T H E L AW A N D PO L IC Y OF T H E

World Trade Organization Text, Cases and Materials Since the publication of its first edition, this textbook has been the prime choice of teachers and students alike, due to its clear and detailed explanation of the basic principles of the multilateral trading system and the law of the World Trade Organization (WTO). The fourth edition continues to explore the institutional and substantive law of the WTO. It has been updated to incorporate all new developments in the WTO’s ever-growing body of case law. Moreover, each chapter now includes a ‘Further Readings’ section to encourage and facilitate research and discussion on the topics addressed. As in previous editions, each chapter also features a summary to reinforce learning. Questions, assignments and exercises on WTO law and policy are contained in an online supplement, updated regularly and available on the website of Cambridge University Press (www.cambridge .org/VanDenBossche&Zdouc). The questions and assignments allow students to assess their understanding while the exercises, reflecting real-life trade problems, challenge students (as well as practitioners) and enable them to hone their analytical skills. This textbook is an essential tool for all WTO law students and will also serve as a practitioner’s introductory guide to the WTO. Peter Van den Bossche has been a Member of the Appellate Body of the WTO since 2009 and served as its Chair in 2015. He is Director of Studies and Professor of International Economic Law at World Trade Institute of the University of Bern, Switzerland. He is a visiting professor at the College of Europe, Bruges, Belgium; Maastricht University, the Netherlands; the University of Barcelona, Spain; and the Universidad San Francisco de Quito, Ecuador. From 1997 to 2001, he was counsellor at the Appellate Body Secretariat, and in 2001 served as Acting Director of the Secretariat. In the early 1990s, he worked as référendaire at the European Court of Justice. He studied law at the University of Antwerp (Lic. jur.), the University of Michigan (LLM) and the European University Institute, Florence (PhD). Werner Zdouc has been Director of the WTO Appellate Body Secretariat since 2006. He obtained a law degree from the University of Graz in Austria and then went on to earn an LLM from the University of Michigan and a PhD from the University of St Gallen in Switzerland. Dr Zdouc joined the WTO Legal Affairs Division in 1995 and the Appellate Body Secretariat in 2001. In 2008 to 2009, he chaired the WTO Joint Advisory Committee to the Director-General. He has been a lecturer and visiting professor at Vienna Economic University, the Universities of St Gallen, Zurich, Barcelona, Seoul, and Shanghai and the Geneva Graduate Institute. From 1987 to 1989, he worked for governmental and non-governmental development aid organisations in Austria and Latin America.

THE LAW AND POLICY OF THE

World Trade Organization Text, Cases and Materials Peter Van den Bossche Werner Zdouc

University Printing House, Cambridge CB2 8BS, United Kingdom One Liberty Plaza, 20th Floor, New York, NY 10006, USA 477 Williamstown Road, Port Melbourne, VIC 3207, Australia 314-321, 3rd Floor, Plot 3, Splendor Forum, Jasola District Centre, New Delhi - 110025, India 79 Anson Road, #06-04/06, Singapore 079906 Cambridge University Press is part of the University of Cambridge. It furthers the University’s mission by disseminating knowledge in the pursuit of education, learning and research at the highest international levels of excellence. www.cambridge.org Information on this title: www.cambridge.org/9781107157989 DOI: 10.1017/9781316662496 © Peter Van den Bossche and Werner Zdouc 2017 This publication is in copyright. Subject to statutory exception and to the provisions of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published 2017 A catalogue record for this publication is available from the British Library Library of Congress Cataloging in Publication data Names: Bossche, Peter van den, author. | Zdouc, Werner. Title: The law and policy of the World Trade Organization : text, cases and materials / Peter Van den Bossche Universitat Bern, Switzerland; Werner Zdouc Graduate Institute of International Studies, Geneva. Description: Cambridge, United Kingdom ; New York, NY, USA : Cambridge University Press, 2017. | Includes bibliographical references and index. Identifiers: LCCN 2017012384 | ISBN 9781107157989 (alk. paper) Subjects: LCSH: World Trade Organization. | Foreign trade regulation. | Tariff – Law and legislation. | LCGFT: Casebooks. Classification: LCC K4610 .B67 2017 | DDC 343.08/70261–dc23 LC record available at https://lccn.loc.gov/2017012384 ISBN 978-1-107-15798-9 Hardback ISBN 978-1-316-61052-7 Paperback Additional resources for this publication at www.cambridge.org/VanDenBossche&Zdouc Cambridge University Press has no responsibility for the persistence or accuracy of URLs for external or third-party internet websites referred to in this publication, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate.

