CHAPTER 3 : ISSUES ARISING FROM THE IMPLEMENTATION OF WTO DISPUTE SETTLEMENT FINDINGS FOR DEVELOPING COUNTRIES.

This chapter specifically tackles the difficulties a developing country may experience in the implementation of WTO DSM' s findings. We will mainly observe that the solutions as to the implementation ensuing from the DSU are discriminatory in practice as they favour economically strong members.

Section 1 : General remarks on the dispute settlement system of implementation from the viewpoint of developing countries.

The WTO DSU contains a more legalistic approach of the implementation of decision notably through the provisions of timeframes. However, although the WTO DSU favours DCs’ trust that large developed countries will abide by the decisions of the new WTO dispute settlement [218], we will see that it still takes considerable courage and political will for DCs to commence a dispute against an industrialised Member States [219]. This is because the WTO DSU does not afford incontestable guarantees to complainants that the losing party will abide by the panel or AB’s rulings. The fact for a DC to bring  a case against an industrialised country implies the risk of being involved in a long process, the outcome of which is far from being certain.

Paragraph 1 : Description of the general system of implementation under the WTO DSU.

It has been contended that the rules of implementation ensuing from the WTO DSM are "a leap forward towards ensuring the adjudicative nature of the WTO DSM and thereby making it a more attractive to developing countries [emphasis added]" [220]. It is true that the WTO DSM provides for more adjudicative rules of implementation, notably through more precise timeframes and surveillance. However, we will observe that although the implementation follows to some extent a judicial model, implementation, above all qualitatively still rests on the willingness of the respondent to comply and that the WTO DSM does not offer incontestable safeguards to DCs in this regard.

In the case a panel or the AB has concluded that a measure is inconsistent with a covered agreement, it shall recommend that the member concerned bring the measure into conformity with the agreement [221]. In this regard, a novelty was introduced by the WTO DSU since panels and AB have the possibility to suggest ways in which the losing party could implement the recommendations [222].

The legal significance of such suggestions is questionable. They seem to be compulsory only for violations complaints and constitute a mere suggestion as such in all other cases (non-violation and situation complaints) [223]. Further, this possibility is not very often used in practice [224]. Panels and AB are traditionally reluctant to do so since such "suggestions" may amount in practice to an interference within a member state's sovereignty [225]. For these reasons, panels usually "stick to rather innocent recommendations [emphasis added]" [226].

Facing such rulings, the defendant has three choices within the present system [227]:

- (1) Compliance with the WTO ruling.
- (2) Maintenance of its illegal practice while compensating the losing party for its loss.
- (3) Complete disregard [228].

If the respondent country chooses to comply with the panel or AB ruling, it is offered a hierarchy of four methods of implementation by Article 3.7 of the DSU (see annex p.17) [229] :

- (1) A mutually acceptable solution between the parties to the dispute, which is clearly promoted in the DSU as the best possible option.
- (2) The withdrawal of the measure concerned.
- (3) If the latter is impracticable, the parties should agree on compensation "as a temporary measure".
- (4) As a last resort the possibility of suspending the application of concessions or other obligations, subject to the authorisation of the DSB.

WTO members remain free to choose the way in which they will bring the domestic measure at issue into compliance [230]. However, they must indicate this method [231].

In the event the losing party has remained passive after the panel or AB ruling and if after twenty days from the expiration of a reasonable period of time (fifteen months), the parties have not reached an agreement on compensation, the complainant can request the DSB to suspend concessions. This action shall be made pursuant to Article 22. 3 (see annex p.40) [232] : the complainant should seek to suspend concessions with regard to the same sector as that in which the panel or AB decision has found a violation or other nullification or impairment [233]. If this is not possible, the suspension of concession should be made in another sector within the same agreement and if this is not feasible either, under another agreement.

Paragraph 2 : Critical analysis of the particular treatment afforded to developing countries.

