The Panel decision in China-Raw Materials reveals an utterly irrational aspect of the system: the ad hoc rules on export duties imposed on a handful of acceding members are effectively the most "sacred" rules of the WTO, in that they are permanent, not amendable, and not entitled to any public policy exceptions.
Currently, the WTO does not require members to bind export duties, which is in stark contrast with its regime on import duties. The lack of discipline on export duties renders GATT Article XI prohibition of export quotas ineffective - members can always impose high export tariffs to achieve the same trade-restrictive effect. Developing countries tend to view export duties as a legitimate tool for economic development - the freedom to impose export duties ensures that they can keep their natural resources for developing their own downstream industries, rather than sharing them with importing countries.
The WTO however requires a few acceding members to undertake obligations on export duties. By the Panel's account, the acceding members currently subject to such obligations are Mongolia, Croatia, Saudi Arabia, Latvia, Ukraine, Vietnam, and China (Panel Report, fn. 186). The scope of the export duty obligations varies widely from one member to another, with China's being the most comprehensive (elimination of duties on all exports except for 84 products, which are subject to bound tariffs). The export duty obligations of the acceding members are set out in their respective accession protocols, rather than being incorporated into their respective GATT schedules. This seemingly "technical" arrangement turns out to have serious legal consequences.
First, as pointed out by the Panel, if China's export duty commitments had been part of its GATT schedule, GATT Article XX would have been available to justify potential violations. "However, this is not what China and WTO Members chose to do." (para. 7.140) In the view of the Panel, WTO Members and the acceding members simply did not "intend" to make any public policy exception available to the export duty commitments since it could not find any indication to that effect in the text of the accession protocol. (By the same token, the national security exception of GATT Article XXI would not be available to the export duty obligations either.)
Second (this is not part of the Panel report), GATT schedules can be modified every three years or at any time in accordance with Article XXVIII (requiring the member seeking modification to make compensatory adjustment). If the export duty commitments were attached to GATT schedules, they could arguably be modified in a similar manner. But since that is not the case, the acceding members are stuck with their export duty commitments without a legal way of ever adjusting them (except in the direction of further liberalization). Related to this point, when a GATT schedule is violated, the violating member can choose to modify its schedule pursuant to Article XXVIII so as to avoid being subjected to trade retaliation indefinitely. This is what the EC did in EC-Chicken Cuts, and the United States in US-Gambling under the similar provision of GATS XXI. This option, however, is not available to the acceding members with respect to their ad hoc export duty obligations.
In sum, the current WTO system (as interpreted by the Panel) treats export duty concessions of selected acceding members much more harshly than import duty concessions. And it also treats export duties more harshly than export quotas – since the latter is entitled to policy exceptions and the former is not – even though GATT has chosen tariffs over quotas as the legitimate means to restrict trade. In fact, the Panel has made the export duty concessions of the few acceding members a firmer legal obligation than all GATT obligations, including MFN and national treatment, since all GATT obligations are entitled to policy exceptions of GATT XX and XXI.
But is there a policy/systemic reason to treat export duty concessions this way? Could this be the real intention of WTO members and China (and other acceding members)? I think not.
The Panel's rationale is straightforward: China negotiated its accession protocol with its eyes open. Therefore, if there is no textual indication for policy exceptions for a particular accession obligation, it must mean no such exception was envisaged. To allow such exceptions to justify a violation "would change the content and alter the careful balance achieved in the negotiation of China's Accession Protocol. It would thus undermine the predictability and legal security of the international trading system." (Para. 7.159). The problem with this type of rationale, however, is that it can be used to justify pretty much any interpretation of any treaty provision. Instead of examining the words in the light of their systemic context, or the object and purpose of the WTO Agreement, the Panel's analysis was strictly limited to the words and their narrow textual context.
One wonders why the export duty concessions of the acceding members were put in their accession protocols rather than in their GATT schedules. Negotiation history could shed some light, but none has been provided or made publicly available (the WTO Secretariat must know the history very well.) My guess is that WTO members got into the habit of demanding ad hoc WTO-plus obligations from acceding countries and never really thought through their legal implications. In the accession negotiations, it is up to the acceding member to fend for themselves. If the negotiators were not careful or were not legally sophisticated, they would have to suffer the consequences. As is well known, the dynamic of accession negotiations (in which an individual acceding country negotiates against the entire incumbent membership) is very different from that of multilateral negotiations in which WTO general rules are enacted.
I have discussed elsewhere the peril of ad hoc rule-making in the accession process (JWT (2003) here) and the resulting interpretive challenges (JWT 44:127 (2010) here). While the adjudicators cannot change the inflexibility or permanency of the export duty rules, they can and should interpret the rules more sensibly, i.e., treat them consistently with GATT rules on import duties and export quotas. Let's hope the Appellate Body will be able to restore some rationality to the system.
