tenea-jurawelt spitzer 56

Juristische Reihe TENEA/ Bd. 56

FLORIAN SPITZER

The Non-Violation Complaint in WTO Law

ISBN 3-86504-047-0 26 €

56

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»The Non-Violation Complaint in WTO Law« deals with one of thedifferent complaint procedures that WTO Law offers to its memberstates. The non-violation complaint is unique as it is applicable when-ever a claim is raised despite the fact that the »offending« state hasnot breached any provision of a WTO agreement. The complaint iscodified in all three WTO ›pillar‹ agreements (GATT 1994, GATS andTRIPS). The use of the non-violation complaint under these agree-ments is analyzed as well as the question whether the non-violationcomplaint could and should nowadays be used as a means of intro-ducing competition law principles into the WTO agreements. Anevaluation of the ›future‹ of the non-violation complaint reveals thatit is no longer adapted to the contemporary status of internationallaw. Instead, the active use of the international law principle of ›goodfaith‹ could nowadays achieve the same positive results as the non-violation complaint.

Florian Spitzer, geboren 1975 in Nürnberg. Studium der Rechts-wissenschaften an folgenden Hochschulen: Universität des Saar-landes, Université de Montpellier I, Rheinische Friedrich-Wilhelms-Universität Bonn, Tulane School of Law New Orleans. Maîtrise endroit 1998, Erste Juristische Staatsprüfung 2000, LL.M. 2002. Promo-tion an der Universität des Saarlandes 2004.

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Juristische Reihe TENEA/ Bd. 56

TENEA

Tenea (‘η Τενεα), Dorf im Gebiet von Korinthan einem der Wege in die → Argolis, etwas s. desh. Chiliomodi. Sehr geringe Reste. Kult des Apol-lon Teneates. T. galt im Alt. sprichwörtl. als glück-lich, wohl wegen der Kleinheit […]Aus: K. Ziegler, W. Sontheimer u. H. Gärtner(eds.): Der Kleine Pauly. Lexikon der Antike.Bd. 5, Sp. 585. München (Deutscher Taschen-buch Verlag), 1979.

FLORIAN SPITZER


Florian Spitzer:


(Juristische Reihe TENEA/www.jurawelt.com; Bd. 56)

Zugleich Universität des SaarlandesDissertation 2004

© TENEA Verlag für MedienBerlin 2004

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V

TABLE OF CONTENTS

TABLE OF CONTENTS ...............................................................................................V

BIBLIOGRAPHY ......................................................................................................... IX

INTRODUCTION ........................................................................................................... 1

I. THE NON-VIOLATION COMPLAINT FROM GATT 1947 TO GATT 1994/WTO.................. 3

II. THE NON-VIOLATION COMPLAINT UNDER THE THREE WTO PILLARS (GATT, GATS,

TRIPS)............................................................................................................................. 5

1. The Non-Violation Complaint Under GATT.............................................................. 5

a) Aims Pursued by GATT 1994 .............................................................................. 5

b) The Regulation of the Non-Violation Complaint .................................................. 6

2. The Non-Violation Complaint Under GATS............................................................ 10

a) Aims Pursued by GATS ..................................................................................... 10

b) The Regulation of the Non-Violation Complaint ................................................ 11

3. The Non-Violation Complaint Under the TRIPS Agreement.................................... 11

a) Aims Pursued by the TRIPS Agreement ............................................................. 11

b) The Regulation of the Non-Violation Complaint ................................................ 11

III. PROCESS OF A PANEL DECISION UNDER THE DSU...................................................... 12

A. THE NON-VIOLATION COMPLAINT OF ARTICLE XXIII:1 (B ) GATT

1994.................................................................................................................................. 19

I. INTRODUCTION TO THE NON-VIOLATION COMPLAINT IN THE INTERNATIONAL TRADE OF

GOODS OUTSIDE THE WTO............................................................................................. 19

1. The Non-Violation Complaint in the International Trade of Goods Before 1947..... 19

2. The Non-Violation Complaint in the International Trade of Goods After 1947 ....... 25

II. THE CONDITIONS FOR A SUCCESSFUL NON-VIOLATION COMPLAINT UNDER ARTICLE

XXIII:1 (B) GATT 1994................................................................................................. 32

1. Any Benefit Accruing to a Contracting Party Directly or Indirectly ….................... 34

a) The Notion of Benefit – Caught Between “Trade Volume” and “Competitive

Relationship” ......................................................................................................... 34

b) The Non-Violation Complaint - Tied to Article II GATT 1994 Tariff Concessions?

............................................................................................................................... 36

VI

aa) Grammatical Interpretation of Article XXIII:1 (b) GATT 1994..................... 36

bb) The Decision Practice of the Panels Under GATT 1947 and GATT 1994 ..... 42

cc) Expansion of Applicability of the Non-Violation Complaint Under GATT 1994:

Needs and Expectations...................................................................................... 45

dd) Results of the Tie Between ‘Benefit’ and ‘Tariff Concessions’ on the Products

Between Which a ‘Competitive Relationship’ can be Found............................... 47

2. … is Being Nullified or Impaired …........................................................................ 48

3. … as the Result of the Application by Another Contracting Party of any Measure,

Whether or Not it Conflicts With the Provisions of This Agreement ............................ 49

a) A Measure …..................................................................................................... 49

aa) Concept of “Measure” and the Use of “Administrative Guidance” ................ 49

bb) Measures and GATT Waivers or Exceptions ................................................ 53

cc) A Measure Which Could Not Have Been Reasonably Anticipated ................ 54

b) … that is Applied by a WTO Member … ........................................................... 59

c) … Causes Nullification or Impairment (“as the Result of”)................................. 60

4. Standard of Proof for the Claimant......................................................................... 61

a) ‘Detailed Justification’ ....................................................................................... 62

b) ‘Upsetting’ of a Competitive Relationship.......................................................... 64

c) Reasonable Expectations .................................................................................... 64

5. Non-Violation Claims and Their Relationship to Coincidentally Raised Violation

Claims........................................................................................................................ 68

III. REMEDIES FOR A SUCCESSFUL NON-VIOLATION COMPLAINT...................................... 68

IV. SUMMARY : THE NON-VIOLATION COMPLAINT OF ARTICLE XXIII:1 (B) GATT 1994.. 72

B. THE NON-VIOLATION COMPLAINT OF ARTICLE XXIII:3 GA TS....... 73

I. POSSIBLE CASE SCENARIOS FOR THE NON-VIOLATION COMPLAINT UNDER GATS ........ 75

II. REASONS AGAINST THE APPLICATION OF THE NON-VIOLATION COMPLAINT UNDER GATS

...................................................................................................................................... 77

III. SUMMARY : THE NON-VIOLATION COMPLAINT OF ARTICLE XXIII:3 GATS................ 80

C. THE NON-VIOLATION COMPLAINT OF ARTICLE 64 TRIPS ................ 81

I. THE STATUS OF THE NON-VIOLATION COMPLAINT UNDER THE TRIPS AGREEMENT...... 81

1. The Status of the Non-Violation Complaint Before the Doha Ministerial Conference81

VII

2. The Status of the Non-Violation Complaint as Set by the Doha Ministerial Conference

.................................................................................................................................. 84

II. THE SUITABILITY OF THE NON-VIOLATION COMPLAINT FOR THE FIELD OF INTELLECTUAL

PROPERTY...................................................................................................................... 84

1. The Notions of “Concessions” and “Market Access” – Present in the TRIPS

Agreement?................................................................................................................ 85

a) The Notion of Concessions................................................................................. 85

b) The Notion of Market Access............................................................................. 87

2. The Non-Violation Complaint and the Coherence Between GATT, GATS and TRIPS90

3. The Non-Violation Complaint and the Impact on National Regulatory Authority.... 92

4. The Accepted Conditions for a Successful Non-Violation Complaint and the TRIPS

Agreement.................................................................................................................. 95

5. Remedies for a Successful Non-Violation Complaint: Do They Exist? .................... 99

6. Outlook: Non-Violation Complaints Under the TRIPS Agreement .........................101

D. THE INTERPLAY OF THE NON-VIOLATION COMPLAINT AND

COMPETITION LAW UNDER THE WTO ...........................................................103

I. THE CURRENT SITUATION UNDER THE WTO...............................................................103

1. Competition Law Provisions of the WTO...............................................................103

2. Dispute Settlement of the WTO..............................................................................104

a) The Violation Complaint ...................................................................................105

b) The Situation Complaint ...................................................................................106

c) The Non-Violation Complaint ...........................................................................107

aa) Reasons for the Application of the Non-Violation Complaint in Competition

Law Matters ......................................................................................................107

bb) Reasons Against the Recourse to Non-Violation Complaints in Competition

Law Matters ......................................................................................................109

aaa) The Fulfillment of the Requirements of Article XXIII:1 (b) GATT 1994110

bbb) Political Considerations and the Non-Violation Complaint in Competition

Law Matters ..................................................................................................113

II. FUTURE DEVELOPMENTS UNDER THE WTO ...............................................................115

1. Prospects for an Integration of Competition Policies Into the WTO Agreements....115

2. The Role of the Non-Violation Complaint After an Integration of Competition Policies

Into the WTO Agreements .........................................................................................117

VIII

III. SUMMARY : THE INTERPLAY OF THE NON-VIOLATION COMPLAINT AND COMPETITION

LAW UNDER THE WTO................................................................................................. 118

E. RÉSUMÉ: THE FUTURE OF THE NON-VIOLATION COMPLAIN T IN

WTO-LAW ................................................................................................................... 119

I. NECESSITY FOR CHANGE............................................................................................ 119

II. REPLACEMENT OF THE NON-VIOLATION COMPLAINTS . . ........................................... 121

1. . . . By Violation Complaints Using Substantive WTO Norms................................ 122

2. . . . By Inter-Governmental Negotiation ................................................................ 123

3. . . . By Violation Complaints Having Recourse to the Principles of International Law

................................................................................................................................. 124

III. RESULTS OF A REPLACEMENT OF NON-VIOLATION COMPLAINTS USING INTERNATIONAL

LAW PRINCIPLES........................................................................................................... 130

1. Results on the Remedies Available to Claimants ................................................... 130

2. Results on the Relationship Between WTO Members and on the Strength of the WTO

Legal System ............................................................................................................ 131

F. SHORT OVERVIEW OF THE TOPIC “THE NON-VIOLATION

COMPLAINT IN WTO LAW” ................................................................................ 133

IX

Bibliography

Tracy M. Abels, The World Trade Organization's First Test: The United

States-Japan Auto Dispute, 44 UCLA L. REV. 467 (1996).

KONSTANTINOS ADAMANTOPOULOS, AN ANATOMY OF THE WORLD TRADE

ORGANIZATION (1997).

The American Heritage® Dictionary of the English Language, 4th ed.

Boston: Houghton Mifflin, 2000. www.bartleby.com/61/. 02/24/2002.

Armin von Bogdandy, The Non-Violation Procedure of Article XXIII: 2,

GATT - Its Operational Rationale, J.W.T., No.4 1992, at 95.

Sung-joon Cho, GATT Non-Violation Issues in the WTO Framework:

Are They the Achilles’ Heel of the Dispute Settlement Process?, 39 HARV. INT’L

L.J. 311 (1998).

Adrian T.L. Chua, Reasonable Expectations and Non-Violation Com-

plaints in GATT/WTO Jurisprudence, J.W.T., No. 2 1998, at 27.

Thomas Cottier & Krista Nadakavukaren Schefer, Non-Violation Com-

plaints in the WTO/GATT Dispute Settlement: Past, Present and Future, in

STUDIES IN TRANSNATIONAL ECONOMIC LAW VOLUME 11, INTERNATIONAL

TRADE LAW AND THE GATT/WTO DISPUTE SETTLEMENT SYSTEM at 143 (Ernst-

Ulrich Petersmann ed., 1997).

James P. Durling & Simon N. Lester, Original Meanings and the Film

Dispute: The Drafting History, Textual Evolution, and Application of the Non-

X

Violation Nullification or Impairment Remedy, 32 GEO. WASH. J. INT’L L. &

ECON. 211 (1999).

Bernard M. Hoekman & Petros C. Mavroidis, Competition, Competition

Policy, and the GATT, in THE WORLD BANK POLICY RESEARCH WORKING PAPER

NO. 1228, at 21-22 (1993).

Robert E. Hudec, Symposium: Competing Competition Laws: Do We

Need A Global Standard?: Panel Two: A Wider World: Other Anti-Competitive

Activities and Visions: A WTO Perspective on Private Anti-Competitive Behav-

ior in World Markets, 34 NEW ENG. L. REV. 79 (1999).

JOHN H. JACKSON, THE WORLD TRADE ORGANIZATION – CONSTITUTION

AND JURISPRUDENCE (1998).

Jason E. Kearns, International Competition Policy and the GATS: A Pro-

posal to Address Market Access Limitations in the Distribution Services Sector,

22 U. PA. J. INT’L ECON. L. 285, 296 (2001).

Kevin C. Kennedy, Global Trade Issues in the New Millennium: Foreign

Direct Investment and Competition Policy at the World Trade Organization, 33

GEO. WASH. INT’L L. REV. 585, 641 (2001).

Karen D. Lee & Silke von Lewinski, The Settlement of International Dis-

putes in the Field of Intellectual Property, in FROM GATT TO TRIPS – THE

AGREEMENT ON TRADE-RELATED ASPECTS OF INTELLECTUAL PROPERTY RIGHTS,

STUDIES IN INDUSTRIAL PROPERTY AND COPYRIGHT LAW VOLUME 18, 278 (Frie-

drich-Karl Beier & Gerhard Schricker eds., 1996).

XI

Maria-Chiara Malaguti, Restrictive Business Practices in International

Trade and the Role of the World Trade Organization, J.W.T., No. 3 1998, at 117.

Pierre Pescatore, The GATT Dispute Settlement Mechanism – Its Present

Situation and its Prospects, J.W.T., No.1 1993, at 5.

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Trade Organization and the Evolution of the GATT Dispute Settlement System

Since 1948, 31 COMMON MKT. L. REV. 1157 (1994).

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SYSTEM – INTERNATIONAL LAW, INTERNATIONAL ORGANIZATIONS AND DISPUTE

SETTLEMENT (1997).

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ERATION AND RULES 43 (1995).

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plaints in Public International Trade Law, 34 GERMAN Y.B. INT’L L. 175

(1991).

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gal System of the World Trade Organization, in STUDIES IN TRANSNATIONAL

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DISPUTE SETTLEMENT SYSTEM at 123 (Ernst-Ulrich Petersmann ed., 1997).

XII

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VOLUME 2 at 413 (1999).

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(1997).

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FORDHAM INT’L L.J. 250 (2000).

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INT’L ECON. L., VOLUME 2 at 295 (1999).

1

Introduction

WTO Law offers several different procedures in case a dispute arises be-

tween its member states. “The Non-Violation Complaint in WTO Law” is con-

cerned with the examination of one of these mechanisms for dispute resolution.

At first glance, the name ‘non-violation complaint’ seems to be a self-

contradiction: it implies that a claim is raised even though there is no violation

of an agreement, the respondent state having observed its obligations. That has

led to harsh criticism being leveled at the non-violation complaint:

I come to a legal fantasy called non-violation complaints. In my opinion this is both a

useless and dangerous construction, derived from a merely grammatical turn of the

words in [Article XXIII:1 (b) GATT] . . . “or not”. A mighty legal construction has

been erected on this basis. . . . [I]t is dangerous for the effects of GATT because it cre-

ates an easy escape from the obligations imposed by the General Agreement. In my

opinion this part . . . should be deleted and the matter should be left to the speculations

of professors fond of legal paradoxes.1

Still, the non-violation complaint has been used in the past and it has not ceased

to exist. Current developments may lead to a vast enlargement of its field of ap-

plication under WTO Law. Hence the need to understand the reasons behind this

complaint as well as the conditions which need to be fulfilled for a successful

non-violation complaint.

The WTO, which came into being on January 1, 1995, is not the first body

to have created a non-violation complaint. The GATT (General Agreement on

Tariffs and Trade) of 1947 offers this type of complaint in Article XXIII:1 (b)

GATT 1947.2 Non-violation complaints within regional trade agreements will

1 Pierre Pescatore, The GATT Dispute Settlement Mechanism – Its Present Situation and its Prospects, J.W.T., No.1 1993, at 5, 19. 2 General Agreement on Tariffs and Trade, Oct. 30, 1947, T.I.A.S. 1700, [hereinafter GATT 1947].

2

not be considered in this introduction.3 Nowadays GATT constitutes one of the

three central agreements (‘pillars’) of the WTO of 1995, alongside GATS4

(General Agreement on Trade in Services) and TRIPS5 (Trade-Related Aspects

of Intellectual Property Rights).6 As GATT, in its 1994 version (GATT 19947),

became an integral part of the WTO, this introduction will briefly analyze the

transition from GATT to the WTO. An analysis of the non-violation complaint

as it exists under WTO Law cannot be understood without understanding its

place under GATT 1947 (I.).

A second part of this introduction will give a brief overview of the avail-

ability of the non-violation procedure in the different parts of the WTO: GATT,

GATS and TRIPS. Thereby, some of the problems created by the availability of

such a procedure will become apparent and will make for a better understanding

of the analysis to be undertaken later on (II.).

Finally, this introduction will serve as an opportunity to outline how a

typical panel dispute according to the DSU8 (Dispute Settlement Understanding)

takes place; it will present the different procedural stages and the strict time-

frame (III.).

3 E.g. NAFTA offers a non-violation procedure in NAFTA Article 2004 “measure of another party . . . cause[s] nullification or impairment . . . .” (Canada-Mexico-United States: North American Free Trade Agreement, 32 I.L.M. 605 (1993)). 4 General Agreement on Trade in Services, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1B, 33 I.L.M. 44 (1994) [hereinafter GATS]. 5 Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr. 15, 1994, Mar-rakesh Agreement Establishing the World Trade Organization, Annex 1C, 33 I.L.M. 81 (1994) [hereinafter TRIPS]. 6 Cf. Adrian T.L. Chua, Reasonable Expectations and Non-Violation Complaints in GATT/WTO Jurisprudence, J.W.T., No. 2 1998, at 27, 37. 7 General Agreement on Tariffs and Trade, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, 33 I.L.M.28 (1994) [hereinafter GATT 1994]. 8 Understanding on Rules and Procedures Governing the Settlement of Disputes, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, 33 I.L.M. 112 (1994) [hereinafter DSU].

3

I. The Non-Violation Complaint From GATT 1947 to GATT 1994/WTO

GATT 1947 was intended to be a multilateral treaty functioning under the

ITO (International Trade Organization). However, the ITO never came into be-

ing because of the U.S. Congress’ refusal to approve it. In order to put GATT

into force on its own, the Protocol of Provisional Application fixed January 1,

1948 as the beginning of the application of GATT. The GATT text had been fin-

ished in October 1947 (GATT 1947).9 GATT 1994 is an updated version created

for incorporation of GATT into the WTO.

The WTO was the creation of the Uruguay Round Agreement of the

GATT/WTO, signed at Marrakesh, Morocco, on April 15, 1994. After the re-

quired number of ratifications had taken place, the Agreement came into force

on January 1, 1995.10 The aim was to adapt the already existing GATT disci-

pline and use it for trade in services, agricultural product trade and intellectual

property.11

The WTO Charter (“Agreement Establishing the World Trade Organiza-

tion”12) is a relatively brief document consisting of sixteen articles, which, how-

ever, does not contain substantive rules.13 The Charter rather incorporates the

substantive agreements resulting from the Uruguay Round into four “Annexes.”

Annex 1 is mandatory for all members of the WTO and contains GATT 1994 in

Annex 1A, GATS in 1B and TRIPS in 1C. Annex 2 contains the DSU, which

again is mandatory for all WTO Members. Annex 3 contains the Trade Policy

Review Mechanism, which is irrelevant for purposes of this study because the

9 JOHN H. JACKSON, THE WORLD TRADE ORGANIZATION - CONSTITUTION AND JURISPRUDENCE 17-18 (1998). 10 JACKSON, supra note 9, at 1-2. 11 JACKSON, supra note 9, at 2. 12 Agreement Establishing the World Trade Organization, Apr. 15, 1994, Marrakesh Agree-ment Establishing the World Trade Organization, 33 I.L.M. 13 (1994) [hereinafter Agreement Establishing the WTO]. 13 JACKSON, supra note 9, at 6.

4

non-violation complaint is not available in it. The last annex (Annex 4) contains

optional agreements, called plurilateral agreements.

GATT being one of the pillars of the WTO, the relationship of the experi-

ences made under GATT 1947 (interpretation of its articles, panel reports, . . .)

to the new GATT 1994 is of great importance. When examining the topic “The

Non-Violation Complaint in WTO Law,” one is faced with the question whether

the panel reports and practical experiences obtained under GATT 1947 may be

taken into account for the analysis of the current situation under WTO Law. In

other words, is the WTO, with its GATT 1994 Annex, separate from the earlier

GATT 1947 or are the two ‘forms’ of GATT part of ‘one’ system?

In answer to that question, Article XVI:1 of the Agreement Establishing

the World Trade Organization provides: “Except as otherwise provided under

this Agreement or the Multilateral Trade Agreements, the WTO shall be guided

by the decisions, procedures and customary practices followed by the CON-

TRACTING PARTIES to GATT 1947 and the bodies established in the frame-

work of GATT 1947.”

GATT 1947 thereby becomes “GATT acquis,”14 meaning that the experi-

ences and decisions concerning the ‘old’ GATT will be of continuing impor-

tance for the new GATT 1994 as incorporated into the WTO. Therefore, when-

ever a reference to ‘GATT 1994’ is made in this text, that reference will take

into account the GATT since its start in 1947.

14 JACKSON, supra note 9, at 14. See also ERNST-ULRICH PETERSMANN, THE GATT/WTO DIS-

PUTE SETTLEMENT SYSTEM – INTERNATIONAL LAW, INTERNATIONAL ORGANIZATIONS AND

DISPUTE SETTLEMENT 179 (1997) [hereinafter PETERSMANN, THE GATT/WTO DISPUTE SET-

TLEMENT SYSTEM].

5

II. The Non-Violation Complaint Under the Three WTO Pillars (GATT,

GATS, TRIPS)

The availability of the non-violation complaint shall be examined sepa-

rately for each of the three pillars of the WTO. Because the fundamental goals

of each agreement have to be seen in relation to the procedural complaints of-

fered by each agreement, a succinct introduction of each of the three pillar

agreements will precede the analysis as to whether the non-violation complaint

is offered or not.

Not mentioned in the following paragraphs is the fact that the non-

violation complaint is also available in Article XXII:2 of the Agreement on

Government Procurement (plurilateral agreement of Annex 4 to the WTO

agreement). The one case of interest here (Korea – Measures Affecting Govern-

ment Procurement) will be mentioned in part E. later on.

1. The Non-Violation Complaint Under GATT

a) Aims Pursued by GATT 1994

GATT 1994 has as its main goal to keep governments from applying

measures that restrict or distort international trade. Examples of restricting or

distorting measures are quotas, tariffs and regulations which discriminate against

imports, subsidy and dumping practices, state trading, customs procedures and

many non-tariff measures.15 International trade is to be liberalized. Article I

GATT 1994 is the most favored nation clause (non-discrimination among differ-

ent nations16 related to goods). Article III GATT 1994 creates the ‘national

treatment’ principle of non-discrimination against imports. Finally, Article II

GATT 1994, which is essential to non-violation complaints as shall be seen

15 JACKSON, supra note 9, at 22-23. 16 JACKSON, supra note 9, at 33.

6

later, provides that the tariff boundaries contained in each member state’s

“schedule of concessions” should be respected.

To understand these terms, one should know that a certain number of na-

tional products is listed in country-specific schedules of concessions. These

schedules are part of GATT via Article II GATT 1994. Schedules contain the

maximum tariff which a country may use for a specific product (thus called ‘tar-

iff concessions’). The maximum tariff allowed for a certain product will vary

from one country to another.17 The main purpose of all this is to channel all pro-

tectionist rules against imports into tariffs and then to create agreements on the

elimination of those tariffs.18

b) The Regulation of the Non-Violation Complaint

Under GATT 1947, the non-violation complaint could be found in Article

XXIII:1 (b) GATT 1947. In GATT 1994, it is regulated in the same article. Be-

fore the creation of the WTO, this Article had led to a number of panel reports

concerning non-violation complaints. The number of those complaints was neg-

ligible compared to those of violation complaints;19 nonetheless those reports

allow a judgment about how the non-violation complaint was applied in reality.

Article XXIII:1 (b) GATT 1994 is crucial in the sense that GATS and TRIPS

refer to it, though they restrict its scope of application. There is no proper formu-

lation of the ‘non-violation complaint’ in TRIPS and Article XXIII:3 GATS

employs terms similar to these in GATT 1994. Article XXIII:1 GATT 1994

states:

17 Chua, supra note 6, at 39 n.101. 18 JACKSON, supra note 9, at 23. 19 Less than 20 cases until 1997, see PETERSMANN, THE GATT/WTO DISPUTE SETTLEMENT

SYSTEM, supra note 14, at 136.

7

1. If any contracting party should consider that any benefit accruing to it directly or

indirectly under this Agreement is being nullified or impaired or that the attainment of

any objective of the Agreement is being impeded as the result of

(a) the failure of another contracting party to carry out its obligations under this

Agreement, or

(b) the application by another contracting party of any measure, whether or not it con-

flicts with the provisions of this Agreement, or

(c) the existence of any other situation,

the contracting party may, with a view to the satisfactory adjustment of the matter,

make written representations or proposals to the other contracting party or parties

which it considers to be concerned. Any contracting party thus approached shall give

sympathetic consideration to the representations or proposals made to it.

According to this article, it is necessary to separate the different procedures of-

fered: (a), (b) and (c) correspond to the three different complaints which are pos-

sible: (a) is the violation complaint, (b) is the non-violation complaint and (c) is

the situation complaint. Any one of these complaints can be considered in two

possible scenarios: either a benefit accruing to a state party directly or indirectly

under the agreement is being nullified or the attainment of any objective of the

agreement is being impeded. GATT 1994 delineates six different possible types

of claims (three complaints with two different scenarios each).

Violation complaints and situation complaints are not part of this under-

taking. Still, a few comments need to be made about them: the most numerous

complaints under GATT 1994 are violation complaints.20 They are applicable

whenever the claim is based on a violation of the agreement. Though the situa-

20 Around 90% of all complaints. Cf. Ernst-Ulrich Petersmann, Reflection paper of Professor Petersmann, in EUROPEAN COMMISSION, DIRECTORATE GENERAL IV – COMPETITION, COMPE-

TITION POLICY IN THE NEW TRADE ORDER: STRENGTHENING INTERNATIONAL COOPERATION AND

RULES 43, 57 (1995) [hereinafter Petersmann, Reflection paper of Professor Petersmann]. Cf. also Chua, supra note 6, at 37.

8

tion complaint has been invoked by parties alongside other complaints, there has

never been a panel report on a situation complaint.21

The scope of Article XXIII:1 (b) GATT 1994 is very broad.22 A success-

ful claimant would need to show nullification or impairment of any benefit ac-

cruing to her under the agreement or prove that the attainment of any objective

of any agreement is being impeded by the other party’s measure. That measure,

however, is a measure in accordance with the terms of GATT 1994. Whereas it

seems obvious that a claimant under an Article XXIII:1 (a) GATT 1994 viola-

tion complaint will find it particularly difficult to establish that the measure of

the other state party is violating one of the agreements under the WTO, that bur-

den of proof is non-existent for the non-violation complaint.

The broad scope of the non-violation complaint, however, has not had

significant repercussions on panel reports; those reports almost consistently used

a very reduced scope for the non-violation complaint in the sector of goods: the

non-violation complaint was only applied in order to protect the balance of tariff

concessions of Article II GATT 1994.23 The question to be answered later on is

whether such a restriction should be approved or not.

GATT 1994 is part of Annex 1A to the WTO agreement. Several other

multilateral agreements concerning trade in goods are also part of this Annex.

Some of these agreements contain articles which either refer to Article XXIII:1

(b) GATT 1994 in order to make the non-violation complaint applicable or

which provide a proper dispute settlement regulation encompassing the non-

violation complaint. These agreements will not be dealt with separately as they 21 Armin von Bogdandy, The Non-Violation Procedure of Article XXIII: 2, GATT – Its Opera-tional Rationale, GATT, J.W.T., No. 4 1992, at 95, 106. 22 Bogdandy, supra note 21, at 96. 23 Bogdandy, supra note 21, at 98. Cf. also PETERSMANN, THE GATT/WTO DISPUTE SETTLE-

MENT SYSTEM, supra note 14, at 171. For an example of an unadopted panel report permitting a wider application of the non-violation complaint under GATT 1947 see European Commu-nity - Tariff Treatment on Imports of Citrus Products from Certain Countries in the Mediter-ranean Region, L/5776 (Feb. 7, 1985).

9

concern trade in goods as well. What will be said about the non-violation com-

plaint under GATT 1994 is valid for them, too. Below is a list of these agree-

ments and the relevant Articles concerning the regulation of the non-violation

complaint:

• Agreement on Agriculture (Article 19, reference to Article XXIII GATT

1994 and Article 13 with an exception to the application of the non-

violation complaint during the implementation period in two case scenar-

ios)

• Agreement on the Application of Sanitary and Phytosanitary Measures

(Article 11:1, reference to Article XXIII GATT 1994)

• Agreement on Technical Barriers to Trade (Article 14:1, reference to Ar-

ticle XXIII GATT 1994)

• Agreement on Trade-Related Investment Measures (Article 8, reference to

Article XXIII GATT 1994)

• Agreement on Implementation of Article VI of the General Agreement on

Tariffs and Trade 1994 (Article 17:3, using a wide nullification and im-

pairment provision which has led two authors to conclude that the provi-

sion covers both violation and non-violation cases)24

• Agreement on Implementation of Article VII of the General Agreement

on Tariffs and Trade 1994 (Article 19:2, using a wide nullification and

impairment provision which has led two authors to conclude that the pro-

vision covers both violation and non-violation cases)25

24 Thomas Cottier & Krista Nadakavukaren Schefer, Non-Violation Complaints in the WTO/GATT Dispute Settlement: Past, Present and Future, in STUDIES IN TRANSNATIONAL

ECONOMIC LAW VOLUME 11, INTERNATIONAL TRADE LAW AND THE GATT/WTO DISPUTE

SETTLEMENT SYSTEM at 143, 155 (Ernst-Ulrich Petersmann ed., 1997) [hereinafter Cottier & Schefer, Non-Violation Complaints in the WTO/GATT Dispute Settlement]. 25 Cottier & Schefer, Non-Violation Complaints in the WTO/GATT Dispute Settlement, supra note 24, at 143, 155.

