(By PANAGIOTIS DELIMATSIS)

1. The role of bilateral and regional agreements

This type of agreements has been largely used as supplementary means of interpretation within the meaning of Article 32 VCLT. In the majority of the cases, the WTO adjudicating bodies have only implicitly suggested as much.

In EC – Poultry, both the Panel and the Appellate Body decided to apply a bilateral agreement between the EC and Brazil, the Oilseeds Agreement, in order to determine the EC obligations under the WTO agreements vis-à-vis Brazil. According to the Appellate Body, this agreement could serve as a supplementary means of interpretation within the meaning of Article 32 VCLT. In the GATT years, the Arbitrator in EC – Article XXVIII clarified that such agreements are to be considered if the following criteria are met: (1) a close connection exists between the bilateral agreement and the GATT; (2) the Agreement is consistent with the GATT objectives; and (3) both signatories request recourse to the GATT arbitration procedures. In the WTO era, as demonstrated in EC – Poultry, the first criterion is of particular importance. In Turkey – Textiles, the Panel rejected Turkey’s argument that its bilateral customs union agreement with the EC obliged Turkey to act in a given manner. According to the Panel, ‘a bilateral agreement between two Members…does not alter the legal nature of the measures at issue or the applicability of the relevant GATT/WTO provisions.’ More recently, the Panel in Korea – Commercial Vessels used a bilateral agreement between the EC and Korea to elucidate several factual matters of the dispute.

The role of bilateral agreements has also been examined in relation to the right of initiating dispute settlement proceedings under the WTO. In Argentina – Poultry, the respondent contended that the Protocol of Olivos, agreed on under MERCOSUR, prevented Brazil from referring to the WTO a case which was already decided by a MERCOSUR Ad Hoc Arbitral Tribunal. Argentina’s arguments are interesting for our purposes. First, Argentina argued that Brazil’s decision to bring a case successively before different fora constitutes a conduct which contradicts the principle of good faith. Second, Argentina invoked the principle of estoppel, which provides that if one party has been induced to act in reliance on the assurances of another party in such a way that it would be prejudiced were the other party later to change its position, such a change in position is ‘estopped’, or else it is precluded. Third, in Argentina’s view, Article 31:3(c) is alternatively applicable, thereby requiring that the Panel be bound by earlier rulings within MERCOSUR relating to the measure at stake.

As to the first argument, the Panel referred to the ruling of the Appellate Body in US – Offset Act (Byrd Amendment) finding that absence of good faith is a valid argument in DSU proceedings, but applied a fairly narrow reading of it.

Regarding estoppel, the Panel in Argentina – Poultry did not rule on whether the principle applies or not, but agreed with a finding by an unadopted GATT panel report that estoppel cannot be invoked unless there is a ‘express, or in exceptional cases implied consent of the complaining parties’. In addition, a decisive background element in the decision of the Panel was that the Protocol of Olivos had not entered into force. The wording of the Panel in this respect seems to suggest that, had the Protocol entered into force, the outcome may have been different. In EC – Export Subsidies on Sugar, however, the Appellate Body failed to fully examine the proper concept of estoppel as determined by the ICJ case-law and, for all practical purposes, confirmed the essentially unlimited possibility for Members to bring an action before the WTO regardless of their conduct elsewhere. The Appellate Body did, however, point to the responsible behaviour that Articles 3:7 and 3:10 DSU require from Members.

Finally, with respect to Article 31:3(c) (which we will discuss in more detail below), the Panel, after referring to Article 3:2 DSU, noted that the rules of the VCLT are concerned with interpretation of the WTO Agreements and cannot be interpreted so as to require that a given WTO provision be applied in a particular way which would be in line, in this case, with the ruling delivered by the MERCOSUR tribunal.

Furthermore, in US – FSC, the US contended that footnote of the SCM Agreement required that the EU resort to alternative tax fora, including bilateral tax treaties before having recourse to the WTO dispute settlement. The Panel rejected argument by noting that, for this, a ‘clear and unambiguous basis for circumscribing the right to resort to WTO dispute settlement at any time’ would be necessary.

More recently, in Mexico – Soft Drinks, the US filed a complaint against a discriminatory tax on soft drinks imposed by Mexico. This measure was in essence a countermeasure that Mexico implemented due to the US unwillingness to agree on the establishment of a tribunal under NAFTA and in order to induce the US to comply with its NAFTA obligations. Mexico argued that the WTO did not have jurisdiction and thus called upon the WTO judiciary to decline jurisdiction in favour of the Chapter 20 Arbitral Panel under NAFTA. Mexico suggested that this complaint forms part of a broader dispute that arose under NAFTA and related to access of Mexican sugar to the US market under NAFTA. Nevertheless, the establishment of that Panel was persistently blocked by the US. Both the Panel and the Appellate Body rejected the Mexican claim. The Appellate Body confirmed that panels have the right to determine the existence (Kompetenz-Kompetenz) and the scope of their jurisdiction. The Appellate Body adopted a rather rigid, out-of-context stance which refers to the ‘comprehensive nature’ of Members’ right to resort the WTO dispute settlement system and the fact that Members are ‘entitled’ to a ruling by a Panel once their jurisdiction is established according to the relevant DSU provisions. Importantly, however, it left the door wide open for speculation when it denied expressing any views as to the possible existence of legal impediments (such as the Protocol of Olivos in Argentina – Poultry case) which preclude a WTO panel from hearing the case. Note that the Appellate Body, in footnote 86 of its report, referred to the Panel finding in Argentina – Poultry regarding the relevance of the entry into force of the relevant regional agreement. Does the Appellate Body’s discussion of this ruling imply that the WTO judiciary could decline jurisdiction in a case of a regional agreement incorporating a rule of mandatory choice of adjudicative forum such as article 2005.6 NAFTA? This possibility cannot be excluded at present.