CO NT E NT S

List of Figures xiv Preface xv List of Abbreviations Table of WTO Cases Table of GATT Cases

xvii xxi xliii

1 International Trade and the Law of the WTO 1 1 Introduction 1 2 Economic Globalisation and International Trade 3 2.1 Emergence of the Global Economy 3 2.2 A Blessing or a Curse? 14 2.3 Free Trade versus Restricted Trade 19 2.4 International Trade to the Benefit of All? 29 3 The Law of the WTO 33 3.1 International Rules on International Trade 34 3.2 Basic Rules of WTO Law 38 4 Sources of WTO Law 43 4.1 The Marrakesh Agreement Establishing the World Trade Organization 43 4.2 Other Sources of WTO Law 54 5 WTO Law in Context 65 5.1 WTO Law and International Law 65 5.2 WTO Law and National Law 69 6 Summary 77 Further Readings 79 2 The World Trade Organization 80 1 Introduction 80 2 The Origins of the WTO 81 2.1 The General Agreement on Tariffs and Trade of 1947 82 2.2 Uruguay Round of Multilateral Trade Negotiations 85

v

vi Contents

3 Mandate of the WTO 88 3.1 Objectives of the WTO 88 3.2 Functions of the WTO 90 4 Membership and Institutional Structure 113 4.1 Membership of the WTO 113 4.2 Institutional Structure of the WTO 128 5 Decision-Making in the WTO 145 5.1 WTO Decision-Making in Theory 146 5.2 WTO Decision-Making in Practice 151 5.3 Participation in WTO Decision-Making 152 6 Other Issues 156 6.1 Legal Status of the WTO 156 6.2 WTO Budget 157 7 Summary 159

Further Readings

162

3 WTO Dispute Settlement 164 1 Introduction 165 2 Jurisdiction of the WTO Dispute Settlement System 168 2.1 Nature of the Jurisdiction 168 2.2 Scope of the Jurisdiction 169 3 Access to the WTO Dispute Settlement System 179 3.1 Right of Recourse to WTO Dispute Settlement 179 3.2 Access of Members other than the Parties 183 3.3 Indirect Access to the WTO Dispute Settlement System 184 4 Key Features of WTO Dispute Settlement 185 4.1 Single, Comprehensive and Integrated System 186 4.2 Different Methods of Dispute Settlement 187 4.3 Multilateral Dispute Settlement 188 4.4 Preference for Mutually Acceptable Solutions 189 4.5 Mandate to Clarify WTO Provisions 190 4.6 Remedies for Breach 199 5 Institutions of WTO Dispute Settlement 209 5.1 Dispute Settlement Body 209 5.2 Panels 212 5.3 The Appellate Body 233 5.4 Other Entities Involved in WTO Dispute Settlement 245 6 Process of WTO Dispute Settlement 246 6.1 General Observations on the WTO Dispute Settlement Process 6.2 Consultations 266 6.3 Panel Proceedings 271 6.4 Appellate Body Proceedings 278 6.5 Implementation and Enforcement 285 7 Developing-Country Members and WTO Dispute Settlement 292 7.1 Special Rules for Developing-Country Members 292

248

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7.2 Legal Assistance for Developing-Country Members 293 8 Challenges to WTO Dispute Settlement 294 9 Summary 296