- Article 21.2 Particular attention to matters affecting the interests of developing countries in the surveillance of implementation of recommendations and rulings

According to Article 21.2. (Particular attention to matters affecting the interests of developing countries in the surveillance of implementation of recommendations and rulings - annex p.37), particular attention should be paid to matters affecting the interests of developing countries. The first striking feature of this provision is indeed its imprecision. It could be addressed to any organ of the DSM whose role deals with the implementation or the surveillance, that is the panel, the DSB or the AB [234]. The verb “should” indicates a desirable, but not mandatory task [235] and the method to be used is not specified. H. Horn and P. C. Mavroidis take the view that the DSB or panels could simply discharge their obligations in this regard by adding a few paragraph to their rulings or spending “a few more minutes” on the case [236].

In addition, it is interesting to note that Article 21.2 is not applied by panels when dealing with recourses under Article 21.5 of the DSU, that is in the event that there is a disagreement between the parties as regards the adequacy of the implementation. This worrisome situation, which directly echoes the hortatory character of article 21.2, was illustrated in two cases.

For example, in the EC-Bananas III case [237], at the request of Ecuador, the panel was reconvened under Article 21.5, on the ground that the EC implementation was inconsistent with the panel ruling. Ecuador asked the panel to make specific recommendations and suggestions as to how the EC could bring its regime for importation of bananas into compliance.[238]. The EC made a separate request for the original panel to be reconvened, on the ground of Article 21.5 of the DSU [239]. In both cases, although Ecuador was a DC and the EC could have sought to defend the interests of bananas-producing DCs (ACP countries), neither panel showed any special and differential treatment [240].

- Article 21.7 and 21.8 of the DSU.

Article 21.7. and Article 21.8 - which were taken from the 1979 Understanding [241] - (annex p.39) - requires the DSB to consider what further action it might take which would be appropriate to the circumstances when a matter dealing with the implementation is raised by a DC. More specifically, Article 21.8. obliges the DSB, when considering such action, to take into account its potential impact on the economy of the DC. These provisions are important because they deal with a DC’s major concern and seem to contain binding obligations [242]. However, one can address the same criticism as for Article 21.2, namely the lack of specific terms [243]. Moreover, “there is no way to ensure that such treatment is accorded to developing countries in practice [emphasis added]” [244].

Another important concern is the fact that action pursuant to article 21.7 and 21.8 is to be taken by the DSB and to do so, a consensus must be reached.

The question of the preferential treatment was addressed in three cases which notably deal with the period of time to be granted to DCs for the implementation of panels and AB rulings.

In the EC - Bananas III case [245], four of the complainants (namely Ecuador, Guatemala, Honduras and Mexico) along with the United States, had recourse to arbitration under Article 21.3(c) in order to determine the “reasonable period of time” for the EU to comply with the panel’s ruling [246]. These developing countries argued that special attention should be paid to their interests, on the ground of Articles 21.2, 21.7 and 21.8 of the DSU [247]. M. E. footer notes that this request had no impact whatsoever on the arbitrator’s decision, since he was not convinced that particular circumstances should be taken into account to justify a period shorter than the fifteen months contained in Article 21.3(c) and ruled that the EU had fifteen months and seven days for implementation [248].

The question of DC’s special treatment with regard to the implementation of decisions was also addressed in the case of Indonesia- Certain Measures Affecting the Automobile Industry (Indonesia-Automobiles) [249]. In July 1998, Indonesia requested an additional nine months in order to implement the panel ruling, arguing that its car industry was in need of structural adjustments [250]. Although the arbitrator refused to take into account this argument, he considered that particular attention should be paid to Indonesian interests, pursuant to Article 21.2 of the DSU. Accordingly, he accorded Indonesia an additional period of 6 months to implement the panel ruling, with reference to the difficult economic situation of this country [251].

