This is a guest post from Akhil Raina* & Mattijs Kempynck**
Introduction
Readers of this blog are all too aware of the many ways in which the United States (US) is rocking the multilateral trade boat: the Appellate Body (AB) is in crisis; there’s an ongoing “trade war” with China; and the US supports[1] a dangerously broad interpretation of the ‘national security’ exception under GATT Art. XXI. In this post, we cull out an underlying theme in these actions – that of unilateralism. As the word itself should make it clear, unilateralism is the antithesis of the multilateral system established under the WTO.
Here, we analyse the US narrative as found in its first written submission (FWS) in the case of DS543, officially titled United States — Tariff Measures on Certain Goods from China. “Narrative” seems to have become a bit of a trade catch-phrase, especially after Nicolas Lamp’s work that explained three broad narratives when it came to understanding, or viewing, international trade.[2] In a somewhat similar fashion, we aim to observe the US’s stand on trade (disputes, negotiations etc.) as it can be discerned from its submissions. This is particularly relevant today, given that the US is giving off mixed signals regarding its engagement with the WTO dispute settlement system (DSS): while it continues to chokehold the AB, it also institutes (and defends itself in) new WTO cases.
DS543 was brought by China against recent tariff escalations initiated by the US, and is particularly interesting given the (for lack of a better word) innovative arguments put forward by the US in its defence. We will focus on two questions: what is the “matter” in a WTO dispute, and, following from this, what is (or can be) a “solution” to said dispute? The consequences, as we will explain, of the US narrative are significant – for China, for the rest of the Membership, and for the WTO DSS.
For background: in July and September 2018, without first approaching the WTO, the US levied additional duties on certain Chinese products, after conducting a Section 301 investigation and determining that Chinese intellectual property (IP) policies were harming US interests. In response, China requested for a WTO panel in December 2018 [3], and also retaliated to the tariff increase in kind. And aside from Prof. Julia Qin (who called the US FWS an “eye opening read”)[4] and Prof. Marc Bush (who called it a “really, really, really problematic case” that “needs to go away”)[5], not a lot of attention has been paid to the dispute.
Why is the dispute or the US FWS so special? Well, for one, the US’s key argument is as follows:
“By taking actions in their own sovereign interests, both parties have recognized that this matter does not involve the WTO and have settled the matter themselves. Accordingly, there is in fact no live dispute involving WTO rights and obligations. Therefore, in light of each party’s action settling the matter, the report of the Panel should “be confined” to a brief description reporting that the parties have reached their own resolution, as provided for in Article 12.7 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (“DSU”).”[6]
For clarity, DSU Art. 12.7 – in its last sentence – states: “[w]here a settlement of the matter among the parties to the dispute has been found, the report of the panel shall be confined to a brief description of the case and to reporting that a solution has been reached.'' We will come to the meaning of “settlement/solution” in just a bit, but to be sure, what the US views as these “actions taken in sovereign interests” is clear from para 9 of its FWS:
“Fundamentally, both the United States and China have recognized that this matter is not a WTO issue: China has taken the unilateral decision to adopt aggressive industrial policy measures to steal or otherwise unfairly acquire the technology of its trading partners; the United States has adopted tariff measures to try to obtain the elimination of China’s unfair and distortive technology-transfer policies; and China has chosen to respond – not by addressing the legitimate concerns of the United States – but by adopting its own tariff measures in an attempt to pressure the United States to abandon its concerns, and thus in an effort to maintain its unfair policies indefinitely.”[7]
The US further provides that the two parties are “attempting to resolve these matters in inter-governmental, bilateral discussions at the highest levels.”[8] Fair enough: the US is entitled, as every other Member, to forward a particular legal point of view. And in order to see if this view is WTO-compatible – or even logical – we must break down the US’s understanding of “matter” and “solution”.
What’s the “matter”?
The subject-matter of a dispute determines many things. Primary out of these is the forum for adjudication. In the WTO system, a Member can approach the DSS if it seeks “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…”[9] Further (and importantly), the Members are required not to make a unilateral determination to the effect that such “violation has occurred, that benefits have been nullified or impaired or that the attainment of any objective of the covered agreements has been impeded, except through recourse to dispute settlement in accordance with the rules and procedures of this Understanding…”[10] (emphasis added). In other words, Members are required to submit their WTO disputes to the WTO DSS.