Further Readings

303

4 Most-Favoured-Nation Treatment 305 1 Introduction 305 2 Most-Favoured-Nation Treatment under the GATT 1994 307 2.1 Nature of the MFN Treatment Obligation of Article I:1 of the GATT 1994 307 2.2 MFN Treatment Test of Article I:1 of the GATT 1994 311 2.3 Most-Favoured-Nation Treatment Obligation and the Enabling Clause of the GATT 1994 321 3 Most-Favoured-Nation Treatment under the GATS 325 3.1 Nature of the MFN Treatment Obligation of Article II:1 of the GATS 325 3.2 MFN Treatment Test of Article II:1 of the GATS 327 3.3 Deviations from the Most-Favoured-Nation Treatment Obligation under the GATS 338 4 Summary 339 Further Readings 340 5 National Treatment 341 1 Introduction 341 2 National Treatment under the GATT 1994 342 2.1 Nature of the National Treatment Obligation of Article III of the GATT 1994 344 2.2 National Treatment Test for Internal Taxation on Like Products 351 2.3 National Treatment Test for Internal Taxation on Directly Competitive or Substitutable Products 365 2.4 National Treatment Test for Internal Regulation 376 3 National Treatment under the GATS 399 3.1 Nature of the National Treatment Obligation of Article XVII:1 of the GATS 399 3.2 National Treatment Test of Article XVII:1 of the GATS 4 Summary 412 Further Readings 414 6 Tariff Barriers 415 1 Introduction 415 2 Customs Duties on Imports 417 2.1 Definition and Types 417 2.2 Purpose of Customs Duties on Imports

422

402

viii Contents

Customs Duties as a Lawful Instrument of Protection 423 Negotiations on the Reduction of Customs Duties 423 Tariff Concessions and Schedules of Concessions 436 Protection of Tariff Concessions 442 Modification or Withdrawal of Tariff Concessions 447 Imposition of Customs Duties on Imports 450 3 Other Duties and Charges on Imports 461 3.1 Definition and Types 462 3.2 Rule Regarding Other Duties or Charges on Imports 464 3.3 Measures Exempted from the Rule 466 4 Customs Duties and Other Duties and Charges on Exports 469 4.1 Definition and Purpose 470 4.2 Rules Applicable on Export Duties 471 5 Summary 474 Further Readings 476 2.3 2.4 2.5 2.6 2.7 2.8

7 Non-Tariff Barriers 478 1 Introduction 479 2 Quantitative Restrictions on Trade in Goods 480 2.1 Definition and Types 480 2.2 Rules on Quantitative Restrictions 482 2.3 Administration of Quantitative Restrictions 492 2.4 Special and Differential Treatment 498 3 Other Non-Tariff Barriers on Trade in Goods 498 3.1 Lack of Transparency 499 3.2 Unfair and Arbitrary Application of Trade Measures 3.3 Customs Formalities and Procedures 510 3.4 Government Procurement Laws and Practices 512 3.5 Other Measures and Actions 514 4 Market Access Barriers to Trade in Services 517 4.1 Definition and Types of Market Access Barriers 518 4.2 Rules on Market Access Barriers 520 4.3 Negotiations on Market Access for Services 521 4.4 Schedules of Specific Commitments 525 4.5 Modification or Withdrawal of Commitments 532 5 Other Barriers to Trade in Services 534 5.1 Lack of Transparency 534 5.2 Unfair and Arbitrary Application of Trade Measures 5.3 Licensing and Qualification Requirements and Technical Standards 536 5.4 Government Procurement Laws and Practices 537 5.5 Other Measures and Actions 538 6 Summary 540 Further Readings 543

