E. Dominican Republic

1. Introduction

5.141  The Dominican Republic welcomes this opportunity to participate as Third Party in these proceedings in order to add its voice in support for a single multilateral procedure for the settlement of trade disputes.

2. Legal Arguments

5.142  Like Brazil, the Dominican Republic is of the view that "a law that is inconsistent with the obligations of a Member under the WTO Agreements can be challenged under the dispute settlement procedures. The issue before the Panel is … the need to bring the law into conformity with relevant WTO provisions, as provided in Article XVI:4 of the WTO Agreement".

5.143  Like the European Communities, the Dominican Republic is of the view that "WTO Agreements cannot provide security and predictability unless Members settle all their trade disputes in accordance with the procedures of the Dispute Settlement Understanding (DSU)".

5.144  Like Japan, the Dominican Republic is of the view that "WTO Members are prohibited from unilaterally suspending concessions or other obligations under the WTO Agreement".

5.145  Like Brazil, the Dominican Republic is of the view that, given "the scope of authority available to the US Administration to proceed without recourse to DSU procedures in Section 301 (c)", the United States seeks "to pursue the removal of practices that do not violate US rights" by threatening "to violate the rights of WTO Members". This clearly contradicts Article 23 of the DSU.

5.146  Like India, the Dominican Republic agrees with the relevance of US views expressed in other Panel proceedings, where it stated 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".

5.147  Like Hong Kong, China, the Dominican Republic 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".

5.148  Like the Republic of Korea, the Dominican Republic believes firmly that the publication of retaliation lists "clearly affect the competitive relationship between the targeted products and similar products from all other countries".

5.149  The Dominican Republic then requests respectfully to the Panel to rule along the lines proposed by the European Communities and by Brazil, Japan, Hong Kong, China, India and Korea, and that it also give due consideration to two additional concerns:

1. Section 301(c)(1)(C) establishes a number of eligibility criteria for the continued market access under preferential trading conditions. In addition, Section 301(d)(3)(B) defines:

   "(B) Acts, policies, and practices that are unreasonable include, but are not limited to, any act, policy or practice, or any combination of acts, policies or practices, which–

   (i) denies fair and equitable–

   (I) opportunities for the establishment of an enterprise,

   (II) provision of adequate and effective protection of intellectual property rights notwithstanding the fact that the foreign country may be in compliance with the specific obligations of the Agreement of Trade-Related Aspects of Intellectual Property Rights referred to in section 101(d)(15) of the Uruguay Round Agreements Act.

   (III) nondiscriminatory market access opportunities for United States persons that rely upon intellectual property protection, or

   (IV) market opportunities, including the toleration by a foreign government of systematic anticompetitive activities by enterprises or among enterprises in the foreign country that have the effect of restricting, on a basis that is inconsistent with commercial considerations, access of United States goods or services to a foreign market",

2. In none of the cases listed it is required that the US person that is deemed to be affected by the "unreasonable" conditions subject the act, policy or practice in question to a judicial review. Rather, "watch", "priority watch" and other types of country lists are elaborated based solely on petitions (section 302(a)) or requests of petitions in the Federal Register (section 302(b)) with a disproportionate effect on the viability of the activities concerned, whether or not these are beneficiaries of preferential trading conditions.

