TRANSITIONAL CO-EXISTENCE AT GATT?

5:51 AM Oct 28, 1994

TRANSITIONAL CO-EXISTENCE AT GATT?
Geneva 27 Oct (Chakravarthi Raghavan) -- The United States is now under pressure to revise its idea of withdrawing from the GATT 1947, simultaneously with its acceptance of and entry into force of the World Trade Organization and its GATT 1994, GATT sources have said.

Instead, the US is being asked to continue in GATT 1947 for a transition period so that countries who might be delayed in accepting the WTO are not left without any multilateral framework in trade.

The problem of transition, from GATT 1947 to the WTO, and arrangements for that, are under discussion in the WTO Preparatory Committee's Sub-committee on Institutional, Procedural and Legal Matters, which is chaired by Amb. Kesavapani of Singapore.

Reports from Washington suggest an element of uncertainty injected in recent days about Congressional approval of the WTO and adoption of the implementation legislation.

But at the GATT, everyone is proceeding on the basis that the US Congress will adopt the implementing legislation, at a lame-duck session (at end of November, after the biennial elections), and that the WTO Implementation Conference, due to meet on 8 December, can set 1 January 1995 as date for entry into force of WTO. It is also assumed that all the major trading nations will complete their own processes for accepting the WTO agreement before that date.

However, there are indications that apart from the least developed countries who have a two-year period, there may be others also who might not be ready by 1 January 1995.

Switzerland, the host country for the WTO, for example has indicated that it would not be able to complete its own processes by 1 January 1995 -- since a referendum has to be held to endorse it -- and that it may take a few months beyond that date.

In such a situation, if the US withdraws from GATT 1947 on 1 January 1995, some of its trading partners might have no multilateral framework governing their trade relations with the United States.

This is because the WTO and its GATT 1994 are treated as distinct and separate from the GATT 1947, and not as an amendment or a successor treaty. This was done in order to get around the problems of the need for unanimity in amending or replacing some of the GATT 1947 provisions, particularly those relating to the MFN provision.

But GATT 1994 is not a self-contained separate new treaty; it is an international agreement by reference GATT 1947 provisions and all subsequent decisions and understandings, as also new ones reached in the Uruguay Round. A number of Tokyo Round codes and agreements have been modified, amended and extensively rewritten or adapted and incorporated into the WTO in its Annex 1A -- Multilateral Agreement on Trade in Goods.

The WTO has no provisions relating to GATT 1947 and its status once the WTO comes into being; the issue is left to be governed by international law and specifically the Vienna Law of Treaties.

During last year's legal drafting exercise on WTO, a proposal for an automatic denunciation of the Tokyo Round agreements upon acceptance of the WTO -- got no support.

Under the protocol of provisional application of GATT 1947, and the Tokyo Round agreements, any party could withdraw after 60 days notice. Collectively, parties to GATT 1947 and of the Tokyo Round agreements could decide to terminate them -- as has been made by the parties to the Tokyo Round agreement on Bovine meat. The Uruguay Round Agriculture agreement and disciplines have a different approach than the 'market-sharing arrangements' of the Bovine meat agreement.

Under the Vienna Law of Treaties, a treaty would be considered to be terminated if all the parties to it conclude a subsequent treaty on the same subject matter.

As a result, when all the GATT 1947 cps, and signatories to the Tokyo Round codes, have joined the WTO, GATT 1947 and the codes would be considered to have been terminated.

The termination of a treaty would release parties to it from obligations arising out of that treaty, but would not affect rights and obligations created prior to termination nor affect relations between a party denouncing or withdrawing from a treaty and others governed by it in matters prior to the denunciation.

A collective decision to terminate would enable an orderly transition, including arrangements relating to it, while individual denunciations and withdrawals could add to legal problems, such as if the US chose to withdraw from GATT 1947 immediately with acceptance of WTO.

Art XIV of the WTO agreement provides a two-year period from its entry into force for its signature and acceptance by GATT 1947 contracting parties who have participated in the Uruguay Round and are otherwise eligible (who have filed schedules and which have been accepted and incorporated) to become original members.

Such members, who ratify and join after the entry into force though are required to implement their obligations with retrospective effect from date of entry into force.

This implies a period of two-years (which could be cut short by the Ministers of the WTO) during which there will be co-existence of both the GATT 1947 and WTO and its annexed agreements.