504

535

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8 General and Security Exceptions 544 1 Introduction 544 2 General Exceptions under the GATT 1994 546 2.1 Key Features of Article XX of the GATT 1994 547 2.2 Two-Tier Test under Article XX of the GATT 1994 554 2.3 Specific Exceptions under Article XX of the GATT 1994 556 2.4 Chapeau of Article XX of the GATT 1994 592 2.5 Policy Space for Members to Protect Other Societal Values 604 3 General Exceptions under the GATS 605 3.1 Two-Tier Test under Article XIV of the GATS 606 3.2 Specific Exceptions under Article XIV of the GATS 607 3.3 Chapeau of Article XIV of the GATS 615 3.4 The Prudential Exception under the GATS Annex on Financial Services 617 4 Security Exceptions under the GATT 1994 and the GATS 618 4.1 Article XXI of the GATT 1994 618 4.2 Article XIV bis of the GATS 623 5 Summary 623 Further Readings 629 9 Economic Emergency Exceptions 630 1 Introduction 630 2 Safeguard Measures under the GATT 1994 and the Agreement on Safeguards 631 2.1 Requirements for the Use of Safeguard Measures 634 2.2 Domestic Procedures and Notification and Consultation Requirements 645 2.3 Characteristics of Safeguard Measures 647 3 Safeguard Measures under other WTO Agreements 655 3.1 Safeguard Measures under the Agreement on Agriculture 655 3.2 Safeguard Measures under China’s Accession Protocol 657 3.3 Safeguard Measures under the GATS 658 4 Balance-of-Payments Measures under the GATT 1994 and the GATS 4.1 Balance-of-Payments Measures under the GATT 1994 659 4.2 Balance-of-Payments Measures under the GATS 668 5 Summary 668 Further Readings 670 10 Regional Trade Exceptions 671 1 Introduction 671 2 Proliferation of Regional Trade Agreements 673 3 Regional Trade Exceptions under the GATT 1994 679 3.1 Exceptions Relating to Customs Unions 680 3.2 Exceptions Relating to Free-Trade Areas 685

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3.3 Interim Agreements 687 3.4 Special and Differential Treatment of Developing-Country

Members

687

4 Regional Trade Exceptions under the GATS 688 4.1 Requirements for Economic Integration Agreements 689 4.2 Labour Markets Integration Agreements 692 4.3 Special and Differential Treatment of Developing-Country

Members 692 5 Institutional and Procedural Matters 6 Summary 694 Further Readings 695

692

11 Dumping 696 1 Introduction 697 2 Basic Elements of WTO Law on Dumping 698 2.1 History of the Law on Dumping 698 2.2 The Concept of ‘Dumping’ and Its Treatment in WTO Law 699 2.3 Current Use of Anti-Dumping Measures 702 3 Determination of Dumping 703 3.1 ‘Normal Value’ 705 3.2 ‘Export Price’ 709 3.3 Comparison of the ‘Export Price’ with the ‘Normal Value’ 710 4 Determination of Injury to the Domestic Industry 720 4.1 ‘Domestic Industry’ 721 4.2 ‘Injury’ 723 5 Demonstration of a Causal Link 733 5.1 Relevant Causation Factors and Non-Attribution 733 5.2 Cumulation 735 6 Anti-Dumping Investigation 737 6.1 Initiation of an Investigation 737 6.2 Conduct of the Investigation 740 6.3 Public Notice and Judicial Review 746 7 Anti-Dumping Measures 749 7.1 Imposition of Provisional Anti-Dumping Measures 749 7.2 Price Undertakings 750 7.3 Imposition and Collection of Anti-Dumping Duties 750 7.4 Duration, Termination and Review of Anti-Dumping Duties 754 7.5 Problem of Circumvention of Anti-Dumping Duties 758 8 Institutional and Procedural Provisions of the Anti-Dumping Agreement 759 8.1 The Committee on Anti-Dumping Practices 759 8.2 Dispute Settlement 759 9 Special and Differential Treatment for Developing-Country Members 10 Summary 765 Further Readings 767