5.150  The Dominican Republic requests the Panel that it consider:

1. examining the consistency of these criteria with the provisions on non-discrimination in the "Habilitation Clause" (adopted by the CONTRACTING PARTIES on 28 November 1979) and the Generalized System of Preferences (as described in the Decision of the CONTRACTING PARTIES of 25 June 1971, relating to the establishment of 'generalized non-reciprocal and non-discriminatory preferences beneficial to the developing countries');
2. as suggested by Brazil, examining whether it is WTO-consistent to deny any WTO Member its rights because of non-violation of the rights of the United States under the WTO agreements. Specifically, section 301 (d)(B)(3)(B)(i)(I) refers to the right of establishment for an enterprise, which is not covered automatically by any WTO agreement, except in the form of a specific commitment under the General Agreement of Trade in Services (GATS); section 301 (d)(B)(3)(B)(i)(II) refers to non-violation of the provisions of the TRIPS Agreement, but the relevant article of this agreement (66.2) has yet to enter into force because a significant number of developed and developing country WTO Members have requested additional time to study the implications of carrying to the intellectual property area the provisions on non-violation devised for trade in goods; and section 301 (d)(B)(3)(B)(i)(III) refers to the toleration of anticompetitive activities, but these have yet to be disciplined by the WTO; and
3. examining the standard of review utilized to enforce these WTO-unrelated criteria.

5.151  In response to the Panel's question as to the relevance of "two additional concerns" in light of the terms of reference of the Panel, the Dominican Republic states that Article 7.1 of the DSU states that the Panel has to work on the basis of terms of reference. The matter at issue is "to analyze if the Sections 301-310 of the Trade Act of 1974 of the United States are inconsistent with the US international obligations under the WTO Agreements". If in the course of the process additional elements are found that can help to clarify the matter at issue, then these elements should be taken into account.

5.152  The Dominican Republic further states that the two "additional concerns" of the Dominican Republic are clear examples of how specific provisions in Section 301 of the Trade Act of 1974 are inconsistent with the US international obligations under the WTO Agreements. They provide further evidence to the statement by Brazil that "the scope of authority available to the US Administration to proceed without recourse to DSU procedures in Section 301(c)", the United States seeks "to pursue the removal of practices that do not violate US rights" by threatening "to violate the rights of WTO Members".

5.153  The Dominican Republic emphasizes that this clearly contradicts Article 23 of the DSU.

5.154  The Dominican Republic considers that it is its right as a beneficiary of trade preferences that these be awarded in compliance with the "Habilitation Clause", that is, on a non-discriminatory basis. By conditioning trade preferences to compliance with other criteria such as the ones listed in Section 301(d)(3)(B) (criteria that are unrelated to any nation's multilateral rights), the United States threatens to violate the rights of Dominican exporters.

5.155  Further, by constantly reviewing compliance with such criteria without subjecting "interested party petitions" to established procedures of judicial review, the United States places Dominican exporters in a situation of continued juridical risk, which is what   WTO Members sought to avoid by adopting a single, multilateral procedure for the settlement of trade disputes after the Uruguay Round.

5.156  Therefore, the Dominican Republic respectfully reiterates to the Panel that it should analyze also the issues of its "two additional concerns".

F. Hong Kong, China

1. Overview

5.157  Hong Kong, China indicates that it decided to participate in the current proceedings as third party in view of the systemic importance of the dispute. It is our firm belief that the cornerstone of the WTO legal regime � the principle of multilateral determination of the WTO consistency of measures � shall not be undermined by domestic legislation that mandates unilateral action. We consider that Members' compliance with this principle is essential in order to ensure the security and predictability of the multilateral trading system, and to preserve Members' rights and obligations under the WTO Agreements.

5.158  Hong Kong, China does not question the right of WTO Members to enact domestic legislation to protect their legitimate trade interests, but such legislation must not detract from their obligations under the WTO.   By virtue of their WTO membership, Members have subscribed to the WTO Agreements including the Dispute Settlement Understanding (DSU), and agreed to settle their trade disputes in accordance with the rules and procedures provided therein.  In other words, they have agreed to refrain from adopting any unilateral measures against alleged inconsistencies of their trading partners.  In this perspective, Hong Kong, China submits that Sections 304(a)(2)(A), 305(a) and 306(b) of the US Trade Act of 1974, to the extent that they oblige the United States Trade Representative (USTR) to have recourse to unilateral actions without respecting the multilateral framework for resolution of disputes as laid down in the DSU, violate the WTO obligations of the United States under the DSU.