10

• Agreement on Preshipment Inspection (Article 8, reference to Article

XXIII GATT 1994)

• Agreement on Rules of Origin (Article 8, reference to Article XXIII

GATT 1994)

• Agreement on Subsidies and Countervailing Measures (Article 30, refer-

ence to Article XXIII GATT 1994)

• Agreement on Safeguards (Article 14, reference to Article XXIII GATT

1994)

• Agreement on Import Licensing Procedures (Article 6, reference to Arti-

cle XXIII GATT 1994)

Furthermore, a later part of the main section of this work will deal with the ques-

tion whether the non-violation complaint as formulated in Article XXIII:1 (b)

GATT 1994 can or should be able to cover the area of ‘competition law.’26

2. The Non-Violation Complaint Under GATS

a) Aims Pursued by GATS

GATS tries to use the ‘most favored nation principle,’ the ‘national treat-

ment principle’ and the ‘schedules of concessions’ idea in the area of services.

Since that area differs from the GATT-covered area of ‘goods,’ GATS modifies

the above-mentioned rules of GATT 1994.27 In view of its importance to the

non-violation complaint, it should be mentioned that GATS has a system of

‘modes of delivery for services,’ which creates a frame for ‘scheduled commit-

ments.’28

26 Cf. Petersmann, Reflection paper of Professor Petersmann, supra note 20, at 43, 57. Cf. also WTO Working Group on the Interaction between Trade and Competition Policy, Com-munication from Singapore, WT/WGTCP/W/28, para. 16:b n.14 (Sept. 15, 1997). 27 JACKSON, supra note 9, at 23. 28 JACKSON, supra note 9, at 23.

11


The non-violation complaint in GATS is regulated in Article XXIII:3 GATS:

If any Member considers that any benefit it could reasonably have expected to accrue

to it under a specific commitment of another Member under Part III of this Agreement

is being nullified or impaired as a result of the application of any measure which does

not conflict with the provisions of this Agreement, it may have recourse to the DSU.

Again, the question of the scope of applicability of the non-violation complaint

in the GATS-covered sector of services will have to be solved later. The central

problem there is the following: a number of GATS rules restrict the national pol-

icy autonomy. As a consequence, the GATS specific commitments (Articles

XVI – XVIII GATS) can hardly be nullified or impaired by the later introduc-

tion of new policies.29 The question then is whether the non-violation complaint

is applicable under GATS at all.

3. The Non-Violation Complaint Under the TRIPS Agreement

a) Aims Pursued by the TRIPS Agreement

Like GATS, TRIPS tries to adapt rules of GATT to its subject matter, the

protection of intellectual property standards. TRIPS has installed a system of

minimum standards which governments must implement to protect intellectual

property. Governments must also enable private intellectual property rights

holders to protect their rights by using national legal procedures.30


Applicability of the non-violation complaint under the TRIPS Agreement

is regulated by Article 64 TRIPS:

1. The provisions of Articles XXII and XXIII of GATT 1994 as elaborated and ap-

plied by the Dispute Settlement Understanding shall apply to consultations and the set-

29 PETERSMANN, THE GATT/WTO DISPUTE SETTLEMENT SYSTEM, supra note 14, at 148. 30 JACKSON, supra note 9, at 23-24.

12

tlement of disputes under this Agreement except as otherwise specifically provided

herein.

2. Subparagraphs 1(b) and 1(c) of Article XXIII of GATT 1994 shall not apply to the

settlement of disputes under this Agreement for a period of five years from the date of

entry into force of the WTO Agreement.

3. During the time period referred to in paragraph 2, the Council for TRIPS shall ex-

amine the scope and modalities for complaints of the type provided for under subpara-

graphs 1(b) and 1(c) of Article XXIII of GATT 1994 made pursuant to this Agree-

ment, and submit its recommendations to the Ministerial Conference for approval.

Any decision of the Ministerial Conference to approve such recommendations or to

extend the period in paragraph 2 shall be made only by consensus, and approved rec-

ommendations shall be effective for all Members without further formal acceptance

process.

The critical situation created by Article 64:2 TRIPS is apparent: the five-year

period during which the non-violation complaint was not available ran out on

December 31, 1999.

Therefore the question to be answered is what the current status of the

non-violation complaint is under the TRIPS Agreement. Under the TRIPS

Agreement, even more than under GATT 1994 and GATS, the non-violation

complaint could possibly have an extremely broad scope of application. De-

pending on the policy choices regarding intellectual property, such an expanded

field of application is either welcomed or criticized by the states that are parties

to the WTO. The conflict about the status of the non-violation complaint under

TRIPS will be elaborated in the main sections of this analysis.

III. Process of a Panel Decision Under the DSU

The process of a panel decision under the DSU has many common steps

irrespective of the fact whether a violation, non-violation or situation complaint

is raised. In order to show how a non-violation complaint will be dealt with, the

general process of a panel decision under the DSU is succinctly shown:

13

The WTO is governed by a unified dispute settlement system, the DSU.31

The DSU covers the agreements of Annexes 1 and 2 and it can be applied to

those of Annex 4.32 A newly created Dispute Settlement Body (DSB) supervises

and implements the DSU according to Article 2:1 DSU. The provisions of the

DSU prevail over those of other agreements, at least as far as the three ‘pillars’

of the WTO are concerned (Article 1:1 DSU and Appendix 1 B DSU). The lan-

guage of the DSU is close to a ‘juridical process’ and farther away from a ‘nego-

tiation’ or ‘diplomatic’ approach. That rule-based approach enhances legal cer-

tainty and predictability, especially important principles in the sector of interna-

tional economic affairs.33 This approach is demonstrated in Article 3:2 DSU:

The dispute settlement system of the WTO is a central element in providing security

and predictability to the multilateral trading system. The Members recognize that it

serves to preserve the rights and obligations of Members under the covered agree-

ments, and to clarify the existing provisions of those agreements in accordance with

customary rules of interpretation of public international law. Recommendations and

rulings of the DSB cannot add to or diminish the rights and obligations provided in the

covered agreements.

Article 23:1 DSU forces the WTO Members to accept the provisions of the DSU

as the only means to tackle disputes between them, by stating: “When Members

seek the redress of a violation of obligations or other nullification or impairment

of benefits under the covered agreements or an impediment to the attainment of

any objective of the covered agreements, they shall have recourse to, and abide

by, the rules and procedures of this Understanding.”

31 JACKSON, supra note 9, at 7. 32 JACKSON, supra note 9, at 39-40. 33 JACKSON, supra note 9, at 60.

14

The DSU allows all sections of the WTO texts relevant to a case to be

taken into account by a panel. In addition to the panel procedure, the DSU cre-

ates an appellate procedure.34

One of the main changes between former GATT practice and the WTO

rules on how a panel works is the strict procedure set forth in the DSU.

A further change with regard to the former GATT 1947 is the use of nega-

tive consensus at several points during the process of a panel decision: when the

complainant asks the DSB to establish a panel (Articles 4:3, 4:7 DSU), that

process can only be halted by a negative consensus (Article 6:1 DSU), that is by

a vote of all members of the DSB (including the member who requests a panel)

against the establishment of a panel. That is a situation most unlikely to occur,35

so that the complaining member actually has a ‘right’ to a panel. The panel’s

terms of reference permit the panel, according to Article 7:1 DSU,

to examine, in the light of the relevant provisions in (name of the covered agree-

ment(s) cited by the parties to the dispute), the matter referred to the DSB by (name of

party) in document . . . and to make such findings as will assist the DSB in making the

recommendations or in giving the rulings provided for in that/those agreement(s).

The final panel report is submitted to the DSB, which adopts it within 60 days of

issuance unless an appeal against the report is filed or if there is consensus

within the DSB to reject the report (Article 16:4 DSU). Rejection of the report

by the DSB is highly unlikely, because the ‘winning’ party will also have repre-

sentation in the DSB. Thus, a consensus against adoption is virtually impossible,

and the panel’s recommendations are ‘automatically’ approved by the DSB.36

Each of the parties has the right to file an appeal against the panel report

to the standing Appellate Body (Articles 17:1, 17:4 DSU). The scope of review

34 JACKSON, supra note 9, at 72. 35 KONSTANTINOS ADAMANTOPOULOS, AN ANATOMY OF THE WORLD TRADE ORGANIZATION 65 (1997). 36 ADAMANTOPOULOS, supra note 35, at 67.

15

of the Appellate Body is restricted to questions of law (Article 17:6 DSU). The

DSB is then obliged to adopt the report of the Appellate Body within 30 days of

issuance, again unless a consensus in the DSB against the adoption emerges (Ar-

ticle 17:14 DSU). Just as with the panel report, a consensus against an Appellate

report is almost unthinkable, as the winning party participates in the DSB.

Adding up the amounts of time provided by the DSU for the different

panel stages, the approximate length of time it takes to settle a dispute (given the

flexibility of the DSU in some provisions of Article 12 DSU) is 1 year without

and 1 year and 3 months with appeal37 – a remarkably fast procedure.

The final report is binding upon the parties (Article 17:14 DSU): “An Ap-

pellate Body report shall be adopted by the DSB and unconditionally accepted

by the parties to the dispute . . . .”

However, despite all this a party may simply wish not to comply with a

panel report for various reasons. What are the consequences of such an attitude?

The DSU provides in Article 22:2 DSU:

If the Member concerned fails to bring the measure found to be inconsistent with a

covered agreement into compliance therewith or otherwise comply with the recom-

mendations and rulings within the reasonable period of time determined pursuant to

paragraph 3 of Article 21, such Member shall, if so requested, and no later than the

expiry of the reasonable period of time, enter into negotiations with any party having

invoked the dispute settlement procedures, with a view to developing mutually accept-

able compensation. If no satisfactory compensation has been agreed within 20 days af-

ter the date of expiry of the reasonable period of time, any party having invoked the

dispute settlement procedures may request authorization from the DSB to suspend the

application to the Member concerned of concessions or other obligations under the

covered agreements.

It follows that a party not complying with the recommendations must enter into

negotiations with the complainant so as to develop mutually acceptable compen- 37 WTO INFORMATION AND MEDIA RELATIONS DIVISION, TRADING INTO THE FUTURE – WTO - THE WORLD TRADE ORGANIZATION 39 (2d ed. Apr. 1999).

16

sation. Should these be of no avail, the complainant may request authorization

from the DSB to suspend concessions or obligations in relation to the other

party. The DSB shall allow suspension of concessions unless there is a consen-

sus within the DSB to the contrary (Article 22:6 DSU). At first, the DSB will

authorize suspension of concessions in the same sector of an agreement. If that

proves to be impracticable, authorization for suspension of concessions may be

granted for a different sector of the same agreement or even under another

agreement (“cross retaliation;”38 Article 22:3 (a)-(c) DSU). Usually, suspension

of concessions will amount to higher import duties. Despite that multitude of

‘sanctions,’ the WTO cannot impose any fine on its state members. The en-

forcement powers therefore only rely on the moral force of the panel report and

on the threat of authorized retaliation by a powerful opponent.39

Though it is mentioned in Article 22:1 DSU that implementation is pre-

ferred to compensation and suspension of concessions, the language employed

fails to erase all doubt as to whether there is a choice between ‘compensation’ or

the ‘implementation’ of the panel report. The correct answer seems to be that an

adopted panel report creates as a legal consequence the obligation stemming

from international law to fulfill the recommendations of the panel report.40 One

reason which mandates this result is that GATT practice shows that the outcome

of an adopted panel report has been seen as legally binding.41 As has been

shown above, Article XVI:1 of the Agreement Establishing the World Trade

Organization states that the “WTO shall be guided by the decisions, procedures

and customary practices followed by the CONTRACTING PARTIES to GATT

1947.”

38 PETERSMANN, THE GATT/WTO DISPUTE SETTLEMENT SYSTEM, supra note 14, at 192. 39 ADAMANTOPOULOS, supra note 35, at 68-69. 40 JACKSON, supra note 9, at 87. 41 JACKSON, supra note 9, at 86.

17

This result can also be strengthened by showing what specific effects a

panel report has in non-violation complaints (Article 26:1 (b) DSU):

where a measure has been found to nullify or impair benefits under, or impede the at-

tainment of objectives, of the relevant covered agreement without violation thereof,

there is no obligation to withdraw the measure. However, in such cases, the panel or

the Appellate Body shall recommend that the Member concerned make a mutually sat-

isfactory adjustment.

The panel report following a non-violation complaint does not create an obliga-

tion to withdraw the measure, which makes sense if one recalls that the non-

violation complaint specifically involves a measure where the ‘defendant’ state

has not breached any of the agreements which are part of the WTO. Of course,

this implies for the opposite case of violation complaints that there is an obliga-

tion42 to withdraw the measure and hence no choice between ‘implementation’

and ‘compensation and suspension of concessions.’

In summarizing the content of this part for non-violation complaints, it

should be stressed that according to Article 26 DSU their procedure follows that

of a violation complaint; the most notable exception being that there is no obli-

gation to withdraw the ‘legitimate’ measure. That means that the parties will di-

rectly arrive at the step of ‘compensation’ and then, case given, at the step of

‘suspension of concessions.’

42 JACKSON, supra note 9, at 88.

19

A. The Non-Violation Complaint of Article XXIII:1 (b) GATT 1994

I. Introduction to the Non-Violation Complaint in the In ternational Trade

of Goods Outside the WTO

1. The Non-Violation Complaint in the International Trade of Goods Before

1947

The idea of non-violation nullification or impairment was not new when

GATT 1947 came into force. Several bilateral treaties signed before 1947 make

use of the “non-violation” idea. Of course, the meaning given to “non-violation”

in those treaties is, strictly speaking, not relevant to the current interpretation of

GATT 1994. In addition, those clauses are not identical to the current Article

XXIII:1 (b) GATT 1994. However, they may provide some insight into the

question why this “non-violation idea” was inserted into GATT 1947.

The first idea of non-violation nullification or impairment, though not ex-

pressed in these terms, was discussed at economic conferences held by the

League of Nations. The League of Nations, though primarily concerned with the

future avoidance of political conflicts, also featured an economic focus. Discus-

sions during economic conferences centered on the main protectionist device

governments used at that time: tariffs and the possibilities for their reduction.

League of Nations discussions were to promote the use of commercial treaties

that discouraged high tariffs. The danger was perceived that even in the presence

of lowered tariffs, governments would find non-tariff ways to re-erect barriers to

trade. These new barriers could considerably reduce the effectiveness of a com-

mercial treaty on the reduction of tariffs.43 What led to the “non-violation no-

tion” (here called “equitable treatment clause”) was the perception that it was

43 James P. Durling & Simon N. Lester, Original Meanings and the Film Dispute: The Draft-ing History, Textual Evolution, and Application of the Non-Violation Nullification or Impair-ment Remedy, 32 GEO. WASH. J. INT’L L. & ECON. 211, 216-218 (1999).

20

futile44 to try to draft a comprehensive list of impermissible government meas-

ures. The equitable treatment clause should address protection measures by gov-

ernments not covered by the agreements themselves.45 The version of the “equi-

table treatment clause” as adopted by the London Monetary and Economic Con-

ference under the auspices of the League of Nations reads:46

If, subsequent to the conclusion of the present treaty, one of the Contracting Parties in-

troduces any measure, which even though it does not result in an infringement of

terms of the treaty, is considered by the other Party to be of such a nature as to have

the effect of nullifying or impairing any object of the treaty, the former shall not refuse

to enter into negotiations with the purpose either of an examination of proposals made

by the latter or of the friendly adjustment of any complaint preferred by it.47

The League of Nations discussions set the foundation for later bilateral trade

agreements. In these agreements, the avoidance of “indirect protection,” mean-

ing resurrection of barriers by other means than tariffs, played a substantial

role.48 In order to fight that danger, three devices were used, the second of them

being the “equitable treatment” clause:

(1) substantive legal rules prohibiting or limiting the use of trade restricting or distort-

ing trade policy measures; (2) procedural rules providing for legal remedies not only

in case of treaty violations but also in situations where the commercial opportunities

protected by those trade agreements were being nullified by other (e.g. purely domes-

tic) measures; and (3) termination clauses allowing a disappointed party to terminate

the trade policy obligations altogether on short notice . . . .49

44 Cf. WTO Council for Trade-Related Aspects of Intellectual Property Rights, Non-Violation Complaints and the TRIPS Agreement - Note by the Secretariat, IP/C/W/124, para. 30 (Jan. 28, 1999). 45 Durling & Lester, supra note 43, at 218. 46 Durling & Lester, supra note 43, at 223-224. 47 League of Nations, Monetary and Economic Conference, Reports Approved by the Confer-ence on July 27th, 1933, and Resolutions Adopted by the Bureau and the Executive Commit-tee, C. 435. M. 220. 1933. II at 30. 48 Durling & Lester, supra note 43, at 225-226. 49 Ernst-Ulrich Petersmann, Violation Complaints and Non-Violation Complaints in Public International Trade Law, 34 GERMAN Y.B. INT’L L. 175, 197 (1991) [hereinafter Petersmann, Violation Complaints and Non-Violation Complaints in Public International Trade Law].

21

Looking at the three devices, one realizes that early bilateral trade agreements

differed from those concluded today: those agreements had a restricted scope,

they were mainly concerned with tariff reductions and quantitative restrictions.

Domestic measures of either party (subsidies, taxes, . . .) were not dealt with.

When those trade agreements were interpreted, the positivist legal theory used

was that a party could do whatever was not specifically forbidden by the agree-

ment. Narrow interpretation and no regulation of domestic measures allowed

facile circumvention of the treaty goals;50 hence the necessity for a clause ad-

dressing those domestic measures which were “allowed” and which could cir-

cumvent treaty goals.

Given that the original “equitable treatment” clause was drafted by an

American, it is not surprising that bilateral agreements concluded by the U.S.

under the Reciprocal Trade Agreements Act of 1934 contain the same formula-

tion as adopted by the League of Nations.51 As an example,52 Article XIV of the

U.S.-Honduras Trade Agreement provides:

In the event that the United States of America or the Republic of Honduras adopts any

measure which, even though it does not conflict with the terms of this Agreement, is

considered by the Government of the other country to have the effect of nullifying or

impairing any object of the Agreement, the Government of the country which has

adopted any such measure shall consider such representations and proposals as the

50 Cottier & Schefer, Non-Violation Complaints in the WTO/GATT Dispute Settlement, supra note 24, at 143, 151. 51 Durling & Lester, supra note 43, at 226-227. 52 Cf. other U.S. Trade Agreements: Agreement between the United States of America and Costa Rica respecting reciprocal trade, 50 Stat. 1582, Art. XV (July 2, 1937); Agreement, protocol, notes, and protocol of amendment between the United States of America and Czechoslovakia respecting reciprocal trade, 53 Stat. 2293, Art. XVI (Apr. 15, 1938); Agree-ment between the United States of America and Ecuador respecting reciprocal trade, 53 Stat. 1951, Art. XVII (Effective Oct. 23, 1938). For other Trade Agreements see Cottier & Schefer, Non-Violation Complaints in the WTO/GATT Dispute Settlement, supra note 24, at 143, 150 n.14.

22

Government of the other country may make with a view to effecting a mutually satis-

factory adjustment of the matter.53

Those pre-war U.S. trade agreements thus tried to put into place a shield for

benefits from tariff reductions in order to avoid the benefits being nullified by

‘allowed’ non-tariff measures.54 Of course, those agreements had shortfalls as

well: regarding the above excerpt from the U.S.-Honduras Trade Agreement, it

is unclear what the remedy really is if the parties fail to agree to a “mutually sat-

isfactory adjustment of the matter.” On the other hand, the prospect of with-

drawal from the agreement (the latter being generally allowed) provided the

practically valuable basis to lead “negotiations” to a successful completion.55

At that time, agreements to which the U.S. was not a party often contained

fairly similar clauses as well.56 An example of a clause broader than the one

used by the U.S. is to be found in an agreement between New Zealand and Swit-

zerland:

In the event of the economic benefits anticipated by both Contracting Parties on con-

cluding the present Arrangement not being attained or in the event of either of the

Contracting Parties considering itself at a disadvantage through developments unfa-

vourable to its interests or through the adoption by the other Party of measures of an

economic nature, either of the Contracting Parties may request that negotiations be

commenced without delay with a view to effecting a mutually satisfactory adjustment

of the matter.57

53 Reciprocal Trade Agreement, U.S.-Hond., Art. XIV, 49 Stat. 3851 (entered into force Mar. 2, 1936), cited in Durling & Lester, supra note 43, at 227 n.86. 54 Ernst-Ulrich Petersmann, The Dispute Settlement System of the World Trade Organization and the Evolution of the GATT Dispute Settlement System Since 1948, 31 COMMON MKT. L. REV. 1157, 1171 (1994) [hereinafter Petersmann, The Dispute Settlement System of the World Trade Organization and the Evolution of the GATT Dispute Settlement System Since 1948]. 55 Cf. Cottier & Schefer, Non-Violation Complaints in the WTO/GATT Dispute Settlement, supra note 24, at 143, 150-151. 56 Durling & Lester, supra note 43, at 228. 57 New Zealand and Switzerland, Exchange of Notes constituting a Trade Arrangement, with Annex, Wellington, May 5th, 1938, and Exchange of Notes concerning the Interpretation of the Term “Foreign Country” appearing, in relation to New Zealand, in the above-mentioned Arrangement, Wellington, May 20th, 1938, para. 4, 189 L.N.T.S. 167, 170.

23

The “developments unfavourable to its interests” can be new government meas-

ures undermining the benefits of the agreement.58

Another treaty containing a non-violation clause was the ITO. Though the

ITO never came into being, the commercial policy rules subsisted as GATT

1947.59 The Havana Charter60 reads in Article 93:

1. If any Member considers that any benefit accruing to it directly or indirectly, im-

plicitly or explicitly, under any of the provisions of this Charter other than Article 1 is

being nullified or impaired as a result of

(a) a breach by a Member of an obligation under this Charter by action or fail-

ure to act, or

(b) the application by a Member of a measure not conflicting with the provi-

sions of this Charter, or

(c) the existence of any other situation

the Member may, with a view to the satisfactory adjustment of the matter, make writ-

ten representations or proposals to such other Member or Members as it considers to

be concerned, and the Members receiving them shall give sympathetic consideration

thereto.

2. The Members concerned may submit the matter arising under paragraph 1 to arbi-

tration upon terms agreed between them . . . .

The first thing which stands out is that Article 93:1 of the Havana Charter is

close to Article XXIII:1 GATT 1994. It innovates by introducing the notion of

“benefits accruing.” This was supposed to narrow the language (used in previous

drafts) of preventing nullification or impairment of “any object of the Charter.”61

The former language was feared to create new obligations under the ITO where

none had existed before.62 In addition, the Havana Charter differentiates be-

58 Durling & Lester, supra note 43, at 229-230. 59 Durling & Lester, supra note 43, at 231. 60 Final Act and Related Documents, United Nations Conference on Trade and Employment, Havana, Cuba, November 21, 1947-March 24, 1948, U.N. Doc. ICITO/1/4 (1948) [hereinafter Havana Charter]. 61 Durling & Lester, supra note 43, at 238. 62 Durling & Lester, supra note 43, at 234.

24

tween three types of claims: violation, non-violation and situation complaints.

The violation claim was put first as it was supposed to become the most utilized

type of complaint. Article 93:1 of the Havana Charter is not part of the Chapter

of Commercial Policy, which reveals that the provision is applicable to the

whole ITO Charter.63 The ITO Charter, as mentioned beforehand, never came

into being, as it was not ratified by the U.S.. However, GATT 1947 was signed

on October 30, 1947 in an attempt made by the U.S. to hold a round of tariff ne-

gotiations before the ITO creation then assumed to come about in the future.

GATT 1947 was mainly based on the commercial policy section of the ITO. The

GATT 1947 nullification or impairment provision was almost identical to Arti-

cle 93:1 of the Havana Charter.64 However, there was still criticism concerning

the introduction of the non-violation complaint:

I would like to say, Mr. Chairman, that of all the vague and woolly punitive provisions

that one could make, this seems to me to hold the prize place. It appears to me that

what it says is this: In this wide world of sin there are certain sins which we have not

yet discovered and which after long examination we cannot define; but there being

such sins, we will provide some sort of punishment for them if we find out what they

are and if we find anybody committing them. When it comes to that, we shall describe

them as sins only when the Organization considers that they are not venial offences,

but serious crimes; but we do not know under what circumstances the Organization

might consider them to be serious. Nonetheless, seeing that there are such sins, and in

spite of the fact that we do not know what they are, and in spite of the fact that we do

not know under what circumstances we are going to apply any punishment to them,

we shall still provide a sort of vague and general “sword of Damocles”, if such a thing

is possible, to hang over the head of all the people who may possibly commit this

sin.65

63 Durling & Lester, supra note 43, at 238. 64 Durling & Lester, supra note 43, at 239. 65 Statement by the South African Delegate, Economic and Social Council, Second Session of the Preparatory Committee of the United Nations Conference on Trade and Employment., This footnote is continued on the next page

25

It would be hard to contradict that opinion, though it should not be overlooked

that, in order to re-establish the originally negotiated balance of benefits of an

agreement in all its vagueness, an equally vague provision may in fact have been

the only available device.

2. The Non-Violation Complaint in the International Trade of Goods After

1947

To jump ahead in time, bilateral as well as multilateral agreements used

the notion of ‘non-violation’ after the entry into force of GATT 1947. As an ex-

ample of a multilateral treaty, Article 2004 of Chapter 20 NAFTA66 provides:

The dispute settlement provisions of this Chapter shall apply with respect to the avoid-

ance or settlement of all disputes between the Parties regarding the interpretation or

application of this Agreement or wherever a Party considers that an actual or proposed

measure of another Party is or would be inconsistent with the obligations of this

Agreement or cause nullification or impairment in the sense of Annex 2004.

Annex 2004 states:

Nullification and Impairment

1. If any Party considers that any benefit it could reasonably have expected to accrue

to it under any provision of:

(a) Part Two (Trade in Goods), except for those provisions of Annex 300-A

(Automotive Sector) or Chapter Six (Energy) relating to investment,

(b) Part Three (Technical Barriers to Trade),

(c) Chapter Twelve (Cross-Border Trade in Services), or

(d) Part Six (Intellectual Property),

is being nullified or impaired as a result of the application of any measure that is not

inconsistent with this Agreement, the Party may have recourse to dispute settlement

under this Chapter.

Verbatim Report, Thirty-Third Meeting of Commission “B” Held on Tuesday, August 19 1947 at 2.30 P.M. in the Palais des Nations, Geneva, E/PC/T/B/PV/33 at 42. 66 Canada-Mexico-United States: North American Free Trade Agreement, 32 I.L.M. 605 (1993).

26

As in GATT 1994, a party can be attacked because of a measure taken without

violating the NAFTA rules (“nullification or impairment”). A difference to Arti-

cle XXIII:1 (b) GATT 1994 is that it is not necessary for a NAFTA party to

have taken action in order to be attacked under the non-violation provision. Ar-

ticle 2004 NAFTA permits complaints based on proposed measures. However,

Annex 2004 adds the requirement that the complaining state was deprived of a

benefit it “could reasonably have expected to accrue to it” under the agreement.

GATT 1994 does not contain this provision in Article XXIII:1 (b) GATT 1994.

However, GATT panel practice requires this element to be present, as well. Here

it can be seen that the NAFTA rules took over not only the text of the GATT

1947 provision but also the established panel practice (as will later be devel-

oped).67 Other than that, there has only been one panel report based on the non-

violation provision, which does not yet allow one to judge how NAFTA deals

with the non-violation complaint (Puerto Rico Regulations on the Import, Dis-

tribution and Sale of U.H.T. Milk from Quebec68).

An inclusion of the idea of non-violation nullification or impairment can

be found in more recent treaties, for example:

67 Cf. Cherie O’Neal Taylor, Institutions for International Economic Integration: Dispute Resolution as a Catalyst for Economic Integration and an Agent for Deepening Integration: NAFTA and MERCOSUR?, 17 J. INT’L. L. BUS. 850, 883-884 (1997). 68 Puerto Rico Regulations on the Import, Distribution and Sale of U.H.T. Milk from Québec, No. USA-93-1807-01, available at http://www.sice.oas.org/DISPUTE/uscanfta/Uc93010e.asp (Apr. 25, 2002).

27

CONTENT ►

TREATY ▼

Non-Violation

Nulli fication or

Impairment Provi-

sion in Article:

Dispute Settlement

for a Proposed

Measure as in

NAFTA (and

unlike GATT

1994)?

Reasonable Expec-

tations Principle

Included in Article

or Annex (unlike

GATT 1994, but

as in NAFTA An-

nex 2004)?

Mexico-Colombia-

Venezuela or

“Group of Three”

Free Trade

Treaty69

19-02:1 (b):

“cuando una Parte

considere que una

medida de otra

Parte, es

incompatible con

las obligaciones de

este Tratado, o

pudiera causar

anulación o

menoscabo en el

sentido del anexo a

este artículo”

No Yes, in Anexo al

artículo 19-02:1:

“Las Partes podrán

recurrir al

mecanismo de

solución de

controversias de

este capítulo,

cuando en virtud

de la aplicación de

una medida que no

contravenga el

Tratado,

consideren que se

anulan o

menoscaban los

beneficios que

69 Tratado de Libre Comercio entre los Estados Unidos Mexicanos, la República de Colombia y la República de Venezuela, signed in September 1990, entered into force January 1, 1995, available at http://www.sice.oas.org/TRADEE.ASP (Apr. 21, 2002).

28

razonablemente

pudieron haber

esperado recibir de

la aplicación de los

capítulos . . .”