A third case can be referred to which also deals with the implementation of a panel ruling by a DC. In India-Quantitative Restrictions on Agricultural, Textile and Industrial Products [252], the Panel had anticipated the difficulties India may face in the implementation of the panel recommendations and decided to suggest ways in which this country should implement the decision, according to the faculty offered to panels and AB by Article 19.1 (see annex p.36) [253]. The panel considered that the period of 15 months was merely an indication, not a rule, and thus that an extension of this timeframe would be possible. It further decided that any Article 21.3 arbitration should respect the principle of special and differential treatment and the necessity to pay particular attention to DCs' interests [254].

Paragraph 3 :Importance of retaliation in the WTO DSU.

In order to fully understand the difficulties DCs may face as regards the WTO DSM, the importance that retaliation is to play in the system must be emphasised.

WTO-sanctioned retaliation is presented by the DSU as a last resort in the adjudication system [255] as well as an interim measure until full compliance has been reached [256]. Although the counter-measures foreseen by the DSU are WTO-sanctioned retaliatory measures, as opposed to purely unilateral retaliation, they are fundamentally instruments of economic might.

Retaliation, that is the suspension of concession and other obligations, can be authorised by the DSB only if the respondent remains passive. As an alternative, compensation may be granted, if both parties agree [257]. Pursuant to Article 22.4 (see annex p.42), they shall be equivalent to the level of the nullification or impairment.

This measure is designed to prevent continued losses, to induce change and to deter unlawful behaviour [258].

Retaliation may play a central role in the WTO DSM [259] because it is designed to act as the ultimate safeguard for complainants willing to obtain satisfaction. Since blockage can no longer be used by reluctant respondents, avoiding compliance is "the only option" left to them. Moreover, certain countries have a record of non-compliance, such as the European Union [260].

Section 2 : Shortcomings of the existing system of implementation.

Paragraph 1 : Is retaliation really an option for developing countries ?

As seen above, retaliation is an instrument of economic power to be used ultimately against a reluctant respondent. The threat and effectiveness that counter-measures represent highly depend on the existence and repartition of concessions between the countries involved in the dispute [261] as well as the quality of the concessions themselves [262]. Here lies the deep unfairness of the system. Self-evidently, there is only a limited threat and economic impact in a DC raising import barriers against a developed country [263].

To fully understand the importance of the question, we have to bear in mind that about two third of DCs' complaints have been against developed countries [264], mainly the EU and US. Accordingly, it is self-evident that DCs, in the event that the respondent does not abide by panels or AB decisions, will have to envisage retaliation against a DC in two third of the cases.

The DCs' ability to retaliate against more powerful member states was indeed already questioned under the GATT rules. In essence, the WTO DSU does not bring about new solutions for DCs in this regard, although they opposed WTO-sanctioned retaliation during the Uruguay Round negotiations [265].

Besides the fact that retaliation by a DC against a developed country can hardly have an impact or represent a serious threat, we must bear in mind that suspensions of concession have a commercial and welfare cost  that can hardly be afforded by DCs [266]. Retaliation can be analysed as a necessary investment in order to change the behaviour of the respondent [267]. The cost of this investment is different depending on the level of trade barriers : the withdrawal of concessions is more costly to countries with high trade barriers, which is more likely to be the case in DCs [268].

At last, DCs generally do not  risk retaliation for fear of subsequent actions the developed country might take [269].

An important case were the question of DC retaliation was recently addressed is the EC - bananas III affair [270].

This controversial case involved two sets of developing countries, both exporting bananas to the European communities [271]. After a single market to unify policies on bananas had been established in the EC (1993), the US, along with several Central American bananas producers, brought a complaint against the EC. These countries argued that their market access was being denied by the preferential access granted by the EC to former European colonies (ACP countries) [272]. This regime imposed restriction on bananas' imports on a discriminatory basis. The issues raised were particularly sensitive because any sudden removal of ACP countries’ preferential access to the EC market would have seriously disrupted the economies and societies of these countries [273].

Initial consultation failed and the report eventually reached which "condemned " the EC was not adopted because of the blockage of the respondent. A case brought by Caribbean countries was similarly blocked.

