Taking disputes to their logical end - Seeking retaliation in WTO disputes

This piece on "retaliation" in trade disputes in the WTO is found in the VoxEU. The piece talks about a pattern of how countries have sought compliance of WTO decisions. It also indicates the various types, strategies and means of seeking retaliation which includes cross retaliation to more commonly used retaliation methods.

"The purpose of this investigation was to identify key trends in the WTO dispute settlement system, in particular in the design of retaliation requests. Practice has demonstrated that additional effort is also put into the implementation of these measures once they are authorised. Nonetheless, the original retaliation request – the first opportunity for an offended member country to induce compensation or compliance – is an important tool, and analysing it helps understand countries’ behaviour and goals when pursuing WTO disputes."

It only shows that at times merely initiating a dispute and getting a decision is not the end of the game in WTO disputes. I had earlier blogged about cross retaliation here. Compliance and seeking retaliation is the next big battle.

Cross retaliation and dispute settlement

International economic law experts watch with keen anxiety the next steps Antigua would take to effectuate the cross-retaliation sanction it has received from the WTO in the  US- Online Gambling case at the WTO. 

This NYT opinion preferred a negotiated deal rather than the execution of cross-retaliation. Simon Lester suggests in this blogpost that Antigua should adopt a non-abusive, reasonable way of retaliation by putting works that have received excessive protection in the public domain. Scott Lincicome highlights the strong impact the threat of cross retaliation can have in the context of non-complied WTO disputes in this view.

While many conjecture on how Antigua would implement the cross-retaliation option (many also feel that it would ultimately lead to a negotiated settlement) Shamnad Basheer in this piece offers a tiered approach to cross retaliation essentially contending that cross-retaliation should be considered a mainstream retaliatory technique rather than a secondary one. Calling it the "Tiered IP suspension model" he proposes:

"Whilst the notion of IP “cross-retaliation” has been doing the rounds for a while, there is considerable uncertainty regarding how this concept will be operationalized and implemented. Developing countries urgently need to work out an optimal model that helps assess losses to the foreign IP owner in a reasonably objective way—this way there is no time lost between the procuring of a favorable order from the WTO sanctioning cross-retaliation and the actual cross- retaliation itself. The lack of a credible domestic model has no doubt caused Antigua’s threat of cross retaliation to be taken less seriously by the US. 

This paper seeks to fill this lacuna by proposing a tiered suspension mechanism as a viable option. That the model lacks technical precision in terms of computing losses to IP owners accurately is not fatal since the current WTO framework only requires a broadly objective model that does not reek of arbitrariness. Further, the aim of this paper is to evolve a model that will help in securing compliance or a settlement. Given that the IP lobbies in countries such as the US and the EU are powerful, the likelihood of a settlement or compliance is very strong. Particularly, since the model advocates an automatic compulsory license after the offending measures have been removed. In other words, the likelihood of a country having to operationalize the IP suspension model is very remote. Any infirmities in the model ought to be evaluated, bearing this over- arching assumption in the model. Further, the current WTO framework only requires that broad equivalence be achieved and not that the retaliating state compute the losses to suspended IP owners in a technically accurate manner."

While one would have to wait to see how Antigua takes it forward, it is clear that cross-retaliation has brought back into focus the issue of compliance under the dispute settlement process. Will it lead to enhanced compliance or more complex negotiated settlements?

Antigua, gambling and a dispute

The US-Gambling case (DS 285) more popularly known as the Antigua case makes for an interesting case study of a WTO dispute settlement case.Yet another Caribbean country taking on the US, very similar to the rum cases that I had blogged about here. While I am not going into the legal aspects of the GATS violations in this blog post (it basically related to the interpretation of commitments that the US had undertaken under the GATS), the case brings to the fore many aspects of the nature of the dispute settlement process itself. For a brief summary of the dispute see this synopsis here.The AB essentially held that US measures of totally prohibiting online betting and gambling services of Antigua were inconsistent with the obligations it had undertaken under GATS.

Some observations about the dispute:

1. Long standing dispute - The request for consultations by Antigua was made in 2003. It is 2013 and the dispute has not reached a final conclusion to the satisfaction of the complainant even after the AB had ruled in its favor in 2007. This raises the issue of the efficacy of the dispute settlement system to provide efficacious remedies in a time-bound manner.

2. Evidence of a rule-based system - The case has been heralded by some as evidence that both smaller and large trading countries have equal rights in the system. As mentioned by Antigua's lawyer here:

"With Antigua, it’s $21 million. Maybe with China it’s going to be U.S. $21 billion. One of the messages we want to get across is that the WTO was sold to smaller countries as a level playing field and a way for them to expand the reach of commerce, subject to a set of rules that apply to everybody. I think more than anything else, this case is about fairness. The WTO is supposed to be fair.”

