Transcript Accounting Standard

Dispute Settlement In Trade &
Investment Agreements
Suhail A. Nathani
Partner
Economic Laws Practice
Mumbai● New Delhi ● Ahmedabad
August 24, 2007
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Dispute Settlement In Trade &
Investment Agreements: Scheme of
Presentation
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Dispute Settlement Mechanism (DSM) in the WTO:
 History & Working
 Evolution
 Instruments
 Structure of WTO DSS
 Legal Basis for a Disputes
 Various Stages
 Rules of Interpretation
 Amicus Curiae Briefs
 Standard of Review
 India’s Experience
 Ongoing Review
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DSM in Regional Trade Agreements (RTAs)
 Background
 Mechanism
 Private Party Rights: Investor-State Dispute Settlement
 DSM in RTAs vis-à-vis WTO DSS: Mexico Soft Drinks Case
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Dispute Settlement In
Trade & Investment
Agreements
Dispute Settlement under WTO
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History and Working of the DSS
 World Trade Organisation (WTO) established in
the year 1995; successor to the GATT,1947
 One of the primary objectives is to settle trade
disputes; done through the DSS
 WTO DSS created as part of the WTO
Agreement during the Uruguay Round.
 Embodied in Understanding on Rules and
Procedures Governing the Settlement of
Disputes; (Dispute Settlement Understanding
-DSU).
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History and Working of the DSS
(Cntd.)
 DSU constitutes Annex 2 of the Marrakesh
Agreement establishing the World Trade
Organization (WTO Agreement)
 Sets out the procedures and rules
 Present day DSS: result of evolution of rules,
procedures and practices developed over 50
years under the GATT,1947.
 Prior to WTO DSS, trade disputes settled
under the GATT,1947 DSS.
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Dispute Settlement under GATT,1947
Shortcomings of the GATT DSS
 Appointment of panel, adoption of rulings,
imposition of sanctions: done through positive
consensus
 No detailed procedures
 No fixed timetable
 Rulings easier to block
 Cases dragged on for years
 Overall an inefficient system; not very popular
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Dispute Settlement under WTO:
Instruments
 Article XXII and XXIII of GATT,1947
 Understanding on Rules and Procedures
Governing the Settlement of Disputes
 Few specific rules in other WTO agreements.
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Dispute Settlement under WTO:
Improvements over GATT, 1947
 It remedies the inherent defects of the GATT DSS
 Introduces the negative consensus rule
 Resulting in automatic establishment of panel & appellate body
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(AB), automatic adoption of panel/ AB reports and automatic
authorization of countermeasures against the non complying
party
Integrated framework applying to all agreements with only minor
variations
Provides more detailed procedures for each stage of dispute
Establishes specific time frames and deadlines for prompt
settlement of disputes
Provision for appellate review
Overall an efficient system
Effectively used by members to settle more than 300 disputes in
the last 12 years.
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Structure of the WTO DSS
 Ministerial Conference: top most decision
making body of the WTO
 The DSB is the administrative body which
handles Day-to-day work of dispute
settlement and comprises of all WTO member
countries.
 The DSB reports to the Ministerial Body.
 DSB comprises of ad hoc Dispute Panels and
a standing Appellate Body (AB)
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Legal Effect Panel/Appellate Body
Reports
 Report becomes binding after adoption by the DSB
 Reports binding only on the Parties to the dispute
 Since reports relate to specific matters in the dispute
between the Parties to the dispute:
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Reports have no precedent value
 However Panels and Appellate Body accord due
deference to previous Reports for the purposes of:
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Enhancing the “security and predictability” of the
multilateral trading system (Art. 3.2, DSU)
Upholding the “legitimate expectations” created among
the WTO Members from previous adopted Reports (AB
Report, Japan Alcoholic Beverages II)
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Dispute Settlement Panel:
Function and Composition
 Quasi-judicial body, similar to domestic tribunals
 Adjudicates disputes in the first instance
 No permanent panel at the WTO; different panel composed for
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each dispute
Normally composed of three( in some cases five) experts on an
ad hoc basis
Selected by the DSB in consultation with the disputing parties,
possibly from the indicative list maintained by the WTO
Secretariat
Preferably one member is from a developing country and the
other two from countries not party to dispute.
Panel reviews the factual and legal aspects of the case, records
its findings and makes recommendations
On acceptance by the DSB, the Panel report becomes binding
on the parties.
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Dispute Settlement AB:
Functions and Composition
 Unlike Panel, AB is a permanent body of seven
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members
Reviews legal aspects of reports issued by the Panel.