Mexico-Bolivia

Free Trade

Treaty70

19-02:b: “cuando

una Parte

considere que una

medida vigente o

en proyecto de otra

Parte es

incompatible con

las obligaciones de

este Tratado o

pudiera causar

anulación o

menoscabo en el

sentido del anexo a

este artículo”

Yes Yes, in Anexo al

artículo 19-02:1:

“Una Parte podrá

recurrir al

mecanismo de

solución de

controversias de

este capítulo

cuando, en virtud


una medida que no

contravenga el

Tratado, considere

que se anulan o

menoscaban los

beneficios que

razonablemente

pudo haber

esperado recibir de

la aplicación . . .”

70 Tratado de Libre Comercio México – Bolivia, signed September 10, 1994, entered into force January 1, 1995, available at http://www.sice.oas.org/TRADEE.ASP (Apr. 21, 2002).

29

Mexico-Costa

Rica Free Trade

Treaty71

17-02:b: “cuando

una Parte

considere que una

medida vigente o

en proyecto de otra

Parte es

incompatible con

las obligaciones de

este Tratado o

pudiera causar

anulación o

menoscabo en el

sentido del anexo a

este artículo”

Yes Yes, Anexo al

artículo 17-02:1:

“Una Parte podrá

recurrir al

mecanismo de

solución de

controversias de

este capítulo

cuando, en virtud


una medida que no

contravenga el

Tratado, considere

que se anulan o

menoscaban los

beneficios que

razonablemente

pudo haber

esperado recibir de

la aplicación . . .”

Mexico-Nicaragua

Free Trade

Treaty72

20-02:b: “cuando

una Parte

considere que una

medida vigente o

Yes Yes, Anexo al

artículo 20-02:1:

“Las Partes podrán

recurrir al

71 Tratado de Libre Comercio México – Costa Rica, signed April 5, 1994, entered into force January 1, 1995, available at http://www.sice.oas.org/TRADEE.ASP (Apr. 21, 2002). 72 Tratado de Libre Comercio entre los Estados Unidos Mexicanos y la República de Nicaragua, signed in August 1992, entered into force July 1, 1998, available at http://www.sice.oas.org/TRADEE.ASP (Apr. 21, 2002).

30

en proyecto de otra

Parte es

incompatible con

las obligaciones de

este Tratado o

pudiera causar

anulación o

menoscabo en el

sentido del anexo a

este artículo”

mecanismo de

solución de

controversias de

este capítulo

cuando, en virtud


una medida que no

contravenga este

Tratado,

consideren que se

nulifican o

menoscaban los

beneficios que

razonablemente

pudieron haber

esperado recibir de

la aplicación de las

siguientes

disposiciones . . .”

Central America-

Dominican Repub-

lic Free Trade

Treaty73

16.03:b: “cuando

una Parte

considere que una

medida vigente o

en proyecto de otra

Parte es

incompatible con

Yes Yes, in Artículo

16.03:b: “cuando

una Parte

considere que una

medida vigente o

en proyecto de otra

Parte es

73 Tratado de Libre Comercio Centroamérica - República Dominicana, signed April 16, 1998, available at http://www.sice.oas.org/TRADEE.ASP (Apr. 21, 2002).

31

las obligaciones de

este Tratado o que,

aún cuando no

contravenga el

Tratado considere

que se anulan o

menoscaban los

beneficios que

razonablemente

pudo haber

esperado recibir de

la aplicación de

este Tratado”

incompatible con

las obligaciones de

este Tratado o que,

aún cuando no

contravenga el

Tratado considere

que se anulan o

menoscaban los

beneficios que

razonablemente

pudo haber

esperado recibir de

la aplicación de

este Tratado”

The first observation to be made is that the language employed by these

treaties is almost identical. Comparing the Articles cited above to NAFTA and

to GATT 1994, one finds again that they all are quite similar. One difference,

however, is that some of the treaties mentioned do allow dispute settlement for

mere ‘proposed measures,’ whereas GATT 1994 does not permit a non-violation

complaint in such a case. GATT panel practice does, as already mentioned

above, require the presence of ‘reasonable expectations’ for a successful non-

violation claim. However, that requirement is not mentioned in Article XXIII:1

(b) GATT 1947. The agreements mentioned being later in time than GATT

1947, they include, some in Annexes like NAFTA, and one right in the Article

itself, the ‘reasonable expectations’ requirement. Thus they show, like NAFTA,

the repercussions of panel practice in the course of time on the drafting of later

treaties.

32

II. The Conditions for a Successful Non-Violation Complaint Under Article

XXIII:1 (b) GATT 1994

Section II. will detail what conditions are necessary nowadays to bring a

successful non-violation complaint under GATT 1994. Article XXIII:1 GATT

1994 states:

1. If any contracting party should consider that any benefit accruing to it directly or

indirectly under this Agreement is being nullified or impaired or that the attainment of

any objective of the Agreement is being impeded as the result of

(a) the failure of another contracting party to carry out its obligations under this

Agreement, or

(b) the application by another contracting party of any measure, whether or not it con-

flicts with the provisions of this Agreement, or

(c) the existence of any other situation,

the contracting party may, with a view to the satisfactory adjustment of the matter,

make written representations or proposals to the other contracting party or parties

which it considers to be concerned. Any contracting party thus approached shall give

sympathetic consideration to the representations or proposals made to it.

The following headings will for the most part reflect the text of Article XXIII:1

(b) GATT 1994 (headings 1 to 3); heading 4 and 5 will discuss aspects which

cannot be found in the treaty text. The remedies for a successful non-violation

complaint will be discussed in section III.

As seen above, the non-violation complaint exists in two alternatives, the

“benefit accruing . . . is being nullified or impaired” and the “attainment of any

objective of the Agreement is being impeded.”

The latter option did not exist under Article 93 of the Havana Charter as it

was judged to have no discernible limits.74 That part of Article XXIII:1 (b)

GATT 1994 is not included in the discussion below for the following reasons:

74 Cf. Negotiating Group on Dispute Settlement, Non-Violation Complaints under GATT Arti-cle XXIII:2 - Note by the Secretariat, MTN.GNG/NG13/W/31, para. 28b (July 14, 1989).

33

No adopted panel report has ever been based on the “attainment” variant.75

Given the “vague language and criteria” for complaints over “impeding of

GATT objectives,” the view has been expressed that it is to be cherished that

these unpredictable complaints have fallen into disuse.76

It also seems unlikely that a party will be able to furnish enough proof as

to the specificity of the objective being impeded77 in order to successfully in-

voke the provision.

Parties, however, have alleged the existence of the “attainment” variant

under GATT 1947, e.g. in the complaint in Japan – Semiconductors (here the

‘attainment variant’ was invoked as well as the ‘benefit accruing’ variant):

that one of the objectives contained in the Preamble of the General Agreement was the

"substantial reduction of tariffs and other barriers to trade", and that the objective of this

reduction included the expansion of production and exchange of goods. . . . To achieve

these objectives, it was necessary for all contracting parties not to manipulate the system

through the imposition of arbitrary, unilateral export restrictions especially in areas

where they had gained a substantial degree of preeminence in terms of concentration of

production of essential products.78

Those allegations prove how vague and potentially all-encompassing the “at-

tainment” language is. It is therefore good that the panel found the evidence

submitted insufficient to support this part of the complaint.79 The only panel re-

port to accept a violation of the “aims” of GATT 1947 (United States – Trade

Measures Affecting Nicaragua) was not adopted.80 After GATT 1994, a few par-

ties have invoked the “attainment” clause; however, no panel agreed to treat

75 Cf. WTO Council for Trade-Related Aspects of Intellectual Property Rights, Non-Violation Complaints and the TRIPS Agreement - Note by the Secretariat, IP/C/W/124, para. 91 (Jan. 28, 1999). 76 Petersmann, The Dispute Settlement System of the World Trade Organization and the Evo-lution of the GATT Dispute Settlement System Since 1948, supra note 54, at 1173. 77 Cf. PETERSMANN, THE GATT/WTO DISPUTE SETTLEMENT SYSTEM, supra note 14, at 170. 78 Japan – Trade in Semi-Conductors, B.I.S.D. 35S/116, para. 66 (1988). 79 Japan – Trade in Semi-Conductors, B.I.S.D. 35S/116, para. 131 (1988). 80 United States – Trade Measures Affecting Nicaragua, L/6053, para. 5.16 (1986).

34

those allegations substantially.81 The continued disuse, the dangers inherent in a

vague rule for a legalized system such as the WTO and, above all, the apparent

lack of necessity to have recourse to that disposition make it unlikely it will ever

be successfully invoked. Therefore it is not included in the discussion below.

1. Any Benefit Accruing to a Contracting Party Directly or Indirectly …

a) The Notion of Benefit – Caught Between “Trade Volume” and “Competi-

tive Relationship”

Article XXIII:1 (b) GATT 1994 seeks to protect a ‘benefit accruing.’ But

what is that? Looking at a dictionary, ‘benefit’ is “something that promotes or

enhances well-being; an advantage;”82 ‘accruing’ means “to come to one as a

gain, addition, or increment.”83 The plain meaning suggests that there is an ad-

vantage resulting from the agreement.84 The term ‘accruing’ seems to narrow the

wide sense of ‘benefit’ by necessitating a link back to GATT.85 Any legitimate

benefit is protected as well as any indirect benefit.86

If those ideas are transferred to trade law, benefit might be an actual trade

flow opened, e.g. by a tariff concession. That notion would make it necessary

for a claimant to evaluate the trade flow before the measure which was attacked

and the trade flow afterwards. Proving trade flow numbers will, more often than

not, be impossible or at least constitute such hardship on the claimant that any

claim will likely fail.

81 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Non-Violation Complaints and the TRIPS Agreement - Note by the Secretariat, IP/C/W/124, para. 94 (Jan. 28, 1999). 82 “benefit.” The American Heritage® Dictionary of the English Language, 4th ed. Boston: Houghton Mifflin, 2000. www.bartleby.com/61/. 02/24/2002. 83 “accrue.” The American Heritage® Dictionary of the English Language, supra note 82. 84 Durling & Lester, supra note 43, at 246. 85 Durling & Lester, supra note 43, at 248. 86 Cottier & Schefer, Non-Violation Complaints in the WTO/GATT Dispute Settlement, supra note 24, at 143, 160.

35

A different and much broader interpretation would be that benefit is the

‘competitive relationship,’ e.g. as it is enhanced by a tariff concession. That no-

tion is abstract. A competitive relationship can change in one area but still not

affect the actual trade flow or vice versa (because of the many factors outside

governmental control which can influence trade volume87). The claimant would

only have to show that the competitive relationship which was enjoyed as a

benefit changed after the measure under attack, which means proof of a mere

possibility that a change in trade flow might arise would be sufficient. Proof of a

change in competitive relationship will be quite easy on the claimant, as she will

not have to submit any statistical evidence on which to base her claim.

In the very first non-violation decision, panel practice opted for the

broader ‘competitive relationship’ approach: In Australian Subsidy on Ammo-

nium Sulphate, the panel stated: “if the action of the Australian Government

which resulted in upsetting the competitive relationship between sodium nitrate

and ammonium sulphate . . . .”88

Actual trade flows through changes of trade volume do not have to be

shown in order to establish that a measure detrimentally altered a party’s competi-

tive position.

The measure, in terms of the price mechanism of a market economy, must

lead to a distortion of a competitive relationship between two products.89 Finally,

therefore, there remains the question of which products the ‘benefit’ of competi-

tive relationship must exist between. As GATT disputes are disputes between

contracting parties (states), one of the products is usually foreign, the other of

87 European Economic Community - Payments and Subsidies Paid to Processors and Produc-ers of Oilseeds and Related Animal-Feed Proteins, B.I.S.D. 37S/86, para. 151 (1990). 88 The Australian Subsidy on Ammonium Sulphate, B.I.S.D. II/188, para. 12 (1950). See also Treatment by Germany of Imports of Sardines, B.I.S.D. 1S/53, para. 18 (1952). See also Bog-dandy, supra note 21, at 97. 89 Sung-joon Cho, GATT Non-Violation Issues in the WTO Framework: Are They the Achil-les’ Heel of the Dispute Settlement Process?, 39 HARV. INT’L L.J. 311, 317 (1998).

36

domestic origin90 (though Japan – Semiconductors exceptionally concerned the

conditions of competition between imports from other countries91). One product is

the bound product and the other a directly competitive product from other ori-

gins.92 That principle has been expressed in Treatment by Germany of Imports of

Sardines as the fact that “the products of the various varieties of clupeae are

closely related and are considered by many interested parties as directly competi-

tive.”93

b) The Non-Violation Complaint - Tied to Article II GAT T 1994 Tariff

Concessions?

aa) Grammatical Interpretation of Article XXIII:1 (b) GATT 1994

It has been noted above that the broad language of the non-violation com-

plaint has not been followed by a broad application in reality. The notion of

‘benefit’ rather seems to center on the protection of an equilibrium created

through tariff concessions. At first sight, this is surprising, as Article XXIII:1 (b)

GATT 1994 merely states: “If any contracting party should consider that any

benefit accruing to it . . . .” The type of benefit is determined by “any.” There is

no hint in the text of the Article that the semantic extension of ‘any benefit’

could be restricted to the protection of tariff concessions. It has been proposed

that members’ expectations should not be limited to tariff concessions, as such a

limitation is not part of the letter of the Article.94 The broad language of this Ar-

ticle has led to the conclusion that nothing in GATT commands that non-

90 Bogdandy, supra note 21, at 98. 91 Japan – Trade in Semi-Conductors, B.I.S.D. 35S/116, para. 3 (1988). 92 Petersmann, The Dispute Settlement System of the World Trade Organization and the Evo-lution of the GATT Dispute Settlement System Since 1948, supra note 54, at 1201. 93 Treatment by Germany of Imports of Sardines, B.I.S.D. 1S/53, para. 16 (1952). 94 Maria-Chiara Malaguti, Restrictive Business Practices in International Trade and the Role of the World Trade Organization, J.W.T., No. 3 1998, at 117, 136.

37

violation complaints only be used for benefits originating from Article II GATT

1994.95

One could counter that view by saying that GATT 1947 panels have, with

the exceptions shown below, exclusively used the non-violation complaint to

protect the value of tariff concessions. However, it seems strange that the text of

the GATT 1994/DSU did not see an introduction of that restriction,96 e.g. by

stating that “the only benefits protected are those concerning the balance of tariff

concessions under Article II GATT 1994.” Interpreting that ‘omission’ a con-

trario, it seems that the ‘benefit - protection’ was actually meant to apply to the

whole of GATT 1994.

Three panel reports have tried to expand the protection offered by the

non-violation complaint beyond ‘tariff concessions.’ It is worth looking at their

reasoning to understand whether such an extension is necessary.

The case Japan – Semiconductors concerned measures relating to exports

of semi-conductors to third country markets which were found to be inconsistent

with Article XI:1 GATT 1947 (elimination of quantitative restrictions). The

EEC further argued that measures relating to the access to the Japanese market,

even if GATT consistent, would nullify and impair EEC benefits under Article I

GATT 1947. The panel, after noting that the claimant in non-violation cases was

required to provide a detailed justification, concluded that:

the evidence submitted by the EEC relating to access to the Japanese market did not

permit it to identify any measure by the Japanese Government that put EEC exporters of

semi-conductors at a competitive disadvantage vis-à-vis those of the United States and

that might therefore nullify or impair benefits accruing to the EEC under the General

Agreement and impede the attainment of objectives of the General Agreement within

the meaning of Article XXIII.97

95 Chua, supra note 6, at 40. 96 See Cho, supra note 89, at 320-321. 97 Japan – Trade in Semi-Conductors, B.I.S.D. 35S/116, para. 131 (1988).

38

For lack of detailed justification, the panel did not decide the non-violation case.

However, it did not deny outright a possible success of a non-violation case

based on Article I GATT 1947. Still, the persuasive value of a “we do not have

to decide the dispute” is low and no reasoning is provided by the panel.

The panel report of US – Restrictions on the Importation of Sugar is simi-

lar to Japan – Semiconductors. It recognized that “Article XXIII:1 (b) does not

exclude claims of nullification or impairment based on provisions of the General

Agreement other than Article II.”98 Again the value of that statement is low as

the panel came to the following conclusion as well:

For the reasons indicated in the preceding paragraphs, the Panel did not examine the

case before it in the light of Article XXIII:1(b). The Panel would however like to stress

that nothing in this report is meant to preclude the EEC from bringing a complaint under

that provision with the required detailed justification.99

The case provides, again for lack of detailed justification, no further reasoning on

the merits of a non-violation complaint outside the protection of tariff conces-

sions.

A somewhat stronger support for the idea of a broader application of non-

violation complaints can be found in EEC – Tariff Treatment on Imports of Citrus

Products from Certain Countries in the Mediterranean Region. In 1982, the U.S.

brought a complaint alleging that preferences granted by the EEC on citrus prod-

ucts from certain Mediterranean countries were violating Article I GATT 1947

and were having an adverse effect on U.S. citrus exports.

98 United States – Restrictions on the Importation of Sugar and Sugar-Containing Products Applied Under the 1955 Waiver and Under the Headnote to the Schedule of Tariff Conces-sions, B.I.S.D. 37S/228, para. 5.21 (1990). 99 United States – Restrictions on the Importation of Sugar and Sugar-Containing Products Applied Under the 1955 Waiver and Under the Headnote to the Schedule of Tariff Conces-sions, B.I.S.D. 37S/228, para. 5.23 (1990).

39

The outright ‘problem’ with the following panel report is that it was not

adopted100 (necessary under the positive consensus rule of GATT 1947). Conse-

quently, doubts have been expressed as to whether it is a sound idea to analyse the

contents of an unadopted and hence not officially published report, as the latter

does not constitute ‘good law:’ “References to unpublished GATT reports, as they

are currently made by some high priests of the GATT mysteries, are a nuisance. I

am quite frank about this, because non-published – that is to say non-approved –

reports have no authority.”101 That argumentation fails to persuade as it would

then be equally worthless to analyse national court decisions which were over-

turned on appeal. Apart from the fact that such a practice is not being followed,

the possibility that, one day, an overturned decision can become ‘good law’ war-

rants an examination of court and panel decisions, likewise irrespective of their

later fate.

The EEC Citrus Panel held:

In doing so, the Panel considered that although complaints brought previously under

Article XXIII:1(b) had related to benefits arising from Article II, it believed that this

did not signify that Article XXIII:1(b) was limited only to those benefits. The drafting

history of Article XXIII confirmed that this Article, including paragraph 1(b) thereof,

protected any benefit under the General Agreement (p. 7 of document

E/PC/T/A/PV/12 of 12 June 1947). This would include then the benefits accruing to

the United States under Article I:1 which applied to bound and unbound tariff items

alike (ref. para. 4.2).

The Panel noted that the basic purpose of Article XXIII:1(b) was to provide for

offsetting or compensatory adjustment in situations in which the balance of rights and

obligations of the contracting parties had been disturbed (see page 5 of document

E/PC/T/A/PV/6 of 2 June 1947). One of the fundamental benefits accruing to the con-

tracting parties under the General Agreement, therefore, was the right to such adjust-

ment in situations in which the balance of their rights and obligations had been upset

100 Chua, supra note 6, at 40. 101 Pescatore, supra note 1, at 14.

40

to their disadvantage. . . . [I]n this particular situation the balance of rights and obliga-

tions underlying Articles I and XXIV of the General Agreement had been upset to the

disadvantage of the contracting parties not parties to these agreements and . . . the

United States was therefore entitled to offsetting or compensatory adjustment to the

extent that the grant of the preferences had caused substantial adverse effects to its ac-

tual trade or its trade opportunities.102

The non-violation complaint seems to be seen as a tool to maintain the broader

balance of benefits that governments expect because of reciprocal obligations to

follow all GATT rules.103 The panel’s first citation concerning the drafting his-

tory is a citation of the following statements from the Australian delegate:

I should like to emphasise that by the word “benefits” we conceive not merely benefits

accorded for instance, under the provisions of Article 24, but the benefits which other

countries derive from the acceptance of the wider obligations imposed by the Charter .

. . . So I would like to make it quite clear that we have used benefit in this context in a

very wide sense.104

The word “benefit” by association might tend to be interpreted in an unduly

narrow way, relating particularly to the exchange of tariff concessions or something of

that sort.105

The text to which the second citation to the drafting history refers, reads as fol-

lows:

We shall achieve, under the Charter, if our negotiations are successful, a careful bal-

ance of the interests of the contracting states. This balance rests upon certain assump-

tions as to the character of the underlying situation in the years to come. And it in-

102 European Community - Tariff Treatment on Imports of Citrus Products from Certain Countries in the Mediterranean Region, L/5776, para. 4.36-4.37 (Feb. 7, 1985). 103 Cho, supra note 89, at 324. 104 Economic and Social Council, Second Session of the Preparatory Committee of the United Nations Conference on Trade and Employment., Verbatim Report, Twelfth Meeting of Com-mission A Held on Thursday, 12 June 1947 at 2.50 P.M. in the Palais des Nations, Geneva, E/PC/T/A/PV/12 at 7. 105 Economic and Social Council, Second Session of the Preparatory Committee of the United Nations Conference on Trade and Employment., Verbatim Report, Twelfth Meeting of Com-mission A Held on Thursday, 12 June 1947 at 2.50 P.M. in the Palais des Nations, Geneva, E/PC/T/A/PV/12 at 31.

41

volves a mutuality of obligations and benefits. If, with the passage of time, the under-

lying situation should change or the benefits accorded any Member should be im-

paired, the balance would be destroyed. It is the purpose . . . to restore this balance by

providing for a compensatory adjustment in the obligations which the Member has as-

sumed. . . . What we have really provided, in the last analysis, is not that retaliation

shall be invited or sanctions invoked, but that a balance of interests, once established,

shall be maintained.

The principle that underlies this Article is right. It is sound. It is essential to the

integrity of the Charter as a whole. I believe that it must be preserved.106

It does not seem appropriate to give too much weight to these documents, as

other delegates, especially the one from South Africa, criticized a broad applica-

bility of the non-violation remedy, as a vast applicability would create new obli-

gations on states where none had been present before.107

What the panel furthermore did not cite was that even the above cited

Australian delegate said at a later stage during the discussion:

The first sub-paragraph “(i) the application by another Member of any measure,

whether or not it conflicts with the provisions of this Charter” is, I think, taken over

automatically from a standard clause in the old type of Trade Agreement and was de-

signed, I presume, to deal primarily with possible attempts to evade obligations ac-

cepted in an exchange of tariff concessions.”108

The Australian delegate said this in answer to a case scenario created by another

delegate with reference to what is today the “attainment” variant of the non-

violation complaint. But if that was the opinion of the Australian delegate, why

would he want to interpret the same non-violation complaint differently depend-

106 Statement by the U.S. Delegate, Economic and Social Council, Second Session of the Pre-paratory Committee of the United Nations Conference on Trade and Employment., Verbatim Report, Sixth Meeting of Commission A, Held on Monday, 2 June, 1947 at 2.30 P.M. in the Palais des Nations, Geneva, E/PC/T/A/PV/6 at 5. 107 Durling & Lester, supra note 43, at 234. 108 Economic and Social Council, Second Session of the Preparatory Committee of the United Nations Conference on Trade and Employment., Verbatim Report, Twelfth Meeting of Com-mission A Held on Thursday, 12 June 1947 at 2.50 P.M. in the Palais des Nations, Geneva, E/PC/T/A/PV/12 at 23.

42

ing on whether the “benefit” or the “attainment” variant was invoked by a mem-

ber?

There was obviously no consensus and the opinions stated by the same

delegates were sometimes contradictory during the preparatory phase. It was

unclear whether this Article should indeed be interpreted very broadly. Espe-

cially the last statement by the Australian delegate would rather favour a restric-

tive application of the non-violation complaint.

Regarding the outcome of the EEC Citrus case, the report was, according

to the EC representative, not adopted, as Article XXIII:1 (b) GATT 1947 “had

been applied only to cases in which tariff bindings were at stake; it would be a

dangerous precedent to extend its application to situations in which no such

commitment had been infringed.”109

The fact that the report was not adopted and that its non-adoption was due

precisely to its venturing beyond the protection of tariff concessions reduces its

significance as to the question whether the scope of the non-violation complaint

should be expanded. The panel clearly states that it does not wish to be bound by

the previous restrictive panel reports; however, the panel does not give any rea-

son for its decision apart from the inconclusive citations reproduced above.

Taking everything into account, a few authors and a few inadequately rea-

soned panel reports have tried to expand the applicability of non-violation com-

plaints beyond the protection of tariff concessions referred to in Article II GATT

1994.

bb) The Decision Practice of the Panels Under GATT 1947 and GATT 1994

The overwhelming majority of panels that have had to decide a non-

violation case have exclusively admitted those claims for the protection of tariff

109 C/M/186 at 17, cited in Chua, supra note 6, at 40 n.105.

43

concessions.110 The following citations may serve as an example; they are,

consecutively, an excerpt from the first non-violation panel report under GATT

1947, an excerpt from a recent panel report and an excerpt from the WTO Ap-

pellate Body:

Having thus concluded that . . . the value of a concession granted to Chile had

been impaired as a result of a measure which did not conflict with the provisions of the

General Agreement . . . .111

While we consider that the non-violation remedy should be approached with

caution and should remain an exceptional remedy, each case should be examined on

its own merits, bearing in mind the above-mentioned need to safeguard the process of

negotiating reciprocal tariff concessions.112

Under Article XXIII:1(b) of the GATT 1994, a Member can bring a "non-

violation" complaint when the negotiated balance of concessions between Members is

upset by the application of a measure, whether or not this measure is inconsistent with

the provisions of the covered agreement.113

A firm practice of limited use of the non-violation complaint is indeed estab-

lished. But why? In this regard, a passage from the Oilseeds case is interesting:

The Panel, noting that there is no explicit rule nor a precedent to guide it in this matter,

considered the issue in the light of the purpose of the provisions of Article XXIII relat-

ing to the impairment of benefits accruing under the General Agreement. The Panel

noted that these provisions, as conceived by the drafters and applied by the CON-

TRACTING PARTIES, serve mainly to protect the balance of tariff concessions.114

110 See Petersmann, The Dispute Settlement System of the World Trade Organization and the Evolution of the GATT Dispute Settlement System Since 1948, supra note 54, at 1188. See also WTO Council for Trade-Related Aspects of Intellectual Property Rights, Non-Violation Complaints and the TRIPS Agreement - Note by the Secretariat, IP/C/W/124, para. 40 (Jan. 28, 1999). See also Cottier & Schefer, Non-Violation Complaints in the WTO/GATT Dispute Settlement, supra note 24, at 143, 160. 111 The Australian Subsidy on Ammonium Sulphate, B.I.S.D. II/188, para. 13 (1950). 112 Japan – Measures Affecting Consumer Photographic Film and Paper, WT/DS44/R, para. 10.37 (1998). 113 India – Patent Protection for Pharmaceutical and Agricultural Chemical Products, WT/DS50/AB/R, para. 41 (1997). 114 European Economic Community - Payments and Subsidies Paid to Processors and Pro-ducers of Oilseeds and Related Animal-Feed Proteins, B.I.S.D. 37S/86, para. 144 (1990).

44

That statement seems to be in contradiction with the statement of the EEC Cit-

rus panel above, which claimed that the negotiating history actually allowed a

very broad scope for the non-violation complaint. However, it has been shown

that statements during the negotiation phase differed. Taking everything into

account, a better case can be made invoking GATT’s beginnings as indicating a

restrictive use for non-violation complaints:

"Non-violation" complaints are rooted in the GATT's origins as an agreement intended

to protect the reciprocal tariff concessions negotiated among the contracting parties un-

der Article II. In the absence of substantive legal rules in many areas relating to inter-

national trade, the non-violation provision of Article XXIII:1(b) was aimed at prevent-

ing contracting parties from using non-tariff barriers or other policy measures to ne-

gate the benefits of negotiated tariff concessions.115

That assertion of the Appellate Body is corroborated by the analysis undertaken

above of pre-GATT 1947 international agreements: the first agreements centred

on the main protectionist device used at that time and its reduction or removal:

tariffs. The successful reduction or removal through balanced concessions

should then not have been ‘invalidated’ by the introduction of ‘allowed’ new

barriers to trade. New barriers would abolish reciprocity between GATT Mem-

bers.116 That was the origin of the non-violation complaint and that is the reason

why it was used in GATT 1947. A historic approach to GATT advocates a re-

strictive use of non-violation complaints: barriers to trade other than tariffs were

not the focus of agreements in the 1940’s. The non-violation complaint, then,

cannot have been intended to cover any such area. The reason why tariff conces-

sions were seen as important enough to warrant a special protection was that

without a tariff concession, a member was totally free to impose tariffs as de-

sired.

115 India – Patent Protection for Pharmaceutical and Agricultural Chemical Products, WT/DS50/AB/R, para. 41 (1997). 116 Cho, supra note 89, at 315.

45

The reasonable expectation of improved market access is exclusively

based on tariff concessions.117

cc) Expansion of Applicability of the Non-Violation Complaint Under GATT

1994: Needs and Expectations

Should the restricted use of the non-violation complaint be broadened to

cover ‘any’ benefit?

A majority of authors have praised the restrictive use as being an interpre-

tation in keeping with the main function of the non-violation complaint: to main-

tain the balance of tariff concessions. In addition, it is stressed that contracting

parties will only agree to tariff concessions if they have a procedure at their dis-

posal in the event that the tariff concession is later impaired.118 The principle of

effectiveness, which mandates that a treaty be interpreted to give meaning and

effect to all its terms, is an argument against a broader use. If Articles other than

Article II could lead to a non-violation complaint, the violation complaint of Ar-

ticle XXIII:1 (a) GATT 1994 would be superfluous. It is remarkably less bur-

densome to make a non-violation complaint as no violation of the GATT has to

be shown.119 The danger seems to be that a claimant, though thinking that the

defendant violated the agreement, might choose to invoke the non-violation

complaint, which would avoid the laborious proof of a ‘violation’ of the agree-

ment. A different author underpins that argument by pointing out that non-

violation complaints are often preceded by the phrase “even if no violation ex-

117 Frieder Roessler, The Concept of Nullification and Impairment in the Legal System of the World Trade Organization, in STUDIES IN TRANSNATIONAL ECONOMIC LAW VOLUME 11, IN-

TERNATIONAL TRADE LAW AND THE GATT/WTO DISPUTE SETTLEMENT SYSTEM at 123, 133 (Ernst-Ulrich Petersmann ed., 1997) [hereinafter Roessler, Concept of Nullification and Im-pairment]. 118 Bogdandy, supra note 21, at 98. 119 Chua, supra note 6, at 40-41.