5.159  Hong Kong, China summarises its arguments as follows: First, Hong Kong, China places the DSU in the realm of public international law. Hong Kong, China demonstrates that, through the enactment of the DSU, WTO Members have agreed to refrain from taking unilateral actions and to resort to the WTO exclusively to determine the consistency or otherwise of measures with WTO Agreements. In other words, the WTO is the exclusive forum for determination of the WTO consistency of trade measures. Second, Hong Kong, China discusses the US legislation in question relating to adjudication of trade disputes. Adopted GATT panel reports suggest that only mandatory legislation can be found to be in violation of WTO law. We argue that the legislation being challenged in the present dispute is mandatory in nature. Third, Hong Kong, China advances some arguments, inspired by public international law, as to whether the distinction between mandatory and discretionary legislation in GATT jurisprudence is justified. Hong Kong, China essentially submits that even potential deviation from an international obligation (where a competent national authority has discretion allowing it to disrespect its international obligations) amounts to a violation of WTO rules and obligations.

2. Legal Arguments

(a) Nature of the Dispute Settlement Mechanism under the GATT 1947 and the WTO

5.160  Hong Kong, China argues that by becoming a party to an international agreement, a country voluntarily assumes obligations which impose disciplines on its behaviour, in exchange for the other parties agreeing to abide by the same disciplines. In other words, rights and obligations must go together as a party's rights are derived from the obligations of the other parties. The GATT 1947, the WTO and their provisions for dispute settlement are meaningful only when appreciated in this context.

5.161  In the view of Hong Kong, China, to ensure the security of rights in a multilateral agreement, third party adjudication is a necessary feature. The injured party would tend to see wrong when it may not exist; and where it exists, there could be pressure to exaggerate the extent of the wrong. Conversely, the offending party may perceive its actions in an entirely different light. It would tend to regard its action as permissible under the agreement; or where it concedes violation, would have every incentive to downplay the degree of injury that others suffer as a result. For an agreement where rights and concessions are multilateralised, it is unthinkable to regard the offending or injured party as being competent to adjudicate on its own the legality of a measure, to determine on its own the extent of the wrong when illegality is found, or to authorize counter-measures on its own.  Were such allowed in the agreement, an escalation of counter-measures would likely result, as every time counter-measures are taken, the affected party might conclude that they are disproportionate and consequently retaliate to some extent (which might in turn be regarded as disproportionate by the affected party which will retaliate further).

5.162  Hong Kong, China contends that problems relating to the proportionality of retaliatory and countermeasures can be avoided if the privilege to qualify a measure as unlawful under public international law is removed from the injured party.  This is precisely why states have through conventional means always sought to give effect to the maxim nemo in re sua (in sua propria causa) judex esse potest (nobody should be the judge of his/her own cause).  The Statute of the International Court of Justice (ICJ) also provides for compulsory third party adjudication - Article 59 St. ICJ provides the possibility for states to grant ante hoc consent to see all disputes against them adjudicated by the ICJ.

5.163  Hong Kong, China further argues that in the post-World War II era, states were eager to agree to the principle of third party adjudication in a functional manner for settlement of their investment-related or trade-related disputes.  The Special Rapporteur of the International Law Commission (ILC) concluded in his report on "State Responsibility" that for illegal acts de lege lata (the law as it is) and not de lege ferenda (the law as it should be), there is world-wide recognition of the principle of third party adjudication and that consequently recourse to unilateral countermeasures should be lawful only in cases where the state authorizing the illegal act refuses an invitation by the injured state to negotiate.  The ILC report, which has been heralded by expert commentators, provides an authoritative indication that in the general field of public international law, the world community is moving towards compulsory third party adjudication.