763

xi Contents

12 Subsidies 769 1 Introduction 770 2 Basic Elements of WTO Law on Subsidies and Subsidised Trade 771 2.1 History of the Law on Subsidies and Subsidised Trade 771 2.2 The WTO Concept of ‘Subsidies’ and Their Treatment under WTO Law 773 2.3 Current Use of Subsidies and Countervailing Measures 774 3 Subsidies Covered by the SCM Agreement 775 3.1 Financial Contribution 776 3.2 Financial Contribution by a Government or a Public Body 783 3.3 Financial Contribution Conferring a Benefit 787 3.4 Requirement of ‘Specificity’ of the Subsidy 794 4 Prohibited Subsidies 802 4.1 Export Subsidies 802 4.2 Import Substitution Subsidies 807 4.3 Multilateral Remedies for Prohibited Subsidies 808 5 Actionable Subsidies 811 5.1 Subsidies Causing Injury 811 5.2 Subsidies Causing Nullification or Impairment 818 5.3 Subsidies Causing Serious Prejudice 818 5.4 Multilateral Remedies for Actionable Subsidies 844 5.5 Non-Actionable Subsidies 846 6 Countervailing Measures 846 6.1 Conditions for the Imposition of Countervailing Duties 847 6.2 Conduct of Countervailing Investigations 847 6.3 Application of Countervailing Measures 855 6.4 Countervailing Duties or Countermeasures 864 7 Institutional and Procedural Provisions 864 7.1 Transparency and Notification Requirements 864 7.2 Subsidies Committee 865 7.3 Dispute Settlement 866 8 Special and Differential Treatment for Developing-Country Members 9 Agricultural Subsidies under the Agreement on Agriculture 867 9.1 Agricultural Export Subsidies 869 9.2 Domestic Agricultural Support Measures 874 9.3 The ‘Peace’ Clause 877 10 Summary 877 Further Readings 881 13 Technical Barriers to Trade 883 1 Introduction 883 2 Scope of Application of the TBT Agreement 885 2.1 Measures to Which the TBT Agreement Applies

885

866

xii Contents

2.2 Entities Covered by the TBT Agreement 895 2.3 Temporal Scope of Application of the TBT Agreement 896 2.4 Relationship with Other WTO Agreements 897 3 Substantive Provisions of the TBT Agreement 899 3.1 MFN Treatment and National Treatment Obligations 899 3.2 Obligation to Refrain from Creating Unnecessary Obstacles to

International Trade

912

3.3 Obligation to Base Technical Barriers to Trade on

International Standards

921

3.4 Other Substantive Provisions 925 4 Institutional and Procedural Provisions of the TBT Agreement 929 4.1 TBT Committee 930 4.2 Dispute Settlement 931 4.3 Technical Assistance 932 5 Summary 932

Further Readings

934

14 Sanitary and Phytosanitary Measures 935 1 Introduction 935 2 Scope of Application of the SPS Agreement 937 2.1 Measures to Which the SPS Agreement Applies 937 2.2 Entities Covered by the SPS Agreement 941 2.3 Temporal Scope of Application of the SPS Agreement 2.4 Relationship with Other WTO Agreements 943 3 Substantive Provisions of the SPS Agreement 944 3.1 Basic Principles 945 3.2 Goal of Harmonisation 951 3.3 Obligations Relating to Risk Assessment 955 3.4 Obligations Relating to Risk Management 961 3.5 Provisional Measures and the Precautionary Principle 3.6 Other Substantive Provisions 973 4 Institutional and Procedural Provisions of the SPS Agreement 983 4.1 SPS Committee 983 4.2 Dispute Settlement 985 4.3 Technical Assistance 989 5 Summary 990 Further Readings 992 15 Intellectual Property Rights 993 1 Introduction 994 2 The Origins and Objectives of the TRIPS Agreement 994 2.1 Origins of the TRIPS Agreement 995 2.2 Objectives and Principles of the TRIPS Agreement 996

942

967

xiii Contents

3 Scope of Application of the TRIPS Agreement 998 3.1 Substantive Scope of Application 998 3.2 Temporal Scope of Application 1000 4 General Provisions and Basic Principles of the TRIPS Agreement 1001 4.1 Relationship between the TRIPS Agreement and