But the US, as clear from the excerpts above, does not consider DS543 to be a WTO dispute. Why? Because it claims that the “matter” of the dispute is not covered by WTO disciplines. In its words, DS543 is “a bilateral dispute between the United States and China concerning key economic issues not covered by existing WTO rules. In short, this dispute is fundamentally not about WTO rights and obligations.”[11] (emphasis original) In the US’s view:
“A broader sense of the term “matter” would encompass the full situation: China’s aggressive industrial policies; China’s adoption of a range of unfair policies and practices aimed at stealing, coercing or otherwise unfairly acquiring key technologies of its trading partners; China’s unwillingness to address these legitimate concerns; and China’s unilateral retaliation on U.S. exports as a means to attempt to maintain its unfair policies in the face of U.S. efforts to address these longstanding problems...”[12]
Now, there are two main problems with this view-point.
First, according to WTO jurisprudence, the “matter” of a dispute comprises of the ‘measure at issue’, plus, the claims made by the complainant in support of a finding of violation/nullification of benefits. This specific view of “matter” runs contrary to the US's understanding of what the matter should be, and this view has been consistently upheld by the AB, from the 1998 ruling in Guatemala Cement – I (paras 70 – 73), to the very recent 2019 ruling in Ukraine – Ammonium Nitrate (para 7.15).[13] And this makes sense, since it is the complainant’s request for panel establishment that determines the ‘scope’ of the dispute.[14] So, it is actually China’s request for consultations – and more specifically, its claims of violations of GATT Arts. I and III (both wings of the non-discrimination principle) in its request for a panel – that determine whether the dispute is capable of resolution by the WTO or not. And on this point it bears note that nowhere in its FWS does the US contend that it did not act contrary to these provisions.
Second, as pointed out by the EU in its third party submission (TPS, para 17) - what the US is doing amounts to linking complaints and counter-complaints: something that is specifically prohibited by DSU Art. 3.10. What does this mean? Take the Mexico – Softdrinks case as an illustrative example. There, the jurisdiction of the WTO panel was sought to be avoided by invocation of the fact that a similar dispute was ongoing before a NAFTA panel. While the AB in that case stated that there may be instances where a panel’s jurisdiction could be voided on grounds of the existence of a “legal impediment” (the meaning of which it decided not to comment on),[15] the NAFTA dispute was in fact “distinct” (claims were not identical), and thus the WTO panel’s jurisdiction could not be avoided. In much the same way, simply because the US has reservations about Chinese actions, it cannot use that as a basis to prevent WTO adjudication of a distinct case brought by China. It is, of course, entitled to bring its own case against China for these improper actions (which it did with regards to technology licensing measures, in DS542). In this sense, the WTO panel’s jurisdiction is “compulsory and quasi-automatic”.[16] And as a last remark, keeping in mind that Art. 3.10 is also the cornerstone of good-faith in dispute settlement, the US’s behaviour might be at odds with the panel rulings stating that the provision disallows “inappropriate legal manoeuvers to avoid dispute settlement”.[17]
What’s the “solution”?
The other interesting issue that this situation produces is: what can be considered a “solution” under the DSU? It is well known (and well paraded by some) that even the DSU gives primacy to negotiated settlements to litigation. This is, to some extent, true: most WTO law aficionados are aware of the “clearly preferred” wording in DSU Art. 3.7. But what does the DSU actually say? Does it say what the US is implicitly arguing it does? Once again, to revisit the US positions – it claims that the dispute has been settled between the US and China,[18] and that “what is settled between the parties is that both parties have determined to act in accordance with their own sovereign interests, and that this matter does not involve any live issues regarding the interpretation and application of the WTO Agreement”.[19]
First, these negotiated solutions have to be “mutually acceptable to the parties”.[20] Hence the phrase “mutually acceptable solutions” (MAS). There is no evidence that China subscribes to the US’s understanding of what a solution is, or that, in fact, the two parties have found such a “solution”.