This goes back to the point that the dispute settlement mechanism, which is considered as as the crown jewel of the the WTO system, is based on rules and not on power politics. Countries irrespective of their trading and geo-political strength can challenge larger, more powerful trading partners at the dispute settlement. However, the inability of Antigua to meaningfully implement the WTO decision raises questions about the fairness of the system. Of what use is a rule-based system if the complainant cannot implement a decision or bear the fruits of it. Is the threat of other sanctions or the reality of trade much more overbearing that a judicial decision?

3. Landmark GATS case - This case is also considered as one of the few (there are only 23 cases that cite the GATS Agreement out of the over 400 WTO cases) cases where the commitments under the GATS were scrutinized by the dispute settlement mechanism. With services trade gaining in importance, this percentage is definitely going to grow.

4. Cross-Retaliation - The WTO has authorized Antigua to retaliate against the U.S. due to the latter's failure to comply with the decision. Antigua has threatened to retaliate in another sector - intellectual property - by ignoring copyrights of US holders by selling material on a website.This is an interesting strategy of retaliating in a sector not a subject matter of the dispute (the case was about GATS commitments, but the retaliation is proposed under copyrights) but which is a very strongly guarded right in the US. Will this strategy be used by other countries in their disputes? What implications does the suspension of obligations under TRIPS have for the legal framework that protects these rights? Shamnad Basheer has this detailed study of how a cross-retaliation model can be used by developing countries to ensure compliance in WTO cases. The USTR seemed concerned at the prospect of a suspension of obligations under TRIPS:

"The United States is concerned, however, that the Arbitrator agreed with Antigua’s request to suspend WTO concessions not just with respect to services, but also with respect to intellectual property rights (IPR).  Any authorization pursuant to the award would be strictly limited to Antigua; every other WTO Member remains obliged to protect U.S. IPR under WTO rules, including enforcement against any IPR-infringing goods.  Moreover, even with respect to Antigua, it would establish a harmful precedent for a WTO Member to affirmatively authorize what would otherwise be considered acts of piracy, counterfeiting, or other forms of IPR infringement.  Furthermore, to do so would undermine Antigua’s claimed intentions of becoming a leader in legitimate electronic commerce, and would severely discourage foreign investment in the Antiguan economy."

The Gambling case is an interesting case reflecting the many challenges that the dispute settlement mechanism faces. It also brings us back to the question as to what constitutes "compliance" in a case, which the US claims to be undertaking. We faced that in the long drawn Airbus-Boeing subsidies case too.

Shamnad Basheer has a great blogpost on the dispute on SpicyIP here.

For a different take, see Eyes on Trade blogpost which believes that this is yet another example of trampling of US domestic policy space by the WTO (after Tuna safe dolphins, COOL decision and Clove Cigarettes case) and it also sees "tiny" countries used as pawns by business interests to take on the major markets.

"The delicious and tsunami-scale irony is that now Antigua (population 88,000 and GDP $1 billion) is being "borrowed" by gambling interests to cross-retaliate against the United States - by removing intellectual property rights from U.S. products in the first use of such a sanction. Except, wait, didn't Ralph Nader warn against just this scenario of some commercial interest finding a tiny country to attack U.S. public interest policies back when the WTO was being debated?"

Another classic case study for the international trade law books?

China and EU ETS - Time for action?

News of the EU ETS impact on the aviation sector is back again. With time for submitting data on emissions running out, the EU is preparing to initiate action for non-compliance. China, which has opposed the coverage of the aviation sector in the EU ETS, has issued a veiled threat of impounding EU airlines in China which has been reported here, here, here and here. A tit for tat?

We are seeing increasing instances of a tit for tat situation in world trade: the string of US China trade disputes, Spanish biodiesel Ministerial order in response to Argenitina's nationalisation of its biggest oil company which had a majority Spanish stake as well as India US trade tensions with respect to poultry restrictions and US visa fee hike issue.

Are we going to see more of these retaliatory domestic measures? What signal does this give to the multilateral dispute resolution system of the WTO? Is this an indication that domestic retaliatory measures are preferred as a negotiating tool rather than adjudicating a violation in the dispute settlement system? Does it indicate the real political economy of trade where decisions are not taken purely on the basis of international law but international politics? Signs of a compromise were reported here between ICAO and the EU regarding a globally accepted emission trading system. Will it ultimately be a retaliatory path or one of compromise, only time will tell.

The resistance to the EU ETS is not only from China. In the U.S. there are moves to enact a legislation that ensures non-compliance with the EU ETS for aviation. The Bill titled the "European Union Emissions Trading Scheme Prohibition Act of 2011"prohibits civilian aircraft of the U.S. from participating in the EU ETS scheme. Would it spark off a trade war between the U.S. and the EU? This provocative post in the Lenz Blog suggests that a trade war, after all, is good for the climate as there will be less flights landing and taking off!