WIPO Conventions

1002

4.2 The National Treatment Obligation 1003 4.3 The Most-Favoured-Nation Treatment Obligation 1009 4.4 Exhaustion of Intellectual Property Rights 1011 5 Substantive Protection of Intellectual Property Rights 1013 5.1 Copyright and Related Rights 1013 5.2 Trademarks 1021 5.3 Geographical Indications 1029 5.4 Patents 1033 6 Enforcement of Intellectual Property Rights 1042 6.1 General Obligations 1043 6.2 Civil and Administrative Procedures and Remedies 1044 6.3 Provisional Measures and Border Measures 1046 6.4 Criminal Procedures 1047 6.5 Acquisition and Maintenance of Intellectual Property Rights 1047 7 Institutional and Procedural Provisions of the TRIPS Agreement 1048 7.1 Council for TRIPS 1048 7.2 Transparency 1049 7.3 Dispute Settlement 1049 8 Special and Differential Treatment of Developing-Country Members 1051 8.1 Transitional Periods 1051 8.2 Technical Assistance and Transfer of Technology 1053 9 Summary 1054

Further Readings Index

1057

1056

F I G U RE S

1.1 Ratio of global trade in merchandise and commercial services to global GDP (1990–2015) 8 1.2 Ratio of trade in merchandise and commercial services to GDP for selected countries (1990–2015) 9 2.1 WTO organisation chart 129 2.2 Programme of WTO meetings in March 2016 130 2.3 Proposed agenda for the meeting of the General Council of 3–4 October 2016 132 2.4 WTO Secretariat organisation chart 145 3.1 Agenda of the DSB meeting of 26 September 2016 211 3.2 Flowchart of the WTO dispute settlement process 247 5.1 Excerpt from the Services Schedule of the European Union and its Member States 401 6.1 Excerpt from the customs tariff of India, 2015–16 421 6.2 Sixty years of GATT/WTO tariff reductions 424 6.3 Excerpt from the EU Goods Schedule 439 6.4 Tariff rates: bound and applied 447 7.1 Excerpt from the Schedule of Specific Commitments of Brazil 529 9.1 ‘Increased imports’ requirement: example 1 637 9.2 ‘Increased imports’ requirement: example 2 637

xiv

P R E FAC E

Four years have passed since the publication of the third edition of this book. These four years were marked by the demise of the Doha Round negotiations, challenges to the WTO dispute settlement system, a further proliferation of regional trade agreements and growing hostility towards economic globalisation and international trade. The fourth edition of this book has been updated and revised to reflect the developments in WTO law and policy up to 31 October 2016. This fourth edition has also been restructured with the intention to make it user-friendlier for both students and practitioners. For the first time, this edition includes at the end of each chapter a ‘Further Readings’ section. Also, this edition is accompanied by an on-line supplement, containing questions, assignments and exercises, which will be regularly updated and may assist students (and practitioners) to further their understanding of WTO law and policy. I was very lucky to find, once again, Werner Zdouc willing to share the burden of updating, revising and restructuring this book, and act as a co-author of the fourth edition. Werner focused primarily on Chapters 11 (Dumping) and 12 (Subsidies). However, we both reviewed and sign for all chapters. This book reflects the current state of WTO law. We do not express any opinion on how issues not yet adjudicated should be decided or, more broadly, how WTO law should develop in the future. Where we quote or refer to various and often divergent statements of negotiators, academics or other eminent experts, we do so in order to give the reader a full picture of open debates. It is evident that the description of the current state of WTO law contained in this book is to be attributed to the authors in their private capacity and does not represent the views of the Appellate Body or the WTO. As was the case with the previous editions, this fourth edition benefited from the advice, comments and suggestions of many. Werner and I would like to thank in particular Parika Ganeriwal for her invaluable research and editorial work on this edition. We also owe thanks to Iveta Alexovicová, Miguel Burnier da Silveira, Kaarlo Castren, Svetlana Chobanova, Louis-Philippe Coulombe, xv