Second, what can such a “solution” be, anyway? In order to avoid confusion it is useful to point out that the terms “solution”, “mutually agreed (or satisfactory) solution”, “settlement” or “resolution”[21] are used fairly synonymously in the DSU: for example Art. 12.7 says: “[w]here a settlement of the matter among the parties to the dispute has been found, the report of the panel shall be confined to a brief description of the case and to reporting that a solution has been reached”. (emphasis added)[22] That being said, if one would want to categorize, the word “solution” should be used when the underlying trade barrier itself is resolved in a multilateral, erga omnes fashion, whereas the word settlement points more towards a bilateral, inter partes resolution of the dispute.[23] Alternatively, one could understand “solution” to be the permanent state of legal peace, whereas a “settlement” would be a temporary ceasefire en route to final resolution. In any case, for the dispute at hand, it seems hardly reasonable to state that an ongoing tariff war (slated to, come holiday season in December, be elevated to non-tariff retaliation) can be understood as either a “settlement” or a “solution”.
Finally, and more systemically speaking, any such MAS has to be “consistent with [WTO] agreements and [shall] not nullify or impair benefits accruing to any Member under those agreements, nor impede the attainment of any objective of those agreements”.[24] It need not be stated that a trade/tariff war is incompatible with this requirement. As such, the propensity of such MAS resulting in a WTO-minus result is well known: the aforementioned US – Upland Cotton is a glaring example. But this goes mostly unaddressed. Could more law be the solution? Could the Membership challenge such a WTO-minus solution in the WTO DSS to ensure compliance with WTO law? One of the main obstacles for such a challenge would be the definition of a measure at issue (“MAI”) under WTO law. The AB’s take in US-Corrosion Resistant Steel Sunset Review, namely that “in principle, any act or omission attributable to a WTO Member can be a measure of that Member for purposes of dispute settlement proceedings” [25], gives us food for thought: could a MAS, as such, be attributable to a WTO Member, or does the mentioning of “a” WTO Member in the AB definition of an MAI precisely imply that bilateral acts as a MAS fall outside its scope? If the latter is true, would the domestic (US/Chinese) acts implementing the MAS fit within the definition of a MAI? Could the US and China be impleaded as “joint respondents” in the DSS? Would such a tactic allow a challenge of the MAS as such, or would tackling the domestic implementing acts still be only the way to go? [26] These are all relevant and important questions for the WTO Membership, as well as academia, to consider. Given space constraints, we will explore these further in a follow-up post soon.
Consequences and conclusion
In conclusion, we would like to draw attention to geopolitics, and the other big player in this dispute – the EU – a player that is no stranger to unilateralism. The outcome of DS543, as pointed by Prof. Busch, is particularly relevant at a time when the incoming EU trade commissioner, Phil Hogan, is told by president-elect Ursula von der Leyen to “upgrad[e] the EU’s Enforcement Regulation to allow [them] to use sanctions when others adopt illegal measures and simultaneously block the WTO dispute settlement process” and to “gear up” for retaliation against the US (especially after the recent Boeing/Airbus retaliation rulings by the WTO).[27] Now while the EU is currently making more sense than the US, its own position on unilateralism was visible in the EC – Commercial Vessels case where it creatively argued in favour of working around the WTO DSS in certain cases. Thus the EU’s stand against the US has a bit of a “glass houses” problem. Further, this dispute will be closely watched by other countries, who may use the precedent as a ‘DIY-unilateralism’ guidebook. This is particularly problematic when the DSS is anyway reeling from an onslaught of ‘national security’ cases. Thus, an unwise decision by the WTO judiciary (or a failure to settle this dispute by the US) can lead to an arm’s race to the bottom, eventually leading to a 1930s kind of situation where retaliation and counter-retaliation become the new normal and the global economy plunges down the sink. In the words of Prof. Busch: “DSU Art. 23 is precious, and the global economy is fragile”.