5.164  Hong Kong, China notes that third-party adjudication had also been a feature of the GATT.   After the GATT 1947 came into being, GATT Contracting Parties resorted to procedures laid down in Articles XXII and XXIII of GATT to resolve their trade disputes.  Building on Article 92 of the Havana Charter, the two GATT Articles provided a basis for multilateral adjudication of disputes, whereby Contracting Parties undertook to refer their disputes to the GATT which would investigate the matter and make appropriate recommendations/rulings.  The system served to prevent recourse to unilateral measures against alleged inconsistencies of trade measures.  However, the dispute settlement procedures under the GATT were constrained by a number of factors, e.g. the parties to the dispute were allowed to block consensus on the establishment of panels and the adoption of panel reports.  Notwithstanding the deficiencies of the system however, GATT Contracting Parties resorted to resolving their disputes through Articles XXII and XXIII of the GATT, rather than by resorting to unilateral adjudication and actions.

5.165  According to Hong Kong, China, the deficiencies of the GATT dispute settlement system have to a large extent been rectified under the WTO Dispute Settlement Mechanism (DSM).    The DSU provides for the automatic establishment of panels upon request and the automatic adoption of panel reports, unless the Dispute Settlement Body (DSB) decides by consensus against such establishment or adoption.  With this new rule of "negative consensus", the possibility of one Member blocking the establishment of panels or the adoption of panel reports no longer exists.  The improvements made to the dispute settlement mechanism convey two messages.  These are: parties to the GATT reaffirmed third-party adjudication as a means to resolve disputes between them, and their collective intention to make dispute resolution more effective in the WTO.

5.166  Hong Kong, China argues that the improvements secured in the Uruguay Round have indeed made the DSU a more effective-mechanism than the GATT system in resolving disputes concerning WTO agreements.  In the recent DSU review, the general view has been that the DSM has been working satisfactorily and that only fine-tuning in certain respects is required.  Further efforts to make the DSU work better are a reaffirmation of Members' recognition of multilateral adjudication as the way to resolve disputes between them.

5.167  Hong Kong, China states that the conclusion to be drawn is that the DSU is the exclusive forum for adjudication of trade-related disputes among WTO Members.  Article 23 of the DSU further strengthens the multilateral adjudication system by obliging Members to have recourse to, and abide by, the rules and procedures of the DSU to resolve their trade disputes.  All WTO Members, including the United States, have accepted this obligation.

5.168  Hong Kong, China further argues that the legal and logical consequence of the preceding analysis is that WTO Members must always seek redress of their complaints under the WTO DSU.   

5.169  Hong Kong, China goes on to state that WTO law intervenes and performs its multilateral adjudication role when a WTO Member decides to complain formally about the trade policies and practices maintained by another Member.  From this point onward, the WTO Member is under the obligation to have recourse exclusively to the WTO dispute settlement procedures (Article 23.2 of the DSU).   It must consult with the Member concerned and, if within the time-limits laid down in the DSU no amicable solution has been reached, may request the establishment of a dispute settlement panel.  Following panel (and eventually Appellate Body) proceedings, and provided no action has been taken by the losing party to implement the DSB rulings within the reasonable period of time laid down in Article 21.3 of the DSU, the Member can request DSB's authorization to adopt counter-measures, and the DSB has to grant such authorization unless rejected by consensus.

5.170  Hong Kong, China concludes that in a nutshell, with the entry into force of the DSU, recourse to unilateral counter-measures by WTO Members is forbidden under the WTO.    It is up to the WTO adjudicating bodies to pronounce the legality of measures maintained by a WTO Member and to authorize, upon request, the adoption of counter-measures. From the moment that a WTO Member has decided to complain about the trade policies and practices of another Member, it must follow the substantive and procedural obligations laid down in the DSU. To do otherwise will violate its obligations under the WTO.

5.171  In response to the Panel's question as to whether DSU Article 23.2 prohibits any determination on WTO consistency or any determination to the effect that a violation has occurred, Hong Kong, China states that the answer is in Article 23.2(a) of the DSU itself. Article 23.2(a) specifically prohibits determinations "to the effect that a violation has occurred, that benefits have been nullified or impaired or that the attainment of any objective of the covered agreements has been implemented".