AB members appointed by the DSB by
consensus(Art.2.4 DSU) for a four years term and
can be reappointed once (Article 17.2 DSU)
AB members to be persons of recognized authority,
with demonstrated expertise in law, international
trade and the subject matter of the covered
agreements generally, and they must not be affiliated
with any government (Art. 17.3 DSU)
AB members to be broadly representative of the
membership of the WTO (Art. 17.3 DSU)
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Legal Basis for a Dispute
 Violation
 The DSU is primarily concerned with settlements of
disputes that involve an infringement of an obligation
assumed under one or more of the WTO
agreements.
 Non Violation and Situation Complaints:
 GATT Art. XXIII(1)(b): When a benefit under the
WTO Agreements, accruing to a Member directly or
indirectly, is nullified or impaired as a result of
another Member country applying a measure,
irrespective of whether or not such measure conflicts
with any of the WTO Agreements (Non Violation)
 GATT Art. XXIII(1)(c): extends such nullification or
impairment as resulting from a broader range of
circumstances, captured by the phrase ‘existence of
any other situation’. (Situation Complaint)
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Non-Violation or Situation Complaints
Non Violation
 The burden of proof is on the complainant, who must present a
“detailed justification” of the complaint by:
 Defining the “benefit” being nullified or impaired
 Defining the “measure” responsible
 Showing a casual relationship between the measure and the
nullification or impairment
 Eg. Photographic Paper, Asbestosis
Where the elements of a non-violation complaint are proved,
there is no obligation to withdraw the measure – only that the
offending member must make a “mutually satisfactory
adjustment.”
Situation
 All other nullification or impairment of benefits are deemed to be
impeded by “any situation.”
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Basic Stages of Dispute Settlement
 The (national) dispute
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initiation stage.
Consultation stage
Panel stage
Appellate review stage
Adoption
Implementation and
Surveillance
Stage
Process
1st Stage
Consultations, mediation, etc
60 days
2nd Stage
Panel set up and panellists
appointed
45 days
3rd Stage
Final panel report issued to
parties
6 months
Final panel report circulated
to WTO members
3 weeks
Dispute Settlement Body
adopts report (if no
appeal)
60 days
(without appeal)
Total = 1 year
5th Stage
Appeals report
60-90 days
Final
Dispute Settlement Body
adopts appeals report
30 days
(with appeal)
Total = 1y 3m
4th Stage
No. of Days
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Basic Stages of Dispute Settlement:
Dispute Initiation
 Complaints made:
 By a particular Business or Industry
 To its government
 Against trade restrictive measures by a WTO
member country
 Concerned Government may conduct an
internal enquiry to ascertain the legality of the
complained measures
 On being satisfied it may decide to challenge
the measure of that WTO member country.
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Basic Stages of Dispute Settlement:
Consultations
 Request for Consultations:
 In writing & state the reasons for request
 Forms Legal basis of complaint (Art.4.4 DSU)
 Notified to DSB and concerned Councils &
committees (Art. 4.4 DSU)
 Typically take place in Geneva & are
Confidential( Art. 4.6 DSU)
 Dispute not resolved: Request DSB for
establishment of Panel
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Basic Stages of Dispute Settlement:
Request for establishment &
Constitution of Panel
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Request for establishment of panel initiates the adjudication process
Request to be made to the Chairman of the DSB
Indicate whether:
consultations were held,
identify the specific measures at issue,
and provide a brief summary of the legal basis of the complaint (Article
6.2 of the DSU).
Constitution of Panel:
The WTO Secretariat proposes names, parties either agree or for
compelling reasons oppose( Art.8.6 DSU)
If panel not composed within 20 days of its establishment by this
method, either party may request the Director General (DG) WTO to
compose the panel.
The DG appoints the panel members in consultation with the
chairperson of the DSB and the chairperson of the relevant Council or
Committee, after consulting with the parties, within 10 days after
sending this request to the chairperson of the DSB. ( Art.8.7 DSU)
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Basic Stages of Dispute Settlement:
Panel Proceedings
 In accordance with working procedures (
DSU appendix III)
 Fixing of Terms of references
 Oral & written submissions of the parties
 Meetings of parties & Panel
 Interim Report & review
 Final report issued to the parties within 6
months of the terms of reference
 Final report submitted to DSB
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Basic Stages of Dispute Settlement:
Panel Proceedings (Cntd.)
 Third parties may also participate, provided
they establish “substantial interest”.
 3rd Parties have limited rights of participation
& right to seek information
 Amicus Curiae briefs may be entertained on
Panels discretion.
 Expert review groups may be appointed by
the Panel ( DSU appendix IV)
 Confidentiality to be maintained.
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Basic Stages of Dispute Settlement:
Appeal
 Standing Appellate Body
 Only parties to dispute can appeal
 Appeal limited to issues of law and legal
interpretations developed by the panel( Art.
17.6 DSU)
 AB may uphold, modify or reverse the legal
findings & conclusions of the panel (Art. 17.13
DSU)
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Basic Stages of Dispute Settlement:
Appeal (Contd.)
