6:56 AM Dec 7, 1994
RULE-BASED SYSTEM - HOPE AND REALITYGeneva 6 Dec (Chakravarthi Raghavan) -- Senior officials of the Uruguay Round participating countries when they meet Thursday at the implementation conference to set the 1 January date for startup of the WTO, they will be doing so with more assertions of WTO's rule-based system. A rule-based system implies clear rules of the game, a multilateral machinery for settling disputes between members, with rulings and recommendations ensured of automatic acceptance by the WTO members, the assumption that Parties would accept and carry them out, and failing that negotiate compensation with complainants. The oft-repeated assertions of the WTO's rule-based system have from the outset been based on the hope that the majors, in particular the US, would show good faith in implementation, give up any unilateralism and abide by the rules (and their multilateral interpretation). In hailing the US Congressional votes on the WTO, GATT Director-General Peter Sutherland, had said on 2 Dec. that it showed the US commitment to the multilateral process and that the largest benefit of the WTO would be the emergence of a clear and secure multilateral system, "a rule-based system which provides assurances of trade security". But the US implementing legislation puts others on notice that the US plans to function in this 'rule-based' system -- using all the instruments of 'power' to gain maximum advantage. The US Uruguay Round Agreements Act has annexed to it a Statement of Administrative Action -- which was sent up to the Congress by President Clinton along with the implementation bill -- which says that it is to be viewed as representing "an authoritative expression" of the Administration views regarding the interpretation and application of the Uruguay Round agreements, both for purposes of US international obligations and domestic law and that "it is the expectation of the Congress that future Administrations will observe and apply the interpretations and commitments set out in this Statement" "Moreover, since this Statement will be approved by the Congress at the time it implements the Uruguay Round agreements, the interpretation of those agreements included in this Statement carry particular authority," it says. Section 102 of the Act provides that no provision of the Agreements, nor its application to any persons or circumstances, inconsistent with US law shall have effect nor can any provisions of the Act be construed as amending or modifying any US law relating to protection of human, animal or plant life or health; protection of the environment; worker safety; or limit any authority under any US law including S.301 of the Trade Act of 1974, unless specifically provided for in the UR Implementation Act. The statement of administrative action -- annexed to the bill and approved by the Congress -- S. 101 (a) of the Act says "shall be regarded as an authoritative expression by the United States concerning the interpretation and application of the Uruguay Round Agreements and this Act in any judicial proceeding in which a question arises concerning such interpretation or application." It also precludes any private right of action or remedy - including action or remedy sought by a foreign government - against a federal, state or local government or a private party, based on the provision of the Uruguay Round agreement. The statement of administrative action says that where the US federal government institutes an action against a state (to require compliance with the federal law in this area), it will not seek to introduce into evidence in federal court any WTO panel or appellate body report with regard to the state measure at issue. It would base any such proceeding on the basis of the relevant UR agreement -- not a panel report, and the court would consider the matter de novo. "Though the court could take judicial notice of the panel or Appellate body report and consider the views of the panel if the court considered them to be persuasive, the panel reports are not to be considered binding or otherwise accorded deference," it says. In any such proceeding, the US government would have the burden of proof and the court is to reach its own independent interpretation of the relevant provisions in the light of the agreements negotiating and legislative history, including administrative statement which the Court is to regard as an authoritative expression of US views concerning interpretation and application of the UR agreements. On some agreements, the meaning and interpretations provided in the Statement, appear to incorporate views that the US negotiators sought but failed to get included in the relevant agreements -- such as on the WTO and its DSU, Textiles and Clothing, Subsidies, Anti-dumping, BOP understanding, TRIPs etc. In strict international law, these US views have no effect. The WTO agreements admit of no reservations and only the WTO members, acting jointly, can provide any authoritative interpretation. But law is one thing, and the way power operates inside the system is quite another. In setting out its own "authoritative interpretation", the US has served notice that if the WTO panels and appellate body give a ruling against the US (going against US understandings), the US administration or Congress may not accept it, leaving the other party the option of getting some compensation or retaliating against the US. This is apart from the provision in the Act for the US Congress to review every five years the continued US participation in the WTO and the provision to end US membership by Congress adopting joint resolutions, which if vetoed by the President could be overridden by both Houses. It is also apart from the socalled 'Dole clause' -- the understanding between President Clinton and Republican Senate Leader Bob Dole. According to Washington media reports, this provides for the establishment of a Special Commission of five retired US appeals court judges to review all WTO rulings against the US and determine if they were "arbitrary, exceeded WTO's mandate or involved misconduct by WTO judges", and trigger any Congressional action for withdrawal from WTO or renegotiate the DSU process in the WTO. While Sutherland at his press conference shrugged this off -- "everyone can leave the WTO, just as they could have left the GATT; what domestic arrangements any country has for this is an internal matter" -- the US is a linchpin of the WTO and what it does or intends affects everyone. The US implementing act and the administrative action statement set out that in the event of an adverse WTO panel or Appellate body report relating to Safeguards, Anti-dumping or Subsidies and counter-vailing measures, the USTR will get the views of the Commerce department and the International Trade