46

ists.”120 Thus, many parties seem to use the non-violation complaint as an auxil-

iary means to achieve their goal should the violation complaint fail. Such a sub-

sidiary mode does not correspond to the original idea of specific protection of

the balance of tariff concessions.

Another author sees a possibility of widened applicability in cases of “un-

certain legality.”121 However, it is the panel’s function to check the legality of a

measure. The above mentioned opinion counts the EEC Citrus case among those

cases of uncertain legality. However, a different interpretation of the EEC Citrus

case seems more convincing:

The only panel ‘decision’ in favor of an expanded view, the EEC Citrus

case, has been explained as a case lacking convincing legal rationale and having

rightly been rejected in the GATT Council.122 It has been classified as a ‘wrong’

exception due to the political circumstances of the time: the EC had a system of

tariff preferences in place with regard to certain Mediterranean countries. The

question was whether those tariff preferences were in accordance with the rules

on customs unions and free trade areas in Article XXIV GATT. The panel did

not answer that question. Instead, the panel used Article XXIII:1 (b) GATT

1947. The panel compensated the U.S. not for the upsetting of negotiated tariff

concessions but for its own unwillingness to decide about the rights of the U.S.

under Articles I, XXIV GATT 1947.123 In the presence of an uncomfortable po-

litical issue, a panel may prefer not to make a decision on the claimant’s sub-

stantial rights but rather use the claimant’s procedural rights of Article XXIII:1

(b) GATT 1994. Recourse to that device avoids labeling the defendant as a party

120 Cho, supra note 89, at 322. 121 Bogdandy, supra note 21, at 98-99. 122 PETERSMANN, THE GATT/WTO DISPUTE SETTLEMENT SYSTEM, supra note 14, at 172. 123 Roessler, Concept of Nullification and Impairment, supra note 117, at 123, 132-133.

47

having committed an ‘illegal’ act and clears the way for a negotiated compro-

mise.124

WTO Members can be thought not to expect any usage of Article XXIII:1

(b) GATT 1994 other than the one they know, given the disuse of the non-

violation complaint outside its restricted scope. The non-acceptance of a verdict

by the losing party could be brought about by a ruling based on an interpretation

of Article XXIII:1 (b) GATT 1994 not accepted by the WTO community. Such

a ‘wrong case’ would hurt the stability and credibility of the WTO. Especially

since 1995 there has been a higher likelihood of a damaging effect, as the Ap-

pellate Body is not “controlled” by a political ‘positive consensus’ hurdle. Under

GATT 1947, such a last filter could have prevented the adoption of an over-

reaching non-violation report.125

Furthermore, the passage of time since 1947 has not revealed a dire neces-

sity for any case group outside the protection of tariff concessions to be adminis-

tered through non-violation complaints.

In a nutshell, any broad application of the non-violation complaint under

GATT 1994 would be unexpected and unnecessary. Any widened scope should,

if at all, be expressly adopted in a treaty.126

dd) Results of the Tie Between ‘Benefit’ and ‘Tariff Concessions’ on the Prod-

ucts Between Which a ‘Competitive Relationship’ can be Found

Having reached the conclusion above and recalling that ‘benefit’ relates to

the ‘competitive relationship’ between products, it has to be stressed that not all

directly competitive products can be products between which the benefit of a

competitive relationship can be found. The goal of the non-violation complaint in

124 Roessler, Concept of Nullification and Impairment, supra note 117, at 123, 133. 125 Cho, supra note 89, at 324, 330-331. 126 Durling & Lester, supra note 43, at 269.

48

GATT 1994 is to protect the value of tariff concessions. The predominant charac-

teristic of tariff concessions resides in the assurance of better market access

through price competition.127 Those enhanced competitive opportunities that can

legitimately be expected from a tariff concession should not be frustrated.128

However, when using the broad terms ‘competitive relationship,’ one must bear in

mind that those terms only relate to the market access of the products concerned

by the tariff concession. Therefore, the Appellate Body in India – Patent Protec-

tion pointed out that non-violation complaints do not protect “expectations of

contracting parties as to the competitive relationship between their products [in

general, as Article III GATT 1994 National Treatment Obligation] and the prod-

ucts of other contracting parties.”129 It is, on the contrary, the “reasonable expecta-

tions of contracting parties relating to [specific] market access concessions” 130

that are protected or, in the words of the Japan – Film Panel, “it must be demon-

strated that the competitive position of the imported products subject to and bene-

fiting from a relevant market access (tariff) concession is being upset . . . .”131

Only the market access for those specific products is relevant under the

term ‘competitive relationship,’ which defines the notion of ‘benefit.’

2. … is Being Nullified or Impaired …

Despite their vagueness, the terms nullification and impairment have not

led to any noteworthy difficulties. To ‘nullify’ means to “invalidate,” “to coun-

127 Chua, supra note 6, at 41. 128 European Economic Community - Payments and Subsidies Paid to Processors and Producers of Oilseeds and Related Animal-Feed Proteins, B.I.S.D. 37S/86, para. 144 (1990), quoted with approval in Japan – Measures Affecting Consumer Photographic Film and Paper, WT/DS44/R, para. 10.35 (1998). 129 India – Patent Protection for Pharmaceutical and Agricultural Chemical Products, WT/DS50/AB/R, para. 36 (1997). 130 India – Patent Protection for Pharmaceutical and Agricultural Chemical Products, WT/DS50/AB/R, para. 36 (1997). 131 Japan – Measures Affecting Consumer Photographic Film and Paper, WT/DS44/R, para. 10.82 (1998).

49

teract the force or effectiveness of [something],”132 to ‘impair’ is “to cause to

diminish, as in strength, value, or quality.”133 Recalling that the benefit of Arti-

cle XXIII:1 (b) GATT 1994 is the ‘competitive relationship,’ nullifying or im-

pairing that benefit is to invalidate or diminish in value the ‘competitive rela-

tionship.’ The term used by panels and also by the Appellate Body is that the

‘competitive relationship’ between the parties must have been “upset.”134

3. … as the Result of the Application by Another Contracting Party of any

Measure, Whether or Not it Conflicts With the Provisions of This Agree-

ment

a) A Measure …

aa) Concept of “Measure” and the Use of “Administrative Guidance”

From its literal meaning, a measure is “an action taken as a means to an

end” or “a legislative bill or enactment.”135 ‘Measure’ thus is narrower than the

term ‘action’ – a specific intent or goal is required, the ‘action’ must be done

with a purpose in mind. WTO Law concerns the relationship between govern-

ments, thus only governmental measures fall under Article XXIII:1 (b) GATT

1994.136 According to the meaning of the word “measure” as shown above, leg-

islative measures fall under Article XXIII:1 (b) GATT 1994. However, govern-

ment regulations and requirements are also included, as Article III GATT 1994

prohibits “laws, regulations, and requirements.” The list of Article III GATT

1994 has one point in common: the binding nature of the governmental measure.

Can that a contrario mean that all non-binding government “actions” do not fall

132 “nullify.” The American Heritage® Dictionary of the English Language, supra note 82. 133 “impair.” The American Heritage® Dictionary of the English Language, supra note 82. 134 Japan – Measures Affecting Consumer Photographic Film and Paper, WT/DS44/R, para. 10.82 (1998). See also India – Patent Protection for Pharmaceutical and Agricultural Chemi-cal Products, WT/DS50/AB/R, para. 41 (1997). 135 “measure.” The American Heritage® Dictionary of the English Language, supra note 82. 136 Durling & Lester, supra note 43, at 241.

50

under the term ‘measure’? An ‘action taken as a means to an end’ seems to rule

out general suggestions,137 as those are not specific enough. But what about ad-

ministrative guidance? That term has been analyzed by panels concerned with

actions of the Japanese government. Apparently, the Japanese government can,

by mere suggestions, create such an amount of peer pressure that the industries

do not feel or act as if they had a choice between implementing the suggestions

or not.

The panel, in the following extract from Japan – Semiconductors, starts

by referring to a former case (Japan - Restrictions on Imports of Certain Agricul-

tural Products) and uses that reasoning for its own set of facts. It has to be men-

tioned that the part of the case cited below is not from the section of Japan –

Semiconductors which deals with Article XXIII:1 (b) GATT 1947. It is rather

from the part analyzing the violation complaint. The excerpt is nonetheless rele-

vant, as the term “measure” is used in Article XI:1 GATT 1994 as well:

The Panel which examined that [former] case had noted that "the practice of 'administra-

tive guidance' played an important rôle" in the enforcement of the Japanese supply re-

strictions, that this practice was "a traditional tool of Japanese government policy based

on consensus and peer pressure" and that administrative guidance in the special circum-

stances prevailing in Japan could therefore be regarded as a governmental measure en-

forcing supply restrictions. The Panel recognized the differences between Article XI:1

and Article XI:2(c) and the fact that the previous case was not the same in all respects as

the case before it, but noted that the earlier case supported its finding that it was not nec-

essarily the legal status of the measure which was decisive in determining whether or

not it fell under Article XI:1.

The Panel recognized that not all non-mandatory requests could be regarded as measures

within the meaning of Article XI:1. . . .

The Panel considered that it needed to be satisfied on two essential criteria. First,

there were reasonable grounds to believe that sufficient incentives or disincentives ex-

isted for non-mandatory measures to take effect. Second, the operation of the measures

137 Durling & Lester, supra note 43, at 242.

51

to restrict export of semi-conductors at prices below company-specific costs was es-

sentially dependent on Government action or intervention. . . .

All these factors led the Panel to conclude that an administrative structure had been cre-

ated by the Government of Japan which operated to exert maximum possible pressure

on the private sector to cease exporting at prices below company-specific costs. . . .

The only distinction in this case was the absence of formal legally binding obligations in

respect of exportation or sale for export of semi-conductors. However, the Panel con-

cluded that this amounted to a difference in form rather than substance because the

measures were operated in a manner equivalent to mandatory requirements.138

The result of that passage is that not the formal characterization of a measure

(law, regulation, etc.) is of significance but whether the action is goal-orientated

and binding. The latter requirement can apparently be fulfilled in Japanese cul-

ture through peer pressure whereas the same would not be possible in other parts

of the world. ‘Measure’ may be narrower than action, but it still leaves room for

interpretation. However, the fact that the measure emanates from the govern-

ment means that it has to be somewhat formal,139 a prerequisite which has been

respected in the administrative guidance development shown above. Finally, the

measure must be of a kind that lends itself to ‘application’ according to Article

XXIII:1 (b) GATT 1994.140 That room of interpretation has not always been

used well. The Japan – Film panel (in fact the first panel to deal with adminis-

trative guidance for a non-violation complaint) considered ‘measure’ in the fol-

lowing terms:

Our review of GATT jurisprudence, particularly the panel report on Japan - Semicon-

ductors, teaches that where administrative guidance creates incentives or disincentives

largely dependent upon governmental action for private parties to act in a particular

manner, it may be considered a governmental measure. . . .

138 Japan – Trade in Semi-Conductors, B.I.S.D. 35S/116, paras. 107-109, 117 (1988). 139 Durling & Lester, supra note 43, at 262. 140 Durling & Lester, supra note 43, at 262.

52

However, we note that there is nothing in Japan - Semi-conductors suggesting that this

incentives/disincentives test should be seen as the exclusive test for characterizing

formally non-binding measures as governmental. . . .

We believe we should be open to a broad definition of the term measure for purposes

of Article XXIII:1(b), which considers whether or not a non-binding government ac-

tion has an effect similar to a binding one. . . .

These past GATT cases demonstrate that the fact that an action is taken by private par-

ties does not rule out the possibility that it may be deemed to be governmental if there

is sufficient government involvement with it. It is difficult to establish bright-line rules

in this regard, however. . . .

Applying the analysis developed earlier in our general discussion of Article

XXIII:1(b), we note that the 1971 Basic Plan is not a law or regulation nor does it pro-

vide incentives or disincentives to the private sector to take particular action. Although

the 1971 Basic Plan was authored and published by a quasi-governmental advisory

body composed of academics, industry representatives and government officials, it

nonetheless bears some hallmarks of a governmental measure in that the Distribution

Systemization Promotion Council was created by MITI and commissioned by MITI to

prepare the plan. Moreover, as noted above, upon its publication senior MITI officials

endorsed the plan and stated that MITI would work with the private sector to ensure

implementation of the plan's recommendations. In light of these statements and actions

by MITI, we consider that there is sufficient likelihood that the administrative guid-

ance given by MITI in connection with the 1971 Basic Plan provides sufficient incen-

tives for private parties to act in a particular manner such that it would have a similar

effect on business activity in Japan to a legally binding measure.141

That interpretation goes too far. The Japan – Film panel often used the term ‘ac-

tion,’ though it has been shown that ‘measure’ is in fact narrower and not substi-

tutable by ‘action.’ The panel accepted that studies of changes implemented by

the private sector to ameliorate distribution efficiency constituted a measure af-

141 Japan – Measures Affecting Consumer Photographic Film and Paper, WT/DS44/R, paras. 10.45, 10.48, 10.49, 10.56, 10.180 (1998).

53

ter the government endorsed the study.142 Such studies are not a measure, even

with special attention given to the Japanese situation. The central element of

mandatory nature is lacking. The study originated in the private sector, mere en-

dorsement by the government is unlikely to exert the necessary peer pressure.

Furthermore, it has been shown that ‘measures’ must be ‘applicable.’ That no-

tion is irreconcilable with governmental endorsement. The panel’s reasoning is

correct: not the form counts but the content with reference to its commitment

effect. Obviously, there can be case scenarios in a gray area where one can argue

both ways as to whether the government involvement will have binding effect or

not. Japan – Film seems to be outside that gray area, as following its decision

the subtlest form of government involvement would lead to the acceptance of a

‘measure.’

To conclude, the purpose of achieving a specific goal and the binding ef-

fect characterize a ‘measure.’ The denomination of the “action” undertaken by

the government is not essential in its appraisal. If these conditions are fulfilled,

any such measure can be attacked under a non-violation complaint.

bb) Measures and GATT Waivers or Exceptions

When a measure is allowed by a GATT waiver (e.g. Article XXV:5

GATT 1994) or exception (e.g. Articles XX, XXI GATT 1994), the question has

been raised whether the measure can fall under Article XXIII:1 (b) GATT 1994.

The answer is evident: a measure under a waiver or exception is legal under

GATT 1994, therefore only the non-violation complaint can be invoked and that

complaint is in fact applicable in that situation.143 The fact that this has nonethe-

142 See Durling & Lester, supra note 43, at 262-263. 143 Cf. for a waiver United States – Restrictions on the Importation of Sugar and Sugar-Containing Products Applied Under the 1955 Waiver and Under the Headnote to the Sched-ule of Tariff Concessions, B.I.S.D. 37S/228, para. 5.20 (1990) and for an exception according This footnote is continued on the next page

54

less led to some discussion in the literature144 is probably the result of the bizarre

situation which makes an explicitly authorized behavior under GATT subject to

panel procedure. However, this is not uncommon, being a characteristic of every

non-violation case, though the difference may be that the legality of a measure

under a waiver or exception meets the eye with greater clarity than otherwise.145

Recently, the Appellate Body in the Asbestos case confirmed that a GATT

exception does not rule out a successful non-violation complaint,146 though this

statement did not change the outcome of that case, meaning the rejection of the

non-violation complaint.

Concerning waivers, Article 3 (b) of the Understanding in Respect of

Waivers of Obligations under the GATT codifies the permission of dispute set-

tlement in waiver cases.

cc) A Measure Which Could Not Have Been Reasonably Anticipated

When dealing with NAFTA, one finds that non-violation complaints there

require ‘reasonable expectations’ from the claimant, a requirement created by

GATT panels and consistently applied, though GATT 1994 itself does not con-

tain that requirement in Article XXIII:1 (b) GATT 1994. The analysis to be un-

dertaken nowadays requires the proof that the measure could not reasonably

have been expected (could not have been foreseeable) by the complaining party

at the time when it negotiated a commitment with the respondent party. By oth-

ers, reasonable expectations are designated as benefits (competitive relationship

to Nicaragua’s position United States – Trade Measures Affecting Nicaragua, L/6053, para. 4.8 (1986). 144 Cf. Chua, supra note 6, at 44-46. 145 Cf. Bogdandy, supra note 21, at 107-108. 146 European Communities – Measures Affecting Asbestos and Asbestos-Containing Products, WT/DS135/AB/R, para. 187 (2001).

55

as better market access) which a party reasonably expected to accrue to it.147 The

term “reasonable expectations of better market access” is the better suited term,

as a party cannot expect better market access in any case, if it knows about the

introduction of adverse legislation by the respondent party.148 The following ex-

cerpts are from the first non-violation panel report as well as from the Oilseeds

case:

It was agreed that such impairment would exist if the action of the Australian

Government which resulted in upsetting the competitive relationship between sodium

nitrate and ammonium sulphate could not reasonably have been anticipated by the Chil-

ean Government, taking into consideration all pertinent circumstances and the provi-

sions of the General Agreement, at the time it negotiated for the duty-free binding on

sodium nitrate.149

The Panel therefore found that the benefits accruing to the United States under

the oilseed tariff concessions resulting from the Article XXIV:6 negotiations of 1986/87

include the protection of reasonable expectations the United States had when these con-

cessions were initially negotiated in 1962.150

Both cases share a point common to many, but not all, non-violation cases: a

subsequent introduction of or change in a country’s subsidy scheme takes away

the benefits the other country could have hoped to receive from reciprocal tariff

concessions. Concerning subsidies, it is doubtful whether the introduction of a

new subsidy (as opposed to a change of an existing subsidy) can be countered

with reasonable expectations, given that the introduction of new subsidies is not

generally outlawed. Still, in today’s view, any subsequent introduction or in-

crease of a subsidy after a tariff concession can constitute nullification or im-

147 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Non-Violation Complaints and the TRIPS Agreement - Note by the Secretariat, IP/C/W/124, paras. 32-33 (Jan. 28, 1999). 148 For a different view: Chua, supra note 6, at 41-42. 149 The Australian Subsidy on Ammonium Sulphate, B.I.S.D. II/188, para. 12 (1950). 150 European Economic Community - Payments and Subsidies Paid to Processors and Pro-ducers of Oilseeds and Related Animal-Feed Proteins, B.I.S.D. 37S/86, para. 146 (1990).

56

pairment.151 That solution was codified in the Subsidies Agreement, Articles 5

and 7. Only the panel in the Australian Subsidy case of 1950 held the different

view that a subsequent introduction of a new subsidy should be “allowed”152 and

could therefore not lead to nullification or impairment. It is understandable why

that opinion has not prevailed: the reasonable expectations of a GATT Member

concerning the competitive relationship can also be upset by the subsequent in-

troduction of a new subsidy. In addition, it is the basic feature of non-violation

complaints to attack legal measures; that extends to newly introduced legal sub-

sidies as well.153 Attention should be paid to the fact that usually the reference is

made to “measures introduced subsequently;” however, there is nothing in Arti-

cle XXIII:1 (b) GATT 1994 which would exclude measures introduced prior to

the tariff negotiations. The latter situation will be dealt with in the context of the

burden of proof.

Reasonable expectations are a necessary requirement for non-violation

complaints. Without them, non-violation complaints would not make sense. It

has been shown that non-violation complaints aim to protect the value of tariff

concessions. Ideally, a tariff concession leads to an equilibrated balance: each

country offers some concessions in some areas, the economic value of each

country’s concessions being equal. That scenario, however, does not correspond

to reality. A negotiating country may be aware of special policies pursued by the

other country, certain subsidies granted by the other country, etc.. Those known

facts will represent a certain ‘value’ for each country. Country A may be willing

to offer higher concessions to country B, which has a subsidy scheme which

country A benefits from. The opposite will be true of country C, if the latter em-

ploys a subsidy scheme harmful to country A’s economy. Expectations can arise

151 Cf. European Economic Community - Payments and Subsidies Paid to Processors and Producers of Oilseeds and Related Animal-Feed Proteins, B.I.S.D. 37S/86, para. 156 (1990). 152 The Australian Subsidy on Ammonium Sulphate, B.I.S.D. II/188, para. 12 (1950). 153 Bogdandy, supra note 21, at 103.

57

out of the combination of negotiated tariff concessions and other circumstances.

The ensuing change of the circumstances will then nullify or impair the value of

reciprocal tariff concessions. The protection of expectations, however, only

makes sense if the complaining party did not know of the plans later to be car-

ried out by the defendant party. Thus, the necessity for expectations that must be

reasonable. What are examples of reasonable expectations?

The following list of examples is non-exhaustive; any “reasonable” expec-

tation by a country can play a role. “Reasonable expectations,” however, ex-

clude purely subjective expectations.154

One report has analyzed the matter in which Germany promised in writing

certain conduct during tariff negotiations.155 Such a promise can give rise to rea-

sonable expectations. That does, however, not mean that a specific reliance-

inducing conduct would be necessary from the respondent.156 Panel decisions

have not established such a condition.

Reasonable expectations might also arise from the negotiating conduct of one

party:

The Panel concluded that the Government of Norway had reason to assume, during

these negotiations that preparations of the type of clupeae in which they were inter-

ested would not be less favourably treated than other preparations of the same family

and that this situation would not be modified by unilateral action of the German Gov-

ernment. In reaching this conclusion, the Panel was influenced in particular by the fol-

lowing circumstances: . . .

(b) that both parties agreed that the question of the equality of treatment

was discussed in the course of the Torquay negotiations; and

(c) although no conclusive evidence was produced as to the scope and

tenor of the assurances or statements which may have been given or made in the

154 Cho, supra note 89, at 317. 155 German Import Duties on Starch and Potato Flour, B.I.S.D. 3S/77, para. 3 (1955). 156 Bogdandy, supra note 21, at 103. See for the opposite view PETERSMANN, THE

GATT/WTO DISPUTE SETTLEMENT SYSTEM, supra note 14, at 172.

58

course of these discussions, it is reasonable to assume that the Norwegian delegation

in assessing the value of the concessions offered by Germany regarding preparations

of clupeae and in offering counter concessions, had taken into account the advantages

resulting from the continuation of the system of equality which had prevailed ever

since 1925.157

The above statements under (c) seem highly questionable, as no reliance is to be

placed on mere statements or proposals voiced during negotiations which are not

contained in the final document. If parties wanted to be bound by their state-

ments, they would have included them in the final agreement. Otherwise, nego-

tiations are made impossible.158 What is more, it will be difficult to prove any of

those statements, as is indicated in the excerpt above. The above case, however,

has been the only one during which negotiation conduct was held to be the basis

for reasonable expectations. In addition, reasonable expectations can be based

on established negotiating practice, conduct of government policy, provisions of

a treaty or pre-existing competitive conditions. They can be based on conduct

alone without any express statements. Whether the complainant relies on state-

ments or on conduct, these must originate from the respondent.159 In a nutshell,

the principle of reasonable expectations introduces an element to protect the

value of reciprocal tariff concessions: the “validity of assumptions” on which

governments act when negotiating tariff concessions is secured.160

Finally, there is no general rule saying that only expectations from the lat-

est round of tariff negotiations can be reasonable. In principle, tariff concessions

negotiated prior to a more recent round of tariff negotiations can still give rise to

157 Treatment by Germany of Imports of Sardines, B.I.S.D. 1S/53 para. 16 (1952). 158 Chua, supra note 6, at 33. 159 Chua, supra note 6, at 34-37. 160 Chua, supra note 6, at 31.

59

reasonable expectations as long as the outcomes of subsequent rounds of tariff

negotiations do not contradict each other.161

Whether certain expectations are reasonable is necessarily tested on a case

by case basis. It has been stated that it seems illogical to protect reasonable ex-

pectations forever in the future.162 Under a case by case approach, that is not a

problem: the decision whether the expectations are indeed reasonable will take

into account the time period during which expectations are to be protected. A

panel is given a somewhat disturbingly broad power of discretion by a case by

case approach; nonetheless, that broad power makes the protection of tariff con-

cessions work.

b) … that is Applied by a WTO Member …

To ‘apply’ means to “put into action.”163 The governmental measure must

be put into effect. Still, a distinction should be drawn between enacting and ap-

plying: the latter means a measure is actually being implemented or enforced.

The measure must be on the books and must be implemented. An additional re-

quirement is that the measure is being currently applied.164

Regarding the case German Import Duties on Starch,165 it has been sug-

gested that the application can also consist in a non-action, meaning the failure

to keep a promise.166 Starting with the grammatical meaning of the verb ‘to ap-

ply,’ only positive ‘action’ is covered. The promise by Germany is not an excep-

tion to that rule: Germany had promised two things in a letter: a first promise to

reduce its duties "as soon as possible" and a second, more specific promise to

161 Japan – Measures Affecting Consumer Photographic Film and Paper, WT/DS44/R, para. 10.66 (1998). 162 Cho, supra note 89, at 323. 163 “apply.” The American Heritage® Dictionary of the English Language, supra note 82. 164 Durling & Lester, supra note 43, at 244-245. 165 German Import Duties on Starch and Potato Flour, B.I.S.D. 3S/77 (1955). 166 Bogdandy, supra note 21, at 105.

60

open negotiations on said duties with the governments of the Benelux coun-

tries.167 The emphasis is on the specific second promise and therefore it matters

that Germany made an active effort not to let the following negotiations produce

any results. Thus the case deals with a positive action as well. Finally, it has to

be noted that the case was settled before the panel came to any definite recom-

mendations, so that the value of the panel’s finding on promises is reduced any-

way.

c) … Causes Nullification or Impairment (“as the Result of”)

The term “as the result of” implies a connection of causality between the

measure and the upsetting of the competitive relationship. According to one au-

thor, the causation element is unimportant, as no proof is necessary that the

measure which is attacked results in a change of the volume of trade. Were such

a proof required, causation might be difficult to establish. As the measure need

only be apt to upset the competitive relationship, causation is not an important

issue.168 That statement is only partially true: the fact that a measure is – if noth-

ing else – apt to upset a competitive relationship still requires a causal nexus,

and the Japan – Film case below proves that the complainant can have some

trouble in establishing causation.

The only panel report dealing substantively with causation is the Japan –

Film case. The panel distinguished four parameters: the degree of causation, the

relevance of origin-neutral measures, the relevance of intent and the extent to

which the collective effect of measures may be considered.

Concerning the degree of causation, the panel found that the measure

must make more than a de minimis contribution to nullification or impairment.

With regard to origin neutral measures, the panel stated that even where meas-

167 German Import Duties on Starch and Potato Flour, B.I.S.D. 3S/77, para. 2 (1955). 168 Bogdandy, supra note 21, at 108.

61

ures do not discriminate de iure on the basis of origin, they may do so on a de

facto basis, but in the latter situation the claimant would need to make a detailed

showing of any disproportionate impact on imports. Concerning intent, the panel

stressed that in order to prove causality the impact of the measure is of impor-

tance (the upsetting of the competitive relationship). However, intent could still

be significant if a causal relationship were found in measures which seem ori-

gin-neutral. Finally, regarding collective impact, the panel accepted cautiously

that collective impact of several measures can play a role.169

Especially the very broad statement of the panel that little more than a de

minimis contribution is necessary has been rightly criticized. Given the use of

the definite article in Article XXIII:1 (b) GATT 1994 (as ‘the’ result of), a

closer connection between cause and result is necessary.170 Looking at the draft-

ing history of the ITO Charter, the originally proposed language was “has the

effect of.” The subsequent change of that formulation allows one to assume that

a narrower formulation was intended, for which the mere exclusion of a de

minimis standard is not sufficient. Nullification or impairment must proceed di-

rectly and concretely from the government measure attacked.171

4. Standard of Proof for the Claimant

The burden of proof follows a general rule: the claimant must prove that

the conditions of Article XXIII:1 (b) GATT 1994 are present so as to obtain the

remedies provided for. It has been shown that the burden of proof is largely al-

leviated by the fact that no violation of the agreement has to be shown. So as not

to be too easily invoked, Article 26:1 (a) DSU heightens the standard of proof in

non-violation cases: “the complaining party shall present a detailed justification

169 Japan – Measures Affecting Consumer Photographic Film and Paper, WT/DS44/R, paras. 10.84-10.88 (1998). 170 Durling & Lester, supra note 43, at 251, 265. 171 Durling & Lester, supra note 43, at 265.

62

in support of any complaint relating to a measure which does not conflict with

the relevant covered agreement.” That ‘detailed justification’ standard existed in

panel practice under GATT 1947172 and was even discussed during the GATT

1947 negotiations.173 However, it was not introduced until 1995 with the DSU.

A few observations should be made regarding the question of what a ‘de-

tailed justification’ is and how the ‘upsetting’ of a competitive relationship and

the ‘reasonable expectations’ can be proven.

a) ‘Detailed Justification’

The requirement of a detailed justification is in contrast to the prima facie

nullification or impairment for violation complaints. Article 3:8 DSU prescribes

for violation complaints:

In cases where there is an infringement of the obligations assumed under a covered

agreement, the action is considered prima facie to constitute a case of nullification or

impairment. This means that there is normally a presumption that a breach of the rules

has an adverse impact on other Members parties to that covered agreement, and in

such cases, it shall be up to the Member against whom the complaint has been brought

to rebut the charge.

There is no presumption of prima facie nullification or impairment in non-

violation cases. Detailed justification must be “tangible and concrete, going be-

yond a mere description of the measure at issue.”174 It is the requirement of a

specific evidence of harm.175

The Japan – Film panel, however, neglected the precise language and

eliminated the ‘detailed justification’ standard:

172 See e.g. Japan – Trade in Semi-Conductors, B.I.S.D. 35S/116, para. 131 (1988). 173 Durling & Lester, supra note 43, at 254. 174 Cho, supra note 89, at 318. 175 Cottier & Schefer, Non-Violation Complaints in the WTO/GATT Dispute Settlement, supra note 24, at 143, 154.

63

Second, the United States argues that the interim report construes the "detailed justifi-

cation" requirement as imposing a heightened evidentiary standard in non-violation

cases, while for the United States it is rather a pleading requirement, i.e., a screen to

dismiss inadequately articulated non-violation claims from a panel's consideration.

