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(c) Distinction between mandatory legislation and discretionary legislation5.186 Hong Kong, China recalls that in the US � Superfund573 case, the panel report stated that mandatory, as opposed to discretionary, national legislation can form the subject matter of a claim brought before the GATT independently of its application in a particular case. In particular, the panel stated that:
5.187 Hong Kong, China argues that the language of the cited sub-Sections of the Trade Act of 1974 makes it plain that the legislation in question is mandatory. Consequently, following the Superfund ruling, the sub-Sections can be proclaimed illegal as such, independently of any practice or enforcement of the legislation. 5.188 Hong Kong, China points out that the United States argued that nothing in its legislation mandates actions inconsistent with its WTO obligations. Hong Kong, China submits that even when legislation is not mandatory and simply allows WTO-inconsistent action to be taken, it should still be found to be WTO-inconsistent. Our argument is based on, in our view, an appropriate interpretation of the "good faith" principle enshrined in the VCLT. 5.189 Hong Kong, China notes that Article 26 of the VCLT states that :"(E)very treaty in force is binding upon the parties to it and must be performed by them in good faith". This means that, where domestic legislation is needed in accordance with domestic constitutional procedures in order to implement international obligations, such domestic legislation must be a good faith implementation of the international obligations assumed by the signatory. 5.190 Hong Kong, China argues that in the WTO regime, Article XVI:4 of the WTO Agreement requires Members to "ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed Agreements". Parties to an international regime should always honour their obligations as long as they remain parties to the said regime. This obligation stems unequivocally from Article 70 of VCLT. The question is consequently raised as to how international obligations can be implemented in good faith if the possibility of deviation exists in a domestic legislation. In the view of Hong Kong, China, there is no expectation that the international obligations will be observed and not impaired when the possibility of deviation is expressis verbis provided for in a domestic legislation. The predictability, necessary to plan future trade as the Superfund panel acknowledged, is affected when trading partners know ex ante that their partners have enacted legislation which allows them to disregard their international obligations. 5.191 Hong Kong, China is of the view that good faith implementation of international obligations should not be accidental, nor merely the outcome of exercise of discretion by a member government. Good faith implementation of international obligations suggests that parties to an international treaty should always honour their obligations as long as they remain parties to the said treaty. Thus, a Member maintaining discretionary legislation which allows deviation from international obligations (independently of the eventual application of such legislation) falls foul of the good faith principle. 5.192 Hong Kong, China notes that the United States claims that in the present case the European Communities has to demonstrate that the US legislation in question "precludes any possibility of action consistent with the Member's WTO obligations" and that none of the interpretations of the legislation permits WTO-consistent action. Hong Kong, China does not agree with these arguments. The mere existence of legislation that mandates or allows WTO-inconsistent action to be taken by a WTO Member already poses a serious threat to the good faith principle and to the certainty and predictability of the WTO regime. 5.193 Hong Kong, China also notes that the United States has pointed out that eventually any action undertaken in the context of Section 301 depends on the discretion of the President. Hong Kong, China further notes that while Presidential discretion is provided for in Section 301(a) and 305(a) of the US legislation, the legislation makes it plain that the USTR shall take specific action as a result of a determination to the effect that the US' rights have been denied. Indeed, according to Section 301(a), the USTR does not have to revert to presidential discretion in order to make such determinations. Such determinations have to be made by the USTR within the time limits specified in the legislation in question. 5.194 Hong Kong, China acknowledges that it is true that the President has discretion as to whether specific action should be taken. It is also true that in case discretion is exercised and a WTO Member thinks the outcome of such discretion amounts to a WTO violation, this Member can attack the specific measure but not the legislation giving rise to the specific measure. This is because GATT jurisprudence has held that Members may only attack legislation if such legislation is mandatory. But this is not good law. Such a distinction between mandatory and discretionary legislation, leaving the possibility to WTO Members to attack only the former but not the latter, is clearly inconsistent with public international law for the reasons explained above. 