5.172  In the view of Hong Kong, China, the object and purpose of the DSU are also relevant. The DSM is the exclusive forum for adjudication of trade disputes among WTO Members. Even if bilateral consultations reach a result, the result has to be WTO consistent (Article 3.5 of DSU) and it has to be notified to the DSU where multilateral control will ensure its consistency with the applicable WTO rules (Article 3.6 of DSU).

5.173  Hong Kong, China further argues that the negotiating history of the DSU, and Article 23 more specifically, confirm this interpretation: it was negotiated with a view to ensure that recourse to unilateralism would not be an option for WTO Members.

(b) Application

5.174  Hong Kong, China argues that Section 303 of the Trade Act of 1974 prescribes that on the date on which an investigation under Section 302 is initiated, the USTR shall request consultations with its trading partner in accordance with Article 4.3 of the DSU. Section 304(a)(2)(A) requires the USTR to determine whether the rights of the United States are being denied on or before the earlier of (i) 30 days after the date on which the dispute settlement procedure is concluded, or (ii) the date that is 18 months after the date on which the investigation is initiated. According to Section 306(b), if the USTR considers that its trading partner has failed to implement the DSB rulings, he/she shall make a determination, no later than 30 days after the expiry of the reasonable period of time provided for in Article 21.3 of the DSU, what further (retaliatory) action must be taken under Section 301(a). Finally, according to Section 305(a), the USTR shall implement the (retaliatory) action no later than 30 days after he/she made the determination. In this connection, Hong Kong, China notes that Section 305(a)(2)(A) provides that implementation of the (retaliatory) action may be delayed by no more than 180 days if the USTR considers, inter alia, that substantial progress is being made, or that a delay is necessary or desirable to obtain US rights or a satisfactory solution. However, it should be noted that in exercising his/her discretion to delay implementation, the USTR is not obliged to observe the rules and procedures stipulated in the DSU.

5.175  Hong Kong, China considers that as the European Communities mentioned, the timeframe stipulated by the cited sub-sections of the US Trade Act is shorter than that within which one can reasonably expect DSB findings on that matter. In such a case though, Section 304(a)(2)(A) mandates the USTR to make a determination of whether the US rights have been denied, independently of the still missing multilateral determination on the same issue.

5.176  Hong Kong, China points out that the USTR of course has discretion as regards the determination that he/she will make. This does not at all annihilate the mandatory character of the US legislation in question. What counts is not the eventual content of the USTR's determination.  What counts is the very fact that the USTR is mandated to make such a determination, notwithstanding the clear and unambiguous provision of DSU Article 23.2(a) that Members shall not make a determination to the effect that a violation has occurred or that benefits have been nullified or impaired, except through recourse to dispute settlement in accordance with the rules and procedures of the DSU.

5.177  Hong Kong, China further states that the same is true with respect to the determination made under Section 306(b).  In case the USTR determines that the US rights have been denied, he/she must make a determination on the (retaliatory) action that needs to be taken within 30 days following the expiration of the reasonable period of time for implementation of the DSB rulings.  The very fact that such a determination has to be taken is incompatible with the timeframe stipulated in Article 21.5 of the DSU and amounts to a substitution of the procedures laid down therein.

5.178  Hong Kong, China asserts that Article 21.5 of the DSU provides that, in case there is disagreement between the parties on the compliance of implementing measures, the dispute should be decided through recourse to the dispute settlement procedures, including resort to the original panel where possible.   The panel shall circulate its report within 90 days.  As the USTR has to make a determination on the compliance question long before the Article 21.5 panel has issued its report, Section 306(b) makes Article 21.5 redundant and violates Article 23 of the DSU.  The provision is also incompatible with the principle of "effective treaty interpretation" as laid down in Article 31 of the Vienna Convention on the Law of Treaties (VCLT), which requires that interpretation must give meaning to each and every provision of the treaty in its context and in the light of its object and purpose.  Here the United States, in interpreting its obligations under the DSU, opted for an interpretation which effectively disregards Article 21.5 of the DSU. 