The United States emphasizes that the fact that Article XXIII:1(b) provides for an ex-

ceptional remedy does not justify requiring a quantum of proof that is higher than the

one applied under other GATT articles. We recall that in para. 10.84 we stated that "at

this stage of the proceeding, the issue is whether such a measure has caused nullifica-

tion or impairment, i.e., whether it has made more than a de minimis contribution to

nullification or impairment." In our view, we did not apply the "detailed justification"

requirement as a heightened evidentiary standard.176

The panel uses the ‘detailed justification’ as a procedural or pleading standard,

which it is not. The DSU codifies the procedural requirements of a complaint in

Articles 4:4, 6:2 DSU. These rules regulate that claims must be made properly

and sufficiently and that sufficient notice is necessary. The ‘detailed justifica-

tion’ of Article 26:1 (a) DSU can be found in a different section of the DSU and

in a context not linked to pleading requirements. Furthermore, the panel tries to

distinguish between the ‘de minimis contribution’ standard (relating to causa-

tion) and the ‘detailed justification standard’ (relating to the burden of proof).

These two separate concepts dealt with together by the panel suggest that the

panel confused both standards.177 Thus, the view has been expressed that it

would have been good had either party appealed the panel findings.178 The ‘de-

tailed justification’ standard is still a necessary condition for every non-violation

complaint.

176 Japan – Measures Affecting Consumer Photographic Film and Paper, WT/DS44/R, para. 9.5 (1998). 177 Durling & Lester, supra note 43, at 267-268. 178 Durling & Lester, supra note 43, at 268.

64

b) ‘Upsetting’ of a Competitive Relationship

One author tried to introduce a separation as to how the upsetting of the

competitive relationship has to be proven: in complaints in which the measure

which is attacked can be qualified as a trade barrier, a prima facie proof is ad-

missible with regard to the impairment. The reason for this is that a trade barrier

usually undermines a competitive position (e.g. subsidies, import duties and

quotas). Here an analysis of trade statistics is not warranted. If a measure cannot

be qualified as a trade barrier, the prima facie rule is not applicable. Here, the

real consequences of the measure on trade flows would have to be evaluated

through trade statistics (e.g. in the case of tariff preferences, approval, testing

and customs procedures).179

That opinion would lead to an undermining of the rule explained above,

according to which trade flows actually are not important in deciding about the

‘benefit.’ Another author correctly points out that the separation ‘trade barriers –

other barriers’ is not supported by any adopted panel report. Furthermore, a dis-

tinction between those two types of barriers seems vague and arbitrary. If it is

revealed that the measure under attack thwarts the claimant’s reasonable expec-

tations by upsetting the competitive relationship, the question whether the meas-

ure has hindered any imports is not important.180

c) Reasonable Expectations

The detailed justification requirement must also be met by the claimant

with regard to the reasonable expectations relied upon. However, the complain-

ant is aided by a presumption:

a contracting party which has negotiated a concession under Article II may be as-

sumed, for the purpose of Article XXIII, to have a reasonable expectation, failing evi-

179 Bogdandy, supra note 21, at 104-105. 180 Chua, supra note 6, at 47-48.

65

dence to the contrary, that the value of the concession will not be nullified or impaired

by the contracting party which granted the concession by the subsequent introduction

or increase of a domestic subsidy . . . .181

The complainant merely has to show that she is the benefactor of an Article II

tariff concession. The burden then is transferred to the respondent for the latter

to prove that the complainant did not have ‘reasonable expectations.’ As far as

the rebuttal of the presumption is concerned, it can only be effected by facts ex-

isting when the tariff concession was negotiated.182 That goes together with the

condition described above that reasonable expectations must be present at the

time of the tariff negotiations. In addition, the evidence to rebut the presumption

must be specific. Knowledge that a tariff concession might be affected at some

time will not be enough. At the time of tariff negotiations, the complainant must

have known that the other side intended to enact specific measures which would

affect the tariff concessions. The specific knowledge requirement is proof of the

panels’ favoring of the free trade objective.183 An example of the specificity re-

quirement is the Oilseeds case:

Having made this finding the Panel examined whether the Community had submitted

any evidence to rebut that assumption. The Panel noted that the evidence submitted by

the Community showed that the United States was aware that there existed in 1962 sub-

sidies for oilseeds in some of the member States of the Community and that a common

agricultural policy was being elaborated by the Community. Nothing in the evidence

submitted by the Community, however, indicates that the Community had made it

known at that time that it planned to introduce subsidy schemes insulating oilseed pro-

ducers completely from import competition. The evidence thus showed that the United

States must reasonably have expected the transformation of national producer support

measures into a Community support scheme but that it could not reasonably have antici-

pated the introduction of subsidy schemes which protect producers completely from the

181 Other Barriers to Trade, BISD 3S/222, para. 13 (1955). 182 Chua, supra note 6, at 43. 183 Chua, supra note 6, at 43.

66

movement of prices for imports and thereby prevent the tariff concessions from having

any impact on the competitive relationship between domestic and imported oilseeds.

The Japan – Film panel has elaborated further on the possibilities of presump-

tions aiding the complainant. The panel approached an issue not dealt with by a

panel before: when must the measure not reasonably anticipated by the com-

plainant have been introduced by the defendant? The common notion was that

the measure upsetting the competitive relationship must have been introduced

after the tariff negotiations. Article XXIII:1 (b) GATT 1994, however, does not

stipulate that only measures introduced after the tariff concessions can create

legitimate expectations.184 The panel considers both case scenarios and develops

different presumptions for them.

We consider that the issue of reasonable anticipation should be approached in respect

of specific "measures" in light of the following guidelines. First, in the case of meas-

ures shown by the United States to have been introduced subsequent to the conclusion

of the tariff negotiations at issue, it is our view that the United States has raised a pre-

sumption that it should not be held to have anticipated these measures and it is then for

Japan to rebut that presumption. Such a rebuttal might be made, for example, by estab-

lishing that the measure at issue is so clearly contemplated in an earlier measure that

the United States should be held to have anticipated it. However, there must be a clear

connection shown. In our view, it is not sufficient to claim that a specific measure

should have been anticipated because it is consistent with or a continuation of a past

general government policy. As in the EEC - Oilseeds case, we do not believe that it

would be appropriate to charge the United States with having reasonably anticipated

all GATT-consistent measures, such as "measures" to improve what Japan describes as

the inefficient Japanese distribution sector. Indeed, if a Member were held to antici-

pate all GATT-consistent measures, a non-violation claim would not be possible. Nor

do we consider that as a general rule the United States should have reasonably antici-

pated Japanese measures that are similar to measures in other Members' markets. In

184 See, with references to pre-GATT 1947 language, Durling & Lester, supra note 43, at 264-265.

67

each such instance, the issue of reasonable anticipation needs to be addressed on a

case-by-case basis.

Second, in the case of measures shown by Japan to have been introduced prior to the

conclusion of the tariff negotiations at issue, it is our view that Japan has raised a pre-

sumption that the United States should be held to have anticipated those measures and

it is for the United States to rebut that presumption. In this connection, it is our view

that the United States is charged with knowledge of Japanese government measures as

of the date of their publication. We realize that knowledge of a measure's existence is

not equivalent to understanding the impact of the measure on a specific product mar-

ket. For example, a vague measure could be given substance through enforcement

policies that are initially unexpected or later changed significantly. However, where

the United States claims that it did not know of a measure's relevance to market access

conditions in respect of film or paper, we would expect the United States to clearly

demonstrate why initially it could not have reasonably anticipated the effect of an ex-

isting measure on the film or paper market and when it did realize the effect. Such a

showing will need to be tied to the relevant points in time (i.e., the conclusions of the

Kennedy, Tokyo and Uruguay Rounds) in order to assess the extent of the United

States' legitimate expectations of benefits from these three Rounds. A simple statement

that a Member's measures were so opaque and informal that their impact could not be

assessed is not sufficient. While it is true that in most past non-violation cases, one

could easily discern a clear link between a product-specific action and the effect on the

tariff concession that it allegedly impaired, one can also discern a link between general

measures affecting the internal sale and distribution of products, such as rules on ad-

vertising and premiums, and tariff concessions on products in general.185

As a result, measures introduced before the date of the tariff concessions give

rise to a presumption in favor of the defendant that no legitimate expectations

were created. The complaining party would have to prove its expectations in a

detailed way. For measures introduced after the tariff concessions, the panel

keeps to the prior panels’ assumptions of a presumption in favor of the com-

185 Japan – Measures Affecting Consumer Photographic Film and Paper, WT/DS44/R, paras. 10.79-10.80 (1998).

68

plainant. The latter is presumed not to have anticipated the subsequently intro-

duced measures by the defendant. The defendant has to rebut that presumption.

Given the language of Article XXIII:1 (b) GATT 1994, the panel’s solution tak-

ing into account both case scenarios has to be appreciated. That solution is con-

firmed by the text of the London Monetary and Economic Conference discussed

above, which requires the “subsequent introduction”186 of a measure. GATT

1994 does not provide for such a requirement.

5. Non-Violation Claims and Their Relationship to Coincidentally Raised

Violation Claims

It has been shown above that parties may be tempted to raise violation and

non-violation complaints at the same time. A panel will generally not decide a

non-violation issue when a violation of the agreement has occurred. Panels and

the Appellate Body use the notion of judicial economy. Two exceptions are pos-

sible: A panel would examine Article XXIII:1 (b) GATT 1994 even in a viola-

tion case if observation of the rules of GATT 1994 did not render the non-

violation complaint obsolete. Furthermore, if the panel’s terms of reference hin-

der it from making use of Article XXIII:1 (a) GATT 1994, the non-violation

complaint may be relevant.187

III. Remedies for a Successful Non-Violation Complaint

Before turning to the substantive remedies, an explanation of the terms

‘recommendations’ and ‘rulings’ is necessary. Rulings are authoritative deter-

minations of the existing GATT rights and obligations of the parties in the pre-

sent case. A ruling is the adoption by the DSB of a panel report (by negative

186 Cf. League of Nations, Monetary and Economic Conference, Reports Approved by the Conference on July 27th, 1933, and Resolutions Adopted by the Bureau and the Executive Committee, C. 435. M. 220. 1933. II at 30. 187 Chua, supra note 6, at 43-44.

69

consensus).188 On the other hand, panels end a report with recommendations

(Article 19:1 DSU). They are not binding and prepare for the later implementa-

tion of rulings189 as adopted by the DSB. The differentiation has become largely

superfluous because through the use of negative consensus practically all rec-

ommendations (by the panel or in case of appeal by the Appellate Body) turn

into rulings.

First, a short overview over the general remedies as regulated in Article 22:2

DSU:

If the Member concerned fails to bring the measure found to be inconsistent with a

covered agreement into compliance therewith or otherwise comply with the recom-

mendations and rulings within the reasonable period of time determined pursuant to

paragraph 3 of Article 21, such Member shall, if so requested, and no later than the

expiry of the reasonable period of time, enter into negotiations with any party having

invoked the dispute settlement procedures, with a view to developing mutually accept-

able compensation. If no satisfactory compensation has been agreed within 20 days af-

ter the date of expiry of the reasonable period of time, any party having invoked the

dispute settlement procedures may request authorization from the DSB to suspend the

application to the Member concerned of concessions or other obligations under the

covered agreements.

Article 22:2 DSU mentions three remedies for the claimant, which can be suc-

cessively applied: change of the measure under attack which violates the agree-

ment, compensation and ultimately suspension of concessions. If a party does

not comply with the ruling, it must enter into negotiations with the complainant

with regard to developing mutually acceptable compensation. Compensation is

voluntary (Article 22:1 DSU) and is only temporary, as Article 22:1 DSU indi-

cates that the withdrawal of the illegal measure prevails. Should that not lead to

188 Cf. Petersmann, The Dispute Settlement System of the World Trade Organization and the Evolution of the GATT Dispute Settlement System Since 1948, supra note 54, at 1174-1175. 189 Petersmann, The Dispute Settlement System of the World Trade Organization and the Evo-lution of the GATT Dispute Settlement System Since 1948, supra note 54, at 1175.

70

success within 20 days after the expiry of the ‘reasonable period of time,’ the

complainant may request authorization from the DSB to suspend concessions or

obligations in relation to the other party.

The intrinsic logical problem with the suspension of concessions is that

this ‘remedy’ actually is contrary to the aim of GATT 1994 to further the expan-

sion of trade.190

With regard to non-violation complaints, Article 26:1 (b) DSU introduces

a change from the above-mentioned system:

where a measure has been found to nullify or impair benefits under, or impede the at-

tainment of objectives, of the relevant covered agreement without violation thereof,

there is no obligation to withdraw the measure. However, in such cases, the panel or

the Appellate Body shall recommend that the Member concerned make a mutually sat-

isfactory adjustment.

A type of mutually satisfactory adjustment will usually be recommended by the

panel report following a non-violation complaint. Such an adjustment cannot be

the proposal to withdraw or change the measure, which makes sense if it is re-

called that the non-violation complaint specifically involves a measure where

the ‘defendant’ state has not breached any of the agreements part of the WTO.

That solution was applied during GATT 1947 as well, though it was not codified

before the introduction of the DSU.191 That also helps to explain why compensa-

tion in non-violation complaints can be a final remedy (Article 26:1 (d) DSU:

“compensation may be part of a mutually satisfactory adjustment as final settle-

ment of the dispute”). Usually, compensation is considered a temporary remedy,

as in a violation complaint the goal is to achieve withdrawal of the illegal meas-

ure. As withdrawal is not an option here, compensation can be final. Compensa-

190 Petersmann, The Dispute Settlement System of the World Trade Organization and the Evo-lution of the GATT Dispute Settlement System Since 1948, supra note 54, at 1186. 191 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Non-Violation Complaints and the TRIPS Agreement - Note by the Secretariat, IP/C/W/124, para. 67 (Jan. 28, 1999).

71

tion will usually take the form of offering new concessions of the same value.192

If compensation cannot be agreed upon, ‘suspension of concessions’ is, as in

violation cases, the last option for the parties.

A major problem concerning the remedies in non-violation complaint sce-

narios, which will also be discussed below with regard to the future of non-

violation complaints, is that in many cases the only sensible remedy cannot be

prescribed. In the two cases cited below, the panels, after confirming that no ob-

ligation existed to change the ‘legal’ measures, nonetheless “recommended” ex-

actly that:

There is in their view nothing in Article XXIII which would empower the CON-

TRACTING PARTIES to require a contracting party to withdraw or reduce a consump-

tion subsidy such as that applied by the Government of Australia to ammonium sul-

phate, and the recommendation made by the working party should not be taken to imply

the contrary. The ultimate power of the CONTRACTING PARTIES under Article

XXIII is that of authorizing an affected contracting party to suspend the application of

appropriate obligations or concessions under the General Agreement. The sole reason

why the adjustment of subsidies to remove any competitive inequality between the two

products arising from subsidization is recommended is that, in this particular case, it

happens that such action appears to afford the best prospect of an adjustment of the mat-

ter satisfactory to both parties.193

And in another panel report:

In the light of the above drafting history and decisions of the CONTRACTING

PARTIES the Panel found that the United States, as long as the embargo was not

found to be inconsistent with the General Agreement, was under no obligation to fol-

low a recommendation by the CONTRACTING PARTIES to remove the embargo. . .

.

The Panel noted that the United States had declared from the outset that it would not

remove the embargo without a solution to the underlying political problem (paragraph

4.9 above). It also noted that Nicaragua had recognized that "it seemed unfortunately

192 Roessler, Concept of Nullification and Impairment, supra note 117, at 123, 131. 193 The Australian Subsidy on Ammonium Sulphate, B.I.S.D. II/188, para. 16 (1950).

72

unlikely that the United States would accept a recommendation to lift the embargo"

(paragraph 4.10 above). The Panel therefore considered that a decision of the CON-

TRACTING PARTIES under Article XXIII:2 recommending the withdrawal of the

embargo would not seem to offer the best prospect of an adjustment of the matter sat-

isfactory to both parties and that, in these circumstances, it would not appear to be ap-

propriate for the CONTRACTING PARTIES to take such a decision unless they had

found the embargo to be inconsistent with the General Agreement.194

The panel in the case Australian Subsidy recommended an outright withdrawal

of the legal measure; in United States – Nicaragua the panel wanted to propose

a withdrawal of the measure as well, but in the end did not choose that path as

the panel felt that this was politically unrealistic. If the compensation negotia-

tions do not lead to success, and if suspension of concessions is not an option

from an economic point of view, the only “remedy” remaining is to change the

measure which was attacked. That, however, is the barred option. This is why

the practical value of the non-violation remedy is unfortunately rather small.

IV. Summary: The Non-Violation Complaint of Article XXIII :1 (b) GATT

1994

Non-violation complaints under GATT 1994 are only possible under very

strict circumstances. They are only applicable to protect the benefits derived

from tariff concessions under Article II GATT 1994. Despite the many deficien-

cies and uncertainties shown above, in that very limited number of non-violation

complaints filed to date, the non-violation procedure has sometimes provided a

helpful remedy for cases where no violation of GATT had occurred. Whether

the non-violation complaint should remain in its status quo or whether it should

be replaced by a different mechanism more adapted to current demands will be

discussed later on.

194 United States – Trade Measures Affecting Nicaragua, L/6053, paras. 5.9-5.10 (1986).

73

B. The Non-Violation Complaint of Article XXIII:3 GATS

Contrary to Article 64 TRIPS, the text of Article XXIII:3 GATS does not

refer to Article XXIII:1 (b) GATT 1994 but contains its own formulation of the

non-violation complaint:

If any Member considers that any benefit it could reasonably have expected to accrue

to it under a specific commitment of another Member under Part III of this Agreement

is being nullified or impaired as a result of the application of any measure which does

not conflict with the provisions of this Agreement, it may have recourse to the DSU. If

the measure is determined by the DSB to have nullified or impaired such a benefit, the

Member affected shall be entitled to a mutually satisfactory adjustment on the basis of

paragraph 2 of Article XXI, which may include the modification or withdrawal of the

measure. In the event an agreement cannot be reached between the Members con-

cerned, Article 22 of the DSU shall apply.

Several differences to Article XXIII:1 (b) GATT 1994 are apparent: the GATS

rule does not allow a complaint under the GATT 1994 wording in the case

where the “attainment of any objective of the Agreement is being impeded.”

That omission could be seen as a confirmation of the opinion that the “attain-

ment” clause under GATT 1994 is not relevant anymore: the drafters of GATS

could look back on almost fifty years of disuse of the “attainment” clause under

GATT 1947 and decided not to include that variant in GATS. However, it must

be admitted that under Article 64:3 TRIPS the possible application of the “at-

tainment” clause, at least in the future, is not definitely ruled out. However, it

can at least be stated that the chances of the “attainment” clause under GATT

1994 being applied have not risen with regard to the restrictive formulations un-

der GATS and TRIPS.

A further difference is that GATS does not include a provision for situa-

tion complaints. Violation and non-violation complaints thus exist only in one

74

variant each195 as opposed to GATT 1994, where there are two variants for each

of the three complaints.

GATS also changed the wording of the non-violation complaint insofar as

the words “directly or indirectly” concerning the “benefit accruing” phrase are

not included.

Taking all those changes into account, the non-violation complaint under

GATS is much more restricted than under GATT 1994.196

The GATT 1994 notion of “tariff concessions” is inapplicable under

GATS. In contrast to the tariff concession negotiations under GATT 1994, every

contracting party in GATS submits a schedule of specific commitments. There

are different schedules for different economic sectors.197

The GATS non-violation complaint is based on the same principles as the

GATT 1994 non-violation complaint. However, an element not included in

GATT 1994 was included in the GATS text, the “reasonable expectations” prin-

ciple.

With regard to the discussion above of the inadequate remedies under

GATT 1994, it is under GATS that the distinction between the remedies of vio-

lation complaint versus non-violation complaint has been abolished. Article 26:1

(b) DSU explicitly states for non-violation complaints that the withdrawal of the

measure under attack cannot be required. Article 22:1 DSU states the opposite

by saying that “neither compensation nor the suspension of concessions or other

obligations is preferred to full implementation of a recommendation to bring a

measure into conformity with the covered agreements.” Whereas one of the ma-

jor problems with GATT 1994 was the negative impact of Article 26:1 (b) DSU,

195 Cf. Petersmann, The Dispute Settlement System of the World Trade Organization and the Evolution of the GATT Dispute Settlement System Since 1948, supra note 54, at 1213. 196 Cf. Werner Zdouc, WTO Dispute Settlement Practice Relating to the GATS, J. INT’L ECON. L., VOLUME 2 at 295, 303 (1999). 197 Cho, supra note 89, at 325.

75

Article XXIII:3 GATS chooses Article 22 DSU over Article 26 DSU (“In the

event an agreement cannot be reached between the Members concerned, Article

22 of the DSU shall apply”). Thus, whether there is violation or non-violation

under GATS, the same remedies and the same enforcement procedures apply.

This is a major difference to GATT 1994.198

After this introduction, it still remains to be seen whether there is any

practical value to the non-violation complaints under GATS. Is there any case

scenario imaginable where they might apply? And, what is more, can the re-

quirements for a successful non-violation complaint be fulfilled under GATS?

I. Possible Case Scenarios for the Non-Violation Complaint Under GATS

First, it has to be recalled that GATS has copied (with modifications) the

non-violation complaint language from GATT 1994. The non-violation com-

plaint under GATS is thus not an original and independent concept. The text of

Article XXIII:1 (b) GATT 1994 was rather transferred with modifications to

cover the “new” areas of the WTO, such as GATS. The conditions for a success-

ful non-violation complaint under GATS have then to be identical to those under

GATT 1994, while of course respecting the modifications existing in the GATS

version of the complaint.

The first problem in a non-violation case under GATS would be that, as

stated above, GATS does not contain any “tariff concessions” as does GATT

1994. The presence of such “tariff concessions” under GATT 1994 is a neces-

sary condition for a successful non-violation complaint. As non-violation com-

plaints would thus be impossible under GATS, Article XXIII:3 GATS states that

benefits accruing under “specific commitments” (Part III of GATS) are being

198 Cottier & Schefer, Non-Violation Complaints in the WTO/GATT Dispute Settlement, supra note 24, at 143, 157.

76

protected by the non-violation complaint. What case scenarios would there be

then for the non-violation complaint under GATS?

As a general proposition, non-violation complaints could be possible un-

der GATS under the legal principle of effectiveness (“effet utile”) and the prin-

ciple of protection of reasonable expectations. Then Article XXIII:3 GATS

could help countries whose rights have been nullified or impaired by a modifica-

tion of schedules according to Article XXI GATS.199 That idea has been built on

the wording of Article XIX:1 GATS:

In pursuance of the objectives of this Agreement, Members shall enter into successive

rounds of negotiations, beginning not later than five years from the date of entry into

force of the WTO Agreement and periodically thereafter, with a view to achieving a

progressively higher level of liberalization. Such negotiations shall be directed to the

reduction or elimination of the adverse effects on trade in services of measures as a

means of providing effective market access. This process shall take place with a view

to promoting the interests of all participants on a mutually advantageous basis and to

securing an overall balance of rights and obligations.

From a different author comes a more concrete line of case scenarios, also based

on parts of the wording of the GATS:

The preamble of GATS provides:

Recognizing the right of Members to regulate, and to introduce new regulations, on the

supply of services within their territories in order to meet national policy objectives

and, given asymmetries existing with respect to the degree of development of services

regulations in different countries, the particular need of developing countries to exer-

cise this right

A footnote to the National Treatment provision of Article XVII:1 GATS con-

tains the following text: “Specific commitments assumed under this Article shall

not be construed to require any Member to compensate for any inherent com-

199 Petersmann, The Dispute Settlement System of the World Trade Organization and the Evo-lution of the GATT Dispute Settlement System Since 1948, supra note 54, at 1231.

77

petitive disadvantages which result from the foreign character of the relevant

services or service suppliers.”

The above phrases have been called “nebulous” and might make it diffi-

cult to bring about a violation claim. Thus, members would be enticed to rely on

non-violation complaints, which then could be numerous.200 The author then

provides a case scenario for a non-violation complaint under GATS:

Let us assume that country X, which is a Member of the GATS, has made a specific

commitment to permit the establishment of a foreign bank branch within its territory,

and that country Y, which is also a GATS Member, has several bank branches in coun-

try X. Then, without warning, X enacts a statute purported to reinforce supervision

over foreign bank branches by requiring them to comply with more complex and bur-

densome procedures than those required of domestic banks. Since introducing a new

regulation is at least facially consistent with GATS, if Y wants to challenge X's statute

under the WTO regime, Y will be compelled to file a non-violation complaint, arguing

that the statute nullifies or impairs the benefits accruing to Y under X's commitments in

its schedule.201

The author asserts that a panel will find it extremely difficult to decide such a

non-violation case.202

However, the question remains whether the above example would fulfill

the conditions elaborated for the non-violation complaint under GATT 1994.

II. Reasons Against the Application of the Non-Violation Complaint Under

GATS

As a general reason against non-violation complaints, one author asserts,

in contrast to the above-stated opinion, that nearly all complaints under GATS

will be violation complaints. That argument is based on Article VI:5 (a) GATS:

200 Cho, supra note 89, at 325. 201 Cho, supra note 89, at 326. 202 Cho, supra note 89, at 326.

78

In sectors in which a Member has undertaken specific commitments, pending the entry

into force of disciplines developed in these sectors pursuant to paragraph 4, the Mem-

ber shall not apply licensing and qualification requirements and technical standards

that nullify or impair such specific commitments in a manner which:

(i) does not comply with the criteria outlined in subparagraphs 4(a), (b) or (c); and

(ii) could not reasonably have been expected of that Member at the time the specific

commitments in those sectors were made.

GATS does limit the freedom of national regulatory policies. Such limits protect

the “schedules of specific commitments” against a later introduction of “harm-

ful” national policies. An example of this is Article VI:5 (a) GATS as repro-

duced above: a violation of that Article necessarily amounts to a violation com-

plaint and not to a non-violation complaint. According to the author, that result

would be typical of most cases.203

A different author writes even more explicitly about Article VI:5 (a)

GATS: “This provision thus establishes the legal obligation not to apply meas-

ures that nullify or impair specific commitments, thereby reducing the need to

resort to the non-violation nullification and impairment provisions of the

GATS.”204 A future widening of the existing GATS provisions is likely. Such a

further reduction of the freedom existing for national regulatory policies con-

cerning services will make it even more unlikely that the non-violation com-

plaint will ever be needed under GATS.205

With regard to the conditions necessary for a successful non-violation

complaint, the GATS explicitly states the principle of reasonable expectations,

which had been created by panel practice under GATT 1994. It is unlikely that

any complaint could ever fulfill that requirement under GATS. That is true as

well with regard to the case scenario reproduced above:

203 PETERSMANN, THE GATT/WTO DISPUTE SETTLEMENT SYSTEM, supra note 14, at 148-149. 204 Roessler, Concept of Nullification and Impairment, supra note 117, at 123, 135. 205 Roessler, Concept of Nullification and Impairment, supra note 117, at 123, 135.

79

The different national schedules of specific commitments are guided by

the GATS principle of “progressive liberalization.” They contain market access

commitments and national treatment conditions. In contrast to that is the princi-

ple of “reasonable expectations” as developed under GATT 1994: there, reason-

able expectations relate to the moment in time when the tariff concessions were

accorded between two members. Members ideally accord each other better mar-

ket access conditions of similar total “value.” That is where the “reasonable ex-

pectations” come into play: each member is allowed to have the “reasonable ex-

pectation” that the “value” of concessions it received from another member will

not be nullified or impaired later on. That idea is irreconcilable with the founda-

tion of the GATS “Schedule of Specific Commitments.”206

There is another reason why “reasonable expectations” cannot exist in a

GATS non-violation case: negotiations under GATS with regard to specific

commitments of Part III of GATS do not follow the principle of GATT 1994

that the main tools of trade policy are tariffs. The effect of tariffs on imports of

services is often minimal as services are intangible. Imports of services do not

necessarily require the crossing of a border. That is why GATS limits the use of

domestic regulatory devices. Thus, there can hardly be a “reasonable expecta-

tion” that a later introduction of a domestic subsidy e.g. on production will not

invalidate benefits from a schedule of commitments.207

It can be feared that, if a panel did rule on a non-violation complaint under

GATS, the stability of the whole WTO dispute settlement system would be en-

dangered. Such a case could be regarded as a “wrong case,” as no international

consensus exists on how a non-violation complaint should work under GATS.

That danger is aggravated by the “negative consensus” rule. Despite the impor-

206 Cf. Cho, supra note 89, at 325. 207 Petersmann, The Dispute Settlement System of the World Trade Organization and the Evo-lution of the GATT Dispute Settlement System Since 1948, supra note 54, at 1231.

80

tant strengthening of the rule of law with the abolition of the “positive consen-

sus” rule, under GATS the situation would be brought about that the Contracting

Parties could not overrule a too far-reaching panel report.208 Thus a case of “ju-

dicial overreach” could not be corrected. In a situation where a judicialized pro-

cedure like the non-violation complaint is used by panelists to “create” new “ob-

ligations,” strong opposition will inevitably follow from those whose political

views are in contrast with the conclusions reached by the panel. Such opposition

may well endanger the WTO, once those critics “explain” to their national Par-

liaments the “dangers” of the “whole” WTO dispute settlement system – as this

might be followed by the recommendation to disregard panel rulings altogether.

III. Summary: The Non-Violation Complaint of Article XXII I:3 GATS

Non-violation complaints under GATS cannot fulfill the conditions elabo-

rated under GATT 1994 and there is no case scenario justifying the existence of

the non-violation complaint under GATS. That is why Article XXIII:3 GATS

should not be used by a panel.

208 Cf. Cho, supra note 89, at 330-331.

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C. The Non-Violation Complaint of Article 64 TRIPS

The current status of the non-violation complaint under TRIPS will be the

first point to be examined in this section. This will be followed by an appraisal

of whether the non-violation complaint should be part of the TRIPS Agreement

at all, with reference to the concepts developed for the non-violation complaint

under GATT 1994. The TRIPS institutional framework (and with it the dispute

settlement rules) was only negotiated very late in the whole negotiating process.

In autumn 1991, no text concerning dispute settlement under TRIPS existed.209

The present unclear situation is due to that late development.

I. The Status of the Non-Violation Complaint Under the TRIPS Agreement

1. The Status of the Non-Violation Complaint Before the Doha Ministerial

Conference

Article 64 TRIPS reads as follows:

Dispute Settlement

1. The provisions of Articles XXII and XXIII of GATT 1994 as elaborated and ap-

plied by the Dispute Settlement Understanding shall apply to consultations and the set-

tlement of disputes under this Agreement except as otherwise specifically provided

herein.