5.195 Hong Kong, China adds that its basic point is that a national legislation which implements an international obligation must do so in good faith (bona fides). This is essentially what Article 26 of the VCLT is all about (pacta sunt servanda). 5.196 Hong Kong, China argues that the good faith obligation actually kicks in before the entry into force of an international agreement: Article 18 of VCLT imposes on signatories an obligation to respect the spirit of the agreement they signed until the point in time when they definitively decide to either become part of it or not. In the former case (and provided that the agreement at hand enters into force) they are bound by Article 26 of VCLT as of the moment of the entry into force of the agreement; in the latter, they do not have to respect Article18 of VCLT anymore and they will never have to respect Article 26 of VCLT either. 5.197 Hong Kong, China goes on to state that on the other hand, the obligation to implement and perform in good faith the agreement is active for the time-period during which a state is part of an international agreement. Article 70 of VCLT makes this point plain. From the moment it decides to abandon such an agreement, a state is no longer bound by Article 26 of VCLT (provided of course, that the agreement at hand does not codify rules of jus cogens). It remains liable though, for any violation of the agreement that it committed during the time-period when it was part of it. 5.198 Hong Kong, China considers that the good faith obligation is severely damaged if an implementing legislation leaves the door open to violations. The very notion that a state by its implementing legislation allows for behaviour which is inconsistent with international law 0runs afoul the principle of good faith which requires performance of the agreement at all times. 5.199 Hong Kong, China further alleges that compensation (in the wide sense of the term) for failure to perform should not be accepted as (and indeed is not) equivalent to performance. This stems clearly from a careful examination of the primary and secondary obligations of states when entering into international commitments:
5.200 In the view of Hong Kong, China, state authors of an illegal act are under an unambiguous obligation to stop the illegal act (even in cases where no such request has been made by the affected party, as the wording of Article 41 of the Draft on State Responsibility and the constant jurisprudence of the ICJ in this respect � Chorzow Factories � make it plain). By definition, they have to perform in good faith. This in turn means that reparation for an illegal act and performance of international obligations should not be understood to be two equivalent forms of behaviour in the sense that a state can alternatively have recourse to either and be deemed to be consistent with its international obligations. Rather, our analysis above supports the view that good faith performance of the treaty in all times is what is requested from states when they adhere to an international regime. 5.201 Hong Kong, China contends that a domestic instrument which allows for deviations severely undermines this basic international obligation, since deviation from the obligation to always perform the international obligations adhered to becomes an option available to the state alongside the option to perform the treaty. As stated above though, the two options are of no equivalent value. 5.202 The overall conclusion of Hong Kong, China therefore is that, in the event parties to an international agreement have to implement their obligations in a domestic instrument in order to fulfil domestic constitutional requirements, they should ensure that their implementing legislation allows no deviations. In any other case, states have failed to perform in good faith their international obligations. 5.203 Hong Kong, China is of the view that the US legislation under challenge fails to guarantee a good faith performance of the US international obligations at all times. 3. Conclusion5.204 Hong Kong, China contends that it attaches much importance to the current proceedings. Trade disputes will inevitably occur in the future as they have in the past. The DSU has been the cornerstone of the WTO and an important achievement of the Uruguay Round. The multilateral dispute settlement system, as opposed to unilateralism, must be preserved and strengthened. 