[PEN-L:30401] more on the wto/fsc fallout

["Ian Murray" <seamus2001@xxxxxxxxx>]

[from a WTO listserve I'm on. About two thirds of the way down, a couple of
interesting comments.....]

From:  Rob Howse <rhowse@xxxx>
Date:  Mon Sep 16, 2002  2:06 am
Subject:  FSC retaliation ruling



I would like to share with the group and see if there is any reaction to the
op-ed below which appeared on the financial times web version last week

Trade disputes require fairer arbitration By Susan Esserman and Robert Howse
FT.com site; Sep 12, 2002

When it comes to settling sensitive trade disputes, it is worth taking a prudent
approach. That may seem an obvious point, particularly when controversial points
of law are involved and billions of dollars worth of potential sanctions are at
stake.
And yet it is a point that seems to have been wholly lost in a recent ruling by
the World Trade Organisation panel: last month, a WTO panel threw caution to the
wind and authorised the European Union to impose the biggest trade sanctions in
WTO history against the US for the way it taxes the offshore earnings of its
multinational companies.

In giving the green light to the EU's request for $4bn in sanctions, the WTO
panel disregarded both WTO and international law precedent. Indeed, the idea
that retaliation should be in proportion to the harm done to the state that is
taking the countermeasures is a basic notion of international law.

The negotiating history of the very subsidy provisions at issue in this case
reflect an intent by the drafters to apply proportionality. Thus, the US argued
to the panel that retaliation must not be out of line with the damage done to
European trade interests. But the arbitrators ignored these precedents and opted
instead to assess punitive sanctions.

Why did the arbitrators settle on $4bn? In part, they said, because the EU asked
for it, and the US was unable to provide a cut-and-dried argument for a
different amount. True, it is not easy to put into numbers the exact damage done
to European trade interests; but that hardly justifies throwing out the basic
idea of proportionality to harm done. It is like a domestic court awarding a
personal injury plaintiff whatever damages they ask for, because the defendant
cannot delineate the exact formula for estimating the value of a human life
lost. In WTO law, as in most civil justice systems, it is the complainant - not
the defendant - who must bear the burden of proof. The panel managed to confuse
even this well-established and obvious axiom of the law.

The panel decided on the $4bn figure because it represented the cost to the US
Treasury in revenues forgone of the subsidy that was deemed to be inconsistent
with WTO rules. But how much it costs a country to violate international law is
irrelevant to the level of retaliation that is legally justified. This is as
arbitrary and silly as would be countermeasures against Saddam Hussein, based on
the amount he happened to have spent in the development of weapons of mass
destruction.

These are mere errors of law, however outrageous. But the panel went even
further. The arbitrators exceeded their jurisdiction by arrogating the role of
providing sanctions on behalf of the entire WTO membership and trying to justify
the extraordinary $4bn figure in those terms. Here the arbitrators far exceeded
any authority granted under WTO treaties and made themselves into a global
enforcer.

WTO panels have no jurisdiction to impose global enforcement measures - they can
merely arbitrate the claims of individual WTO members to redress their own
grievances, permitting countermeasures where allowed under the law. By giving
the go-ahead to a stunning amount of retaliation, the WTO panel thought it could
put the EU in the position of avenger on behalf of the entire WTO membership.
This, in spite of the fact that the other, non-EU countries were not even
complainants in the dispute.

This ruling casts a dark shadow over the WTO dispute settlement system. But the
answer is not for the US to walk away from its WTO obligations. Instead, the US
should insist that the system be fixed. The current negotiations on
dispute-settlement reform in Geneva provide a crucial opportunity to address
these matters.

First, the rules should be amended to permit appeals against retaliation
rulings. The Appellate Body, which has often called panels to account for not
applying international law, would have corrected the findings in this case.

Second, something must be done about the ad hoc way that members of such
arbitral panels are chosen, given the high stakes involved. Here, two of the
panellists apparently had no legal training. A third had recently published an
article on another EU-US trade dispute, taking the EU side on every point, and
even characterising the US as a repeat offender when it comes to breaking WTO
rules; to say the least, this raises questions about the appearance of
impartiality. With so much at stake, far better choices could and should have
been made.

In the future, there is a need to appoint a professional corps of panellists
whose nominations are subject to public scrutiny and whose conduct can be
governed by clear rules of ethics, including conflicts of interest.

But, as these suggestions show, if the will for change is there, bad decisions
such as last week's ruling need not threaten the WTO. Instead, they could lead
to reforms that would materially improve the WTO system.

Susan Esserman is a partner at Steptoe & Johnson, and is a former deputy US
trade representative.
Robert Howse is a professor of law at the University of Michigan Law School