 Panel report adopted by the DSB within 60 days after
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the circulation to members unless:
Party notifies decision to appeal
DSB decides by consensus not to adopt it
AB report adopted by the DSB within 30 days after
circulation to members.
Where violation of WTO Agreements is found,
panel/AB may: (Art.19.1 DSU)
Recommend members to bring the measures in
conformity
Suggest ways of implementing the recommendations
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Dispute Settlement under WTO:
Implementation & Surveillance
 Panel/AB report to be adopted within
“reasonable period of time” (Art. 21.3 DSU):
 RPT proposed by member & approved by
DSB,
 or mutually agreed by the parties,
 or determined through arbitration (15 months)
 Compliance review: (Art. 21.5 DSU) must be
decided by original panel, if possible.
 Status report by the member on progress in
surveillance
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Dispute Settlement under WTO:
Remedies for Non- compliance
 On failure to bring the measure in conformity
within reasonable period of time, possibility
of:
 Compensation; or
 Suspension of concessions equivalent to the
level of nullification or impairment
 Authorization to suspend within 20 days of
expiry of reasonable period of time
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Dispute Settlement under WTO:
Remedies for Non- compliance
 Compensation: if implementing party fails to achieve full
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compliance within a reasonable period of time (Art. 22.2 of
DSU):
 Has to enter negotiations with the complaining party to
ascertain mutually acceptable compensation
 Compensation not in terms of monetary payments
 Respondent supposed to offer a benefit (e.g. tariff reduction)
Suspension of concessions in (Art. 22.2 DSU):
Same sector, or
Other sector. Or
Other agreement.
Arbitration on the level of suspension (Art. 22.6 DSU)
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Rules of Interpretation
 WTO Agreement points two sources of law:
The covered agreements
 The international agreements incorporated in the covered
agreements
 In addition, the decisions, procedures and customary practice
followed by the GATT Contracting Parties throughout the GATT
years shall also be followed( Art. XVI.1, WTO Agreement)
 WTO adjudicating bodies have identified the following
interpretative elements:
 Panel/Appellate Body reports
 Decisions & recommendations by various WTO organs
 International agreements not reflected in the WTO
agreement
 Customary international law (e.g. Art. 31 of the Vienna
Convention on Law of Treaties)
 The travaux preparatoires of the WTO Agreement
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Amicus Curiae Briefs
 Acceptance of amicus curiae briefs from third parties- A
controversial issue
 Recent rulings of Appellate Body-Clearly show that the power of
Panels/Appellate Body to accept amicus curiae briefs is an
established principle
 Shrimp-Turtle Case: Appellate body stated that:
 Art. 13.1 of the DSU confer power to “seek” information from
any individual/body
 Power to “seek” shall be interpreted to include the power to
accept and consider amicus curiae briefs.
 Two methods for submission & consideration of amicus curiae
briefs( EC-Sardines):
 An amicus curiae brief can be submitted to Panel/Appellate
Body with the consent of participating WTO Members.
 Private organizations/individuals can submit amicus curiae
briefs directly to the Panel (Art. 13.1) & to the Appellate Body
(Art. 17.9, DSU)
 Whether to accept/consider amicus curiae is up to the
Panels/Appellate Body’s discretion.
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Standard of Review
 Art. 11 of DSU:
Panel should make an objective assessment of matter before it
 Including and objective assessment of the facts of the case; and
 The applicability & conformity with the relevant covered
agreements.
 Panel must observe due process of law ( Appellate Body in Chile
Price –Bands Case)
 Art. 17.6(i) of Antidumping Agreement-Special standard of review for
antidumping proceedings:
 Panel not to overturn the proper establishment of facts and
unbiased & objective evaluation made by national antidumping
authorities
 Art. 17.6(ii) of Antidumping Agreement-National Deference principle:
 If in Panel’s view a relevant provision admits two permissible
interpretation, it shall accept the interpretation which supports the
finding of the concerned national antidumping authority.
 Art. 17.6 of the Antidumping Agreement is supplementary to Art. 11 of
DSU (Appellate body in US-Hot-rolled steel)
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WTO DSS: India’s Experience
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India is one of the leading developing country users of the WTO DSS
Involved in total of 84 cases at the WTO DSS:
As complainants in 17 cases
As respondents in 19 cases
As third party in 48 cases
 Mixed success at the DSS:
 India-QRs Case: India forced to dismantle QR regime on complaint
from US
 India-Patents Case: India forced to change its IPR law regime and
bring it in consonance with the TRIPS on complaint from EC
 EC-Bed Linen Case: India’s claim that practice of “zeroing” while
establishing the existence of margins of dumping was inconsistent with
Anti-Dumping agreement was held to be correct and EU was forced to
change its measures.
 EU-GSPs Case: No clear benefit to India, even though the measure
complained against was held to be WTO non compliant.