5.179  Hong Kong, China further explains that Section 305(a) ensures the timely implementation of the retaliatory actions pursuant to the USTR's determinations under Section 306(a) and (b).  This amounts to unilateral retaliation which bypasses Members' obligations prescribed in Article 22 of the DSU to request DSB's authorization for imposing counter-measures.  Being a unilateral retaliatory measure, Section 305(a) also violates Article 23.2 of the DSU.

5.180  Hong Kong, China then concludes that, by obliging the USTR to determine whether the US rights have been denied and to ensure that retaliatory action(s) is taken in accordance with his/her unilateral determination, the US legislation in question violates DSU Article 23. Furthermore, the requirements to make the determination and implement the action within a specified period of time are incompatible with the timeframes stipulated in Articles 21.5 and 22 of the DSU and hence render the provisions redundant.

5.181  In the view of Hong Kong, China, the United States has insisted that for there to be a violation of Article 23.2(a) of the DSU, the European Communities must show that (a) a determination that a WTO agreement violation has occurred, and (b) such determination is inconsistent with the panel or Appellate Body rulings or an arbitration award.  This cannot be the standard of proof adopted for Article 23.2(a).  In Hong Kong, China's view, the mere possibility of having a unilateral determination of WTO agreement violation is inconsistent with Article 23.2(a), which stipulates that determination of violation of obligations should not be made except through recourse to the rules and procedures of the DSU.  The US's interpretation is tantamount to arguing that a Member can demonstrate that a violation of Article 23.2(a) has occurred only in cases where a Member (a) makes a (unilateral) determination before the WTO adjudicating body has pronounced on the issue; or (b) makes such a determination after the adjudicating body has pronounced on the issue but reaches a conclusion inconsistent with the WTO body's findings.  In doing so, the United States is trying to avoid interpreting the crucial Article 23.2(a) in good faith.

5.182  Hong Kong, China further notes that the question remains in a case where a unilateral determination as described above has been made but no action is taken to implement the determination.   Hong Kong, China considers that this would constitute a violation of Article 23.2.  This is because Article 23.2(a) outlaws all unilateral determinations to the effect that a violation occurred regardless of whether it is accompanied by subsequent implementing action.

5.183  Hong Kong, China answered in the negative in response to the Panel's question as to whether an official US statement binding in international law that the US government will not exercise its discretion in a way contrary to WTO rule removes the WTO inconsistency of Sections 301-310 on the assumption that the USTR and the President have the direction to avoid determinations and actions contrary to WTO rules in all circumstances, and that, nevertheless, Sections 301-310 were found to be inconsistent with WTO rules.  Its answer is dictated by the ambiguity in public international law surrounding the legal value of unilateral declarations. Although the International Court of Justice had on two occasions pronounced in favour of the binding character of unilateral declarations (Ihlen, 1933; Nuclear Tests, 1974), both findings were very narrowly constructed and were taken in a particular context. Moreover, the ICJ's decisions on both occasions pay particular attention to the circumstances surrounding the declarations and it is not clear whether mutatis mutandis such circumstances can find application in the present dispute.

5.184  Hong Kong, China moreover argues that attempts in literature to extrapolate these decisions in other spheres of international activity (like for example, the UN resolutions) often met with scepticism. Hence, even though it may be possible to advance good arguments in favour of the under specific circumstances binding nature of unilateral declarations, the situation in public international law is unclear in this respect.

5.185  In the view of Hong Kong, China, in an area like dispute settlement, one should always aim for maximum clarity and precision. There is no room for ambiguity. A modification of the contentious aspects of the relevant provisions of the US legislation along the lines suggested in our answers to the Panel's questions and in our submission eliminates ambiguities. A unilateral declaration does not.

TO CONTINUE WITH UNITED STATES – SECTIONS 301-310 OF THE TRADE ACT OF 1974