Furthermore, in an obvious dictum contradicting previous case-law, the Appellate Body stated that the WTO judiciary cannot examine the consistency of the US actions with NAFTA due to the constraint that Article 3:2 DSU imposes. As it was correctly suggested, in this case the WTO judiciary would not determine the rights and obligations under NAFTA, but it would use its interpretation of NAFTA to determine the proper interpretation of the WTO obligations as applied to the parties to the dispute. The Appellate Body reports in US – Shrimp and in EC – Bananas III lend support to this view.

The second important issue that the WTO judiciary addressed in Mexico – Soft Drinks related to the interpretation of Article XX(d). More specifically, Mexico sought to justify its measure by arguing that it was necessary in order to secure the compliance of the US with its obligations under NAFTA. The Appellate Body found that this provision cannot be construed so as to encompass international countermeasures seeking to secure compliance of another WTO Member with its international obligations. Crucially, the Appellate Body emphasized that Mexico’s argument would lead to allow circumventing Articles XXIII:2 GATT and 22- 23 DSU. Indeed, Mexico’s assertion ‘would allow WTO Members to adopt WTO-inconsistent measures based upon a unilateral determination that another Member has breached its WTO obligations’. However, from this statement it would be erroneous in our view to draw a general conclusion that the WTO judiciary rejected the use of non-WTO law as a defence to justify an otherwise WTO-inconsistent state conduct.

Lastly, the India – Autos Panel discussed the legal relevance of bilateral mutually agreed solutions and their role on subsequent dispute settlement proceedings. India asserted that the mutually agreed solution between the parties should be interpreted as limiting the procedural rights of the EC. To determine the legal effect of such an agreement, the Panel went on to undertake a fairly thorough, but strictly textual analysis of the scope of this agreement to finally conclude that it did not regulate the same matter. This is yet another example of a norm-fragmenting technique that courts use to avoid (arguably, artificially) inter-institutional conflicts. We deal with this issue in the next section.

2. Decisions by regional international tribunals and res judicata

The proliferation of international tribunals makes procedural and substantive overlaps all the more likely, particularly because, as canvassed above, courts will rarely – if at all –recognize forum non-conveniens and thus refuse to hear a case. This is particularly so for those dispute settlement mechanisms created by the manifold PTAs that have emerged in recent years. In the presence of a valid legal basis referring to the relevant legal provision of a given PTA, the regional tribunal will not decline jurisdiction in favour of the WTO judiciary. Of course, the fact alone that regional and multilateral tribunals co-exist does not necessarily lead to fragmentation. As noted earlier, courts do appear to have created loose communicative channels, especially when the subject matter is similar. Thus regional tribunals embedded within preferential agreements whose telos is similar to the WTO will be inspired by the GATT/WTO case-law when interpreting the constitutional treaty of those agreements or accept a WTO obligation as providing justifications for violating PTA rules.

However, under certain circumstances, a multilateral forum may be considered as the most efficient solution from a global welfare perspective. From the viewpoint of procedural efficiency and expedited delivery of rulings the WTO also seems to have compelling advantages. Davey pinpoints the poor record of the NAFTA general dispute settlement system under Chapter 20 vis-à-vis the admitted success of the WTO, which is justified, so Davey, by the ‘questionable effectiveness’ of the NAFTA system. Cases such as Canada – Periodicals, Mexico – Soft Drinks, or the Softwood Lumber cases provide ample evidence of NAFTA weaknesses when it comes to dispute settlement.

From our previous discussion and in what follows it becomes clear that WTO Panels are not bound by rulings delivered by regional courts and will claim jurisdiction regardless of whether the essence of a given dispute was decided elsewhere. In other words, the principle ne bis in idem is not applicable in this context. This is so because, formally speaking, each tribunal will apply different legal provisions to the same facts. Quite inevitably, then, tribunals can reach conflicting verdicts while using similar facts.