The GATT 1947, and its protocol of provisional application, as well as the Tokyo Round agreements, all provide for any contracting party to withdraw from it after 60 days notice.

In evolving the scheme for WTO -- where the major objective was to compel developing countries in GATT 1947 to sign on and accept all the WTO obligations -- the Quad members had envisaged that at some point, after allowing for transition, they would withdraw from GATT 1947.

This transitional co-existence, however short the period, of the two, has some problems that are being discussed by the WTO Prepcom's subcommittee on institutional and legal issues, chaired by Amb. Kesavapani of Singapore.

The issue, in a more limited way, is also before Tokyo Round Code Committee on anti-dumping.

After Marrakesh, in September, at a meeting of the Quad (Canada, EU, Japan and the United States) and subsequently at the WTO Preparatory Committee, the US let it be known that it would be giving notice and withdrawing from the GATT 1947 and its Tokyo Round code agreements simultaneously with its accession to and entry into force of the WTO.

Since then, the US has been under pressure not to be precipitate, but continue for a while its status as a contracting party to GATT 1947, in order to ensure that those countries who are unable to complete their domestic processes in time to accede to the WTO before entry into force are not left without any multilateral framework of trade relations visavis the United States.

One of the arguments of the US for its intention to simultaneously withdraw from the GATT 1947 has been the conflict of legal rights and obligations, and the problem of "free riders", namely those who have not joined the WTO on entry into force, but could claim the rights flowing from it visavis the US or any other WTO member in terms of Art 1 (MFN clause) of the GATT 1947.

Other trading partners of the US, while conceding some legal problems of the transition and co-existence, have not however shared the view of the US about the 'free rider' problem, since the late 'joiners' in any event would have to undertake retrospective obligations. And any problems of conflicting legal rights and obligations and dispute settlement, they say, could be handled by decisions of the GATT Council, the Committees and some voluntary disciplines of the membership.

At the meeting and consultations by Kesavapani group this week, the US would appear to have indicated that while it was its intention to withdraw from GATT 1947, simultaneously as its acceptance of WTO, there has been "no irreversible decision" to that effect in Washington.

Some GATT participants believe one of the motivations of the US relates to anti-dumping and counter-vail duty agreements of the Tokyo Round -- where the US has blocked adoption of a number of rulings (and the EU others). There is pressure in the committee for adoption of all rulings before the WTO entry into force. But several US firms, don't want this to happen.

The WTO's Dispute Settlement Understanding (DSU) -- with its provision for automatic acceptance of rulings -- applies only to disputes for which consultations are requested after entry into force of the WTO, while prior disputes are to be dealt with in accordance with the relevant dispute settlement rules and procedures in effect immediately prior to entry into force of the WTO.

Ministers at Marrakesh asked all relevant Councils and Committees (of GATT 1947 and Tokyo Round codes) to decide that "they shall remain in operation for purpose of dealing with any dispute for which the request for consultation was made before the date of entry into force of the WTO Agreement".

No such decision has so far been taken. But consultations are continuing in the relevant bodies. Once the GATT Council and the Committees decide this, some transition problems would be resolved.

But it is not very clear how far substantial and procedural rights and obligations of GATT 1947 and the Tokyo Round Agreements would remain unaffected by their termination. It is also not very clear what would happen, say in anti-dumping cases, where investigation began before WTO entry into force, but actual measures, counter-vailing duties, are taken after WTO entry into force.

However, there will still be other problems.

In the anti-dumping committee for example, there are problems relating to panel reports that have been adopted, but not yet implemented; unadopted panel rulings and reports; on-going disputes under the Tokyo Round code after WTO entry into force; and disputes raised after the WTO entry into force, but to which the rules of the WTO do not apply.

Quite a bundle of complications could arise in these cases.

Where a panel has recommended that one of the parties (against whom a complaint has been raised) bring its measures or legislation into line with provisions of the agreement, to the extent that say the US has withdrawn from it, the recommendation would not apply.

Where there are same or similar provisions in the WTO agreements, good faith would require the US to implement the recommendation.

The adopted recommendations of GATT 1947 panels, automatically are incorporated into GATT 1994 and the WTO, and thus may become an obligation in the new framework.

There are also cases where complainants in some Tokyo Round agreements have sought retroactive application -- such as refund of countervailing duties.

If there is co-existence, and there is goodwill, these and other problems can be sorted out by the GATT 1947 Council, and the Tokyo Round agreement Committees that, the Marrakesh ministerial decision, requires to be continued.