2. Subparagraphs 1(b) and 1(c) of Article XXIII of GATT 1994 shall not apply to the

settlement of disputes under this Agreement for a period of five years from the date of

entry into force of the WTO Agreement.

3. During the time period referred to in paragraph 2, the Council for TRIPS shall ex-

amine the scope and modalities for complaints of the type provided for under subpara-

graphs 1(b) and 1(c) of Article XXIII of GATT 1994 made pursuant to this Agree-

ment, and submit its recommendations to the Ministerial Conference for approval.

Any decision of the Ministerial Conference to approve such recommendations or to

209 Cf. WTO Council for Trade-Related Aspects of Intellectual Property Rights, Non-Violation Complaints and the TRIPS Agreement - Note by the Secretariat, IP/C/W/124, paras. 12-13 (Jan. 28, 1999).

82

extend the period in paragraph 2 shall be made only by consensus, and approved rec-

ommendations shall be effective for all Members without further formal acceptance

process.

Article 64:2 TRIPS makes it clear that the non-violation complaint was not ap-

plicable before January 1, 2000. Before 2000, the Appellate Body in India –

Patent Protection found that any concept developed for the non-violation com-

plaint was not applicable under the TRIPS Agreement (the case was already

mentioned when discussing GATT 1994 ‘benefits;’ it states that the non-

violation complaint serves to protect the “reasonable expectations of contracting

parties relating to [specific] market access concessions”210 and that the latter con-

cept was thus unavailable under TRIPS before 2000).

After January 1, 2000, WTO Members expressed diverging views on what

the status of the non-violation complaint was to be. The U.S. can certainly be

called the member most aggressively campaigning for an application of the non-

violation complaint under TRIPS. Therefore, it is not surprising that the U.S.

preferred a very grammatical interpretation of Article 64 TRIPS: as January 1,

2000 passed, the U.S. advocated that the non-violation complaint was now ap-

plicable, despite the fact that the Council (though it had examined the matter)

had reached no conclusions and made no recommendations under Article 64:3

TRIPS.211 A similarly strong preference for applying non-violation complaints

under TRIPS has been voiced by Switzerland with the same line of reasoning as

the U.S. has proposed.212

210 India – Patent Protection for Pharmaceutical and Agricultural Chemical Products, WT/DS50/AB/R, para. 36 (1997). 211 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Scope and Mo-dalities of Non-Violation Complaints Under the TRIPS Agreement - Communication from the United States of America, IP/C/W/194 at 1-2 (July 17, 2000). 212 Cf. WTO Council for Trade-Related Aspects of Intellectual Property Rights, Minutes of Meeting – Held in the Centre William Rappard on 26-29 June 2000, IP/C/M/27, para. 177 (Aug. 14, 2000).

83

At least with regard to Article 3:2 DSU (“recommendations and rulings of

the DSB cannot add to or diminish the rights and obligations provided in the

covered agreements”) the U.S. has a valid claim: if Article 64 TRIPS justified an

application of the non-violation complaint, continued non-application of that

complaint by panels would diminish the rights of members contrary to Article

3:2 DSU.

Furthermore, the U.S. thought that “no purpose would be served in con-

tinuing the discussion of scope and modalities [of the non-violation complaint]

in the TRIPS Council, particularly in light of the Council’s considerable work

under the built-in agenda.”213 Other members preferred an extension of the time

period of non-applicability in Article 64:2 TRIPS. Others, for their part, ex-

pressed the view that since no decision under Article 64:3 TRIPS had been taken

by the Ministerial Conference, there existed no scope for a non-violation com-

plaint.214 The reluctant views expressed are probably a reflection of the concern

that the non-violation complaint under TRIPS could have far-reaching effects.215

It can also be feared that a panel having to apply the non-violation complaint

under TRIPS would, for lack of prior panel decisions, find itself in a ‘normative

void’ which should be filled by the WTO Members rather than by a judicial fo-

rum.216

213 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Scope and Mo-dalities of Non-Violation Complaints Under the TRIPS Agreement - Communication from the United States of America, IP/C/W/194 at 4 (July 17, 2000). 214 WTO, WTO ANNUAL REPORT - 2000 at 56 (2000). 215 Karen D. Lee & Silke von Lewinski, The Settlement of International Disputes in the Field of Intellectual Property, in FROM GATT TO TRIPS – THE AGREEMENT ON TRADE-RELATED

ASPECTS OF INTELLECTUAL PROPERTY RIGHTS, STUDIES IN INDUSTRIAL PROPERTY AND COPY-

RIGHT LAW VOLUME 18, 278, 289 (Friedrich-Karl Beier & Gerhard Schricker eds., 1996). Cf. also WTO Council for Trade-Related Aspects of Intellectual Property Rights, Non-Violation Complaints Under the TRIPS Agreement – Suggested Issues for Examination of Scope and Modalities Under Article 64.3 of the TRIPS Agreement – Communication from Canada, the Czech Republic, the European Communities and Their Member States, Hungary and Turkey, IP/C/W/191, para. 2 (June 22, 2000). 216 Roessler, Concept of Nullification and Impairment, supra note 117, at 123, 136.

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2. The Status of the Non-Violation Complaint as Set by the Doha Ministe-

rial Conference

The diverging views on the applicability of the non-violation complaint

under TRIPS found a temporary solution during the Doha Ministerial Confer-

ence:

The TRIPS Council is directed to continue its examination of the scope and modalities

for complaints of the types provided for under subparagraphs 1(b) and 1(c) of Article

XXIII of GATT 1994 and make recommendations to the Fifth Session of the Ministe-

rial Conference. It is agreed that, in the meantime, Members will not initiate such

complaints under the TRIPS Agreement.217

Article 64:2 TRIPS has been extended; the non-violation complaint is not appli-

cable at the moment. The question remains, of course, whether or to what extent

the non-violation complaint should play a role in the TRIPS Agreement. The

following sections will try to find an answer to that question.

II. The Suitability of the Non-Violation Complaint for th e Field of Intellec-

tual Property

The suitability of the non-violation complaint in TRIPS will be analyzed

according to the complaint’s features shown above in GATT 1994: can those

concepts developed above for the non-violation complaint be transferred to the

TRIPS Agreement?

217 WTO Ministerial Conference, Fourth Session, Doha, 9-14 November 2001, Implementa-tion-Related Issues and Concerns – Decision of 14 November 2001, WT/MIN(01)/17 at 7 (para. 11.1) (Nov. 20, 2001).

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1. The Notions of “Concessions” and “Market Access” – Present in the

TRIPS Agreement?

One core aspect of the non-violation complaint under GATT 1994 is that

‘benefit’ is understood as protecting a ‘competitive relationship’ established

through tariff concessions. In terms of Article II GATT 1994, it has been shown

that the ‘competitive relationship’ exists as the assurance of better market access

through price competition.218 Are those notions, which are central to GATT 1994,

transferable to TRIPS?

a) The Notion of Concessions

According to some, the idea of concessions is present in TRIPS. In spite

of the fact that TRIPS does not include rules for “reciprocal concessions,” it was

employed as a “bargaining chip” for “concessions” in the other WTO agree-

ments.219 A similar argument was later taken up by the U.S., including some fur-

ther elaboration on the idea of concessions:

The TRIPS Agreement was not negotiated in a vacuum. It was an integral part of the

Uruguay Round of multilateral trade negotiations. During the Uruguay Round, nego-

tiations involved many subject areas and concessions made and benefits gained were

negotiated across the range of those subject areas. Benefits gained in the form of

higher standards of protection for intellectual property rights under the TRIPS Agree-

ment were often "paid for" in the form of concessions made under other Agreements

cited in Annex 1 of the Marrakesh Agreement Establishing the World Trade Organiza-

tion (the WTO Agreement). Other concessions agreed to in the Uruguay Round with

respect to the TRIPS Agreement were made within the Agreement. The five-year de-

lay in the application of so-called "non-violation" complaints was, itself, a concession

on the part of some parties to the negotiations, as were transition periods and various

limitations on rights contained in the Agreement. Because the TRIPS Agreement ob-

218 Chua, supra note 6, at 41. 219 Karen D. Lee & Silke von Lewinski, The Settlement of International Disputes in the Field of Intellectual Property, in FROM GATT TO TRIPS, supra note 215, at 278, 313.

86

ligations are tied to all of the concessions made within the Agreement and under other

agreements that resulted from the Uruguay Round, delaying further the applicability of

Article XXIII:1(b) and (c) of the GATT 1994 would upset the equilibrium of conces-

sions reached at Marrakesh. It is for this reason that the United States will not agree to

any further delay.220

The above view proposes an interpretation of the whole Marrakesh Agreement

as one ‘negotiated concession.’ To support that view, it is stressed that the Uru-

guay Round was a “package deal” in that WTO Members must be members of

all the agreements listed in Annex 1 of the Marrakesh Agreement.221 The TRIPS

Agreement is also in itself seen as reflecting “an exchange of rights and obliga-

tions in the form of certain limitations and exceptions in relation to various

forms of intellectual property.”222

That argumentation is hardly persuasive. Taken further, any international

agreement involves a form of compromise which could be called a concession.

That notion is far from the Article II GATT 1994 tariff concession, in which

countries negotiate with each other on the reduction of certain specifically enu-

merated tariffs. In contrast, the general notion of compromise cannot usually be

fixed to a specific textual formulation in an international agreement. Therefore,

it is not astonishing that a majority of countries do not share the U.S. view. The

intention of the non-violation complaint in GATT 1994 is the protection of tariff

220 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Scope and Mo-dalities of Non-Violation Complaints Under the TRIPS Agreement – Communication from the United States of America, IP/C/W/194 at 7 (July 17, 2000). 221 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Scope and Mo-dalities of Non-Violation Complaints Under the TRIPS Agreement – Communication from the United States of America, IP/C/W/194 at 8 (July 17, 2000). 222 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Scope and Mo-dalities of Non-Violation Complaints Under the TRIPS Agreement – Communication from the United States of America, IP/C/W/194 at 8 (July 17, 2000).

87

concessions. There is in fact no room to use that intention in the TRIPS Agree-

ment.223

b) The Notion of Market Access

Taken one step further, the tariff concessions under GATT are supposed

to lead to better market access. Even if one accepted that the notion of conces-

sions was part of TRIPS, what is the situation concerning the result of those

concessions, i.e. market access?

TRIPS has been called a market access agreement. When a trading partner

makes a concession under GATT 1994, improved market access is expected.

However, that expectation of market access through tariff benefits may not be ful-

filled, if trademarks of the country making concessions are not protected abroad.

As well as technical barriers to trade, inadequate protection of intellectual prop-

erty rights and their enforcement can disturb market access of internationally

traded goods.224 The preamble of TRIPS states:

Desiring to reduce distortions and impediments to international trade, and taking into

account the need to promote effective and adequate protection of intellectual property

rights, and to ensure that measures and procedures to enforce intellectual property

rights do not themselves become barriers to legitimate trade.

In the absence of intellectual property rights standards, better market access

through tariff concessions might not materialize because others could sell identi-

cal products without hindrance despite the presence of a patent (e.g. marketing

without the permission of a copyright owner of copyrighted books, movies,

sound recordings, software, . . .). The TRIPS Agreement decreases market dis-

tortions by creating intellectual property rights standards and by guaranteeing

223 Petersmann, The Dispute Settlement System of the World Trade Organization and the Evo-lution of the GATT Dispute Settlement System Since 1948, supra note 54, at 1232. 224 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Scope and Mo-dalities of Non-Violation Complaints Under the TRIPS Agreement – Communication from the United States of America, IP/C/W/194 at 2 (July 17, 2000).

88

their enforcement – thus, TRIPS seems to be a market access agreement.225 In

addition, it is not an exclusive feature of TRIPS that no specific commitment to

a certain level of market access is being provided for: Agreements of Annex 1 of

the Marrakesh Agreement do not contain commitments to a specific degree of

market access but establish only the framework within which international trade

is to take place.226 Finally, the TRIPS Agreement is supposed to feature the same

exchange of rights and obligations as featured under GATT and GATS because

national treatment and MFN apply concerning the protection and enforcement of

intellectual property rights.227

Again, this is essentially the position of the U.S., with a majority of other

countries rejecting the idea that TRIPS is, at its core, a market access agreement.

The flaw in the argumentation above is, again, that if taken further, a majority of

international agreements will have some effect on the economy and usually one

which will further market access. That does not mean that all agreements are

essentially market access agreements. It is the WTO’s goal to improve market

access and reduce barriers to trade. Thus, anything part of the WTO could be

declared ‘pro’ market access without the contents of each agreement being

looked at. Then the notion of market access would be deprived of any value. The

same is true for the argument that national treatment and MFN are applicable

under TRIPS as well. Those two principles are the pillars helping to achieve the

WTO goal of reducing barriers to trade; the presence of such a broad principle

225 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Scope and Mo-dalities of Non-Violation Complaints Under the TRIPS Agreement – Communication from the United States of America, IP/C/W/194 at 2-3 (July 17, 2000). 226 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Scope and Mo-dalities of Non-Violation Complaints Under the TRIPS Agreement – Communication from the United States of America, IP/C/W/194 at 7 (July 17, 2000). 227 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Scope and Mo-dalities of Non-Violation Complaints Under the TRIPS Agreement – Communication from the United States of America, IP/C/W/194 at 8 (July 17, 2000).

89

cannot make superfluous the examination of a specific WTO agreement as to

whether it really has market access as its core concern.

The consensus is that the TRIPS Agreement, which is in that respect dif-

ferent from GATT 1994 and GATS, is not “principally concerned”228 with mar-

ket access. The word “principally” illustrates well that it is not sufficient to state

that the WTO’s main goal is market access, but that it is necessary to analyze the

content of each agreement separately. It is not contested that TRIPS furthers

market access of goods and services with intellectual property rights, but it is not

a market access agreement as such. Market access commitments can be found in

the GATT tariff concessions and the commitments on trade in services of WTO

Members. There is no comparable exchange of rights and obligations within

TRIPS. TRIPS provides minimum standards for an international system of intel-

lectual property protection to address uneven levels of protection that were

harmful to trade and is thus rather a ‘sui generis’ agreement.229 Article 63:1

TRIPS states the subject matter of TRIPS as “the availability, scope, acquisition,

enforcement and prevention of the abuse of intellectual property rights.” Those

rights are classified in the preamble as private rights: “Recognizing that intellec-

tual property rights are private rights.” The rights mentioned concern the per-

mission or prohibition to use the protected goods. No right of trade for the goods

and services which are based on the protected knowledge is being provided

228 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Non-Violation Nullification or Impairment under the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) – Communication from Canada, IP/C/W/127 at 2 (Feb. 10, 1999). 229 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Non-Violation Complaints Under the TRIPS Agreement – Suggested Issues for Examination of Scope and Modalities Under Article 64.3 of the TRIPS Agreement – Communication from Canada, the Czech Republic, the European Communities and Their Member States, Hungary and Turkey, IP/C/W/191, paras. 5-6 (June 22, 2000). See also WTO Council for Trade-Related Aspects of Intellectual Property Rights, Further Consideration of Non-Violation Nullification or Impair-ment Under the Agreement on Trade-Related Aspects of Intellectual Property Rights – Com-munication from Canada, IP/C/W/249 at 2 (Mar. 29, 2001).

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for.230 As an example, a U.S. musician can expect that her music media will not

be illegally copied in any WTO Member country. However, TRIPS does not

provide the right to sell her CDs in other WTO Member countries.231 Thus, mar-

ket access is not the core principle of the TRIPS Agreement. Furthermore,

though certain intellectual property rights can be transferred through contractual

licenses, there is no real trade in intellectual property rights comparable to trade

in goods or services. Intellectual property rights are rather part of tradable goods

and services.232 TRIPS is not a market access agreement as such.

2. The Non-Violation Complaint and the Coherence Between GATT, GATS

and TRIPS

The danger of an inclusion of the non-violation complaint in TRIPS is that

the overall WTO coherence might be undermined. If a measure is e.g. allowed

by GATT 1994 and GATS, but attackable under TRIPS through a non-violation

complaint, how can WTO agreements maintain their alleged coherence?

Looking at the opinion of the U.S., the overall coherence among WTO

agreements does not suffer from a non-violation complaint under TRIPS, at least

not more than it is already suffering: in the presence of different agreements,

problems of coherence can always arise. The problem of overall coherence

should be centered on panel reports and whether their decisions undermine co-

hesion. For the U.S., Article 3:2 DSU prohibits such a case scenario by stating:

“The dispute settlement system of the WTO is a central element in providing

security and predictability to the multilateral trading system. . . . Recommenda-

tions and rulings of the DSB cannot add to or diminish the rights and obligations 230 PETERSMANN, THE GATT/WTO DISPUTE SETTLEMENT SYSTEM, supra note 14, at 149. 231 Roessler, Concept of Nullification and Impairment, supra note 117, at 123, 136. 232 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Further Consid-eration of Non-Violation Nullification or Impairment Under the Agreement on Trade-Related Aspects of Intellectual Property Rights – Communication from Canada, IP/C/W/249 at 2 (Mar. 29, 2001).

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provided in the covered agreements.” As the Marrakesh Agreement was a “sin-

gle package” deal, it appears improbable for a panel to rule that what a member

agreed to under one part of the WTO could nullify or impair benefits in another

part. The ‘reasonable expectations’ requirement further strengthens that point, as

a measure provided for in one part of the WTO cannot be reasonably expected

not to occur.233 What seems to be problematic with that view is that no convinc-

ing reasoning is being provided for it: the claim that the problems already exist

under GATT 1994 and GATS and that the non-violation complaint requires the

fulfillment of several conditions does not answer the question whether there is a

coherence problem. Other opinions are more realistic in that context:

As the following examples show, intellectual property rights are related to

goods and services: a member state could introduce advertising limitations on

the marketing of certain goods and services. That could lead to restrictions on

the promotion of brands or trademarks. A member state could also adopt high

taxation on specific goods which, as a consequence, could affect intellectual

property rights on those goods. Such measures could, though in compliance with

GATT 1994 and GATS, be found to constitute a nullification or impairment in a

non-violation complaint under TRIPS.234 This is especially true as all WTO

rules apply cumulatively to members.235 As a result, the coherence between

GATT 1994, GATS and TRIPS would be undermined. It certainly is true that a

233 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Scope and Mo-dalities of Non-Violation Complaints Under the TRIPS Agreement – Communication from the United States of America, IP/C/W/194 at 3 (July 17, 2000). 234 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Non-Violation Complaints Under the TRIPS Agreement – Suggested Issues for Examination of Scope and Modalities Under Article 64.3 of the TRIPS Agreement – Communication from Canada, the Czech Republic, the European Communities and Their Member States, Hungary and Turkey, IP/C/W/191, paras. 8-11 (June 22, 2000). 235 Cf. WTO Council for Trade-Related Aspects of Intellectual Property Rights, Non-Violation and Situation Nullification or Impairment Under the TRIPS Agreement – Communi-cation from Argentina, Bolivia, Brazil, Colombia, Cuba, Ecuador, Egypt, India, Kenya, Ma-laysia, Pakistan, Peru, Sri Lanka and Venezuela, IP/C/W/385, para. 19 (Oct. 30, 2002).

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coherence problem (one measure being allowed under one agreement and at-

tacked through a non-violation complaint under another agreement) can arise

with a non-violation complaint under GATT 1994 and GATS as well. It is the

essence of the non-violation complaint that a measure legal under an agreement

can be attacked. However such situations are likely to occur much more fre-

quently under TRIPS, as the examples above show how easily governmental

measures can have adverse effects on intellectual property rights. That is not the

case under GATT 1994 and GATS.

3. The Non-Violation Complaint and the Impact on National Regulatory

Authority

Under this heading, the issue of how the presence of a non-violation com-

plaint will influence national legislatures and administrations will be analyzed.

That problem can be called the impact on national regulatory authority by the

non-violation complaint under TRIPS. The problem is that measures legal under

TRIPS enacted to further public policy objectives (e.g. social, economic devel-

opment, health, environmental and cultural measures) can have repercussions on

intellectual property rights. The fear of a successful non-violation complaint un-

der TRIPS against such measures might make states less willing to introduce

any of those future-oriented measures. According to the U.S., such a danger ex-

ists in GATT 1994 and GATS as well. The impact on national regulatory author-

ity is further reduced, as the U.S. claims, by the fact that the benefits of the

TRIPS Agreement are clear and precise. In addition, the U.S. argues that non-

violation complaints in the past were not high in number and will not be so in

the future.236

236 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Scope and Mo-dalities of Non-Violation Complaints Under the TRIPS Agreement – Communication from the United States of America, IP/C/W/194 at 8-9 (July 17, 2000).

93

Whether the TRIPS Agreement is as clear and precise as the U.S. pre-

sumes it to be is highly doubtful. It is at least as likely that a member introduc-

ing a public policy measure might be surprised by a subsequent non-violation

panel decision interpreting the TRIPS Agreement. An adverse impact on na-

tional regulatory authority is imaginable. Though being legal under TRIPS,

measures enacted with respect to public policy aims will frequently have reper-

cussions on intellectual property rights. Canada cites as an example that a law

may impose the plain packaging of cigarettes. That law could be attacked as nul-

lifying or impairing benefits of countries exporting cigarettes: the latter could

have expected their domestic industries to enjoy benefits from their trademark

rights.237 A member state may legislate to introduce a registration scheme for

hand guns which requires a periodic renewal of a license for which a fee is as-

sessed. If, as a consequence of the implementation of such a law, imports from

another country were reduced, would a non-violation complaint be possible on

the grounds that benefits linked to the patent rights were being nullified or im-

paired? And what would happen in the case of a country imposing import con-

trols on pharmaceuticals?238

To elaborate the latter case scenario a little further, one should look at a

declaration made at the Doha Ministerial Conference:

1. We recognize the gravity of the public health problems afflicting many devel-

oping and least-developed countries, especially those resulting from HIV/AIDS, tu-

berculosis, malaria and other epidemics. . . .

3. We recognize that intellectual property protection is important for the devel-

opment of new medicines. We also recognize the concerns about its effects on prices.

237 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Non-Violation Nullification or Impairment under the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) – Communication from Canada, IP/C/W/127 at 3 (Feb. 10, 1999). 238 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Further Consid-eration of Non-Violation Nullification or Impairment Under the Agreement on Trade-Related Aspects of Intellectual Property Rights – Communication from Canada, IP/C/W/249 at 4 (Mar. 29, 2001).

94

4. We agree that the TRIPS Agreement does not and should not prevent Members

from taking measures to protect public health. Accordingly, while reiterating our

commitment to the TRIPS Agreement, we affirm that the Agreement can and should

be interpreted and implemented in a manner supportive of WTO Members' right to

protect public health and, in particular, to promote access to medicines for all.

In this connection, we reaffirm the right of WTO Members to use, to the full,

the provisions in the TRIPS Agreement, which provide flexibility for this purpose.

5. Accordingly and in the light of paragraph 4 above, while maintaining our

commitments in the TRIPS Agreement, we recognize that these flexibilities include: . .

.

(b) Each Member has the right to grant compulsory licences and the freedom to de-

termine the grounds upon which such licences are granted.

(c) Each Member has the right to determine what constitutes a national emergency

or other circumstances of extreme urgency, it being understood that public health

crises, including those relating to HIV/AIDS, tuberculosis, malaria and other epi-

demics, can represent a national emergency or other circumstances of extreme ur-

gency.239

Despite that declaration, developing countries may feel pressured not to apply

measures allowed by TRIPS such as compulsory licensing out of fear that a non-

violation complaint may be brought against them.240 As a consequence, wider

access to essential medicines may be endangered by allowing non-violation

complaints under TRIPS.

Another example: if a copyright exists in a work that may violate the limits

of freedom of expression, is a non-violation complaint admissible on the grounds

that the benefits linked to the copyright in the work were being nullified or im-

paired (an example would be a book forbidden because one country has a stricter 239 WTO Ministerial Conference, Fourth Session, Doha, 9-14 November 2001, Declaration on the TRIPS Agreement and Public Health – Adopted on 14 November 2001, WT/MIN(01)/DEC/2, paras. 1-5 (Nov. 20, 2001). 240 Cf. WTO Council for Trade-Related Aspects of Intellectual Property Rights, Non-Violation and Situation Nullification or Impairment Under the TRIPS Agreement – Communi-cation from Argentina, Bolivia, Brazil, Colombia, Cuba, Ecuador, Egypt, India, Kenya, Ma-laysia, Pakistan, Peru, Sri Lanka and Venezuela, IP/C/W/385, para. 28 (Oct. 30, 2002).

95

standard on the prohibition of pornography)?241 A government cannot decide

with certainty which TRIPS-consistent measures of public policy it may intro-

duce without risking being the defendant in a non-violation complaint. Introduc-

tion of vital new measures will be hampered to the detriment of the society of

any given WTO Member.

Thus the recourse to non-violation complaints under TRIPS would make

private rights more important than public policy interests or the interests of the

users of intellectual property. One of the goals of TRIPS, namely to balance

rights and obligations of producers and users of intellectual property, would be

disregarded.242

4. The Accepted Conditions for a Successful Non-Violation Complaint and

the TRIPS Agreement

After the evaluation above, it becomes clear that a non-violation com-

plaint under TRIPS could not possibly function on the same basis as under

GATT 1994 or GATS. What are the cases then, if any, which might need a reso-

lution by a non-violation complaint under TRIPS? And, would those cases fulfill

the requirements of Article XXIII:1 (b) GATT 1994?

There are only very few proposals of hypothetical cases which might war-

rant the existence of a non-violation complaint under TRIPS. As an example, it

has been stated that a denial of the possibility to obtain a patent on pharmaceuti-

cals would be a violation of TRIPS. A more subtle approach would be if a coun-

try called for an extremely high degree of originality for a pharmaceutical pat- 241 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Further Consid-eration of Non-Violation Nullification or Impairment Under the Agreement on Trade-Related Aspects of Intellectual Property Rights – Communication from Canada, IP/C/W/249 at 3-4 (Mar. 29, 2001). 242 Cf. WTO Council for Trade-Related Aspects of Intellectual Property Rights, Non-Violation and Situation Nullification or Impairment Under the TRIPS Agreement – Communi-cation from Argentina, Bolivia, Brazil, Colombia, Cuba, Ecuador, Egypt, India, Kenya, Ma-laysia, Pakistan, Peru, Sri Lanka and Venezuela, IP/C/W/385, para. 21 (Oct. 30, 2002).

96

ent, which would amount to the same result: no intellectual property protection.

A real illustration of that idea might be the fact that only few computer programs

are protected in Germany, as the requirements to obtain protection are very

high.243

That example, however, is very vague as far as the facts are concerned;

otherwise, the only reasons for a non-violation complaint under TRIPS are

stated in general terms: non-violation complaints are supposed to help fill gaps

between and avoid circumvention of TRIPS rules.244 For the U.S., the “possibil-

ity of such complaints . . . needs to be preserved as a safety net to discourage

actions that evade obligations without directly violating them, actions that non-

violation complaints were intended to prevent from the beginning.”245 Still, no

hypothetical examples have been advanced to justify that opinion and it is

doubtful whether any such case scenario exists at all.

A further difficulty would be how to interpret the conditions of Article

XXIII:1 (b) GATT 1994 under TRIPS. Under TRIPS, the term ‘benefit’ cannot

be the ‘competitive relationship’ characterized as the assurance of better market

access through price competition. As has been shown above, TRIPS is not a mar-

ket access agreement. In addition, a competitive relationship must be upset by

the measure under attack in order to allow a successful non-violation complaint.

That, too, shows the incompatibility of the non-violation complaint with the

TRIPS Agreement: TRIPS is not concerned with regulating competitive rela-

243 Karen D. Lee & Silke von Lewinski, The Settlement of International Disputes in the Field of Intellectual Property, in FROM GATT TO TRIPS, supra note 215, at 278, 313. 244 Karen D. Lee & Silke von Lewinski, The Settlement of International Disputes in the Field of Intellectual Property, in FROM GATT TO TRIPS, supra note 215, at 278, 313. 245 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Scope and Mo-dalities of Non-Violation Complaints Under the TRIPS Agreement – Communication from the United States of America, IP/C/W/194 at 4 (July 17, 2000).

97

tionships. To some extent, TRIPS is anti-competitive at its core whenever it tries

to reward an inventor.246

Various proposals have suggested how to interpret ‘benefit’ under TRIPS:

‘Benefit’ should be the possibility of third parties to acquire, maintain, and en-

force but not to exploit intellectual property rights.247 ‘Benefit’ could also be

overall anticipated economic returns.248 Opinions diverge significantly among

members; thus it is doubtful whether it should be left to a panel to decide the mat-

ter, as the interpretation of ‘benefit’ substantially shapes the scope of the non-

violation complaint.249

What is more, benefits in a non-violation complaint are those accruing to

WTO Members. In the case of TRIPS, there is the danger that ‘benefits’ accruing

to WTO Members are mixed with those existing for private intellectual property

right holders.250

With regard to the term ‘measure,’ the TRIPS Agreement raises the prob-

lem whether court decisions or actions of law enforcement authorities should be

included under that term. ‘Measure’ under GATT 1994 is usually a law or a gov-

ernment regulation. The TRIPS Agreement, however, created obligations as to the

enforcement of intellectual property rights by national courts. Canada illustrates

246 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Non-Violation and Situation Complaints – Summary Note by the Secretariat, IP/C/W/349, para. 30 (June 19, 2002). 247 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Further Consid-eration of Non-Violation Nullification or Impairment Under the Agreement on Trade-Related Aspects of Intellectual Property Rights – Communication from Canada, IP/C/W/249 at 3 (Mar. 29, 2001). 248 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Non-Violation Nullification or Impairment under the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) – Communication from Canada, IP/C/W/127 at 2 (Feb. 10, 1999). 249 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Non-Violation Nullification or Impairment under the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) – Communication from Canada, IP/C/W/127 at 2-3 (Feb. 10, 1999). 250 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Non-Violation and Situation Complaints – Summary Note by the Secretariat, IP/C/W/349, para. 33 (June 19, 2002).