Under the WTO (in 1996), the dispute was raised by Ecuador, Guatemala, Honduras, Mexico and the US against the EU’s regime for the importation, sale and distribution of bananas, which was alleged to be inconsistent with various provisions of the WTO [274].

The panel found in May 1997 that the EC regime was inconsistent with the provisions of the WTO and the EC was asked to reform its regime by 1st January 1999 [275]. An appeal was then filed by the EU. The AB largely upheld the panel decision. However, the EU refused to disclose any details on its implementation plan and decided to maintain some trade preferences in its Bananas regime [276]. The US, Honduras, Guatemala, Ecuador and Mexico requested an arbitration in November 1997 and the arbitrator held that the EC would have fifteen months and one week to implement the WTO decision and bring the regime into compliance [277]. In 1998, the Union adopted a proposal to modify its bananas regime which was found by the complainants just as discriminatory as the previous system [278]. This new regime was brought before the WTO panel and the US declared that retaliation would be applied from March if no substantial changes were done [279]. The EU responded that that it would agree on a panel only if the US withdrew its threat of sanction [280]. Dissatisfied with the EC’s implementation, the complaining countries brought the matter again before the WTO in January 1999. which found that the reformed regime did not meet the WTO requirements [281]. The US requested the WTO to suspend its concessions to imports from the EC worth $ 520 millions as a compensation for the EC denial of market access. The WTO approved the request but reduced the amount of the suspension of concessions [282].

More interestingly, Ecuador, a DC, eventually requested that the DSB authorise the suspension of concessions to the EC equal to the level of nullification and impairment that is $ 201.6 million, pursuant to Article 22.7 of the DSU. On 18 May 2000, the DSB issued such authorisation as requested [283]. "Ecuador (i) [took] note that the European Commission will examine the trade in organic bananas and report accordingly by 31 December 2004; (ii) upon implementation of the new import regime, Ecuador's right to suspend concessions or other obligations of a level not exceeding US$ 201.6 million per year vis-à-vis the EC will be terminated [...] [emphasis added] [284]". By this date we will be able to assess what impact may the Ecuadorian retaliation have had on the EU economy.

Paragraph 2 : The question of compensation.

Since "[...] violations of the WTO are disproportionately  burdensome for [DCs] given the fragility of many of their export industries and the fact that their export base is generally much less diversified  than in high income countries. [emphasis added]"[285], a cost-benefit analysis may deter DCs from commencing a dispute. It has been consequently argued that obtaining compensation is more important to DCs than for developed countries [286]. The possibility to obtain compensation for damages already occurred or during the pendency of the dispute is definitely of judicial nature and refers to a "binding obligation approach". This is thus a highly controversial question because this touches upon WTO member states' sovereignty. For this reason, a mechanism providing for financial compensation is not likely to be set up.

Article 22.2 of the DSU (see annex p.39 - 40) provides that in the event that the respondent has not implemented the panel or AB ruling within a reasonable period of time, the complainant may seek compensation and request the losing party to enter into consultation with a view to developing mutually acceptable compensation [287]. If no agreement on compensation has been reached after twenty days from the expiration of the reasonable period of time, retaliation can be requested.

Indeed, in the field of compensation, DCs suffer less from their lack of economic and political power than for retaliation and accordingly, an effective and efficient mechanism for compensation could represent a formidable alternative to the system of retaliation. Unfortunately, it ensues from Article 22.1 of the DSU (see annex p.39) that compensation is a temporary measure, that is never to be preferred to full implementation, and more importantly from the viewpoint of DCs, voluntary. As seen above, compensation rests on the willingness of the respondent to negotiate. In this voluntary nature lies the principal drawback of the system [288], above all for DCs. At last, The WTO DSU does not enable panels to prescribe compensation for losses already occurred [289]

During the Uruguay Round negotiations, certain DCs underlined the importance of compensation in the event of a developed country violating their GATT obligations in the detriment of DCs [290]. In particular, Nicaragua and Korea put forward their concerns in this regard. Nicaragua notably argued that the Contracting parties recommendations should include compensatory measures[291]. The korean proposal contained a similar request. This country proposed that the panel report include recommendations on measures and compensation to be awarded for failure to implement Council decision, in disputes involving developed and DCs [292].