Commission (ITC) and, after consulting the relevant Congressional Committees, may ask the agencies to make a new determination not inconsistent with the WTO ruling, but only if the action would be consistent with the US law. If the US law is inconsistent, the administration would have to ask Congress to enact the legislation to remove the conflict. In relation to the US S.301 family of laws, the administration statement says that the US would be able to use S.301 to address unfair trade practices, ensure that multilateral rules are observed when a panel finds another countries is not living up to its trade obligations. But in disputes not covered by the Uruguay Round rules or disciplines, the UR agreements "make no change in US rights to use S.301", it says. The Administration, it adds, intends "to expand the focus of possible action under S.301 to areas not within the scope of US obligations under the Uruguay Round Agreements". The legislation amends the definition of an 'unreasonable act, policy or practice' for purposes of S.301 and clarifies that USTR "may determine a country is denying adequate and effective protection of intellectual property rights" even if the country is in compliance with the TRIPs Agreement. Denial of non-discriminatory market access opportunities for US persons relying on IPR protection is added to the definition of "unreasonable act, policy or practice". Such practice is also to include foreign government toleration of "systematic anti-competitive activities" as applied to state-owned enterprises as well as private firms, denial of fair and equitable market access opportunities for US services as well as goods and anti-competitive practices that restrict the sale of US goods or services to a foreign market, not just to foreign firms that engage in such practices. "The purpose of this amendment is to ensure that section 301 can be used to address the full range of anticompetitive practices that may be burdening or restricting US commerce," the statement says. The definition of 'adequate and effective protection of intellectual property' in the current S.301 has been expanded to cover what is described as a "broader range" of IPRs. The definition of "denial of fair and equitable non-discriminatory market access opportunities" that could trigger a S.301 action, sets out that access may be denied through restrictions related to use, exploitation or enjoyment of commercial benefits derived from exercising IPRs and will enable the USTR to scrutinise foreign government restrictions on commercial activities relating to IPRs to determine if the restrictions discriminate or are otherwise unfair or inequitable. Reports of dispute settlement panels and appellate body, the Statement stresses, have no binding effect on US law and are not an expression of US foreign or trade policy, and thus no different than of panels reports under GATT since 1947. Only Congress can decide whether or not to change US law to comply. Neither federal agencies nor state governments are bound by any findings or recommendations of the panel reports and these last don't provide any authority for federal agencies to change regulations or procedures or refuse to enforce particular laws or regulations. In normal circumstances, if a panel report finds US law or practice to be inconsistent with the UR agreement, the US will agree with the other party to the dispute on a resolution of the dispute in conformity with the panel or Appellate body recommendations. Where this involves state or US regulations, this would be done in consultation and coordination with the state concerned. The statement notes that the DSU itself recognizes that it might not possible for a government to agree to removal of a measure found by a panel to be inconsistent with a UR agreement, and provides for alternative resolution including provision of trade compensation and other negotiated settlement or suspension of benefits equivalent to the nullification or impairment of benefits. The administration, it says, intends to use S.301 to pursue vigorously foreign unfair trade barriers violating US rights or deny benefits under the UR agreements, and pursue foreign unfair trade barriers not covered by them. Where a S.301 investigation involves a violation of the UR agreement, the USTR will invoke the DSU procedures, base any determination of violation under the relevant panel or appellate body rulings, allow the offending party thereafter a reasonable time to implement the recommendations and, if the matter cannot be resolved, seek authority to retaliate. "Neither section 301 nor the DSU," the Statement says, "will require the USTR to invoke DSU dispute settlement procedures if the USTR does not consider that a matter involves a Uruguay Round agreement. S.301 will remain fully available to address unfair practices that do not violate US rights or deny US benefits under the UR agreements and, as in the past, such investigations will not involve recourse to multilateral dispute settlement procedures". The Statement asserts in this regard that the UR agreements do not address government measures encouraging or tolerating private anticompetitive practices (including reciprocal dealing, exclusivity or tying arrangements) and S.301 would be fully available to challenge such failures. "Section 301 will also remain available to address persistent patterns of conduct by foreign governments that deny basic worker rights and burden or restrict US commerce." "Moreover, the mere fact that the UR agreements treat a particular subject matter -- such as intellectual property rights -- does not mean that the Trade Representative must initiate DSU proceedings in every S.301 investigation involving the subject matter. In the event that the actions of the foreign government in question fall outside the disciplines of those agreements, the S.301 investigation would proceed without recourse to DSU procedures." Where the foreign government practices involve actions, some covered by the UR agreements and others outside, the Administration (in S.301 investigations) would continue the current practice of initiating dispute settlement proceedings in actions falling within the agreement, and addressing others through bilateral negotiations. "There is no basis", the Statement says for the assertion that the Uruguay Round agreements would make future Administrations more reluctant to apply S.301 sanctions inconsistent with the US trade obligations since it would engender DSU-authorized counter-retaliation. "Although in specific cases the US has expressed its intention to address an unfair foreign practice by taking action under S.301 that has not been authorized by the GATT, the US has done so infrequently. In certain cases, the US has taken such action because a foreign government has