the United States’ measures could only become apparent once an analysis of the necessity of the measures was advanced further[9].

With regard to whether the measures were necessary, the Panel adopted the definition of “necessary” in the case of Korea – Various Measures on Beef where the Appellate Body explained that the term “necessary” refers to a range of degrees of necessity, with  one end of this continuum understood as “indispensable” and the other end understood as “making a contribution to”. The Appellate Body in that case considered that, in this continuum, a “necessary” measure is located significantly closer to the pole of “indispensable” than to the opposite pole of simply “making a contribution to”.[10]

Further, the panel stated that a consideration of whether WTO-inconsistent measures are justified under Articles XX(a), (b) or (d) requires “weighing and balancing”  of a series of factors including  (i) the relative importance of the pursued policy objective; (ii) the restrictive impact of the challenged measures on trade; and (iii) the contribution of these measures to the realization of the objective pursued, followed by an assessment of whether potential WTO-consistent or less trade-restrictive alternatives, suggested by the complainant, are reasonably available to the responding Member[11].

12. With regards to the imposition of additional duties on List 1 products, the Panel found that the United States had not provided an explanation demonstrating a genuine relationship of “ends and means” between the imposition of additional duties on these products and the public morals objective invoked by the United States. The Panel found, in particular, that the United States had not provided evidence in support of its assertion that the products on which it imposed additional duties benefitted from practices of China that the United States considered to be contrary to its public morals, nor evidence that would more generally demonstrate how the additional duties it applied to selected products otherwise contributed to its public morals objective[12].

With respect to the imposition of additional duties on List 2 products, the Panel found that the United States had not provided an explanation that would allow the Panel to understand an “ends and means” relationship between the additional duties on List 2 products and the public morals objective invoked by the United States[13].

The Panel, therefore, concluded that the United States had not provided an explanation demonstrating how the imposition of additional duties on the selected imported products in List 1 and List 2 was apt to contribute to the public morals objective invoked, and, following on from that, how they were necessary to protect public morals. The Panel found, accordingly, that the United States had not met its burden of demonstrating that the measures are provisionally justified under Article XX(a).

COMMENTS

The decision of the Panel has further entrenched the United States’ claims of bias on the part of WTO dispute settlement system towards the United States and WTO’s failure or unwillingness to ‘tame’ China with respect to what are seen as its inappropriate trade practices.

On the other hand, the complaints of United States against this outcome serves as an example of United States’ unmerited accusation of the WTO dispute settlement system. As the analysis above clearly shows, WTO Panel is simply adjudication the complaint by China within the established legal framework and the agreed terms of the WTO covered agreements. The WTO did not go out of its way to decide against the United States. However, its decision well-reasoned and triangulated within the dictates of WTO agreements.

The United States is likely to appeal against this outcome. However, if it is to do so, its appeal is supposed to be heard by the WTO’s Appellate Body, which is currently non-functional because the United States have refused to appoint judges to the Appellate Body.  Will the United States make a U-turn and appoint judges for the selfish reasons that they now want to use the services of the Appellate Court?


[1] See, Argentina – Textiles and Apparel (1998).

[2] Article XX (a) of GATT 1994.

[3] Para. 7.19 of the Panel Report

[4] Para. 7.77 of the Panel Report

[5] Para. 7.109, making reference to the cases  EC – Seal Products and US – Gambling.

[6] Para. 7.110 of the Panel Report

[7] Para. 7.140

[8] Para. 7.143

[9] See paras 7:150 and 7:151.

[10] 7.157

[11] Para. 7.159

[12] Paras 7:212 and 7.213.

[13] Para. 7.227.

WILL THE US GET ITS WAY ON WTO DISPUTE SETTLEMENT SYSTEM REFORM UNDER THE NEW WTO ADMINISTRATION?

Dr. Boniface Chimpango, 02 September 2020.

As the campaign for the top most position in international trade – the Director General of the World Trade Organisation (WTO) –   rolls on, two candidates have emerged as favourites. They are both women and African. Kenya’s Amina Mohamed and Nigeria’s Ngozi Okonjo-Iweala are said to be the favourites to be appointed WTO director-general after incumbent Roberto Azevêdo steps down in September. This has generated excitement as either way history is in the making – there is a high likelihood that the next director-general of the WTO will be a woman and from Africa.