These proposals show that the possibility to obtain compensation is a legitimate and important concern for DCs. They demonstrate that the system ensuing from the WTO DSU in this regard is not satisfactory because of the lack of involvement of panels, DSB and AB in the determination of compensation and above all due to its voluntary character.

The absence of provisions for compensation for export loss during the pendency of the dispute[293] is also particularly worrisome for DCs for whom the cost of commencing a dispute is a serious hindrance. Indeed, because of their rather narrow export base, they can suffer heavy trade losses during the course of the dispute [294]. This is even more serious when we consider the fact that the procedure - as we have seen in the EC-Bananas III case - can still last almost indefinitely.

Paragraph 3 : The questionable legal significance of the system of implementation and of panels findings.

- "Compensate or obey ?" [295]

As part of the general question of their legal effect, AB or panel reports raise the more specific issue as to whether the international law obligation deriving from them gives the option either to compensate with trade and other measures or to fully abide by panels or AB rulings [296]. In J.H. Jackson's words : does the WTO DSM give the choice "to compensate or obey" ?

Fundamentally, the public international legal "obligation" deriving from the WTO DSM rests upon voluntary compliance and the WTO DSM does not enjoy the kind of monopoly of force sovereign states enjoy [297]. However, international law has important real effects. Their applicability depends on the approach to the legal effect of a dispute settlement process that governs in the different member states [298]. What is the extent of the legal obligation which arises from the WTO DSM that member states agreed on ? As a matter of fact there is no definite answer to be found in the WTO DSU itself.

As observed before, compensation and retaliation are not presented in the WTO DSU as alternatives to full compliance but merely as temporary measures [299], in the event for example that the immediate withdrawal is impracticable. The DSU clearly shows a preference for an obligation to perform the panel recommendations [300]. The question whether it is a binding obligation is in practice left to the domestic tradition of the various member states in this regard [301]. Although, theoretically, panels and AB decisions are binding in the international law and traditional sense, practically this obligation to comply can be meaningless [302].

From the viewpoint of DCs, it is self-evident that what is needed is performance and not compensatory measures. The latter can keep DCs in a state of dependence when the compensating party is a developed commercial partner. Moreover, should the DC be heavily dependent upon the industrialised country, compensatory measures could induce a dangerous unpredictability and fragility in the complainant's economy.

- Lack of precise framework for the implementation.

We observed that panels do not often use their ability to suggest the manner in which the losing party should implement the ruling. It has been argued that they normally stick to rather innocent recommendations as the outcome of a diplomatic process [303]. This can be explained by the fact that panels are often composed of governmental members who are mainly concerned with diplomatic and pragmatic considerations [304]. In absence of any suggestions and as far as they may represent an "obligation", parties are basically free to choose the method to be used in order to bring the measure at issue into compliance [305].

Here lies an important issue that considerably undermines the legal significance of panels and AB findings. In absence of precise requirements, the respondent remains free to hinder the procedure and postpone implementation by undertaking unsatisfactory cosmetic changes (as seen in the EC-Bananas III case) [306]. This obliges the aggrieved party to request another panel and effectively obstructs recourse to retaliation : as long as the losing party undertakes changes, even inadequate, the complainant cannot be authorised to resort to counter-measures [307].

Although this possibility to avoid implementation is problematic for all WTO members, this is obviously more worrisome for DCs  :

On the one hand, self-evidently, they cannot afford to wait for the implementation of the panel or AB ruling because of the weakness and dependence of their economy.

On the other hand, more importantly, the respondent country can effectively move the conflict outside the legal framework of the WTO and its system of conflict resolution, into the area of international politics when it refuses compliance [308]. As seen earlier, DCs lack the political and economic might that gives weight in international politics and diplomatic negotiations whereas developed countries may find this move "less unattractive and even desirable [emphasis added]" [309].

FOOTNOTES