98

that problem by stating that, if a court overturns national legislation in effect at the

time TRIPS was negotiated, reasonable expectations of the parties that the legisla-

tion, which was overturned later, would stay in power could have existed.251 If

court decisions fell under the term ‘measure,’ would panels then exercise a sort of

appeal over national courts? And to what extent could they judge the exercise of

discretionary authority by national institutions? How would such a wide power of

WTO panels impact on the organization and the resources available to national

institutions?252 A wide interpretation of the term ‘measure’ can have far-reaching

consequences; such an interpretation should not be the task of WTO panels.

A further condition of Article XXIII:1 (b) GATT 1994 is ‘reasonable ex-

pectations’ which, as seen above, are based on the time when the ‘tariff conces-

sions’ under GATT 1994 were negotiated. TRIPS does not provide for recipro-

cal concession, so that the point in time which the reasonable expectations

should be based upon would have to be the date of the signature of the TRIPS

Agreement, April 15, 1994.253 It has been suggested above that the notion of

‘reasonable expectations’ should not mean that expectations can extend into

eternity. Already the time span 1994 – 2003 might be too large to ever permit

the presence of ‘reasonable expectations.’

251 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Further Consid-eration of Non-Violation Nullification or Impairment Under the Agreement on Trade-Related Aspects of Intellectual Property Rights – Communication from Canada, IP/C/W/249 at 3 (Mar. 29, 2001). 252 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Further Consid-eration of Non-Violation Nullification or Impairment Under the Agreement on Trade-Related Aspects of Intellectual Property Rights – Communication from Canada, IP/C/W/249 at 3 (Mar. 29, 2001). 253 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Further Consid-eration of Non-Violation Nullification or Impairment Under the Agreement on Trade-Related Aspects of Intellectual Property Rights – Communication from Canada, IP/C/W/249 at 4-5 (Mar. 29, 2001).

99

Even if all the requirements of Article XXIII:1 (b) GATT 1994 were met,

the question remains what role Article 8:1 TRIPS would play to benefit the de-

fendant:

Members may, in formulating or amending their laws and regulations, adopt measures

necessary to protect public health and nutrition, and to promote the public interest in

sectors of vital importance to their socio-economic and technological development,

provided that such measures are consistent with the provisions of this Agreement.

It is not excluded that this provision can be read in such a way as to exclude any

non-violation complaints: a non-violation complaint might not be possible at all

since measures not inconsistent with the agreement were foreseeable (according

to the wording of Article 8:1) so that no reasonable expectation could have ex-

isted that such measures would never be introduced.254 Article 8:1 TRIPS was

not phrased “are consistent with the provisions and do not impair the benefits of

this Agreement.”

There are no plausible case scenarios in which the non-violation com-

plaint could play a significant role under TRIPS; difficulties in interpretation of

the conditions of Article XXIII:1 (b) GATT 1994 suggest that non-violation

complaints cannot be part of TRIPS at all.

5. Remedies for a Successful Non-Violation Complaint: Do They Exist?

As already shown above, one of the problems of the non-violation com-

plaint under GATT 1994 is the question of remedies, as a country cannot be re-

quired to remove any GATT 1994-consistent measure. If compensation, which

is voluntary, should not be workable, a party under TRIPS (as well as under

GATT 1994) could only have recourse to suspension of concessions. Usually,

suspension is first allowed in the same sector of an agreement, then in a different

254 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Non-Violation Complaints and the TRIPS Agreement – Note by the Secretariat, IP/C/W/124, para. 14 (Jan. 28, 1999).

100

sector of the same agreement and finally, as cross-retaliation, under another

agreement (Article 22:3 (a)-(c) DSU). Under GATT 1994 that procedure makes

sense: reciprocal tariff concessions can be renegotiated. They are not unchange-

able. One party can thus suspend its part of the concessions as an authorized re-

taliation measure.

No kind of revocation of reciprocal concessions exists under TRIPS. Law-

ful government measures which nullify or impair benefits cannot give rise to an

authorization by the DSB to retaliate by not observing binding TRIPS obliga-

tions.255 TRIPS obligations cannot be unilaterally modified or withdrawn. There

is no renegotiation of TRIPS obligations between complainant and defendant.256

If compensation is not workable, what retaliatory rights can the defendant have?

As the complainant cannot be allowed to disrespect the TRIPS Agreement vis-à-

vis the defendant, only cross-retaliation seems possible. Cross-retaliation, how-

ever, is explicitly treated by the DSU as ‘ultima ratio.’ In a non-violation com-

plaint under TRIPS, it would be the norm. Non-violation complaints with the

remedies of Article 22:3 (a)-(c) DSU are not suitable for TRIPS.

Even if it were to be assumed that the parties would agree on compensa-

tion, how should the amount of compensation be evaluated? Under GATT 1994

that is feasible, as nullification or impairment exists with regard to market ac-

cess conditions.257 How should an evaluation of nullification or impairment take

place under TRIPS as a non-market-access agreement? As an example, if a

member succeeds in a non-violation complaint against a country which has

raised the burden of proof for intellectual property rights holders bringing cases 255 Cf. PETERSMANN, THE GATT/WTO DISPUTE SETTLEMENT SYSTEM, supra note 14, at 150. 256 Roessler, Concept of Nullification and Impairment, supra note 117, at 123, 137. See also Petersmann, The Dispute Settlement System of the World Trade Organization and the Evolu-tion of the GATT Dispute Settlement System Since 1948, supra note 54, at 1233. 257 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Further Consid-eration of Non-Violation Nullification or Impairment Under the Agreement on Trade-Related Aspects of Intellectual Property Rights – Communication from Canada, IP/C/W/249 at 4 (Mar. 29, 2001).

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in national courts, how is the TRIPS guarantee of access to courts to be valued

in money?258

One cannot but conclude that no suitable remedies exist for a non-

violation complaint under TRIPS.

6. Outlook: Non-Violation Complaints Under the TRIPS Agreement

Taking the above problems into account, the non-violation complaint

should not become applicable under TRIPS, a demand voiced by a multitude259

of countries. There is no apparent use for Article XXIII:1 (b) GATT 1994 under

TRIPS. In the final analysis, TRIPS is structurally different from GATT 1994,

so that a transfer of a device dependent on the features of GATT 1994 to TRIPS

does not make sense.

It has been stressed that the presence of a non-violation complaint under

TRIPS may cause harm to TRIPS: if the non-violation complaint did not exist,

the obligations of TRIPS might be interpreted in a wider, more ‘creative’ and

possibly more effective way. The availability of a non-violation complaint

would rather lead to a very strict interpretation of the agreement as a country

dissatisfied with the ‘legal’ actions of another WTO Member may simply be re-

ferred to Article XXIII:1 (b) GATT 1994. That could significantly narrow the

scope of TRIPS.260

The non-violation complaint might achieve more protection of intellectual

property rights; however, more protection is not necessarily a good thing: intel-

258 Cf. WTO Council for Trade-Related Aspects of Intellectual Property Rights, Further Con-sideration of Non-Violation Nullification or Impairment Under the Agreement on Trade-Related Aspects of Intellectual Property Rights – Communication from Canada, IP/C/W/249 at 4 (Mar. 29, 2001). 259 Cf. WTO Council for Trade-Related Aspects of Intellectual Property Rights, Non-Violation and Situation Nullification or Impairment Under the TRIPS Agreement – Communi-cation from Argentina, Bolivia, Brazil, Colombia, Cuba, Ecuador, Egypt, India, Kenya, Ma-laysia, Pakistan, Peru, Sri Lanka and Venezuela, IP/C/W/385 at 3 (Oct. 30, 2002). 260 Roessler, Concept of Nullification and Impairment, supra note 117, at 123, 137.

102

lectual property rights should be equilibrated between the necessity to create in-

centives for innovation and the necessity to achieve maximum access for society

to new inventions. Too little protection of intellectual property rights can hinder

innovation and trade just as too much protection can.261 With regard to essential

medicines, too much protection of the intellectual property rights through non-

violation complaints may reduce access to those medicines for a large number of

people around the globe. Given the number of open questions, it should abso-

lutely be avoided that a panel decide those issues. As the uncertainties are fun-

damental, WTO Members should find a solution, though the best solution ap-

pears to be not to allow the non-violation complaint under TRIPS.

261 WTO Council for Trade-Related Aspects of Intellectual Property Rights, Further Consid-eration of Non-Violation Nullification or Impairment Under the Agreement on Trade-Related Aspects of Intellectual Property Rights – Communication from Canada, IP/C/W/249 at 2 (Mar. 29, 2001).

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D. The Interplay of the Non-Violation Complaint and Competition Law

Under the WTO

The following section will examine whether the non-violation complaint

has or should have any applicability to the field of competition law (e.g. merg-

ers, resale price maintenance, parallel imports, vertical restraints and abuse of a

dominant position) under the WTO régime. The section is divided into the “Cur-

rent Situation Under the WTO” (I.) and “Future Developments Under the WTO”

(II.) as well as a short summary (III.).

I. The Current Situation Under the WTO

1. Competition Law Provisions of the WTO

The WTO contains few provisions relating to the field of competition law.

Concerning GATT 1994, Article III GATT 1994 has a competition component

to the extent that national competition laws impacting upon internal sale, distri-

bution, etc. must be applied without discrimination.262 Article XVII GATT 1994

provides a similar component; Article XVII GATT 1994 refers back to the non-

discrimination principle of Article III GATT 1994.263 Article XI GATT 1994

concerns quantitative restrictions. It is comparable to Article III GATT 1994 in

that it aims to establish competitive conditions.264 Still, though the above-

mentioned provisions relate to competitive conditions, they do not address com-

petition policy per se.265

262 Bernard M. Hoekman & Petros C. Mavroidis, Competition, Competition Policy, and the GATT, in THE WORLD BANK POLICY RESEARCH WORKING PAPER NO. 1228, at 11-12 (1993). 263 Hoekman & Mavroidis, supra note 262, at 15-16. 264 Hoekman & Mavroidis, supra note 262, at 17. 265 Hoekman & Mavroidis, supra note 262, at 27.

104

As far as GATS is concerned, Articles VIII and IX GATS forbid monop-

oly service suppliers to discriminate against foreign corporations when they de-

liver their services.266

With regard to TRIPS, Articles 8, 31 and 40 TRIPS deal with anticom-

petitive behavior in licensing agreements, the abuse of intellectual property

rights and limitations on compulsory licensing.267

2. Dispute Settlement of the WTO

Given the small number of competition law provisions or references in

GATT 1994, GATS and TRIPS, it is at first sight unlikely that the dispute set-

tlement system plays an important role in that area today. Still, some authors

have suggested possible approaches in order to involve WTO panels even at pre-

sent in competition law matters. Thus, competition law principles might be in-

troduced into the WTO through the “backdoor” of non-violation complaints.

That would present the advantage that a speedy integration of basic competition

law principles might be possible, which might take a longer time if it had to go

through negotiations at the Ministerial Conferences.268 The advantage of a

speedy integration is apparent: Competition law is, among other goals, supposed

to prevent trade liberalization benefits from being nullified through the creation

of new barriers to trade by private businesses. National competition laws are,

however, not well equipped to tackle transboundary practices.269

266 Kevin C. Kennedy, Global Trade Issues in the New Millennium: Foreign Direct Invest-ment and Competition Policy at the World Trade Organization, 33 GEO. WASH. INT’L L. REV. 585, 603 (2001). 267 Kennedy, supra note 266, at 602-603. 268 Cf. Frieder Roessler, Should Principles of Competition Policy be Incorporated Into WTO Law Through Non-Violation Complaints?, J. INT’L ECON. L., VOLUME 2 at 413, 413-414 (1999) [hereinafter Roessler, Principles of Competition Policy]. 269 Friedl Weiss, From World Trade Law to World Competition Law, 23 FORDHAM INT’L L.J. 250, 254-255 (2000).

105

The suitability of the dispute settlement system will be analyzed accord-

ing to the three types of complaints offered in WTO Law. Though the main fo-

cus will be on the non-violation complaint, a few observations are necessary

with regard to the violation and the situation complaint, as well.

a) The Violation Complaint

The violation complaint is regulated in Article XXIII:1 (a) GATT 1994. It

is applicable under TRIPS according to Article 64:1 TRIPS and under GATS

according to Article XXIII:1 GATS. As the violation complaint is only applica-

ble in the case of a measure violating a provision of the agreements, its scope of

application to antitrust policy is very narrow, few provisions dealing with com-

petition matters. Actually, the violation complaint even seems to be inapplicable

for the following reasons: The WTO agreements deal with government meas-

ures. Thus private restrictive business practices are not subject to the dispute set-

tlement system.270 It is most often private behavior which has anticompetitive

impacts, so that the violation complaint is not suitable. As long as private busi-

ness practices limit market access without government involvement, they cannot

be attacked through a violation complaint.271 The Japan – Film panel decision

confirms the conclusion that government involvement is necessary for a measure

to be open to attack:

Moreover, we also consider it conceivable, in cases where there is a high degree of

cooperation and collaboration between government and business, e.g., where there is

substantial reliance on administrative guidance and other more informal forms of gov-

ernment-business cooperation, that even non-binding, hortatory wording in a govern-

270 Cf. Hoekman & Mavroidis, supra note 262, at 10. 271 Hoekman & Mavroidis, supra note 262, at 27.

106

ment statement of policy could have a similar effect on private actors to a legally bind-

ing measure or what Japan refers to as regulatory administrative guidance.272

There is another instance for which violation complaints can come to mind: the

lack of enactment or enforcement of national competition laws. The violation

complaint is inapplicable in that scenario as well: there are no specific rules pro-

viding that a WTO Member must enact or enforce a national competition law.273

b) The Situation Complaint

The situation complaint is regulated in Article XXIII:1 (c) GATT 1994. It

is, however, not applicable under GATS (compare Article XXIII GATS).274 The

same is true for TRIPS, though that solution is not apparent under Article 64:2

TRIPS (“Subparagraphs 1(b) and 1(c) of Article XXIII of GATT 1994 shall not

apply to the settlement of disputes under this Agreement for a period of five

years from the date of entry into force of the WTO Agreement.”): The five-year

period for the non-application of the situation complaint ran out on January 1,

2000. However, due to discussions among WTO Members whether the situation

complaint should be applicable at all under TRIPS, the Ministerial Conference at

Doha decided to temporarily suspend its application:

The TRIPS Council is directed to continue its examination of the scope and modalities

for complaints of the types provided for under subparagraphs 1(b) and 1(c) of Article

XXIII of GATT 1994 and make recommendations to the Fifth Session of the Ministe-

rial Conference. It is agreed that, in the meantime, Members will not initiate such

complaints under the TRIPS Agreement.275

272 Japan – Measures Affecting Consumer Photographic Film and Paper, WT/DS44/R, para. 10.49 (1998). 273 Kennedy, supra note 266, at 628. See also Jason E. Kearns, International Competition Pol-icy and the GATS: A Proposal to Address Market Access Limitations in the Distribution Ser-vices Sector, 22 U. PA. J. INT’L ECON. L. 285, 294 (2001). 274 Roessler, Concept of Nullification and Impairment, supra note 117, at 123, 140. 275 WTO Ministerial Conference, Fourth Session, Doha, 9-14 November 2001, Implementa-tion-Related Issues and Concerns – Decision of 14 November 2001, WT/MIN(01)/17 at 7 (para. 11.1) (Nov. 20, 2001).

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The situation complaint for competition law matters can then only be discussed

under the GATT 1994. There has never been an adopted panel decision under

Article XXIII:1 (c) GATT 1994. There is therefore no indication by a panel

what a “situation” is supposed to be. According to the drafters of GATT 1947,

“situations” were said to be instances of general depression, high unemploy-

ment, collapse of the price of a commodity and similar emergencies which can-

not be remedied by measures of a particular government.276 Those scenarios do

not fit competition law matters. Furthermore, as virtually no panel has ever ac-

cepted to rule under a situation complaint since 1947, it is highly unlikely that

the constant disuse of that vague provision will change in the future.277

c) The Non-Violation Complaint

The only WTO complaint seriously discussed as being applicable to com-

petition law matters even at present is the non-violation complaint. The next two

sections shall present an overview of the arguments for and against the applica-

tion of the non-violation complaint to competition law matters.

aa) Reasons for the Application of the Non-Violation Complaint in Competition

Law Matters

Two authors provide a detailed review of the non-violation complaint and

its current applicability to competition law matters. Whenever there is no viola-

tion of GATT Articles, the only forum for antitrust matters is supposed to be the

non-violation complaint. The authors propose staying within the accepted panel

practice, which allows non-violation claims only for Article II GATT 1994 tariff

concessions. However, they contend that tariff concessions can also be nullified

276 Roessler, Concept of Nullification and Impairment, supra note 117, at 123, 139. 277 Cf. Hoekman & Mavroidis, supra note 262, at 21.

108

or impaired by government measures relating to competition policy.278 The three

conditions to be fulfilled for a successful non-violation complaint relating to re-

strictive business practices are the following: a governmental measure (1) must

be applied which upsets the competitive conditions created by tariff concessions

(2) and the measure could not have been reasonably expected when tariff bind-

ings were negotiated (3).279 With these conditions, the authors respect estab-

lished panel practice for ‘usual’ non-violation complaints.

As far as the first condition is concerned: the necessary positive measure

by a government could be the granting of an exemption which actually hinders

competitive market access by third countries. Then a departure from panel prac-

tice is suggested by the authors: Many types of government behavior can

amount to nullification or impairment. In order to cover all cases which lead to a

nullification or impairment result, a teleological interpretation should even allow

non-action to be covered through a non-violation complaint. The emphasis

should not be on how (through positive action or not) but on whether nullifica-

tion or impairment occurs.280 According to that view, lack of enforcement of

competition laws is sufficient to trigger a non-violation complaint.

With regard to the second condition, the scope of the non-violation com-

plaint seems rather restricted as business practices creating effects extraterritori-

ally cannot be subjected to a non-violation complaint. The non-violation com-

plaint has the narrow focus to protect the value of tariff concessions and those

exclusively deal with import tariffs. Only measures restricting market access in

the domestic market are attackable through a non-violation complaint.281

The third condition of ‘reasonable expectations’ is not part of Article

XXIII:1 (b) GATT 1994, but it is consistently being applied by panels. As far as

278 Hoekman & Mavroidis, supra note 262, at 21-22. 279 Hoekman & Mavroidis, supra note 262, at 22. 280 Hoekman & Mavroidis, supra note 262, at 23. 281 Hoekman & Mavroidis, supra note 262, at 23-24.

109

the reasonable expectations go, there is a presumption for the existence of rea-

sonable expectations, if the measure under attack is introduced after the tariff

negotiations, at which time reasonable expectations must exist.282 The complain-

ant should not experience any difficulties with regard to the ‘reasonable expecta-

tions’ condition.283

To summarize the above view, non-violation complaints are seen as appli-

cable if a government does not create or does not enforce national competition

laws or if a positive measure like an antitrust exemption is seen as nullifying or

impairing benefits as long as the above-mentioned conditions of Article XXIII:1

(b) GATT 1994 are fulfilled.284

A different author sees a possible application of the non-violation com-

plaint where restrictive business practices impair the “effet utile” of the WTO

agreements.285 Finally, it has been asserted that anti-competitive practices should

be dealt with by using non-violation complaints, as this would reduce the incen-

tive for a member to resort to unilateral action.286

bb) Reasons Against the Recourse to Non-Violation Complaints in Competition

Law Matters

Reasons against the recourse to non-violation complaints in competition

law matters can be divided into two categories. On the one hand, it can be

doubtful whether the conditions of Article XXIII:1 (b) GATT 1994 can in fact

be fulfilled by a complaint relating to competition policy. On the other hand,

political realities concerning the WTO dispute settlement system can advocate a

282 Cf. Japan – Measures Affecting Consumer Photographic Film and Paper, WT/DS44/R, para. 10.79 (1998). 283 Cf. Hoekman & Mavroidis, supra note 262, at 24. 284 Hoekman & Mavroidis, supra note 262, at 26. 285 Malaguti, supra note 94, at 132-133. 286 Tracy M. Abels, The World Trade Organization's First Test: The United States-Japan Auto Dispute, 44 UCLA L. Rev. 467, 524 (1996).

110

distanced stance from an inclusion of competition policy in the dispute settle-

ment system.

aaa) The Fulfillment of the Requirements of Article XXIII:1 (b) GATT 1994

To the first category of reasons: One case scenario for a non-violation

complaint with regard to competition law could be that one member reproaches

another that the latter did not maintain or enforce its competition laws with the

result that private restrictive business practices have spread. This makes sense

insofar as no WTO provision requires a state to maintain or enforce its competi-

tion laws. Thus, no violation but only a non-violation complaint is possible.

Still, it seems unlikely that such a claim could succeed. Article 26:1 (a) DSU

requires the complainant to provide ‘detailed justification’ for its non-violation

claim; the language of Article XXIII:1 (b) GATT 1994 (“as the result of”) re-

quires a causal link. It is unlikely that a foreign country will be able to prove in

detail how another country failed to maintain or enforce its competition laws

through a governmental measure that is the cause for a nullification or impair-

ment of market access.287

In the Japan – Film case, the U.S. held the following position:

On 20 September 1996, the United States requested the establishment of a Panel pur-

suant to Articles 4 and 6 of the DSU. In its request, the United States alleged that Ja-

pan has implemented and maintains certain laws, regulations, requirements and meas-

ures (hereinafter collectively "measures" or "'countermeasures'") affecting the distribu-

tion, offering for sale, and internal sale of imported consumer photographic film and

paper. The US considered that such measures nullify or impair benefits accruing to it,

within the meaning of Article XXIII:1(a), as a result of the failure of Japan to carry out

its obligations under Articles III and X of GATT. More specifically, the United States

claimed that the Japanese Government measures:

287 Kennedy, supra note 266, at 641.

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a. were implemented and maintained so as to afford protection to domestic production

of consumer photographic film and paper within the meaning of Article III:1 of

GATT;

b. conflict with Article III:4 of GATT by affecting the conditions of competition for

the distribution, offering for sale, and internal sale of consumer photographic film and

paper in a manner that accords less favourable treatment to imported film and paper

than to comparable products of national origin; and

c. conflict with Articles X:1 and X:3 of GATT because the measures lack transparency

in that they were not promptly published and were not administered in a uniform, im-

partial and reasonable manner.

In addition, the United States claimed that the application of these measures by Japan

nullifies or impairs, within the meaning of Article XXIII:1(b) of GATT, the tariff con-

cessions that Japan made on black and white and colour consumer photographic film

and paper in the Kennedy Round, Tokyo Round, and Uruguay Round multilateral tar-

iff negotiations.288

The U.S. invokes anti-competitive conduct by the Japanese government in its

non-violation claim. However, the above-mentioned difficulty relating to proof

was the reason why the Japan - Film panel dismissed the non-violation com-

plaint: “In light of our findings in sections E.3, E.4, E.5 and E.6 above, we con-

clude that the United States has not demonstrated that the Japanese "measures"

cited by the United States individually or collectively nullify or impair benefits

accruing to the United States within the meaning of GATT Article

XXIII:1(b).” 289

Furthermore, ‘reasonable expectations’ would be necessary in such a way

that the complainant could reasonably expect the defendant to maintain and en-

force her competition law.290 One author assumes that thus ‘reasonable expecta-

288 Japan – Measures Affecting Consumer Photographic Film and Paper, WT/DS44/R, para. 1.2 (1998). 289 Japan – Measures Affecting Consumer Photographic Film and Paper, WT/DS44/R, para. 10.402 (1998). 290 Kennedy, supra note 266, at 641.

112

tions’ are excluded, as discriminatory enforcement of competition policies is

always present to some degree.291 Even though there is a presumption in favor of

the complainant with regard to ‘reasonable expectations,’ that presumption can

be rebutted if the above argumentation is used.

Another argumentation might be employed to rebut the presumption of

‘reasonable expectations’ with regard to the expectations concerning the en-

forcement of national competition laws: the defendant could simply allege that

she correctly investigated the claim but found no restrictive business practices –

national authorities do have a degree of discretion in that area.292

Finally, there is one word which would most often hinder a non-violation

complaint: The complainant must prove a “measure” of the other party. In its

literal meaning, a measure is “an action taken as a means to an end” or “a legis-

lative bill or enactment.”293 Measure requires positive action, doing nothing is

not a measure. Mere lack of maintenance or enforcement of national competition

laws is governmental inaction, but not a governmental measure as required un-

der Article XXIII:1 (b) GATT 1994.294

Another crucial aspect is that the WTO dispute settlement cannot hinder

private restrictive business practices. Only government measures can be chal-

lenged under any WTO complaint.295 Even if it is to be assumed that the gov-

ernment may ‘participate’ in certain privately executed restrictive business prac-

tices, it seems difficult for the complainant to prove such government involve-

ment.

291 Kearns, supra note 273, at 296. Cf. also Robert E. Hudec, Symposium: Competing Compe-tition Laws: Do We Need A Global Standard?: Panel Two: A Wider World: Other Anti-Competitive Activities and Visions: A WTO Perspective on Private Anti-Competitive Behavior in World Markets, 34 NEW ENG. L. REV. 79, 98-99 (1999). 292 Cf. Kennedy, supra note 266, at 645. 293 “measure.” The American Heritage® Dictionary of the English Language, supra note 82. 294 Kennedy, supra note 266, at 642-643. See also Malaguti, supra note 94, at 137. 295 Malaguti, supra note 94, at 136. See also Hoekman & Mavroidis, supra note 262, at 22.

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bbb) Political Considerations and the Non-Violation Complaint in Competition

Law Matters

With regard to the second category of reasons against the use of non-

violation complaints in antitrust matters, it is worth remembering that one of the

reasons why the Havana Charter did not come into force was that it featured an-

titrust provisions. If the WTO extended the non-violation provision to cover

competition policy, it would likewise go too far.296

One can even make a legal argument against the applicability of the non-

violation complaint using the aforementioned facts: Article 3:2 DSU states that

“recommendations and rulings of the DSB cannot add to or diminish the rights

and obligations provided in the covered agreements.” Applying the non-

violation complaint to a subject matter which was deliberately left out of the

WTO agreements would violate Article 3:2 DSU.297

At the moment, the WTO has neither the competence nor the resources in

the form of evidentiary tools to tackle the discriminatory enforcement of compe-

tition laws.298 Uncertainties inherent in the non-violation complaint will be ren-

dered worse if the latter is applied to the competition policy area which the

WTO agreements do not cover. The whole WTO dispute settlement system

would suffer from such an extension of scope.299 The danger of such a widening

of scope lies in the vague formulations of Article XXIII:1 (b) GATT 1994.300 A

panel having to decide a case involving national competition policies would

have to decide in a void, in the absence of substantive rules or precedents and

without any consensus among WTO Members. How should the panel then reach

296 Cf. Bogdandy, supra note 21, at 106. 297 Cf. Roessler, Principles of Competition Policy, supra note 268, at 420. 298 Kearns, supra note 273, at 297. 299 Cho, supra note 89, at 313. 300 Cf. Cho, supra note 89, at 329.

114

a justifiable recommendation?301 An inappropriate case decided by a panel

might undermine the legitimacy of the WTO dispute settlement system and the

acceptance of panel recommendations and rulings. That danger is heightened by

the institution of the negative consensus rule. Though that rule has the advantage

of leading to greater judicialization, panel decisions or Appellate Body decisions

will automatically be adopted so that an inappropriate ruling by a panel in a pos-

sible competition policy case could no longer be overturned.302 In the current

climate, where by no means all panel or Appellate Body reports are being re-

spected by WTO Members, panel decisions in the antitrust field could consid-

erably worsen an already difficult situation.

In general, it is to be feared that WTO dispute settlement for competition

policy would increase international frictions. Necessarily a panel would e.g.

have to criticize a national enforcement action while the WTO Member asserts

that this action was in its national interest and executed fairly. Can even an ex-

pert WTO panelist correctly judge a WTO Member’s national antitrust laws and

the policies behind them? It is unlikely that a panel will be able to correctly

judge the use of discretion by national authorities in the enforcement of national

laws. It seems further unlikely that a panel will receive enough evidence from

national authorities to establish a correct picture of any single case. And how is

confidentiality of information from private businesses to be guaranteed when

those pieces of information are revealed to a WTO panel? It is to be feared that

even a panel made up of experts may be unable to deal with those questions.303

301 Cho, supra note 89, at 329-330. 302 Cf. Cho, supra note 89, at 330-331. 303 Kennedy, supra note 266, at 623, 645-646.

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II. Future Developments Under the WTO

The above sections have shown that competition law is not yet integrated

into the WTO; the current dispute settlement system should not be used for any

complaints regarding competition policies. But what will the situation be if

competition law is integrated into the WTO agreements in the future? The first

question is whether an integration of competition policies into the WTO agree-

ments is likely (1.) and then what role the non-violation complaint should play

after such an integration has taken place (2.).

1. Prospects for an Integration of Competition Policies Into the WTO

Agreements

When talking about a possible future integration of competition policy

into the WTO agreements, the only model seriously discussed is the one of a

multilateral agreement on minimum standards. Despite evident gains to be made

by including competition policy standards into the WTO agreements, it is doubt-

ful that there will be any agreement in the foreseeable future as to what ‘core

competition policy principles’ really are.

Agreements on competition policies have so far only worked in regional

settings (e.g. in the EU). When undertaken in a regional setting, however, har-

monization of competition policies was not the single goal pursued: Alongside

competition policies, there were other disciplines on government policies (sub-

sidies, . . .), elimination of barriers to trade and complete liberalization of direct

investment.304 These features are not present among the WTO Membership.

Enacted antitrust rules and procedures differ significantly between WTO

Members. There are divergent concerns with and approaches to competition law

which will make any multilateral agreement unlikely. It is uncertain whether

gains will be made by a harmonization of competition policy and, if any gains 304 Hoekman & Mavroidis, supra note 262, at 30-31.

116

are made, they will benefit the consumer. Realistically, consumers hardly have a

lot of influence on national politics of exporting nations.305 Who should then ex-

ert political pressure for harmonization?