The two candidates have marketed themselves as having a personalised and distinguished vision for the multilateral trading system under the auspices of the WTO. The two candidates have presented themselves as a good fit for the job based on their distinct career track records and professional pedigrees. Amina Mohamed is former Cabinet Secretary for Foreign Affairs of Kenya and has also served as the country’s ambassador to the WTO. In 2015 she played host to the WTO’s Ministerial Conference that was held in Nairobi, Kenya. She has since described herself as a ‘plug-and-play candidate’[1] who is ‘ready to get to work and hit the ground running’[2]. Ngozi Okonjo-Iweala is a renowned economist who has previously served as Nigerian Finance Minister and managing director of the World Bank. She is currently chairperson for Gavi, an international alliance to develop and deliver vaccines. She has described herself as having the ‘qualification and leadership characteristics’[3] required for the job and ‘a proven track record in carrying out successful reforms both at the World Bank and as Finance Minister in Nigeria’[4].

While the two candidates have divergent professional pedigrees and experiences, which may inform divergent diagnoses of the current challenges facing the multilateral trading system and ultimately their vision and direction of the WTO, the two candidates seem to have convergent views on dealing with the current impasse in the WTO’s dispute settlement system that has been sparked by the United States’ refusal to appoint judges to the WTO’s Appellate Body (AB) resulting in a complete stalemate of the operations of the AB.  The US has criticised the AB of judicial over-reach in its interpretation of the WTO covered agreements. In its Report on the Appellate Body of the World Trade Organisation the United States Trade Representative (USTR), summarised the US’ criticism of the AB as follows:

“…the Appellate Body has repeatedly failed to apply the rules of the WTO agreements in a manner that adheres to the text of those agreements, as negotiated and agreed by WTO Members. The Appellate Body has strayed far from the limited role that WTO Members assigned to it, ignoring the text of the WTO agreements. Through this persistent overreaching, the Appellate Body has increased its own power and seized from sovereign nations and other WTO Members authority that it was not provided”[5].

When asked about her views on the US concerns about the WTO appellate body, Amina Mohamed, said she feels the criticism is fair and real[6]. She stated that:

“The feeling in Geneva among very many members is that they [the appellate body] went outside the mandate that was granted to them…We need to make sure… that the appellate body members understand that is the only mandate that they can have, that they cannot add to or diminish the rights of parties. Those rights were negotiated by member states.”[7]

On her part, Ngozi Okonko-Iweala expressed similar sentiments and remarked that ‘most people agree that they [the US] have a point-that there may have been instances where the appellate body may have acted beyond the covered agreements that members reached.’[8]

The views of these two leading candidates give us a sneak peek of what may be the direction of reform of the WTO dispute settlement system under the new WTO administration. So will the WTO cave in to the US pressure on the mandate of the WTO dispute settlement system to interpret WTO covered agreements? And is there any merit in the US criticism of the WTO appellate body, in the first place?

The concerns of the US in relation to the decisions of the WTO AB should be taken with some degree of circumspection. The US being one of the top trading countries in the world, is inevitably a frequent user of the WTO dispute settlement system. Since the reorganisation of the dispute settlement system under the DSU Agreement[9] the US has appeared before the AB either as a claimant or a respondent on several occasions. While the AB has decided against the US in some disputes, it has also determined some disputes in favour of the US. Would it therefore be the case that the US is just playing sore loser with regard to those disputes that did not go in its favour? That cannot be far-fetched. In fact, some WTO members view claims of overreach as ‘sour grapes over U.S. losses in specific cases’[10]. Further, the US has in recent years lost appetite for the idea of multilateralism and has been drifting towards unilateralism. The US’ changing taste for international cooperation manifested in its dealings with different international agencies including the United Nations and World Health Organisation. The US’ fight against WTO dispute settlement system may, therefore, just be a proxy for its fight against everything multilateralism.    

Interpretation of WTO covered agreement is a clear mandate of the WTO dispute settlement system through its panel and AB decisions. Under Article 3.2 of the DSU Agreement, one of the functions of the WTO dispute settlement system is to clarify the existing provisions of the covered agreements. This role is very crucial because many provisions of the covered agreements are said to be ‘shrouded in ambiguity’ and therefore, require clarification in particular dispute settlement proceedings.