US – Softwood Lumber is an illustrative case of the current situation, as it relates to an issue that was raised before both the WTO judiciary and the NAFTA dispute settlement proceedings leading to conflicting rulings. This is a long-lasting dispute between US and Canada, which culminated, in May 2002, to the imposition by the US of duties on imports of Canadian softwood lumber based on the argument that the US relevant industry was threatened with material injury due to dumped and subsidised imports of Canadian lumber. Similar facts were brought under both NAFTA and the WTO. Most strikingly, in 2005, whereas a WTO panel accepted the US finding that continued imports of Canadian lumber threaten to cause material injury to the US relevant industry, a NAFTA Chapter 19 panel had found unanimously against the US, and so did a NAFTA extraordinary Challenge Committee confirming the previous NAFTA panel’s ruling. In essence, whereas NAFTA panels that dealt with the relevant cases all ruled against the US antidumping and countervailing practices, some WTO panels ruled in favour (more recently, the US – Softwood Lumber VI (21.5 – Canada) Panel), thus creating a clash, which triggered discussions about the US commitment to NAFTA. In 2006, Canada and the US reached an agreement (the Softwood Lumber Agreement) in which the US pledged to return US$4 billion of the total US$5.3 billion. Canada in return would essentially control its softwood lumber exports to the US (if necessary, through an export tax). Interestingly, the Agreement provides that disputes are to be brought before the London Court of International Arbitration (LCIA), which is a private body. This development dramatically shows the limits of public international law.

According to Article 2005 NAFTA, a forum can be chosen at the discretion of the complainant. Preference is given to NAFTA proceedings in cases involving environmental, SPS, or standards-related measures. This provision further stipulates that, once procedures have been initiated at either forum, the forum selected must be used to the exclusion of the other. Did Canada or the US violate their NAFTA obligations by pursuing proceedings before both fora? The answer is thorny and relates to a concept that has been discussed in WTO proceedings, i.e. res judicata. For this concept to apply there should be established that the (1) parties; (2) subject matter; and (3) legal claims are identical. While the first and the second element may be met under certain circumstances, the third will most likely never be met when the overlapping proceedings take place in different fora. Even so, it is striking that no sign of taking cognisance of the other forum’s analysis is traceable.

A second issue that bears mention in this section of our analysis relates to the role of rulings by regional courts. In Brazil – Tyres, the dispute arose out of certain measures that adversely affected EC exports of retreaded tyres to Brazil. Brazil claimed that the measures were part and parcel of a comprehensive public policy to protect public health. However, imports of retreaded tyres from other MERCOSUR countries were exempted, after a ruling delivered by a MERCOSUR panel against Brazil (‘MERCOSUR exemption’). In seizing the issue, the Panel found that the MERCOSUR exemption meets the requirement of Article XX(b) to the extent that it does not result in import volumes of retreaded tyres which significantly undermined the achievement of Brazil’s public health objectives. Crucially, the Panel found that the MERCOSUR ruling was a reasonable basis to enact the MERCOSUR exemption with the implication that the ensuing discrimination was not arbitrary. In applying this effects test further, the Panel found that imports of used tyres through injunctions granted by Brazilian courts amounted to unjustifiable discrimination, as the volume of such imports significantly undermined the objective of the Brazilian import ban. The Appellate Body dismissed this quantitative test. The benchmark that the Appellate Body used to clarify the meaning of arbitrary or unjustifiable discrimination under the chapeau of Article XX GATT was focused on the cause or rationale given to justify the ostensibly discriminatory treatment. More specifically, the explanation given should bear a direct relationship to the objective of the import ban. However, neither the MERCOSUR exemption nor the court injunctions bear such relationship. On the contrary, they go against the objective that Brazil seemingly aims to pursue.160 A e contrario interpretation of this ruling would lead us to reasonably argue that the invocation of a non-WTO rule that is conducive to the pursuit of the domestic policy objective (e.g. protecting local biodiversity in accordance with relevant environmental treaties) would be acceptable as a justification within the limits of Article XX GATT.

The Appellate Body further appeared to consider as decisive the fact that, during the MERCOSUR arbitral proceedings, Brazil did not consider necessary to invoke Article 50(d) of the treaty of Montevideo, which is the corresponding provision of Article XX(b). Thus, the Appellate Body reached the conclusion that no actual conflict exists between the two legal texts. However, quid if Brazil had unsuccessfully raised the exception enshrined in Article 50(d)? Recall that in agreements other than the WTO, the corresponding two-tier test of Article XX GATT can be stricter. For instance, the European Court of Justice (ECJ) does not only examine the necessity of the measure, but also its proportionality. Had a measure been condemned on proportionality grounds, what would be the reaction of the WTO judiciary?

Lastly, in EC – Chicken Cuts, the Appellate Body shared the Panel’s view that ECJ judgments can be considered as supplementary means of interpretation under Article 32 VCLT. More specifically, it suggested that such judgements can be regarded as ‘circumstances of the conclusion’ of a treaty if they can assist in ascertaining the common intentions of the parties. It cautioned, however, that court rulings are, by their nature, more case-specific and thus may be less relevant than legislation of general application.

(Edited by: China West Lawyer)