In the comments on Sungjoon's post from the other day, Brett Williams said something really interesting:
There are some aspects of this Cotton litigation which ought to be celebrated as great achievements of the system. ... Secondly, it was the first time (going all the way back to 1948), that the multilateral trading system quantified the permissible retaliation in a non-violation situation - and the system gave a sensible answer to the question (not without some weaknesses in the 22.6 that hopefully can still be fixed in the future)- that the permissible retaliation is related to the size of the reduction of trade caused by the measure. (emphasis added)
I've heard this talked about before, but never seen it in writing. Now that there are actual words to quote, I'm going to quote them and put the issue out there for discussion.
If I understand the point correctly (and Brett, please correct me if I did not), there is an argument that findings of serious prejudice -- and "adverse effects" generally, I suppose -- under SCM Agreement Article 6 do not constitute violations of WTO obligations. So if you act inconsistently with GATT Article III:4, that's a violation; or if you act inconstently with SCM Agreement Article 3.1(a), that's a violation. But if you cause "serious prejudice" under Article 6, it's not a violation. There is a remedy under Article 7, that's true; but causing serious prejudice is not actually a violation of the rules.
Why exactly would that be the case? I'm not entirely sure, and I would like to hear thoughts from others on this, but perhaps it is because of the phrasing of the provision. Article 3.1, which does lead to a violation, starts this way: "the following subsidies ... shall be prohibited." Because you have "shall" and "prohibited" in there, governments simply are not allowed to do these things.
By contrast, Article 5 reads as follows:
No Member should cause, through the use of any subsidy referred to in paragraphs 1 and 2 of Article 1, adverse effects to the interests of other Members, i.e.:
(a) injury to the domestic industry of another Member;
(b) nullification or impairment of benefits accruing directly or indirectly to other Members under GATT 1994 in particular the benefits of concessions bound under Article II of GATT 1994;
(c) serious prejudice to the interests of another Member.
Article 6 then explains in detail how to determine if serious prejudice exists. But because there is a "should" rather than a "shall," there is no actual obligation here.
I'm not completely convinced this view of serious prejudice is right, for two reasons. First, the Appellate Body has already told us that "should" can mean "shall": "
187. ... Although the word "should" is often used colloquially to imply an exhortation, or to state a preference, it is not always used in those ways. It can also be used "to express a duty [or] obligation".
And second, Article 7 sets out a clear remedy for adverse effects cases. As a result, these cases are not like GATT "non-violation" cases, which don't have much of a remedy. Here is Article 7.9:
In the event the Member has not taken appropriate steps to remove the adverse effects of the subsidy or withdraw the subsidy within six months from the date when the DSB adopts the panel report or the Appellate Body report, and in the absence of agreement on compensation, the DSB shall grant authorization to the complaining Member to take countermeasures, commensurate with the degree and nature of the adverse effects determined to exist, unless the DSB decides by consensus to reject the request.
Of course, whether "serious prejudice" findings are violation or non-violation cases may be semantic to some exent; the existence of the strong remedy may be the more imporant consideration.
Unless of course I've misunderstood the whole thing, in which case feel free to explain it to me in the comments.