5.205 In the view of Hong Kong, China, the cited sub-sections of the US Section 301-310 of the US Trade Act of 1974 constitute a violation of the obligations imposed by Article 23 of the DSU that all WTO Members should resort to WTO adjudication bodies to resolve disputes arising from the operation of the WTO agreements. Hong Kong, China requests the Panel to recommend that the United States bring, in this very important respect, its legislation into compliance with its WTO obligations. G. India1. Introduction5.206 India recalls that in its meeting on 2 March, 1999, the Dispute Settlement Body established the Panel on United States-Sections 301-310 of the Trade Act of 1974. India had signalled its substantial interest as third party in the matter before this Panel. The following is the written submission of India in accordance with paragraph 2 of Article 10 of the Understanding on Rules and Procedures Governing the Settlement of Disputes. 5.207 India considers that the essential matter at issue before the Panel relates to Sections 301-310 of the Trade Act of 1974. The European Communities has contended that Sections 301-310 explicitly mandate the US administration to proceed unilaterally on the basis of determinations reached independently of the DSB and without its authorization especially once specified time periods have lapsed. The European Communities therefore believes that Sections 301-310 must be amended to make it clear that the US administration is required to act in accordance with the US' obligations under the WTO agreements in all circumstances and at all times. 2. Measures at issue5.208 India explains that Section 301(a) describes situations where the rights of the United States under any trade agreement are being denied or an act, policy or practice of a foreign country that denies benefits to the United States and is unjustifiable and burdens or restricts US commerce. If the USTR determines (and such determination is unilateral) that one of the above situations has occurred, then the USTR "shall take" retaliatory action. Section 301(a)(2) (A) and (B) do talk of exceptions where action is not required to be taken by USTR and these relate to situations where there is a DSB report which states that the action is not a violation of or inconsistent with the rights of the United States or does not deny, nullify or impair benefits to the United States, or where the foreign country is taking satisfactory measures to grant the rights of the United States under a trade agreement or where the national security of the United States is at stake. 5.209 India goes on to state that Section 301(b) applies to an act, policy or practice which while not denying rights or benefits of the United States under a trade agreement is nevertheless "unreasonable or discriminatory and burdens or restricts US commerce". It goes on to provide examples of unreasonable acts, such as failure to protect intellectual property rights, toleration of anti-competitive practices by private firms or denial of worker rights. If the USTR determines that an act, policy or practice is actionable under this Section and determines that action by United States is appropriate then the USTR shall take retaliatory action subject to the specific direction, if any, of the President regarding such action. 5.210 India adds that the scope of retaliatory action is set out in Section 301(c) which authorizes the USTR to suspend, withdraw or prevent the application of benefits of trade agreement concessions and impose duties or other import restrictions on the goods and services of such foreign country for such time as the USTR determines appropriate. 5.211 India points out that in the United States itself, no domestic court could pronounce Section 301 inconsistent with WTO because Section 102 (a)(1) provides that "no provision of any of the Uruguay Round Agreements nor the application of any such provision to any person or circumstance that is inconsistent with any law of the United States shall have any effect". Also, the same section provides that nothing in the Uruguay Round Agreements Act shall be construed to limit any authority conferred under any law of the United States including Section 301 of the Trade Act of 1974. 5.212 India further explains that Sections 302 to 310 deal with questions such as who can initiate investigations under Section 301, the various time limits for action, monitoring of measures taken by foreign country etc. 5.213 In the view of India, the central feature of the US legislation, it will be observed therefore, is that the USTR can make a unilateral determination concerning a foreign country's act, policy or practice vis-�-vis the rights and benefits of United States and its effects on US commerce and then decide on trade retaliatory measures for as long as it (USTR) deems fit. 5.214 India contends that Sections 301-310 of the Trade Act of 1974 is both legally indefensible and morally unacceptable. From a legal point of view, it is clear that inasmuch as it embodies unilateralism, Sections 301-310 violate all canons of International Law. From a moral point of view, it is unacceptable because it implies that might is right and that the strong can prevail over the weak. 5.215 India points out that it has had a long history of being subjected to Sections 301-310 of the Trade Act on grounds of alleged unfair trade practices. These Sections put pressure on countries like India to conform to what the United States believes is "fair trading practices". As will be shown below, the determination of what constitutes " unfair trading practices" or "unreasonable acts" is done solely by United States and hence is unilateral; besides, there are no objective criteria to determine those unfair practices making the whole process therefore completely arbitrary. 