The truth is that the US’ accusation of judicial over-reach against the WTO dispute settlement system has little justification if any.  Firstly, it should be noted that the DSU Agreement itself has internal safeguards against judicial activism by WTO panels and the AB.  Article 3.2 of the DSU, third sentence, provides that:

“Recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements”.

This is further reinforced by the provisions of Article 19.2 of the DSU Agreement, which states as follows:

“In accordance with paragraph 2 of Article 3, in their findings and recommendations, the panel and Appellate Body cannot add to or diminish the rights and obligations provided in the covered agreements”.

The combined effect of Articles 3.2 and 19.2 of the DSU Agreement is that WTO panels and the AB must interpret WTO covered agreements by clarifying what WTO intended to accomplish through those agreements without adding to or diminishing the rights and obligations of the members. The WTO judges themselves are well aware of the scope of their mandate as it was explained in the AB decision in the case of US – Stainless Steel (Mexico) (2008) where it stated as follows:

“Clarification, as envisaged in Article 3.2 of the DSU, elucidates the scope and meaning of the provisions of the covered agreements in accordance with customary rules of interpretation of public international law. While the application of a provision may be regarded as confined to the context in which it takes place, the relevance of clarification contained in adopted Appellate Body reports is not limited to the application of a particular provision in a specific case…”

Secondly, Article IX:2 of the WTO Agreement makes it clear that it is the exclusive competence of the Ministerial Conference and the General Council to adopt ‘authoritative’ interpretations of the provisions of the WTO Agreement and the Multilateral Trade Agreements. And Article 3.9 of the DSU Agreement stipulates that the provisions of the DSU Agreement are without prejudice to the rights of Members to seek such ‘authoritative’ interpretation. In line with these provisions, every decision of a WTO panel or AB has to be adopted by the WTO General Council sitting as the Dispute Settlement Body (DSB) using ‘reverse consensus’ method, which requires that the DSB must approve the decision unless there is a consensus against it[11].

This was confirmed in the case of US – Certain EC Products (2001), where the AB held that:

‘Determining what the rules and procedures of the DSU ought to be is not our responsibility nor the responsibility of panels; it is clearly the responsibility solely of the Members of the WTO’. [Emphasis provided].

In the case of Chile – Alcoholic Beverages (2000), Chile argued before the Appellate Body that the panel had acted inconsistently with Articles 3.2 and 19.2 of the DSU as it had added to the rights and obligations of Members. The Appellate Body found, however that:

[w]e have difficulty in envisaging circumstances in which a panel could add to the rights and obligations of a Member of the WTO if its conclusions reflected a correct interpretation and application of provisions of the covered agreements.

Given the inherent safeguards against judicial overreach that the DSU agreement has, the US criticism of the WTO Dispute Settlement System is without merit. Therefore, the in-coming WTO Director-General will be well advised to engage the US with a negotiating position that is backed by both the facts and the law.  


[1] See, Barbara Moen, Kenya’s WTO front-runner says she’s the ‘plug-and-play’ choice, The Polico, 8th June 2020.  https://www.politico.eu/article/kenyas-wto-front-runner-says-shes-the-plug-and-play-choice-amina-mohamed/

[2] Ibid.

[3] Ngozi Okonjo-Iweala, Press briefing at the WTO, 15 July 2020. https://www.youtube.com/watch?v=XZcVUPaMbnA

[4] Ngozi Okonjo-Iweala, Statement to WTO General Council, 15 July 2020. https://www.wto.org/english/thewto_e/dg_e/dgsel20_e/stat_nga_e.pdf

[5]The United States Trade Representative, Report on the Appellate Body of the World Trade Organisation Feb. 2020, https://ustr.gov/sites/default/files/Report_on_the_Appellate_Body_of_the_World_Trade_Organization.pdf p. 1

[6] Alan Beattie, Leading WTO candidates back US bid for dispute system reforms, Financial Times, 4 August 2020. https://www.ft.com/content/f4830e2b-df7b-474a-8104-6336992ca193

[7] Ibid.

[8] Ibid.

[9] Understanding on Rules and Procedures Governing the Settlement of Disputes

[10]See,  Jennifer Anne Hillman, ‘A Reset of the World Trade Organization’s Appellate Body’, Council on Foreign Relations, 14 January 2020.

[11] Article 6.1 of the DSU