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WTO DSS: India’s Experience
Ongoing Dispute
 India is presently involved in a dispute with the USA (WT/DS360)
concerning the imposition of “Additional Duties” on imports of
alcoholic beverages and certain identified industrial &
agricultural products
 Initial complaint was brought by the European Communities
against levy of “Additional Duties” on imports of Alcoholic
Beverages under Section 3(1) & 3(5) of the Customs Tariff
Act,1975(WT/DS356); USA joined as a complainant later on
 Following consultations India removed the “Additional duties”
on alcoholic beverages levied under Section 3(1), Customs
Tariff Act,1975
 Thereafter EC requested the Panel to suspend the
proceedings
 USA decided to continue with the Panel proceedings
 In substance the dispute now concerns the “Additional Duties”
imposed under Section 3(5) of the customs Tariff Act,1975
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Ongoing Review of the WTO DSS
 Broad consensus that DSS has worked reasonably
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well
Nevertheless review is desirable
As agreed by the Members during the Uruguay
Rounds, review of the DSU started in 1997-not part
of Doha Round “Single Undertaking”
Has not resulted in any agreed outcome
Doha Ministerial Declaration contained a mandate for
“negotiations on improvements and clarifications” of
the DSU.
No results till date, though countries have made their
submissions on desired changes in the system.
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Dispute Settlement In
Trade & Investment
Agreements
Dispute Settlement Mechanism under
RTAs/FTAs
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Dispute Settlement Mechanism under
RTAs/FTAs: Background
 Shift in the focus of trade liberalization from
WTO to RTAs/FTAs
 Surge in the number of RTAs
 330 RTAs notified to the WTO (earlier GATT)
till 2005
 206 RTAs notified since 1995
 Several other in force but not notified
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Relevance of DSMs in RTAs
 Trade disputes by their nature require
resolution/solution rather than ruling on right
or wrong
 Overburdened domestic judicial systems
 Skepticism over impartiality of National
Courts
 Need for time bound resolution
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Characteristics of an Ideal DSM
 Clear procedure
 Effective administration
 Impartial, Speedy, Transparent, Inexpensive
 Upholding principles of Pvt. and Public
International Law
 Develops coherent jurisprudence
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DSMs under RTAs:
Typical Structure
 Akin to WTO DSS
 Consultations/Negotiations
 Establishment of Arbitral Panel/Committee
 Appeal: Appellate Board
 Enforcement Mechanism: Measures to be
brought in conformity or else withdrawal of
concessions/benefits
 May provide limited access to private parties
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DSMs under RTAs:
Private Party Rights
 RTAs: Agreements between two or more countries
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granting preferential market access
Contractual Agreements: Imposing obligations upon
signatory countries and not upon private parties
Scope of recent RTAs more ambitious: covering
issues such as the trade in Services, Intellectual
Property
Rights,
Investment,
Government
Procurement,
Competition
Policy,
Labour,
Environment etc
Directly affect the commercial interests and
investment decisions of Private Parties
Thus Private Parties given limited access to DSMs:
usually in case of investor-state disputes
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Private Party rights under FTAs
FTA
Subject Matter of Dispute
Nature of Private Party Right
North American Free Trade
Agreement
Investment
Between Commercial
Entities(Investor) and State
Parties
US-Singapore FTA
Investment
Between Commercial
Entities(Investor) and State
Parties
EFTA-Singapore FTA
Investment
Between Commercial
Entities(Investor) and State
Parties
EFTA-Korea Investment
Agreement
Investment
Between Commercial
Entities(Investor) and State
Parties
EU Treaty
Interpretation & application of Treaty Articles, secondary
legislations, directives etc.
Between business firms & individuals
and member states & EC
Institutions.
Indo-Sri Lanka FTA
Not Specified
Between Commercial Entities
India-Afghanistan
Preferential Trade
Agreement
Not Specified
Between Commercial Entities
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DSMs under RTAs vis-à-vis WTO
DSS: Mexico Soft Drinks Case
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Detailed rules for resolution of disputes contained in RTAs
Establishing DSMs running parallel to WTO DSS
May provide countries with two options for dispute resolution
Mexico Soft Drinks Case: Issue of conflict of jurisdiction
between NAFTA Panel and WTO Panel
 Both Panel and AB held that “WTO Panel would seem not to be
in a position to choose freely whether or not to exercise its
jurisdiction”
 Interesting issues arising out of Mexico Soft Drinks Case:
 Firstly, what should a country consider when entering into an
RTA with dispute settlement provisions?
 Flowing from this question, what is the implication of the
choice of dispute settlement forum available to a WTO
member who is also a signatory to an RTA that has its own
dispute settlement provisions?
ELP
Dispute Settlement In
Trade & Investment
Agreements
The End
Thank You!
ELP