5.216 India notes that in sum, Sections 301-310 of the Trade Act of 1974 is an instrument of unilateralism used by the United States to force its trading partners to offer market access for American goods and services beyond the scope of commitments undertaken in multilateral trade negotiations. Consequently, these Sections undermine the multilateral trading system. 3. Legal Arguments(a) Drafting History of WTO Agreement5.217 India considers that any scrutiny of the drafting history of the Uruguay Round Agreements in general and the DSU in particular, would reveal that a number of countries, chiefly developing ones, accepted the strengthening of the dispute settlement mechanism including the controversial provision of cross retaliation because they were given to understand that in return they need no longer fear the threat of unilateralism. Indeed, many developing countries such as India accepted the dispute settlement system with its provisions relating to automaticity and cross retaliation in the expectation that under the new system there would be no scope for unilateral action by trading entities. 5.218 India argues that the fact that this has not happened and statutes such as Section 301 have still remained on the statute books of the United States is a matter of profound regret for those who believe in a rule-based multilateral trading system. (b) Article XVI:4 of the WTO Agreement5.219 India contends that the WTO Agreement in paragraph 4 of Article XVI clearly states that each Member shall ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed Agreements. 5.220 India explains that in the discussions of the Legal Drafting Group during the Uruguay Round, this provision was objected to by the United States and with good reason. It was believed, correctly, by US negotiators that acceptance of this provision would pose a serious problem for Section 301. Hence, the US negotiators tried to water down this provision but with little success. Finally, the language was couched in strong terms so as to make it a binding obligation on Members. 5.221 India also notes that GATT jurisprudence has a long history of cases where a law requiring the executive to impose a measure inconsistent with a provision of the GATT can be challenged under the dispute settlement procedure whether or not it had been applied to the trade of the complaining party. Thus, the 1987 Panel on United States � Taxes on Petroleum and Certain Imported Substances said that the very existence of mandatory legislation providing for an internal tax without it being applied to a particular imported product should be regarded as falling within the scope of Article III. Similarly, the famous 1992 Panel on United States -- Measures Affecting Alcoholic and Malt Beverages examined legislation in the state of Illinois which the United States argued that it was not giving effect. Again, the Panel ruled that the Mississippi legislation was inconsistent with Article III whether or not it was given effect to. More recently, in the proceedings of the WTO Panel on India � Patent Protection for Pharmaceutical and Agricultural Chemical Products, the United States claimed that the "mailbox system" for patent applications which India had established by administrative action did not meet the requirements of Article 70.8 of the TRIPs Agreement because mandatory provisions of the India Patents Act prohibited grant of product patents in pharmaceutical and agricultural chemical products.. India cited provisions of its Constitution on the distribution of authority between its legislative and executive branch and court rulings on the non-binding nature of the statutes requiring administrative actions by a specified date to argue that a mailbox system could be established by administrative action notwithstanding the mandatory provisions of the Patents Act. In response, the United States argued that GATT jurisprudence on mandatory legislation made clear that India was obliged to eliminate what it called legal uncertainty created by the fact that its administrative practices were inconsistent with mandatory provisions of the Patents Act. In effect, the United States argued that the domestic law of a Member must not only be such as to enable it to act consistently with its WTO obligations but the domestic law must also not create legal uncertainty by prescribing WTO-inconsistent measures. The Panel accepted this argument of the United States and ruled that the current administrative practice creates a certain degree of legal insecurity in that it requires Indian officials to ignore certain mandatory provisions of the Patents Act. 5.222 In India's view, the verdict is therefore clear: a law that, by its terms, mandates behaviour inconsistent with a provision of a WTO Agreement violates that provision irrespective of whether and how the law is or could be applied. This principle is a reflection of the fact that a law with such terms creates uncertainty adversely affecting the competitive opportunities for the goods or services of other Members. 