blocked adoption of a panel report. "Just as the US may now choose to take S. 301 actions that are not GATT-authorized, governments that are the subject of such actions may choose to respond in kind," the Statement notes, adding: "This situation will not change under the Uruguay Round agreements. The risk of counter-retaliation under the GATT has not prevented the US from taking action in connection with such matters as semiconductors, pharmaceuticals, beer and hormone-treated beef." In textiles and clothing area, during the negotiations, the US had sought from countries like India and Pakistan "improved market access" to US exports by binding their tariffs at 35% on apparel, 30% for fabric and made-up products, 15% for yarns and 7.5% for fibres, and by eliminating non-tariff barriers within three years of WTO entry into force. While India and Pakistan responded with some tariff cut offers on some product lines, they balked at the full range of US demands. Thereupon the US had sought a change in the draft Dunkel text to enable it to deny the quota liberalization and integration benefits, until the end of the 10-year transition term, to those the US considers were not giving improved market access. A compromise, described at that time as a 'cosmetic change', was made to the draft in Art. 7.1 of that draft to change "shall provide improved access to markets" into "shall achieve improved access to markets". The Statement of Administrative action now sets out what the US had demanded in the market access negotiations in this area and says that it will take all appropriate measures to obtain market access commitments from any signatory to the WTO that is a significant exporter to the US. If the USTR finds adequate access has not been provided, the measures to be taken will include: * decision to direct US customs permanently to deny entry to any shipments of non-integrated products if such shipments are in excess of the quantitative limits for such products from the country (i.e. deny the application of flexibility criteria in such matters); * use of DSU mechanisms of WTO to deny increased quota growth rates, * review of GSP status for the exporting country, * initiating S.302 investigations under US trade law for failing to provide effective market access for US textiles or apparel products, and * decision not to integrate until end of the 10-year transition period products of high priority for textile or apparel exports by countries failing to provide effective access to their markets. While TRIPs Agreement provides for transition periods of 5 to 10 years, the Statement views as "overly long" the transition periods provided for developing countries and the transition economies and says the US will seek to obtain the agreement of its trading partners for implementing the TRIPs substantive intellectual property standards and enforcement provisions in an accelerated manner, notwithstanding the transition periods in paragraphs 2 to four of Art 65 and 66. For assessing whether a country is providing "adequate and effective" IPR protection, the USTR will consider whether the country has implemented the TRIPs agreement's IPR standards and enforcement provisions. It will also continue to pursue improved protection in the WTO and the WIPO. The statement also says that under TRIPs (Art. 27.3.b), in the US interpretation, the sui generis system adopted by a country for plant varieties must be consistent with UPOV. At the time of the review of this provision, four years after WTO, the administration will seek improved patent protection for plants and animals. In an interpretation attached to the biodiversity convention, the US has said that in its view adequate IPR protection envisaged must mean compliance with the UPOV 1991. In financial services, the executive statement refers to the MFN exemption recorded by it in Dec 1993 in certain financial service sectors (including banking, securities and diversified financial services) and its intent to take an MFN exemption in the insurance sector and says: At the end of the six-month period, if the US has not achieved the objectives set forth in section 135 of the implementation bill for banking, securities and diversified financial services, it will maintain an MFN exemption in these sectors. The US also reserves the right to modify its market access and national treatment commitments in these sectors to take account of those results. In addition, the US is prepared to apply an MFN exemption in the insurance sector and to modify its insurance commitments if these negotiations do not achieve the objectives set forth in section 135 of the bill. In maritime services, if the US is not satisfied with the results of the extended negotiations, it will take an MFN exemption for the maritime transport services sector and will make no commitments or undertake any other obligations regarding maritime transport services. On BOP, the Statement notes that the Understanding requires the BOP Committee to report its conclusions and any recommendations to the WTO General Council which may adopt specific recommendations, with the rights and obligations of the government in question being assessed in the light of those observations. It suggests that under the understanding WTO members are required to announce publicly, at the earliest possible date, time schedules for the removal of restrictive import measures for BOP purposes. If a government refuses to provide a time-table, it must provide a public justification for its refusal. "This requirement represents a significant improvement over the 1979 Declaration." The Statement's interpretation says that the General Council may recommend that by adhering to a proposed schedule for removal of BOP restrictions, a government will be deemed to be in compliance with the GATT 1994. "The clear implication is that by not adhering to the schedule, a government may not be in compliance with GATT 1994. The implementing legislation directs the President to seek establishment of a WTO working party to examine relationship of internationally recognized worker rights and trade. The objective of the working party are: to explore linkage between international trade and internationally recognized worker rights, taking into account differences in the level of development among countries; examine the effects on international trade of the systematic denial of such rights; consider ways to address such rights; and develop methods to coordinate the work program of the working party with the ILO. While the legislation spells out US objectives for continued negotiations on Financial Services, Basic telecommunication services and trade in civil aircraft, there is no mention about negotiations on Maritime services and on fourth mode of supply of services, movement of natural persons.