US, rule based WTO and Cloves Cigarettes Case

A considerable amount of debate surrounding the next steps US would take to comply with the AB decision in the Clove Cigarettes case at the WTO has been generated in the IELP Blog. Differing views and stand points do exist. 

I came across this essay by Rachel Brewster from Harvard Law School as to why the US agreed to a rule based WTO rather than a power based one and I try to place its relevance in the ongoing debate of compliance in the Cloves Cigarette case. While arguing that the US' acceptance of a rule based WTO dispute resolution system was prompted by domestic power equations,  (President's bargaining position vis a vis the Legislature) the essay gives instances of US domestic legislation being amended pursuant to WTO DSM decisions which I find relevant to the Clove Cigarettes debate:

"In the time since the passage of the WTO agreement, the United States has changed its domestic law to comply with international rulings. Most notably, the United States altered its tax system regarding export subsidies. The European Union (“EU”) had long claimed that the United States gave its exporters special breaks by exempting from income tax large portions of overseas sales. The United States maintained that it was simply leveling the playing field between exporters because European nations used a territorial tax system that had a similar effect.

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After the WTO system was in place, the European Union de-cided to bring the case again. In 2000, the appellate body affirmed a panel judgment for the EU, and a panel later authorized the Europeans to impose $4 billion in sanctions.This time the U.S. bargaining position was different because the United States could neither block the panel report nor threaten counter-retaliation. Exporters, who were likely to be hit by the sanctions, viewed the threat of sanctions as credible and responded accordingly. Companies as diverse as Motorola, International Paper, General Electric, and Pepsi started lobbying campaigns in response to the threat.

The Treasury Department put forward a proposal to change the tax code, but Congress was slow to act until the EU began applying sanctions in March 2004. The EU started gradually, applying five percent tariffs on several goods at first and then raising tariffs an additional one percent each month. Legislators acted relatively quickly after the sanctions were applied, passing the new exporter tax bill in October 2004.The EU lifted the sanctions in January 2005, although they continue to contest aspects of the new legislation, which provide temporary tax breaks for certain exporters.

In response to the WTO’s ruling, legislators also have recently repealed the Byrd Amendment, which awarded cash to domestic firms that brought complaints against importers. Congress was reluctant to alter the measure, but the recent threat of sanctions spurred action. The WTO panel authorized several contracting parties, including the EU and Japan, to impose $150 million in sanctions. The EU and Canada started applying sanctions in May 2005, while Japan and Mexico did likewise in August 2005. In February 2006, Congress repealed the measure in a budget reconciliation bill but phased out the Byrd Amendment’s awards to importers over two years.

Even when complaining states have the right to sanction, we should expect that parties will often settle for something less than full compliance with the expected legal ruling. As Professor An-drew Guzman notes, enforcement of the decision can be difficult and costly. Sanctions are a “double-edged sword,” injuring businesses in both the sanctioned and sanctioning states.Thus, governments generally want to reach a settlement rather than impose sanctions for non-compliance with panel decisions. Furthermore, the level of sanctions authorized by the WTO may be insufficient to convince legislators to repeal the offending provision entirely. The WTO system will not keep members of Congress from violating multilateral trade agreements, but it increases the costs of such violations."

In the Clove Cigarettes Case, would the US amend the legislation banning flavoured cigarettes? On the contrary is the threat of sanctions and compensation in this case so insignificant that it would continue to maintain the ban and let Indonesia go ahead with the sanctions? Would the US strive for a settlement or are economic interests not so critically effected to do so? Is there a reputational risk of non-compliance that the US would be worried about? Would it dent its image of a country that abides by international trade rules irrespective of whether it is in its favour? Could it's legitimacy in seeking enforcement against other countries violating trade rules be dented by its own non-compliance?