5.223 India states that Article XVI:4 turns this principle into a specific and binding legal obligation. In the light of the above, it is sufficient for the Panel to examine whether Sections 301-310 mandate determinations and actions by the USTR that are inconsistent with the US' obligations under the WTO Agreement. (c) Article 23 of the DSU5.224 India contends that Article 23 clearly states that all WTO Members shall have recourse to and abide by the rules and procedures of the DSU to seek the redress of a violation of obligations or other nullification or impairment of benefits under the covered agreements. Specifically, it is stated that Members shall not make a unilateral determination about nullification and impairment of benefits except through recourse to DSU. And yet, Sections 301-310 seek to do precisely that. Sections 301-310 do not follow the procedures or the rules of DSU; indeed, they seek to do just the opposite by threatening the foreign country that is allegedly causing impairment and nullification for the United States. As amply demonstrated by the European Communities, the USTR is required to proceed unilaterally when the results of the WTO dispute settlement procedures are not available within the time limits set out in Sections 301-310. For example, the USTR is mandated by Section 304(a) (2) (A) to make a determination within a time frame that is shorter then the time frame within which it can reasonably expect DSB findings on that matter. In effect, Section 304 mandates the USTR to make a determination 18 months after the request for consultations on the United States denial of rights under a WTO Agreement even if the DSB has not adopted a report with findings on the matter within that time frame. 5.225 India concludes that for this reason, the US Sections 301-310 are inconsistent with the time limits given in the DSU and in particular violate Article 23 of the DSU. (d) Articles I, II, III, VIII and XI of GATT 19945.226 India contends that again, Section 306 (b)(2) sets out a 30-day limit from the end of the reasonable period of time at which the USTR has to determine that the Member concerned has failed to comply with the DSB recommendations without waiting for the conclusion of the relevant DSU procedures. The operation of Section 306 can best be illustrated by the USTR's determinations and actions in the Banana dispute. On the basis of a unilateral determination that the European Communities had failed to implement the DSB's recommendations, the USTR announced on 3 March 1999 that the US Customs Service would begin as of that date withholding liquidation and reviewing the sufficiency of bonds on imports of selected European products amounting to $520 million. The arbitrators decision came only on 9 April 1999 and US request for retaliation was granted only on 19 April 1999. And the amount granted was $191.4 million. It is clear that the United States had on 3 March 1999 suspended its obligations under, inter alia, Articles I, II, III,VIII and XI of GATT 1994 towards the European Communities without prior authorization by the DSB. In retrospect, it is obvious that the USTR was obliged to take action on 3 March 1999 because of Section 306 regardless of whether or not there was DSB authorization under Article 22 of the DSU. 4. Conclusion5.227 India concludes as follows: Firstly, it is clear that Sections 301-310 are a case of United States reneging on its commitments undertaken in the Uruguay Round. Secondly, regardless of whether or not it is applied in practice, GATT/WTO jurisprudence is that a law, which, by its terms mandates behaviour that is inconsistent with a WTO provision, does violate that provision. Thirdly, Sections 301-310 fall foul of Article 23 of the DSU; specifically, they also contravene the time limits and other procedures of the DSU. Fourthly, Sections 301-310 violate Articles I, II, III, VIII and XI of GATT 1994 as evidenced in the Bananas dispute. 5.228 For the above reasons, India requests the Panel to find that Sections 301-310 are violative of the DSU, GATT 1994 and the WTO Agreement and to recommend that the DSB request the United States to bring its Trade Act of 1974 into conformity with its obligations under the WTO Agreements.
TO CONTINUE WITH UNITED STATES – SECTIONS 301-310 OF THE TRADE ACT OF 1974 573 Panel Report on US – Superfund, op. cit., p.160 574 Ibid. 575
Hong Kong, China notes that there is, however, some disagreement in literature as to the
nature of cessation. Some authors do accept that cessation is a primary obligation in the
sense that it goes hand in hand with the obligations to perform the treaty. |
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