It is unlikely that the U.S. will bind itself to minimum standards. The U.S.

has rather expressed that it is not interested in any set of binding rules at the

moment:

The representative of the United States said that, while his delegation considered the

issue of competition policy to be of considerable relevance to the WTO and to trade

and trade liberalization more generally, it had had significant reservations on or at

least felt that it was premature to begin talking about negotiating binding rules on the

subject. But at the same time, there was no doubt that competition policy was an issue

on which the WTO could play a dynamic and progressive role in terms of furthering

international understanding and appreciation of the various elements at issue. Hence,

while his delegation could not support the negotiation of binding multilateral rules at

this point in time, he also did not want to convey the contrary impression that the

United States was against the WTO being a forum in which progress could be made on

competition policy at the multilateral level.306

The recourse to Section 301 of the Trade Act of 1974 combined with U.S. mar-

ket power can be sufficient for the U.S. to make sure it is dealt with ‘correctly’

by other states. There is a lack of incentive for the U.S. to bind itself to mini-

mum standards.307 Furthermore, there is not even an international consensus on

core components of competition law such as mergers, resale price maintenance,

parallel imports, vertical restraints and abuse of a dominant position.308 About

half of the WTO Members do not even have a national competition law yet.309

305 Hoekman & Mavroidis, supra note 262, at 8-9. 306 WTO Working Group on the Interaction between Trade and Competition Policy, Report on the Meeting of 15-16 June 2000 – Note by the Secretariat, WT/WGTCP/M/11, para. 74 (Sept. 15, 2000). 307 Kearns, supra note 273, at 308-309. 308 Kennedy, supra note 266, at 603. 309 Kennedy, supra note 266, at 608.

117

With regard to the unlikelihood of an international agreement, one author points

out:

Agreement on global harmonization of competition law is unlikely in the near future.

The suggestion that the WTO members entrust the task to that organization seems a

nonstarter. Folks who cannot prevent the banana war between the United States and

the European Union are not ready for so ambitious a project as unifying antitrust

law.310

If the WTO were to resolve international competition disputes after a closer in-

tegration through the adoption of competition rules, international frictions would

rise to even higher levels than in the past.311

Undoubtedly, the inclusion of competition policy core principles in the

WTO agreements has its benefits – mainly to prevent private restrictive business

practices from nullifying the reduction or elimination of government barriers to

trade. Unfortunately, there is no consensus on the exact nature of core competi-

tion policies. For the time being, the appropriate solution is to further reciprocal

and freer trade under the WTO rules by ensuring respect for WTO provisions

and the elimination of loopholes. As far as competition policy harmonization is

concerned, the status quo should be maintained.312

2. The Role of the Non-Violation Complaint After an Integration of Compe-

tition Policies Into the WTO Agreements

It has been shown that an integration of competition policies into the

WTO agreements in the near future is highly unlikely.

Still, even if, at a later point of time, competition policy harmonization

through an agreement on minimum standards could be achieved, the instantane-

310 Russell J. Weintraub, Symposium: Competing Competition Laws: Do We Need A Global Standard?: Panel One: Different Anti-Competitive Visions in the Western World: The U.S. And the EU: Globalization's Effect on Antitrust Law, 34 NEW ENG. L. REV. 27, 35 (1999). 311 Cf. Kennedy, supra note 266, at 623. 312 Cf. Kennedy, supra note 266, at 626-627.

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ous use of the non-violation complaint in that area would be too far-reaching

and too unpredictable. The inclusion of competition law principles in the WTO

agreements requires a very slow-moving process. Even after the first step of an

integration of some principles into the WTO agreements has taken place, one

should still allow time to pass until the dispute settlement mechanism comes into

play. Then, there should be an international consensus on how exactly the dis-

pute settlement mechanism applies to competition law, which will depend on

what competition law principles were introduced beforehand. It is unlikely that

the imprecise non-violation complaint will play a role at all in the sensitive area

of competition policy.

III. Summary: The Interplay of the Non-Violation Complaint and Competi-

tion Law Under the WTO

The non-violation complaint should not be used to incorporate competi-

tion law principles into the WTO agreements in the absence of any substantive

WTO agreement on competition law matters. Even if the WTO Members were

to include competition law principles in the WTO agreements, the imprecise

non-violation complaint should not be rendered applicable to competition law

matters.

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E. Résumé: The Future of the Non-Violation Complaint in WTO-Law

The above considerations have shown that the non-violation complaint

has its place only under GATT 1994. GATS, TRIPS and competition policy is

not a field where the non-violation complaint would be beneficial. It would

rather cause uncertainties and endanger the whole WTO dispute settlement

mechanism. The following thoughts deal with the question whether the non-

violation complaint should retain its status quo under GATT 1994 or whether

change is called for.

I. Necessity for Change

It has been shown that there is a fear of overreaching panels; there are un-

certainties and contradictions in panel decisions and, in addition, several

changes in the legal environment make the non-violation complaint appear today

in a different light – thus the need for change.

Non-violation cases protect the value of tariff concessions as far as GATT

1994 is concerned. In the majority of cases, the competitive relationship created

by tariff concessions is upset by national subsidies. Nowadays subsidies play a

less important role than they used to. GATT provisions now constrain the use of

subsidies (WTO Annex 1 A “Agreement on Subsidies and Countervailing

Measures”).313 The Subsidies Agreement provides some remedies of its own,

thereby further rendering unnecessary the non-violation complaint. What is

more, the succinct text of the GATT 1947 has been enhanced by a large number

of WTO agreements which provide rules for domestic policy measures.314 When

a rule is violated, the violation complaint will be the correct remedy. The WTO

agreements’ scope goes much further than the provisions of GATT 1947. It was

exactly those limited provisions in GATT 1947 concerning mainly tariff reduc-

313 Durling & Lester, supra note 43, at 214. 314 Roessler, Concept of Nullification and Impairment, supra note 117, at 123, 133-134.

120

tions which made the non-violation complaint necessary. Circumvention of rules

restricted to a single subject matter was very easy. That is no longer true of the

WTO agreement with its ample scope.

Furthermore, if domestic policy measures are in some areas now regulated

in detail, the question arises whether a member can reasonably expect that a na-

tional policy pursued in an area not affected by WTO rules but close to a regu-

lated area will not change in the future.315 The condition of ‘reasonable expecta-

tions’ might be more and more difficult to fulfill.

The birth of the non-violation complaint through the equitable treatment

clause referred to above was seen as necessary as international law in the 1940s

did not contain a principle of good faith which would prevent countries from

circumventing provisions in bilateral or multilateral treaties.316 According to the

Lotus case, countries were allowed to do what was not specifically forbidden.317

Positivist legal theory mandated a restrictive interpretation of international trea-

ties and thus favored circumvention of those treaties.318 That situation is differ-

ent today, as can be seen in Article 26 of the Vienna Convention: “Every treaty

315 Roessler, Concept of Nullification and Impairment, supra note 117, at 123, 134. 316 Durling & Lester, supra note 43, at 222. See as well for the absence of the principle of eq-uity in international law Cottier & Schefer, Non-Violation Complaints in the WTO/GATT Dispute Settlement, supra note 24, at 143, 164. 317 “International law governs relations between independent States. The rules of law binding upon States therefore emanate from their own free will as expressed in conventions or by us-ages generally accepted as expressing principles of law and established in order to regulate the relations between these co-existing independent communities or with a view to the achievement of common aims. Restrictions upon the independence of States cannot therefore be presumed. . . . In these circumstances, all that can be required of a State is that it should not overstep the limits which international law places upon its jurisdiction . . . .” The S.S. Lotus (Fr. v. Turk.), World Court Reports - A Collection of the Judgments Orders and Opinions of the Permanent Court of International Justice - Volume II, Judgment No. 9 - September 7, 1927 at 20, 35 (1935). 318 Cottier & Schefer, Non-Violation Complaints in the WTO/GATT Dispute Settlement, supra note 24, at 143, 151.

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in force is binding upon the parties to it and must be performed by them in good

faith.”319

Finally, the change from positive to negative consensus entails a differ-

ence in approach to the non-violation complaint: under the positive consensus

rule, non-violation panel recommendations would only be binding as a ruling if

all GATT 1947 Members accepted them, the losing party included. The losing

party would, in addition to the right to ‘veto’ the adoption of a panel report, have

a right of withdrawal from the GATT 1947 after 60 days’ notice.320 Nowadays,

panel decisions are adopted automatically and whether the right to withdraw

from the WTO after six months’ notice (Article XV:1 Agreement Establishing

the WTO) is economically feasible in an interdependent world economy is at

least questionable. The non-violation complaint was created in a system relying

on negotiation but not in a judicial system.321 The non-violation complaint be-

longed to the diplomatic field.322

The legal environment of the non-violation complaint has changed over

time; however, there have been no changes to the non-violation complaint itself.

II. Replacement of the Non-Violation Complaints . . .

Given the problems revealed above, the non-violation complaint should

be abolished. If one changed just a few aspects of it, e.g. the remedy available

after a successful non-violation complaint, the other problems would remain and

new difficulties might arise. The non-violation complaint did, it is true, fulfill its

task of preventing circumvention of reciprocally agreed tariff concessions. A

319 Vienna Convention on the Law of Treaties Between States and International Organizations or Between International Organizations, 25 I.L.M. 543 (Mar. 21, 1986). 320 Roessler, Concept of Nullification and Impairment, supra note 117, at 123, 127. 321 Cottier & Schefer, Non-Violation Complaints in the WTO/GATT Dispute Settlement, supra note 24, at 143, 147. 322 Cottier & Schefer, Non-Violation Complaints in the WTO/GATT Dispute Settlement, supra note 24, at 143, 151.

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mere abolition of the non-violation complaint without any replacement would

endanger the positive, if rare, results achieved by it. In the following paragraphs,

different options concerning the question which institute the non-violation com-

plaint might be replaced by will be developed.

1. . . . By Violation Complaints Using Substantive WTO Norms

The first possibility would be to replace the non-violation complaint by a

violation complaint by simply introducing more substantive rules into the WTO

agreements:323 Whenever a rule is broken, the violation complaint applies natu-

rally. The non-violation complaint would simply have to be abolished. That idea

seems doomed, however: non-violation complaints were explicitly created in

order to avoid the danger of circumvention of agreements. It is in the nature of

circumvention measures that nobody is ever able to imagine all the forms of

conduct possible in the future to achieve circumvention. Striving to codify in

order to avoid loopholes is impossible.

Another approach not even needing extensive substantive legislation

would be to say that a non-discriminatory measure could have detrimental con-

sequences by restricting imports, so that the national treatment obligation has

been violated through disguised discrimination.324 In breaching the national

treatment obligation, the case would be a violation complaint. The author pro-

posing this adds that this approach will work if “a panel fully exercises its inter-

pretative capacity in the context of the general obligations embodied in the

GATT.”325 That approach seems inappropriate as well: one of the dangers of

non-violation complaints is overreaching panels which employ a wide interpre-

tation of their powers under the non-violation complaint procedure. Replacing

323 Cho, supra note 89, at 351. 324 Cho, supra note 89, at 333. 325 Cho, supra note 89, at 333.

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one danger by creating the same danger of overreaching panels through wide

interpretations in violation complaints is not convincing.

2. . . . By Inter-Governmental Negotiation

Non-violation complaints originated in a diplomatic environment. They

could be replaced by inter-governmental negotiation, which means that non-

violation cases would be taken out of a quasi-judicialized context to be settled

through conciliation and mediation. That approach has the benefit that countries

are less likely to raise extraordinary non-violation cases326 like e.g. the EEC Cit-

rus case. Negotiation between states might restrict the non-violation cases to

those rare instances where corrective measures are necessary. In perspective,

this approach is one step further from the idea that positive consensus should be

re-introduced for non-violation cases.327 It is one step further as a positive con-

sensus approach still involves ‘judicialized’ findings by a panel, though panel

recommendations then would need to be adopted by positive consensus.

The problem with this approach is that the final years of GATT 1947 have

shown that a negotiation-based dispute settlement system can easily turn out to

be inefficient if the countries do not play along. Furthermore, the ‘judicialized’

setting of the WTO brought the advantages of transparency and predictability,

which enable long-term planning for businesses in an interdependent global

economy. A diplomatic approach to non-violation complaints would be a step to

reduce those advantages to pre-1995 levels. That option is not enticing, either.

326 Cho, supra note 89, at 347. 327 Cf. WTO Council for Trade-Related Aspects of Intellectual Property Rights, Further Con-sideration of Non-Violation Nullification or Impairment Under the Agreement on Trade-Related Aspects of Intellectual Property Rights – Communication from Canada, IP/C/W/249 at 6 (Mar. 29, 2001).

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3. . . . By Violation Complaints Having Recourse to the Principles of Inter-

national Law

The non-violation complaint could also be replaced by a violation com-

plaint having recourse to the principles of international law. If a principle were

found to cover what the non-violation complaint protects, it could be inserted

into the WTO agreement. Whenever a ‘non-violation’ case scenario comes, that

principle will be violated and thus Article XXIII:1 (a) GATT 1994 will be the

correct complaint procedure for the party seeking redress. Which principles of

international law does the non-violation complaint resemble?

The non-violation complaint has been seen as being close to a ‘clausula

rebus sic stantibus.’328 The latter is defined in Article 62:1 Vienna Convention

as follows:

A fundamental change of circumstances which has occurred with regard to those exist-

ing at the time of the conclusion of a treaty, and which was not foreseen by the parties,

may not be invoked as a ground for terminating or withdrawing from the treaty unless:

(a) the existence of those circumstances constituted an essential basis of the consent of

the parties to be bound by the treaty; and

(b) the effect of the change is radically to transform the extent of obligations still to be

performed under the treaty.

The remedy under Article 62:3 Vienna Convention is suspension or termination

of the treaty. It does not seem entirely appropriate to compare the ‘clausula re-

bus sic stantibus’ to the non-violation complaint. Simply by the length of Article

62:1 Vienna Convention, one realizes that the conditions enumerated are far

more strict than those of Article XXIII:1 (b) GATT 1994. The differences ex-

tend to the remedies as well: whereas the ‘clausula rebus sic stantibus’ allows

328 Cf. Bogdandy, supra note 21, at 110-111.

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suspension or termination of the treaty, the non-violation complaint only pro-

vides for compensation or suspension of concessions.329

There is another principle of which the non-violation complaint can be

seen as an expression: the good faith principle. That principle is recognized in

Article 2:2 United Nations Charter330 and in Articles 26 and 31:1 Vienna Con-

vention as far as compliance with treaty obligations is concerned. The formula-

tion of Article 31:1 Vienna Convention marks a departure from the former strict

and narrow interpretation of treaties: “A treaty shall be interpreted in good faith

in accordance with the ordinary meaning to be given to the terms of the treaty in

their context and in the light of its object and purpose.” Measures taken by a

government, which rely on a strictly textual interpretation but which nonetheless

circumvent the essential meaning of a treaty, violate the good faith principle,331

which is close to the non-violation complaint. Principles based on equity, such

as the good faith principle, strive for fairness and can lead to just solutions in

difficult cases, much like the non-violation complaint.332 Protection of reason-

able expectations is part of the good faith principle.333 That is another similarity

to the non-violation complaint with its condition of ‘reasonable expectations’

developed by GATT panels. The good faith principle can provide a suitable re-

placement for the non-violation complaint.

The case Korea – Measures Affecting Government Procurement contains

some thoughts about the non-violation complaint in relation to the principle of

329 Cf. Cottier & Schefer, Non-Violation Complaints in the WTO/GATT Dispute Settlement, supra note 24, at 143, 173. 330 Charter of the United Nations and Statute of the International Court of Justice, 59 Stat. 1031 (Oct. 24, 1945). 331 Cf. Cottier & Schefer, Non-Violation Complaints in the WTO/GATT Dispute Settlement, supra note 24, at 143, 169. 332 Cf. Cottier & Schefer, Non-Violation Complaints in the WTO/GATT Dispute Settlement, supra note 24, at 143, 170. 333 Cf. Cottier & Schefer, Non-Violation Complaints in the WTO/GATT Dispute Settlement, supra note 24, at 143, 171.

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good faith. The case concerns a situation regulated by the Agreement on Gov-

ernment Procurement, which, in Article XXII:2, contains a non-violation provi-

sion very close to the one in Article XXIII:1 (b) GATT 1994. The panel stressed

the similarity of the non-violation complaint to the good faith principle and the

principle of pacta sunt servanda:

In our view, the non-violation remedy as it has developed in GATT/WTO jurispru-

dence should not be viewed in isolation from general principles of customary interna-

tional law. As noted above, the basic premise is that Members should not take actions,

even those consistent with the letter of the treaty, which might serve to undermine the

reasonable expectations of negotiating partners. This has traditionally arisen in the

context of actions which might undermine the value of negotiated tariff concessions.

In our view, this is a further development of the principle of pacta sunt servanda in the

context of Article XXIII:1(b) of the GATT 1947 and disputes that arose thereunder,

and subsequently in the WTO Agreements, particularly in Article 26 of the DSU. The

principle of pacta sunt servanda is expressed in Article 26 of the Vienna Convention

in the following manner:

"Every treaty in force is binding upon the parties to it and must be per-

formed by them in good faith."

It seems clear that good faith performance has been agreed by the WTO Members to

include subsequent actions which might nullify or impair the benefits reasonably ex-

pected to accrue to other parties to the negotiations in question.334

A similar statement has been made by another author:

Just as in the Vienna Convention on the Law of Treaties it is recognized that every

treaty must be performed in good faith . . . the GATT rules on the maintenance or res-

toration of an agreed balance of reciprocal concessions are but an expression of the in-

ternational law principle of good faith.335

334 Korea – Measures Affecting Government Procurement, WT/DS163/R, paras. 7.93-7.94 (2000). 335 Petersmann, Violation Complaints and Non-Violation Complaints in Public International Trade Law, supra note 49, at 225.

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Despite the presence of Article 3:2 DSU,336 such a good faith principle should

be expressly introduced into the WTO agreements. The following formulation

has been proposed: “[a] failure of a member to carry out its obligations or spe-

cific agreements in good faith.”337 It is uncertain whether this principle really is

close to obtaining the force of ius cogens as some believe338 and by an express

introduction into the WTO agreements, members would eliminate any uncer-

tainty as to its applicability.

A major criticism of the insertion of a good faith principle in the WTO

agreements would be that such a broad principle lacks absolute certainty. Even

if that criticism were accepted as true, the situation would not be worse than it is

right now under the uncertain non-violation complaint. Actually, a good faith

principle might very well achieve certainty in the form of a restrictive access to

violation complaints which invoke this principle (the former non-violation com-

plaints): Article XXIII:1 (b) GATT 1994, as it stands right now, seems to confer

a lot of power to a panel deciding a non-violation case, not least because of the

fact that a separate procedure has been created for such allegations. The use of

the good faith principle combined with violation complaints in order to tackle

former non-violation case scenarios could produce a restrictive application by

the panels. An article consisting of one sentence urges more caution than a sepa-

rate, full-fledged non-violation procedure. Panels applying the good faith princi-

ple might be more reluctant to do so as their day-to-day violation complaints

usually involve more ‘detailed’ WTO provisions.

336 “The Members recognize that it [(the dispute settlement system)] serves to preserve the rights and obligations of Members under the covered agreements, and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law.“ 337 Cottier & Schefer, Non-Violation Complaints in the WTO/GATT Dispute Settlement, supra note 24, at 143, 181. 338 Cottier & Schefer, Non-Violation Complaints in the WTO/GATT Dispute Settlement, supra note 24, at 143, 167.

128

A rather dangerous example of what a panel might do with a non-

violation complaint is the above-mentioned case Korea – Measures Affecting

Government Procurement. The following findings, however, had little impact on

the recommendations given in the case, as the non-violation complaint was re-

jected in the end; still, it shows just how far a panel can go:

One of the issues that arises in this dispute is whether the concept of non-violation can

arise in contexts other than the traditional approach represented by pacta sunt ser-

vanda. Can, for instance the question of error in treaty negotiation be addressed under

Article 26 of the DSU and Article XXII:2 of the GPA? We see no reason why it can-

not. Parties have an obligation to negotiate in good faith just as they must implement

the treaty in good faith. It is clear to us . . . that it is necessary that negotiations in the

Agreement before us (the GPA) be conducted on a particularly open and forthcoming

basis.

Thus, on the basis of the ample evidence provided by both parties to the dispute, we

will review the claim of nullification or impairment raised by the United States within

the framework of principles of international law which are generally applicable not

only to performance of treaties but also to treaty negotiation. To do otherwise poten-

tially would leave a gap in the applicability of the law generally to WTO disputes and

we see no evidence in the language of the WTO Agreements that such a gap was in-

tended. If the non-violation remedy were deemed not to provide a relief for such prob-

lems as have arisen in the present case regarding good faith and error in the negotia-

tion of GPA commitments (and one might add, in tariff and services commitments un-

der other WTO Agreements), then nothing could be done about them within the

framework of the WTO dispute settlement mechanism if general rules of customary

international law on good faith and error in treaty negotiations were ruled not to be

applicable. As was argued above, that would not be in conformity with the normal re-

lationship between international law and treaty law or with the WTO Agreements.339

If one wanted to construct a worst-case scenario, one could interpret what the

panel says as follows: The panel seems to think that a non-violation complaint is 339 Korea – Measures Affecting Government Procurement, WT/DS163/R, paras. 7.100-7.101 (2000).

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possible as the WTO framework would otherwise not provide the necessary dis-

pute settlement procedure to solve the case at hand. The non-violation complaint

would thus be applicable as a “procedure of last resort.” It is no wonder that se-

rious concern has been voiced by WTO Members about that panel report.340

Admittedly, it is impossible to know whether a panel might have shown

more restraint if the non-violation complaint had ceased to exist and if the panel

had only been able to have recourse to the principle of “good faith.” Still, from a

psychological point of view, the mere presence of a distinct procedure like the

non-violation complaint facilitates the belief that such a procedure must be put

to “good use” somewhere, while the mere presence of the “good faith” principle

would at least require a more elaborate justification from a panel wishing to veer

from the beaten path.

In the end, predictions that the mere presence of the “good faith” principle

would restrict panels are mere speculation; it should however be remembered

that the situation cannot become less clear than it is right now – a look at the Ja-

pan – Film case and the Korea – Measures Affecting Government Procurement

case referred to above is sufficient to support that argument. Finally, good faith

principles in national law such as § 242 BGB in Germany have not witnessed

any inflationary use either, which would caution against overreaching panels.

The controversy centered on non-violation complaints in all other WTO

agreements would also be solved by recourse to the good faith principle: in the

hardly imaginable event that an extraordinary case scenario would make it nec-

essary to prevent circumvention of an agreement, the good faith principle would

allow the parties to have recourse to the violation complaint.

340 Cf. WTO Council for Trade-Related Aspects of Intellectual Property Rights, Minutes of Meeting – Held in the Centre William Rappard on 26-29 June 2000, IP/C/M/27, para. 165 (Aug. 14, 2000).

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III. Results of a Replacement of Non-Violation Complaints Using Interna-

tional Law Principles

1. Results on the Remedies Available to Claimants

The effect which a replacement of the non-violation complaint by a good

faith principle would have on the remedies available to the claimant is posi-

tive.341

Among the major disadvantages of the remedies available for a non-

violation complaint under GATT 1994 is that, often, the most practical solution

would be to change the measure nullifying or impairing a benefit.

When a non-violation complaint is utilized, a WTO Member cannot be

forced to withdraw a ‘legal’ measure. When recourse is had to a violation com-

plaint, however, Article 22:1 DSU declares withdrawal of the illegal measure to

be the primary goal: “However, neither compensation nor the suspension of

concessions or other obligations is preferred to full implementation of a recom-

mendation to bring a measure into conformity with the covered agreements.” In

sum, a sensible remedy is provided for the ex-non-violation cases.

There is another reason why the remedy of withdrawal for former non-

violation complaints makes sense: despite the fact that it is always stated that

measures attacked under a non-violation complaint are legal measures, the ques-

tion should be raised whether this is really so in every respect. It is true that the

measures attacked do not violate any WTO agreement. However, they permit a

WTO Member to circumvent reciprocal tariff concessions which result in ideally

reciprocal market access conditions. In the end, such a measure, though not ille-

gal, is at least morally tainted. It makes sense to force the defendant who has

been found to nullify or impair benefits of the complainant to remove the meas-

ure.

341 Cf. Cottier & Schefer, Non-Violation Complaints in the WTO/GATT Dispute Settlement, supra note 24, at 143, 180-181.

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2. Results on the Relationship Between WTO Members and on the Strength

of the WTO Legal System

A good faith principle used to replace non-violation cases would lead to a

balance of two opposite, but equally important goals. First, the recourse to viola-

tion complaints via the good faith principle maintains the WTO dispute settle-

ment as one unitary, legalized system. The benefits of such a system compared

to a diplomatic dispute settlement system are greater predictability and legal se-

curity, a smaller risk of abuses of power and lower transaction costs for trad-

ers.342 All those arguments are vital for international businesses in an ever-

increasing interdependent world. The fact that the former non-violation com-

plaint will be adjudicated through a violation complaint with a negative consen-

sus rule enhances the ‘legalization’ idea: negative consensus is a cornerstone for

judicialization and legalization.343

Second, the good faith principle with its more restrictive application

would not disregard the political realities of the WTO. International disputes are

always linked to questions of politics.344 Even in an interdependent world, states

still seem reluctant to relinquish their sovereignty and are thus unwilling to ac-

cept panel decisions which are strongly against their public policy. If states can

make a case that a panel decision was overreaching, the incentive to disregard it

may be high. That kind of danger can especially be observed with regard to non-

violation complaints and their uncertain scope. An international good faith prin-

ciple is, without being a highpoint in certainty, less menacing to states through

more restrictive access to non-violation complaints and it may be more difficult 342 Petersmann, The Dispute Settlement System of the World Trade Organization and the Evo-lution of the GATT Dispute Settlement System Since 1948, supra note 54, at 1189. 343 Petersmann, The Dispute Settlement System of the World Trade Organization and the Evo-lution of the GATT Dispute Settlement System Since 1948, supra note 54, at 1218. 344 Karen D. Lee & Silke von Lewinski, The Settlement of International Disputes in the Field of Intellectual Property, in FROM GATT TO TRIPS, supra note 215, at 278, 310.

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for a state to claim that a decision based on it was overreaching: the principle is

engrained in many national legal systems and thus known to the states and it is

also being applied internationally by the International Court of Justice. Through

the application of the good faith principle by a multitude of national and interna-

tional courts, the thus gained interpretations minimize the danger of random de-

cision-making.345 It follows that decisions rendered according to that principle

are less likely to be labeled ‘overreaching.’

Even a country like the U.S., which strongly defends the existence of the

non-violation complaint, should be able to be made to see without too much dif-

ficulty that the change proposed above is acceptable: the proposed replacement

of the non-violation complaint by the good faith principle does not abolish the

option of a panel procedure in those rare case scenarios where a situation arises

which would currently be dealt with under Article XXIII:1 (b) GATT 1994. The

use of the good faith principle is simply more advantageous than the current

codification.

After a replacement of the non-violation complaint by the violation com-

plaint using the good faith principle, the presence of that principle in the WTO

agreements, the presence of the same principle in Articles 26 and 31:1 of the

Vienna Convention and in Article 2:2 of the United Nations Charter and the

presence of the principle in national legal systems could then mutually reinforce

each other, making conflict as to their interpretation less likely.

Such a replacement of non-violation complaints would be adapted to the

current legal environment in international law and would furnish a positive out-

look for dispute resolution under the WTO.

345 Cf. Cottier & Schefer, Non-Violation Complaints in the WTO/GATT Dispute Settlement, supra note 24, at 143, 171.

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F. Short Overview of the Topic “The Non-Violation Complaint in WTO

Law”

The non-violation complaint is one of the different complaint procedures

that WTO Law offers to its member states. The non-violation complaint is

unique as it is applicable whenever a claim is raised despite the fact that the “of-

fending” state has not breached any provision of a WTO agreement.

Generally speaking, the non-violation complaint is codified in all three

WTO ‘pillar’ agreements (GATT 1994, GATS and TRIPS), though, at the mo-

ment, it is not to be used under TRIPS.

In the main part of the thesis, the use of the non-violation complaint is

analyzed under GATT 1994, GATS and TRIPS. Furthermore, the question is

dealt with whether the non-violation complaint could and should nowadays be

used as a means of introducing competition law principles into the WTO agree-

ments.

The fact that GATT 1947 already contained a non-violation provision

makes GATT 1994 (together with its precursor) the only agreement where non-

violation complaints have been raised successfully several times. After an analy-

sis of the non-violation complaint under GATT 1947 and other international

trade agreements, the wording of Article XXIII:1 (b) GATT 1994 is analyzed in

detail with references to panel reports in order to reveal the elements necessary

for a successful non-violation claim. As a result of that section, it can be said

that the non-violation complaint has a small field of application in GATT 1994

(restricted to the protection of tariff concessions), where in the past the com-

plaint did serve a useful, if rare, purpose.

Under GATS, the non-violation complaint seems unnecessary given the

nature and provisions of that agreement. With regard to the necessary conditions

for a non-violation complaint, a successful non-violation claim seems impossi-

ble.

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The status of the non-violation complaint under TRIPS is special, since,

according to Article 64 TRIPS, the non-violation complaint should be applicable

today. However, it was decided during the Doha Ministerial Conference that, for

the time being, further analysis was required before allowing the non-violation

complaint under TRIPS.

After undertaking such an analysis of the TRIPS Agreement in relation to

the non-violation complaint, it seems that the non-violation complaint is not

suitable for the TRIPS Agreement. It could be dangerous for the WTO dispute

settlement system if the non-violation complaint was allowed under TRIPS.

Concerning the area of competition law, it must be borne in mind that

there are no substantive competition law provisions in the WTO agreements.

Though the possibility exists, the non-violation complaint should not be used

today in order to incorporate general competition law principles into the WTO

agreements. Even if, in the near future, the WTO were willing to incorporate

competition law principles into its agreements, the non-violation complaint

should not be applicable to that subject-matter, either.

An evaluation of the ‘future’ of the non-violation complaint reveals that it

is no longer adapted to the contemporary status of international law. Though

there are a few case scenarios under GATT 1994 where the non-violation com-

plaint serves a purpose, it would nonetheless be preferable if the non-violation

complaint was abolished completely. The active use of the international law

principle of ‘good faith’ could nowadays achieve the same positive results as the

non-violation complaint in the few cases where it is applicable. However, the

use of the international law principle of ‘good faith’ would present fewer prob-

lems and even add some advantages. Thus the positive effects of the non-

violation complaint would not be abolished, they could live on under a different,

more suitable, ‘heading.’