Overall, the message emanating from the US FWS is that some issues are only going to be resolved through bilateral negotiation rather than multilateral adjudication. This is not a question of degree of effectiveness for the US: it seems that in its view certain issues cannot be resolved through adjudication. And while innovative unilateralism is being countered, to some extent, by innovative multilateral solutions (EU-Canada and EU –Norway interim AB solutions), the US FWS in DS 543 – as contrary to law and logic as it may be – is in line with what seems to be the US’s general position on trade dispute resolution: a desire to move backwards in time, to the GATT-era, where power politics, and not the law, determined who won, who lost, and to whom belonged the spoils of (trade) war.
***
* Marie S. Curie Fellow and PhD Candidate at the Leuven Centre for Global Governance Studies (GGS), KU Leuven. The author is a part of the Horizon 2020 ETN project, ‘Global India’.
** Blue Book Trainee, DG Trade, European Commission; LL.B. LL.M (KU Leuven). The views expressed are those of the author and do not reflect an official position of the European Commission.
[1] See, for example, US submissions in DS564: https://ustr.gov/sites/default/files/enforcement/DS/US.Sub1.%28DS564%29.fin.%28public%29.pdf; DS556: https://ustr.gov/sites/default/files/enforcement/DS/US.Sub1.%28DS556%29.fin.%28public%29.pdf etc.
[2] Nicolas Lamp, How Should We Think about the Winners and Losers from Globalization? Three Narratives and Their Implications for the Redesign of International Economic Agreements, Queen’s University Legal Research Paper No. 2018-102: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3290590.
[3] Request for the Establishment of a Panel by China, United States - Tariff Measures on Certain Goods from China, WT/DS543/7, 7 December 2018.
[4] https://ielp.worldtradelaw.net/2019/09/us-china-tariff-war-a-lesson-about-wto-law.html
[5] https://soundcloud.com/user-885686084/ep-29-unilateralism
[6] US FWS, para 10.
[7] US FWS, para 9.
[8] US FWS para 60.
[9] DSU Art. 23.1.
[10] DSU Art. 23.2 (a).
[11] US FWS, para 3.
[12] USFWS para 45; in the preceding para the US specifically rejects a more “narrow” view.
[13] See also panel report in Korea – Pneumatic Valves, para 7.19.
[14] See AB reports in Argentina – Import Measures, para 5.11, US – Carbon Steel, para 124, and US – Countervailing Measures (China), para 4.6.
[15] AB report, Mexico – Softdrinks, para 54. See also, panel report, Mexico – Softdrinks, paras 7.15 and 8.232.
[16] Gabrielle Marceau, The Primacy of the WTO Dispute Settlement System, Questions of International Law (2015).
[17] See panel reports in US – Upland Cotton (para 7.67) and EC – Fastners (China) (footnote 205).
[18] US FWS para 6.
[19] US FWS para 61.
[20] DSU Art. 3.7.
[21] Ibid., §10.
[22] See e.g. the text of Art. 12.7 DSU: Where a settlement of the matter among the parties to the dispute has been found, the report of the panel shall be confined to a brief description of the case and to reporting that a solution has been reached.
[23] This matter is rooted in the broader question surrounding the underlying purpose of WTO dispute settlement, in the words of John H. Jackson: ‘“what should be the fundamental objective of the [multilateral trading] system – to solve the instant dispute (by conciliation, obfuscation, power-threats, or otherwise), or to promote certain longer term systemic goals such as predictability and stability of interpretations of treaty text?” (John H. Jackson “Dispute Settlement and the WTO: Emerging Problems”, JIEL 1998, 331).
[24] DSU Art. 3.5.
[25] Appellate Body Report, US – Corrosion-Resistant Steel Sunset Review, §81.
[26] For further inspiration on how the US or China might defend themselves against a challenge of the MAS as such, see Turkey’s (in those circumstances unsuccessful) arguments in the Turkey-Textiles case, where it claimed Turkey and EC they could not be held individually accountable for acts collectively taken (Panel Report, Turkey-Textiles, §9.33).
[27] Mission letter from Ms. Van Der Leyen to Mr. Hogan, page 5, https://ec.europa.eu/commission/sites/beta-political/files/mission-letter-phil-hogan-2019_en.pdf
